Atlanta Fed Working Papers

The Research Department of the Federal Reserve Bank of Atlanta publishes a working paper series to convey the research of staff economists and visiting scholars and stimulate professional discussion and exploration of economic and financial subjects.


Inference in Bayesian Proxy-SVARs

Jonas E. Arias, Juan F. Rubio-Ramírez, and Daniel F. Waggoner
Working Paper 2018-16 (December)
Motivated by the use of external instruments to identify structural vector autoregressions, the authors develop algorithms for exact finite sample inference in these time series models. Their algorithms efficiently make independent draws from conjugate posteriors, which are normal-generalized-normal distributions.

Financial Intermediation Chains in an OTC Market

Ji Shen, Bin Wei, and Hongjun Yan
Working Paper 2018-15 (December)
The authors analyze financial intermediation chains in a search model with an endogenous intermediary sector. They show that the chain length and price dispersion among interdealer trades are decreasing in search cost, search speed, and market size but increasing in investors' trading needs.

Ambiguity Aversion and Variance Premium

Jianjun Miao, Bin Wei, and Hao Zhou
Working Paper 2018-14 (December)
This paper offers an ambiguity-based interpretation of variance premium, or the difference between risk-neutral and objective expectations of market return variance. The authors demonstrate how ambiguity aversion can account for the size of the variance premium in the data.

Can the U.S. Interbank Market Be Revived?

Kyungmin Kim, Antoine Martin, and Ed Nosal
Working Paper 2018-13 (November)
With the increase in banks' excess reserves, the interbank market has essentially disappeared. The authors study whether interbank market activity can be revived if the supply of excess reserves declines sufficiently. They find that reviving the market to precrisis volumes might not be possible because of costs associated with recent banking regulations.

Macroeconomic Effects of China's Financial Policies

Kaiji Chen and Tao Zha
Working Paper 2018-12 (November)
The authors observe that the Chinese economy has gone through three distinct phases since the late 1970s. They analyze the effects of the government's financial policies in these phases and discuss what drove these changes and the varying impacts of these policies on the economy.

Technological Change and Financial Innovation in Banking: Some Implications for Fintech

W. Scott Frame, Larry Wall, and Lawrence J. White
Working Paper 2018-11 (October)
Technological change is an important driver of financial innovation. The authors review the literatures examining specific technology-driven financial innovations from recent decades, including examples of significant fintech innovations that are transforming various aspects of banking.

Villains or Scapegoats? The Role of Subprime Borrowers in Driving the U.S. Housing Boom

James Conklin, W. Scott Frame, Kristopher Gerardi, and Haoyang Liu
Working Paper 2018-10 (August)
The authors examine the expansion in mortgage credit to subprime borrowers that is widely believed to have been a principal driver of the 2002–06 U.S. house price boom. They show that the house price and subprime booms occurred in different places.

Decentralization and Overborrowing in a Fiscal Federation

Si Guo, Yun Pei, and Zoe Xie
Working Paper 2018-9 (August)
Using a model of fiscal federation, the authors show that local governments' reliance on central transfers leads to overborrowing, and absent commitment, the central government overtransfers. Applied to Spain before the euro crisis, they find that changes in local transfer reliance induced by fiscal decentralizations help explain government debt changes.

Unconventional Monetary Policy and Risk-Taking: Evidence from Agency Mortgage REITs

W. Scott Frame and Eva Steiner
Working Paper 2018-8 (August)
The authors study how quantitative easing influenced the behavior of Agency mortgage REITs. Their findings are consistent with unconventional monetary policy crowding-out of private investment and "reaching for yield" behavior by financial institutions.

Fiscal Implications of the Federal Reserve's Balance Sheet Normalization

Michele Cavallo, Marco Del Negro, W. Scott Frame, Jamie Grasing,
Benjamin A. Malin, and Carlo Rosa
Working Paper 2018-7 (August)
The authors describe the effects of different scenarios for the Federal Reserve's longer-run balance sheet on its earnings remittances to the U.S. Treasury. They find that by reducing longer-run reserve balances, the likelihood of posting a quarterly net loss in the future declines.

Bank Runs without Sequential Service

David Andolfatto and Ed Nosal
Working Paper 2018-6 (August)
Something other than sequential service is needed to help explain the bank runs observed during the recent financial crisis. Absent sequential service, runs can occur whenever bank-funded investments are subject to increasing returns to scale, consistent with available evidence.

In-migration and Dilution of Community Social Capital

Julie L. Hotchkiss and Anil Rupasingha
Working Paper 2018-5 (July)
A community's high level of social capital can generate positive externalities for community members. Consistent with predictions from the literature, the authors find that higher levels of in-migration dilute multiple dimensions of a community's level of social capital.

State Merit Aid Programs and Youth Labor Market Attachment

David E. Frisvold and M. Melinda Pitts
Working Paper 2018-4 (June)
The authors examine the role of state merit aid programs in the labor force participation (LFP) of young people. They find that although these programs influence the labor supply of high school-aged youth, the introduction and expansion of merit-aid programs have not been a cause of the decline in youth LFP.

Individual Social Capital and Migration

Julie L. Hotchkiss and Anil Rupasingha
Working Paper 2018-3a (June)
The authors examine the role of individual social capital in migration decisions. They find that individuals are much less likely to move to a community where the average levels of social capital are lower than their own.

Bayesian Inference and Prediction of a Multiple-Change-Point Panel Model with Nonparametric Priors

Mark Fisher and Mark J. Jensen
Working Paper 2018-2a (June)
The authors use nonparametric hierarchical priors to cluster mutual funds and their regimes into groups that have similar skill levels and locally shrink their alphas toward the average alpha of the group. This partial sharing and local shrinkage identifies highly skilled funds and fund managers.

Some Like It Hot: Assessing Longer-Term Labor Market Benefits from a High-Pressure Economy

Julie L. Hotchkiss and Robert E. Moore
Working Paper 2018-1b June 2018 (Revised October 2018)
Examining the lasting effects of particularly low unemployment periods on labor market outcomes, the authors find that benefits extend beyond the low unemployment period but cannot be expected to improve labor market gaps between advantaged and disadvantaged labor force participants.

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