Peter Hoffmann
Research
- Division
Financial Research
- Current Position
-
Team Lead - Economist
- Fields of interest
-
Financial Economics
- Education
- 2005-2011
PhD in Finance, Universitat Pompeu Fabra, Barcelona, Spain
- Professional experience
- 2022-
Guest researcher - Deutsche Bundesbank
- 2011-
Research Economist - Financial Research Division, Directorate General Research, European Central Bank
- 2018
ECB Banking Supervision (internal secondment)
- 2015-2016
European Systemic Risk Board (internal secondment)
- Awards
- 2017
BEDOFIH-EUROFIDAI Data Award
- 2011
Josseph de la Vega Prize, Federation of European Securities Exchanges (FESE)
- Teaching experience
- 2018-
Visiting Fellow and Instructor, HEC Paris
- 2006-2010
Teaching Assistant, Universitat Pompeu Fabra
- 25 April 2023
- WORKING PAPER SERIES - No. 2809Details
- Abstract
- Digitalisation has fundamentally changed the global economy and will continue to do so. This paper draws on economic research to identify some of its key implications for labour markets, inequality, e-commerce and the financial system. Beyond its potential to boost productivity and living standards, digitalisation: i) does not necessarily replace jobs on aggregate but changes their content; ii) tends to raise income and wealth inequality; iii) has ambiguous effects on competition; and iv) might change how the retail and financial sectors respond to monetary policy. Developing adequate (re-)training opportunities and providing a labour market, regulatory, and innovation environment which encourages the creation of “good jobs” is essential to improve productivity and equity while avoiding a polarisation of labour markets. E-commerce and fintech will likely lead to a faster transmission of monetary policy. The rise of fintech brings about new risks for regulatory arbitrage and has ramifications for financial stability.
- JEL Code
- D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
D4 : Microeconomics→Market Structure and Pricing
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G2 : Financial Economics→Financial Institutions and Services - Network
- Discussion papers
- 15 February 2023
- WORKING PAPER SERIES - No. 2783Details
- Abstract
- What is the effect of Central Bank Digital Currency (CBDC) on financial stability? We answer this question by studying a model of financial intermediation with an endogenously determined probability of a bank run and a remunerated CBDC that provides consumers with an alternative to bank deposits. Consistent with concerns among policy-makers, higher CBDC remuneration raises bank fragility by increasing consumers’ withdrawal incentives. However, it also induces the bank to offer more attractive deposit contracts in an effort to retain funding, which reduces fragility. Accordingly, the overall relationship between bank fragility and CBDC remuneration is U-shaped. We evaluate the effects of different policy proposals aimed at reducing the financial stability implications of CBDC, and study extensions that allow for imperfect competition in deposit markets and bank risk-taking.
- JEL Code
- D82 : Microeconomics→Information, Knowledge, and Uncertainty→Asymmetric and Private Information, Mechanism Design
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 31 October 2022
- RESEARCH BULLETIN - No. 100Details
- Abstract
- Central banks around the world are exploring the case for central bank digital currency (CBDC) – essentially a digital version of cash. In this article, we provide an overview of the economics of CBDC (Ahnert et al., 2022a). First, we outline the economic forces that shape the rise of digital money and motivate the current debate. We then look at the implications for monetary policy and financial stability before discussing policy issues and challenges. Finally, we highlight several areas where our understanding of digital money could be improved by further research.
- JEL Code
- E41 : Macroeconomics and Monetary Economics→Money and Interest Rates→Demand for Money
E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 26 September 2022
- WORKING PAPER SERIES - No. 2732Details
- Abstract
- We study how banks manage their liquidity among the various assets at their disposal. We exploit the introduction of the ECB’s two-tier system which heterogeneously reduced the cost of additional reserves holdings. We find that the treated banks increase reserve holdings by borrowing on the interbank market, decreasing lending to affiliates of the same group, and selling marketable securities. We also find that banks have a preference for a stable portfolio composition of liquid assets over time. Our results imply that frictions in one market for liquidity can spill over to several markets.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
- 16 August 2022
- WORKING PAPER SERIES - No. 2713Details
- Abstract
- This paper provides a structured overview of the burgeoning literature on the economics of CBDC. We document the economic forces that shape the rise of digital money and review motives for the issuance of CBDC. We then study the implications for the financial system and discuss of a number of policy issues and challenges. While the academic literature broadly echoes policy makers’ concerns about bank disintermediation and financial stability risks, it also provides conditions under which such adverse effects may not materialize. We also point to several knowledge gaps that merit further work, including data privacy and the study of end‐user preferences for attributes of digital payment methods.
- JEL Code
- E41 : Macroeconomics and Monetary Economics→Money and Interest Rates→Demand for Money
E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages - Network
- Discussion papers
- 13 May 2022
- WORKING PAPER SERIES - No. 2662Details
- Abstract
- We study a model of financial intermediation, payment choice, and privacy in the digital economy. While digital payments enable merchants to distribute their goods online, they also reveal information to banks. By contrast, cash only allows for inefficient offline sales, but guaran-tees anonymity. In equilibrium, merchants trade off the efficiency gains from online distribution (with digital payments) and the informational rents from staying anonymous (with cash). The introduction of central bank digital currency (CBDC) raises welfare because it reduces the privacy concerns associated with online distribution. Payment to-kens issued by digital platforms crowd out CBDC unless the latter facilitates data-sharing.
- JEL Code
- D82 : Microeconomics→Information, Knowledge, and Uncertainty→Asymmetric and Private Information, Mechanism Design
E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
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
- 26 February 2021
- WORKING PAPER SERIES - No. 2529Details
- Abstract
- We propose a new model of trading in OTC markets. Dealers accumulate inventories by trading with end-investors and trade among each other to reduce their inventory holding costs. Core dealers use a more efficient trading technology than peripheral dealers, who are heterogeneously connected to core dealers and trade with each other bilaterally. Connectedness affects prices and allocations if and only if the peripheral dealers’ aggregate inventory position differs from zero. Price dispersion increases in the size of this position. The model generates new predictions about the effects of dealers' connectedness and dealers' aggregate inventories on prices.
- JEL Code
- G10 : Financial Economics→General Financial Markets→General
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G19 : Financial Economics→General Financial Markets→Other
- 3 July 2020
- WORKING PAPER SERIES - No. 2438Details
- Abstract
- We study the effects of technological change on financial intermediation, distinguishing between innovations in information (data collection and processing) and communication (relationships and distribution). Both follow historic trends towards an increased use of hard information and less in-person interaction, which are accelerating rapidly. We point to more recent innovations, such as the combination of data abundance and artificial intelligence, and the rise of digital platforms. We argue that in particular the rise of new communication channels can lead to the vertical and horizontal disintegration of the traditional bank business model. Specialized providers of financial services can chip away activities that do not rely on access to balance sheets, while platforms can interject themselves between banks and customers. We discuss limitations to these challenges, and the resulting policy implications.
- JEL Code
- G20 : Financial Economics→Financial Institutions and Services→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
O33 : Economic Development, Technological Change, and Growth→Technological Change, Research and Development, Intellectual Property Rights→Technological Change: Choices and Consequences, Diffusion Processes - Network
- Discussion papers
- 30 September 2019
- WORKING PAPER SERIES - No. 2319Details
- Abstract
- This paper develops composite indicators of financial integration within the euro area for both price-based and quantity-based indicators covering money, bond, equity and banking markets. Prior to aggregation, individual integration indicators are harmonised by applying the probability integral transform. We find that financial integration in Europe increased steadily between 1995 and 2007. The subprime mortgage crisis marked a turning point, bringing about a marked drop in both composite indicators. This fragmentation trend reversed when the European banking union and the ECB's Outright Monetary Transactions Programme were announced in 2012, with financial integration recovering more strongly when measured by price-based indicators. In a growth regression framework, we find that higher financial integration tends to be associated with an increase in per capita real GDP growth in euro area countries. This correlation is found to be stronger the higher a country's growth opportunities.
- JEL Code
- F36 : International Economics→International Finance→Financial Aspects of Economic Integration
F43 : International Economics→Macroeconomic Aspects of International Trade and Finance→Economic Growth of Open Economies
F45 : International Economics→Macroeconomic Aspects of International Trade and Finance
G01 : Financial Economics→General→Financial Crises
G15 : Financial Economics→General Financial Markets→International Financial Markets
- 30 July 2019
- RESEARCH BULLETIN - No. 61Details
- Abstract
- Forward guidance, i.e. communication by a central bank about the likely future path of interest rates, usually reduces uncertainty. But it matters how this is done in practice, because forward guidance with a short time horizon can raise uncertainty. This occurs if the forward guidance impairs the aggregation of private information in financial markets, thus making market prices less informative.
- JEL Code
- D83 : Microeconomics→Information, Knowledge, and Uncertainty→Search, Learning, Information and Knowledge, Communication, Belief
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
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
- 15 April 2019
- WORKING PAPER SERIES - No. 2263Details
- Abstract
- Central banks have used different types of forward guidance, where the forward guidance horizon is related to a state contingency, a calendar date or left open-ended. This paper reports cross-country evidence on the impact of these different types of forward guidance on the sensitivity of bond yields to macroeconomic news, and on forecaster disagreement about the future path of interest rates. We show that forward guidance mutes the response to macroeconomic news in general, but that calendar-based forward guidance with a short horizon counterintuitively raises it. Using a model where agents learn from market signals, we show that the release of more precise public information about future rates lowers the informativeness of market signals and, as a consequence, may increase uncertainty and amplify the reaction of expectations to macroeconomic news. However, when the increase in precision of public information is sufficiently large, uncertainty is unambiguously reduced.
- JEL Code
- D83 : Microeconomics→Information, Knowledge, and Uncertainty→Search, Learning, Information and Knowledge, Communication, Belief
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
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
- 22 February 2019
- RESEARCH BULLETIN - No. 55Details
- Abstract
- Challenging conventional wisdom, recent research shows that, collectively, euro area banks have limited exposure to interest rate risk, but that their individual exposures vary significantly from institution to institution. Differences in interest-rate setting conventions for loan contracts, especially mortgages, across euro area countries have been shown to be an important driver of this heterogeneity. This heterogeneity remains pronounced even after taking into account hedging activity in derivatives markets, suggesting that monetary policy may be transmitted through different channels in different parts of the euro area.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy - Network
- Research Task Force (RTF)
- 24 September 2018
- WORKING PAPER SERIES - No. 2176Details
- Abstract
- We study the allocation of interest rate risk within the European banking sector using novel data. Banks’ exposure to interest rate risk is small on aggregate, but heterogeneous in the cross-section. In contrast to conventional wisdom, net worth is increasing in interest rates for approximately half of the institutions in our sample. Cross-sectional variation in banks’ exposures is driven by cross-country differences in loan-rate fixation conventions for mortgages. Banks use derivatives to partially hedge on-balance sheet exposures. Residual exposures imply that changes in interest rates have redistributive effects within the banking sector.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
- 24 May 2018
- FINANCIAL STABILITY REVIEW - ARTICLEFinancial Stability Review Issue 1, 2018Details
- Abstract
- This special feature analyses the distribution of interest rate risk in the euro area economy using balance sheet data and information on derivatives positions from significant credit institutions. On aggregate, banks’ interest rate risk exposure is small relative to their loss absorption capacity, but exposure varies across institutions. This variation is driven by loan rate fixation practices at country level. Banks use derivatives for hedging, but retain residual interest rate risk exposures. In fixed-rate countries the main vulnerability to rising interest rates lies with the banks that have the greatest interest rate risk, while households would be directly affected in countries with predominantly variable-rate loans. In the latter case, increased loan servicing costs due to rising interest rates could affect banks through lower asset quality.
- JEL Code
- G00 : Financial Economics→General→General
- 21 June 2017
- WORKING PAPER SERIES - No. 2080Details
- Abstract
- Monetary policy communication is particularly important during unconventional times because high uncertainty about the economy, the introduction of new policy tools and possible limits to the central bank’s toolkit could hamper the predictability of policy actions. We study how monetary policy communication should and has worked under such circumstances. Our main results relate to announcements of asset purchase programmes and the use of forward guidance. We show that announcements of asset purchase programmes have lowered market uncertainty, particularly when accompanied by a contextual release of implementation details such as the envisaged size of the programme. We also show that forward guidance reduces uncertainty more effectively when it is state‐contingent or when it provides guidance about a long horizon than when it is open‐ended or covers only a short horizon, and that the credibility of forward guidance is strengthened if the central bank also has embarked on an asset purchase programme.
- JEL Code
- 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
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies - Network
- Discussion papers
- 28 February 2017
- WORKING PAPER SERIES - No. 2030Details
- Abstract
- We use the introduction of a financial transaction tax (FTT) in France in 2012 to test competing theories on its impact. We find no support for the idea that an FTT improves market quality by affecting the composition of trading volume. Instead, our results are in line with the hypothesis that a lower trading volume reduces liquidity, and thereby market quality. Consistent with theories of asset pricing under transaction costs, we document a shift in security holdings from short-term to long-term investors. Finally, our findings show that moderate aggregate effects on market quality can mask large adjustments made by individual agents.
- JEL Code
- G10 : Financial Economics→General Financial Markets→General
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
H32 : Public Economics→Fiscal Policies and Behavior of Economic Agents→Firm
- 19 December 2014
- WORKING PAPER SERIES - No. 1755Details
- Abstract
- This paper examines the degree of fragmentation in the Euro overnight unsecured money market during the period June 2008
- JEL Code
- G1 : Financial Economics→General Financial Markets
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit - Network
- Macroprudential Research Network
- 13 March 2013
- WORKING PAPER SERIES - No. 1526Details
- Abstract
- We study the role of high-frequency trading in a dynamic limit order market. Being fast is valuable because it enables traders to revise outstanding limit orders upon news arrivals when interacting with slow market participants. On the one hand, the existence of fast traders can help to reduce the inefficiency that is rooted in the risk of being "picked off" after unfavourable price movements and therefore allows more gains from trade to be realized. On the other hand, slow traders face a relative loss in bargaining power which leads them to strategically submit limit orders with a lower execution probability, thereby reducing trade. Due to this negative externality, the equilibrium level of investment is always welfare-reducing. The model generates additional testable implications regarding the effects of high-frequency trading on order flow statistics.
- JEL Code
- G19 : Financial Economics→General Financial Markets→Other
C72 : Mathematical and Quantitative Methods→Game Theory and Bargaining Theory→Noncooperative Games
D62 : Microeconomics→Welfare Economics→Externalities
- 4 March 2013
- WORKING PAPER SERIES - No. 1519Details
- Abstract
- We study the role of informed trading in a fragmented financial market under the absence of inter-market price priority. Due to frictions in traders’ market access, liquidity providers on alternative trading platforms may be exposed to an increased adverse selection risk. As a consequence, the main market dominates (offers better quotes) frequently albeit charging higher transaction fees. The empirical analysis of a dataset of trading in French and German stocks suggests that trades on Chi-X, a lowcost trading platform, carry significantly more private information than those executed in the Primary Markets. Consistent with our theory, we find a negative relationship between the competitiveness of Chi-X’s quotes and this excess adverse selection risk faced by liquidity providers in the cross-section. Our results have some implications for the design of best-execution policies.
- JEL Code
- G10 : Financial Economics→General Financial Markets→General
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading
G24 : Financial Economics→Financial Institutions and Services→Investment Banking, Venture Capital, Brokerage, Ratings and Ratings Agencies
- 2023
- International Journal of Central BankingThe economics of central bank digital currency
- 2023
- Journal of Financial MarketsBanning Dark Pools: Venue Selection and Investor Trading Costs
- 2021
- Journal of FinanceInventory Management, Dealers' Connections, and Prices in OTC Markets
- 2021
- Management ScienceDiscriminatory pricing of over-the-counter derivatives
- 2021
- Journal of Financial StabilityFintech: What's old, what's new?
- 2020
- Economics LettersDeterminants of excess reserve holdings
- 2020
- Review of Financial StudiesMutual Funding
- 2020
- Economics LettersFinancial integration in Europe through the lens of composite indicators
- 2019
- Journal of Monetary EconomicsCan more public information raise uncertainty? The international evidence on forward guidance
- 2019
- Review of Financial StudiesWho bears interest rate risk?
- 2018
- S. Eijffinger and D. Masciandaro (eds.), Hawks and Doves: Deeds and Words. Economics and Politics of Monetary PolicymakingMore, and More Forward-Looking: Central Bank Communication After the Crisis
- 2017
- Journal of FinanceFinancial Transaction Taxes, Market Composition, and Liquidity
- 2016
- Journal of Banking and FinanceAdverse selection, market access and inter-market competition
- 2014
- Economics LettersFragmentation in the Euro Overnight Unsecured Money Market
- 2014
- Journal of Financial EconomicsA dynamic limit order market with fast and slow traders