Ongoing work

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, allowing for regime-specific contemporaneous interactions while keeping lag dynamics comparable across regimes. We find that euro adoption led to a pronounced flattening of the Slovak Phillips curve and a decline in the inflation sensitivity of aggregate demand, substantially reducing the inflation-output trade-off. Post-euro, Slovak supply and demand relationships become quantitatively similar to those of the euro area. These results suggest that monetary integration can induce genuine structural convergence in small open economies, reflecting changes in nominal anchoring and real economic integration beyond the mechanical loss of an independent monetary policy.

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.
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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.
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Publications

(2026). What explains international interest rate co-movement?. Journal of Applied Econometrics, online first.

DOI Replication package IWH DP 3/2023 (updated) Online Appendix

(2022). Why they keep missing: An empirical investigation of sovereign bond ratings and their timing. Scottish Journal of Political Economy, 69(2), 186-224 (Adam Smith price for the Best Paper of the Year).

DOI Accepted version IWH DP 1/2017 Code and Data github

(2021). Fiscal policy and fiscal fragility: Empirical evidence from the OECD. Journal of International Money and Finance, 115, 102292.

DOI Most recent version IWH DP 13/2019 CFDS DP 5/2019

(2020). Monetary policy through exchange rate pegs: The removal of the Swiss franc-Euro floor and stock price reactions. International Review of Finance, 21(4), 1382-1406.

DOI Most recent version IWH DP 9/2018

(2019). Does machine learning help us predict banking crises?. Journal of Financial Stability, 45, 100693.

DOI Most recent version IWH DP 2/2019 Bundesbank DP 48/2018 Code github

(2019). On the empirics of reserve requirements and economic growth. Journal of Macroeconomics, 60, 253-274.

DOI Most recent version IWH DP 8/2018

(2019). Optimizing Policymakers' Loss Function in Crisis Prediction: Before, Within or After?. Macroeconomic Dynamics, 25(1), 100-123.

DOI Most recent version IWH DP 6/2015 ECB WP 2025

(2018). The Joint Dynamics of Sovereign Ratings and Government Bond Yields. Journal of Banking and Finance, 97, 198-218.

DOI Most recent version IWH DP 4/2015 Bundesbank DP 13/2016 Code and Data github

(2016). Qual VAR Revisited: Good Forecast, Bad Story. Journal of Applied Economics, 19(2), 293-321.

DOI IWH DP 12/2012 Code github

(2016). Real Effective Exchange Rate Misalignment in the Euro Area: A Counterfactual Analysis. Review of International Economics, 24(1), 37-66.

DOI IWH DP 6/2014 Code github

(2016). The Diablo 3 Economy: An Agent Based Approach. Computational Economics, 47, 193-217.

DOI

(2015). Risk and Return - Is there an Unholy Cycle of Ratings and Yields?. Economics Letters, 129, 49-51.

DOI Most recent version

(2013). Predicting financial crises: The (statistical) significance of the signals approach. Journal of International Money and Finance, 35 (2013), 76-103.

DOI IWH DP 3/2012

(2012). Macroeconomic Imbalances as Indicators for Debt Crises in Europe. Journal of Common Market Studies, 50(5), 726-745.

DOI IWH DP 12/2011

Working Papers

(2020). On the International Dissemination of Technology News.

IWH DP 25/2020

(2013). Flight Patterns and Yields of European Government Bonds.

IWH DP 10/2013

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