Gregor von Schweinitz

Fiscal Policy Under the Eyes of Wary Bondholders

July 2026

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, update coming soon

Monetary Integration and Structural Change in a Small Open Economy: Evidence from Slovakia

André Casalis, Gregor von Schweinitz

July 2026

This paper studies how Slovakia’s adoption of the euro in 2009 affected the structural macroeconomic relationships governing inflation, output, and monetary policy. We estimate a two-country structural VAR for Slovakia and the rest of the euro area, where we allow Slovak structural relations to differ across regimes. We find that euro adoption was associated with a pronounced flattening of the Slovak Phillips curve and with a marked change in the role of interest rates in aggregate demand. After euro adoption, Slovak demand shocks became much less inflationary, supply shocks generated smaller output and inflation responses, and domestic impulse responses moved substantially closer to their euro-area counterparts. The convergence is strongest on the supply side and in the immediate absorption of shocks, while demand-side convergence is more selective. The inflation sensitivity of demand remains relatively stable, whereas the interest-rate semi-elasticity shifts sharply towards zero. We interpret these results as evidence that monetary integration can induce genuine structural convergence in small open economies by strengthening nominal anchoring, changing the information content of domestic interest rates, and reinforcing real economic integration beyond the mechanical loss of an independent monetary policy.

Most recent version, update coming soon

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