Publications

All
Series
Department
Topic
Author
Year
Refresh

Banks’ Funding Stress, Lending Supply and Consumption Expenditure

H. Evren Damar, Reint E. Gropp, A. Mordel
Journal of Money, Credit and Banking, forthcoming
Abstract
We employ a unique identification strategy linking survey data on household consumption expenditure to bank-level data to estimate the effects of bank funding stress on consumer credit and consumption expenditures. We show that households whose banks were more exposed to funding shocks report lower levels of non-mortgage liabilities. This, however, only translates into lower levels of consumption for low income households. Hence, adverse credit supply shocks are associated with significant heterogeneous effects.
Read article

Switching to Good Policy? The Case of Central and Eastern European Inflation Targeters

Andrej Drygalla
Macroeconomic Dynamics, forthcoming
Abstract
The paper analyzes how actual monetary policy changed following the official adoption of inflation targeting in the Czech Republic, Hungary, and Poland and how it affected the volatilities of important macroeconomic variables in the years thereafter. To disentangle the effects of the policy shift from exogenous changes in the volatilities of these variables, a Markov-switching dynamic stochastic general equilibrium model is estimated that allows for regime switches in the policy parameters and the volatilities of shocks hitting the economies. Whereas estimation results reveal periods of high and low volatility for all three economies, the presence of different policy regimes is supported by the underlying data for the Czech Republic and Poland, only. In both economies, monetary policy switched from weak and unsystematic to strong and systematic responses to inflation dynamics. Simulation results suggest that the policy shifts of both central banks successfully reduced inflation volatility in the following years. The observed reduction in output volatility, on the other hand, is attributed more to a reduction in the size of external shocks.
Read article

Does Extended Unemployment Benefit Duration Ameliorate the Negative Employment Effects of Job Loss?

Daniel Fackler, Jens Stegmaier, Eva Weigt
Labour Economics, forthcoming
Abstract
We study the effect of job displacement due to bankruptcies on earnings and employment prospects of displaced workers and analyse whether extended potential unemployment benefit duration (PBD) ameliorates the negative consequences of job loss. Using German administrative linked employer-employee data, we find that job loss has long-lasting negative effects on earnings and employment. Displaced workers also more often end up in irregular employment relationships (part-time, marginal part-time employment, and temporary agency work) than their non-displaced counterparts. Applying a regression discontinuity approach that exploits a three months PBD extension at the age threshold of 50 we find hardly any effects of longer PBD on labour market outcomes of displaced workers.
Read article

Risk and Earnings Quality: Evidence from Bank Enforcement Actions, Contemporary

Manthos D. Delis, Iftekhar Hasan, Maria Iosifidi, Liuling Liu
Journal of Banking & Finance, forthcoming
Abstract
Read article

Wage Delegation in the Field

Sabrina Jeworrek, Vanessa Mertins
Journal of Economics & Management Strategy, forthcoming
Abstract
By conducting a natural field experiment, we analyze the managerial policy of delegating the wage choice to employees. We find that this policy enhances performance significantly, which is remarkable since allocated wage premiums of the same size have no effect at all. Observed self‐imposed wage restraints and absence of negative peer effects speak in favor of wage delegation, although the chosen wage premium levels severely dampen its net value. Additional experimental and survey data provide important insights into employees' underlying motivations.
Read article

Optimizing Policymakers’ Loss Functions in Crisis Prediction: Before, Within or After?

Peter Sarlin, Gregor von Schweinitz
Macroeconomic Dynamics, forthcoming
Abstract
Early-warning models most commonly optimize signaling thresholds on crisis probabilities. The expost threshold optimization is based upon a loss function accounting for preferences between forecast errors, but comes with two crucial drawbacks: unstable thresholds in recursive estimations and an in-sample overfit at the expense of out-of-sample performance. We propose two alternatives for threshold setting: (i) including preferences in the estimation itself and (ii) setting thresholds ex-ante according to preferences only. Given probabilistic model output, it is intuitive that a decision rule is independent of the data or model specification, as thresholds on probabilities represent a willingness to issue a false alarm vis-à-vis missing a crisis. We provide simulated and real-world evidence that this simplification results in stable thresholds and improves out-of-sample performance. Our solution is not restricted to binary-choice models, but directly transferable to the signaling approach and all probabilistic early-warning models.
Read article

Borrowers Under Water! Rare Disasters, Regional Banks, and Recovery Lending

Michael Koetter, Felix Noth, Oliver Rehbein
Journal of Financial Intermediation, forthcoming
Abstract
We show that local banks provide corporate recovery lending to firms affected by adverse regional macro shocks. Banks that reside in counties unaffected by the natural disaster that we specify as macro shock increase lending to firms inside affected counties by 3%. Firms domiciled in flooded counties, in turn, increase corporate borrowing by 16% if they are connected to banks in unaffected counties. We find no indication that recovery lending entails excessive risk-taking or rent-seeking. However, within the group of shock-exposed banks, those without access to geographically more diversified interbank markets exhibit more credit risk and less equity capital.
Read article

Financial Incentives and Loan Officer Behavior: Multitasking and Allocation of Effort under an Incomplete Contract

P. Behr, A. H. Drexler, Reint E. Gropp, Andre Guettler
Journal of Financial and Quantitative Analysis, forthcoming
Abstract
In this paper we investigate the implications of providing loan officers with a compensation structure that rewards loan volume and penalizes poor performance versus a fixed wage unrelated to performance. We study detailed transaction information for more than 45,000 loans issued by 240 loan officers of a large commercial bank in Europe. We examine the three main activities that loan officers perform: monitoring, originating, and screening. We find that when the performance of their portfolio deteriorates, loan officers increase their effort to monitor existing borrowers, reduce loan origination, and approve a higher fraction of loan applications. These loans, however, are of above-average quality. Consistent with the theoretical literature on multitasking in incomplete contracts, we show that loan officers neglect activities that are not directly rewarded under the contract, but are in the interest of the bank. In addition, while the response by loan officers constitutes a rational response to a time allocation problem, their reaction to incentives appears myopic in other dimensions.
Read article

The Effects of Fiscal Policy in an Estimated DSGE Model – The Case of the German Stimulus Packages During the Great Recession

Andrej Drygalla, Oliver Holtemöller, Konstantin Kiesel
Macroeconomic Dynamics, forthcoming
Abstract
In this paper, we analyze the effects of the stimulus packages adopted by the German government during the Great Recession. We employ a standard medium-scale dynamic stochastic general equilibrium (DSGE) model extended by non-optimizing households and a detailed fiscal sector. In particular, the dynamics of spending and revenue variables are modeled as feedback rules with respect to the cyclical components of output, hours worked and private investment. Based on the estimated rules, fiscal shocks are identified. According to the results, fiscal policy, in particular public consumption, investment, and transfers prevented a sharper and prolonged decline of German output at the beginning of the Great Recession, suggesting a timely response of fiscal policy. The overall effects, however, are small when compared to other domestic and international shocks that contributed to the economic downturn. Our overall findings are not sensitive to considering fiscal foresight.
Read article

On the Risk of a Sovereign Debt Crisis in Italy

Oliver Holtemöller, Tobias Knedlik, Axel Lindner
Intereconomics, forthcoming
Abstract
Read article
Mitglied der Leibniz-Gemeinschaft LogoTotal-Equality-LogoWeltoffen Logo