Topic Financial Markets

Debt crises and debt cuts

Interest Rates, Convenience Yields, and Inflation Expectations: Drivers of US Dollar Exchange Rates

Using a data-driven approach to identify structural vector autoregressive models, we examine key factors influencing the US dollar exchange rate across eight advanced economies from 1980 to 2022. We find that shocks to inflation expectations, which are closely tied to unfunded government transfer payments, have a pronounced effect on the US dollar’s value. This underscores the fiscal dimension of exchange ...

Stock Market Participation, Work from Home, and Inequality

Stock market participation among working household heads jumped upwards in 2020-in Germany by about 25%. A major cause is the required use of work from home (WfH). We show this by repeating a benchmark study and adding WfH to the explanatory variables. Moreover, we implement an instrumental variables estimation based on industry-specific levels of WfH-capacity. The transmission channels seem to work ...

Exploring the Interdependence of Climate, Finance, Energy, and Geopolitics: A Conceptual Framework for Systemic Risks Amidst Multiple Crises

Navigating the transition toward a zero-emission and just future amidst multiple crises requires a nuanced understanding of potential hindrances to investments and energy transitions. As current approaches hardly consider the big picture of interacting crises, this study offers a framework to analyze the dynamics and risk channels between 1) the climate crisis, 2) financial (in)stability, 3) the geopolitical ...

Financial Repression in General Equilibrium: The Case of the United States, 1948–1974

Financial repression lowers the return on government debt and contributes, all else equal, towards its liquidation. However, its full effect on the debt-to-GDP ratio hinges on how repression impacts the economy at large because it alters investment and saving decisions. We develop and estimate a New Keynesian model with financial repression. Based on U.S. data for the period 1948–1974, we find, consistent ...

Is Interest Rate Hiking a Recipe for Missing Several Goals of Monetary Policy—Beating Inflation, Preserving Financial Stability, and Keeping up Output Growth?

levelsof all goods in the US and Europe rose surprisingly quickly and persistently. TheFED began in March 2022 and the ECB in July 2022 with historically unique interestrate increases to combat the wage-price spiral that had not yet begun. In this article weshow that energy, commodities and food were the main drivers of inflation. For this reason,central banks’ goal of weakening demand for labor through ...

Persistent US Current Account Deficit: The Role of Foreign Direct Investment

This paper re-evaluates the US external deficit which has considerably widened over the 1990s. US safe asset provision to the rest of the world is the dominant explanation for the persistent nature of the US external deficit. We suggest that apart from the safe asset hypothesis, there is an important role for technology shocks originating in US multinational companies that have a strong foreign direct ...

Access to Digital Finance: Equity Crowdfunding across Countries and Platforms

Financing entrepreneurship spurs innovation and economic growth. Digital financial platforms that crowdfund equity for entrepreneurs have emerged globally, yet they remain poorly understood. We model equity crowdfunding in terms of the relationship between the number of investors and the amount of money raised per pitch. We examine heterogeneity in the average amount raised per pitch that is associated ...

Revisiting Investment Costs for Green Steel: Capital Expenditures, Firm Level Impacts, and Policy Implications

The transition of the steel sector to carbon neutrality requires significant investment. In this study, we aim to better understand the scale of investment required for a transition to hydrogen-based steelmaking and the ability of listed steelmakers to finance this investment. First, we analyze how capital expenditures are estimated in the academic literature and compare them with reported investment ...

A Renewable Energy Pool Brings Benefits of Energy Transition to Consumers

German companies view high and uncertain electricity prices a major challenge. A Renewable Energy Pool (RE-Pool), wherein the favorable conditions of competitive tenders for new wind and solar power projects are passed on to electricity consumers, could hedge such price risks. Consumers’ electricity prices are thus hedged for the share of their consumption that corresponds to the RE-Pool’s generation ...