Search Results
Working Paper
Competitive search equilibrium in a DSGE model
We show how to implement a competitive search equilibrium in a fully-specified DSGE environment. Competitive search, an equilibrium concept well-understood in labor market theory, offers an alternative to the commonly-used Nash bargaining in search-based macro models. Our simulation-based results show that business cycle fluctuations under competitive search equilibrium are virtually identical to those under Nash bargaining for a broad range of calibrations of Nash bargaining power. We also prove that business cycle fluctuations under competitive search equilibrium are exactly identical to ...
Working Paper
Efficient Mismatch
This paper presents a model in which mismatch employment arises in a constrained efficient equilibrium. In the decentralized economy, however, mismatch gives rise to a congestion externality whereby heterogeneous job seekers fail to internalize how their individual actions affect the labor market outcomes of competitors in a common unemployment pool. We provide an analytic characterization of this distortion, assess the distributional nature of the associated welfare effects, and relate it to the relative productivity of low- and high-skilled workers competing for similar jobs.
Working Paper
Expectation traps in a New Keynesian open economy model
This paper illustrates that the introduction of a money demand distortion into an otherwise standard New Keynesian Open Economy model generates multiple discretionary equilibria. These equilibria arise in the form of expectations traps whereby the monetary authority is trapped into validating expectations of the private sector because failing to do so is costly. One implication of the model is that provided initial inflation expectations are sufficiently anchored the global Friedman rule emerges as an equilibrium under discretion. It is therefore a time-consistent outcome and hence fully ...
Working Paper
The Federal Reserve’s Response to the 2023 Banking Turmoil: The Bank Term Funding Program
The Bank Term Funding Program (BTFP) was an emergency liquidity facility set up by the Federal Reserve in March 2023 following the failure of Silicon Valley Bank which experienced a classic bank run driven by weak fundamentals. This paper provides an in-depth discussion of the design and implementation of the BTFP and presents some evidence on program outcomes. It also quantifies how the lending terms compare to those of the Discount Window—the Federal Reserve’s main standing liquidity facility. The BTFP successfully acted as a backstop source of funding for depository institutions with ...
Working Paper
Offshoring, Mismatch, and Labor Market Outcomes
We study the role of labor market mismatch in the adjustment to a trade liberalization that results in the offshoring of high-tech production. Our model features two-sided heterogeneity in the labor market: high- and low-skilled workers are matched in a frictional labor market with high- and low-tech firms. Mismatch employment occurs when high-skilled workers choose to accept a less desirable job in the low-tech industry. The main result is that--perhaps counter-intuitively--this type of job displacement is actually beneficial for the labor market in the country doing the offshoring. Mismatch ...
Working Paper
Do Banks Price Flood Risk in Mortgage Origination: Evidence from a Natural Experiment in New Orleans
This paper uses a large-scale redrawing of flood zone maps for the City of New Orleans in 2016 to identify how banks respond to changes in perceived flood risk in residential mortgage origination. Using geo-coding, we separate loan-level data on mortgage originations into treatment versus control groups based on how individual properties were affected by the map changes. We find banks charged interest rates that were roughly 6 basis points higher for mortgages on treated properties that were removed from the special floods zones as a result of the map changes. In addition, lower loan-to-value ...
Working Paper
A Macroprudential Perspective on the Regulatory Boundaries of U.S. Financial Assets
This paper uses data from the Financial Accounts of the United States to map out the regulatory boundaries of assets held by U.S. financial institutions from a macroprudential perspective. We provide a quantitative measure of the regulatory perimeter—the boundary between the part of the financial sector that is subject to some form of prudential regulatory oversight and that which is not—and show how it has evolved over the past forty years. Additionally, we measure the boundaries between different regulatory agencies and financial institutions that operate within the regulatory perimeter ...
Working Paper
Explaining the energy consumption portfolio in a cross-section of countries: are the BRICs different?
This paper uses disaggregated data from a broad cross-section of countries to empirically assess differences in energy consumption profiles across countries. We find empirical support for the energy ladder hypothesis, which contends that as an economy develops it transits away from a heavier reliance on traditional fuel sources towards an increase in the use of modern commercial energy sources. We also find empirical support for the hypothesis that structural transformation--the idea that as an economy matures, it transforms away from agriculture-based activity into industrial activity and, ...
Working Paper
Secondary Market Liquidity and the Optimal Capital Structure
We present a model where endogenous liquidity generates a feedback loop between secondary market liquidity and firms' financing decisions in primary markets. The model features two key frictions: a costly state verification problem in primary markets, and search frictions in over-the-counter secondary markets. Our concept of liquidity depends endogenously on illiquid assets put up for sale relative to the resources available for buying those assets in the secondary market. Liquidity determines the liquidity premium, which affects issuance in the primary market, and this effect feeds back into ...