European capital markets and macroeconomic stability: The role of equity and debt

Current Project

Department

Macroeconomics

Project Management

Dr. Franziska Bremus

Project Period

June 1, 2017 - December 31, 2020

Funded by

Leibniz Association, Leibniz Competition 2017

European regulators and policy makers face the challenge to create stable and resilient capital market structures. After initiating the Banking Union, the goal is to also achieve deeper and better integrated capital markets in the realm of a European Capital Markets Union. Using both macroeconomic and more granular data, in this project we will analyze barriers to capital market integration, European capital market structures, and potentials for improved market-based risk sharing with a focus on the different roles of debt and equity markets. The project results aim at contributing to the debate about how to design European capital market structures that promote macroeconomic stability.

DIW Team

Research program

Regulators and policy makers are facing the challenge to promote resilient capital market structures that support macroeconomic stability. The financial and sovereign debt crisis in Europe revealed a critical weakness: when the banking system got into trouble, credit got scarcer in many countries. This impaired investment activity and growth, since external financing via bank credit plays a crucial role in Europe.

Consequently, since the crisis, policy makers and academics increasingly discuss the role of additional, alternative non-bank financing sources for European firms. The most prominent initiative in this regard is the plan to establish a Capital Markets Union (CMU), aiming at deeper and better integrated capital markets in Europe.

Given that European financial markets are dominated by bank financing, much of the debate and economic analysis has so far focused on how to make the banking system more resilient. In this project, the focus will be on capital markets, namely on the importance of debt versus equity markets for macroeconomic stability.

The project team investigates the role of financial market structures for macroeconomic stability based on three research modules:

The first module will start with a diagnosis of the determinants of debt and equity financing across countries. In addition, barriers that prevent European capital markets from being better integrated will be identified in a unified setup.

 

Second, potential implications of deepening capital markets and changing the financing mix for market structure and macroeconomic stability will be analyzed. The idea is that changes in a country’s debt-equity mix may impact market structures like concentration. Changes in market structures, in turn, matter for macroeconomic stability.

Third, an important channel through which European capital markets affect systemic stability, namely international risk sharing via capital markets will be analyzed. Given that risk sharing across European countries is weaker than in other advanced economies, the linkages between financial market structures, institutions and the degree of risk sharing will be analyzed to gauge the potentials for better market-based risk sharing.

Events / Presentations

Präsentation des Finanzstabilitätsberichts der Bundesbank
Presentation at DIW Berlin
Berlin, 28th November, 2019

Workshop for Women in Macroeconomics, Finance, and Economic History
Workshop at DIW Berlin
Berlin, 17th June until 18th June, 2019

Präsentation des Finanzstabilitätsberichts der Bundesbank
Presentation at DIW Berlin
Berlin, 27th March, 2019

Financial Cycles and Regulation
Joint Conference
Frankfurt am Main, 5th November until 6th November, 2018

The Financial Accelerator, Wages and Optimal Monetary Policy
Tobias König
25th International Conference on Computing in Economics and Finance: CEF 2019. Society for Computational Economics
Ottawa, Canada, 28th until 30th June, 2019

Jobless and Wageless Grwoth: The composition effects of credit easing
Khalid ElFayoumi
International Association of Applied Econometrics meeting
Nikosia, Cyprus, 02nd until 06th June, 2019

The Financial Accelerator, Wages and Optimal Monetary Policy
Tobias König
1st Workshop on Monetary and Financial Macroeconomics, Deutsche Bundesbank
Hamburg, 3rd until 4th June, 2019

Legal Harmonization, Institutional Quality, and Countries' External Positions: A Sectoral Analysis
Franziska Bremus, Tatsiana Kliatskova
23rd Annual International Conference on Macroeconomic Analysis and International Finance
Rethymno, Greece, 30th May until 1st June, 2019

Legal Harmonization, Institutional Quality, and Countries' External Positions: A Sectoral Analysis
Franziska Bremus, Tatsiana Kliatskova
24th Spring Meeting of Young Economists: SMYE 2019
Brussels, Belgium, 11th until 13th April, 2019

The Financial Accelerator, Wages and Optimal Monetary Policy
Tobias König
Royal Economic Society Symposium of Junior Researchers 2019 at the University of Warwick
Warwick, UK, 17th until 19th April, 2019

Capital Markets Union and Cross-Border Risk Sharing
Franziska Bremus
Vortrag Capital Markets Union - International Banking Research Network Workshop, Banque de France
Paris, France, 28th February, 2019

Jobless and Wageless Grwoth: The composition effects of credit easing
Khalid ElFayoumi
Riksbank Research Seminar
Stockholm, Sweden, February 2019

Jobless and Wageless Grwoth: The composition effects of credit easing
Khalid ElFayoumi
IWH Institute Research Seminar
Halle, February 2019

Jobless and Wageless Grwoth: The composition effects of credit easing
Khalid ElFayoumi
The European Economic Association Winter Meeting
Naples, Italy, November 2018


The Financial Accelerator, Wages and Optimal Monetary Policy
Tobias König
50th Money, Macro & Finance Annual Conference at Heriot-Watt University
Edinburgh, Scotland, 5th until 7th September, 2018

Drivers of Countries' External Debt-Equity Mix: A Sectoral Analysis
Franziska Bremus, Tatsiana Kliatskova
Vortrag Digitale Wirtschaft: Jahrestagung des Vereins für Socialpolitik 2018
Freiburg, 2nd until 5th September, 2018

Discussion of "Eliminating the Tax Shield through Allowances for Corporate Equity: Cross-Border Credit Supply Effects" by S. Biswas, F. Gomez, B.L. Horvath, W. Zhai
Franziska Bremus
4th IWH-FIN-FIRE Workshop on "Challenges to Financial Stability": Veranstaltungsreihe der Wirtschafts- und sozialwissenschaftlichen Fakultät der Universität Rostock
Halle, Salle, 20th until 21st August, 2018

The Financial Accelerator, Wages and Optimal Monetary Policy
Tobias König
14th Dynare Conference at the European Central Bank
Frankfurt, 5th until 6th July, 2018

Drivers of Countries' External Debt-Equity Mix: A Sectoral Analysis
Franziska Bremus, Tatsiana Kliatskova
Empirical Macroeconomics: Workshop des Forschungsschwerpunkts Statistik und Ökonometrie der FU Berlin
Berlin, 25th January, 2018

20 years of the European currency: What are the next steps?
Franziska Bremus
Besuchergruppe "German Irish Visitors Programme _Young Leaders" des Auswärtigen Amts
Berlin, 27th August, 2019

Banking Consolidation in Europe: Opportunities and Risks
Franziska Bremus
Hintergrundgespräch, Leibniz im Bundestag 2019
Berlin, 4th June, 2019

Capital Markets Union: Harmonization, Integration and Risk Sharing
Franziska Bremus
Besuchergruppe des Bundesministeriums für wirtschaftliche Zusammenarbeit und Entwicklung
Berlin, 14th May, 2019

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