Disclaimer: The scientific works in this project should not be reported as representing the views of the European Commission or the European Research Council. The views expressed are those of the authors and do not necessarily reflect those of the EC or the ERC.
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NOTE: The working papers on this website will be updated until publication


Andersen, A.L., Johannesen, N., Jørgensen, M. & Peydró, J.-L. (March 2021). Monetary policy and inequality. Revise & resubmit at the Journal of FinancePDF (UPF e-repository)

Abstract: We analyze the distributional effects of monetary policy on income, wealth and consumption. We use administrative household-level data covering the entire population in Denmark over the period 1987-2014 and exploit a long-standing currency peg as a source of exogenous variation in monetary policy. We consistently find that the gains from softer monetary policy in terms of income, wealth and consumption are monotonically increasing in the ex ante income level. The distributional effects reflect systematic differences in exposure to the various channels of monetary policy, especially non-labor channels (e.g. leverage and assets). Our estimates imply that softer monetary policy increases income inequality by raising income shares at the top of the income distribution and reducing them at the bottom.
VoxEU column · CATO Institute Research Brief in Economic Policy no. 282 (Jan. 2022)

Fabiani, A., López Piñeros, M., Peydró, J.-L. & Soto, P. E. (August 2021). Capital controls, domestic macroprudential policy and the bank lending channel of monetary policy. Revise & resubmit at the Journal of International EconomicsPDF (UPF e-repository)

Abstract: We study how capital controls and domestic macroprudential policy tame credit supply booms, respectively targeting foreign and domestic bank debt. For identification, we exploit the simultaneous introduction of capital controls on foreign exchange (FX) debt inflows and an increase of reserve requirements on domestic bank deposits in Colombia during a strong credit boom, as well as credit registry and bank balance sheet data. Our results suggest that first, an increase in the local monetary policy rate, raising the interest rate spread with the United States, allows more FX-indebted banks to carry trade cheap FX funds with more expensive peso lending, especially toward riskier, opaque firms. Capital controls tax FX debt and break the carry trade. Second, the increase in reserve requirements on domestic deposits directly reduces credit supply, and more so for riskier, opaque firms, rather than enhances the transmission of monetary rates on credit supply. Importantly, different banks finance credit in the boom with either domestic or foreign (FX) financing. Hence, capital controls and domestic macroprudential policy complementarily mitigate the boom and the associated risk-taking through two distinct channels.

Durante, R., Fabiani, A. & Peydró, J.-L. (December 2021). Media capture by banks. PDF (UPF e-repository)

Abstract: Do banks exploit lending relationships with media companies to promote favorable news coverage? To test this hypothesis we map the connections between banks and the top newspapers in several European countries and study how they affect news coverage of two important financial issues. First we look at bank earnings announcements and find that newspapers are significantly more likely to cover announcements by their lenders, relative to other banks, when they report profits than when they report losses. Such pro-lender bias applies to both general-interest and financial newspapers, and is stronger for newspapers and banks that are more financially vulnerable. Second, we look at a broader public interest issue: the Eurozone Sovereign Debt Crisis. We find that newspapers connected to banks more exposed to stressed sovereign bonds are more likely to promote a narrative of the crisis favorable to banks and to oppose debt-restructuring measures detrimental to creditors.

Fabiani, A., López Piñeros, M., Peydró, J.-L. & Soto, P. E. (September 2021). Capital controls, corporate debt and real effects. PDF (UPF e-repository)

Abstract: Non-US firms have massively borrowed dollars (foreign currency, FX), which may lead to booms and crises. We show the real effects of capital controls, including prudential benefits, through a firm-debt mechanism. Our identification exploits the introduction of a tax on FX-debt inflows in Colombia before the global financial crisis (GFC), and administrative, proprietary datasets, including loan-level credit register data and firm-level information on FX-debt inflows and imports/exports. Our results show that capital controls substantially reduce FX-debt inflows, particularly for firms with larger ex-ante FX-debt exposure. Moreover, firms with weaker local banking relationships cannot substitute FX-debt with domestic-debt and experience a reduction in total debt and imports upon implementation of the policy. However, our results suggest that, by preemptively reducing pre-crisis firm-level debt, capital controls boost exports during the subsequent GFC, especially among financially-constrained firms.

Peydró, J.-L., Rodriguez-Tous, F., Tripathy, J. & Uluc, A. (May 2020). Macroprudential policy, mortgage cycles and distributional effects: Evidence from the UK. Revise & resubmit at Review of Financial StudiesPDF (UPF e-repository)

Abstract: Macroprudential regulators worldwide have introduced regulations to limit household leverage in light of existing evidence which suggests that high leverage is associated with household distress during crisis. We analyse the distributional effects of such a macroprudential policy on mortgage and house price cycles. For identification, we exploit the universe of UK mortgages and a 15%-limit imposed in 2014 on lenders — not households — for high loan-to-income ratio (LTI) mortgages. Despite some regulatory arbitrage (eg increases in LTV and average loan size), more-constrained lenders issue fewer high-LTI mortgages. Partial substitution by less-constrained lenders leads to overall credit contraction to low-income borrowers in local-areas more exposed to constrained-lenders, lowering house price growth. Following the Brexit referendum (which led to house-price correction), the 2014-policy strongly implies — via lower pre-correction debt — better house prices and mortgage defaults during an episode of house price correction.

Peydró, J.-L., Polo, A. & Sette, E. (November 2020). Risk mitigating versus risk shifting: Evidence from banks security trading in crises. PDF (UPF e-repository)

Abstract: We show that risk mitigating incentives dominate risk shifting incentives in fragile banks. Risk shifting could be particularly severe in banking since it is the most opaque industry and banks are one of the most leveraged corporations with very low skin in the game. To analyze this question, we exploit security trading by banks during financial crises, as banks can easily and quickly change their risk exposure within their security portfolio. However, in contrast with the risk shifting hypothesis, we find that less capitalized banks take relatively less risk after financial market stress shocks. We show this using the supervisory ISIN-bank-month level dataset from Italy with all securities for each bank. Our results are over and above capital regulation as we show lower reach-for-yield effects by less capitalized banks within government bonds (with zero risk weights) or within securities with the same rating and maturity in the same month (which determines regulatory capital). Effects are robust to controlling for the covariance with the existence portfolio, and less capitalized banks, if anything, reduce concentration risk. Further, effects are stronger when uncertainty is higher, despite that risk shifting motives may be then higher. Moreover, three separate tests – based on different accounting portfolios (trading book versus held to maturity), the distribution of capital and franchise value – suggest that bank own incentives, instead of supervision, are the main drivers. Results are confirmed if we consider other sources of balance sheet fragility and different measures of risk-taking. Finally, evidence from the recent COVID-19 shock corroborates findings from the Global Financial Crisis and the Euro Area Sovereign Crisis.
Winner of the 2021 ECGI Finance Prize for the best working paper in 2020 (Jury: M. Burkart, F. Allen, J. Franks, M. Pagano, X. Vives & L. Zingales)

Bedayo, M., Jiménez, G., Peydró, J.-L. & Vegas, R. (December 2021). Screening and loan origination time: Lending standards, loan defaults and bank failures. PDF (UPF e-repository)

Abstract: We show that loan origination time is key for bank credit standards, defaults and failures over the cycle. We use the credit register from Spain, with the time of a loan application and its granting. When VIX is lower, banks shorten loan origination time, especially to less-capitalized firms. Bank moral hazard incentives (competition and capital) are crucial drivers. Moreover, shorter (loan-level) origination time implies higher ex-post defaults, especially for less-capitalized firms in areas with higher bank competition or when VIX is lower. Finally, shorter pre-crisis origination time involves more bank-level failures, even more than other lending conditions, consistent with lower screening.

Michelangeli, V., Peydró, J.L. & Sette, E. (December 2021). Borrower versus bank channels in lending: Experimental and administrative based evidence. PDF (UPF e-repository)

Abstract: We identify the relative importance for lending of borrower (demand-side) versus bank (supply-side) factors. We submit thousands of fictitious mortgage applications, changing one borrower-level factor at time, to the major Italian online mortgage platform. Each application goes to all banks. Borrower and bank factors are equally strong in causing and explaining loan acceptance. For pricing, borrower factors are instead stronger. Moreover, banks supplying less credit accept riskier borrowers. Exploiting the administrative credit register, there is borrower-lender assortative matching and the bank-level strength measure estimated on the experimental data is associated to credit supply and risk-taking to real firms.

Jasova, M., Mendicino, C., Panetti, E., Peydró, J.-L. & Supera, D. (September 2021). Monetary policy, labor income redistribution and the credit channel: Evidence from matched employer-employee and credit registers. PDF (UPF e-repository)

Abstract: This paper documents the redistributive effects of monetary policy on labor market outcomes via the credit channel. For identification, we exploit matched administrative datasets in Portugal -employee-employer and credit registers- and monetary policy since the Eurozone creation in 1999. We find that softer monetary policy improves worker labor market outcomes (wages, hours worked and firm employment) more in small and young firms, which are more financially constrained. Within small and young firms, the wage effects accrue to incumbent workers, in line with the back-loaded wage mechanism. Consistent with the capital-skill complementarity mechanism, we document an increase in skill premium and show that financially constrained firms increase both physical and human capital investment by most. Our findings uncover a central role for both the firm-balance sheet and the bank lending channels of the monetary policy transmission to labor income inequality, with state-dependent effects that are substantially stronger during crisis times. Importantly, we do not find any redistributive effects for firms without bank credit.

Morais, B., Ormazabal, G., Peydró, J.-L., Roa, M. & Sarmiento, M. (August 2020). Forward looking loan provisions: Credit supply and risk-taking. PDF (UPF e-repository)

Abstract: We show corporate-level real, financial, and (bank) risk-taking effects associated with calculating loan provisions based on expected—rather than incurred—credit losses. For identification, we exploit unique features of a Colombian reform and supervisory, matched loan-level data. The regulatory change induces a dramatic increase in provisions. Banks tighten all new lending conditions, adversely affecting borrowing-firms, with stronger effects for risky-firms. Moreover, to minimize provisioning, more affected (less-capitalized) banks cut credit supply to risky-firms—SMEs with shorter credit history, less tangible assets or more defaulted loans—but engage in “search-for-yield” within regulatory constraints and increase portfolio concentration, thereby decreasing risk diversification.

Giambona, E., Matta, R., Peydró, J.-L. & Wang, Y. (May 2020). Quantitative easing, investment, and safe assets: The corporate-bond lending channel. PDF (UPF e-repository)

Abstract: We show that Quantitative Easing (QE) stimulates investment via a corporate-bond lending channel. Fed's large-scale asset purchases of MBS and treasuries through QE creates a vacuum of safe assets, prompting safer firms to invest more by issuing relatively "safe" bonds. Using micro-data around QE, we find that QE increases firm-level investment by 7.4 percentage points for firms with bond market access. This growth is financed with senior bonds. We find no evidence of higher shareholders' payouts associated to QE. The robust findings are consistent with a model in which reducing the supply of government debt lowers "safe" corporate bond yields, stimulating investment.

Abbassi, P., Iyer, R., Peydró, J.-L. & Soto, P.E. (February 2020). Stressed banks? Evidence from largest-ever supervisory review. Revise & resubmit at Management SciencePDF (UPF e-repository)

Earlier title: 'Dressing up for the regulator: Evidence from the largest-ever supervisory review'

Abstract: Regulation needs effective supervision; but regulated entities may deviate with unobserved actions. For identification, we analyze banks, exploiting ECB’s asset-quality-review (AQR) and supervisory security and credit registers. After AQR announcement, reviewed banks reduce riskier securities and credit (also overall securities and credit supply), with largest impact on riskiest securities (not on riskiest credit), and immediate negative spillovers on asset prices and firm-level credit supply. Exposed (unregulated) nonbanks buy the shed risk. AQR drives the results, not the end-of-year. After AQR compliance, reviewed banks reload riskier securities, but not riskier credit, with mediumterm negative firm-level real effects (costs of supervision/safe-assets increase).

Watch a presentation at the Asociación Española de Finanzas (AEFIN) ‘25th Foro de Finanzas’ (2017) YOUTUBE

Jiménez, G., Peydró, J.-L., Repullo, R. & Saurina, J. (March 2019). Burning money? Government lending in a credit crunch. Revise & resubmit at the Review of Economic StudiesPDF (UPF e-repository)

Abstract: We analyze a small, new credit facility of a Spanish state-owned bank during the crisis, using its continuous credit scoring system, its firm-level scores, and the credit register. Compared to privately-owned banks, the state-owned bank faces worse applicants, (softens) tightens its credit supply to (un)observed riskier firms, and has much higher defaults, especially driven by unobserved ex-ante borrower risk. In a regression discontinuity design, the supply of public credit causes: large positive real effects to financially-constrained firms (whose relationship banks reduced substantially credit supply); crowding-in of new private-bank credit; and positive spillovers to other firms. Private returns of the credit facility are negative, while social returns are positive. Overall, our results provide evidence on the existence of significant adverse selection problems in credit markets.

Jiménez, G., Ongena, S., Peydró, J.-L., & Saurina, J. (April 2017). Do demand or supply factors drive bank credit, in good and crisis times? PDF (UPF e-repositori)

Previously circulated as: ‘Credit demand forever?’ On the strengths of bank and firm balance-sheet channels in good and crisis times'

Abstract: We analyze the impact of balance-sheet strength on credit availability. Bank balance sheets are weak in crisis times, but so are those of firms, and credit demand is then also weak. For identification, we exploit an administrative dataset of loan applications matched with bank and firm variables covering Spain from 2002 to 2010. Bank balance-sheet strength determines the granting of loan applications only in crisis times, while firm balance-sheet strength – notably leverage – determines strongly this granting in both good and crisis times. Our findings underscore the importance of the strength of corporate balance sheets over credit supply for credit availability.

Mentioned in VoxEU (2020) · Central Bank of Ireland Financial Stability Notes no. 2 (2020)

Gabarro, M., Irani, R.M., Peydró, J.-L. & Van Bekkum, S. (December 2019). Take it to the limit? The effects of household leverage caps. PDF (UPF e-repository)

Previously circulated as ‘Macroprudential policy and household leverage: Evidence from administrative household-level data’

Abstract: We analyze the effects of borrower-based macroprudential policy at the household-level. For identification, we exploit administrative Dutch tax-return and property ownership data linked to the universe of housing transactions, and the introduction of a mortgage loan-to-value limit. The regulation reduces mortgage leverage, with bunching in its limit. Ex-ante more-affected households substantially reduce overall leverage and debt servicing costs but consume greater liquidity to satisfy the regulation. Improvements in household solvency result in less financial distress and, given negative idiosyncratic shocks, better liquidity management. However, fewer households transition from renting into ownership. All of these effects are stronger for liquidity-constrained households.

Mentioned in Financial Stability Notes no. 12, Central Bank of Ireland (2019)

Elliott, D., Meisenzahl, R.R., Peydró, J.-L. & Turner, B.C. (February 2020). Nonbanks, banks, and monetary policy: U.S. loan-level evidence since the 1990s. PDF (UPF e-repository)

Abstract: We show that nonbanks (funds, shadow banks, fintech) reduce the effectiveness of tighter monetary policy on credit supply and the resulting real effects, and increase risk-taking. For identifcation, we exploit exhaustive US loan-level data since 1990s and Gertler-Karadi monetary policy shocks. Higher policy rates shift credit supply from banks to less-regulated, more fragile nonbanks. The bank-to-nonbank shift largely neutralizes total credit and associated consumption effects for consumer loans and attenuates the response of total corporate credit (firm investment) and mortgages (house price spillovers). Moreover, different from the so-called risktaking channel, higher policy rates imply more risk-taking by nonbanks.

Mentioned in Bank of Spain's Financial Stability Review no. 38: 27-51 (2020)

Epure, M., Mihai, I., Minoiu, C. & Peydró, J.-L. (September 2021). Global financial cycle, household credit, and amacroprudential policies. Revise & resubmit at Management SciencePDF (UPF e-repository)

Earlier version: 'Household credit, global financial cycle, and macroprudential policies: Credit register evidence from an emerging country'

Abstract: We show that macroprudential policies dampen the impact of global financial conditions on local bank credit cycles. For identification, we exploit exogenous variation in the U.S. VIX and household and business credit registers in a small open economy, where banks depend on foreign funding and macroprudential measures vary over a full boom-bust cycle. When the VIX is low, tighter macroprudential policies (i) reduce household lending, notably for riskier (FX and high DSTI) loans and by banks dependent on foreign funding and (ii) increase local currency lending to real-estate firms, while leaving business lending to other firms unchanged. Furthermore, such periods are associated with (iii) less total lending (to households and firms) and with a lower share of FX loans at the local level, suggesting a compositional shift toward (less risky) local currency loans. As a result, when the VIX is low, tighter macroprudential policies (iv) dampen house prices and economic activity in areas with higher FX-loans.

Mentioned in World Bank study A Decade after the Global Recession (ch. 5, 2019) ·  Israel Economic Review no. 17(1), Bank of Israel (2019)

Dassatti Camors, C., Peydró, J.-L., Rodríguez-Tous, F. & Vicente, S. (November 2019). Macroprudential and monetary policy: Loan-level evidence from reserve requirements. PDF (UPF e-repository)

Abstract: We analyze the impact of reserve requirements on the supply of credit to the real sector. For identification, we exploit a tightening of reserve requirements in Uruguay during a global capital in ows boom, where the change affected more foreign liabilities, in conjunction with its credit register that follows all bank loans granted to non-financial firms. Following a difference-in-differences approach, we compare lending to the same firm before and after the policy change among banks differently affected by the policy. The results show that the tightening of the reserve requirements for banks lead to a reduction of the supply of credit to firms. Importantly, the stronger quantitative results are for the tightening of reserve requirements to bank liabilities stemming from non-residents. Moreover, more affected banks increase their exposure into riskier firms, and larger banks mitigate the tightening effects. Finally, the firm-level analysis reveals that the cut in credit supply in the loan-level analysis is binding for firms. The results have implications for global monetary and financial stability policies.

Mentioned in VoxEU column (2017)

Barbone-Gonzalez, R., Khametshin, D., Peydró, J.-L. & Polo, A. (October 2021). Hedger of last resort: Evidence from Brazilian FX interventions, local credit, and global financial cycles. PDF (UPF e-repository)

Previously circulated as ‘US Monetary policy and exchange rate: Micro evidence on the Brazilian credit channel’

Abstract: We show that local policy attenuates global financial cycle (GFC)’s spillovers. We exploit GFC shocks and Brazilian central bank interventions in FX derivatives using three matched administrative registers: credit, foreign credit to banks, and employer-employee. After U.S. Taper Tantrum (followed by Emerging Markets FX turbulence), Brazilian banks with more foreign debt cut credit supply, thereby reducing firm-level employment. A subsequent large policy intervention supplying derivatives against FX risks—hedger of last resort—halves the negative effects. A 2008-2015 panel exploiting GFC shocks and FX interventions confirms these results and the hedging channel. However, the policy entails fiscal and moral hazard costs.

Featured in Moody's Analytics regulatory news (2019)

Fendoglu, S., Gulsen, E. & Peydró, J.-L. (November 2019). Global liquidity and impairment of local monetary policy. Revise & resubmit at American Economic Journal: MacroeconomicsPDF (UPF e-repository)

Abstract: We show that global liquidity limits the effectiveness of local monetary policy on credit markets. The mechanism is via a bank carry trade in international markets when local monetary policy tightens. For identification, we exploit global (VIX, U.S. monetary policy) shocks and loan-level data —the credit and international interbank registers— from a large emerging market, Turkey. Softer global liquidity conditions attenuate the pass-through of local monetary policy tightening on loan rates, especially for banks with more access to international wholesale markets. Effects are also important for other credit margins and for risk-taking, e.g. riskier borrowers in FX loans or defaults.

Mentioned in European Systemic Risk Board's Advisory Scientific Committee Report no. 10 on The global dimensions of macroprudential policy (2020)

Altavilla, C., Boucinha, M., Peydró, J.-L. & Smets, F. (December 2020). Banking supervision, monetary policy and risk-taking: Big data evidence from 15 credit registers. Revise and resubmit at the Journal of FinancePDF (UPF e-repository)

Abstract: We analyse the effects of national versus supranational banking supervision on bank risk-taking, and its interactions with monetary policy. For identification, we exploit: (i) a new, proprietary dataset based on 15 European credit registers; (ii) the institutional change in European banking supervision; (iii) high-frequency monetary policy surprises; (iv) cross-country difference within and outside the euro area. First, supranational supervision reduces credit supply to firms with high credit risk, but strengthens credit supply to firms without loan delinquencies, especially for banks operating in stressed countries. Results are driven by two mechanisms: the country’s institutional quality where banks operate, and bank-level systemic importance. Second, there are important complementarities between monetary policy and supervision: centralised supervision offsets high credit risk-taking induced by accommodative monetary policy, but not credit supply to more productive firms. Overall, we show that using multiple credit registers – first time in the literature – is crucial for external validity.

Mentioned in BIS Committee on the Global Financial System report no. 63, Unconventional monetary policy tools: A cross-country analysis (2019)

Blanco Barroso, J.B.R., Barbone Gonzalez, R, Nazar van Doornik, B., Peydró, J.-L. (February 2020). 

Countercyclical liquidity policy and credit cycles: Evidence from macroprudential and monetary policy in Brazil. PDF (UPF e-repository)

Abstract: We show that countercyclical liquidity policy smooths credit supply cycles, with stronger crisis effects. For identification, we exploit the Brazilian supervisory credit register and liquidity policy changes on reserve requirements, that affected banks differentially and have a monetary and prudential purpose. Liquidity policy strongly attenuates both the credit crunch in bad times and high credit supply in booms. Strong economic effects are twice as large during the crisis easing than during the boom tightening. Finally, in crises, liquidity easing: increase less credit supply by more financially constrained banks; and collateral requirements increase substantially, especially by banks providing higher credit supply.