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Why Are Wal-Mart and Target Next-Door Neighbors?

October 21, 2014 Comments off

Why Are Wal-Mart and Target Next-Door Neighbors? (PDF)
Source: Federal Reserve Board

One of the most notable changes in the U.S. retail market over the past twenty years has been the rise of Big Box stores, retail chains characterized by physically large stores selling a wide range of consumer goods at discount prices. A growing literature has examined the impacts of Big Box stores on other retailers and consumers, but relatively little is known about how Big Box stores choose locations. Because Big Box stores offer highly standardized products and compete primarily on price, it is likely that they will seek to establish spatial monopolies, far from competitor stores. In this paper, I examine where new Big Box stores locate with respect to three types of existing establishments: own-firm stores, other retailers in the same product space (competitors), and retailers in other product spaces (complements). Results indicate that new Big Box stores tend to avoid existing own-firm stores and locate near complementary Big Box stores. However, there is little evidence that new Big Boxes avoid competitors. Firms in the same product space may not be perfect substitutes, or firms may prefer to share consumers in a desirable location rather than cede the entire market to competitor firms.

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Changes in U.S. Family Finances from 2010 to 2013: Evidence from the Survey of Consumer Finances

October 17, 2014 Comments off

Changes in U.S. Family Finances from 2010 to 2013: Evidence from the Survey of Consumer Finances (PDF)
Source: Federal Reserve Board

The Federal Reserve Board’s triennial Survey of Consumer Finances (SCF) collects information about family incomes, net worth, balance sheet components, credit use, and other financial outcomes. The 2013 SCF reveals substantial disparities in the evolution of income and net worth since the previous time the survey was conducted, in 2010.

During the three years between the beginning of the 2010 and 2013 surveys, real gross domestic product grew at an annual rate of 2.1 percent, the civilian unemployment rate fell from 9.9 percent to 7.5 percent, and the annual rate of change in the consumer price index (CPI) averaged 2.3 percent. Although aggregate economic performance improved substantially relative to the period between the 2007 and 2010 surveys, the effect on incomes for different types of families was far from uniform.

The Effects of Unemployment Benefits on Unemployment and Labor Force Participation: Evidence from 35 Years of Benefits Extensions

October 16, 2014 Comments off

The Effects of Unemployment Benefits on Unemployment and Labor Force Participation: Evidence from 35 Years of Benefits Extensions
Source: Federal Reserve Board

This paper presents estimates of the effect of emergency and extended unemployment benefits (EEB) on the unemployment rate and the labor force participation rate using a data set containing information on individuals likely eligible and ineligible for EEB back to the late 1970s. To identify these estimates, we examine how exit rates from unemployment change across different points of the distribution of unemployment duration when EEB is and is not available, controlling for changes in labor demand and demographic characteristics. We find that EEB increased the unemployment rate by about one-third percentage point in the most recent recession but did not affect the participation rate. In previous recessions, the effect of EEB on the unemployment rate was even smaller.

Credit Status and College Investment: Implications for Student Loan Policies

October 15, 2014 Comments off

Credit Status and College Investment: Implications for Student Loan Policies
Source: Federal Reserve Board

The private market for student loans has become an important source of college financing in the United States. Unlike government student loans, the terms on student loans in the private market are based on credit status. We quantify the importance of the private market for student loans and of credit status for college investment in a general equilibrium heterogeneous life-cycle economy. We find that students with good credit status invest in more college education (compared to those with bad credit status) and that this effect is more pronounced for low-income students. Furthermore, results suggest that the relationship between credit status and college investment has important policy implications. Specifically, when borrowing limits in the government student loan program are relaxed (as implemented in 2008), college investment increases, but so does the riskiness of the pool of borrowers, leading to higher default rates in the private market for student loans. When general equilibrium effects are accounted for, the welfare gains experienced from a more generous government student loan program are negated. This compares to budget-neutral tuition subsidies that increase college investment and welfare.

Long-Term Vacancy in the United States

October 15, 2014 Comments off

Long-Term Vacancy in the United States (PDF)
Source: Federal Reserve Board

Because housing is durable, the housing supply is slow to adapt to declines in demand. This paper uses long-term vacancy–defined as nonseasonal housing units that have been vacant for an unusually long period of time–to quantify the extent of excess supply in the housing market. I find that long-term vacancy is less than 2 percent of all nonseasonal housing units and accounts for only one quarter of the aggregate increase in nonseasonal vacancy from 2001 to 2011. Thus, at the national level, excess supply is considerably less extensive than indicated by traditional measures of vacancy. However, the stock of long-term vacant housing is concentrated in a small number of neighborhoods that do have appreciably high long-term vacancy rates. Some of these neighborhoods have characteristics suggesting that excess supply is related to overbuilding during the housing boom, while others have characteristics that are symptomatic of persistently weak housing demand.

Why Do Innovative Firms Hold So Much Cash? Evidence from Changes in State R&D Tax Credits

October 14, 2014 Comments off

Why Do Innovative Firms Hold So Much Cash? Evidence from Changes in State R&D Tax Credits (PDF)
Source: Federal Reserve Board

This paper uses the staggered changes of R&D tax credits across U.S. states and over time as a quasi-natural experiment to examine the impact of innovation on corporate liquidity. By generating plausibly independent variation in firms’ incentive to invest in R&D, we are able to assess the empirical importance of specific theories of the link between innovation and corporate liquidity. Firms increase (decrease) their cash to asset ratios by about one and a half percentage point when their home state increases (cuts) R&D tax credits. These baseline difference-in-differences estimates hold up to a battery of validation, falsification, and robustness checks, which corroborate their internal and external validity. The treatment effect of R&D tax credits increases monotonically with several specific proxies for debt and equity financing frictions. Increases (cuts) in tax credits also lead to increases (decreases) in the ratios of cash to bank lines of credit and to book equity, and to decreases (increases) in bank debt, secured debt, and overall net indebtness, supporting debt and equity financing channels through which innovation impacts the demand for cash. We also find support for a product market competition channel, and assess repatriation and agency explanations. Overall, our analysis offers endogeneity-free evidence that innovation is a first-order driver of corporate liquidity management decisions.

Federal Reserve Board releases answers to frequently asked questions regarding competitive review process for bank acquisitions, mergers, and other transactions

October 14, 2014 Comments off

Federal Reserve Board releases answers to frequently asked questions regarding competitive review process for bank acquisitions, mergers, and other transactions
Source: Federal Reserve Board

The Federal Reserve Board on October 9 released answers to frequently asked questions (FAQs) regarding the competitive review process for bank acquisitions, mergers, and other transactions.

The FAQs provide answers to questions often raised by banking organizations considering filing applications and explain changes to the application process mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The FAQs, which were developed jointly with the Department of Justice, also cover factors considered by both agencies in conducting competitive analysis for bank applications.

By law, both the Federal Reserve and the Department of Justice are required to analyze bank merger applications to ensure, in part, that the proposed transactions do not raise competitive concerns. The Federal Reserve has the authority to deny applications on these or certain other grounds, while the Department of Justice can use its prosecutorial discretion to challenge specific applications that raise competitive concerns.

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