Employment Effects of Investment Grants and Firm Heterogeneity – Evidence from a Staggered Adoption Approach
Eva Dettmann, Mirko Titze, Antje Weyh
IWH Discussion Papers,
Nr. 6,
2023
Abstract
This study estimates the establishment-level employment effects of investment grants in Germany. In addition to the average treatment effect for the treated, we focus on discrimination in the funding rules as potential source of effect heterogeneity. We combine the difference-in-differences approach of Callaway and Sant’Anna (2021) that explicitly models variation in treatment timing with a ties matching at the cohort level. We observe a positive effect of investment grants on employment development in the full sample. The subsample analysis yields strong evidence for effect heterogeneity due to firm characteristics and the economic environment.
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Measuring Market Expectations
Christiane Baumeister
Handbook of Economic Expectations,
November
2022
Abstract
Asset prices are a valuable source of information about financial market participants' expectations about key macroeconomic variables. However, the presence of time-varying risk premia requires an adjustment of market prices to obtain the market's rational assessment of future price and policy developments. This paper reviews empirical approaches for recovering market-based expectations. It starts by laying out the two canonical modeling frameworks that form the backbone for estimating risk premia and highlights the proliferation of risk pricing factors that result in a wide range of different asset-price-based expectation measures. It then describes a key methodological innovation to evaluate the empirical plausibility of risk premium estimates and to identify the most accurate market-based expectation measure. The usefulness of this general approach is illustrated for price expectations in the global oil market. Then, the paper provides an overview of the body of empirical evidence for monetary policy and inflation expectations with a special emphasis on market-specific characteristics that complicate the quest for the best possible market-based expectation measure. Finally, it discusses a number of economic applications where market expectations play a key role for evaluating economic models, guiding policy analysis, and deriving shock measures.
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Firm Subsidies, Financial Intermediation, and Bank Stability
Aleksandr Kazakov, Michael Koetter, Mirko Titze, Lena Tonzer
IWH Discussion Papers,
Nr. 24,
2022
Abstract
We use granular project-level information for the largest regional economic development program in German history to study whether government subsidies to firms affect the quantity and quality of bank lending. We combine the universe of recipient firms under the Improvement of Regional Economic Structures program (GRW) with their local banks during 1998-2019. The modalities of GRW subsidies to firms are determined at the EU level. Therefore, we use it to identify bank outcomes. Banks with relationships to more subsidized firms exhibit higher lending volumes without any significant differences in bank stability. Subsidized firms, in turn, borrow more indicating that banks facilitate regional economic development policies.
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Firm Subsidies, Financial Intermediation, and Bank Risk
Aleksandr Kazakov, Michael Koetter, Mirko Titze, Lena Tonzer
Abstract
We study whether government subsidies can stimulate bank funding of marginal investment projects and the associated effect on financial stability. We do so by exploiting granular project-level information for the largest regional economic development programme in Germany since 1997: the Improvement of Regional Economic Structures programme (GRW). By combining the universe of subsidised firms to virtually all German local banks over the period 1998-2019, we test whether this large-scale transfer programme destabilised regional credit markets. Because GRW subsidies to firms are destabilised at the EU level, we can use it as an exogenous shock to identify bank responses. On average, firm subsidies do not affect bank lending, but reduce banks’ distance to default. Average effects conflate important bank-level heterogeneity though. Conditional on various bank traits, we show that well capitalised banks with more industry experience expand lending when being exposed to subsidised firms without exhibiting more risky financial profiles. Our results thus indicate that stable banks can act as an important facilitator of regional economic development policies. Against the backdrop of pervasive transfer payments to mitigate Covid-19 losses and in light of far-reaching transformation policies required to green the economy, our study bears important implications as to whether and which banks to incorporate into the design of transfer Programmes.
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Corporate Loan Spreads and Economic Activity
Anthony Saunders, Alessandro Spina, Sascha Steffen, Daniel Streitz
SSRN Working Paper,
2021
Abstract
We use secondary corporate loan-market prices to construct a novel loan-market-based credit spread. This measure has considerable predictive power for economic activity across macroeconomic outcomes in both the U.S. and Europe and captures unique information not contained in public market credit spreads. Loan-market borrowers are compositionally different and particularly sensitive to supply-side frictions as well as financial frictions that emanate from their own balance sheets. This evidence highlights the joint role of financial intermediary and borrower balance-sheet frictions in understanding macroeconomic developments and enriches our understanding of which type of financial frictions matter for the economy.
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Finance-Growth Nexus and Banking Efficiency: The Impact of Microfinance Institutions
Afsheen Abrar, Iftekhar Hasan, Rezaul Kabir
Journal of Economics and Business,
March-April
2021
Abstract
This paper investigates the relative importance of microfinance institutions (MFIs) at both the macro (financial development, economic growth, income inequality, and poverty) and micro levels (efficiency of traditional commercial banks). We observe a significant impact on most of the fronts. MFIs’ participation increases overall savings (total bank deposits) and credit allocation (loans to private sector) in the economy. Their involvement enhances economic welfare by reducing income inequality and poverty. Additionally, their active presence helps to discipline the traditional commercial banks by subjecting them to more competition triggering higher efficiency.
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What Drives the Commodity-Sovereign Risk Dependence in Emerging Market Economies?
Hannes Böhm, Stefan Eichler, Stefan Gießler
Journal of International Money and Finance,
March
2021
Abstract
Using daily data for 34 emerging markets in the period 1994–2016, we find robust evidence that higher export commodity prices are associated with lower sovereign default risk, as measured by lower EMBI spreads. The economic effect is especially pronounced for heavy commodity exporters. Examining the drivers, we find that, first, commodity dependence is higher for countries that export large volumes of commodities, whereas other portfolio characteristics like volatility or concentration are less important. Second, commodity-sovereign risk dependence increases in times of recessions and expansionary U.S. monetary policy. Third, the importance of raw material prices for sovereign financing can likely be mitigated if a country improves institutions and tax systems, attracts FDI inflows, invests in manufacturing, machinery and infrastructure, builds up reserve assets and opens capital and trade accounts. Fourth, the country’s government indebtedness or amount of received development assistance appear to be only of secondary importance for commodity dependence.
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Regional Effects of Professional Sports Franchises – Causal Evidence from Four European Football Leagues
Matthias Brachert
Regional Studies,
Nr. 2,
2021
Abstract
The locational pattern of clubs in four professional football leagues in Europe is used to test the causal effect of relegations on short-run regional development. The study relies on the relegation mode of the classical round-robin tournament in the European model of sport to develop a regression-discontinuity design. The results indicate small and significant negative short-term effects on regional employment and output in the sports-related economic sector. In addition, small negative effects on overall regional employment growth are found. Total regional gross value added remains unaffected.
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