Joachim Jungherr


Institut d'AnÓlisi Econ˛mica
Campus UAB
08193 Bellaterra (Barcelona)
SPAIN
joachim.jungherr@iae.csic.es


About me:
I am a Post-doc Researcher at the Institut d'AnÓlisi Econ˛mica (IAE-CSIC) in Barcelona (Spain) and an Affiliated Professor at the Barcelona Graduate School of Economics. I received my PhD from the European University Institute in Florence (Italy). A detailed CV can be found here.

Research Interests:
Macroeconomics, Financial Economics



                         

Work in Progress



Capital Structure, Uncertainty, and Macroeconomic Fluctuations

At the outset of the Great Recession, credit spreads and default rates soared on corporate bond markets. At the same time, firms were exposed to a particularly sharp rise in sales and growth volatility, while productivity experienced the sharpest downturn of the post-war era. This paper employs an optimal contract approach to security design and capital structure to show how an increase in firm-level uncertainty can result in a rise of the default rate on corporate bonds together with a drop in firm productivity and output. Key to the analysis is a misalignment of the incentives of firm management and investors. Within a dynamic general equilibrium model, I study the impact of exogenous variations in firm-level uncertainty on real and financial aggregates. Uncertainty shocks of plausible size typically cause a recession featuring a rise in default rates and a deleveraging of the corporate sector. An important driver of the business cycle in this model are fluctuations in the Solow residual which are not caused by technology shocks, but by the time-varying severity of agency problems.

                         
                         

Bank Opacity and Endogenous Uncertainty

Why do we need mandatory disclosure rules for banks? What is special about banks that makes them more opaque than non-financial firms? What exactly are the externalities which give rise to a need for policy intervention? And what is the optimal level of bank transparency? Banks are special because the product they are selling is superior information about investment opportunities. Intransparent balance sheets turn this public good into a marketable private commodity. Voluntary public disclosure of this information translates into a competitive disadvantage. Bank competition results in a "race to the bottom" which leads to complete bank opacity and a high degree of aggregate uncertainty for households. Households do value public information as it reduces aggregate uncertainty, but the market does not punish intransparent banks. Policy measures can improve upon this market outcome by imposing minimum disclosure requirements on banks. Complete disclosure is socially undesirable as this eliminates all private incentives for banks to acquire costly information. The social planner chooses optimal bank transparency by trading off the benefits of reducing aggregate uncertainty for households against banks' incentives for costly information acquisition.

                         
                         

Why Does Misallocation Persist?

(with David Strauss)

Total factor productivity (TFP) accounts for the major part of cross-country differences in per capita income. Factor misallocation can potentially explain large TFP losses. However, existing models of factor misallocation through credit market frictions fail to robustly generate large effects on TFP in the long run. We propose a new mechanism to show how capital market imperfections may indeed give rise to a permanent misallocation of production factors within a given country and permanent TFP differences across countries. In the presence of binding credit constraints, the assignment of human capital to production sectors is completely reversed with respect to the case of efficient capital markets. Factor misallocation may be permanent because of the possibility of a collective poverty trap which arises for low levels of financial development. Depending on initial conditions, a country converges over time to one of two different stable steady states characterized by different long-run levels of output, capital, wages, and measured TFP. Manufacturing goods are relatively cheaper in the high-income steady state compared to the low-income equilibrium, while the average firm size and its variance are higher.

                         
                         



Last updated: January 25, 2014