Abstract: When the Fed signals a booming US economy, part of Europe catches a cold -- part of it thrives. This paper asks how an upswing in the US business cycle transmits to the Euro Area through trade. I study the question empirically through panel local projections that exploit EA industries' asymmetric input-output linkages with the US economy. These linkages prove decisive for the international propagation of US upturns, often obscured in aggregate responses. The analysis reveals asymmetric spillovers to the Euro Area from a US demand shock that can be interpreted as macroeconomic news released by the Federal Reserve. The good news about the US economy foretell a two-speed economy for Europe: industries that ultimately export to the United States move in step with the US business cycle, while those that import from the US contract as adverse global price and exchange rate movements pass the US demand shock downstream as a cost-push shock. Expenditure-switching effects contribute but cannot fully explain the observed pattern in US import demand. In contrast, monetary tightening by the Fed exerts contractionary effects on Euro Area aggregate activity with weaker dependence on trade linkages than the Fed’s information effects. The empirical evidence motivate a theoretical two-country model that replicates the qualitative patterns observed in the data.
Abstract: Investment is one of the most responsive components of the GDP to monetary policy, but not all investment is funded alike. This project studies the macroeconomic implications of firm debt heterogeneity when funding markets are segmented along the yield curve and expose firms differentially to long-end and short-end curve shifts. Along with the adoption of unconventional policies, monetary policy has gained relevance in greater extent of the yield curve. This coincides with an observation that EA bond markets have seen a shift in higher market participation by smaller and riskier firms. In addition to rationalising the greater bond market presence by these firms, this project sets out to answer: Does bond issuance shield these firms from higher pass-through of short-end yield curve shocks and debt roll-over risk, or expose the firms excessively to debt-overhang? What are the real effects of monetary policy when conventional policy tightening outpaces unconventional policy tightening and credit markets are segmented? We explore these questions by setting up the intertemporal debt composition and investment problem of the firm in a dynamic heterogeneous firm model where a firm makes a capital market entry decision. Empirically, we provide evidence on firm outcomes upon debt capital market entry.
Abstract: This paper examines asymmetries in the effects of geopolitical shocks on international bank credit, contrasting adverse events, such as Russia's invasion of Ukraine, with positive events like the fall of the Berlin Wall. Using confidential data from the BIS International Banking Statistics from 1977 to 2024, we analyze credit dynamics between up to 12,000 pairs of countries through the lens of their geopolitical differences. Our findings reveal that such differences weigh on international banking activity over time. Negative shocks reduce credit by 10-20% more between geopolitical blocs than they do within blocs. In contrast, positive shocks have no comparable effect on credit, even when boosting trade flows. We conjecture that these asymmetries stem from the higher level of trust required for cross-border credit compared to trade in goods, which tends to be shorter-term and collateralized.