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Working Paper
Measuring Geopolitical Fragmentation: Implications for Trade, Financial Flows, and Economic Policy
Airaudo, Florencia; de Soyres, Francois; Richards, Keith; Santacreu, Ana Maria (2025-03-31)
Recent geopolitical tensions have revived interest in understanding the economic consequences of geopolitical fragmentation. Using bilateral trade flows, portfolio investment data, and detailed records of economic policy interventions, we revisit widely-used geopolitical distance metrics, specifically the Ideal Point Distance (IPD) derived from United Nations General Assembly voting. We document substantial variability in measured fragmentation, driven significantly by methodological choices related to sample periods and vote categories, especially in the wake of Russia’s 2022 invasion of ...
Working Papers , Paper 2025-006

Working Paper
Was the Post-Lockdown Inflation Surge Mainly Supply Driven?
Dupor, Bill; Hogan, Marie (2025-03-31)
By December 2022, the price level of personal consumption expenditures on core goods and services had risen more than 10 percent over the preceding two years. This paper studies consumption price and quantity changes at the disaggregate level using a generalization of Shapiro’s (2024) inflation decomposition method. Categories with inflation and consumption growth innovations that positively co-move are labeled as experiencing current demand-pull inflation. Negative co-movement in the two innovations indicates current supply-push inflation. Category inflation is then decomposed into supply ...
Working Papers , Paper 2025-007

Working Paper
Fed-Driven Systemic Tail Risk: High-Frequency Measurement, Evidence and Implications
Erdemlioglu, Deniz; Neely, Christopher J.; Yang, Xiye (2025-03-30)
We develop a framework to measure market-wide (systemic) tail risk in the cross-section of asset returns. Using high-frequency data on individual U.S. stocks and sector-specific ETF portfolios, we estimate time-varying jump intensities and multi-asset tail risk around Fed policy announcements. While most FOMC announcements generate systemic left-tail risk, there is no evidence that macro announcements have a similar effect. The magnitude of the tail risk induced by Fed policy announcements varies over the business cycle, peaks during the global financial crisis and remains high during phases ...
Working Papers , Paper 2023-016

Working Paper
Dissecting the Great Retirement Boom
Birinci, Serdar; Faria-e-Castro, Miguel; See, Kurt (2025-03-21)
Between 2020 and 2023, the fraction of retirees in the working-age population in the U.S. increased above its pre-pandemic trend. Several explanations have been proposed to rationalize this gap, including increases in net worth, the deterioration of the labor market with higher job separations, the expansion of fiscal transfer programs, and higher mortality risk. We develop an incomplete markets, overlapping generations model with a frictional labor market to quantitatively study the interaction of these factors and decompose their contributions to the rise in retirements. We find that new ...
Working Papers , Paper 2024-017

Working Paper
Taxation, Compliance, and Clandestine Activities
Bandyopadhyay, Subhayu; Marjit, Sugata; Pinto, Santiago; Thum, Marcel (2025-03-19)
We investigate the delicate balance policymakers have to strike between raising tax revenues for public good provision and controlling the distortionary effects of taxes on (i) tax evasion, (ii) total work hours, and (iii) the allocation of work hours to illegal activities. These distortions lower the constrained optimal tax rate and result in the under-provision of the public good. This under-provision problem is mitigated when surplus from the audit agency is seamlessly transferred to the taxing authorities. Extensions of the basic model incorporate agent heterogeneity and a more general ...
Working Papers , Paper 2025-005

Working Paper
The Allocation of Immigrant Talent: Macroeconomic Implications for the U.S. and Across Countries
Birinci, Serdar; Leibovici, Fernando; See, Kurt (2025-03-18)
We quantify the labor market barriers that immigrants face, using an occupational choice model with natives and immigrants of multiple types subject to wedges that distort their allocations. We find sizable output gains from removing immigrant wedges in the U.S., representing 25% of immigrants' overall economic contribution, and that these wedges alter the impact of alternative immigration policies. We harmonize microdata across 19 economies and exploit cross-country variation in immigrant outcomes and estimated wedges to examine the drivers of differences in wedges and gains from their ...
Working Papers , Paper 2021-004

Working Paper
What about Japan?
Chien, YiLi; Cole, Harold L.; Lustig, Hanno (2025-03-11)
Over the last decade, the Japanese public sector has primarily borrowed at floating rates while investing in longer-duration risky assets, earning an annual return exceeding 6% of GDP above its funding costs. We quantify the impact of Japan’s low-rate policies on its government and households. The government duration mismatch expands fiscal space when real rates fall, helping the government fulfill promises to older households. A typical younger Japanese household does not have enough duration in its portfolio to continue to finance its spending plan and will be worse off. Low-rate policies ...
Working Papers , Paper 2023-028

Working Paper
A Quantitative Analysis of Bank Lending Relationships
Dempsey, Kyle; Faria-e-Castro, Miguel (2025-03-06)
We study the aggregate consequences of dynamic lending relationships in a model of heterogeneous banks facing financial frictions. We estimate the model's loan demand system on administrative loan-level data: the market power implied by the estimated strength and persistence of relationships yields a long run reduction in credit of 5.9%. Relationships amplify the negative real effects of credit supply shocks, but mute those of negative credit demand shocks. In a financial crisis which destroys 25% of bank net worth, for example, loan volume drops more than twice as much in our baseline model ...
Working Papers , Paper 2022-033

Working Paper
Mismatch Unemployment During COVID-19 and the Post-Pandemic Labor Shortages
Birinci, Serdar; Mercan, Yusuf; See, Kurt (2025-02-28)
We examine the extent to which mismatch unemployment—employment losses relative to an efficient allocation where the planner can costlessly reallocate unemployed workers across sectors to maximize output—shaped labor market dynamics during the COVID-19 pandemic and the subsequent recovery episode characterized by labor shortages. We find that, for the first time in our sample, mismatch unemployment turned negative at the onset of the pandemic. This result suggests that the efficient allocation of job seekers would involve reallocating workers toward longer-tenure and more-productive jobs, ...
Working Papers , Paper 2024-025

Working Paper
Monetary Policy and the Great COVID-19 Price Level Shock
Andolfatto, David; Martin, Fernando M. (2025-02-14)
We use an analytically tractable DSGE model to study the surge in the cost of living in the wake of the COVID-19 pandemic. A calibrated version of the model is used to assess the conduct of US monetary and fiscal policy over the 2020-2024 period. The model is also used to estimate the economic and welfare consequences of alternative monetary and fiscal policies. The calibrated model suggests that while the extraordinary fiscal transfers made in 2020-21 generally improved economic welfare, they were significantly larger than needed. These welfare gains came primarily in the form of insurance, ...
Working Papers , Paper 2025-004

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