My research fields: Macroeconomics/Monetary Economics, Applied Econometrics, Firm Dynamics
Publications
Credit supply shocks and prices: Evidence from Danish firms
with Tobias Renkin, American Economic Journal: Macroeconomics, 2024, 16(2), 1-28 [PDF, Appendix, Published article, Code repository]
We investigate whether loan supply shocks lead to firms inreasing or decreasing their output prices and reconcile findings in the literature (see e.g. Gilchrist et al., 2017; Kim, 2021). We combine data on loans between Danish firms and banks with survey-based producer prices and transaction-based export unit values. Exploiting banks` heterogeneous exposure to the global financial crisis, we show that loans to firms with relationships to exposed banks drop by around 20% and lending rates increase. In response, firms raise prices by 3-5%. This effect is decreasing in the elasticity of firms` demand but positive for most industrial production. We test multiple channels for this behavior, and our results suggest that manufacturing firms set prices to maximize short-run cash flow at the expense of longer-run market share when external funds become unavailable.
The impact of pessimistic expectations on the effects of Covid-19-induced uncertainty in the euro area
with Giovanni Pellegrino & Federico Ravenna, Oxford Bulletin of Economics and Statistics, 2021, 83(4), 841-869 [PDF, Appendix, Published article, Replication repository]
We estimate a non-linear VAR that allows for interactions of the average and the dispersion of economic outlooks. Shocks to uncertainty on industrial production and inflation are three and a half times larger during pessimistic times.
Forecasting the production side of GDP
with Gregor Bäurle and Elizabeth Steiner, Journal of Forecasting, 2021, 40(3), 458-480 [PDF, Published article]
The economy is very heterogeneous: Production sectors are affected differently by macroeconomic shocks, and micro shocks through sectoral interlinkages shape macro fluctuations. We propose and evaluate a Bayesian dynamic factor model to forecast not headline GDP but its entire production side, i.e. sectoral value added.
Working papers
Corporate leverage and the effects of monetary policy on investment: A reconciliation of micro and macro elasticities [Latest draft, SNB working paper]
with Valentin Grob
We investigate how the level of corporate leverage affects firms` investment response to monetary policy shocks. Based on novel aggregate time series estimates, leverage acts amplifying, whereas in the cross section of firms, higher leverage predicts a muted response to monetary policy. We use a heterogeneous firm model to show that in general equilibrium, both empirical findings can be true at the same time: When the average firm has low leverage and reduces its investment demand strongly after a contractionary shock, the lower price of capital incentivizes all other firms to invest relatively more, which mutes the aggregate effect.
Consumer memory, inflation expectations and the interpretation of shocks [Draft]
When consumers are confronted with new macroeconomic information, they recall business cycles from their own living memory to update their expectations about the future. For example, during the outbreak of Covid-19 in the spring of 2020, those who have experienced that inflation fell during recessions lowered their inflation expectations the most and reported hearing news about demand-, as opposed to supply-side mechanisms. The result holds more generally: Confronted with a new cost-push shock, consumers who have experienced them in the past are better able to interpret them as inflationary. Interestingly, the same individuals pay more attention to news from the central bank, making monetary policy more effective.
The extensive and intensive margin of price adjustment to cost shocks:
Evidence from Danish multiproduct firms [Draft, new version coming soon]
with Luca Dedola and Mark Strøm Kristoffersen
We study the pass-through of cost shocks to monthly output prices of Danish producers. Unconditional price change frequencies and distributions suggest a high degree of (state-dependent) nominal rigidities. In macroeconomic models, this leads to selection, a bias in estimable pass-through of cost shocks and lower real effects of monetary policy. We develop an estimation algorithm that jointly estimates the extensive and intensive margins of price adjustments and corrects for selection bias. We apply it to an aggregate and a firm-level cost shock and find that while statistically significant, selection bias is economically small. However, real rigidities such as strategic interactions between competitors› price-setting and supply chain linkages play a significant role in the size and shape of aggregate pass-through.
Heterogeneous employment effects of firms` financial constraints and wageless recoveries [Draft]
This paper studies the interaction of employment and wages in light of credit supply disruptions. I first establish that firms borrowing from banks highly exposed to the money market prior to the Global Financial Crisis received a shock to external liquidity, relative to otherwise similar firms. This constraint led to a drop in employment of 5% in affected firms relative to other firms and almost no movement of average wages. I use matched employer-employee data to show that firms cut labor cost by changing the composition of their labor force: Conditional on credit supply shocks, separation rates increase most for the workers with the highest wages. This is not explained by higher wage stickiness at the top of the wage distribution, but directly related to firms› liquidity needs. Employees separated from jobs with high wages are re-employed quickly, albeit at lower wages. This leads to sluggish wage growth even in unconstrained firms, and well into the recovery after a financial recession, implying a flattening of the Phillips curve.
Work in progress
Markups and marginal costs over the firm life (with Klaus Adam and Tobias Renkin)
Central bank credibility at home and abroad