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Series:Economic Policy Paper  Bank:Federal Reserve Bank of Minneapolis 

Journal Article
Quantifying the costs of additional regulation on community banks
In this Economic Policy Paper, we quantify the cost of increased regulation on community banks. We do so by modeling the impact of new regulatory costs as the hiring of additional staff, resulting in higher total compensation and lower profitability. We then analyze the changes in the distribution of community bank profitability.
AUTHORS: Feldman, Ron J.; Schmidt, Jason; Heinecke, Ken
DATE: 2013

Journal Article
Accounting for the Great Recession
AUTHORS: Ohanian, Lee E.
DATE: 2011

Journal Article
How Rich Will China Become?
China?s impressive economic growth since the 1980s raises the question of how much richer it will become over future decades. Its growing share of the world economy affects other national economies. Understanding the future course of the Chinese economy is therefore important for both fiscal and monetary policymaking in the United States and elsewhere. Using fundamental growth theory, data from China and from Korea and Japan?s similar ?miracle? growth experiences, we provide a suggestive calculation for China?s future per capita income. Our ballpark estimate is that China?s per capita income relative to that of the United States will grow by a factor of two to three over the next half-century.
AUTHORS: Yi, Kei-Mu; Jiang, Jingyi
DATE: 2015-05-20

Journal Article
Taxing Wealth
Some have proposed wealth taxation as a means of reducing economic inequality, but such proposals are premature. While economic theory and data measurement have solid grounding when analyzing other forms of taxation, such as income or sales taxes, this is not the case for wealth Total estimates of the two most widely used measures of wealth, fixed assets and net worth, vary widely over the six decades for which data are available. Trend lines in these two wealth measures are rarely correlated. In addition, the relationship between the two?and explanation of why they differ so radically?remains a theoretical puzzle for economists. Given this state of affairs, accurate predictions for the impact, and design, of wealth taxation policies are not yet possible.
AUTHORS: McGrattan, Ellen R.
DATE: 2015-03-24

Journal Article
New manufacturing investment and unions
Despite recent media stories about both labor unions and the potential revitalization of U.S. manufacturing, most current policy discussions about improving business climate to foster manufacturing neglect the role of unions. This, plus the continued decline in U.S. union membership, might lead one to believe that unions matter little for new investment decisions. This essay argues that, in fact, unions remain an extremely significant factor in decisions by U.S. manufacturers about where they will or will not make new investments. Both unions and manufacturing are discussed in an analysis that distinguishes between new investment at new plants and at existing plants.
AUTHORS: Holmes, Thomas J.
DATE: 2013

Journal Article
A sharp drop in interstate migration? not really
AUTHORS: Schulhofer-Wohl, Sam; Kaplan, Greg
DATE: 2011

Journal Article
Who Defaults on Their Mortgage, and Why? Policy Implications for Reducing Mortgage Default
To design mortgage modification policies that successfully stem default and allow borrowers to keep their homes, policymakers need to understand why borrowers default. Is it because they?re truly unable to pay, or are they able to pay but have negative equity? {{p}} New research finds that both motives were important during the Great Recession, but that ability to pay plays the greater role, accounting for over 60 percent of defaults. Moreover, the analysis?which matches borrowers? income, employment, and assets with their mortgage characteristics and payment status?shows that cash-strapped borrowers are more than seven times as likely to default as borrowers with strong ability to pay. {{p}} These findings indicate that when borrowers suffer an income reduction, mortgage modification policies that reduce monthly payments to an affordable range are likely to be effective in preventing future defaults.
AUTHORS: Ohanian, Lee E.
DATE: 2017-09-13

Journal Article
On the Ethics of Redistribution
Analysts of optimal policy often advocate for redistributive policies within developed economies using a behind-the-veil-of-ignorance criterion. Such analyses almost invariably ignore the effects of these policies on the well-being of people in poor countries. We argue that this approach is fundamentally misguided because it violates the criterion itself.
AUTHORS: Chari, V. V.; Phelan, Christopher
DATE: 2015-07-29

Journal Article
Monetary Policy and Employment
In its ?Statement on Longer-Run Goals and Monetary Policy Strategy,? the Federal Open Market Committee (Federal Reserve Board of Governors, 2014) summarizes its two main objectives: to mitigate (i) deviations of inflation from its longer-run goal and (ii) deviations of employment from the Federal Open Market Committee?s assessment of its maximum level. In the case of employment, the statement acknowledges that ?the maximum level ... is largely determined by nonmonetary factors,? which is why the FOMC sets no fixed goal for the employment level. It instead depends on the Committee?s ?assessment.? In this paper, I investigate the link between monetary policy and employment using predictions of current monetary theory. The results show that even with the extraordinary monetary accommodation provided by the Fed since 2008, theory predicts only a small impact of monetary policy on employment. Other research suggests that to understand what does impact employment levels and hours worked, economic theory should be modified to account for factors that impact labor-leisure decisions.
AUTHORS: McGrattan, Ellen R.
DATE: 2015-09-23

Journal Article
On the Importance of Easing Consumer Credit Frictions
The vast bulk of the government financial interventions during the Great Recession was directed at helping banks weather the financial crisis. The design of these programs was heavily influenced by the view that helping banks preserve their means of providing finance to firms was the most important ingredient in ensuring a quick recovery from the crisis. We argue that the cross-state patterns of employment, output and debt in the United States suggest that financial frictions that led to a tightening of credit to consumers were more important in accounting for the recession than those that led to a tightening of credit to firms. Our analysis implies that policies designed to ease consumer credit conditions would have been more effective at ensuring a rapid recovery than the policies actually adopted that focused on easing firm credit conditions.
AUTHORS: Kehoe, Patrick J.; Midrigan, Virgiliu; Pastorino, Elena
DATE: 2017-12-21

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