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Working Paper
Misallocation Costs of Digging Deeper into the Central Bank Toolkit
Zeke, David; Kurtzman, Robert J. (2017-08-03)
Central bank large-scale asset purchases, particularly the purchase of corporate bonds of nonfinancial firms, can induce a misallocation of resources through their heterogeneous effect on firms cost of capital. First, we analytically demonstrate the mechanism in a static model. We then evaluate the misallocation of resources induced by corporate bond buys and the associated output losses in a calibrated heterogeneous firm New Keynesian DSGE model. The calibrated model suggests misallocation effects from corporate bond buys can be large enough to make them less effective than government bond ...
Finance and Economics Discussion Series , Paper 2017-076

Working Paper
Misallocation and Credit Market Constraints: the Role of Long-Term Financing
Karabarbounis, Marios; Macnamara, Patrick (2019-01-16)
We measure aggregate productivity loss due to credit market constraints in a model with endogenous borrowing constraints, long-duration bonds, and costly equity payouts. Due to long-duration bonds, the model generates a realistic distribution of credit spreads. We structurally estimate our model using firm-level data on credit spreads from Thomson Reuters Bond Security Data and balance sheet data from Compustat. Credit market constraints increase aggregate productivity by 0.4% through their effect on the credit spread distribution. However, credit market constraints also interact with costly ...
Working Paper , Paper 19-1

Working Paper
The Effect of Export Market Access on Labor Market Power: Firm-level Evidence from Vietnam
Hoang, Trang T.; Mitra, Devashish; Pham, Hoang (2024-08-09)
We examine the impact of an export market expansion created by the US-Vietnam Bilateral Trade Agreement (BTA) on labor market competition among Vietnamese manufacturing firms. We measure distortionary wedges between equilibrium marginal revenue products of labor (MRPL) and wages nonparametrically and find that the median firm pays workers 59% of their MRPL. The BTA permanently decreases labor market distortion in manufacturing by 3.4%, mainly for domestic private firms. The median distortion is 26% higher for women than men, and the decline in distortion for women drives the overall ...
International Finance Discussion Papers , Paper 1394

Report
Working hard in the wrong place: a mismatch-based explanation to the UK productivity puzzle
Violante, Giovanni L.; Topa, Giorgio; Sahin, Aysegul; Patterson, Christina (2016-01-01)
The UK experienced an unusually prolonged stagnation in labor productivity in the aftermath of the Great Recession. This paper analyzes the role of sectoral labor misallocation in accounting for this ?productivity puzzle.? If jobseekers disproportionately search for jobs in sectors where productivity is relatively low, hires are concentrated in the wrong sectors and the post-recession recovery in aggregate productivity can be slow. Our calculations suggest that, quantified at the level of three-digit occupations, this mechanism can explain up to two-thirds of the deviations from trend-growth ...
Staff Reports , Paper 757

Working Paper
Tax Heterogeneity and Misallocation
Kaymak, Barış; Schott, Immo (2023-12-19)
Companies face different effective marginal tax rates on their income. This can be detrimental to allocative efficiency unless taxes offset other distortions in the economy. This paper estimates the effect of tax rate heterogeneity on aggregate productivity in distorted economies with multiple frictions. Using firm-level balance-sheet data and estimates of marginal tax rates, we find that tax heterogeneity reduces total factor productivity by about 3 percent. Our findings highlight the positive correlation between marginal tax rates and other distortions to capital and especially labor. This ...
Working Papers , Paper 23-33

Working Paper
The Economic Gains from Equity
Buckman, Shelby R.; Choi, Laura; Daly, Mary C.; Seitelman, Lily (2021-04-07)
How much is inequity costing us? Using a simple growth accounting framework we apply standard shift-share techniques to data from the Current Population Survey (1990-2019) to compute the aggregate economic costs of persistent educational and labor market disparities by gender and race. We find significant economic losses associated with these gaps. Building on this finding, we consider which disparities generate the largest costs, paying specific attention to differences in employment, hours worked, educational attainment, educational utilization, and occupational allocation. We also examine ...
Working Paper Series , Paper 2021-11

Working Paper
Risk-Adjusted Capital Allocation and Misallocation
David, Joel M.; Zeke, David; Schmid, Lukas (2020-12-21)
We develop a theory linking “misallocation,” i.e., dispersion in marginal products of capital (MPK), to macroeconomic risk. Dispersion in MPK depends on (i) heterogeneity in firm-level risk premia and (ii) the price of risk, and thus is countercyclical. We document strong empirical support for these predictions. Stock market-based measures of risk premia imply that risk considerations explain about 30% of observed MPK dispersion among US firms and rationalize a large persistent component in firm-level MPK. Risk-based MPK dispersion, although not prima facie inefficient, lowers long-run ...
Working Paper Series , Paper WP-2020-34

Working Paper
Tax Heterogeneity and Misallocation
Kaymak, Barış; Schott, Immo (2024-07-19)
There is substantial asymmetry in effective corporate income tax rates across firms. While tax asymmetries would reduce productivity in frictionless economies, they can improve efficiency in a distorted economy if taxes alleviate other economic frictions. We develop a framework to estimate to what extent tax asymmetries affect productivity in distorted economies. Using US firm-level balance sheet data alongside measures of effective marginal tax rates, we find a positive correlation between tax rates and factor productivity, suggesting that tax asymmetry exacerbates the distortions from other ...
International Finance Discussion Papers , Paper 1393

Working Paper
Risk-Taking, Capital Allocation and Optimal Monetary Policy
David, Joel M.; Zeke, David (2021-01-13)
We study the role of firm heterogeneity in affecting business cycle dynamics and optimal stabilization policy. Firms differ in their degree of cyclicality, and hence, exposure to aggregate risk, leading to firm-specific risk premia that influence resource allocations. The heterogeneous firm economy can be recast in a representative firm formulation, but where total factor productivity (TFP) is endogenous and depends on the resource allocation. The model uncovers a novel tradeoff between the long-run level and volatility of TFP. Inefficiencies distort this tradeoff and result in either ...
Working Paper Series , Paper WP-2021-01

Working Paper
The Crowding-In Effects of Local Government Debt in China
Li, Xiaoming; Liu, Zheng; Peng, Yuchao; Xu, Zhiwei (2024-11-08)
We study how changes in the composition of Chinese local government debt influenced bank risk taking, credit allocation, and local productivity. Using confidential loan-level data and a difference-in-difference identification approach, we show that a debt-to-bond swap program for local governments implemented in 2015 significantly increased bank risk taking through a risk-weighting channel under Basel III capital regulations. The debt swap program converted bank holdings of municipal corporate debt to local government bonds, reducing banks’ risk-weighted assets. Banks responded by lowering ...
Working Paper Series , Paper 2024-35

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