Search

Begin New Search Political Geography United States of America Publishing Institution Board of Governors of the Federal Reserve System

21. Trade Reforms, Foreign Competition, and Labor Market Adjustments in the U.S.

Author:
Illenin O. Kondo
Publication Date:
12-2013
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Using data on trade-induced displacements, this paper documents that locations facing more foreign competition in the U.S. have: higher job destruction rates, lower job creation rates, and thereby lower employment rates. In contrast to standard trade theory, a model with variable markups and heterogeneous segmented labor markets is consistent with these facts. Foreign competition has a correlated effect on job destruction and job creation precisely because the most vulnerable locations also have lower productivity. Following an unexpected trade liberalization with limited mobility, employment sharply falls in the worse hit locations while welfare and employment increase in the aggregate.
Topic:
Foreign Exchange, International Trade and Finance, Reform, and Labor Market
Political Geography:
North America and United States of America

22. Do Small Businesses Still Prefer Community Banks?

Author:
Allen N. Berger, William Goulding, and Tara Rice
Publication Date:
12-2013
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We formulate and test hypotheses about the role of bank type small versus large, single-market versus multimarket, and local versus nonlocal banks in banking relationships. The conventional paradigm suggests that "community banks" small, single market, local institutions are better able to form strong relationships with informationally opaque small businesses, while "megabanks" large, multimarket, nonlocal institutions tend to serve more transparent firms. Using the 2003 Survey of Small Business Finance (SSBF), we conduct two sets of tests. First, we test for the type of bank serving as the "main" relationship bank for small businesses with different firm and owner characteristics. Second, we test for the strength of these main relationships by examining the probability of multiple relationships and relationship length as functions of main bank type and financial fragility, as well as firm and owner characteristics. The results are often not consistent with the conventional paradigm, perhaps because of changes in lending technologies and deregulation of the banking industry.
Topic:
Business, Banks, Local, and Community
Political Geography:
North America and United States of America

23. Foreign Holdings of U.S. Treasuries and U.S. Treasury Yields

Author:
Daniel O. Beltran, Maxwell Kretchmer, Jaime Marquez, and Charles Thomas
Publication Date:
01-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Foreign official holdings of U.S. Treasuries increased from $400 billion in January 1994 to about $3 trillion in June 2010. Most of this growth is accounted for by a handful of emerging market economies that have been running large current account surpluses. These countries are channeling their savings through the official sector, which is then acquiring foreign exchange reserves. Any shift in policy to reduce their current account surpluses or dampen the rate of reserves accumulation would likely slow the pace of foreign official purchases of U.S. Treasuries. Would such a slowing of foreign official purchases of Treasury notes and bonds affect long-term Treasury yields? Most likely yes, and the effects appear to be large. By our estimates, if foreign official inflows into U.S. Treasuries were to decrease in a given month by $100 billion, 5-year Treasury rates would rise by about 40-60 basis points in the short run. But once we allow foreign private investors to react to the yield change induced by the shock to foreign official inflows, the long-run effect is about 20 basis points.
Topic:
Economics, International Cooperation, Foreign Direct Investment, and Fiscal Policy
Political Geography:
North America and United States of America

24. The Effect of TARP on Bank Risk-Taking

Author:
Lamont Black and Lieu Hazelwood
Publication Date:
03-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
One of the largest responses of the U.S. government to the recent financial crisis was the Troubled Asset Relief Program (TARP). TARP was originally intended to stabilize the financial sector through the increased capitalization of banks. However, recipients of TARP funds were then encouraged to make additional loans despite increased borrower risk. In this paper, we consider the effect of the TARP capital injections on bank risk taking by analyzing the risk ratings of banks’ commercial loan originations during the crisis. The results indicate that, relative to non-TARP banks, the risk of loan originations increased at large TARP banks but decreased at small TARP banks. Interest spreads and loan levels also moved in different directions for large and small banks. For large banks, the increase in risk-taking without an increase in lending is suggestive of moral hazard due to government ownership. These results may also be due to the conflicting goals of the TARP program for bank capitalization and bank lending.
Topic:
Governance, Interest Rates, Risk, Welfare, Capital, and Banking
Political Geography:
North America and United States of America

25. U.S. International Equity Investment and Past Prospective Returns

Author:
John Armmer, Sara B. Holland, David C Smith, and Francis E. Warnock
Publication Date:
03-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
U.S. investors are the largest group of international equity investors in the world, but to date conclusive evidence on which types of foreign firms are able to attract U.S. investment is not available. Using a comprehensive dataset of all U.S. investment in foreign equities, we find that the single most important determinant of the amount of U.S. investment a foreign firm receives is whether the firm cross-lists on a U.S. exchange. Correcting for selection biases, cross-listing leads to a doubling (or more) in U.S. investment, an impact greater than all other factors combined. We also show that our firm-level analysis has implications for country-level studies, suggesting that research investigating equity investment patterns at the country-level should include cross-listing as an endogenous control variable. We describe easy-to-implement methods for including the importance of cross-listing at the country level.
Topic:
International Cooperation, Exchange Rate Policy, Investment, and Equity
Political Geography:
North America and United States of America

26. When Good Investments Go Bad: The Contraction in Community Bank Lending After the 2008 GSE Takeover

Author:
Tara Rice and Jonathan Rose
Publication Date:
03-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
n September 2008, the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac were placed into conservatorship and dividend payments on common and preferred shares were suspended. As a result, share prices fell to nearly zero and many banks across the country lost the value of their investments in the preferred shares. We estimate more than 600 depository institutions in the United States were exposed to at least $8 billion in investment losses from these securities. In addition, fifteen failures and two distressed mergers either directly or indirectly resulted from the takeover. Since these GSE investments were considered to be safe investments by banks, regulators, and rating agencies, we consider these losses to be exogenous shocks to bank capital, and use this event to examine the relationship between community bank condition and lending during this crisis. We find that in the quarter following the takeover of Fannie Mae and Freddie Mac, the measured Tier 1 capital ratio at exposed banks fell about three percent on average, and loan growth at exposed banks with median capitalization was about 2 percentage points lower compared to other banks in the following quarter. Consequently, considering the set of community banks that incurred about $2 billion in GSE-related losses, and assuming that each bank reduced loan growth by 2 percentage points, the estimated aggregate lending drop among these banks would be roughly $4 billion.
Topic:
Investment, Lending, Banking, and Banking Crisis
Political Geography:
North America and United States of America

27. Do Oil Prices Help Forecast U.S. Real GDP? The Role of Nonlinearities and Asymmetries

Author:
Lutz Kilian and Robert J. Vigfusson
Publication Date:
06-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
There is a long tradition of using oil prices to forecast U.S. real GDP. It has been suggested that the predictive relationship between the price of oil and one-quarter ahead U.S. real GDP is nonlinear in that (1) oil price increases matter only to the extent that they exceed the maximum oil price in recent years and that (2) oil price decreases do not matter at all. We examine, first, whether the evidence of in-sample predictability in support of this view extends to out-of-sample forecasts. Second, we discuss how to extend this forecasting approach to higher horizons. Third, we compare the resulting class of nonlinear models to alternative economically plausible nonlinear specifications and examine which aspect of the model is most useful for forecasting. We show that the asymmetry embodied in commonly used nonlinear transformations of the price of oil is not helpful for out-of-sample forecasting; more robust and more accurate real GDP forecasts are obtained from symmetric nonlinear models based on the three-year net oil price change. Finally, we quantify the extent to which the 2008 recession could have been forecast using the latter class of time-varying threshold models.
Topic:
Energy Policy, Oil, Natural Resources, GDP, and Price
Political Geography:
North America and United States of America

28. U.S. Real Interest Rates and Default Risk in Emerging Economies

Author:
Nathan Foley-Fisher and Bernardo Guimaraes
Publication Date:
08-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper empirically investigates the impact of changes in U.S. real interest rates on sovereign default risk in emerging economies using the method of identification through heteroskedasticity. Policy-induced increases in U.S. interest rates starkly raise default risk in emerging market economies. However, the overall correlation between U.S. real interest rates and the risk of default is negative, demonstrating that the effects of other variables dominate the anterior relationship.
Topic:
Economics, Interest Rates, Risk, and Fiscal Policy
Political Geography:
North America and United States of America

29. Heterogeneous Workers, Optimal Job Seeking, and Aggregate Labor Market Dynamics

Author:
Brandan Epstein
Publication Date:
08-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
In the United States, the aggregate vacancy-unemployment (V/U) ratio is strongly procyclical, and a large fraction of its adjustment associated with changes in productivity is sluggish. The latter is entirely unexplained by the benchmark homogeneous-agent model of equilibrium unemployment theory. I show that endogenous search and worker-side horizontal heterogeneity in production capacity can be important in accounting for this propagation puzzle. Driven by differences in unemployed and on-the-job seekers' search incentives, the probability that any given firm with a job opening matches with a worker endowed with a comparative advantage in that job exhibits a stage of procyclical slow-moving adjustment. Consequently, so do the expected gains from posting vacancies and, hence, the V/U ratio. The model has channels through which the majority of both the V/U ratio's sluggish-adjustment properties and its elasticity with respect to output per worker can be accounted for.
Topic:
Labor Issues, Employment, Business, Unemployment, and Labor Market
Political Geography:
North America and United States of America

30. The Return on U.S. Direct Investment at Home and Abroad

Author:
Stephanie E. Curcuru and Charles Thomas
Publication Date:
10-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
A longstanding puzzle is that the United States is a net borrower from the rest of the world, yet continues to receive income on its external position. A large difference between the yields on direct investment at home and abroad is responsible and this paper examines potential explanations for this differential. We find that most of the differential disappears after one adjusts for the U.S. taxes owed by the parent on foreign earnings, the sovereign risk and sunk costs associated with investing abroad, and the age of foreign direct investment in the U.S.. Taken together, our results suggest most of the difference in yields should remain as long as there is a difference in tax rates between the United States and the countries in which U.S. firms invest, and U.S. investments are perceived as relatively safe. This has implications for the long-run sustainability of the U.S. current account deficit which will depend, in part, on the long-run behavior of this income.
Topic:
Economics, International Cooperation, Foreign Direct Investment, Tax Systems, and Investment
Political Geography:
North America and United States of America