Search Results
Working Paper
Zombies at Large? Corporate Debt Overhang and the Macroeconomy
With business leverage at record levels, the effects of corporate debt overhang on growth and investment have become a prominent concern. In this paper, we study the effects of corporate debt overhang based on long-run cross-country data covering the near universe modern business cycles. We show that business credit booms typically do not leave a lasting imprint on the macroeconomy. Quantile local projections indicate that business credit booms do not affect the economy’s tail risks either. Yet in line with theory, we find that the economic costs of corporate debt booms rise when ...
Working Paper
Sovereigns versus Banks: Credit, Crises, and Consequences
Two separate narratives have emerged in the wake of the Global Financial Crisis. One speaks of private financial excess and the key role of the banking system in leveraging and deleveraging the economy. The other emphasizes the public sector balance sheet over the private and worries about the risks of lax fiscal policies. However, the two may interact in important and understudied ways. This paper studies the co-evolution of public and private sector debt in advanced countries since 1870. We find that in advanced economies financial stability risks have come from private sector credit booms ...
Working Paper
The Time for Austerity: Estimating the Average Treatment Effect of Fiscal Policy
Elevated government debt levels in advanced economies have risen rapidly as sovereigns absorbed private sector losses and cyclical deficits blew up in the Global Financial Crisis and subsequent slump. A rush to fiscal austerity followed but its justifications and impacts have been heavily debated. Research on the effects of austerity on macroeconomic aggregates remains unsettled, mired by the difficulty of identifying multipliers from observational data. This paper reconciles seemingly disparate estimates of multipliers within a unified framework. We do this by first evaluating the validity ...
Working Paper
Decomposing the Fiscal Multiplier
Unusual circumstances often coincide with unusual fiscal policy actions. Much attention has been paid to estimates of how fiscal policy affects the macroeconomy, but these are typically average treatment effects. In practice, the fiscal “multiplier” at any point in time depends on the monetary policy response. Using the IMF fiscal consolidations dataset for identification and a new decomposition-based approach, we show how to evaluate these monetary-fiscal effects. In the data, the fiscal multiplier varies considerably with monetary policy: it can be zero, or as large as 2 depending on ...
Conference Paper
Commentary : demographic changes and international factor mobility
Working Paper
Disasters Everywhere: The Costs of Business Cycles Reconsidered
Business cycles are costlier and stabilization policies more beneficial than widely thought. This paper shows that all business cycles are asymmetric and resemble mini “disasters”. By this we mean that growth is pervasively fat-tailed and non-Gaussian. Using long-run historical data, we show empirically that this is true for all advanced economies since 1870. Focusing on the peacetime sample, we develop a tractable local projection framework to estimate consumption growth paths for normal and financial-crisis recessions. Using random coefficient local projections we get an easy and ...
Report
Zombies at Large? Corporate Debt Overhang and the Macroeconomy
With business leverage at record levels, the effects of corporate debt overhang on growth and investment have become a prominent concern. In this paper, we study the effects of corporate debt overhang based on long-run cross-country data covering the near-universe of modern business cycles. We show that business credit booms typically do not leave a lasting imprint on the macroeconomy. Quantile local projections indicate that business credit booms do not affect the economy’s tail risks either. Yet in line with theory, we find that the economic costs of corporate debt booms rise when ...
Working Paper
Global Financial Cycles and Risk Premiums
This paper studies the synchronization of financial cycles across 17 advanced economies over the past 150 years. The comovement in credit, house prices, and equity prices has reached historical highs in the past three decades. The sharp increase in the comovement of global equity markets is particularly notable. We demonstrate that fluctuations in risk premiums, and not risk-free rates and dividends, account for a large part of the observed equity price synchronization after 1990. We also show that U.S. monetary policy has come to play an important role as a source of fluctuations in risk ...
Working Paper
The Long-Run Effects of Monetary Policy
Is the effect of monetary policy on the productive capacity of the economy long lived? Yes, in fact we find such impacts are significant and last for over a decade based on: (1) merged data from two new international historical databases; (2) identification of exogenous monetary policy using the macroeconomic trilemma; and (3) improved econometric methods. Notably, the capital stock and total factor productivity (TFP) exhibit hysteresis, but labor does not. Money is non-neutral for a much longer period of time than is customarily assumed. A New Keynesian model with endogenous TFP growth can ...
Working Paper
Leveraged bubbles
What risks do asset price bubbles pose for the economy? This paper studies bubbles in housing and equity markets in 17 countries over the past 140 years. History shows that not all bubbles are alike. Some have enormous costs for the economy, while others blow over. We demonstrate that what makes some bubbles more dangerous than others is credit. When fueled by credit booms,asset price bubbles increase financial crisis risks; upon collapse they tend to be followed by deeper recessions and slower recoveries. Credit-financed housing price bubbles have emerged as a particularly dangerous ...