Universität zu Köln

Bendel, Daniel (2017). Essays on Monetary Policy, Banking and Business Cycles. PhD thesis, Universität zu Köln.

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Abstract

This thesis consists of three self-contained chapters that contribute to the research fields of business cycles, monetary policy, and banking regulation. All three topics are directly linked to the financial crisis of 2007 and the European debt crisis during 2012. Both crises have significant effects on the real economy, on the interplay between the fiscal and the monetary authority, and on the regulation of the banking sector. The second chapter, therefore, analyzes the reaction of the German business cycle to both crises. It investigates their effects on the real economy by conducting a business cycle decomposition and explicitly looking at the importance of foreign demand and price shocks. Both are especially interesting for Germany as this country is an export-oriented economy. The crisis led to immense foreign demand shocks and foreign prices shocks. It is, however, neither empirically nor theoretically clear which of the two effects (demand or price) dominated the impacts of the financial and European debt crisis on the German economy. Francois and Woerz (2009) stress that a drop in relative prices is a sign for a potential loss in terms of competitiveness, whereas a drop in quantities simply shows that there is less use for the goods in demand. The third chapter investigates the optimal monetary reaction to a temporarily shortsighted fiscal authority. It is characterized by its preference for financing government spending through higher debt rather than higher taxes. A problem that is explained by political uncertainty in that the politicians have a finite and time-varying horizon. This tendency to finance government spending predominantly by government debt leads to high public-debt-to-GDP ratios. During 2007, and especially during 2012, these high public-debt-to-GDP ratios cast serious doubt on the solvency of several southern European countries during the European debt crisis. A temporarily myopic fiscal authority is associated with this so-called debt bias, which can be an independent source of business cycle fluctuations (see Kumhof and Yakadina 2007). Therefore, the third chapter presents the optimal monetary policy reaction to a temporarily shortsighted fiscal authority that minimizes the distortion caused by this fiscal shortsightedness. The forth chapter investigates the recent European implementation of the Basel III regulation package. The financial crisis of 2007 was the motivation for a stricter banking regulation in Europe: The regulation aimed at reducing the overall probability and consequences of a future banking crisis similar to the crisis seen in 2007. However, the European implementation of Basel III is quite special regarding European government bonds. Banks that invest in European government bonds do not have to hold any equity against them. All bonds issued by European governments are seen as riskless assets and investments in these bonds can be fully financed by debt. Therefore, the last chapter investigates how fully debt-financed government bonds influence the optimal design of an equity requirement constraint.

Item Type:	Thesis (PhD thesis)
Creators:	Creators Email ORCID ORCID Put Code Bendel, Daniel danielbendel@gmx.de UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-79434
Date:	2017
Language:	English
Faculty:	Faculty of Management, Economy and Social Sciences
Divisions:	Weitere Institute, Arbeits- und Forschungsgruppen > Center for Macroeconomic Research (CMR)
Subjects:	Economics
Uncontrolled Keywords:	Keywords Language Business cycle theory, bank regulation, monetary policy English
Date of oral exam:	13 December 2017
Referee:	Name Academic Title Schabert, Andreas Prof. Dr. Scheffel, Martin Jun. Prof. Dr.
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/7943