Research

Government Spending Multipliers in (Un)certain Times [with Mathias Klein and Malte Rieth (Revise and Resubmit @ Journal of Public Economics)]

We estimate the dynamic effects of government spending shocks, using time-varying volatility in US data modelled through a Markov switching process. We find that the average government spending multiplier is significantly and persistently above one, driven by a crowding-in of private consumption and non-residential investment. We rationalize the results empirically through a contemporaneously countercyclical response of government spending and an efficient weighting of observations inversely to their error variance. We then show that the multiplier is signiﬁcantly smaller when volatility is high, consistent with theories predicting reduced effectiveness of fiscal interventions in uncertain times.

Presented at: International Association for Applied Econometrics 2019, ECB Internal Seminars, DIW Macro Seminar

Better off without the Euro? A Structural VAR Assessment of European Monetary Policy [with Patrick Harms]

Modern OCA theory has developed different conclusions on when forming a currency union is beneficial. An important pragmatic question in this context is: Did delegating monetary policy to the ECB increase stress in the individual euro area countries? An SVAR analysis reveals that monetary stress has declined more in the euro area than in the euro areas’ doppelganger. The synthetic doppelganger is composed of other OECD countries. This result is independent of the identification strategy (sign restrictions/heteroskedasticity/Cholesky). The results can be rationalized by more formalized central banking and the euro becoming a dominant currency.

Presented at: European Economic Association 2020 Annual Congress

Monetary policy transmission at firm-level – Theory and evidence on production dynamics, labor costs and the labor share [with Lea Steininger]

Conditional on a monetary policy shock, the labor share is expected to be pro-cyclical in the basic New Keynesian model. This study provides firm-level evidence that factor input reallocation is an outcome as well as a transmission mechanism of monetary policy. Using local projections and high dimensional fixed effects we find that a one standard deviation contractionary information-neutral monetary policy shock decreases the labor share by one percent with a two-year lag. Most heterogeneity across firms can be explained by their variation in the labor share. Firms with higher labor shares are more responsive to MP shocks.

Presented at: WU Vienna Macro Seminar

Testing Sign Restrictions and Narrowing Intervals – A Frequentist Approach.

Conventionally used sign restriction algorithms do either not account for estimation uncertainty or they treat estimation uncertainty equivalent to identification uncertainty. Such sign restriction algorithms by construction do never produce statistically insignificant results, which is unsatisfactory with a frequentist perspective. This paper develops a method to narrow the set of set-identified models using heteroskedasticity with an algorithm that accounts for uncertainty from identification (structural) and estimation (reduced form) separately to be able to falsify identification assumptions.

Presented at the Econometric Seminar of the University Göttingen, Freie Universität Berlin Doctoral Macro Seminar.

Bond market liquidity and swap market arbitrage – what role does the repo market play? [with Michael Grill and Claudia Lambert]
The analysis provides empirical evidence that repo market liquidity is an important determinant of bond market liquidity and arbitrage opportunities in swap markets. The first part of the analysis is concerned with the role of repo market liquidity in funding bonds used as collateral in repo transactions. It explores whether tense repo markets reduce the liquidity in bond markets. The second part examines how lower liquidity in repo markets hampers arbitrage in swap markets. The results presented show that repo markets support both bond market liquidity and swap market efficiency, highlighting their important role in financial markets.

Presented at: ECB Macroprudential Seminar Series

Related Publications: Bond market liquidity and swap market efficiency – what role does the repo market play? [ECB, Economic Bulletin, 2020, Issue 1]