My main research interests are in monetary policy transmission and international capital flows. I have published work in the Journal of Banking and Finance, in the Journal of International Money and Finance, in Applied Econometrics and International Development, in Oxford Economic Papers, and in Publius – The Journal of Federalism on various issues ranging from monetary policy to debt relief initiatives to fiscal federalism. My current research projects include examinations of the role of borrower balance sheets and bank liquidity on monetary policy effectiveness, and of central bank preferences in emerging market economies.
Following the European Debt Crisis, there was a significant push for greater fiscal discipline across the EU member states. This began with the revitalization of the Stability and Growth Pact in 2011 and continued with the adoption of the Fiscal Stability Treaty of 2013. The measures were designed to maintain or achieve both government debt-to-GDP ratios of below 60% and government budget deficits of below 3%. This paper investigates whether the fiscal discipline measures had an impact on the relationship between fiscal and current account balances. Using the synthetic control method, we examine current account balances in each EU member state that implemented the fiscal provisions in the treaty (Title III), compared to a synthetic counterfactual economy. We find that countries most impacted by the European Debt Crisis experienced the greatest improvement in their current account deficits from the fiscal discipline measures. Several other EU member states also experienced stabilization in their current account balances compared to their synthetic counterfactuals.
We find that the lending behavior of global banks' subsidiaries throughout the world is more closely related to local macroeconomic conditions and their financial conditions than to those of their owner-specific counterparts. This inference is drawn from a panel dataset populated with bank-level observations from the Bankscope database. Using this database, we identify ownership structures and incorporate them into a unique methodology that identifies and compares the owner and subsidiary-specific determinants of lending. A distinctive feature of our analysis is that we use multi-dimensional country-level data from the BIS international banking statistics to account for exchange rate fluctuations and cross-border lending.
This paper finds that factors determined outside of a country, at the quarterly frequency and especially after 2008, are more closely related to the global bank loans it receives. These loans are generally more stable when global banks face more competition and have a higher presence in the recipient country. We obtain our results by using bilateral lending data from 15 countries and a unique methodology to identify and compare the independent effects of external and internal factors. We identify theoretical mechanisms that can explain our empirical findings and draw more detailed inferences for competition and global bank presence by solving a simple model of global banking.
We make a novel attempt at comparing the strength of the lending and balance sheet channels of monetary transmission. To make this comparison, we use loan-level data to determine how borrower balance sheets and bank liquidity are related to bank lending decisions and how monetary policy can affect these relationships. The key innovation in this paper is the use of loan-level data. This enables us to measure the independent effects of the two channels and directly account for borrower balance sheets and lender liquidity instead of using proxies. Our results show that the balance sheet channel is the main mechanism through which monetary policy shocks are transmitted to the economy and that the lending channel does not play a significant role.
This paper shows that the balance sheet channel of monetary transmission is stronger for US banks that securitize their assets. This finding is different, in spirit, from the widely-found negative relationship between financial development and the strength of the lending channel of monetary transmission. Focusing on the balance sheet channel, and using bank-level observations, we find that securitizing banks are more sensitive to borrowers’ balance sheets and that monetary policy has a greater impact on this sensitivity for securitizing banks. The optimality conditions from a simple partial equilibrium framework suggest that the positive effects of securitization on policy effectiveness could be due to the high sensitivity of security prices to policy rates.
We study the channels of interstate risk sharing in Germany for the time period 1970 to 2006, estimating the degrees of smoothing of a shock to a state's gross domestic product by factor markets, the government sector, and credit markets, respectively. Within the government sector, we pay special attention to Germany's fiscal equalization mechanism. For pre-unification Germany, we find that about 19% of a shock is smoothed by private factor markets, 50% is smoothed by the German government sector, and a further 17% is smoothed through credit markets. For the post-unification period, 1995 to 2006, the relative importance of the smoothing channels has changed. Factor markets contribute around 50.5% to consumption smoothing. The government sector's role is diminished, but still economically significant: it smoothes around 10% of a shock.
We provide estimates of the risk-sharing and redistributive properties of the German federal fiscal system based on data from 1970 to 2006, with special attention to the effects of German unification. Tax revenue sharing between the states and the federal government and the fiscal equalization mechanism (Länderfinanzausgleich) together reduce differences in per-capita state incomes by almost 40 percent. The federal fiscal system offsets 47 percent of an asymmetric shock to state per-capita incomes. This effect has significantly decreased after the inclusion of the East German states in 1995. Furthermore, we find that the German fiscal system provides almost perfect insurance for state government budgets against asymmetric revenue shocks; also, its redistributive effect with regard to the tax resources available to state governments is very strong.
In this paper I investigate the effects of recent debt relief initiatives on resource flows to low-income developing countries. For countries that are part of the Heavily Indebted Poor Countries (HIPC) initiative, I find that good macroeconomic management does not influence the level of resource and foreign aid receipts. Furthermore, my estimates suggest HIPC countries receive higher net transfers than non-HIPC countries in the 1990s with the differences declining after 1996. Confirming findings in the earlier literature, my results suggest that aid flows have not changed significantly in response to debt relief.
In this paper, I investigate whether the numerous debt relief initiatives during the 1990s have had a significant effect on economic growth rates in developing countries. The major initiatives during that time period were negotiated as bilateral agreements under the guidance of the Paris Club of Creditors. These agreements were followed up by the Heavily Indebted Poor Countries (HIPC) debt relief initiative in 1996 and its "enhanced" version in 1999 under the guidance of the World Bank and the International Monetary Fund. I find that, on average, debt relief had no effect on growth rates of developing countries. However, the effect on growth rates differed for different subsets of developing countries. I find that countries that are not classified as HIPC have benefited significantly from debt relief, whereas the growth rates of HIPC countries remained unaffected.
The original aim of the Heavily-Indebted Poor Countries (HIPC) initiative was to remove the debt overhang that was viewed as an obstacle to achieving sustained levels of growth and poverty reduction. The stated objectives of the enhanced HIPC Initiative are to: i) provide a permanent 'exit' from debt rescheduling through reduction of external debt, ii) raise long-term economic growth, and iii) reduce poverty. In this paper, we investigate the performance of HIPCs with respect to economic growth and poverty reduction since the launch of the original Initiative.
In this paper I investigate the effect of debt relief on per capita health expenditures in a sample of developing countries. I find that debt relief has little or no effect on health expenditures in countries classified as Heavily Indebted Poor Countries (HIPC). Their level of health expenditures, however, is significantly higher than that in other developing countries. Contrastingly, non-HIPC countries increase their per capita health expenditures more than proportionally if they receive debt relief. This result is surprising considering that per capita amounts of debt relief provided to HIPC countries are on average significantly higher than those to non-HIPC countries.
This paper examines post-East Asian crisis monetary and exchange rate policy in four Asian countries – Thailand, Indonesia, the Philippines, and Korea – with the intention of uncovering monetary policy objectives beyond traditional inflation and output stabilization. We estimate a simple three-sector New Keynesian model of a small open economy. The sectors are the primary (agriculture and mining), the secondary (manufacturing) and the tertiary (services) sector. Using maximum likelihood estimation techniques, we estimate a multiple-equation model for each country consisting of a simple Taylor-type interest rate rule, and constraints imposed on the central bank by the structural model.We find some empirical support for exchange rate targeting by monetary authorities in Emerging Asia.