European Central Bank

Displaying 1-40 of 265 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

    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 // 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

    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 // 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 // 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 // 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

    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

    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 // Feb 2010

    Mortgage Indebtedness And Household Financial Distress

    Using comparable survey data from twelve European countries from 1994 to 2001 the authors investigate households' attitudes towards mortgage indebtedness. The authors find that a given debt burden creates much higher distress in countries with fewer mortgage holders relative to countries where a significant part of households uses mortgage debt....

    Provided By European Central Bank

  • White Papers // Sep 2010

    From Convoy To Parting Ways? Post Crisis Divergence Between European And US Macroeconomic Policies

    The paper is extremely interesting and stimulating. The author will not discuss all the arguments, but will rather focus on a few issues, mainly related to monetary policy, given the comparative advantage. In the paper, Pisani-Ferry and Posen try to explain the differences in policies on both sides of the...

    Provided By European Central Bank

  • White Papers // Aug 2009

    On The Real Effects Of Private Equity Investment: Evidence From New Business Creation

    Using a comprehensive database of European firms, authors outlines how private equity affects the rate of firm entry. We find that private equity investment benefits new business incorporation, especially in industries with naturally higher entry rates and R&D intensity. A two standard deviation increase in private equity investment explains as...

    Provided By European Central Bank

  • White Papers // Sep 2010

    Non? Standard Monetary Policy Measures And Monetary Developments

    Standard accounts of the Great Depression (notably the seminal offering of Friedman and Schwartz, 1963) attribute an important causal role to monetary policy errors in accounting for the catastrophic collapse in economic activity observed in the early 1930s. In particular, the Federal Reserve's failure to halt the collapse in the...

    Provided By European Central Bank

  • White Papers // Apr 2010

    Macroeconomic Forecasting And Structural Change

    The aim of this paper is to assess whether explicitly modeling structural change increases the accuracy of macroeconomic forecasts. The authors produce real time out-of-sample forecasts for inflation, the unemployment rate and the interest rate using a Time-Varying Coefficients VAR with Stochastic Volatility (TV-VAR) for the US. The model generates...

    Provided By European Central Bank

  • White Papers // Feb 2011

    Financial Development And The Growth-Volatility Tradeo : International Evidence

    The authors study how financial development affects the economy's growth-volatility profile in a large cross-section of countries. They construct a benchmark industrial composition as the set of sectoral allocations which minimize the economy's long-term volatility for a given level of long-term growth. They find that financial development increases substantially the...

    Provided By European Central Bank

  • 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 // 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 // Jan 2010

    Cross-Border Banking And The International Transmission Of Financial Distress During The Financial Crisis Of 2007-2008

    The authors study the effect of financial distress in foreign parent banks on local SME financing in 14 European countries during the early stages of the 2007-2008 financial crisis. They use survey data on applicant and non-applicant firms that enable them to disentangle effects driven by shocks to the banking...

    Provided By European Central Bank

  • White Papers // Jun 2009

    Fiscal Policy Challenges In Oil-Exporting Countries A Review Of Key Issues

    Fiscal policy choices have a particularly significant impact on economic performance in oil-exporting countries, owing to the importance of the oil sector in the economy and the fact that in most countries oil revenues accrue to the government. At the same time, fiscal policy in oil-centred economies is facing specific...

    Provided By European Central Bank

  • White Papers // Aug 2010

    The Impact Of The Global Financial Turmoil And Recession On Mediterranean Countries' Economies

    This paper reviews the impact of the global financial turmoil and the subsequent recession on the economies of southern and eastern Mediterranean countries. The major effects on the economies of this region have come through transmission channels associated with the real economy, i.e. the global recession. These are, in particular,...

    Provided By European Central Bank

  • White Papers // Jun 2010

    The Impact Of The Global Economic And Financial Crisis On Central, Eastern And South-Eastern Europe A Stock-Taking Exercise

    The paper first reviews the main drivers of the growth and real convergence process in Central, Eastern and South-Eastern Europe (CESEE) since 2000 and assesses the key macro-financial strengths and vulnerabilities of the region at the beginning of the global economic and financial crisis. The main part of the paper...

    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 // Jan 2010

    Interbank Contagion At Work: Evidence From A Natural Experiment

    This paper tests financial contagion due to interbank linkages. For identification the authors exploit an idiosyncratic, sudden shock caused by a large-bank failure in conjunction with detailed data on interbank exposures. First, they find robust evidence that higher interbank exposure to the failed bank leads to large deposit withdrawals. Second,...

    Provided By European Central Bank

  • White Papers // Jan 2010

    The Role Of Central Bank Transparency For Guiding Private Sector Forecasts

    There is a broad consensus in the literature that costs of information processing and acquisition may generate costly disagreements in expectations among economic agents, and that central banks may play a central role in reducing such dispersion in expectations. This paper analyses empirically whether enhanced central bank transparency lowers dispersion...

    Provided By European Central Bank

  • White Papers // Jan 2010

    An Area-Wide Real-time Database For The Euro Area

    This paper describes how the authors constructed a real-time database for the euro area covering more than 200 series regularly published in the European Central Bank Monthly Bulletin, as made available ahead of publication to the Governing Council members before their first meeting of the month. They describe the database...

    Provided By European Central Bank

  • White Papers // Apr 2010

    Food Price Pass-through In The Euro Area The Role Of Asymmetries And Non-Linearities

    In this paper the authors analyse the pass-through of a commodity price shock along the food price chain in the euro area. Unlike the existing literature, which mainly focuses on food commodity prices quoted in international markets, they use a novel database that accounts for the role of the Common...

    Provided By European Central Bank

  • White Papers // Mar 2010

    The Term Structure Of Risk Premia: New Evidence From The Financial Crisis

    This paper calibrates the term structure of risk premia before and during the 2007/2008 financial crisis using a new calibration approach based on credit default swaps. The risk premium term structure was flat before the crisis and downward sloping during the crisis. The instantaneous risk premium increased significantly during the...

    Provided By European Central Bank

  • White Papers // Feb 2010

    Government Bond Risk Premiums In The EU Revisited: The Impact Of The Financial Crisis

    This paper looks at US$ and DM/Euro denominated government bond spreads relative to US and German benchmark bonds before and after the start of the current financial crisis. The paper finds, first, that bond yield spreads before and during the crisis can largely be explained on the basis of economic...

    Provided By European Central Bank

  • White Papers // Jan 2010

    Methodological Advances In The Assessment Of Equilibrium Exchange Rates

    This paper reviews three different concepts of equilibrium exchange rates that are widely used in policy analysis and constitute the backbone of the IMF CGER assessment: the Macroeconomic Balance, the External Sustainability and the reduced form approaches. The authors raise a number of econometric issues that were previously neglected, proposing...

    Provided By European Central Bank

  • White Papers // Jan 2010

    Do Bank Loans And Credit Standards Have An Effect On Output? A Panel Approach For The Euro Area

    Applying the identification strategy employed by Driscoll (2004) for the United States, this paper provides empirical evidence for the existence of a bank lending channel of monetary policy transmission in the euro area. In addition, and in contrast to recent findings for the US, the authors find that in the...

    Provided By European Central Bank

  • White Papers // Jan 2010

    Does It Matter How Aggregates Are Measured? The Case Of Monetary Transmission Mechanisms In The Euro Area

    Beyer, Doornik and Hendry (2000, 2001) show analytically that three out of four aggregation methods yield problematic results when exchange rate shifts induce relative-price changes between individual countries and found the least problematic method to be the variable weight method of growth rates. This papers shows, however, that the latter...

    Provided By European Central Bank

  • White Papers // Jan 2010

    Is There A Signalling Role For Public Wages? Evidence For The Euro Area Based On Macro Data

    Do public sector wages exert pressures on private sector wages, or has the private sector a leadership role in wage setting? One sector might exert on the other by controlling for other determinants of wages (prices, productivity, institutions) for the main euro area economies (Germany, France, Italy and Spain) and...

    Provided By European Central Bank

  • White Papers // Feb 2010

    Excess Returns On Net Foreign Assets: The Exorbitant Privilege From A Global Perspective

    This paper studies net foreign assets and the differential returns between gross foreign assets and liabilities for a sample of 49 countries between 1981 and 2007. It shows that investment income is more important than capital gains in imparting a drift to net foreign assets over the long-run, whereas the...

    Provided By European Central Bank

  • White Papers // Apr 2010

    Global Commodity Cycles And Linkages A Favar Approach

    In this paper the authors examine linkages across non-energy commodity price developments by means of a Factor-Augmented VAR model (FAVAR). From a set of non-energy commodity price series, they extract two factors, which they identify as common trends in metals and a food prices. These factors are included in a...

    Provided By European Central Bank

  • White Papers // Apr 2010

    The Impact Of Numerical Expenditure Rules On Budgetary Discipline Over The Cycle

    The authors study the impact of numerical expenditure rules on the propensity of governments to deviate from expenditure targets in response to surprises in cyclical conditions. Theoretical considerations suggest that due to political fragmentation in the budgetary process expenditure policy might be prone to a pro-cyclical bias. However, this tendency...

    Provided By European Central Bank

  • White Papers // Feb 2010

    Real Time Estimates Of The Euro Area Output Gap: Reliability And Forecasting Performance

    This paper provides evidence on the reliability of euro area real-time output gap estimates. A genuine real-time data set for the euro area is used, including vintages of several sets of euro area output gap estimates available from 1999 to 2006. It turns out that real-time estimates of the output...

    Provided By European Central Bank

  • White Papers // Feb 2010

    Combining Disaggregate Forecasts Or Combining Disaggregate Information To Forecast An Aggregate

    To forecast an aggregate, the authors propose adding disaggregate variables, instead of combining forecasts of those disaggregates or forecasting by a univariate aggregate model. New analytical results show the effects of changing coefficients, mis-specification, estimation uncertainty and mis-measurement error. Forecast-origin shifts in parameters affect absolute, but not relative, forecast accuracies;...

    Provided By European Central Bank

  • White Papers // Feb 2010

    Public And Private Inputs In Aggregate Production And Growth: A Cross-Country Efficiency Approach

    In a cross section of OECD countries the authors replace the macroeconomic production function by a production possibility frontier, TFP being the composite effect of efficiency scores and possibility frontier changes. They consider, for the periods 1970, 1980, 1990, 2000, one output: GDP per worker; three inputs: human capital, public...

    Provided By European Central Bank

  • White Papers // Feb 2010

    Housing, Consumption And Monetary Policy: How Different Are The US And The Euro Area?

    The paper provides a systematic empirical analysis of the role of the housing market in the macroeconomy in the US and in the euro area. First, it establishes some stylised facts concerning key variables in the housing market, such as the real house price, residential investment and mortgage debt on...

    Provided By European Central Bank

  • White Papers // Feb 2010

    The Euro Area Bank Lending Survey Matters: Empirical Evidence For Credit And Output Growth

    This paper examines empirically the information content of the euro area Bank Lending Survey for aggregate credit and output growth. The responses of the lending survey, especially those related to loans to enterprises, are a significant leading indicator for euro area bank credit and real GDP growth. Notwithstanding the short...

    Provided By European Central Bank

  • White Papers // Mar 2010

    Asset Pricing, Habit Memory, And The Labor Market

    This paper studies the asset pricing and the business cycle implications of habit formation in a production economy with capital adjustment costs and endogenous labor supply. A specification of internal habit in the mix of consumption and leisure which minimizes the wealth effect on labor supply is introduced into an...

    Provided By European Central Bank

  • White Papers // Mar 2010

    Inflation Risks And Inflation Risk Premia

    This paper investigates the link between the perceived inflation risks in macro-economic forecasts and the inflation risk premia embodied in financial instruments. The authors first provide some stylized facts about the term structure of inflation compensation, inflation expectations and inflation risk premia in the euro area bond market. Latent factor...

    Provided By European Central Bank

  • White Papers // Dec 2010

    How Large Are Housing And Financial Wealth Effects? A New Approach

    This paper presents a simple new method for measuring 'Wealth effects' on aggregate consumption. The method exploits the stickiness of consumption growth (sometimes interpreted as reflecting consumption 'Habits') to distinguish between immediate and eventual wealth effects. In U.S. data, the authors estimate that the immediate (next-quarter) marginal propensity to consume...

    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