CON/2011/46 Opinion on financial market supervisory reform in Lithuania, en
Interview Jean-Claude Trichet: Interview with Aachener Zeitung on the occasion of the awarding of the 2011 International Charlemagne Prize of Aachen, en
No. 1344: Have euro area and EU economic governance worked? Just the facts, by Demosthenes Ioannou, Livio Stracca, description, download
(JEL: E62, E63, H63, O43) We 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. We test this proposition using a difference-in-difference approach on a panel of over 30 countries, some of which are non-EU (control group). Hence, the impact of the EU economic governance pillars is evaluated based on both the performance before and after their application as well as against the control group. We find strong and robust evidence that neither the Stability and Growth Pact nor the Lisbon Strategy have had a significant beneficial impact on fiscal and economic performance outcomes. We conclude that a profound reform of these pillars is needed to make them work in the next decade.
No. 1343: The predictive content of sectoral stock prices: a US-euro area comparison, by Magnus Andersson, Antonello D’Agostino, Gabe de Bondt, Moreno Roma, description, download
(JEL: C53, E37, G12) 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. Our findings are that the predictive content of sectoral stock market indicators: i) is potentially strong, particularly for the financial sector, and is stronger than that of financial spreads; ii) varies over time, with a substantial improvement after 1999 for the euro area; iii) is stronger for investment than for private consumption; and iv) is stronger in the euro area than in the United States.
No. 1342: Fiscal data revisions in Europe, by Francisco de Castro Fernández, Javier J. Pérez, Marta Rodríguez-Vives, description, download
(JEL: E01, E21, E24, E31, E5, H600) 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 the framework of the so-called Excessive Deficit Procedure (EDP) Notifications. In addition, the lack of reliability of fiscal data may hinder the credibility of fiscal consolidation plans. In this paper we document the empirical properties of revisions to annual government deficit figures in Europe by exploiting the information contained in a pool of real-time vintages of data pertaining to fifteen EU countries over the period 1995-2008. We build up such real-time dataset from official publications. Our main findings are as follows: (i) preliminary deficit data releases are biased and non-efficient predictors of subsequent releases, with later vintages of data tending to show larger deficits on average; (ii) such systematic bias in deficit revisions is a general feature of the sample, and cannot solely be attributed to the behaviour of a small number of countries, even though the Greek case is clearly an outlier; (iii) Methodological improvements and clarifications stemming from Eurostat’s decisions that may lead to data revisions explain a significant share of the bias, providing some evidence of window dressing on the side of individual countries; (iv) expected real GDP growth, political cycles and the strength of fiscal rules also contribute to explain revision patterns; (v) nevertheless, if the systematic bias is excluded, revisions can be considered rational after two years.
No. 1341: Exact likelihood computation for nonlinear DSGE models with heteroskedastic innovations, by Gianni Amisano, Oreste Tristani, description, download
(JEL: E0, C63) 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. We first show that, up to a second-order approximation using perturbation methods, regime switching in the variances has an impact only on the intercept coefficients of the decision rules. We then demonstrate how to derive the exact model likelihood for the second-order approximation of the solution when there are as many shocks as observable variables. We illustrate the applicability of the proposed solution and estimation methods in the case of a small DSGE model.
Speech José Manuel González-Páramo: The challenges of the European financial sector, en
Speech Lorenzo Bini Smaghi: One size fits all?, en
Speech Jean-Claude Trichet: The ECB’s response to the crisis, en
No. 1340: How wages respond to shocks: asymmetry in the speed of adjustment, by Tairi Rõõm, Aurelijus Dabusinskas, description, download
(JEL: J30, J31, J33) 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. We detect signs of an analogous asymmetry in firms’ wage setting behaviour on the basis of managerial surveys, with employers tending to react faster to negative than to positive shocks in the same variables. As well as describing the presence of asymmetry in the speed of wage adjustment, we investigate which companies are more likely to demonstrate it in their behaviour. For this purpose, we apply the Heckman selection model and develop a methodology that improves identification by exploiting heteroscedasticity in the selection equation. The estimation results imply that companies operating in a more competitive environment have a higher propensity to react asymmetrically. We also find that businesses relying on labour-intensive production technology are more likely to react faster to negative shocks. Both of these findings support the hypothesis that this behaviour results from companies’ attempts to protect profit margins.
Speech Jean-Claude Trichet: Contribution to Bild am Sonntag, en
Interview Jean-Claude Trichet: Interview with El País, en
Press release ECB and OeNB call for a faster implementation of the Single Euro Payments Area, en
USD11019 (OT,liquidity providing):0 mn USD alloted (fixed 1.1%, 0% allotment at margin), more
Speech José Manuel González-Páramo: The European Union and the Lessons from the Crisis: The Way Forward, en
Speech Gertrude Tumpel-Gugerell: Transformation of the banking business and its impact on retail payments: governance, efficiency and integration, en
No. 1339: The stock market reaction to the 2005 non-tradable share reform in China, by Andrea Beltratti, Bernardo Bortolotti, Marianna Caccavaio, description, download
(JEL: G14, G28, G32) 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. Our analysis, based on the time series of risk factors and on the cross section of abnormal returns, confirms that the NTS reform affected stock prices, particularly benefiting small stocks, stocks characterized by historically poor returns, stocks issued by companies with less transparent accounts and poorer governance, and less liquid stocks Historically neglected stocks also witnessed an increase in the volume of trading and market prices.
Monthly Bulletin Monthly Bulletin, May 2011, download
Statistics Pocket Book Statistics Pocket Book, May 2011, download
20110052 (OT,liquidity absorbing):143092.2 mn EUR alloted (marginal 1.05%, weighted average 1.01%, 100% allotment at margin), more
20110051 (OT,liquidity absorbing):76000 mn EUR alloted (marginal 1.15%, weighted average 1.09%, 69.1585% allotment at margin), more
20110050 (LTRO,liquidity providing):80652.85 mn EUR alloted (fixed 1.25%, 100% allotment at margin), more
20110049 (MRO,liquidity providing):124753.6 mn EUR alloted (fixed 1.25%, 100% allotment at margin), more
Speech Jürgen Stark: The future of the international monetary system: Lessons from 1971 for Europe and the world in light of past and present experience, en
No. 1338: Financial frictions and optimal monetary policy in an open economy, by Marcin Kolasa, Giovanni Lombardo, description, download
(JEL: E52, E61, E44, F36, F41) A growing number of papers have studied positive and normative implications of financial frictions in DSGE models. We 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 debt denomination. We compare the cooperative Ramsey monetary policy with standard policy benchmarks (e.g. PPI stability) as well as with the optimal Ramsey policy in a currency area. We show that the two-country perspective offers new insights on the trade-offs faced by the monetary authority. Our main results are the following. First, strict PPI targeting (nearly optimal in our model if credit frictions are absent) becomes excessively procyclical in response to positive productivity shocks in the presence of financial frictions. The related welfare losses are non-negligible, especially if financial imperfections interact with nontradable production. Second, (asymmetric) foreign currency debt denomination affects the optimal monetary policy and has important implications for exchange rate regimes. In particular, the larger the variance of domestic productivity shocks relative to foreign, the closer the PPI-stability policy is to the optimal policy and the farther is the currency union case. Third, we find that central banks should allow for deviations from price stability to offset the effects of balance sheet shocks. Finally, while financial frictions substantially decrease attractiveness of all price targeting regimes, they do not have a significant effect on the performance of a monetary union agreement.
Announcing 20110050 (LTRO,liquidity providing), for 35 days deadline 09:30, more
Announcing 20110049 (MRO,liquidity providing), for 7 days deadline 09:30, more
Speech Gertrude Tumpel-Gugerell: Policy discipline and spillovers in an interconnected global economy, en
Speech Lorenzo Bini Smaghi: Monetary and financial stability in the euro area, en
Speech Vítor Constâncio: Presentation of the ECB Annual Report 2010 to the Committee on Economic and Monetary Affairs of the European Parliament, en
Press release European Central Bank and European Commission hold joint conference to strengthen the foundations of integrated and stable financial markets, en
Speech Jean-Claude Trichet: Short Address in honour of Axel Weber, en
Press release ECB: challenges to financial integration in 2010, en
No. 1337: Who invests in home equity to exempt wealth from bankruptcy?, by Stefano Corradin, Reint Gropp, Harry Huizinga, Luc Laeven, description, download
(JEL: G11, K35, R21) 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 the period 1996-2006, we find that especially households with low net worth maintain a larger share of their wealth as home equity if a larger homestead exemption applies. This home equity bias is also more pronounced if the household head is in poor health, increasing the chance of bankruptcy on account of unpaid medical bills. The bias is further stronger for households with mortgage finance, shorter house tenures, and younger household heads, which taken together reflect households that face more financial uncertainty.
No. 1336: A monetary policy strategy in good and bad times: lessons from the recent past, by Stephan Fahr, Roberto Motto, Massimo Rostagno, Frank Smets, Oreste Tristani, description, download
(JEL: E31, E44, E51, E58) We 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. We show that in the years preceding the financial crisis that started in 2007 the strategy was successful at ensuring macroeconomic stability and steady growth despite shocks to the supply side and to the transmission mechanism which complicated the policy process. Emphasis on monetary indicators in the ECB’s monetary policy strategy – the monetary pillar – was instrumental in avoiding more volatile and less predictable patterns of inflation and growth. After the collapse of financial intermediation in late 2008, the strategy of the ECB was to preserve the integrity of the monetary policy transmission mechanism by adopting a comprehensive package of non-standard policy measures. According to our quantitative evaluation of the impact of the non-standard policy package, which notably did not include entering commitments regarding the future path of the policy rate, the liquidity interventions decided in October 2008 and in May 2009 were critical to preserving price stability and forestalling a more disruptive collapse of the macro-economy.
No. 1335: The bank lending channel: lessons from the crisis, by Leonardo Gambacorta, David Marqués-Ibáñez, description, download
(JEL: E51, E52, E44) The 2007-2010 financial crisis 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 large impact on the provision of credit. We show that new factors, such as changes in banks’ business models and market funding patterns, had modified the monetary transmission mechanism in Europe and in the US prior to the crisis, and demonstrate the existence of structural changes during the period of financial crisis. Banks with weaker core capital positions, greater dependence on market funding and on non-interest sources of income restricted the loan supply more strongly during the crisis period. These findings support the Basel III focus on banks’ core capital and on funding liquidity risks. They also call for a more forwardlooking approach to the statistical data coverage of the banking sector by central banks. In particular, there should be a stronger focus on monitoring those financial factors that are likely to influence the functioning of the monetary transmission mechanism particularly in a period of crisis.
No. 1334: On the importance of sectoral and regional shocks for price-setting, by Guenter W. Beck, Kirstin Hubrich, Massimiliano Marcellino, description, download
(JEL: E31, C38, D4, F4) We 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 us to separately estimate aggregate, sectoral, country-specific and regional components of price changes. We thereby provide an improved estimate of the sectoral factor in comparison with previous literature, which decomposes price changes into an aggregate and idiosyncratic component only, and interprets the latter as sectoral. We find that the sectoral component explains much less of the variation in sectoral regional inflation rates and exhibits much less volatility than previous findings for the US indicate. We further contribute to the literature on price setting by providing evidence that country- and region-specific factors play an important role in addition to the sector-specific factors. We conclude that sectoral price changes have a “geographical” dimension, that leads to new insights regarding the properties of sectoral price changes.