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Aufgrund des Klimawandels kommt es häufiger zu Stürmen, Überschwemmungen und anderen Naturkatastrophen. Die vorliegende empirische Analyse zeigt, dass eine bessere Integration von Ländern in internationale Finanzmärkte die gesamtwirtschaftlichen Abwehrkräfte gegen solche Schocks stärkt. Die Produktion ist nach einer Naturkatastrophe in Volkswirtschaften, die über Auslandsforderungen und -verbindlichkeiten stark mit anderen Finanzmärkten verflochten sind, signifikant höher als in weniger integrierten Volkswirtschaften. Die empirischen Ergebnisse legen nahe, dass die Finanzierung über ausländisches Eigenkapital und auch Investitionen in ausländische Anleihen eine schnellere Erholung begünstigen. Fremdkapital aus dem Ausland kann hingegen die Erholung nach einer Naturkatastrophe bremsen. Dieser Befund unterstreicht trotz aller Vorbehalte gegen zu starke Abhängigkeiten die Vorteile globaler Verflechtungen der Finanzmärkte, die vor allem dann stabilisierend wirken können, wenn sie diversifiziert und auf Eigenkapital ausgerichtet sind. Dies sollte die Europäische Kommission berücksichtigen, wenn sie die dringend erforderliche Kapitalmarktunion vorantreibt., DIW Wochenbericht

DIW Wochenbericht

In February 2022, the EU Commission announced economic sanctions against Russian oligarchs. The goal was to exert pressure on the Kremlin: initially to stop deploying troops to the Donetsk and Luhansk regions and ultimately to end its attack on Ukraine. The present report investigates how these sanctions affect companies headed by Russian oligarchs. The empirical findings show that after sanctions are announced, the stock returns of companies with sanctioned oligarchs on their executive board were significantly lower than the stock returns of firms without sanctioned board members. This is due to, for example, signaling effects and legal and economic uncertainties. Investors may expect negative consequences for the companies with sanctioned oligarchs and therefore withdraw. Thus, personal sanctions can exert some economic pressure via the negative economic effects on firm value., DIW Weekly Report

Die EU-Kommission hat im Februar 2022 wirtschaftliche Sanktionen gegen ausgewählte russische OligarchInnen verkündet. So sollte Druck auf den Kreml ausgeübt werden, zunächst die Verlegung von Truppen in die Regionen Donezk und Luhansk und schließlich den Angriff auf die Ukraine zu beenden. Der vorliegende Bericht untersucht, wie sich diese Sanktionen auf Unternehmen auswirken, die von russischen OligarchInnen geleitet werden. Die empirischen Befunde zeigen, dass die Aktienrenditen von Unternehmen mit sanktionierten OligarchInnen im Vorstand nach der Ankündigung der Sanktionen deutlich unter den Aktienrenditen von Unternehmen ohne sanktionierte Vorstände lagen. Beispielsweise dürften InvestorInnen aufgrund von Signaleffekten sowie rechtlichen und wirtschaftlichen Unsicherheiten negative Folgen für Unternehmen mit betroffenen OligarchInnen erwarten und sich deshalb zurückziehen. Persönliche Sanktionen können also über die negativen Effekte auf Unternehmenswerte einen gewissen ökonomischen Druck ausüben., DIW Wochenbericht

Der Markt für grüne Anleihen insbesondere aus dem Euroraum ist in den vergangenen Jahren stark gewachsen. Mit Blick auf die angestrebten Klimaziele der Europäischen Union ist anzunehmen, dass die Nachfrage nach Bonds, die gezielt nachhaltige Projekte fördern, künftig weiter steigen wird. Auch die Europäische Zentralbank (EZB) investiert im Rahmen ihrer Kaufprogramme in derartige Anleihen und plant eine Neuausrichtung ihrer Strategie hin zu mehr Nachhaltigkeit. Dieser Wochenbericht untersucht empirisch die Entwicklung des noch jungen grünen Anleihemarktes. Zudem wird beleuchtet, welchen Einfluss EZB-Anleihekäufe im Rahmen des Corporate Sector Purchase Programme (CSPP) und Pandemic Emergency Purchase Programme (PEPP) auf die Renditen haben. Es zeigt sich, dass die Anleihekäufe die Finanzierungsbedingungen auch für Emittenten grüner Unternehmensanleihen verbessern. Die Bonitätseinstufung eines Unternehmens ist ein entscheidendes Kriterium dafür, ob seine Anleihen von der EZB gekauft werden dürfen. Daher ist diese Bewertung auch eine wichtige Stellschraube mit Blick auf eine grünere Geldpolitik. Derzeit werden klimabezogene Risiken für Unternehmen nicht ausreichend bei der Bonitätsbewertung berücksichtigt, so dass Vorteile der grünen Anleihen im Vergleich zu konventionellen kaum Beachtung finden. Eine verbesserte Abbildung klimabezogener Risiken in der Bonitätsbewertung wäre aber nicht nur mit Blick auf die Marktstabilität wichtig, sondern könnte auch die Finanzierungsbedingungen für Emittenten grüner Anleihen weiter verbessern., DIW Wochenbericht

This papers analyzes the effect of the ECB's Corporate Sector Purchase Programme (CSPP) and the recent Pandemic Emergency Purchase Programme (PEPP) on the yields of eligible green bonds, a new but rapidly growing segment of the corporate bond market. We exploit these policy changes using a difference-in-differences strategy, with ineligible corporate green bonds issued in euro, U.S. dollars and Swedish crowns as comparison groups. We find that both programs significantly improve financing conditions for eligible green bonds, thereby increasing the attractiveness of these instruments to issuers and of the euro area as a location of issuance. The effects of the CSPP and PEPP are heterogeneous, both in terms of average impact and persistence of the effects. Yield differences between eligible and ineligible green bonds can last for more than six months. Our analysis informs the debate about new financing options for firms as well as about effects of asset purchase programs on the transition towards a less carbon-intensive economy.

This paper provides evidence for the propagation of idiosyncratic mortgage supply shocks to the macroeconomy. Based on micro-level data from the Home Mortgage Disclosure Act for the 1990-2016 period, our results suggest that lender-specific mortgage supply shocks affect aggregate mortgage, house price, and employment dynamics at the regional level. The larger the idiosyncratic shocks to newly issued mortgages, the stronger are mortgage, house price, and employment growth. While shocks at the level of shadow banks significantly affect mortgage and house price dynamics, too, they do not matter much for employment.

The green bond market has grown strongly in recent years, especially in the euro area. With regard to the European Union’s climate targets, it is likely that the demand for green bonds—bonds that specifically support sustainable projects— will continue to increase in the future. The European Central Bank (ECB) is buying green bonds as well and is planning to reorient its strategy towards more sustainability. This Weekly Report presents an empirical analysis of the evolution of the rapidly evolving green bond market. In addition, the effect of ECB bond purchases on yields under the corporate sector purchase program (CSPP) and the pandemic emergency purchase program (PEPP) is examined. The analysis shows that ECB bond purchases improve financing conditions also for corporate green bond issuers. One decisive criterion for whether a bond may be purchased by the ECB is its credit rating. Currently, the climate-related risks for firms are not sufficiently considered in credit ratings and the advantages of green bonds receive little attention compared to conventional bonds as a result. Improved mapping of climate-related risks into credit ratings would not only be important for market stability, but could also further improve financing conditions for green bond issuers., DIW Weekly Report

Viele europäische Länder haben nach der globalen Finanzkrise 2008/09 Abgaben von Banken eingeführt, um die Finanzinstitute über Abwicklungs- und Restrukturierungsfonds an den Kosten möglicher künftiger Bankenkrisen zu beteiligen. Gleichzeitig kann durch solche Abgaben für Banken ein Anreiz zu einem geringeren Verschuldungsgrad und damit einer stabileren Kapitalstruktur gesetzt werden. Der vorliegende Beitrag untersucht anhand von Bankbilanzdaten, inwieweit Bankenabgaben zu einer geringeren Verschuldung beigetragen haben und welche Rolle die Höhe des Körperschaftsteuersatzes dafür spielt. Denn durch die steuerliche Bevorzugung von Fremdkapital begünstigen höhere Körperschaftsteuersätze eine stärkere Verschuldung. Die empirischen Befunde zeigen, dass Banken in Ländern mit einer Bankenabgabe auf Bankverbindlichkeiten einen geringeren Verschuldungsgrad und damit höhere Kapitalpuffer aufweisen als Banken in Ländern ohne eine solche Abgabe. Je höher der Körperschaftsteuersatz ist, desto weniger reduzieren Bankenabgaben allerdings die Verschuldung. Um die Effektivität regulatorischer Abgaben zu gewährleisten, sollten bei ihrer Ausgestaltung Wechselwirkungen mit anderen Steuern berücksichtigt werden., DIW Wochenbericht

DIW Wochenbericht

Bis zum Jahresende 2020 will die Europäische Zentralbank (EZB) die Ergebnisse ihrer aktuellen Strategieüberprüfung vorlegen. Welche Änderungen sind zu erwarten und was wäre wünschenswert? Der vorliegende Bericht beschäftigt sich mit zwei Bereichen der Überprüfung. Erstens werden Alternativen zur jetzigen Definition der Preisstabilität diskutiert. Aktuelle Studien und Praktiken anderer Zentralbanken weisen darauf hin, dass die Festlegung eines Toleranzintervalls um das punktuelle Inflationsziel sinnvoll sein kann, um die Glaubwürdigkeit der Notenbank zu erhöhen. Zweitens wird aufgezeigt, inwiefern Klimarisiken eine Rolle für die wirtschaftlichen Analysen und geldpolitischen Maßnahmen der EZB spielen. Empirische Befunde zeigen, dass Wetterereignisse wie extreme Trockenheit oder Niederschläge die Konjunktur im Euroraum beeinflussen. Insgesamt sollten klimabezogene Risiken sowohl in den makroökonomischen und monetären Analysen der EZB, als auch bei ihrem Portfolio- und Risikomanagement berücksichtigt werden, DIW Wochenbericht

Following the global financial crisis of 2008/2009, many European countries introduced bank levies to enable financial institutions to share in the costs of future banking crises via resolution and restructuring funds. Simultaneously, bank levies can set an incentive for banks to reduce their leverage, thereby achieving a more stable capital structure. Using information from banks’ balance sheets, this report investigates to what extent bank levies have reduced leverage ratios and what role the corporate income tax rate plays in this. Preferential tax treatment of debt capital means that higher corporate tax rates favor a higher leverage ratio. The empirical findings show that banks in countries with a bank levy on bank debt have lower leverage and thus higher capital buffers than banks in countries without a levy. The higher the corporate tax rate, however, the less bank levies reduce leverage. To ensure regulatory levies are effective, how they interact with other taxes must be taken into account., DIW Weekly Report

By the end of 2020, the European Central Bank (ECB) will present the results of its monetary policy strategy review. What changes are to be expected and what changes are needed? This report covers two areas of the strategy review. First, alternatives to the current definition of price stability are discussed. Current studies and the practices of other central banks indicate that supplementing the inflation target with a tolerance interval may be useful to enhance central bank credibility. Second, it is discussed to what extent climate risks play a role in the ECB’s economic analyses and monetary policy measures. Empirical evidence shows that weather events such as extreme droughts or floods can influence business cycles in the euro area. Overall, climate risks should be assessed both as part of the ECB’s macroeconomic and monetary analyses and as part of its portfolio and risk management., DIW Weekly Report

DIW Wochenbericht

We analyse the first twenty years of the euro both from an economic and an institutional perspective. We find that in particular during the period since the financial crisis, convergence as measured by a variety of indicators has not improved. Design flaws in the Eurozone institutional architecture have contributed importantly to this lack of convergence. This is why further reforms are urgently needed. This policy contribution was prepared for the European Parliament Committee on Economic and Monetary Affairs ahead of the European Parliament's Monetary Dialogue in January 2019.

Regulatory bank levies set incentives for banks to reduce leverage. At the same time, corporate income taxation makes funding through debt more attractive. In this paper, we explore how regulatory levies affect bank capital structure, depending on corporate income taxation. Based on bank balance sheet data from 2006 to 2014 for a panel of EU-banks, our analysis yields three main results: The introduction of bank levies leads to lower leverage as liabilities become more expensive. This effect is weaker the more elevated corporate income taxes are. In countries charging very high corporate income taxes, the incentives of bank levies to reduce leverage turn ineffective. Thus, bank levies can counteract the debt bias of taxation only partially.

Since the global financial crisis and the related restructuring of banking systems, bank concentration is on the rise in many countries. Consequently, bank size and its role for macroeconomic volatility (or: stability) is the subject of intense debate. This paper analyzes the effects of financial regulations on the link between bank size, as measured by the volume of the loan portfolio, and volatility. Using bank-level data for 1999 to 2014, we estimate a power law that relates bank size to the volatility of loan growth. The effect of regulation on the power law coefficient indicates whether regulation weakens or strengthens the size-volatility nexus. Our analysis reveals that more stringent capital regulation and the introduction of bank levies weaken the size-volatility nexus; in countries with more stringent capital regulation or levies in place, large banks show, ceteris paribus, lower loan portfolio volatility. Moreover, we find weak evidence that diversification guidelines weaken the link between size and volatility.

DIW Wochenbericht

DIW Wochenbericht

DIW Weekly Report

Nachdem die europäische Bankenunion auf den Weg gebracht wurde, soll nun zusätzlich eine Kapitalmarktunion die Stabilität des europäischen Finanzsystems stärken. Ein Kernziel ist dabei, die Aktien- und Anleihemärkte der europäischen Länder besser zu integrieren, indem rechtliche Regeln harmonisiert und damit Hürden für grenzüberschreitende Wertpapieranlagen abgebaut werden. Der vorliegende Bericht untersucht, wie sich die bisherige Vereinheitlichung von Finanzmarktregeln in Europa auf die externen Wertpapierpositionen verschiedener Investorengruppen ausgewirkt hat. Es zeigt sich, dass eine rechtliche Harmonisierung das Volumen grenzüberschreitender Wertpapieranlagen erhöhen kann. Da die integrationsfördernden Effekte aber nur in einzelnen Sektoren und Wertpapierklassen auftreten und die Vereinheitlichung von Finanzmarktregeln in der EU schon recht weit fortgeschritten ist, wird eine weitere rechtliche Harmonisierung allein nicht ausreichen, um die Kapitalmarktstrukturen krisenfester zu machen. Politische Anstrengungen sollten sich darauf konzentrieren, Investitionsbarrieren in bestimmten Bereichen, wie zum Beispiel Unsicherheiten über Insolvenzprozesse, abzubauen und die Bankenunion zu vollenden, um auch im Bankensektor Anreize für grenzüberschreitende Eigenkapitalinvestitionen zu setzen., DIW Wochenbericht

This paper analyzes links between institutional harmonization and bilateral portfolio debt and equity holdings at the sectoral level. Motivated by the action plan for the European Capital Markets Union, we examine the potential for legal harmonization and convergence in institutional quality to affect financial structures. Our analysis yields three key insights. First, legal harmonization across the EU promotes capital market integration via increased portfolio equity holdings. Second, discrepancies in institutional quality matter for cross-border portfolio positions: economic agents increase their portfolio debt investment in countries that are transparent and have efficient insolvency procedures, investor protection, and tax systems as compared to the domestic ones. Third, the relationship between external capital holdings and institutional harmonization varies significantly across sectors. The other financial corporations sector, which accounts for a large share of portfolio positions, tends to react more to institutional harmonization than do banks and the non-financial private sector.

Regulatory bank levies set incentives for banks to reduce leverage. At the same time, corporate income taxation makes funding through debt more attractive. In this paper, we explore how regulatory levies affect bank capital structure, depending on corporate income taxation. Based on bank balance sheet data from 2006 to 2014 for a panel of EU-banks, our analysis yields three main results: The introduction of bank levies leads to lower leverage as liabilities become more expensive. This effect is weaker the more elevated corporate income taxes are. In countries charging very high corporate income taxes, the incentives of bank levies to reduce leverage turn ineffective. Thus, bank levies can counteract the debt bias of taxation only partially.

The German economy is on track, and will likely grow by 1.8 percent this year; in the coming year, with a slight increase in dynamics, it will grow by 1.9 percent. With these figures DIW Berlin confirms its forecast from this summer. Employment growth continues; the unemployment rate will decrease this year to 6.4 percent, where it will remain in 2016. Due to the sharp drop in oil prices this year, inflation is low and stands at 0.4 percent; next year it will climb to 1.4 percent. Global economic growth is likely to experience a slight increase during the forecast period. In the industrialized countries in particular, the renewed drop in energy prices keeps inflation rates low. In addition, many countries have experienced steady improvements in labor markets. Together, these two factors support consumption and the purchasing power of households. Recovery in the euro area is moving forward. The euro's external value is low, the monetary policy is very expansionary, and major trading partners are growing vigorously; consumption is likely to develop well, and in the course of time, corporate investment is also expected to recover. In the emerging markets, growth will remain subdued this year. Higher financial market volatility is leading to deterioration in financing conditions. They are expected to contribute more to global growth next year, when for example Russia and Brazil have emerged from recession. German exports continue their upward trend: A strong upturn in major industrial countries, as well as the continued recovery within the euro area, are compensating for the somewhat weaker demand from the emerging countries. In net terms, however, foreign trade barely contributes to growth, because imports will increase significantly as part of the dynamic domestic economy. Consumption is supporting the growth of the German economy. The low inflation substantially supports consumers' purchasing power. But nominal incomes are also experiencing strong increases: The employment growth continues - the number of employed individuals is expected to rise at roughly the rate of previous quarters - and wages have noticeably increased, also due to the introduction of the minimum wage. Other important factors are the significant increases in social benefits; these are primarily due to a sharp increase in pensions, but also to the benefits being received by the refugees, which should give private consumption an additional boost. In contrast, investment will be rather subdued overall. Concerns about the future of the euro area are likely to dampen investment plans. Furthermore, considerable uncertainties about the development of important markets have recently intensified, particularly in China. There are also unresolved geopolitical conflicts, especially the tensions with Russia. Nevertheless, a moderate expansion of investment in equipment is emerging. With robust foreign demand and fully utilized capacities in the industry, these investments are expected to rise over time, especially since the dynamic domestic demand should provide an impetus. However, the risks to the economy remain high and in fact have recently increased. The impending interest rate turnaround in the U.S. could lead to unexpectedly strong capital outflows from the emerging countries; given the high private debt - especially since it is often in foreign currency - this could dampen economic momentum in these countries as well. Although a significant slump in the Chinese economy is expected to be handled with expansionary measures by the government, there is the risk that they may not take sufficient countermeasures in time. It has also been shown in the past that uncertainty about the further development of European integration can flare up quickly. In addition, the recently high volatility of oil prices shows that a new stable equilibrium still has not been established on the market. The planning uncertainty bound up with this could dampen the disposition of many corporations more strongly than assumed here.

Die deutsche Wirtschaft erholt sich weiter und wird in diesem Jahr wohl um 2,2 Prozent wachsen. Bei etwas schwächeren Zuwächsen beträgt das Plus im kommenden Jahr 1,9 Prozent. Im Zuge der günstigen konjunkturellen Entwicklung wird die Arbeitslosenquote weiter sinken, auf 6,4 Prozent in diesem Jahr und 6,1 Prozent im kommenden Jahr. Die Inflation wird in diesem Jahr durch die Ölpreise gedämpft und beläuft sich jahresdurchschnittlich auf 0,5 Prozent; aber auch im kommenden Jahr bleibt sie mit 1,2 Prozent niedrig. Diekonjunkturelle Erholung der Weltwirtschaft setzt sich fort. Der moderate Aufschwung wird vor allem von der Konsumentwicklung in den Industrieländern getragen. Eine sich allmählichverbessernde Arbeitsmarktsituation, aber auch die gesunkenen Ölpreise, schieben über die Kaufkraft den privaten Verbrauch an; die Investitionstätigkeit der Unternehmen dürfte etwas anziehen. Auch im Euroraum stützt die Konsumnachfrage das Wachstum; allerdings besteht eine Reihe von strukturell belastenden Faktoren fort. Insbesondere in den Krisenländern ist die Arbeitslosigkeit weiter hoch und die öffentliche und private Verschuldung belasten die Nachfrage. In den Schwellenländern dürfte das Wachstum zunächst schwach bleiben. Alles in allem dürfte die jahresdurchschnittliche Wachstumsrate der Weltwirtschaft im Jahr 2015 bei 3,8 Prozent und im darauffolgenden Jahr bei 4,0 Prozent liegen.Trotz insgesamt günstiger Aussichten bleiben konjunkturelle Risiken bestehen: Die Finanzmärkte könnten etwa auf ein Wiederaufflammen der Krise im Euroraum, aber auch auf eine Verschärfung des Ukraine-Konflikts erneut mit erheblicher Anspannung reagieren. Getrieben durch eine starke Binnennachfrage wächst die deutsche Wirtschaft kräftig und dürfte im späteren Verlauf auf den Potentialpfad einschwenken. Das Wachstum wird stärker als vor der Krise vom Konsum getragen, der vom anhaltenden Beschäftigungsaufbau und spürbaren Lohnzuwächsen profitiert. Trotz ausgelasteter Kapazitäten bleibt die Inflationsrate niedrig; Anzeichen für eine Überhitzung der deutschen Wirtschaft gibt es nicht. Wichtige Absatzmärkte haben im Vergleich zu den Vorkrisenjahren an Dynamik verloren, der Außenhandel dürfte daher lediglich geringe Impulse liefern; in diesem Umfeld werden dieInvestitionen in Ausrüstungen wohl nur moderat ausgeweitet und, anteilig an der Wirtschaftsleistung, weit unter ihrem Vorkrisenniveau bleiben. Hinzu kommt, dass nach wie vor Risiken für die Finanzmarktstabilität bestehen, die zusätzlich die Investitionsfreude der Unternehmen dämpfen könnten. Die Bauinvestitionen dürften aufgrund verminderter Renditechancen im Wohnungsbau an Schwung verlieren. Alles in allem ist damit die Gefahr einer Überhitzung der deutschen Wirtschaft gering. Die Einnahmen des Staates expandieren kräftig; trotz eines gelockerten Ausgabekurses werden die öffentlichen Haushalte daher in beiden Jahren des Prognosezeitraums Überschüsse von jeweils etwa einem halben Prozent erzielen. The German economy continues to recover, and will grow by 2.2 percent in 2015. With slightly abated increases, the annual growth rate will be 1.9 percent in 2016. Driven by this favorable economic development, the unemployment rate will further decline, to 6.4 percent this year and 6.1 percent in 2016. Inflation, which averages 0.5 percent this year, will be substantially dampened by the slump in oil prices; in 2016 as well, inflation will remain low, at 1.2 percent. The global economy continues in its recovery. The moderate upswing is primarily driven by the growth of consumption in industrialized countries. A gradually improving situation in labor markets, as well as the slump in oil prices, is propelling the purchasing power of private consumers. Together with expansionary monetary policy these developments are expected to stimulate corporate investment activity. In the euro area as well, growth is supported by consumer demand. However, there are a number of structurally burdensome factors: In the crisis-stricken countries in particular, unemployment remains high and the public and private debt are dampening demand. For the time being, growth in the emerging markets is expected to lag behind. Overall, the average annual growth rate of the global economy is expected to be 3.8 percent in 2015, with an increase to 4.0 percent in the following year. The German economy is currently recovering, driven by strong domestic demand, and should be back on its potential path over the course of this year. Growth will be based, more heavily than it was before the crisis, on consumption, which benefits from ongoing employment growth and substantial wage increases. Despite full capacity utilization, inflation is bound to remain weak; there is no sign of the German economy overheating. Important markets have lost momentum when compared to the pre-crisis years - foreign trade is therefore likely to provide only minor stimulus. In this environment, investments in equipment and machinery will only experience a moderate expansion, and relative to GDP, will remain well below their pre-crisis levels. It should be added that there are still risks to financial stability, which might also dampen corporations' enthusiasm for investments. Construction spending will soften, due to the recent abatement in yields from residential investment. Overall, the risk of the economy overheating is low. Government revenues are surging: Despite a rather loose spending behavior, the public budget surpluses will reach approximately 0.5 percent in both years of the forecast period.

The German economy is continuing on an upward trend. Due to surprisingly weak production at the start of this year, GDP is likely to increase by 1.8 percent and is therefore growing somewhat slower this year than previously predicted. Growth of 1.9 percent is still expected for the coming year. After an unexpectedly weak first quarter, the global economy is expected to regain momentum as the year progresses. While growth in the emerging economies increased only slowly, both cyclically and structurally, recovery will primarily be driven by positive consumer spending in industrialized countries. With low inflation and an improving labor market situation in those countries, household income and purchasing power are likely to increase. The global economy's average annual growth rate is predicted to reach 3.5 percent in 2015 and 4.0 percent in 2016. Inflation is expected to remain at two percent this year and increase to three percent next year. Germany's strong domestic economy is driving growth. Most recently, additional social benefits and, above all, low inflation temporarily boosted real incomes; nevertheless, consumer spending will increase substantially going forward due to favorable developments in the labor market. Companies are moderately expanding their investment in equipment; however, uncertainties related to the crisis in the euro area, geopolitical tensions, and concerns about economic development in important emerging countries have a dampening effect. Exports are benefiting from the global economic recovery and temporarily also from the depreciation of the euro; overall, the stimulus from net foreign trade is likely to be modest.

This paper investigates how the withdrawal of banks from their cross-border business impacted the borrowing costs of European firms since the crisis. We combine aggregate information on total and cross-border credit with firm-level survey data for the period 2010 - 2014. We find that the decline in cross-border lending led to a deterioration in the borrowing conditions of small firms. In countries with more pronounced reductions in cross-border credit inflows, the likelihood of a rise in firms’ external financing costs has increased. This result is mainly driven by the interbank channel, which plays a crucial role in transmitting shocks to the real sector across borders.

This paper investigates the link between mortgage supply shocks at the banklevel and regional house price growth in the U.S. using micro-level data on mortgage markets from the Home Mortgage Disclosure Act for the 1990-2014 period. Our results suggest that bank-specific mortgage supply shocks indeed affect house price growth at the regional level. The larger the idiosyncratic shocks to newly issued mortgages, the stronger is house price growth. We show that the positive link between idiosyncratic mortgage shocks and regional house price growth is very robust and economically meaningful, however not very persistent since it fades out after two years.

After the establishment of the Banking Union, the European Commission is working on measures to foster capital market deepening in Europe. Key goals for a European Capital Markets Union are to provide firms with alternative funding sources to bank credit and to make economies more resilient to local shocks through better international risk sharing. While open capital markets can improve portfolio diversification, growth and welfare, the recent financial crisis was a reminder that capital market integration also carries risks in terms of economic stability. This article summarizes pros and cons of capital market openness and discusses stability implications of different forms of capital market integration.