Federal Reserve

FEDS Paper: Who is Minding the Store? Order Routing and Competition in Retail Trade Execution

09/20/2024 Federal Reserve Central banks

Xing Huang, Philippe Jorion, Jeongmin Lee, and Christopher SchwarzUsing 150,000 actual trades, we study the U.S. equity retail broker-wholesaler market, focusing on brokers’ order routing and competition among wholesalers. We document substantial and persistent dispersion in execution costs across wholesalers within brokers. Despite this, many brokers hardly change their routing and even consistently send more orders to the more expensive wholesalers, although there is considerable variation among brokers.

FEDS Paper: Social Security and High-Frequency Labor Supply: Evidence from Uber Drivers

09/20/2024 Federal Reserve Central banks

Timothy K. M. Beatty, Joakim A. WeillWe estimate the impact of anticipated transfers on labor supply using confidential driver-level data from Uber. Leveraging the staggered timing of Social Security retirement benefits within each month and a novel identification strategy, we find that the labor supply of older drivers declines by 2%, on average, during the week of benefit receipt—a precisely estimated but economically small effect.

FEDS Paper: The Inflation Accelerator

09/20/2024 Federal Reserve Central banks

Andres Blanco, Corina Boar, Callum Jones, Virgiliu MidriganWe develop a tractable sticky price model in which the fraction of price changes evolves endogenously over time and, consistent with the evidence, increases with inflation. Because we assume that firms sell multiple products and choose how many, but not which, prices to adjust in any given period, our model admits exact aggregation and reduces to a one-equation extension of the Calvo model. This additional equation determines the fraction of price changes.

FEDS Paper: Mortgage Design, Repayment Schedules, and Household Borrowing

09/20/2024 Federal Reserve Central banks

Claes Bäckman, Patrick Moran, Peter van SantenHow does the design of debt repayment schedules affect household borrowing? To answer this question, we exploit a Swedish policy reform that eliminated interest-only mortgages for loan-to-value ratios above 50%. We document substantial bunching at the threshold, leading to 5% lower borrowing. Wealthy borrowers drive the results, challenging credit constraints as the primary explanation.

FEDS Paper: Nonlinear Dynamics in Menu Cost Economies? Evidence from U.S. Data

09/20/2024 Federal Reserve Central banks

Andres Blanco, Corina Boar, Callum Jones, Virgiliu MidriganWe show that standard menu cost models cannot simultaneously reproduce the dispersion in the size of micro-price changes and the extent to which the fraction of price changes increases with inflation in the U.S. time-series. Though the Golosov and Lucas (2007) model generates fluctuations in the fraction of price changes, it predicts too little dispersion in the size of price changes and therefore little monetary non-neutrality.

FEDS Paper: Explaining Machine Learning by Bootstrapping Partial Marginal Effects and Shapley Values

09/20/2024 Federal Reserve Central banks

Thomas R. Cook, Zach D. Modig, Nathan M. PalmerMachine learning and artificial intelligence are often described as "black boxes." Traditional linear regression is interpreted through its marginal relationships as captured by regression coefficients. We show that the same marginal relationship can be described rigorously for any machine learning model by calculating the slope of the partial dependence functions, which we call the partial marginal effect (PME).

FEDS Paper: High-Growth Firms in the United States: Key Trends and New Data Opportunities

09/20/2024 Federal Reserve Central banks

J. Daniel Kim, Joonkyu Choi, Nathan Goldschlag, John HaltiwangerUsing administrative data from the U.S. Census Bureau, we introduce a new public-use database that tracks activities across firm growth distributions over time. With these new data, we uncover several key trends for high-growth firms—critical engines of innovation and economic growth.

FEDS Paper: What Does the Beveridge Curve Tell Us about the Likelihood of Soft Landings?

09/20/2024 Federal Reserve Central banks

Andrew Figura and Chris WallerAny assessment of the likelihood and characteristics of a soft landing in the labor market should take into account the current state of the labor market and the likely dynamics in the labor market going forward. Modern labor market models centered around the Beveridge curve are a useful tool in this assessment.

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