On September 25th, financial economists from all over the world travelled for the 11th time to Halle (Saale) to attend the annual FIN-FIRE Workshop at IWH. During two days, authors of ten papers covered a comprehensive overview of contemporary issues that pose potential challenges to the financial system, including data privacy in mortgage markets, climate risks in bond markets, synthetic risk transfers, the effects of geopolitical risks for lending, as well as granular perspectives on the transmission of monetary policy. An intense exchange of thoughts between authors, discussants, and the audience yielded genuinely new insights into the resilience and fragility of financial systems. 

We study the aggregate, distributional, and welfare effects of fiscal policy responses to Germany’s energy crisis arising in 2022 using a novel ten-agent new Keynesian (TENK) model. The crisis, compounded by the COVID-19 pandemic, led to sharp price increases and significant consumption disparities. Our model, calibrated to Germany’s income and consumption distribution, evaluates key policy interventions. We find that untargeted transfers had the largest short-term aggregate impact, while targeted transfers for lower-income households were most cost-effective. Other instruments yielded comparably limited welfare gains. The results highlight how targeted fiscal measures can address distributional effects and stabilize consumption during crises.

Our results reveal that higher lending spreads between foreign and home markets redirect real estate backed lending towards foreign markets offering a higher interest rate, which provides evidence for "search for yield" behavior. This re-allocation is found especially for banks with more expertise on the foreign market due to a higher local activity and holds for commercial and residential real estate backed loans. Furthermore, "search for yield" behavior and a resulting increase in foreign real estate backed lending is found when macroprudential regulation is missing or misaligned between a bank’s country of residence and the destination country. When turning to the question of whether the detected search for yield behavior results in more risk, we find that especially better capitalized banks report higher forbearance ratios as they might face less stigma effects compared to low capitalized banks.