Economic Research Working Papers

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

2008 | 2007 | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 | 2000 | 1999 | 1998 and earlier

2008 Working Papers

0805
The Effect of Minimum Wages on Immigrants' Employment and Earnings
Pia Orrenius and Madeline Zavodny
This study examines how minimum wage laws affect the employment and earnings of low-skilled immigrants and natives in the U.S. Minimum wage increases might have larger effects among low-skilled immigrants than among natives because, on average, immigrants earn less than natives due to lower levels of education, limited English skills, and less social capital. Results based on data from the Current Population Survey for the years 1994–2005 do not indicate that minimum wages have adverse employment effects among adult immigrants or natives who did not complete high school. However, low-skilled immigrants may have been discouraged from settling in states that set wage floors substantially above the federal minimum.

0804
The Dynamics of Economic Functions: Modelling and Forecasting the Yield Curve
Clive G. Bowsher and Roland Meeks
The class of Functional Signal plus Noise (FSN) models is introduced that provides a new, general method for modelling and forecasting time series of economic functions. The underlying, continuous economic function (or "signal") is a natural cubic spline whose dynamic evolution is driven by a cointegrated vector autoregression for the ordinates (or "y-values") at the knots of the spline. The natural cubic spline provides flexible cross-sectional fit and results in a linear, state space model. This FSN model achieves dimension reduction, provides a coherent description of the observed yield curve and its dynamics as the cross-sectional dimension N becomes large, and can feasibly be estimated and used for forecasting when N is large. The integration and cointegration properties of the model are derived. The FSN models are then applied to forecasting 36-dimensional yield curves for US Treasury bonds at the one month ahead horizon. The method consistently outperforms the Diebold and Li (2006) and random walk forecasts on the basis of both mean square forecast error criteria and economically relevant loss functions derived from the realised profits of pairs trading algorithms. The analysis also highlights in a concrete setting the dangers of attempts to infer the relative economic value of model forecasts on the basis of their associated mean square forecast errors.

0803
Why Stop There? Mexican Migration to the U.S. Border Region
Pia M. Orrenius, Madeline Zavodny and Leslie Lukens
The transformation of the U.S. border economy since the 1980s provides a fascinating backdrop to explore how migration to the U.S-side of the Mexican border has changed vis-à-vis migration to the U.S. interior. Some long-standing patterns of border migrants remained unchanged during this period while others underwent drastic changes. For example, border migrants are consistently more likely to be female, to have migrated within Mexico, and to lack migrant networks as compared with migrants to the U.S. interior. Meanwhile, the occupational profile of border migrants has changed drastically from being predominately agricultural work to being largely made up of service-sector and sales-related work. Border migration is more sensitive to Mexican and U.S. business cycles than migration to the U.S. interior throughout the period and, while the data suggest border migrant wages may have caught up to other migrants’ wages by the early 2000s, multivariate analysis indicates that border migrants who are female and/or undocumented continue to earn far less than such migrants who work in the U.S. interior.

0802
Deliverability and Regional Pricing in U.S. Natural Gas Markets
Stephen P. A. Brown and Mine K. Yücel
During the 1980s and early '90s, interstate natural gas markets in the United States made a transition away from the regulation that characterized the previous three decades. With abundant supplies and plentiful pipeline capacity, a new order emerged in which freer markets and arbitrage closely linked natural gas price movements throughout the country. After the mid-1990s, however, U.S. natural gas markets tightened and some pipelines were pushed to capacity. We look for the pricing effects of limited arbitrage through causality testing between prices at nodes on the U.S. natural gas transportation system and interchange prices at regional nodes on North American electricity grids. Our tests do reveal limited arbitrage, which is indicative of bottlenecks in the U.S. natural gas pipeline system.

0801
The Poor, the Rich and the Enforcer: Institutional Choice and Growth
Erwan Quintin, Thorsten Koeppl and Cyril Monnet
We study economies where improving the quality of institutions—modeled as im proving contract enforcement—requires resources, but enables trade that raises output by reducing the dispersion of marginal products of capital. We find that in this type of environment it is optimal to combine institutional building with endowment redistribution, and that more ex-ante dispersion in marginal products increases the incentives to invest in enforcement. In addition, we show that institutional investments lead over time to a progressive reduction in inequality. Finally, the framework we describe enables us to formalize the hypothesis formulated by Engerman and Sokoloff (2002) that the initial concentration of human and physical capital can explain the divergence of different countries’ institutional history.