European Central Bank

Displaying 1-40 of 385 results

  • White Papers // Jul 2011

    Capital Flows, Push Versus Pull Factors And The Global Financial Crisis

    The causes of the 2008 collapse and subsequent surge in global capital flows remain an open and highly controversial issue. Employing a factor model coupled with a dataset of high-frequency portfolio capital flows to 50 economies, the paper finds that common shocks - key crisis events as well as changes...

    Provided By European Central Bank

  • White Papers // Jul 2011

    Real-time Data And Fiscal Policy Analysis: A Survey Of The Literature

    This paper surveys the empirical research on fiscal policy analysis based on real-time data. This paper can be broadly divided in three groups that focus on: the statistical properties of revisions in fiscal data; the political and institutional determinants of fiscal data revisions and of one-year-ahead projection errors by governments...

    Provided By European Central Bank

  • White Papers // Jun 2011

    Theoretical Notes On Bubbles And The Current Crisis

    The authors explore a view of the crisis as a shock to investor sentiment that led to the collapse of a bubble or pyramid scheme in financial markets. They embed this view in a standard model of the financial accelerator and explore its empirical and policy implications. In particular, they...

    Provided By European Central Bank

  • White Papers // Jun 2011

    Sovereign Credit Ratings And Financial Markets Linkages: Application To European Data

    The authors use EU sovereign bond yield and CDS spreads daily data to carry out an event study analysis on the reaction of government yield spreads before and after announcements from rating agencies (Standard & Poor's, Moody's, Fitch). The results show: significant responses of government bond yield spreads to changes...

    Provided By European Central Bank

  • White Papers // Jun 2011

    Do Financial Investors Destabilize The Oil Price?

    In this paper, the authors assess whether and to what extent financial activity in the oil futures markets has contributed to destabilize oil prices in recent years. They define a destabilizing financial shock as a shift in oil prices that is not related to current and expected fundamentals, and thereby...

    Provided By European Central Bank

  • White Papers // Jun 2011

    Systemic Risk-Taking: Amplification Effects, Externalities, And Regulatory Responses

    This paper analyzes the efficiency of risk-taking decisions in an economy that is prone to systemic risk, captured by financial amplification effects that occur in response to strong adverse shocks. It shows that decentralized agents who have unconstrained access to a complete set of Arrow securities choose to expose themselves...

    Provided By European Central Bank

  • White Papers // Jun 2011

    The Basel III Framework For Liquidity Standards And Monetary Policy Implementation

    Basel III introduces for the first time an international framework for liquidity risk regulation, reflecting the experience of excessive liquidity risk taking of banks in the run up to the financial crisis that erupted in August 2007, and associated negative externalities. As central banks play a crucial role in the...

    Provided By European Central Bank

  • White Papers // Jun 2011

    Determinants Of Credit-Less Recoveries

    This paper aims to shed light on the characteristics and particularly the determinants of credit-less recoveries. After building a dataset and documenting some stylised facts of credit-less recoveries in emerging market economies, this paper uses panel probit models to analyze key determinants of credit-less recoveries. The authors' main findings are...

    Provided By European Central Bank

  • White Papers // Jun 2011

    Systemic Risk And Financial Development In A Monetary Model

    In a stochastic pure endowment economy with money but no financial markets, two types of agents trade one non-durable goods using two alternative types of cash constraints. Simulations of the corresponding variants are compared to Arrow-Debreu and Autarky equilibriums. First, this illustrates how financial innovation or financial regression, including systemic...

    Provided By European Central Bank

  • White Papers // May 2011

    Have Euro Area And EU Economic Governance Worked? Just The Facts

    The authors test whether two key elements of the EU and euro area economic governance framework, the Stability and Growth Pact and the Lisbon Strategy, have had any impact on macroeconomic outcomes. They test this proposition using a difference-in-difference approach on a panel of over 30 countries, some of which...

    Provided By European Central Bank

  • White Papers // May 2011

    The Predictive Content Of Sectoral Stock Prices: A US-Euro Area Comparison

    This paper examines the out-of-sample forecast performance of sectoral stock market indicators for real GDP, private consumption and investment growth up to 4 quarters ahead in the US and the euro area. The findings are that the predictive content of sectoral stock market indicators: is potentially strong, particularly for the...

    Provided By European Central Bank

  • White Papers // May 2011

    Fiscal Data Revisions In Europe

    Public deficit figures are subject to revisions, as most macroeconomic aggregates are. Nevertheless, in the case of Europe, the latter could be particularly worrisome given the role of fiscal data in the functioning of EU's multilateral surveillance rules. Adherence to such rules is judged upon initial releases of data, in...

    Provided By European Central Bank

  • White Papers // May 2011

    Exact Likelihood Computation For Nonlinear DSGE Models With Heteroskedastic Innovations

    Phenomena such as the Great Moderation have increased the attention of macro-economists towards models where shock processes are not (log-) normal. This paper studies a class of discrete-time rational expectations models where the variance of exogenous innovations is subject to stochastic regime shifts. The authors first show that, up to...

    Provided By European Central Bank

  • White Papers // May 2011

    How Wages Respond To Shocks: Asymmetry In The Speed Of Adjustment

    The time series of various economic variables often exhibit asymmetry: decreases in the values tend to be sharp and fast, whereas increases usually occur slowly and gradually. The authors detect signs of an analogous asymmetry in firms' wage setting behaviour on the basis of managerial surveys, with employers tending to...

    Provided By European Central Bank

  • White Papers // May 2011

    The Stock Market Reaction To The 2005 Non-Tradable Share Reform In China

    During 2005-2006, the Chinese government implemented a reform aimed at eliminating the so-called Non-Tradable Shares (NTS), shares typically held by the State or by politically connected institutional investors that were issued at the early stage of financial market development. The analysis, based on the time series of risk factors and...

    Provided By European Central Bank

  • White Papers // May 2011

    Financial Frictions And Optimal Monetary Policy In An Open Economy

    A growing number of papers have studied positive and normative implications of financial frictions in DSGE models. The authors contribute to this literature by studying the welfare-based monetary policy in a two-country model characterized by financial frictions, alongside a number of key features, like capital accumulation, non-traded goods and foreign-currency...

    Provided By European Central Bank

  • White Papers // May 2011

    Who Invests In Home Equity To Exempt Wealth From Bankruptcy?

    Homestead exemptions to personal bankruptcy allow households to retain their home equity up to a limit determined at the state level. Households that may experience bankruptcy thus have an incentive to bias their portfolios towards home equity. Using US household data from the Survey of Income and Program Participation for...

    Provided By European Central Bank

  • White Papers // May 2011

    A Monetary Policy Strategy In Good And Bad Times: Lessons From The Recent Past

    The authors evaluate the ECB's monetary policy strategy against the underlying economic structure of the euro area economy, in normal times and in times of severe financial dislocations. They show that in the years preceding the financial crisis that started in 2007 the strategy was successful at ensuring macroeconomic stability...

    Provided By European Central Bank

  • White Papers // May 2011

    The Bank Lending Channel: Lessons From The Crisis

    The 2007-2010 financial crises highlighted the central role of financial intermediaries' stability in buttressing a smooth transmission of credit to borrowers. While results from the years prior to the crisis often cast doubts on the strength of the bank lending channel, recent evidence shows that bank-specific characteristics can have a...

    Provided By European Central Bank

  • White Papers // May 2011

    On The Importance Of Sectoral And Regional Shocks For Price-Setting

    The authors use a novel disaggregate sectoral euro area data set with a regional breakdown to investigate price changes and suggest a new method to extract factors from over-lapping data blocks. This allows them to separately estimate aggregate, sectoral, country-specific and regional components of price changes. They thereby provide an...

    Provided By European Central Bank

  • White Papers // Apr 2011

    Distributional Dynamics Under Smoothly State-Dependent Pricing

    Starting from the assumption that firms are more likely to adjust their prices when doing so is more valuable, this paper analyzes monetary policy shocks in a DSGE model with firm-level heterogeneity. The model is calibrated to retail price microdata, and inflation responses are decomposed into "Intensive", "Extensive", and "Selection"...

    Provided By European Central Bank

  • White Papers // Apr 2011

    Central Bank Communication On Financial Stability

    Central banks regularly communicate about financial stability issues, by publishing Financial Stability Reports (FSRs) and through speeches and interviews. The paper asks how such communications affect financial markets. Building a unique dataset, it provides an empirical assessment of the reactions of stock markets to more than 1000 releases of FSRs...

    Provided By European Central Bank

  • White Papers // Apr 2011

    Business Cycle Dynamics Under Rational Inattention

    The authors develop a dynamic stochastic general equilibrium model with rational inattention by households and firms. Consumption responds slowly to interest rate changes because households decide to pay little attention to the real interest rate. Prices respond quickly to some shocks and slowly to other shocks. The mix of fast...

    Provided By European Central Bank

  • White Papers // Apr 2011

    Financial Remoteness And The Net External Position

    This paper shows that, controlling for standard determinants of net external positions; financially-remote countries exhibit more positive net external positions. This finding is found to be stronger for less advanced countries, hinting at external funding problems for more remote countries. Being located near financially very open countries, being in currency...

    Provided By European Central Bank

  • White Papers // Apr 2011

    Securitization, Bank Lending And Credit Quality: The Case Of Spain

    While the 2007-2010 financial crises have hit a variety of countries asymmetrically, the case of Spain is particularly illustrative: this country experienced a pronounced housing bubble partly funded via spectacular developments in its securitization markets leading to looser credit standards and subsequent financial stability problems. The authors analyze the sequential...

    Provided By European Central Bank

  • White Papers // Apr 2011

    The Effectiveness Of Monetary Policy In Steering Money Market Rates During The Recent Financial Crisis

    The recent financial crisis deeply affected the money market yield curve and thus, potentially, the proper functioning of the interest rate channel of monetary policy transmission. Therefore, the authors analyze the effectiveness of monetary policy in steering euro area money market rates using two measures: first, the predictability of money...

    Provided By European Central Bank

  • White Papers // Apr 2011

    Systemic Risk Diagnostics: Coincident Indicators And Early Warning Signals

    The authors propose a novel framework to assess financial system risk. Using a dynamic factor framework based on state-space methods, they construct coincident measures ('Thermometers') and a forward looking indicator for the likelihood of simultaneous failure of a large number of financial intermediaries. The indicators are based on latent macro-financial...

    Provided By European Central Bank

  • White Papers // Apr 2011

    Welfare Costs Of Inflation And The Circulation Of US Currency Abroad

    Empirical studies of the "Shoe-leather" costs of inflation are typically computed using M1 as a measure of money. Yet, official data on M1 includes all currency issued, regardless of the country of residence of the holder. Using monetary data adjusted for US dollars abroad, the authors show that the failure...

    Provided By European Central Bank

  • White Papers // Apr 2011

    Wage Structure Effects Of International Trade: Evidence From A Small Open Economy

    In the last decades, international trade has increased between industrialised countries and between high- and low-wage countries. This important change has raised questions on how international trade affects the labour market. In this spirit, this paper aims to investigate the impact of international trade on wage dispersion in a small...

    Provided By European Central Bank

  • White Papers // Apr 2011

    Nowcasting Inflation Using High Frequency Data

    This paper proposes a methodology to nowcast and forecast inflation using data with sampling frequency higher than monthly. The nowcasting literature has been focused on GDP, typically using monthly indicators in order to produce an accurate estimate for the current and next quarter. This paper exploits data with weekly and...

    Provided By European Central Bank

  • White Papers // Apr 2011

    Structural Reforms And Macroeconomic Performance In The Euro Area Countries: A Model-based Assessment

    The authors quantitatively assess the macroeconomic effects of country-specific supply-side reforms in the euro area by simulating EAGLE, a multi-country dynamic general equilibrium model. They consider reforms in the labor and services markets of Germany (or, alternatively, Portugal) and the rest of the euro area. Their main results are as...

    Provided By European Central Bank

  • White Papers // Apr 2011

    Business Cycle Synchronisation: Disentangling Trade And Financial Linkages

    Drawing on a large sample of countries, this paper explores whether closer economic ties between countries foster business cycle synchronisation and disentangles the role of the various channels, including trade and financial linkages as well as the similarity in sectoral specialisation. Overall, the results confirm that trade integration fosters business...

    Provided By European Central Bank

  • White Papers // Apr 2011

    Macroeconomic Implications Of Downward Wage Rigidities

    Growth of wages, unemployment, employment and vacancies exhibit strong asymmetries between expansionary and contractionary phases. In this paper the authors analyze to what degree downward wage rigidities in the bargaining process affect other variables of the economy. They introduce asymmetric wage adjustment costs in a New-Keynesian DSGE model with search...

    Provided By European Central Bank

  • White Papers // Apr 2011

    What Lies Beneath? A Time-varying Favar Model For The UK Transmission Mechanism

    This paper uses a time-varying Factor Augmented VAR to investigate the evolving transmission of monetary policy and demand shocks in the UK. Simultaneous estimation of time-varying impulse responses of a large set of macroeconomic variables and disaggregated prices suggest that the response of inflation, money supply and asset prices to...

    Provided By European Central Bank

  • White Papers // Apr 2011

    Fiscal Developments And Financial Stress: A Threshold VAR Analysis

    The authors use a threshold VAR analysis to study whether the effects of fiscal policy on economic activity differ depending on financial market conditions. In particular, they investigate the possibility of a non-linear propagation of fiscal developments according to different financial market stress regimes. More specifically they employ a quarterly...

    Provided By European Central Bank

  • White Papers // Apr 2011

    Using The Global Dimension To Identify Shocks With Sign Restrictions

    Identification of structural VARs using sign restrictions has become increasingly popular in the academic literature. This paper argues that identification of shocks can benefit from introducing a global dimension, and shows that summarising information by the median of the available impulse responses - as commonly done in the literature -...

    Provided By European Central Bank

  • White Papers // Apr 2011

    Financial Imbalances And Financial Fragility

    This paper develops a general equilibrium model to analyze the link between financial imbalances and financial crises. The model features an interbank market subject to frictions and where two equilibria may (co-)exist. The normal times equilibrium is characterized by a deep market with highly leveraged banks. The crisis time's equilibrium...

    Provided By European Central Bank

  • White Papers // Apr 2011

    The ECBs New Multi-country Model For The Euro Area: NMCM - With Boundedly Rational Learning Expectations

    Rational expectations has been the dominant way to model expectations, but the literature has quickly moved to a more realistic assumption of boundedly rational learning where agents are assumed to use only a limited set of information to form their expectations. A standard assumption is that agents form expectations by...

    Provided By European Central Bank

  • White Papers // Apr 2011

    The ECBs New Multi-country Model For The Euro Area: NMCM - Simulated With Rational Expectations

    The model presented here is a New estimated medium-scale Multi-Country Model (NMCM) which covers the five largest euro area countries and is used for forecasting and scenarios analysis at the European Central Bank. The model has a tight theoretical structure which allows for non-unitary elasticity of substitution, non-constant augmenting technical...

    Provided By European Central Bank

  • White Papers // Apr 2011

    Price And Wage Setting In Portugal: Learning By Asking

    This paper presents the main findings of a survey conducted on a sample of Portuguese firms. The main aim was to identify some relevant characteristics about the dynamics of prices and wages in Portugal. The most important conclusions are: changes to wages are more synchronized than changes to prices; most...

    Provided By European Central Bank

  • White Papers // Nov 2009

    Pass-Through Of External Shocks Along The Pricing Chain: A Panel Estimation Approach For The Euro Area

    In this paper, the authors analyse in a mark-up framework the pass-through of commodity price and exchange rate shocks to the main components of producer and consumer prices. Thereby they link movements in prices at the different production stages as firms set their prices as a mark-up over production costs....

    Provided By European Central Bank

  • White Papers // Oct 2009

    Inter-Industry Wage Differentials: How Much Does Rent Sharing Matter?

    This paper investigates inter-industry wage differentials in Belgium, taking advantage of access to a unique matched employer-employee data set covering all the years from 1999 to 2005. Findings show the existence of large wage differentials among workers with the same observed characteristics and working conditions, employed in different sectors. These...

    Provided By European Central Bank

  • White Papers // Oct 2009

    Wage-Setting Behavior In France: Additional Evidence From An Ad-Hoc Survey

    The authors investigate the wage-setting behavior of French companies using an ad-hoc survey conducted specifically for this paper. Their main results are the following. Wages are changed infrequently. The mean duration of wage contracts is one year. Wage changes occur at regular intervals during the year and are concentrated in...

    Provided By European Central Bank

  • White Papers // Oct 2009

    Weak And Strong Cross Section Dependence And Estimation Of Large Panels

    This paper introduces the concepts of time-specific weak and strong cross section dependence. A double-indexed process is said to be cross sectionally weakly dependent at a given point in time, t, if its weighted average along the cross section dimension (N) converges to its expectation in quadratic mean, as N...

    Provided By European Central Bank

  • White Papers // Oct 2009

    Public And Private Sector Wages Interactions In A General Equilibrium Model

    This paper develops a dynamic general equilibrium model in which the public and the private sector interact in the labor market. Previous studies that analyze the labor market effects of public sector employment and wages have mostly assumed exogenous rules for public wage and public employment. The authors show that...

    Provided By European Central Bank

  • White Papers // Oct 2009

    Gauging The Effectiveness Of Quantitative Forward Guidance: Evidence From Three Inflation Targeters

    This paper conducts a comparative analysis of the performances of the forward guidance strategies adopted by the Reserve Bank of New Zealand, the Norges Bank and the Riksbank, with the aim to gauge whether forward guidance via publication of an own interest rate path enhances a central bank's ability to...

    Provided By European Central Bank

  • White Papers // Oct 2009

    Monetary And Fiscal Policy Aspects Of Indirect Tax Changes In A Monetary Union

    In recent years a number of European countries have shifted their tax structure more strongly towards indirect taxes, motivated, inter alia, by the intention to foster competitiveness. Against this background, this paper develops a tractable two-country model of a monetary union, characterised by national fiscal and supranational monetary policy, with...

    Provided By European Central Bank

  • White Papers // Sep 2009

    The Determinants Of Bank Capital Structure

    The paper shows that mispriced deposit insurance and capital regulation were of second order importance in determining the capital structure of large U.S. and European banks during 1991 to 2004. Instead, standard cross-sectional determinants of non-financial firms' leverage carry over to banks, except for banks whose capital ratio is close...

    Provided By European Central Bank

  • White Papers // Sep 2009

    Memories Of High Inflation

    Inflation has been well contained over the last decades in most industrialized countries. This implies, however, that memories of high inflation are likely to fade, because over time larger parts of the population have never experienced high inflation, whereas those who have might forget. This paper tests whether memories of...

    Provided By European Central Bank

  • White Papers // Sep 2009

    Signals From Housing And Lending Booms

    The contribution of this paper is to revisit the Early Warning System (EWS) literature by analysing selected episodes of financial market crisis, i.e. those preceded by a spell of credit and real estate expansions. The aim is to disentangle instances when this constitutes a natural phenomenon associated with a process...

    Provided By European Central Bank

  • White Papers // Sep 2009

    Determinants Of Government Bond Spreads In New EU Countries

    Based on a rich database of government bond spreads and macroeconomic indicators over the period 2001-2008, the authors propose an empirical assessment of the role of fundamentals in driving long-term sovereign bond spreads of the new EU countries (Bulgaria, Czech Republic, Latvia, Lithuania, Hungary, Poland, Romania and Slovakia). The results...

    Provided By European Central Bank

  • White Papers // Sep 2009

    Inflation And Output Volatility Under Asymmetric Incomplete Information

    The assumption of asymmetric and incomplete information in a standard New Keynesian model creates strong incentives for monetary policy transparency. The authors assume that the central bank has better information about its objectives than the private sector, and that the private sector has better information about shocks than the central...

    Provided By European Central Bank

  • White Papers // Sep 2009

    Money Talks

    The authors study credible information transmission by a benevolent Central Bank. They consider two possibilities: direct revelation through an announcement, versus indirect information transmission through monetary policy. These two ways of transmitting information have very different consequences. Since the objectives of the Central Bank and those of individual investors are...

    Provided By European Central Bank

  • White Papers // Sep 2009

    The Effects Of Monetary Policy On Unemployment Dynamics Under Model Uncertainty: Evidence From The US And The Euro Area

    This paper explores the role that the imperfect knowledge of the structure of the economy plays in the uncertainty surrounding the effects of rule-based monetary policy on unemployment dynamics in the euro area and the US. The authors employ a Bayesian model averaging procedure on a wide range of models...

    Provided By European Central Bank

  • White Papers // Sep 2009

    Inflation Perceptions And Expectations In The Euro Area: The Role Of News

    The aim of this paper is to assess empirically to what extent the degree of heterogeneity of consumers' inflation perceptions and expectations is driven by the flow of information related to current and future price developments in the euro area. The authors conduct the analysis both on an aggregate level...

    Provided By European Central Bank

  • White Papers // Sep 2009

    Modelling Global Trade Flows: Results From A GVAR Model

    This paper uses a Global Vector Auto-Regression (GVAR) model in a panel of 21 emerging market and advanced economies to investigate the factors behind the dynamics of global trade flows, with a particular view on the issue of global trade imbalances and on the conditions of their unwinding. The GVAR...

    Provided By European Central Bank

  • White Papers // Sep 2009

    Euro Area Money Demand: Empirical Evidence On The Role Of Equity And Labour Markets

    This paper presents empirical evidence on the long-run motives for holding euro area money by focusing on the role of equity and labour markets. Equity positively affects money demand through wealth effects, as equities are a significant store of household wealth and thus part of a financial transaction motive. Negative...

    Provided By European Central Bank

  • White Papers // Aug 2009

    An Empirical Study On The Decoupling Movements Between Corporate Bond And CDS Spreads

    Applied to the European markets, this paper analyzes the price of credit risk on the Credit Default Swap (CDS) and corporate bond markets by comparing the sensitivity of the credit spreads on each market to systematic, idiosyncratic risk factors and liquidity. The authors' analysis confirms the existence of a long-run...

    Provided By European Central Bank

  • White Papers // Aug 2009

    How Are Firms? Wages And Prices Linked: Survey Evidence In Europe

    This paper presents new evidence on the patterns of price and wage adjustment in European firms and on the extent of nominal rigidities. It uses a unique dataset collected through a firm-level survey conducted in a broad range of countries and covering various sectors. Several conclusions are drawn from this...

    Provided By European Central Bank

  • White Papers // Aug 2009

    Evaluating Microfoundations For Aggregate Price Regidities: Evidence From Matched Firm-Level Data On Product Prices And Unit Labor Cost

    Using data on product-level prices matched to the producing firm's unit labor cost, the authors reject the hypothesis of a full and immediate pass-through of marginal cost. Since they focus on idiosyncratic variation, this does not fit the predictions of the Mackowiak and Wiederholt (2009) version of the Rational Inattention...

    Provided By European Central Bank

  • White Papers // Aug 2009

    Disagreement Among Forecasters In G7 Countries

    Using the Consensus Economics dataset with individual expert forecasts from G7 countries the authors investigate determinants of disagreement (cross-sectional dispersion of forecasts) about six key economic indicators. Disagreement about real variables (GDP, consumption, investment and unemployment) has a distinct dynamic from disagreement about nominal variables (inflation and interest rate). Disagreement...

    Provided By European Central Bank

  • White Papers // Aug 2009

    Liquidity Premia In German Government Bonds

    There is strong evidence that on-the-run U.S. Treasury securities trade much more liquidly and at significantly higher prices than their off-the-run counterparts. The authors examine if the same phenomenon is present in the German government bond market whose market structure differ markedly from that of the U.S. Treasury market. In...

    Provided By European Central Bank

  • White Papers // Aug 2009

    Productivity And Job Flows: Heterogeneity Of New Hires And Continuing Jobs In The Business Cycle

    This paper focuses on tenure driven productivity dynamics of a firm-worker match as a potential explanation of "Unemployment volatility puzzle". The authors let new matches and continuing jobs differ by their productivity levels and by their sensitivity to aggregate productivity shocks. As a result, new matches have a higher destruction...

    Provided By European Central Bank

  • White Papers // Aug 2009

    EMU And European Government Bond Market Integration

    The main objective of this paper is to study whether the introduction of the euro had an impact on the degree of integration of European Government bond markets. The authors adopt the CAPM-based model of Bekaert and Harvey (1995) to compare, from the beginning of Monetary Union until June 2008,...

    Provided By European Central Bank

  • White Papers // Aug 2009

    The Reception Of Public Signals In Financial Markets - What If Central Bank Communication Becomes Stale?

    How do financial markets price new information? This paper analyzes price setting at the intersection of private and public information, by testing whether and how the reaction of financial markets to public signals depends on the relative importance of private information in agents' information sets at a given point in...

    Provided By European Central Bank

  • White Papers // Jul 2009

    Optimal Monetary Policy In A New Keynesian Model With Habits In Consumption

    While consumption habits have been utilised as a means of generating a hump shaped output response to monetary policy shocks in sticky-price New Keynesian economies, there is relatively little analysis of the impact of habits (particularly, external habits) on optimal policy. In this paper, the authors consider the implications of...

    Provided By European Central Bank

  • White Papers // Jul 2009

    Bank Risk And Monetary Policy

    The authors find evidence of a bank lending channel for the euro area operating via bank risk. Financial innovation and the new ways to transfer credit risk have tended to diminish the informational content of standard bank balance-sheet indicators. They show that bank risk conditions, as perceived by financial market...

    Provided By European Central Bank

  • White Papers // Jul 2009

    Can Non-Linear Real Shocks Explain The Persistence Of PPP Exchange Rate Disequilibria?

    A core stylized fact of the empirical exchange rate literature is that half-life deviations of equilibrium real exchange rates from levels implied by Purchasing Power Parity (PPP) are very persistent. Empirical efforts to explain this persistence typically proceed along two distinct paths, resorting either to the presence of real shocks...

    Provided By European Central Bank

  • White Papers // Jul 2009

    How Important Are Common Factors In Driving Non-Fuel Commodity Prices? A Dynamic Factor Analysis

    This paper analyses the importance of common factors in shaping non-fuel commodity price movements for the period 1957-2008. For this purpose, a dynamic factor model is estimated using Kalman Filtering techniques. Based on this set-up the authors are able to separate common and idiosyncratic developments of commodity prices. Their estimation...

    Provided By European Central Bank

  • White Papers // Jul 2009

    Monetary Policy Committees: Meetings And Outcomes

    Monetary Policy Committees differ in the way the interest rate proposal is prepared and presented in the policy meeting. In this paper, the authors show analytically how different arrangements could affect the voting behaviour of individual MPC members and therefore policy outcomes. They then apply their results to the Bank...

    Provided By European Central Bank

  • White Papers // Dec 2010

    The Minimum Liquidity Deficit And The Maturity Structure Of Central Banks Open Market Operations: Lessons From The Financial Crisis

    This paper studies the relationship between the size of the banking sector's refinancing needs vis-?-vis the central bank and auction rates in its open market operations in times of financial market stress. In a theoretical model, it is found that marginal rates at central bank auctions may increase if the...

    Provided By European Central Bank

  • White Papers // Dec 2010

    A Quantitative Mirror On The Euribor Market Using Implied Probability Density Functions

    This paper presents a set of probability density functions for Euribor outturns in three months' time, estimated from the prices of options on Euribor futures. It is the first official and freely available dataset to span the complete history of Euribor futures options, thus comprising over ten years of daily...

    Provided By European Central Bank

  • White Papers // Dec 2010

    Openness And Optimal Monetary Policy

    The authors show that the composition of imports has important implications for the optimal volatility of the exchange rate. Using input-output data for 25 countries they document substantial differences in the import and non-tradable content of final demand components, and in the role played by imported inputs in domestic production....

    Provided By European Central Bank

  • White Papers // Dec 2010

    Combining The Forecasts In The ECB Survey Of Professional Forecasters: Can Anything Beat The Simple Average?

    In this paper, the authors explore the potential gains from alternative combinations of the surveyed forecasts in the ECB Survey of Professional Forecasters. The analysis encompasses a variety of methods including statistical combinations based on principal components analysis and trimmed means, performance-based weighting, least squares estimates of optimal weights as...

    Provided By European Central Bank

  • White Papers // Dec 2010

    Nowcasting

    The authors define nowcasting as the prediction of the present, the very near future and the very recent past. Crucial in this process is to use timely monthly information in order to nowcast key economic variables, such as e.g. GDP, that are typically collected at low frequency and published with...

    Provided By European Central Bank

  • White Papers // Dec 2010

    Interest Rate Effects Of Demographic Changes In A New-Keynesian Life-Cycle Framework

    This paper develops a small-scale DSGE model which embeds a demographic structure within a monetary policy framework. The authors extend the tractable, though non-monetary overlapping-generations model of Gertler (1999) and present a small synthesis model which combines the set-up of Gertler with a New-Keynesian structure, implying that the short-run dynamics...

    Provided By European Central Bank

  • White Papers // Dec 2010

    The Impact Of Public Guarantees On Bank Risk Taking: Evidence From A Natural Experiment

    In 2001, government guarantees for savings banks in Germany were removed following a law suit. The authors use this natural experiment to examine the effect of government guarantees on bank risk taking, using a large data set of matched bank/borrower information. The results suggest that banks whose government guarantee was...

    Provided By European Central Bank

  • White Papers // Dec 2010

    An Analysis Of Euro Area Sovereign CDS And Their Relation With Government Bonds

    This paper studies the relative pricing of euro area sovereign CDS and the underlying government bonds. The sample comprises weekly CDS and bond spreads of ten euro area countries for the period from January 2006 to June 2010. The authors first compare the determinants of CDS spreads and bond spreads...

    Provided By European Central Bank

  • White Papers // Dec 2010

    Downward Wage Rigidity And Automatic Wage Indexation: Evidence From Monthly Micro Wage Data

    This paper assesses the degree of downward wage rigidity in Luxembourg using an administrative monthly data set on individual wages covering the entire economy over the period from January 2001 to January 2007. After limiting for measurement error, which would otherwise bias downwards the estimates of wage rigidity, the authors...

    Provided By European Central Bank

  • White Papers // Nov 2010

    Changes In The Austrian Structure Of Wages, 1996-2002: Evidence From Linked Employer-Employee Data

    Analyzing data from the Structure of Earnings Surveys the authors find that wage dispersion in Austria increased marginally between 1996 and 2002. There was an increase in the returns to education which accrued only to male workers. The positive effects of tenure and especially of experience on wages decreased over...

    Provided By European Central Bank