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

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2004 Academic Publications

The Wealth Effects from a Subordinated Debt Policy: Evidence from Passage of the Gramm-Leach-Bliley Act
Review of Financial Economics, February 2004
Andrew H. Chen, Kenneth J. Robinson and Thomas F. Siems
Abstract: Using an event study methodology which assumes that returns follow a GARCH (1,1) process, we estimate the wealth effects of a possible subordinated debt policy by examining the stock market reaction to the passage of the Gramm-Leach-Bliley (GLB) Act. A portfolio of banks with relatively high amounts of subordinated debt experienced positive and significant wealth effects associated with passage of the GLB. Portfolios made up of all banks, and those with no subordinated debt experience statistically insignificant wealth effects. We argue that these results suggest that policymakers should consider the use of subordinated debt as a way to enhance market discipline on banks.

Measurement Bias in the HICP: What Do We Know and What Do We Need to Know?
Journal of Economic Surveys, February 2004
Mark A. Wynne and D. Rodriguez-Palenzuela 
Abstract: The Harmonized Index of Consumer Prices (HICP) is the primary measure of inflation in the euro area, and plays a central role in the policy deliberations of the European Central Bank (ECB). The ECB defines its Treaty mandate of price stability as '... a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%[...] to be maintained over the medium term.' Among the rationales given for defining price stability as prevailing at some positive measured inflation rate is the possibility that the HICP as published incorporates measurement errors of one sort or another that may cause it to systematically overstate the true rate of inflation in the euro area. This paper reviews what currently is known about the scope of measurement error in the HICP. We conclude that given the vague conceptual framework of the HICP, the scant research on price measurement issues in the EU and the ongoing improvements in the HICP, there is very little scientific basis at this time for a point (or even an interval) estimate of a positive bias in the HICP.

The Effects of Terrorism on Global Capital Markets
European Journal of Political Economy, June 2004
Andrew H. Chen and Thomas F. Siems
Abstract: The event study methodology is used to assess the effects of terrorism on global capital markets. We examine the U.S. capital market's response to 14 terrorist/military attacks dating back to 1915 and global capital markets' response to two recent events—Iraq's invasion of Kuwait in 1990 and the September 11, 2001 terrorist attacks. U.S. capital markets are more resilient than in the past and recover sooner from terrorist attacks than other global capital markets. Evidence suggests that this increased market resilience can be partially explained by a stable banking/financial sector that provides adequate liquidity to promote market stability and minimize panic.

What are the Consequences of an Amnesty for Undocumented Immigrants?
Georgetown Public Policy Review, Spring 2004
Pia Orrenius and Madeline Zavodny
Abstract: The U.S. has not had a major amnesty program that would allow undocumented immigrants to legalize their status since 1986. As the number of undocumented immigrants surged throughout the 1990s and into the new millennium, momentum for a new amnesty program gained ground until the terrorist attacks on September 11, 2001, derailed President Bush's attempts to overhaul U.S. immigration policy. A renewed effort at immigrant reform is currently underway in the U.S. This article discusses the current situation of undocumented immigrants in the U.S. and the likely economic consequences of an amnesty program. The results of the 1986 amnesty indicate several lessons for designing an amnesty plan that would improve the lives of the currently undocumented, minimize adverse effects on other groups, and stem the continuing tide of undocumented immigrants.

Recent Developments in Understanding the Demand for Money
Journal of Economics and Business, Special Issue July-August 2004
John V. Duca A. and David D. VanHoose
Abstract: Even though macroeconomic theories developed since the late 1980s have de-emphasized the role of monetary aggregates in the transmission of monetary policy, considerable research on the demand for money has continued. This paper addresses why understanding the demand for money remains relevant, and it surveys additions to the money demand literature since the 1980s. The paper considers recent contributions to the theory of the demand for money, discusses recent econometric advances in money demand estimation techniques, and reviews evidence revealed by empirical studies of the demand for alternative monetary aggregates. We conclude by discussing avenues for future research.

Maquiladora Downturn: Structural Change or Cyclical Factors?
International Business and Economics Research Journal, August 2004
Roberto Coronado, Jesus Cañas and Robert W. Gilmer
Abstract: Mexico’s maquiladora industry is currently the focus of much attention in the media, in corporate boardrooms, and among Mexican government officials. After watching the maquiladora industry sustain its biggest ever employment decline in recent years, many observers now question the industry’s future in Mexico. The 2001 U.S. economic recession took a heavy toll on Mexico’s maquiladora industry, although the size of the industry’s contraction during the recent recession—almost 260,000 jobs—suggests there are more factors at work than the mild business cycle. The advantages of operating plants in Mexico, such as low wages and tax incentives, are now offered by a number of developing countries. At the same time, location has become less important for many products, as innovations in transportation and technology lower shipping costs. This paper attempts to estimate how much of the current maquiladora downturn is due to the business cycle and how much is due to structural changes. We use the Branson-Love methodology to estimate structural and cyclical impacts on the maquiladora employment downturn. Results suggest that the 2001 U.S. recession and rising real wages in Mexico account for much of the maquiladora downturn. Historically, these are the two most important factors driving maquiladora growth, but new factors such as China’s membership in the World Trade Organization, the Caribbean initiative and implementation of NAFTA Article 303 have changed corporate options for plant location or affected the cost structure in Mexico. Although our statistical results strongly suggest a recovery in maquiladora employment, potentially important qualifications are discussed as well.

Short-Run Maquiladora Employment Dynamics in Tijuana
Annals of Regional Science, Fall 2004
Roberto Coronado, Thomas M. Fullerton, Jr. and Don P. Clark
Abstract: The Tijuana maquiladora sector has grown enormously over the past two decades. Short-term time series characteristics of this segment of the regional economy are analyzed in an attempt to clarify labor market behavior associated with this remarkable performance. Parameter estimation is accomplished using linear transfer function analysis. Data are drawn from the January 1980-December 2000 sample period. Empirical results indicate that real wage rates, maquiladora plants, United States industrial activity, and the real exchange rate of the peso play significant roles in determining month-to-month fluctuations in maquiladora employment. Sub-sample simulation exercises are conducted using a random walk benchmark in order to examine forecast accuracy. Empirical results indicate that the linear transfer function technique provides relatively accurate forecasts all step-lengths.

Monetary Policy Perspectives on the Accuracy of Inflation Measures
IFC Bulletin, November 2004
Mark A. Wynne
(No abstract)

On the Political Economy of Immigration and Income Redistribution
International Economic Review, November 2004
Jim Dolmas and Gregory W. Huffman
Abstract: In this article, we analyze an economy in which agents vote over immigration policy and redistributive tax policy. We show that natives' preferences over immigration are influenced by the prospect that immigrants will be voting over future tax policy. We also show that changes in the degree of international capital mobility, the distribution of initial capital among natives, the wealth or poverty of the immigrant pool, and the future voting rights and entitlements of immigrants can have dramatic effects on equilibrium immigration and tax policies. Finally, we provide some empirical support for the model's predictions.

The Impact of Banks' Expanded Securities Powers on Small-Business Lending
Review of Financial Economics, Special Issue 2004
David P. Ely and Kenneth J. Robinson
Abstract: The Gramm-Leach-Bliley Act (GLB) repealed many of the Glass-Steagall restrictions separating commercial and investment banking. We explore whether the ability of commercial banking organizations to conduct securities underwriting has lead to greater small-business lending at banks with securities affiliates. We hypothesize that this effect on small-business lending might emerge from greater incentives to engage in relationship lending. Our test results are inconsistent with this hypothesis. Banks with a securities affiliate and with less than $1 billion in assets record lower portfolio proportions of small-business lending than banks without a securities affiliate. For larger banks, the differences between small-business lending proportions at banks with and without a securities affiliate are not statistically different when considering the smaller loan categories. Large banks with securities affiliates, though, record significantly lower portfolio proportions of both the largest category of small-business loans and total small-business loans.