Abstract This paper studies whether climate-related adjustments to the Basel III output floor can reconcile prudential discipline with environmental objectives. We develop an environmental general equilibrium framework with endogenous default risk and regulatory risk weights to compare a standard output floor with alternative climate-oriented designs. We show that while the standard output floor stabilizes banks’ capital adequacy and Risk-Weighted Assets (RWA) density over the cycle, it delivers no significant environmental benefits. Climate-oriented output floors deliver only limited environmental improvements and introduce a trade-off with prudential discipline when the green floor is deactivated, highlighting the difficulty of jointly achieving prudential and environmental objectives through capital regulation.
Abstract In the aftermath of a sovereign default, debt recovery is determined through a restructuring process. Empirically, we show that the level of recovery is positively related to the level of defaulted debt. To rationalize this strong association, we build a framework that employs the Kalai-Smorodinsky bargaining solution in a model of sovereign debt renegotiation while jointly matching standard emerging market behavior. We identify the key assumptions that enable the model to match the data. We also show that the model using a standard Nash bargaining protocol results in debt recovery being unrelated to the outstanding level of debt. Two debt relief programs are then studied to highlight the difference between the two models in welfare implications.
Abstract This paper investigates the effects of relative price shifts on aggregate labour productivity (ALP) growth in the UK. Using two extended sectoral decomposition frameworks, we isolate the contribution of relative output price changes to ALP growth and compare recent double-deflated UK data with counterfactual single-deflated data to examine the interplay between relative price contributions and productivity performance. Our analysis reveals significant relative price effects on ALP growth in manufacturing and ICT under an extended T ModifyingAbove o With two dots o ¨ $\ddot{o}$ rnqvist decomposition but only in ICT when applying an extended Generalized Exactly Additive Decomposition (GEAD) framework. To assess whether shifts in market power explain these significant changes in relative prices, we estimate aggregate markups for manufacturing and ICT. The findings highlight substantial variations in markups from 2008 to 2019, reflected in notable fluctuations in price effects over time. These results raise important questions about the relative roles of value creation and the labour contribution in assessing the UK’s productivity performance.
Abstract This study estimates the dynamic effect of monetary policy on the labor share in the Euro Area. We adapt panel local projections to the Double/Debiased Machine Learning estimator, developed for causal inference in high-dimensional control settings. We find robust evidence that the labor share increases after a monetary policy tightening. The response reflects a broad contractionary transmission mechanism: output, labor productivity, employment, investment, and prices decline, while average real wages adjust less persistently. This pattern is consistent with recent evidence showing that monetary contractions raise the labor share because labor productivity falls more than real wages. Our results indicate that a causal Machine Learning estimator can recover plausible monetary policy innovations and deliver price- and production-puzzle-free responses without relying on high-frequency instruments.
Abstract This paper develops an endogenous growth model featuring income-dependent risk preferences to explain the emergence and evolution of buyout funds. We propose a novel preference structure where high-income agents derive utility from the thrill of entrepreneurial risk-taking, leading them to acquire business ideas from capital-constrained innovators. The model demonstrates that buyout funds emerge as equilibrium contracts when income inequality exceeds a critical threshold, with wealthy investors paying premiums to participate in ventures. Conversely, in more equal economies, buyout funds serve as transitional institutions. Initial inequality enables the acquisition of ideas, but subsequent growth allows the original idea holders to become independent entrepreneurs, leading to the fund’s eventual decline. Our framework provides microfoundations for understanding how income distribution shapes financial intermediation patterns and their growth consequences, offering new insights into the relationship between inequality, entrepreneurial spawning, and innovation-driven growth.
