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Working Paper
Natural Resources and Global Misallocation
Santaeulalia-Llopis, Raul; Monge-Naranjo, Alexander; Sanchez, Juan M. (2015-07-07)
We explore the efficiency in the allocation of physical capital and human capital across countries. The observed marginal products can differ across countries because of differences in technology (i.e. production functions) and in distortions (i.e. differences in use of factors) across countries. To identify differences in technology, we use new data and propose a simple method to estimate output shares of natural resources, and thus adjust the estimated marginal products of physical and human capital. With a sample of 79 countries from 1970 to 2005, we find that the world has decidedly moved ...
Working Papers , Paper 2015-13

Working Paper
Credit Default Swaps in General Equilibrium: Spillovers, Credit Spreads, and Endogenous Default
Darst, Matt; Refayet, Ehraz (2016-04-19)
This paper highlights two new effects of credit default swap markets (CDS) in a general equilibrium setting. First, when firms' cash flows are correlated, CDSs impact the cost of capital{credit spreads{and investment for all firms, even those that are not CDS reference entities. Second, when firms internalize the credit spread changes, the incentive to issue safe rather than risky bonds is fundamentally altered. Issuing safe debt requires a transfer of profits from good states to bad states to ensure full repayment. Alternatively, issuing risky bonds maximizes profits in good states at the ...
Finance and Economics Discussion Series , Paper 2016-042

Working Paper
The Economic Effects of Firm-Level Uncertainty: Evidence Using Subjective Expectations
Fiori, Giuseppe; Scoccianti, Filippo (2021-06-28)
This paper uses over two decades of Italian survey data on business managers' expectations to measure subjective firm-level uncertainty and quantify its economic effects. We document that firm-level uncertainty persists for a few years and varies across firms' demographic characteristics. Uncertainty induces long-lasting economic effects over a broad array of real and financial variables. The source of uncertainty matters with firms responding only to downside uncertainty, that is, uncertainty about future adverse outcomes. Economy-wide uncertainty, constructed aggregating firm-level ...
International Finance Discussion Papers , Paper 1320

Working Paper
The Economic Effects of Trade Policy Uncertainty
Molligo, Patrick; Caldara, Dario; Prestipino, Andrea; Iacoviello, Matteo; Raffo, Andrea (2019-09)
We study the effects of unexpected changes in trade policy uncertainty (TPU) on the U.S. economy. We construct three measures of TPU based on newspaper coverage, firms' earnings conference calls, and aggregate data on tari rates. We document that increases in TPU reduce investment and activity using both firm-level and aggregate macroeconomic data. We interpret the empirical results through the lens of a two-country general equilibrium model with nominal rigidities and firms' export participation decisions. In the model as in the data, news and increased uncertainty about higher future ...
International Finance Discussion Papers , Paper 1256

Working Paper
Mixed Signals: Investment Distortions with Adverse Selection
Darst, Matt; Refayet, Ehraz (2019-06-21)
We study how adverse selection distorts equilibrium investment allocations in a Walrasian credit market with two-sided heterogeneity. Representative investor and partial equilibrium economies are special cases where investment allocations are distorted above perfect information allocations. By contrast, the general setting features a pecuniary externality that leads to trade and investment allocations below perfect information levels. The degree of heterogeneity between informed agents' type governs the direction of the distortion. Moreover, contracts that complete markets dampen the impact ...
Finance and Economics Discussion Series , Paper 2019-044

Newsletter
Economic Outlook Symposium: Summary of 2018 Results and 2019 Forecasts
Strauss, William A.; Sarussi, Kelley (2019)
According to participants in the Chicago Fed?s annual Economic Outlook Symposium (EOS), the U.S. economy is forecasted to grow at a pace somewhat above average in 2019, with inflation ticking down and the unemployment rate remaining low.
Chicago Fed Letter

Discussion Paper
Is the United States Relying on Foreign Investors to Fund Its Larger Budget Deficit?
Wang, Linda; Klitgaard, Thomas (2018-11-28)
The federal tax cut and the increase in federal spending at the beginning of 2018 substantially increased the government deficit, requiring a jump in the amount of Treasury securities needed to fund the gap. One question is whether the government will have to rely on foreign investors to buy these securities. Data for the first half of 2018 are available and, so far, the country has not had to increase the pace of borrowing from abroad. The current account balance, which measures how much the United States borrows from the rest of the world, has been essentially unchanged. Instead, the tax ...
Liberty Street Economics , Paper 20181128

Report
How much do bank shocks affect investment? Evidence from matched bank-firm loan data
Amiti, Mary; Weinstein, David E. (2013-03-01)
We show that supply-side financial shocks have a large impact on firms' investment. We do this by developing a new methodology to separate firm-borrowing shocks from bank supply shocks using a vast sample of matched bank-firm lending data. We decompose loan movements in Japan for the period 1990 to 2010 into bank, firm, industry, and common shocks. The high degree of financial institution concentration means that individual banks are large relative to the size of the economy, which creates a role for granular shocks as in Gabaix (2011). As a result, bank supply shocks?that is, movements in ...
Staff Reports , Paper 604

Newsletter
Recent Trends in Capital Accumulation and Implications for Investment
Gourio, Francois; Klier, Thomas H. (2015)
Business investment has been fairly low over the past several years. As a result, the growth in the stock of capital has not kept up with the growth in gross domestic product (GDP) or employment. This Chicago Fed Letter studies these recent trends and discusses their implications for future investment.
Chicago Fed Letter

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