Board of Governors of the Federal Reserve System
Recent publications
Economists in the U.S. Federal Trade Commission’s Bureau of Economics perform economic analysis in support of the Commission’s dual missions to protect consumers and competition by preventing anticompetitive, deceptive, and unfair business practices through law enforcement, advocacy, and education. This article first presents summaries of analyses that FTC economists performed to estimate the consumer harm from two different types of deception that involved misleading information about lease terms and suppression of negative product reviews. The essay next turns to economic analyses of mergers: We first consider the vertical issues that arose in a semiconductor merger; and then we provide a discussion of how complementarity between hospitals may affect the analysis of hospital mergers.
Women had larger increases in labor force exits than men during the COVID-19 pandemic, and increases were particularly large among women living with children. After controlling for detailed job and demographic characteristics, we find that the pandemic led to significant excess labor force exits among women living with children under age six. We also find evidence of larger increases in exits among lower-earning women living with school-aged children. The presence of children also predicted larger increases in exits during the pandemic among Latina and Black women relative to White women. Overall, we find evidence that pandemic induced disruptions to childcare, including informal care from family and friends, led to additional labor force exits by lower earning women and women of color. JEL Numbers: J16, J70, H31, I14, I18
We discuss the ivcrc command, which implements an instrumental-variables (IV) estimator for the linear correlated random-coefficients model. The correlated random-coefficients model is a natural generalization of the standard linear IV model that allows for endogenous, multivalued treatments and unobserved heterogeneity in treatment effects. The estimator implemented by ivcrc uses recent semiparametric identification results that allow for flexible functional forms and permit instruments that may be binary, discrete, or continuous. The ivcrc command also allows for the estimation of varying-coefficient regressions, which are closely related in structure to the proposed IV estimator. We illustrate the use of ivcrc by estimating the returns to education in the National Longitudinal Survey of Young Men.
Typical censoring models have mass points at the upper or lower tails, or at both tails, of an otherwise continuous outcome distribution. In contrast, we consider a censoring model with a mass point in the interior of the outcome distribution. We refer to this mass point as “bunching” and use it to estimate model parameters. For example, economic theory suggests that, for increasing marginal income tax rates, many taxpayers will report income exactly at the threshold where the tax rate increases. This translates into a censoring model with bunching at the threshold. The size of this mass point of taxpayers can be used to estimate an elasticity parameter that summarizes taxpayers’ responses to taxes. In this article, we introduce the command bunching, which implements new nonparametric and semiparametric identification methods for estimating elasticities developed by Bertanha, McCallum, and Seegert (2021, Technical Report 2021-002, Board of Governors of the Federal Reserve System). These methods rely on weaker assumptions than what are currently made in the literature and result in meaningfully different estimates of the elasticity.
Elementary portfolio theory implies that environmentalists optimally hold more shares of polluting firms than non-environmentalists, and that polluting firms attract more investment capital than otherwise identical non-polluting firms through a hedging channel. Pigouvian taxation can reverse the aggregate investment results, but environmentalists still overweight polluters. We introduce countervailing motives for environmentalists to underweight polluters, comparing the implications when environmentalists coordinate to internalize pollution, or have nonpecuniary disutility from holding polluter stock. With nonpecuniary disutility, introducing a green derivative may dramatically alter who invests most in polluters, but has no impact on aggregate pollution.
This paper determines optimal public debt in a life cycle model with incomplete markets that matches the empirically observed variation in consumption, labor, and savings. We find that public savings—not public debt—equal to 168 percent of output is optimal, primarily due to the influence of the life cycle on household decision-making. By inducing a lower interest rate, public savings slow consumption and leisure growth over an average household’s lifetime, and the resulting flatter allocation of lifetime consumption and leisure improves welfare. These life cycle welfare benefits are large—on net, they outweigh the transitional costs from a tax-financed public debt elimination. (JEL D15, D52, E21, E43, E62, G51, H63)
We analyze reductions in bank credit using a natural experiment where unprecedented flooding in Pakistan differentially affected banks that were more exposed to the floods. Using a unique data set that covers the universe of consumer loans in Pakistan and this exogenous shock to bank funding, we find two key results. First, following an increase in their funding costs, banks disproportionately reduce credit to borrowers with little education, little credit history, and seasonal occupations. Second, the credit reduction is not compensated by relatively more lending by less-affected banks. The empirical evidence suggests that a reduction in bank monitoring incentives caused the large relative decreases in lending to these borrowers.
We study whether institutional investors that sign the Principles for Responsible Investment (PRI), a commitment to responsible investing, exhibit better portfolio-level environmental, social, and governance (ESG) scores. Signatories outside of the USA have superior ESG scores than nonsignatories, but US signatories have at best similar ESG ratings, and worse scores if they have underperformed recently, are retail-client facing, and joined the PRI late. US signatories do not improve the ESG scores of portfolio companies after investing in them. Commercial motives, uncertainty about fiduciary duties, and lower ESG market maturity explain why US-domiciled PRI signatories do not follow through on their responsible investment commitments.
Biodiversity in ecosystems plays an important role in supporting human welfare, including regulating the transmission of infectious diseases. Many of these services are not fully-appreciated due to complex environmental dynamics and lack of baseline data. Multicontinental amphibian decline due to the fungal pathogen Batrachochytrium dendrobatidis (Bd) provides a stark example. Even though amphibians are known to affect natural food webs—including mosquitoes that transmit human diseases—the human health impacts connected to their massive decline have received little attention. Here we leverage a unique ensemble of ecological surveys, satellite data, and newly digitized public health records to show an empirical link between a wave of Bd-driven collapse of amphibians in Costa Rica and Panama and increased human malaria incidence. Subsequent to the estimated date of Bd-driven amphibian decline in each ‘county’ (canton or distrito), we find that malaria cases are significantly elevated for several years. For the six year peak of the estimated effect, the annual expected county-level increase in malaria ranges from 0.76 to 1.1 additional cases per 1000 population. This is a substantial increase given that cases country-wide per 1000 population peaked during the timeframe of our study at approximately 1.5 for Costa Rica and 1.1 for Panama. This previously unidentified impact of biodiversity loss illustrates the often hidden human welfare costs of conservation failures. These findings also show the importance of mitigating international trade-driven spread of similar emergent pathogens like Batrachochytrium salamandrivorans.
This paper studies the degree to which observable and unobservable worker characteristics account for the variation in the aggregate duration of unemployment. I model the distribution of unobserved worker heterogeneity as time varying to capture the interaction of latent attributes with changes in labor‐market conditions. Unobserved heterogeneity is the main explanation for the duration dependence of unemployment hazards. Both cyclical and low‐frequency variations in the mean duration of unemployment are mainly driven by one subgroup: workers who, for unobserved reasons, stay unemployed for a long time. In contrast, changes in the composition of observable characteristics of workers have negligible effects.
We show that newly hired workers earn higher wages in response to higher firm leverage. Consistent with compensating differential models, these higher wages appear to reflect compensation for the risk of earnings losses in the event of financial distress. For tenured workers, increases in leverage are not associated with higher wages. Our findings suggest that the wage costs of debt and optimal capital structure for a firm depend on expected employee turnover, as well as on the firm’s future growth and hiring plans. Variation in local labor market conditions also significantly affects the relationship between firm leverage and employee pay. (JEL G32, G33, J21, J31, J61) Received June 11, 2019; editorial decision July 19, 2022 by Editor Andrew Ellul. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
We study private equity in a dynamic general equilibrium model and ask two questions: (i) Why does the investment of venture funds respond more strongly to the business cycle than that of buyout funds? (ii) Why are venture fund returns higher than those of buyout? On (i), venture brings in new capital whereas buyout largely reorganizes existing capital; this can explain the stronger co-movement of venture with aggregate Tobin’s Q. On (ii), the cost of reorganized capital has been high compared to new capital. Our model embodies this logic and fits the data on investment and returns well. At the estimated parameters, the two PE sectors together contribute between 7 and 11% of observed growth relative to the extreme case where private equity is absent. Using an alternative plausible measure of PE excess returns in the literature, this contribution could be as low as 5.8–9.7%.
We introduce a new dataset of real gross domestic product (GDP) growth and core personal consumption expenditures (PCE) inflation forecasts produced by the staff of the Board of Governors of the Federal Reserve System. In contrast to the eight Greenbook forecasts a year the staff produce for Federal Open Market Committee (FOMC) meetings, our dataset has roughly weekly forecasts. We use these data to study whether the staff forecasts efficiently. Prespecified regressions of forecast errors on forecast revisions show the staff's GDP forecasts exhibit time‐varying inefficiency between FOMC meetings, and also show some evidence for inefficient inflation forecasts.
Households consistently invest less in equities and bonds than predicted by economic theory. We explain this from a behavioral economics perspective and distributional analysis using rich US survey microdata. We find that higher investor self-confidence in her financial abilities and financial literacy jointly increase the probability of investing in equities. Conditional on participation, confidence in the macroeconomy additionally drives portfolio shares in equities. We extend the existing research to bonds, for which these relationships are weaker. Unconditional quantile regression estimates reveal substantial heterogeneity in effects across the distribution of bond holdings. These relationships are not explained by risk preferences. Our results are consistent with lack of investor self-confidence, or fear of risk, posing a barrier to investing in risky assets, particularly for stock market participation. Promoting investor self-confidence along with financial literacy potentially encourages more diversified household portfolios.
This paper discusses how to successfully digitize large-scale historical micro-data by augmenting optical character recognition (OCR) engines with pre- and post-processing methods. Although OCR software has improved dramatically in recent years due to improvements in machine learning, off-the-shelf OCR applications still present high error rates which limit their applications for accurate extraction of structured information. Complementing OCR with additional methods can however dramatically increase its success rate, making it a powerful and cost-efficient tool for economic historians. This paper showcases these methods and explains why they are useful. We apply them against two large balance sheet datasets and introduce quipucamayoc, a Python package containing these methods in a unified framework.
This paper examines the relationship between export churning and the aggregate response to trade policy. I show that export churning—the share of bilateral exports by new or exiting exporters–varies systematically across export destinations and build a multi‐country model with destination‐specific investments in exporting capacity that is consistent with churning patterns. The model then predicts that trade liberalizations with minor export destinations deliver higher bilateral export growth than liberalizations with major export destinations, and the data support this prediction. Furthermore, the aggregate effects of trade policy depend critically on the pattern of export churning in the model. This article is protected by copyright. All rights reserved
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185 members
Peter von zur Muehlen
  • Research and Statistics
Olesya V. Grishchenko
  • Division of Monetary Affairs
Michele Modugno
  • Division of Financial Stability
Jane Ihrig
  • Division of Monetary Affairs
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