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Bank:Federal Reserve Bank of St. Louis  Content Type:Working Paper 

Working Paper
Stabilization vs. Growth

Should firms in financial distress be saved to stabilize an economy, even if less productive ones are kept alive, possibly reducing economic growth? To assess this fundamental stabilization-vs.-growth trade-off, we develop a new dynamic general equilibrium model with business cycles, endogenous growth, and innovation externalities. We discipline key parameters using microeconomic data and an instrumental-variable approach that links firm productivity growth to R&D expenditure. Based on the calibrated model, we find that economies that save distressed firms with credit guarantees, debt ...
Working Papers , Paper 2026-006

Working Paper
Scalable versus Productive Technologies

CORRECT ORDER OF AUTHORS: Hubmer, Chan, Ozkan, Salgado, Hong. Are larger firms more productive, more scalable, or both? We use firm-level panel data from thirteen countries and employ a broad set of methods to estimate factor elasticities—capturing returns to scale (RTS)—and total factor productivity (TFP). We find substantial RTS heterogeneity within industries, with larger firms exhibiting higher RTS driven by greater intermediate input elasticities. TFP, by contrast, rises with firm size only up to the top decile before declining. The RTS–size gradient primarily reflects persistent, ...
Working Papers , Paper 2024-019

Working Paper
An Empirical Analysis of the Cost of Borrowing

We empirically study firm financing costs using a comprehensive dataset of corporate bonds and bank loans. We construct a measure of financing costs, the Excess Debt Premium, which controls for observable debt characteristics. We document two key findings: first, bank loans are about 45 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, amount, and ...
Working Papers , Paper 2024-016

Working Paper
Expectations on Wealth Returns: Implications for Labor Supply During the Retirement Boom

We use an overlapping-generations model with incomplete markets and a frictional labor market to study how assumptions about agents’ expectations of changes in returns to wealth affect labor supply and retirement decisions. Focusing on 2020–23, when returns fluctuated sharply and retirements rose above trend, we find that when individuals internalize the dependence of returns on wealth and view changes in returns as persistent, the model generates counterfactual labor-market outcomes. Retirements fall because expectations of persistently high returns boost labor supply, outweighing wealth ...
Working Papers , Paper 2025-031

Working Paper
Drivers of Wage and Employment Growth in Recent Years: A Supply and Demand Decomposition

Understanding whether labor market developments stem from supply or demand forces has fundamental implications for the conduct of monetary policy. This article develops a structural vector autoregression (VAR) methodology to decompose U.S. employment and wage growth into supply and demand components using sign restrictions. Extending Shapiro (2026), we separately identify trend growth, current shocks, and past shocks across different industries. Results reveal that goods-producing sectors experienced strong demand-driven growth in 2022, which subsequently weakened as Federal Reserve ...
Working Papers , Paper 2026-004

Working Paper
Drivers of Wage and Employment Growth in Recent Years: A Supply and Demand Decomposition

Understanding whether labor market developments stem from supply or demand forces has fundamental implications for the conduct of monetary policy. This article develops a structural vector autoregression (VAR) methodology to decompose U.S. employment and wage growth into supply and demand components using sign restrictions. Extending Shapiro (2026), we separately identify trend growth, current shocks, and past shocks across different industries. Results reveal that goods-producing sectors experienced strong demand-driven growth in 2022, which subsequently weakened as Federal Reserve ...
Working Papers , Paper 2026-004

Working Paper
Mind the Gap: AI Adoption in Europe and the US

This paper combines international evidence from worker and firm surveys conducted in 2025 and2026 to document large gaps in AI adoption, both between the US and Europe and across European countries. Cross-country differences in worker demographics and firm composition account for an important share of these gaps. AI adoption, within and across countries, is also closely linked to firm personnel management practices and whether firms actively encourage AI use by workers. Micro-level evidence suggests that AI generates meaningful time savings for many workers. At the macro level, in recent ...
Working Papers , Paper 2026-003

Working Paper
Expanding College Access

This paper studies the effects of expanding high-quality public university capacities on student earnings and welfare. Using a quantitative model of college choice, we find that expanding the most selective colleges by 20 percent increases aggregate earnings by 0.8 percent and welfare by 2 percent. The gains arise because a large number of high-ability students are rationed out of selective colleges. When admitted, these students graduate at high rates and enjoy substantial earnings gains. The earnings gains generated by expanding college capacity are eight times larger than the fiscal cost ...
Working Papers , Paper 2026-005

Working Paper
Why Do Americans No Longer Work So Much More Than Non-Americans?

In the 1990s, Americans used to work much more than non-Americans. Nowadays, about half of the gap in hours worked has reversed. To evaluate the convergence of working hours, we develop a tractable model of labor supply enriched with multiple sources of heterogeneity across individuals, an extensive margin of participation, multi-member households, and an elaborate system of taxes and benefits upon non-employment. Using detailed measurements from micro-level and aggregate datasets, we identify model parameters and sources of heterogeneity across individuals for various countries. We run a ...
Working Papers , Paper 2026-002

Working Paper
Tax Progressivity, Economic Booms, and Trickle-Up Economics

We study the macroeconomic and distributional effects of changes in income tax progressivity in the United States. We propose a method to decompose changes in the tax structure into orthogonal components measuring the level and progressivity of taxes. Estimating these components jointly with macroeconomic outcomes in a factor-augmented VAR, we find that tax level shocks are contractionary, while tax progressivity shocks are expansionary, raising output and consumption by shifting disposable income from high to low-income households. Despite being revenue neutral by construction, progressivity ...
Working Papers , Paper 2019-034

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