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Working Paper
Measuring Sectoral Supply and Demand Shocks during COVID-19
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. Our estimates suggest that two-thirds of the 16.24 percentage point drop in the growth rate of hours worked in April 2020 are attributable to supply. Most sectors were subject to historically large negative labor supply and demand shocks in March and April, but there is substantial heterogeneity in the size of shocks across sectors. We show that our estimates of supply shocks are correlated ...
Working Paper
Anatomy of Corporate Credit Spreads: The Great Recession vs. COVID-19
We compare the evolution of corporate credit spreads during the Great Recession and the COVID-19 pandemic. The two crises featured increases of similar magnitudes in the median and cross-sectional dispersion of credit spreads, but the pandemic was short-lived and different sectors were affected. The micro-data reveal larger differences between the two episodes: the Great Recession featured an increase in the across-firm dispersion, and leverage was an important predictor of credit spreads. Differently, the COVID-19 crisis displayed a larger increase in within-firm dispersion, and funding ...
Working Paper
Evergreening
We develop a simple model of relationship lending where lenders have incentives for evergreening loans by offering better terms to firms that are close to default. We detect such lending behavior using loan-level supervisory data for the United States. Banks that own a larger share of a firm's debt provide distressed firms with relatively more credit at lower interest rates. Building on this empirical validation, we incorporate the theoretical mechanism into a dynamic heterogeneous-firm model to show that evergreening affects aggregate outcomes, resulting in lower interest rates, higher ...
Working Paper
The St. Louis Fed DSGE Model
This document contains a technical description of the dynamic stochastic general equilibrium (DSGE) model developed and maintained by the Research Division of the St. Louis Fed as one of its tools for forecasting and policy analysis. The St. Louis Fed model departs from an otherwise standard medium-scale New Keynesian DSGE model along two main dimensions: first, it allows for household heterogeneity, in the form of workers and capitalists, who have different marginal propensities to consume (MPC). Second, it explicitly models a fiscal sector endowed with multiple spending and revenue ...
Commercial Real Estate Exposure and Bank Stock Returns
An analysis suggests that commercial real estate exposures may have been a relevant driver of bank holding company stock returns in 2023.
Working Paper
Credit and Liquidity Policies during Large Crises
We study the evolution of firm financials during two large crises: the Great Financial Crisis (GFC) and the COVID-19 pandemic. While the two crises featured similar increases in corporate spreads, corporate debt and liquid asset holdings moved in opposite directions. The micro-data reveal that firm leverage was a more important predictor of firm-level credit spreads and investment during the GFC, but that firm funding liquidity was more important during the pandemic. We augment a dynamic model of firm capital structure with an explicit motive to hold liquid assets, and calibrate it to match ...
Working Paper
Fiscal Multipliers and Financial Crises
I study the effects of the US fiscal policy response to the Great Recession, accounting both for standard tools and financial sector interventions. A nonlinear model calibrated to the US allows me to study the state-dependent effects of different fiscal policies. I combine the model with data on the fiscal policy response to find that the fall in consumption would have been one-third larger in the absence of that response, for a cumulative loss of 7.18%. Transfers and bank recapitalizations yielded the largest fiscal multipliers through new transmission channels that arise from linkages ...
Journal Article
Pandemic Labor Force Participation and Net Worth Fluctuations
The US labor force participation rate (LFPR) experienced a record drop during the early pandemic. While it has since recovered to 62.2 percent as of December 2022, it was still 1.41 percentage points below its pre-pandemic peak. This gap is explained mostly by a permanent decline in the LFPR for workers older than 55. This article argues that wealth effects driven by the historically high returns in major asset classes such as stocks and housing may have influenced these trends. Combining an estimated model of wealth effects on labor supply with micro data on balance sheet composition, we ...
Domestic Debt Before and After the Pandemic Recession
U.S. government and nonfinancial business debt drove domestic debt levels higher during the COVID-19 recession.
Working Paper
A Quantitative Analysis of Countercyclical Capital Buffers
What are the quantitative effects of countercyclical capital buffers (CCyB)? I study this question in the context of a nonlinear DSGE model with a financial sector that is subject to occasional panics. A calibrated version of the model is combined with US data to estimate sequences of structural shocks, allowing me to study policy counterfactuals. First, I show that raising capital buffers during leverage expansions can reduce the frequency of crises by more than half. Second, I show that lowering capital buffers during a panic can moderate the intensity of the resulting crisis. A ...