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Working Paper
Explaining the energy consumption portfolio in a cross-section of countries: are the BRICs different?
This paper uses disaggregated data from a broad cross-section of countries to empirically assess differences in energy consumption profiles across countries. We find empirical support for the energy ladder hypothesis, which contends that as an economy develops it transits away from a heavier reliance on traditional fuel sources towards an increase in the use of modern commercial energy sources. We also find empirical support for the hypothesis that structural transformation--the idea that as an economy matures, it transforms away from agriculture-based activity into industrial activity and, ...
Working Paper
Commodity price movements in a general equilibrium model of storage
We embed the canonical rational expectations competitive storage model into a general equilibrium framework thereby allowing the non-linear commodity price dynamics implied by the competitive storage model to interact with the broader macroeconomy. Our main result is that the endogenous movement in interest rates implied under general equilibrium enhances the effects of competitive storage on commodity prices. Compared to a model in which the real interest rate is fixed, we find that storage in general equilibrium leads to more persistence in commodity prices and somewhat lower volatility. ...
Working Paper
Efficient Mismatch
This paper presents a model in which mismatch employment arises in a constrained efficient equilibrium. In the decentralized economy, however, mismatch gives rise to a congestion externality whereby heterogeneous job seekers fail to internalize how their individual actions affect the labor market outcomes of competitors in a common unemployment pool. We provide an analytic characterization of this distortion, assess the distributional nature of the associated welfare effects, and relate it to the relative productivity of low- and high-skilled workers competing for similar jobs.
Report
COVID Response: The Main Street Lending Program
The Main Street Lending Program was created to support credit to small and medium-sized businesses and nonprofit organizations that were harmed by the pandemic, particularly those that were unsupported by other pandemic-response programs. It was the most direct involvement in the business loan market by the Federal Reserve since the 1930s and 1940s. Main Street operated by buying 95 percent participations in standardized loans from lenders (mostly banks) and sharing the credit risk with them. It would end up supporting loans to more than 2,400 borrowers and co-borrowers across the United ...
Working Paper
Private and Public Liquidity Provision in Over-the-Counter Markets
We show that trade frictions in OTC markets result in inefficient private liquidity provision. We develop a dynamic model of market-based financial intermediation with a two-way interaction between primary credit markets and secondary OTC markets. Private allocations are generically inefficient because investors and firms fail to internalize how their actions affect liquidity in secondary markets. This inefficiency can lead to liquidity that is suboptimally low or high compared to the second best. Our analysis provides a rationale for the regulation and public provision of liquidity and the ...
Working Paper
Central Bank Communication with a Financial Stability Objective
An endogenous financial crisis is introduced into the canonical model used to study central bank transparency. The central bank is endowed with private information about the real economy and credit conditions which jointly determine financial vulnerabilities. An optimal choice is made regarding whether to communicate this information to the public. A key finding is that the optimal communication strategy depends on the state of the credit cycle and the composition of shocks driving the cycle. From a policy perspective, this raises the possibility that central bank communication in the ...
Working Paper
Optimal inflation in an open economy with imperfect competition
This paper uses a two-country, monetary general equilibrium model with imperfect competition to study the optimal rate of inflation in an open economy. In contrast with the closed economy literature, when policy is set non-cooperatively in the open economy, the optimality of the Friedman rule is not a general result. Monetary authorities face an incentive to use the inflation tax to gain a "beggar-thy-neighbor" advantage over the terms of trade. Strategic use of the inflation tax, however, results in coordination failure. International monetary cooperation helps to mitigate this ...
Working Paper
A Macroprudential Perspective on the Regulatory Boundaries of U.S. Financial Assets
This paper uses data from the Financial Accounts of the United States to map out the regulatory boundaries of assets held by U.S. financial institutions from a macroprudential perspective. We provide a quantitative measure of the regulatory perimeter—the boundary between the part of the financial sector that is subject to some form of prudential regulatory oversight and that which is not—and show how it has evolved over the past forty years. Additionally, we measure the boundaries between different regulatory agencies and financial institutions that operate within the regulatory perimeter ...
Working Paper
The Welfare Costs of Skill-Mismatch Employment
Skill-mismatch employment occurs when high-skilled individuals accept employment in jobs for which they are over-qualified. These employment relationships can be beneficial because they allow high-skilled individuals to more rapidly transition out of unemployment. They come at the cost, however, in the form of lower wage compensation. Moreover, an externality arises as high-skilled individuals do not take into account the effect that their search activity in the market for low-tech jobs has on low-skilled individuals. This paper presents a tractable general equilibrium model featuring ...
Report
The Main Street Lending Program
The Main Street Lending Program was created to support credit to small and medium-sized businesses and nonprofit organizations that were harmed by the pandemic, particularly those that were unsupported by other pandemic-response programs. It was the most direct involvement in the business loan market by the Federal Reserve since the 1930s and 1940s. Main Street operated by buying 95 percent participations in standardized loans from lenders (mostly banks) and sharing the credit risk with them. It would end up supporting loans to more than 2,400 borrowers and co-borrowers across the United ...