Working papers

"Two Centuries of Systemic Bank Runs" (with Rustam Jamilov, Tobias König, and Farzad Saidi)
This version: August 2024
[SSRN] [CEPR WP]
Abstract

We study bank runs using a novel historical cross-country dataset that covers 184 countries over the past 200 years and combines a new narrative chronology with statistical indicators of bank deposit withdrawals. We document the following facts: (i) the unconditional likelihood of a bank run is 1.2% and that of significant deposit withdrawals 12.7%; (ii) systemic bank runs, i.e. those that are accompanied by deposit withdrawals, are associated with substantially larger output losses than non-systemic runs or deposit contractions alone; (iii) bank runs are contractionary even when they are not triggered by fundamental causes, banks are wellcapitalized, and there is no evidence of a crisis or widespread failures in the banking sector; (iv) in historical and contemporary episodes, depositors tend to run on highly leveraged banks, causing a credit crunch, and a reallocation of deposits across banks; and (v) liability guarantees are associated with lower output losses after systemic runs, while having a lender of last resort or deposit insurance reduces the probability of a run becoming systemic. Taken together, our findings highlight a key role for sudden bank liability disruptions over and above other sources of financial fragility.

BibTeX

@article{JKMS2024,
title={Two Centuries of Systemic Bank Runs},
author={Rustam Jamilov and Tobias K{\"}onig and Karsten M{\"}uller and Farzad Saidi},
year={2024},
}


"Corporate Debt, Boom-Bust Cycles, and Financial Crises" (with Victoria Ivashina, Sebnem Kalemli-Özcan, and Luc Laeven)
This version: February 2024
[SSRN] [NBER WP] [CEPR WP]
Abstract

Using a new dataset on sectoral credit exposures covering financial and non-financial sectors in 115 economies over the period 1940–2014, we document the following evidence that corporate debt plays a key role in explaining boom-bust cycles, financial crises, and slow macroeconomic recoveries: (i) corporate debt accounts for two thirds of the aggregate credit expansion before crises and three quarters of total nonperforming loans during the bust; (ii) expansions in corporate debt predict crises similarly to household debt; (iii) a measure of imbalance in credit growth flowing disproportionately to some sectors, such as construction and non-bank financial intermediation, is associated with crises; and (iv) the recovery from financial crises is slower after a boom in corporate debt, especially when backed by procyclical collateral values, due to higher nonperforming loans.

BibTeX

@article{IvashinaKalemliLaevenMueller2024,
title={Corporate Debt, Boom-Bust Cycles, and Financial Crises},
author={Victoria Ivashina and Sebnem Kalemli-Özcan and Luc Laeven and Karsten M\"uller},
year={2024},
}


"EXIM's Exit: The Real Effects of Trade Financing by Export Credit Agencies" (with Poorya Kabir, Adrien Matray, and Chenzi Xu)
This version: July 2024
[NBER WP]
Abstract

We study the role of export credit agencies on firm behavior by using the effective shutdown of the Export–Import Bank of the United States (EXIM) from 2015–2019 as a natural experiment. We show that firms that previously relied on EXIM support saw a 18% drop in global sales after the agency closed down, driven by a reduction in exports. Firms affected by the shutdown were unable to make up for the loss of trade financing, especially if they were financially constrained, and consequently laid off employees and curtailed investment. These negative effects were more pronounced for firms with higher export opportunities and higher ex-ante marginal revenue products of capital. Lower exports at the firm level aggregate up to lower total exports for industries most reliant on EXIM support. These findings suggest that government policies aimed at providing trade financing can boost exports and firm growth even in countries with well-developed financial markets without necessarily leading to a misallocation of resources.

BibTeX

@techreport{NBERw32019,
title = "EXIM’s Exit: The Real Effects of Trade Financing by Export Credit Agencies",
author = "Kabir, Poorya and Matray, Adrien and Müller, Karsten and Xu, Chenzi",
institution = "National Bureau of Economic Research",
type = "Working Paper",
series = "Working Paper Series",
number = "32019",
year = "2024",
month = "January",
doi = {10.3386/w32019},
URL = "http://www.nber.org/papers/w32019",
}


"Social Media and Stock Market Participation" (with Yuanyuan Pan and Carlo Schwarz)
This version: June 2024
[SSRN] [CEPR WP]
Abstract

Using plausibly exogenous variation in regional Twitter adoption in the United States, we show that a 10% increase in social media usage causes a 2.5% rise in stock ownership. Consistent with lowering the costs of acquiring information, Twitter has larger effects in counties with low pre-existing stock market knowledge, improves knowledge about asset returns, and leads to a decline in the number of financial advisors. Social media also boosts interest in volatile “meme stocks” favored by retail investors. Our findings highlight the unique influence of social media on household portfolio decisions, distinct from other modern information technologies.

BibTeX

@techreport{MuellerPanSchwarz2023,
title={Social Media and Stock Market Participation},
author={Karsten M\"uller, Yuanyuan Pan, and Carlo Schwarz},
journal={Available at SSRN: https://ssrn.com/abstract=4557783},
year={2023}
}


"The Effect of Content Moderation on Online and Offline Hate: Evidence from Germany's NetzDG" (with Rafael Jiménez Durán and Carlo Schwarz)
This version: February 2024
[SSRN]​
Abstract

Social media companies are under scrutiny for the prevalence of hateful content on their platforms, but there is scarce empirical evidence of the consequences of regulating such content. We study this question with a particular focus on anti-refugee hate crime in the context of the "Network Enforcement Act'' (NetzDG) in Germany, which mandates major social media companies to remove hateful posts within 24 hours. Using a difference-in-differences strategy, we find that the law was associated with a 4% reduction in the toxicity of refugee-related tweets by far-right social media users. Further, we show that the NetzDG reduced anti-refugee hate crimes in municipalities with more far-right social media users. The estimates suggest that the NetzDG induced a 0.9 percentage point reduction in anti-refugee incidents for every standard deviation of far-right social media usage. These findings are also confirmed by a synthetic control estimate. Together, these results suggest that online content moderation can curb online hate speech and offline violence.

BibTeX

@article{JimenezMuellerSchwarz2023,
title={{The Effect of Content Moderation on Online and Offline Hate: Evidence from Germany's NetzDG}},
author={Jiménez Durán, Rafael and Müller, Karsten and Schwarz, Carlo},
journal={Available at SSRN: https://ssrn.com/abstract=4230296},
year={2022}
}


"Interacting Anomalies" (with Simon Schmickler)
This version: August 2021
Accepted, Review of Asset Pricing Studies
[SSRN] [Data on all double-sorted portfolios]​
Abstract

An extensive literature studies interactions of stock market anomalies using double-sorted portfolios. But given hundreds of known candidate anomalies, examining selected interactions is subject to a data mining critique. In this paper, we conduct a comprehensive analysis of all possible double-sorted portfolios constructed from 102 underlying anomalies. We find hundreds of statistically significant anomaly interactions, even after accounting for multiple hypothesis testing. An out-of-sample trading strategy that invests in the top backward-looking double-sort strategy generates equal-weighted (value-weighted) monthly average returns of 4% (2.7%) at an annualized Sharpe ratio of 2 (1.38), on par with state-of-the-art anomaly-based machine learning strategies.

BibTeX

@article{MuellerSchmickler2021,
title={Interacting Anomalies},
author={M\"uller, Karsten and Schmickler, Simon},
journal={Available at SSRN: https://ssrn.com/abstract=3646417 or https://dx.doi.org/10.2139/ssrn.3646417},
year={2021}
}

SELECTED Work in progress

"Financial Kuznets Facts" (with Paul Dai and Emil Verner)

"U.S. State-Level Economic Activity Since the Civil War" (with Joseph Hoon, Chang Liu, and Zhongxi Zheng)

PEER-REVIEWED Publications

7. "Credit Allocation and Macroeconomic Fluctuations" (with Emil Verner)
     Forthcoming, Review of Economic Studies
     [Draft] [SSRN] [NBER WP] [Sectoral credit data] [NBER SI Slides]
Abstract

We study the relationship between credit expansions, macroeconomic fluctuations, and financial crises using a novel database on the sectoral distribution of private credit for 117 countries since 1940. We document that, during credit booms, credit flows disproportionately to the non-tradable sector. Credit expansions to the non-tradable sector, in turn, systematically predict subsequent growth slowdowns and financial crises. In contrast, credit expansions to the tradable sector are associated with sustained output and productivity growth without a higher risk of a financial crisis. To understand these patterns, we show that firms in the non-tradable sector tend to be smaller, more reliant on loans secured by real estate, and more likely to default during crises. Our findings are consistent with models in which credit booms to the non-tradable sector are driven by easy financing conditions and amplified by collateral feedbacks, contributing to increased financial fragility and a boom-bust cycle.

BibTeX

@article{MuellerVerner2021,
title={Credit Allocation and Macroeconomic Fluctuations},
author={Karsten M\"uller and Emil Verner},
journal={Available at SSRN: https://ssrn.com/abstract=3781981},
year={2021}
}

6. "The Effect of Social Media on Elections: Evidence from the United States" (with Thomas Fujiwara and Carlo Schwarz)
     This version: July 2023
     Forthcoming, Journal of the European Economic Association
     [Draft] [SSRN] [NBER WP]
Abstract

We study how social media affects election outcomes. We exploit variation in the number of Twitter users across U.S. counties based on early adoption among participants of the 2007 South by Southwest (SXSW) festival—a key event in Twitter's rise to popularity. We show that this variation, which remains predictive of Twitter use a decade later, is unrelated to electoral outcomes before the platform's mass adoption. Our results suggest that exposure to Twitter lowered the Republican vote share in the 2016 presidential election but had limited effects on turnout and vote shares in House and Senate races as well as previous presidential elections. Analyzing two sources of survey data indicates the effects are driven by independent and moderate voters. Our results are consistent with the idea that Twitter's relatively liberal content can persuade voters to alter their views.

BibTeX

@TechReport{FujiwaraMuellerSchwarz2021,
author={Thomas Fujiwara and Karsten Müller and Carlo Schwarz},
title={{The Effect of Social Media on Elections: Evidence from the United States}},
year=2021,
month=May,
institution={National Bureau of Economic Research, Inc},
type={NBER Working Papers},
number={28849},
}

5. "Electoral Cycles in Macroprudential Regulation"
     American Economic Journal: Economic Policy (2023), 15 (4): 295-322.
     [Draft] [SSRN] [Older version: ESRB WP 106]
Abstract

Do politics matter for macroprudential policies? I show that changes in macroprudential regulation exhibit a predictable electoral cycle in the run-up to 221 elections across 58 countries from 2000 through 2014. Policies restricting mortgages and consumer credit are systematically looser before elections, particularly during economic expansions. Consistent with theories of opportunistic political cycles, this pattern is stronger when election outcomes are uncertain, regulators are closely tied to politicians, and institutions are poor. These results suggest that political pressures may limit the ability of regulators to “lean against the wind.”

BibTeX

@TechReport{MuellerElectoralCycles,
author={Müller, Karsten},
title={{Electoral Cycles in Macroprudential Regulation}},
year=2019,
month=Dec,
institution={European Systemic Risk Board},
type={ESRB Working Paper Series},
url={https://ideas.repec.org/p/srk/srkwps/2019106.html},
number={106},
}

4. "From Hashtag to Hate Crime: Twitter and Anti-Minority Sentiment" ​(with Carlo Schwarz)
     American Economic Journal: Applied Economics (2023), 15 (3), 270-312.
     ​[Draft] [SSRN] [Data on Twitter users and SXSW instrument]​​​
Abstract

We study whether social media can amplify anti-minority sentiments with a focus on Donald Trump’s political rise. Using an instrumental variable strategy based on Twitter’s early adopters at the South by Southwest festival in 2007, we find that higher Twitter use in a county is associated with a sizeable increase in anti-Muslim hate crimes after the 2016 presidential primaries. Trump’s tweets about Muslims predict increases in xenophobic tweets by his followers, cable news mentions of Muslims, and hate crimes on the following days. These results suggest that social media content can affect real-life outcomes.

BibTeX

@article{Mueller2019Trump,
title={From Hashtag to Hate Crime: Twitter and Anti-Minority Sentiment},
author={M\"uller, Karsten and Schwarz, Carlo Rasmus},
journal={Available at SSRN: https://ssrn.com/abstract=3149103},
year={2019}
}

3. "Busy Bankruptcy Courts and the Cost of Credit"
     ​Journal of Financial Economics (2022), 143 (2), 824-845.
     ​[Draft] [SSRN]
Abstract

This paper estimates the effect of bankruptcy court caseload on access to credit by exploiting firms’ plausibly exogenous exposure to the largest recorded drop in court backlog in the United States following the 2005 consumer bankruptcy reform. I show that a drop in court congestion reduces the time firms spend in bankruptcy and increases recovery values, which is priced into credit spreads and loan maturities. Consistent with a shock to credit supply, less congested courts increase firm leverage but leave default risk unchanged. A back-of-the-envelope calculation suggests that backlog in bankruptcy courts costs corporate borrowers at least $740 million per year in interest payments.

BibTeX

@article{MULLER2021,
title = {{Busy Bankruptcy Courts and the Cost of Credit}},
journal = {Journal of Financial Economics},
year = {2021},
issn = {0304-405X},
doi = {https://doi.org/10.1016/j.jfineco.2021.08.010},
url = {https://www.sciencedirect.com/science/article/pii/S0304405X21003664},
author = {Karsten Müller},
}

2. "Fanning the Flames of Hate: Social Media and Hate Crime" (with Carlo Schwarz)
     Journal of the European Economic Association (2021), 19(4), 2131–2167.
     ​​[Draft] [SSRN] [CAGE WP 373]​
Abstract

This paper investigates the link between social media and hate crime. We show that antirefugee sentiment on Facebook predicts crimes against refugees in otherwise similar municipalities with higher social media usage. To establish causality, we exploit exogenous variation in the timing of major Facebook and internet outages. Consistent with a role for “echo chambers,” we find that right-wing social media posts contain narrower and more loaded content than news reports. Our results suggest that social media can act as a propagation mechanism for violent crimes by enabling the spread of extreme viewpoints.

BibTeX

@article{MuellerSchwarzJEEA2020,
author = {Müller, Karsten and Schwarz, Carlo},
title = "{Fanning the Flames of Hate: Social Media and Hate Crime}",
journal = {Journal of the European Economic Association},
volume = {19},
number = {4},
pages = {2131-2167},
year = {2020},
month = {10},
issn = {1542-4766},
doi = {10.1093/jeea/jvaa045},
url = {https://doi.org/10.1093/jeea/jvaa045},
eprint = {https://academic.oup.com/jeea/article-pdf/19/4/2131/39651047/jvaa045.pdf},
}


1. ​"Bank Branching Deregulation and the Syndicated Loan Market" ​(with Jan Keil)
     Journal of Financial and Quantitative Analysis (2020), 55(4), 1269-1303.
     ​[Draft] [SSRN]​
Abstract

How do changes in banking regulation affect the syndicated loan market? Because branch networks and loan syndication both enable banks to diversify geographical credit risk, we investigate the staggered implementation of the Riegle–Neal Interstate Branching and Banking Efficiency Act of 1994. Exploiting that the act only changed the legal framework for out-of-state commercial banks, we find that branching deregulation decreased syndicated loan issuance but spurred bilateral lending to corporations. Consistent with a supply-driven substitution effect, this shift is also reflected in interest rate spreads. Our results suggest that changes to banking regulation can substantially alter credit allocation across loan types.

BibTeX

@article{keil_müller_2020,
title={Bank Branching Deregulation and the Syndicated Loan Market},
volume={55},
DOI={10.1017/S0022109019000607},
number={4},
journal={Journal of Financial and Quantitative Analysis},
publisher={Cambridge University Press},
author={Keil, Jan and Müller, Karsten},
year={2020},
pages={1269–1303}
}

OTHER RESEARCH Publications

2. "The Early County Business Patterns Files: 1946-1974" (with Fabian Eckert, Ka-leung Lam, Atif Mian, Rafael Schwalb, and Amir Sufi)
[NBER WP 30578]
Abstract

The County Business Pattern (“CBP”) files contain employment and establishment counts for detailed industry codes covering all counties in the United States. The contribution of this project is to digitize, clean, and prepare the CBP files from 1946-1974. We also apply the methods developed in Eckert, Fort, Schott, and Yang (2020a) to impute missing employment observations in the raw data. We provide three digital data products for public use: (1) the cleaned CBP files for each year, (2) a consolidated panel data set of employment and establishment counts for about 20 industries and all US counties, (3) estimates for suppressed employment counts for each year.

BibTeX

@techreport{NBERw30578,
title = "The Early County Business Pattern Files: 1946-1974",
author = "Eckert, Fabian and Lam, Ka-leung and Mian, Atif R and Müller, Karsten and Schwalb, Rafael and Sufi, Amir",
institution = "National Bureau of Economic Research",
type = "Working Paper",
series = "Working Paper Series",
number = "30578",
year = "2022",
month = "October",
doi = {10.3386/w30578},
URL = "http://www.nber.org/papers/w30578",
}

Data

You can download the data here.
Note: The panel data is on the 20-digit SIC level, which does not require imputation.


1. "Does the Sectoral Allocation of Credit Matter for Financial Stability Risks?"
In Leveraged: The New Economics of Debt and Financial Fragility, University of Chicago Press (Ed.: Moritz Schularick), 2022
Abstract

Do financial stability risks originate in the growth of lending to particular sectors? Should financial regulators target individual sectors, such as mortgages, and should such tools vary over time? In this paper, I discuss what recent research can tell us about these questions and discuss some new evidence based on a dataset on sectoral credit for 120 countries from 1940 to 2014, spanning across almost the entirety of modern banking crises.

BibTeX

@article{Mueller2019Alloc,
title={{Does the Sectoral Allocation of Credit Matter for Financial Stability Risks?}},
author={Karsten M\"uller},
year={2019}
}