A list of articles published by members of the Dallas Fed Research staff.

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2009 Academic Publications

Credit Unions and Small Business Lending
Journal of Financial Services Research, February 2009
David P. Ely and Kenneth J. Robinson
Abstract: Among the issues raised by consolidation within the banking industry is a concern that small businesses will be less able to obtain credit as community banks are acquired by larger or non-local institutions. Community banks have traditionally been a major source of funding for small businesses. The impact of bank consolidation on credit availability may depend in part on whether the remaining community institutions expand their small business lending activities. This study examines whether credit unions have a propensity to extend business loans in markets that have experienced bank merger and acquisition activity. We find some evidence that credit unions are more likely to engage in business lending in markets characterized by greater bank merger and acquisition activity. Moreover, the estimated economic significance is meaningful in many of the specifications.

The Effect of Tougher Enforcement of the Job Prospects of Recent Latin American
Immigrants
Journal of Policy Analysis and Management, March 2009
Pia M. Orrenius and Madeline Zavodny
Abstract: Attempts to enforce immigration laws in the U.S. interior have proliferated in recent years, yet the effects of these laws on immigrants are largely unknown. This paper examines whether increases in immigration-related law enforcement since 2001 have adversely affected the labor market outcomes of low-education male immigrants from Latin America, a group that comprises the bulk of undocumented workers in the U.S. The crackdown on the use of fraudulent Social Security numbers, increased requirements for government-issued identification, and other changes associated with greater focus on national security likely lowered the demand for undocumented foreign-born workers in the years following the 9/11 terrorist attacks. Using Current Population Survey data and a difference-in-differences estimation technique, we find strong evidence of worse labor market outcomes among recent Latin American immigrants in the post-9/11 period relative to natives and prior Latin American immigrants. The results indicate a decline in employment, hours worked, and earnings among recent male Latin American immigrants relative to similarly low-skilled black and Hispanic natives and vis-a-vis Latin American immigrants who have been in the U.S. longer. Our findings are consistent with firms increasingly substituting legal workers for undocumented labor in the years following 9/11.

The Elasticity of Intertemporal Substitution: New Evidence from 401(k) Participation
Economics Letters, April 2009 
Gary V. Engelhardt and Anil Kumar 
Abstract: Using Health and Retirement Study data and a structural econometric model, we exploit variation in employer matching rates in 401(k) plans to generate new estimates of the EIS: 0.74 in our richest specification, with a 95% confidence interval of 0.37-1.21. 

Regulation and the Neo-Wicksellian Approach to Monetary Policy
Journal of Money Credit and Banking, June 2009  
John V. Duca and Tao Wu 
Abstract: Laubach and Williams (2003) employ a Kalman filter approach to jointly estimate the neutral real federal funds rate and trend output growth using an IS relationship and an output-gap-based inflation equation. They find a positive link between these two variables, but also much error surrounding neutral real rate estimates. We modify their approach by including variables for regulations on deposit interest rates and on wages and prices. These variables are statistically significant and notably affect estimates of two policy-relevant coefficients: the sensitivity of output to the real interest rate and that of inflation to the output gap.

Expectations and Exchange Rate Dynamics: A State-Dependent Pricing Approach
Journal of International Economics, June 2009
Anthony Landry 
Abstract: This paper presents a two-country DSGE model with state-dependent pricing as in Dotsey et al. [Dotsey, M., King, R.G., and Wolman, A.L, 1999. State-dependent pricing and the general equilibrium dynamics of money and output. Quarterly journal of Economics 114, 655-690] and variable demand elasticity as in Kimball [Kimball, M.S., 1995. The quantitative analytics of the basis neomonetarist model. journal of Money, Credit, and Banking 27, 1241-1277]. Following a domestic monetary expansion, the model predicts: (i) positive hump-shaped responses of domestic output and consumption, (ii) positive spillover effects on foreign output and consumption, (iii) a high international output correlation relative to consumption correlation, (iv) a delayed increase in domestic and foreign inflation, (v) a delayed nominal exchange rate overshooting, (vi) a deterioration in the terms of trade. and (vii) a J-curve in the trade balance. The model matches the impulse responses from an identified VAR more closely than an otherwise identical model with time-dependent pricing.

Immigrants in the US Economy: A Host-Country Perspective
Journal of Business Strategies, June 2009
Michael D. Nicholson and Pia M. Orrenius
(No abstract)

Do Immigrants Work in Riskier Jobs?  
Demography, August 2009
Pia M. Orrenius and Madeline Zavodny
Abstract: Recent media and government reports suggest that immigrants are more likely to hold jobs with poor working conditions than U.S.-born workers, perhaps because immigrants work in jobs that "natives don't want." Despite this widespread view, earlier studies have not found immigrants to be in riskier jobs than natives. This study combines individual-level data from the 2003–2005 American Community Survey with Bureau of Labor Statistics data on work-related injuries and fatalities to take a fresh look at whether foreign-born workers are employed in more dangerous jobs. The results indicate that immigrants are in fact more likely, to work in risky jobs than U.S.-born workers, partly due to differences in average characteristics, such as immigrants 'lower English-language ability and educational attainment.

The Repeal of the Retirement Earnings Test and the Labor Supply of Older Men
Journal of Pension Economics and Finance, October 2009
Gary V. Engelhardt and Anil Kumar
Abstract: This paper examines the impact of the Senior Citizens Freedom to Work Act of 2000, which abolished the Social Security retirement earnings test for those aged 65–69, on the labor supply of older men using data from the 1996–2004 waves of the Health and Retirement Study (HRS). We use the fine structure of the 2000 Act to develop a new measure of exposure to the earnings test that varies across calendar years both by month and year of birth. We find that much, if not all, of the labor-supply response occurred for sub-groups of men who, either because of high mortality risk, high rates of pure time preference, or liquidity constraints, may have found the actuarial adjustment built into the earnings test relatively disadvantageous, particularly the lesser educated.

Purchasing Power Parity and Aggregation Bias for a Developing Country: The Case of Mexico
Journal of Development Economics, November 2009 
Raymond Robertson, Anil Kumar, and Donald H. Dutkowsky 
Abstract: This paper investigates long-run Purchasing Power Parity (PPP) between the US and Mexico. We use a panel of disaggregated price data between the US and Mexico with a long time series to look at two types of aggregation bias. The first is examined in Imbs et al.—which we refer to as estimator aggregation bias - and the second is put forth by Broda and Weinstein—hereafter, data aggregation bias. The findings indicate substantial estimator aggregation bias and data aggregation bias. Although estimates using aggregate data and imposing homogeneous coefficients provide little evidence of PPP, findings with disaggregated data and heterogeneous coefficient estimators offer strong support. The results also suggest the presence of small-sample bias as examined in Chen and Engel, but with little effect on the qualitative results. Tradable goods and non-tradable goods show little distinction in convergence rates. Estimated half-lives are lower under flexible than fixed exchange rates and indicate rapid convergence during the Mexican peso crisis. 

Vertical Specialization and International Business Cycle Synchronization
Scandinavian Journal of Economics, 2009
Costas Arkolakis and Ananth Ramanarayanan
Abstract: We explore the impact of vertical specialization-trade in goods across multiple stages of production-on the relationship between trade and business cycle synchronization across countries. We develop an international business cycle model in which the degree of vertical specialization varies with trade barriers. With perfect competition, we show analytically that fluctuations in measured total factor productivity are not linked across countries through trade. In numerical simulations, we find little dependence of business cycle synchronization on trade intensity. An extension of the model to allow for imperfect competition has the potential to resolve these shortcomings.

An Evaluation of Real-Time Forecasting Performance across Ten Western U.S. States
Journal of Economic and Social Measurement, 2009
Keith R. Phillips and Jose Joaquin Lopez
Abstract: The recent financial crisis and economic downturn has emphasized the importance of accurate sub-national forecasting models. To judge which models work best, researchers have emphasized the importance of looking at the true real-time performance of models and not simply an analysis of out-of-sample results. In this study, we utilize real-time forecasts from the Western Blue Chip Economic Forecast to analyze and evaluate a host of different forecasters and models across time and 10 U.S. states to see if some models and forecasters consistently outperform others. We use the forecast accuracy criteria established by the Blue Chip publication. To evaluate accuracy we develop a scoring procedure based on the number of years that the forecaster/model was closest to actual relative to what we would expect just by random chance. We also utilize standard measures such as the root mean square error and Theil's inequality coefficient and test the statistical significance of the best forecasts. We then take a closer look at one model that has proven to be very accurate.

Market Arbitrage: European and North American Natural Gas Prices
Energy Journal, Special Issue 2009
Stephen P.A. Brown and Mine K. Yücel
Abstract: The development of an international market for liquefied natural gas (LNG) and the resulting opportunities for intercontinental arbitrage are seen as creating a world in which movements in natural gas prices are linked between continents. Increased flows of LNG into the United States and the potential sensitivity of these shipments to price differentials between Europe and North America suggests the possibility of a strengthening relationship between natural gas prices on these two continents. At the same time, there is considerable evidence linking natural gas price movements in Europe and North America to those for crude oil. Accordingly, we use a series of econometric tests to determine whether the co-movement between natural gas prices in Europe and North America is mediated through crude oil prices or is being shaped directly by gas-to-gas arbitrage.