research

2023

1. Sectoral Exposure to Aggregate Fluctuations, Employment Risk and Monetary Policy

   Uroš Herman

   2023

   Abstract Bib PDF

   This paper studies how differences in employment risk across sectors affect the transmission mechanism of monetary policy. I first show, using micro-level data, that households working in sectors more exposed to business cycles—i.e. experience higher employment risk—accumulate more precautionary savings than those working in less exposed sectors. I then build a two-sector HANK model with sector-specific employment risk and study the monetary policy transmission mechanism in a multi-sector environment. The consumption response following an expansionary monetary policy is larger and more persistent in the sector, which is more exposed to business cycles. The reason is that higher employment risk in more exposed sectors endogenously increases sectoral MPC and generates more procyclical income. I identify two channels through which differences in employment risk affect sectoral and aggregate consumption responses: (i) the market incompleteness channel and (ii) the relative labour demand channel. Moreover, I show how the interaction between the two channels amplifies the aggregate consumption response.

   @techreport{UH_two_sector_22,
     title = {Sectoral Exposure to Aggregate Fluctuations, Employment Risk and Monetary Policy},
     author = {Herman, Uroš},
     journal = {Mimeo},
     year = {2023},
     type = {mimeo}
   }

2. Who Gets Jobs Matters: Monetary Policy and the Labour Market in HANK and SAM

   Uroš Herman, and Matija Lozej

   ECB Working Paper, 2023

   Abstract Link PDF

   This paper first provides empirical evidence that labour market outcomes for the less educated individuals, who also tend to be poorer, are substantially more volatile than those for the well-educated, who tend to be richer. We estimate job finding rates and separation rates by educational attainment for several European countries and find that job finding rates are smaller and separation rates larger at lower educational attainment levels. At cyclical frequencies, fluctuations of the job finding rate explain up to 80% of unemployment fluctuations for the less educated. We then construct a stylised HANK model augmented with search and matching and ex-ante heterogeneity in terms of educational attainment. We show that monetary policy has stronger effects when the job market for the less educated and, hence, poorer workers is more volatile. The reason is that these workers have the most procyclical income coupled with the highest marginal propensity to consume. An expansionary monetary policy shock that increases labour demand disproportionally affects the labour market segment for the less educated, causing a strong increase in consumption. This further amplifies labour demand and increases the labour income of the poor even more, amplifying the initial effect. The same mechanism carries over to forward guidance.

2022

1. Determinants and Effects of Countries’ External Capital Structure: A Firm-Level Analysis

   Uroš Herman, and Tobias Krahnke

   IMF Working Paper, 2022

   Abstract Link PDF

   This paper investigates the impact of a firm’s foreign liability composition on its resilience during economic turmoil and identifies the factors affecting its foreign capital structure. Using firm-level data, we corroborate previous findings from the literature that the composition of foreign liabilities matters for a country’s susceptibility to external shocks. We find that firms with a positive equity share in their foreign liabilities were less affected by the global financial crisis. This was mainly due to the availability of intra-firm trade credit and intra-firm loans, which acted as a financial buffer when external capital markets became distressed and domestic financing was scarce. Moreover, we show that firms with a positive foreign equity share were less likely to default after the crisis, highlighting the importance of (foreign) equity financing for firms’ resilience to shocks and, hence, for financial stability.

2021

1. Cross-border bank funding and lending in a monetary union: Evidence from Slovenia

   Uroš Herman, and Matija Lozej

   Journal of International Money and Finance, 2021

   Abstract Link PDF

   We propose a novel way, based on the liability composition of banks and firms, to identify a shock to the supply of foreign funds to banks, and investigate its dynamic effects on bank lending to firms, output, and prices. We find that the increase in the supply of foreign funds to banks generates a strong and persistent increase in lending and output, while prices increase with a delay. Shocks to the supply of foreign funds to banks are also an important driver of business cycles, bank lending, and the co-movement between bank loans and output. When we distinguish between the behaviour of domestic and foreign-owned banks, we find that foreign-owned banks are slower in passing the increase in foreign funding to firms.

2016

1. Firm Performance and (Foreign) Debt Financing before and during the Crisis: Evidence from Firm-Level Data

   Mateja Gabrijelčič, Uroš Herman, and Andreja Lenarčič

   ESM Working Paper, 2016

   Abstract Link

   This paper studies the effects of financial leverage and foreign financing on firm performance before and during the recent crisis, using a large panel of Slovenian companies. We find a significant negative impact of leverage on firm performance, even when we explicitly control for the reverse causality between the two variables. The negative effect, albeit weaker, persists also in the crisis period. Firms with some foreign debt performed better on average than firms relying only on domestic financing. At the same time, they suffered a stronger decrease in performance if their total leverage increased. Moreover, when we explicitly control for the amount of foreign financing, we find that it has a positive and highly significant effect on firm performance. The significant positive effect of foreign financing in the pre-crisis period seems to be entirely driven by privately owned firms, while the effects are negative for state-owned companies. During the crisis, the effects are positive but insignificant for both ownership types. Finally, when comparing domestic and foreign-owned firms, we see no substantial variation in the coefficients.