Peter Welz

Macro Prud Policy&Financial Stability

Division: Systemic Risk&Financial Institutions
Current Position: Principal Financial Stability Expert
Fields of interest: Macroeconomics and Monetary Economics,Financial Economics,Other Special Topics
Email: peter.welz@ecb.europa.eu

Biography

Education: 2000-2005
PhD Economics, Uppsala University, Sweden; 2004
MPhil Economics, Uppsala University, Sweden; 2003-2003
Visting PhD student, Universitat Pompeu Fabra, Spain; 1999-2000
MSc Economics University of Glasgow, United Kingdom; 1997-1998
Visiting student Stockholm University, Sweden
Professional experience: 2024-
Principal Financial Stability Expert, Systemic Risk & Financial Institutions Division, Directorate Macroprudential Policy & Financial Stability, European Central Bank; 2023-2024
Lead Financial Stability Expert, Systemic Risk & Financial Institutions Division, Directorate Macroprudential Policy & Financial Stability, European Central Bank; 2022-2023
Principal Financial Stability Expert, Systemic Risk & Financial Institutions Division, Directorate Macroprudential Policy & Financial Stability, European Central Bank; 2020-2021
Principal Economist, Supply Side, Surveillance and Labour Market Division, Directorate General Economics, European Central Bank; 2019-2020
Principal Financial Stability Expert, Systemic Risk & Financial Institutions Division, Directorate Macroprudential Policy & Financial Stability, European Central Bank; 2015-2018
Senior Financial Stability Expert, Systemic Risk & Financial Institutions Division, Directorate Macroprudential Policy & Financial Stability, European Central Bank; 2013-2014
Financial Stability Expert, Financial Stability Surveillance Division, Directorate Macroprudential Policy & Financial Stability, European Central Bank; 2010-2013
Economist, Monetary Policy Stance Division, Directorate General Economics, European Central Bank; 2009-2010
Economist, Economics Department, Country Studies Branch, Organisation for Economic Co-operation and Development; 2006-2009
Economist/Senior Economist, Monetary Policy Department, Sveriges Riksbank; 2006
Economist, Econometric Modelling Division, Directorate General Research, European Central Bank
Awards: 2002
C. Borgström and C. Berch Foundation, Uppsala University; 1999
Glasgow University Faculty Scholarship Award

ECB publications

2 May 2024

THE ECB BLOG

Closing the blinds on banks’ window dressing

English

JEL Code: G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation

6 December 2023

MACROPRUDENTIAL BULLETIN - ARTICLE - No. 23

Policy options to address window dressing in the G-SIB framework

English

Abstract: This article summarises the existing evidence of window dressing and seasonality of data at year-end reporting time for global systemically important banks (G-SIBs). Window dressing and seasonality of data distort the outcome of a point-in-time reporting framework, resulting in misleading bank disclosures, mismeasurement of bank risk, inappropriate capital requirements and misallocation of capital. Reduced activity at certain points in time can also be detrimental to market functioning and has the potential to amplify shocks that coincide with period-ends. These negative consequences are amplified by the global nature of the activities and the systemic risk of the banks concerned. Possible policy options for addressing this phenomenon include different reporting requirements, such as averaging over higher frequency data, to ensure that the measurement of a bank’s contribution to systemic risk and capital allocation is commensurate with its actual risk to the financial system and the real economy throughout the year.
JEL Code: G20 : Financial Economics→Financial Institutions and Services→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation

31 May 2023

FINANCIAL STABILITY REVIEW - BOX

Corporate vulnerabilities and the risks of lower growth and higher rates

Financial Stability Review Issue 1, 2023

English

Abstract: Following a strong post-pandemic recovery in profits, euro area non-financial corporations (NFCs) are now facing the risk of stagnating economic activity combined with tightening financial conditions. NFC vulnerabilities might increase as higher interest rates start to weigh on the ability of firms to cover their interest expenses, with highly indebted firms being particularly affected. This box shows that the share of vulnerable loans has been increasing since the second half of 2022 as financial conditions tighten, with those sectors of the economy that were impacted the most by the pandemic being significantly more affected than others. It also finds that higher interest rates could increase corporate vulnerabilities during periods of low or negative economic growth, while there is no statistically significant impact of higher rates on firms’ health during periods of economic expansion.
JEL Code: G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G33 : Financial Economics→Corporate Finance and Governance→Bankruptcy, Liquidation
H32 : Public Economics→Fiscal Policies and Behavior of Economic Agents→Firm

25 May 2022

FINANCIAL STABILITY REVIEW - BOX

Financial stability implications of higher than expected inflation

Financial Stability Review Issue 1, 2022

English

Abstract: Global inflation rates have increased substantially over the past year, driven by high energy prices, supply chain constraints and a rebound in demand. Inflation in the euro area is expected to remain elevated throughout 2022. Since the end of 2020, professional forecasters have repeatedly revised up their inflation projections as outturns surprised to the upside. Future developments in terms of energy prices and supply bottlenecks present upside risks to inflation. This box assesses the channels through which higher than expected inflation could affect financial stability, taking into account the effects for governments, firms, households and financial markets. All else being equal, higher inflation reduces the real value of outstanding debt but also for real incomes. At the same time, cost for expenses and debt servicing costs are rising. The combination of higher inflation and subdued growth can exacerbate the negative impact of inflation on financial stability amid limited scope for offsetting income increases.
JEL Code: E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
E64 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Incomes Policy, Price Policy
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates

25 May 2022

FINANCIAL STABILITY REVIEW - BOX

Identifying the corporates most vulnerable to price shocks following the pandemic

Financial Stability Review Issue 1, 2022

English

Abstract: By the end of 2021, the aggregate profitability and debt positions of euro area non-financial corporations (NFCs) had recovered to pre-pandemic levels. However, these aggregate developments mask considerable heterogeneity among firms; smaller firms and firms with business models heavily impacted by the COVID-19 pandemic had not fully recovered. Against this backdrop, this box uses firm-level data for euro area NFCs to identify vulnerable firms based on the Altman Z-score, a measure of insolvency risk that uses five balance sheet and income statement ratios and their joint importance. It then matches bank and sovereign exposures to consider related risks associated with the sovereign-bank-corporate nexus., smaller firms and firms with business models heavily impacted by the COVID-19 pandemic had not fully recovered. Against this backdrop, this box uses firm-level data for euro area NFCs to identify vulnerable firms based on the Altman Z-score, a measure of insolvency risk that uses five balance sheet and income statement ratios and their joint importance. It then matches bank and sovereign exposures to consider related risks associated with the sovereign-bank-corporate nexus.
JEL Code: G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G33 : Financial Economics→Corporate Finance and Governance→Bankruptcy, Liquidation
G38 : Financial Economics→Corporate Finance and Governance→Government Policy and Regulation
H32 : Public Economics→Fiscal Policies and Behavior of Economic Agents→Firm

23 March 2022

ECONOMIC BULLETIN - ARTICLE

Assessing corporate vulnerabilities in the euro area

Economic Bulletin Issue 2, 2022

English

Abstract: The negative impact of the pandemic on the euro area corporate sector has been mitigated by an effective monetary, fiscal and supervisory policy response. This is also reflected in a low number of corporate insolvency cases. Looking ahead, the balance sheet health of firms and, by extension, the asset quality of banks hinge on the strength of the economic recovery and the financing conditions for firms. Higher corporate indebtedness could dampen investment, posing a risk to the economic recovery. For small and medium-sized enterprises, the pandemic could add to pre-existing vulnerabilities. Structural policies to improve the business environment, including policies aimed at broadening the sources of funding available to firms beyond debt financing, could support sustainable investment growth.
JEL Code: E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
F34 : International Economics→International Finance→International Lending and Debt Problems
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill

13 November 2018

WORKING PAPER SERIES - No. 2194

Semi-structural credit gap estimation

English

Abstract: This paper proposes a semi-structural approach to identifying excessive household credit developments. Using an overlapping generations model, a normative trend level for the real household credit stock is derived that depends on four fundamental economic factors: real potential GDP, the equilibrium real interest rate, the population share of the middle-aged cohort, and institutional quality. Semi-structural household credit gaps are obtained as deviations of the real household credit stock from this fundamental trend level. Estimates of these credit gaps for 12 EU countries over the past 35 years yield long credit cycles that last between 15 and 25 years with amplitudes of around 20%. The early warning properties for financial crises are superior compared to credit gaps that are obtained from purely statistical filters. The proposed semistructural household credit gaps could therefore provide useful information for the formulation of countercyclical macroprudential policy, especially because they allow for economic interpretation of observed credit developments.
JEL Code: E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
G01 : Financial Economics→General→Financial Crises
D15 : Microeconomics→Household Behavior and Family Economics

24 May 2018

FINANCIAL STABILITY REVIEW - ARTICLE

A new financial stability risk index to predict the near-term risk of recession

Financial Stability Review Issue 1, 2018

English

Abstract: The real economy repercussions of financial crises are the ultimate focus of financial stability monitoring and policymakers. By extending a standard set of financial stability indicators with indicators capturing spillover and contagion risks, this special feature proposes a financial stability risk index (FSRI) that has predictive power for the near-term risk of deep recessions. It is shown that the empirical performance of the index benefits from combining a large set of macro-financial indicators and, notably, that the information content of the spillover and contagion risk indicators is important.
JEL Code: G00 : Financial Economics→General→General

9 January 2018

OCCASIONAL PAPER SERIES - No. 205

Real and financial cycles in EU countries - Stylised facts and modelling implications

English

Abstract: This paper studies the cyclical properties of real GDP, house prices, credit, and nominal liquid financial assets in 17 EU countries, by applying several methods to extract cycles. The estimates confirm earlier findings of large medium-term cycles in credit volumes and house prices. GDP appears to be subject to fluctuations at both business-cycle and medium-term frequencies, and GDP fluctuations at medium-term frequencies are strongly correlated with cycles in credit and house prices. Cycles in equity prices and long-term interest rates are considerably shorter than those in credit and house prices and have little in common with the latter. Credit and house price cycles are weakly synchronous across countries and their volatilities vary widely – these differences may be related to the structural properties of housing and mortgage markets. Finally, DSGE models can replicate the volatility of cycles in house and equity prices, but not the persistence of house price cycles.
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
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy

24 May 2017

FINANCIAL STABILITY REVIEW - ARTICLE

Measuring Credit Gaps for Macroprudential Policy

Financial Stability Review Issue 1, 2017

English

Abstract: Excessive credit growth and leverage have been key drivers of past financial crises, notably the recent global financial crisis. For the appropriate setting of countercyclical macroprudential policy instruments, it is therefore important to identify periods of excessive credit developments at an early stage. This special feature discusses the standard statistical method for computing credit gaps and compares it with an alternative approach to measuring credit excesses based on fundamental economic factors. Theory-based credit gaps could provide a useful complement to statistical measures of cyclical systemic risk.
JEL Code: G00 : Financial Economics→General→General

27 November 2014

FINANCIAL STABILITY REVIEW - ARTICLE

Capturing the Financial Cycle in Euro Area Countries

Financial Stability Review Issue 2, 2014

English

Abstract: This special feature discusses ways of measuring financial cycles for macro-prudential policymaking. It presents some estimates and empirical characteristics of financial cycles. Existing studies on financial cycle measurement remain quite nascent in comparison with the voluminous literature on business cycles. In this context, two approaches – turning point and spectral analysis – are used to capture financial and business cycles at the country level. The results of the empirical analysis suggest that financial cycles tend to be more volatile than business cycles in the euro area, albeit with strong cross-country heterogeneity. Both aspects underscore the relevance of robust financial cycle estimates for macro-prudential policy design in euro area countries.
JEL Code: G00 : Financial Economics→General→General

12 May 2006

WORKING PAPER SERIES - No. 621

Assessing predetermined expectations in the standard sticky-price model: a Bayesian approach

Peter Welz

English

Abstract: This paper analyses the empirical performance of a New Keynesian stickyprice model with delayed effects of monetary impulses on inflation and output for the German pre-EMU economy. The model is augmented with rule-ofthumb behaviour in consumption and price setting. Using recently developed Bayesian estimation techniques, endogenous persistence is found to play a dominant role in consumption whereas forward-looking behaviour is greater for inflation. The model's dynamics following a monetary shock and a preference shock are comparable to those of an identified VAR model.
JEL Code: C51 : Mathematical and Quantitative Methods→Econometric Modeling→Model Construction and Estimation
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

External publications

2024

SUERF Policy Brief, No 924

Arbitraging the G-SIB framework: causal evidence of window dressing