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Economic Research

Does U.S. Health Inequality Reflect Income Inequality—or Something Else?
The author explores the state of life-expectancy inequality in the United States and examines some of the factors underlying its evolution over the past several decades. He describes evidence that inequality in life expectancy in the United States is growing and that it has become increasingly correlated with income.
By Maxim Pinkovskiy
From the Vault: A Look Back at the October 15, 2014, Flash Rally
Five years ago today, U.S. Treasury yields plunged and then quickly rebounded for no apparent reason amid high volatility, strained liquidity conditions, and record trading volume. This “flash rally” led to several developments including the introduction of a new Treasury transactions reporting scheme. The authors revisit the episode, sharing links on related posts in the Liberty Street Economics archive.
By Michael J. Fleming, Peter Johansson, Frank M. Keane, and Justin Meyer
Is Free College the Solution to Student Debt Woes?
Given the rising cost of college and the increased prevalence of tuition-subsidy programs, it’s important to understand the effects of such programs on students and whether these effects vary by demographics. This post reports preliminary findings from ongoing work that is one of the first research initiatives to understand such effects.
By Rajashri Chakrabarti, William Nober, and Wilbert van der Klaauw
Who Borrows for College—and Who Repays?
Student loan debt is a growing focus of discourse that has produced many new ideas to address the swelling aggregate student debt. This post explores the substantial variation in the experiences of student loan borrowers and considers the distributional effects of various policy options.
By Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw
Job Ladders and Careers
Why do some individuals experience much steeper earnings profiles than others? The authors conclude that there are large differences in the career trajectory of individuals given that those with low incomes have a higher risk of job loss, take longer to find jobs, and have a much lower likelihood of being contacted by better employers. One interpretation of their findings is that shocks that occur early in a career, such as unemployment, put workers on a trajectory with lower expected wage growth
By Fatih Karahan, Brendan Moore, and Serdar Ozkan
Spatial Wage Gaps and Frictional Labor Markets
The authors develop a novel job-ladder model that allows labor to reallocate across both firms and space. They apply their framework to analyze data on the persistent wage gap between East and West Germany. The authors find that location matters and therefore carefully measure the frictions contributing to the lack of worker mobility across space.
Sebastian Heise and Tommaso Porzio, Staff Report 898, October 2019
Do Monetary Policy Announcements Shift Household Expectations?
The authors use daily survey data from Gallup to assess whether households' beliefs about economic conditions are influenced by surprises in monetary policy announcements. They find that surprises about the federal funds target rate have statistically significant and instantaneous effects on economic confidence. In contrast, surprises about forward guidance and asset purchases do not have similar effects on household beliefs, perhaps because they are less well understood.
Daniel J. Lewis, Christos Makridis, and Karel Mertens, Staff Report 897
Firm-to-Firm Relationships and the Pass-Through of Shocks: Theory and Evidence
Using transaction-level U.S. import data, the author shows that a firm-to-firm relationship’s price becomes more responsive to exchange rate shocks both as the relationship ages and as it trades more intensively. To understand how old relationships differ from new ones, the author documents a set of stylized facts about the life cycle of a relationship. His findings suggest that aggregate mark-ups and the responsiveness of prices to shocks co-vary negatively with an economy’s relationship creation rate, which falls in recessions.
Sebastian Heise, Staff Report 896, August 2019
Corporate Credit Provision
Productive firms can access credit markets directly by issuing corporate bonds, or in an intermediated manner by borrowing through loans. The authors study the cyclical properties of corporate credit provision through these two types of debt instruments in major advanced economies. They argue that the cyclicality of corporate credit is intimately related to the cyclicality of the types of financial intermediaries active in the provision of credit.
Nina Boyarchenko and Philippe Mueller, Staff Report 895, August 2019
A Dynamic Theory of Collateral Quality and Long-Term Interventions
Although collateralization typically increases capital market liquidity, negative shocks to collateral quality may lead to sharp increases in borrowing costs and market breakdowns. This has motivated regulators to intervene in asset markets and lower policy rates to support lending activity. The authors develop a dynamic model where lending is subject to adverse selection and collateral quality is persistent but determined by hidden effort. Their framework offers a laboratory to study the dynamic effects of regulatory interventions.
Michael Junho Lee and Daniel Neuhann, Staff Report 894, August 2019
Online Estimation of DSGE Models
As the DSGE models used by central banks become more complex, improved algorithms for Bayesian computations are necessary. The authors provide a framework for performing parallel and online estimation of DSGE models using sequential Monte Carlo (SMC) techniques. Rather than starting from scratch each time a DSGE model has to be re-estimated, the SMC algorithm makes it possible to mutate and re-weight posterior draws from an earlier estimation so that they approximate a new posterior based on additional observations.
Michael Cai, Marco Del Negro, Edward Herbst, Ethan Matlin, Reca Sarfati, and Frank Schorfheide, Staff Report 893, August 2019
Who Sees the Trades? The Effect of Information on Liquidity in Inter-Dealer Markets
The authors focus on how differences in the availability of post-trade information from the market-making stage in the inter-dealer market impact overall market liquidity. They consider exogenous information disclosure policies first and then examine what might result from the strategic sale of post-trade information.
Rodney J. Garratt, Michael Junho Lee, Antoine Martin, and Robert M. Townsend, Staff Report 892, July 2019
Tying Down the Anchor: Monetary Policy Rules and the Lower Bound on Interest Rates
This paper uses a standard New Keynesian model to analyze the effects and implementation of various monetary policy frameworks in the presence of a low natural rate of interest and a lower bound on interest rates.
Thomas M. Mertens and John C. Williams, Staff Report 887, May 2019