Other decisions Decisions taken by the Governing Council of the ECB (in addition to decisions setting interest rates), en
No. 1358: Determinants of credit-less recoveries, by Martin Bijsterbosch, Tatjana Dahlhaus, description, download
(JEL: C23, C25, E32, E51, G01) 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 analyse key determinants of credit-less recoveries. Our main findings are the following. First, our frequency analysis confirms earlier findings that credit-less recoveries are not at all rare events. Moreover, our analysis shows that the frequency of credit-less recoveries doubles after a banking or currency crisis. Second, results from estimated panel probit models suggest that credit-less recoveries are typically preceded by large declines in economic activity and financial stress, in particular if private sector indebtedness is high and the country is reliant on foreign capital inflows. Finally, we find that the predicted probability of a credit-less recovery in central and eastern European EU Member States during the coming years varies across countries, but is relatively high in the Baltic States.
No. 1357: Assessing the sensitivity of inflation to economic activity, by Konstantins Benkovskis, Michele Caivano, Antonello D’Agostino, Alistair Dieppe, Samuel Hurtado, Tohmas Karlsson, Eva Ortega, Tímea Várnai, description, download
(JEL: E31, E32, E37) A number of academic studies suggest that from the mid-1990s onwards there were changes in the link between inflation and economic activity. However, it remains unclear the extent to which this phenomenon can be ascribed to a change in the structural relationship between inflation and output, as opposed to a change in the size and nature of the shocks hitting the economy. This paper uses a suite of models, such as time-varying VAR techniques, traditional macro models, as well as DSGE models, to investigate, for various European countries as well as for the euro area, the evolution of the link between inflation and resource utilization and its dependence on the nature and size of the shocks. Our analysis suggests that the relationship between inflation and activity has indeed been changing over time, while remaining positive, with the correlation peaking during recessions. Quantitatively, the link between output and inflation is found to be highly dependent on which type of shocks hit the economy: while, in general, all demand shocks to output imply a reaction of inflation of the same sign, the latter will be less pronounced when output fluctuations are driven by supply shocks. In addition, a sharp deceleration of activity, as opposed to a subdued but protracted slowdown, results in a swifter decline in inflation. Inflation exhibits a rather strong persistence, with a negative impact still visible three years after the initial shock.
CON/2011/53 Opinion on the Hungarian State Audit Office in relation to its audit of the Magyar Nemzeti Bank, en
CON/2011/51 Opinion on the circulation of banknotes and coins, en
CON/2011/52 Opinion on exchange of information and cooperation obligations among national supervisory authorities, en
ECB/2011/8 Decision of the ECB of 21 June 2011 on the environmental and health and safety accreditation procedures for the production of euro banknotes, en
No. 1356: The role of oil prices in the euro area economy since the 1970s, by Elke Hahn, Ricardo Mestre, description, download
(JEL: E3) This paper explores the role of oil prices in the euro area economy since the 1970s by applying a VAR framework with time varying parameters and stochastic volatility in which oil supply and global demand shocks are identified. Our results show that both types of shock contributed substantially to the oil price surges during historical oil crises and likewise to those over the past decade. Counterfactual histories of the price and activity variables, moreover, reveal much larger adverse contributions of both shocks to HICP inflation and GDP in the first half of the sample than in the second, which suggests that changes related to these shocks have contributed to the Great Moderation. Impulse responses, moreover, show that a decline in the pass through of the two shocks has added to the moderating contribution over time, while variance decompositions indicate no change in the relative importance of the two shocks overtime.
No. 1355: Household's portfolio structure in Germany - analysis of financial accounts data 1959-2009, by Fred Ramb, Michael Scharnagl, description, download
(JEL: E21, G11, C32) Based on a Financial Almost Ideal Demand System (FAIDS), this paper investigates the wealth structure of German households. The long-run wealth elasticities and interestrate elasticities were calculated using a unique new quarterly financial accounts macrodata set which covers the period from 1959 to 2009 and contains a portfolio of eight different financial assets. Descriptive analysis shows that all financial assets were characterized by substantial volatility of their weight in the portfolio of households. We found that portfolio shifts in the long run are determined significantly by changes in interest rates. The estimated model provides evidence that currency (and transferable deposits) is mainly a substitute for other assets and time deposits are typically a complement. Wealth elasticity is for most assets around unity.
(JEL: E32, Q43) We present a general equilibrium model of the global oil market, in which the oil price, oil production, and consumption, are jointly determined as outcomes of the optimizing decisions of oil importers and oil exporters. On the supply side the oil market is modelled as a dominant firm – Saudi Aramco – with competitive fringe. We establish that a dominant firm may exist as long as it enjoys a cost advantage over the fringe. We provide an expression for the optimal markup and compute the spare capacity maintained by such a firm. The model produces plausible dynamic in response to oil supply and oil demand shocks. In particular, it reproduces successfully the jump in oil output of Saudi Aramco following the output collapse of Iraq and Kuwait during the first Gulf War, explaining it as the profit-maximizing response of the dominant firm. Oil taxes and subsidies affect the oil price and welfare through their effect on the trade-off between oil production efficiency and oil market competition.
No. 1353: Exchange rate anchoring - Is there still a de facto US dollar standard?, by Thierry Bracke, Irina Bunda, description, download
(JEL: F30, F31, F33) The paper provides a measure of exchange rate anchoring behaviour across 149 emerging market and developing economies for the 1980-2010 period. An extension of the Frankel and Wei (2008) methodology is used to determine whether exchange rates are pegged or floating, and in the case of pegs, to which anchor currencies they are pegged. To capture the role of major currencies over time, an aggregate trade-weighted indicator is constructed based on exchange rate regimes of individual countries. The evolution of this aggregate indicator suggests that the US dollar has continuously dominated exchange rate regimes, despite some temporary decoupling during major financial crises.
Speech Jean-Claude Trichet: The euro, its central bank and economic governance, en
Speech Jürgen Stark: Adjusting monetary policy in a challenging environment, en
Speech José Manuel González-Páramo: How will historians judge our handling of this crisis?, en
Speech Vítor Constâncio: The Governance of Financial Stability in the euro area, en
Speech Jean-Claude Trichet: Two continents compared, en
No. 1352: Systemic risk and financial development in a monetary model, by Philippe Moutot, description, download
(JEL: E44) In a stochastic pure endowment economy with money but no financial markets, two types of agents trade one non-durable good 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 risk, may arise in a neo-classical model with rational expectations and may or may not be countered. Second, the price and money partition dynamics that the two variants generate absent any macroeconomic shock, exhibit jumps as well as fat-tails and vary depending on the discount rate.
CON/2011/49 Opinion on Národná banka Slovenska’s role as regards financial supervision and consumer credit, en
Press release ECB’s Governing Council adopts an opinion on the appointment of a new President, en
Press release ECB announces details of refinancing operations with settlement in the period from 13 July to 11 October 2011, en
Press conference Jean-Claude Trichet: Introductory statement to the press conference, en
Speech Jean-Claude Trichet: The monetary policy of the ECB during the financial crisis, en
Speech Lorenzo Bini Smaghi: Private sector involvement: From (good) theory to (bad) practice, en
No. 1351: Potential output in DSGE models, by Igor Vetlov, Tibor Hlédik, Magnus Jonsson, Henrik Kucsera, Massimiliano Pisani, description, download
(JEL: E32, E37, E52) In view of the increasing use of Dynamic Stochastic General Equilibrium (DSGE) models in the macroeconomic projections and the policy process, this paper examines, both conceptually and empirically, alternative notions of potential output within DSGE models. Furthermore, it provides historical estimates of potential output/output gaps on the basis of selected DSGE models developed by the European System of Central Banks’ staff. These estimates are compared to the corresponding estimates obtained applying more traditional methods. Finally, the paper assesses the usefulness of the DSGE model-based output gaps for gauging inflationary pressures.
No. 1350: The optimal width of the central bank standing facilities corridor and banks' day-to-day liquidity management, by Ulrich Bindseil, Juliusz Jabłecki, description, download
(JEL: E4, E5) Containing short-term volatility of the overnight interest rate is normally considered the main objective of central bank standing facilities. This paper develops a simple stochastic model to show how the width of the central bank standing facilities corridor affects banks’ day-to-day liquidity management and the volatility of the overnight rate. It is shown that the wider the corridor, the greater the interbank turnover, the leaner the central bank’s balance sheet (i.e. the lower the average recourse to standing facilities) and the greater short-term interest rate volatility. The obtained relationships are matched with central bank preferences to obtain an optimal corridor width. The model is tested against euro area and Hungarian daily data encompassing the financial crisis that began in 2007.
No. 1349: Consumer confidence as a predictor of consumption spending: evidence for the United States and the euro area, by Stéphane Dées, Pedro Soares Brinca, description, download
(JEL: C32, E17, F37, F42) For most academics and policy makers, the depth of the 2007-09 financial crisis, its longevity and its impacts on the real economy resulted from an erosion of confidence. This paper proposes to assess empirically the link between consumer sentiment and consumption expenditures for the United States and the euro area. It shows under which circumstances confidence indicators can be a good predictor of household consumption even after controlling for information in economic fundamentals. Overall, the results show that the consumer confidence index can be in certain circumstances a good predictor of consumption. In particular, out-of-sample evidence shows that the contribution of confidence in explaining consumption expenditures increases when household survey indicators feature large changes, so that confidence indicators can have some increasing predictive power during such episodes. Moreover, there is some evidence of a "confidence channel" in the international transmission of shocks, as U.S. confidence indices lead consumer sentiment in the euro area.
Press release Statement by the European Commission, the ECB and the IMF on the Fourth Review Mission to Greece, en
Speech José Manuel González-Páramo: The management of the banking sector and the economy: What have we learned about financial markets and regulations?, en
Press release ECB publishes the proceedings of the Sixth ECB Central Banking Conference, en
CON/2011/47 Opinion on new legislation on the credit register, en
Speech Jean-Claude Trichet: Building Europe, building institutions, en
Speech Jean-Claude Trichet: Making decisions in an uncertain world, en
No. 1348: Theoretical notes on bubbles and the current crisis, by Alberto Martin, Jaume Ventura, description, download
(JEL: E32, E44, G01, O40) We 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. We embed this view in a standard model of the financial accelerator and explore its empirical and policy implications. In particular, we show how the model can account for: (i) a gradual and protracted expansionary phase followed by a sudden and sharp recession; (ii) the connection (or lack of connection!) between financial and real economic activity and; (iii) a fast and strong transmission of shocks across countries. We also use the model to explore the role of fiscal policy.
No. 1347: Sovereign credit ratings and financial markets linkages: application to European data, by António Afonso, Davide Furceri, Pedro Gomes, description, download
(JEL: C23, E44, G15) We 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). Our results show: significant responses of government bond yield spreads to changes in rating notations and outlook, particularly in the case of negative announcements; announcements are not anticipated at 1-2 months horizon but there is bi-directional causality between ratings and spreads within 1-2 weeks; spillover effects especially from lower rated countries to higher rated countries; and persistence effects for recently downgraded countries.
No. 1346: Do financial investors destabilize the oil price?, by Marco J. Lombardi, Ine Van Robays, description, download
(JEL: C32, Q41, Q31) In this paper, we assess whether and to what extent financial activity in the oil futures markets has contributed to destabilize oil prices in recent years. We define a destabilizing financial shock as a shift in oil prices that is not related to current and expected fundamentals, and thereby distorts efficient pricing in the oil market. Using a structural VAR model identified with sign restrictions, we disentangle this non-fundamental financial shock from fundamental shocks to oil supply and demand to determine their relative importance. We find that financial investors in the futures market can destabilize oil spot prices, although only in the short run. Moreover, financial activity appears to have exacerbated the volatility in the oil market over the past decade, particularly in 2007-2008. However, shocks to oil demand and supply remain the main drivers of oil price swings.
No. 1345: Systemic risk-taking: amplification effects, externalities, and regulatory responses, by Anton Korinek, description, download
(JEL: E44, G13, G18, D62, H23) 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 to such risk to a socially inefficient extent because of pecuniary externalities that are triggered during financial amplification. The paper develops an externality pricing kernel that quantifies the state-contingent magnitude of such externalities and provides welfaretheoretic foundations for macro-prudential policy measures to correct the distortion. Furthermore, it derives conditions under which agents employ ex-ante risk markets to fully undo any expected government bailout. Finally, it finds that constrained market participants face socially insufficient incentives to raise more capital during episodes of financial amplification.