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Kalin Nikolov

Research

Division

Financial Research

Current Position

Senior Team Lead - Economist

Fields of interest

Financial Economics,Macroeconomics and Monetary Economics

Email

kalin.nikolov@ecb.europa.eu

Education
2003-2010

PhD in Economics at London School of Economics

Professional experience
2019

Lead and Senior Lead Economist - Financial Research Division, European Central Bank

2010-2019

Senior Economist - Financial Research Division, European Central Bank

2006-2010

Senior Economist - Monetary Assessment and Strategy Division, Bank of England

2002-2003

Economist - Conjunctural Assessment and Projection Division, Bank of England

1999-2001

Economist - Monetary Assessment and Strategy Division, Bank of England

1998-1999

Economist - Social Market Foundation

21 September 2021
OCCASIONAL PAPER SERIES - No. 269
Details
Abstract
The ECB’s price stability mandate has been defined by the Treaty. But the Treaty has not spelled out what price stability precisely means. To make the mandate operational, the Governing Council has provided a quantitative definition in 1998 and a clarification in 2003. The landscape has changed notably compared to the time the strategy review was originally designed. At the time, the main concern of the Governing Council was to anchor inflation at low levels in face of the inflationary history of the previous decades. Over the last decade economic conditions have changed dramatically: the persistent low-inflation environment has created the concrete risk of de-anchoring of longer-term inflation expectations. Addressing low inflation is different from addressing high inflation. The ability of the ECB (and central banks globally) to provide the necessary accommodation to maintain price stability has been tested by the lower bound on nominal interest rates in the context of the secular decline in the equilibrium real interest rate. Against this backdrop, this report analyses: the ECB’s performance as measured against its formulation of price stability; whether it is possible to identify a preferred level of steady-state inflation on the basis of optimality considerations; advantages and disadvantages of formulating the objective in terms of a focal point or a range, or having both; whether the medium-term orientation of the ECB’s policy can serve as a mechanism to cater for other considerations; how to strengthen, in the presence of the lower bound, the ECB’s leverage on private-sector expectations for inflation and the ECB’s future policy actions so that expectations can act as ‘automatic stabilisers’ and work alongside the central bank.
JEL Code
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
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
27 January 2021
RESEARCH BULLETIN - No. 80
Details
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
Details
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
20 February 2020
WORKING PAPER SERIES - No. 2376
Details
Abstract
This paper examines the interactions of macroprudential and monetary policies. We find, using a range of macroeconomic models used at the European Central Bank, that in the long run, a 1% bank capital requirement increase has a small impact on GDP. In the short run, GDP declines by 0.15-0.35%. Under a stronger monetary policy reaction, the impact falls to 0.05-0.25%. The paper also examines how capital requirements and the conduct of macroprudential policy affect the monetary transmission mechanism. Higher bank leverage increases the economy's vulnerability to shocks but also monetary policy's ability to offset them. Macroprudential policy diminishes the frequency and severity of financial crises thus eliminating the need for extremely low interest rates. Countercyclical capital measures reduce the neutral real interest rate in normal times.
JEL Code
E4 : Macroeconomics and Monetary Economics→Money and Interest Rates
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G20 : Financial Economics→Financial Institutions and Services→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
24 May 2019
WORKING PAPER SERIES - No. 2286
Details
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 November 2018
WORKING PAPER SERIES - No. 2195
Details
Abstract
This paper studies the interaction of government debt and financial markets. This interaction, termed a ‘diabolic loop’, is driven by government choice to bail out banks and the resulting incentives for banks to hold government debt rather than self-insure through equity buffers. We highlight the role of bank equity issuance in determining whether the ‘diabolic loop’ is a Nash Equilibrium of the interaction between banks and the government. When equity is issued, no diabolic loop exists. In equilibrium, banks’ rational expectations of a bailout ensure that no equity is issued and the sovereign-bank loop is operative.
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
13 July 2018
DISCUSSION PAPER SERIES - No. 5
Details
Abstract
This paper investigates the costs and bene ts 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 macrofinancial 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
13 July 2018
WORKING PAPER SERIES - No. 2169
Details
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
9 July 2015
WORKING PAPER SERIES - No. 1827
Details
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
15 August 2014
WORKING PAPER SERIES - No. 1716
Details
Abstract
This paper examines the robustness of the Kiyotaki-Moore collateral amplification mechanism to the existence of complete markets for aggregate risk. We show that, when borrowers can hedge against aggregate shocks at fair prices, the volatility of endogenous variables becomes identical to the first best in the absence of credit constraints. The collateral amplification mechanism disappears. To motivate the limited use of contingent contracts, we introduce costs of issuing contingent debt and calibrate them to match the liquidity and safety premia the data. We .find that realistic costs of state contingent market participation can rationalize the predominant use of uncontingent debt. Amplification is restored in such an environment.
JEL Code
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
D52 : Microeconomics→General Equilibrium and Disequilibrium→Incomplete Markets
17 November 2012
WORKING PAPER SERIES - No. 1495
Details
Abstract
We build a model of rational bubbles in a limited commitment economy and show that the impact of the bubble on the real economy crucially depends on who holds the bubble. When banks are the bubble-holders, this ampli?es the output boom while the bubble survives but also deepens the recession when the bubble bursts. In contrast, the real impact of bubbles held by ordinary savers is more muted.
JEL Code
E : Macroeconomics and Monetary Economics
Network
Macroprudential Research Network
16 November 2012
WORKING PAPER SERIES - No. 232
Details
Abstract
We build a model of rational bubbles in a limited commitment economy and show that the impact of the bubble on the real economy crucially depends on who holds the bubble. When banks are the bubble-holders, this amplifies the output boom while the bubble survives but also deepens the recession when the bubble bursts. In contrast, the real impact of bubbles held by ordinary savers is more muted.
JEL Code
E4 : Macroeconomics and Monetary Economics→Money and Interest Rates
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
5 November 2012
WORKING PAPER SERIES - No. 1490
Details
Abstract
In this paper, we build a Kiyotaki-Moore style collateral amplification framework which generates large endogenous fluctuations in the leverage available to investing firms. We assume that defaulting borrowers lose not only their tangible collateral but also their future debt market access. The possibility of such market exclusion can lead to the emergence of intangible collateral in equilibrium alongside the tangible collateral which is usually studied in the literature. Fluctuations in the value of intangible collateral are isomorphic to fluctuations in the downpayments they need to make in their purchases of productive assets. This modification of the Kiyotaki-Moore model substantially increases its amplification of exogenous shocks.
JEL Code
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
Network
Macroprudential Research Network
1 January 2002
WORKING PAPER SERIES - No. 113
Details
Abstract
This paper provides a brief survey of the role of financial frictions in the monetary transmission mechanism. After noting some of the key stylised facts that any model of the transmission mechanisms must be consistent with, we discuss both the classical interest rate channel and the credit and bank lending channels of monetary transmission. We then review the empirical evidence relating to the relative importance of these channels. Finally we consider what impact the presence of significant financial frictions might have on the conduct of monetary policy
JEL Code
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
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
Network
Eurosystem Monetary Transmission Network
2023
International Journal of Central Banking
Assessing the Impact of Basel III : Review of Transmission Channels and Insights from Policy Models
  • Basel III BCBS Task Force
2023
Journal of Money, Credit and Banking (forthcoming)
Housing, Distribution and Welfare
  • N. Kiyotaki, A. Michaelides and K. Nikolov
2021
International Journal of Central Banking
The impact of capital requirements on the macroeconomy: lessons from four macroeconomic models of the Euro Area
  • M. Darracq-Paries., P. Karadi, P., C. Kok and K. Nikolov
2020
Journal of Monetary Economics
Bank Capital in the Short and in the Long Run
  • C. Mendicino, K. Nikolov, D. Supera and J. Suarez
2018
Journal of Money, Credit and Banking
Dynamic Capital Requirements
  • C. Mendicino, K. Nikolov, D. Supera and J. Suarez
2018
International Economic Review
Government Debt and Banking Fragility: the Spreading of Strategic Uncertainty
  • R. Cooper and K. Nikolov
2017
Proceedings of the 2016 joint ECB-Chicago Fed Banking Conference
Capital Regulation: Lessons from a Macroeconomic Model
  • C. Mendicino, K. Nikolov and D. Supera
2015
International Journal of Central Banking
Capital Regulation in a Model with Three Layers of Default’
  • L. Clerc, A. Derviz, C. Mendicino, S. Moyen, K. Nikolov, L. Stracca, J. Suarez and A. Vardoulakis
2015
Journal of Monetary Economics
Bubbles, Banks and Financial Stability
  • K. Aoki and K. Nikolov
2014
Journal of Economic Dynamics and Control
Collateral Amplification under Complete Markets
  • K. Nikolov
2014
Journal of Mathematical Economics
Safe Asset Shortages and Asset Price Bubbles
  • K. Aoki, T. Nakajima and K. Nikolov
2014
Financial Stability Review, Banque de France
Macroprudential capital tools: assessing their rationale and effectiveness
  • L. Clerc, A. Derviz, C. Mendicino, S. Moyen, K. Nikolov, L. Stracca, J. Suarez and A. Vardoulakis
2014
Economic Bulletin and Financial Stability Report Articles, Banco de Portugal
The 3D Model: a Framework to Assess Capital Regulation
  • L. Clerc, A. Derviz, C. Mendicino, S. Moyen, K. Nikolov, L. Stracca, J. Suarez and A. Vardoulakis
2011
Journal of Economic Dynamics and Control
A Bayesian Approach to Optimal Monetary Policy with Parameter and Model Uncertainty
  • T. Cogley, B. de Paoli, C. Matthes, K. Nikolov and T. Yates
2011
Journal of Money, Credit and Banking
Winners and Losers in Housing Markets
  • N. Kiyotaki, A. Michaelides and K. Nikolov
2009
Bank of England Quarterly Bulletin
Quantitative Easing
  • J. Benford, S. Berry, K. Nikolov and C. Young
2006
NBER International Seminar in Macroeconomics 2004
Rule based monetary policy under central bank learning
  • K. Aoki and K. Nikolov
2004
Journal of Money, Credit and Banking
Monetary policy and stagflation in the UK
  • E. Nelson and K. Nikolov
2004
Bank of England
The Bank of England Quarterly Model
  • R. Harrison, K. Nikolov, M. Quinn, G. Ramsay, A. Scott and R. Thomas
2003
Journal of Economics and Business
UK inflation in the 1970s and 1980s: the role of output gap mismeasurement
  • E. Nelson and K. Nikolov
2003
Monetary Transmission in the Euro Area
  • C. Bean, J. Larsen and K. Nikolov