Foreign Funding Shocks and the Lending Channel: Do Foreign Banks Adjust Differently?
Felix Noth, Matias Ossandon Busch
Finance Research Letters,
November
2016
Abstract
We document for a set of Latin American emerging countries that the different nature of foreign funding accessed by foreign and local banks affected their lending performance after September 2008. We show that lending growth was weaker for shock-affected foreign banks compared to shock-affected local banks. This evidence represents valuable policy information for regulators concerned with the stability and well-functioning of banking sectors.
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Taxation and the International Mobility of Inventors
Ufuk Akcigit, Salomé Baslandze, Stefanie Stantcheva
American Economic Review,
No. 10,
2016
Abstract
We study the effect of top tax rates on “superstar” inventors’ international mobility since 1977, using panel data on inventors from the US and European Patent Offices. We exploit the differential impact of changes in top tax rates on inventors of different qualities. Superstar inventors' location choices are significantly affected by top tax rates. In our preferred specification, the elasticity to the net-of-tax rate of the number of domestic superstar inventors is around 0.03, while that of foreign superstar inventors is around 1. These elasticities are larger for inventors in multinational companies. An inventor is less sensitive to taxes in a country if his company performs a higher share of its research there.
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The Macroeconomic Risks of Undesirably Low Inflation
Jonas Arias, Christopher J. Erceg, Mathias Trabandt
European Economic Review,
2016
Abstract
This paper investigates the macroeconomic risks associated with undesirably low inflation using a medium-sized New Keynesian model. We consider different causes of persistently low inflation, including a downward shift in long-run inflation expectations, a fall in nominal wage growth, and a favorable supply-side shock. We show that the macroeconomic effects of persistently low inflation depend crucially on its underlying cause, as well as on the extent to which monetary policy is constrained by the zero lower bound. Finally, we discuss policy options to mitigate these effects.
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On the Distribution of Refugees in the EU
Oliver Holtemöller, Axel Lindner, Andreas Schmalzbauer, Götz Zeddies
Intereconomics,
No. 4,
2016
Abstract
The current situation regarding the migration of refugees can only be handled efficiently through closer international cooperation in the field of asylum policy. From an economic point of view, it would be reasonable to distribute incoming refugees among all EU countries according to a distribution key that reflects differences in the costs of integration in the individual countries. An efficient distribution would even out the marginal costs of integrating refugees. In order to reach a political agreement, the key for distributing refugees should be complemented by compensation payments that distribute the costs of integration among countries. The key for distributing refugees presented by the EU Commission takes account of appropriate factors in principle, but it is unclear in terms of detail. The compensation payments for countries that should take relatively high numbers of refugees for cost efficiency reasons should be financed by reallocating resources within the EU budget.
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Losing Work, Moving Away? Regional Mobility After Job Loss
Daniel Fackler, Lisa Rippe
Abstract
Using German survey data, we investigate the relationship between involuntary job loss and regional mobility. Our results show that job loss has a strong positive effect on the propensity to relocate. We also analyze whether the high and persistent earnings losses of displaced workers can in part be explained by limited regional mobility. Our findings do not support this conjecture as we find substantial long lasting earnings losses for both movers and stayers. In the short run, movers even face slightly higher losses, but the differences between the two groups of displaced workers are never statistically significant. This challenges whether migration is a beneficial strategy in case of involuntary job loss.
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Lend Global, Fund Local? Price and Funding Cost Margins in Multinational Banking
Rients Galema, Michael Koetter, C. Liesegang
Review of Finance,
No. 5,
2016
Abstract
In a proposed model of a multinational bank, interest margins determine local lending by foreign affiliates and the internal funding by parent banks. We exploit detailed parent-affiliate-level data of all German banks to empirically test our theoretical predictions in pre-crisis times. Local lending by affiliates depends negatively on price margins, the difference between lending and deposit rates in foreign markets. The effect of funding cost margins, the gap between local deposit rates faced by affiliates abroad and the funding costs of their parents, on internal capital market funding is positive but statistically weak. Interest margins are central to explain the interaction between internal capital markets and foreign affiliates lending.
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The Role of Information in Innovation and Competition
Ufuk Akcigit, Qingmin Liu
Journal of the European Economic Association,
No. 4,
2016
Abstract
Innovation is typically a trial‐and‐error process. While some research paths lead to the innovation sought, others result in dead ends. Because firms benefit from their competitors working in the wrong direction, they do not reveal their dead‐end findings. Time and resources are wasted on projects that other firms have already found to be fruitless. We offer a simple model with two firms and two research lines to study this prevalent problem. We characterize the equilibrium in a decentralized environment that necessarily entails significant efficiency losses due to wasteful dead‐end replication and an information externality that leads to an early abandonment of the risky project. We show that different types of firms follow different innovation strategies and create different kinds of welfare losses. In an extension of the core model, we also study a centralized mechanism whereby firms are incentivized to disclose their actions and share their private information in a timely manner.
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Does Administrative Status Matter for Urban Growth? Evidence from Present and Former County Capitals in East Germany
Bastian Heider, Albrecht Kauffmann, Martin T. W. Rosenfeld
Abstract
Public sector activities are often neglected in the economic approaches used to analyze the driving forces behind urban growth. The institutional status of a regional capital is a crucial aspect of public sector activities. This paper reports on a quasi-natural experiment on county towns in East Germany. Since 1990, cities in East Germany have demonstrated remarkable differences in population development. During this same period, many towns have lost their status as a county seat due to several administrative reforms. Using a difference-in-difference approach, the annual population development of former county capitals is compared to population change in towns that have successfully held on to their capital status throughout the observed period. The estimations show that maintaining county capital status has a statistically significant positive effect on annual changes in population. This effect is furthermore increasing over time after the implementation of the respective reforms.
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Informal or Formal Financing? Evidence on the Co-Funding of Chinese Firms
Hans Degryse, Liping Lu, Steven Ongena
Journal of Financial Intermediation,
2016
Abstract
Different modes of external finance provide heterogeneous benefits for the borrowing firms. Informal finance offers informational advantages whereas formal finance is scalable. Using unique survey data from China, we find that informal finance is associated with higher sales growth for small firms but lower sales growth for large firms. We identify a complementary effect between informal and formal finance for the sales growth of small firms, but not for large firms. Co-funding, thereby simultaneously using the informational advantage of informal finance and the scalability of formal finance, is therefore the optimal choice for small firms.
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Much Ado About Nothing: Sovereign Ratings and Government Bond Yields in the OECD
Makram El-Shagi
IWH Discussion Papers,
No. 22,
2016
Abstract
In this paper, we propose a new method to assess the impact of sovereign ratings on sovereign bond yields. We estimate the impulse response of the interest rate, following a change in the rating. Since ratings are ordinal and moreover extremely persistent, it proves difficult to estimate those impulse response functions using a VAR modeling ratings, yields and other macroeconomic indicators. However, given the highly stochastic nature of the precise timing of ratings, we can treat most rating adjustments as shocks. We thus no longer rely on a VAR for shock identification, making the estimation of the corresponding IRFs well suited for so called local projections – that is estimating impulse response functions through a series of separate direct forecasts over different horizons. Yet, the rare occurrence of ratings makes impulse response functions estimated through that procedure highly sensitive to individual observations, resulting in implausibly volatile impulse responses. We propose an augmentation to restrict jointly estimated local projections in a way that produces economically plausible impulse response functions.
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