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Report
Early Warning Signals in Private Credit? What BDC Portfolios Reveal about Emerging Risks
Private credit—lending by nonbank financial institutions—has grown to over $1 trillion in the United States, yet most of it remains opaque to investors and policymakers because private credit funds are not required to publish their holdings. Business development companies (BDCs) are an exception and provide a window into this segment of the credit markets. All BDCs are publicly registered investment vehicles that must file periodic reports with the Securities and Exchange Commission, including quarterly and annual filings. We analyze these disclosures to detect trends in the pricing of ...
Report
The Impact of Global Shipping Cost Surges on US Import Price Inflation
Global shipping costs have soared to record highs in recent years. Costs spiked during the COVID-19 pandemic, driven by supply chain disruptions, labor shortages, and port congestion. Costs had eased by mid-2023, but they began rising again later that year and into 2024 due to Houthi violence off the coast of Yemen that restricted access to the Suez Canal and a drought at the Panama Canal that limited vessel traffic and forced rerouting around the Cape of Good Hope. As global shipping costs have soared, US import prices also have increased.
Report
How Firms’ Perceptions of Geopolitical Risk Affect Investment
Geopolitical risk has intensified in recent years, driven by events such as Russia’s invasion of Ukraine, escalating tensions between the United States and China, and conflicts in the Middle East. But how risky is the geopolitical landscape according to US firms? This brief presents a new index based on earnings call transcripts that reflects US firms’ perceptions of geopolitical risk and examines how those assessments affect their future investment, that is, their spending on long-term assets such as facilities, equipment, and technology.
Working Paper
Geopolitical Risk and Global Banking
How do banks respond to geopolitical risk, and is this response distinct from other macroeconomic risks? Using U.S. supervisory data and new geopolitical risk indices, we show that banks reduce cross-border lending to countries with elevated geopolitical risk but continue lending to those markets through foreign affiliates—unlike their response to other macro risks. Furthermore, banks reduce domestic lending when geopolitical risk rises abroad, especially when they operate foreign affiliates. A simple banking model in which geopolitical shocks feature expropriation risk can explain these ...
Working Paper
Cross-Policy Risk Pricing
We show that interactions across government policies affect firms’ cost of equity capital. Exploiting the 2018–2019 U.S. tariff shocks and concurrent federal procurement spending, we find that firms facing higher tariff exposure earn higher subsequent risk premia, but this effect is substantially attenuated for firms receiving greater procurement. A one-standard-deviation increase in procurement attenuates about two-thirds of the tariff-related risk premium. Procurement is relatively more favorable for politically connected and economically vulnerable firms. Larger procurement inflows ...
Working Paper
Risk Sharing and Amplification in the Global Banking Network
We develop a structural model of the global banking network and analyze its role in facilitating risk sharing and amplifying shocks across countries and over time. Using bilateral international lending data, we uncover significant heterogeneity in the willingness and capacity of banks to provide cross‐border interbank and corporate loans. This heterogeneity explains variation in risk sharing and amplification across countries. Moreover, we show that cross‐border loan supply has become less elastic overtime, resulting in a decline in risk sharing. While shock amplification has also ...
Discussion Paper
Measuring Geopolitical Risk Exposure Across Industries: A Firm-Centered Approach
Business sentiment shapes real outcomes. Firms respond not only to hard data but also act on how they perceive risks and uncertainty. A growing literature shows that shifts in business sentiment can meaningfully affect investment, employment, and firm performance, even when fundamentals are unchanged.
Discussion Paper
How U.S. Bank Stock Prices Respond to Geopolitical Risk
Geopolitical risk has emerged as a central driver of global financial markets, with episodes such as Russia's invasion of Ukraine and recent conflicts in the Middle East triggering sharp movements in asset prices and increases in market volatility. But not all industries are exposed to such shocks in the same way (Caldara and Iacoviello 2022; Culver, Niepmann, and Shen 2025).
Working Paper
Geopolitical Risk and Global Banking
How do banks respond to geopolitical risk, and is this response distinct from other macroeconomic risks? Using U.S. supervisory data and new geopolitical risk indices, we show that banks reduce cross-border lending to countries with elevated geopolitical risk but continue lending to those markets through foreign affiliatesâ unlike their response to other macro risks. Furthermore, banks reduce domestic lending when geopolitical risk rises abroad, especially when they operate foreign affiliates. A simple banking model in which geopolitical shocks feature expropriation risk can explain these ...
Working Paper
Scarred Consumption
We show that prior lifetime experiences can "scar" consumers. Consumers who have lived through times of high unemployment exhibit persistent pessimism about their future financial situation and spend significantly less, controlling for the standard life-cycle consumption factors, even though their actual future income is uncorrelated with past experiences. Due to their experience-induced frugality, scarred consumers build up more wealth. We use a stochastic lifecycle model to show that the negative relationship between past experiences and consumption cannot be generated by financial ...