Financial Technologies and the Effectiveness of Monetary Policy Transmission
Iftekhar Hasan, Boreum Kwak, Xiang Li
Abstract
This study investigates whether and how financial technologies (FinTech) influence the effectiveness of monetary policy transmission. We use an interacted panel vector autoregression model to explore how the effects of monetary policy shocks change with regional-level FinTech adoption. Results indicate that FinTech adoption generally mitigates the transmission of monetary policy to real GDP, consumer prices, bank loans, and housing prices, with the most significant impact observed in the weakened transmission to bank loan growth. The relaxed financial constraints, regulatory arbitrage, and intensified competition are the possible mechanisms underlying the mitigated transmission.
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The Viral Effects of Foreign Trade and Supply Networks in the Euro Area
Virginia di Nino, Bruno Veltri
IWH-CompNet Discussion Papers,
No. 4,
2020
Abstract
Containment measures of COVID-19 have generated a chain of supply and demand shocks around the globe with heterogeneous fallout across industries and countries. We quantify their transmission via foreign trade with a focus on the euro area where deep firms integration within regional supply chains and strong demand linkages act as a magnification mechanism. We estimate that spillover effects in the euro area from suppression measures in one of the five main euro area countries range between 15-28% the size of the original shock; negative foreign demand shocks depress euro area aggregate activity by about a fifth the size of the external shock and a fourth of the total effect is due to indirect propagation through euro area supply chain. Last, reopening to regional tourism softened the contraction of aggregate activity due to travel and tourism bans by about a third in the euro area. Our findings suggest that enhanced coordination of recovery plans would magnify their beneficial effects.
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Decentralisation of Collective Bargaining: A Path to Productivity?
Daniele Aglio, Filippo di Mauro
IWH-CompNet Discussion Papers,
No. 3,
2020
Abstract
Productivity developments have been rather divergent across EU countries and particularly between Central Eastern Europe (CEE) and elsewhere in the continent (non-CEE). How is such phenomenon related to wage bargaining institutions? Starting from the Great Financial Crisis (GFC) shock, we analyse whether the specific set-up of wage bargaining prevailing in non-CEE may have helped their respective firms to sustain productivity in the aftermath of the crisis. To tackle the issue, we merge the CompNet dataset – of firm-level based productivity indicators – with the Wage Dynamics Network (WDN) survey on wage bargaining institutions. We show that there is a substantial difference in the institutional set-up between the two above groups of countries. First, in CEE countries the bulk of the wage bargaining (some 60%) takes place outside collective bargaining schemes. Second, when a collective bargaining system is adopted in CEE countries, it is prevalently in the form of firm-level bargaining (i. e. the strongest form of decentralisation), while in non-CEE countries is mostly subject to multi-level bargaining (i. e. an intermediate regime, only moderately decentralised). On productivity impacts, we show that firms’ TFP in the non-CEE region appears to have benefitted from the chosen form of decentralisation, while no such effects are detectable in CEE countries. On the channels of transmission, we show that decentralisation in non-CEE countries is also negatively correlated with dismissals and with unit labour costs, suggesting that such collective bargaining structure may have helped to better match workers with firms’ needs.
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Trade Effects of Silver Price Fluctuations in 19th-Century China: A Macro Approach
Makram El-Shagi, Lin Zhang
China Economic Journal,
2020
Abstract
We assess the role of silver price fluctuations in Chinese trade and GDP during the late Qing dynasty, when China still had a bimetallic (silver/copper) monetary system, in which silver was mostly used for international trade. Using a structural VAR (SVAR) with blockwise recursive identification, we identify the impact of silver price shocks on the Chinese economy from 1867, when trade data became available, to 1910, one year before the Qing dynasty collapsed. We find that silver price shocks had a sizable impact on both imports and exports but only a very minor effect on the trade balance, only a marginal impact on growth, and almost no effect on domestic prices. Stronger effects were partly mitigated by inelastic export quantities. Generally, the effect of silver price shocks, while considerable, was only short-lived, displaying no persistence in either direction. We find that the bimetallic system in Qing China might have mitigated a potential positive effect of silver depreciation but did not reverse the effect, which – contrary to claims made in the previous literature – was responsible for neither the worsening trade balance nor the inflation and the quickly increasing imports that occurred during our sample period.
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Lokaler Schock trifft lokale Bank: Die Folgen der Hochwasser des Jahres 2013 für das deutsche Finanzsystem
Benjamin Freudenstein, Michael Koetter, Felix Noth
Wirtschaft im Wandel,
No. 2,
2020
Abstract
Welche Auswirkungen makroökonomische Schocks in Form von Naturkatastrophen auf Banken haben und welche realwirtschaftlichen Implikationen sich daraus ergeben können, wurde unter dem Titel „Katrina und die Folgen: Sicherere Banken und positive Produktionseffekte“ bereits an früherer Stelle in der „Wirtschaft im Wandel“ dargestellt. Daran anknüpfend stellt dieser Artikel einen Forschungsbeitrag vor, der die Folgen der Hochwasser des Jahres 2013 in Deutschland für die Sparkassen und Genossenschaftsbanken und deren Unternehmenskunden untersucht. Im Mittelpunkt steht die Frage, ob lokale Banken die negativen Effekte des Hochwassers mildern, indem sie die Kreditvergabe an Unternehmen ausweiten. Der Befund ist erstens, dass Banken, die Beziehungen zu betroffenen Unternehmen haben, ihre Kreditvergabe um 3% relativ zu Banken ohne Beziehungen zu betroffenen Unternehmen ausweiten, und zweitens, dass bei Sparkassen mit Zugang zu nicht betroffenen regionalen Märkten keine signifikante Erhöhung des Kreditrisikos zu beobachten ist. Ein gegenüber regionalen Katastrophen widerstandsfähiges Finanzsystem sollte somit aus lokalen Banken bestehen, die gleichwohl überregional verbunden sind, damit ausreichende Möglichkeiten zur Diversifikation bestehen.
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Borrowers Under Water! Rare Disasters, Regional Banks, and Recovery Lending
Michael Koetter, Felix Noth, Oliver Rehbein
Journal of Financial Intermediation,
July
2020
Abstract
We show that local banks provide corporate recovery lending to firms affected by adverse regional macro shocks. Banks that reside in counties unaffected by the natural disaster that we specify as macro shock increase lending to firms inside affected counties by 3%. Firms domiciled in flooded counties, in turn, increase corporate borrowing by 16% if they are connected to banks in unaffected counties. We find no indication that recovery lending entails excessive risk-taking or rent-seeking. However, within the group of shock-exposed banks, those without access to geographically more diversified interbank markets exhibit more credit risk and less equity capital.
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Tornado Activity, House Price and Stock Returns
Michael Donadelli, Michael Ghisletti, Marcus Jüppner, Antonio Paradiso
North American Journal of Economics and Finance,
April
2020
Abstract
In this paper we investigate the effects of tornado activity on house prices and stock returns in the US. First, using geo-referenced and metropolitan statistical area (MSA)-level data, we find tornado activity to be responsible for a significant drop in house prices. Spillover tornado effects between adjacent MSAs are also detected. Furthermore, our granular analysis provides evidence of tornadoes having a negative impact on stock returns. However, only two sectors seem to contribute to such a negative effect (i.e., consumer discretionary and telecommunications). In a macro-analysis, which relies on aggregate data for the South, West, Midwest and Northeast US regions, we then show that tornado activity generates a significant drop in house prices only in the South and Midwest. In these regions, tornadoes are also responsible for a drop in income. Tornado activity is finally found to positively (negatively) affect stock returns in the Midwest (South). If different sectors are examined, a more heterogeneous picture emerges.
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01.04.2019 • 8/2019
Bank profitability increases after eliminating consolidation barriers
When two banks merge because political consolidation barriers are abolished, the combined entity is considerably more profitable and useful to the real economy. This is the headline result of an analysis of compulsory savings banks mergers carried out by the Halle Institute for Economic Research (IWH). The study yields important insights for the German and the European banking market.
Michael Koetter
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Banks Fearing the Drought? Liquidity Hoarding as a Response to Idiosyncratic Interbank Funding Dry-ups
Helge Littke, Matias Ossandon Busch
IWH Discussion Papers,
No. 12,
2018
Abstract
Since the global financial crisis, economic literature has highlighted banks’ inclination to bolster up their liquid asset positions once the aggregate interbank funding market experiences a dry-up. To this regard, we show that liquidity hoarding and its detrimental effects on credit can also be triggered by idiosyncratic, i.e. bankspecific, interbank funding shocks with implications for monetary policy. Combining a unique data set of the Brazilian banking sector with a novel identification strategy enables us to overcome previous limitations for studying this phenomenon as a bankspecific event. This strategy further helps us to analyse how disruptions in the bank headquarters’ interbank market can lead to liquidity and lending adjustments at the regional bank branch level. From the perspective of the policy maker, understanding this market-to-market spillover effect is important as local bank branch markets are characterised by market concentration and relationship lending.
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Channeling the Iron Ore Super-cycle: The Role of Regional Bank Branch Networks in Emerging Markets
Helge Littke
IWH Discussion Papers,
No. 11,
2018
Abstract
The role of the financial system to absorb and to intermediate commodity boom induced windfall gains efficiently presents one of the most pressing issues for developing economies. Using an exogenous increase in iron ore prices in March 2005, I analyse the role of regional bank branch networks in Brazil in reallocating capital from affected to non-affected regions. For the period from March 2004 to March 2006, I find that branches directly exposed to this shock by their geographical location experience an increase in deposit growth in the post-shock period relative to non-affected branches. Given that these deposits are not reinvested locally, I further show that branches located in the non-affected region increase lending growth depending on their indirect exposure to the booming regions via their branch network. Even tough, these results provide evidence against a Dutch Disease type crowding out of the non-iron ore sector, further evidence suggests that this capital reallocation is far from being optimal.
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