The Centre for Economic Policy Research (CEPR) is an independent, non‐partisan, pan‐European non‐profit organisation. Its mission is to enhance the quality of policy decisions through providing policy‐relevant research, based soundly in economic theory, to policymakers, the private sector and civil society. Rather than adopting the traditional in-house ‘think-tank’ research structure, CEPR appoints Research Fellows and Affiliates who remain in their home institutions (universities, research institutes, central bank research departments, and international organisations). CEPR’s network includes over 1,700 of the world's top economists from over 330 institutions in 30 countries. The results of the research conducted by the Centre's network are disseminated through a variety of publications, public meetings, workshops and conferences. Its headquarters is currently located in London.
Interbank money markets have been subject to substantial impairments in the recent decade, such as a decline in unsecured lending and substantial increases in haircuts on posted collateral. This paper seeks to understand the implications of these developments for the broader economy and monetary policy. To that end, we develop a novel general equilibrium model featuring heterogeneous banks, interbank markets for both secured and unsecured credit, and a central bank. The model features a number of occasionally bind-ing constraints. The interactions between these constraints - in particular leverage and liquidity constraints - are key in determining macroeconomic outcomes. We find that both secured and unsecured money market frictions force banks to either divert resources into unproductive but liquid assets or to de-lever, which leads to less lending and output. If the liquidity constraint is very tight, the leverage constraint may turn slack. In this case, there are large declines in lending and output. We show how central bank policies which increase the size of the central bank balance sheet can attenuate this decline.
Many employers link wages at the firm’s establishments outside of the home region to the level at headquarters. Multinationals that anchor-to-the headquarters also transmit wage changes arising from shocks to minimum wages and exchange rates in the home country/state to their foreign establishments. Such multinationals fire more low-skill workers and hire fewer new workers abroad after a permanent (minimum wage-induced) foreign establishment wage increase originating in shocks to headquarter wages, but not after a temporary (exchange rate-induced) one. We show this using data on 1,060 multinationals’ establishments across the world and in employee-level data on the same employers’ establishments in Brazil.
We study the distributional effects of a monetary policy-induced firm-level credit supply shock on individual wages and employment. To this end, we construct a novel dataset that links worker employment histories to firms' bank credit relationships in Germany. We document that firms in relationships with banks that were more exposed to negative monetary policy rates in 2014 see a relative reduction in credit supply. A negative credit supply shock in turn is associated with lower firm-level average wages and employment. These effects are concentrated among distinct worker groups within firms, with initially lower-paid workers more likely to be fired and initially higher-paid workers more likely to receive wage cuts. At the same time, wages decline by more at initially higher-paying firms. Consequently, wage inequality within and between firms decreases. Our results suggest that monetary policy has important distributional effects in the labor market.
We exploit the unexpected announcement of an immediate, temporary VAT cut in Germany in the second half of 2020 as a natural experiment to study the spending response to unconventional fiscal policy. We use survey and scanner data on households’ consumption expenditures and their perceived pass-through of the tax change into prices to quantify its effects. The temporary VAT cut led to a substantial relative increase in durable spending of 36% for individuals with a high perceived pass-through. Semi- and non-durable spending also increased. According to our preferred estimates, the VAT policy increased aggregate consumption spending by 34 billion Euros.
We introduce an information provision experiment into a standard dynamic rational inattention model. We derive analytical results about how the treatment effect varies with characteristics of the environment and the individual. We use these results to discuss findings in the empirical literature on information provision experiments that can be explained by rational inattention of survey respondents and what this interpretation implies about behavior outside the survey. (JEL C90, D83, D91)
