We investigate the influence of government size on the exposure of consumption growth to country-specific fluctuations in output growth using a sample of OECD countries. To the extent that governments are less constrained on international financial markets, it appears conceivable that governments diversify risks interna- tionally on behalf of agents. Our results indicate that the extent of international risk sharing is unrelated to the size of the public sector.
The purpose of this paper is to investigate empirically the importance of labor market conditions and in particular of employment protection legislation as a determinant of bilateral Foreign Direct Investment flows to seven Central and Eastern European countries. Although our results indicate that countries characterized by low unit labor costs tend to attract more Foreign Direct Investment, we find no evidence suggesting that employment protection legislation matters in this context. This result also holds if we control for the riskiness of the host countries.
We develop a simple experimental setting to evaluate the role of the Taylor principle, which holds that the nominal interest rate has to respond more than one-for-one to fluctuations in the inflation rate. In our setting, the average infl ation rate fluctuates around the inflation target if the computerized central bank obeys the Taylor principle. If the Taylor principle is violated, then the average infl ation rate persistently deviates from the target. We find that these deviations from the target are less pronounced, if inflation rates cannot be as readily observed as nominal interest rates. This result is consistent with the interpretation that subjects underestimate the influence of inflation on the real return to savings if the infl ation rate is only observed ex post. ; Wir entwickeln ein simples Experiment um die geldpolitische Rolle des Taylor Prinzips zu untersuchen. Das Taylor Prinzip besagt, dass der Nominalzins überproportional auf Schwankungen der Inflationsrate reagieren muss. In unserem Design oszilliert die durchschnittliche Inflationsrate um den Zielwert, falls die (automatisierte) Zentralbank dem Taylor-Prinzip folgt. Wird dieses verletzt, dann führt dies zu permanenten Abweichungen vom Inflationsziel. Nach unseren Ergebnissen sind diese Abweichungen weniger stark ausgeprägt, wenn die Inflationsrate weniger offensichtlich ist als die Nominalzinsen. Die Probanden unterschätzen teilweise den Einfluss der Inflationsrate auf die Realzinsen, wenn die Inflationsrate nur ex post beobachtet werden kann.
We study unconventional policy shocks and information shocks associated with central bank announcements in the U.S. While unconventional policy shocks capture the direct influence of announced monetary policy actions, information shocks are associated with central bank information conveyed with the announcement. To disentangle these two types of shocks, we impose sign restrictions on high frequency changes in interest rates and stock prices around announcements. We find that information shocks lead to persistent declines in the 10-year government bond yield, whereas the actual unconventional policy shock induces only small interest rate responses. We also find that expansionary output effects of unconventional monetary policy are to some extent counteracted by the information shock. ; Version of record
We explore the effects of the ECB's unconventional monetary policy on the banks' sovereign debt portfolios. In particular, using panel vector autoregressive (VAR) models we analyze whether banks increased their domestic government bond holdings in response to non-standard monetary policy shocks, thereby possibly promoting the sovereign-bank nexus, i.e. the exposure of banks to the debt issued by the national government. Our results suggest that euro area crisis countries' banks enlarged their exposure to domestic sovereign debt after innovations related to unconventional monetary policy. Moreover, the restructuring of sovereign debt portfolios was characterized by a home bias.
We explore the effects of the ECB's unconventional monetary policy on the banks' sovereign debt portfolios. In particular, using panel vector autoregressive (VAR) models we analyze whether banks increased their domestic government bond holdings in response to non-standard monetary policy shocks, thereby possibly promoting the sovereign-bank nexus, i.e. the exposure of banks to the debt issued by the national government. Our results suggest that euro area crisis countries' banks enlarged their exposure to domestic sovereign debt after innovations related to unconventional monetary policy. Moreover, the restructuring of sovereign debt portfolios was characterized by a home bias.
