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Working Paper
An Empirical Analysis of the Cost of Borrowing
Faria-e-Castro, Miguel; Jordan-Wood, Samuel; Kozlowski, Julian (2025-11-03)
We empirically study firm financing costs using a comprehensive dataset of corporate bonds and bank loans. We construct a measure of the cost of financing, the ExcessDebt Premium, which controls for observable debt characteristics. We document two key findings: first, bank loans are about 97 basis points cheaper than corporate bonds when controlling for observable characteristics. Second, there is significant dispersion in borrowing costs, even within the same firm and quarter. The analysis reveals that this within firm variation persists after accounting for instrument type, maturity, ...
Working Papers , Paper 2024-016

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

Working Paper
Artificial Intelligence and Inflation Forecasts
Leibovici, Fernando; Faria-e-Castro, Miguel (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

Journal Article
“Stress Testing” Banks on Commercial Real Estate
Jordan-Wood, Samuel; Faria-e-Castro, Miguel (2023-12-18)
Recent research tests the effects of a large (hypothetical) drop in commercial real estate prices: Banks most affected would be small and the resulting noncompliance would apply to a small fraction of assets in the US banking system.
Economic Synopses , Issue 26 , Pages 3 pages

Working Paper
Measuring Sectoral Supply and Demand Shocks during COVID-19
Brinca, Pedro; Duarte, Joao B.; Faria-e-Castro, Miguel (2020-10)
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
Evergreening
Paul, Pascal; Faria-e-Castro, Miguel; Sanchez, Juan M. (2021-11)
We develop a simple model of relationship lending where lenders have an incentive to evergreen loans by offering better terms to less productive and more indebted firms. We detect such lending distortions using loan-level supervisory data for the United States. Low-capitalized banks systematically distort their risk assessments of firms to window-dress their balance sheets and extend relatively more credit to underreported borrowers. Consistent with our theoretical predictions, these effects are driven by larger outstanding loans and low-productivity firms. We incorporate the theoretical ...
Working Papers , Paper 2021-012

Working Paper
Dissecting the Great Retirement Boom
See, Kurt; Birinci, Serdar; Faria-e-Castro, Miguel (2024-07)
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, such as the rise in net worth due to higher asset returns, the labor market's deterioration due to higher unemployment risk, the expansion of fiscal support programs, and increased mortality risk. We quantitatively study the interaction of these factors and decompose their relative contribution to the recent rise in retirements using an incomplete markets, overlapping generations model with a ...
Working Papers , Paper 2024-017

Working Paper
Evergreening
Paul, Pascal; Faria-e-Castro, Miguel; Sanchez, Juan M. (2023-01)
We develop a simple model of relationship lending where lenders have incentives for evergreening loans by offering better terms to firms that are close to default. We detect such lending behavior using loan-level supervisory data for the United States. Banks that own a larger share of a firm's debt provide distressed firms with relatively more credit at lower interest rates. Building on this empirical validation, we incorporate the theoretical mechanism into a dynamic heterogeneous-firm model to show that evergreening affects aggregate outcomes, resulting in lower interest rates, higher ...
Working Papers , Paper 2021-012

The Evolution of Household Net Worth during COVID-19
Faria-e-Castro, Miguel; Silvera Zumaran, Ramon (2021-11-18)
The U.S. economy suffered a huge shock with the onset of the COVID-19 pandemic, yet asset returns were relatively high during the recovery. Who benefited?
On the Economy

Working Paper
When Liquidity Matters: Firm Balance Sheets during Large Crises
Ebsim, Mahdi; Faria-e-Castro, Miguel; Kozlowski, Julian (2025-08-14)
We study how aggregate shocks shape the joint dynamics of credit spreads, debt, and liquid asset holdings for nonfinancial firms, focusing on the Great Financial Crisis (GFC) and COVID-19. Both episodes saw sharp credit spread increases and investment declines, but debt and liquidity fell during the GFC and rose during COVID-19. Cross-sectionally, leverage drove spreads and investment in the GFC, while liquidity dominated during COVID-19. We build a macro-finance model of firm capital structure with a liquidity motive for working capital. Calibrated to data, it attributes the GFC to real and ...
Working Papers , Paper 2025-019

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