Central banks

FEDS Paper: Pricing Tail Risks: Bank Equity Returns During the 2023 Bank Stress

09/05/2025 Federal Reserve Central banks

Matthew P. Seay and Shawn M. KimbleDid bank equity prices reflect growing sector imbalances before the 2023 failure of Silicon Valley Bank? We find that banks with higher reliance on uninsured deposits, or with higher marked-to-market leverage, had lower equity returns prior to SVB's collapse. Although markets priced uninsured deposits and high leverage individually, their interaction was not reflected in market prices prior to SVB’s failure.

IFDP Paper: De-Dollarization? Diversification? Exploring Central Bank Gold Purchases and the Dollar’s Role in International Reserves

09/05/2025 Federal Reserve Central banks

Colin WeissI examine how governments have managed their holdings of gold and dollar reserves in recent decades, a period when gold’s share of aggregate international reserves rose and the dollar’s share fell. Using data on central banks’ reserve currency composition and official sector purchases of U.S. assets, I argue that gold reserve accumulation is generally not associated with de-dollarization of international reserves at the country level, except in a few prominent cases.

Nonlinearities and heterogeneity in firms response to aggregate fluctuations: what can we learn from machine learning?

09/03/2025 European Central Bank Central banks

Firms respond heterogeneously to aggregate fluctuations, yet standard linear models impose restrictive assumptions on firm sensitivities. Applying the Generalized Random Forest to U.S. firm-level data, we document strong nonlinearities in how firm characteristics shape responses to macroeconomic shocks. We show that nonlinearities significantly lower aggregate esponses, leading linear models to overestimate the economy’s sensitivity to shocks by up to 1.7 percentage points.

Public debt, iMPCs & fiscal policy transmission

09/03/2025 European Central Bank Central banks

This paper investigates the relationship between public debt and the effectiveness of fiscal policy, presenting evidence of an inverse relationship between government debt and fiscal multipliers. To explain the results, I develop and calibrate a HANK model tailored to the U.S. economy. The model reveals that higher public debt diminishes fiscal multipliers by making households less constrained. Theoretically, I show intertemporal marginal propensities to consume (iMPCs) are sufficient statistics of public debt, influencing fiscal multipliers.

Public debt, iMPCs & fiscal policy transmission

09/03/2025 European Central Bank Central banks

This paper investigates the relationship between public debt and the effectiveness of fiscal policy, presenting evidence of an inverse relationship between government debt and fiscal multipliers. To explain the results, I develop and calibrate a HANK model tailored to the U.S. economy. The model reveals that higher public debt diminishes fiscal multipliers by making households less constrained. Theoretically, I show intertemporal marginal propensities to consume (iMPCs) are sufficient statistics of public debt, influencing fiscal multipliers.

Nonlinearities and heterogeneity in firms response to aggregate fluctuations: what can we learn from machine learning?

09/03/2025 European Central Bank Central banks

Firms respond heterogeneously to aggregate fluctuations, yet standard linear models impose restrictive assumptions on firm sensitivities. Applying the Generalized Random Forest to U.S. firm-level data, we document strong nonlinearities in how firm characteristics shape responses to macroeconomic shocks. We show that nonlinearities significantly lower aggregate esponses, leading linear models to overestimate the economy’s sensitivity to shocks by up to 1.7 percentage points.

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