[1] Heterogeneity in Corporate Debt Structures and the Transmission of Monetary Policy [link]
with Fédéric Holm-Hadulla.
European Economic Review, Vol. 136, 2021, 103743.
Abstract. We study how differences in the aggregate structure of corporate debt affect the transmission of monetary policy in a panel of euro area countries. We find that standard policy tightening shocks raise the cost of loans relative to corporate bonds. In economies with a high share of bond finance, the resultant rise in the overall cost of credit is less pronounced as a smaller portion of corporate debt is remunerated at the loan rate and firms further expand their reliance on bonds. In economies with a low share of bond finance, the rise in the cost of credit is reinforced by a shift in the composition of debt towards bank loans. As a consequence, a higher bond share goes along with a weaker transmission of short-term policy rate shocks to real activity. By contrast, the real effects of monetary policy shocks to longer-term yields strengthen with the share of bond finance in the economy.
Featured a.o. in a speech by ECB Executive Board member Isabel Schnabel and the ECB strategy review in the workstream on non-bank financial intermediation.
Previous version and poster summary: ECB Working Paper No. 2402 (May 2020); ASSA poster (January 2021).
[1] Upwardly Mobile: the Response of Young vs. Old Firms to Monetary Policy (R&R Review of Economic Studies) [link]
with Per Krusell and Joshua Weiss.
Abstract. We study heterogeneity in the response of firm investment to monetary policy. We estimate firm-specific capital semielasticities to plausibly exogenous changes in interest rates in a comprehensive data set that covers ten euro area countries. Using a machine learning algorithm, we find that firm age best predicts differences in these semi-elasticities across firms. Based on this result, we estimate age-specific capital semielasticities. Investments of young firms are significantly more sensitive to monetary policy than investments of older firms. We rationalize this finding in a lifecycle firm model with convex and fixed capital adjustment costs. Older firms are less responsive because they are closer to their optimal scale, and thus less likely to pay the fixed cost. A key implication is that monetary policy is less potent in an economy with older firms.
Previous version: Firm Heterogeneity and Monetary Policy Transmission (JMP)
[2] Granular Shocks to Corporate Leverage and the Macroeconomic Transmission of Monetary Policy
with Fédéric Holm-Hadulla.
Abstract. We study how shocks to corporate leverage alter the macroeconomic transmission of monetary policy. We identify leverage shocks as idiosyncratic firm-level disturbances that are aggregated up to a size-weighted country-level average to generate a Granular Instrumental Variable (Gabaix and Koijen, 2024). Interacting this instrumental variable with high-frequency identified monetary policy shocks, we find that transmission to the price level strengthens in the presence of leverage shocks, while the real effects of monetary policy are unaffected. A price-competitiveness channel rationalizes this disconnect. Economies where leverage increases exhibit a stronger monetary policy-induced contraction in domestic demand. This, however, is counteracted by a weaker drop in exports, supported by a relative decline in unit labor costs and unit profits, which in turn weighs on prices.
Previous version: ECB Working Paper No. 2891 (January 2024)
[1] The Impact of Exchange Rates on German Exports – Simulations with Error Correction Models [link]
with Christian Grimme.
ifo Schnelldienst, 2015, 68(20), 35-38.
We analyze the elasticities of German goods trade and total exports to changes in exchange rates using a Vector Error Correction Model (VECM).
[2] Reliability of EU Methods to Estimate Production Potential in Germany [link]
with Steffen Henzel.
ifo Schnelldienst, 2015, 68(18), 18-24.
We examine systematic revisions of the EU output gap estimate and benchmark them with alternative methods to determine the suitability of the method for fiscal policy rules.