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2017 Economic Commentaries

  • Sizing Up Systemic Risk

    Joseph G. Haubrich Charlotte DeKoning


    Regulators now use a framework for identifying systemically important banking institutions that is based on five broad measures of bank structure. Though size is only one of these equally weighted measures, it seems to be the focus of most attention. This Commentary explores whether the other measures contribute unique information or whether size is all one needs to identify all the institutions whose failure could bring down the financial system. Read More

  • Warehousing: A Historical Lesson in Central Bank Independence

    Owen F. Humpage


    This Economic Commentary explains how warehousing—a seemingly innocuous institutional arrangement between the Federal Reserve and the US Treasury—came to threaten the Fed’s independence. Warehousing began as an arcane procedure designed to help the Treasury cover a specific type of foreign-exchange exposure. It then grew into a supplemental source of funding for the Treasury's foreign-exchange interventions. Eventually the procedure morphed into a sizeable off-budget source of funding for other Treasury activities and seemed an inappropriate subversion of the congressional appropriations process, a development that raised concerns within the Fed about its ability to conduct monetary policy free from political concerns. Read More

  • Measuring the True Impact of Job Loss on Future Earnings

    Pawel Krolikowski


    The effect of job displacement on future earnings losses has often been calculated by comparing the earnings of individuals who suffer a displacement at some point in their career with the earnings of those who never lose a job. I show this approach leads to an overstatement of the earnings losses following displacement and discuss an alternative that can ascertain the true effects of displacement in some instances. Read More

  • Merger Control in the Banking Sector

    Jan-Peter Siedlarek


    This Commentary discusses the implications of merger control policy on merger activity in the banking sector, drawing on an analysis of the European banking sector during a period in which stricter merger policies were being introduced. It identifies several changes to the bank mergers taking place after the introduction of the stricter policies that are consistent with higher expected returns for shareholders and more procompetitive transactions. The evidence suggests that the new merger policy was successful in preventing mergers that are excessively anticompetitive, while it also led to banks’ finding mergers that are expected to deliver greater efficiency. Read More

  • New Data on Wealth Mobility and Their Impact on Models of Inequality

    Daniel R. Carroll Nick Hoffman


    Using data on families' wealth over time, we calculate changes in relative wealth mobility; that is, how likely families are to move up or down the wealth distribution, relative to one another. We find families have become less likely to change their position in the wealth distribution over time, and those that do move are less likely to go very far. We also look at the savings behaviors that are associated with more mobile families and find that families that make large movements through the wealth distribution appear to be more likely to own some form of a risky asset. Read More

  • How Small Banks Deal with Large Shocks

    Kristle Cortés


    After a natural disaster such as a hurricane, tornado, or flood, banks in the affected area experience a sharp rise in the demand for loans as property owners look to repair the damage. Recent research has focused on such events to study how small community banks adjust their typical way of doing business to respond to large shocks. The research finds that banks strategically adjust their business in three ways to meet the increased demand. Two adjustments increase the funds available for lending, while one shifts lending from areas unaffected by the disaster to the affected area, a strategy that extends the negative impact of large shocks to distant areas otherwise untouched by the disaster. Read More

  • The Federal Funds Market since the Financial Crisis

    Ben R. Craig Sara Millington


    Before the financial crisis, the federal funds market was a market in which domestic commercial banks with excess reserves would lend funds overnight to other commercial banks with temporary shortfalls in liquidity. What has happened to this market since the financial crisis? Though the banking system has been awash in reserves and the federal funds rate has been near zero, the market has continued to operate, but it has changed. Different institutions now participate. Government-sponsored enterprises such as the Federal Home Loan Banks loan funds, and foreign commercial banks borrow. Read More

  • Lingering Residual Seasonality in GDP Growth

    Kurt G. Lunsford


    Measuring economic growth is complicated by seasonality, the regular fluctuation in economic activity that depends on the season of the year. The Bureau of Economic Analysis uses statistical techniques to remove seasonality from its estimates of GDP, and, in 2015, it took steps to improve the seasonal adjustment of data back to 2012. I show that residual seasonality in GDP growth remains even after these adjustments, has been a longer-term phenomenon, and is particularly noticeable in the 1990s. The size of this residual seasonality is economically meaningful and has the ability to change the interpretation of recent economic activity. Read More

  • Trends in Revenues at US Colleges and Universities, 1987-2013

    Peter L. Hinrichs


    This Economic Commentary studies trends in inflated-adjusted revenues per student at US colleges and universities in broad revenue categories between 1987 and 2013. The findings show that, as is widely perceived, tuition revenue has risen over time at both public and private institutions. In recent years, tuition revenue at public institutions has been nearly as large a source of revenue as state and local government funding has been. Revenue from state and local governments has fluctuated at public institutions but has generally fallen over time, whereas funding from the federal government has risen. Investment returns are a large and highly variable source of revenue, especially for private institutions. Read More

  • Wage Growth after the Great Recession

    Roberto Pinheiro Meifeng Yang


    Nominal wage growth since the Great Recession has been sluggish. We show that the sluggishness is due mostly to weak growth in labor productivity, as well as lower-than-expected inflation. We also find that wage growth since late 2014 has actually been above what would be consistent with realized labor-productivity growth and inflation, and this trend in wages reflects an increase in labor's share of income. We show evidence that this increase in the labor share may be due to a reversal of the trend to replace labor with capital. Read More

  • Parental Proximity and the Earnings Consequences of Job Loss

    Patrick Coate Pawel Krolikowski Mike Zabek


    We find post-job-loss earnings recovery is faster for young adults who live near their parents than for young adults who live farther away. This positive effect diminishes gradually as the distance to one's parents increases. Most of the effect is driven by higher wages after job displacement, not by differences in the number of hours worked. The effect is not present for older workers, who may be caring for elderly parents. Read More

  • The State of States’ Unemployment in the Fourth District

    Murat Tasci Caitlin Treanor Christopher Vecchio


    Unemployment rates vary across individual US states at any point in time and respond to business-cycle fluctuations differently. Evaluating what constitutes a "normal" level for the unemployment rate at the state level is not easy, but it is an important issue for policymakers. We introduce a framework that enables us to calculate the normal unemployment rate for each of the four states in the Fourth District and compare that rate to the national normal rate. We conclude that these states and the District as a whole have very little labor market slack left from the Great Recession. Read More

  • Monetary Policy and Inequality

    Pedro S. Amaral


    This Commentary examines the link between monetary policy and income and wealth inequality by reviewing the theoretical channels that have been proposed and examining the empirical evidence on their importance. The analysis suggests that the magnitude of any redistributive consequences of conventional monetary policy seems to be small. Evidence that unconventional monetary policies have led to increases in inequality is still inconclusive. Read More