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Working Paper
Max-Share Misidentification
Ho, Paul; Dou, Liyu; Lubik, Thomas A. (2023-05-23)
Valid max-share identification requires necessary and sufficient conditions that are hard to satisfy in practice—the target variable's response to the target shock must be (i) orthogonal to its responses to untargeted shocks and (ii) larger than combinations of those responses. We theoretically characterize consequences of local and global violations to these conditions. In practice, the weight max-share places on an identified untargeted shock can be obtained by projecting the response to that shock on the max-share response. Empirically, the TFP news and business cycle shocks identified ...
Working Paper , Paper 25-02

Working Paper
Banks in Space
Oberfield, Ezra; Rossi-Hansberg, Esteban; Wenning, Derek; Trachter, Nicholas (2025-06-09)
We study the spatial expansion of banks in response to the banking deregulation of the 1980s and 90s in order to develop a spatial theory of banking. During this period, large banks expanded rapidly, mostly by adding new branches in new locations, while many small banks exited. We document that large banks sorted into the densest markets, but that sorting weakened over time as large banks expanded to more marginal markets in search of locations with a relative abundance of retail deposits. This allowed large banks to reduce their dependence on expensive wholesale funding and grow further. To ...
Working Paper , Paper 25-03

Working Paper
Failing Banks
Luck, Stephan; Correia, Sergio A.; Verner, Emil (2025-06-09)
Why do banks fail? We create a panel covering most commercial banks from 1863 through 2024 to study the history of failing banks in the United States. Failing banks are characterized by rising asset losses, deteriorating solvency, and an increasing reliance on expensive noncore funding. These commonalities imply that bank failures are highly predictable using simple accounting metrics from publicly available financial statements. Failures with runs were common before deposit insurance, but these failures are strongly related to weak fundamentals, casting doubt on the importance of ...
Working Paper , Paper 25-04

Working Paper
Two-sided platforms and the 6 percent real estate broker commission
Grochulski, Borys; Wang, Zhu (2025-06-25)
We build a model to explain the 6 percent real estate broker commission observed in the U.S. In our model, brokers operate a two-sided platform for trading homes. Using small-value handouts and exclusive buyer representation contracts, the platform captures the vast majority of buyers, thereby gaining a monopolist's position vis-á-vis the sellers. Home sellers' only outside option is to move while retaining ownership of their homes. Absentee homeownership, however, entails costs. As a monopolist, the platform sets its commission fee equal to the costs of absentee ownership. With these costs ...
Working Paper , Paper 25-05

Working Paper
Taxation, Compliance, and Clandestine Activities
Thum, Marcel; Bandyopadhyay, Subhayu; Pinto, Santiago; Marjit, Sugata (2025-09)
We investigate the trade-off policymakers face between raising tax revenues for public good provision and mitigating the distortionary effects of taxation when individuals can evade taxes and allocate work hours between legal and clandestine (illicit) activities. These distortions lower the constrained optimal tax rate and result in the under-provision of the public good. This under-provision problem is mitigated when surplus from the audit agency is seamlessly transferred to the taxing authorities. Extensions of the basic model incorporate agent heterogeneity and a more general specification ...
Working Paper , Paper 25-06

Working Paper
What is the Impact of a Major Unconventional Monetary Policy Intervention?
Claessens, Stijn; Sapriza, Horacio; Alcaraz, Carlo; Marques-Ibanez, David; Cuadra, Gabriel (2025-09)
How does the credible announcement of an unconventional monetary policy intervention affect bank lending standards during crises? We use a major central bank announcement, the "whatever it takes" speech of the European Central Bank President that boosted the capital of banks, as a natural experiment. We compare changes in lending standards of subsidiaries of euro area versus other banks in a third country, Mexico. The speech reversed a prior trend of euro area banks augmenting their risk-taking via loan growth, lending rates, and credit risk. Our findings show that policies that amount to ...
Working Paper , Paper 25-07

Working Paper
The Past and Future of U.S. Structural Change: Compositional Accounting and Forecasting
Hornstein, Andreas; Watson, Mark W.; Foerster, Andrew; Sarte, Pierre-Daniel G. (2025-10-03)
We explore the evolving significance of different production sectors within the U.S. economy since World War II and provide methods for estimating and forecasting these shifts. Using a compositional accounting approach, we find that the well-documented transition from goods to services is primarily driven by two compositional changes: 1) the rise of Intellectual Property Products (IPP) as an input producer, replacing Durable Goods almost one-for-one in terms of input shares in virtually all sectors; and 2) a shift in consumer spending from Nondurable Goods to Services. A structural model ...
Working Paper , Paper 25-08

Working Paper
Sovereign default intensity and noise bargaining
Guerrón-Quintana, Pablo; Gordon, Grey (2025-10-22)
Hard sovereign defaults—defaults with large haircuts—are associated with deeper recessions, longer durations, and, as we show, larger devaluations than soft defaults. We rationalize these regularities by developing a single-proposer noise bargaining game and embedding it in a two-sector sovereign default model. Creditors weigh the sovereign's haircut offers against likely future offers and idiosyncratic valuation shocks. In short-lived recessions, creditors tend to reject large proposed haircuts, anticipating better terms as the economy recovers—endogenously correlating default ...
Working Paper , Paper 25-09

Working Paper
Supervising Failing Banks
Luck, Stephan; Correia, Sergio A.; Verner, Emil (2025-10-15)
This paper studies the role of banking supervision in anticipating, monitoring, and disciplining failing banks. We document that supervisors anticipate most bank failures with a high degree of accuracy. Supervisors play an important role in requiring troubled banks to recognize losses, taking enforcement actions, and ultimately closing failing banks. To establish causality, we exploit exogenous variation in supervisory strictness during the Global Financial Crisis. Stricter supervision leads to more loss recognition, reduced dividend payouts, and an increase in the likelihood and speed of ...
Working Paper , Paper 25-10

Working Paper
Credit Supply Shocks During a Non-Financial Recession
Sapriza, Horacio; Samaniego de la Parra, Brenda; Rivadeneira, Alex; Oviedo Moguel, Rodolfo; Amoroso, Nicolas; Alcaraz, Carlo (2025-08-25)
We study the drivers and real effects of credit supply shocks during a major non-financial recession, the COVID-19 crisis. Using data on the universe of bank loans in Mexico, we isolate the supply-driven component of credit variations. Credit supply conditions deteriorated in this period, driven by banks' heightened risk aversion. Using matched employer-employee records, we find that negative credit supply shocks reduced firms' employment and increased their exit probability. These effects are larger among financially constrained firms and workers with lower separation costs. In the ...
Working Paper , Paper 25-11

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