Knowledge that Transforms

With rising public attention to climate change, the proliferation of green mutual funds reflects expectations that they will contribute to a sustainable economic transition. This paper investigates the effects of climate news on mutual fund flows and portfolio allocation decisions. Using detailed flow- and holding-level data, we observe that heightened climate news results in significantly larger capital inflows into green funds than into their non-green counterparts. Furthermore, we show that, in response to climate news, green funds decrease their exposure to high-polluting firms relative to low-polluting firms more than non-green funds do. These results suggest that increasing public attention boosts capital reallocation towards green funds and that, in turn, potentially fosters investment relocation towards more environmentally friendly companies.

<div> What is the impact on the cost of bank credit of local corporate environmental and biodiversity exposure? At loan origination, banks charge higher rates to firms creating more environmental damage, especially when they are lowly capitalized, and when the firms operate in “greener” states with lower climate denial and more negative environmental news. Biodiversity risk is also priced, especially when public interest in it intensifies. Following the Trump withdrawal from Paris, banks modulate their environmental risk pricing in “browner” states. In sum, environmental risk pricing in bank lending is also driven by local beliefs and attitudes. </div>

Miners of proof-of-work networks like Bitcoin tend to gravitate towards regions with cheap energy. We analyze risks associated with this geographical centralization by exploiting a local electricity supply shock. Compared to a control group consisting of an energy-efficient proof-of-stake cryptocurrency, the blockchain’s capacity for processing transactions decreases while transaction fees increase substantially. The increased settlement latency on the blockchain also reduces secondary market quality as seen in higher exchange rate volatility, lower liquidity, and larger price differences between exchanges. Overall, our results suggest that geographical centralization poses short-lived but potentially severe system-wide risks to proof-of-work networks.

This study examines why firms’ access to finance differs across countries and assesses the extent to which democracy and financial liberalisation account for these variations. Using political economy and liberalisation theories as a foundation, we analyse a comprehensive dataset of over 110,000 firms across 112 economies between 2006 and 2021. Although previous research identifies firm-level and macroeconomic sources of financial frictions, evidence on the institutional drivers of cross-country financial access remains limited. Our findings show that democracy and financial liberalisation, when considered independently, are associated with reduced access to finance. However, when both conditions coexist, they ease financing barriers and enhance access to finance. These results remain consistent across multiple robustness tests, including alternative model specifications, endogeneity corrections, and various measures of institutional quality and financial openness. Overall, the study highlights that neither democracy nor liberalisation alone is sufficient to enhance access to credit. Instead, simultaneous institutional strengthening and financial market access are necessary to ease financing barriers. This has important policy implications, particularly for emerging and developing economies seeking to expand firm-level access to capital and stimulate economic growth.

Wealth Management Products (WMPs) have become a major source of bank funding over the past decade. Using a unique WMP transactions dataset from China covering 99,893 transactions during 2010-2020, this study examines whether greater reliance on WMPs as a type of funding innovation increases bank systemic risk. We find that higher WMP dependence significantly elevates systemic risk, with the effects concentrated among smaller banks. Exploiting the 2018 Asset Management Regulation as an exogenous shock, we establish causality using a difference-in-differences approach. Our channel analysis shows that maturity mismatch amplifies WMP-related systemic risk, while higher WMP yields further increase fragility through funding cost pressures. Overall, these results call for a regulatory approach that moves beyond aggregate balance-sheet metrics and instead targets funding composition, maturity structure, and pricing behaviour-dimensions in which WMPs materially increase systemic vulnerability.

I investigate how the Tax Reform Act of 1986 (TRA) reshaped household mobility by preserving mortgage interest deductibility while abolishing other personal loan deductions. Using PSID panel data and an instrumental variables framework, I show that the TRA induced mortgage holders to expand borrowing by $7600, reducing home equity by 8.2 percentage points and lowering mobility by 3.8 percentage points. Placebo tests reveal renters exhibited no mobility changes, validating a mortgage-specific fiscal channel. The mobility constraint operated primarily among high-income households (where tax incentives were strongest), within-state moves (local housing adjustments), and liquidity-constrained borrowers. Simultaneously, an asymmetric capital gains tax treatment prevented even asset-rich households from rebalancing portfolios to offset equity losses. The findings reveal a tax-driven leverage mechanism: fiscal policies subsidizing housing debt immobilize households by eroding equity buffers and preventing portfolio optimization, impeding labor-market adjustment even in the absence of negative equity.