Working papers from the Federal Reserve Bank of Dallas are preliminary drafts circulated for professional comment.

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2003 Working Papers

0306
The Relative Price Effects of Monetary Shocks
Nathan S. Balke and Mark A. Wynne
Abstract: We document the response of the individual components of the Producer Price Index (PPI) to commonly used measures of monetary shocks, and show that these responses are at variance with many widely-used “macro” models of monetary non-neutrality. Monetary shocks are shown to have large relative price effects, resulting in an increase in the dispersion of the cross-section distribution of prices. Furthermore, in response to a contractionary (expansionary) monetary shock, a substantial number of prices tend to rise (fall). Most of the existing models of monetary nonneutrality are not capable of replicating these types of relative price responses.

0305
A Role for Government Policy and Sunspots in Explaining Endogenous Fluctuations in Illegal Immigration
Mark G. Guzman, Pia M. Orrenius and Joseph Haslag
Abstract: In this paper we provide an alternative explanation for why illegal immigration can exhibit substantial fluctuations despite a constant wage gap. We develop a model economy in which migrants make decisions in the face of uncertain border enforcement and lump-sum transfers from the host country. The uncertainty is extrinsic in nature, a sunspot, and arises as a result of ambiguity regarding the commodity price of money. Migrants are restricted from participating in state-contingent insurance markets in the host country, whereas host country natives are not. We establish the existence of sunspot equilibria that are not mere randomizations over certainty equilibria. Volatility in migration flows stems from two distinct sources: the tension between transfers inducing migration and enforcement discouraging it and secondly the existence of a sunspot. Finally, we examine the impact of a change in tax/transfer policies by the government on migration.

0304
Business Cycles: The Role of Energy Prices
Stephen P. A. Brown, Mine K. Yücel, and John Thompson
Abstract: Oil price shocks have figured prominently U.S. business cycles since the end of World War II-although the relationship seems to have weakened during the 1990s. In addition the economy appears to respond asymmetrically to oil price shocks, rising oil prices hurt economic activity more than falling oil prices help it. This section of the Encyclopedia of Energy sorts through an extensive economics literature that relates oil price shocks to aggregate economic activity. It examines how oil price shocks create business cycles, why they seem to have a disproportionate effect on economic activity, why the economy responds asymmetrically to oil prices, and why the relationship between oil prices and economic activity may have weakened. It also addresses the issue of developing energy policy to mitigate the economic effects of oil price shocks.

0303 (Revised December 2005)
The Effect of Undocumented Immigration and Border Enforcement on Crime Rates along the U.S.-Mexico Border *
Roberto Coronado and Pia M. Orrenius
Abstract: In the 1990s, the U.S. border led the nation in the decline of property-related crimes, while violent crime rates fell twice as fast in the U.S. as in the median border county. This paper asks how changes in undocumented immigration and border enforcement have played a role in generating these divergent trends. We find that while migrant apprehensions are correlated with a greater incidence of violent crime, they are not systematically associated with higher rates of property crime. Border patrol enforcement is associated with lower property crime rates but higher violent crime. Interestingly, it is local enforcement (same or neighboring sector) that is correlated with higher violent crime. Higher border enforcement overall is correlated with less violent crime. Several trends likely underlie these results. First, more enforcement in urban versus rural areas has pushed property crime rates down by keeping migrants and smugglers away from densely populated areas. Second, it is likely that more enforcement (and other factors) have led to an increased use of professional smugglers which in turn has led to more violence on the border.

0302 (Revised March 2006)
Does Immigration Affect Wages? A Look at Occupation-Level Evidence
Pia M. Orrenius and Madeline Zavodny
Abstract: Previous research has reached mixed conclusions about the effect of higher levels of immigration on the wages of natives. This paper reexamines this question using data from the Current Population Survey and the Immigration and Naturalization Service and focuses on differential effects by skill level. Using occupation as a proxy for skill, we find that an increase in the fraction of foreign-born workers tends to lower the wages of natives in blue collar occupations—particularly after controlling for endogeneity—but does not have a statistically significant negative effect among natives in skilled occupations. The results also indicate that immigrants adjusting their immigration status within the U.S., but not newly arriving immigrants, have a significant negative impact on the wages of low-skilled natives. This suggests that immigrants become closer substitutes for natives as they spend more time in the U.S.

0301
Fiscal Policy and Growth
Dong Fu, Lori L. Taylor and Mine K. Yücel
Abstract: In the literature neither taxes, government spending nor deficits are robustly correlated with economic growth when evaluated individually. The lack of correlation may arise from the inability of any single budgetary component to fully capture the stance of fiscal policy. We use pair-wise combinations of fiscal indicators to assess the relationship between fiscal policy and U.S. growth.

We develop a VAR methodology for evaluating simultaneous shocks to more than one variable and use it to examine the impulse responses for simultaneous, unexpected and equivalent structural shocks to pair-wise combinations of fiscal indicators. We also exploit the identity relationship between taxes, spending and deficits and follow Sims and Zha (1998) to evaluate an unexpected structural shock to one included fiscal indicator, holding constant the other included indicator. We find that an increase in the size of federal government leads to slower economic growth, that the deficit is an unreliable indicator of the stance of fiscal policy, and that tax revenues are the most consistent indicator of fiscal policy.