http://www.bis.org/cbhub/list/series/sid_10/index.rss Research hub papers by series: European Central Bank Working papers en http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1756.en.pdf European Central Bank Working papers by Clemens Jobst, Stefano Ugolini The coevolution of money markets and monetary policy, 1815-2008 2014-12-19T12:31:59Z Money market structures shape monetary policy design, but the way central banks perform their operations also has an impact on the evolution of money markets. This is important, because microeconomic differences in the way the same macroeconomic policy is implemented may be non-neutral. In this paper, we take a panel approach in order to investigate both directions of causality. Thanks to three newly-collected datasets covering ten countries over two centuries, we ask (1) where, (2) how, and (3) with what results interaction between money markets and central banks has taken place. Our findings allow establishing a periodization singling out phases of convergence and divergence. They also suggest that exogenous factors by changing both money market structures and monetary policy targets may impact coevolution from both directions. This makes sensible theoretical treatment of the interaction between central bank policy and market structures a particularly complex endeavor. The coevolution of money markets and monetary policy, 1815-2008 2014-12-19T12:31:59Z ECB Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1756.en.pdf Stefano Ugolini Clemens Jobst Clemens Jobst, Stefano Ugolini 2014-12-19 European Central Bank Working papers E52 G15 N20 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1755.en.pdf European Central Bank Working papers by Peter Hoffmann, Simone Manganelli, Carlos Garcia de Andoain Fragmentation in the euro overnight unsecured money market 2014-12-19T12:31:59Z This paper examines the degree of fragmentation in the Euro overnight unsecured money market during the period June 2008 August 2013 using interbank loans constructed from payments data. After controlling for cross-country differences in bank risk, we document several episodes of significant market fragmentation. While non-standard measures such as the provision of long-term liquidity were successful in reducing tensions, considerable signs of market fragmentation remained at the end of the sample period. Fragmentation in the euro overnight unsecured money market 2014-12-19T12:31:59Z ECB Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1755.en.pdf Simone Manganelli Carlos Garcia de Andoain Peter Hoffmann Peter Hoffmann, Simone Manganelli, Carlos Garcia de Andoain 2014-12-19 European Central Bank Working papers E5 G1 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1753.en.pdf European Central Bank Working papers by Edgar Vogel MRO bidding in the presence of LTROs: an empirical analysis of the pre-crisis period 2014-12-18T12:31:59Z Using individual data from the Eurosystems liquidity providing tenders for the pre-crisis period we investigate banks joint bidding behaviour in Main Refinancing Operation (MRO) and Longer Term Refinancing Operations (LTRO). We test whether banks bid at lower rates in MROs before the LTRO and at higher rates after the LTRO, compared to other operations. We offer two main findings. First, we find that in general banks bid in the MRO before the LTRO at lower rates as compared to other MROs. Moreover, MRO participants which also bid in the following LTRO bid at even lower rates, compared to peers not bidding in the LTRO. These findings support the hypothesis that banks view obtaining liquidity from the two operations as substitutes and bid strategically. Second, we find that banks generally bid more aggressively in the MRO after the LTRO. Even more striking, banks which participated also in the LTRO preceding the MRO bid at substantially higher rates. These findings reflect that short banks, with potentially large net liquidity needs after the LTRO bid more aggressively. Other counterparties with liquidity needs in that particular operation are forced, as a best response reaction, to bid also at higher rates. Although size plays a considerable role for bidding behaviour, the conclusions are valid for banks of different size. MRO bidding in the presence of LTROs: an empirical analysis of the pre-crisis period 2014-12-18T12:31:59Z ECB Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1753.en.pdf Edgar Vogel Edgar Vogel 2014-12-18 European Central Bank Working papers D44 D53 D84 E43 E50 G10 G21 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1754.en.pdf European Central Bank Working papers by Enikö Gábor, Philip Vermeulen New evidence on elementary index bias 2014-12-18T12:31:59Z We provide evidence on the effect of elementary index choice on inflation measurement. Using scanner data for 15844 individual items from 42 product categories and 10 euro area countries, we compute product category level elementary price indexes using nine different elementary index formulas. Measured inflation outcomes of the different index formulas are compared with the Fisher Ideal index to quantify elementary index bias. Across product categories, mean levels of annual elementary index bias vary between -0.53 percentage points and 0.55 percentage points depending on the index, while the standard deviation is larger than 1 percentage point. National indexes based on aggregation of the elementary indexes remain biased. The average effect of elementary index bias on national inflation ranges from -0.45 to 0.45 percentage points depending on the index. The results show that elementary index bias is quantitatively more important than upper level substitution bias. New evidence on elementary index bias 2014-12-18T12:31:59Z ECB Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1754.en.pdf Philip Vermeulen Enikö Gábor Enikö Gábor, Philip Vermeulen 2014-12-18 European Central Bank Working papers C43 E31 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1752.en.pdf European Central Bank Working papers by Stefaan Decramer, Catherine Fuss and Jozef Konings How do exporters react to changes in cost competitiveness? 2014-12-17T12:33:00Z Policy-making institutions such as the European Commission, the ECB and the OECD often use unit labor costs as a measure of international competitiveness. The goal of this paper is to examine how well this measure is related to international export performance at the firm level. To this end, we use Belgian firm-level data for the period 1999-2010 to analyze the impact of unit labor costs on exports. We use exports adjusted for their import content. We find a statistically significant negative effect of unit labor costs on export performance of firms with an estimated elasticity of the intensive margin of exports ranging between -0.2 and -0.4. This result is robust to various specifications, including firm, time and sector fixed effects and estimation approaches. We find that this elasticity varies between sectors and between firms, with firms that are more labor-intensive having a higher elasticity of exports with respect to unit labor costs. The micro data also enable us to analyze the impact of unit labor costs on the extensive margin. Our results show that higher unit labor costs reduce the probability of starting to export for non-exporters and increase the probability of exporters stopping. While our results show that unit labor costs have an impact on the intensive margin and extensive margin of firm-level exports, the effect is rather low, suggesting that passthrough of costs into prices is limited or that demand for exported products is not elastic. The latter is consistent with recent trade models emphasizing that not only relative costs, but also demand factors such as quality and taste matter for explaining firm-level exports. How do exporters react to changes in cost competitiveness? 2014-12-17T12:33:00Z ECB Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1752.en.pdf Catherine Fuss Stefaan Decramer Jozef Konings Stefaan Decramer, Catherine Fuss and Jozef Konings 2014-12-17 European Central Bank Working papers F1 F16 F4 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1749.en.pdf European Central Bank Working papers by Alexander Al-Haschimi, Stéphane Dées, Filippo di Mauro and Martina Janoková Linking distress of financial institutions to macrofinancial shocks 2014-12-16T12:31:59Z This paper links granular data of financial institutions to global macroeconomic variables using an infinite-dimensional vector autoregressive (IVAR) model framework. The approach taken allows for an assessment of the two-way links between the financial system and the macroeconomy, while accounting for heterogeneity among financial institutions and the role of international linkages in the transmission of shocks. The model is estimated using macroeconomic data for 21 countries and default probability estimates for 35 euro area financial institutions. This framework is used to assess the impact of foreign macroeconomic shocks on default risks of euro area financial firms. In addition, spillover effects of firm-specific shocks are investigated. The model captures the important role of international linkages, showing that economic shocks in the US can generate a rise in the default probabilities of euro area firms that are of a significant magnitude compared to recent historical episodes such as the financial crisis. Moreover, the potential heterogeneity across financial firms response to shocks, which motivates an approach based on granular information, is investigated. By linking a firm-level framework to a global model, the IVAR approach provides promising avenues for developing tools that can explicitly model spillover effects among a potentially large group of firms, while accounting for the two-way linkages between the financial sector and the macroeconomy, which were among the key transmission channels during the recent financial crisis. Linking distress of financial institutions to macrofinancial shocks 2014-12-16T12:31:59Z ECB Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1749.en.pdf Alexander Al-Haschimi Stéphane Dées Filippo di Mauro Martina Janoková Alexander Al-Haschimi, Stéphane Dées, Filippo di Mauro and Martina Janoková 2014-12-16 European Central Bank Working papers C33 G33 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1750.en.pdf European Central Bank Working papers by Jacopo Cimadomo, Peter Claeys and Marcos Poplawski Ribeiro How do financial institutions forecast sovereign spreads? 2014-12-16T12:31:59Z This paper assesses how financial market participants form their expectations about future government bond spreads. Using monthly survey forecasts for France, Italy and the UK between January 1993 and December 2011, we test whether respondents consider the expected evolution of the fiscal balanceand other economic fundamentalsas significant drivers of the expected bond yield differential over a benchmark German 10-year bond. Our main result is that a projected improvement of the fiscal outlook significantly reduces expected sovereign spreads. Overall, the findings suggest that credible fiscal plans affect expectations of market experts, reducing the pressure on sovereign bond markets. How do financial institutions forecast sovereign spreads? 2014-12-16T12:31:59Z ECB Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1750.en.pdf Marcos Poplawski Ribeiro Jacopo Cimadomo Peter Claeys Jacopo Cimadomo, Peter Claeys and Marcos Poplawski Ribeiro 2014-12-16 European Central Bank Working papers E62 G10 H30 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1747.en.pdf European Central Bank Working papers by Robert Anderton, Ted Aranki, Boele Bonthuis, Valerie Jarvis Disaggregating Okun's law: decomposing the impact of the expenditure components of GDP on euro area unemployment 2014-12-15T12:31:59Z This paper examines the usefulness of the Okun relationship as a rule of thumb for predicting changes in unemployment, as a result of changes in output. It argues that a disaggregated version of the Okun relationship making use of the differential reaction of unemployment to changes in the various expenditure components of GDP - significantly enhances the capacity of the Okun relationship (in comparison to the aggregate rule of thumb) for predicting movements in unemployment. The paper tests this hypothesis using a dataset for the 17 euro area countries over the period 1996Q1-2013Q4. The results suggest that euro area unemployment is particularly sensitive to movements in the consumption component of GDP, while movements in foreign trade (exports and imports) have a much lower impact on unemployment developments. This reflects the highly labour-intensive nature of the services that represent the bulk of consumers expenditure, while the higher productivity manufacturing-related content of exports tends to be less labour intensive. Disaggregating Okun's law: decomposing the impact of the expenditure components of GDP on euro area unemployment 2014-12-15T12:31:59Z ECB Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1747.en.pdf Valerie Jarvis Ted Aranki Robert Anderton Boele Bonthuis Robert Anderton, Ted Aranki, Boele Bonthuis, Valerie Jarvis 2014-12 European Central Bank Working papers C23 E2 E24 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1748.en.pdf European Central Bank Working papers by Andrea Dall'Olio, Mariana Iootty, Naoto Kanehira, Federica Saliola Enterprise productivity: a three-speed Europe 2014-12-15T12:31:59Z Between 2003 and 2008 productivity patterns diverged between the fast growing, newest members of the European Union and the slower paced, elder ones as would be expected. However, there are also striking divergences within the latter group, with productivity in Southern Europe going into reverse. This paper analyzes which factors - whether countrylevel or firm-specific ones - contributed more to the emergence of a three-speed Europe. The analysis combines firm-level data with country-level inputs. Among the newest members of the European Union, country characteristics including the stock of inward foreign direct investment, the availability of credit, and the quality of the business environment and the skills of the workforce prove to be the most important drivers. Firm specific characteristics are shown to matter as well, notably that small firms and firms which are part of international groups realize more productivity gains than larger domestic competitors. Among the more advanced member countries, firm-level characteristics are most important, with larger firms and firms with international affiliation demonstrating faster productivity gains. Country specific factors, such as the quality of the business environment, the size of outward FDI and the skills of the workforce, do matter as well. These explanations of diverging productivity patterns suggest that European Union nations can realize significant benefits from low cost policy interventions such as improving business regulations and encouraging firms internationalization. Enterprise productivity: a three-speed Europe 2014-12-15T12:31:59Z ECB Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1748.en.pdf Federica Saliola Naoto Kanehira Mariana Iootty Andrea Dall'Olio Andrea Dall'Olio, Mariana Iootty, Naoto Kanehira, Federica Saliola 2014-12 European Central Bank Working papers D22 H11 O47 O52 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1746.en.pdf European Central Bank Working papers by Roberto A. De Santis and Michael Stein Financial indicators signalling correlation changes in sovereign bond markets 2014-12-04T12:31:59Z We use a Smooth Transition Conditional Correlation GARCH (STCC-GARCH) model applied to the euro area monetary policy rates and sovereign yields of Italy, Spain and Germany at 5-year maturity to estimate the threshold level of the signals above which the sovereign bond market moves to a crisis regime. We show that the threshold to a crisis regime for Italy and Spain is reached when (i) their 5-year sovereign yield spreads amount to 80-90 basis points; (ii) their 5-year CDS spreads amount to 120-130 basis points or (iii) the 5-year spread between the Kreditanstalt für Wiederaufbau (KfW) bond and the German Bund amounts to 25 basis points. Using impulse responses, we find that the STCC-GARCH with the KfW-Bund spread has leading properties, a feature corroborated by the fact that this indicator suggested a shift to a crisis regime already in August 2007 and has been signalling an improvement of the situation already in the autumn of 2012. An out-of-sample forecast of the STCC-GARCH model is also provided, which is both a novelty and a further robustness check for the stability of the model. Financial indicators signalling correlation changes in sovereign bond markets 2014-12-04T12:31:59Z ECB Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1746.en.pdf Michael Stein Roberto A. De Santis Roberto A. De Santis, Michael Stein 2014-12 European Central Bank Working papers F36 G12 G15 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1745.en.pdf European Central Bank Working papers by Ursel Baumann, Alistair Dieppe, Alberto González Pandiella and Alpo Willman Model of the United States economy with learing MUSEL 2014-12-02T12:31:59Z The model presented here is an estimated medium-scale model for the United States (US) economy developed to forecast and analyse policy issues for the US. The model is specified to track the deviation of the medium- run developments from the balanced-growth-path via an estimated CES production function for the private sector, where factor augmenting technical progress is not constrained to evolve at a constant rate. The short-run deviations from the medium run are estimated based on three optimising private sector decision making units: firms, trade unions and households. We assume agents optimise under limited-information model-consistent learning, where each agent knows the parameters related to his/her optimization problem. Under this learning approach the effect of a monetary policy shock on output and inflation is more muted but persistent than under rational expectations, but both specifications are broadly comparable to other US macro models. Using the learning version, we .find stronger expansionary effects of an increase in government expenditure during periods of downturns compared to booms. Model of the United States economy with learing MUSEL 2014-12-02T12:31:59Z ECB Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1745.en.pdf Alpo Willman Alberto González Pandiella Ursel Baumann Alistair Dieppe Ursel Baumann, Alistair Dieppe, Alberto González Pandiella and Alpo Willman 2014-12 European Central Bank Working papers C51 C6 E5 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1744.en.pdf European Central Bank Working papers by Emanuela Ciapanna and Concetta Rondinelli Retail market structure and consumer prices in the euro area 2014-12-02T12:31:59Z We investigate the empirical relationship between product market competition and prices in the retail grocery sector in the euro area. The study uses micro-data from ACNielsen on chain stores' census characteristics and price levels for a broad variety of products. We construct Herfindahl-Hirschman indices of concentration at different levels of market aggregation (buying group and parent company) to investigate their effects on prices. The analysis confirms the inverse relation between downstream market competition among retailers and price levels for most of the reference products. Though less conclusive in terms of statistical significance, the proposed estimates also point to a welfare enhancing role of buying groups. Our results indicate that buying groups provide a balancing mechanism between retailers' and producers' bargaining power, in support of the countervailing power hypothesis. Retail market structure and consumer prices in the euro area 2014-12-02T12:31:59Z ECB Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1744.en.pdf Emanuela Ciapanna Concetta Rondinelli Emanuela Ciapanna, Concetta Rondinelli 2014-12 European Central Bank Working papers E31 L1 L4 L8 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1743.en.pdf European Central Bank Working papers by Konstantin M. Wacker, David Lodge, Giulio Nicoletti Measuring financial conditions in major non-euro area economies 2014-11-28T12:31:59Z In this paper, we develop financial conditions indices (FCIs) for 3 industrialized (US, Japan, UK) and 5 emerging (China, Brazil, Russia, India, Turkey) economies. The FCIs are formed as the principal component of a range of financial series for each country and are constructed to account for fluctuations in the business cycle. We show that these FCIs can help predict growth developments and thereby provide a potential leading indicator for the external environment of the Euro area. While we draw upon established methodological considerations in the literature, our main contribution lies in providing FCIs which are available for a broad set of countries, including many emerging economies, and whose movements can intuitively be interpreted. This latter fact allows us to track developments in the 8 investigated financial markets over the last decade. Measuring financial conditions in major non-euro area economies 2014-11-28T12:31:59Z ECB Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1743.en.pdf Giulio Nicoletti David Lodge Konstantin M. Wacker Konstantin M. Wacker, David Lodge, Giulio Nicoletti 2014-11-28 European Central Bank Working papers C43 E37 E44 G1 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1742.en.pdf European Central Bank Working papers by Ádám Reiff and Fabio Rumler Within- and cross-country price dispersion in the euro area 2014-11-28T12:31:59Z Using a comprehensive data set on retail prices across the euro area, we analyse within- and cross-country price dispersion in European countries. First, we study price dispersion over time, by investigating the time-series evolution of the coefficient of variation, calculated from price levels. Second, since we find that cross-sectional price dispersion by far dominates price dispersion over time, we study price dispersion across space and investigate the role of geographical barriers (distance and national borders). We find that (i) prices move together more closely in locations that are closer to each other; (ii) cross-country price dispersion is by an order of magnitude larger than within-country price dispersion, even after controlling for product heterogeneity; (iii) a large part of cross- country price differences can be explained by different tax rates, income levels and consumption intensities. In addition, we find some indication that price dispersion in the euro area has declined since the inception of the Monetary Union. Within- and cross-country price dispersion in the euro area 2014-11-28T12:31:59Z ECB Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1742.en.pdf Fabio Rumler Ádám Reiff Adam Reiff, Fabio Rumler 2014-11 European Central Bank Working papers E31 F41 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1741.en.pdf European Central Bank Working papers by Gonzalo Camba-Mendez, Santiago Carbó-Valverde, Diego Rodriguez-Palenzuela Financial reputation, market interventions and debt issuance by banks: a truncated two-part model approach 2014-11-11T12:33:59Z In this paper we study the impact that financial reputation and official market interventions have on the timing and amount of debt issuance decisions by banks. To do so, we propose an extension of the two-part modelling framework of Cragg (1971, eq. 7 and 9) to accommodate random effects. We use quarterly information on 70 major listed European banks from 2003Q1 to 2012Q1. Focusing on a wide range of financial reputation indicators, we show that credit ratings are a significant and positive determinant of the timing of uncollateralised debt issuance decisions. Empirical results do not suggest that ratings have a significant impact on the amount of debt placed by banks. Other financial reputation indicators analysed are found to be of second- order relevance on debt issuance decisions. Our results also suggest that central bank liquidity programs may have had a large impact on both the timing and the amount of collateralised debt issuance during the recent financial crisis, but had a negligible impact on uncollateralised debt issuance decisions. Financial reputation, market interventions and debt issuance by banks: a truncated two-part model approach 2014-11-11T12:33:59Z ECB Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1741.en.pdf Diego Rodriguez-Palenzuela Gonzalo Camba-Mendez Santiago Carbó-Valverde Gonzalo Camba-Mendez, Santiago Carbó-Valverde, Diego Rodriguez-Palenzuela 2014-11 European Central Bank Working papers G01 G15 G21 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1740.en.pdf European Central Bank Working papers by Ansgar Belke, Anne Oeking, Ralph Setzer Exports and capacity constraints - a smooth transition regression model for six euro area countries 2014-11-11T12:33:59Z This paper argues that, under certain conditions, firms consider export activity as a substitute of serving domestic demand. Our econometric model for six euro area countries suggests domestic demand pressure and capacity constraint restrictions as additional variables of a properly specified export equation. As an innovation to the literature, we assess the empirical significance through the logistic and the exponential variant of the non-linear smooth transition regression model. We find that domestic demand developments are relevant for the short-run dynamics of exports in particular during more extreme stages of the business cycle. A strong substitutive relationship between domestic and foreign sales can most clearly be found for Spain, Portugal and Italy providing evidence of the importance of sunk costs and hysteresis in international trade. Exports and capacity constraints - a smooth transition regression model for six euro area countries 2014-11-11T12:33:59Z ECB Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1740.en.pdf Ansgar Belke Anne Oeking Ralph Setzer Ansgar Belke, Anne Oeking, Ralph Setzer 2014-11 European Central Bank Working papers C22 C50 C51 F10 F14 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1739.en.pdf European Central Bank Working papers by João Amador, Sónia Cabral Global value chains: surveying drivers and measures 2014-10-24T12:31:59Z The production of most goods and services is nowadays vertically fragmented across different countries, as global value chains (GVCs) emerged as the current paradigm for the international organisation of production. This paper surveys part of the growing empirical literature on GVCs, starting by discussing the main driving forces of GVCs in recent decades. Next, it surveys the indicators used to map and measure this phenomenon, accounting for their different scopes and required datasets. Global value chains: surveying drivers and measures 2014-10-24T12:31:59Z ECB Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1739.en.pdf João Amador Sónia Cabral João Amador, Sónia Cabral 2014-10 European Central Bank Working papers F60 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1737.en.pdf European Central Bank Working papers by Miguel Ampudia, Has van Vlokhoven, Dawid ochowski Financial fragility of euro area households 2014-10-22T12:35:00Z We propose a novel framework to identify distressed households by taking account of both the solvency and the liquidity situation of an individual household. Using the data from the Household Finance and Consumption Survey and the country-level data on non-performing loans we calibrate our metric of distress and estimate stress-test elasticities in response to an interest rate shock, an income shock and a house price shock. We find that, albeit euro area households are relatively resilient as a whole, there are large discrepancies in the impact of macroeconomic shocks across countries. Furthermore, while losses given default as calculated using our framework are low, they are sensitive to house prices changes. Hence, any factors hindering the seizure of the collateral or lowering its value, such as inefficient legal systems, moratoria on foreclosures or bottlenecks in judicial procedures may significantly increase losses facing banks. Finally, we demonstrate that our framework could be used for macroprudential purposes, in particular for the calibration of country level loan-to-value ratio caps. Financial fragility of euro area households 2014-10-22T12:35:00Z ECB Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1737.en.pdf Miguel Ampudia Has van Vlokhoven Dawid Zochowski Miguel Ampudia, Has van Vlokhoven, Dawid Żochowski 2014-10 European Central Bank Working papers D10 D14 G21 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1738.en.pdf European Central Bank Working papers by Andreas Schabert Optimal monetary policy, asset purchases, and market frictions 2014-10-22T12:35:00Z This paper examines how credit market frictions affect optimal monetary policy and if there is a role for central bank asset purchases. We develop a sticky price model where money serves as the means of payment and ex-ante identical agents borrow/lend among each other. The credit market is distorted as borrowing is constrained by available collateral. We show that the central bank cannot implement the first best allocation and that optimal monetary policy mainly aims at stabilizing prices when only a single instrument is available. The central bank can however mitigate the credit market distortion in a welfare-enhancing way by purchasing loans at a favorable price, which relies on rationing the supply of money. Optimal monetary policy, asset purchases, and market frictions 2014-10-22T12:35:00Z ECB Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1738.en.pdf Andreas Schabert Andreas Schabert 2014-10 European Central Bank Working papers E32 E4 E5 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1736.pdf European Central Bank Working papers by Styliani Christodoulopoulou and Olegs Tkačevs Measuring the effectiveness of cost and price competitiveness in external rebalancing of euro area countries: What do alternative HCIs tell us? 2014-09-29T12:33:00Z This study examines the marginal effects of traditional determinants of exports and imports with a focus on the role of price competitiveness in restoring external balances. It is a first attempt to compare marginal effects of various harmonised competitiveness indicators (HCIs) on both exports and imports of both goods and services across individual euro area countries. We find evidence that HCIs based on broader cost and price measures have a larger marginal effect (with some exceptions) on exports of goods. Exports of services are sensitive to HCIs in big euro area countries and Slovakia, where exports of services are also found more sensitive to competitiveness indicators based on broader price measures. Imports of goods and imports of services are quite insensitive to changes in relative prices. Finally, in some cases measures of fit indicate that a large unexplained residual part is present, implying that other non-price related factors might play an important role in driving foreign trade. Measuring the effectiveness of cost and price competitiveness in external rebalancing of euro area countries: What do alternative HCIs tell us? 2014-09-29T12:33:00Z ECB Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1736.pdf Styliani Christodoulopoulou Olegs Tkacevs Styliani Christodoulopoulou, Olegs Tkacevs 2014-09-29 European Central Bank Working papers F14 F31 F41 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1734.pdf European Central Bank Working papers by Robert Fenge and Beatrice Scheubel Pensions and fertility: back to the roots - The introduction of Bismarck's pension scheme and the European fertility decline 2014-09-18T12:31:59Z Fertility has long been declining in industrialised countries and the existence of public pension systems is considered as one of the causes. This paper provides detailed evidence based on historical data on the mechanism by which a public pension system depresses fertility. Our theoretical framework highlights that the effect of a public pension system on fertility works via the impact of contributions in such a system on disposable income as well as via the impact on future disposable income that is related to the internal rate of return of the pension system. Drawing on a unique historical data set which allows us to measure these variables at a jurisdictional level for a time when comprehensive social security was introduced, we estimate the effects predicted by the model. We find that beyond the traditional determinants of the first demographic transition, a lower internal rate of return of the pension system is associated with a higher birth rate. This result is robust to including the traditional determinants of the first demographic transition as controls as well as to other policy changes at the time. Pensions and fertility: back to the roots - The introduction of Bismarck's pension scheme and the European fertility decline 2014-09-18T12:31:59Z ECB Abstract http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1734.pdf Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1734.pdf Robert Fenge Beatrice Scheubel Robert Fenge and Beatrice Scheubel 2014-09-18 European Central Bank Working papers C21 H31 H53 H55 J13 J18 J26 N33 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1735.pdf European Central Bank Working papers by Cristiana Manescu and Ine Van Robays Forecasting the Brent oil price: addressing time-variation in forecast performance 2014-09-18T12:31:59Z This paper demonstrates how the real-time forecasting accuracy of different Brent oil price forecast models changes over time. We find considerable instability in the performance of all models evaluated and argue that relying on average forecasting statistics might hide important information on a model`s forecasting properties. To address this instability, we propose a forecast combination approach to predict quarterly real Brent oil prices. A four-model combination (consisting of futures, risk-adjusted futures, a Bayesian VAR and a DGSE model of the oil market) predicts Brent oil prices more accurately than the futures and the random walk up to 11 quarters ahead, on average, and generates a forecast whose performance is remarkably robust over time. In addition, the model combination reduces the forecast bias and predicts the direction of the oil price changes more accurately than both benchmarks. Forecasting the Brent oil price: addressing time-variation in forecast performance 2014-09-18T12:31:59Z ECB Abstract http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1735.pdf Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1735.pdf Cristiana Manescu Ine Van Robays Cristiana Manescu and Ine Van Robays 2014-09-18 European Central Bank Working papers C43 E32 Q43 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1732.pdf European Central Bank Working papers by Jaanika Merikyll and Tairi Rõõm One currency, one price? Euro changeover-related inflation in Estonia 2014-09-12T12:31:59Z This paper studies euro changeover-related inflation using disaggregated price level data. The difference-in-differences approach is used and the control group for the treatment country, Estonia, is built from 12 euro area countries. The Nielsen Company disaggregated price data are employed at product, brand and shop-type level. The results indicate that while the overall inflationary effect of euro adoption was modest, the effects were significantly different across various market segments. Changeover-related inflation was higher for products that were relatively cheaper than the euro area average. Inflationary effects were stronger in smaller shops. One currency, one price? Euro changeover-related inflation in Estonia 2014-09-12T12:31:59Z ECB Abstract http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1732.pdf Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1732.pdf Jaanika Merikyll Tairi Rõõm Jaanika Merikyll and Tairi Rõõm 2014-09-12 European Central Bank Working papers D49 E58 P46 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1733.pdf European Central Bank Working papers by Marta Banbura, Domenico Giannone, Michele Lenza Conditional forecasts and scenario analysis with vector autoregressions for large cross-sections 2014-09-12T12:31:59Z This paper describes an algorithm to compute the distribution of conditional forecasts, i.e. projections of a set of variables of interest on future paths of some other variables, in dynamic systems. The algorithm is based on Kalman filtering methods and is computationally viable for large models that can be cast in a linear state space representation. We build large vector autoregressions (VARs) and a large dynamic factor model (DFM) for a quarterly data set of 26 euro area macroeconomic and financial indicators. Both approaches deliver similar forecasts and scenario assessments. In addition, conditional forecasts shed light on the stability of the dynamic relationships in the euro area during the recent episodes of financial turmoil and indicate that only a small number of sources drive the bulk of the fluctuations in the euro area economy. Conditional forecasts and scenario analysis with vector autoregressions for large cross-sections 2014-09-12T12:31:59Z ECB Abstract http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1733.pdf Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1733.pdf Domenico Giannone Marta Banbura Michele Lenza Marta Banbura, Domenico Giannone, Michele Lenza 2014-09-12 European Central Bank Working papers C11 C13 C33 C53 http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1731.pdf European Central Bank Working papers by Alexander Jung and Sophia Latsos Do federal reserve bank presidents have a regional bias? 2014-09-10T12:33:00Z This paper examines whether the interest rate preferences of Federal Reserve Bank Presidents are subject to a regional bias. In order to evaluate the regional bias hypothesis, we augment individual Taylor rules for the Federal Reserve Bank Presidents (sample 1989 to 2006) with regional variables and test for their influence on the Presidents interest rate preferences. These preferences stem from FOMC (Federal Open Market Committee) transcripts. Estimates based on the augmented Taylor rules reveal that the preferences of some Federal Reserve Bank Presidents were not free of a regional bias. Augmented Taylor rules with inertia, however, show that this finding could also be due to the presence of an interest rate smoothing motive. Do federal reserve bank presidents have a regional bias? 2014-09-10T12:33:00Z ECB Abstract http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1731.pdf Full text http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1731.pdf Sophia Latsos Alexander Jung Alexander Jung and Sophia Latsos 2014-09-10 European Central Bank Working papers C12 C3 D72 E58