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Corporate Bond Spreads and the Pandemic II: Heterogeneity across Sectors
Ebsim, Mahdi; Kozlowski, Julian; Faria-e-Castro, Miguel (2020-04-14)
The COVID-19 pandemic’s effects on firm borrowing costs have been heterogeneous, with some sectors being more affected than others.
On the Economy

Working Paper
The Nonlinear Effects of Fiscal Policy
Holter, Hans; Faria-e-Castro, Miguel; Ferreira, Miguel H.; Brinca, Pedro (2021-01-15)
We argue that the fiscal multiplier of government purchases is nonlinear in the spending shock, in contrast to what is assumed in most of the literature. In particular, the multiplier of a fiscal consolidation is decreasing in the size of the consolidation. We empirically document this fact using aggregate fiscal consolidation data across 15 OECD countries. We show that a neoclassical life-cycle, incomplete markets model calibrated to match key features of the U.S. economy can explain this empirical finding. The mechanism hinges on the relationship between fiscal shocks, their form of ...
Working Papers , Paper 2019-015

Working Paper
Credit and Liquidity Policies during Large Crises
Ebsim, Mahdi; Faria-e-Castro, Miguel; Kozlowski, Julian (2023-11-20)
We compare firms’ financials during the Great Financial Crisis (GFC) and COVID-19. While the two crises featured similar increases in credit spreads, debt and liquid assets decreased during the GFC but increased during COVID-19. In the cross-section, leverage was the primary determinant of credit spreads and investment during the GFC, but liquidity was more important during COVID-19. We augment a quantitative model of firm capital structure with a motive to hold liquid assets. The GFC resembled a combination of real and financial shocks, while COVID-19 also featured liquidity shocks. We ...
Working Papers , Paper 2020-035

Working Paper
Evergreening
Sanchez, Juan M.; Paul, Pascal; Faria-e-Castro, Miguel (2022-07)
We develop a simple model of relationship lending where lenders have incentives for evergreening loans by offering better terms to less productive and more indebted firms. We detect such lending behavior using loan-level supervisory data for the United States. Low-capitalized banks systematically distort firms’ risk assessments to window-dress their balance sheets. To avoid further reductions in their capital ratios, such banks extend relatively more credit to underreported borrowers. We incorporate the theoretical mechanism into a dynamic heterogeneous-firm model to show that evergreening ...
Working Papers , Paper 2021-012

Working Paper
The Nonlinear Effects of Fiscal Policy
Brinca, Pedro; Faria-e-Castro, Miguel; Ferreira, Miguel H.; Holter, Hans; Nóbrega, Valter (2023-06-23)
We argue that the fiscal multiplier of government purchases is nonlinear in the size of the spending shock. In particular, the multiplier is increasing in the spending shock, with more expansionary government spending shocks generating larger multipliers and more contractionary shocks generating smaller multipliers. We document that empirically this holds true across time, countries and types of shocks. We then propose a neoclassical mechanism that hinges on the relationship between fiscal shocks, their form of financing, and the response of labor supply across the wealth distribution. A ...
Working Papers , Paper 2019-015

Working Paper
Fiscal Policy during a Pandemic
Faria-e-Castro, Miguel (2020-03-24)
I study the effects of the 2019-20 coronavirus outbreak in the United States and subsequent fiscal policy response in a nonlinear DSGE model. The pandemic is a shock to the utility of contact-intensive services that propagates to other sectors via general equilibrium, triggering a deep recession. I use a calibrated version of the model to analyze different types of fiscal policies. I find that UI benefits are the most effective tool to stabilize income for borrowers, who are the hardest hit, while savers may favor unconditional transfers. Liquidity assistance programs are effective if the ...
Working Papers , Paper 2020-006

Journal Article
Rising Rates Impact Borrowing Costs for the U.S. Government, Too
Faria-e-Castro, Miguel; Bharadwaj, Asha (2018)
The Fed has been raising short-term rates. This lifts borrowing costs for everyone, including the U.S. government, but the effect on longer-term Treasury rates is less predictable.
The Regional Economist , Volume 26 , Issue 3

Working Paper
Measuring Labor Supply and Demand Shocks during COVID-19
Duarte, Joao B.; Faria-e-Castro, Miguel; Brinca, Pedro (2021-07)
We measure labor demand and supply shocks at the sector level around the COVID-19 outbreak by estimating a Bayesian structural vector autoregression on monthly statistics of hours worked and real wages. Most sectors were subject to large negative labor supply and demand shocks in March and April, with substantial heterogeneity in the size of shocks across sectors. Our estimates suggest that two-thirds of the drop in the aggregate growth rate of hours in March and April 2020 are attributable to labor supply. We validate our estimates of supply shocks by showing that they are correlated with ...
Working Papers , Paper 2020-011

Journal Article
The COVID Retirement Boom
Faria-e-Castro, Miguel (2021-10-15)
As of August 2021, during the COVID-19 pandemic, slightly more than 3 million people likely retired earlier than they would have otherwise.
Economic Synopses , Issue 25 , Pages 1-2

Recent Trends in Banks’ Commercial Real Estate Exposure
Faria-e-Castro, Miguel; Hogan, Marie; Jordan-Wood, Samuel (2024-07-11)
U.S. bank holding companies that have the largest exposure to commercial real estate share some common characteristics. Our blog post explains.
On the Economy

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