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Bank:Federal Reserve Bank of Richmond  Series:Working Paper 

Working Paper
James Pennington, (1777-1862) : classical banking, monetary, and trade theorist and economic policy advisor

James Pennington's creativity as a scientific economist is matched only by his obscurity. He exemplifies the pioneering innovator who never gets his due recognition. Alone and with others he launched (1) the idea that checking deposits are money just like coin and notes, (2) the theory of the multiple expansion of bank deposits, (3) the currency principle according to which a mixed paper-metal currency can be made to behave as if it were entirely metallic, and (4) the notion that reciprocal demand fixes the terms of trade between the comparative cost ratios of two trading nations. Any one of ...
Working Paper , Paper 03-08

Working Paper
On the Distribution of College Dropouts: Wealth and Uninsurable Idiosyncratic Risk

We present a dynamic model of the decision to pursue a college degree in which students face uncertainty about their future income stream after graduation due to unobserved heterogeneity in their innate scholastic ability. After matriculating and taking some exams, students re-evaluate their expectations about succeeding in college and may decide to drop out and start working. The model shows that, in accordance with the data, poorer students are less likely to graduate and are likely to drop out sooner than wealthier students. Our model generates these results without introducing explicit ...
Working Paper , Paper 15-15

Working Paper
Logit analysis of the effect of rent control on housing quality

Rent control is one of the few policy issues on which there is a general agreement among economists. Economic theory predicts, and few economists have tried to dispute, that imposing rent controls on a housing market is likely to lead to rental housing shortages and general deterioration of quality. Even on income distribution grounds, rent control receives poor reviews, since it is generally agreed to be a clumsy and inexact means of helping the poor.
Working Paper , Paper 85-06

Working Paper
Indeterminacy and Imperfect Information

We study equilibrium determination in an environment where two kinds of agents have different information sets: The fully informed agents know the structure of the model and observe histories of all exogenous and endogenous variables. The less informed agents observe only a strict subset of the full information set. All types of agents form expectations rationally, but agents with limited information need to solve a dynamic signal extraction problem to gather information about the variables they do not observe. We show that for parameter values that imply a unique equilibrium under full ...
Working Paper , Paper 19-17

Working Paper
Market-based regulation and the informational content of prices

Various laws and policy proposals call for regulators to make use of the information reflected in market prices. We focus on a leading example of such a proposal, namely that bank supervision should make use of the market prices of traded bank securities. We study the theoretical underpinnings of this proposal in light of a key problem: if the regulator uses market prices, prices adjust to reflect this use and potentially become less revealing. We show that the feasibility of this proposal depends critically on the information gap between the market and the regulator. Thus, there is a strong ...
Working Paper , Paper 06-12

Working Paper
Interest rate expectations and the demand for short-term business credit

Short-term credit plays an essential part in the business financing process. In view of its importance in the nation's credit structure, the market for short-term business credit receives a great deal of attention from financial analysts.
Working Paper , Paper 77-02

Working Paper
The cyclicality of the user cost of labor with search and matching

The user cost of labor captures the hiring wage and the expected effect of the economic conditions at the time of hiring on future wages. In search and matching models, I show that it is the user cost and not the wage that is weighted against the worker's marginal product at the time of hiring; so, the user cost is the allocational variable. I construct its measure in the data and estimate that it is more procyclical than average wages or wages of newly hired workers. I show that the textbook search and matching model cannot simultaneously generate the empirical elasticities of the ...
Working Paper , Paper 09-12

Working Paper
Income Volatility and Portfolio Choices

Based on administrative data from Statistics Norway, we find economically significant shifts in households' financial portfolios around structural breaks in income volatility. When the standard deviation of labor-income growth doubles, the share of risky assets decreases by 4 percentage points. We ask whether this estimated marginal effect is consistent with a standard model of portfolio choice with idiosyncratic volatility shocks. The standard model generates a much more aggressive portfolio response than we see in the data. We show that Bayesian learning about the underlying volatility ...
Working Paper , Paper 20-01

Working Paper
The political economy of labor subsidies

We explore a political economy model of labor subsidies, extending Meltzer and Richard's median voter model to a dynamic setting. We explore only one source of heterogeneity: initial wealth. As a consequence, given an operative wealth effect, poorer agents work harder, and if the agent with median wealth is poorer than average, a politico-economic equilibrium will feature a subsidy to labor. The dynamic model does not have capital, but it has perfect markets for borrowing and lending. Because tax rates influence interest rates, another channel for redistribution appears, since a decrease in ...
Working Paper , Paper 06-09

Working Paper
Cointegration and a test of the quantity theory of money

The main implication of the Quantity Theory of Money is that long-run movements in the price level are determined primarily by long-run movements in the excess of money over real output. This implication is related to the concept of cointegration discussed in Granger (1986), which states cointegrated multiple time series share common long-run movements. It is shown that the general price level is cointegrated with money, real output, and the nominal rate of interest. These economic variables enter a price equation based on the Equation of Exchange. Furthermore, the appearance of this ...
Working Paper , Paper 89-02




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Hornstein, Andreas 29 items

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