Dynamic Equity Slope
Matthijs Breugem, Stefano Colonnello, Roberto Marfè, Francesca Zucchi
Working Papers University of Venice "Ca' Foscari",
No. 21,
2020
Abstract
The term structure of equity and its cyclicality are key to understand the risks drivingequilibrium asset prices. We propose a general equilibrium model that jointly explainsfour important features of the term structure of equity: (i) a negative unconditionalterm premium, (ii) countercyclical term premia, (iii) procyclical equity yields, and (iv)premia to value and growth claims respectively increasing and decreasing with thehorizon. The economic mechanism hinges on the interaction between heteroskedasticlong-run growth — which helps price long-term cash flows and leads to countercyclicalrisk premia — and homoskedastic short-term shocks in the presence of limited marketparticipation — which produce sizeable risk premia to short-term cash flows. The slopedynamics hold irrespective of the sign of its unconditional average. We provide empir-ical support to our model assumptions and predictions.
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16.09.2020 • 18/2020
Economy recovers from the shutdown – but a quick return to pre-crisis normality is unlikely
The German economy has bounced back strongly over the summer, recovering a considerable part of the production slump caused by the shutdown in spring. Nevertheless, real gross domestic product in 2020 is likely to contract by 5.7%. In 2021, growth is expected to average 3.2% according to IWH autumn economic forecast. The decline in production in 2020 is likely to be less pronounced in East Germany com¬pared to Germany as a whole.
Oliver Holtemöller
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07.09.2020 • 17/2020
IWH Bankruptcy Update: Bankruptcies Hit New Low; New Outlook Feature
The number of companies reporting bankruptcy in Germany sank to a new low in August. Associated job losses also declined noticeably, following marked increases in prior months. Published by the Halle Institute for Economic Research, the IWH Bankruptcy Update provides monthly statistics on corporate bankruptcies in Germany. Starting this month, the update will also feature a two-month outlook.
Steffen Müller
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06.08.2020 • 15/2020
IWH Bankruptcy Update: Number of Employees Affected by Bankruptcy Continues to Rise in Germany
In July, more than three times as many jobs were impacted by corporate bankruptcies in Germany in comparison to the monthly averages from early 2020. The July figure was also significantly higher in relation to the previous month. By contrast, the number of bankruptcies fell slightly. These are the main findings of the most recent IWH Bankruptcy Update published by the Halle Institute for Economic Research (IWH), which provides monthly reports on German bankruptcies.
Steffen Müller
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The Effects of German Regional Policy – Evidence at the Establishment Level
Matthias Brachert, Hans-Ulrich Brautzsch, Eva Dettmann, Alexander Giebler, Lutz Schneider, Mirko Titze
IWH Online,
No. 5,
2020
Abstract
The “Joint Task ‘Improving Regional Economic Structures’ (GRW)” represents the most important regional policy scheme in Germany. The program provides non-repayable grants as a share of total investment costs to establishments (and municipalities) in structurally weak regions. The definition of eligible areas is based on i) a composite indicator measuring regional structural weakness and ii) a threshold determined by the European Union consisting of the population share of the respective country that lives in assisted regions. Responsible for the selection of the supported projects is the respective Federal State in which the GRW project is applied for.
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03.07.2020 • 12/2020
IWH Bankruptcy Update: Much more jobs affected by corporate bankruptcy in Germany
The number of corporate bankruptcies declines but, compared to the beginning of the year, the number of affected employees per month recently doubled. This is the latest insight from the IWH Bankruptcy Update provided monthly by the Halle Institute for Economic Research (IWH).
Steffen Müller
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01.07.2020 • 11/2020
New Horizon 2020 project: The Challenge of the Social Impact of Energy Transitions
Funded by the European Commission’s Framework Programme Horizon 2020, the ENTRANCES project recently closed its kick-off meeting with a high scientific and institutional participation, and taking on the challenge of modeling the social impact of the energy transition.
Oliver Holtemöller
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16.06.2020 • 9/2020
The economy adapts to the pandemic
In the first half of 2020, the pandemic has exacted a heavy toll on the German economy, causing a slump in production that will not be fully recovered within the next year. According to IWH summer economic forecast, gross domestic product is expected to contract by 5.1% in 2020 and to increase by 3.2% in 2021. The decline in production in Eastern Germany is likely to be less pronounced compared to Germany as a whole and estimated at 3.2% in 2020.
Oliver Holtemöller
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05.06.2020 • 8/2020
IWH Bankruptcy Update: Increase in large firm bankruptcies
With overall corporate bankruptcies remaining constant, ever more employees are subject to employer bankruptcy in Germany. This is the latest insight from the IWH Bankruptcy Update provided monthly by the Halle Institute for Economic Research (IWH).
Steffen Müller
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Transmitting Fiscal Covid-19 Counterstrikes Effectively: Mind the Banks!
Reint E. Gropp, Michael Koetter, William McShane
IWH Online,
No. 2,
2020
Abstract
The German government launched an unprecedented range of support programmes to mitigate the economic fallout from the Covid-19 pandemic for employees, self-employed, and firms. Fiscal transfers and guarantees amount to approximately €1.2 billion by now and are supplemented by similarly impressive measures taken at the European level. We argue in this note that the pandemic poses, however, also important challenges to financial stability in general and bank resilience in particular. A stable banking system is, in turn, crucial to ensure that support measures are transmitted to the real economy and that credit markets function seamlessly. Our analysis shows that banks are exposed rather differently to deteriorated business outlooks due to marked differences in their lending specialisation to different economic sectors. Moreover, a number of the banks that were hit hardest by bleak growth prospects of their borrowers were already relatively thinly capitalised at the outset of the pandemic. This coincidence can impair the ability and willingness of selected banks to continue lending to their mostly small and medium sized entrepreneurial customers. Therefore, ensuring financial stability is an important pre-requisite to also ensure the effectiveness of fiscal support measures. We estimate that contracting business prospects during the first quarter of 2020 could lead to an additional volume of non-performing loans (NPL) among the 40 most stressed banks ‒ mostly small, regional relationship lenders ‒ on the order of around €200 million. Given an initial stock of NPL of €650 million, this estimate thus suggests a potential level of NPL at year-end of €1.45 billion for this fairly small group of banks already. We further show that 17 regional banking markets are particularly exposed to an undesirable coincidence of starkly deteriorating borrower prospects and weakly capitalised local banks. Since these regions are home to around 6.8% of total employment in Germany, we argue that ensuring financial stability in the form of healthy bank balance sheets should be an important element of the policy strategy to contain the adverse real economic effects of the pandemic.
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