We construct a New-Keynesian E-DSGE model with energy disaggregation and financial intermediaries to show how energy-related fiscal and macroprudential policies interact in affecting the euro area macroeconomy and carbon emissions. When a shock to the price of fossil resources propagates through the energy and banking sector, it leads to a surge in inflation while lowering output and carbon emissions, absent policy interventions.
This paper explores the impact of bank transparency on market efficiency by comparing banks that disclose supervisory capital requirements to those that remain opaque. Due to the informational content of supervisory capital requirements for the market this opacity might hinder market efficiency. The paper estimates an average 11.5% reduction in funding costs for transparent versus opaque banks. However, there is some heterogeneity in those effects. Transparency helps the market to sort across safer and riskier banks.
Does it pay to invest in green companies? In countries where a market for carbon is functioning, such as those within the European Union, our findings suggest that it should be beneficial. Using a sample of green and brown European firms, we initially demonstrate that green companies have outperformed brown ones in recent times. Subsequently, we develop a production economy model in which brown firms acquire permits to emit carbon into the atmosphere. We find that the presence of a well-functioning carbon market could account for the green equity premium observed in our data.
We document that compared to all other investor groups investment funds exhibit a distinctly procyclical behavior when financial-market beliefs about the probability of a euro-related, institutional rare disaster spike. In response to such euro disaster risk shocks, investment funds shed periphery but do not adjust core sovereign debt holdings. The periphery debt shed by investment funds is picked up by investors domiciled in the issuing country, namely banks in the short term and insurance corporations and households in the medium term.
We document that inflation risk in the U.S. varies significantly over time and is often asymmetric. To analyze the macroeconomic effects of these asymmetric risks within a tractable framework, we construct the beliefs representation of a general equilibrium model with skewed distribution of markup shocks. Optimal policy requires shifting agents’ expectations counter to the direction of inflation risks.
Climate change is a global-scale structural change, affecting economies across the world, alongside global fragmentation, digitalisation and demographics. This paper analyses the diffusion of climate policies and technologies and the role of institutions and governance in that process. It discusses theory, models and data available to date, and the empirical evidence for the 20 European Union and all 40 countries covered by the OECD’s Environmental Policy Stringency index.
Institutional investors, such as investment funds, are playing an increasingly important role in residential real estate markets. This raises the possibility that their actions might drive aggregate market outcomes and may change how and which macrofinancial shocks transmit to house prices. In a Bayesian vector autoregression setting, we show that a demand shock from institutional investors has a positive and persistent effect on aggregate euro area house price growth and mortgage lending volumes.
Using supervisory data of alternative investment funds investing in bonds, I exploit the COVID-19 crisis to examine the effectiveness of redemption restrictions from a financial stability perspective. First, I find that redemption restrictions reduced outflows during the March 2020 market turmoil but did not result in higher outflows in the periods following the crisis episode. Second, I find that funds with higher redemption restrictions engaged less in procyclical cash hoarding during the COVID-19 crisis period, even after controlling for the size of their outflows.
We study the heterogeneous pass-through of monetary policy across firms with different labor shares. The goal is to obtain evidence on a labor-intensity transmission channel that should in fact be operating for other kinds of demand shocks as well. Our basic idea is that labor is special: unlike capital, it cannot be pledged against loans as collateral due to property rights.
Following the Global Financial Crisis of 2007-8, Ireland, Slovenia, and Spain set up public Asset Management Companies (AMCs), purchasing delinquent loans equal to 44%, 16%, and 10% of GDP, respectively. Though deemed successful, it’s unclear if this was de facto traditional capital and liquidity support. We show that AMCs have a systematic advantage in reducing pecuniary externalities and costs associated with loan delinquencies.
