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US Federal Reserve - Research Papers

Financial and Economic Discussions

FEDS Paper: Can LLMs Improve Sanctions Screening in the Financial System? Evidence from a Fuzzy Matching Assessment

9/29/2025

<a href="https://www.federalreserve.gov/econres/jeffrey-s-allen.htm">Jeffrey S. Allen</a> and Max S. S. Hatfield We examined the performance of four families of large language models (LLMs) and a variety of common fuzzy matching algorithms in assessing the similarity of names and addresses in a sanctions screening context. On average, across a range of realistic matching thresholds, the LLMs in our study reduc...

FEDS Paper: Parallel Trends Forest: Data-Driven Control Sample Selection in Difference-in-Differences

9/29/2025

<a href="https://www.federalreserve.gov/econres/yesol-huh.htm">Yesol Huh</a> and Matthew Vanderpool Kling This paper introduces parallel trends forest, a novel approach to constructing optimal control samples when using difference-in-differences (DiD) in a relatively long panel data with little randomization in treatment assignment. Our method uses machine learning techniques to construct an optimal control sa...

FEDS Paper: Financial Stability Implications of Generative AI: Taming the Animal Spirits

9/26/2025

Anne Lundgaard Hansen and <a href="https://www.federalreserve.gov/econres/seung-jung-lee.htm">Seung Jung Lee</a> This paper investigates the impact of the adoption of generative AI on financial stability. We conduct laboratory-style experiments using large language models to replicate classic studies on herd behavior in investment decisions. Our results show that AI agents make more rational decisions than hum...

FEDS Paper: Virtue or Mirage? Complexity in Exchange Rate Prediction

9/25/2025

<a href="https://www.federalreserve.gov/econres/rehim-kilic.htm">Rehim Kilic</a> This paper investigates whether the “virtue of complexity” (VoC), documented in equity return prediction, extends to exchange rate forecasting. Using nonlinear Ridge regressions with Random Fourier Features (Ridge–RFF), we compare the predictive performance of complex models against linear regression and the robu...

FEDS Paper: Automated Credit Limit Increases and Consumer Welfare

9/24/2025

<a href="https://www.federalreserve.gov/econres/vitaly-m-bord.htm">Vitaly M. Bord</a>, Agnes Kovacs, and <a href="https://www.federalreserve.gov/econres/patrick-moran.htm">Patrick Moran</a> In the United States, credit card companies frequently use machine learning algorithms to proactively raise credit limits for borrowers. In contrast, an increasing number of countries have begun to prohibit credit limit inc...

FEDS Paper: One Policy Rate, Many Stances: Evidence from the European Monetary Union

9/19/2025

<a href="https://www.federalreserve.gov/econres/manuel-p-gonzalez-astudillo.htm">Manuel González-Astudillo</a>, <a href="https://www.federalreserve.gov/econres/diego-vilan.htm">Diego Vilán</a> A challenge for conducting monetary policy in a currency union is the diverse economic conditions among member states. Such disparities can drive natural interest rates apart, thereby undermining the stabilizing role o...

FEDS Paper: Where's The Bank? Banking Access in the Era of Branch Consolidation

9/19/2025

<a href="https://www.federalreserve.gov/econres/robert-m-adams.htm">Robert M. Adams</a> and <a href="https://www.federalreserve.gov/econres/shane-m-sherlund.htm">Shane M. Sherlund</a> This study examines changes in household and employment access to bank branches in the United States from 2014 to 2024, calculating distances with highly granular census block-level data. We develop a continuous measure of bank b...

FEDS Paper: Non-homothetic Demand Shifts and Inflation Inequality

9/19/2025

<a href="https://www.federalreserve.gov/econres/jake-d-orchard.htm">Jacob Orchard</a> This paper shows that adverse macroeconomic shocks systematically increase inflation for low-income households relative to high-income households. I document two key facts: (i) during every U.S. recession since 1959, aggregate spending shifts toward products disproportionately purchased by low-income households (necessities);...

FEDS Paper: Attention-Dependent Monetary Transmission to Household Beliefs

9/19/2025

Jaemin Jeong, Eunseong Ma, <a href="https://www.federalreserve.gov/econres/choongryul-yang.htm">Choongryul Yang</a> When do households listen to the Fed? We show the answer lies in a simple but powerful force: household attention to macroeconomic conditions. We develop a model where attention acts as a crucial gatekeeper for the pass-through of policy news to beliefs, and confirm its predictions using househol...

FEDS Paper: Monetary Policy and Bank Funding Costs: Patterns and Predictability in the Transmission of the Policy Rate to U.S. Banks' Funding Costs

9/19/2025

<a href="https://www.federalreserve.gov/econres/daniel-a-dias.htm">Daniel A. Dias</a>; Sophia C. Scott This paper shows that U.S. commercial banks' funding betas rise predictably with the length, magnitude, and direction of each monetary policy cycle: longer cycles and those with larger changes in the policy rate yield stronger pass-through in both tightening and loosening cycles, with modest asymmetry fav...

FEDS Paper: Does Financial Stress Affect Commodity Futures Traders' Positions?

9/19/2025

<a href="https://www.federalreserve.gov/econres/shengwu-du.htm">Shengwu Du</a>, <a href="https://www.federalreserve.gov/econres/travis-d-nesmith.htm">Travis D. Nesmith</a>, Yang Heppe Financial stress can impact trading behavior in the U.S. commodity futures markets. To clarify the impact, we study absolute changes and relative exposure dynamics in traders' positions during two recent crises: the 2008 Glob...

FEDS Paper: Do Banks Price Flood Risk in Mortgage Origination: Evidence from a Natural Experiment in New Orleans

9/19/2025

<a href="https://www.federalreserve.gov/econres/david-m-arseneau.htm">David M. Arseneau</a> and <a href="https://www.federalreserve.gov/econres/gazi-i-kara.htm">Gazi I. Kara</a> This paper uses a large-scale redrawing of flood zone maps for the City of New Orleans in 2016 to identify how banks respond to changes in perceived flood risk in residential mortgage origination. Using geo-coding, we separate loan-lev...

FEDS Paper: Financial Structure and Mergers

9/19/2025

<a href="https://www.federalreserve.gov/econres/charles-s-taragin.htm">Charles Taragin</a>, Benjamin Wallace, Eddie Watkins We study how corporate debt influences the competitive outcomes of horizontal and conglomerate mergers. In contrast to standard models where debt does not affect pricing, our framework shows that mergers can spread fixed debt obligations across a broader product portfolio, creating an "in...

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

9/5/2025

<a href="https://www.federalreserve.gov/econres/matthew-p-seay.htm">Matthew P. Seay</a> and Shawn M. Kimble Did 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 deposit...

FEDS Paper: Evaluating Macroeconomic Outcomes Under Asymmetries: Expectations Matter

9/5/2025

Brent Bundick, <a href="https://www.federalreserve.gov/econres/isabel-cairo.htm">Isabel Cairó</a>, Nicolas Petrosky-Nadeau Asymmetries play an important role in many macroeconomic models. We show that assumptions on household and firm expectations play a key role in determining the effects of these asymmetries on macroeconomic outcomes. If households and firms have perfect foresight and hence do not acc...