Financial markets

Hans Koster, Martijn Dröes, 20 September 2020

Countries that invest in renewable energy production face frequent opposition from local homeowners. Using a detailed housing transactions dataset covering the whole of the Netherlands since 1985, this column compares the overall impact that wind turbines and solar farms have on housing prices. It finds that tall wind turbines (over 150 metres) have a negative effect, and solar farms generate losses as well (2-3% for homeowners within a 1km orbit). This evidence should be factored into finding the optimal allocation of renewable energy production facilities. 

Khalid ElFayoumi, Martina Hengge, 14 September 2020

The COVID-19 pandemic and associated policy responses triggered a historically large wave of capital reallocation between markets, asset classes, and industries. This column uses high-frequency data to show that capital market dynamics were not exclusively driven by undiscriminating global factors. Instead, the degree of the spread of the virus, the stringency of the lockdown, and the fiscal policy response played key roles in explaining the wide heterogeneity in international portfolio flows across countries, particularly for emerging markets.

John Fell, Francesco Mazzaferro, Richard Portes, Eric Schaanning, 11 September 2020

On 23 July 2020, the European Systemic Risk Board published a technical note summarising the findings of a cross-sectoral, top-down analysis that sought to quantify the aggregate potential impact of large-scale corporate bond downgrades. This column summarises the main findings of the exercise, provides a rationale for such analyses, and suggests repeating such system-wide exercises regularly and on a global level to uncover vulnerable links and improve institutions’ own risk management. 

Luc Laeven, 31 August 2020

Social distancing policies are necessary from a public health perspective but can have negative effects on economic activity. Using a newly constructed dataset of sectoral dependence on the use and sale of intermediate goods, this column investigates whether social distancing policies can have negative spillover effects on sectors that are not directly targeted due to input-output linkages. It finds that firms that depend on the sale of intermediate goods to sectors affected by social distancing measures are more affected by the crisis.

Davide Delle Monache, Ivan Petrella, Fabrizio Venditti, 24 August 2020

The fast rebound of US stock prices following the Covid-19 shock has reignited discussions over ‘frothiness’ in stock markets. This column examines how asset prices are affected by drastic shocks to the real economy, and what factors drive this relationship. Evidence from the investigation suggests that, from a longer-term perspective, high asset valuations may reflect more than just investor optimism. The greater expected income, in comparison to government bonds, could be the key as to why investors are continuing to trust in the stock market, irrespective of the turbulent wider economic climate.

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