WORK IN PROGRESS
Monetary policy surprises and firms’ funding expectations (joint with Annalisa Ferrando)
We provide new evidence on how European Central Bank’s monetary policy decisions affect firms’ funding expectations in the euro area. We do so by using firm-level data derived from the ECB Survey on the Access to Finance of Enterprises for the period 2009 to 2021 and by combining it in an innovative way with high frequency identified monetary policy shocks. This allows us to construct a firm-specific monetary policy proxy and to improve the estimation of the causal effect between central bank’s policies and firms’ beliefs. First, we find that credit access expectations are important drivers for firms’ investment and employment decisions. Then, we show that accommodative monetary policy positively affects firms’ credit access expectations. Finally, we document that the response to monetary policy differs along firms’ structural characteristics. Our results support the existence of a funding expectation component of the bank lending channel.
Unconventional monetary policy and households' financial portfolio choices
I use survey data on Italian households' financial portfolios to examine how the unconventional monetary policies (UMPs) implemented by the European Central Bank (ECB) affect households' asset allocation choices. I first disentangle any household change in financial wealth into its active saving component (rebalancing) and its passive saving component (capital gains) using financial indexes. Then, I estimate the impact of unconventional measures on portfolio rebalancing decisions focusing on two asset categories, Italian government bonds and risky assets (equity, corporate bonds and mutual funds). The empirical analysis finds that ECB's actions exerted a substantial effect on the size and composition of households' financial portfolios, inducing a pro-cyclical, positive investment into both government bonds and risky assets, although only for households at the top of the income distribution. Thus, the results illustrate how, consistent with the confidence channel of unconventional monetary policy, ECB's unconventional tools since 2007 have contributed to restoring households' confidence in the financial system, reviving the appetite for some of the financial segments mostly hit by the crisis.
Interest Rates and Exchange Rates in Normal and Crisis Times (joint with Malte Rieth)
This paper studies the structural relation between interest rates and the US-dollar/euro exchange rate during normal and crisis times. Using a structural VAR and exploiting the heteroscedasticity in the data for identication, we find that US interest rate shocks signicantly appreciate the US-dollar in normal times, have no effect during the global financial crisis and lead to a depreciation of the dollar during the European sovereign debt crisis. In contrast, the impact of euro area interest rate shocks on the exchange rate increases during the European crisis, relative to normal times. These patterns are consistent with a safe haven channel that attenuates or accentuates the traditional interest rate channel in the exchange rate determination, depending on whether a country is safer or riskier than the other.
The role of industrial diversity in banking sector resilience (joint with Christopher Baum and Dorothea Schäfer)
This paper analyses the relationship between banking sector diversity and bank risk. Using a large bank-level unbalanced panel and constructing two different measures of structural diversity we show that diversification in the banking sector has a large and positive impact on bank stability. We also find that the positive relationship between bank diversity and bank stability is stronger in times of crisis, providing evidence that banking sector diversity can help absorbing both financial and real shocks. Our results are economically meaningful and can offer important insights to the current economic-policy debate on how to shape a new banking sector architecture.
Related publications:
The FinReg Blog: Institutional Diversity and Bank Stability - Evidence from European Countries. LINK
(joint with Chi Hyun Kim)
DIW Discussion Papers 1841, 37 S.
We investigate whether monetary policy has a heterogeneous effect on women and men's financial portfolio decisions by analyzing their equity investment. On the one hand, monetary policy has a significant effect on entry decisions of women, but not of men: after a contractionary shock, the probability of women entering the stock market decreases. On the other hand, monetary policy is gender-neutral for stock market participants: there are no significant differences in exit- nor portfolio rebalancing decisions between women and men. Our results suggest that monetary policy does not have a heterogeneous effect on portfolio decisions across gender once women participate in the stock market.
PUBLISHED PAPERS
Forecasting yield spreads under crisis-induced multiple breakpoints (joint with Massimo Guidolin)
Applied Economics Letters, Volume 20, 2013 - Issue 18
POLICY PUBLICATIONS
Quantitative easing - What are the side effects on income and wealth distribution: In-depth analysis (joint with Kerstin Bernoth, Phillipp König and Benjamin Beckers)
Diw Berlin Politikberatung kompakt 99, June 2015.
Monetary policy can have heterogeneous effects on the investment behaviour of women and men (joint with Chi Hyun Kim)
DIW Weekly Report 39 / 2019, S. 355-361 (available also in German here)