Where Did the Money Go? Impact of the ECB’s Corporate Sector Purchase Program on Eurozone Corporate Spending
By Tina Tian
Slow corporate growth and a lack of corporate investment has plagued European markets for the past decade. As a response, the ECB began the Corporate Sector Purchase Program (CSPP) in 2016 to provide liquidity to corporate debt markets through bond purchases. Four years after the start of the program, this paper assesses its impact by looking at how companies spent this money on a micro level. In particular, it looks at the impact of long-term debt on five expenditures (fixed assets and R&D, cash balances, short-term debt, cash to shareholders, and share buybacks). We test these hypothesized expenditures based on financial statement panel data from a selection of European firms whose bonds were purchased by the ECB. The results show an increase in financial expenditures including cash balances and short-term debt and a decrease in productive investment expenditures such as fixed assets and R&D. This indicates a lack of efficacy of the corporate bond purchase program as excess liquidity provided by the ECB went towards eurozone companies refinancing existing debt rather than investing in growth ventures.
Advisors: Professor Connel Fullenkamp, Professor Kent Kimbrough | JEL Codes: G3, O16, E58
Understanding the Argentine Peso’s Devaluation in 2014 —Analysis on Argentina’s Fiscal Sustainability from 1993 to 2013
By Feng Pan
This research analyzes the fiscal sustainability of Argentina from 1993 to 2013. Specifically, it explains the peso devaluation in early 2014 and suggests that it is primarily due to the fundamental problems in Argentina’s economy. This paper highlights Argentina’s inability to enhance its fiscal conditions and suggests possible future economic developments in Argentina. This paper concludes that there is high
chance of hyperinflation, debt default, and the eventual dissolution of the managed exchange rate regime in Argentina in the future.
Advisor: Alison Hagy, Craig Burnside | JEL Codes: E43, E44, E52, E58, E62, F31 | Tagged: Argentine Peso, Exchange Rate, Fiscal Sustainability
By Shane Hunt
This paper explores a previously overlooked unintended consequence of a private bank accepting Central Bank loans as a lender of last resort. Applying the basic Markowitz Security Model, I explore the potential effect of a private bank accepting a Central Bank loan as a signal of increased risk of investment in that private bank to the private markets. Finding a possibility that private investors will charge a penalty risk premium for having sought Central Bank financing, I consider the effects of this premium in three different game theoretic scenarios, each with a different set of assumptions that could apply in different Economic settings. Depending on the specific environment, possible effects include dependence on Central Bank financing, bankruptcy, or an eventual return to the private financial markets for future funding.
Advisor: Marjorie McElroy, Nir Jaimovich | JEL Codes: E58, G02, G21, G28, G32 | Tagged: