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Bank:Federal Reserve Bank of St. Louis  Series:Working Papers 

Working Paper
The Evolution of Lifetime Hours and the Gender Wage Gap

The gender wage gap decreased (opened) from 1940 to 1975 and then increased (closed) until 2010. We use the model introduced in Ben-Porath (1967) to assess the role of gender differences in life cycle profiles of market time in explaining this dynamics. Men's profiles changed little across cohorts, but women's profiles converged to that of men implying, eventually, stronger incentives for women to accumulate human capital. We calibrate the model and find that (1) The 1940-75 decrease of the gap was because men valued human capital more than women due to their working more. The 1975-10 ...
Working Papers , Paper 2022-025

Working Paper
What about Japan?

As a result of the BoJ's large-scale asset purchases, the consolidated Japanese government borrows mostly at the floating rate from households and invests in longer-duration risky assets to earn an extra 3% of GDP. We quantify the impact of Japan's low-rate policies on its government and households. Because of the duration mismatch on the government balance sheet, the government's fiscal space expands when real rates decline, allowing the government to keep its promises to older Japanese households. A typical younger Japanese household does not have enough duration in its portfolio to ...
Working Papers , Paper 2023-028

Working Paper
Insurance and Inequality with Persistent Private Information

We study the implications of optimal insurance provision for long-run welfare and inequality in economies with persistent private information. A principal insures an agent whose private type follows an ergodic, finite-state Markov chain. The optimal contract always induces immiseration: the agent’s consumption and utility decrease without bound. Under positive serial correlation, it also backloads high-powered incentives: the sensitivity of the agent’s utility with respect to his reports increases without bound. These results extend—and help elucidate the limits of—the hallmark ...
Working Papers , Paper 2018-020

Working Paper
The Determination of Public Debt under both Aggregate and Idiosyncratic Uncertainty

We use an analytically tractable, heterogeneous-agent incomplete-markets model to show that the Ramsey planner’s decision to finance stochastic public expenditures implies a departure from tax smoothing and an endogeneous mean-reverting force to support positive debt growth despite the government’s precautionary saving motives. Specifically, the government’s attempt to balance the competing incentives between its own precautionary saving (tax smoothing) and households’ precautionary saving (individual consumption smoothing)—even at the cost of extra tax distortion—implies an ...
Working Papers , Paper 2019-038

Working Paper
Enduring Relationships in an Economy with Capital and Private Information

We study efficient risk sharing in a model where agents operate linear production technologies with private information about idiosyncratic productivity. Capital is the sole factor of production, and accumulable. We establish a time-invariant, one-to-one mapping between the capital allocated to an agent and his lifetime utility entitlement. The mapping implies properties that are distinct from those in private-information endowment models. In contrast to the endowment model, the value of the risk-sharing arrangement in our model always remains above autarky value, so there is no need for ...
Working Papers , Paper 2020-034

Working Paper
Did Doubling Reserve Requirements Cause the 1937-38 Recession? New Evidence on the Impact of Reserve Requirements on Bank Reserve Demand and Lending

In 1936-37, the Federal Reserve doubled member banks' reserve requirements. Friedman and Schwartz (1963) famously argued that the doubling increased reserve demand and forced the money supply to contract, which they argued caused the recession of 1937-38. Using a new database on individual banks, we show that higher reserve requirements did not generally increase banks' reserve demand or contract lending because reserve requirements were not binding for most banks. Aggregate effects on credit supply from reserve requirement increases were therefore economically small and statistically zero.
Working Papers , Paper 2022-011

Working Paper
Time-Inconsistent Optimal Quantity of Debt

A key feature of the infinite-horizon heterogeneous-agents incomplete-markets (Inf-HAIM) framework is that the equilibrium interest rate of public debt lies below the time discount rate (regardless of capital). This happens because of a positive liquidity premium on asset returns due to imperfect risk sharing. This fundamental property of standard Inf-HAIM models, however, implies that the Ramsey planner's fiscal policy may be time-inconsistent---because the planner has a dominate incentive to issue plenty of debt such that all households are fully self-insured against idiosyncratic risk ...
Working Papers , Paper 2020-037

Working Paper
The Impact of Racial Segregation on College Attainment in Spatial Equilibrium

We incorporate race into an overlapping-generations spatial-equilibrium model with neighborhood spillovers. Race matters in two ways: (i) the Black-White wage gap and (ii) homophily—the preferences of individuals over the racial composition of their neighborhood. We find that these two forces generate a Black-White college gap of 22 percentage points, explaining about 80% of the college gap in the data for the St. Louis metro area. Counterfactual exercises show that the wage gap and homophily explain 7 and 18 percentage points of the college gap, respectively. A policy of equalizing school ...
Working Papers , Paper 2022-036

Working Paper
Earnings Misperceptions and Household Distress

Households learn whether income changes are temporary or persistent from their own paychecks. This paper develops a quantitative model of financial distress that incorporates this inference and estimates the extent to which households overweight recent outcomes—diagnostic expectations—using survey data on income beliefs. The model explains distress without assuming extreme impatience and aligns with the observed relationship between income and interest rates. Learning and diagnostic expectations account for about half of delinquencies and one-third of bankruptcies. Diagnostic expectations ...
Working Papers , Paper 2025-030

Working Paper
Vocational Considerations and Trends in Social Security Disability

Along with health, Social Security Disability Insurance (SSDI) evaluates work-limiting disability by considering vocational factors including age, education, and past work experience. As the number of SSDI applicants and awards has increased, these vocational criteria are increasingly important to acceptances and denials. A unique state-level dataset allows us to estimate how these factors relate to the SSDI award process. These estimates are used to asses how changes to the demographic and occupational composition have contributed to awards trends. In our results, the prevalence of workers ...
Working Papers , Paper 2016-18

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