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The Financial Accelerator in the Euro Area
We estimate a logit mixture vector autoregressive model describing monetary policy transmission in the euro area over the period 2003Q1-2019Q4 with a special emphasis on credit conditions. With the help of this model, monetary policy transmission can be described as mixture of two states (e.g., a normal state and a crisis state), using an underlying logit model determining the relative weight of these states over time. We show that shocks to the credit spread and shocks to credit standards directly lead to a reduction of real GDP growth, whereas shocks to the quantity of credit are slightly less important in explaining growth fluctuations. The credit spread and - to some extent - credit standards are also the key determinants of the underlying state of the economy in the logit submodel. Together with a more pronounced transmission of monetary policy shocks in the crisis state, this provides further evidence for a financial accelerator in the euro area. Finally, the detrimental effect of credit conditions is also reflected in the labor market.
Costly, But (relatively) Ineffective?
We evaluate Germany's temporary value-added tax (VAT) rate reduction as a tool to stimulate consumer spending during the Covid-19 pandemic using a comparative case study approach. We construct a credible counterfactual for Germany in a two-step procedure. First, we carry out a careful pre-selection of the donor pool countries to obtain a control group that is highly similar to Germany regarding important post-treatment characteristics. Second, we apply a reweighting scheme on the pre-selected donor countries. The synthetic control group only differs from Germany in the way that it did not implement the temporary VAT rate reduction. Our results indicate that the German VAT cut policy and partial VAT reductions in other countries were relatively ineffective in stimulating consumption with regards to their costs when compared to other measures such as (targeted) direct cash transfers. We attribute this to the fact that direct cash transfers are more comprehensible, salient, and actionable, in particular, in a dynamic environment with high uncertainty induced by unclear future economic prospects.
Macroeconomic Expectations and State-dependent Factor Returns
We examine the asymmetric impact of shocks to macroeconomic expectations and their underlying dispersion on equity risk premia across different market regimes. First, we rely on a two-state logit mixture vector autoregressive model and use Consensus Economics survey data on GDP growth, inflation, and short-term interest rates to approximate macroeconomic expectations and the underlying disagreement in the United States for the period 1989M10-2022M09. We demonstrate that unexpected changes of survey forecasts and their dispersion significantly affect cyclical factor returns in a dynamic setting and that the state of the economy matters for the magnitude, persistence, and occasionally also for the sign of the effect. Second, by extending the dynamic asset pricing model of Adrian et al. (2015), we show that GDP forecasts and their dispersion are priced in the cross section and drive the size and value premium, whereas inflation expectations serve as robust predictors for the price of risk. We also document that the survey expectationsaugmented specification reduces pricing and premium errors when compared to a common benchmark of return predictors.
(Almost) Recursive Identification of Monetary Policy Shocks with Economic Parameter Restrictions
Recursively identified vector autoregressive (VAR) models often lead to a counterintuitive response of prices (and output) shortly after a monetary policy shock. To overcome this problem, we propose to estimate the VAR parameters under the restriction that economic theory is not violated, while the shocks are still recursively identified. We solve this optimization problem under non-linear constraints using an augmented Lagrange solution approach, which adjusts the VAR coefficients to meet the theoretical requirements. In a generalization, we allow for a (minimal) rotation of the Cholesky matrix in addition to the parameter restrictions. Based on a Monte Carlo study and an empirical application, we show that particularly the "almost recursively identified approach with parameter restrictions" leads to a solution that avoids an estimation bias, generates theory-consistent impulse responses, and is as close as possible to the recursive scheme.
Public Family Firms and Economic Inequality Across Societies
Research and public interest on economic inequality have grown over the last years. Family firms and the concentration of wealth and power in the hands of a few wealthy business families have been discussed as both a cause and a consequence of economic inequality. Yet, so far, we lack knowledge about the relationship between economic inequality and the share of family firms in an economy. Our study investigates how the share of family-controlled public firms correlates with various measures of income and wealth inequality. The results show that a higher share of public family-controlled firms leads to more income inequality in a country. This effect is particularly pronounced for the middle ...
The Interdependence of Intellectual Property and Sales in the Manufacturing Industry
Firms often struggle with the successful commercialization of innovations, and there is a need for reliable predictors. Prior research suggests that intellectual property (IP) rights play a key role in the commercialization of innovations. However, to what extent can IP rights be used to predict successful commercialization of innovations in the manufacturing industry? Our paper studies the role of patents and trademarks and their complementary and substitutive relationships to predict commercialization success as measured by sales. We also analyze potential reciprocal relationships between commercial success and IP rights. The relationships are explored in a panel dataset of 2,617 German Mittelstand firms over a 10-year period. The results of a panel vector autoregressive model show a short-lived positive effect of patents on sales growth and vice versa. However, no significant effects are found between trademarks and sales growth. Finally, a positive and complementary relationship between patents and trademarks is documented.
Sanctioned to Death?
We empirically analyze the effect of UN and US economic sanctions on life expectancy and its gender gap in target countries. Our sample covers 98 less developed and newly industrialized countries over the period 1977-2012. We employ a matching approach to account for the endogeneity of sanctions. Our results indicate that an average episode of UN sanctions reduces life expectancy by about 1.2-1.4 years. The corresponding decrease of 0.4-0.5 years under US sanctions is significantly smaller. In addition, we find evidence that women are affected more severely by the imposition of sanctions. Sanctions not being "gender-blind" indicates that they disproportionately affect (the life expectancy of) the more vulnerable members of society. We also detect effect heterogeneity, as the reduction in life expectancy accumulates over time and countries with a better political environment are less severely affected by economic sanctions. Finally, we provide some evidence that an increase in child mortality and Cholera deaths as well as a decrease in public spending on health care are transmission channels through which UN sanctions adversely affect life expectancy in the targeted countries.
