Federal Reserve

FEDS Paper: Lost in Aggregation: Geographic Mismeasurement of Income and Spending

07/07/2025 Federal Reserve Central banks

Sinem Hacioglu-Hoke, Leo Feler, and Jack ChylakUsing zip-code median income as a proxy for household income is common in economics but can mask heterogeneity and yield misleading conclusions. Using zip-code median income and self-reported household incomes from a representative panel of 150,000 U.S. households, we decompose average retail spending for 2018-2024. When using self-reported incomes, we observe substantial divergence in spending between low- and high-income households starting in mid-2021.

FEDS Paper: Trading Costs v. Indicative Liquidity in the Off-the-Run Treasury Market

07/07/2025 Federal Reserve Central banks

Oleg SokolinskiyThis paper estimates trading costs in the off-the-run Treasury market using comprehensive transactions data and machine learning techniques. The analysis reveals several key findings that enhance the understanding of the off-the-run Treasury market liquidity. First, the indicative bid-ask spread is shown to be a biased measure of liquidity, even when not considering transaction volume.

FEDS Paper: Gauging the Sentiment of Federal Open Market Committee Communications through the Eyes of the Financial Press

07/07/2025 Federal Reserve Central banks

Shantanu Banerjee, Paul Cordova, Michiel De Pooter, and Olesya V. GrishchenkoWe apply natural language processing tools to news articles in the financial press to construct a sentiment index—an index of the perceived semantic orientation of monetary policy communications around scheduled Federal Open Market Committee (FOMC) meetings. To that end, we develop several dictionaries that capture various monetary policy tools: conventional monetary policy, asset purchases, and forward guidance.

FEDS Paper: Soft Landing or Stagnation? A Framework for Estimating the Probabilities of Macro Scenarios

07/07/2025 Federal Reserve Central banks

Eric EngstromAmid ongoing trade policy shifts and geopolitical uncertainty, concerns about stagflation have reemerged as a key macroeconomic risk. This paper develops a probabilistic framework to estimate the likelihood of stagflation versus soft landing scenarios over a four-quarter horizon. Building on Bekaert, Engstrom, and Ermolov (2025), the model integrates survey forecasts, structural shock decomposition, and a non-Gaussian BEGE-GARCH approach to capture time-varying volatility and skewness.

IFDP Paper: Trade Costs and Inflation Dynamics

07/02/2025 Federal Reserve Central banks

Pablo Cuba-Borda, Albert Queralto, Ricardo Reyes-Heroles, and Mikaël ScaramucciWe study how trade cost shocks influence inflation. Using bilateral trade flows from detailed global input-output data and a gravity framework, we estimate trade cost shocks and their effects on CPI inflation.

FEDS Paper: The Dollar Channel of Monetary Policy Transmission

07/01/2025 Federal Reserve Central banks

Ralf R. Meisenzahl, Friederike Niepmann, and Tim Schmidt-EisenlohrThis paper documents a new dollar channel that transmits monetary policy across borders. Exploiting unique features of the syndicated loan market for identification, we show that changes in the euro-dollar exchange rate around ECB monetary policy announcements that are orthogonal to simultaneous changes in euro-area interest rates and stock prices affect U.S.

FEDS Paper: Of House and Home-Related Goods: The Home Purchase Channel of Expenditure

07/01/2025 Federal Reserve Central banks

Giovanni Favara, James Graham, and Geng LiHome-related spending in categories such as furnishings, renovations, and repairs is tied to housing market activity, with significant implications for aggregate expenditure dynamics. We refer to this relationship as the home purchase channel of expenditure.

IFDP Paper: Transformative and Subsistence Entrepreneurs: Origins and Impacts on Economic Growth

06/26/2025 Federal Reserve Central banks

Ufuk Akcigit, Harun Alp, Jeremy Pearce, and Marta PratoThis paper explores the symbiotic relationship between transformative entrepreneurs and inventors, which is crucial for economic growth. We utilize microdata from Denmark to demonstrate that while the relationship between IQ and general entrepreneurship tends to be negative, it is strongly positive among transformative entrepreneurs.

FEDS Paper: Macroprudential Regulation and Lending Standards(Revised)

06/25/2025 Federal Reserve Central banks

R. Matthew Darst, Ehraz Refayet, and Alexandros VardoulakisWe examine how macroprudential capital requirements interact with competition between banks and non-banks to shape lending standards. Banks have private information and benefit from deposit insurance, while non-banks lack such advantages but are less regulated.

FEDS Paper: Total Recall? Evaluating the Macroeconomic Knowledge of Large Language Models

06/25/2025 Federal Reserve Central banks

Leland D. Crane, Akhil Karra, and Paul E. SotoWe evaluate the ability of large language models (LLMs) to estimate historical macroeconomic variables and data release dates. We find that LLMs have precise knowledge of some recent statistics, but performance degrades as we go farther back in history.

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