Gregor von Schweinitz

What explains international interest rate co-movement?

September 2025 Conditional acceptance at the Journal of Applied Econometrics

This paper decomposes international interest rate co-movement into contributions of global and domestic supply, demand, and monetary policy shocks across seven advanced economies. We develop a Bayesian structural panel vector autoregression with informative priors, homogeneity restrictions on contemporaneous relations, a hierarchical Minnesota prior with cross-sectional shrinkage, and a factor structure for structural shocks. We show that monetary policy follows traditional domestic mandates as central banks adjust policy rates in response to domestic output gaps and inflation. The observed co-movement of interest rates across countries arises because business-cycle fluctuations – driven largely by demand-type shocks – are correlated internationally.

Most recent version IWH DP 3/2023 Online Appendix

The Reception of Fiscal News on Financial Markets: Evidence from News Tickers

Ruben Staffa, Gregor von Schweinitz

November 2024

This paper studies the interaction between fiscal policy and bondholders against the backdrop of high sovereign debt levels. For our analysis, we investigate the case of Italy, a country that has dealt with high public debt levels for a long time. We derive an external instrument for bond demand shocks from a novel news ticker data set to address the empirical challenge of pinning down political uncertainty and investors’ forward-looking behavior. We further derive a fiscal rule and a bond demand schedule from theory and incorporate them alongside the instrument in a Bayesian structural VAR model. Our main results are threefold. First, the interaction between fiscal policy and bondholders’ expectations is critical for the evolution of prices. Fiscal policy reinforces contractionary monetary policy through sustained increases in primary surpluses and investors provide incentives for ``passive’’ fiscal policy. Second, investors’ expectations matter for inflation, and we document a Fisherian response of inflation across all maturities in response to a bond demand shock. Third, political risk is critical in the determination of bondholders’ expectations and an increase in the perceived riskiness of sovereign debt increases inflation and thus complicates the task of controlling price growth.

Most recent version

How do credit supply and demand influence business cycle dynamics?

Gregor von Schweinitz

October 2024

This paper contributes to a better understanding of the important role that credit demand plays for credit markets and aggregate macroeconomic developments as both a source and transmitter of economic shocks. I am the first to identify a structural credit demand equation together with credit supply, aggregate supply, demand and monetary policy in a Bayesian structural VAR. The model combines informative priors on structural coefficients and multiple external instruments to achieve identification. In order to improve identification of the credit demand shocks, I construct a new granular instrument from regional mortgage origination. I find that credit demand is quite elastic with respect to contemporaneous macroeconomic conditions, while credit supply is relatively inelastic. I show that credit supply and demand shocks matter for aggregate fluctuations, albeit at different times. Credit demand shocks mostly drove the boom prior to the financial crisis, while credit supply shocks were responsible during and after the crisis itself. In an out-of-sample exercise, I find that the Covid pandemic induced a large expansion of credit demand in 2020Q2, which pushed the US economy towards a sustained recovery and helped to avoid a stagflationary scenario in 2022.

most recent version