Business cycle synchronisation in the euro area: Developments, determinants and implications

The divergence of growth and inflation rates across EMU in recent years has reignited the debate as to whether Europe is really an "optimum currency area" in which monetary union yields net benefits. But answering this question is complicated inter alia by the further controversy over whether economic integration and, in particular, monetary union tend to cause convergence or divergence of business cycles. Past studies have found convergence under the Exchange Rate Mechanism (ERM) regime of the 1980s, but the final verdict on the 1990s and especially on the period since the start of EMU is still pending. Several studies, such as Böwer and Guillemineau (2006), compute the unweighted average of countries' bilateral correlations and find convergence in the 1990s and divergence since then, but this is largely caused by an outlier in Greece. We argue that similar to the treatment of inflation in monetary policy, for which a country's inflation rates are weighted by the relative size of a country's private consumption, one has to look at weighted GDP growth rates. Using these, we find synchronisation, i.e. a further increase in correlation, both during the 1990s and since the start of EMU, but only the former change is significant. These findings are subsequently confirmed by the development of inflation dispersion over time. We infer that, unlike during the run-up to EMU, the introduction of a common monetary policy itself has not brought about a great reduction in business cycle heterogeneity, and synchronisation will probably be limited in the coming years as well. This means that policy-makers at the national level need to do more to improve their economies' flexibility, in order to make them better able to cope with the remaining heterogeneity in output and inflation. --

Business cycle synchronisation in the euro area: Developments, determinants and implications

The divergence of growth and inflation rates across EMU in recent years has reignited the debate as to whether Europe is really an "optimum currency area" in which monetary union yields net benefits. But answering this question is complicated inter alia by the further controversy over whether economic integration and, in particular, monetary union tend to cause convergence or divergence of business cycles. Past studies have found convergence under the Exchange Rate Mechanism (ERM) regime of the 1980s, but the final verdict on the 1990s and especially on the period since the start of EMU is still pending. Several studies, such as Böwer and Guillemineau (2006), compute the unweighted average of countries' bilateral correlations and find convergence in the 1990s and divergence since then, but this is largely caused by an outlier in Greece. We argue that similar to the treatment of inflation in monetary policy, for which a country's inflation rates are weighted by the relative size of a country's private consumption, one has to look at weighted GDP growth rates. Using these, we find synchronisation, i.e. a further increase in correlation, both during the 1990s and since the start of EMU, but only the former change is significant. These findings are subsequently confirmed by the development of inflation dispersion over time. We infer that, unlike during the run-up to EMU, the introduction of a common monetary policy itself has not brought about a great reduction in business cycle heterogeneity, and synchronisation will probably be limited in the coming years as well. This means that policy-makers at the national level need to do more to improve their economies' flexibility, in order to make them better able to cope with the remaining heterogeneity in output and inflation

Higher bank capital requirements and mortgage pricing: Evidence from the Counter-Cyclical Capital Buffer

We examine mortgage pricing before and after Switzerland was the first country to activate the Counter-Cyclical Capital Buffer of Basel III. Observing multiple mortgage offers per request, we obtain three core findings. First, capitalconstrained and mortgage-specialized banks raise their rates relatively more. Second, risk-weighting schemes supposed to discriminate against more risky borrowers do not amplify the effect of higher capital requirements. Third, CCBsubjected banks and CCB-exempt insurers raise mortgage rates, but insurers raise rates by on average 8.8 bp more. To conclude, lenders welcome the opportunity to increase mortgage rates, but stricter capital requirements do not discourage banks from risky mortgage lending

Marx vs. Weber: does religion affect politics and the economy?

We investigate the effect of Reformed Protestantism, relative to Catholicism, on preferences for leisure and for redistribution and intervention in the economy. With a Fuzzy Spatial Regression Discontinuity Design, we exploit a historical quasiexperiment in Western Switzerland, where in the 16th century a so far homogeneous region was split and one part assigned to convert to Protestantism. We find that Reformed Protestantism reduces the fraction of citizens voting for more leisure by 13, and that voting for more redistribution and government intervention by respectively 3 and 11 percentage points. These preferences are found to translate into greater income inequality, but we find no robust effect on average income

Cross-Selling in Bank Household Relationships: Implications for Deposit Pricing, Loan Pricing, and Monetary Policy

Using administrative data on deposits and loans of every Norwegian resident with any Norwegian bank, we show that an existing deposit account makes a household more likely to hold deposits at the same bank later despite better alternatives and more likely to borrow there. Cross-selling potential varies by household and banks pay higher deposit rates to those more likely to become borrowers. Then they charge depositors higher risk-adjusted loan rates than new clients, suggesting that cross-selling is driven by demand rather than supply. Discounting future cross selling profits motivates lower deposit spreads in times of lower policy rates, transmitting monetary policy

Cross-Selling in Bank-Household Relationships: Mechanisms and Implications for Pricing

We show that banks cross-sell future deposits and loans to existing household depositors. A bank is 20-percentage-points more likely to sell a loan to an existing depositor than to an otherwise comparable household. Existing depositors pay a premium when borrowing, and we find no indication that banks obtain an informational advantage on such borrowers, suggesting that the cross-selling is driven more by demand than by supply complementarities. These demand complementarities are in turn driven more by stickiness rather than by unobserved persistent preferences. Finally, banks internalize future cross-selling potential when setting deposit rates

The causal effect of house prices on mortgage demand and mortgage supply: Evidence from Switzerland

We identify the causal effect of house prices on mortgage demand and supply in Switzerland by exploiting exogenous shocks to immigration and thereby to house prices. Detailed micro data on individual requests and offers allow to close down possible other channels. We find that 1% higher house prices imply 0.52% higher mortgage amounts. The full partial correlation of 0.78% suggests also positive feedback from mortgage volumes to house prices. While we find higher house prices to increase mortgage demand, banks respond if anything with fewer offers and higher rates, especially later in the boom and for highly leveraged households

Beyond work ethic : religion, individual, and political preferences

We investigate the effect of Reformed Protestantism, relative to Catholicism, on preferences for leisure, and for redistribution and intervention in the economy. We use a Fuzzy Spatial Regression Discontinuity Design to exploit a historical quasi-experiment in Western Switzerland, where in the sixteenth century a hitherto homogeneous region was split and one part assigned to adopt Protestantism. We find that Reformed Protestantism reduces referenda voting for more leisure by 14, redistribution by 5, and government intervention by 7 percentage points. These preferences translate into higher per capita income as well as greater income inequality.Is partly based on author's EUI PhD thesis, 201

What Drives Online Repurchase Intention? A Replication of the Moderating Role of Perceived Effectiveness of E-Commerce Institutional Mechanisms

Online retailing is growing rapidly and customer retention has become increasingly important, especially trust and e-commerce institutional mechanisms such as online credit card guarantees, escrow services, and privacy protection, which have become more significant and the subject of recent research (Fang et al., 2014). We conducted a methodological replication of first insights and a model of the relation between satisfaction, trust, repurchase intention and the perceived effectiveness of such e-commerce institutional mechanisms (PEEIM). As we were unable to support the original findings, we provide an alternative reasoning relevant to today’s role of PEEIM for online repurchases and discuss implications for research and practice