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FEDS Paper: Black Swans and Financial Stability: A Framework for Building Resilience

06/06/2025 Federal Reserve Central banks

Daniel Barth and Stacey SchreftThis article refines the concept of black swans, typically described as highly unlikely and catastrophic events, by clearly distinguishing between knowable and unknowable events. By emphasizing that black swans are “unknown unknowns,” the article highlights that the realization of new black swans cannot be prevented and motivates a need for policies that build the financial system's resilience to unforeseeable crises.

FEDS Paper: Changing Jobs to Fight Inflation: Labor Market Reactions to Inflationary Shocks

06/04/2025 Federal Reserve Central banks

Gorkem Bostanci, Omer Koru, and Sergio VillalvazoWe argue that inflationary shocks affect allocative efficiency by changing the rate and the characteristics of workers’ job-to-job transitions. First, using monetary policy shocks and survey data on search effort, we empirically show that a one percentage point rise in inflation increases job-to-job transitions by up to 4.5%, and workers with higher inflation expectations are more likely to search and do so more effectively.

FEDS Paper: How Stable are Inflation Expectations in the Euro Area? Evidence from the Euro-Area Financial Markets

06/02/2025 Federal Reserve Central banks

Olesya V. Grishchenko, Franck Moraux, and Olga PakulyakWe analyze evolution of inflation expectations in the euro area (EA) using a novel measure of inflation expectations implied by the French nominal and inflation-indexed bonds. Overall, we find that EA inflation expectations have been relatively well anchored in the 2004–2019 sample but have been somewhat sensitive to the incoming macroeconomic news and monetary policy shocks in the sample that includes the COVID-19 pandemic.

FEDS Paper: Place-Based Labor Market Inequality

06/02/2025 Federal Reserve Central banks

Douglas Webber, Isabella Agnes, Jessica Liu, and Erin TrolandThis paper presents an overview of how various labor market indicators differ across geography. While many indicators are often discussed in terms of national aggregates, such discussions obscure the large degree of variation that exists across localities.

FEDS Paper: Suitability of a County-Level Income Definition for Analysis of Lower-Income Communities

06/02/2025 Federal Reserve Central banks

Erin Troland, Isabella Agnes, Ellie Dries, Jessica Liu, Zofsha Merchant, Fatimah Shaalan, Michelle Tran, Anna Tranfaglia, and Douglas WebberThis paper examines the costs and benefits of using a straightforward county-level income definition in the classification and study of lower-income communities.

FEDS Paper: Market Liquidity in Treasury Futures Market During March 2020

05/30/2025 Federal Reserve Central banks

Eleni Gousgounis, Scott Mixon, Tugkan Tuzun, and Clara VegaWe study the behavior of liquidity providers and liquidity consumers in the 10-year U.S. Treasury futures market during the height of the COVID-19 shock in March 2020, a period of market turmoil when demand for liquidity was high. In March 2020, PTFs reduced their volume of liquidity providing trades as a share of total trading volume.

FEDS Paper: A Look Back at "Look Through"

05/29/2025 Federal Reserve Central banks

Edward NelsonThis paper examines the place that a "look-through" approach to price shocks has acquired in inflation-targeting frameworks. The "look-through" approach reflects the fact that, in the event of a shock that is likely (on impact) to put a sizable share of consumer prices under upward pressure, one option available to the central bank is to accommodate the initial price rise. In doing so, it can also attempt to ensure that future inflation rates, and inflation expectations, are insulated from the shock.

FEDS Paper: (Re-)Connecting Inflation and the Labor Market: A Tale of Two Curves(Revised)

05/28/2025 Federal Reserve Central banks

Hie Joo Ahn and Jeremy B. RuddWe propose an empirical framework in which shocks to worker reallocation, aggregate activity, and labor supply drive the joint dynamics of the labor market and inflation, and where reallocation shocks take two forms depending on whether they result from quits or from job losses. We find that these structural shocks, which affect the Beveridge curve, have different effects on inflation.

IFDP Paper: Corporate Debt Maturity and Business Cycle Fluctuations

05/27/2025 Federal Reserve Central banks

Francesco Ferrante, Andrea Prestipino, Immo SchottLong-term debt is the main source of firm-financing in the U.S. We show that accounting for debt maturity is crucial for understanding business cycle dynamics. We develop a macroeconomic model with defaultable long-term debt and equity adjustment costs.

FEDS Paper: Scenario Synthesis and Macroeconomic Risk

05/20/2025 Federal Reserve Central banks

Tobias Adrian, Domenico Giannone, Matteo Luciani, and Mike WestWe introduce methodology to bridge scenario analysis and model-based risk forecasting, leveraging their respective strengths in policy settings. Our Bayesian framework addresses the fundamental challenge of reconciling judgmental narrative approaches with statistical forecasting.

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