Understanding Post-Covid Inflation Dynamics
Martín Harding, Jesper Lindé, Mathias Trabandt
Journal of Monetary Economics,
forthcoming
Abstract
We propose a macroeconomic model with a nonlinear Phillips curve that has a flat slope when inflationary pressures are subdued and steepens when inflationary pressures are elevated. The nonlinear Phillips curve in our model arises due to a quasi-kinked demand schedule for goods produced by firms. Our model can jointly account for the modest decline in inflation during the Great Recession and the surge in inflation during the post-COVID period. Because our model implies a stronger transmission of shocks when inflation is high, it generates conditional heteroskedasticity in inflation and inflation risk. Hence, our model can generate more sizeable inflation surges due to cost-push and demand shocks than a standard linearized model. Finally, our model implies that the central bank faces a more severe trade-off between inflation and output stabilization when inflation is elevated.
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Credit Supply Shocks: Financing Real Growth or Takeovers?
Tobias Berg, Daniel Streitz, Michael Wedow
Review of Corporate Finance Studies,
forthcoming
Abstract
How do firms invest when financial constraints are relaxed? We document that firms affected by a large positive credit supply shock predominantly increase borrowing for transaction-based purposes. These treated firms have larger asset and employment growth rates; however, growth entirely stems from the increased takeover activity. Announcement returns indicate a low quality of the credit-supply-induced takeover activity. These results offer the possibility that credit-driven growth can simply reflect redistribution, rather than net gains in assets or employment.
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Total Factor Productivity Growth at the Firm-level: The Effects of Capital Account Liberalization
Xiang Li, Dan Su
Journal of International Economics,
forthcoming
Abstract
This study provides firm-level evidence on the effect of capital account liberalization on total factor productivity (TFP) growth. We find that a one standard deviation increase in the capital account openness indicator constructed by Fernández et al. (2016) is significantly associated with a 0.18 standard deviation increase in firms’ TFP growth rates. The productivity-enhancing effects are stronger for sectors with higher external finance dependence and capital-skill complementarity, and are persistent five years after liberalization. Moreover, we show that potential transmission mechanisms include improved financing conditions, greater skilled labor utilization, and technology upgrades. Finally, we document heterogeneous effects across firm size and tradability, and threshold effects with respect to the country's institutional quality.
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Green Investing, Information Asymmetry, and Capital Structure
Shasha Li, Biao Yang
IWH Discussion Papers,
No. 20,
2023
Abstract
We investigate how optimal attention allocation of green-motivated investors changes information asymmetry in financial markets and thus affects firms‘ financing costs. To guide our empirical analysis, we propose a model where investors with heterogeneous green preferences endogenously allocate limited attention to learn market-level or firm-specific fundamental shocks. We find that a higher fraction of green investors in the market leads to higher aggregate attention to green firms. This reduces the information asymmetry of green firms, leading to higher price informativeness and lower leverage. Moreover, the information asymmetry of brown firms and the market increases with the share of green investors. Therefore, greater green attention is associated with less market efficiency. We provide empirical evidence to support our model predictions using U.S. data. Our paper shows how the growing demand for sustainable investing shifts investors‘ attention and benefits eco-friendly firms.
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Regulation and Information Costs of Sovereign Distress: Evidence from Corporate Lending Markets
Iftekhar Hasan, Suk-Joong Kim, Panagiotis Politsidis, Eliza Wu
Journal of Corporate Finance,
October
2023
Abstract
We examine the effect of sovereign credit impairments on the pricing of syndicated loans following rating downgrades in the borrowing firms' countries of domicile. We find that the sovereign ceiling policies used by credit rating agencies create a disproportionately adverse impact on the bounded firms' borrowing costs relative to other domestic firms following their sovereign's rating downgrade. Rating-based regulatory frictions partially explain our results. On the supply-side, loans carry a higher spread when granted from low-capital banks, non-bank lenders, and banks with high market power. We further document an operating demand-side channel, contingent on borrowers' size, financial constraints, and global diversification. Our results can be attributed to the relative bargaining power between lenders and borrowers: relationship borrowers and non-bank dependent borrowers with alternative financing sources are much less affected.
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07.09.2023 • 23/2023
The German economy continues its downturn
High inflation, increased interest rates, weak foreign demand and uncertainty among private households and firms are currently weighing on the German economy. In its autumn forecast, the Halle Institute for Economic Research (IWH) expects gross domestic product (GDP) to decline by 0.5% in 2023 and to increase by 0.9% in 2024.
Oliver Holtemöller
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22.06.2023 • 16/2023
Revival in service sectors, but industrial activity remains weak for the time being
After the recession during winter, the German economy will expand at a moderate pace in the coming quarters and despite higher interest rates, as private consumption will pick up again with slowly declining inflation and increased wage momentum. In its summer forecast, the Halle Institute for Economic Research (IWH) expects gross domestic product to decline by 0.3% in 2023, while growth of 1.7% is forecast for the coming year.
Oliver Holtemöller
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Economic Preferences for Risk-Taking and Financing Costs
Manthos D. Delis, Iftekhar Hasan, Maria Iosifidi, Chris Tsoumas
Journal of Corporate Finance,
June
2023
Abstract
We hypothesize and empirically establish that economic preferences for risk-taking in different subnational regions affect firm financing costs. We study this hypothesis by hand-matching firms' regions worldwide with the corresponding regional economic risk-taking preferences. We first show that higher regional risk-taking is positively associated with several measures of firm risk and investments. Subsequently, our baseline results show that credit and bond pricing increase when risk-taking preferences increase. For the loan of average size and maturity a one-standard-deviation increase in regional risk-taking increases interest expense by $0.54 million USD. We also find that these results are demand (firm)-driven and stronger for firms with more local shareholders.
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Intuit QuickBooks Small Business Index: A New Employment Series for the US, Canada, and the UK
Ufuk Akcigit, Raman Chhina, Seyit Cilasun, Javier Miranda, Eren Ocakverdi, Nicolas Serrano-Velarde
IWH Discussion Papers,
No. 9,
2023
Abstract
Small and young businesses are essential for job creation, innovation, and economic growth. Even most of the superstar firms start their business life small and then grow over time. Small firms have less internal resources, which makes them more fragile and sensitive to macroeconomic conditions. This suggests the need for frequent and real-time monitoring of the small business sector’s health. Previously this was difficult due to a lack of appropriate data. This paper fills this important gap by developing a new Intuit QuickBooks Small Business Index that focuses on the smallest of small businesses with at most 9 workers in the US and the UK and at most 19 workers in Canada. The Index aggregates a sample of anonymous Quick- Books Online Payroll subscriber data (QBO Payroll sample) from 333,000 businesses in the US, 66,000 in Canada, and 25,000 in the UK. After comparing the QBO Payroll sample data to the official statistics, we remove the seasonal components and use a Flexible Least Squares method to calibrate the QBO Payroll sample data against official statistics. Finally, we use the estimated model and the QBO Payroll sample data to generate a near real-time index of economic activity. We show that the estimated model performs well both in-sample and out-of-sample. Additionally, we use this analysis for different regions and industries. Keywords:
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The Impact of Lowering Carbon Emissions on Corporate Labour Investment: A Quasi-Natural Experiment
June Cao, Iftekhar Hasan, Wenwen Li
Energy Economics,
May
2023
Abstract
We examine the impact of low-carbon city (LCC) initiatives on labour investment decisions (quantity, quality, and well-being). Using a time-varying difference-in-differences approach based on staggered implementations of such a pilot program, we report an inefficient outcome - absolute deviation of labour investment from the optimal net hiring – especially for firms in labour-intensive industries and firms with high financial slack or adjustment costs. We, however, observe increased investments in highly skilled personnel and compensated with employee stock ownership, especially by firms under intense pressure to reduce carbon emissions. Such initiatives are also closely associated with the significant enhancement of workplace safety. Overall, LCC helps to upgrade the corporate labour structure by hiring more skilled employees through reduced agency problems and heightened green innovation.
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