Board of Governors of the Federal Reserve System

Abstract:

We construct a news-based index of deregulation for the United States from 1960 through 2025 using AI to semantically classify newspaper articles. We distinguish articles discussing deregulation from those discussing increased regulation, assigning intensity scores that reflect both the centrality of deregulatory content and whether articles discuss advocacy, proposals, or enacted measures. Human validation confirms strong agreement between AI and human classifications. The deregulation index captures major reform episodes including transportation and telecommunications liberalization in the 1970s--1980s, financial deregulation in the 1980s-1990s, and recent deregulatory activity. We decompose the index by sector, type of deregulation, and policy stage. We validate the news-based index against a parallel index constructed using Federal Register documents: the news-based index leads the Federal Register index by nearly one year, consistent with media coverage reflecting policy intentions before formal implementation. Unlike measures based on detailed statutory coding or Federal Register counts that weigh all rules equally, our approach covers the entire economy and weighs naturally by newsworthiness, capturing regulatory shifts before they materialize in law. Positive shocks to deregulation boost investment, productivity, stock prices, profits, and GDP. Industry-specific deregulation shocks boost industry-level stock returns, consistent with our finding that deregulation involves measures that may impact incumbent profitability and operational efficiency more than competitive entry.

Keywords: Deregulation, Regulation, Textual Analysis, Large Language Models, Policy Measurement, Content Classification.

DOI: https://doi.org/10.17016/IFDP.2026.1433

Abstract:

We study the investment effects of the Russia–Ukraine war using a novel, text-based measure of firm-level exposure derived from earnings call transcripts. Combining this measure with financial statement data for over 6,500 firms across 50 countries, we show that exposure to the conflict led to sizable and persistent declines in corporate investment. Firms that discussed the war in early 2022 invested significantly less than otherwise similar firms. The results hold across multiple empirical strategies and highlight the role of geopolitical risk in shaping firm behavior during global crises.

Keywords: Earnings call text, Geopolitical Risk, Investment, Russia-Ukraine war

DOI: https://doi.org/10.17016/IFDP.2026.1432

Abstract:

We find that US workers outside manufacturing exhibit relative earnings increases after US trade liberalization with China. These relative gains cumulate over time as the beneficial effect of a worker’s upstream exposure—increased competition from China in input markets—more than offsets the detrimental impact of her own and downstream (customer) exposures. These relative gains are smaller for non-manufacturing workers with less ex ante firm tenure and lower initial earnings, and are absent among manufacturing workers due to a lack of upstream gains and stronger downstream losses.

Keywords: Trade, Worker Earnings, Uncertainty

DOI: https://doi.org/10.17016/IFDP.2026.1431

Abstract:

This paper introduces a method for estimating productivity and quality at the firm-product level using a transformation function framework. We use firm optimization conditions to establish a one-to-one mapping between observed data and unobserved productivity and quality. We do not need to impute firm-product input shares and can avoid imposing productivity evolution processes. The method is scalable to numerous products and can address the bias caused by unobserved heterogeneous intermediate input prices. We apply the method to a set of Mexican manufacturing industries and examine the roles of across-firm and within-firm technological spillovers, accounting for the trade-off between productivity and quality. Our quantitative analysis shows that an exogenous, product-specific technological improvement generates substantial gains in welfare, amplified by both within-firm and across-firm spillovers by approximately 17 percent and 5 percent, respectively. Moreover, within-firm resource reallocation toward the most productive products accounts for 60 percent of the resulting firm-level productivity gains.

Keywords: Productivity, multi-product firms, quality, spillover, within-firm reallocation

DOI: https://doi.org/10.17016/IFDP.2026.1430