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Peer effects and debt accumulation: Evidence from lottery winnings
Get PDFI estimate the effect of lottery winnings on peers' debt accumulation using administrative data from Norway. I identify neighbors of lottery winners, and estimate an average debt response of 2.1 percent of the lottery prize among households that live up to ten houses from the winner. Analyzing heterogeneity, I find that neighborhood characteristics and shared characteristics with the winner matter for the debt response: there is a tendency for greater effects for those (1) residing closest to the winner, (2) residing in single-household dwellings, (3) with a longer tenure, and (4) with a household structure similar to that of the winner. Finally, estimates of the (imputed) expenditure response among neighbors indicate that they accumulate debt to finance increased spending, consistent with a "keeping-up-with-the Joneses" type explanation, where neighbors react to each others expenditure.publishedVersio
Verdsettelse og ESG-investeringer
No full textIn this note, we discuss the asset pricing implications of the increasing consideration of Environmental, Social and Governance (ESG) issues in investing.publishedVersio
Household Leverage and Labor Market Outcomes : Evidence from a Macroprudential Mortgage Restriction
Get PDFDoes household leverage matter for worker job search, matching in the labor market, and wages? Theoretically, household leverage can have opposing effects on the labor market through debt-overhang and liquidity constraint channels. To test which channel dominates empirically, we exploit the introduction of a loan-to-value ratio restriction in Norway that exogenously reduces household leverage. Focusing on a sample of displaced workers who bought a house before losing their jobs due to mass layoffs, we find that a reduction in leverage raises the subsequent wages of these workers. Lower leverage enables workers to search longer, find jobs in higher-paying firms, and switch into new occupations and industries. The positive effect on wages is persistent and more pronounced for young and highly-educated workers who are more likely to benefit from the effects of a reduction in leverage on job search. Our results indicate that in addition to reducing financial stability risks, policies limiting household leverage can improve workers’ labor market outcomes.publishedVersio
Climate change and central banking – a Nordic perspective
Get PDFWelcome remarks by Ida Wolden Bache at the conference "Climate change and central banking – a Nordic perspective"publishedVersio
Government support schemes during the Covid-19 pandemic have had a dampening effect on corporate credit risk
Get PDFAfter the Covid-19 pandemic broke out, the authorities have introduced a number of measures aimed at the business sector. Support has largely been given to the sectors hardest hit by the pandemic and measures to contain it. A considerable share of banks’ loan customers in these sectors have received support from one or more of these schemes. This has likely had a dampening effect on banks’ credit loss risk.publishedVersio
Covered bonds and bank portfolio rebalancing
Get PDFWe use administrative and supervisory data at the bank and loan level to investigate the impact of the introduction of covered bonds on the composition of bank balance sheets and bank risk. Covered bonds, despite being collateralized by mortgages, lead to a shift in bank lending from mortgages to corporate loans. Young and low-rated firms in particular receive more credit, suggesting that overall credit risk increases. At the same time, we find that total balance sheet liquidity increases. We identify the channel in a theoretical model and provide empirical evidence: Banks with low initial liquidity and banks with sufficiently high risk-adjusted return on firm lending drive the results.publishedVersio
Monetary policy spillover to small open economies: Is the transmission different under low interest rates?
Get PDFWe explore the impact of low and negative monetary policy rates in core world economies on bank lending in four small open economies – Canada, Chile, the Czech Republic and Norway – using confidential bank-level data. Our results show that the impact on lending in these small open economies depends on the interest rate level in the core. When interest rates are high, monetary policy cuts in core economies can reduce credit supply in small open economies. In contrast, when interest rates in core economies are low, further expansionary monetary policy increases lending in small open economies, consistent with an international bank lending channel. These results have important policy implications, suggesting that central banks in small open economies should watch for the impact of potential regime switches in core economies’ monetary policy when rates shift to and from the very low end of the distribution.publishedVersio
Leaning against persistent financial cycles with occasional crises
Get PDFShould central banks use leaning against the wind (LAW)-type monetary or macroprudential policy to address risks to financial stability? We first assess LAW as a one-off (nonsystematic) policy using an estimated large-scale dynamic stochastic general equilibrium (DSGE) model with empirically plausible persistent financial cycles and a stylised regime-switching (RS) framework of occasional crises. We then evaluate policy-rule based (systematic) LAW using an endogenous RS version of our DSGE model with financial crises, effective lower bound (ELB) on interest rates, and an asymmetric LAW policy. Our findings do not support LAW by monetary policy because the costs of depressing the economy in normal times far outweigh the benefits of a less likely and less severe crisis. LAW increases inflation volatility significantly as it amplifies the effects of supply shocks on inflation. It also leads to higher long-run output costs in the case of nonsystematic policy and to a lower mean inflation rate in the case of systematic policy. The latter also results in more frequent ELB episodes due to the lower mean inflation rate it induces. We find that LAW is only advisable if the policymaker cares more about output stability relative to inflation stability or if financial cycles are less persistent, exclusively under systematic LAW. Higher long-run capital requirements in normal times address risks to financial stability better as they reduce the fluctuations in inflation and output considerably.publishedVersio
Financial Stability Report 2021 : vulnerabilities and risks
No full textThe annual Financial Stability Report communicates Norges Bank assessments of the financial stability outlook. The Report discusses cyclical and structural developments at banks and other financial institutions and in financial markets and the Norwegian economy that are of importance for vulnerabilities and risks in the financial system. The Report also points out measures that can contribute to financial stability. Norges Bank’s Monetary Policy Report with financial stability assessment includes an ongoing assessment of cyclical vulnerabilities and the banking sector, along with Norges Bank’s decision on the level of the countercyclical capital buffer. In the Financial Infrastructure Report, Norges Bank assesses vulnerabilities and risks in the financial infrastructure. The report Norway’s Financial System provides a comprehensive overview of Norway’s financial system, its tasks and the performance of these tasks. Norges Bank’s Monetary Policy and Financial Stability Committee discussed Financial Stability Report 2021 at its meetings on 30 September, 26 October and 3 November 2021.publishedVersio
Identifying the sources of the slowdown in growth: Demand vs. supply
Get PDFLong-run GDP growth has declined in the United States over the past two decades. Two competing views take the stage in accounting for this slowdown: demand-side and supply-side. I empirically quantify their relative importance in a Bayesian SVAR with common trends, identified using sign restrictions based on the co-movement of prices and quantities. While supply-side factors were the main driver of long-run GDP growth prior to 2000, demand-side factors explain half of its slowdown afterwards. The findings suggest a relevant role of demand forces as drivers of long-run growth.publishedVersio