Working Paper

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28-06-2021

Working Paper: Securitization and House Price Growth

From 2000-2006 US house prices and mortgage credit grew while the relative cost of mortgage credit fell particularly for privately securitized mortgages suggesting a credit supply expansion. This paper explores two (credit supply) shocks: an increased inflow of global savings into the US, and innovations in the securitization of mortgage credit. Only innovation in securitization matches mortgage market dynamics.

28-06-2021

Working Paper: The Portfolio Balance Channel of Quantitative Easing in a DSGE Model with Financial Frictions

Investors who arbitrage between long term government debt and corporate debt expand the Portfolio Balance Channel in that the effects of Quantitative Easing (QE) spill over to the overall cost of corporate borrowing. I find that overall the Federal Reserve’s second round of QE boosts output between 0.5 - 1.7%.

25-06-2021

Working Paper: Female business owners pay higher interest rates on corporate loans

Female owners of small and medium-sized enterprises, on average, pay almost 1 percent higher interest rates than male owners. Firm and loan characteristics explain most of this difference. Nonetheless, a 26 basis point gap cannot be explained, suggesting that female business owners tend to leave a disproportionate share of money on the table during negotiations with credit institutions.

19-05-2021

Working Paper: Stock market evidence on the international transmission channels of US monetary policy surprises

The Working Paper evaluates the economic sources of the stock market responses of 40 countries to surprises in US monetary policy. We show that fed funds rate and large-scale asset purchases surprises affect foreign stock markets because they influence foreign countries’ real economic outlook. Forward guidance surprises seem to convey non-monetary information.

22-04-2021

Working Paper: Nowcasting and forecasting economic activity in Denmark using payment system data

We show that payment system data can be used to improve forecasts of short-term changes in economic activity in Denmark. We compare the predictive performance of payment system data to a set of high‑frequency variables that includes industrial production and consumer prices, among many others.

20-04-2021

Working Paper: Consumer good search: theory and evidence

When households search more for low prices on consumer goods, they lower firms' markups. The extent to which household search affects these markups fluctuates with the business cycle, which has been used in various macroeconomic models to generate pro-cyclical fluctuations in the markups. This Working Paper shows that it is difficult to align the basic underlying search model with the empirical differences in search between employed and unemployed individuals, and cautions against using these models in the context of business cycles.

13-04-2021

Working Paper: Monetary Policy Expectation Errors

We use survey expectations about future monetary policy to decompose excess returns on fed funds futures and overnight index swaps into a term premium and an expectation error component. We find that excess returns are primarily driven by expectation errors, while term premia are economically small and negative on average. Most expectation errors stem from market participants underestimating how aggressively the Federal Reserve has eased policy during the last three decades. Our findings reveal that market participants are continuously learning about the central bank's reaction function and have been slow to recognize the rising importance attributed to deteriorating financial conditions and falling stock prices. We document similar results in an international sample of six major currency areas.

12-04-2021

Working Paper: The role of refinancing in the interest rate pass-through to fixed-rate mortgage contracts

In this paper, I study how mortgage refinancing influences the interest rate pass-through to household budgets via fixed-rate mortgage contracts in Denmark. The paper shows that the long-run interest rate pass-through is significantly below unity in the years after the financial crisis and subsequently converges towards a level close to unity. The result can be used to understand the importance of the asymmetric effects of monetary policy transmission.

07-04-2021

Working Paper: Overpersistence Bias in Individual Income Expectations and its Aggregate Implications

Using micro-level data, we document a systematic income-related component in household income forecasting errors. We show that this bias can be formalized by a modest deviation from rational expectations, where agents overestimate the persistence of their income process. The bias alters the distribution of marginal propensities to consume which makes government stimulus policies less effective.

23-03-2021

Working Paper: Detecting turning points in the Danish economy in real time

This working paper documents an econometric model for detecting turning points in the Danish economy. The model can be updated immediately as data comes through. It is shown that the model gives correct signals about the activity in the Danish economy in real time.

08-03-2021

Working Paper: Regulating Liquidity Risk in Mutual Funds

I analyze the effects of liquidity risk regulation in a model of investors, mutual funds, and the underlying asset market. Investor redemptions lead mutual funds to sell assets, which may result in fire sales if market liquidity, driven by the anticipation of fire sales, is scarce. Mutual funds optimally choose to pass fire sales of their assets on to investors. Pecuniary externalities make liquidity supply to the underlying asset market inefficiently low. Regulatory policies, liquidity requirements for mutual funds, and redemption gates have adverse effects on liquidity provision to the asset market and may increase the incidence of fire sales.

12-02-2021

Working Paper: The Value of Bond Underwriter Relationships

This paper analyzes the role of underwriters for issuers of corporate bonds. The results suggest that – in terms of issuance costs – bond issuers benefit from using underwriters they have used before, but, at the same time, this exposes the issuer to a credit risk spillover from the underwriter.

08-02-2021

Working Paper: Are Climate Change Risks Priced in the US Stock Market?

We construct proxies of physical and transition risks by conducting textual analysis of climate news. Using U.S. stock prices, we find that only the short-term risks elicited by the political debate are priced. Longer running risks elicited by news on international summits, global warming and natural disasters are not priced.

02-02-2021

Working Paper: How news affects sectoral stock prices through earnings expectations and risk premia

We show that the transmission of news to prices goes through a combination of changing earnings expectations and risk premia. Price changes for especially the financial sector are mainly driven by changes in equity risk premia, while changes in earnings expectations play a comparatively larger role for other sectors.

26-01-2021

Working Paper: QE in a quasi-preferred habitat: The case of the Danish pension sector and the ECB asset purchase programme

The reaction of Danish pension companies to ECB’s asset purchase programme is analysed using a novel, in-house data set. The pension companies sold euro bonds and bought Danish bonds in the first months following the introduction of the ECB purchase programme in 2015. After a short while, the pension companies returned as buyers of euro bonds.

21-12-2020

Working Paper: Labor cost pass-through to producer prices in Denmark

We estimate the pass-through of a wage shock to producer prices of firms in Denmark. Our results suggest that the pass-through elasticity of wage increases to prices amounts to about one third. Our results are in line with studies of earlier time periods and confirm an important causal relationship between wages and prices.

24-11-2020

Working Paper: Uncertainty and the real economy: Evidence from Denmark

The language in news articles can be used to measure the perceived level of economic uncertainty. In a model of the Danish economy, increased uncertainty contributed significantly to the drop in investments during the Sovereign Debt Crisis. So far, uncertainty has had a smaller impact on investments during the COVID-19 pandemic.

19-11-2020

Working Paper: Do firms behave differently when nominal interest rates are below zero?

Denmark was the first country in the world to move its key monetary policy rate below zero. Using rich microdata and an event study framework, we find that firms exposed to negative deposit rates to a higher degree than other firms increase their fixed investments and employment.

11-11-2020

Working Paper: Worker heterogeneity, selection, and employment dynamics in the face of aggregate demand and pandemic shocks

We model a COVID recession resulting from a negative demand shock and the need for social distancing, considering the US economy as an example. Low-productivity workers suffer a protracted surge in unemployment and inefficient separations from firms. Unemployment is amplified when nominal interest rates are close to the effective lower bound.

26-10-2020

Working Paper: The Impact of Pessimistic Expectations on the Effects of COVID-19-Induced Uncertainty in the Euro Area

A statistical model for euro area macroeconomic aggregates shows that an increase in uncertainty and disagreement about the economic outlook impacts the economy three times as much if the outlook is pessimistic. This result implies that the uncertainty generated by COVID-19 can lead to a 15.1% fall in industrial production.

21-09-2020

Working Paper: Spending when illiquid savings become liquid: Evidence from Danish wage earners

This paper offers new empirical evidence on the marginal propensity to consume out of an unanticipated liquidity shock. The results show a 43 dollar spending increase for each 100 dollar increase in liquid resources. The estimated spending patterns are consistent with the notion of wealthy hand-to-mouth behaviour.

11-08-2020

Working Paper: News Uncertainty in Brexit UK

After the Brexit referendum, the behavior of the UK economy defied widespread expectations, as it did not exhibit a V-shaped recession, but a slow decline in production. We show that this pattern of propagation arises when uncertainty is about future, rather than current fundamentals, and if the expected duration of uncertainty is sufficiently long.