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Bank:Federal Reserve Bank of Boston  Series:Supervisory Research and Analysis Working Papers 

Working Paper
The Intersection of U.S. Money Market Mutual Fund Reforms, Bank Liquidity Requirements, and the Federal Home Loan Bank System

The most recent changes to money market fund regulations have had a strong impact on the money fund industry. In the months leading up to the compliance date of the core provisions of the amended regulations, assets in prime money market funds declined significantly, while those in government funds increased contemporaneously. This reallocation from prime to government funds has contributed to the latter's increased demand for debt issued by the U.S. government and government-sponsored enterprises. The Federal Home Loan Bank (FHLBank) System played a key role in meeting this heightened demand ...
Supervisory Research and Analysis Working Papers , Paper RPA 17-5

Working Paper
Variable Annuities: Underlying Risks and Sensitivities

This paper presents a quantitative model designed to understand the sensitivity of variable annuity (VA) contracts to market and actuarial assumptions and how these sensitivities make them a potentially important source of risk to insurance companies during times of stress. VA contracts often include long dated guarantees of market performance that expose the insurer to multiple nondiversifiable risks. Our modeling framework employs a Monte Carlo simulation of asset returns and policyholder behavior to derive fair prices for variable annuities in a risk neutral framework and to estimate ...
Supervisory Research and Analysis Working Papers , Paper RPA 19-1

Working Paper
Offshoring, Low-skilled Immigration, and Labor Market Polarization

During the last three decades, the U.S. labor market has been characterized by its employment polarization. As jobs in the middle of the skill distribution have shrunk, employment has expanded in high- and low-skill occupations. Real wages have not followed the same pattern. While earnings for high-skill occupations have risen robustly, wages for both low- and middle-skill workers have remained subdued. We attribute this outcome to the rise in offshoring and low-skilled immigration, and develop a three-country stochastic growth model to rationalize their asymmetric effect on employment and ...
Supervisory Research and Analysis Working Papers , Paper RPA 16-3

Working Paper
Simultaneous Spatial Panel Data Models with Common Shocks

I consider a simultaneous spatial panel data model, jointly modeling three effects: simultaneous effects, spatial effects and common shock effects. This joint modeling and consideration of cross-sectional heteroskedasticity result in a large number of incidental parameters. I propose two estimation approaches, a quasi-maximum likelihood (QML) method and an iterative generalized principal components (IGPC) method. I develop full inferential theories for the estimation approaches and study the trade-off between the model specifications and their respective asymptotic properties. I further ...
Supervisory Research and Analysis Working Papers , Paper RPA 17-3

Working Paper
Model uncertainty and the deterrent effect of capital punishment

The reintroduction of capital punishment after the end of the Supreme Court moratorium has permitted researchers to employ state level heterogeneity in the use of capital punishment to study deterrent effects. However, no scholarly consensus exists as to their magnitude. A key reason this has occurred is that the use of alternative models across studies produces differing estimates of the deterrent effect. Because differences across models are not well motivated by theory, the deterrence literature is plagued by model uncertainty. We argue that the analysis of deterrent effects should ...
Supervisory Research and Analysis Working Papers , Paper QAU07-3

Working Paper
Fair value accounting: villain or innocent victim?: exploring the links between fair value accounting, bank regulatory capital, and the recent financial crisis

There is a popular belief that the confluence of bank capital rules and fair value accounting helped trigger the recent financial crisis. The claim is that questionable valuations of long term investments based on prices obtained from illiquid markets created a pro-cyclical effect whereby mark to market adjustments reduced regulatory capital forcing banks to sell off investments which further depressed prices. This ultimately led to bank instability and the credit effects that reached a peak late in 2008. This paper analyzes a sample of large banks to attempt to measure the strength of the ...
Supervisory Research and Analysis Working Papers , Paper QAU10-1

Working Paper
Market proxies, correlation, and relative mean-variance efficiency: still living with the roll critique

A pricing restriction is developed to test the validity of the CAPM conditional on a prior belief about the correlation between the true market return and the proxy return used in the test. Distinguishing this pricing restriction from competing tests also based upon the relative efficiency of the proxy return is a consideration for the proxy's mismeasurement of the market return. Failure to account for this mismeasurement biases tests of the CAPM towards rejection by overstating the inefficiency of the proxy. A time-varying version of this pricing restriction links mismeasurement of the ...
Supervisory Research and Analysis Working Papers , Paper QAU09-3

Working Paper
The Shift from Active to Passive Investing: Potential Risks to Financial Stability?

The past couple of decades have seen a significant shift in assets from active to passive investment strategies. We examine the potential effects of this shift on financial stability through four different channels: (1) effects on investment funds? liquidity transformation and redemption risks; (2) passive strategies that amplify market volatility; (3) increases in asset-management industry concentration; and (4) the effects on valuations, volatility, and comovement of assets that are included in indexes. Overall, the shift from active to passive investment strategies appears to be increasing ...
Supervisory Research and Analysis Working Papers , Paper RPA 18-4

Working Paper
Household bankruptcy decision: the role of social stigma vs. information sharing

Using a large sample of individual credit information provided by a US credit bureau, this paper investigates the empirical relevance of stigma and information sharing on household bankruptcy and its trend. Many observers of bankruptcy patterns have conjectured that there exists an increased willingness to default that reflects a diminution of social stigma. In this paper, we use a new methodology to disentangle stigma and social learning?two acknowledgedly important social factors affecting default. Although our results indicate a large and important role for stigma, changes in information ...
Supervisory Research and Analysis Working Papers , Paper QAU08-6

Working Paper
The stability of prime money market mutual funds: sponsor support from 2007 to 2011

It is commonly noted that in the history of the Money Market Mutual Fund (MMMF) industry only two MMMFs have ?broken the buck,? or had the net asset value per share (NAV) at which they transact fall below $1. While this statement is true, it is useful to consider the role that non-contractual support has played in the maintenance of this strong track record. Such support, which has served to obscure the credit risk taken by these funds, has been a common occurrence over the history of MMMFs. This paper presents a detailed view of the non-contractual support provided to MMMFs by their sponsors ...
Supervisory Research and Analysis Working Papers , Paper RPA 12-3

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