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Bank:Federal Reserve Bank of Richmond  Series:Economic Quarterly 

Journal Article
Computing Dynamic Heterogeneous-Agent Economies: Tracking the Distribution

Theoretical formulations of dynamic heterogeneous-agent economies typically include a distribution as an aggregate state variable. This paper introduces a method for computing equilibrium of these models by including a distribution directly as a state variable if it is finite-dimensional or a fine approximation of it if it is infinite-dimensional. The method accurately computes equilibrium in an extreme calibration of Huffman's (1987) overlapping-generations economy where quasi-aggregation, the accurate forecasting of prices using a small state space, fails to obtain. The method also ...
Economic Quarterly , Issue 2Q , Pages 61-95

Journal Article
The Effects of Permanent and Transitory Shocks under Imperfect Information

We study an economic environment affected by shocks that may be either permanent or transitory in nature. Contrary to the standard perfect information setup, we assume that households cannot distinguish between the two types of shocks. We describe how to solve the model under this imperfect information assumption in the context of the one-sector neoclassical model. We show that the solution involves a recasting of the driving process in terms of estimates of the exogenous states and forecast errors made by households rather than the states themselves. Given observations on the driving ...
Economic Quarterly , Issue 2Q , Pages 41-59

Journal Article
Labor-Market Wedge under Engel Curve Utility: Cyclical Substitution between Necessities and Luxuries

In booms, households substitute luxuries for necessities, e.g., food away from home for food at home. This cyclical pattern of composition changes in the consumption basket has the potential to reduce the volatility of measures of the labor-market wedge, the gap between the marginal rate of substitution and the real wage. Based on household expenditure patterns from the Consumer Expenditure Survey, we show that this composition bias has only a limited impact on the measured labor-market wedge, accounting for 6 percent to 16 percent of its cyclical volatility.
Economic Quarterly , Issue 1Q , Pages 1-17

Journal Article
Technology Diffusion: The Case of Internet Banking

Taking internet banking as an example, we study diffusion of cost-saving technological innovations. We show that the diffusion of internet banking follows an S-shaped logistic curve as it penetrates a log-logistic bank-size distribution. We test the theoretical hypothesis with an empirical study of internet banking diffusion among banks across fifty U.S. states. Using an instrument-variable approach, we estimate the positive effect of average bank size on internet banking diffusion. The empirical findings allow us to examine the technological, economic, and institutional factors governing the ...
Economic Quarterly , Issue 1Q , Pages 19-40

Journal Article
Monetary Incentives and Mortgage Renegotiation Outcomes

This paper studies the effect of monetary incentives on mortgage renegotiation. Lenders are sometimes willing to renegotiate mortgage contracts with homeowners who are at risk of foreclosure. This paper models the renegotiation process as a simple sequential move game in which the homeowner first seeks renegotiation and the lender responds by deciding whether or not to modify the terms of the mortgage. The model is used to examine outcomes in the presence of monetary incentives given to the homeowner and lender like those given by U.S. government programs during the recent foreclosure crisis. ...
Economic Quarterly , Issue 2Q , Pages 147-168

Journal Article
Monetary policy and global equilibria in a production economy

In linear macroeconomic models, an active Taylor rule for monetary policy can guarantee a locally unique nonexplosive equilibrium. In a series of articles, Benhabib, Schmitt-Groh, and Uribe looked beyond the local dynamics and showed that active Taylor rules could interact with the zero bound on nominal interest rates to generate multiple equilibria, including a steady-state equilibrium with inflation below target. Recently, the persistence of low inflation and low nominal interest rates has brought attention to Benhabib, Schmitt-Groh, and Uribe's work in policy circles. We provide an ...
Economic Quarterly , Volume 96 , Issue 4Q , Pages 317-337

Journal Article
Banking and commerce : tear down this wall?

Economic Quarterly , Volume 89 , Issue Spr , Pages 7-31

Journal Article
Classical deflation theory

Economic Quarterly , Volume 90 , Issue Win , Pages 11-32

Journal Article
When do credit frictions matter for business cycles?

Since the Great Recession there has been renewed interest in introducing credit frictions in business cycle models. However, in order for credit frictions to be quantitatively meaningful and qualitatively realistic in business cycles, it is necessary to depart from conventional assumptions about production technology or preferences and/or add additional frictions. This article reviews some of those departures and additions.
Economic Quarterly , Volume 98 , Issue 3Q , Pages 209-230

Journal Article
Wealth Effects with Endogenous Retirement

In this article, we study wealth effects, i.e., the response of consumption to exogenous changes in wealth. We use a consumption-saving model with endogenous retirement to show that the endogenous response of the value of a worker's human capital to changes in her wealth helps to account for the weak wealth effects observed in the data.
Economic Quarterly , Issue 3Q , Pages 173-200




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Hetzel, Robert L. 26 items

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