Luc Laeven
Research
- Current Position
-
Director General
- Fields of interest
-
Financial Economics,International Economics,Macroeconomics and Monetary Economics
- Other current responsibilities
- 2022-
Editor, Journal of Money, Credit and Banking
- 2019-
Member of Advisory Board of Financial Markets Group, London School of Economics
- 2017-
Member of Research Advisory Council of SAFE
- 2016-
Chair of Steering Committee of Euro Area Business Cycle Network
- 2015-
Board member of TalentNomics
- 2015-
Chair of Research Coordination Committee
- 2013-
Associate Editor, Journal of International Money and Finance
- 2009-
Professor of Finance, Tilburg University
- 2009-
Research Fellow, CEPR, London
- Education
- 1999-2001
PhD, Economics, University of Amsterdam, The Netherlands
- 1998-1999
MPhil (no degree), London School of Economics
- 1996-1997
Masters in International Finance, University of Amsterdam, The Netherlands
- 1992-1996
MSc Econometrics, Tilburg University, The Netherlands
- Professional experience
- 2015-
Director General - Directorate General Research, European Central Bank
- 2006-2015
Lead Economist/Deputy Division Chief - Research Department, International Monetary Fund
- 2001-2006
(Senior) Financial Economist - Financial Sector Department, The World Bank
- 1997-1998
Investment Analyst - Asset Management, ABN Amro Bank, Amsterdam/London
- Awards
- 2014
NYU-Fordham-RPI Rising Star in Finance Award
- 1998
Full-tuition University Fellowship, London School of Economics
- 1997
Full-tuition University Fellowship, University of Amsterdam
- Teaching experience
- 2008
Bank Regulation (Executive Education), Universitat Pompeu Fabra
- 2007
Banking, Regulation and Financial Crises (PhD level) - Columbia University, New York, USA
- 2004
Advanced Topics in Corporate Finance (PhD level), Tilburg University
- 8 March 2024
- WORKING PAPER SERIES - No. 2913Details
- Abstract
- We show that public guaranteed loans (PGL) increase credit availability improving real effects, but private banks’ incentives imply that weaker banks shift riskier corporate loans to taxpayers. We exploit credit register data during the COVID-19 shock in Spain, and a stylized model guides the empirics. Unlike non-PGL, banks provide more PGL to riskier firms in which banks have higher pre-crisis shares of firm total credit. Importantly, these effects are stronger for weaker banks. Results using firm(-bank) fixed effects and loan volume versus price information suggest a credit supply-driven mechanism. Moreover, exploiting exogenous variation across similar firms with differing PGL access, we confirm these findings, and we additionally show that PGL increases banks’ overall lending and credit share, with positive effects for firm survival and investment.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G38 : Financial Economics→Corporate Finance and Governance→Government Policy and Regulation
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
H81 : Public Economics→Miscellaneous Issues→Governmental Loans, Loan Guarantees, Credits, Grants, Bailouts
- 21 December 2022
- WORKING PAPER SERIES - No. 2762Details
- Abstract
- Using data on syndicated loans, we find that the introduction of a carbon tax is associated with an increase in domestic banks’ lending to coal, oil, and gas companies in foreign countries. This effect is particularly pronounced for banks with large prior fossil-lending exposures, suggesting a role for bank specialization. Lending to private companies in foreign markets increases relatively more, which points to an intensification of banks’ incentives to avoid public scrutiny. We also find that banks reallocate a relatively larger share of their fossil loan portfolio to countries with less strict environ-mental regulation and bank supervision.
- JEL Code
- F3 : International Economics→International Finance
G15 : Financial Economics→General Financial Markets→International Financial Markets
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
H23 : Public Economics→Taxation, Subsidies, and Revenue→Externalities, Redistributive Effects, Environmental Taxes and Subsidies
Q5 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics
- 15 November 2022
- THE ECB BLOGRelated
- 9 November 2022
- THE ECB BLOG
- 2 November 2022
- THE ECB BLOG
- 7 November 2022
- THE ECB BLOG
- 18 November 2022
- THE ECB BLOG
- 26 July 2022
- WORKING PAPER SERIES - No. 2686Details
- Abstract
- Fulfilling the commitments embedded in the Paris Agreement requires a climate-technologyrevolution. Patented innovation of low-carbon technologies is lower in the EU than in selectedpeers, and very heterogeneous across member states. We motivate this fact with anendogenous model of directed technical change with government policy and financialmarkets. Variations in carbon taxes, R&D investment, and venture capital investment explaina large share of the variation in green patents per capita in the data. We discuss implicationsfor policy, concluding that governments can play a catalytic role in stimulating greeninnovation while the role of central banks is limited.
- JEL Code
- E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
G1 : Financial Economics→General Financial Markets
O4 : Economic Development, Technological Change, and Growth→Economic Growth and Aggregate Productivity
Q5 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics - Network
- Discussion papers
- 26 July 2022
- DISCUSSION PAPER SERIES - No. 19Details
- Abstract
- Fulfilling the commitments embedded in the Paris Agreement requires a climate-technologyrevolution. Patented innovation of low-carbon technologies is lower in the EU than in selectedpeers, and very heterogeneous across member states. We motivate this fact with anendogenous model of directed technical change with government policy and financialmarkets. Variations in carbon taxes, R&D investment, and venture capital investment explaina large share of the variation in green patents per capita in the data. We discuss implicationsfor policy, concluding that governments can play a catalytic role in stimulating greeninnovation while the role of central banks is limited.
- JEL Code
- E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
G1 : Financial Economics→General Financial Markets
O4 : Economic Development, Technological Change, and Growth→Economic Growth and Aggregate Productivity
Q5 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics
- 24 February 2022
- WORKING PAPER SERIES - No. 2647Details
- Abstract
- Recent research developed under the ECB research task force on Monetary Policy, Macroprudential Policy and Financial Stability highlights the existence of trade-offs and spillovers that monetary policy and macroprudential authorities face when deciding on their policy interventions. Monetary policy measures are key to support the supply of credit to the economy, but they could also have unintended consequences on financial stability risks. Macroprudential policies are instead effective in limiting financial stability risks, but they could also reduce the length of economic expansions by preventing credit from flowing to productive economic activities. In addition, since monetary and macroprudential policies transmit to the broad economy via the financial system, they unavoidably affect each other’s effectiveness. Taking these factors into account is key for the design and implementation of both policies.
- JEL Code
- E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages - Network
- Research Task Force (RTF)
- 24 February 2022
- DISCUSSION PAPER SERIES - No. 18Details
- Abstract
- Recent research developed under the ECB research task force on Monetary Policy, Macroprudential Policy and Financial Stability highlights the existence of trade-offs and spillovers that monetary policy and macroprudential authorities face when deciding on their policy interventions. Monetary policy measures are key to support the supply of credit to the economy, but they could also have unintended consequences on financial stability risks. Macroprudential policies are instead effective in limiting financial stability risks, but they could also reduce the length of economic expansions by preventing credit from flowing to productive economic activities. In addition, since monetary and macroprudential policies transmit to the broad economy via the financial system, they unavoidably affect each other’s effectiveness. Taking these factors into account is key for the design and implementation of both policies.
- JEL Code
- E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 24 February 2022
- RESEARCH BULLETIN - No. 92Details
- Abstract
- There are always trade-offs to weigh up when taking monetary and macroprudential policy actions. Thechoice is between supporting the economy by ensuring a smooth supply of credit at favourableconditions, on the one hand, and containing financial stability risks, on the other hand. There are alsosignificant spillovers between the two policies since they are both implemented and transmitted throughthe financial system. Monetary and macroprudential authorities need to take these interactions intoaccount when deciding on interventions. Indeed, there are clear advantages of accounting for financialstability considerations when taking monetary policy decisions and limiting the constraints on the practicalimplementation of macroprudential policy.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
- Network
- Research Task Force (RTF)
- 25 November 2021
- WORKING PAPER SERIES - No. 2615Details
- Abstract
- To what extent can Quantitative Easing impact productivity growth? We document a strong and heterogeneous response of corporate R&D investment to changes in debt financing conditions induced by corporate debt purchases under the ECB’s Corporate Sector Purchase Program. Companies eligible for the program increase significantly their investment in R&D, relative to similar ineligible companies operating in the same country and sector. The evidence further suggests that by subsidizing the cost of debt, corporate bond purchases by the central bank stimulate innovation through a wealth transfer to innovative companies with low debt levels, rather than by supporting credit constrained firms.
- JEL Code
- E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
G10 : Financial Economics→General Financial Markets→General
O3 : Economic Development, Technological Change, and Growth→Technological Change, Research and Development, Intellectual Property Rights - Network
- Research Task Force (RTF)
- 12 May 2021
- WORKING PAPER SERIES - No. 2548Details
- Abstract
- We investigate asset returns around banking crises in 44 advanced and emerging economies from 1960 to 2018. In contrast to the view that buying assets during banking crises is a profitable long-run strategy, we find returns of equity and other asset classes generally underperform after banking crises. While prices are depressed during crises and partially recover after acute stress ends, consistent with theories of fire sales and intermediary-based asset pricing, we argue that investors do not fully anticipate the consequences of debt overhang, which result in lower long-run dividends. Our results on bank stock underperformance suggest that government-funded bank recapitalizations can often lead to substantial taxpayer losses.
- JEL Code
- G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading
G15 : Financial Economics→General Financial Markets→International Financial Markets
G41 : Financial Economics - Network
- Research Task Force (RTF)
- 22 January 2021
- WORKING PAPER SERIES - No. 2511Details
- Abstract
- We evaluate the role of insider ownership in shaping banks’ equity issuances in response to the global financial crisis. We construct a unique dataset on the ownership structure of U.S. banks and their equity issuances and discover that greater insider ownership leads to less equity issuances. Several tests are consistent with the view that bank insiders are reluctant to reduce their private benefits of control by diluting their ownership through equity issuances. Given the connection between bank equity and lending, the results stress that ownership structure can shape the resilience of banks—and hence the entire economy—to aggregate shocks.
- JEL Code
- G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 16 December 2020
- WORKING PAPER SERIES - No. 2504Details
- Abstract
- We document that there are strong complementarities between monetary policy and macroprudential policy in shaping the evolution of bank credit. We use a unique loan-level dataset comprising multiple credit registers from several European countries and different types of loans, including corporate loans, mortgages and consumer credit. We merge this rich information with borrower and bank-level characteristics and with indicators summarising macroprudential and monetary policy actions. We find that monetary policy easing increases both bank lending and lending to riskier borrowers, especially when there is a more accommodative macroprudential environment. These effects are stronger for less capitalised banks. Results apply to both household and firm lending, but they are stronger for consumer and corporate loans than for mortgages. Finally, for firms, the overall increase in bank lending induced by an accommodative policy mix is stronger for more (ex ante) productive firms than firms with high ex ante credit risk, except for banks with low capital.
- JEL Code
- E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation - Network
- Research Task Force (RTF)
- 3 July 2020
- WORKING PAPER SERIES - No. 2438Details
- Abstract
- We study the effects of technological change on financial intermediation, distinguishing between innovations in information (data collection and processing) and communication (relationships and distribution). Both follow historic trends towards an increased use of hard information and less in-person interaction, which are accelerating rapidly. We point to more recent innovations, such as the combination of data abundance and artificial intelligence, and the rise of digital platforms. We argue that in particular the rise of new communication channels can lead to the vertical and horizontal disintegration of the traditional bank business model. Specialized providers of financial services can chip away activities that do not rely on access to balance sheets, while platforms can interject themselves between banks and customers. We discuss limitations to these challenges, and the resulting policy implications.
- JEL Code
- G20 : Financial Economics→Financial Institutions and Services→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
O33 : Economic Development, Technological Change, and Growth→Technological Change, Research and Development, Intellectual Property Rights→Technological Change: Choices and Consequences, Diffusion Processes - Network
- Discussion papers
- 3 July 2020
- DISCUSSION PAPER SERIES - No. 11Details
- Abstract
- We study the effects of technological change on financial intermediation, distinguishing between innovations in information (data collection and processing) and communication (relationships and distribution). Both follow historic trends towards an increased use of hard information and less in-person interaction, which are accelerating rapidly. We point to more recent innovations, such as the combination of data abundance and artificial intelligence, and the rise of digital platforms. We argue that in particular the rise of new communication channels can lead to the vertical and horizontal disintegration of the traditional bank business model. Specialized providers of financial services can chip away activities that do not rely on access to balance sheets, while platforms can interject themselves between banks and customers. We discuss limitations to these challenges, and the resulting policy implications.
- JEL Code
- G20 : Financial Economics→Financial Institutions and Services→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
O33 : Economic Development, Technological Change, and Growth→Technological Change, Research and Development, Intellectual Property Rights→Technological Change: Choices and Consequences, Diffusion Processes
- 14 May 2020
- WORKING PAPER SERIES - No. 2409Details
- Abstract
- Using credit-registry data for Spain and Peru, we document that four main types of commercial credit—asset-based loans, cash-flow loans, trade finance and leasing—are easily identifiable and represent the bulk of corporate credit. We show that credit dynamics and bank lending channels vary across these loan types. Moreover, aggregate credit supply shocks previously identified in the literature appear to be driven by individual loan types. The effects of monetary policy and the effects of the financial crisis propagating through banks’ balance sheets are primarily driven by cash-flow loans, whereas asset-based credit is mostly insensitive to these types of effects.
- JEL Code
- E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 21 April 2020
- WORKING PAPER SERIES - No. 2397Details
- Abstract
- We study the effects of credit over the business cycle, distinguishing between expansions and contractions. We find that there is a growth and risk trade-off in the pace of credit growth over the business cycle. While rapid credit growth tends to be followed by deeper recessions, we also find that credit growth has a positive impact on the duration of expansions. This poses a trade-off for the policymaker: Limiting the buildup of financial risk to avoid a deep recession can negatively affect the cumulation of economic growth during the expansion. We show that intermediate levels of credit growth maximize long-term growth while limiting volatility. Macroprudential policies should be used to manage this growth and risk trade-off, striking a balance between allowing expansions to last longer and avoiding deep recessions.
- JEL Code
- C22 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models &bull Diffusion Processes
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E61 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Policy Objectives, Policy Designs and Consistency, Policy Coordination - Network
- Research Task Force (RTF)
- 14 October 2019
- RESEARCH BULLETIN - No. 63The gender promotion gap: what holds back female economists from making a career in central banking?Details
- Abstract
- The underrepresentation of women in economics is perhaps nowhere as visible as in central banks. This Research Bulletin article uses anonymised personnel data to analyse the career progression of men and women at the European Central Bank (ECB). Women were less likely to be promoted up until 2010, when the ECB issued a statement supporting diversity and took measures to support gender balance. Following this change, the promotion gap disappeared. This masked a lower probability of women applying for promotion, which is partially explained by an aversion to competing, combined with a higher probability of being selected after having applied. Following promotion, women performed better in terms of salary progression, suggesting that the higher probability of being selected is based on merit, not positive discrimination. Thus, organisations such as the ECB should provide training and services that target the competition-related reasons that discourage women from applying for promotion.
- JEL Code
- D20 : Microeconomics→Production and Organizations→General
J16 : Labor and Demographic Economics→Demographic Economics→Economics of Gender, Non-labor Discrimination
J13 : Labor and Demographic Economics→Demographic Economics→Fertility, Family Planning, Child Care, Children, Youth
L20 : Industrial Organization→Firm Objectives, Organization, and Behavior→General
M50 : Business Administration and Business Economics, Marketing, Accounting→Personnel Economics→General
- 7 June 2019
- WORKING PAPER SERIES - No. 2288Details
- Abstract
- Loan loss provisions in the euro area are negatively related to GDP growth, i.e., they are procyclical. Loan loss provisions tend to be more procyclical at larger and better capitalized banks. The procyclicality of loan loss provisions can explain about two-thirds of the variation of bank capitalization over the business cycle. We estimate that provisioning procyclicality in the euro area is about twice as large as in other advanced economies. This difference reflects a larger procyclicality of provisioning in euro area countries already prior to euro adoption, and the divergent growth experiences of euro area countries following the global financial crisis.
- JEL Code
- G20 : Financial Economics→Financial Institutions and Services→General
- 16 April 2019
- WORKING PAPER SERIES - No. 2266Details
- Abstract
- We develop a new theory of information production during credit booms. In our model, entrepreneurs need credit to undertake investment projects, some of which enable them to divert resources towards private consumption. Lenders can protect themselves from such diversion in two ways: collateralization and costly screening, which generates durable information about projects. In equilibrium, the collateralization-screening mix depends on the value of aggregate collateral. High collateral values raise investment and economic activity, but they also raise collateralization at the expense of screening. This has important dynamic implications. During credit booms driven by high collateral values (e.g. real estate booms), the economy accumulates physical capital but depletes information about investment projects. As a result, collateral-driven booms end in deep crises and slow recoveries: when booms end, investment is constrained both by the lack of collateral and by the lack of information on existing investment projects, which takes time to rebuild. We provide new empirical evidence using US firm-level data in support of the model's main mechanism.
- JEL Code
- E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G01 : Financial Economics→General→Financial Crises
D80 : Microeconomics→Information, Knowledge, and Uncertainty→General
- 16 April 2019
- WORKING PAPER SERIES - No. 2265Details
- Abstract
- We examine gender differences in career progression and promotions in central banking, a stereotypical male-dominated occupation, using confidential anonymized personnel data from the European Central Bank (ECB) during the period 2003-2017. A wage gap emerges between men and women within a few years of hiring, despite broadly similar entry conditions in terms of salary levels and other observables. We also find that women are less likely to be promoted to a higher salary band up until 2010 when the ECB issued a public statement supporting diversity and took several measures to support gender balance. Following this change, the promotion gap disappears. The gender promotion gap prior to this policy change is partly driven by the presence of children. Using 2012-2017 data on promotion applications and decisions, we explore the promotion process in depth, and confirm that during this most recent period women are as likely to be promoted as men. This results from a lower probability of women to apply for promotion, combined with a higher probability of women to be selected conditional on having applied. Following promotion, women perform better in terms of salary progression, suggesting that the higher probability to be selected is based on merit, not positive discrimination.
- JEL Code
- J16 : Labor and Demographic Economics→Demographic Economics→Economics of Gender, Non-labor Discrimination
J31 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→Wage Level and Structure, Wage Differentials
J41 : Labor and Demographic Economics→Particular Labor Markets→Labor Contracts
J63 : Labor and Demographic Economics→Mobility, Unemployment, Vacancies, and Immigrant Workers→Turnover, Vacancies, Layoffs
- 15 February 2019
- WORKING PAPER SERIES - No. 2241Details
- Abstract
- We quantify the role of financial factors behind the sluggish post-crisis performance of European firms. We use a firm-bank-sovereign matched database to identify separate roles for firm and bank balance sheet weaknesses arising from changes in sovereign risk and aggregate demand conditions. We find that firms with higher debt levels and a higher share of short-term debt reduce their investment more after the crisis. This negative effect is stronger for firms linked to weak banks with exposures to sovereign risk, signifying increased rollover risk. These financial channels explain about 60% of the decline in aggregate corporate investment.
- JEL Code
- E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
F34 : International Economics→International Finance→International Lending and Debt Problems
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
- 14 November 2018
- RESEARCH BULLETIN - No. 52Details
- Abstract
- How beneficial is labour market flexibility ¬– for instance, the ability to hire and fire workers – for firm growth? And how does such flexibility interact with a firm’s ability to obtain bank credit? This article provides evidence that less rigid employment protection benefits firms during times of scarce credit. We study the performance of credit constrained Spanish firms during the financial crisis of 2008-09, exploiting a firm-size-specific labour regulation that imposes more stringent employment protection on firms with more than 50 employees. We find that Spanish firms with fewer than 50 employees operating in sectors in which labour and capital are close substitutes grew faster during the financial crisis when exposed to a negative credit shock than similarly credit constrained but larger firms. This effect is more pronounced for firms that were more productive before the crisis, suggesting that flexible employment protection laws benefit otherwise healthy firms that are credit constrained, by enabling them to substitute labour for capital and continue growing.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
J80 : Labor and Demographic Economics→Labor Standards: National and International→General
D20 : Microeconomics→Production and Organizations→General
- 24 September 2018
- DISCUSSION PAPER SERIES - No. 7Details
- Abstract
- This paper identifies the various channels that give rise to a "sovereign-bank nexus" whereby the financial health of banks and sovereigns is intertwined. We find that banks and sovereigns are linked by three interacting channels: banks hold large amounts of sovereign debt; banks are protected by government guarantees; and the health of banks and governments affect and is affected by economic activity. Evidence suggests that all three channels are relevant. The paper concludes with a discussion of the policy implications of these findings.
- JEL Code
- E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
F34 : International Economics→International Finance→International Lending and Debt Problems
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 24 September 2018
- WORKING PAPER SERIES - No. 2177Details
- Abstract
- This paper identifies the various channels that give rise to a “sovereign-bank nexus” whereby the financial health of banks and sovereigns is intertwined. We find that banks and sovereigns are linked by three interacting channels: banks hold large amounts of sovereign debt; banks are protected by government guarantees; and the health of banks and governments affect and is affected by economic activity. Evidence suggests that all three channels are relevant. The paper concludes with a discussion of the policy implications of these findings.
- JEL Code
- E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
F34 : International Economics→International Finance→International Lending and Debt Problems
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages - Network
- Discussion papers
- 3 July 2018
- WORKING PAPER SERIES - No. 2166Details
- Abstract
- We offer new evidence on the real effects of credit shocks in the presence of employment protection regulations by exploiting a unique provision in Spanish labor laws: dismissal rules are less stringent for Spanish firms with fewer than 50 employees, lowering the cost of hiring new workers. Using a new dataset, we find that during the financial crisis, healthy firms with fewer than 50 employees borrowing from troubled banks grew faster in sectors where capital and labor were sufficiently substitutable. This result does not obtain when we use a different cut-off for Spain or the same cut-off for firms in Germany. Our evidence suggests that labor market flexibility can dampen the negative effect of credit shocks by allowing firms to keep growing by substituting labor for capital.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
J80 : Labor and Demographic Economics→Labor Standards: National and International→General
D20 : Microeconomics→Production and Organizations→General
- 25 May 2016
- WORKING PAPER SERIES - No. 1910Details
- Abstract
- We exploit regional variations in house price fluctuations in the United States during the early to mid-2000s to study the impact of the housing boom on young Americans' choices related to home ownership, household formation, and fertility. We also introduce a novel instrument for changes in house prices based on the predetermined industrial structure of the local economy. We find that in MSAs which experienced large increases in house prices between 2001 and 2006, the youngest households were substantially less likely to purchase residential property, to be married, and to have a child, both in 2006 and in 2011.
- JEL Code
- E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
J10 : Labor and Demographic Economics→Demographic Economics→General
R21 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Household Analysis→Housing Demand
- 10 May 2016
- WORKING PAPER SERIES - No. 1903Details
- Abstract
- We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on banks
- JEL Code
- E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 20 April 2016
- WORKING PAPER SERIES - No. 1892Details
- Abstract
- We exploit regional variation in US house price fluctuations during the boom-bust cycle of the 2000s to study the impact of the housing cycle on young Americans' choices related to education and employment. We find that in MSAs which experienced large increases in house prices between 2001 and 2006, young adults were substantially more likely to forego a higher education and join the workforce, lowering skill formation. During the bust years, the young, especially those without higher education, were more likely to be unemployed in areas which experienced higher declines in house prices.
- JEL Code
- E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
J10 : Labor and Demographic Economics→Demographic Economics→General
R21 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Household Analysis→Housing Demand
- 2 May 2011
- WORKING PAPER SERIES - No. 1337Details
- Abstract
- Homestead exemptions to personal bankruptcy allow households to retain their home equity up to a limit determined at the state level. Households that may experience bankruptcy thus have an incentive to bias their portfolios towards home equity. Using US household data from the Survey of Income and Program Participation for the period 1996-2006, we find that especially households with low net worth maintain a larger share of their wealth as home equity if a larger homestead exemption applies. This home equity bias is also more pronounced if the household head is in poor health, increasing the chance of bankruptcy on account of unpaid medical bills. The bias is further stronger for households with mortgage finance, shorter house tenures, and younger household heads, which taken together reflect households that face more financial uncertainty.
- JEL Code
- G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
K35 : Law and Economics→Other Substantive Areas of Law→Personal Bankruptcy Law
R21 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Household Analysis→Housing Demand
- 2023
- Journal of Economic Behavior and Organization
- 2023
- Journal of International Economics
- 2023
- Journal of Banking and Finance
- 2023
- Review of Financial Studies
- 2022
- Journal of the European Economic Association
- 2022
- Review of Economics and Statistics
- 2022
- Journal of Monetary Economics
- 2022
- Review of Economic Studies
- 2022
- Journal of International Money and Finance
- 2021
- Journal of Financial and Quantitative Analysis
- 2021
- Journal of Financial Stability
- 2020
- IMF Economic Review
- 2019
- International Journal of Central Banking
- 2019
- IMF Economic Review
- 2018
- Journal of Banking and Finance
- 2017
- Journal of Finance
- 2017
- Journal of Money, Credit, and Banking
- 2017
- Journal of Financial Stability
- 2016
- Journal of Banking and Finance
- 2016
- Journal of Financial Intermediation
- 2016
- Journal of Financial Economics
- 2016
- American Economic Review
- 2015
- Journal of Financial Intermediation
- 2015
- MIT Press
- 2014
- Journal of Economic Theory
- 2013
- Review of Financial Studies
- 2013
- IMF Economic Review
- 2013
- Journal of Money, Credit and Banking
- 2012
- Journal of Financial Economics
- 2012
- Journal of Money, Credit and Banking
- 2012
- American Economic Review
- 2012
- Journal of Public Economics
- 2012
- Journal of Financial Intermediation
- 2012
- Journal of Financial Economics
- 2012
- Review of Financial Studies
- 2009
- Journal of Financial Economics
- 2009
- Review of Financial Studies
- 2009
- Journal of Financial Intermediation
- 2008
- Journal of Financial Intermediation
- 2008
- MIT Press
- 2008
- Review of Financial Studies
- 2008
- Journal of Money, Credit and Banking
- 2008
- Journal of Public Economics
- 2008
- Journal of Financial Intermediation
- 2008
- Journal of Financial Economics
- 2008
- Journal of Financial Economics
- 2007
- The Review of Economics and Statistics
- 2007
- Journal of Financial Economics
- 2007
- Journal of Financial Economics
- 2007
- Journal of Financial Intermediation
- 2006
- Journal of Financial Economics
- 2005
- Journal of the European Economic Association
- 2005
- Cambridge University Press
- 2004
- Journal of Money, Credit and Banking
- 2004
- Journal of Money, Credit and Banking
- 2003
- Journal of Finance