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IFDP Paper: Inequality and Asset Prices during Sudden Stops(Revised)

12/17/2025 Federal Reserve Central banks

Sergio VillalvazoThis paper studies the cross-sectional dimension of Fisher's debt-deflation mechanism that triggers endogenous Sudden Stop crises-i.e., episodes with large reversals in the current account. Analyzing microdata from Mexico, we show that this dimension has macroeconomic implications that operate via opposing effects. First, an amplifying effect by which households with high leverage fire-sale their assets during crises, increasing downward pressure on asset prices.

IFDP Paper: Dollarization Waves: New Evidence from a Comprehensive International Bond Database

12/16/2025 Federal Reserve Central banks

Swapan-Kumar Pradhan, Eswar Prasad, Előd Takáts, and Judit TemesvaryWe investigate how the U.S. dollar’s prominence in the denomination of international debt securities has evolved in recent decades, using a comprehensive global dataset with far more extensive coverage than datasets used in prior literature. We find no monotonic dollarization or de-dollarization trend; instead, the dollar’s share exhibits a wavelike pattern. We document three dollarization waves since the 1960s.

FEDS Paper: Hysteresis and the Role of Downward Nominal Wage Rigidity: Evidence from U.S. States(Revised)

12/16/2025 Federal Reserve Central banks

Hie Joo Ahn and Yunjong EoThis paper empirically investigates the sources of hysteresis, emphasizing the role of downward nominal wage rigidity using U.S. state-level payroll employment growth. U.S. states exhibit heterogeneous recoveries, with L-shaped and U-shaped recessions corresponding to persistent hysteresis and full recovery. L-shaped recessions are importantly driven by demand shocks and reinforced by downward nominal wage rigidity, which prolongs employment losses by raising real wages and deepening downturns.

FEDS Paper: LLM on a Budget: Active Knowledge Distillation for Efficient Classification of Large Text Corpora*

12/15/2025 Federal Reserve Central banks

Viviana Luccioli, Rithika Iyengar, Ryan Panley, Flora Haberkorn, Xiaoyu Ge, Leland Crane, Nitish Sinha, and Seung Jung LeeLarge Language Models (LLMs) are highly accurate in classification tasks, however, substantial computational and financial costs hinder their large-scale deployment in dynamic environm

FEDS Paper: Rates of return on private and public businesses

12/15/2025 Federal Reserve Central banks

Jesse Bricker, Kevin B. Moore, and Alice H. VolzPrivately owned business assets are an important source of wealth for families across the world, but measurement issues are believed to hamper our understanding of these firms.

FEDS Paper: Funds of Funds' Portfolio Rebalancing during the COVID-19 Crisis

12/15/2025 Federal Reserve Central banks

Nathan Foley-Fisher and Jeongmin (Mina) LeeDuring the COVID-19 crisis, large outflows from bond mutual funds disrupted debt markets. We show that "funds of funds"-mutual funds that invest in other mutual funds-accounted for a third of those outflows in March 2020. They rebalanced their portfolios mechanically in response to equity market losses, selling bond funds and purchasing equity funds.

FEDS Paper: A Robust Risk Framework for Offline Payments

12/15/2025 Federal Reserve Central banks

Bikash Poudel, Sarah Carey, Robert Flynn, Chakrapani Narayan, Richard Payne, Eshwar Satrasala, Seaira Spooney, and James LovejoyThe capability to make offline digital payments is emerging as a vital component of the broader payments ecosystem, especially in scenarios in which internet connectivity is unavailable such as during a crisis or natural disaster. Offline digital payment services offer a secure and reliable alternative to cash. Even so, there are a limited number of viable offline payment protocols in production today.

IFDP Paper: To Cap or Not to Cap? Energy Crises in a Currency Union

12/12/2025 Federal Reserve Central banks

Momo KomatsuDuring the energy crisis in 2022 some Euro Area countries introduced price caps on energy, while others did not, leading to about 30 percentage points higher energy inflation in uncapped countries. This paper investigates the trade-offs policymakers face with energy price caps in a two-country currency union model with shared energy supply. The cooperative, optimal outcome is for neither country to impose a price cap, since the cap is a costly market distortion.

IFDP Paper: Decoupling Dollar and Treasury Privilege

12/12/2025 Federal Reserve Central banks

Wenxin Du, Ritt Keerati, and Jesse SchregerWe document a strong decoupling between the convenience yield on the US Dollar and US Treasuries. We measure the convenience of the U.S. dollar using covered interest parity (CIP) deviations between risk-free bank rates, such as secured overnight rates since the benchmark reform. In parallel, we measure the convenience of U.S. Treasury bonds through CIP deviations between government bond yields.

IFDP Paper: Economic Diversity and the Resilience of Cities

12/12/2025 Federal Reserve Central banks

François de Soyres, Simon Fuchs, Illenin O. Kondo, and Helene MaghinWe develop a framework to assess how economic shocks affect local labor markets and worker welfare, with a focus on city-level economic diversity. Using detailed worker flow data across cities, sectors, and occupations, we construct theory-consistent welfare measures. Our approach combines a dynamic discrete choice model with a dual representation that captures both direct effects and the insurance value of local economic diversity.

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