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Report
U.S. Market Concentration and Import Competition
Heise, Sebastian; Amiti, Mary (2021-05-01)
A rapidly growing literature has shown that market concentration among domestic firms has increased in the United States over the last three decades. Using confidential census data for the manufacturing sector, we show that typical measures of concentration, once adjusted for sales by foreign exporters, actually stayed constant between 1992 and 2012. We reconcile these findings by linking part of the increase in domestic concentration to import competition. Although concentration among U.S.-based firms rose, the growth of foreign firms, mostly at the bottom of the sales distribution, ...
Staff Reports , Paper 968

Working Paper
Bounded Learning from Incumbent Firms
Luttmer, Erzo G. J. (2020-08-07)
Social learning plays an important role in models of productivity dispersion and long-run growth. In economies with a continuum of producers and unbounded productivity distributions, social learning can sometimes leave long-run growth rates completely indeterminate. This paper modifies a model in which potential entrants attempt to imitate randomly selected incumbent firms by introducing an upper bound on how much entrants can learn from incumbents. When this upper bound is taken to infinity, a unique long-run growth rate emerges, even though the economy without upper bound has an unbounded ...
Working Papers , Paper 771

Working Paper
Stagflationary Stock Returns
Knox, Benjamin; Timmer, Yannick (2025-08-04)
We study investors’ perceptions of inflation through the lens of a high-frequency event study, documenting they have a stagflationary view of the world. In response to higher-than-expected inflation, investors expect firms’ nominal cash flows to remain stagnant while discount rates increase, resulting in lower stock prices. Both the equity risk premium and nominal risk-free yields rise, but longer-term real yields remain unchanged. Consistent with investors interpreting inflation as a cost shock, investors expect firms with low market power to suffer larger declines in cash flows. Cash ...
Finance and Economics Discussion Series , Paper 2025-056

Working Paper
Corporate Tax Cuts and the Decline of the Manufacturing Labor Share
Kaymak, Barış; Schott, Immo (2023-08-30)
We document a strong empirical connection between corporate taxation and the manufacturing labor share, both in the US and across OECD countries. Our estimates associate 30 percent to 60 percent of the observed decline in labor shares with the fall in corporate taxation. Using an equilibrium model of an industry where firms differ in their capital intensities, we show that lower corporate tax rates reduce the labor share by raising the market share of capital-intensive firms. The tax elasticity of the labor share depends on the joint distribution of labor intensities and value added at the ...
International Finance Discussion Papers , Paper 1379

Working Paper
Entry and Exit, Unemployment, and the Business Cycle
Bernstein, Joshua; Throckmorton, Nathaniel A.; Richter, Alexander W. (2021-01-12)
Establishment entry and exit is strongly correlated with output and unemployment. This paper examines how these linkages affect business cycle dynamics through the lens of a search and matching model augmented to include multi-worker establishments that endogenously enter and exit. Analytical results show cyclical entry and exit cause reallocation of inputs that amplifies and skews business cycle dynamics. When the model is calibrated to the data, it generates realistic asymmetry in output and unemployment, data-consistent counter-cyclical endogenous uncertainty and a 55% higher welfare cost ...
Working Papers , Paper 2018

Report
Monetizing Privacy
Lee, Michael Junho; Garratt, Rod (2021-01-01)
In a market where consumers choose between payment options and firms compete with products and prices, we show that payment data drives the formation of a market monopoly. A data-sharing policy can successfully restore and maintain a competitive market, but often at the expense of both efficiency and consumer welfare. The introduction of a low-cost anonymous means of electronic payment, or digital cash, preserves the market structure and improves consumers’ welfare by enabling them to monetize their private information. We discuss the potential role of central banks in providing digital ...
Staff Reports , Paper 958

Report
Cost-Price Relationships in a Concentrated Economy
Bräuning, Falk; Fillat, José; Joaquim, Gustavo (2022-05-23)
The US economy is at least 50 percent more concentrated today than it was in 2005. In this paper, we estimate the effect of this increase on the pass-through of cost shocks into prices. Our estimates imply that the pass-through becomes about 25 percentage points greater when there is an increase in concentration similar to the one observed since the beginning of this century. The resulting above-trend price growth lasts for about four quarters. Our findings suggest that the increase in industry concentration over the past two decades could be amplifying the inflationary pressure from current ...
Current Policy Perspectives

Working Paper
Credit Misallocation and Macro Dynamics with Oligopolistic Financial Intermediaries
Villa, Alessandro (2022-09-08)
Bank market power shapes firm investment and financing dynamics and hence affects the transmission of macroeconomic shocks. Motivated by a secular increase in the concentration of the US banking industry, I study bank market power through the lens of a dynamic general equilibrium model with oligopolistic banks and heterogeneous firms. The lack of competition allows banks to price discriminate and charge firm-specific markups in excess of default premia. In turn, the cross-sectional dispersion of markups amplifies the impact of macroeconomic shocks. During a crisis, banks exploit their market ...
Working Paper Series , Paper WP 2022-41

Journal Article
Accounting for the Effects of Fiscal Policy Shocks on Exchange Rates through Markup Dynamics
Lee, Hyungsuk; Lee, Junsang (2024-04-15)
This study investigates how fiscal policy shocks affect the external sector through markup dynamics in advanced and developing economies. We focus on the role of markup dynamics as a channel through which fiscal policy has a distinct effect on real exchange rates. Using panel data from 32 countries, we employ a local projection to evaluate the impact of expansionary fiscal policy shocks on real exchange rates, markups, and current accounts. Our empirical findings show distinct responses to the shocks among advanced and developing countries regarding the real exchange rate, due to different ...
Review , Volume 106 , Issue 2 , Pages 129-145

Working Paper
Capital Buﬀers in a Quantitative Model of Banking Industry Dynamics
Corbae, Dean; D'Erasmo, Pablo (2021-06-11)
We develop a model of banking industry dynamics to study the quantitative impact of regulatory policies on bank risk taking and market structure as well as the feedback eﬀect of market structure on the eﬃcacy of policy. Since our model is matched to U.S. data, we propose a market structure where big banks with market power interact with small, competitive fringe banks. Banks face idiosyncratic funding shocks in addition to aggregate shocks which aﬀect the fraction of performing loans in their portfolio. A nontrivial bank size distribution arises out of endogenous entry and exit, as well ...
Working Papers , Paper 21-24

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