International bank lending channel of monetary policy
Silvia Albrizio, Sangyup Choi, Davide Furceri and Chansik Yoon
Since the 90s, the rapid financial integration has stimulated a sharp increase in international bank lending. In this context, should we expect a monetary policy tightening in systemic countries to increase cross-border bank lending or to trigger a sudden reversal of capital flows? Using a panel of nine systemic countries of origin and 46 recipient countries, we find that a tightening of domestic monetary policy decreases international bank lending, due to an increase in funding costs or a rise in risk-aversion.
Measuring the procyclicality of impairment accounting regimes: a comparison between IFRS 9 and US GAAP
Alejandro Buesa, Francisco Javier Población García and Javier Tarancón
We compare the cyclical behaviour of various credit impairment accounting regimes, namely IAS 39, IFRS 9 and US GAAP. We model the impact of credit impairments on the Profit and Loss (P&L) account under all three regimes. Our results suggest that although IFRS 9 is less procyclical than the previous regulation (IAS 39), it is more procyclical than US GAAP because it merely requests to provision the expected loss of one year under Stage 1 (initial category). Instead, since US GAAP prescribes that lifetime expected losses are fully provisioned at inception, the amount of new loans originated is negatively correlated with realized losses. This leads to relatively higher (lower) provisions during the upswing (downswing) phase of the financial cycle. Nevertheless, the lower procyclicality of US GAAP seems to come at cost of a large increase in provisions
Outsourcing and public expenditure: an aggregate perspective with regional data
Mar Delgado-Téllez, Enrique Moral-Benito and Javier J. Pérez
The generalisation of outsourcing the provision of public goods and services raises the question of whether this is a cost-efficient measure. There is no consensus about the expected impact of an increase in the outsourcing level on public expenditure from the theoretical literature, and there is little empirical evidence. Thus, we exploit a panel of seventeen Spanish regions from 2002 to 2018 in order to estimate the relationship between the level of outsourcing and public spending. Our estimates suggest that for these regional governments an increase in outsourcing has entailed a rise in public spending.
Taxation and the life cycle of firms
Andrés Erosa and Beatriz González
The aim of this paper is to understand how different forms of taxing capital income affect investment and financial policies over the life cycle of firms. Relative to dividends and capital gains taxation, corporate income taxation slows down growth of firms by reducing after-tax profits available for reinvesting. It also diminishes entry by negatively affecting the value of entrants relative to that of incumbent firms. With these mechanisms in mind, we calibrate our model economy to the US and discuss different revenue-neutral tax reforms that would lead to increases in aggregate output and capital.
Monetary Policy, Corporate Finance and Investment
James Cloyne, Clodomiro Ferreira, Maren Froemel and Paolo Surico
Using almost 30 years of detailed firm-level data for the U.S. and U.K., we provide novel evidence on how monetary policy affects firm investment and finance. We find that relatively young firms paying no dividends are the most sensitive in terms of capital expenditures, and their response to interest rate changes drives the movement in aggregate investment. On the other hand, older firms (that pay dividends) don’t respond at all. The main mechanism behind these result works through the heterogeneous exposure to asset price movements. Standard theories of firm dynamics allow for only a marginal role of age as a predictor of the response to shocks. We present an extension which can reconcile model and data.
The effects of pension-related policies on household spending
Susana Párraga Rodríguez
This study analyzes empirically the direct effects of income changes on the elderly and pensioners’ spending behavior. The identification method exploits the introduction of a new pension system in Spain during the 1980s and 1990s and constructs a narrative series of legislated pension changes, which is used in an instrumental setting (CQIV). My findings imply that increases in the average pension have strong positive effects on pensioner spending, particularly on the pensioners with the highest levels of expenditure, income, and wealth.