Central banks

Bonds at a premium: the impact of insurers on corporate bond issuers

09/20/2023 European Central Bank Central banks

On the basis of insurance companies’ bond investments, I examine how shifts in investors’ demand for corporate bonds affect non-financial bond issuers. When demand for their bonds increases, firms’ financing costs decrease, which encourages them to increase their bond debt and invest more. These effects crucially depend on how credit-constrained firms are. My findings emphasise the critical role that institutional investors play in shaping non-financial firms’ financing decisions and real economic activity.

Bonds at a premium: the impact of insurers on corporate bond issuers

09/20/2023 European Central Bank Central banks

On the basis of insurance companies’ bond investments, I examine how shifts in investors’ demand for corporate bonds affect non-financial bond issuers. When demand for their bonds increases, firms’ financing costs decrease, which encourages them to increase their bond debt and invest more. These effects crucially depend on how credit-constrained firms are. My findings emphasise the critical role that institutional investors play in shaping non-financial firms’ financing decisions and real economic activity.

Carbon trade-offs: how firms respond to emission controls

07/17/2023 European Central Bank Central banks

Regulation to control carbon emissions challenges firms to develop optimal carbon management policies. We set out a unified approach to study the trade-offs carbon pricing poses for firms and how they should therefore best respond. Our model shows that while carbon pricing curtails firms’ carbon emissions, polluting firms tilt their green investment mix towards more immediate yet short-lived options – such as solely reducing emissions (abatement) instead of investing in green innovation – as it becomes costlier to comply.

Carbon trade-offs: how firms respond to emission controls

07/17/2023 European Central Bank Central banks

Regulation to control carbon emissions challenges firms to develop optimal carbon management policies. We set out a unified approach to study the trade-offs carbon pricing poses for firms and how they should therefore best respond. Our model shows that while carbon pricing curtails firms’ carbon emissions, polluting firms tilt their green investment mix towards more immediate yet short-lived options – such as solely reducing emissions (abatement) instead of investing in green innovation – as it becomes costlier to comply.

Navigating liquidity crises in non-banks: An assessment of central bank policies

06/22/2023 European Central Bank Central banks

Are central bank tools effective in reaching non-banks with no access to the lender of last resort facilities? Using runs on mutual funds in March 2020 as a laboratory, we show that, following the announcement of large-scale asset purchases, funds with higher ex ante shares of assets eligible for central bank purchases saw their performance improve by 3.6 percentage points and outflows decrease by 61% relative to otherwise similar funds.

Navigating liquidity crises in non-banks: An assessment of central bank policies

06/22/2023 European Central Bank Central banks

Are central bank tools effective in reaching non-banks with no access to the lender of last resort facilities? Using runs on mutual funds in March 2020 as a laboratory, we show that, following the announcement of large-scale asset purchases, funds with higher ex ante shares of assets eligible for central bank purchases saw their performance improve by 3.6 percentage points and outflows decrease by 61% relative to otherwise similar funds.

A new tool in the box: dividend restrictions as supervisory policy stimulus

05/26/2023 European Central Bank Central banks

At the onset of the outbreak of the coronavirus (COVID-19) pandemic, central banks and supervisors introduced dividend restrictions as a new policy instrument aimed at supporting lending to the real economy and strengthening banks' capacity to absorb losses. In this paper we estimate the impact of the ECB's dividend recommendationon on bank lending and risk-taking. To address identification issues, we rely on credit registry data and a direct measure that captures variation in compliance with the recommendation across banks in the euro area.

A new tool in the box: dividend restrictions as supervisory policy stimulus

05/26/2023 European Central Bank Central banks

At the onset of the outbreak of the coronavirus (COVID-19) pandemic, central banks and supervisors introduced dividend restrictions as a new policy instrument aimed at supporting lending to the real economy and strengthening banks' capacity to absorb losses. In this paper we estimate the impact of the ECB's dividend recommendationon on bank lending and risk-taking. To address identification issues, we rely on credit registry data and a direct measure that captures variation in compliance with the recommendation across banks in the euro area.

One product, two prices: the border effect in retail prices

04/20/2023 European Central Bank Central banks

(Why) do prices and inflation rates differ within the euro area? We study the relevance of a national border for grocery prices in the otherwise homogenous and highly integrated border region between Austria and Germany. Using transaction data on prices and quantities from a large household panel survey, we compare the prices of identical products within a narrow band along the border. We find large assortment and price differences between the two countries. Even within multinational retail chains the prices of identical products on each side of the border differ on average by about 21%.

One product, two prices: the border effect in retail prices

04/20/2023 European Central Bank Central banks

(Why) do prices and inflation rates differ within the euro area? We study the relevance of a national border for grocery prices in the otherwise homogenous and highly integrated border region between Austria and Germany. Using transaction data on prices and quantities from a large household panel survey, we compare the prices of identical products within a narrow band along the border. We find large assortment and price differences between the two countries. Even within multinational retail chains the prices of identical products on each side of the border differ on average by about 21%.

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