Working Papers
Stimulating discussion and critical comment on research in progress.
1993
- WP 93-14
- Accounting for Earnings Inequality in a Diverse Work Force
- A general decomposition of earnings inequality is applied to the complete full-time labor force, including minorities and women. The results confirm that education premiums were the largest observable factor in the rise in earnings inequality in the 1980s, and also reveal an offsetting reduction in the role of race- and sex-related earnings differences. (PDF)
- WP 93-13
- Loan sales as a response to market-based capital constraints
- Models of bank loan sales often appeal to regulatory constraints to motivate this off-balance-sheet activity. Here, we present a market-based model of bank asset sales in which information asymmetries create the incentive for unregulated banks to originate and sell loans to other banks, rather than fund them with deposit liabilities. Banks have a comparative advantage in locating and screening projects within their locality. However, because of private information, banks can fund projects in their portfolio only to the extent that their capital can adequately buffer potential losses on these investments. A loan sales market allows a banker having adequate capital to acquire profitable projects originated by a banker whose own capital is insufficient to support the additional risk. (PDF)
- WP 93-12
- Business Cycles and Aggregate Labor-Market Fluctuations
- This paper describes some of the recent findings about the cyclical behavior of the aggregate labor market and its relation to the overall business cycle. The basic theoretical framework is the neoclassical growth model with its central component: the aggregate production function. After listing the main empirical regularities related to the labor input, the paper presents some of the developments in theory and measurement that have been motivated by these facts. Examples are the roles of household production, of the differences in cyclical behavior of workers with different skills, and of the fact that labor-input changes take the forms of both employment and hours-per-worker movements. (PDF)
- Wp 93-11
- The equity of social services provided to children and senior citizens
- A consideration of the degree of equity in the U.S. government’s treatment of children vis-a-vis adults, particularly the elderly. The authors show that given current policy, today’s and tomorrow’s children could end up paying as much as 70 percent of their lifetime income to the government, whereas the current elderly will pay only about 25 percent on average. (PDF)
- WP 93-10
- Accounting For Racial Differences in Housing Credit Markets
- A documentation of racial and neighborhood differences in home mortgage denial rates using data collected under the Home Mortgage Disclosure Act, exploring the extent to which objective lending criteria are responsible for observed differences. The authors find persistent variations in denial rates between white and minority applicants, but emphasize that the HMDA data do not contain enough relevant information to draw any firm conclusions regarding causation. (PDF)
- WP 93-09
- Lender consistency in housing credit markets
- An examination of how and why individual financial institutions vary in their propensity to attract and approve mortgage applications from minorities, using Home Mortgage Disclosure Act data. (PDF)
- WP 93-08
- Dynamic Optimal Fiscal and Monetary Policy in a Business Cycle Model with Income Redistribution
- An optimal program of distortionary taxes, money growth, and borrowing to finance a stream of expenditures is computed in a monetary real business cycle model for which distribution issues between the rich and poor play a fundamental role in policy decisions. Specifically, a simple feedback rule links public spending on goods and services to a measure of income inequality, and the government is required to provide poor households with some minimum level of transfers. The stationary equilibrium policy displays positive capital taxation, progressive labor taxes, and moderate (6 percent) inflation. The capital tax and the inflation tax fluctuate over time to absorb budget shocks, while the labor tax remains relatively constant. Model simulations compare favorably in many respects with postwar U.S. time series on tax rates, money growth, and aggregate business cycle variables. The solution method employs the recursive algorithm developed by Kydland and Prescott (1980) to compute optimal policy rules under the assumption of commitment. (PDF)
- WP 93-07
- Loan sales, implicit contracts, and bank structure
- We document some recent changes in the market for loan sales. We use a Tobit model to characterize the determinants of loan sales and purchases by banks, relating quantities bought and sold to bank size, capital, risk, and funding mode. The results, though not definitive, broadly confirm the Pennacchi model of sales. Other data cast doubt on the importance of mergers and acquisitions for this market and on the comparability of different data sources. (PDF)
- WP 93-06
- The Evolving Legal Framework for Financial Services
- A summary of the history of financial services regulation in the United States and an examination of the conflicting models of political economy, or the legal framework, that lay behind that history. (PDF)
- WP 93-05
- Generational Accounting in Norway: Is the Nation Overconsuming its Petroleum Wealth?
- This paper uses generational accounting to assess Norway’s fiscal position. Generational accounting measures the remaining lifetime net tax burdens facing different living generations. It can also be used to compute the percentage difference between the average net tax burden facing future generations and that facing current newborns under existing fiscal policies. Although the Norwegian government imposes sizable burdens on current generations, it also consumes a large share of total national output. Our calculations indicate that despite the government’s positive net wealth, current policies imply net tax burdens on future Norwegians that are about twice as large as those facing current young generations. (PDF)
- WP 93-04
- Measuring core inflation
- An analysis of the use of limited-information estimators as measures of core inflation, showing that these estimators, such as the median of the cross-sectional distribution of inflation, have a higher correlation with past money growth and deliver improved forecasts of future inflation relative to the Consumer Price Index. (PDF)
- WP 93-03
- Regulatory taxes, investment, and financing decisions for insured banks
- This article develops a two-factor model of bank behavior under credit and interest rate risk. In addition to flat-rate government deposit guarantees, we assume banks possess charter values that are lost if audits reveal that their tangible assets cannot cover their liabilities. Within this framework, we investigate the effects of interest rate and credit risk on optimal capital structure and investment decisions. We then show that with no uncertainty in interest rates, capital regulation will reduce the risk of the assets in the bank. However, with interest rate uncertainty, the impact of regulation may be detrimental and raise the risk of the deposits as well as the government subsidies to the shareholders of the bank. (PDF)
- WP 93-02
- HRM Policy and Increasing Inequality in a Salary Survey
- A look at the implications for human resource management of the rising wage disparity found in a three-decades-long private salary survey conducted by the Federal Reserve Bank of Cleveland. (PDF)
- WP 93-01
- Sharing with a risk-neutral agent
- In the standard solution to the principal-agent problem, a risk-neutral agent bears all the risk. This paper shows that, in fact, multiple solutions exist, and often the risk-neutral agent is not the sole bearer of risk. Furthermore, as risk aversion approaches zero, the unique risk-averse solution converges to the risk-neutral solution wherein the agent bears the least amount of risk. Even a small degree of risk aversion can lead to agents’ bearing significantly less risk than the simple solution suggests. (PDF)