2️⃣ We exploit the survey’s panel dimension: one-time vignette responses to borrowing cost changes predict post-shock investment dynamics.

Two approaches to assess the borrowing cost channel’s macro role after @ecb.europa.eu policy changes.

1️⃣Open-text narratives: we ask firms what typically comes up in investment planning when the ECB changes its key rate—when discussed, borrowing costs are top of mind.

Hurdle rates are sticky and drive the response.

𝐍𝐚𝐫𝐫𝐚𝐭𝐢𝐯𝐞𝐬 𝐟𝐨𝐫 𝐧𝐨𝐧-𝐚𝐝𝐣𝐮𝐬𝐭𝐦𝐞𝐧𝐭: Cash buffers and not being at the margin—investment is driven by capacity. Effects bite most for externally financed and labor-short firms.

A 1pp cut in lending rates lifts corporate investment by ~7% over two years. This direct response is ≈½ of the total monetary policy effect on investment.

Big heterogeneity: many firms don’t adjust; adjusters ramp up sharply.

In new paper with @leabest.bsky.social and @bborn.bsky.social we unpack the ‘impact of interest’: how borrowing costs directly shape firms’ investment, from micro to macro.

I'm happy to share that I've successfully submitted my dissertation this week! I'm also thrilled to announce that I'll join the University of Copenhagen as an Assistant Professor this summer.

@econmunich.bsky.social

Subjective probability of a macro tail event 🔼 → investment 🔽

50% of the relationship persists even when controlling for subjective expectations and uncertainty (first & second moments of firms’ forecast distribution).

Results are driven by firms with high worst-case exposure.

I created novel data using the ifo survey:
Firms report subjective probabilities of 4 specific macro tail events.

➡️Firms view these events as fairly likely, but beliefs vary widely.
➡️Higher tail risk beliefs → lower expectations & higher uncertainty about their own business.