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Credit: Empirical Macroeconomic Implications

Paper Session

Friday, Jan. 4, 2019 8:00 AM - 10:00 AM

Atlanta Marriott Marquis, L503
Hosted By: Econometric Society
  • Chair: Farzad Saidi, Stockholm School of Economics

Historical Patterns of Inequality and Productivity around Financial Crises

Pascal Paul
,
Federal Reserve Bank of San Francisco

Abstract

To understand the determinants of financial crises, previous research focused on developments closely related to financial markets. In contrast, this paper considers changes originating in the real economy as drivers of financial instability. To this end, I assemble a novel data set of long-run measures of income inequality, productivity, and other macrofinancial indicators for advanced economies. I find that rising top income inequality and low productivity growth are robust predictors of crises, and their slow-moving trend components explain these relations. Moreover, recessions that are preceded by such developments are deeper than recessions without such ex-ante trends.

The Credit Channel of Fiscal Policy Transmission

Andrew Bird
,
Carnegie Mellon University
Stephen A. Karolyi
,
Carnegie Mellon University
Stefan Lewellen
,
Pennsylvania State University
Thomas Ruchti
,
Carnegie Mellon University

Abstract

We propose and test a new channel through which fiscal policy changes can affect the supply of intermediated credit and the real economy. Banks that have greater exposure to firms expected to repatriate a significant amount of foreign income as a result of a 2004-2005 U.S. tax holiday subsequently increase lending to other, purely domestic firms during the period of the tax holiday, leading to higher investment at these firms. Our results complement the existing literature on the credit channel of monetary policy transmission and highlight an important indirect spillover effect of fiscal policy changes on credit-constrained firms.

The Effects of Credit Supply on Wage Inequality between and within Firms

Christian Moser
,
Columbia University
Farzad Saidi
,
Stockholm School of Economics
Benjamin Wirth
,
IAB Nuremberg

Abstract

In this paper, we study the effect of a credit supply shock on the distribution of wages within and between firms. We construct a novel dataset combining administrative linked employer-employee data with information on firms' preexisting bank relationships in the credit market. We use the introduction of negative monetary policy rates in the euro area as a source of variation in banks' credit supply to firms in Germany. We find that this credit supply shock leads to higher within-firm wage inequality at more affected employers. At the same time, we find a reduction in between-firm wage inequality due to relatively higher average wages among initially lower-paying employers. Our results suggest that monetary policy can have important distributional consequences through affecting credit supply and firm pay heterogeneity.
JEL Classifications
  • E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
  • G2 - Financial Institutions and Services