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Discussion Paper
A Roadmap for the Federal Reserve’s 2025 Review of Its Monetary Policy Framework
Leduc, Sylvain; Paulson, Anna L.; Reeve, Trevor A.; Tevlin, Stacey (2025-08-22)
The Federal Reserve’s first formal, public review of its monetary policy framework (MPF) was completed in 2020 and included a plan to review monetary policy strategy, tools, and communication practices roughly every five years. The review conducted in 2025 thus constituted the Fed’s first five-year review of its MPF.
FEDS Notes , Paper 2025-08-22-1

Journal Article
Slow business start-ups and the job recovery
Laderman, Elizabeth; Leduc, Sylvain (2014)
Start-ups typically create jobs so fast at the beginning of recoveries that even a modest drop in that pace can affect the whole economy. In fact, slower job growth among new businesses may have resulted in 760,000 fewer jobs in the first year of the current recovery. Because housing wealth is an important factor in the financing of new businesses, lower house prices may have been partly to blame for the slower growth. Conversely, recently increasing house prices may already be boosting start-up growth and, with it, overall job growth.
FRBSF Economic Letter

Journal Article
Deficit-financed tax cuts and interest rates
Leduc, Sylvain (2004-04)
Why do proposals to lower taxes often meet with opposition in Congress. One argument is that lowering taxes without an equivalent fall in government spending may lead to future budget deficits, which will translate into higher long-term interest rates and a lower level of income. Sylvain Leduc discusses the theoretical arguments under which budget deficits lead to higher interest rates. He also surveys empirical studies that used data on expected budget deficits to document the possibility that increases in future budget deficits are associated with higher real long-term interest rates.
Business Review , Issue Q2 , Pages 30-37

Journal Article
Uncertainty, unemployment, and inflation
Liu, Zheng; Leduc, Sylvain (2012)
Heightened uncertainty acts like a decline in aggregate demand because it depresses economic activity and holds down inflation. Policymakers typically try to counter uncertainty's economic effects by easing the stance of monetary policy. But, in the recent recession and recovery, nominal interest rates have been near zero and couldn't be lowered further. Consequently, uncertainty has reduced economic activity more than in previous recessions. Higher uncertainty is estimated to have lifted the U.S. unemployment rate by at least one percentage point since early 2008.
FRBSF Economic Letter

Working Paper
Self-fulfilling expectations and the inflation of the 1970s: evidence from the Livingston Survey
Stark, Tom; Sill, Keith; Leduc, Sylvain (2002)
Using survey data on expectations, the authors examine whether the post-war data are consistent with theories of a self-fulfilling inflation episode during the 1970s. Among commonly cited factors, oil and fiscal shocks do not appear to have triggered an increase in expected inflation that was subsequently validated by monetary policy. However, the evidence suggests that, prior to 1979, the Fed accommodated temporary shocks to expected inflation, which then led to permanent increases in actual inflation. The authors do not find this behavior in the post-1979 data.
Working Papers , Paper 02-13

Journal Article
Do Low Survey Response Rates Threaten Data Dependence?
Leduc, Sylvain; Oliveira, Luiz E.; Paulson, Caroline M. (2025-03-31)
Monetary policy is forward-looking and dependent on policymakers’ economic outlook. When the outlook is deemed highly uncertain, policymakers may put more weight on incoming data when making monetary policy considerations. However, falling survey response rates suggest employment and inflation data may have become less reliable. Analysis of payroll employment and consumer price inflation data shows that data revisions over the past few years have been in line with their pre-pandemic averages. This suggests that these data have not been an outsized source of uncertainty in recent years.
FRBSF Economic Letter , Volume 2025 , Issue 07 , Pages 5

Working Paper
Will AI Intensify or Weaken Market Competition?
Firooz, Hamid; Leduc, Sylvain; Liu, Zheng (2026-08-10)
We study how AI affects market competition based on a general equilibrium framework with heterogeneous firms facing idiosyncratic productivity and variable markups. Firms choose the AI technology subject to fixed costs, where AI production requires data and energy inputs. Our model predicts a non-monotonic relation of AI diffusion with industry concentration. As AI usage rises from an initially low level, large incumbent users gain market share. When AI usage is sufficiently diffused, entry of new and smaller adopters erodes the market share of incumbents, reducing industry concentration. The ...
Working Paper Series , Paper 2026-15

Working Paper
International risk-sharing and the transmission of productivity shocks
Dedola, Luca; Corsetti, Giancarlo; Leduc, Sylvain (2005)
A central puzzle in international finance is that real exchange rates are volatile and, in stark contradiction to efficient risk-sharing, negatively correlated with cross-country consumption ratios. This paper shows that a standard international business cycle model with incomplete asset markets augmented with distribution services can account quantitatively for these properties of real exchange rates. Distribution services, intensive in local inputs, drive a wedge between producer and consumer prices, thus lowering the impact of terms-of-trade changes on optimal agents' decisions. This ...
International Finance Discussion Papers , Paper 826

Journal Article
Do Households Expect Inflation When Commodities Surge?
Glick, Reuven; Kouchekinia, Noah; Liu, Zheng; Leduc, Sylvain (2021-07-12)
Household surveys indicate that consumers expect higher inflation this year than in recent years, as the U.S. economy rebounds from the deep recession. This has coincided with a surge in commodity prices, as strong demand for goods like gas, food, and construction materials is catching producers with low supplies. Evidence suggests that households respond to commodity price increases by raising their expectations of future inflation. However, since surges in commodity prices are transitory, their effects on inflation expectations—particularly long-term expectations—are modest and ...
FRBSF Economic Letter , Volume 2021 , Issue 19 , Pages 06

Working Paper
Exchange-rate puzzles in a model with arbitrage.
Leduc, Sylvain (2000)
This paper documents the implications of arbitrage costs on the behavior of exchange rates in an open-economy liquidity model. The main motivation behind the paper is the growing evidence that the well-documented departures from purchasing power parity are due to a failure of the law of one price. The paper quantifies the importance of arbitrage costs for the variability, persistence, and autocorrelation of real and nominal exchange rates and compares the results with those of a model with nominal rigidities and firms pricing to market; second, the paper studies the impact of currency risk ...
Working Papers , Paper 00-11

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