This paper studies shock transmission from firm output and value-added to household income and consumption. It finds that the uninsured component of firm-level risk is transmitted almost completely to households' balance sheets through labor income and much less so through dividends, and that the pass-through to consumption is much stronger for fluctuations in the former source of income. Firms play crucial role in determining the size of both types of risk and tend to insure workers a lot from transitory productivity shocks and still considerably from the persistent ones; conversely, shareholders are only insured from transitory fluctuations in firm performance. These results apply to both idiosyncratic and aggregate firm shocks but are more pronounced for the former. I conclude that risk sharing patterns on the macroeconomic level are crucially shaped by how risk is shared within the firm.

Risk Sharing within the Firm and Beyond: The Role of the Firm in the Transmission of Shocks to Households (2020)

Draft coming soon


We study channels of risk sharing in the EMU before and after 2008, when the Great Recession started. Empirically, higher cross-border equity holdings and more direct bank-to-nonbank lending are associated with more risk sharing while interbank integration is not. Equity market integration in the EMU remains limited while banking integration is dominated by interbank integration. Further, interbank integration proved to be highly procyclical, which contributed to a freeze in risk sharing after 2008. Based on this evidence, and results from simulations of a stylized DSGE model, we discuss implications for banking union. Our results show that direct banking integration and capital market integration are complements and that robust risk sharing in the EMU requires integration on both fronts.

Channels of Risk Sharing in the Eurozone: What Can Banking and Capital Market Union Achieve?

with Mathias Hoffmann, Bent Sørensen, and Iryna Stewen

IMF Economic Review, September 2019, Volume 67, Issue 3 (The Euro at 20), pp 443–495

Available at:


Small businesses (SMEs) depend on banks for credit. We show that the severity of the Eurozone crisis was worse in countries that borrowed more from domestic banks ("domestic bank dependence") compared with countries that borrowed more from international banks. Eurozone banking integration in the years 2000-2008 involved cross-border lending between banks while foreign banks' lending to the real sector stayed flat. Hence, SMEs remained dependent on domestic banks and were vulnerable to global banking sector shocks. We confirm, using a calibrated quantitative model, that domestic bank dependence makes sectors and countries with many SMEs vulnerable to global banking shocks.

Small Firms and Domestic Bank Dependence in Europe’s Great Recession

with Mathias Hoffmann, and Bent Sørensen

CEPR Discussion Paper No. DP13691

Available at:

We study the effects of the U.S. banking deregulation on the sensitivity of state-level real estate prices to local shocks. In particular, we show that financial market liberalization induces a rise in house prices, because it causes an endogenous drop in housing risk premia and at the same time improves interregional risk sharing. We also estimate a cointegrating vector in a panel setting between consumption, housing assets, and income and construct a housing distress factor as a cointegrating residual, varying across time and states. This factor possesses considerable forecasting power with respect to future housing returns on a horizon of up to four years, which disappears once states liberalize their banking markets. The latter finding is consistent with the view that state-level banking deregulation improved interstate risk sharing and caused local house prices to co-vary more across states, thus making local markets more exposed to aggregate price shocks and less exposed to local economic fluctuations.

Housing Risk Premia and State-Level Banking Deregulation

with Mathias Hoffmann

Draft available soon


Banking integration in the EMU. Let’s get real! (2019)

with Mathias Hoffmann, Bent Sørensen, and Iryna Stewen column

Shocks and risk sharing in the EMU: Lessons for Banking and Capital Market Union (2018)

with Mathias Hoffmann, Bent Sørensen, and Iryna Stewen

In N. Campos & J.-E. Sturm (Eds.), Bretton Woods, Brussels, and Beyond: Redesigning the Institutions of Europe (pp. 85-92). book

Financial Times (Martin Sandbu, Free Lunch, June 28, 2018). Understanding how a single currency works. 

Manuscript citation of Hoffmann, M., Maslov, E., Sørensen, B., & Stewen, I. (2018). Are Banking and Capital Markets Union Complements? Evidence from Channels of Risk Sharing.

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