The Impact of Active Aggregate Demand on Utilisation-adjusted TFP
Konstantin Gantert
IWH Discussion Papers,
Nr. 9,
2022
Abstract
Non-clearing goods markets are an important driver of capacity utilisation and total factor productivity (TFP). The trade-off between goods prices and household search effort is central to goods market matching and therefore drives TFP over the business cycle. In this paper, I develop a New-Keynesian DSGE model with capital utilisation, worker effort, and expand it with goods market search-and-matching (SaM) to model non-clearing goods markets. I conduct a horse-race between the different capacity utilisation channels using Bayesian estimation and capacity utilisation survey data. Models that include goods market SaM improve the data fit, while the capital utilisation and worker effort channels are rendered less important compared to the literature. It follows that TFP fluctuations increase for demand and goods market mismatch shocks, while they decrease for technology shocks. This pattern increases as goods market frictions increase and as prices become stickier. The paper shows the importance of non-clearing goods markets in explaining the difference between technology and TFP over the business cycle.
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The Effects of Sovereign Risk: A High Frequency Identification Based on News Ticker Data
Ruben Staffa
IWH Discussion Papers,
Nr. 8,
2022
Abstract
This paper uses novel news ticker data to evaluate the effect of sovereign risk on economic and financial outcomes. The use of intraday news enables me to derive policy events and respective timestamps that potentially alter investors’ beliefs about a sovereign’s willingness to service its debt and thereby sovereign risk. Following the high frequency identification literature, in the tradition of Kuttner (2001) and Guerkaynak et al. (2005), associated variation in sovereign risk is then obtained by capturing bond price movements within narrowly defined time windows around the event time. I conduct the outlined identification for Italy since its large bond market and its frequent coverage in the news render it a suitable candidate country. Using the identified shocks in an instrumental variable local projection setting yields a strong instrument and robust results in line with theoretical predictions. I document a dampening effect of sovereign risk on output. Also, borrowing costs for the private sector increase and inflation rises in response to higher sovereign risk.
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Globalization, Productivity Growth, and Labor Compensation
Christian Dreger, Marius Fourné, Oliver Holtemöller
IWH Discussion Papers,
Nr. 7,
2022
Abstract
We analyze how changes in international trade integration affect productivity and the functional income distribution. To account for endogeneity, we construct a leaveout measure for international trade integration for country-industry pairs using international input-output tables. Our findings corroborate on the country-industry level that international trade integration increases productivity. Moreover, we show that both trade in intermediate inputs and trade in value added is associated with lower labor shares in emerging markets. For advanced countries, we document a positive effect of trade in value added on the labor share of income. Further, we show that the effects on productivity and labor share are heterogeneous across different sectors. Finally, we discuss the implications of our results for a possible throwback in international trade integration due to experiences from recent crises.
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Income, Trading, and Performance: Evidence from Retail Investors
Dien Giau Bui, Chih-Yung Lin, Iftekhar Hasan, Rui-Xiang Zhai
Journal of Empirical Finance,
March
2022
Abstract
We examine whether household income influences the trading styles of retail investors and their investment performance. To investigate this question, we use a unique dataset of branch-level trading that contains all retail investors and observe that those investors with high income trade more and earn significantly higher returns in the stock market. In addition, this income effect becomes stronger for highly risky stocks, such as gambling or lottery-like stocks. These findings are in line with the information model theorized by Peress (2004) in which wealthy investors take extra risks by trading more stocks.
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Firm-level Employment, Labour Market Reforms, and Bank Distress
Ralph Setzer, Moritz Stieglitz
Journal of International Money and Finance,
February
2022
Abstract
We explore the impact of financial frictions on the employment effect of labour market reforms. Our study combines a new cross-country reform database on labour market reforms with matched firm-bank data for nine euro area countries over the period 1999 to 2013. While we find that labour market reforms are overall effective in increasing employment, restricted access to bank credit can undo up to half of medium to long-term employment gains at the firm-level. Entrepreneurs without sufficient access to credit cannot reap the full benefits of more flexible employment regulation.
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The Real Effects of Universal Banking: Does Access to the Public Debt Market Matter?
Stefano Colonnello
Journal of Financial Services Research,
February
2022
Abstract
I analyze the impact of the formation of universal banks on corporate investment by looking at the gradual dismantling of the Glass-Steagall Act’s separation between commercial and investment banking. Using a sample of US firms and their relationship banks, I show that firms curtail debt issuance and investment after positive shocks to the underwriting capacity of their main bank. This result is driven by unrated firms and is strongest immediately after a shock. These findings suggest that universal banks may pay more attention to large firms providing more underwriting opportunities while exacerbating financial constraints of opaque firms, in line with a shift to a banking model based on transactional lending.
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Banking Deregulation and Consumption of Home Durables
H. Evren Damar, Ian Lange, Caitlin McKennie, Mirko Moro
IWH Discussion Papers,
Nr. 4,
2022
Abstract
We exploit the spatial and temporal variation of the staggered introduction of interstate banking deregulation across the U.S. to study the relationship between credit constraints and consumption of durables. Using the American Housing Survey from 1981 to 1989, we link the timing of these reforms with evidence of a credit expansion and household responses on many margins. We find evidence that low-income households are more likely to purchase new appliances after the deregulation. These durable goods allowed households to consume less natural gas and spend less time in domestic activities after the reforms.
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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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Gift-Exchange in Society and the Social Integration of Refugees: Evidence from a Field, a Laboratory, and a Survey Experiment
Sabrina Jeworrek, Bernd Josef Leisen, Vanessa Mertins
Journal of Economic Behavior and Organization,
December
2021
Abstract
Refugee integration requires broad support from the host society, but only a minority is actively engaged. Given that most individuals reciprocate kind behavior, we examine the idea that the proportion of supporters will increase as a reciprocal response to refugees’ contributions to society through volunteering. Our nationwide survey experiment shows that citizens’ intentions to contribute time and money rise significantly when they learn about refugees’ pro-social activities. However, we find a substantial heterogeneity in the observed treatment effects. Individuals with a high reciprocal inclination show higher willingness to contribute time, while individuals with a lower reciprocal inclination are ready to contribute money after learning about the refugees' good deeds. Information regarding the possibility to establish a mutual support relationship with the refugees does not generally increase the willingness to contribute time or money beyond the information on refugees’ general contributions to the society. We complement this investigation with experiments in the lab and the field that confirm our findings for actual behavior.
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Executive Equity Risk-Taking Incentives and Firms’ Choice of Debt Structure
Iftekhar Hasan, Walid Saffar, Yangyang Chen, Leon Zolotoy
Journal of Banking and Finance,
December
2021
Abstract
We examine how executive equity risk-taking incentives affect firms’ choice of debt structure. Using a longitudinal sample of U.S. firms, we document that when executive compensation is more sensitive to stock volatility (i.e., has higher vega), firms reduce their reliance on bank debt financing. We utilize the passage of the Financial Accounting Standard (FAS) 123R option-expensing regulation as an exogenous shock to management option compensation to account for potential endogeneity. In cross-sectional analyses, we find that the documented effect of vega is amplified among firms with higher growth opportunities and more opaque financial information; we also find vega's effect is mitigated in firms with limited abilities to tap into public debt market. Supplemental analyses suggest that firms with higher vega face more stringent bank loan covenants. We conclude that, by encouraging risk-taking, higher vega reduces firms’ reliance on bank debt financing in order to avoid more stringent bank monitoring.
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