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Working Paper
Misallocation and financial market frictions: some direct evidence from the dispersion in borrowing costs
Gilchrist, Simon; Zakrajšek, Egon; Sim, Jae W. (2012)
Financial market frictions distort the allocation of resources among productive units?all else equal, firms whose financing choices are affected by financial frictions face higher borrowing costs than firms with ready access to capital markets. As a result, input choices may differ systematically across firms in ways that are unrelated to their productive efficiency. We propose a simple accounting framework that allows us to assess the empirical magnitude of the loss in aggregate resources due to such misallocation. To a second-order approximation, our accounting framework requires only ...
Finance and Economics Discussion Series , Paper 2012-08

Working Paper
Interest rate risk and bank equity valuations
Zakrajšek, Egon; Heuvel, Skander J. van den; English, William B. (2012)
Because they engage in maturity transformation, a steepening of the yield curve should, all else equal, boost bank profitability. We re-examine this conventional wisdom by estimating the reaction of bank intraday stock returns to exogenous fluctuations in interest rates induced by monetary policy announcements. We construct a new measure of the mismatch between the repricing time or maturity of bank assets and liabilities and analyze how the reaction of stock returns varies with the size of this mismatch and other bank characteristics, including the usage of interest rate derivatives. Our ...
Finance and Economics Discussion Series , Paper 2012-26

Working Paper
Capital requirements, business loans, and business cycles: an empirical analysis of the standardized approach in the new Basel Capital Accord
Zakrajšek, Egon; Carpenter, Seth B.; Whitesell, William C. (2001)
In the current regulatory framework, capital requirements are based on risk-weighted assets, but all business loans carry a uniform risk weight, irrespective of variations in credit risk. The proposed new Capital Accord of the Bank for International Settlements provides for a greater sensitivity of capital requirements to credit risk, raising the question of whether, and to what extent, the new capital standards will intensify business cycles. In this paper, we evaluate the potential cyclical effects of the "standardized approach" to risk evaluation in the new Accord, which involves the ...
Finance and Economics Discussion Series , Paper 2001-48

Report
Inventory dynamics and business cycles: what has changed?
Zakrajšek, Egon; McCarthy, Jonathan (2002)
By historical standards, the U.S. economy has experienced a period of remarkable stability since the mid-1980s. One explanation attributes the diminished variability of economic activity to information-technology-led improvements in inventory management. Our results, however, indicate that the changes in inventory dynamics since the mid-1980s played a reinforcing - rather than a leading - role in the volatility reduction. A decomposition of the reduction in the volatility of manufacturing output shows that it almost entirely reflects a decline in the variance of the growth contribution of ...
Staff Reports , Paper 156

Working Paper
The Macroeconomic Impact of Financial and Uncertainty Shocks
Caldara, Dario; Zakrajšek, Egon; Gilchrist, Simon; Fuentes-Albero, Cristina (2016-05)
The extraordinary events surrounding the Great Recession have cast a considerable doubt on the traditional sources of macroeconomic instability. In their place, economists have singled out financial and uncertainty shocks as potentially important drivers of economic fluctuations. Empirically distinguishing between these two types of shocks, however, is difficult because increases in economic uncertainty are strongly associated with a widening of credit spreads, an indication of a tightening in financial conditions. This paper uses the penalty function approach within the SVAR framework to ...
International Finance Discussion Papers , Paper 1166

Report
Factor supplies and specialization in the world economy
Zakrajšek, Egon; Harrigan, James (2000)
A core prediction of the Heckscher-Ohlin theory is that countries specialize in goods in which they have a comparative advantage, and that the source of comparative advantage is differences in relative factor supplies. To examine this theory, we use the most extensive data set available and document the pattern of industrial specialization and factor endowment differences in a broad sample of rich and developing countries over a lengthy period (1970-92). Next, we develop an empirical model of specialization based on factor endowments, allowing for unmeasurable technological differences, and ...
Staff Reports , Paper 107

Report
Microeconomic inventory adjustment: evidence from U.S. firm-level data
McCarthy, Jonathan; Zakrajšek, Egon (2000)
We examine inventory adjustment in the U.S. manufacturing sector using quarterly firm-level data over the period 1978-97. Our evidence indicates that the inventory investment process is nonlinear and asymmetric, results consistent with a nonconvex adjustment cost structure. The inventory adjustment process differs over the business cycle: for a given level of excess inventories, firms disinvest more in recessions than they do in expansions. The inventory adjustment process has changed little between the 1980s and 1990s, suggesting that recent advances in inventory control have had little ...
Staff Reports , Paper 101

Journal Article
Recent developments in business lending by commercial banks
Bassett, William F.; Zakrajšek, Egon (2003-12)
After growing rapidly during much of the 1990s, the real value of commercial and industrial (C&I) loans at domestic commercial banks and at U.S. branches and agencies of foreign banks has fallen 19 percent since the beginning of 2001. The recent contraction in business loans has been concentrated at large banking institutions and appears to stem from the combined effects of weak demand for credit and a tightening of lending standards and terms. The move toward a more-stringent lending posture, although partly cyclical, also reflects a reassessment of the risks and returns of C&I lending. This ...
Federal Reserve Bulletin , Volume 89 , Issue Dec

Discussion Paper
Updating the Recession Risk and the Excess Bond Premium
Favara, Giovanni; Gilchrist, Simon; Lewis, Kurt F.; Zakrajšek, Egon (2016-10-06)
Beginning with the publication of this Note, we will provide updated estimates of the EBP and the associated model-implied probability of a U.S. recession every month.
FEDS Notes , Paper 2016-10-06

Working Paper
Monetary Policy and the Distribution of Income: Evidence from U.S. Metropolitan Areas
Favara, Giovanni; Loria, Francesca; Zakrajšek, Egon (2025-01-01)
We use Zip code–level Statistics of Income data from the Internal Revenue Service to measure the distribution of income within U.S. metropolitan areas from 1998 through 2019. Exploiting geographic variation in income distribution over time, we study how unanticipated changes in the monetary policy stance shape the subsequent dynamics of income inequality. The results show that monetary policy persistently affects labor income inequality and that these distributional effects are amplified significantly in weak local labor markets.
Working Papers , Paper 25-1

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