The Case for a European Rating Agency: Evidence from the Eurozone Sovereign Debt Crisis
Journal of International Financial Markets, Institutions and Money,
Politicians frequently voice that European bond issuers would benefit from the presence of a Europe-based rating agency. We take Fitch as a prototype for such an agency. With its ownership structure and a headquarter in London, Fitch is more European than Moody’s and S&P; during the Eurozone sovereign debt crisis, it also issued more favorable ratings. Fitch’s rating actions, however, were largely ignored by the bond market. Our results thus cast doubt on the benefits of a European credit rating agency.
Does Social Capital Matter in Corporate Decisions? Evidence from Corporate Tax Avoidance ...
Fiscal Policy and Fiscal Fragility: Empirical Evidence from the OECD ...
19.04.2018 • 7/2018
Joint Economic Forecast Spring 2018: Germany’s Economic Experts Raise Forecast Slightly
Berlin, 19 April – Germany’s leading economic experts raised their forecasts for 2018 and 2019 slightly in their Spring Joint Economic Forecast released on Thursday in Berlin. They now expect economic growth of 2.2 percent for this year and 2.0 percent for 2019, versus 2.0 percent and 1.8 percent respectively in their autumn forecast. “The German economy is still booming, but the air is getting thinner as unused capacities are shrinking“, notes Timo Wollmershaeuser, ifo Head of Economic Forecasting. Commenting on the new German government’s economic policy, he adds: “It is precisely when the government’s coffers are full that fiscal policy should reflect the implications of its actions for overall economic stability and the sustainability of public finances. The extension of statutory pension benefits outlined in the coalition agreement runs counter to the idea of sustainability.”
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Does It Pay to Get Connected? An Examination of Bank Alliance Network and Bond Spread
Journal of Economics and Business,
This paper examines the effects of bank alliance network on bonds issued by European banks during the period 1990–2009. We construct six measures capturing different dimensions of banks’ network characteristics. In opposition to the results obtained for non-financial firms, our findings indicate that being part of a network does not create value for bank’s bondholders, indicating a dark side effect of strategic alliances in the banking sector. While being part of a network is perceived as a risk-increasing event by market participants, this negative perception is significantly lower for the larger banks, and, to a lesser extent, for the more profitable banks. Moreover, during crisis times, the positive impact on bond spread of a bank’s higher centrality or of a bank’s higher connectedness in the network is stronger, indicating that market participants may fear spillover effects within the network during periods of banks’ heightened financial fragility.
How Do Political Factors Shape the Bank Risk-Sovereign Risk Nexus in Emerging Markets?
Review of Development Economics,
This paper studies the role of political factors for determining the impact of banking sector distress on sovereign bond yield spreads for a sample of 19 emerging market economies in the period 1994–2013. Using interaction models, I find that the adverse impact of banking sector distress on sovereign solvency is less pronounced for countries with a high degree of political stability, a high level of power sharing within the government coalition, a low level of political constraint within the political system, and for countries run by powerful and effective governments. The electoral cycle pronounces the bank risk–sovereign risk transfer.
06.07.2017 • 28/2017
Politicians share responsibility for the risk of their state defaulting
Investors assume higher risks of default when a country is politically unstable or governed by a party at the left or right end of the political spectrum. However, according to findings obtained by Stefan Eichler from the Halle Institute for Economic Research (IWH), the more democratic the country is and the more it is integrated into the global economy, the lower is the impact that such political factors have.
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09.03.2017 • 12/2017
Comment: Keep cool and be prepared – IWH president Gropp on the ECB’s interest rates decision
”The European Central Bank (ECB) decided to keep interest rates unchanged today. No surprise here. But Mario Draghi unfortunately did not provide a signal to markets that the ECB may be moving on interest rates in the foreseeable future. “This is a reasonable decision, but also a missed opportunity”, Reint E. Gropp, president of the Halle Institute for Economic Research (IWH) – Member of the Leibniz Association, says. “An ECB increase interest rate move must be well prepared, and today’s press conference would have been an opportunity to prepare markets for the fact that interest rates cannot stay where they are forever.”
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02.09.2016 • 35/2016
The German Economy: Still Robust Despite Sliding Sentiment
The prospects for the German economy are still quite favorable. While sentiment indicators suggest that growth will slow at the end of the year, domestic demand will continue on an upward trend. The German GDP should increase by 1.9% in 2016. For 2017 we expect a lower growth rate of 1.2%“Weaker export volumes and higher growth of imports are the relevant factors for the slowdown”, says Prof Oliver Holtemöller, IWH Vice president. Unemployment will rise a bit as more refugees enter the labor market. Consumer price inflation remains moderate. The general government balance (cyclically ad¬justed as well as unadjusted) will be in surplus in both 2016 and 2017.
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