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Journal Article
Downside Risk to the Stock Market and Consumption
Mitra, Indrajit; Rapach, David E. (2026-09-02)
We investigate downside risk to the stock market and, in turn, downside risk to consumption via the equity wealth effect. The AI boom has seen stock market valuations rise sharply, led by the so-called Magnificent 7, raising concerns of a stock market "bubble." We analyze potential factors contributing to downside risk to the stock market if investor sentiment turns decidedly more negative, thereby driving down equity prices. Downside risk to the stock market in turn poses downside risk to consumption spending via the equity wealth effect. We measure the equity wealth effect using data on ...
Policy Hub , Volume 2026 , Issue 6 , Pages 30

Journal Article
Downside Risk to the Stock Market and Consumption
Mitra, Indrajit; Rapach, David E. (2026-09-02)
We investigate downside risk to the stock market and, in turn, downside risk to consumption via the equity wealth effect. The AI boom has seen stock market valuations rise sharply, led by the so-called Magnificent 7, raising concerns of a stock market “bubble.” We analyze potential factors contributing to downside risk to the stock market if investor sentiment turns decidedly more negative, thereby driving down equity prices. Downside risk to the stock market in turn poses downside risk to consumption spending via the equity wealth effect. We measure the equity wealth effect using data on ...
Policy Hub , Volume 2026 , Issue 6 , Pages 30

Journal Article
The Phillips Curve during the Pandemic: Bringing Regional Data to Bear
Higgins, Patrick C. (2021-09-09)
The Phillips curve appears to have held up well at the regional level during the COVID-19 era. Areas of the country that took relatively large hits to their unemployment rate and employment-population ratio during the pandemic have had lower inflation, on average, than areas that took relatively small hits. And, just as prior to the pandemic, the inverse relationship between inflation and unemployment continues to be statistically stronger for the prices of services than of goods.
Policy Hub , Volume 2021 , Issue 11

Journal Article
Transmission of Sovereign Risk to Bank Lending
Başkaya, Yusuf Soner; Hardy, Bryan; Kalemli-Özcan, Ṣebnem; Yue, Vivian Z. (2023-02-27)
Banks hold a significant exposure to their own sovereigns. An increase in sovereign risk may hurt banks' balance sheets, causing a decrease in lending and a decline in economic activity. We quantify the transmission of sovereign risk to bank lending and provide new evidence about the effect of sovereign risk on economic outcomes. We consider the 1999 Marmara earthquake in Turkey as an exogenous shock leading to an increase in Turkey's default risk. Our empirical estimates show that, for banks holding a higher amount of government securities, the exogenous change in sovereign default risk ...
Policy Hub , Volume 2023 , Issue 2

Working Paper
Inflation dynamics during the financial crisis
Schoenle, Raphael; Zakrajšek, Egon; Sim, Jae W.; Gilchrist, Simon (2015-11-01)
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. The authors 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 ...
FRB Atlanta CQER Working Paper , Paper 2015-4

Working Paper
Optimal unemployment insurance and cyclical fluctuations
Williams, Noah; Li, Rui (2015-08-01)
The authors study the design of optimal unemployment insurance in an environment with moral hazard and cyclical fluctuations. The optimal unemployment insurance contract balances the insurance motive to provide consumption for the unemployed with the provision of incentives to search for a job. This balance is affected by aggregate conditions, as recessions are characterized by reductions in job finding rates. We show how benefits should vary with aggregate conditions in an optimal contract. In a special case of the model, the optimal contract can be solved in closed form. We show how this ...
FRB Atlanta CQER Working Paper , Paper 2015-2

Working Paper
Attention-Dependent Monetary Transmission to Household Beliefs
Jeong, Jaemin; Yang, Choongryul; Ma, Eunseong (2026-07-14)
The expectations channel of monetary policy is state dependent because households endogenously adjust attention to macroeconomic conditions. We develop a behavioral framework in which attention trades off forecast accuracy against cognitive cost, so monetary policy operates through an expectations multiplier. Using the Michigan Survey, we proxy attentiveness from whether households’ reading of business conditions matches realized outcomes, measured before identified policy shocks arrive. Policy news moves inflation beliefs primarily among attentive households, especially those with greater ...
FRB Atlanta Working Paper , Paper 2026-9

Working Paper
Assessing the macroeconomic impact of bank intermediation shocks: a structural approach
Zha, Tao; Chen, Kaiji (2015-08-01)
We take a structural approach to assessing the empirical importance of shocks to the supply of bank-intermediated credit in affecting macroeconomic fluctuations. First, we develop a theoretical model to show how credit supply shocks can be transmitted into disruptions in the production economy. Second, we use the unique micro-banking data to identify and support the model's key mechanism. Third, we find that the output effect of credit supply shocks is not only economically and statistically significant but also consistent with the vector autogression evidence. Our mode estimation indicates ...
FRB Atlanta Working Paper , Paper 2015-8

Working Paper
Search Complementarities, Aggregate Fluctuations, and Fiscal Policy
Yu, Yang; Fernández-Villaverde, Jesús; Zanetti, Francesco; Mandelman, Federico S. (2019-05-01)
We develop a quantitative business cycle model with search complementarities in the inter-firm matching process that entails a multiplicity of equilibria. An active equilibrium with strong joint venture formation, large output, and low unemployment coexists with a passive equilibrium with low joint venture formation, low output, and high unemployment. {{p}} Changes in fundamentals move the system between the two equilibria, generating large and persistent business cycle fluctuations. The volatility of shocks is important for the selection and duration of each equilibrium. Sufficiently adverse ...
FRB Atlanta Working Paper , Paper 2019-9

Working Paper
Family Welfare and the Great Recession
Hotchkiss, Julie L.; Moore, Robert E.; Rios-Avila, Fernando (2014-08-01)
The analysis in this paper provides estimates of family welfare losses generated by wage and nonlabor income declines experienced across the Great Recession and by labor market constraints existing postrecession. Welfare losses are greater as families (both married and single) move up the income distribution. Total static welfare losses are estimated to amount to roughly $190 billion, comparing family welfare between 2007 and 2011.
FRB Atlanta Working Paper , Paper 2014-10

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