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We collect data on the size distribution of all U.S. corporate businesses for 100 years. We document that corporate concentration (e.g., asset share or sales share of the top 1%) has increased persistently over the past century. Rising concentration was stronger in manufacturing and mining before the 1970s, and stronger in services, retail, and wholesale after the 1970s. Furthermore, rising concentration in an industry aligns closely with investment intensity in research and development and information technology. Industries with higher increases in concentration also exhibit higher output growth. The long-run trends of rising corporate concentration indicate increasingly stronger economies of scale.
Consumers purchase energy in many forms. Sometimes energy goods are consumed directly, for instance, in the form of gasoline used to operate a vehicle, electricity to light a home, or natural gas to heat a home. At other times, the cost of energy is embodied in the prices of goods and services that consumers buy, say when purchasing an airline ticket or when buying online garden furniture made from plastic to be delivered by mail. Previous research has focused on quantifying the pass-through of the price of crude oil or the price of motor gasoline to U.S. inflation. Neither approach accounts for the fact that percent changes in refined product prices need not be proportionate to the percent change in the price of oil, that not all energy is derived from oil, and that the correlation of price shocks across energy markets is far from one. This paper develops a vector autoregressive model that quantifies the joint impact of shocks to several energy prices on headline and core CPI inflation. Our analysis confirms that focusing on gasoline price shocks alone will underestimate the inflationary pressures emanating from the energy sector, but not enough to overturn the conclusion that much of the observed increase in headline inflation in 2021 and 2022 reflected non-energy price shocks.
This paper examines optimal enviromental policy when external financing is costly for firms. We introduce emission externalities and industry equilibrium in the Holmström and Tirole (1997) model of corporate finance. While a cap-and- trading system optimally governs both firms` abatement activities (internal emission margin) and industry size (external emission margin) when firms have sufficient internal funds, external financing constraints introduce a wedge between these two objectives. When a sector is financially constrained in the aggregate, the optimal cap is strictly above the Pigouvian benchmark and emission allowances should be allocated below market prices. When a sector is not financially constrained in the aggregate, a cap that is below the Pigiouvian benchmark optimally shifts market share to less polluting firms and, moreover, there should be no "grandfathering" of emission allowances. With financial constraints and heterogeneity across firms or sectors, a uniform policy, such as a single cap-and-trade system, is typically not optimal.
Central banks have faced a succession of crises over the past years as well as a number of structural factors such as a transition to a greener economy, demographic developments, digitalisation and possibly increased onshoring. These suggest that the future inflation environment will be different from the one we know. Thus uncertainty about important macroeconomic variables and, in particular, inflation dynamics will likely remain high.
This note argues that in a situation of an inelastic natural gas supply a restrictive monetary policy in the euro zone could reduce the energy bill and therefore has additional merits. A more hawkish monetary policy may be able to indirectly use monopsony power on the gas market. The welfare benefits of such a policy are diluted to the extent that some of the supply (approximately 10 percent) comes from within the euro zone, which may give rise to distributional concerns.
The Russian war of aggression against Ukraine since 24 February 2022 has intensified the discussion of Europe’s reliance on energy imports from Russia. A ban on Russian imports of oil, natural gas and coal has already been imposed by the United States, while the United Kingdom plans to cease imports of oil and coal from Russia by the end of 2022. The German Federal Government is currently opposing an energy embargo against Russia. However, the Federal Ministry for Economic Affairs and Climate Action is working on a strategy to reduce energy imports from Russia. In this paper, the authors give an overview of the German and European reliance on energy imports from Russia with a focus on gas imports and discuss price effects, alternative suppliers of natural gas, and the potential for saving and replacing natural gas. They also provide an overview of estimates of the consequences on the economic outlook if the conflict intensifies.
High-frequency changes in interest rates around FOMC announcements are an important tool for identifying the effects of monetary policy on asset prices and the macroeconomy. However, some recent studies have questioned both the exogeneity and the relevance of these monetary policy surprises as instruments, especially for estimating the macroeconomic effects of monetary policy shocks. For example, monetary policy surprises are correlated with macroeconomic and financial data that is publicly available prior to the FOMC announcement. The authors address these concerns in two ways: First, they expand the set of monetary policy announcements to include speeches by the Fed Chair, which essentially doubles the number and importance of announcements in our dataset. Second, they explain the predictability of the monetary policy surprises in terms of the “Fed response to news” channel of Bauer and Swanson (2021) and account for it by orthogonalizing the surprises with respect to macroeconomic and financial data. Their subsequent reassessment of the effects of monetary policy yields two key results: First, estimates of the high-frequency effects on financial markets are largely unchanged. Second, estimates of the macroeconomic effects of monetary policy are substantially larger and more significant than what most previous empirical studies have found.
This study examines the recent literature on the expectations, beliefs and perceptions of investors who incorporate Environmental, Social, Governance (ESG) considerations in investment decisions with the aim to generate superior performance and also make a societal impact. Through the lens of equilibrium models of agents with heterogeneous tastes for ESG investments, green assets are expected to generate lower returns in the long run than their non- ESG counterparts. However, at the short run, ESG investment can outperform non-ESG investment through various channels. Empirically, results of ESG outperformance are mixed. We find consensus in the literature that some investors have ESG preference and that their actions can generate positive social impact. The shift towards more sustainable policies in firms is motivated by the increased market values and the lower cost of capital of green firms driven by investors’ choices.
Mit dem Ziel, Erkenntnisse darüber zu gewinnen unter welchen Umständen verkehrspolitische Maßnahmen seitens der Bevölkerung befürwortet und angenommen werden, wurde im Hebst 2020 eine quantitative Haushaltsbefragung (N = 832) in vier Frankfurter Befragungsgebieten durchgeführt. Als Untersuchungsgegenstand wurde die Umwandlung von Auto- in Fahrradspuren ausgewählt – eine Maßnahme, die in Folge des Frankfurter Radentscheids entlang verschiedener Verkehrsachsen in Frankfurt geplant und teilweise bereits umgesetzt wurde. Dabei wurde deutlich, dass die Akzeptierbarkeit für die zukünftige Umsetzung einer solchen Maßnahme zur Neuaufteilung öffentlicher Räume in Frankfurt insgesamt sehr hoch ausfällt. Unter Heranziehung des stage model of self-regulated behavioural change (SSBC) konnte zudem aufgezeigt werden, dass sich eine starke Orientierung am Auto negativ auf die Höhe der Akzeptierbarkeit auswirkt, während eine regelmäßige Nutzung des Fahrrads höhere Zustimmungswerte für die Maßnahme hervorruft. In einem zweiten Schritt wurde weiterhin untersucht, inwiefern die bereits umgewandelten Radspuren zwischen der Alten Brücke am Main und dem Friedberger Platz im Frankfurter Nordend, eine Veränderung in der Wahrnehmung und Verkehrsmittelnutzung der Befragten begünstigen und somit auch wirksam sind. Dabei wurde mitunter ersichtlich, dass es seit der Umwandlung sowohl zu einer gesteigerten Fahrradnutzung als auch zu einer reduzierten Autonutzung entlang der umgewidmeten Strecke gekommen ist.
Employing the art-collection records of Burton and Emily Hall Tremaine, we consider whether early-stage art investors can be understood as venture capitalists. Because the Tremaines bought artists’ work very close to an artwork’s creation, with 69% of works in our study purchased within one year of the year when they were made, their collecting practice can best be framed as venture-capital investment in art. The Tremaines also illustrate art collecting as social-impact investment, owing to their combined strategy of art sales and museum donations for which the collectors received a tax credit under US rules. Because the Tremaines’ museum donations took place at a time that U.S. marginal tax rates from 70% to 91%, the near “donation parity” with markets, creating a parallel to ESG investment in the management of multiple forms of value.
With Big Data, decisions made by machine learning algorithms depend on training data generated by many individuals. In an experiment, we identify the effect of varying individual responsibility for the moral choices of an artificially intelligent algorithm. Across treatments, we manipulated the sources of training data and thus the impact of each individual’s decisions on the algorithm. Diffusing such individual pivotality for algorithmic choices increased the share of selfish decisions and weakened revealed prosocial preferences. This does not result from a change in the structure of incentives. Rather, our results show that Big Data offers an excuse for selfish behavior through lower responsibility for one’s and others’ fate.
In more and more situations, artificially intelligent algorithms have to model humans’ (social) preferences on whose behalf they increasingly make decisions. They can learn these preferences through the repeated observation of human behavior in social encounters. In such a context, do individuals adjust the selfishness or prosociality of their behavior when it is common knowledge that their actions produce various externalities through the training of an algorithm? In an online experiment, we let participants’ choices in dictator games train an algorithm. Thereby, they create an externality on future decision making of an intelligent system that affects future participants. We show that individuals who are aware of the consequences of their training on the pay- offs of a future generation behave more prosocially, but only when they bear the risk of being harmed themselves by future algorithmic choices. In that case, the externality of artificially intelligence training induces a significantly higher share of egalitarian decisions in the present.
Since the 2008 financial crisis, European largest banks’ size and business models have largely remained unchallenged. Is that because of banks’ continued structural power over States? This paper challenges the view that States are sheer hostages of banks’ capacity to provide credit to the real economy – which is the conventional definition of structural power. Instead, it sheds light on the geo-economic dimension of banks’ power: key public officials conceive the position of “their own” market-based banks in global financial markets as a crucial dimension of State power. State priority towards banking thus result from political choices over what structurally matters the most for the State. Based on a discourse analysis of parliamentary debates in France, Germany and Spain between 2010 and 2020 as well as on a comparative analysis of the implementation of a special tax on banks in the early 2010s, this paper shows that State’s Finance ministries tend to prioritize geo-economic considerations over credit to firms. By contrast, Parliaments tend to prioritize investment. Power dynamics within the State thus largely shape political priorities towards banking at the domestic and international levels.
Biased auctioneers
(2022)
We construct a neural network algorithm that generates price predictions for art at auction, relying on both visual and non-visual object characteristics. We find that higher automated valuations relative to auction house pre-sale estimates are associated with substantially higher price-to-estimate ratios and lower buy-in rates, pointing to estimates’ informational inefficiency. The relative contribution of machine learning is higher for artists with less dispersed and lower average prices. Furthermore, we show that auctioneers’ prediction errors are persistent both at the artist and at the auction house level, and hence directly predictable themselves using information on past errors.
Lack of privacy due to surveillance of personal data, which is becoming ubiquitous around the world, induces persistent conformity to the norms prevalent under the surveillance regime. We document this channel in a unique laboratory---the widespread surveillance of private citizens in East Germany. Exploiting localized variation in the intensity of surveillance before the fall of the Berlin Wall, we show that, at the present day, individuals who lived in high-surveillance counties are more likely to recall they were spied upon, display more conformist beliefs about society and individual interactions, and are hesitant about institutional and social change. Social conformity is accompanied by conformist economic choices: individuals in high-surveillance counties save more and are less likely to take out credit, consistent with norms of frugality. The lack of differences in risk aversion and binding financial constraints by exposure to surveillance helps to support a beliefs channel.
Large technology firms («BigTechs») increasingly extend their influence in finance, primarily taking over market shares in payment services. A further expansion of their businesses into the territory of cryptocurrencies could entail new and unprecedented risks for the future, namely for financial stability, competition in the private sector and monetary policy. When creating a regulatory toolbox to address these risks, financial regulatory, antitrust, and platform-specific solutions should be closely intertwined in order to fully absorb all the potential threats and to take account of the complex risks these platform companies bear. This policy letter evaluates the solutions lately proposed by the European Commission, with specific focus on the upcoming regulation of Markets in crypto-assets (MiCA), but also the Digital Markets Act (DMA) and Digital services act (DSA), against the background of cryptocurrencies issued by BigTechs and sheds light on financial regulatory, competition and monetary law issues coming along with the possible designs of these cryptocurrencies.
Colocation services offered by stock exchanges enable market participants to achieve execution costs for large orders that are substantially lower and less sensitive to transacting against high-frequency traders. However, these benefits manifest only for orders executed on the colocated brokers' own behalf, whereas customers' order execution costs are substantially higher. Analyses of individual order executions indicate that customer orders originating from colocated brokers are less actively monitored and achieve inferior execution quality. This suggests that brokers do not make effective use of their technology, possibly due to agency frictions or poor algorithm selection and parameter choice by customers.
We employ a proprietary transaction-level dataset in Germany to examine how capital requirements affect the liquidity of corporate bonds. Using the 2011 European Banking Authority capital exercise that mandated certain banks to increase regulatory capital, we find that affected banks reduce their inventory holdings, pre-arrange more trades, and have smaller average trade size. While non-bank affiliated dealers increase their market-making activity, they are unable to bridge this gap - aggregate liquidity declines. Our results are stronger for banks with a higher capital shortfall, for non-investment grade bonds, and for bonds where the affected banks were the dominant market-maker.
We develop a two-sector incomplete markets integrated assessment model to analyze the effectiveness of green quantitative easing (QE) in complementing fiscal policies for climate change mitigation. We model green QE through an outstanding stock of private assets held by a monetary authority and its portfolio allocation between a clean and a dirty sector of production. Green QE leads to a partial crowding out of private capital in the green sector and to a modest reduction of the global temperature by 0.04 degrees of Celsius until 2100. A moderate global carbon tax of 50 USD per tonne of carbon is 4 times more effective.
The European Central Bank (ECB) recently proclaimed a more active role for itself in the fight against climate change. Did the European Parliament (EP) play a part in this regard, and if so what was it? To answer this question, this paper builds on a multi-method text analysis of original datasets compiling communications between the ECB and the EP across three accountability forums between 2014 and 2021. The paper shows that there has been discursive convergence between central bankers and parliamentarians concerning the role of the ECB in combatting climate change. It argues that this convergence has resulted from a pragmatic (yet precarious) adoption of a common repertoire1 between ‘green’ central bankers and parliamentarians who have favored a more active role for the ECB in the fight against climate change. The adoption of a common repertoire is pragmatic, in that it results from the strategic use of specific discursive elements that are ambitious enough to address their respective opponents and trigger political change, yet vague enough to allow both sets of actors to converge on them momentarily. It is also precarious in the sense that it involves discarding fundamental political tensions, which is hardly tenable in the long term. The paper shows that both organizational and politicization dynamics have been at work in the emergence of this pragmatic yet precarious bedfellowship between ‘green’ central bankers and parliamentarians.