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Working Paper
The Tradition of Federal Reserve Independence
Rose, Jonathan D.; Wheelock, David C. (2026-07-06)
The tradition of Federal Reserve independence is encoded in statute in important ways but is also rooted in norms and practices. To articulate this tradition, we discuss how those norms and practices emerged historically from compromises over the concentration of power, actions taken by political leaders and Fed officials to define the boundaries of the Fed’s independence, and in reaction to evolving monetary theories and practices. We argue that understanding these historic roots provides essential context for evaluating challenges to the Fed's independence today and in the future.
Working Papers , Paper 2026-013

Working Paper
Sluggish news reactions: A combinatorial approach for synchronizing stock jumps
Bouamara, Nabil; Boudt, Kris; Laurent, Sébastien; Neely, Christopher J. (2026-07-06)
Stock prices often react sluggishly to news: latent efficient prices may jump immediately, while observed transaction prices adjust with a delay or piecewise, producing mistimed jumps. Econometricians typically treat these sluggish reactions as microstructure effects and settle for a coarse sampling grid to guard against them. We introduce a combinatorial method that synchronizes mistimed stock jump returns on a fine grid, allowing us to better approximate common jumps in the efficient prices of related stocks. In an application to Dow 30 data, the synchronized jumps produce better jump ...
Working Papers , Paper 2024-006

Working Paper
What Drives Household Financial Distress? The Role of Earnings Misperceptions
Sanchez, Juan M.; Song, Stefan (2026-07-02)
Why do households borrow heavily and experience financial distress? We develop and estimate a heterogeneous-agent model of unsecured credit and default in which households learn about income persistence and overreact to recent income realizations. We estimate overreaction using survey measures of income expectations and forecast errors, and the remaining parameters to match household debt and financial distress. Information frictions and estimated overreaction account for roughly half of delinquencies and one-third of bankruptcies, and improve the model’s fit of the observed negative ...
Working Papers , Paper 2025-030

Working Paper
Work from Home and Migration
Rubinton, Hannah; Bick, Alexander; Blandin, Adam; Mertens, Karel (2026-06-25)
We study how full-time work from home (WFH)affects migration and economic activity across cities. Using ACS and novel survey data, we show WFH workers migrate 40–50 percent more than comparable commuters, commuters who switch to WFH migrate more, plausibly exogenous WFH expansions raise migration, and WFH workers migrate to lower-cost cities than commuters. The post-Covid expansion in WFH coincided with a large increase in migration; WFH accounts for half of this increase and much of the cross-city variation in migration changes. Recently, WFH has stabilized at twice its pre-Covid rate. We ...
Working Papers , Paper 2024-012

Working Paper
Living in Infamy: Bad Reputations in Emerging Markets
Stangebye, Zachary; Wright, Mark L. J. (2026-06-15)
We present a model of sovereign borrowing in the presence of default risk and asymmetric information. Optimizing sovereigns come in two persistent types with different levels of patience and hence different proclivities to default and borrow. In a stylized model, we construct a pooling equilibrium that is 'infamous' in the sense that the patient sovereign is constrained to borrow like the impatient sovereign on the equilibrium path. We argue that this provides an explanation for the observed lack of private capital markets for many low- and middle-income countries, and use the model to ...
Working Papers , Paper 2026-012

Working Paper
Natural Resources and Sovereign Risk in Emerging Economies: A Curse and a Blessing
Hamann, Franz; Mendez-Vizcaino, Juan Camilo; Mendoza, Enrique G.; Restrepo-Echavarria, Paulina (2026-06-15)
Emerging economies that are large oil producers have sizable external debt, their sovereign risk rises when oil prices fall, and many of them have defaulted in the past. Interestingly, oil output reduces country risk on impact and in the long-run,but oil reserves increase it in the long-run and reduce it only marginally on impact. We propose a model of sovereign default and oil extraction and derive analytic and quantitative findings consistent with these observations. The sovereign manages oil reserves strategically to make default less painful, and hence its sustainable debt falls. Reserves ...
Working Papers , Paper 2018-32

Working Paper
Public Good Provision, Tax Evasion, and Illicit Production
Bandyopadhyay, Subhayu; Marjit, Sugata; Pinto, Santiago; Thum, Marcel (2026-06-14)
We investigate the trade-off policymakers face between raising tax revenues for public good provision and mitigating the distortionary effects of taxation when individuals can evade taxes and allocate work time between legal and illicit activities. These distortions lower the constrained optimal tax rate and lead to the under-provision of the public good. This under-provision problem is mitigated when surplus generated by the audit agency is seamlessly transferred to the taxing authorities. Extensions of the basic model allow the government to endogenously choose the audit intensity as part ...
Working Papers , Paper 2025-005

Working Paper
Expanding Access to Selective Colleges
Hendricks, Lutz; Koreshkova, Tatyana; Leukhina, Oksana (2026-06-13)
This paper studies the effects of expanding high-quality public university capacities. Using a quantitative model of college choice, we find that expanding the most selective colleges by 20 percent increases aggregate earnings by 0.8 percent and welfare by 2.2 percent. The gains arise because a large number of high-ability students are rationed out of selective colleges. When admitted, these students graduate at high rates and enjoy substantial earnings gains. These earnings gains are eight times larger than the fiscal cost of financing the expansion. Our findings remain robust when we ...
Working Papers , Paper 2026-005

Working Paper
The St. Louis Fed DSGE Model
Faria-e-Castro, Miguel (2026-06-11)
This document contains a technical description of the dynamic stochastic general equilibrium (DSGE) model developed and maintained by the Research Division of the St. Louis Fed as one of its tools for forecasting and policy analysis. The St. Louis Fed model departs from an otherwise standard medium-scale New Keynesian DSGE model along three main dimensions: first, it allows for household heterogeneity, in the form of workers and capitalists, who have different marginal propensities to consume (MPC). Second, it explicitly models a fiscal sector endowed with multiple spending and revenue ...
Working Papers , Paper 2024-014

Working Paper
The Implications of Labor Market Heterogeneity for Unemployment Insurance Design
Birinci, Serdar; See, Kurt (2026-06-04)
We estimate unemployment insurance (UI) eligibility, take-up, and replacement rates at the individual level and document how they vary with earnings, wealth, and unemployment duration. We extend a widely used framework that combines an incomplete-markets model with a frictional labor market to match our findings. We show that the optimal UI policy becomes substantially more generous once the model captures our findings. The gap between optimal policies in the two models is largely driven by endogenous UI take-up, which entails a utility cost: only those who value UI the most choose to claim ...
Working Papers , Paper 2024-026

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