Contributions in Merlin

We analyze the effect of negative monetary policy rates on banks, using detailed supervisory information from Switzerland. For identification, we compare changes in the behavior of banks that had different fractions of their central bank reserves exempt from negative rates. More affected banks reduce costly reserves and bond financing while maintaining non-negative deposit rates and larger deposit ratios. Higher fee and interest income successfully compensates for squeezed liability margins, but credit and interest rate risk increase. Portfolio rebalancing implies relatively more lending, also compared to an earlier rate cut within positive territory, and risk-taking reduces regulatory capital cushions and liquidity.

In many studies involving complex representation of the Earth's climate, the number of runs for the particular model is highly restricted and the designed set of input scenarios has to be reduced correspondingly. Furthermore, many integrated assessment models, in particular those focusing on intrinsic uncertainty in social decision-making, suffer from poor representations of the climate system ue to computational constraints.In this study, using emission scenarios as input and the temperature anomaly as a predicted response variable, we construct low-dimensional approximations of high-dimensional climate models, as represented by MAGICC. In order to extract as much explanatory power as possible from the high-dimensional climate models, we construct orthogonal emissions scenarios that carry minimum repetitive information. Our method is especially useful when there is pressure to keep the number of scenarios as low as possible. We demonstrate that temperature levels can be inferred immediately from the CO2 emissions data within a one-line model that performs very well on conventional scenarios. Furthermore, we provide a system of equations that is ready to be deployed in macroeconomic optimization models. Thus, our study enhances the methodology applied in the emulation of complex climate models and facilitates the use of more realistic climate representations in economic integrated assessment models.

Because the extent to which multinational companies (MNCs) benefit from foreign subsidiaries depends on how effectively MNCs manage their foreign subsidiaries' workforce, the international management literature has long focused on how MNCs transfer Human Resource Management (HRM) practices. However, the literature has only vaguely dealt with institutional differences between host and home countries, often simplifying these differences under the umbrella of institutional or cultural distance. This article investigates how MNCs use expatriates to adjust subsidiaries' employment modes to different market economies. We define employment modes as bundles of HRM and industrial relations (IR) practices implemented at the firm level and examine the employment modes of 76 subsidiaries of U.S. MNCs in a coordinated market economy (Germany), a hybrid market economy (Switzerland), and a liberal market economy (United Kingdom). Our results reveal substantial differences in the expatriation strategies of MNCs that depend not only on the international focus of the MNC but also on the differences in IR between the parent and subsidiary's environment. Our findings qualify the role of expatriates in adjusting subsidiaries' employment modes to different market economies and highlight the boundary conditions of integrating HRM with IR practices in the management of foreign subsidiaries.

Central banks are under increased scrutiny because of the rapid growth in, and composition of, their balance sheets. Therefore, understanding the processes that shape these balance sheets and their consequences is crucial. We contribute by studying an extensive dataset of banks’ liquidity uptake and pledged collateral in central bank repos. We document systemic arbitrage whereby banks funnel credit risk and low-quality collateral to the central bank. Weaker banks use lower quality collateral to demand disproportionately larger amounts of central bank money (liquidity). This holds both before and after the financial crisis and may contribute to financial fragility and fragmentation.

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Existing approaches to assess the economic impact of climate policies tend to limit their analysis to estimating the direct effect of a policy on the specific institutional sector targeted by the policy itself (e.g. banks, firms), thus underestimating its overall effect. In order to fill this gap, we develop a methodology, based on financial networks, to analyse the transmission throughout the economy of positive or negative shocks induced by the introduction of climate policies. In particular, this methodology allows to identify the feedback loops between the financial sector and the real economy through direct and indirect chains of financial exposures across multiple financial instruments (i.e. loans, equity, bonds, and life insurance). We illustrate the methodology on empirical data of the Euro Area. We focus on policy-induced shocks that affect directly either the banking sector or the non-financial firms, and we analyse the most relevant feedback loops that can reinforce the effect of such shocks. This analysis helps to understand the conditions for virtuous or vicious cycles to arise in the finance-climate nexus and to improve the assessment of the economic impact of climate policies.

This paper examines liquidity in the Swiss franc repurchase (repo) market and assesses its determinants using a proprietary dataset ranging from 2006 to 2016. I find that repo market liquidity has a distinct intraday pattern, with low liquidity in early and late trading hours. Moreover, repo market liquidity is negatively affected by stress in the global financial system and the end of the minimum reserve requirement period if central bank reserves are scarce. Furthermore, I show that with excess central bank reserves in the financial system, quoted volumes in the interbank market get imbalanced towards more cash provider relative to cash taker quotes and the trading volume declines. By estimating liquidity in an interbank repo market and explaining its drivers, this paper contributes to the ongoing debate on repo market functioning.