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Journal Article
Bank consolidation and merger activity following the crisis.
Michal Kowalik, Troy Davig, Charles S. Morris, and Kristen Regehr analyze the financial characteristics of acquired community banks from 2011 to 2014.
Working Paper
Phillips curve instability and optimal monetary policy
This paper assesses the implications for optimal discretionary monetary policy if the slope of the Phillips curve changes. The paper first derives a ?switching? Phillips curve from the optimal pricing decision of a monopolistic firm that faces a changing cost of price adjustment. Two states exists, a state with a high cost of price adjustment that generates a ?flat? Phillips curve and a low-cost state that generates a relatively ?steep? curve. The second aspect of the paper constructs a utility-based welfare criterion. A novel feature of this criterion is that it has a relative weight on ...
Journal Article
What is the effect of financial stress on economic activity
Despite the apparent risk that financial stress poses to the real economy, the relationship between financial stress and economic activity is complex and not well understood. The experience of the United States and other countries has shown that businesses and households often pull back on new investments and purchases in response to the tighter credit conditions and greater uncertainty caused by financial stress. Yet important gaps remain in our understanding of this critical relationship. ; One potential complication is that the relationship may change when financial stress is elevated and ...
Journal Article
Evaluating a Year of Oil Price Volatility
Troy Davig, Nida ak?r Melek, Jun Nie, Lee Smith, and Didem Tzemen find changes in expectations of future oil supply relative to demand are the main drivers of the recent oil price decline.
Journal Article
The shadow labor supply and its implications for the unemployment rate
In the wake of the Great Recession there has been a sharp rise in the number of people who indicate they want a job, but are not actively seeking one. This group, on the periphery of the labor market, may be viewed as a "shadow labor supply." Since they are not actively seeking work, they are not counted by the government as unemployed and not considered part of the labor force. But if many start seeking jobs as the economy recovers, the unemployment rate could rise or at least slow its descent. Davig and Mustre-del-Ro analyze possible flow rates from this group and other non-employed ...
Journal Article
Consumer debt dynamics : an update
Discussion Paper
Connecting “The Dots”: Disagreement in the Federal Open Market Committee
People disagree, and so do the members of the Federal Open Market Committee (FOMC). How much do they disagree? Why do they disagree? We look at the FOMC’s projections of the federal funds rate (FFR) and other variables and compare them with those in the New York Fed’s Survey of Primary Dealers (SPD). We show that the members of the FOMC tend to disagree more than the primary dealers and offer some potential explanations.
Working Paper
Communicating Monetary Policy Rules
Despite the ubiquity of inflation targeting, central banks communicate their frameworks in a variety of ways. No central bank explicitly expresses their conduct via a policy rule, which contrasts with models of policy. Central banks often connect theory with their practice by publishing inflation forecasts that can, in principle, implicitly convey their reaction function. We return to this central idea to show how a central bank can achieve the gains of a rule-based policy without publicly stating a specific rule. The approach requires central banks to specify an inflation target, inflation ...
Journal Article
The shadow labor supply and its implications for the unemployment rate
The number of people wanting work, but not looking for a job, has swelled in recent years. However, their flow rate back into unemployment has been declining, so they will likely only have a modest impact on the unemployment rate.
Working Paper
Uncertainty and fiscal cliffs
Motivated by the US Fiscal Cliff in 2012, this paper considers the short- and longer- term impact of uncertainty generated by fiscal policy. Empirical evidence shows increases in economic policy uncertainty lower investment and employment. Investment that is longer-lived and subject to a longer planning horizon responds to policy uncertainty with a lag, while capital that depreciates more quickly and can be installed with few costs falls immediately. A DSGE model incorporating uncertainty over future tax regimes produces responses to fiscal uncertainty that match key features of the data. The ...