We study how U.S. monetary policy shocks transmit to cross-border merger and acquisition (M&A) activity. Using country- and firm-level data, tighter U.S. policy is shown to reduce both the value and the number of cross-border deals. The effects are especially pronounced for acquirer firms with larger foreign-currency liabilities, consistent with a net worth channel. Reflecting agency motives for acquisitions, deals announced under more accommodative U.S. conditions underperform ex post, indicating potential capital misallocation.
How do sovereign debt restructurings affect debt-to-GDP ratios? We explore this empirically using a comprehensive dataset covering 115 countries over 1950–2021. After addressing selection bias through an Augmented Inverse Probability Weighted estimator, we show that restructurings significantly reduce debt-to-GDP ratios over 1-5 years, with the effects working primarily through debt levels. The effect is larger when restructurings are combined with fiscal consolidation. We find heterogeneity depending on the creditor type, and the type and size of debt relief. In the short run, restructurings with higher creditor coordination, face value reductions, and larger debt reliefs, reduce debt-to-GDP ratios more effectively. (JEL F34, F41, H63)
In response to COVID-19, countries frequently adopted multiple types of policies to address the economic and financial effects of the pandemic. This paper analyzes the impact on bank lending of combinations or packages of policies (fiscal, monetary, and prudential) adopted across a broad sample of countries. Using a comprehensive policy announcement–level dataset together with bank-level information, we find that lending grew faster at banks in countries that announced large packages combining fiscal, monetary, and prudential measures (“all-out” packages), especially when uncertainty was high. Both the scope and size of policy packages were important: packages combining all three types of policies, but where only some were large, were relatively less effective in enhancing credit. The impact was stronger among more constrained banks with low equity levels. “all-out” packages also increased liquidity for bank-dependent firms but did not disproportionately benefit unviable firms.
Does partisanship influence loan allocation through the Paycheck Protection Program (PPP)? We examine the 2020 Presidential campaign contributions by lenders’ employees as a measure of partisanship and leverage the staggered rollout of the PPP under both Trump and Biden administrations to address this question. We find that partisan misalignment increases bank lending, particularly to small and first-time PPP borrowers, and those in Republican areas. This is consistent with Republicanleaning banks viewing the PPP’s 2021 phase as a legacy policy of the prior administration. Using county-level weekly unemployment insurance data, we also show that partisan misalignment is associated with higher PPP payroll coverage for small businesses. Our findings shed new light on the partisan-alignment phenomenon in finance.
Large price changes in industries affected by the COVID-19 pandemic caused erratic fluctuations in the U.S. headline inflation rate. This paper compares alternative approaches to filtering out the transitory effects of these industry price changes and measuring the underlying or core level of inflation over 2020- 2021, the height of the pandemic. The Federal Reserve’s preferred measure of core, the inflation rate excluding food and energy prices, performed poorly over that period: it was almost as volatile as headline inflation. Measures of core that exclude a fixed set of additional industries, such as the Atlanta Fed’s sticky-price inflation rate, were less volatile, but the least volatile were measures that filter out large price changes in any industry, such as the Cleveland Fed’s median inflation rate and the Dallas Fed’s trimmed mean inflation rate. These core measures followed smooth paths, drifting down when the economy was weak in 2020 and then rising as the economy rebounded.
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