Authors

Caterina Mendicino

Research

Division: Monetary Policy Research
Current Position: Lead Economist
Fields of interest: Macroeconomics and Monetary Economics,Financial Economics
Email: caterina.mendicino1@ecb.europa.eu

Biography

Other current responsibilities: 2018-2021
Coordinator, ECB Research Task Force on Monetary Policy, Macroprudential Policy and Financial Stability; 2017-2018
Coordinator, DG-Research Strategic Priority on the New Macroprudential Framework; 2015-2017
Coordinator development of the financial block of the ECB-MC multi country model; 2015-2017
Work-stream Coordinator, ECB Task Force on Operazionalizing Macroprudential Research (OMRTF); 2014-2016
Work-stream Coordinator, ESCB/WGEM-Low Inflation Task Force; 2015
ECB representative, Basel Committee’s Policy Development Group, Research Task Force on the Integration of Regulatory Capital and Liquidity Instruments; 2011-2014
Member, ESCB Research Network on Macroprudential Policy (MaRS); 2008-2011
Member, ESCB Working Group on Econometric Modelling
Education: 2000-2006
PhD Economics, Stockholm School of Economics, Sweden; 2003-2004
Marie-Curie PhD Fellowship Economics, Universitat Pompeu Fabra, Spain; 1999-2000
MA Economics, Coripe-University of Turin, Italy; 1994-1999
BA Economics, University Rome III, Italy; 1986-1994
BA Classical Music, Conservatory of Classical Music “N. Piccinni” Bari, Italy
Professional experience: 2020-
Lead/Senior Lead Economist, Monetary Policy Research Division, Directorate General Research, European Central Bank; 2015-2019
Principal Economist, Monetary Policy Research Division, Directorate General Research, European Central Bank; 2013-2015
Economist (ESCB-IO), Financial Research Division, Directorate General Research, European Central Bank; 2008-2013
Research Economist, Monetary Policy Division, Economics and Research Department, Bank of Portugal; 2006-2008
Economist, Monetary and Financial Analysis Department, Bank of Canada; 2003-2006
Research Fellow (Assegno di Ricerca), Economic Policy Research Group, University Rome III, Italy; 2005
Summer Graduate Research Programme, Monetary Policy Research Division, Directorate General Research, European Central Bank
Awards: 2021
[*] Best paper award of the MARC Conference; 2014
[*] Research Fellowship, UECE-ISEG, Portugal (2014 - ); 2010
[*] Research Fellowship, UNICEE, Catholic University, Portugal (2010- 2012); 2006
[*] Research Fellowship, Ente Luigi Einaudi, Italy; Research Grant, Louis Fraenckels stipendiefond, Sweden; 2004
[*] Marie-Curie PhD Fellowship of the European Union (HPMT-CT-2001-00327); [*] Research Grant Project: "Credit Frictions and Business Cycle", Bankforskningstitutet, Sweden (2004-2006); 2003
[*]Marie-Curie Early Stage Training program of the European Union (HPMT-CT-2000-00116).; 2002
[*] Research Grant, Project "Financial Liberalization, Financial Fragility and Economic Growth" (J02/37), J. Wallander's Foundation Handelsbanken, Sweden (2002-2003); 2001
[*] Scholarship, Liungbergs Foundation, Stockholm University, Sweden (2001-2002); [*] Research Grant, Kocks Linberg Foundation, Sweden (2001, 2002); [*] Research Grant, The Royal Swedish Academy of Sciences, Stiftelsen Söderströms CC Foundation, Sweden; [*]"Fausto Vicarelli" Undergraduate Thesis Award, Ente Luigi Einaudi, Italy;; 2000
[*]Scholarship, Widar Bagges Foundation, Stockholm University, Sweden (2000-2001); 1999
[*] Scholarship, CORIPE, Italy (1999-2000); *] Best Graduates Award, University of Rome III, Italy; 1994
[*]Scholarship, University of Rome III, Italy (1994-1997)
Teaching experience: 2010-2011
Applied Macroeconomics (M.Sc) , Lecturer, Department of Economics, Catholic University, Portugal; 2003-2005
Economic Policy (BA), Lecturer, Department of Economics, University Rome III, Italy; 2003
Microeconomics I (PhD), Teaching Assistant, Stockholm School of Economics, Sweden; 2002
Macroeconomics II (PhD), Teaching Assistant, Stockholm School of Economics, Sweden

ECB publications

19 February 2021

WORKING PAPER SERIES - No. 2527

On the interaction between monetary and macroprudential policies

English

Abstract: The Global Financial Crisis fostered the design and adoption of macroprudential policies throughout the world. This raises important questions for monetary policy. What, if any, is the relationship between monetary and macroprudential policies? In particular, how does the effectiveness of macroprudential policies (or lack thereof) influence the conduct of monetary policy? This discussion paper builds on the insights of recent theoretical and empirical research to address these questions.
JEL Code: E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
Network: Research Task Force (RTF)

8 February 2021

WORKING PAPER SERIES - No. 2521

Policy uncertainty, lender of last resort and the real economy

English

Abstract: We show that a reduction in lender of last resort (LOLR) policy uncertainty positively affects bank lending and propagates to investment and employment. We exploit a unique policy that reduced uncertainty regarding the availability of future LOLR funding for banks as a quasi-natural experiment. Using micro-level data on banks, firms and loans in Portugal, we generate cross-sectional variation in banks’ exposure to uncertainty and find that the size of the haircut subsidy - the gap between private market and central bank security valuations - plays a key role in the propagation of the shock to lending and the real economy.
JEL Code: 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
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
Network: Research Task Force (RTF)

27 January 2021

RESEARCH BULLETIN - No. 80

How much capital should banks hold?

English

Abstract: Episodes such as the current coronavirus (COVID-19) crisis might lead to a significant rise in borrower defaults and, consequently, weakness in the banking sector. Having well-capitalised banks makes the financial system more resilient to such episodes. We assess how much capital would be optimal for banks to hold, taking into consideration the risk of banking crises driven by borrower defaults (which we term “twin default crises”).
JEL Code: G01 : Financial Economics→General→Financial Crises
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
Network: Research Task Force (RTF)

25 May 2020

WORKING PAPER SERIES - No. 2414

Twin defaults and bank capital requirements

English

Abstract: We examine optimal capital requirements in a quantitative general equilibrium model with banks exposed to non-diversifiable borrower default risk. Contrary to standard models of bank default risk, our framework captures the limited upside but significant downside risk of loan portfolio returns (Nagel and Purnanandam, 2020). This helps to reproduce the frequency and severity of twin defaults: simultaneously high firm and bank failures. Hence, the optimal bank capital requirement, which trades off a lower frequency of twin defaults against restricting credit provision, is 5pp higher than under standard default risk models which underestimate the impact of borrower default on bank solvency.
JEL Code: G01 : Financial Economics→General→Financial Crises
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy

24 May 2019

WORKING PAPER SERIES - No. 2286

Bank capital in the short and in the long run

English

Abstract: How far should capital requirements be raised in order to ensure a strong and resilient banking system without imposing undue costs on the real economy? Capital requirement increases make banks safer and are beneficial in the long run but also entail transition costs because their imposition reduces credit supply and aggregate demand on impact. In the baseline scenario of a quantitative macro-banking model, 25% of the long-run welfare gains are lost due to transitional costs. The strength of monetary policy accommodation and the degree of bank riskiness are key determinants of the trade-off between the short-run costs and long-run benefits from changes in capital requirements.
JEL Code: E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
Network: Research Task Force (RTF)

13 July 2018

WORKING PAPER SERIES - No. 2169

Benefits and costs of liquidity regulation

English

Abstract: This paper investigates the costs and benefits of liquidity regulation. We find that liquidity tools are beneficial but cannot completely remove the need for Lender of Last Resort (LOLR) interventions by the central bank. Full compliance with current Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) rules would have reduced banks’ reliance on publicly provided liquidity during the global financial crisis without removing such assistance altogether. The paper also investigates the output costs of introducing the LCR and NSFR using two macro-financial models. We find these costs to be modest.
JEL Code: E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
Network: Discussion papers

15 June 2018

WORKING PAPER SERIES - No. 2157

Wealth effects in the euro area

English

Abstract: How sizable is the wealth effect on consumption in euro area countries? To address this question, we use newly available harmonized euro area wealth data and the methodology in Carroll et al. (2011b). We find that the marginal propensity to consume out of total wealth averaged across the largest euro area economies is around 3 cents per euro, with a marginal propensity to consume out of financial wealth significantly larger than of housing wealth. Country-group estimates document no significant differences between the largest economies and the rest of the sample. In contrast, remarkable differences emerge between periphery and core countries.
JEL Code: C22 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models &bull Diffusion Processes
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
Network: Research Task Force (RTF)

11 October 2017

OTHER PUBLICATION

The Crisis, Ten Years After: Lessons Learnt for Monetary and Financial Research

English

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30 June 2017

WORKING PAPER SERIES - No. 50

Equity versus bail-in debt in banking: an agency perspective

English

Abstract: We examine the optimal size and composition of banks’ total loss absorbing capacity (TLAC). Optimal size is driven by the trade-off between providing liquidity services through deposits and minimizing deadweight default costs. Optimal composition (equity vs. bail-in debt) is driven by the relative importance of two incentive problems: risk shifting (mitigated by equity) and private benefit taking (mitigated by debt). Our quantitative results suggest that TLAC size in line with current regulation is appropriate. However, an important fraction of it should consist of bail-in debt because such buffer size makes the costs of risk-shifting relatively less important at the margin.
JEL Code: G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill

9 July 2015

WORKING PAPER SERIES - No. 1827

Capital regulation in a macroeconomic model with three layers of default

English

Abstract: We develop a dynamic general equilibrium model for the positive and normative analysis of macroprudential policies. Optimizing financial intermediaries allocate their scarce net worth together with funds raised from saving households across two lending activities, mortgage and corporate lending. For all borrowers (households, firms, and banks) external financing takes the form of debt which is subject to default risk. This
JEL Code: E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages

2 April 2015

WORKING PAPER SERIES - No. 1776

Expectation-driven cycles: time-varying effects

English

Abstract: This paper provides new insights into expectation-driven cycles by estimating a structural VAR with time-varying coefficients and stochastic volatility, as in Cogley and Sargent (2005) and Primiceri (2005). We use survey-based expectations of the unemployment rate to measure expectations of future developments in economic activity. We find that the effect of expectation shocks on the realized unemployment rate have been particularly large during the most recent recession. Unanticipated changes in expectations contributed to the gradual increase in the persistence of the unemployment rate and to the decline in the correlation between the inflation and the unemployment rate over time. Our results are robust to the introduction of financial variables in the model.
JEL Code: C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles

2 April 2015

WORKING PAPER SERIES - No. 1775

Housing market dynamics: Any news?

English

Abstract: This paper explores the link between agent expectations and housing market dynamics. We focus on shifts in the fundamental driving forces of the economy that are anticipated by rational forward-looking agents, i.e. news shocks. Using Bayesian methods and U.S. data, we find that news-shock-driven-cycles account for a sizable fraction of the variability in house prices and other macroeconomic variables over the business cycle and have also contributed to run-ups in house prices over the last three decades. By exploring the link between news shocks and agent expectations, we show that house price growth was positively related to inflation expectations during the boom of the late 1970
JEL Code: C50 : Mathematical and Quantitative Methods→Econometric Modeling→General
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
Network: Macroprudential Research Network

25 February 2013

OCCASIONAL PAPER SERIES - No. 143

Financial shocks and the macroeconomy: heterogeneity and non-linearities

English

Abstract: This paper analyses the transmission of financial shocks to the macro-economy. The role of macro-financial linkages is investigated from an empirical perspective for the euro area as a whole, for individual euro area member countries and for other EU and OECD countries. The following key economic questions are addressed: 1) Which financial shocks have the largest impact on output over the full sample on average? 2) Are financial developments leading real activity? 3) Is there heterogeneity or a common pattern in macro-financial linkages across the euro area and do these linkages vary over time? 4) Do cross-country spillovers matter? 5) Is the transmission of financial shocks different during episodes of high stress than it is in normal times, i.e. is there evidence of non-linearities? In summary, it is found that real asset prices are significant leading indicators of real activity whereas the latter leads loan developments. Furthermore, evidence is presented that macro-financial linkages are heterogeneous across countries
JEL Code: C43 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Index Numbers and Aggregation
D11 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Theory

30 March 2007

WORKING PAPER SERIES - No. 743

Credit market and macroeconomic volatility

Caterina Mendicino

English

Abstract: This paper investigates the role of credit market size as a determinant of business cycle fluctuations. First, using OECD data I document that credit market depth mitigates the impact of variations in productivity to output volatility. Then, I use a business cycle model with borrowing limits a la Kiyotaki and Moore (1997) to replicate this empirical regularity. The relative price of capital and the reallocation of capital are the key variables in explaining the relation between credit market size and output volatility. The model matches resonably well the reduction in productivity-driven output volatility implied by the established size of the credit market observed in OECD data.
JEL Code: E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G20 : Financial Economics→Financial Institutions and Services→General

External publications

2021

Journal of Monetary Economics

Policy Uncertainty, Lender of Last Resort and the Real Economy