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Working Paper
The impact of the Federal Reserve's Large-Scale Asset Purchase programs on corporate credit risk
Gilchrist, Simon; Zakrajšek, Egon (2013)
Estimating the effect of Federal Reserve's announcements of Large-Scale Asset Purchase (LSAP) programs on corporate credit risk is complicated by the simultaneity of policy decisions and movements in prices of risky financial assets, as well as by the fact that both interest rates of assets targeted by the programs and indicators of credit risk reacted to other common shocks during the recent financial crisis. This paper employs a heteroskedasticity-based approach to estimate the structural coefficient measuring the sensitivity of market-based indicators of corporate credit risk to declines ...
Finance and Economics Discussion Series , Paper 2013-56

Working Paper
Capital requirements, business loans, and business cycles: an empirical analysis of the standardized approach in the new Basel Capital Accord
Zakrajšek, Egon; Carpenter, Seth B.; Whitesell, William C. (2001)
In the current regulatory framework, capital requirements are based on risk-weighted assets, but all business loans carry a uniform risk weight, irrespective of variations in credit risk. The proposed new Capital Accord of the Bank for International Settlements provides for a greater sensitivity of capital requirements to credit risk, raising the question of whether, and to what extent, the new capital standards will intensify business cycles. In this paper, we evaluate the potential cyclical effects of the "standardized approach" to risk evaluation in the new Accord, which involves the ...
Finance and Economics Discussion Series , Paper 2001-48

Working Paper
Purchasing power parity: three stakes through the heart of the unit root null
Higgins, Matthew; Zakrajšek, Egon (2000)
We provide a comprehensive analysis of the purchasing power parity hypothesis, relying on a linear panel data framework. First, we consider two panel unit root tests, based on transformations of country-specific statistics, which allow for parameter heterogeneity across countries. Using GLS techniques, we modify the two tests to eliminate the upward size distortion induced by cross-sectional dependence among contemporaneous real exchange rate innovations. Second, we consider two tests based on a fixed-effects specification: these tests allow for cross-sectional dependence but impose parameter ...
Finance and Economics Discussion Series , Paper 2000-22

Report
Trade inventories
Zakrajšek, Egon; McCarthy, Jonathan (1998)
We examine the behavior of trade inventories using both industry-level and high-frequency firm-level data. The cost structure underlying the firm's optimization problem--convex delivery costs vs. fixed costs of ordering--provides the two competing hypotheses. In the presence of fixed costs (S,s) inventory policies are optimal, and steady-state reduced-form predictions regarding the dynamics of inventories and sales can be used to test the model. The alternative of convex delivery costs is provided by structural estimation of a linear-quadratic (L-Q) model. At the industry level, the results ...
Staff Reports , Paper 53

Discussion Paper
Updating the Recession Risk and the Excess Bond Premium
Favara, Giovanni; Gilchrist, Simon; Lewis, Kurt F.; Zakrajšek, Egon (2016-10-06)
Beginning with the publication of this Note, we will provide updated estimates of the EBP and the associated model-implied probability of a U.S. recession every month.
FEDS Notes , Paper 2016-10-06

Working Paper
Uncertainty, Financial Frictions, and Investment Dynamics
Gilchrist, Simon; Zakrajšek, Egon; Sim, Jae W. (2014-04-01)
Micro- and macro-level evidence indicates that fluctuations in idiosyncratic uncertainty have a large effect on investment; the impact of uncertainty on investment occurs primarily through changes in credit spreads; and innovations in credit spreads have a strong effect on investment, irrespective of the level of uncertainty. These findings raise a question regarding the economic significance of the traditional "wait-and-see" effect of uncertainty shocks and point to financial distortions as the main mechanism through which fluctuations in uncertainty affect macroeconomic outcomes. The ...
Finance and Economics Discussion Series , Paper 2014-69

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