The (Unintended?) Consequences of the Largest Liquidity Injection Ever
Journal of Monetary Economics, 112, 97-112, June 2020.
Co-authors: Miguel Faria-e-Castro and Luìs Fonseca
Paper · BibTeX · Google Scholar
The Anatomy of the Transmission of Macroprudential Policies
Being revised for resubmission at the Journal of Finance
Co-authors: V. Acharya, K. Bergant, T. Eisert, F. McCann, April 2020
Paper · BibTeX
FIRS 2018, LSE PWC, NBER SI (CF), EFA 2019, WFA-CFAR 2019, AFA 2020
Abstract: We analyze how regulatory constraints on household leverage—in the form of loan-to-income and loan-to-value limits—affect residential mortgage credit and house prices as well as other asset classes not directly targeted by the limits. Supervisory loan level data suggest that mortgage credit is reallocated from low- to high-income borrowers and from urban to rural counties. This reallocation weakens the feedback loop between credit and house prices and slows down house price growth in “hot” housing markets. Consistent with constrained lenders adjusting their portfolio choice, more-affected banks drive this reallocation and substitute their risk-taking into holdings of securities and corporate credit.
Zombie Credit and (Dis-)Inflation: Evidence from Europe
Co-authors: V. Acharya, T. Eisert, C. Eufinger, June 2020
Paper · BibTeX · VoxEU · FT
FRBNY/NYU FI 2019, MonPolicy & Reality, FIRS 2020, Cavalcade 2020, WFA 2020, AFA 2021
Abstract: We show that cheap credit to impaired firms has a disinflationary effect. By helping distressed firms to stay afloat, “zombie credit” creates excess production capacity reducing, in turn, prices and markups. Granular European inflation and firm-level data confirms this mechanism. At the industry-country level, a rise of zombie credit is associated with a decrease in product prices, markups, firm default, entry, and productivity, and an increase in input costs and sales. Without a rise in zombie credit, inflation in Europe would have been 0.4 percentage points higher post-2012. We also document adverse spillover effects from zombie to healthy firms.
Pirates without Borders: the Propagation of Cyberattacks through Firms’ Supply Chains Co-authors: Marco Macchiavelli and André Silva, July 2020
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Abstract: We document the propagation through supply chains of the most damaging cyberattack in history and the important role of banks in mitigating its impact. Customers of directly hit firms saw reductions in revenues, profitability, and trade credit relative to similar firms. The losses were larger for customers with fewer alternative suppliers and suppliers producing high-specificity inputs. Internal liquidity buffers and increased borrowing, mainly through bank credit lines, helped affected customers maintain investment and employment. However, the shock led to persisting adjustments to the supply chain network.
Monetary Policy and Export-Dependent Growth in the Euro Area: Curse or Blessing? Co-authors: T. Eisert, T. Marchuk