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Journal Article
Asset Returns and Labor Force Participation During COVID-19
Faria-e-Castro, Miguel (2022-01-06)
Why did so many people retire during the pandemic?
Economic Synopses

Working Paper
Fiscal Multipliers and Financial Crises
Faria-e-Castro, Miguel (2021-10-20)
I study the effects of the US fiscal policy response to the Great Recession, accounting both for standard tools and financial sector interventions. A nonlinear model calibrated to the US allows me to study the state-dependent effects of different fiscal policies. I combine the model with data on the fiscal policy response to find that the fall in consumption would have been almost 50% larger in the absence of that response for a cumulative loss of 7.18%. Transfers and bank recapitalizations yielded the largest fiscal multipliers through new transmission channels that arise from linkages ...
Working Papers , Paper 2018-023

Journal Article
Fiscal Policy and COVID-19: Insights from a Quantitative Model
Faria-e-Castro, Miguel (2020-03-27)
Unemployment insurance may be the most effective way to help households right now.
Economic Synopses , Issue 8

Working Paper
The Nonlinear Effects of Fiscal Policy
Brinca, Pedro; Faria-e-Castro, Miguel; Ferreira, Miguel H.; Holter, Hans; Nóbrega, Valter (2023-06-23)
We argue that the fiscal multiplier of government purchases is nonlinear in the size of the spending shock. In particular, the multiplier is increasing in the spending shock, with more expansionary government spending shocks generating larger multipliers and more contractionary shocks generating smaller multipliers. We document that empirically this holds true across time, countries and types of shocks. We then propose a neoclassical mechanism that hinges on the relationship between fiscal shocks, their form of financing, and the response of labor supply across the wealth distribution. A ...
Working Papers , Paper 2019-015

Working Paper
Measuring Labor Supply and Demand Shocks during COVID-19
Duarte, Joao B.; Faria-e-Castro, Miguel; Brinca, Pedro (2020-12)
We measure labor demand and supply shocks at the sector level around the COVID-19 outbreak by estimating a Bayesian structural vector autoregression on monthly statistics of hours worked and real wages. Most sectors were subject to historically large negative labor supply and demand shocks in March and April, with substantial heterogeneity in the size of shocks across sectors. Our estimates suggest that two-thirds of the drop in the aggregate growth rate of hours in March and April 2020 are attributable to labor supply. We validate our estimates of supply shocks by showing that they are ...
Working Papers , Paper 2020-011

Working Paper
Fiscal Multipliers and Financial Crises
Faria-e-Castro, Miguel (2020-05)
What type of fiscal policy is most effective during a financial crisis? I study the macroeconomic effects of the US fiscal policy response to the Great Recession, accounting not only for standard tools such as government purchases and transfers but also for financial sector interventions such as bank recapitalizations and credit guarantees. A nonlinear quantitative model calibrated to the US allows me to study the state-dependent effects of different types of fiscal policies. I combine the model with data on the US fiscal policy response to find that the fall in aggregate consumption would ...
Working Papers , Paper 2018-023

Journal Article
Do Banks Lend to Distressed Firms?
Sanchez, Juan M.; Paul, Pascal; Faria-e-Castro, Miguel (2023-11-27)
Concerns emerged during the COVID-19 pandemic over banks continuing to lend to unproductive businesses that were close to default. Recent research shows that lenders have incentives to offer relatively better terms to less-productive and more-indebted firms to recover their prior investments. U.S. loan-level data confirm the empirical relevance of such lending behavior. A rich model of firms and banks further emphasizes that this type of lending can also depress overall productivity by sustaining firms that should otherwise exit the economy.
FRBSF Economic Letter , Volume 2023 , Issue 31 , Pages 5

Working Paper
Artificial Intelligence and Inflation Forecasts
Faria-e-Castro, Miguel; Leibovici, Fernando (2024-02-26)
We explore the ability of Large Language Models (LLMs) to produce in-sample conditional inflation forecasts during the 2019-2023 period. We use a leading LLM (Google AI's PaLM) to produce distributions of conditional forecasts at different horizons and compare these forecasts to those of a leading source, the Survey of Professional Forecasters (SPF). We find that LLM forecasts generate lower mean-squared errors overall in most years, and at almost all horizons. LLM forecasts exhibit slower reversion to the 2% inflation anchor.
Working Papers , Paper 2023-015

Working Paper
The Nonlinear Effects of Fiscal Policy
Holter, Hans; Faria-e-Castro, Miguel; Ferreira, Miguel H.; Brinca, Pedro (2020-05-22)
We argue that the fiscal multiplier of government purchases is nonlinear in the spending shock, in contrast to what is assumed in most of the literature. In particular, the multiplier of a fiscal consolidation is decreasing in the size of the consolidation. We empirically document this fact using aggregate fiscal consolidation data across 15 OECD countries. We show that a neoclassical life-cycle, incomplete markets model calibrated to match key features of the U.S. economy can explain this empirical finding. The mechanism hinges on the relationship between fiscal shocks, their form of ...
Working Papers , Paper 2019-015

Working Paper
Dissecting the Great Retirement Boom
Birinci, Serdar; Faria-e-Castro, Miguel; See, Kurt (2025-03-21)
Between 2020 and 2023, the fraction of retirees in the working-age population in the U.S. increased above its pre-pandemic trend. Several explanations have been proposed to rationalize this gap, including increases in net worth, the deterioration of the labor market with higher job separations, the expansion of fiscal transfer programs, and higher mortality risk. We develop an incomplete markets, overlapping generations model with a frictional labor market to quantitatively study the interaction of these factors and decompose their contributions to the rise in retirements. We find that new ...
Working Papers , Paper 2024-017

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