Roundup: Research from around the St. Louis Fed

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Today, we're highlighting some research the St. Louis Fed has recently produced that you may have missed.

Does the Yield Curve Really Forecast Recession?

An inverted yield curve doesn’t forecast recession; it forecasts conditions that make recession more likely.

Measuring Potential Output

So many ways to measure potential output, so little consensus. … But different measurements don’t necessarily alter central bank policy decisions.

Effects of Credit Supply on Unemployment and Income Inequality

The Great Recession, which was preceded by the financial crisis, resulted in higher unemployment and income inequality. The authors propose a simple model where firms producing varieties face labor-market frictions and credit constraints. In the model, tighter credit leads to lower output, a lower number of vacancies and higher directed-search unemployment. If workers are more productive at higher levels of firm output, then a lower credit supply increases firm capital intensity, raises income inequality by increasing the rental of capital relative to the wage, and has an ambiguous effect on welfare. With an initially high share of labor costs in total production costs, tighter credit lowers welfare. This pattern reverses during an expansionary phase when there is higher credit availability.

Hispanics and Their Contribution to America’s Human Capital

Despite making gains in higher-skill occupations, Hispanics are more likely to end up in lower-skill jobs. This disparity may be due to Hispanics lagging behind their non-Hispanic peers in education.

Taking a Closer Look at U.S. Exports to China

Civilian aircraft, soybeans, motor vehicles and microchips are the biggest U.S. exports to China, and production of these goods is geographically concentrated. In the case of soybeans, 10 states produced 79 percent of the U.S. crop in 2016.