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Series:Working Papers (Old Series)  Bank:Federal Reserve Bank of Cleveland 

Working Paper
Disadvantaged business enterprise goals in government procurement contracting: an analysis of bidding behavior and costs
Programs that encourage the participation of disadvantaged business enterprises (DBE) as subcontractors have been a part of government procurement auctions for over three decades. In this paper, we examine the impact of a program that requires prime contractors to subcontract out a portion of a highway procurement project to DBE firms. We study how DBE subcontracting requirements affect bidding behavior in federally funded projects. Within a symmetric independent private value framework, we use the equilibrium bidding function to obtain the cost distribution of firms undertaking projects either with or without subcontracting goals. We then use nonparametric estimation methodsto uncover and compare the cost of firms bidding on a class of asphalt projects related to surface treatment in Texas. The analysis shows little differences in the cost structure between auctions that have subcontracting goals and those that do not.
AUTHORS: Dakshina G. De Silva; Dunne, Timothy; Kosmopoulou, Georgia; Lamarche, Carlos
DATE: 2011

Working Paper
Disadvantaged business enterprise goals in government procurement contracting: an analysis of bidding behavior and costs
Programs that encourage the participation of disadvantaged business enterprises (DBE) as subcontractors have been a part of government procurement auctions for over three decades. In this paper, we examine the impact of a program that requires prime contractors to subcontract out a portion of a highway procurement project to DBE firms. We study how DBE subcontracting requirements affect bidding behavior in federally funded projects. Within a symmetric independent private value framework, we use the equilibrium bidding function to obtain the cost distribution of firms undertaking projects either with or without subcontracting goals. We then use nonparametric estimation methodsto uncover and compare the cost of firms bidding on a class of asphalt projects related to surface treatment in Texas. The analysis shows little differences in the cost structure between auctions that have subcontracting goals and those that do not.
AUTHORS: Dunne, Timothy; Kosmopoulou, Georgia; Lamarche, Carlos; Dakshina G. De Silva
DATE: 2011

Working Paper
Public policy in support of small business: the American experience
Information problems in small enterprise credit markets can result in a market equilibrium characterized by credit rationing. These information problems are potentially more severe during sharp economic downturns such as the recent Great Recession. Government interventions to alleviate credit constraints on small firms need to be designed to correct the specific market failure resulting in socially suboptimal credit flows. We argue that Small Business Administration loan guarantees are a potentially appropriate intervention and provide a review of empirical research that supports our contention.
AUTHORS: Craig, Ben R.; Jackson, William E.; Thompson, James B.
DATE: 2011

Working Paper
Search, money and capital: a neoclassical dichotomy
Recent work has reduced the gap between search-based monetary theory and mainstream macroeconomics by incorporating into the search model some centralized markets as well as some decentralized markets where money is essential. This paper takes a further step towards this integration by introducing labor, capital and neoclassical firms. The resulting framework nests the search-theoretic monetary model and a standard neoclassical growth model as special cases. Perhaps surprisingly, it also exhibits a dichotomy: one can determine the equilibrium path for the value of money independently of the paths of consumption, investment and employment in the centralized market.
AUTHORS: Aruoba, S. Boragan; Wright, Randall
DATE: 2002

Working Paper
Bank performance and regional economic growth: evidence of a regional credit channel
This paper examines the relationship between bank performance and economic growth at the state level. We develop a regional credit view to explain how, due to information costs, regional banking conditions can influence local economic activity by affecting a region's ability to fund local investments. The model suggests that local banking-sector problems may constrain economic activity in financially distressed regions, whereas no such link need be evident in financially sound regions. We test the empirical relevance of this credit view for the 1983-1990 period using state-level data and find evidence of a regional financial channel to output. Specifically, local banking-sector conditions explain more of real personal income growth in states whose share of nonperforming loans is above the national share.
AUTHORS: Samolyk, Katherine A.
DATE: 1992

Working Paper
Debt, collateral, and U.S. manufacturing investment: 1954-1980
I perform an empirical analysis of Euler equations for the firm's choices of capital, labor, hours, and debt. Financial structure has real effects , since taxes favor debt. However, the cost of debt increases with the debt-to-collateral ratio, and capital is part of collateral. The data, for U.S. manufacturing investment from 1954 to 1980, show that the debt-to-collateral ratio moves opposite to the direction suggested by tax rates. However, excluding the Euler equation for debt implies the correct sign for the relation between investment and the debt-to-collateral ratio. I also find structural instability in the Euler equations for debt and capital.
AUTHORS: Osterberg, William P.
DATE: 1992

Working Paper
Friends do let friends buy stocks actively
This research is the first to provide empirical evidence that social interaction is more prevalent amongst active rather than passive investors. While previous empirical work, spearheaded by Hong, Kubik, and Stein (2004), shows that proxies for sociability are related to participation in asset markets, the literature is unable to distinguish between the types of participants because of data limitations. I address this shortcoming by using data from the Consumer Expenditure Quarterly Interview Survey on individual holdings, and buying and selling of financial assets as well as expenditure variables which imply variation in the level of social activity. My findings support a new explanation> for the active investing puzzle in which informal communication tends to promote active rather than passive strategies (Han and Hirshleifer 2012).
AUTHORS: Heimer, Rawley
DATE: 2013

Working Paper
Inflation and the personal tax code: assessing indexation
A reexamination of the potential costs of anticipated inflation in view of the inflation indexing system established during the 1980s.
AUTHORS: Altig, David E.; Carlstrom, Charles T.
DATE: 1990

Working Paper
The effect of subordinated debt and surety bonds on banks' cost of capital and on the value of federal deposit insurance
This paper examines two proposals to correct the risk-taking incentives embedded in the current deposit insurance system and to provide protection to the deposit insurance fund. the first would require banks to issue subordinated debt, and the second would require bank stockholders to post surety bonds. We use the cash-flow version of the Capital Asset Pricing Model to show how each proposal would affect the values and rates of return on uninsured deposits and equity. We then indicate the impact that each proposal would have on the values of the Federal Deposit insurance Corporation claim and on the bank, emphasizing the role of deposit insurance pricing.
AUTHORS: Thomson, James B.; Osterberg, William P.
DATE: 1990

Working Paper
Forecasts from Reduced-form Models under the Zero-Lower-Bound Constraint
In this paper, I consider forecasting from a reduced-form VAR under the zero lower bound (ZLB) for the short-term nominal interest rate. I develop a method that a) computes the exact moments for the first n + 1 periods when n previous periods are tracked and b) approximates moments for the periods beyond n + 1 period using techniques for truncated normal distributions and approximations a la Kim (1994). I show that the algorithm produces satisfactory results for VAR systems with moderate to high persistence even when only one previous period is tracked. For very persistent VAR systems, however, tracking more periods is needed in order to obtain reliable approximations. I also show that the method is suitable for affine term-structure modeling, where the underlying state vector includes the short-term interest rate as in Taylor rules with inertia.
AUTHORS: Pasaogullari, Mehmet
DATE: 2015-08-05

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