ECB/2010/34 Decision of the ECB of 31 December 2010 on the paying-up of capital, transfer of foreign reserve assets and contributions by Eesti Pank to the ECB’s reserves and provisions, en
Agreement of 31 December 2010 between Eesti Pank and the ECB regarding the claim credited to Eesti Pank by the ECB under Article 30.3 of the Statute of the European System of Central Banks and of the ECB, en
20100128 (OT,liquidity absorbing):60783.5 mn EUR alloted (marginal 1%, weighted average 0.66%, 100% allotment at margin), more
20100127 (MRO,liquidity providing):227865 mn EUR alloted (fixed 1%, 100% allotment at margin), more
20100126 (OT,liquidity providing):20622.5 mn EUR alloted (fixed 1%, 100% allotment at margin), more
USD10034 (OT,liquidity providing):75 mn USD alloted (fixed 1.17%, 100% allotment at margin), more
20100125 (LTRO,liquidity providing):149465.75 mn EUR alloted ( % allotment at margin), more
No. 1283: How large are housing and financial wealth effects? A new approach, by Christopher D. Carroll, Misuzu Otsuka, Jiri Slacalek, description, download
(JEL: E21, E32, C22) 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, we estimate that the immediate (next-quarter) marginal propensity to consume from a change in housing wealth is about 2 cents, with a final eventual effect around 9 cents, substantially larger than the effect of shocks to financial wealth. We argue that our method is preferable to cointegration-based approaches, because neither theory nor evidence supports faith in the existence of a stable cointegrating vector.
No. 1282: The minimum liquidity deficit and the maturity structure of central banks' open market operations: lessons from the financial crisis, by Jens Eisenschmidt, Cornelia Holthausen, description, download
(JEL: G01, G10, G21) This paper studies the relationship between the size of the banking sector’s refinancing needs vis-à-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 share of troubled banks becomes too high relative to the total size of the banking sector’s refinancing needs. An empirical analysis then aims at determining the size of open market operations needed to absorb large stress levels in interbank money markets and hence contain central bank auction rates. Finally, the paper analyses effects of the composition of open market operations of different maturities on auction rates. It is found that a too high share of longer-term refinancing induces a rise in auction rates which is undesirable. Therefore, the analysis suggests that there is a lower bound for the amount of liquidity provided through short-term operations.
No. 1281: A quantitative mirror on the Euribor market using implied probability density functions, by Rupert de Vincent-Humphreys, Josep Maria Puigvert Gutiérrez, description, download
(JEL: C13, C14, G12, G13) 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 data, from 13 January 1999 onwards. Time series of the statistical moments of these option-implied probability density functions are documented until April 2010. Particular attention is given to how these probability density functions, and their associated summary statistics, reacted to the unfolding financial crisis between 2007 and 2009. In doing so, it shows how option-implied probability density functions could be used to contribute to monetary policy and financial stability analysis.
Announcing 20100125 (LTRO,liquidity providing), for 98 days deadline 09:30, more
20100124 (OT,liquidity absorbing):72500 mn EUR alloted (marginal 0.6%, weighted average 0.42%, 97.3333% allotment at margin), more
20100123 (MRO,liquidity providing):193469.7 mn EUR alloted (fixed 1%, 100% allotment at margin), more
CON/2010/95 Opinion on the extension of State Treasury support and recapitalisation measures to financial institutions subject to a European Commission decision, en
ECB/2010/32 Decision of the ECB of 22 December 2010 amending Decision ECB/2009/25 on the approval of the volume of coin issuance in 2010, en
Announcing 20100123 (MRO,liquidity providing), for 7 days deadline 09:30, more
Press release Prolongation of US dollar liquidity-providing operations, en
Press release Publication of the Euro Money Market Study 2010, en
CON/2010/93 Opinion on extending government guarantees to banks and other institutions and the prolongation of the State recapitalisation scheme, en
Press release Message from President Jean-Claude Trichet on behalf of the European Central Bank, en . it
Press release ECB signs swap facility agreement with the Bank of England, en
No. 1280: Can we prevent boom-bust cycles during euro area accession?, by Michał Brzoza-Brzezina, Pascal Jacquinot, Marcin Kolasa, description, download
(JEL: E52, E58, E63) Euro-area accession caused boom-bust cycles in several catching-up economies. Declining interest rates and easier financing conditions fuelled spending and worsened the current account balance. Over time inflation deteriorated external competitiveness and lowered domestic demand, turning the boom into a bust. We ask whether such a scenario can be avoided using macroeconomic tools that are available in the period of joining a monetary union: central parity revaluation, fiscal tightening or increased taxation. While all these policies can be used to cool down the output boom, exchange rate revaluation seems the most attractive option. It simultaneously trims the expansion of output and domestic demand, reduces the cost pressure and ranks first in terms of welfare.
CON/2010/92 Opinion on emergency stabilisation of credit institutions, en
USD10033 (OT,liquidity providing):75 mn USD alloted (fixed 1.18%, 100% allotment at margin), more
Other decisions Decisions taken by the Governing Council of the ECB (in addition to decisions setting interest rates), de . el . en . es . fi . fr . it . mt . nl . pt . sk . sl . sv
Press release European Systemic Risk Board established, en
Press release ECB refines the framework for the implementation of monetary policy in the euro area, en
Press release ECB introduces ABS loan-by-loan information requirements in the Eurosystem collateral framework, en
Guideline ECB/2007/2. Unofficial consolidated text produced by the Publications Office of the European Union.
20100122 (OT,liquidity absorbing):72000 mn EUR alloted (marginal 0.55%, weighted average 0.49%, 60.2475% allotment at margin), more
20100121 (MRO,liquidity providing):187813.8 mn EUR alloted (fixed 1%, 100% allotment at margin), more
Announcing 20100121 (MRO,liquidity providing), for 7 days deadline 09:30, more
Part 0 of the ECB Staff Rules containing the Ethics Framework, en
No. 1279: Openness and optimal monetary policy, by Giovanni Lombardo, Federico Ravenna, description, download
(JEL: E52, E31, F02, F41) We show that the composition of imports has important implications for the optimal volatility of the exchange rate. Using input-output data for 25 countries we 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. We build a business cycle model of a small open economy to discuss how the problem of the optimizing policy-maker changes endogenously as the composition of imports and of final demand is altered. Contrary to models where steady state trade openness is entirely characterized by home bias, we find that trade openness is a very poor proxy of the welfare impact of alternative monetary policies. Finally, we quantify the loss from an exchange rate peg relative to the Ramsey policy conditional on the composition of imports, using parameter values that are estimated from OECD input-output tables data. We find that the main determinant of the losses is the share of non-traded goods in final demand.
No. 1278: Shocking stuff: technology, hours, and factor substitution, by Cristiano Cantore, Miguel A. León-Ledesma, Peter McAdam, Alpo Willman, description, download
(JEL: E32, E23, E25) The reaction of hours worked to technology shocks represents a key controversy between RBC and New Keynesian explanations of the business cycle. It sparked a large empirical literature with contrasting results. We demonstrate that, with a more general and data coherent supply and production framework (“normalized” factor-augmenting CES technology), both models can plausibly generate impacts of either sign. We develop analytical expressions to establish the threshold between positive and negative contemporaneous correlations for both models. These will crucially depend on the factor-augmentation nature of the shock, the elasticity of factor substitution, the capital income share, and the reaction of consumption. The impact of technology on hours can thus hardly be taken as evidence in support of any particular business-cycle model. Our results are also important as: i) we introduce the concept of normalization for DSGE models and, ii) they may help interpret possible time-variation in technology and hours correlations over time.
Agreement of 13 December 2010 between the ECB and the national central banks of the Member States outside the euro area amending the Agreement of 16 March 2006 between the ECB and the national central banks of the Member States outside the euro area layi, en
ECB/2010/27 Decision of the ECB of 13 December 2010 on the paying-up of the increase of the ECB’s capital by the national central banks of Member States whose currency is the euro, en
ECB/2010/28 Decision of the ECB of 13 December 2010 on the paying-up of the ECB’s capital by the non-euro area national central banks, en
ECB/2010/26 Decision of the ECB of 13 December 2010 on the increase of the ECB’s capital, en
ECB/2010/29 Decision of the ECB of 13 December 2010 on the issue of euro banknotes (recast), en
No. 1277: Combining the forecasts in the ECB survey of professional forecasters: can anything beat the simple average?, by Véronique Genre, Geoff Kenny, Aidan Meyler, Allan Timmermann, description, download
(JEL: C22, C53) In this paper, we explore the potential gains from alternative combinations of the surveyed forecasts in the ECB Survey of Professional Forecasters. Our 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 well as Bayesian shrinkage. We provide a pseudo real-time out-of-sample performance evaluation of these alternative combinations and check the sensitivity of the results to possible data-snooping bias. The latter robustness check is also informed using a novel real time meta selection procedure which is not subject to the data-snooping critique. For GDP growth and the unemployment rate, only few of the forecast combination schemes are able to outperform the simple equal-weighted average forecast. Conversely, for the inflation rate there is stronger evidence that more refined combinations can lead to improvement over this benchmark. In particular, for this variable, the relative improvement appears significant even controlling for data snooping bias.
No. 1276: Level, slope, curvature of the sovereign yield curve, and fiscal behaviour, by António Afonso, Manuel M.F. Martins, description, download
(JEL: E43, E44, E62, G15, H60) We study fiscal behaviour and the sovereign yield curve in the U.S. and Germany in the period 1981:I-2009:IV. The latent factors, level, slope and curvature, obtained with the Kalman filter, are used in a VAR with macro and fiscal variables, controlling for financial stress conditions. In the U.S., fiscal shocks have generated (i) an immediate response of the short-end of the yield curve, associated with the monetary policy reaction, lasting between 6 and 8 quarters, and (ii) an immediate response of the longend of the yield curve, lasting 3 years, with an implied elasticity of about 80% for the government debt ratio shock and about 48% for the budget balance shock. In Germany, fiscal shocks entail no significant reactions of the latent factors and no response of the monetary policy interest rate. In particular, while (i) budget balance shocks created no response from the yield curve shape, (ii) surprise increases in the debt ratio caused some increase in the short-end and the long-end of the yield curve in the following 2nd and 3rd quarters.
No. 1275: Nowcasting, by Marta Bańbura, Domenico Giannone, Lucrezia Reichlin, description, download
(JEL: E52, C53, C33) We 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 long delays. Until recently, nowcasting had received very little attention by the academic literature, although it was routinely conducted in policy institutions either through a judgemental process or on the basis of simple models. We argue that the nowcasting process goes beyond the simple production of an early estimate as it essentially requires the assessment of the impact of new data on the subsequent forecast revisions for the target variable. We design a statistical model which produces a sequence of nowcasts in relation to the real time releases of various economic data. The methodology allows to process a large amount of information, as it is traditionally done by practitioners using judgement, but it does it in a fully automatic way. In particular, it provides an explicit link between the news in consecutive data releases and the resulting forecast revisions. To illustrate our ideas, we study the nowcast of euro area GDP in the fourth quarter of 2008.
Publication Letter from the ECB President to Mr Crescenzio Rivellini, Member of the European Parliament, regarding questions related to the European economic strategy regarding China’s monetary policy , download
Announcing 20100118 (LTRO,liquidity providing), for 42 days deadline 09:30, more
Announcing 20100117 (MRO,liquidity providing), for 7 days deadline 09:30, more
Speech Vítor Constâncio: The future of economic governance in Europe in a global perspective, en
CON/2010/87 Opinion on authenticity, fitness checking and recirculation of euro banknotes and on sanctions for the failure to protect euro banknotes and coins against counterfeiting, en
Speech Jean-Claude Trichet: Lessons from the crisis, en . fr
Press release Changes to the list of euro foreign exchange reference rates: Israeli shekel added, Estonian kroon removed, en
No. 1274: Firms' reactions to the crisis and their consequences for the labour market. Results of a company survey conducted in Austria, by Claudia Kwapil, description, download
(JEL: C25, E24, J30) This article is based on the results of two company surveys - the first was conducted in 2007, before the recession 2008/2009 hit Austria, and the second was conducted in 2009 shortly after the trough of it. We analyse firms’ reactions to the crisis and focus on their labour market relevant decisions. Although base wages were cut more frequently than in economically calm times, wage reductions continued to be the exception rather than the rule. This indicates the existence of nominal wage rigidities in Austria. Instead of wage cuts, firms preferred to reduce working hours and to dismiss employees. We find that firm specific characteristics as well as characteristics of the workforce help explaining a firm’s probability of dismissing employees. However, the force of the shock by which an individual firm is hit (during the 2008/2009 recession) does not influence the likelihood of dismissals.
CON/2010/86 Opinion on the temporary holding of shares by credit institutions in the course of financial reconstructions or rescue operations of undertakings, en
No. 1273: Interest rate effects of demographic changes in a New-Keynesian life-cycle framework, by Engin Kara, Leopold von Thadden, description, download
(JEL: D58, E21, E50, E63) This paper develops a small-scale DSGE model which embeds a demographic structure within a monetary policy framework. We 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 related to monetary policy are similar to the paradigm summarized in Woodford (2003). In sum, the model offers a New-Keynesian platform which can be used to investigate in a closed economy set-up the response of macroeconomic variables to demographic shocks, similar to technology, government spending or monetary policy shocks. Empirically, we use a calibrated version of the model to discuss a number of macroeconomic scenarios for the euro area with a horizon of around 20 years. The main finding is that demographic changes, while contributing slowly over time to a decline in the equilibrium interest rate, are not visible enough within the time horizon relevant for monetary policy-making to require monetary policy reactions.
No. 1272: The impact of public guarantees on bank risk taking: evidence from a natural experiment, by Reint Gropp, Christian Gruendl, Andre Guettler, description, download
(JEL: G21, G28, G32) In 2001, government guarantees for savings banks in Germany were removed following a law suit. We 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 removed reduced credit risk by cutting off the riskiest borrowers from credit. At the same time, the banks also increased interest rates on their remaining borrowers. The effects are economically large: the Z-Score of average borrowers increased by 7.5% and the average loan size declined by 17.2%. Remaining borrowers paid 46 basis points higher interest rates, despite their higher quality. Using a difference-in-differences approach we show that the effect is larger for banks that ex ante benefited more from the guarantee and that none of these effects are present in a control group of German banks to whom the guarantee was not applicable. Furthermore, savings banks adjusted their liabilities away from risk-sensitive debt instruments after the removal of the guarantee, while we do not observe this for the control group. We also document in an event study that yield spreads of savings banks’ bonds increased significantly right after the announcement of the decision to remove guarantees, while the yield spread of a sample of bonds issued by the control group remained unchanged. The results suggest that public guarantees may be associated with substantial moral hazard effects.
Publication Eurosystem staff macroeconomic projections for the euro area , download
Publication Letter from the ECB President to Mr Diogo Feio, Member of the European Parliament, regarding press reports pertaining to Greece. , download
20100116 (OT,liquidity absorbing):67000 mn EUR alloted (marginal 0.48%, weighted average 0.41%, 22.65% allotment at margin), more
20100115 (MRO,liquidity providing):179694.1 mn EUR alloted (fixed 1%, 100% allotment at margin), more
No. 1271: An analysis of euro area sovereign CDS and their relation with government bonds, by Alessandro Fontana, Martin Scheicher, description, download
(JEL: G00, G01) This paper studies the relative pricing of euro area sovereign CDS and the underlying government bonds. Our sample comprises weekly CDS and bond spreads of ten euro area countries for the period from January 2006 to June 2010. We first compare the determinants of CDS spreads and bond spreads and test how the crisis has affected market pricing. Then we analyse the ‘basis’ between CDS spreads and bond spreads and which factors drive pricing differences between the two markets. Our first main finding is that the recent repricing of sovereign credit risk in the CDS market seems mostly due to common factors. Second, since September 2008, CDS spreads have on average exceeded bond spreads, which may have been due to ‘flight to liquidity’ effects and limits to arbitrage. Third, since September 2008, market integration for bonds and CDS varies across countries: In half of the sample countries, price discovery takes place in the CDS market and in the other half, price discovery is observed in the bond market.
No. 1270: Inflation risk premia in the US and the euro area, by Peter Hördahl, Oreste Tristani, description, download
(JEL: E43, E44) We use a joint model of macroeconomic and term structure dynamics to estimate inflation risk premia in the United States and the euro area. To sharpen our estimation, we include in the information set macro data and survey data on inflation and interest rate expectations at various future horizons, as well as term structure data from both nominal and index-linked bonds. Our results show that, in both currency areas, inflation risk premia are relatively small, positive, and increasing in maturity. The cyclical dynamics of long-term inflation risk premia are mostly associated with changes in output gaps, while their high-frequency fluctuations seem to be aligned with variations in inflation. However, the cyclicality of inflation premia differs between the US and the euro area. Long term inflation premia are countercyclical in the euro area, while they are procyclical in the US.
No. 1269: Downward wage rigidity and automatic wage indexation: evidence from monthly micro wage data, by Patrick Lünnemann, Ladislav Wintr, description, download
(JEL: J31) 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, we conclude that nearly all workers in Luxembourg are potentially subject to downward real wage rigidity. Our results are robust to different procedures to adjust for measurement error and methods for estimation of downward wage rigidity. We report relatively small differences in the frequency of nominal wage cuts across occupational groups and sectors. In addition, the observed rigidity does not seem to be driven predominantly by the absence of negative shocks. We show that the real wage rigidity is related to the automatic wage indexation, while additional factors might be necessary to explain the high degree of downward wage rigidity.