Research Bulletins published in 2017

No. 41
6 December 2017
Collateral, central clearing counterparties and regulation

Abstract

JEL Classification

E59 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Other

G18 : Financial Economics→General Financial Markets→Government Policy and Regulation

D82 : Microeconomics→Information, Knowledge, and Uncertainty→Asymmetric and Private Information, Mechanism Design

Abstract

Regulation has encouraged the use of collateral and central clearing. This Research Bulletin article summarises research on why such regulation promotes financial stability.

No. 40
22 November 2017
Bank business models at negative interest rates

Abstract

JEL Classification

C33 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Panel Data Models, Spatio-temporal Models

G20 : Financial Economics→Financial Institutions and Services→General

G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages

Abstract

Not all banks are the same. They differ in terms of size, complexity, organisation, activities, funding choices and geographical reach. This article shows how changes in the yield curve and reductions in the ECB’s deposit facility rate (DFR) to negative values have affected different types of banks in different ways, thus giving rise to different market perceptions of banks’ risks.

No. 39
18 October 2017
What will monetary policy look like after the crisis?

Abstract

JEL Classification

E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy

E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies

Abstract

The conduct of monetary policy has changed dramatically since the financial crisis in several dimensions. This article asks whether these changes will be temporary or permanent based on surveys of central bank heads and academic economists.

No. 38
14 September 2017
Did recent reforms facilitate EU labour market adjustment?

Abstract

JEL Classification

J30 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→General

J68 : Labor and Demographic Economics→Mobility, Unemployment, Vacancies, and Immigrant Workers→Public Policy

Abstract

Firms in euro area countries that undertook comprehensive labour market reforms following the crisis found it easier to adjust employment and wages in 2013 than in 2010. These firms also largely attribute this easier adjustment to reforms in labour legislation.

No. 37
25 July 2017
What determines the impact of macroeconomic news on asset markets?

Abstract

JEL Classification

G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading

E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications

E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy

E47 : Macroeconomics and Monetary Economics→Money and Interest Rates→Forecasting and Simulation: Models and Applications

C53 : Mathematical and Quantitative Methods→Econometric Modeling→Forecasting and Prediction Methods, Simulation Methods

D83 : Microeconomics→Information, Knowledge, and Uncertainty→Search, Learning, Information and Knowledge, Communication, Belief

Abstract

The most important determinant of an announcement’s impact on bond markets is its relationship to fundamentals, closely followed by its timing. Information which is imprecise but early can affect markets more than news which is precise but late.

No. 36
29 June 2017
Monetary-fiscal interactions and the euro area’s vulnerability

Abstract

JEL Classification

E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation

E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles

E63 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Treasury Policy

Abstract

When monetary and fiscal policy are conducted as in the euro area, self-fulfilling expectations of economic agents can lead to undesirable fluctuations in output, inflation and government bond spreads. An alternative policy arrangement would enable more effective macroeconomic stabilisation.

No. 35
12 June 2017
Government guarantees and the bank-sovereign nexus

Abstract

JEL Classification

G01 : Financial Economics→General→Financial Crises

G18 : Financial Economics→General Financial Markets→Government Policy and Regulation

H63 : Public Economics→National Budget, Deficit, and Debt→Debt, Debt Management, Sovereign Debt

Abstract

The recent financial and sovereign debt crises showed that providing public guarantees to banks may pose serious threats to sovereign solvency, despite their short-term beneficial effects on financial stability. This article analyses the role that public guarantees to banks play in the bank-sovereign nexus and offers a more nuanced assessment of their implications for sovereign debt crises. Depending on the nature of the banking crisis and the specific characteristics of the economy, guarantees may improve financial stability without undermining sovereign solvency, thus generating a positive feedback loop between bank and sovereign stability.

No. 34
17 May 2017
The hazards of vague communication

Abstract

JEL Classification

D83 : Microeconomics→Information, Knowledge, and Uncertainty→Search, Learning, Information and Knowledge, Communication, Belief

E13 : Macroeconomics and Monetary Economics→General Aggregative Models→Neoclassical

E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy

E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy

H63 : Public Economics→National Budget, Deficit, and Debt→Debt, Debt Management, Sovereign Debt

Abstract

When market participants are uncertain about the content of an announcement, they may interpret market movements as an indication of the interpretation of others. As a result, releasing news that is open to subjective interpretation may increase uncertainty rather than reducing it.

No. 33
18 April 2017
The ECB’s announcements of non-standard measures and longer-term inflation expectations

Abstract

JEL Classification

E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation

E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy

Abstract

Stable and well-anchored longer-term inflation expectations bolster the ability of the European Central Bank (ECB) to achieve its medium-term inflation objective. This article assesses the effectiveness of non-standard monetary policy measures in guiding longer-term inflation expectations in an environment where standard interest rate policy approaches the lower bound. This causal channel is identified by looking at the change in five-year-ahead inflation expectations following announcements of non-standard measures in the period since 2013. The results suggest that non-standard measures, and in particular the asset purchase programme (APP), were conducive to preventing a potential unanchoring of longer-term inflation expectations.

No. 32
30 March 2017
Securitisation, credit risk and lending standards revisited

Abstract

JEL Classification

G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages

E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems

Abstract

It is commonly argued that in the run-up to the recent financial crisis, banks selected and securitised loans of relatively lower credit quality. This article reviews new evidence from the euro-denominated corporate loan market which suggests that this presumption does not hold for this market segment in Europe. Banks that were more active in securitisation markets are also not found to offer, all else being equal, lower lending rates to borrowers. Our results complement earlier findings from the US securitisation markets.

No. 31
15 February 2017
Is collateral eligibility priced?

Abstract

JEL Classification

G01 : Financial Economics→General→Financial Crises

G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates

Abstract

In periods of liquidity crises, a central bank can enlarge the group of securities that are eligible as collateral for borrowing from its facilities. All other things being equal, the price of newly eligible securities should go up, owing to the limited ability of financial institutions to borrow against them. This article provides new evidence that changes in the Eurosystem eligibility criteria had a positive price impact on targeted securities during the financial and euro area sovereign debt crisis.

No. 30
26 January 2017
Missing disinflation and missing inflation

Abstract

JEL Classification

E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation

E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles

F44 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Business Cycles

Abstract

Recent inflation “puzzles” disappear in a model that properly accounts for domestic and global factors and captures their changing importance over time. While global factors are often important, domestic factors explain much of the inflation dynamics in the recent missing inflation episode in the euro area.