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Discussion Paper
A New Index to Measure U.S. Financial Conditions
This note proposes a new index that can be used to gauge broad financial conditions and assess how these conditions are related to future economic growth. The index is broadly consistent with how the FRB/US model generally relates key financial variables to economic activity.
Discussion Paper
Financial Conditions and Risks to the Economic Outlook
Financial conditions have swung considerably over the past two and half years. They moved from very accommodative levels in late 2021 to providing a significant drag on economic activity in 2022 and 2023. Since early this year, they eased moderately amid monetary policy communications signaling that the federal funds rate had likely reached its peak for this monetary policy tightening cycle.
Working Paper
Monetary Policy and the Distribution of Income: Evidence from U.S. Metropolitan Areas
We use Zip code–level Statistics of Income data from the Internal Revenue Service to measure the distribution of income within U.S. metropolitan areas from 1998 through 2019. Exploiting geographic variation in income distribution over time, we study how unanticipated changes in the monetary policy stance shape the subsequent dynamics of income inequality. The results show that monetary policy persistently affects labor income inequality and that these distributional effects are amplified significantly in weak local labor markets.
Discussion Paper
Monetary Policy and the Distribution of Income: Evidence from U.S. Metropolitan Areas
The steady rise in income inequality and the broad range of actions undertaken by central banks in recent years – first to stabilize the global economy during the 2008-09 financial crisis and second to stave off the pandemic-induced economic collapse – have brought the distributional footprint of monetary policy to the forefront of the economic policymaking discussion (Bernanke, 2015; Draghi, 2016; BIS, 2021).
Discussion Paper
U.S. Zombie Firms: How Many and How Consequential?
The unprecedented fiscal and monetary policy support in the wake of the COVID-19 pandemic has brought to the fore concerns that cheap credit could fuel the financing of zombie firms—that is, firms that are unable to generate enough profits to cover debt-servicing costs and that need to borrow to stay alive. Many observers have recently commented that zombie firms may crowd out lending to productive firms and erode the strength of the U.S. economy.
Working Paper
Zombie Lending to U.S. Firms
We show that U.S. banks do not engage in zombie lending to firms of deteriorating profitability, irrespective of capital levels and exposure to such firms. In contrast, unregulated financial intermediaries do, originating more and cheaper loans to these firms. We establish these results using supervisory data on firm-bank relationships, syndicated lending data for banks and nonbanks, and an empirical setting with quasi-random shocks to firm profitability. Although credit migrates from banks to nonbanks, zombie firms file for bankruptcy at an elevated rate, suggesting that nonbanks’ zombie ...