Financial frictions, labour markets, and the macroeconomy
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Date
30/11/2020Author
Moertel, Julia Stefanie
Metadata
Abstract
In the first chapter, we use detailed Danish micro-data and study how a credit-driven boom in consumer demand affects firm dynamics. We exploit the introduction of interest-only mortgages in 2003 to establish a structural break in
Danish households’ spending capacity. A difference-in-differences approach
indicates that the reform sharply increases consumers’ expenditure. This demand shock generates revenues and profits for Danish firms and results in the
creation of at least 2,500 additional jobs between 2004 and 2010. These positions are concentrated in the non-tradable sector. Our results indicate that
mortgage markets shape the size and composition of real economic activity
during expansion phases.
The second chapter shows that the supply side of credit is a major factor
for hampered monetary policy transmission in monopolistic banking markets.
Our data covering all 1,555 small and medium sized banks in Germany provides a clear way to partial out demand shocks; we are thus able to show that
while market-power banks charge higher loan rates, they spare their borrowers a part of exogenous monetary policy contractions and furthermore with-hold a substantial part of rising rates from their depositors. Because high
market-power banks are relatively more profitable, these banks seem to be able
to insure their relationship-customers against adverse shocks.
In the third chapter, I develop a model where firms need to borrow the
wage bill under financial frictions. I discuss the implications of intraperiod financial contracts for real and financial variables in a most simple model without capital. Financial variables such as the external finance premium in this
setup behave perversely. Real variables’ responses are hampered compared to
a standard Real Business Cycle model. Then, I implement intraperiod financial
contracts and show this can eliminate the problems to some extent. Financial
variables now move as observed in the data. Unlike in the original model by
Bernanke et al. (1999), the responses of real variables, especially output and
labour, however remain muted in response to a positive technology shock.