real effects

Top PDF real effects:

The Real Effects of the Bank Lending Channel

The Real Effects of the Bank Lending Channel

Second, to fully analyze the real effects of bank credit supply, including risk-taking, one needs detailed loan level data on both loan terms and volume during a full cycle as well as a firm-level estimator of credit supply. We use the excellent credit registry data from Spain that enables us to follow loan terms and amount for all loans originated by the banking sector over time. We analyze the effects of positive credit supply shocks on loan terms and quantity, and on the intensive versus extensive margin (e.g., as mentioned above, the extensive margin may be more crucial for positive credit supply shocks). Moreover, we augment the Khwaja and Mian’s (2008) (KM henceforth) fixed effect technique for identifying credit supply shocks at the loan level by estimating the otherwise unobservable covariance between bank-level (credit supply) shocks and firm-level (credit demand) shocks. We then use this covariance to construct an unbiased estimate of the firm-level impact of the bank lending channel that takes into account firm-level equilibrium adjustments. Our adjustment accounts for the possibility that the overall effect of a positive credit supply shock may be attenuated if firms reduce their borrowing from banks that do not receive a strong credit supply shock.
Mehr anzeigen

19 Mehr lesen

The real effects of bank distress: Evidence from bank bailouts in Germany

The real effects of bank distress: Evidence from bank bailouts in Germany

1 1 Introduction Bank distress may lead to important real effects. Shocks to bank liquidity or impairments of bank balance sheets translate into the real economy if firms cannot easily turn to alternative sources of financing. An unanswered question is how bank distress impacts on firms’ probability of default (PD), and firms’ availability of alternative sources of finance such as trade credit. We identify bank distress with a capital injection from a bank rescue scheme. Here, restructuring and deleveraging requirements imposed by the bank rescue schemes curb bailed-out banks’ risk taking and lending activities (see Berger et al., 2016). Using data from an independent credit rating agency, we investigate whether bank distress (i.e., bailout) impacts this agency’s assessment of a firm’s probability of default, and its advised maximum trade-credit amount to a firm.
Mehr anzeigen

43 Mehr lesen

Heterogeneous consumers, segmented asset markets, and the real effects of monetary policy

Heterogeneous consumers, segmented asset markets, and the real effects of monetary policy

1 Introduction Monetary policy impacts both real and financial variables. Notwithstanding this broad impact, the literature has studied the effects of monetary policy on each set of variables mostly in isola- tion. On the one hand, refinements of the New-Keynesian framework have concentrated on the consequences of monetary non-neutrality by assuming sticky prices and/or wages. In a sepa- rate literature, segmented asset market models have come far in replicating empirical regularities concerning financial variables without imposing nominal rigidities. The latter models, however, typically neglect the impact of monetary policy on output. Furthermore, neither literature an- alyzes the potential effects of agents’ heterogeneity on aggregate demand, despite the inherent heterogeneity that is generated by segmented asset markets. The present paper takes up this task by proposing a heterogeneous-agents model in which dispersed money holdings lead to real ef- fects of monetary policy in the absence of nominal frictions. 1 The predicted negative relationship between changes in the money supply and markups is crucial for the impact of monetary pol- icy on real variables, and in line with empirical evidence. In fact, assuming exogenously fixed markups eliminates monetary non-neutrality in the present model. It nevertheless still replicates those financial facts that standard New-Keynesian models cannot. Endogenizing the impact of heterogenous money holdings on markups additionally generates an inflation-output tradeoff. Optimal markups depend on the price elasticity of demand, which is itself influenced by the distribution of money holdings. If combined with modest real rigidities that do not generate monetary non-neutrality by themselves, the distributional consequences of monetary policy can have sizeable real effects. 2
Mehr anzeigen

56 Mehr lesen

The real effects of overconfidence and fundamental uncertainty shocks

The real effects of overconfidence and fundamental uncertainty shocks

The second set of results pertain to the macroeconomic impact of shocks to uncertainty and overconfidence. I find that impulse responses from shocks to the forecaster uncertainty measure derived from professional GDP growth forecasts are qualitatively similar to those from other measures of uncertainty such as those based on stock market prices, forecast error variances, and media-based measures among others. Further, after decomposing uncertainty into fundamental and bias com- ponents using sign and zero restrictions, I find that both types of shocks reduce economic activity. As earlier argued, the evidence on the overconfidence bias compo- nent mitigates concerns of mis-measurement on the effect of uncertainty arising from uncertainty itself being endogenous to aggregate conditions. This also implies that perceived uncertainty has real effects regardless of whether they are well-founded or not. Consequently, ex-ante measures of uncertainty or measures that directly mea- sure expectations, may provide additional information on macro-uncertainty relative to ex-post measures.
Mehr anzeigen

52 Mehr lesen

On Real Effects of Financial Synergies

On Real Effects of Financial Synergies

This proposition is another novel result of this thesis: If unrelated firms engage in a diversifying merger to benefit from an endogenous financial synergy, then real effects of this merger can harm consumers, even though there are absolutely no operational synergies with redistributional consequences, as, for example, anti-competitive prac- tices. More precisely, a merger of firms who exhibit very risky and highly correlated cash flows is likely to reduce output and therefore to diminish expected surplus of con- sumers. Only with sufficiently low average correlation of cash flows both consumers and producers benefit. This follows from the U-shaped relation between output and risk. In a high-risk environment marginal distress cost rise as the standard deviation of cash flows decreases, which results in lower output. If cash flows in such high-risk product markets are highly positively correlated, then the conglomerate’s representa- tive product market is of a high-risk type as well, so that output decreases because of the merger’s risk-reduction effect. Only if cash flows are sufficiently negatively corre- lated the representative market is of a low-risk type, so that output increases as risk decreases. Empirically, a cross-border merger involving countries with very risky and highly correlated economies — think of neighboring developing countries like Chad and Sudan — is likely to decrease output. But a similar merger that involves distant developing countries like Chad and Columbia can be expected to have positive impli- cations for consumers because of higher output in both countries.
Mehr anzeigen

133 Mehr lesen

The real effects of bank distress: Evidence from bank bailouts in Germany

The real effects of bank distress: Evidence from bank bailouts in Germany

1 1 Introduction Bank distress may lead to important real effects. Shocks to bank liquidity or impairments of bank balance sheets translate into the real economy if firms cannot easily turn to alternative sources of financing. An unanswered question is how bank distress impacts on firms’ probability of default (PD), and firms’ availability of alternative sources of finance such as trade credit. We identify bank distress with a capital injection from a bank rescue scheme. Here, restructuring and deleveraging requirements imposed by the bank rescue schemes curb bailed-out banks’ risk taking and lending activities (see Berger et al., 2016). Using data from an independent credit rating agency, we investigate whether bank distress (i.e., bailout) impacts this agency’s assessment of a firm’s probability of default, and its advised maximum trade-credit amount to a firm.
Mehr anzeigen

42 Mehr lesen

Got rejected? Real effects of not getting a loan

Got rejected? Real effects of not getting a loan

Panel A of Table 8 provides some evidence in this regards. It plots measures of profitability (EBIT margin, Return on Assets) and leverage (equity-to-asset ratio) as a function of the rating in the year prior to the loan application. The table focusses on firms with total assets smaller than EUR 3 million below the median in terms of liquidity, i.e., those firms where real effects are strongest. Profitability is clearly a declining function of the credit rating. If profitability in the year prior to the loan application is a proxy for expected profitability of new investments, then granting loans to high-rating firms is consistent with granting loans to high-profitability firms as well. However, the profitability numbers for firms just below the threshold (5.3% EBIT margin, 14.4% return on assets) clearly do not allow to label these firms as inefficient or unprofitable. However, the equity-to-asset ratio of firms directly below the threshold is below 20%, potentially implying that agency conflicts (Jensen and Meckling, 1976) between equity holders and debtholders might be too high for the bank to consider supporting these projects. This narrative should, though plausible, be interpreted with care as the set-up at hand does not allow to precisely measure agency conflicts.
Mehr anzeigen

51 Mehr lesen

Customer Markets and the Real Effects of Monetary Policy Shocks

Customer Markets and the Real Effects of Monetary Policy Shocks

instrument is measured by the ratio NBR/T R, T R and M display similar impulse responses as in the F F -model. CEE (1999) also find that different assumptions with regard to which variables are predetermined when the policy instrument is set have a negligible effect on the predictions of each of the three SVARs. CEE (1999) also emphasize that the importance of monetary socks for output fluctuations depends crucially on the assumptions with regard to the policy instrument. In the F F -case the monetary shock accounts for 21%, 44% and 38% of the forecast error variance of output at the 4,8 and 12 quarter horizon respectively. In contrast, the NBR policy shock accounts for only 7%, 10% and 8% at the 4,8 and 12 quar- ter horizon. Examples for papers using similar measures of the monetary policy instrument, similar identification schemes and thus, reaching similar results are Christiano and Eichen- baum (1992), focusing on the quantification of the liquidity effect of monetary shocks, and Christiano et al. (1996a), focusing on the responses of firm’s and household’s assets and liabilities and other financial variables. CEE (1999) further examine the effects of a monetary disturbance when the policy instrument is measured by by M0, M 1 or M 2. Irrespective of which of the three monetary aggregates is used to approximate the policy rule, the implied responses of all variables are much weaker (in most cases even insignificant) and of lower persistence. As CEE (1999) note, due to the high imprecision in the estimated impulse re- sponses, it would be a difficult task to reject the hypothesis that monetary policy has no real effects. While the point estimates of the reactions to a M 2 policy shock are similar to that obtained in the F F , NBR and NBR/T R models the M 0 and M 1 models deliver predictions which are quite different. As a reaction to contractionary M 0 shock output increases and remains above average for about 3-4 quarters. When the policy instrument is approximated by M 1, initially there is a slight drop in output followed by a persistent increase exhibiting a hump-shaped pattern. The GDP deflator P falls below average for about 4 to 6 quarters before returning to its pre-shock level (in the M 0-case) or reaching a slightly above average level (in the M 1-case). CEE (1999) point out that while the results obtained with the pol- icy measures F F , NBR, NBR/T R and M 2 are at least partly consistent with some New Keynesian Models, the predictions of the M 0 and M 1 models can be characterized as more or less consistent with simple DSGE 18 models with flexible prices, motivating money demand by a simple cash-in-advance constraint or a transactions technology. 19
Mehr anzeigen

271 Mehr lesen

Heterogeneous Consumers, Segmented Asset Markets, and the Real Effects of Monetary Policy

Heterogeneous Consumers, Segmented Asset Markets, and the Real Effects of Monetary Policy

6 Conclusion The model presented in this paper provides insights into the role of heterogeneity of economic agents for the transmission of monetary policy. In particular, I argue that monetary policy has real effects via its impact on the distribution of money holdings. Introducing endogenous markups into a model of segmented asset markets can replicate several empirical observations: 1) a short- term inflation-output trade-off after a monetary injection, 2) quantitatively plausible impulse- response functions for output, inflation, hours worked, real profits, price dispersion, and velocity after monetary injections if modest degrees of real wage rigidity are imposed, 3) a liquidity ef- fect, 4) a countercyclical markup at the firm level, 5) procyclical wages after monetary shocks, and 6) values for the correlations of velocity with the money-to-output ratio and with the nominal interest rate, as well as for the correlation between the markup and changes in the money supply that are similar as found in the data. The model generates a microfounded, internal propagation mechanism, which relies on the slow dissemination of newly injected money. This can be seen as a way of describing the effects of central bank actions, where only parts of the population benefit through first-round effects, while others are affected indirectly and later. Producers take future prices and quantities into account in an overlapping manner. As a result, forward-looking behav- ior in price setting emerges even without capital, sticky prices or wages. The sequential structure of the model is therefore responsible for richer dynamics, which could also be interesting for the analysis of other kinds of shocks.
Mehr anzeigen

58 Mehr lesen

Expansionary Yet Different: Credit Supply and Real Effects of Negative Interest Rate Policy

Expansionary Yet Different: Credit Supply and Real Effects of Negative Interest Rate Policy

In brief, we observe an increase in bank credit growth after the introduction of NIRP using ag- gregate time-series data. The announcement of NIRP steered market expectations by removing the ZLB, inducing a downward shift and a simultaneous flattening of the yield curve. The fall in the yield curve at all maturities caused a large decrease in the yield of liquid assets, some of which even became negative. Our results suggest that these developments incentivized banks to reduce their holdings of low or negative yielding assets to preserve profitability. Thus, we find that NIRP affected relatively more those banks with higher ex-ante net short-term interbank positions (as short-term interbank rates became negative soon after NIRP) or, more broadly, those banks with more liquid balance sheets (as yields on all maturities went down). In a loan-level analysis we show that more NIRP-exposed banks reduce their holdings of liquid assets and expand credit supply. This portfo- lio rebalancing is concentrated among banks with low capital. Furthermore, the expansion of credit supply is stronger to ex-ante riskier and more financially constrained firms, but did not translate into higher ex-post loan defaults. More exposed banks also cut loan rates, even within the same firm. Finally, the bank portfolio rebalancing due to NIRP induces sizable firm-level real effects (e.g., investment and wages). We find no evidence that banks with greater reliance on retail deposits re- duce credit supply or increase loan rates in response to NIRP; instead, we show that banks preserve margins and profitability, including by raising fees on bank deposits.
Mehr anzeigen

65 Mehr lesen

Price-setting in Mexico and the real effects of monetary shocks

Price-setting in Mexico and the real effects of monetary shocks

Compared to the above mentioned studies for the Mexican economy, my results for the frequency of price change show that prices adjust less often. The higher frequencies found in those studies could be explained by differences in the years and CPI basket covered, and by certain features of the data sets previously used that lead to an overestimation of the fre- quency of price change, a key statistic when analyzing the real effects of monetary shocks. These features, and their implications for the price statistics calculations, are discussed below. Moreover, because of data limitations, none of the previous studies for Mexico differentiate between posted and regular price changes. As documented in this paper, given the importance of sales for price flexibility, this difference turns out to be relevant for the recent price-setting behavior.
Mehr anzeigen

67 Mehr lesen

Real effects of sovereign bond market spillovers in the euro area

Real effects of sovereign bond market spillovers in the euro area

For the analysis to follow, I use an extension of the standard neoclassical small open economy model (see e.g. Mendoza, 1991). The model here departs from the canonical version of the neoclassical model in two dimensions: First, a sovereign risk channel is introduced meaning that the sovereign bond interest rate influences the interest rate relevant for households and firms, the private sector interest rate. Firms are affected by the private sector interest rate through a working capital constraint. I.e., firms have to finance (a fraction of) the wage bill before production takes place. Thereby, labor costs depend not only on wages, but also on the real interest rate. This feature creates a link from interest rates to the supply side of the economy. Furthermore, with the preferences introduced by Greenwood, J., Hercowitz, Z. and Huffman, G. W. (1988), in the following called GHH-prefences, the impact reaction of labor following a spread shock is negative, creating a contractionary effect of spread shocks on impact. 3 Second, preferences are modified such that household utility depends on government spending in a non-separable way. This modification enables the model to generate a positive reaction of output to government spending shocks without dropping GHH-preferences. 2.1. Households
Mehr anzeigen

33 Mehr lesen

Estimating the real effects of uncertainty shocks at the zero lower bound

Estimating the real effects of uncertainty shocks at the zero lower bound

4.5 The ZLB, the Great Recession and the Great Financial Crisis Our I-VAR analysis aims at quantifying the e¤ects of uncertainty shocks in two di¤er- ent regimes, normal times and the ZLB. This is the reason why our baseline framework models an interaction term involving a measure of uncertainty and the policy rate. However, some contributions in the literature point to nonlinearities unrelated to the ZLB. Uncertainty shocks may exert stronger e¤ects in recessions (Caggiano, Castel- nuovo, and Groshenny (2014), Caggiano, Castelnuovo, and Nodari (2015), Caggiano, Castelnuovo, and Figueres (2017)). This may occur because of a lower e¤ectiveness of monetary policy in tackling negative shocks (see, e.g., Mumtaz and Surico (2015) and Tenreyro and Thwaites (2016)), and/or because of a stickier labor market during downturns (Cacciatore and Ravenna (2015)). Moreover, the interaction between un- certainty shocks and …nancial frictions may intensify during periods of high …nancial stress (Alessandri and Mumtaz (2014), Gilchrist, Sim, and Zakrajšek (2014), Caldara, Fuentes-Albero, Gilchrist, and Zakrajšek (2016)). Indeed, the 2007-2009 period was characterized by the joint presence of the ZLB, an exceptionally severe real crisis, and the Great Financial Crisis, which featured unprecedented levels of …nancial stress. As a consequence, the results documented above could be assigning an exaggerated role to the ZLB because of the omission of other channels which were contemporaneously at
Mehr anzeigen

58 Mehr lesen

Estimating the Real Effects of Uncertainty Shocks at the Zero Lower Bound

Estimating the Real Effects of Uncertainty Shocks at the Zero Lower Bound

Methodologically, I-VARs have recently been employed to study the nonlinear ef- fects of macroeconomic shocks. Towbin and Weber (2013) estimate the response of output and investment to foreign shocks conditional on the level of external debt, im- port structure, and exchange rate regime. Sá, Towbin, and Wieladek (2014) focus on the e¤ects of capital in‡ows conditional on the mortgage market structure and securi- tization. Aastveit, Natvik, and Sola (2017) quantify the real e¤ects of monetary policy shocks in presence of high/low uncertainty. With respect to these studies, our paper: i) focuses on uncertainty shocks, and ii) fully endogenizes the conditioning variable which determines the switch between the states of interest. From a technical standpoint, our paper is close to Pellegrino (2017a). He studies the real e¤ects of monetary policy shocks in the United States in presence of time-varying uncertainty by computing fully nonlinear GIRFs that admit switches between states after a shock (in his case, a mon- etary policy shock). A similar paper is Pellegrino (2017b), who investigates the same research question with Euro area data. Our paper tackles a di¤erent research question, i.e., the e¤ects of uncertainty shocks in normal times vs. when the ZLB is binding.
Mehr anzeigen

58 Mehr lesen

Real effects of relaxing financial constraints for homeowners: Evidence from Danish firms

Real effects of relaxing financial constraints for homeowners: Evidence from Danish firms

This evidence provides support to the well-established notion that less educated and low-skilled hires experience higher turnover in general, and are particularly vulnerable to recessions (Jovanovic, 1979; Gautier et al., 2002; Hoynes, 2000; Hoynes et al., 2012). How- ever, they also show that credit shocks have additional explanatory power for labour mar- ket dynamics over and above symmetric (short-run) effects over the cycle, concurring with Giroud and Mueller (2018). Our results unify these two frameworks. We show that the credit-induced demand shock creates a particular type of match, and that these workers fare differently not only due to the inherent nature of their positions, but also depending on the degree of demand shock their firms are subject to, and with respect to co-workers hired during “normal” times.
Mehr anzeigen

62 Mehr lesen

Whatever it takes: The real effects of unconventional monetary policy

Whatever it takes: The real effects of unconventional monetary policy

the cash inflow to build up cash reserves. Consistent with this result, we do not find any changes in real economic activity for these firms: neither investment, employment, nor return on assets are significantly affected by a firm’s indirect OMT windfall gains (i.e., the benefits accrued via its banks). Zombie firms, on the other hand, were not able to

85 Mehr lesen

Catharsis - The Real Effects of Bank Insolvency and Resolution

Catharsis - The Real Effects of Bank Insolvency and Resolution

2.2 Bailout vs. Catharsis - Which resolution policies are most eective in (re)establishing incentives in nancial intermediation In general, there are two overall categories of how to handle a nancial intermediary that is insolvent: An `accommodative' approach, i.e. bailing out the intermediary trying to preserve it in its current legal form, or a `cleansing' approach, i.e. sending it through an insolvency procedure which entails the closure of the intermediary as an individual legal entity, equity wipeout, and management change. Below, we analyze each approach and the relevant intervention tools in turn. We focus, in particular, on the way these resolution approaches inuence the incentive structure and, ultimately, real economic performance. Accommodating resolution policies - the bailout eect Accommodating policies include exten- sive government interventions in failed banks that take place before or even when an individual institution enters insolvency, but aim at sustaining the nancial intermediary as a legal entity. Typical bailout instru- ments include blanket guarantees, open liquidity assistance, recapitalization, or forbearance of regulatory prescriptions. While they help to protect the existence of failed banks (and hence preserve liquidity), such instruments are often blamed for their eects on incentives. Bagehot (1873) long ago warned that liquidity assistance should not be extended to insolvent institutions as this support would sustain or even encourage worse credit allocation decisions. This warning is reinforced by Kane and Klingebiel (2004), who predict that nancial intermediaries that are treated with accommodating policies will suer from distorted incentives, and engage in gambling for resurrection, eectively externalizing their risk-taking to the taxpayer and, hence, society at large. The authors provide evidence from several case studies to show how most countries' accommodative policies were mismanaged and aggravated the incentive distortions. In this light, government bailout policies and safety nets have been identied as a potential source of instability rather than a remedy for it (Calomiris et al., 2005). 3 Extensive empirical evidence on the
Mehr anzeigen

36 Mehr lesen

The real effects of bank capital requirements

The real effects of bank capital requirements

literature, firm-year fixed effects 𝛼 𝑓,𝑡 are a standard way of controlling for firm-level demand shocks (see for instance Kwhaja and Mian, 2008; Iyer, Peydro and Schoar, 2012; Jimenez, Ongena, Peydro and Saurina, 2012). These controls are important if firm-level demand shocks are correlated with changes in capital requirements. For instance, a given firm may become riskier, which would lead to a reduction in lending (as the bank perceives the firm to be a less profitable borrower in risk-adjusted terms) and a mechanical increase in capital requirement (riskier firms command higher CRs). A limitation of this approach is that it may fail to control effectively for all demand effects if borrowing from a given firm is not randomly “assigned” to banks (Paravisini et al, 2014). In our case, we believe that this theoretical concern is less of a problem. The banking groups in our cleaned data set are universal banks that are in position to offer a wide range of financial services. The big advantage of the approach is that identification is easily obtained as soon as there is a significant number of firms that borrow from several banks. In our context, the estimate of 𝛽 will tend to be more negative if, for a given firm, banks with relatively high CRs are the ones that tend to lend relatively less. Such intra-firm comparison requires that some firms borrow from multiple banks. In our data, we check that these firms do not behave differently from mono-bank firms by estimating our model (without firm-year FE) on the two samples. We find identical coefficients (see below).
Mehr anzeigen

46 Mehr lesen

Real effects of bank capital regulations: Global evidence

Real effects of bank capital regulations: Global evidence

31 Table 6. General capital stringency and credit growth: Three-year time intervals The table reports coefficients and t-statistics (in parentheses) from the estimation of equation (1). The panel of banks is averaged over three-year time intervals, over the period 1997-2013 (four three-year periods and one four-year period in the earliest years of the panel). The dependent variable in all regressions is the bank-level loan growth from the three-year period t to the three-year period t+1. All variables are defined in Table 1. All regressions are estimated with two-step GMM for dynamic panels and robust standard errors (adjusted with Windmeijer's correction procedure). The regressions replicate those of Table 3 in terms of control variables and also include year fixed effects. AR2 is the p-value of the Arellano-Bond test for order-2 autocorrelation and Hansen is the p-value of the Hansen test for overidentifying restrictions. The *, **, *** marks denote statistical significance at the 10, 5, and 1% level, respectively. (1) (2) (3) (4) (5) (6) Lagged loan growth 0.365*** 0.276*** 0.342*** 0.274*** 0.344*** 0.248***
Mehr anzeigen

40 Mehr lesen

The real effects of judicial enforcement

The real effects of judicial enforcement

More recently, some studies have used single-country data to control better for potential omitted variables. For example, Ponticelli and Alencar (2016) exploit the passage of a bankruptcy reform in Brazil that increased creditors’ rights and show that its e↵ects are magnified in courts with an e↵ective law enforcement. 7 Rather than focusing on this interaction e↵ect, in this paper I study whether judicial enforce- ment can a↵ect the real economy directly. Another closely related paper is Brown et al. (2017), that uses data from Native American reservations and compares those assigned to state courts to those under the jurisdiction of tribal courts. They find that predictability in enforcement of contracts, which is higher in state courts, results in stronger credit markets and higher per capita income. In this paper I focus pri- marily on the e↵ects on employment level and variability, using a simple and intuitive measure such as average trial length, in principle comparable even across countries, in the context of a developed economy.
Mehr anzeigen

70 Mehr lesen

Show all 8305 documents...