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F e d e r a l R e s e r v e B a n k o f N e w Yo r k

Number 4

2005

ResearchUpdate
Research and Statistics Group

www.newyorkfed.org/research

New Research Center Broadens Access to Census Bureau Data

T

he Research Group, on behalf of
the New York Fed, recently helped
establish a Census Research Data
Center in New York City. The Bank is a
founding member of the consortium that
supports the facility, joining fourteen
leading universities and research organizations in New York State. Only eight
other Data Centers operate nationwide.
At the Data Centers, researchers who
have completed a project review process
can access in a secure
The presence of a Data
facility selected confidenCenter in the New York tial economic and demoarea will support an graphic microdata gathimportant new strand of ered by the U.S. Census
Bureau. Project approval
empirical research in the can be lengthy because
Bank and the region. research conducted using
the confidential data
must meet the Census Bureau’s rigorous
criteria for confidentiality and merit.
Research projects are approved for a
finite period of time.
“The presence of a Data Center in the
New York area will support an important
new strand of empirical research in the
Bank and the region,” observes Erica
Groshen of the New York Fed. Groshen,
along with colleague Bart Hobijn and

senior members of the Bank, played a
key role in establishing the Center.
“The insights gained from research using
Census Bureau data contribute to the
Bank’s monetary policy work and to its
regional efforts. So we’re especially excited
about the opening of this Center.”
In addition to its decennial demographic census, the Census Bureau conducts periodic censuses and surveys of
business establishments and firms as well
as other demographic surveys. The data
obtained provide uniquely detailed information on employment, income, housing,
manufacturing, trade, and other U.S. economic conditions.
“Economists want to know a lot about
firms and their decisions, but much of
the data on firms are not publicly available,” explains Hobijn. “By providing
access to these data, the Center enables
us to study what individual firms do,
what individual workers do, and what
workers do after they’ve switched firms.
That information is important to discussions of labor market developments and
monetary policy.”
The Census Bureau itself can benefit
from projects conducted at its Data
Centers. By allowing researchers to study

RV oe ls ue ma rec h9 , U Np du amtbee r■ 2N, u2m0b0e5r 4 , 2 0 0 5

confidential data, the Bureau is able
to improve the quality of the data.
Researchers familiarize themselves with
data products and collection methods,
and often uncover strengths and weaknesses in the data and in various coding
and processing procedures. “The more
the data are used for research, the more
the Census Bureau can evaluate their
quality,” says Hobijn. “The Bureau can
then determine how to derive the greatest

benefits from changes to its data collection
and processing methods.”
“The Data Center will also benefit the
New York metro area as a whole because
it will attract top researchers and promote
important social science work here,” adds
Groshen.
For more on the Census Research Data
Center, visit www.ciser.cornell.edu/
NYCRDC/home.shtml.

2

Conference on Urban Dynamics Spotlights New York City’s
Strengths and Challenges

C

ities are often viewed as ideal settings for studying the mechanisms
of sustained economic growth, the
dynamics of economic activities, and the
impact and trajectories of immigration
flows. By their nature, cities can also be
volatile and fragile organisms that undergo

dramatic rises and declines over short
time periods. New York, in particular, has
withstood long-run adverse trends as well
as sudden unanticipated shocks.
In April 2005, the New York Fed provided a forum for these important topics
by sponsoring the conference “Urban

Publications and Papers
The Research and Statistics Group produces a wide range of publications:
■

The Economic Policy Review—a policy-oriented journal focusing on economic
and financial market issues.

■

EPR Executive Summaries—online versions of selected Economic Policy Review
articles in abridged form.

■

Current Issues in Economics and Finance—concise studies of topical economic
and financial issues.

■

Second District Highlights—a regional supplement to Current Issues.

■

Staff Reports—technical papers intended for publication in leading economic
and finance journals, available only online.

■

Publications and Other Research—an annual catalogue of our research output.

F e d e r a l R e s e r v e B a n k o f N e w Yo r k

www.newyorkfed.org/research

Dynamics in New York City.” The three
sessions considered a range of issues,
such as how a large city like New York
survives, even thrives, in an everchanging environment and how this
dynamic affects the city’s population and
institutions.
A central theme to emerge was the
significance of “openness,” both to new
ideas and to newcomers. “The degree of
openness and the cross-fertilization that
it allows can be essential to ensuring a
city’s ability to reinvent itself amid
adverse circumA central theme to stances,” observes
Giorgio Topa, who
emerge was the
organized the confersignificance of ence with Erica
“openness,” both Groshen. “However,
to new ideas and to openness brings challenges, including the
newcomers. need for institutions to
coordinate actions and integrate newcomers in a productive way.” These and other
issues were central to the discussions,
he adds, and the ways in which cities
address them will surely spur future
researchers on urban dynamics.
The first session was devoted to the
historical transformations of New York
City’s engine-of-growth industries, the
chief determinants of the city’s longstanding economic dominance, and the
challenges to New York’s continued success. Edward Glaeser offered a detailed
historical account of the major contributors to the city’s economic strength over
the past four centuries. He emphasized
such themes as the importance of geography in New York’s early success, the
value of simple transportation cost and
scale economies, and the city’s advantage

in facilitating information flows and faceto-face interactions. Stuart Rosenthal and
William Strange provided fresh evidence
on the importance of very local agglomeration economies to sustained growth.
Analyzing the geography of entrepreneurship in the New York area, they found
that “births” of new establishments and
the number of jobs there—the authors’
measures of entrepreneurial activity—are
positively affected by local employment
density and even more so by the amount
of local employment in the entrepreneur’s
own industry. The effect of a large,
unforeseen, external shock on a local
economy was examined by Andrew
Haughwout and Bess Rabin, who considered
New York’s response to the September 11
terrorist attacks. Their study of the city’s
real estate markets revealed that the
economy was remarkably resilient to the
shock and that the efforts of city officials
helped offset many of the negative effects
of the dislocations experienced in Lower
Manhattan.
Kenneth Jackson’s keynote remarks
identified several characteristics that
make New York a unique and vibrant
metropolis. An especially compelling characteristic is the city’s openness to newcomers, whether they take the form of
new ideas, new communities, or new religious groups. The constant inflow of
innovations embodied by newcomers,
Jackson argued, has enabled New York to
reinvent itself in the face of such economic challenges as the decline of its
port and of manufacturing in general.
The nature and evolution of immigration flows into New York motivated
Session 2. George Borjas analyzed the
skill levels and earnings of immigrant

Research and Statistics Group

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Number 4, 2005

workers from 1970 to 2000, while John
Mollenkopf examined the socioeconomic
achievements of second-generation
immigrants. Borjas found that in terms
of educational attainment, skill levels
increased more for native- and foreignborn workers in New York than for their
counterparts elsewhere in the country.
At the same time, though, the skill gap
between New York native and immigrant
workers has widened. Borjas detected the
same pattern for wages. Mollenkopf shed
light on the intergenerational trajectories
of immigrant groups, linking the experiences of U.S.-born children of immigrants to those of their parents. Children
of South American, Dominican, and West
Indian immigrants fare slightly better on
various outcome measures than do children in similar native Puerto Rican or
African American households. Moreover,
second-generation Chinese and Russians
have made extraordinary educational
progress relative to their parental backgrounds. His findings suggested that
intergenerational transmission strategies
interact with perceptions about race and
neighborhood conditions in complex ways
to determine second-generation immigrant trajectories.
The final session centered on recent
trends in socioeconomic outcomes, for
the general population and for recent

immigrants more specifically. Guillermina
Jasso, Douglas Massey, Mark Rosenzweig,
and James Smith studied the health trajectory of new legal immigrants to the
United States from the start of the immigration process and continuing after
arrival; Amy Ellen Schwartz and Leanna
Stiefel examined changing educational
outcomes among children of immigrants
and native children in New York City’s
public schools. Jasso et al. found that the
combined effects on health outcomes of
what they term “visa stress” and “migration stress” are negative, while the pure
effect of “U.S. exposure” is positive,
especially for men. In addition, immigrants in New York tend to be healthier
on arrival relative to immigrants who settle elsewhere while their subsequent trajectories do not differ significantly from
those of other immigrants. One of the
most striking results obtained by
Schwartz and Stiefel is that children of
immigrants tend to outperform native
children on several standardized tests,
despite their less favorable initial background. This “immigrant advantage”
increases in higher grades.
The proceedings are published in the
December 2005 issue of the Economic
Policy Review (www.newyorkfed.org/
research/epr/2005n2.html).

Transaction-Level Data Offer New Insight into the Federal Funds Market

I

n recent decades, an extensive literature has emerged on the behavior of
the federal funds market—the market
in which U.S. depository institutions borrow and lend the balances, or reserves,
that they hold in accounts at the Federal

F e d e r a l R e s e r v e B a n k o f N e w Yo r k

Reserve. This literature has of necessity
focused on the day-to-day movements
in the market because data on trading
activity over the course of a business day
have been lacking.

www.newyorkfed.org/research

In “Intraday Trading in the Overnight
Federal Funds Market” (Current Issues in
Economics and Finance, vol. 11, no. 11),
Leonardo Bartolini, Svenja Gudell,
Spence Hilton, and Krista Schwarz use a
new set of transaction-level data to present a detailed picture of the intraday life
of the federal funds market. Drawing on
a sample of more than 100,000 individual
trades over 660 business days, the authors
are able to identify broad patterns in the
behavior of trading volume and prices
over the course of the day. Their analysis
of these patterns leads them to argue that
institutional deadlines play a key role in
shaping activity in the market.
Trade volume, the authors find, exhibits
large swings during the day. It peaks first
in the morning, between 8:30 and 10:00,

then drops through mid-afternoon. In the
late afternoon, it rises to its highest level,
with roughly 40 percent of trading taking
place in the last two hours. Prices, in
contrast to trade volume, remain fairly
stable for much of the day. Only in the
late afternoon does rate volatility surge.
The authors attribute the parallel
increases in trade volume and rate
volatility at the end of the day to the
approaching close of trading over
Fedwire, the Federal Reserve’s electronic
payment system, at 6:30 p.m. “Although
distinctive patterns are exhibited during
the rest of a typical business day,” they
note, “both trading activity and rates display their most pronounced movements
in conjunction with this deadline.” ■

Upcoming Conference to Focus on Payments

T

o highlight the growing body of
innovative research on retail and
wholesale payments systems, the
Federal Reserve Banks of Atlanta and
New York will cosponsor “The Economics
of Payments II” conference. The sessions,
which will be held at the New York Fed
on March 29 and 30, 2006, follow upon
the success of the inaugural conference
held at the Atlanta Fed in 2004. Jeffrey
M. Lacker, President of the Richmond
Fed, is the scheduled keynote speaker.
Recent payments research has contributed to the study of monetary theory,
empirical economics, and industrial
organization of two-sided markets.
Ongoing changes in payments markets

include shifts in the use of various payment instruments around the world—
notably, the continuing decline in check
usage in the United States, the growth of
debit and credit card payments in many
countries, the continued development of
personal online payment methods, the
redesign of large-value payments systems
in many countries, and the response to
various antitrust disputes involving cardbased payments. The sessions will focus
on these and other important topics.
The conference program and further
details will be posted at www.newyorkfed
.org/newsevents/events/research.html
when they become available. ■

Research and Statistics Group

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Number 4, 2005

New Titles in the Staff
Reports Series
The following new Staff Reports are available
at www.newyorkfed.org/research/
staff_reports/.

MACROECONOMICS
AND GROWTH
No. 224, October 2005
The Tobin Effect and the Friedman Rule
Joydeep Bhattacharya, Joseph Haslag,
and Antoine Martin

6

This paper addresses whether the Friedman
rule can be optimal in an economy in
which the Tobin effect is operative. The
authors present an overlapping generations
economy with capital in which limited
communication and stochastic relocation
create an endogenous transaction role for
fiat money. With logarithmic utility, the
“anti-Tobin” effect is operative, and the
Friedman rule is optimal (that is, stationarywelfare-maximizing) regardless of whether
or not there is long-run growth. Under the
constant relative risk aversion form of preferences, the authors show that an operative
“anti-Tobin” effect is a sufficient condition
for the Friedman rule to be optimal. Also,
contrary to models with linear storage technologies, the authors’ model shows that
zero inflation is not optimal.
No. 225, October 2005
Optimality of the Friedman Rule in
an Overlapping Generations Model
with Spatial Separation
Joseph Haslag and Antoine Martin
Haslag and Martin examine models with
spatial separation and limited communication that have shown some promise toward
resolving the disparity between theory and

F e d e r a l R e s e r v e B a n k o f N e w Yo r k

practice concerning optimal monetary policy;
these models suggest that the Friedman
rule may not be optimal. The authors show
that intergenerational transfers play a key
role in this result, that the Friedman rule is
a necessary condition for an efficient allocation in equilibrium, and that the rule is
chosen whenever agents can implement
mutually beneficial arrangements. The
study concludes that in order for these
models to resolve the aforementioned disparity, they must answer the following
question: Where do the frictions that prevent agents from implementing mutually
beneficial arrangements come from?
No. 228, November 2005
Time-Varying Pass-Through from
Import Prices to Consumer Prices:
Evidence from an Event Study
with Real-Time Data
Marlene Amstad and Andreas M. Fischer
This paper analyzes the pass-through from
import prices to CPI inflation in real time.
The authors’ strategy follows an eventstudy approach that compares inflation
forecasts before and after import price
releases. Inflation forecasts are modeled
using a dynamic factor procedure that
relies on daily panels of Swiss data. Amstad
and Fischer find strong evidence that
monthly import price releases provide
important information for CPI inflation
forecasts, and that the behavior of updated
forecasts is consistent with a time-varying
pass-through. The robustness of this latter
result is supported by an alternative CPI
measure that excludes price components
subject to administered pricing as well as
by panels capturing difference levels of
information breadth. Finally, the authors’
empirical findings cast doubt on a prominent role for sticky prices in the low passthrough findings.

www.newyorkfed.org/research

No. 229, November 2005
Can U.S. Monetary Policy Fall (Again)
into an Expectation Trap?
Roc Armenter and Martin Bodenstein
Armenter and Bodenstein provide a
tractable model to study monetary policy
under discretion. They restrict their analysis
to Markov equilibria. The study finds that
for all parametrizations with an equilibrium
inflation rate of about 2 percent, there is a
second equilibrium with an inflation rate
just above 10 percent. Thus, the model can
simultaneously account for the low and
high inflation episodes in the United States.
The authors carefully characterize the set
of Markov equilibria along the parameter
space and find their results to be robust,
suggesting that expectation traps are more
than just a theoretical curiosity.
No. 234, December 2005
Great Expectations and the End
of the Depression
Gauti B. Eggertsson
This paper argues that the U.S. economy’s
recovery from the Great Depression was
driven by a shift in expectations brought
about by the policy actions of President
Franklin Delano Roosevelt. On the monetary
policy side, Roosevelt abolished the gold
standard and—even more important—
announced the policy objective of inflating
the price level to pre-depression levels. On
the fiscal policy side, Roosevelt expanded
real and deficit spending. Together, these
actions made his policy objective credible;
they violated prevailing policy dogmas and
introduced a policy regime change such
as that described in work by Sargent and
by Temin and Wigmore. The economic
consequences of Roosevelt’s policies are
evaluated in a dynamic stochastic general
equilibrium model with sticky prices and
rational expectations.

No. 235, December 2005
Optimal Monetary and Fiscal Policy
under Discretion in the New
Keynesian Model: A Technical
Appendix to “Great Expectations
and the End of the Depression”
Gauti B. Eggertsson
This paper details the microfoundations of
the model presented in Staff Report no. 234,
“Great Expectations and the End of the
Depression.” It defines the Markov perfect
equilibrium formally in the nonlinear
model, discusses in some detail the approximation method used and the order of
accuracy of this approximation, and gives
proofs of two propositions not proved in
that study. In addition, this paper states a
proposition that shows the equivalence
between the linear quadratic approximation
in the aforementioned Staff Report and a
first-order approximation to the exact nonlinear conditions of the government in the
Markov perfect equilibrium defined here.
No. 236, December 2005
A Review of Core Inflation and
an Evaluation of Its Measures
Robert Rich and Charles Steindel
Viewing stabilization of either consumer
price index (CPI) inflation or personal consumption expenditure (PCE) inflation as a
central goal of U.S. monetary policy, the
authors evaluate a variety of candidate core
inflation measures. Almost all candidate
measures demonstrate the ability to track
the mean rate of aggregate inflation and
movements in its underlying trend. In the
within-sample analysis, core measures
derived through exponential smoothing,
in combination with simple measures of
economic slack, have substantial explanatory content for changes in aggregate inflation
several years in advance. In the out-of-sample
analysis, however, no measure performs
consistently well in forecasting inflation.
Taken together, the findings show that
there is no individual measure of core
inflation that can be considered superior
to other measures.

Research and Statistics Group

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Number 4, 2005

INTERNATIONAL
No. 222, October 2005
Trade Invoicing in the Accession
Countries: Are They Suited
to the Euro?
Linda S. Goldberg

8

Countries aspiring to join the euro area—
the so-called accession countries—are
increasingly binding their economic activity,
external and internal, to the euro-area
countries. This phenomenon is observed in
the currency invoicing of international trade
transactions, where accession countries have
reduced their use of the U.S. dollar in
invoicing such transactions. The optimal
invoicing choice for an accession country
depends on its composition of trade and on
correlations between fluctuations in home
and trade-partner macroeconomic variables.
Goldberg finds that the exporters in some
accession countries may be pricing too
much of their trade in euros rather than in
U.S. dollars, even in their trade transactions
with the euro-area and other European
Union countries, and may be taking on
excessive risk in international markets.
No. 226, October 2005
Financial Integration and the Wealth
Effect of Exchange Rate luctuations
Cédric Tille
Tille first presents a detailed decomposition
of the U.S. balance sheet, which exhibits
substantial leverage in terms of currencies
and across asset categories. He then incorporates these features of international
financial integration in a simple general
equilibrium model and analyzes how they
affect the international transmission of
monetary shocks. The author finds that
financial integration is a central component
of the model, with the valuation gains from
an exchange rate depreciation leading to a
welfare effect that is at least as large as that
stemming from nominal rigidities alone but
possibly much larger. He characterizes how
interdependence is affected by the composition of the portfolio across asset categories

F e d e r a l R e s e r v e B a n k o f N e w Yo r k

and how structural features of the model
interact with financial integration.
No. 230, November 2005
Does the Time Inconsistency Problem
Make Flexible Exchange Rates Look
Worse Than You Think?
Roc Armenter and Martin Bodenstein
Lack of commitment in monetary policy
leads to the well-known Barro-Gordon
inflation bias. In this paper, Armenter and
Bodenstein argue that two phenomena
associated with the time inconsistency problem have been overlooked in the exchange
rate debate. The authors show that, absent
commitment, independent monetary policy
can also induce expectation traps—that is,
welfare-ranked multiple equilibria—and
perverse policy responses to real shocks—
that is, an equilibrium policy response that
is welfare inferior to policy inaction. Both
possibilities imply higher macroeconomic
volatility under flexible exchange rates than
under fixed exchange rates.
No. 231, November 2005
Establishing Credibility: Evolving
Perceptions of the European
Central Bank
Linda S. Goldberg and Michael W. Klein
Goldberg and Klein present a novel empirical framework that uses high-frequency data
to test for persistent variation in market
perceptions of central bank inflation aversion. Tests of the effect of news announcements on the slope of yield curves in the
euro area and on the euro-dollar exchange
rate suggest that the market’s perception of
the policy stance of the European Central
Bank during its first six years of operation
evolved significantly, with a belief in the
Bank’s inflation aversion increasing in the
wake of its monetary tightening. In contrast,
tests based on the response of the slope of
the U.S. yield curve to news offer no comparable evidence of any change in market
perceptions of the inflation aversion of the
Federal Reserve.

www.newyorkfed.org/research

BANKING AND FINANCE
No. 223, October 2005
Why Is the U.S. Treasury Contemplating
Becoming a Lender of Last Resort
for Treasury Securities?
Kenneth D. Garbade and John E. Kambhu
The U.S. Treasury announced in August
2005 that it is exploring whether to provide
a backstop securities lending facility for
U.S. Treasury securities. This paper examines the conceptual basis for such a facility
by analogizing the market for borrowing
and lending Treasury securities with the
market for borrowing and lending money
prior to the founding of the Federal
Reserve System in 1914. An inelastic
supply of Treasury securities has led to
several recent episodes of chronic settlement fails. A backstop lending facility
would mitigate the fails problem by allowing the Treasury to act as a lender of last
resort of Treasury securities during periods
of unusual market stress.
No. 227, October 2005
Money Market Integration
Leonardo Bartolini, Spence Hilton,
and Alessandro Prati
Bartolini, Hilton, and Prati use transactionlevel data and detailed modeling of the
high-frequency behavior of federal funds–
Eurodollar yield spreads to provide evidence of strong integration between the
federal funds and Eurodollar markets, the
two core components of the dollar money
market. Their results contrast with previous
research indicating that these two markets
are segmented, showing them to be well
integrated even at high (intraday) frequency.
The authors document several patterns in
the behavior of federal funds–Eurodollar
spreads, including liquidity effects from
trading volume on the volatility of yield
spreads. Their analysis supports the view
that targeting federal funds rates alone is
sufficient to stabilize rates in the (much
larger) dollar money market as a whole.

No. 233, December 2005
The Return to Retail and
the Performance of U.S. Banks
Beverly J. Hirtle and Kevin J. Stiroh
The U.S. banking industry is experiencing
a renewed focus on retail banking, a trend
often attributed to the stability and profitability of retail activities. This paper examines the impact of banks’ retail intensity on
performance from 1997 to 2004 by developing three complementary definitions of
retail intensity (retail loan share, retail
deposit share, and branches per dollar of
assets) and comparing these measures with
both equity market and accounting measures of performance. The authors find that
an increased focus on retail banking across
U.S. banks is linked to significantly lower
equity market and accounting returns for
all banks but lower volatility for only the
largest banking companies. They conclude
that retail banking may be a relatively stable
activity, but it is also a low-return one.

QUANTITATIVE METHODS
No. 232, November 2005
One-Sided Test for an Unknown
Breakpoint: Theory, Computation,
and Application to Monetary Theory
Arturo Estrella and Anthony P. Rodrigues
The econometrics literature contains a
variety of two-sided tests for unknown
breakpoints in time-series models with one
or more parameters. This paper derives an
analogous one-sided test that takes into
account the direction of the change for a
single parameter. In particular, the authors
propose a sup t statistic, which is distributed as a normalized Brownian bridge. The
method is illustrated by testing whether the
reaction of monetary policy to inflation has
increased since 1959. ■

Research and Statistics Group

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Number 4, 2005

Recently Published
Adam Ashcraft. 2005. “Are Banks Really
Special? New Evidence from the FDICInduced Failure of Healthy Banks.”
American Economic Review 95, no. 5
(December): 1712-30.

10

Astrid Dick. 2005. “Mergers and Lending
Relationships: Discussion.” Comment on
“Information Asymmetries and the Effects
of Banking Mergers on Firm-Bank
Relationships,” by Steven Drucker; “SMEs
and Bank Lending Relationships: The
Impact of Mergers,” by Hans Degryse,
Nancy Masschelein, and Janet Mitchell; and
“The Effect of Bank Mergers on Loan Prices:
Evidence from the U.S.,” by Isil Erel.
In The Art of the Loan in the 21st Century:
Producing, Pricing, and Regulating Credit,
171-6. Proceedings of the Federal Reserve
Bank of Chicago’s 41st Annual Conference
on Bank Structure and Competition.
Linda Goldberg. 2005. “Exchange Rate
Pass-Through into Import Prices,” with
José Manuel Campa. Review of Economics
and Statistics 87, no. 4 (November): 679-90.
James Harrigan. 2005. “Lost Decade in
Translation: Did the United States Learn
from Japan’s Post-Bubble Mistakes?”
with Kenneth N. Kuttner. In Takatoshi Ito,
Hugh Patrick, and David E. Weinstein, eds.,
Reviving Japan’s Economy: Problems and
Prescriptions, 79-106. Cambridge: MIT Press.
Andrew Haughwout. 2005. “Evidence
from Real Estate Markets of the LongTerm Impact of 9/11 on the New York
City Economy.” In Howard Chernick, ed.,
Resilient City: The Economic Impact of 9/11,
97-121. New York: Russell Sage Foundation.

F e d e r a l R e s e r v e B a n k o f N e w Yo r k

Robert Rich, Jason Bram, Andrew
Haughwout, and James Orr. 2005. “Using
Regional Economic Indexes to Forecast
Tax Bases: Evidence from New York,”
with Rae Rosen and Rebecca Sela. Review
of Economics and Statistics 87, no. 4
(November): 627-34.
João Santos. 2005. “Allocating Bank
Regulatory Powers: Lender of Last
Resort, Deposit Insurance, and
Supervision,” with Charles M. Kahn.
European Economic Review 49, no. 8
(November): 2107-36.
Argia Sbordone. 2005. “Do Expected
Future Marginal Costs Drive Inflation
Dynamics?” Journal of Monetary Economics
52, no. 6 (September): 1183-97.
Til Schuermann. 2005. “Capital
Regulation for Position Risk in Banks,
Securities Firms, and Insurance
Companies,” with Richard Herring. In Hal
S. Scott, ed., Capital Adequacy beyond
Basel: Banking, Securities, and Insurance,
15-86. Oxford: Oxford University Press.
Til Schuermann. 2005. “A Review of
Recent Books on Credit Risk.” Journal of
Applied Econometrics 20, no. 1 (JanuaryFebruary): 123-30.
Zhenyu Wang. 2005. “A Shrinkage
Approach to Model Uncertainty and
Asset Allocation.” Review of Financial
Studies 18, no. 2 (summer): 673-705. ■

www.newyorkfed.org/research

Papers Presented by Economists in the Research and Statistics Group
“Stock Returns and Volatility: Pricing
the Short-Run and Long-Run
Components of Market Risk,” Tobias
Adrian and Joshua Rosenberg. Harvard
Business School, Cambridge, Massachusetts,
November 30. Also presented at the Financial
Management Association annual meeting,
Chicago, Illinois, December 8, and a Queen’s
University School of Business invited seminar, Kingston, Ontario, Canada, December 8.
“Does the Time Consistency Problem
Make Flexible Exchange Rates Look
Worse Than You Think?” Roc Armenter.
University of British Columbia, Vancouver,
British Columbia, Canada, November 21.
With Martin Bodenstein.
“Endogenous Productivity and Development
Accounting,” Roc Armenter. Bank of
Spain, Madrid, Spain, December 13.
With Amartya Lahiri.

“Estimating the Deep Parameters of
RBC Model with Learning,” Stefano
Eusepi. Society for Computational Economics
conference, George Washington University,
Washington, D.C., June 24. With Stefania
D’Amico.
“The Specials Market for U.S. Treasury
Securities and the Federal Reserve’s
Securities Lending Program,” Michael
Fleming and Kenneth Garbade. Danmarks
Nationalbank workshop, Copenhagen,
Denmark, November 28.
“Distribution Margins, Imported Inputs,
and the Insensitivity of the CPI to
Exchange Rates,” Linda Goldberg.
European Central Bank and Bank of
Canada conference, held at the European
Central Bank, Frankfurt, Germany, December 7.

“Illiquidity in the Interbank Payment
System Following Widescale Disruptions,”
Morten Bech. European Central Bank,
Frankfurt, Germany, November 8.
With Rod Garratt.

“Global Issues Affecting International
Business,” Linda Goldberg. American
Institute of Certified Public Accountants
convention, New York City, October 27.
Also presented at the Rockland County
Economic Development Corporation
conference, New York City, November 18.

“Entry into Banking Markets and the
Early-Mover Advantage,” Astrid Dick.
Bank of Canada, Ottawa, Ontario, Canada,
November 8. With Allen N. Berger.

“Vehicle Currency Use in International
Trade,” Linda Goldberg. Boston College
Department of Economics seminar, Boston,
Massachusetts, November 9. With Cédric Tille.

“Central Bank Transparency under
Model Uncertainty,” Stefano Eusepi.
National Bank of Poland conference,
Warsaw, Poland, June 2. Also presented at
the Econometric Society World Congress,
University College London, London,
England, August 22, and the European
Economic Association 20th Annual
Congress, Amsterdam, the Netherlands,
August 26.

“The Interaction of Labor Markets and
Inflation: Analysis of Micro Data from
the International Wage Flexibility Project,”
Erica Groshen. NBER conference, Cambridge,
Massachusetts, November 5. With William
Dickens, Lorenz Goette, Steinar Holden,
Julian Messina, Mark Schweitzer, Jarkko
Turunen, and Melanie Ward.

Research and Statistics Group

11

Research Update

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Number 4, 2005

“Was the 2001 Recession Different
in the Labor Market? Comparing
Measures,” Erica Groshen. New School
University Department of Economics
seminar, New York City, November 10.
With Simon Potter and Rebecca Sela.
“How Should Cities Help Their Suburbs?”
Andrew Haughwout. University of California,
Berkeley, Haas School of Business, Berkeley,
California, May 2. With Robert Inman.

12

“A Decomposition of the Sources of
Incomplete Cross-Border Transmission,”
Rebecca Hellerstein. Purdue University
Department of Economics seminar, West
Lafayette, Indiana, October 20.
“Technological Diversification,” Miklós
Koren. Cornell University Economics
Department seminar, Ithaca, New York,
October 12. With Silvana Tenreyro.
“Is There a Bubble in the Housing
Market Now?” Jonathan McCarthy.
Networks Financial Institute (an affiliate
of Indiana State University) conference,
Indianapolis, Indiana, October 12.
With Richard Peach.

“New Open-Economy Macroeconomic
Theory and Applications,” Paolo Pesenti.
IMF Institute Economics Training Program,
International Monetary Fund, Washington, D.C.,
November 14-16.
“Shocks, Reforms, and Monetary Rules:
A Scenario Analysis for Japan,” Paolo
Pesenti. Eighteenth Annual Trio Conference
supported by the NBER, the Tokyo Center
for Economic Research, the CEPR, and the
Center for International Research on the
Japanese Economy, held at the University
of Tokyo, Tokyo, Japan, December 10.
“Smooth Landing or Crash? ModelBased Scenarios of Global Current
Account Rebalancing,” Paolo Pesenti.
DSGE Modeling at Policymaking Institutions:
Progress and Prospects, Board of Governors
of the Federal Reserve System, Washington,
D.C., December 3. With Hamid Faruqee,
Douglas Laxton, and Dick Muir.
“Toward a Model for Monetary Policy
Evaluation in Open Economy,” Paolo
Pesenti. Bank of Japan invited lecture,
Tokyo, Japan, December 7.

Website News
■

The New York Fed now offers RSS feeds to those interested in receiving automatic
updates of news and other information on its website. “Research Publications” is one
of several feeds available. RSS is an XML-based format for distributing web content;
the New York Fed’s site uses RSS 1.0. A special news reader, or “aggregator,” is
required to display RSS content feeds from websites.
Visit www.newyorkfed.org/rss/index.html to subscribe to the Bank’s RSS feeds.

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The Bank’s research publications are frequently cited in the national press. Recently,
we added “Research in the News” to our website, a page highlighting media coverage of these publications. The page identifies economists’ work receiving ongoing or
extensive press attention as well as other recently cited work, along with links to the
articles and papers.
www.newyorkfed.org/research/publication_annuals/inthenews.html

F e d e r a l R e s e r v e B a n k o f N e w Yo r k

www.newyorkfed.org/research

“A Review of Core Inflation and an
Evaluation of Its Measures,” Robert Rich.
Bank for International Settlements
conference, Basel, Switzerland, October 27.
With Charles Steindel.
“Intra-Day Trade Clustering and Two-Sided
Markets,” Asani Sarkar. NBER Market
Microstructure Meeting, Cambridge,
Massachusetts, October 7. With Robert
Schwartz and Avner Wolf. Also presented
at the Rice University Graduate School of
Management, Houston, Texas, November 2.
“A Search for a Structural Phillips Curve,”
Argia Sbordone. NBER conference,
Cambridge, Massachusetts, November 4.
With Timothy Cogley.
“Firm Heterogeneity and Credit Risk
Diversification,” Til Schuermann. NBER
conference, Cambridge, Massachusetts,
November 10. With Samuel Hanson and
Hashem Pesaran.

“Money and Modern Bank Runs,” David
Skeie. Financial Management Association
annual meeting, Chicago, Illinois, October 13.
“Owners’ Equivalent Rent and the Cost
of Living,” Charles Steindel. National
Association for Business Economics annual
meeting, Chicago, Illinois, September 26.
“Volatility Accounting: A Production View
of Increased Economic Stability,” Kevin
Stiroh. International Monetary Fund,
Washington, D.C., December 7.
“Public Provision of Private Liquidity,”
Zhenyu Wang. Kellogg School of Management,
Northwestern University, Evanston, Illinois,
September 28. With Suresh Sundaresan.
Also presented at Binghamton University’s
School of Management, Binghamton,
New York, October 31, the International
Association of Financial Engineers 2005
Liquidity Risk Symposium, New York City,
December 1, and the Bank of England,
London, England, December 7.

Join Our Free E-Alert Service
Readers interested in learning of our new research quickly and conveniently are
encouraged to join our free Electronic Alert notification service.
As a subscriber to Electronic Alert, you receive an e-mail as soon as new research
publications are posted on our website—enabling you to download research well
before print copies are available.
The e-mails also offer you:
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full abstracts of the new publications,

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links to the publications, their press releases, author home pages,
and research on similar topics,

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access to a range of data and charts on economic and financial
conditions, and

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information on upcoming conferences and calls for papers.
Visit www.newyorkfed.org/alertservices/ and select “Research Alert.”

Research and Statistics Group

13

Research Update

■

Number 4, 2005

Research and Statistics Group
Publications and Papers:
October-December 2005
Publications are available at
www.newyorkfed.org/research/
publication_annuals/index.html.

ECONOMIC POLICY REVIEW

14

Vol. 11, no. 2, December 2005
Papers from the conference “Urban
Dynamics in New York City,” sponsored
by the Federal Reserve Bank of New York

Conference Overview and Summary
of Papers
Erica L. Groshen and Giorgio Topa
Urban Colossus: Why Is New York
America’s Largest City?
Edward L. Glaeser
The Geography of Entrepreneurship
in the New York Metropolitan Area
Stuart S. Rosenthal and William C. Strange
Exogenous Shocks and the Dynamics
of City Growth: Evidence from New York
Andrew F. Haughwout and Bess Rabin
The Promised City: Openness and
Immigration in the Making of
a World Metropolis
Kenneth T. Jackson
Immigration Trends in the New York
Metropolitan Area
George J. Borjas
Trajectories for the Immigrant Second
Generation in New York City
John Mollenkopf
Immigration, Health, and New York
City: Early Results Based on the
U.S. New Immigrant Cohort of 2003
Guillermina Jasso, Douglas S. Massey,
Mark R. Rosenzweig, and James P. Smith

F e d e r a l R e s e r v e B a n k o f N e w Yo r k

Public Education in the Dynamic City:
Lessons from New York City
Amy Ellen Schwartz and Leanna Stiefel
Forthcoming

The Evolution of Repo Contracting
Conventions in the 1980s
Kenneth D. Garbade

CURRENT ISSUES IN ECONOMICS
AND FINANCE, VOL. 11
No. 10, October 2005
The Evolution of Commuting Patterns
in the New York City Metro Area
Jason Bram and Alisdair McKay
Second District Highlights
No. 11, November 2005
Intraday Trading in the Overnight
Federal Funds Market
Leonardo Bartolini, Svenja Gudell,
Spence Hilton, and Krista Schwarz
No. 12, December 2005
The Income Implications of Rising
U.S. International Liabilities
Matthew Higgins, Thomas Klitgaard,
and Cédric Tille

STAFF REPORTS
No. 222, October 2005
Trade Invoicing in the Accession
Countries: Are They Suited
to the Euro?
Linda S. Goldberg
No. 223, October 2005
Why Is the U.S. Treasury Contemplating
Becoming a Lender of Last Resort
for Treasury Securities?
Kenneth D. Garbade and John E. Kambhu

www.newyorkfed.org/research

No. 224, October 2005
The Tobin Effect and the Friedman Rule
Joydeep Bhattacharya, Joseph Haslag,
and Antoine Martin
No. 225, October 2005
Optimality of the Friedman Rule in
an Overlapping Generations Model
with Spatial Separation
Joseph Haslag and Antoine Martin
No. 226, October 2005
Financial Integration and the Wealth
Effect of Exchange Rate Fluctuations
Cédric Tille
No. 227, October 2005
Money Market Integration
Leonardo Bartolini, Spence Hilton,
and Alessandro Prati
No. 228, November 2005
Time-Varying Pass-Through from
Import Prices to Consumer Prices:
Evidence from an Event Study
with Real-Time Data
Marlene Amstad and Andreas M. Fischer
No. 229, November 2005
Can U.S. Monetary Policy Fall (Again)
into an Expectation Trap?
Roc Armenter and Martin Bodenstein
No. 230, November 2005
Does the Time Inconsistency Problem
Make Flexible Exchange Rates Look
Worse Than You Think?
Roc Armenter and Martin Bodenstein

No. 231, November 2005
Establishing Credibility: Evolving
Perceptions of the European
Central Bank
Linda S. Goldberg and Michael W. Klein
No. 232, November 2005
One-Sided Test for an Unknown
Breakpoint: Theory, Computation,
and Application to Monetary Theory
Arturo Estrella and Anthony P. Rodrigues
No. 233, December 2005
The Return to Retail and the
Performance of U.S. Banks
Beverly J. Hirtle and Kevin J. Stiroh
No. 234, December 2005
Great Expectations and the End
of the Depression
Gauti B. Eggertsson
No. 235, December 2005
Optimal Monetary and Fiscal Policy
under Discretion in the New
Keynesian Model: A Technical
Appendix to “Great Expectations
and the End of the Depression”
Gauti B. Eggertsson
No. 236, December 2005
A Review of Core Inflation and
an Evaluation of Its Measures
Robert Rich and Charles Steindel

Research and Statistics Group

15