WORKING PAPERS

> [Latest version]

> Summary: SUERF Policy Brief 

We study the role of regional housing markets in the transmission of US monetary policy. Using a FAVAR model over 1999q1–2019q4, we find sizeable heterogeneity in the responses of US states to a contractionary monetary policy shock. Part of this regional variation is due to differences in housing supply elasticities, household debt overhang, and housing wealth (volatility). Our analysis indicates that house prices and consumption respond more in supply-inelastic states and in states with large household debt imbalances, where negative housing wealth effects bite more strongly and borrowing constraints become more binding. Moreover, financial stability risks increase sharply in these areas as mortgage delinquencies and foreclosures surge, worsening banks’ balance sheets. Finally, monetary policy may have a stronger effect on housing tenure decisions in supply-inelastic states, where the homeownership rate and price-to-rent ratios decline by more. Our findings stress the importance of regional housing supply conditions in assessing the macrofinancial effects of rising interest rates.


> [Latest version]

> Summary: VoxEU 

> Media Coverage: InterConnectedness Newsletter 2023 Halloween, Klement on Investing blog

We uncover a new channel—the zombie lending channel—in the transmission of monetary policy to nonfinancial corporates. We find that the financial performance of unviable and unproductive zombie firms is relatively less affected by a contractionary monetary policy because of a more muted tightening in credit conditions. We rationalize this result with a strengthening in evergreening motives when interest rates rise: lenders face incentives to extend loans to zombies to prevent them from defaulting. Policies that strengthen banks’ balance sheets, and limit banks’ incentives to engage in risky behavior may help mitigate zombie lending practices when financial conditions tighten.


> [Latest version] [Online appendix] [Dataset]

> Summary: VoxEU 

> Media Coverage: Financial Times, CNBC (video, article), Bloomberg (Newsletter, Opinion), The Washington Post, Barron's, NACM, Instituto + Liberdade (in Portuguese), InterConnectedness Newsletter (2023Q3, 2023 Halloween), Portuguese Economy Research report

We build a comprehensive new dataset spanning listed and private nonfinancial zombie firms across Advanced Economies and Emerging Markets over the past two decades. Our findings reveal a global rise in the prevalence of these unproductive and unviable firms, particularly since the Global Financial Crisis and the Covid-19 pandemic. We show that private firms exhibit lower zombification rates due to their lower average survival rates. Our paper also offers a new perspective on zombie lending drivers: lenders may rationalize zombie lending based on overly optimistic expectations of a recovery in zombies’ future earnings. We then document that macroprudential policies targeting bank capital and loan restrictions can effectively mitigate the adverse effects of zombification. However, strengthening the banking sector alone may not suffice without robust insolvency frameworks prepared to manage firm restructuring and insolvency.



WORK IN PROGRESS