FEDS Notes are articles in which Board economists offer their own views and present analysis on a range of topics in economics and finance. These articles are shorter and less technically oriented than FEDS Working Papers

Regulatory Arbitrage in the Use of Insurance in the New Standardized Approach for Operational Risk Capital

Basel's new standardized approach (SA) for operational risk capital may allow for regulatory arbitrage through the use of insurance. Under the SA, banks will have incentive to insure recurring losses, which can meaningfully reduce capital requirements even as it does not meaningfully decrease tail operational loss exposure. Several alternatives to deal with this regulatory arbitrage strategy are discussed.

DOI: https://doi.org/10.17016/2380-7172.2479

The Great Recession and a Missing Generation of Exporters

William F. Lincoln, Andrew H. McCallum, and Michael Siemer

While the large collapse in aggregate international trade volumes during the Great Recession has been widely studied in the literature, the recovery is much less well understood. Indeed, by 2014 U.S. foreign sales were still below their historical post-recession level. In this note, we summarize the results of Lincoln, McCallum, and Siemer (2019), which considers how much of a role a "missing generation of exporters" played in explaining the relatively slow growth of foreign sales after the financial crisis.

DOI: https://doi.org/10.17016/2380-7172.2531

Common and idiosyncratic inflation

In this note, we disentangle changes in prices due to economy-wide (common) shocks from changes in prices due to idiosyncratic shocks.

DOI: https://doi.org/10.17016/2380-7172.2508

What Happened in Money Markets in September 2019?

In mid-September 2019, overnight money market rates spiked and exhibited significant volatility, amid a large drop in reserves due to the corporate tax date and increases in net Treasury issuance.

DOI: https://doi.org/10.17016/2380-7172.2527

The Liquidity Coverage Ratio and Corporate Liquidity Management

This note examines the changes in the liquidity management at banks and nonbank financial firms in the United States that occurred following the proposal of the liquidity coverage ratio (LCR) requirement in 2010 and its finalization in 2014.

DOI: https://doi.org/10.17016/2380-7172.2509

Wealth concentration levels and growth: 1989-2016

Wealth concentration in the U.S. has increased over the past 25 years across multiple methodologies for measuring wealth. But the reasons for the increase—and the timing of the increase—are quite different. In this note, we show that most available estimates are fairly consistent in level and trend prior to the Financial Crisis. However, the timing and reasons for the sharp increase in wealth concentration during and after the crisis differ remarkably across methods. We describe some of the factors that underlie this divergence.

DOI: https://doi.org/10.17016/2380-7172.2438

What Happened to U.S. Business Dynamism?

Ufuk Akcigit and Sina T. Ates

The U.S. economy has witnessed a number of striking trends that indicate a rising market concentration and a slowdown in business dynamism in recent decades. We attempt to understand potential common forces behind these empirical regularities through the lens of a micro-founded general equilibrium model of endogenous firm dynamics.

DOI: https://doi.org/10.17016/2380-7172.2497

What Happened to Foreign Direct Investment in the United States?

This note demonstrates that the slowdown in FDIUS can be explained by two special factors: 1) a handful of corporate restructurings that are purely tax- and regulation-driven and affect the equity portion of direct investment flows, and 2) a reversal in intercompany debt flows that are often the result of corporate tax planning.

DOI: https://doi.org/10.17016/2380-7172.2499

How Global Value Chains Change the Trade-Currency Relationship

François de Soyres, Erik Frohm, Vanessa Gunnella

This note summarizes the main results of the de Soyres et al. (2018) paper, drawing out the most policy-relevant implications.

DOI: https://doi.org/10.17016/2380-7172.2504

How Do U.S. Global Systemically Important Banks Lower Their Capital Surcharges?

Jared Berry, Akber Khan, and Marcelo Rezende

In this note, we examine whether and how U.S. G-SIBs adjust their systemic importance indicators to lower their surcharges.

DOI: https://doi.org/10.17016/2380-7172.2480

Goods-Market Frictions and International Trade

Pawel M. Krolikowski and Andrew H. McCallum

The difficulty of locating and building connections with overseas buyers is a prevalent firm-level barrier to exporting. Producers and retailers must spend time and resources to find one another before they can transact.

DOI: https://doi.org/10.17016/2380-7172.2501

Why Has Wage Growth Been Subdued in the Advanced Foreign Economies?

Stephen Lin, Kaede Johnson, and Tyler Powell1

This note argues that certain factors, especially slower productivity growth and lower natural rates of unemployment, can explain much of the weakness of wage growth and the apparent breakdown of the simple wage Phillips curve.

DOI: https://doi.org/10.17016/2380-7172.2410

Monetary Policy Space in a Recession: Some Simple Interest Rate Arithmetic

As an alternative, two recession scenarios are presented in which interest rates change from October 2019 levels by the same amount as seen, on average, around the 1990 and 2001 recessions.

DOI: https://doi.org/10.17016/2380-7172.2484

Raising the Inflation Target: Lessons from Japan

In January 2013, the Bank of Japan increased its inflation target from 1 percent to 2 percent in an effort to end chronic deflation that had lasted for more than a decade. In this note, the author reviews this Japanese experience and highlights possible lessons for other central banks that may be interested in examining the possibility of raising their inflation target at some point in the future.

DOI: https://doi.org/10.17016/2380-7172.2493

Disclaimer: FEDS Notes are articles in which Board economists offer their own views and present analysis on a range of topics in economics and finance. These articles are shorter and less technically oriented than FEDS Working Papers.

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Last Update: January 04, 2019