en Sai Ma, Viktors Stebunovs, Judit Temesvary

We develop a Transmission Growth-at-Risk (TGaR) framework that incorporates foreign financial vulnerabilities as predictors of U.S. downside growth risk. We distinguish financial conditions, which measure current tightness in credit markets, from financial vulnerabilities, which measure structural fragilities that can amplify shocks. Elevated foreign financial vulnerabilities are associated with lower U.S. growth-at-risk, with transmission through both trade linkages and dollar integration channels. Asset valuation pressures and financial sector leverage abroad have the largest estimated amplification effects. Financial conditions primarily affect near-term tail risk, while foreign vulnerabilities weigh on U.S. GDP at a medium-term horizon. Out of sample, adding foreign vulnerabilities raises the predictive score by 53 percent at the 8-quarter horizon. Crisis-episode evidence points to the same interpretation. These findings show that monitoring foreign financial vulnerabilities is important for gauging U.S. growth prospects.]]> IFDP Paper R. Matthew Darst, Lucia Gurrieri, Arazi Lubis, and Alexandros P. Vardoulakis

This paper examines whether regulatory liquidity buffers enable banks to support corporate borrowers during financial stress. Using confidential bank-firm credit data and handcollected Liquidity Coverage Ratio regulation (LCR) disclosures during COVID-19, we find that banks with higher LCR buffers above the regulatory minimum provided significantly more credit to firms with large undrawn credit lines in March 2020. Critically, only buffers, not overall LCR levels, matter, revealing that the regulatory minimum operates as a binding constraint during stress. The effect is concentrated among high-quality borrowers with clean credit profiles and disappears by mid-2020, confirming that LCR buffers provide selective, temporary liquidity insurance during acute stress.]]> FEDS Paper Diego Vilán

This study examines how fluctuations in firm-level uncertainty arise over the business cycle and how they influence aggregate economic activity. To do so, it develops a general equilibrium incomplete-markets model in which heterogeneous, risk-averse firms face idiosyncratic demand uncertainty and aggregate shocks to consumer credit conditions. A change in aggregate credit affects not only the expected level of firm demand, but also the cross-sectional dispersion of sales per worker by shifting the probability that firms operate at capacity. Thus, first-moment shocks give rise to endogenous second-moment effects. The model is disciplined using U.S. Compustat data on firm sales and employment and proprietary customer traffic data. The calibrated economy reproduces key cross-sectional moments and business-cycle comovements, including countercyclical dispersion in firm outcomes. Quantitatively, endogenous uncertainty accounts for roughly one quarter of the output response and one third of the employment response to aggregate credit shocks. The results suggest that uncertainty is not only an independent source of aggregate fluctuations, but also an endogenous propagation mechanism through which changes in demand conditions amplify business cycles.]]> FEDS Paper Cody Kallen

A substantial portion of corporate debt remains hidden from balance sheets. I document two forms of off-balance-sheet leverage in nonfinancial corporations: operating leases (pre-2019) and intraperiod borrowing—short-term debt issued and repaid within reporting periods, which I am the first to study in nonfinancial firms. Approximately 29 percent of publicly traded firms used substantial operating leases and 12 percent show evidence of substantial intra-period borrowing, with a disproportionate subset using both types of hidden debt. Firms using substantial hidden leverage are generally smaller, more reliant on short-term funding, are less monitored by sophisticated market participants, and report lower leverage, suggesting they use off-balance-sheet debt to project false leverage profiles. When accounting changes in 2019 revealed substantial operating leases, affected firms subsequently cut capital expenditures by 25 percent and R&D by 14 percent, faced heightened risks of executive turnover and stakeholder scrutiny, and experienced more frequent accounting problems. Critically, revelation of substantial operating leases caused these exposed firms to curtail their intra-period borrowing and to raise their reported non-lease leverage.]]> IFDP Paper Giuseppe Fiori, and Damian Pierri

We develop a business cycle model with perfectly competitive product and labor markets in which production requires a minimum labor input, generating endogenous capacity utilization. The aggregate production function is kinked, featuring constant returns to scale below capacity—typically in recessions—and decreasing returns at capacity in expansions. Motivated by new empirical evidence that narratively identified labor tax shocks have significantly larger effects on hours and output when capacity utilization is below trend, we calibrate the model to U.S. data and show that the aggregate hours elasticity is higher in recessions, differing markedly from the micro elasticity implied by preferences.]]> IFDP Paper Hyung Joo Kim and Dong Hwan Oh

Despite documented heterogeneity in volatility dynamics across the option surface, standard implied volatility forecasting models apply homogeneous parameters throughout. We introduce a machine-learning framework that uses regression trees to partition the surface along both moneyness and maturity dimensions, identifying data-driven regions where distinct forecasting models perform best. Extending the Surface Heterogeneous Autoregressive (SHAR) framework of Dufays, Jacobs, and Rombouts (2025), we develop tree-based SHAR specifications that preserve interpretable structure while allowing model parameters to vary across the surface. Empirical analysis using S&P 500 options demonstrates that the boosted tree-based specification achieves the lowest out-of-sample forecast errors across all horizons, reducing one-month-ahead RMSE by 13 percent versus the benchmark SHAR model. The improvements are statistically significant and particularly pronounced during stress periods. The estimated tree presents economically interpretable segmentation: short-dated options exhibit higher daily persistence but lower monthly persistence than long-dated options, while deep out-of-the-money calls or puts display distinct dynamics from near-the-money contracts.]]> FEDS Paper John C. Driscoll, Benjamin S. Kay, Geng Li, and Cindy M. Vojtech

We provide the first lender-level analysis linking two independently constructed credit supply measures: the Federal Reserve's Senior Loan Officer Opinion Survey (SLOOS) and credit card mail offers from Mintel Comperemedia. Using a matched panel of 73 banks from 2000 to 2019, we find that quarterly mail volume growth was 18 percent lower when banks reported tightening credit card lending standards, a relationship robust to including credit demand indicators. In addition, SLOOS responses on credit limits and interest rate spreads are also correlated with these terms observed in mail offers. Our findings validate both measures as informative credit supply indicators.]]> FEDS Paper Luca Guerrieri, Jinill Kim, and Arsenii Mishin

Within narrowly defined industries, the most productive firms produce far more than the least productive from the same inputs, and this dispersion widens in downturns. We build a tractable representative-agent model in which financial frictions—adverse selection and moral hazard—make firms sort endogenously into lenders, strategic defaulters, and producers. As credit conditions vary, the resulting misallocation gives aggregate total factor productivity (TFP) an endogenous component that accounts for about 30 percent of the variance of TFP at business-cycle frequencies, a third of it from strategic default. We show that our tractable model can match key features of the observed distribution of productivity across firms and its co-movement with output growth and credit conditions in the data.]]> FEDS Paper Bence Bardóczy, Akshay Shanker, and Mateo Velásquez-Giraldo

The sequence-space Jacobian (SSJ) method of Auclert et al. (2021a) has made heterogeneous-agent models far easier to solve, fueling an explosion of applications. But even SSJ strains against capacity constraints when state spaces grow very large, as in economies with overlapping generations of heterogeneous agents (HA-OLG). We show how to exploit the special properties of age—finite planning horizons and deterministic transitions between ages—to compute the Jacobians of a general class of HA-OLG models orders of magnitude faster. We provide rigorous proofs, age-specific Jacobians that decompose aggregate dynamics across cohorts, an application to the dynamic general-equilibrium effects of secularly declining birth rates, and an accessible cookbook for adopting our method.]]> FEDS Paper John Coglianese and Jade A. Fang

Researchers are faced with the choice of which of the many recently developed difference-in-differences methods to use in practice. To assess these estimators' relative performance for single-unit event studies, we conduct 134,000+ state-level placebo event studies across 13 estimators. We find that no single method dominates. Performance is context-dependent, with synthetic-control-like methods sometimes outperforming and sometimes underperforming two-way-fixed-effect-like and matching methods. Performance also varies across states at least as much as it does across estimators. Our results highlight the need for practitioners to conduct placebo tests to understand the performance of methods in their research context.]]> FEDS Paper Anthony M. Diercks, Petra Sinagl, and Andrea Tamoni

We study how macroeconomic developments affect asset prices by analyzing the response of equity yields to a well-identified long-run growth shock. Using synthetic equity yield data from Giglio et al. (2024), we show that a positive long-run shock steepens the equity yield curve by increasing expected dividend growth while leaving discount rates largely unchanged. We examine how the investment driving this growth is financed and how yields respond across value and growth firms. Growth-firm yields respond more strongly than value-firm yields, reflecting larger changes in expected dividend growth. Ai et al. (2018)'s model, modified to separate cash dividends from total payout, best matches these responses relative to benchmark equity term structure models.]]> FEDS Paper Douglas Webber, and Mike Zabek

Using novel data from the Survey of Household Economics and Decisionmaking, we examine how labor market tightness affects workers’ job quality. We estimate that a 10 percent increase in job vacancies not only increases the probability of changing jobs, it yields an 11–18 percent increase in the (unconditional) probability of switching to a better job overall, and one with greater pay and benefits, interest in the work, and advancement opportunities. Because tight labor markets improve both worker pay and job amenities in roughly the same proportion, their benefits to workers are underestimated when based on pay alone.]]> FEDS Paper Luca Guerrieri, and Arsenii Mishin

In a model with endogenous risk-taking, deposit insurance and limited liability may lead banks to make risky loans that are socially inefficient. Capital requirements can prevent excessive risk-taking at the cost of reducing liquidity-producing bank deposits. A policy that sets capital requirements just high enough to prevent excessive risktaking will move capital requirements pro-, counter-, or a-cyclically depending on the shock source. However, such a policy requires full knowledge of all the shocks hitting the economy and is not implementable. Simple rules that respond to cyclical conditions—in line with Basel III guidance—perform poorly, whereas a small static capital buffer can do much better.]]> FEDS Paper Sriya Anbil, Alyssa Anderson, Ethan Cohen, and Romina Ruprecht

We present a new constraint on the size of the Fed’s balance sheet: repo market capacity. Calibrating a structural model to the recent monetary tightening cycle, we show that repo market capacity—driven by money market fund liquidity supply—is the binding constraint on the Fed’s balance sheet, not bank reserve demand, which was highlighted in the events of September 2019. We also demonstrate a novel complementarity between interest rate and balance sheet policies: higher policy rates expand repo capacity, allowing the central bank to operate with a smaller balance sheet.]]> FEDS Paper Andreas Tischbirek

We study the spillovers of large-scale asset purchases (LSAPs) in the U.S. on financial intermediation in the euro area using bank-level supervisory data and high-frequency identified policy surprises. Our detailed panel data permit us to trace the impact of LSAPs through bank balance sheets. We find that the Federal Reserve affects credit provision in the euro area through a channel that we refer to as the “international bank capital channel” of unconventional monetary policy. In response to an LSAP shock that leads to a steepening of the U.S. Treasury yield curve, the Treasury positions of euro area banks shrink, capital ratios worsen, and banks that are less well capitalized contract their lending relative to banks that are better capitalized. Our results are consistent with an important role of revaluation effects, imperfect risk hedging, and credit as an adjustment margin for banks in the proximity of regulatory capital constraints.]]> FEDS Paper