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Working Paper
Risk Management in Monetary Policymaking: The 1994-95 Fed Tightening Episode
Kliesen, Kevin L. (2023-12)
The 1994-95 Fed tightening episode was one of the most notable in the Fed’s history. First, the FOMC raised the policy rate by 300 basis points in a year, even though headline and core inflation were trending lower prior to the liftoff that occurred in February 1994. Second, the Fed’s actions caught the Treasury market by surprise, triggering a sharp decline in long-term bond prices. Third, Fed Chair Alan Greenspan and the Federal Open Market Committee were regularly surprised that inflation was not rising by more than the forecasts suggested during the episode. This article presents some ...
Working Papers , Paper 2023-030

Report
Manufacturing Gains from Green Energy and Semiconductor Spending since the CHIPS and Inflation Reduction Acts
Barbiero, Omar (2024-11-19)
Real investment—spending (net of inflation) on nonresidential construction, manufacturing equipment, and intellectual property products (IPP)—in the United States has grown substantially over the last few years despite the high-interest-rate environment that emerged in 2022 and is only now beginning to subside. The current strength of investment is important to policymakers because its sensitivity to interest rates makes it a key channel through which monetary policy is transmitted into the economy and because real private domestic investment constitutes 15 percent of US real GDP.
Current Policy Perspectives , Paper 2024-7

Journal Article
COVID-19: Fiscal Implications and Financial Stability in Developing Countries
Grittayaphong, Praew; Restrepo-Echavarria, Paulina (2023-07-14)
The COVID-19 pandemic has been unlike any other crisis that we have experienced in that it hit all economies in the world at the same time, compromising the risk-sharing ability of nations. At the onset of the pandemic, the World Bank (WB) and the International Monetary Fund (IMF) jointly pledged 1.16 trillion U.S. dollars to help emerging economies deal with COVID-19. Would this amount have been enough to preserve financial stability in a worst case scenario, and what were the fiscal implications of the pandemic? In this article we aim to answer these questions by documenting the size of the ...
Review , Volume 105 , Issue 3 , Pages 137-149

Working Paper
A threshold model of the US current account
Duncan, Roberto (2014-10-01)
What drives US current account imbalances? Is there solid evidence that the behavior of the current account is different during deficits and surpluses or that the size of the imbalance matters? Is there a threshold relationship between the US current account and its main drivers? We estimate a threshold model to answer these questions using the instrumental variable estimation proposed by Caner and Hansen (2004). Rather than concluding that the size or the sign of (previous) external imbalances matters, we find that time is the most important threshold variable. One regime exists before and ...
Globalization Institute Working Papers , Paper 202

Working Paper
Income Differences and Health Disparities: Roles of Preventive vs. Curative Medicine
Ozkan, Serdar (2024-08-28)
Using data from the Medical Expenditure Panel Survey (MEPS) I find that early in life the rich spend significantly more on health care, whereas from middle to very old age the poor outspend the rich by 25% in the US. Furthermore, while low-income individuals are less likely to incur medical expenses, they are more prone to experiencing extreme expenses when they do seek care. To account for these facts, I develop and estimate a life-cycle model of two types of health capital: physical and preventive. Physical health capital determines survival probabilities, whereas preventive health capital ...
Working Papers , Paper 2023-025

Working Paper
Financial Vulnerabilities, Macroeconomic Dynamics, and Monetary Policy
Modugno, Michele; Liang, J. Nellie; Lehnert, Andreas; Aikman, David (2016-07-07)
We define a measure to be a financial vulnerability if, in a VAR framework that allows for nonlinearities, an impulse to the measure leads to an economic contraction. We evaluate alternative macrofinancial imbalances as vulnerabilities: nonfinancial sector credit, risk appetite of financial market participants, and the leverage and short-term funding of financial firms. We find that nonfinancial credit is a vulnerability: impulses to the credit-to-GDP gap when it is high leads to a recession. Risk appetite leads to an economic expansion in the near-term, but also higher credit and a recession ...
Finance and Economics Discussion Series , Paper 2016-055

Working Paper
Labor Market Effects of Credit Constraints: Evidence from a Natural Experiment
Kumar, Anil; Liang, Che-Yuan (2019-05-16)
We exploit the 1998 and 2003 constitutional amendment in Texas—allowing home equity loans and lines of credit for non-housing purposes—as natural experiments to estimate the effect of easier credit access on the labor market. Using state-level as well as micro data and the synthetic control approach, we find that easier access to housing credit led to a notably lower labor force participation rate between 1998 and 2007. We show that our findings are remarkably robust to improved synthetic control methods based on insights from machine learning. We explore treatment effect heterogeneity ...
Working Papers , Paper 1810

Journal Article
So, Why Didn’t the 2009 Recovery Act Improve the Nation’s Highways and Bridges?
Dupor, Bill (2017)
Although the American Recovery and Reinvestment Act of 2009 (the Recovery Act) provided nearly $28 billion to state governments for improving U.S. highways, the highway system saw no significant improvement. For example, relative to the years before the act, the number of structurally deficient or functionally obsolete bridges was nearly unchanged, the number of workers on highway and bridge construction did not significantly increase, and the annual value of construction put in place for public highways barely budged. The author shows that as states spent Recovery Act highway grants, many ...
Review , Volume 99 , Issue 2 , Pages 169-182

Working Paper
Preventive vs. Curative Medicine: A Macroeconomic Analysis of Health Care over the Life Cycle
Ozkan, Serdar (2023-09-23)
This paper studies differences in health care usage and health outcomes between low- and high-income individuals. Using data from the Medical Expenditure Panel Survey (MEPS) I find that early in life the rich spend significantly more on health care, whereas from middle to very old age medical spending of the poor surpasses that of the rich by 25%. In addition, low-income individuals are less likely to incur any medical expenditures in a given year, yet, when they do, their expenses are more likely to be extreme. To account for these facts, I develop and estimate a life-cycle model of two ...
Working Papers , Paper 2023-025

Working Paper
The Consequences of Bretton Woods’ International Capital Controls and the High Value of Geopolitical Stability
Ohanian, Lee E.; Restrepo-Echavarria, Paulina; Van Patten, Diana; Wright, Mark L. J. (2022-09-28)
This paper quantifies the positive and normative effects of international capital controls on global and regional economic activity under The Bretton Woods international financial system and thereafter. A three region, open economy, DSGE capital flows accounting framework consisting of the U.S., Western Europe, and the Rest of the World, is developed to identify capital controls and quantify their impact. We find these controls had large positive and normative effects by restricting international capital flows. Counterfactual analyses show world output would have been 0.6% higher had there ...
Working Papers , Paper 2020-042

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