Research

Abstract: We investigate how production network linkages and sector-specific financial frictions influence monetary policy transmission. Using granular country-sector data for the euro area and input-output tables, we develop a novel set of empirical measures of upstream and downstream financial frictions. Our analysis reveals that financial frictions among upstream suppliers and downstream customers significantly impact firms' pricing and production decisions, thus affecting monetary policy transmission. Consistent with a sector-specific "cost channel" of monetary policy, upstream frictions raise sectoral prices, while downstream frictions trigger sectoral demand-channel effects in response to a monetary policy tightening. We develop a multi-sector model incorporating heterogeneity in sectoral financial frictions, deriving theoretical counterparts to our empirical measures. Our model corroborates our empirical findings through both analytical validation and simulation exercises.

JEL: C32, C33, C67, E31, E32, E44, E50, E52

Presented at: 40th meeting of the European Economic Association, Bordeaux (2025)*; 7th ChaMP Research Network Workstream 2 Workshop, Tallinn (2025); 52nd OeNB-SUERF Annual Economic Conference, Vienna (2025); 28th Conference "Theories and Methods in Macroeconomics", Paris (2025)*; Banque de France Conference "Financial Intermediation and Monetary Policy: Recent Trends and New Challenges", Paris (2024)

Abstract: In this paper, we introduce a dynamic New Keynesian multi-sector model of the euro area that incorporates heterogeneous price and wage rigidities, sector-specific factor shares, and frictions in labour and capital reallocation. We analyse the transmission of sectoral and aggregate shocks and examine how monetary policy affects both aggregate and sectoral dynamics. The framework captures diverse sectoral inflation responses and offers insights into the heterogeneous transmission of monetary policy. It is well-suited for analysing the broader implications of production networks and sector-specific heterogeneities in the transmission of shocks across the economy, as well as for evaluating optimal monetary policy in a structurally complex environment. While sectoral interlinkages, price-setting heterogeneity and reallocation costs do not materially alter the response of output and consumption to a monetary policy shock, they significantly alter the sensitivity of inflation to interest rate changes on the nominal side. Preliminary results when optimizing the parameters of the central bank reaction function suggest a greater emphasis on output and inflation stabilization than the same rule would prescribe under the baseline calibration. We also show that allowing for sectoral information in the central bank reaction function may prove superior in terms of minimizing losses compared to relying on aggregate data on output and inflation alone under certain conditions. Including services inflation instead of headline inflation yields an additional reduction in losses, underscoring its potential for providing a cleaner signal on underlying inflation trends.

Presented at: 7th ChaMP Research Network Workstream 2 Workshop, Tallinn (2025)

Abstract: This paper examines the impact of rising interest rates on central bank profitability. Using a stylized income model, we demonstrate that changes in interest rates in combination with expansive balance sheet policies introduce a cyclical component into the central bank's profit and loss statement. Our findings reveal, however, that while the interplay of such policies may dampen short-term profitability if interest rates rise, they do not undermine a central bank's financial strength, because higher interest rates also raise the value of future seigniorage income. Using data for the euro area, we quantify the consequences for inflation of setting interest rates aimed at mitigating financial losses, showing that such a strategy would lead to substantially higher inflation rates. Overall, our findings confirm that a central bank's willingness to accept temporary losses reflects a commitment to price stability, rather than a hindrance.

JEL: E31, E43, E52, E58, E63

Presented at: 40th meeting of the European Economic Association, Bordeaux (2025); 10th Research Workshop of the Task Force on Banking Analysis for Monetary Policy, Vienna (2024)*; ECB RCC1 Workshop on Central Bank Balance Sheets, Frankfurt (2024)

Abstract: In this paper, we provide an analytical framework to study coordination and reciprocity on different macroprudential instruments in the euro area. We consider both countercyclical capital buffers (CCyB) and borrower-based measures. We use a DSGE model with housing in which entrepreneurs can borrow from domestic and foreign lenders and face collateral constraints when doing so. We incorporate a banking sector and account for capital requirements as a macroprudential tool. Within this setting, we compare macro-financial dynamics for the cases of reciprocity and non-reciprocity in borrower-based measures (voluntary reciprocity). We also analyze the welfare gain of reciprocating the loan-to-value ratio (LTV) for a given level of reciprocity in the CCyB. Finally, we compute optimal policy parameters to assess to which extent reciprocating both types of macroprudential tools is welfare-enhancing. We find that, especially for borrower-based measures, voluntary reciprocity is welfare-enhancing and contributing to global financial stability without compromising macroeconomic stability.

JEL: E5, G2

Presented at: 55th Annual Conference of the Money, Macro and Finance Society, Manchester (2024)*; EEA ESEM, Rotterdam (2024)*; ASSA Annual Meeting, New Orleans (2023)

Abstract: In this paper, I show that the existence of non-bank financial institutions (NBFIs) has implications for the optimal regulation of the traditional banking sector. I develop a New Keynesian DSGE model for the euro area featuring a heterogeneous financial sector allowing for potential credit leakage towards unregulated NBFIs. Introducing NBFIs raises the importance of credit stabilization relative to other policy objectives in the welfare-based loss function of the regulator. The resulting optimal policy rule indicates that regulators adjust dynamic capital requirements more strongly in response to macroeconomic shocks due to credit leakage. Furthermore, introducing non-bank finance not only alters the cyclicality of optimal regulation, but also has implications for the optimal steady-state level of capital requirements and loan-to-value ratios. Sector-specific characteristics such as bank market power and risk affect welfare gains from traditional and NBFI credit.

JEL: E44, E61, G18, G23, G28

Presented at: 37th Symposium on Money, Banking and Finance 2021, Paris; Banque de France Séminaire DGSEI, Paris (2021); Econometric Society European Winter Meeting 2019, Rotterdam; Third Research Conference of the Macroeconomic Modelling and Model Comparison Network (MMCN) 2019, Frankfurt am Main; Spring Meeting of Young Economists 2019, Brussels; FU Berlin Empirical Macroeconomics Seminar, Berlin (2019); Humboldt University Macro Brown Bag Seminar, Berlin (2019)

Abstract: How does the corporate funding mix affect economic and financial stability in France? To address this question, we develop a model for the financing structure of French non-financial corporations (NFCs) and incorporate it in the Banque de France's semi-structural macroeconomic model (FR-BDF). We document that while on average more than half of external financing for French NFCs is provided by bank credit, the share of bond financing has increased markedly after the great Financial Crisis of 2008/2009. We then use the augmented model to simulate several macro-financial stress scenarios and show that the new macro-financial linkages imply a non-negligible financial accelerator effect that affects corporate investment decisions and matters for the transmission of monetary policy. In particular, corporate leverage plays a key role for investment, and we discuss the relative strength of shocks affecting the leverage ratio via corporate credit and equity. 

JEL: E51, C32

Presented at: Banque de France Atelier DGSEI, Paris (2021)

Abstract: Recent proposals for a European deposit insurance scheme (EDIS) favor a reinsurance framework. In this paper, we use a regime-switching open-economy DSGE model with bank defaults to assess the relative efficiency of such a scheme. We find that reinsurance by EDIS is more effective in stabilizing real activity, credit, and welfare than a national fiscal backstop. We demonstrate that risk-weighted contributions to EDIS are welfare-beneficial for depositors and discuss trade-offs policymakers face during the implementation of EDIS. We also find that macroprudential regulation and EDIS can complement each other and that EDIS can prevent bank runs under certain conditions. 

JEL: E61, F42, F45, G22, G28 

Presented at: University of Nottingham Centre for Finance, Credit and Macroeconomics Research Seminar, Nottingham (2024); ECB Conceptual Issues Meeting, Frankfurt am Main (2023); Spring Meeting of Young Economists 2021, Bologna; Banque de France Atelier DGSEI, Paris (2021); Royal Economic Society Annual Conference 2020, Belfast (postponed to 2021)*; 13th RGS Doctoral Conference in Economics 2020, Dortmund*; FU Berlin Empirical Macroeconomics Seminar, Berlin (2020)*; Humboldt University Macro Brown Bag Seminar, Berlin (2020)*

Abstract: We study the effects of macroprudential commercial bank regulation on the shadow banking sector via an estimated New Keynesian DSGE model that differentiates between monopolistically competitive commercial banks and shadow banks that rely on funding in a perfectly competitive market for investments. We find that tighter capital requirements on commercial banks increase shadow bank lending, which may have adverse financial stability effects. Coordinating macroprudential tightening with monetary easing can limit this leakage mechanism, while overall maintaining a reduction in aggregate lending. In a counterfactual analysis we compare how macroprudential policy implemented before the 2008 financial crisis would have affected business and lending cycles. 

JEL: E32, E58, G23

Presented at: ECB DG Macroprudential Policy and Financial Stability Seminar Series 2019, Frankfurt am Main; 15th Dynare Conference 2019, Lausanne; ASSA Annual Meeting 2019, Atlanta; FU Berlin Empirical Macroeconomics Seminar, Berlin (2018); 24th Annual Conference on Computing in Economics and Finance (CEF) 2018, Milan; Verein für Socialpolitik, Annual Conference 2018, Freiburg; DIW Berlin Graduate Center Summer Workshop 2018, Potsdam;  DIW Berlin Graduate Center Summer Workshop 2017, Potsdam; DIW Berlin Macroeconomics Ph.D. Seminar Series, Berlin (2016)

Abstract: This paper investigates the link between corporate debt and investment for a group of five peripheral euro area countries. Using firm-level data from 2005 to 2014, we postulate a non-linear corporate leverage-investment relationship and derive thresholds beyond which leverage has a negative and significant impact on investment. The investment sensitivity of debt increased after 2008 when financial distress intensified and firms had a lower capacity to finance investment from internal sources of funds. Our results also suggest that even moderate levels of debt can exert a negative influence on investment for smaller firms or when profitability is low. 

JEL: E22, F34, G31, G32

Presented at: Verein für Socialpolitik, Annual Conference 2017, Vienna; FU Berlin Workshop Empirical Macroeconomics, Berlin (2016); European Central Bank Country Surveillance Division Topical Issue Seminar, Frankfurt am Main (2016); DIW Berlin Macroeconomics Ph.D. Seminar Series, Berlin (2016); DIW Berlin Macroeconomics Department Lunch-Time Seminar, Berlin (2016); European Central Bank Country Surveillance Division Internal Seminar, Frankfurt am Main (2015)