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Working Paper
Labor Market Shocks and Monetary Policy
Birinci, Serdar; Karahan, Fatih; Mercan, Yusuf; See, Kurt (2025-11-17)
We develop a heterogeneous-agent New Keynesian model with a frictional labor market and on-the-job search to study how employer-to-employer (EE) transitions affect macroeconomic outcomes and monetary policy. We find that EE dynamics significantly shaped inflation during the Great Recession and COVID-19 recoveries. Despite similar unemployment paths, the former experienced weaker EE transitions and lower inflation. Optimal monetary policy prescribes a strong positive response to EE fluctuations, implying central banks should distinguish between episodes with similar unemployment but different ...
Working Papers , Paper 2022-016

Working Paper
Earnings Misperceptions and Household Distress
Sanchez, Juan M.; Song, Stefan (2025-11-12)
Households learn whether income changes are temporary or persistent from their own paychecks. This paper develops a quantitative model of financial distress that incorporates this inference and estimates the extent to which households overweight recent outcomes—diagnostic expectations—using survey data on income beliefs. The model explains distress without assuming extreme impatience and aligns with the observed relationship between income and interest rates. Learning and diagnostic expectations account for about half of delinquencies and one-third of bankruptcies. Diagnostic expectations ...
Working Papers , Paper 2025-030

Working Paper
A Strategic Analysis of Narcoterrorism: Counterterrorism, Terrorist Extortion, and Illicit Drug Trafficking
Sandler, Todd; Bandyopadhyay, Subhayu (2025-11-12)
The paper presents a novel strategic analysis of narcoterrorism where a developing country’s terrorist group extorts home drug farmers to finance terror attacks. A developed country’s counterterror actions are motivated by the harm its residents endure from those attacks. The developed country’s counterterrorism involves efforts to destroy the drug crop abroad. The analysis begins with the drug price being exogenously fixed, followed by a “large-country case’’ with a market-determined drug price. The extension introduces a fourth participant, consisting of the developed ...
Working Papers , Paper 2025-032

Working Paper
Trade Risk and Food Security
Adamopoulos, Tasso; Leibovici, Fernando (2025-11-05)
International trade provides critical access to food, yet many food-importing countries protect agriculture even where productivity is low. We study how the risk of trade disruptions shapes food security, the global distribution of production, and optimal policy. We document that reliance on imported staples is linked to higher food insecurity, particularly in poorer countries. Exploiting the Ukraine–Russia war, we find that districts in Ethiopia more exposed to disrupted imports suffered sharper declines in food security. We develop a multi-sector model of trade with stochastic trade costs ...
Working Papers , Paper 2024-004

Working Paper
The Implications of Labor Market Heterogeneity on Unemployment Insurance Design
Birinci, Serdar; See, Kurt (2025-11-03)
We estimate UI eligibility, take-up, and replacement rates at the individual level and document how these rates vary with earnings and wealth prior to job loss, as well as over the duration of unemployment. To evaluate whether our empirical findings are important for shaping UI policy design, we analyze a widely used framework that combines an incomplete markets model with a frictional labor market. We show that when the model is extended to match our findings, the optimal policy becomes substantially more generous relative to the nested model that does not. In addition, the welfare gains ...
Working Papers , Paper 2024-026

Working Paper
Earnings Misperceptions and Household Distress
Sanchez, Juan M.; Song, Stefan (2025-11-03)
Households learn whether income changes are temporary or persistent from their own paychecks. This paper develops a quantitative model of financial distress that incorporates this inference and estimates the extent to which households overweight recent outcomes—diagnostic expectations—using survey data on income beliefs. The model explains distress without assuming extreme impatience and aligns with the observed relationship between income and interest rates. Learning and diagnostic expectations account for about half of delinquencies and one-third of bankruptcies. Diagnostic expectations ...
Working Papers , Paper 2025-030

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
Sluggish news reactions: A combinatorial approach for synchronizing stock jumps
Bouamara, Nabil; Laurent, Sébastien; Neely, Christopher J.; Boudt, Kris (2025-10-30)
Stock prices often react sluggishly to news, producing gradual and delayed jumps. Econometricians typically treat these sluggish reactions as microstructure effects and settle for a coarse sampling grid to guard against them. We introduce new methods to synchronize mistimed stock returns on a fine sampling grid that allow us to better approximate the true common jumps in the efficient prices of related stocks in an application to Dow 30 data. The synchronized jumps produce better jump covariance estimates and estimates of the realized jump betas with better forecasting power, and superior ...
Working Papers , Paper 2024-006

Working Paper
Trade Risk and Food Security
Adamopoulos, Tasso; Leibovici, Fernando (2025-10-30)
International trade provides critical access to food, yet many food-importing countries protect agriculture even where productivity is low. We study how the risk of trade disruptions shapes food security, the global distribution of production, and optimal policy. We document that reliance on imported staples is linked to higher food insecurity, particularly in poorer countries. Exploiting the Ukraine–Russia war, we find that districts in Ethiopia more exposed to disrupted imports suffered sharper declines in food security. We develop a multi-sector model of trade with stochastic trade costs ...
Working Papers , Paper 2024-004

Working Paper
The Rapid Adoption of Generative AI
Bick, Alexander; Deming, David; Blandin, Adam (2025-10-27)
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, 45% of the U.S. population age 18-64 uses generative AI. Among employed respondents, 27% used generative AI for work at least once in the previous week: 10% used it every workday, and 17% on some but not all workdays. Relative to each technology’s first mass-market product launch, work ...
Working Papers , Paper 2024-027

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