Michael Fidora
Economics
- Division
-
Euro Area External Sector
- Current Position
-
Lead Economist
- Fields of interest
-
Macroeconomics and Monetary Economics,International Economics
- Education
- 2000-2004
Diplom, Economics, Goethe-University Frankfurt
- Professional experience
- 2020-2020
Lead Economist, Directorate General Economics, European Central Bank
- 2013-2019
Principal Economist, Directorate General Economics, European Central Bank
- 2011-2013
Economist, Directorate General Economics, European Central Bank
- 2005-2011
Economist, Directorate General International and European Relations, European Central Bank
- 27 October 2006
- WORKING PAPER SERIES - No. 685Details
- Abstract
- This paper focuses on the role of real exchange rate volatility as a driver of portfolio home bias, and in particular as an explanation for differences in home bias across financial assets. We present a Markowitz-type portfolio selection model in which real exchange rate volatility induces a bias towards domestic financial assets as well as a stronger home bias for assets with low local currency return volatility. We find empirical support in favour of this hypothesis for a broad set of industrialised and emerging market countries. Not only is real exchange rate volatility an important factor behind bilateral portfolio home bias, but we find that a reduction of monthly real exchange rate volatility from its sample mean to zero reduces bond home bias by up to 60 percentage points, while it reduces equity home bias by only 20 percentage points.
- JEL Code
- F30 : International Economics→International Finance→General
F31 : International Economics→International Finance→Foreign Exchange
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G15 : Financial Economics→General Financial Markets→International Financial Markets
- 13 June 2007
- WORKING PAPER SERIES - No. 761Details
- Abstract
- The influential work of Obstfeld and Rogoff argues that a closing-up of the US current account deficit involves a large exchange rate adjustment. However, the Obstfeld-Rogoff model works exclusively via demand-side channels and abstracts from possible supply-side changes. We extend the framework to allow for endogenous supply-side changes and show that this fundamentally alters the mechanism of the adjustment process. Allowing for such an extension attenuates quite significantly the implied exchange rate adjustment. The paper also provides some empirical evidence of variations in the supply-side structure and correlations with the exchange rate and the current account. The policy implications are that measures to foster a supply-side reaction would facilitate the external adjustment by alleviating an exclusive reliance on demand and exchange rate changes, with the latter being potentially destabilising for the global financial system.
- JEL Code
- E2 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
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
- 22 January 2008
- OCCASIONAL PAPER SERIES - No. 78Details
- Abstract
- In this paper, we take a systematic look at global imbalances. First, we provide a definition of the phenomenon, and relate global imbalances to widening external positions of systemically important economies that reflect distortions or entail risks for the global economy. Second, we provide an operational content to this definition by measuring trends in external imbalances over the past decade and putting these in a historical perspective. We argue that three main features set today's situation apart from past episodes of growing external imbalances: (i) the emergence of new players, in particular emerging market economies such as China and India, which are quickly catching up with the advanced economies; (ii) an unprecedented wave of financial globalisation, with more integrated global financial markets and increasing opportunities for international portfolio diversification, also characterised by considerable asymmetries in the level of market completeness across countries; and (iii) the favourable global macroeconomic and financial environment, with record high global growth rates in recent years, low financial market volatility and easy global financing conditions over a long time period of time, running at least until the summer of 2007. Finally, we provide an analytical overview of the fundamental causes and drivers of global imbalances. The central argument is that the increase in imbalances has been driven by a unique combination of structural and cyclical determinants.
- JEL Code
- F2 : International Economics→International Factor Movements and International Business
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
F33 : International Economics→International Finance→International Monetary Arrangements and Institutions
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
- 30 June 2008
- WORKING PAPER SERIES - No. 911Details
- Abstract
- Since the late-1990s, the global economy is characterised by historically low risk premia and an unprecedented widening of external imbalances. This paper explores to what extent these two global trends can be understood as a reaction to three structural shocks in different regions of the global economy: (i) monetary shocks ("excess liquidity" hypothesis), (ii) preference shocks ("savings glut" hypothesis), and (iii) investment shocks ("investment drought" hypothesis). In order to uniquely identify these shocks in an integrated framework, we estimate structural VARs for the two main regions with widening imbalances, the United States and emerging Asia, using sign restrictions that are compatible with standard New Keynesian and Real Business Cycle models. Our results show that monetary shocks potentially explain the largest part of the variation in imbalances and financial market prices. We find that savings shocks and investment shocks explain less of the variation. Hence, a "liquidity glut" may have been a more important driver of real and financial imbalances in the US and emerging Asia than a "savings glut".
- JEL Code
- E2 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
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
G15 : Financial Economics→General Financial Markets→International Financial Markets
- 2 July 2008
- OCCASIONAL PAPER SERIES - No. 91Details
- Abstract
- wealth funds (SWFs) on global financial markets. It presents back-of-the-envelope calculations which simulate the potential impact of a transfer of traditional foreign exchange reserves to SWFs on global capital flows. If SWFs behave as CAPM-type investors and thus allocate foreign assets according to market capitalisation rather than liquidity considerations, official portfolios reduce their "bias" towards the major reserve currencies. As a result, more capital flows "downhill" from rich to less wealthy economies, in line with standard neoclassical predictions. More specifically, it is found that under the assumption of SWFs investing according to market capitalisation weights, the euro area and the United States could be subject to net capital outflows while Japan and the emerging markets would attract net capital inflows. It is also shown that these findings are sensitive to alternative assumptions for the portfolio objectives of SWFs. Finally, the paper discusses whether a change in net capital flows triggered by SWFs could have an impact on stock prices and bond yields. Based on an event study approach, no evidence can be found for a stock price impact of non-commercially motivated stock sales by Norway's Government Pension Fund.
- JEL Code
- F30 : International Economics→International Finance→General
F40 : International Economics→Macroeconomic Aspects of International Trade and Finance→General
G15 : Financial Economics→General Financial Markets→International Financial Markets - Network
- Eurosystem Monetary Transmission Network
- 16 June 2010
- OCCASIONAL PAPER SERIES - No. 113Details
- Abstract
- This report aims to analyse euro area energy markets and the impact of energy price changes on the macroeconomy from a monetary policy perspective. The core task of the report is to analyse the impact of energy price developments on output and consumer prices. Nevertheless, understanding the link between energy price fluctuations, inflationary pressures and the role of monetary policy in reacting to such pressure requires a deeper look at the structure of the economy. Energy prices have presented a challenge for the Eurosystem, as the volatility of the energy component of consumer prices has been high since the creation of EMU. At the same time, a look back into the past may not necessarily be very informative for gauging the likely impact of energy price changes on overall inflation in the future. For instance, the reaction of HICP inflation to energy price fluctuations seems to have been more muted during the past decade than in earlier periods such as the 1970s.
- 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
- 7 April 2011
- WORKING PAPER SERIES - No. 1318Details
- Abstract
- Identification of structural VARs using sign restrictions has become increasingly popular in the academic literature. This paper (i) argues that identification of shocks can benefit from introducing a global dimension, and (ii) shows that summarising information by the median of the available impulse responses
- 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
E17 : Macroeconomics and Monetary Economics→General Aggregative Models→Forecasting and Simulation: Models and Applications
F37 : International Economics→International Finance→International Finance Forecasting and Simulation: Models and Applications
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
F47 : International Economics→Macroeconomic Aspects of International Trade and Finance→Forecasting and Simulation: Models and Applications
- 28 June 2012
- OCCASIONAL PAPER SERIES - No. 134Details
- 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
- 8 June 2015
- WORKING PAPER SERIES - No. 1798Details
- Abstract
- Capital flows into the euro area were particularly large in the mid-2000s and the share of foreign holdings of euro area securities increased substantially between the introduction of the euro and the outbreak of the global financial crisis. We show that the increase in foreign holdings of euro area bonds in this period is associated with a reduction of euro area long-term interest rates by about 1.55 percentage points, which is in line with previous studies that document a similar impact of foreign bond buying on US Treasury yields. These results are relevant both from a euro area and a global perspective, as they show that the phenomenon of lower long-term interest rates due to foreign bond buying is not exclusive to the United States and foreign inflows into euro area debt securities may have added to increased risk appetite and hunt-for-yield at the global level.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
G15 : Financial Economics→General Financial Markets→International Financial Markets
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
- 12 June 2017
- WORKING PAPER SERIES - No. 2074Details
- 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
- 7 November 2017
- WORKING PAPER SERIES - No. 2108Details
- 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
- 22 December 2017
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 8, 2017
- 10 May 2018
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 3, 2018Details
- 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
- 9 August 2018
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 5, 2018Details
- Abstract
- The euro area current account balance stood at the historically high level of 3.6% of GDP in the year up to the first quarter of 2018, slightly above the level of 3.5% of GDP recorded one year earlier. The slight increase in the current account surplus however masks significant decreases in the surplus on trade in goods (by 0.2 percentage point of GDP) as well as in the surplus on primary income (by 0.3 percentage point of GDP), which were slightly more than offset by an increase in the surplus on trade in services (by 0.5 percentage point of GDP).
- 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
- 8 November 2018
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 7, 2018Details
- 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
- 30 April 2019
- OCCASIONAL PAPER SERIES - No. 221Details
- 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 - BOXEconomic Bulletin Issue 4, 2019Details
- 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
- 6 April 2020
- WORKING PAPER SERIES - No. 2388Details
- 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
- 6 August 2020
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 6, 2020Details
- Abstract
- This box reviews the recent decision on the inclusion of the Bulgarian lev and the Croatian kuna in ERM II from a historical, institutional, policy and economic perspective. It explains the key features of ERM II, describes the process and rationale underlying the decision, including the prior and post‑ERM II entry policy commitments made by the Bulgarian and Croatian authorities, and explains the key elements that were taken into consideration when defining the central rate of the lev and the kuna against the euro in the exchange rate mechanism.
- JEL Code
- F02 : International Economics→General→International Economic Order
F31 : International Economics→International Finance→Foreign Exchange
- 24 September 2020
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 6, 2020Details
- 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
- 5 January 2021
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 8, 2020Details
- Abstract
- The Bulgarian lev and the Croatian kuna were included in the exchange rate mechanism (ERM II) on 10 July 2020. This marks a milestone towards further enlargement of the euro area. The process unfolded along a roadmap agreed by the various ERM II parties, which reflects the lessons learned from the past and the creation of banking union, as well as a careful assessment of country-specific strengths and vulnerabilities. First, this article briefly reviews the history, main features and procedures of ERM II. It then argues on the basis of quantitative evidence that the process of euro adoption may induce a regime shift when a country joins ERM II. This shift may alter the economic incentives of both domestic and foreign investors and the authorities of the Member State concerned, with important policy implications. For this reason, countries need sound policies, governance and institutions in order to allocate international financial inflows and domestic credit efficiently. They must also address risks with adequate macroeconomic, macroprudential, supervisory and structural measures. Drawing on this analysis, the third part of the article explains the rationale for ERM II participation and the roadmap towards it that has been successfully implemented for Bulgaria and Croatia. This includes the completion of several policy measures before joining ERM II, as well as post-entry policy commitments made by the Bulgarian and Croatian authorities. The article concludes by highlighting the way ahead and challenges faced by the two countries on the path towards euro adoption.
- JEL Code
- E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
F02 : International Economics→General→International Economic Order
F31 : International Economics→International Finance→Foreign Exchange
F33 : International Economics→International Finance→International Monetary Arrangements and Institutions
F45 : International Economics→Macroeconomic Aspects of International Trade and Finance
- 21 June 2021
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 4, 2021Details
- 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 ReviewReal Exchange Rate Misalignments in the Euro Area
- 2019
- Review of International Economics, Vol 27, April 2019Reducing large net foreign liabilities
- 2018
- ECMI Papers 13926, 2018International capital flows at the security level – evidence from the ECB’s asset purchase programme
- 2015
- Journal of International Money and Finance, Elsevier, vol. 54(C), June 2015Capital inflows and euro area long-term interest rates
- 2013
- Journal of Economic and Social Measurement, Vol. 38(2), 2013Revisiting the effective exchange rates of the euro
- 2012
- North American Journal of Economics and Finance, Vol. 23, 2012Global liquidity glut or savings glut – a structural VAR approach
- 2012
- Dallas Fed Staff Papers, No. 19, December 2012How the global perspective can help us identify structural shocks
- 2010
- World Economy, Vol. 33(9), September 2010A framework for assessing global imbalances
- 2010
- Arjan Berkelaar, Joachim Coche and Ken Nyholm (eds.) Central Bank Reserves and Sovereign Wealth Management, Palgrave Macmillan, 2010.Foreign exchange reserves and sovereign wealth funds: will they change the global financial landscape?
- 2009
- Review of International Economics, Vol. 17(5), November 2009External adjustment and the US current account: how supply-side changes affect an exchange rate adjustment
- 2009
- European Business Organisation Law Review, Vol. 10(3), September 2009Sovereign wealth funds: before and since the crisis
- 2008
- Review of European Economic Policy, Vol. 43(6), December 2008The impact of sovereign wealth funds on global financial markets
- 2007
- Journal of International Money and Finance, Vol. 26(4), June 2007Home bias in global bond and equity markets: the role of real exchange rate volatility