Alp Simsek

Recent working papers

• Forward Guidance and Financial Conditions

  with Ricardo Caballero·updated 2026

  Earlier policy-oriented version: FCI-plot: Central Bank Communication Through Financial Conditions, presented at the 2nd Thomas Laubach Research Conference at the Federal Reserve Board.

  PDFFCI-plotNBER wp 34325
  Abstract

  Forward guidance has recently been contested, most visibly in the United States. We study its benefits and costs in a model where monetary policy operates through financial conditions. Noisy flows move those conditions and create output gaps because the policy rate adjusts gradually. Guidance reveals the central bank's view of future demand, reducing policy uncertainty and inducing arbitrageurs to absorb more financial noise. But guidance also moves financial conditions on announcement. On average, this movement raises output-gap variance. Optimal guidance balances these effects. It rises with financial noise, policy uncertainty, and the persistence of the central bank's view. We then study the form of guidance. Markets that disagree with the central bank about near-term shocks want to know its policy stance once it comes around to their view. An average projection does not provide it. A projection conditional on the market's scenario does, and so conveys more of the central bank's view. Among the variables the central bank could project, a projection of neutral financial conditions, FCI*, isolates its macroeconomic view. Interest rate and macroeconomic projections also reflect its view of risk premia, so they convey less for a given communication effort.

• Financial Conditions Targeting

  with Ricardo Caballero and Tomas Caravello·updated 2026

  PDFNBER wp 33206VoxEU
  Abstract

  Non-fundamental inflows into the stock market loosen financial conditions and raise output, while the policy rate responds gradually. Such financial noise explains up to 20% of the variance of financial conditions and output. These facts motivate a macroeconomic model with noise traders, risk-averse arbitrageurs, and gradual interest rate adjustment. In this model, Financial Conditions Index (FCI) targeting can improve macroeconomic stabilization: the central bank announces its expected FCI as a soft near-term target and adjusts the policy rate to keep conditions near it. This commitment reduces FCI volatility, thereby “recruiting” arbitrageurs to insulate the FCI and aggregate demand from noise.

• Stock Market Wealth and Entrepreneurship

  with Gabriel Chodorow-Reich, Plamen Nenov, and Vitor Santos·updated 2026

  PDFNBER wp 32643
  Abstract

  We use data on stock portfolios of Norwegian households to show that stock market wealth increases entrepreneurship by relaxing financial constraints. Our research design isolates idiosyncratic variation in household-level stock market returns. An increase in stock market wealth increases the propensity to start a firm, with the response concentrated in households with moderate levels of financial wealth, for whom a 20 percent increase in wealth due to a positive stock return increases the likelihood to start a firm by about 20%, and in years when the aggregate stock market return in Norway is high. We develop a method to study the effect of wealth on firm outcomes that corrects for the bias introduced by selection into entrepreneurship. Higher wealth causally increases firm profitability, an indication that it relaxes would-be entrepreneurs' financial constraints. Consistent with this interpretation, the pass-through from stock wealth into equity in the new firm is one-for-one.

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