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Bank:Federal Reserve Bank of Richmond  Series:Working Paper 

Working Paper
Residential mortgage default: the roles of house price volatility, euphoria and the borrower's put option

House price volatility; lender and borrow perception of price trends, loan and property features; and the borrower?s put option are integrated in a model of residential mortgage default. These dimensions of the default problem have, to our knowledge, not previously been considered altogether within the same investigation framework. We rely on a sample of individual mortgage loans for twenty counties in Florida, over the period 2001 through 2008, third quarter, with housing price performance obtained from repeat sales analysis of individual transactions. The results from the analysis strongly ...
Working Paper , Paper 10-02

Working Paper
Optimal bonuses and deferred pay for bank employees : implications of hidden actions with persistent effects in time

We present a sequence of two-period models of incentive-based compensation in order to understand how the properties of optimal compensation structures vary with changes in the model environment. Each model corresponds to a different occupation within a bank, such as credit line managers, loan originators, or traders. All models share a common trait: the effects of hidden actions are persistent, and hence are revealed over time. We characterize the corresponding optimal contracts that are consistent with prudent risk taking. We compare the contracts by ranking them according to the average ...
Working Paper , Paper 10-16

Working Paper
Monetary policy frameworks and indicators for the Federal Reserve in the 1920s

The 1920s and 1930s saw the Fed reject a state-of-the-art empirical policy framework for a logically defective one. Consisting of a quantity theoretic analysis of the business cycle, the former framework featured the money stock, price level, and real interest rates as policy indicators. By contrast, the Fed?s procyclical needs-of-trade, or real bills, framework stressed such policy guides as market nominal interest rates, volume of member bank borrowing, and type and amount of commercial paper eligible for rediscount at the central bank. The start of the Great Depression put these rival sets ...
Working Paper , Paper 00-07

Working Paper
Monetary policy, bank credit, and total credit : a preliminary analysis

For the last three years, the Federal Open Market Committee has focused greater attention on certain monetary and credit aggregates in specifying its longer-run targets.
Working Paper , Paper 73-02

Working Paper
Evolution in banking competition

The Supreme Court view of commercial banking as a "distinct line of commerce" no longer reflects realities in many sections of the United States.
Working Paper , Paper 80-01

Working Paper
Vintage capital as an origin of inequalities

Working Paper , Paper 02-02

Working Paper
Analyzing firm location decisions : is public intervention justified?

This paper develops a two-region model of firm migration where moving is costly and firms have market power. In this setting, the decentralized equilibrium generates excessive inertia in firm movement relative to the 'first best' solution. Because the decentralized solution is inefficient, the widespread notion that inducing firm movement between regions yield no net social gain does not necessarily hold. That is, firm migration does not amount to a 'zero sum.' Moreover, given the presence of inertia, and contrary to the prevalent view, we show that targeted subsidies that alleviate moving ...
Working Paper , Paper 99-08

Working Paper
Accounting for unemployment: the long and short of it

Shimer (2012) accounts for the volatility of unemployment based on a model of homogeneous unemployment. Using data on short-term unemployment he finds that most of unemployment volatility is accounted for by variations in the exit rate from unemployment. The assumption of homogeneous exit rates is inconsistent with the observed negative duration dependence of unemployment exit rates for the U.S. labor market. We construct a simple model of heterogeneous unemployment with short-term and long-term unemployed, and use data on the duration distribution of unemployment to account for entry to and ...
Working Paper , Paper 12-07

Working Paper
Liquidity constraints in commercial loan markets with imperfect information and imperfect competition

This paper presents a simple general equilibrium model of the commercial loan market in which liquidity constraints arise endogenously because of imperfect information and imperfect competition. The information and market structure generate a discriminatory interest rate schedule and loan size restrictions, which we interpret as liquidity constraint phenomena. The model's predictions are consistent with actual lending policies observed in the commercial loan industry. Further, the lender and all borrowers are at least as well off under this solution as they would be if faced with any single ...
Working Paper , Paper 90-10

Working Paper
The competitiveness of rural county manufacturing during a period of dollar appreciation

Some observers contend that manufacturing activity in rural areas has been more adversely affected than in urban areas by foreign competition. It is true, of course, that the economies of some rural areas have been devastated by closing of key manufacturing plants. Even if plant closings were distributed randomly among rural and urban areas, however, some rural areas (as well as some urban areas) would suffer greatly because of their "company town" character. We found little empirical support in the literature for the claim that rural areas on average suffered disproportionately from ...
Working Paper , Paper 90-04




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