Tim Eisert

• How do supply shocks to inflation generalize? Evidence from the pandemic era in Europe 

Covered in Financial Times, VoxEU

(with Viral V. Acharya, Matteo Crosignani, and Christian Eufinger)

We document how supply-chain pressures, household inflation expectations, and firm pricing power interacted to induce the pandemic-era surge in consumer price inflation in the euro area. Initially, supply-chain pressures increased inflation through a cost-push channel and raised inflation expectations. Subsequently, the cost-push channel intensified as firms with high pricing power increased product markups in sectors witnessing high demand.  Eventually, even though supply-chain pressures eased, these firms were able to further increase markups due to stickiness of inflation expectations. The resulting persistent impact on inflation suggests supply-side impulses can generalize, via an interaction of household expectations and firm pricing power, into broad-based inflation.

• Exorbitant Privilege? Quantitative Easing and the Bond Market Subsidy of Prospective Fallen Angels 

(with Viral V. Acharya, Ryan Banerjee, Matteo Crosignani, and Renée Spigt)

being revised for second resubmission to the Journal of Financial Economics

CEPR Working Paper, BIS Working Paper

Covered in: Liberty Street Economics, Bloomberg, Financial Times, Bloomberg

We document capital misallocation in the U.S. investment-grade (IG) corporate bond market, driven by quantitative easing (QE). Prospective fallen angels---risky firms just above the IG rating cutoff---enjoyed subsidized bond financing since 2009, especially when the scale of QE purchases peaked and from IG-focused investors that held more securities purchased in QE programs. The benefiting firms used this privilege to fund risky acquisitions and increase market share, exploiting the sluggish adjustment of credit ratings in downgrading after M&A and adversely affecting competitors’ employment and investment.  Eventually, these firms suffered more severe downgrades at the onset of the pandemic.

• The Manager - Shareholder Agency Conflict: Do Banks Prefer Non-Alignment?

(with Christian Hirsch)

Working Paper on SSRN

This paper studies the link between the agency costs of equity and the agency costs of debt. Using a unique sample of the ownership structure of single and dual class firms as well as hand-collected data on loan contracts, we find that the agency cost of debt – proxied by various loan contracts terms - increases in the voting power of the largest outside shareholder, our primary measure of the agency cost of equity. We provide evidence that these results are consistent with debt holders being concerned about the high risk-shifting incentives of equity holders.