Christoph Ungerer

Monetary Policy, Hot Housing Markets And Household Debt

A focus on house prices alone may undersell the role of the housing market in monetary policy transmission. This paper uses theory and empirical evidence to propose that housing liquidity also matters. Lower policy rates encourage buyers to enter the housing market. In turn, higher housing sale rates allow lenders to threaten foreclosure more effectively, because the expected carrying costs on foreclosure inventory are lower. Ex-ante, this makes lenders feel comfortable offering larger loans, consumer credit constraints relax and aggregate demand rises.

When Do Temporary Payroll Tax Cuts Work? The Role Of Hiring And Firing Costs

Conventional wisdom suggests that fiscal policy is most effective in creating jobs during recessions. Unemployment is high and firms can hire without driving up wages. This paper uses simulations of an economy with heterogeneous firms to show that labor adjustment costs put this logic into question. To avoid firing and eventual re-hiring of workers, firms hoard labor during downturns and this makes their hiring decision less sensitive to marginal tax incentives. In a heterogeneous sector economy, the interplay between these two forces (slack labor markets and slack inside the firm) plausibly generates countercyclical fiscal multipliers when targeted at low-adjustment-cost sectors (such as government spending on construction), but procyclical multipliers for broad-based employer payroll tax cuts.

Trader Loss Aversion And Career Concerns

This paper proposes a theory in which rational profit-maximizing traders exhibit loss aversion because of career concerns. No underlying behavioural bias (such as loss averse preferences) is postulated. Because skilled traders have superior information on asset resale markets, they are unlikely to enter trades that they are eventually forced to close at a loss. This establishes the number of loss-making trades as key criterion in the trader retention decision of financial institutions. In response, traders are reluctant to sell assets at a loss. Consistent with loss averse trading behaviour, this study empirically documents that the distribution of prices at which corporate bond dealers sell is truncated sharply at the last observed buy price. Furthermore, the data supports a key prediction of the career-concerns hypothesis (not shared with baseline theories of underlying loss-averse preferences): traders appear to place special weight on avoiding multiple trade losses in a row.