Zhengyang Jiang, Hanno Lustig, Stijn Van Nieuwerburgh, M. Xiaolan
If the U.S. is on a fiscally sustainable path, then higher U.S. government debt/output ratios should reliably predict higher future surpluses or lower real returns on Treasurys. We find no evidence for this. Neither future cash flows nor discount rates account for the variation in the current debt/output ratio. Instead, the future debt/output ratio accounts for most of the variation. Systematic surplus forecast errors can account for part of these findings. Since the start of the Great Financial Crisis, surplus projections have anticipated a large fiscal correction that failed to materialize
{"title":"What Drives Variation in the U.S. Debt/Output Ratio? The Dogs that Didn't Bark","authors":"Zhengyang Jiang, Hanno Lustig, Stijn Van Nieuwerburgh, M. Xiaolan","doi":"10.2139/ssrn.3924900","DOIUrl":"https://doi.org/10.2139/ssrn.3924900","url":null,"abstract":"If the U.S. is on a fiscally sustainable path, then higher U.S. government debt/output ratios should reliably predict higher future surpluses or lower real returns on Treasurys. We find no evidence for this. Neither future cash flows nor discount rates account for the variation in the current debt/output ratio. Instead, the future debt/output ratio accounts for most of the variation. Systematic surplus forecast errors can account for part of these findings. Since the start of the Great Financial Crisis, surplus projections have anticipated a large fiscal correction that failed to materialize","PeriodicalId":376458,"journal":{"name":"PSN: Debt (Topic)","volume":"33 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133311743","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
• Value recovery mechanisms are a subset of sovereign state-contingent debt instruments (SCDI). Within this category is a further subset: the freestanding value recovery instrument (VRI). This is a restructuring tool that has typically been either geared to a single factor trigger (such as petroleum prices) or a broad macro trigger (GDP). It is constructed in order to trade freely from the outset or is detachable from the related restructuring credits over time. It is designed to compensate creditors for granting debt reduction in the restructuring process. • Recent history has not been kind to VRIs. This promising mechanism in its current iteration has attracted negative feedback from the market and negative reviews in academic and policy circles. The primary focus of this bad press is the difficulty in valuation due to complexity, lack of standardization and perceived flaws in structure. And the lack of benchmarks for normal market SCDIs has contributed to the problem. Curing these deficiencies is thought to help to resolve the valuation issue. • The article contends that valuation, already a challenge, is further complicated by tradability as, among other factors, it adds another party to the table beyond debtor and creditor—the third-party secondary market participant. The article further elaborates upon other problematic results of the tradability feature of the VRIs. • A set of measures is proposed to improve the value of VRIs and to eliminate additional negative consequences with the aim that the VRI will benefit both creditor and debtor interests. • Recognition is given that the proposal sets a very high bar for the use of VRIs in pure bond restructurings but that those cases have proven to be problematic for debtor and creditor alike. In this connection, the article notes that a number of countries have no or a limited amount of bond exposure and that the proposed strategy may have its most important impact in that context.
{"title":"Value Recovery Instruments: A Contrarian Proposition","authors":"Mark H Stumpf","doi":"10.1093/cmlj/kmab018","DOIUrl":"https://doi.org/10.1093/cmlj/kmab018","url":null,"abstract":"• Value recovery mechanisms are a subset of sovereign state-contingent debt instruments (SCDI). Within this category is a further subset: the freestanding value recovery instrument (VRI). This is a restructuring tool that has typically been either geared to a single factor trigger (such as petroleum prices) or a broad macro trigger (GDP). It is constructed in order to trade freely from the outset or is detachable from the related restructuring credits over time. It is designed to compensate creditors for granting debt reduction in the restructuring process. • Recent history has not been kind to VRIs. This promising mechanism in its current iteration has attracted negative feedback from the market and negative reviews in academic and policy circles. The primary focus of this bad press is the difficulty in valuation due to complexity, lack of standardization and perceived flaws in structure. And the lack of benchmarks for normal market SCDIs has contributed to the problem. Curing these deficiencies is thought to help to resolve the valuation issue. • The article contends that valuation, already a challenge, is further complicated by tradability as, among other factors, it adds another party to the table beyond debtor and creditor—the third-party secondary market participant. The article further elaborates upon other problematic results of the tradability feature of the VRIs. • A set of measures is proposed to improve the value of VRIs and to eliminate additional negative consequences with the aim that the VRI will benefit both creditor and debtor interests. • Recognition is given that the proposal sets a very high bar for the use of VRIs in pure bond restructurings but that those cases have proven to be problematic for debtor and creditor alike. In this connection, the article notes that a number of countries have no or a limited amount of bond exposure and that the proposed strategy may have its most important impact in that context.","PeriodicalId":376458,"journal":{"name":"PSN: Debt (Topic)","volume":"30 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116476098","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Korean Abstract: 본고에서는 재정 확대 정책 시행 시 재원조달 방법이 달라짐에 따라 정책 효과에 차이가 발생하는지 분석하였다. 기존 실증분석 연구는 재원조달 방법을 정의할 때 이론적인 조건을 엄밀하게 충족하지 못하는 경우가 많고 체계적인 분석이 다소 부족하며, 정의가 각기 달라서 분석결과 비교에 어려움이 있다. 이에 본고에서는 실증분석 연구에서 사용할 수 있는 이론적으로 엄밀한 재원조달 방법의 정의와 반사실적(counterfactual) 분석 방법론을 제시하고 미국 자료를 이용하여 분석하였다. 구조 VAR모형을 이용한 실증분석 결과 추정치의 불확실성 정도를 고려할 때 재원조달 방법 변경에 따라 재정지출의 상대적 효과가 다르다고 단정 짓기는 어렵다. 충격 초기에는 부채로 재원을 조달(debt-financing)할 때의 재정지출승수가 증세로 조달(tax-financing)할 때의 재정지출승수보다 최대 0.31가량 더 큰 것으로 추정되었으나, 충격 5년 이후에는 부채 조달 방법(debt-financing)을 이용한 재정지출승수가 조세 조달 방법(tax-financing)을 이용한 재정지출승수와 비슷하거나 더 작았다. 하지만 확률적으로 이러한 차이가 명확히 나타나지 않았다. 이러한 결과는 모형의 형태, 분석방법의 변경에도 불구하고 대체로 지지되었다. 한편 재원조달 방법의 변경이 GDP외 다른 경제 변수에 미치는 영향을 분석한 결과 재원조달 방법이 변경되면서 소비, 투자, 순수출의 반응이 달라지는 것을 확인하였다. 또한 기존의 연구 방법대로 분석하는 경우 증세의 반응이 정부의 기간 간 예산제약을 충족시킬 만큼 충분히 이루어지지 않아 증세로 조달할 때 재정지출승수가 과대 추정될 가능성이 있음을 보였다.
English Abstract: This paper analyzes whether there is a difference in the effectiveness of the fiscal policy used as the method of financing is changed. Existing literature often fails to strictly meet theoretical conditions when defining financing methods and lacks systematic analysis. Therefore, we present theoretically rigorous counterfactual analysis methodologies and definitions of financing methods. We show that the fiscal multiplier is likely to be overestimated when analyzed using existing research methods. We find evidence that the debt-financed government spending multiplier is estimated to be up to 0.31 larger than when tax-financed government spending multipliers are used, up until five years after a government spending shock. However, five years after the shock, the debt-financed government spending multiplier is similar to or smaller than the tax-financed government spending multiplier. However, the difference between the two multipliers is not statistically supported. These results are generally supported by various changes in the pattern of government spending and the time difference between any tax increase and government expenditure. On the other hand, an analysis of the impact of a change in financing methods on other economic variables other than GDP confirms that a change in funding methods results in a different response to consumption, investment, net exports, and real wages.
Korean Abstract:在实行财政扩大政策时，分析了随着财源筹措方法的不同，政策效果是否会发生差异。现有的实证分析研究在定义财源筹措方法时，往往不能严格满足理论条件，系统分析多少有些不足，定义各不相同，分析结果比较有困难。为此，本书提出了在实证分析研究中可以使用的理论上严格的财源筹措方法的定义和反射业绩(counterfactual)分析方法论，并利用美国资料进行了分析。利用结构VAR模型的实证分析结果，考虑到推测值的不确定性程度，很难断定随着财源筹措方法的变更，财政支出的相对效果有所不同。在冲击初期，负债筹措(debt-financing)时的财政支出乘数比增税筹措(tax-financing)时的财政支出乘数最多大0.31左右;冲击5年后，利用负债筹措方法(debt-financing)的财政支出乘数与利用税收筹措方法(tax-financing)的财政支出乘数相似或更小。但是在概率上并没有明显的差异。尽管模型的形态和分析方法有所改变，这些结果还是得到了支持。另一方面，分析了财源筹措方法的变更对GDP以外的其他经济变数的影响，确认了随着财源筹措方法的变更，消费，投资，净出口的反应也发生了变化。另外，如果按照现有的研究方法进行分析，增税的反应不能充分满足政府的期间预算制约，因此显示出通过增税筹措资金时，财政支出乘数有可能被夸大推测。English Abstract: This paper analyzes whethere is a difference in the effectiveness of the fiscal policy used as the method of financing is changed。Existing literature often fails to strictly meet theoretical conditions when defining financing methods and lacks systematic analysis。Therefore, we present theoretically rigorous counterfactual analysis methodologies and definitions of financing methods。We show that the fiscal multiplier is likely to be overestimated when analyzed using existing research methods。We find evidence that the debt-financed government spending multiplier is estimated to be up to 0.31 larger than when tax-financed government spending multipliers are used;up until five years after a government spending shock。the debt-financed government spending multiplier is similar to or smaller than the tax-financed government spending multiplier。However, the difference between the two multipliers is not statistically supported。These results are generally supported by various changes in the pattern of government spending and the time difference between any tax increase and government expenditure。on the other hand,an analysis of the impact of a change in financing methods on other economic variables other than GDP confirms that a change in funding methods results ina different response to consumption;investment, net exports, and real wages。
{"title":"재원조달 방법을 고려한 재정지출 효과 분석 : 미국의 사례를 중심으로 (Estimating Fiscal Multiplier: Do Financing Methods Matter?)","authors":"Soyoung Kim, Yong-Geun Kim","doi":"10.2139/ssrn.3876793","DOIUrl":"https://doi.org/10.2139/ssrn.3876793","url":null,"abstract":"<b>Korean Abstract:</b> 본고에서는 재정 확대 정책 시행 시 재원조달 방법이 달라짐에 따라 정책 효과에 차이가 발생하는지 분석하였다. 기존 실증분석 연구는 재원조달 방법을 정의할 때 이론적인 조건을 엄밀하게 충족하지 못하는 경우가 많고 체계적인 분석이 다소 부족하며, 정의가 각기 달라서 분석결과 비교에 어려움이 있다. 이에 본고에서는 실증분석 연구에서 사용할 수 있는 이론적으로 엄밀한 재원조달 방법의 정의와 반사실적(counterfactual) 분석 방법론을 제시하고 미국 자료를 이용하여 분석하였다. 구조 VAR모형을 이용한 실증분석 결과 추정치의 불확실성 정도를 고려할 때 재원조달 방법 변경에 따라 재정지출의 상대적 효과가 다르다고 단정 짓기는 어렵다. 충격 초기에는 부채로 재원을 조달(debt-financing)할 때의 재정지출승수가 증세로 조달(tax-financing)할 때의 재정지출승수보다 최대 0.31가량 더 큰 것으로 추정되었으나, 충격 5년 이후에는 부채 조달 방법(debt-financing)을 이용한 재정지출승수가 조세 조달 방법(tax-financing)을 이용한 재정지출승수와 비슷하거나 더 작았다. 하지만 확률적으로 이러한 차이가 명확히 나타나지 않았다. 이러한 결과는 모형의 형태, 분석방법의 변경에도 불구하고 대체로 지지되었다. 한편 재원조달 방법의 변경이 GDP외 다른 경제 변수에 미치는 영향을 분석한 결과 재원조달 방법이 변경되면서 소비, 투자, 순수출의 반응이 달라지는 것을 확인하였다. 또한 기존의 연구 방법대로 분석하는 경우 증세의 반응이 정부의 기간 간 예산제약을 충족시킬 만큼 충분히 이루어지지 않아 증세로 조달할 때 재정지출승수가 과대 추정될 가능성이 있음을 보였다.<br><br><br><b>English Abstract:</b> This paper analyzes whether there is a difference in the effectiveness of the fiscal policy used as the method of financing is changed. Existing literature often fails to strictly meet theoretical conditions when defining financing methods and lacks systematic analysis. Therefore, we present theoretically rigorous counterfactual analysis methodologies and definitions of financing methods. We show that the fiscal multiplier is likely to be overestimated when analyzed using existing research methods. We find evidence that the debt-financed government spending multiplier is estimated to be up to 0.31 larger than when tax-financed government spending multipliers are used, up until five years after a government spending shock. However, five years after the shock, the debt-financed government spending multiplier is similar to or smaller than the tax-financed government spending multiplier. However, the difference between the two multipliers is not statistically supported. These results are generally supported by various changes in the pattern of government spending and the time difference between any tax increase and government expenditure. On the other hand, an analysis of the impact of a change in financing methods on other economic variables other than GDP confirms that a change in funding methods results in a different response to consumption, investment, net exports, and real wages.","PeriodicalId":376458,"journal":{"name":"PSN: Debt (Topic)","volume":"40 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124678084","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper introduces serial defaults in the structural model of Jeanneret (2015. Journal of Financial and Quantitative Analysis 50, 963-985). We consider a government that can default multiple times, deciding endogenously the default thresholds and the optimal leverage. Under the extended model, the sovereign credit spreads are higher and carry a positive serial default premium. Model calibration to eight serial defaulting countries suggests that the average market-implied serial default premium is 57.98 basis points and accounts for 16.07% of the total credit spread. The countries with the highest exposure to serial defaults are Argentina, Brazil, Egypt, and Turkey.
{"title":"Sovereign debt dynamics with serial defaults","authors":"Alexandros Bougias, Athanasios Episcopos","doi":"10.2139/ssrn.3860762","DOIUrl":"https://doi.org/10.2139/ssrn.3860762","url":null,"abstract":"This paper introduces serial defaults in the structural model of Jeanneret (2015. Journal of Financial and Quantitative Analysis 50, 963-985). We consider a government that can default multiple times, deciding endogenously the default thresholds and the optimal leverage. Under the extended model, the sovereign credit spreads are higher and carry a positive serial default premium. Model calibration to eight serial defaulting countries suggests that the average market-implied serial default premium is 57.98 basis points and accounts for 16.07% of the total credit spread. The countries with the highest exposure to serial defaults are Argentina, Brazil, Egypt, and Turkey.","PeriodicalId":376458,"journal":{"name":"PSN: Debt (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128883663","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
After a large economic shock, states often transfer a portion of privately held debt to the public balance sheet. The mechanism used for this transfer differs, depending on the nature and cause of the shock—mobilization expenditures, after war breaks out; relief spending, after storms or other disasters strike; transfer payments, after financial stress. This policy brief reviews one structure used to achieve these public-private debt transfers, the sovereign asset management company (AMC). It offers a new way to distinguish sovereign AMCs along four design pillars: priority, autonomy, authority, and patience. Based on those pillars, it separates sovereign AMCs into four archetypes. Finally, in a summary matrix, it compares 14 sovereign AMCs across a broader set of design choices.
The views expressed in this article are the author’s alone and do not necessarily reflect the views of the Federal Reserve Board or the United States government.
{"title":"Policy Brief: Design Choices in Sovereign Asset Management Companies","authors":"N. K. Tabor","doi":"10.2139/ssrn.3850974","DOIUrl":"https://doi.org/10.2139/ssrn.3850974","url":null,"abstract":"After a large economic shock, states often transfer a portion of privately held debt to the public balance sheet. The mechanism used for this transfer differs, depending on the nature and cause of the shock—mobilization expenditures, after war breaks out; relief spending, after storms or other disasters strike; transfer payments, after financial stress. This policy brief reviews one structure used to achieve these public-private debt transfers, the sovereign asset management company (AMC). It offers a new way to distinguish sovereign AMCs along four design pillars: priority, autonomy, authority, and patience. Based on those pillars, it separates sovereign AMCs into four archetypes. Finally, in a summary matrix, it compares 14 sovereign AMCs across a broader set of design choices.<br><br>The views expressed in this article are the author’s alone and do not necessarily reflect the views of the Federal Reserve Board or the United States government.","PeriodicalId":376458,"journal":{"name":"PSN: Debt (Topic)","volume":"25 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-05-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121603875","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
National debt figures need perspective. This can come from viewing them as a ratio to national income. That ratio has surged in the last twenty years. But despite many assertions, the debt-to-income ratios of the past few years are not unprecedented. When the ratio reached such peaks in the past, much concern was expressed, but there was not a panic for immediate action. Problems may indeed follow, but they do not inevitably follow. The debt can be coped with and there need not be resort to any emergency measures. Historical investigation shows how and why: control of spending and measures to allow and, if possible, promote steady growth are sufficient. Inflation is a danger, but honest government and good sense can work.
{"title":"UK Debt in Perspective","authors":"Institute of Economic Affairs Submitter","doi":"10.2139/ssrn.3850585","DOIUrl":"https://doi.org/10.2139/ssrn.3850585","url":null,"abstract":"National debt figures need perspective. This can come from viewing them as a ratio to national income. That ratio has surged in the last twenty years. But despite many assertions, the debt-to-income ratios of the past few years are not unprecedented. When the ratio reached such peaks in the past, much concern was expressed, but there was not a panic for immediate action. Problems may indeed follow, but they do not inevitably follow. The debt can be coped with and there need not be resort to any emergency measures. Historical investigation shows how and why: control of spending and measures to allow and, if possible, promote steady growth are sufficient. Inflation is a danger, but honest government and good sense can work.","PeriodicalId":376458,"journal":{"name":"PSN: Debt (Topic)","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-05-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130386888","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Kenya’s ballooning public debt has been a major concern in the recent past. In fact, there are fears about the country’s debt sustainability levels. Last year, the International Monetary Fund raised Kenya’s risk of debt distress to high from moderate. What this means is that although the country is not currently facing any repayment difficulties, it may have difficulties servicing its debt due to the slowdown in economic activity. The downgrade from moderate to high risk has been attributed to the outbreak of the COVID-19 pandemic. Over the past few years, the country’s public debt has grown exponentially. The outstanding total public debt and publicly guaranteed public debt at the end of the 2019/2020 financial year was Kshs. 6.7 trillion. This is an equivalent of 65.6 per cent of the Gross Domestic Product. The percentage is way above the 50 per cent level recommended by the World Bank.The increase in public debt has also seen an increase in publicly guaranteed debt and other contingent liabilities. In the financial year 2019/2020, public guaranteed debt increased by Kshs. 5,841 million to Kshs. 165,245 million from Ksh. 159,408 million at the end of June 2019. In the same period, the government has had to pay Kshs. 661.2 million as called up guaranteed debt debts owed by public enterprises that were in financial distress. From the above, it is clear that contingent liabilities form a substantial part of the public debt. However, they are not given much attention. This paper explores the reporting of these liabilities.
{"title":"An Analysis of the Reporting of Contingent Liabilities in Kenya’s Public Debt Management Legal Framework","authors":"Mark Mwendwa","doi":"10.2139/ssrn.3924795","DOIUrl":"https://doi.org/10.2139/ssrn.3924795","url":null,"abstract":"Kenya’s ballooning public debt has been a major concern in the recent past. In fact, there are fears about the country’s debt sustainability levels. Last year, the International Monetary Fund raised Kenya’s risk of debt distress to high from moderate. What this means is that although the country is not currently facing any repayment difficulties, it may have difficulties servicing its debt due to the slowdown in economic activity. The downgrade from moderate to high risk has been attributed to the outbreak of the COVID-19 pandemic. Over the past few years, the country’s public debt has grown exponentially. The outstanding total public debt and publicly guaranteed public debt at the end of the 2019/2020 financial year was Kshs. 6.7 trillion. This is an equivalent of 65.6 per cent of the Gross Domestic Product. The percentage is way above the 50 per cent level recommended by the World Bank.The increase in public debt has also seen an increase in publicly guaranteed debt and other contingent liabilities. In the financial year 2019/2020, public guaranteed debt increased by Kshs. 5,841 million to Kshs. 165,245 million from Ksh. 159,408 million at the end of June 2019. In the same period, the government has had to pay Kshs. 661.2 million as called up guaranteed debt debts owed by public enterprises that were in financial distress. From the above, it is clear that contingent liabilities form a substantial part of the public debt. However, they are not given much attention. This paper explores the reporting of these liabilities.","PeriodicalId":376458,"journal":{"name":"PSN: Debt (Topic)","volume":"38 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-03-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115254858","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using a firm-bank panel of more than 1m German firms over 2010-2016, we document that local public bank lending to municipalities crowds out private investment. Our results show how crowding-out can happen in a developed economy characterized by low interest rates and fiscal austerity. Our mechanism relies on two structural features of Germany’s banking landscape: First, the geographical segmentation of credit markets for small and medium firms (SME) which are dominated by local banks. Secondly, a special statutory mandate requiring local public banks to lend to municipalities. With yields on local government debt declining to all-time lows, local public banks tried to alleviate stress on their balance sheets by using their local market power to charge higher rates on their SME customers. This crowded out firm investment. Perversely, fiscal consolidation at the state and federal levels contributed to this effect by putting pressure on the budgets of municipal governments which increasingly borrowed from local public banks. Crowding-out lowered aggregate private investment by around 30-40 bio euros per year (or 1 percent of GDP). Thus, we identify a novel channel through which low interest rates can adversely affect bank lending and firm performance. Our results also illustrate how segmented credit markets can amplify negative multiplier effects from fiscal austerity.
{"title":"Growing Like Germany: Local Public Debt, Local Banks, Low Private Investment","authors":"Mathias Hoffmann, Iryna Stewen, Michael Stiefel","doi":"10.2139/ssrn.3803224","DOIUrl":"https://doi.org/10.2139/ssrn.3803224","url":null,"abstract":"Using a firm-bank panel of more than 1m German firms over 2010-2016, we document that local public bank lending to municipalities crowds out private investment. Our results show how crowding-out can happen in a developed economy characterized by low interest rates and fiscal austerity. Our mechanism relies on two structural features of Germany’s banking landscape: First, the geographical segmentation of credit markets for small and medium firms (SME) which are dominated by local banks. Secondly, a special statutory mandate requiring local public banks to lend to municipalities. With yields on local government debt declining to all-time lows, local public banks tried to alleviate stress on their balance sheets by using their local market power to charge higher rates on their SME customers. This crowded out firm investment. Perversely, fiscal consolidation at the state and federal levels contributed to this effect by putting pressure on the budgets of municipal governments which increasingly borrowed from local public banks. Crowding-out lowered aggregate private investment by around 30-40 bio euros per year (or 1 percent of GDP). Thus, we identify a novel channel through which low interest rates can adversely affect bank lending and firm performance. Our results also illustrate how segmented credit markets can amplify negative multiplier effects from fiscal austerity.","PeriodicalId":376458,"journal":{"name":"PSN: Debt (Topic)","volume":"17 3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116580237","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper documents extensive commitment to mandatory debt repayment. In a natural experiment in which households can apply for free mortgage-payment flexibility for one to twelve months, 43 percent of applicants choose a dominated option of short flexibility. I argue that short flexibility fulfills a desire for partial commitment due to self-control problems because (i) applying for short flexibility correlates with other commitment strategies to increase savings and (ii) consumption drops discontinuously at the predictable end of flexibility. This desire for commitment can reduce the potency of debt-forbearance offers in recessions and contribute to asset illiquidity.
{"title":"Commitment to Debt Repayment: Evidence from a Natural Experiment","authors":"E. Vihriälä","doi":"10.2139/ssrn.3792708","DOIUrl":"https://doi.org/10.2139/ssrn.3792708","url":null,"abstract":"This paper documents extensive commitment to mandatory debt repayment. In a natural experiment in which households can apply for free mortgage-payment flexibility for one to twelve months, 43 percent of applicants choose a dominated option of short flexibility. I argue that short flexibility fulfills a desire for partial commitment due to self-control problems because (i) applying for short flexibility correlates with other commitment strategies to increase savings and (ii) consumption drops discontinuously at the predictable end of flexibility. This desire for commitment can reduce the potency of debt-forbearance offers in recessions and contribute to asset illiquidity.","PeriodicalId":376458,"journal":{"name":"PSN: Debt (Topic)","volume":"72 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-02-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128664133","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Exploiting a large drop in the legislative cap for the H-1B visa program announced in 2003 as an adverse shock to the skilled labor supply of innovation (Kerr and Lincoln (2010)) and a difference-in-differences framework, I document that innovative firms experience a significant increase in their fraction of shorter maturity debt after the shock. Further, I show that such increase is consistent with the fact that innovative firms face important labor adjustment costs and refinancing constraints after the cap drop. Overall, my paper highlights that skilled labor hiring constraints affect debt maturity structure.
{"title":"Skilled Labor Hiring Constraints and Debt Maturity Structure","authors":"Guillermo Ramirez-Chiang","doi":"10.2139/ssrn.3770154","DOIUrl":"https://doi.org/10.2139/ssrn.3770154","url":null,"abstract":"Exploiting a large drop in the legislative cap for the H-1B visa program announced in 2003 as an adverse shock to the skilled labor supply of innovation (Kerr and Lincoln (2010)) and a difference-in-differences framework, I document that innovative firms experience a significant increase in their fraction of shorter maturity debt after the shock. Further, I show that such increase is consistent with the fact that innovative firms face important labor adjustment costs and refinancing constraints after the cap drop. Overall, my paper highlights that skilled labor hiring constraints affect debt maturity structure.","PeriodicalId":376458,"journal":{"name":"PSN: Debt (Topic)","volume":"15 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-01-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127490773","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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