en Jeff Larrimore

Circulation into and out of the top one percent is pronounced in the U.S. One third exit after a year and two-thirds exit after a decade. This mobility lowers top income shares when shifting from annual to multi-year income measures. Intragenerational mobility over two decades lowers recent top one percent fiscal income shares by over 10 percent. Two-decade mobility reduces top 0.1% shares by over 20 percent, top 0.01% shares by 30 percent, and top 0.001% shares by 40 percent. Effects of variability on wealth inequality are similar in magnitude, although more modest as a share of top wealth inequality.]]> FEDS Paper Danilo Cascaldi-Garcia and Matteo Iacoviello

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.]]> IFDP Paper Edward Nelson

Central bank independence is a major area of study, but the economic literature has been characterized by numerous misstatements regarding how U.S. monetary policy independence has operated over time. Against this backdrop, this paper lays out major elements of the practice of central bank independence in the United States in the period from 1951 to 2006—a time span that encompasses the William McChesney Martin, Jr., through Alan Greenspan tenures as the head of the Federal Reserve. Many documentary materials and policymaker quotations not considered in previous research on U.S. monetary policy are highlighted. The analysis covers both institutional aspects (statutory objectives, formalities of Federal Reserve structure, and conventions followed in regularizing the central bank’s interactions with the legislative and executive branches) and the conceptual basis for independence, as expressed by leading Federal Reserve officials, particularly Chairs. It is shown—with heavy reliance on their own words—how Federal Reserve Chairs have characterized the position of the central bank within the governmental structure of the United States and how they have set out the case for monetary policy independence. What emerges is that successive Chairs over the decades made essentially the same, three-part, economic case for independence. This case does not rely on the arguments associated with economic research on time inconsistency.]]> FEDS Paper Dario Caldara, Mike McHenry, Matteo Iacoviello, and Immo Schott

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.]]> IFDP Paper Margaret M. Jacobson, and Michael Siemer

How flexible are corporate loans after origination? Theory predicts coordination problems should make syndicated loans harder to modify than single-bank loans. We show the opposite. Using comprehensive regulatory data, we document that syndicated loans are modified frequently and respond to borrower distress, while single-lender loans are half as likely to be modified. This gap is not explained by covenants or performance pricing. Instead, syndicated loans are monitored more intensively. We show theoretically and empirically how fixed monitoring costs generate scale economies: larger loans justify continuous monitoring enabling flexible renegotiation, while smaller borrowers receive arm’s-length contracts with limited scope for modifications.]]> FEDS Paper Michele Modugno, Dino Palazzo, Carlos A. Ramírez, and Thiago R.T. Ferreira

We develop a market-based measure of firms' and industries' exposure to foreign trade disruptions. Combining this approach with detailed supervisory data, we quantify large U.S. banks' exposure to such disruptions and propose a novel bank-level vulnerability index. We show that banks with greater exposure experienced significantly larger stock price declines following the April 2025 tariff announcements. Our vulnerability index explains 18% of the cross-sectional variation in bank returns during this episode.]]> FEDS Paper Michael Suher, and Jeffery Y. Zhang

Does fair lending litigation impact mortgage lender decisions? Using a novel dataset of all fair lending legal actions from 1991 to 2023, we find that it does. In the wake of legal settlements for discrimination against Black borrowers, lenders significantly reduced denial rates for Black applicants. The reductions offset pre-litigation racial disparities in denial rates by litigated banks, relative to those banks' competitors. Origination rates for Black applicants also increased post-litigation. We further observe evidence of a spillover effect on the approval decisions of non-litigated banks operating in the same city as a litigated bank. Altogether, the evidence suggests that the enforcement of fair lending laws is an effective tool to reduce racial discrimination in credit markets.]]> FEDS Paper
This paper describes the current U.S. dollar interbank payments landscape and identifies its key characteristics. It then discusses major considerations and potential tradeoffs that various conceptual alternatives might raise.]]> FEDS Paper Anna Tranfaglia

Using linked mortgage application and credit bureau data, we document the existence of unconditional and conditional gender gaps in the distribution of total credit card limits for sole mortgage applicants. We estimate that male borrowers have approximately $1,300 higher total credit card limits than female borrowers. This gap is primarily driven by a large gender gap in the right tail of the limit distribution. At the median and in the left tail of the total limit distribution, women’s limits are approximately $100 to $300 higher than men’s. Results from a Kitagawa-Oaxaca-Blinder decomposition show that 87 percent of the gap is explained by differences in the effect of observed characteristics, while 10 percent of the difference is explained by differences in the levels of observed characteristics. The gap is persistent across geographies but has varied over time. Overall, these gender gaps are small in economic magnitude and have changed over time favoring women.]]> FEDS Paper Anthony M. Diercks, Jared Dean Katz, and Jonathan H. Wright

Prediction markets offer a new market-based approach to measuring macroeconomic expectations in real-time. We evaluate the accuracy of prediction market-implied forecasts from Kalshi, the largest federally regulated prediction market overseen by the CFTC. We compare Kalshi with more traditional survey and market-implied forecasts, examine how expectations respond to macroeconomic and financial news, and how policy signals are interpreted by market participants. Our results suggest that Kalshi markets provide a high-frequency, continuously updated, distributionally rich benchmark that is valuable to both researchers and policymakers.]]> FEDS Paper Anna Amirdjanova, David Lynch, and Anni Zheng

We examine prospective classification of crypto currencies risks within the ISDA Standardized Initial Margin Model (SIMM) framework for calculation of initial margin on trades sensitive to cryptocurrencies’ risk factors in the uncleared market. Consistent with the view that cryptocurrencies are digital assets that fundamentally rely on distributed ledger technology (DLT) and induce financial risks that are significantly different from those in traditional risk classes like commodities or FX, we find that cryptocurrencies are best classified into a distinct risk class within SIMM that is split into two buckets – pegged and floating (unpegged) crypto currencies as risk factors - and suggest risk weights’ calibration methodology within the cryptocurrencies risk class that is consistent with the existing approaches adopted in SIMM.]]> FEDS Paper Ahmet Degerli, Jing Wang

We provide evidence that banks use loan covenants to prepare for future monetary policy tightening, thereby facilitating the bank lending channel of monetary policy transmission. Specifically, banks with greater monetary policy exposure—those whose lending capacity contracts more as the federal funds rate increases—include stricter financial covenants in loan contracts, granting them flexibility to reduce existing loan commitments during monetary policy tightening when firms breach covenants. The resulting credit reductions to covenant violators by high-exposure banks account for over one-third of the total decline in credit during recent federal funds rate hikes.]]> FEDS Paper Paul A. Smith

We create an annualized measure of comprehensive household wealth using the 1998–2022 waves of the Health and Retirement Study and examine heterogeneity in retirement resources across households, cohorts, and time. We augment traditional net worth with the actuarial present values of expected future payment streams from labor-market earnings, Social Security, defined-benefit pensions, annuities, life insurance, and government transfers. We then calculate an annualized measure of that lump sum by converting it into an actuarially fair joint life annuity that we call annualized comprehensive wealth (ACW). We find that the median ACW increases throughout retirement, indicating that the median household is spending down its total resources more slowly than its joint life expectancy is shortening. In addition, we document considerable heterogeneity in the levels and trajectories of ACW across cohorts, education groups, and race. Notably, we find that the pattern of rising ACW is largely driven by college-educated and White households. Other groups show relatively flat or declining trajectories of ACW after retirement. We further explore the heterogeneity of ACW with the help of recentered influence function regressions. We show that inequality in ACW is associated with higher household-specific rates of return, higher education, and greater concentrations of single-headed and Black and Hispanic households.]]> FEDS Paper Zach Modig, and Nathan M. Palmer

Large language models (LLMs) are now used for economic reasoning, but their implicit "preferences" are poorly understood. We study these preferences by analyzing revealed choices in canonical allocation games and a sequential job-search environment. In dictator-style allocation games, most models favor equal splits, consistent with inequality aversion. Structural estimation of Fehr-Schmidt parameters suggests this aversion exceeds levels typically observed in human experiments. However, LLM preferences prove malleable. Interventions such as prompt framing (e.g., masking social context) and control vectors reliably shift models toward more payoff-maximizing behavior, while persona-based prompting has more limited impact. We then extend our analysis to a sequential decision-making environment based on the McCall job search model. Here, we recover implied discount factors from accept/reject behavior, but find that responses are less consistently rationalizable and preferences more fragile. Our findings highlight two core insights: (i) LLMs exhibit structured, latent preferences that often align with human behavioral norms, and (ii) these preferences can be steered, albeit more effectively in simple settings than in complex, dynamic ones.]]> 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