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

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2003 Academic Publications

The Use and Abuse of Real-Time Data in Economic Forecasting
Review of Economics and Statistics, August 2003
Sheila Dolmas, Evan F. Koenig and Jeremy Piger
Abstract: We distinguish between three different strategies for estimating forecasting equations with real-time data and argue that the most popular approach should generally be avoided. The point is illustrated with a model that uses current-quarter monthly industrial production, employment, and retail sales data to predict real GDP growth. When the model is estimated using either of our two alternative methods, its out-of-sample forecasting performance is superior to that obtained using conventional estimation and compares favorably with that of the Blue Chip consensus.

Is the Markup a Useful Real-Time Predictor of Inflation?
Economics Letters, August 2003
Evan F. Koenig
Abstract: Unlike their revised counterparts, real-time markup data fail to improve the performance of a simple Phillips-curve inflation forecasting equation and have little predictive power beyond that of survey measures of inflation expectations.

Increasing Market Discipline on Banks: Subordinated Debt and Bank Loan Sales
Research in Finance, 2003
Andrew H. Chen, Kenneth J. Robinson and Thomas F. Siems
Abstract: While subordinated debt can be used to increase market discipline on banks by playing a corporate governance role in the presence of a federal safety net that encourages risk taking, it also has implications for banks’ loan sales. Using two measures of banks’ loan sales activity, we find greater proportions of subordinated debt increase the likelihood that banks engage in loan sales activity, and are associated with greater proportions of loan sales. Our results have implications about banks’ lending efficiency as well as their transparency and disclosure policies that could play a role in the transmission mechanism of monetary policy.

Is the Community Reinvestment Act in Need of Further Reform? Evidence from Equity Markets during the 1995 Reform Process
Journal of Financial Services Research, February 2003
David P. Ely and Kenneth J. Robinson
Abstract: In May 1995 the Federal Banking Agencies adopted major reforms to the implementation of the Community Reinvestment Act (CRA) to make the examination process more objective and performance-based, promote consistency, and reduce regulatory burden. This study presents tests of excess stock returns around key events in the reform process and examines whether the patterns of returns were affected by financial institution type and size. While we find that portfolios of banks and thrifts recorded statistically significant excess returns for certain events, the cumulative response was mostly statistically insignificant. A policy implication of our findings is that the potential for further improvement in the administration of CRA requirements still existed following the 1995 reform efforts.

Do Amnesty Programs Reduce Undocumented Immigration? Evidence from IRCA
Demography, August 2003
Pia Orrenius and Madeline Zavodny
Abstract: This paper examines whether mass legalization programs reduce future undocumented immigration. We focus on the effects of the 1986 Immigration Reform and Control Act, which granted amnesty to nearly 2.7 million undocumented immigrants. We find that apprehensions of persons attempting to illegally cross the U.S.-Mexico border declined immediately following passage of the law but returned to normal levels during the period when undocumented immigrants could file for amnesty and the years thereafter. Our findings suggest that the amnesty program did not change long-run patterns of undocumented immigration from Mexico.

Early Warning Models in Real Time
Journal of Banking and Finance, October 2003
Jeffery W. Gunther and Robert R. Moore
Abstract: Using a unique set of banking data containing both originally reported and subsequently revised financial variables, we find adverse revisions to accounting statements are associated with downgrades in supervisory ratings. To assess the financial significance of the revisions, we compare the ability of the original and revised data to map into exam ratings. The relationship between accounting data and exam results is significantly stronger for revised data than for real-time data. Our findings document significant differences between real-time and revised banking data, highlight the auditing role of bank exams, and provide a more realistic assessment of early warning model accuracy.

Loss Underreporting and the Auditing Role of Bank Exams
Journal of Financial Intermediation, April 2003
Jeffery W. Gunther and Robert R. Moore
Abstract: Using a unique set of banking data containing both originally reported and subsequently revised financial variables, we study accounting restatements. Our results indicate the worse a bank's financial condition, the more likely it is for originally reported data to understate financial losses. Also, we find supervisory exams have an important role in uncovering financial problems and prompting accounting restatements to correct loss underreporting. While revisions are directly related to financial difficulties, exam-based restatements are evident at even the earliest states of deterioration, indicating substantial accounting misstatements—at both banks and other types of companies—can occur well outside severe business circumstances.