Livia Chiţu

Monetary Policy

Division: Capital Markets/Financial Structure
Current Position: Senior Economist
Fields of interest: International Economics,Financial Economics
Email: livia.chitu@ecb.int

Biography

Education: 2013-2016
PhD in Economics, Paris School of Economics - Université Paris 1 Panthéon Sorbonne, Paris, France (Supervisor: Agnès Bénassy-Quéré; Referees: Hélène Rey, Ugo Panizza); 2005-2006
Masters degree M2 in Economics Banking and Finance, University of Toulouse, France; 2004-2005
BA in Economics, University of Orléans, France; 2001-2005
BA in Economics, Academy of Economic Studies, Bucharest, Romania
Professional experience: 2022-
Senior Economist, Capital Markets/Financial Structure, Directorate General Monetary Policy, European Central Bank; 2017-2021
Economist, International Policy Analysis Division, Directorate General International and European Relations, European Central Bank; 2012-2017
Economist, International Relations and Cooperation Division, Directorate General International and European Relations , European Central Bank; 2007-2012
Research Analyst, EU Neighbouring Region Division, Directorate General International and European Relations, European Central Bank; 2006-2007
Research Analyst, EU Countries Division, Directorate General Economics, European Central Bank; 2006
Trainee, Directorate General Market Infrastructure, European Central Bank; 2005
Trainee, HVB Bank - UniCredit Tiriac Bank, Bucharest, Romania; 2004
Trainee, BRD Société Générale Bank, Bucharest, Romania
Awards: 2017
Washington Post Top 10 best work on global political economy for the paper "Mars or Mercury?The Geopolitics of International Currency Choice”, joint with B. Eichengreen and A. Mehl; 2012
CFA Romania Award (Macroeconomics section); 2005
French Government Scholarship funding Master studies in Toulouse; 2003
First National Prize at the International French for Business Contest “Le Mot d’Or”

ECB publications

2 November 2023

WORKING PAPER SERIES - No. 2860

Financial shock transmission to heterogeneous firms: the earnings-based borrowing constraint channel

English

Abstract: We study the heterogeneous impact of jointly identified monetary policy and global riskshocks on corporate funding costs. We disentangle these two shocks in a structural BayesianVector Autoregression framework and investigate their respective effects on funding costsof heterogeneous firms using micro-data for the US. We tease out mechanisms underlyingthe effects by contrasting financial frictions arising from traditional asset-based collateralconstraints with the recent earnings-based borrowing constraint hypothesis, differentiatingfirms across leverage and earnings. Our empirical evidence strongly supports the earnings-basedborrowing constraint hypothesis. We find that global risk shocks have stronger andmore heterogeneous effects on corporate funding costs which depend on firms’ positionwithin the earnings distribution.
JEL Code: G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy

28 September 2022

THE ECB BLOG

How do markets respond to war and geopolitics?

English

JEL Code: D53 : Microeconomics→General Equilibrium and Disequilibrium→Financial Markets
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G15 : Financial Economics→General Financial Markets→International Financial Markets

23 March 2022

ECONOMIC BULLETIN - BOX

The role of credit risk in recent global corporate bond valuations

Economic Bulletin Issue 2, 2022

English

Abstract: Notwithstanding the recent pick-up in corporate spreads in some markets, global corporate bond prices stand close to historical highs amid relatively low credit risk premia, particularly in lower-rated segments. At the same time, the COVID‑19 pandemic has increased the vulnerability and indebtedness of many firms around the world, with corporate credit ratings remaining below pre‑pandemic levels and some firms exhibiting relatively weak profitability. The model-based valuation analysis presented in this box suggests that the strong overall decline in global corporate bond spreads since the peak of the pandemic has been only partly driven by the market’s assessment of improving credit quality and could, to a large extent, be related to the strength of investors’ risk appetite. Based on analysis of bond-level valuations in the US corporate market, the box also shows that market-wide risk-off shocks have the potential to significantly increase corporate spreads and expected default probabilities, particularly for the weakest firms.
JEL Code: G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading

16 November 2021

FINANCIAL STABILITY REVIEW - BOX

The sensitivity of asset prices to risk shocks when corporate vulnerabilities are high

Financial Stability Review Issue 2, 2021

English

Abstract: Fragilities created by the interaction of stretched valuations and corporate balance sheet vulnerabilities may represent a risk to financial stability. Corporate asset prices have soared at the same time as the pandemic shock has prompted an increase in the vulnerability and indebtedness of many corporates. In the current environment, where balance sheet fragilities depend on policy support and uncertainty about the recovery is still elevated, corporate vulnerabilities could re-emerge and stock and bond market prices may be more sensitive to reversals in global risk appetite. This box examines the increased sensitivity of US corporate markets to risk-off shocks when corporate vulnerabilities are high and considers the implications from a euro area perspective.
JEL Code: G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G15 : Financial Economics→General Financial Markets→International Financial Markets
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill

19 May 2021

FINANCIAL STABILITY REVIEW - BOX

Emerging markets’ vulnerability to a reassessment of risk

Financial Stability Review Issue 1, 2021

English

Abstract: This box assesses potential vulnerabilities facing large emerging market economies (EMEs) more than a year after the onset of the COVID-19 pandemic and the risks posed to euro area financial stability. It shows that financial conditions in EMEs have weathered the pandemic well so far, despite an intense but short-lived stress episode when the pandemic first emerged. While many EMEs benefit from more solid fundamentals than in past crises, high debt burdens and exposures to the US dollar and foreign investors may pose challenges for some countries. A structural decomposition of capital flows shows that global factors have been the most important driver of the recovery of EME capital flows over the past year. Looking ahead, risks to EME financial stability could arise from a reversal in global risk sentiment, as well as from rising yields in the United States and other advanced economies and US dollar appreciation. Euro area financial stability could be vulnerable to wider turbulence affecting a number of EMEs, although country-specific shocks do not appear to have a sizeable impact.
JEL Code: F30 : International Economics→International Finance→General

6 November 2019

ECONOMIC BULLETIN - ARTICLE

Trends in central banks’ foreign currency reserves and the case of the ECB

Economic Bulletin Issue 7, 2019

English

Abstract: This article provides a review of the global trends in central banks’ foreign currency reserve holdings in terms of their size, adequacy and composition, before examining the ECB’s foreign currency reserves and how these reserves are managed.
JEL Code: E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
F31 : International Economics→International Finance→Foreign Exchange
F55 : International Economics→International Relations, National Security, and International Political Economy→International Institutional Arrangements
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
Q02 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→General→Global Commodity Markets

13 June 2019

THE INTERNATIONAL ROLE OF THE EURO - BOX

Currency swap lines and international currency status

Livia Chiţu

The international role of the euro 2019

English

22 February 2019

WORKING PAPER SERIES - No. 2246

Mars or mercury redux: the geopolitics of bilateral trade agreements

English

Abstract: We analyze the role of economic and security considerations in bilateral trade agreements. We use the pre-World War I period to test whether trade agreements are governed by pecuniary factors, such as distance and other frictions measured by gravity covariates, or by geopolitical factors. While there is support for both hypotheses, we find that defense pacts boost the probability of trade agreements by as much as 20 percentage points. Our estimates imply that were the U.S. to alienate its geopolitical allies, the likelihood and benefits of successful bilateral agreements would fall significantly. Trade creation from an agreement between the U.S. and E.U. countries would decline by about 0.6 percent of total U.S. exports.
JEL Code: F13 : International Economics→Trade→Trade Policy, International Trade Organizations
N20 : Economic History→Financial Markets and Institutions→General, International, or Comparative

19 December 2018

ECONOMIC BULLETIN - BOX

Emerging market vulnerabilities – a comparison with previous crises

Economic Bulletin Issue 8, 2018

English

Abstract: Against the background of financial market volatility in some emerging market economies (EMEs) since April, this box reviews key vulnerabilities in EMEs. Specifically, it assesses their resilience to external shocks compared to previous crisis episodes.
JEL Code: F3 : International Economics→International Finance
F4 : International Economics→Macroeconomic Aspects of International Trade and Finance

25 January 2016

WORKING PAPER SERIES - No. 1880

Reserve accumulation, inflation and moral hazard: Evidence from a natural experiment

Livia Chiţu

English

Abstract: This paper assesses whether international reserve accumulation can be inflationary because of moral hazard and incentive effects. It tests the hypothesis that an increase in international reserves may incentivise countries to become complacent and pursue less prudent policies due to the perceived safety provided by higher reserve holdings. The paper uses a unique natural experiment to solve the endogeneity problem between reserve accumulation and macroeconomic developments, namely the 2009 general allocation of Special Drawing Rights (SDR). This allocation
JEL Code: F30 : International Economics→International Finance→General

13 August 2014

WORKING PAPER SERIES - No. 1715

Stability or upheaval? The currency composition of international reserves in the long run

English

Abstract: We investigate whether the role of national currencies as international reserves was fundamentally altered by the shift from fixed to flexible exchange rates (what we call the
JEL Code: F30 : International Economics→International Finance→General
N20 : Economic History→Financial Markets and Institutions→General, International, or Comparative

2 July 2014

WORKING PAPER SERIES - No. 1686

Mutual assistance between Federal Reserve Banks, 1913-1960 as prolegomena to the TARGET2 debate

English

Abstract: This paper reconstructs the forgotten history of mutual assistance among Reserve Banks in the early years of the Federal Reserve System. We use data on accommodation operations by the 12 Reserve Banks between 1913 and 1960 which enabled them to mutualise their gold reserves in emergency situations. Gold reserve sharing was especially important in response to liquidity crises and bank runs. Cooperation among reserve banks was essential for the cohesion and stability of the US monetary union. But fortunes could change quickly, with emergency recipients of gold turning into providers. Because regional imbalances did not grow endlessly, instead narrowing when region-specific liquidity shocks subsided, mutual assistance created only limited tensions. These findings speak to the current debate over TARGET2 balances in Europe.
JEL Code: F30 : International Economics→International Finance→General
N20 : Economic History→Financial Markets and Institutions→General, International, or Comparative

12 March 2014

WORKING PAPER SERIES - No. 1651

Network effects, homogeneous goods and international currency choice: new evidence on oil markets from an older era

English

Abstract: Conventional wisdom has it that network effects are strong in markets for homogeneous goods, leading to the dominance of one settlement currency in such markets. The alleged dominance of the dollar in global oil markets is said to epitomize this phenomenon. We question this presumption with evidence for earlier periods showing that several national currencies have simultaneously played substantial roles in global oil markets. European oil import payments before and after World War II were split between the dollar and non-dollar currencies, mainly sterling. Differences in use of the dollar across countries were associated with trade linkages with the United States and the size of the importing country. That several national currencies could simultaneously play a role in international oil settlements suggests that a shift from the current dollar-based system toward a multi-polar system in the period ahead is not impossible.
JEL Code: F30 : International Economics→International Finance→General
N20 : Economic History→Financial Markets and Institutions→General, International, or Comparative

2 July 2013

THE INTERNATIONAL ROLE OF THE EURO - SPECIAL FEATURE

History, gravity and international finance

The international role of the euro 2013

English

24 September 2012

WORKING PAPER SERIES - No. 1473

Was unofficial dollarisation/euroisation an amplifier of the 'Great Recession' of 2007-09 in emerging economies

Livia Chiţu

English

Abstract: This paper investigates whether, and if so why, the recent ‘Great Recession’ was more severe in unofficially dollarised/euroised economies than in other economies. To that end, the paper builds on a novel dataset on unofficial dollarisation/euroisation to test whether the latter was a determinant of the extent of the growth collapse in 2007-09 in a cross-section of around 60 emerging market economies. Both OLS and Bayesian model averaging estimates suggest that unofficial dollarisation/euroisation was an important contributor to the severity of the crisis, once other of its well-established determinants are taken into account, including fast pre-crisis credit growth, current account deficits, trade and financial openness, market regulation, international openness of the banking sector and GDP per capita. Moreover, the adverse impact of unofficial dollarisation/euroisation is found to have been transmitted through the main channels traditionally highlighted in the literature, i.e. currency mismatches, reduced monetary policy autonomy and limited lender of last resort ability, all of which became more binding constraints in the midst of the crisis. The results help to shed light on the long-standing debate regarding the conduct of monetary policy in unofficially dollarised/euroised economies in crisis times.
JEL Code: G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
F30 : International Economics→International Finance→General

17 September 2012

WORKING PAPER SERIES - No. 1466

History, gravity and international finance

English

Abstract: We analyze persistence in patterns of bilateral financial investment using data on US investors’ holdings of foreign bonds. We document a “history effect” in which the pattern of holdings seven decades ago continues to influence holdings today. 10 to 15% of the cross-country variation in US investors’ foreign bond holdings is explained by holdings 70 years ago, plausibly reflecting fixed costs of market entry and exit. This effect is twice as large for bonds denominated in currencies other than the dollar, suggesting the existence of even higher fixed costs of initiating US foreign investment in currencies other than the dollar. Our findings point to history and path dependence as key sources of financial market segmentation.
JEL Code: F30 : International Economics→International Finance→General
N20 : Economic History→Financial Markets and Institutions→General, International, or Comparative

7 May 2012

WORKING PAPER SERIES - No. 1433

When did the dollar overtake sterling as the leading international currency? Evidence from the bond markets

English

Abstract: This paper offers new evidence on the emergence of the dollar as the leading international currency, focusing on its role as currency of denomination in global bond markets. We show that the dollar overtook sterling much earlier than commonly supposed, as early as in 1929. Financial market development appears to have been the main factor helping the dollar to surmount sterling
JEL Code: F30 : International Economics→International Finance→General
N20 : Economic History→Financial Markets and Institutions→General, International, or Comparative

External publications

2023

IMF Working Paper No. 196, September 2023

Financial Shock Transmission to Heterogeneous Firms: the Earnings-Based Borrowing Constraint Channel