Work in Progress

“Branch Banking and Regional Financial Markets:  Evidence from Prewar Japan”, with Toshihiro Okubo (Keio)  and Tetsuji Okazaki (U Tokyo).

“Super Debt Cities: Local government finance, political connections and the geography of China’s housing boom” with Yi Huang  (Graduate Institute Geneva) and Ye Zhang (University of Geneva).


Completed Working Papers

NEW: Growing Like Germany: Local public debt, local banks, low private investment (with Michael Stiefel (UZH) and Iryna Stewen (JGU Mainz)). (CEPR-DP 15912)

The upshot:  Local government debt in Germany crowds out private investment to the tune of 1 percent of GDP per year. The reason: Forced to lend to local governments by their statutory mandate, local public banks try to  “make up” for the low-yields on municipal debt by charging SME higher rates in what are locally segmented credit markets. This effect is exacerbated by the dire straits of municipal finances in Germany which, as we argue, is a direct consequence of the debt brake at the federal and state levels which shifted a lot of expensive government task to municipalities.

NEW: Softening the Blow: U.S. State-Level Banking Deregulation and Sectoral Reallocation after the China Trade Shock (with Lilia Ruslanova), September 2020, updated April 2021.

The upshot: U.S. state-level banking deregulation during the 1980s  considerably dampened the fallout on local economies of the China trade shock a decade later. The reason: households in financially integrated areas could more easily borrow against their housing wealth to smooth consumption. This kept house prices and wages in the non-tradable sector up, facilitating labor reallocation away from manufacturing.

NEW: Non-US  banks and dollar (co-)dependence:  how housing markets became internationally synchronized with Torsten Ehlers (BIS) and Alexander Raabe (European Stability Mechanism) now out as BIS-DP no 897 (29 Oct 2020).

The upshot: Why do  House Prices move together across countries? US capital inflows ease Dollar funding conditions for non-US global banks, which increases their lending globally. This drives mortgage supply and synchronizes house prices internationally.

NEW, revised version: By a Silken Thread: regional banking integration and  credit reallocation during Japan’s lost decade (with Toshihiro Okubo), now out as UZH Economics Discussion Paper no 102.

The upshot: During Japan’s Lost Decade, regional credit reallocation by nationwide (“integrated”) banks mitigated the real effects from the bank liquidity shock in prefectures with many bank-dependent SMEs. We propose a novel instrument for regional banking integration that  exploits the historical segmentation of banking markets in Japan that goes back to the institutions set up for silk export finance in the late 19th century. Our results show how integrated banking markets limit macroeconomic asymmetries in a monetary union during a financial crisis–even if the crisis mainly affects  integrated banks (as was the case  during the Lost Decade).

Earlier versions where circulated as “By a Silken Thread: regional banking integration and  pathways to financial development during Japan’s Great Recession’ Working paper versions: RIETI CESifo CAMA

NEW, revised version: Small Firms and Domestic Bank Dependence in Europe’s Great Recession with Egor Maslov (UZH, Finance) and Bent Sørensen (U Houston) now out as UZH Economics DP 397.  

The upshot: After the inception of the euro, the real economy in most member countries remained dependent on credit by domestic banks, which increasingly funded themselves through cross-border interbank funding. We find that this pattern of ‘double-decker’ banking integration exposed domestic banks to sharp declines in cross-border interbank lending during the eurozone crisis. As a result, domestic banks reduced lending which led to large declines in output in sectors with many small (bank-dependent) firms. We propose a quantitative small open economy model to account for these patterns and conclude that a global banking shock leading to a sudden stop in cross-border interbank lending in the eurozone is required to account for them.

Earlier versions: CAMA WP 76/2019 , CESifo-WP 7897 CEPR-DP 13691, European Economy Discussion Paper

Publications in Refereed Journals

Holes in the Dike: the global savings glut, U.S. house prices and the long shadow of banking deregulation, (with Iryna Stewen, University of Mainz). Journal of the European Economic Association, Volume 18, Issue 4, August 2020, pp. 2013–2055.
Replication Files are here:

Channels of Risk Sharing in the Eurozone: What Can Banking and Capital Market Union Achieve? (with Egor Maslov, Iryna Stewen and Bent E. Sorensen), IMF Economic Review, Volume 67, Issue 3pp 443–495.
Media Coverage:  Financial Times
The last author version is here. A previous version was also circulated as CEPR discussion paper #13254 under the title: Are Banking and Capital Markets Union Complements? Evidence from Channels of Risk Sharing in the EMU.

Systematic Consumption Risk in Currency Returns (with Rahel Studer-Suter), Journal of International Money and Finance, Volume 74, June 2017, Pages 187-208.

Working paper versions: Final manuscript version, CES, UZH

A provincial View of Global Imbalances: Regional Capital Flows in China (with Samuel Cudré, Mc Kinsey & Co) Review of World Economics, , Volume 153, Issue 3, pp 573–599.

Working Paper versions: Last manuscript version, CAMA, UZH

The Consumption-Income Ratio, Entrepreneurial Risk and the US Stock MarketJournal of Money, Credit and Banking, Sep. 2014, vol 46 (6), pp. 1259-1292.Download (PDF, 459 KB)

Formerly circulated under ‘Proprietary Income, Entrepreneurial Risk and the Predictability of U.S. Stock Returns’, CESifo Working Paper No. 1712

What drives China’s Current Account? Journal of International Money and Finance, Feb. 2013, vol 32, pp. 856-883.

Securitization of Mortgage Debt, Domestic Lending and International Risk Sharing (with Thomas Nitschka), Canadian Journal of Economics, May 2012, vol 45 (1), pp. 493-508.

Has Risk Sharing increased in Asia (and elsewhere)?Seoul Journal of Economics, 2011, vol 24 (4), pp. 551-574. Download (PDF, 192 KB)

The Home Bias, Capital Income Flows and Improved Long-Term Consumption Risk Sharing between Industrialized Countries, with Micheal J. Artis, International Finance,Winter 2011, vol 14 (3), pp. 481-505. Download (PDF, 205 KB) 

Formerly circulated under: ‘The Home Bias and Capital Income Flows between Countries and Regions’, Mar. 2007, IEW Working Paper 316, University of Zurich.

Consumption Risk Sharing over the Business Cycle: The Role of Small Firms’ Access to Credit Markets, with Iryna Shcherbakova-Stewen. The Review of Economics and Statistics, Nov. 2011, 93(4), pp. 1403-1416.

Replication & data files

The Swiss Franc Exchange Rate and Deviations from Uncovered Interest Parity: Global vs Domestic Factors (with Rahel Suter), Swiss Journal of Economics and Statistics, Mar. 2010, vol 146 (I), pp. 349-371.

Equity Fund Ownership and the Cross-Regional Diversification of Household Risk, (with Sascha O. Becker), Journal of Banking and Finance, Jan. 2010, vol 34 (1), pp 90-102.

Real Exchange Rates and Real Interest Rate Differentials: a Present Value Interpretation (with Ronald MacDonald), European Economic Review, Nov. 2009, vol 53 (8), pp 952-970.

Financial Globalization, International Business Cycles and Consumption Risk Sharing (with Michael J. Artis),  Scandinavian Journal of Economics, Sep. 2008, vol 110 (3), pp 447-471.

The Lack of International Consumption Risk Sharing: Can Inflation Differentials and Trading Costs Help Explain the Puzzle?, Open Economies Review, 2008, vol.19(2), pp.183-201.

Consumption, Wealth and Business Cycles: Why is Germany different?’ (with Britta Hamburg and Joachim Keller), Empirical Economics, Jun. 2008, vol 34(3), 451-476.

CAYGermanData (XLS, 28 KB)

Intra- and International Risk-Sharing in the Short Run and the Long Run (with Sascha O. Becker), European Economic Review, Apr. 2006, vol. 50(3), pp.777–806.

International Capital Mobility in the Short Run and the Long Run: Can we still learn from savings and investment data?, Journal of International Money and Finance, Feb. 2004, vol. 23(1), pp. 113-131.

International Macroeconomic Fluctuations and the Current Account, Canadian Journal of Economics, May 2003, vol. 36(2), pp. 401-420.

Long Run Recursive VAR Models and QR Decompositions, Economics Letters, Oct. 2001, vol. 73(1), pp. 15-20.

The Relative Dynamics of the Current Account and Investment in the G7 Economies, The Economic Journal, May 2001, vol. 111(471), pp. C148-C163.

Book contributions

Shocks and risk sharing in the EMU: Lessons for Banking and Capital Market Union (2018). (with Egor Maslov, Bent Sørensen, and Iryna Stewen) In N. Campos & J.-E. Sturm (Eds.), Bretton Woods, Brussels, and Beyond: Redesigning the Institutions of Europe (pp. 85-92) book

‘The Impact of the Euro on International Stability and Volatility’ with Stefan Gerlach. In: Marco Buti , Servaas Deroose , Vitor Gaspar and João Nogueira Martins (eds). The Euro: the first decade. Cambridge University Press, pp. 648-670, April 2010.  Earlier version: European Economy, Economic Papers, 309, March 2008

‘Declining Home Bias and the Increase in International Risk Sharing: Lessons from European Integration’, with Micheal Artis. In Lars Jonung, Christoph Walker and Max Watson (eds.) Building the Financial Foundations of the Euro: Experiences and Challenges, Routledge, June 2008.

previous version, CEPR Discussion Paper 6617, Dec. 2007

Comment on Michael D. Bordo and Thomas F. Helbling ‘Have National Business Cycles become more synchronized?’ in Siebert, Horst (ed.) Macroeconomic Policies in the World Economy, Springer Verlag (Berlin and Heidelberg), 2004.