Federal Reserve

FEDS Paper: Policy Rate Uncertainty and Money Market Funds (MMF) Portfolio Allocations

08/13/2025 Federal Reserve Central banks

Samin Abdullah and Manjola TaseWe find that an increase in policy rate uncertainty is associated with an increase in MMF portfolio allocations towards assets with shorter-dated maturities. We also find that the direction of uncertainty matters: MMF portfolio maturity is more sensitive to uncertainty when it relates to changes in expectations for a larger increase or a smaller decrease in the policy rate than when it relates to changes in expectations for a smaller increase or a larger decrease in the policy rate.

FEDS Paper: Recession Shapes of Regional Evolution: Factors of Hysteresis

08/13/2025 Federal Reserve Central banks

Hie Joo Ahn and Yunjong EoThis paper empirically investigates sources of hysteresis, focusing on downward nominal wage rigidity and the gender gap in the labor market, using U.S. state-level payroll employment data. Employing a Bayesian Markov-switching model of business cycles, we identify U-shaped and L-shaped recessions, which correspond to quick recoveries and hysteresis, respectively.

IFDP Paper: Expanding the Labor Market Lens: Two New Eurozone Labor Indicators

08/13/2025 Federal Reserve Central banks

Ece Fisgin, Joaquin Garcia-Cabo, Alex Haag, and Mitch LottWe present a principal component analysis of euro area labor market conditions by combining information from 22 labor market indicators into two comprehensive series. These two novel indicators provide a systematic view of the current state and forward-looking direction of the euro-area labor market, respectively, and demonstrate superior forecasting performance compared to existing indicators.

FEDS Paper: Linear and nonlinear econometric models against machine learning models: realized volatility prediction

08/08/2025 Federal Reserve Central banks

Rehim KilicThis paper fills an important gap in the volatility forecasting literature by comparing a broad suite of machine learning (ML) methods with both linear and nonlinear econometric models using high-frequency realized volatility (RV) data for the S&P 500. We evaluate ARFIMA, HAR, regime-switching HAR models (THAR, STHAR, MSHAR), and ML methods including Extreme Gradient Boosting, deep feed-forward neural networks, and recurrent networks (BRNN, LSTM, LSTM-A, GRU).

FEDS Paper: Mega Firms and New Technological Trajectories in the U.S.

08/06/2025 Federal Reserve Central banks

Joonkyu Choi, Serguey Braguinsky, Yuheng Ding, Karam Jo, Seula KimWe provide evidence that mega firms have played an increasingly important role in shaping new technological trajectories in recent years. While the share of novel patents—defined as patents introducing new combinations of technological components— produced by mega firms declined until around 2000, it has rebounded sharply since then.

FEDS Paper: Indirect Credit Supply: How Bank Lending to Private Credit Shapes Monetary Policy Transmission

08/05/2025 Federal Reserve Central banks

Sharjil Haque, Young Soo Jang, and Jessie Jiaxu WangThis paper examines how banks’ financing of nonbank lenders affects monetary policy transmission. Using supervisory bank loan-level data and deal-level private credit data, we document an intermediation chain: Banks lend to Business Development Companies (BDCs)—large private credit providers—which then lend to firms.

FEDS Paper: Discussion of “Dynamic Causal Effects in a Nonlinear World: the Good, the Bad, and the Ugly”

08/05/2025 Federal Reserve Central banks

Edward P. Herbst and Benjamin K. JohannsenThis comment discusses Kolesár and Plagborg-Møller's (2025) finding that the standard linear local projection (LP) estimator recovers the average marginal effect (AME) even in nonlinear settings. We apply and discuss a subset their results using a simple nonlinear time series model, emphasizing the role of the weighting function and the impact of nonlinearities on small-sample properties.

FEDS Paper: From Bank Lending Standards to Bank Credit Conditions: An SVAR Approach

08/04/2025 Federal Reserve Central banks

Vihar Dalal, Daniel A. Dias, and Pinar UysalThis paper uses a structural vector autoregressive (SVAR) model—identified with an external monetary policy instrument and sign restrictions—to derive a measure of bank credit conditions from changes in bank lending standards. The model incorporates data on interest rates, bank credit, and survey-based measures of bank lending standards to identify monetary policy, credit demand, and credit supply shocks.

FEDS Paper: The Theory of Financial Stability Meets Reality

08/04/2025 Federal Reserve Central banks

Nina Boyarchenko, Kinda Hachem, and Anya KleymenovaA large literature at the intersection of economics and finance offers prescriptions for regulating banks to increase financial stability. This literature abstracts from the discretion that accounting standards give banks over financial reporting, creating a gap between the information assumed to be available to regulators in models of optimal regulation and the information available to regulators in reality.

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