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Author:Zakrajšek, Egon 

Working Paper
Factor supplies and specialization in the world economy

A core prediction of the Heckscher-Ohlin theory is that countries specialize in goods in which they have a comparative advantage, and that the source of comparative advantage is differences in relative factor supplies. To examine this theory, we use the most extensive dataset available and document the pattern of industrial specialization and factor endowment differences in a broad sample of rich and developing countries over a lengthy period (1970-92). Next, we develop an empirical model of specialization based on factor endowments, allowing for unmeasurable technological differences and ...
Finance and Economics Discussion Series , Paper 2000-43

Working Paper
Trade Exposure and the Evolution of Inflation Dynamics

The diminished sensitivity of inflation to changes in resource utilization that has been observed in many advanced economies over the past several decades is frequently linked to the increase in global economic integration. In this paper, we examine this "globalization" hypothesis using both aggregate U.S. data on measures of inflation and economic slack and a rich panel data set containing producer prices, wages, output, and employment at a narrowly defined industry level. Our results indicate that the rising exposure of the U.S. economy to international trade can indeed help explain a ...
Finance and Economics Discussion Series , Paper 2019-007

Working Paper
Interest rate risk and bank equity valuations

Because they engage in maturity transformation, a steepening of the yield curve should, all else equal, boost bank profitability. We re-examine this conventional wisdom by estimating the reaction of bank intraday stock returns to exogenous fluctuations in interest rates induced by monetary policy announcements. We construct a new measure of the mismatch between the repricing time or maturity of bank assets and liabilities and analyze how the reaction of stock returns varies with the size of this mismatch and other bank characteristics, including the usage of interest rate derivatives. Our ...
Finance and Economics Discussion Series , Paper 2012-26

Working Paper
Inflation Dynamics During the Financial Crisis

Firms with limited internal liquidity significantly increased prices in 2008, while their liquidity unconstrained counterparts slashed prices. Differences in the firms' price-setting behavior were concentrated in sectors likely characterized by customer markets. We develop a model, in which firms face financial frictions, while setting prices in a customer-markets setting. Financial distortions create an incentive for firms to raise prices in response to adverse demand or financial shocks. These results reflect the firms' reaction to preserve internal liquidity and avoid accessing external ...
Finance and Economics Discussion Series , Paper 2015-12

Working Paper
Changes in bank lending standards and the macroeconomy

Identifying the macroeconomic effects of credit supply disruptions is difficult because many of the same factors that influence the supply of bank loans can also affect the demand for credit. Using bank-level responses to the Federal Reserve's Senior Loan Officer Opinion Survey, we decompose the reported changes in lending standards--a commonly-used indicator of changes in credit supply conditions--into a component that captures the change in banks' lending posture in response to bank-specific and macroeconomic factors that also affect loan demand and a residual component, which provides a ...
Finance and Economics Discussion Series , Paper 2012-24

Working Paper
Microeconomic inventory adjustment: evidence from U.S. firm-level data

We examine inventory adjustment in the U.S. manufacturing sector using quarterly firm-level data over the period 1978-97. Our evidence indicates that the inventory investment process is nonlinear and asymmetric, results consistent with a nonconvex adjustment cost structure. The inventory adjustment process differs over the business cycle: for a given level of excess inventories, firms disinvest more in recessions than they do in expansions. The inventory adjustment process has changed little between the 1980s and 1990s, suggesting that recent advances in inventory control have had little ...
Finance and Economics Discussion Series , Paper 2000-24

Working Paper
Uncertainty, Financial Frictions, and Investment Dynamics

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

Working Paper
Misallocation and financial market frictions: some direct evidence from the dispersion in borrowing costs

Financial market frictions distort the allocation of resources among productive units?all else equal, firms whose financing choices are affected by financial frictions face higher borrowing costs than firms with ready access to capital markets. As a result, input choices may differ systematically across firms in ways that are unrelated to their productive efficiency. We propose a simple accounting framework that allows us to assess the empirical magnitude of the loss in aggregate resources due to such misallocation. To a second-order approximation, our accounting framework requires only ...
Finance and Economics Discussion Series , Paper 2012-08

Working Paper
Capital requirements, business loans, and business cycles: an empirical analysis of the standardized approach in the new Basel Capital Accord

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
Credit-Market Sentiment and the Business Cycle

Using U.S. data from 1929 to 2015, we show that elevated credit-market sentiment in year t-2 is associated with a decline in economic activity in years t and t+1. Underlying this result is the existence of predictable mean reversion in credit-market conditions. When credit risk is aggressively priced, spreads subsequently widen. The timing of this widening is, in turn, closely tied to the onset of a contraction in economic activity. Exploring the mechanism, we find that buoyant credit-market sentiment in year t-2 also forecasts a change in the composition of external finance: Net debt ...
Finance and Economics Discussion Series , Paper 2015-28

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