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Working Paper
The Dynamics of Long-Run Inflation Expectations: A Market-Based Perspective
Cole, Anna; Kozlowski, Julian; Martorana, Joseph (2025-06-30)
This paper analyzes market-based probability distributions for long-run inflation expectations derived from inflation derivatives. We construct forward-looking distributions for five-year-ahead inflation to assess the likelihood that inflation will fall above, below, or near the Federal Reserve's 2 percent target. By examining the mean, volatility, and skewness of these distributions, we document how expectations have evolved since the onset of the COVID-19 pandemic. To assess the reliability of market-based measures, we compare our results with alternative data sources. We highlight the ...
Working Papers , Paper 2025-015

Working Paper
Labor Market Shocks and Monetary Policy
Birinci, Serdar; Karahan, Fatih; Mercan, Yusuf; See, Kurt (2025-06-26)
We develop a heterogeneous agent New Keynesian model featuring a frictional labor market with on-the-job search to quantitatively study the positive and normative implications of employer-to-employer (EE) transitions for macroeconomic outcomes and monetary policy. We find that EE dynamics played an important role in shaping inflation dynamics during the Great Recession and COVID-19 recoveries, with the former exhibiting subdued EE transitions and inflation despite both episodes sharing similar unemployment dynamics. Optimal monetary policy prescribes a strong positive response to EE ...
Working Papers , Paper 2022-016

Working Paper
The Rapid Adoption of Generative AI
Bick, Alexander; Blandin, Adam; Deming, David (2025-06-17)
Generative artificial intelligence (AI) is a potentially important new technology, but its impact on the economy depends on the speed and intensity of adoption. This paper reports results from a series of nationally representative U.S. surveys of generative AI use at work and at home. As of late 2024, nearly 40% of the U.S. population age 18-64 uses generative AI. Among employed respondents, 23% used generative AI for work at least once in the previous week: 9% used it every workday, and 14% on some but not all workdays. Relative to each technology's first mass-market product launch, work ...
Working Papers , Paper 2024-027

Working Paper
Optimal Asset Market Operations
Chiang, Yu-Ting; Żoch, Piotr (2025-06-16)
We characterize governments' optimal responses to asset market disturbances across a broad class of models with financial frictions. We show that the Ramsey plan can be achieved by a policy rule targeting a specific relationship between asset returns, regardless of the underlying disturbances. This relationship is determined by asset supply and demand elasticities that can be estimated empirically with standard identification strategies. Absent financial frictions, the optimal policy stabilizes spreads across all assets. However, in the presence of financial frictions, the optimal rule ...
Working Papers , Paper 2025-014

Working Paper
The Allocation of Immigrant Talent: Macroeconomic Implications for the U.S. and Across Countries
Birinci, Serdar; Leibovici, Fernando; See, Kurt (2025-06-16)
We quantify the labor market barriers that immigrants face, using an occupational choice model with natives and immigrants of multiple types subject to wedges that distort their allocations. We find sizable output gains from removing immigrant wedges in the U.S., representing 25% of immigrants' overall economic contribution, and that these wedges alter the impact of alternative immigration policies. We harmonize microdata across 19 economies and exploit cross-country variation in immigrant outcomes and estimated wedges to examine the drivers of differences in wedges and gains from their ...
Working Papers , Paper 2021-004

Working Paper
Policy Rules and Large Crises in Emerging Markets
Espino, Emilio; Sanchez, Juan M.; Kozlowski, Julian; Martin, Fernando M. (2025-06-12)
Emerging economies have adopted fiscal and monetary rules to discipline government policy. We study the value and macroeconomic implications of rules and flexibility within a sovereign-default model that incorporates domestic fiscal and monetary policies and long-term external debt. Adopting monetary targets and debt limits during normal times yields welfare gains. Suspending rules can significantly influence policy, macroeconomic outcomes, and welfare during large, unforeseen crises. The gains from flexibility depend on how quickly policymakers are able to reimpose rules after the crisis.
Working Papers , Paper 2022-018

Working Paper
The Cost of Capital and Misallocation in the United States
Faria-e-Castro, Miguel; Kozlowski, Julian; Majerovitz, Jeremy (2025-06-10)
We develop a methodology to estimate the cost of capital using credit registry microdata, and apply it to study capital allocation efficiency in the United States. Our measure incorporates the contractual interest rate, expected default probability, recovery rate, and expectations of future rates. We estimate three distinct rates: (i) the lender's discount rate, (ii) the firm's cost of capital, and (iii) the social cost of capital. We derive a sufficient statistic for misallocation based on the first and second moments of the social cost of capital. Dispersion in this rate captures both ...
Working Papers , Paper 2025-013

Working Paper
Fed-Driven Systemic Tail Risk: High-Frequency Measurement, Evidence and Implications
Erdemlioglu, Deniz; Neely, Christopher J.; Yang, Xiye (2025-05-27)
We develop a framework to measure market-wide (systemic) tail risk in the cross-section of asset returns. Using high-frequency data on individual U.S. stocks and sector-specific ETF portfolios, we estimate time-varying jump intensities and multi-asset tail risk around Fed policy announcements. While most FOMC announcements generate systemic left-tail risk, there is no evidence that macro announcements have a similar effect. The magnitude of the tail risk induced by Fed policy announcements varies over the business cycle, peaks during the global financial crisis and remains high during phases ...
Working Papers , Paper 2023-016

Working Paper
On the Transition to Sustained Growth: The Importance of Recent Agricultural Employment
Ravikumar, B.; Vandenbroucke, Guillaume (2025-05-22)
We study a model where a single good can be produced using a diminishing-returns technology (Malthus) and a constant-returns technology (Solow). We map the former to agriculture and show that the share of agricultural employment declines at a constant rate during the economic transition and that recent observations on the share are sufficient to estimate the onset of transition. Our model implies that (i) output growth is higher and increasing after the onset of transition, (ii) during the transition, it is a first-order autoregressive process, and (iii) the rate of decline in the share of ...
Working Papers , Paper 2023-026

Working Paper
The Heterogeneous Impacts of Job Displacement: Evidence from Canadian Job Separation Records
Birinci, Serdar; Park, Youngmin; See, Kurt (2025-05-21)
When estimating earnings losses upon job separations, existing strategies focus on separations in mass layoffs to distinguish involuntary separations from voluntary separations. We revisit the measurement of the sources and consequences of involuntary separations using Canadian job separation records. We refine existing strategies and find that only a quarter of mass-layoff separations are indeed layoffs. We provide guidance on how to effectively filter out spurious separations when using databases with sparse information on separations. Isolating involuntary mass-layoff separations with our ...
Working Papers , Paper 2023-022

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