The Dynamics of Bank Spreads and Financial Structure
Reint E. Gropp, Christoffer Kok, J.-D. Lichtenberger
Quarterly Journal of Finance,
Nr. 4,
2014
Abstract
This paper investigates the effect of within banking sector competition and competition from financial markets on the dynamics of the transmission from monetary policy rates to retail bank interest rates in the euro area. We use a new dataset that permits analysis for disaggregated bank products. Using a difference-in-difference approach, we test whether development of financial markets and financial innovation speed up the pass through. We find that more developed markets for equity and corporate bonds result in a faster pass-through for those retail bank products directly competing with these markets. More developed markets for securitized assets and for interest rate derivatives also speed up the transmission. Further, we find relatively strong effects of competition within the banking sector across two different measures of competition. Overall, the evidence supports the idea that developed financial markets and competitive banking systems increase the effectiveness of monetary policy.
Artikel Lesen
Macroeconomic Factors and Microlevel Bank Behavior
Claudia M. Buch, S. Eickmeier, Esteban Prieto
Journal of Money, Credit and Banking,
Nr. 4,
2014
Abstract
We analyze the link between banks and the macroeconomy using a model that extends a macroeconomic VAR for the U.S. with a set of factors summarizing conditions in about 1,500 commercial banks. We investigate how macroeconomic shocks are transmitted to individual banks and obtain the following main findings. Backward-looking risk of a representative bank declines, and bank lending increases following expansionary shocks. Forward-looking risk increases following an expansionary monetary policy shock. There is, however, substantial heterogeneity in the transmission of macroeconomic shocks, which is due to bank size, capitalization, liquidity, risk, and the exposure to real estate and consumer loans.
Artikel Lesen
In Search for Yield? Survey-based Evidence on Bank Risk Taking
Claudia M. Buch, S. Eickmeier, Esteban Prieto
Journal of Economic Dynamics and Control,
Nr. 43,
2014
Abstract
Monetary policy can have an impact on economic and financial stability through the risk taking of banks. Falling interest rates might induce investment into risky activities. This paper provides evidence on the link between monetary policy and bank risk taking. We use a factor-augmented vector autoregressive model (FAVAR) for the US for the period 1997–2008. Besides standard macroeconomic indicators, we include factors summarizing information provided in the Federal Reserve’s Survey of Terms of Business Lending (STBL). These data provide information on banks׳ new loans as well as interest rates for different loan risk categories and different banking groups. We identify a risk-taking channel of monetary policy by distinguishing responses to monetary policy shocks across different types of banks and different loan risk categories. Following an expansionary monetary policy shock, small domestic banks increase their exposure to risk. Large domestic banks do not change their risk exposure. Foreign banks take on more risk only in the mid-2000s, when interest rates were ‘too low for too long’.
Artikel Lesen
Reconciling Narrative Monetary Policy Disturbances with Structural VAR Model Shocks?
Martin Kliem, Alexander Kriwoluzky
Economics Letters,
Nr. 2,
2013
Abstract
Structural VAR studies disagree with narrative accounts about the history of monetary policy disturbances. We investigate whether employing the narrative monetary shocks as a proxy variable in a VAR model aligns both shock series. We find that it does not.
Artikel Lesen
Macroeconomic Factors and Micro-Level Bank Risk
Claudia M. Buch
Bundesbank Discussion Paper 20/2010,
2010
Abstract
The interplay between banks and the macroeconomy is of key importance for financial and economic stability. We analyze this link using a factor-augmented vector autoregressive model (FAVAR) which extends a standard VAR for the U.S. macroeconomy. The model includes GDP growth, inflation, the Federal Funds rate, house price inflation, and a set of factors summarizing conditions in the banking sector. We use data of more than 1,500 commercial banks from the U.S. call reports to address the following questions. How are macroeconomic shocks transmitted to bank risk and other banking variables? What are the sources of bank heterogeneity, and what explains differences in individual banks’ responses to macroeconomic shocks? Our paper has two main findings: (i) Average bank risk declines, and average bank lending increases following expansionary shocks. (ii) The heterogeneity of banks is characterized by idiosyncratic shocks and the asymmetric transmission of common shocks. Risk of about 1/3 of all banks rises in response to a monetary loosening. The lending response of small, illiquid, and domestic banks is relatively large, and risk of banks with a low degree of capitalization and a high exposure to real estate loans decreases relatively strongly after expansionary monetary policy shocks. Also, lending of larger banks increases less while risk of riskier and domestic banks reacts more in response to house price shocks.
Artikel Lesen
The Synchronization of Wage Dynamics across EMU Members: A Test of the Endogeneity Hypothesis
Herbert S. Buscher, Hubert Gabrisch
Empirica,
Nr. 3,
2012
Abstract
We test the hypothesis of an endogenous currency area for the labor market of the Euro area: has the introduction of a common currency caused wage dynamics to become more synchronized and to be able to cushion for asymmetric shocks? Trade intensity, sector specialization and financial integration are tested for being the driving forces for the endogenous synchronization of wage dynamics. We use regression techniques with instrument variables, and find evidence of persistent asymmetries in nominal wage formation, despite a single currency and monetary policy. We explain the result with more specialization following financial integration, and with still existing differences in wage formation and labor market institutions. We conclude that the euro zone is not endogenous with respect to wage formation. Rather, there are incentives for beggar-thy-neighbor policies in the Euro area.
Artikel Lesen
Monetary Policy in a World Where Money (Also) Matters
Makram El-Shagi, Sebastian Giesen
IWH Discussion Papers,
Nr. 6,
2012
Abstract
While the long-run relation between money and inflation as predicted by the quantity theory is well established, empirical studies of the short-run adjustment process have been inconclusive at best. The literature regarding the validity of the quantity theory within a given economy is mixed. Previous research has found support for quantity theory within a given economy by combining the P-Star, the structural VAR and the monetary aggregation literature. However, these models lack precise modelling of the short-run dynamics by ignoring interest rates as the main policy instrument. Contrarily, most New Keynesian approaches, while excellently modeling the short-run dynamics transmitted through interest rates, ignore the role of money and thus the potential mid-and long-run effects of monetary policy. We propose a parsimonious and fairly unrestrictive econometric model that allows a detailed look into the dynamics of a monetary policy shock by accounting for changes in economic equilibria, such as potential output and money demand, in a framework that allows for both monetarist and New Keynesian transmission mechanisms, while also considering the Barnett critique. While we confirm most New Keynesian findings concerning the short-run dynamics, we also find strong evidence for a substantial role of the quantity of money for price movements.
Artikel Lesen
Effects of Fiscal Stimulus in Structural Models
Mathias Trabandt, Günter Coenen, Christopher J. Erceg, Charles Freedman, Davide Furceri, Michael Kumhof, René Lalonde, Douglas Laxton, Jesper Lindé, Annabelle Mourougane, Dirk Muir, Susanna Mursula, Carlos de Resende, John Roberts, Werner Roeger, Stephen Snudden, Jan in't Veld
American Economic Journal: Macroeconomics,
Nr. 1,
2012
Abstract
The paper subjects seven structural DSGE models, all used heavily by policymaking institutions, to discretionary fiscal stimulus shocks using seven different fiscal instruments, and compares the results to those of two prominent academic DSGE models. There is considerable agreement across models on both the absolute and relative sizes of different types of fiscal multipliers. The size of many multipliers is large, particularly for spending and targeted transfers. Fiscal policy is most effective if it has moderate persistence and if monetary policy is accommodative. Permanently higher spending or deficits imply significantly lower initial multipliers.
Artikel Lesen
Crises, rescues, and policy transmission through international banks
Claudia M. Buch
Bundesbank Discussion Paper 15/2011,
2011
Abstract
The World Financial Crisis has shaken the fundamentals of international banking
and triggered a downward spiral of asset prices. To prevent a further meltdown of
markets, governments have intervened massively through rescues measures aimed at recapitalizing banks and through liquidity support. We use a detailed, banklevel dataset for German banks to analyze how the lending and borrowing of their foreign affiliates has responded to domestic (German) and to US crisis support schemes. We analyze how these policy interventions have spilled over into
foreign markets. We identify loan supply shocks by exploiting that not all banks
have received policy support and that the timing of receiving support measures
has differed across banks. We find that banks covered by rescue measures of the
German government have increased their foreign activities after these policy
interventions, but they have not expanded relative to banks not receiving support.
Banks claiming liquidity support under the Term Auction Facility (TAF) program
have withdrawn from foreign markets outside the US, but they have expanded
relative to affiliates of other German banks.
Artikel Lesen