Work in progress
Going green by putting a price on pollution: Firm-level evidence from the EU (with O. De Jonghe, and K. Mulier)
Emission trading schemes improve the emission efficiency of highly polluting firms. The efficiency gain comes from a relative decrease in emissions rather than a relative increase in operating revenue. Part of the improvement is realized via the acquisition of green firms. The size of the improvement depends on the initial allocation of free emission allowances: highly polluting firms receiving more emission allowances for free have a weaker incentive to become more efficient. For identification, we exploit the tightening in EU Emission Trading Scheme (ETS) regulation in 2017, which led to a steep price increase of emission allowances and made the ETS regulation more binding for polluting firms.
The augmented bank balance-sheet channel of monetary policy (with C. Bittner, D. Bonfim, F. Heider, F. Saidi and C. Soares )
This paper studies how banks’ balance sheets and funding costs interact in the transmission of monetary-policy rates to banks’ credit supply to firms. To do so, we use credit registry data from Germany and Portugal together with the European Central Bank’s policy-rate cuts in mid-2014. The pass-through of the rate cuts to banks’ funding costs differs across the euro-area because deposit rates vary in their distance to the zero lower bound (ZLB). When the distance is shorter, banks’ financing constraints matter less for the supply of credit and there is more risk taking. To rationalize these findings, we provide a simple model of an augmented bank balance-sheet channel where in addition to costly external financing, there is screening of borrowers and a ZLB on retail deposit rates. An impaired pass-through of monetary policy to banks’ funding costs reduces their ability to lever up and weakens their lending standards.
Non-bank liquidity provision to firms: Fund runs and central bank interventions (with J. Breckenfelder)
We document the liquidity dry-up in the European commercial paper markets of March 2020 and the subsequent revival in April 2020. We show that the standstill was driven by distressed money market funds – the key investors in commercial paper. Through security level fund holdings, we establish a direct link between fund outflows and non-financial commercial paper issuance and show that non-financial companies were less likely to issue commercial paper in March 2020 if their commercial paper is typically held by funds that experienced a larger outflow over the same period. We show that the ECB’s intervention in the European non-financial commercial paper market led to a revival of issuances and better terms and conditions for eligible firms.