Working Papers

The FIR Working Paper Series welcomes research documents containing preliminary findings on a wide range of issues in virtually any field in economics. The working papers are meant to stimulate constructive academic debate. By applying a high-profile peer-review process, the Series aims to provide the authors with feedback and improve the quality of their work. Readers are encouraged to submit their comments directly to the authors.
ISSN: 2695-0820

Authors: Monika Junicke, Jakub Matějů, Haroon Mumtaz and Angeliki Theophilopoulou

Abstract: We investigate the heterogeneity in the effects of monetary policy shocks on the distribution of wages and hours worked, using unique contract-level data from the Czech labor market and identifying monetary policy shocks using a narrative approach based on market suprises in interest rate futures. The results suggest that low-wage groups are hit more profoundly by monetary policy shocks than high-wage groups, and the effect of restrictive shocks is stronger in the manufacturing sector than in any other. Exploring other dimensions of the data o§ers insights into the heterogeneity of the impact of monetary policy on different demographic groups. We show that low-educated and also young workers are more affected by restrictive monetary policy shocks due to their higher shares in low-wage groups.

Download: Working-paper-2023-01

Authors: Vincenzo Merella, Josef Taušer

Abstract: After Comeconís dissolution, agentsí lack of experience in product di§erentiation could have triggered demand-side mechanisms affecting trade flows between the two sides of the fallen Iron Curtain. Specifically, producers from a block of countries might have faced a quality perception gap when exporting to the other block. We investigate this issue empirically by examining EU custom data. Our findings are consistent with products originating from former centrally planned countries being penalized by consumers from established decentralized economies. The magnitude of this effect lowers over time and vanishes when we consider extra-EU exporters. The evidence aligns with psychology and marketing contributions and may have important implications for the literature on international trade and economic development dealing with quality di§erentiation and foreign direct investment.

Download: Working-paper-2022-02-1

Author: Laure de Batz

Abstract: This paper puts into perspective enforcement as conducted by the French Financial Market Authority since its creation in 2003 until 2021 with regards to the current state of the literature on financial crimes. We survey exhaustively the three main channels of action: sanctions, settlements (since 2012), and alerts (since 2010). The sample is comprised of 392 sanctions standing for cumulated 365 million euros of fines of 86 settlements standing for cumulated 13 million euros of fines, and of 194 alerts. The analyses stress the complex challenges of information acquisition regarding financial crimes, despite increased efforts of enforcers in terms of transparency. Financial innovations and internationalization of financial markets also contribute to challenge enforcement. The ultimate goal of this survey is to fuel regulatory debates on how to enforce financial regulations more efficiently in light of the recent history, in a European and globalized context.

Download: Working-paper-2022-01

Published as: de Batz, L. (2023). Financial market enforcement in France. European Journal of Law and Economics, 55, 409-468.

Authors: Esteban Jaimovich, Vincenzo Merella

Abstract: Aeroplanes are a fast but expensive means of shipping goods, which allow producers to respond quickly to favourable demand realisations and to limit the risk of shipping unproÖtably large quantities during low demand periods while substantially raising the transportation cost relative to ocean cargoes. We explore the role of heterogeneous income elasticity of demand faced by exporters of quality-differentiated goods in shaping the transport mode choice. We find that
more considerable demand volatility induces more exporters to opt for air shipping, and more so if they produce high-quality goods. We also produce supporting evidence based on U.S. data at the exporter-district-product level.

Download: Working-paper-2021-03

Authors: Smaranda Pantea, Marcel Tkacik

Abstract: This study contributes to the debate on VC-related policies that aim to support the growth of young high-tech firms in the EU. The study provides a systematic review of the results of 22 firm-level studies that estimate causal effects of VC using counterfactual impact evaluation methods and data from 12 EU countries. The results show a large preponderance of positive effects of VC on employment, revenues and assets growth and on reducing financial constraints, but mixed effects on innovation and other aspects of firm performance. They suggest that private VC tends to have larger effects than government VC, but that the latter plays an important role as a complement to private VC. The review finds supporting evidence for the two main channels highlighted by the literature: provision of financial resources and of nonfinancial resources (know-how and networks), although the evidence on the latter is scarce. Based on the results of the review and on the current landscape of VC in the EU, the study highlights important gaps in the literature and policy implications.

Download: Working-paper-2021-02

Published as: Pantea, S., and Tkacik, M. (2024). Venture capital and high-tech start-ups in Europe: a systematic review of the empirical evidence. Venture Capital an International Journal of Entrepreneurial Finance.

Authors: Mehmet Ugur, Edna Solomon, Ayaz Zeynalov

Abstract: This paper addresses two issues encountered in the empirical financial distress literature: a-theoretical treatment of leverage and product-market competition as predictors of financial distress hazard; and lack of attention to frailty as a potential source of bias in reported estimates. We address the first issue by postulating that financial distress is essentially a managerial effort problem, mitigated by leverage and product-market competition as substitute disciplining devices with non-monotonic effects. To address the second issue, we utilize a multi-level financial distress hazard model with frailty. Drawing on an unbalanced panel of 13,986 listed firms from 1992 – 2014, we report three novel findings: (i) the effect
of leverage on financial distress hazard is inverted-U-shaped; (ii) the effect of the competition is U-shaped; and (iii) leverage and competition are substitute disciplining devices that mitigate each other’s adverse effects on financial distress hazard. The predictive power of the proposed model is high, and the results remain strongly or moderately robust to various
sensitivity checks.

Download: Working-paper-2021-01

Published as: Ugur, M., Solomon, E., and Zeynalov, A. (2022). Leverage, competition and financial distress hazard: Implications for capital structure in the presence of agency costs. Economic Modelling, 108, 105740.

Authors: Esteban Jaimovich, Boryana Madzharova, Vincenzo Merella

Abstract: This paper explores patterns of quality differentiation and specialization relying on model-level panel data of retail sales and prices of refrigerators across 23 countries in the European Union. Unlike customs data aggregated at the product category, typically used in the literature, model-level data allow us to test for the presence of nonhomotheticities by comparing market shares of identical models across different markets. We measure quality at the model level, account for varying willingness-to pay for quality at different incomes, and link quality measures to objective model attributes. Using originally assembled data on the country of manufacture of each model, we study patterns of quality specialization by brands with plants in multiple countries. We find that firms locate the production of their higher-quality models in richer countries and argue that the home-market effect linked to nonhomothetic preferences is a key driver of such patterns of quality specialization.

Download: Working-paper-2020-05

Published as: Jaimovich, E., Madzharova, B., and Merella, V. (2023). Inside the white box: Unpacking the determinants of quality and vertical specialization. European Economic Review, 152, 104374.


Author: Aliya Algozhina

Abstract: Recent studies have found that resource-rich low-income countries are better off investing their resource revenues domestically rather than saving them abroad in a sovereign wealth fund (SWF). This paper finds an optimal rule-based policy of accumulating public capital and its associated public investment path in a perfect foresight general equilibrium model. The model has several specific features different from the existing frameworks: The policy rule for public capital is introduced. Public investment is inefficient and has its absorptive capacity constraint costs. External savings clear the government budget. There is a variable share of resource revenues to accumulate the SWF, and the natural resource sector is assumed to be capital-intensive with its FDI shock. Based on calibration for African countries, the study finds that the front-loaded public investment path is optimal given an initial one-period resource windfall, public investment inefficiency, and absorptive capacity constraints in the economies. This result also holds under less productive public capital, while a scenario of no resource windfall produces the welfare loss due to a steady increase in consumption tax to finance public investment.

Download: Working-paper-2020-04

Published as: Algozhina, A. (2022). Optimal public investment in resource-rich low-income countries. Journal of African Economies, 31(1), 75-93.


Authors: Vincenzo Merella, Stephen E. Satchell

Abstract: Recent macro-finance contributions explain a great deal of unconditional asset pricing by introducing persistent consumption risks and rare disasters. Only the volatility puzzles remain unresolved among the longer-established issues in this literature. Motivated by empirical finance contributions and conventional wisdom, we abstract from a consumption-centric analysis and let the asset-pricing kernel depend on habit formation and consumer confidence as a demand shifter correlated with consumption growth. The resulting model compares favorably with the literature in explaining the risk-free rate volatility, but it falls short in matching the standard deviation of the market return. Our findings justify using supplementary information to price assets while warning against neglecting a thorough analysis of consumption growth dynamics.

Download: Working-paper-2020-03

Published as: Merella, V. and Satchell, S.E. (2022). By force of confidence. European Economic Review, 150, 104311.

Authors: Stanislava Bajziková, Lubomír Cingl

Abstract: We introduce a new measure of stereotypes based on the principle of a multiple-price list: the elicitation of willingness to have an ethnic minority member in a team. We apply it on an example of the Roma in the Czech Republic and test on a sample of 100 students from the majority population. We also estimate the role of statistical discrimination, taste-based discrimination, and the contact hypothesis. Our results show small but significant mistreatment of the Roma. The choice to (not) have a Roma in a team seems to be driven by tastes, while the role of statistical discrimination and the contact hypothesis is rather limited.

Download: Working-paper-2020-02-1

Published as: Bajzíková, S. and Cingl, L. (2023). Measuring stereotypes in effort tasks: A multiple-price list approach. Journal of Behavioral and Experimental Economics, 105, 102032.

Authors: Michal Hlaváček, Ilgar Ismayilov, Ayaz Zeynalov

Abstract: The existing literature on fiscal policy has mainly employed linear models that found a small fiscal multiplier in developing economies. These findings challenge the importance and effectiveness of fiscal policy for these countries. However, linear models are not capable of distinguishing the size of the fiscal multiplier in different phases of economic cycles. Responding to the previous studies that confirm regime dependency of a fiscal multiplier, our model enriches the literature of regime-switching models using a non-linear panel threshold vector autoregression (PTVAR) model to measure the size of the fiscal multiplier for developing countries. Our finding confirms asymmetry in the response of GDP with regard to the economic situation. The main result of our paper shows that the response of GDP to government expenditure shock during a recovery period for developing countries is double that for developed ones. Our results also confirm a significantly larger fiscal multiplier during recovery compared to the economic downturn.

Download: Working-paper-2020-01-1

Published as: Hlaváček, M., Ismayilov, I., and Zeynalov, A. (2021). Reassessment of the fiscal multiplier in developing countries: Regime-switching model. CESifo Economic Studies, 67(4), 440-462.