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] [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 new dataset of listed and private nonfinancial zombie firms for a large set of Advanced Economies and Emerging Markets over the last two decades. We find that the share of these unproductive and unviable firms has been rising worldwide, especially since the GFC and the Covid-19 pandemic. We show that, perhaps surprisingly, the incidence of zombification is lower among private firms. Lower average survival rates of private firms may explain this phenomenon. We find important negative macrofinancial spillovers from zombie firms: nonzombies’ financial performance is persistently reduced in industries populated with a greater number of zombies. To mitigate these effects, we document that countries with stronger banks, and tighter macroprudential policies tend to have fewer zombies and stronger nonzombies. Strengthening the banking sector may, however, not be sufficient if insolvency frameworks are not well-prepared to deal with the restructuring or insolvency of firms.



WORK IN PROGRESS