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Martin Schmitz

Statistics

Division

External Statistics &Sector Accounts

Current Position

Lead Economist - Statistician

Fields of interest

International Economics,Financial Economics

Email

martin.schmitz@ecb.europa.eu

Education
2010

Ph.D. Economics, Trinity College Dublin

2006

M.Sc. Economics, Trinity College Dublin

2005

B.Sc. Economics, University of Maastricht

Professional experience
2018-

DG Statistics, European Central Bank

2017

DG International and European Relations, European Central Bank

2012-2017

DG Economics, European Central Bank

2011-2012

DG Statistics, European Central Bank

2010-2011

DG International and European Relations, European Central Bank

30 September 2008
WORKING PAPER SERIES - No. 938
Details
Abstract
Global financial integration unlocks a huge potential for international risk sharing. We examine the degree to which international equity holdings act as a risk sharing device in industrial and emerging economies. We split equity returns into investment income (dividend distribution) and capital gains to investigate which of the two channels delivers the largest potential for risk sharing. Our evidence suggests that net capital gains are a more potent channel of risk sharing. They behave in a countercyclical way, that is they tend to be positive (negative) when the domestic economy is growing more slowly (rapidly) than the rest of the world. Countries with more countercyclical net capital gains experience improved consumption risk sharing. The empirical analysis furthermore suggests that these risk sharing properties of net capital gains have increased through time, in particular in the 1990s and early-2000s, on the back of a declining equity home bias and financial market deepening.
JEL Code
F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
F30 : International Economics→International Finance→General
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
20 April 2011
WORKING PAPER SERIES - No. 1330
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Abstract
This paper shows that, controlling for standard determinants of net external positions, financially-remote countries exhibit more positive net external positions. This finding is found to be stronger for less advanced countries, hinting at external funding problems for more remote countries. Being located near financially very open countries, being in currency unions with creditor countries, or being highly integrated through financial and trade linkages with a ‘core’ country facilitates net external borrowing. Consequently, evidence is found for an important role of geographic and bilateral factors for a country’s net external wealth.
JEL Code
F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
F34 : International Economics→International Finance→International Lending and Debt Problems
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
28 June 2012
OCCASIONAL PAPER SERIES - No. 134
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Abstract
This paper describes in detail the methodology currently used by the European Central Bank (ECB) to determine the nominal and real effective exchange rate indices of the euro. Building on the work of Buldorini et al. (2002), it shows how the ECB's techniques for calculating effective exchange rates have been updated over time and explains the related theoretical foundations. In particular, the paper discusses the use and development of trade weights based on trade in manufactured goods (taking account of third market effects), the trading partners selected, and the choice of deflators for constructing the real effective exchange rate indices. In addition, it presents evidence on exchange rate and competitiveness developments for both the euro area as a whole and individual Member States. While the growing importance of China is reflected in the updated trade weights of euro effective exchange rates, it appears that the increasing integration of the euro area with other European economies accounts for the largest variation in trade weights. The US dollar, an anchor currency for a number of large emerging markets, continues to play an important role for the effective exchange rate of the euro and euro area competitiveness. Overall, euro area competitiveness has improved slightly since the introduction of the single currency, despite significant heterogeneity within the euro area.
JEL Code
F10 : International Economics→Trade→General
F30 : International Economics→International Finance→General
F31 : International Economics→International Finance→Foreign Exchange
F40 : International Economics→Macroeconomic Aspects of International Trade and Finance→General
11 July 2012
WORKING PAPER SERIES - No. 1451
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Abstract
In light of rapidly increasing foreign equity liability positions of emerging market economies, we test for a necessary condition of international risk sharing, namely for systematic patterns between idiosyncratic output fluctuations and financial market developments. Panel analysis of 22 emerging market economies shows strong evidence for pro-cyclicality of capital gains on domestic stock markets both over short and medium term horizons. This implies that domestic output fluctuations can be hedged through cross-border ownership of financial markets.
JEL Code
F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
F30 : International Economics→International Finance→General
G15 : Financial Economics→General Financial Markets→International Financial Markets
9 July 2015
WORKING PAPER SERIES - No. 1826
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Abstract
Audiovisual services such as music and movies in digital formats have gained substantial importance over the last decade. This paper analyses audiovisual services in a gravity model framework. In particular, we explore the role of virtual proximity - a new proxy for cultural proximity based on bilateral hyperlinks and bilateral website visits between countries - and find that
JEL Code
F12 : International Economics→Trade→Models of Trade with Imperfect Competition and Scale Economies, Fragmentation
F15 : International Economics→Trade→Economic Integration
Z10 : Other Special Topics→Cultural Economics, Economic Sociology, Economic Anthropology→General
25 January 2016
WORKING PAPER SERIES - No. 1879
Details
Abstract
This paper analyses international patterns of bilateral portfolio equity and debt investment in a gravity model framework. We contribute to the literature by exploring the role of virtual proximity
JEL Code
F12 : International Economics→Trade→Models of Trade with Imperfect Competition and Scale Economies, Fragmentation
F15 : International Economics→Trade→Economic Integration
Z10 : Other Special Topics→Cultural Economics, Economic Sociology, Economic Anthropology→General
30 August 2016
WORKING PAPER SERIES - No. 1952
Details
Abstract
This paper highlights a recent
JEL Code
F15 : International Economics→Trade→Economic Integration
F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
12 June 2017
WORKING PAPER SERIES - No. 2074
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Abstract
In light of persistently large net foreign liability NFL) positions in several euro area countries, we analyse 138 episodes of sizeable NFL reductions for a broad sample of advanced and emerging economies. We provide stylised facts on the channels through which NFLs were reduced and estimate factors which make episodes ‘stable’, i.e. sustained over the medium term. Our findings show that while GDP growth and valuation effects contribute most to NFL reductions overall, stable reduction episodes also require positive transaction effects (i.e. current account surpluses), in particular in advanced economies. Considering the different components of a country’s external balance sheet, we observe that reduction episodes were almost exclusively driven by a decline in gross external liabilities in emerging economies, while in advanced economies also gross external asset accumulation contributed significantly, in particular in stable episodes. Our econometric analysis shows that NFL reductions are more likely to be sustained if a country records strong average real GDP growth during an episode and exits the episode with a larger current account surplus. Moreover, we find evidence that nominal effective exchange rate depreciation during an episode is helpful for achieving episode stability in the short run, while IMF programmes and sovereign debt restructurings also contribute to longer term stability.
JEL Code
F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
F34 : International Economics→International Finance→International Lending and Debt Problems
15 September 2017
OCCASIONAL PAPER SERIES - No. 196
Details
Abstract
TARGET balances have risen during the period of the Eurosystem’s asset purchase programme (APP). The APP gives rise to substantial cross-border flows of reserves at the time of asset purchases and beyond, reflecting the interaction of decentralised monetary policy implementation and the integrated euro area financial structure. This financial structure, in which only a handful of locations act as gateways between the euro area and the rest of the world, leads to rising TARGET balances at the time of APP purchases and the persistence of TARGET balances in the context of subsequent portfolio rebalancing. TARGET balances per se are not necessarily an indicator of stress in bank funding markets, financial market fragmentation or unsustainable balance of payments developments.
JEL Code
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G02 : Financial Economics→General→Behavioral Finance: Underlying Principles
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
7 November 2017
WORKING PAPER SERIES - No. 2108
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Abstract
Building upon a Behavioural Equilibrium Exchange Rate (BEER) model, estimated at a quarterly frequency since 1999 on a broad sample of 57 countries, this paper assesses whether both the size and the persistence of real effective exchange rate misalignments from the levels implied by economic fundamentals are affected by the adoption of a single currency. While real misalignments are found to be smaller in the euro area than in its main trading partners, they are also more persistent, although the reactivity of real exchange rates to past misalignments increased, and therefore the persistence decreased, after the global financial crisis. In the absence of the nominal adjustment channel, an improvement in the quality of regulation and institutions is found to reduce the persistence of real exchange rate misalignments, plausibly by removing real rigidities.
JEL Code
E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
E30 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→General
F00 : International Economics→General→General
29 November 2017
FINANCIAL STABILITY REVIEW - ARTICLE
Financial Stability Review Issue 2, 2017
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Abstract
This special feature examines the potential drivers of the post-crisis retrenchment in cross-border banking in the euro area, which stands out in international comparison. Examining a wide range of possible determinants of this phenomenon, it establishes a significant link between deteriorating asset quality and the retrenchment in cross-border banking. Conversely, tighter prudential policies and the introduction of bank levies do not contribute to explaining the reduction in cross-border banking activity. Therefore, tackling the persistent asset quality problems, along with the completion of the banking union, would seem to be pivotal to reaping the potential benefits of cross-border banking within the euro area in terms of risk diversification and risk-sharing.
JEL Code
G00 : Financial Economics→General→General
22 December 2017
ECONOMIC BULLETIN - ARTICLE
Economic Bulletin Issue 8, 2017
26 February 2018
WORKING PAPER SERIES - No. 2130
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Abstract
This paper examines the drivers of the retrenchment in cross-border banking in the European Union (EU) since the global financial crisis, which stands out in international comparison as banks located in the euro area and in the rest of the EU reduced their cross-border claims by around 25%. Particularly striking is the sharp and sustained reduction in intra-EU claims, especially in the form of deleveraging from cross-border interbank loans. Examining a wide range of possible determinants, we identify high non-performing loans as an important impediment to cross-border lending after the crisis, highlighting the spillovers from national banking sector conditions across the EU. We also find evidence that prudential policies can entail spillovers via cross-border banking in the EU, albeit with heterogeneity across instruments in terms of direction, magnitude and significance. Our results do not point to a major role of newly introduced bank levies in explaining cross-border banking developments.
JEL Code
F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
F30 : International Economics→International Finance→General
F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
G15 : Financial Economics→General Financial Markets→International Financial Markets
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
10 May 2018
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 3, 2018
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Abstract
The euro area's international investment position (i.i.p.) improved further in 2017. The recent improvement in the euro area's net i.i.p. was mainly driven by net financial transactions – reflecting the euro area’s current account surplus – and developments in asset prices. As regards financial instruments, the improvement in the euro area's net i.i.p. was mainly due to a shift in portfolio debt securities from a net liability to a net asset position.
JEL Code
F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
8 November 2018
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 7, 2018
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Abstract
The composition of the euro area current account balance in terms of its geographical counterparts has been fairly stable in recent years, with the euro area's most important trading partners accounting for the largest part of the bilateral surpluses and deficits. The bulk of the increase in the euro area's current account surplus since 2013 was accounted for by improvements vis-à-vis the euro area's three largest trading partners. The largest changes in the geographical breakdown of the euro area current account balances were recorded for trade in goods and primary income.
JEL Code
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
13 February 2019
WORKING PAPER SERIES - No. 2238
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Abstract
Both academic researchers and policymakers posit a unique role for the US in the inter-national financial system. This paper investigates the characteristics and determinants of US cross-border financial flows and examines how these contrast with those of the rest of the world. We analyse the relative importance of US, country-specific, and global variables as determinants of aggregate and bilateral US financial flows and as determinants of country-level cross-border financial flows excluding those directly involving the US. Our results indicate that variation in US variables – notably the VIX and US dollar exchange rate – has a quantitatively important influence on global financial flows, but mostly via US cross-border flows. Global and national risk indicators perform better in explaining “rest of the world” flows. Moreover, we find that the correlation between US and rest of the world flows peaks in periods of elevated uncertainty. We interpret our findings as evidence for the existence of a global financial cycle, only some of which is driven by policies and events in the US.
JEL Code
F15 : International Economics→Trade→Economic Integration
F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
G15 : Financial Economics→General Financial Markets→International Financial Markets
25 March 2019
WORKING PAPER SERIES - No. 2252
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Abstract
Does distance matter for the volatility of international real and financial transactions? We show that it does, in addition to its well-established relevance for the level of trade. A simple model of trade with endogenous markups shows that demand shocks have a larger impact on trade between more distant countries. We test this implication in two steps, relying on a broad range of real and financial transactions measures, as well as several different metrics of distance (physical, linguistic, and internet). We first show that during the Great Trade Collapse of 2007-09 international transactions fell more between countries that are more distant along the various metrics, and find that the different distance measures magnify each other’s respective impacts. We then focus on a longer panel analysis of trade in goods and show that trade is more volatile between more distant countries, with again a magnification pattern across metrics of distance.
JEL Code
F10 : International Economics→Trade→General
F30 : International Economics→International Finance→General
30 April 2019
OCCASIONAL PAPER SERIES - No. 221
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Abstract
The studies summarised in this paper focus on the economic implications of euro area firms’ participation in global value chains (GVCs). They show how, and to what extent, a large set of economic variables and inter-linkages have been affected by international production sharing. The core conclusion is that GVC participation has major implications for the euro area economy. Consequently, there is a case for making adjustments to standard macroeconomic analysis and forecasting for the euro area, taking due account of data availability and constraints.
JEL Code
F6 : International Economics→Economic Impacts of Globalization
F10 : International Economics→Trade→General
F14 : International Economics→Trade→Empirical Studies of Trade
F16 : International Economics→Trade→Trade and Labor Market Interactions
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
20 June 2019
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 4, 2019
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Abstract
This box analyses recent developments in the financial account of the euro area balance of payments. In 2018, the euro area recorded net financial outflows of 2.7% of GDP amid an overall decline in gross cross-border financial flows. Portfolio investment, particularly in debt securities, continued to be affected by the Eurosystem’s asset purchase programme. At the same time, the euro area recorded a retrenchment in foreign direct investment flows, mainly reflecting transactions vis-à-vis the United States, most likely linked to the US tax reform.
JEL Code
F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
24 March 2020
ECONOMIC BULLETIN - ARTICLE
Economic Bulletin Issue 2, 2020
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Abstract
This article analyses how the operations of large multinational enterprises (MNEs) affect the external account of the euro area and, in general, financial centres. The increased ease of moving intangible assets, profits and headquarters across borders poses challenges to the current framework of international statistics and economic analysis. First, the article shows how MNE operations are recorded in cross-border statistics, as well as the challenges in measuring such data. Second, the article highlights evidence of the impact that MNEs have on the external account of the euro area – this is most evident in current account balances and foreign direct investment in euro area financial centres, often involving special-purpose entities (SPEs). Third, the article looks at the tendency of financial centres to report current account surpluses that may be tentatively attributed, in part, to the activity of MNEs. Multilateral initiatives could help to improve the transparency of MNE operations and ensure an exchange of information across borders for tax and statistical purposes.
JEL Code
F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
F23 : International Economics→International Factor Movements and International Business→Multinational Firms, International Business
F3 : International Economics→International Finance
6 April 2020
WORKING PAPER SERIES - No. 2388
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Abstract
We analyse euro area investors' portfolio rebalancing during the ECB's Asset Purchase Programme at the security level. Based on net transactions of domestic and foreign securities, we observe euro area sectors' capital flows into individual securities, cleaned from valuation effects. Our empirical analysis – which accounts for security-level characteristics – shows that euro area investors (in particular investment funds and households) actively rebalanced away from securities targeted under the Public Sector Purchase Programme and other euro-denominated debt securities, towards foreign debt instruments, including ‘closest substitutes’, i.e. certain sovereign debt securities issued by non-euro area advanced countries. This rebalancing was particularly strong during the first six quarters of the programme. Our analysis also reveals marked differences across sectors as well as country groups within the euro area, suggesting that quantitative easing has induced heterogeneous portfolio shifts.
JEL Code
F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G15 : Financial Economics→General Financial Markets→International Financial Markets
27 May 2020
WORKING PAPER SERIES - No. 2417
Details
Abstract
This paper provides a dataset on the currency composition of the international investment position for a group of 50 countries for the period 1990-2017. It improves available data based on estimates by incorporating actual data reported by statistical authorities and refining estimation methods. The paper illustrates current and new uses of these data, with particular focus on the evolution of currency exposures of cross-border positions.
JEL Code
F20 : International Economics→International Factor Movements and International Business→General
F31 : International Economics→International Finance→Foreign Exchange
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
24 September 2020
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 6, 2020
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Abstract
This box introduces the ECB’s enhanced effective exchange rates (EERs) and harmonised competitiveness indicators (HCIs). It presents the new methodology for calculating the underlying weighting scheme, which is based not solely on trade in manufactured goods but now also on trade in services. The inclusion of services trade reflects its growing importance in the light of globalisation and digitalisation and has become possible thanks to increased availability of data.
JEL Code
F10 : International Economics→Trade→General
F30 : International Economics→International Finance→General
F31 : International Economics→International Finance→Foreign Exchange
F40 : International Economics→Macroeconomic Aspects of International Trade and Finance→General
19 February 2021
WORKING PAPER SERIES - No. 2526
Details
Abstract
We study the impact of the COVID-19 shock on the portfolio exposures of euro area investors. The analysis “looks-through” holdings of investment fund shares to first gauge euro area investors' full exposures to global debt securities and listed shares by sector at end-2019 and to subsequently analyse the portfolio shifts in the first and second quarters of 2020. We show important heterogeneous patterns across asset classes and sectors, but also across euro area less and more vulnerable countries. In particular, we find a broad-based rebalancing towards domestic sovereign debt at the expense of extra-euro area sovereigns, consistent with heightened home bias. These patterns were strongly driven by indirect holdings – via investment funds – especially for insurance companies and pension funds, but levelled off in the second quarter. On the contrary, for listed shares we find that euro area investors rebalanced away from domestic towards extra-euro area securities in both the first and the second quarter, which may be associated with better relative foreign stock market performance. Many of these shifts were only due to indirect holdings, corroborating the importance of investment funds in assessing investors' exposures via securities, in particular in times of large shocks. We also confirm the important intermediation role played by investment funds in an analysis focusing on the large-scale portfolio rebalancing observed between 2015 and 2017 during the ECB's Asset Purchase Programme.
JEL Code
F30 : International Economics→International Finance→General
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
G15 : Financial Economics→General Financial Markets→International Financial Markets
21 June 2021
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 4, 2021
Details
Abstract
Amid elevated volatility in economic activity and international trade due to the pandemic, the overall euro area current account surplus narrowed only slightly in 2020 compared with 2019, from 2.3% to 2.2% of GDP. However, external transactions in the current account contracted sharply during the first half of the year, following the outbreak of the pandemic and the introduction of measures to contain its spread. The economic repercussions of the pandemic were particularly visible in the trade in services balance, where travel restrictions led to a sharp reduction in the euro area surplus on travel services.
JEL Code
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
2020
Open Economies Review
  • Fidora, Michael; Giordano, Claire; Schmitz, Martin;
2019
Review of International Economics
  • Fidora, Michael; Schmitz, Martin; Tcheng, Céline
2019
Review of World Economics
  • Emter, Lorenz; Tirpák, Marcel
2017
Journal of International Money and Finance
  • Hellmanzik, Christiane; Schmitz, Martin
2017
Journal of International Money and Finance
  • McQuade, Peter; Schmitz, Martin
2015
European Economic Review
  • Hellmanzik, Christiane; Schmitz, Martin
2014
Review of World Economics
  • Schmitz, Martin
2013
International Journal of Finance and Economics
  • Schmitz, Martin
2010
Open Economies Review
  • Schmitz, Martin