Federal Reserve

IFDP Paper: Multi-Plant Firms, Variable Capacity Utilization, and the Aggregate Hours Elasticity

07/08/2026 Federal Reserve Central banks

Domenico Ferraro, Giuseppe Fiori, and Damian PierriWe develop a business cycle model with perfectly competitive product and labor markets in which production requires a minimum labor input, generating endogenous capacity utilization. The aggregate production function is kinked, featuring constant returns to scale below capacity—typically in recessions—and decreasing returns at capacity in expansions.

FEDS Paper: Capturing Heterogeneity: Machine Learning Approaches to Implied Volatility Forecasting

07/07/2026 Federal Reserve Central banks

Hyung Joo Kim and Dong Hwan OhDespite documented heterogeneity in volatility dynamics across the option surface, standard implied volatility forecasting models apply homogeneous parameters throughout. We introduce a machine-learning framework that uses regression trees to partition the surface along both moneyness and maturity dimensions, identifying data-driven regions where distinct forecasting models perform best.

FEDS Paper: Cyclical Fluctuations, Financial Frictions, and Productivity Differences across Firms

06/26/2026 Federal Reserve Central banks

Luca Guerrieri, Jinill Kim, and Arsenii MishinWithin narrowly defined industries, the most productive firms produce far more than the least productive from the same inputs, and this dispersion widens in downturns. We build a tractable representative-agent model in which financial frictions—adverse selection and moral hazard—make firms sort endogenously into lenders, strategic defaulters, and producers.

FEDS Paper: Sequence-Space Jacobians of Life-Cycle Models

06/24/2026 Federal Reserve Central banks

Bence Bardóczy, Akshay Shanker, and Mateo Velásquez-GiraldoThe sequence-space Jacobian (SSJ) method of Auclert et al. (2021a) has made heterogeneous-agent models far easier to solve, fueling an explosion of applications. But even SSJ strains against capacity constraints when state spaces grow very large, as in economies with overlapping generations of heterogeneous agents (HA-OLG).

FEDS Paper: An Evaluation of Difference-in-Differences Methods Using Placebo Event Studies

06/24/2026 Federal Reserve Central banks

John Coglianese and Jade A. FangResearchers are faced with the choice of which of the many recently developed difference-in-differences methods to use in practice. To assess these estimators' relative performance for single-unit event studies, we conduct 134,000+ state-level placebo event studies across 13 estimators. We find that no single method dominates.

FEDS Paper: The Response of Equity Yields to a Long-Run Shock

06/23/2026 Federal Reserve Central banks

Martijn Boons, Anthony M. Diercks, Petra Sinagl, and Andrea TamoniWe study how macroeconomic developments affect asset prices by analyzing the response of equity yields to a well-identified long-run growth shock. Using synthetic equity yield data from Giglio et al. (2024), we show that a positive long-run shock steepens the equity yield curve by increasing expected dividend growth while leaving discount rates largely unchanged.

FEDS Paper: A Static Capital Buffer is Hard To Beat

06/22/2026 Federal Reserve Central banks

Matthew Canzoneri, Behzad Diba, Luca Guerrieri, and Arsenii MishinIn a model with endogenous risk-taking, deposit insurance and limited liability may lead banks to make risky loans that are socially inefficient. Capital requirements can prevent excessive risk-taking at the cost of reducing liquidity-producing bank deposits. A policy that sets capital requirements just high enough to prevent excessive risktaking will move capital requirements pro-, counter-, or a-cyclically depending on the shock source.

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