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Benjamin Mosk

5 August 2021
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 5, 2021
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Abstract
This box studies the potential consequences of the ongoing shift away from defined benefit (DB) towards defined contribution (DC) products in the insurance and pension fund (ICPF) sector. In view of the different risks associated with these products, their portfolio allocations differ, with DB products being more heavily invested in long-duration fixed-income assets. Given the sizeable amount of ICPFs’ assets under management, the move from DB to DC products can reduce the demand for these assets, potentially having profound effects on the financial system and the economy. Such effects may include a steeper yield curve, a boost to equity financing, and more uncertainty in the build-up of retirement savings.
JEL Code
G22 : Financial Economics→Financial Institutions and Services→Insurance, Insurance Companies, Actuarial Studies
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
H55 : Public Economics→National Government Expenditures and Related Policies→Social Security and Public Pensions
E34 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
18 May 2021
FINANCIAL STABILITY REVIEW - ARTICLE
Financial Stability Review Issue 1, 2021
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Abstract
Policy measures aimed at supporting corporates and the economy through the coronavirus pandemic may have supported not just otherwise viable firms, but also unprofitable but still operating firms – often referred to as “zombies”. This has in turn raised questions about an increased risk of zombification in the euro area economy, which could constrain the post-pandemic recovery. Firm-level, loan-level and supervisory data for euro area companies suggest that zombie firms may have temporarily benefited from loan schemes and accommodative credit conditions – but likely only to a modest degree. These firms may face tighter eligibility criteria for schemes and more recognition of credit risk in debt and loan pricing in the future. Tackling the risk of zombification more fundamentally requires the consideration of suggested reforms to insolvency frameworks and better infrastructure for banks to manage non-performing loans.
JEL Code
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
G38 : Financial Economics→Corporate Finance and Governance→Government Policy and Regulation
L25 : Industrial Organization→Firm Objectives, Organization, and Behavior→Firm Performance: Size, Diversification, and Scope
23 November 2020
FINANCIAL STABILITY REVIEW - BOX
Financial Stability Review Issue 2, 2020
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Abstract
Credit rating downgrades - especially downgrades from investment grade to high yield (“fallen angels”) - can adversely affect the price and ease of a firm’s debt issuance. Such a downgrade can force (institutional) investors to sell securities, as investment mandates may restrict the securities that they are allowed to hold. We find that market repricing does not typically happen instantaneously after a downgrade, but instead over an extended period which preceding the actual downgrade. The impact of sales by institutional investors is softened by differences in the definition of “investment grade” and flexibility in investment funds’ mandates. Fallen angels since February 2020 follow this pattern, but with a swifter and stronger increase in the credit premium before the first downgrade. Securities of pandemic-related fallen angels show some post-event illiquidity which may be explained by the relatively sudden change in the broader economic outlook and wider market stress. Downgrades to below investment grade are typically also associated with lower bond issuance volumes. If a larger cohort of firms were to face funding pressures, this increases their vulnerability to shocks in the near term and, in the long term, could weigh on investment, creating wider macroeconomic costs.
JEL Code
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G24 : Financial Economics→Financial Institutions and Services→Investment Banking, Venture Capital, Brokerage, Ratings and Ratings Agencies
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
20 June 2019
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 4, 2019
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Abstract
Economic agents’ confidence and developments in the real economy are intrinsically linked. Confidence largely reflects broad economic conditions but, at times, may also become an autonomous source of business cycle fluctuations. This box looks at the potential propagation effects of lower confidence on investment in recent times. Isolating the structural confidence shocks from the euro area Economic Sentiment Indicator and applying them in the ECB’s main macroeconomic projection model suggests that confidence shocks had a positive impact on business investment growth in the last two years and a negative one in 2019.
JEL Code
E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
D84 : Microeconomics→Information, Knowledge, and Uncertainty→Expectations, Speculations
4 February 2019
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 1, 2019
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Abstract
Activity in the euro area is expected to continue to expand at a moderate pace, while more elevated uncertainty points to intensified downside risks to the growth outlook. In the context of a maturing business cycle, growth in both private consumption and business investment are expected to continue, despite a more uncertain environment. Nevertheless, the resilience of the domestic demand components, in particular investment, could be particularly challenged by increasing global uncertainty related inter alia to an escalation in trade tensions.
JEL Code
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles