Lennart Niermann

Working Papers

Decomposing the Investment Channel of Monetary Policy with M. Momm (link)

This paper provides novel firm-level evidence in favor of a sizable information effect for the investment channel of monetary policy. We find that investment elasticities from aggregate monetary policy shocks over four quarters are dampened by 33 percent relative to a pure cost-of-debt shock. Our empirical strategy exploits quasi-experimental variation from the ECB’s Corporate Sector Purchase Programme (CSPP), generating cross-sectional differences in firms’ financing costs unrelated to contemporaneous belief revisions. We motivate these findings using a model of lumpy firm investment. Here, we similarly find a large offsetting information effect if a sufficient measure of firms is close to their extensive margin of investment. Real transmission may therefore depend on the cross-sectional distribution of credit spreads, which varies over time.

Presentations: EDGE Conference 2025, European University Institute

Courts, Costs, and Crises: The Role of Penalties for Sovereign Default Expectations (link)

Runner-up of the Cambridge Finance Best Student Paper award 2024

This paper studies the causal effect of default costs on sovereign default probabilities. I exploit high-frequency changes in litigation-induced default costs around legal news-shocks from creditor lawsuits. A one ppt increase in the default-penalty-to-GDP ratio leads to a 1.38 ppt drop in default probability, indicating that direct economic costs are a central reason creditors expect repayment. I develop these results in a model of international borrowing with endogenous default and heterogeneous bond contracts. Here, similarly, adopting more punitive debt portfolios reduces default probabilities and risk premiums. However, the same mechanism can also lead shortsighted governments to pursue high-debt-high-default-cost regimes, heightening financial instability.

Presentations: CEPR Paris Symposium 2024, 96th International Atlantic Economic Conference, Philadelphia, PA, USA. European University Institute.

Work in Progress

Debt Management with Callable Bonds: A Historical and Theoretical Perspective with M. Ellison, E. Faraglia and F. Velde

Policy Work

Benchmarking Sustainable Debt Trajectories in Low-Income Countries with A. Abbas and P. Iossifov [Draft available soon]

Abstract. In this paper, we develop two complementary approaches for benchmarking the public debt trajectories of Low-Income Countries (LICs) to assess their dynamic stability. We compare the evolution of the overall public debt-to-GDP ratios of reference LICs with the historical experiences of other countries with similar characteristics, which are now further down the path of economic development and have not experienced public debt stress events. We rely on both direct comparison and a novel application of the synthetic control method (SCM). These public debt trajectories that are dynamically stable from a historical perspective can provide insights into the debt sustainability analysis for LICs.

Presentations: IMF Sovereign Debt Workshop.

The COVID-19 crisis: what explains cross-country differences in the pandemic’s short-term economic impact with I. Pitterle, UN Working Paper Series (2021) (link)

Abstract. The COVID-19 pandemic has caused the most universal health and socio-economic crisis in recent history. However, the magnitude of the economic damage has differed widely; some countries were hit particularly hard, while others have managed to weather the storm much better. In this paper, we use cross-country regression analysis to identify factors that help explain the differences in the growth impact of the COVID-19 shock. Our findings underscore the critical role of balancing health and economic concerns in managing the pandemic as both a country’s exposure to the coronavirus and the stringency of containment measures are strongly correlated with its growth performance. In addition, our results shed light on several aspects of economic resilience. Good governance, provision of fiscal support and strong macroeconomic fundamentals all helped cushion the economic impact. By contrast, a lack of economic diversification – reflected in overreliance on the tourism sector or oil production – has significantly amplified the shock.

UN DESA Policy Paper

Page updated

Google Sites

Report abuse