Thomas Kroen

The Energy Origins of the Global Inflation Surge  with Jorge Alvarez.

This paper investigates the relationship between energy prices and inflation dynamics in the context of the global inflation surge during the COVID-19 pandemic. Using a comprehensive sector-level dataset covering over 30 countries and a local projections empirical strategy, we extend previous studies that primarily focused on single-country analyses or aggregate inflation measures. Our findings indicate that while the energy shocks of 2021–2022 were remarkable, the degree of inflation passthrough of energy shocks appears to be relatively stable over time. Moreover, we show that energy price shocks significantly influence inflation through stable sectoral channels, with structural characteristics such as energy dependence and price flexibility playing critical roles in the passthrough mechanism. These results underscore the necessity of a sectoral perspective in understanding inflationary pressures and highlight the importance of detailed data on price-setting mechanisms and intersectoral connectivity in understanding the energy-inflation passthrough.

Payout Restrictions and Bank Risk-Shifting with Fulvia Fringuellotti.

This paper studies the effects of regulatory payout restrictions on bank risk-shifting. Using policies imposed during the Covid-crisis on U.S. banks as a natural experiment and a high frequency differences-in-differences approach, we show that, when payouts are restricted, banks’ equity prices fall while their debt values appreciate. Moreover, banks that are ex-ante more exposed to the payout restrictions decrease risk-taking in lending relative to less exposed banks. Consistent with a risk-shifting channel, these effects revert once restrictions are lifted. These results indicate that payout and risk-taking choices are complementary and that regulatory payout restrictions endogenously affect bank risk-shifting.

Falling Rates and Rising Superstars with Ernest Liu, Atif Mian, and Amir Sufi. 

(Revise and Resubmit, American Economic Review)

Using high-frequency interest rate shocks, we find that falling rates in a low interest rate environment favor industry leaders. A fall in the interest rate near the ZLB leads to a stronger rise in market value for industry leaders. Industry leaders also borrow more at lower rates, invest more, and acquire more assets. These advantages from falling rates for industry leaders diminish in a higher rate environment. We estimate a “competition-neutral” nominal federal funds rate of about five percentage points, a level at which industry leaders and followers are impacted equally by an interest rate change.

Payout Policy Reform and Investor Horizons. 

In this paper, I study how investor horizons affect corporate payout and investment policies using the 1982 share repurchase liberalization in the US as a natural experiment. Following the reform, firms with greater pre-reform short-termist ownership increase payouts by .85% of total assets relative to firms with a more long-term investor base. This is entirely driven by net share repurchases while dividends do not fall after the event. These results soundly reject perfect substitutability of dividends and share repurchases. The increase in payouts is mirrored by an equally sized decline in investment, showing that share repurchase liberalization has sizable real effects on firm behavior. Tests exploiting newly digitized insider trading data support that the results are driven by myopic considerations, rather than efficient down-sizing of firms following the reform.

Are higher interest rates a concern for financial stability in MENA? with Adrian Alter, Bashar Hlayhel, and Thomas Piontek.  

(Forthcoming, Emerging Markets Review)

This paper assesses the state and resilience of corporate and banking sectors in the Middle East and North Africa (MENA) in a “higher-for-longer” interest rate environment using granular micro data to conduct the first cross-country corporate and banking sector stress tests for the MENA region. The results suggest that corporate sector debt at risk may increase sizably from 13.5 in 2023 to nearly 33 % of total corporate debt by the end of 2025. Banking systems would be broadly resilient in an adverse scenario featuring higher interest rates, corporate sector stress, and rising liquidity pressures with Tier-1 capital ratios declining by 3.4 percentage points in the Gulf Cooperation Council (GCC) countries and 4.5 percentage points in non-GCC MENA countries. In the cross-section of banks, there are pockets of vulnerabilities as banks with higher ex-ante vulnerabilities and state-owned banks suffer greater losses. While manageable, the capital losses in the adverse scenario could limit lending and adversely impact growth.

Do Payout Restrictions Reduce Bank Risk? with Fulvia Fringuellotti. Liberty Street Economics. January 8, 2025.

Higher Interest Rates Testing Banks in Middle East, North Africa, and Pakistan with Troy Matheson, and Thomas Piontek.  IMF Blog. December 14, 2023.