Reports of the European Forecasting Network (EFN)
Reports of the European Forecasting Network (EFN) The European Forecasting...
IWH FDI Micro Database
IWH FDI Micro Database The IWH FDI Micro Database (FDI = Foreign Direct...
Financial Literacy and Self-employment ...
Delay Determinants of European Banking Union Implementation ...
About the CIA and a glass of red wine ... Professor Dr Udo Ludwig on the...
When there were almost no flats in Halle yet ... Brigitte Loose about IWH's...
Optimizing Policymakers’ Loss Functions in Crisis Prediction: Before, Within or After? ...
An Evaluation of Early Warning Models for Systemic Banking Crises: Does Machine Learning Improve Predictions? ...
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.
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.