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Working Paper: Active Loan Trading

The collateralized loan obligation, CLO, market withstood the recent financial crisis with minimal losses compared to other structured asset-backed securities. We investigate one unique aspect of CLOs – that the CLO manager actively maintains the collateral pool by selling and purchasing loans. We find that more active CLOs trade at better prices, provide higher returns to equity investors, and maintain lower collateral portfolio default rates than less active CLOs.


Working Paper: Can Central Banks Boost Corporate Investment: Evidence from the ECB Liquidity Injections

Can monetary stimulus boost corporate investment? We answer this question by studying ECB's 2011-2012 Longer-Term Refinancing Operations (LTROs). While we find that the LTROs helped to decelerate the declined in Eurozone firms' investment our results also show that banks' use of LTRO funds is negatively associated with their clients' investment. Overall, the paper highlights the difficulty of boosting investment by injecting liquidity into the banking system.


Working Paper: Corporate debt maturity and investment over the business cycle

In this paper I study the business cycle dynamics of the maturity structure of the debt of U.S. non-financial firms. To account for the documented facts, I construct a quantitative dynamic equilibrium model in which firms optimally choose their debt maturity structure. The model can match stylized facts about the level and dynamics of the maturity structure of debt, both in the aggregate and along the firm size distribution.


Working Paper: Fiscal tools at the zero lower bound

The paper analyses the effectiveness of fiscal tools at the zero lower bound (ZLB) in a non-linear New Keynesian DSGE model. Although the government spending multiplier increases at the ZLB, its size depends strongly on rational expectations to the liquidity trap length. In light of this finding, market expectations in the beginning of 2009 might indicate that expectations to the American Recovery and Reinvestment Act were too optimistic.


Working Paper: A cost-benefit analysis of capital requirements for the Danish economy

We analyze the costs and benefits of increasing capital requirements for Danish banks. Costs are low if banks suspend dividend payments for two years and if investors' required return falls as banks accumulate new capital. An increase of required capital ratio from its current level reduces the probability of financial crises and the long-lasting output costs associated with these. Based on Danish data and using models for the Danish economy, we thus confirm findings in studies for other economies: The benefits outweigh the social costs of increasing capital ratios.


Working Paper: The information content in contingent convertible bond prices

Credit institutions are to an increasing extent using Contingent Convertible Bonds, CoCos, to meet part of their capital requirements. This paper provides a thorough introduction to CoCos – the product, its use in capital regulation, the market and the specific risks faced by investors. A variety of models illustrate how the complexity of CoCos makes them difficult to use when assessing the soundness of the issuer; in addition to this, the many CoCo specific risks make it questionable whether the cost of CoCos constitutes a lower bound for the cost of equity.


Working Paper: A regional model of the Danish housing market

In this paper, we investigate the geographical connection of the housing market. We estimate a regional model of single-family house prices and show that regions are connected via the relative prices, giving rise to a ripple effect – when house prices increase in one area, part of the housing demand is shifted to other areas. At the same time, we find that house prices are more sensitive to the development of fundamental factors, such as income and interest rates in Copenhagen, and that the ripple effect is stronger from Copenhagen to the rest of Denmark than in the opposite direction.


Working Paper The Global FDI Network: Searching for Ultimate Investors

This paper addresses three types of geographical decoupling in foreign direct investment (FDI), i.e., challenges when using traditional FDI data as a proxy for real economic integration between economies: (i) large bilateral asymmetries between inward and outward FDI, (ii) the role of special purpose entities (SPEs), and (iii) the effect of moving from immediate counterpart economy to ultimate investing economy (UIE). A unique global FDI network is estimated, where SPEs are removed and FDI positions are broken down by the UIE.


Working Paper: The ECB's unconventional monetary policy and the role of exchange rate regimes in cross-country spillovers

We study the impact of the ECB's large scale asset purchase programme on selected euro area and neighbouring countries with a particular focus on the role of the exchange rate regime. The effects of the programme are assessed by conducting an event study as well as by estimating a structural VAR model using a shadow short rate as a measure of the monetary policy stance. We find that the programme has contributed to reducing longer-term bond yields in the euro area as well as in neighbouring countries.


Working Paper: A new approach to modelling banks' equity volatility: Adding time-to-maturity jumps

Time-to-maturity is introduced alongside leverage and asset volatility to explain equity volatility. The time-to-maturity can be interpreted as investors' views on when the firm will be liquidated and thereby relates to their view on the funding and solvency situation of the bank. Results for large European banks indicate that changes to the perceived time-to-maturity can indeed partly explain changes in observed equity volatility.


Working Paper: Modelling Fire Sales From Regulatory Cliff Effects

This paper investigates fire sales triggered by regulatory cliff effects induced by the loss of Capital Requirements Regulations (CRR) compliance on covered bonds.


Working Paper: Consumption and savings in a low interest-rate environment

This paper studies consumption and savings decisions of Danish households before and during the financial crisis as well as in the more recent years characterized by negative policy rates.