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Sovereign Stress, Banking Stress, and the Monetary Transmission Mechanism in the Euro Area
IWH Discussion Papers,
In this paper, we investigate to what extent sovereign stress and banking stress have contributed to the increase in the level and in the heterogeneity of non-financial firms’ financing costs in the Euro area during the European debt crisis and how both have affected the monetary transmission mechanism. Employing a large firm-level data set containing two million observations, we are able to identify the effect of government bond yield spreads (sovereign stress) and the share of non-performing loans (banking stress) on firms‘ financing costs in a panel model by assuming that idiosyncratic shocks to individual firms are uncorrelated with country-specific variables. We find that the two sources of stress have increased firms’ financing costs controlling for country and firm-specific factors. Moreover, we estimate both to have significantly impaired the monetary transmission mechanism.
Who Benefits from GRW? Heterogeneous Employment Effects of Investment Subsidies in Saxony Anhalt
IWH Discussion Papers,
The paper estimates the plant level employment effects of investment subsidies in one of the most strongly subsidized German Federal States. We analyze the treated plants as a whole, as well as the influence of heterogeneity in plant characteristics and the economic environment. Modifying the standard matching and difference-in-difference approach, we develop a new procedure that is particularly useful for the evaluation of funding programs with individual treatment phases within the funding period. Our data base combines treatment, employment and regional information from different sources. So, we can relate the absolute effects to the amount of the subsidy paid. The results suggest that investment subsidies have a positive influence on the employment development in absolute and standardized figures – with considerable effect heterogeneity.
15.06.2017 • 26/2017
Ailing banks increase leverage of ailing firms
Euro area countries such as Greece and Spain continue to struggle not only with their banks, but also with highly indebted domestic firms. Michael Koetter from the Halle Institute for Economic Research (IWH) and co-authors show the failure to resolve banks’ financial difficulties also prevents debt reduction of over-leveraged firms – and sometimes even contributes to increasing leverage of the weakest firms.
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