Research Bulletins published in 2018

The Research Bulletin features a selection of recent work on policy-relevant topics by ECB economists. Published on a monthly basis, the articles in the Research Bulletin are intended for a general audience.

The views expressed in each article are those of the authors and do not necessarily represent the views of the European Central Bank and the Eurosystem.

No. 46
16 May 2018
Price convergence in the EU: What can we learn from the car market?

Abstract

JEL Classification

F15 : International Economics→Trade→Economic Integration

F31 : International Economics→International Finance→Foreign Exchange

L11 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance→Production, Pricing, and Market Structure, Size Distribution of Firms

L62 : Industrial Organization→Industry Studies: Manufacturing→Automobiles, Other Transportation Equipment

D22 : Microeconomics→Production and Organizations→Firm Behavior: Empirical Analysis

Abstract

The dispersion of prices between Member States of the European Union (EU) is a popular indicator of the economic integration of the internal market. Car prices in the EU converged from the 1990s until the year 2003, after which this development ceased. The remaining price dispersion between countries is systematically linked to product features, reflecting manufacturer pricing-to-market.

No. 45
13 April 2018
The effective lower bound and the desirability of gradual interest rate adjustments

Abstract

JEL Classification

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

E61 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Policy Objectives, Policy Designs and Consistency, Policy Coordination

Abstract

The lower bound on nominal interest rates makes it desirable for monetary policy to aim for gradual adjustments of the policy rate in addition to the stabilisation of inflation and the output gap.

No. 44
19 March 2018
Do consumers respond symmetrically to positive and negative income shocks?

Abstract

JEL Classification

D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis

D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance

E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth

Abstract

Recent research finds that consumers respond more strongly to negative than to positive transitory income shocks, for example, a temporary income tax increase as opposed to a one-off bonus payment. It also suggests that the response can depend on the size of the change in income. These findings lend empirical support to economic models that incorporate liquidity constraints and precautionary saving.

No. 43
13 February 2018
Bank lending under negative policy rates

Abstract

JEL Classification

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

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

G20 : Financial Economics→Financial Institutions and Services→General

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

Abstract

This article shows how the pass-through of negative policy rates via bank lending depends on a bank’s funding structure. When policy rates enter negative territory, high-deposit banks increase risk-taking but reduce lending in the syndicated loan market relative to low-deposit banks. The increase in risk-taking reduces financial constraints for higher risk firms.

No. 42
11 January 2018
Sub-sovereign bonds in banks’ portfolios: A role for political connections?

Abstract

JEL Classification

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

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

P16 : Economic Systems→Capitalist Systems→Political Economy

Abstract

This article shows that German savings banks appear to increase their holdings of bonds issued by their respective Bundesland (federal state) government if as a result of an election, the local governments at Bundesland and at Kreis (county) level are no longer dominated by the same party. This behaviour is not consistent with other known reasons why banks hold government debt, such as compliance with regulation, the tendency to accumulate risky assets when close to bankruptcy, or political pressure. Instead, we argue that in the wake of a post-election loss of political connections along party lines, local government-owned banks use purchases of sub-sovereign bonds to keep communication channels with state politicians open, a mechanism akin to lobbying.