Political Ties and the Yield Curve
We examine the effect of political ties with the US on sovereign yields and ratings at various horizons. We find beneficial effects across both short- and long-term yields and ratings. Specifically, we find that stronger political ties with the US affect mainly the level of the yield curve of foreign sovereign bonds. These results imply that the market perceives political ties with the US as having both near- and long-term beneficial consequences.
What Explains International Interest Rate Co-Movement?
IWH Discussion Papers,
We show that global supply and demand shocks are important drivers of interest rate co-movement across seven advanced economies. Beyond that, local structural shocks transmit internationally via aggregate demand channels, and central banks react predominantly to domestic macroeconomic developments: unexpected monetary policy tightening decreases most foreign interest rates, while expansionary local supply and demand shocks increase them. To disentangle determinants of international interest rate co-movement, we use a Bayesian structural panel vector autoregressive model accounting for latent global supply and demand shocks. We identify country-specific structural shocks via informative prior distributions based on a standard theoretical multi-country open economy model.
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Globalisation, Productivity Growth, and Labour Compensation
IWH Discussion Papers,
Since the onset of globalisation, production activities have become increasingly fragmented and organised in global value chains (GVC). These networks facilitate trade in intermediaries across industrial sectors and countries and change the conditions for policies to respond to shocks. In this paper, we contribute to the understanding of the effects of GVC on productivity and labour shares in advanced and emerging economies. As indicators for globalisation we use the foreign share in intermediate inputs and the foreign share in value added, extracted from international input output tables. Estimates based on local projections reveal a positive relationship between globalisation and productivity. Moreover, we are able to reject the hypothesis that a higher degree of international integration in country-industry pairs is negatively associated with the change in the labour share for advanced countries.
Delay Determinants of European Banking Union Implementation
European Journal of Political Economy,
Most countries in the European Union (EU) delay the transposition of European Commission (EC) directives, which aim at reforming banking supervision, resolution, and deposit insurance. We compile a systematic overview of these delays to investigate if they result from strategic considerations of governments conditional on the state of their financial, regulatory, and political systems. Transposition delays pertaining to the three Banking Union directives differ considerably across the 28 EU members. Bivariate regression analyses suggest that existing national bank regulation and supervision drive delays the most. Political factors are less relevant. These results are qualitatively insensitive to alternative estimation methods and lag structures. Multivariate analyses highlight that well-stocked deposit insurance schemes speed-up the implementation of capital requirements, banking systems with many banks are slower in implementing new bank rescue and resolution rules, and countries with a more intensive sovereign-bank nexus delay the harmonization of EU deposit insurance more.