Abstract: We compute the cross-country transfers that result from unconventional monetary policy in the Eurozone. The ECB funds the expansion of its aggregate balance sheet mostly by issuing bank reserves and cash in core countries. The national central banks (NCBs) in periphery countries then borrow from the core NCBs at below-market rates to fund the asset purchases and bank lending. In addition, NCBs in the periphery lend more to their own banks at below-market rates. To compute the cross-country transfers, we compare the resulting cross-country distribution of NCB income to a counterfactual scenario without the ECB and without non-marketable intra-Eurozone debt. We document significant and persistent transfers from the core to the periphery.
Nina Boyarchenko, Federal Reserve Bank of New York
Leonardo Elias, Federal Reserve Bank of New York
Abstract: We estimate the global price of credit risk from a large cross section of global corporate bond returns. We show that a single factor, constructed as a nonlinear function of past credit spreads, equity market volatility, and their interactions, prices bond returns in both the time series and the cross section. The factor significantly outperforms alternative measures of global financial conditions, explaining up to 13% of variation in bond-level three-month-ahead returns. A high global price of credit risk further translates into deteriorations in local credit conditions, outflows from global funds, and higher expected returns to global funds.
Discussant: Kerry Siani, Massachusetts Institute of Technology
Abstract: This paper develops a quantitative model to analyze the role of bank heterogeneity in the transmission of monetary policy through the bank lending channel. We calibrate the model to the euro area to capture two distinct forms of heterogeneity: ex-ante differences in loan pricing practices and ex-post variation in capital positions driven by idiosyncratic default risks. Consistent with empirical impulse responses, banks in fixed-rate economies experience severe net interest margin compression during monetary tightening as funding costs rise while income from legacy loans remains unchanged, leading to capital erosion and deeper lending contractions. The elasticity of new lending to monetary policy is approximately one-third larger in fixed-rate economies. Highly leveraged banks drive these differences: without default risk, banks would remain far from their regulatory limits. We discuss additional tradeoffs between monetary policy and financial stability, study the implications for gradual policy rate increases, and demonstrate fundamental limitations of representative-agent banking models.
Discussant: Wenhao Li, University of Southern California
