Publications

[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). 

Working Papers & Work in Progress

[1] Firm Heterogeneity and Monetary Policy Transmission (Job Market Paper) [link]

Abstract. This paper studies sources of heterogeneity in the response of firm investment to monetary policy. I estimate firm-level semi-elasticities of investment to plausibly exogenous changes in interest rates for a comprehensive firm-level dataset for ten euro area countries. I then employ a machine learning algorithm to detect which observables explain differences across firms and find firm age to be the most important variable for variation in the micro elasticities. Impulse responses by age reveal that investments of young firms are significantly more sensitive to monetary policy than investments of older firms. To rationalize this finding, I develop a model featuring capital adjustment costs. Older firms are less responsive to interest rate shocks, in line with the empirical findings, because they are closer to their optimal scale, which makes them less likely to pay fixed adjustment costs and change their capital stock, even when interest rates change. One key implication is that a shift in the firm distribution towards older firms implies a lower aggregate response to monetary policy.

[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 so as to generate a Granular Instrumental Variable (Gabaix and Koijen, 2020). 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, whereas the real effects of monetary policy are unaffected. We show that this disconnect can be rationalized with an internal devaluation channel. Economies hit by an adverse leverage shock exhibit a stronger monetary policy-induced contraction in domestic demand. This is however counteracted by a weaker contraction in exports, facilitated by improved price competitiveness.

[3] Monetary Policy Transmission in the Presence of Investment Frictions
with Per Krusell and Joshua Weiss.

Abstract. This paper examines the role of investment frictions for monetary policy transmission. The theoretical framework features fixed and quadratic adjustment costs, which shape the capital choice of firms along age. As firms get older, the fixed cost makes changes to the capital stock less worthwhile. The quadratic cost moderates the size of capital adjustments and investments get smaller as firms approach the optimal scale. When the interest rate changes, the fixed cost leads to heterogeneous investment responses along age. Young firms exhibit a large sensitivity to changes in the interest rate and their capital stock falls as the interest rate increases. The capital stock of older firms, however, does not adjust.

Non-Refereed Publications

[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.