Time: 12:00-12:45
Julien Pinter (University of Amsterdam & Université Paris 1 Panthéon Sorbonne, France )

Putting back together the theory and its empirical application: where does Central Bank Financial Strength matter for Inflation?

The strength of a central bank balance-sheet has recently led to numerous debates due to the large asset-purchase programs of major central banks. Is central bank financial strength (CBFS) relevant for inflation ? The paper proceeds in two steps to econometrically answer that question. It first provides a detailed analysis on the mechanisms linking CBFS to inflation to show that CBFS concerns are likely to result into higher inflation only in certain contexts (lack of fiscal support, narrow financial depth), in contrast with what the current econometric literature implicitly assumed. Second, it tests for the presence of a link in these contexts using advanced panel econometric methods. The findings suggest that central bank financial strength can be an important determinant of inflation in countries where the ability of the state to engage in further expenses remained structurally low, what corresponds to certain developing countries in our sample. For such countries, avoiding persistent losses and maintaining the health of the central bank appear to be important pre-conditions to support low inflation. For other countries, central bank financial strength doesn’t appear to be relevant for inflation. Non-linear specifications seem to indicate that balance-sheet deteriorations are more damaging after certain country-specific thresholds, which in our sample lie on average at a real equity-to-asset ratio of 3.5%. The results also allow us to explain the apparent inconsistency of the results in the previous studies.

Field: Macroeconomics/ Monetary Economics

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Time: 12:45–13:30
Maximilian Hoyer (University of Amsterdam)

Stand by your man – The role of shared history in investment decisions

We investigate the relationship between an investor and a project manager. Project managers choose from a pool of projects, the success probabilities of which are uncertain. Information about the future success probability of a project is gained by observing its outcome. Investors can change projects, but also have to change project managers if they want to do so. An additional joint project or a voluntary transfer precedes their interaction. We hypothesize that investors favor projects that are managed by project managers with whom they have shared positive experiences in the past, which should lead to a lower rate of project change than in comparable situations with shared negative experiences. The role of this social element is isolated using a control treatment in which the role of the project manager does not exist. Interaction through voluntary transfers plays a clear and significant role in the investors’ decision making, whereas the influence of merely sharing a positive or negative experience proves more complex than anticipated.

Field: Experimental Economics