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Philip Vermeulen

Research

Division

Monetary Policy Research

Current Position

Principal Economist

Fields of interest

Microeconomics,Macroeconomics and Monetary Economics

Email

philip.vermeulen@ecb.europa.eu

Education
1993-1999

PhD in Economics, Stanford University, Stanford, USA

1993-1996

MA in Economics, Stanford University, Stanford, USA

1991-1992

Accredited Teacher of Economics, Ghent University, Belgium

1987-1991

BA in Economics, Ghent University, Belgium

Professional experience
2020-

Principal Economist- Monetary Policy Research Division, Directorate General Research, European Central Bank

2010-2019

Senior Economist - Monetary Policy Research Division, Directorate General Research, European Central Bank

2008-2010

Senior Economist - Euro Area Macroeconomic Developments Division, Directorate General Economics, European Central Bank

2004-2008

Senior Economist - Monetary Policy Research Division, Directorate General Research, European Central Bank

1999-2004

Economist - Monetary Policy Research Division, Directorate General Research, European Central Bank

1996-1997

Researcher - Economic Research, National Bank of Belgium

1991-1993

Research Assistant - Ghent University, Belgium

Teaching experience
1999

Instructor, Stanford University, Palo Alto, USA

1 November 2000
WORKING PAPER SERIES - No. 37
Details
Abstract
Financial accelerator theories imply that weak balance sheets can amplify adverse shocks on firm investment. This effect should be asymmetric, stronger in downturns than in upturns and stronger for small firms than for large firms. This paper provides empirical evidence of the presence of a financial accelerator in the four largest euro area economies: Germany, France, Italy and Spain. Using annual firm balance sheet data over the period 1983 - 1997 it is shown that weak balance sheets are more important in explaining investment during downturns than during upturns. It is further shown that the effects of the accelerator are largest for small firms.
JEL Code
E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
1 October 2001
WORKING PAPER SERIES - No. 78
Details
Abstract
This paper analyses the effects of a change in monetary policy on firms' investment in Germany, France, Italy and Spain using a data set which provides aggregated balance sheet and profit and loss account data for 17 different industries and 3 different size classes. The main findings are twofold. First, in each of the four countries a change in the user cost of capital, which in turn is affected by interest rates, has both statistically and economically significant effects on investment. Second, while the average interest rate on debt is generally higher for small firms than for large firms, there is little evidence that the effects of monetary policy on small firms are larger
JEL Code
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
1 December 2001
WORKING PAPER SERIES - No. 112
Details
Abstract
We present a comparable set of results on the monetary transmission channels on firm investment for the four largest countries of the euro area (Germany, France, Italy and Spain). With particularly rich micro datasets for each country containing over 215,000 observations from 1985 to 1999, we explore what can be learned on the interest channel and broad credit channel. For each of those countries we estimate neo-classical investment relationships, explaining investment by its user cost, sales and cash flow. We find investment to be sensitive to user cost changes in all those four countries. This implies an operative interest channel in these euro area countries. We also find investment in all those countries to be quite sensitive to cash flow movements. However we find that only in Italy smaller firms react more to cash flow movements, implying that a broad credit channel might not be as pervasive in all countries
JEL Code
E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General
Network
Eurosystem Monetary Transmission Network
1 December 2001
WORKING PAPER SERIES - No. 107
Details
Abstract
This paper investigates the effects of monetary policy on firms' investment behaviour. The analysis relies on a comprehensive database of Belgian firms covering all sectors of economic activity and firms of all sizes. We proceed in two steps. First, we estimate a reduced-form investment equation derived from the neo-classical model, augmented by cash flow. This equation is estimated by the Arellano and Bond (1991) GMM procedure. Second, we compute the elasticity of the user cost of capital and the cash flow/capital ratio to the policy-controlled interest rate. We estimate the model for various sample splits according to sectors and sizes. Our results indicate that small firms are more sensitive to monetary policy than large firms, and that services are almost unaffected. Since the impact differs across sectors and sizes, we can conclude that monetary policy produces distributional effects
JEL Code
C23 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Panel Data Models, Spatio-temporal Models
D21 : Microeconomics→Production and Organizations→Firm Behavior: Theory
E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General
Network
Eurosystem Monetary Transmission Network
28 April 2004
WORKING PAPER SERIES - No. 347
Details
Abstract
We estimate the effect of demand and price uncertainty on firms' investment decisions from a panel of manufacturing firms. Uncertainty measures are derived from firms' subjective qualitative expectations. They are close to their theoretical counterparts, the variances of future demand and price shocks. We find that demand uncertainty depresses planned and realized investment, while price uncertainty is insignificant. This is consistent with the behavior of monopolistic firms with irreversible capital (Caballero, 1991). Further, firms revise their investment plans very little. They may do so in response to new information on sales growth, but not as a result of reduced uncertainty.
JEL Code
D21 : Microeconomics→Production and Organizations→Firm Behavior: Theory
D24 : Microeconomics→Production and Organizations→Production, Cost, Capital, Capital, Total Factor, and Multifactor Productivity, Capacity
D81 : Microeconomics→Information, Knowledge, and Uncertainty→Criteria for Decision-Making under Risk and Uncertainty
D92 : Microeconomics→Intertemporal Choice→Intertemporal Firm Choice, Investment, Capacity, and Financing
C23 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Panel Data Models, Spatio-temporal Models
23 May 2005
WORKING PAPER SERIES - No. 485
Details
Abstract
The excess sensitivity of investment to cash flow has been demonstrated in numerous studies. Recent research has identified differences in the degree of sensitivity across countries, which it ascribes to the nature of the lender-borrower relationship in the financial systems of those countries. In this paper we offer new methods and results to determine whether differences are associated with structural explanations such as the nature of the financial system and industrial composition, or due to other firm-specific determinants such as size or creditworthiness. Unlike previous research we are able to systematically control for competing explanations in our data from more than one country and thereby isolate what drives the relationship. We find that creditworthiness is the main driving force of cash flow sensitivity.
JEL Code
E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
D92 : Microeconomics→Intertemporal Choice→Intertemporal Firm Choice, Investment, Capacity, and Financing
14 December 2005
WORKING PAPER SERIES - No. 563
Details
Abstract
This paper presents original evidence on price setting in the euro area at the individual level. We use micro data on consumer (CPI) and producer (PPI) prices, as well as survey information. Our main findings are: (i) prices in the euro area are sticky and more so than in the US; (ii) there is evidence of heterogeneity and of asymmetries in price setting behaviour; (iii) downward price rigidity is only slightly more marked than upward price rigidity and (iv) implicit or explicit contracts and coordination failure theories are important, whereas menu or information costs are judged much less relevant by firms.
JEL Code
C25 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Discrete Regression and Qualitative Choice Models, Discrete Regressors, Proportions
D40 : Microeconomics→Market Structure and Pricing→General
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
Network
Eurosystem inflation persistence network
22 December 2005
WORKING PAPER SERIES - No. 566
Details
Abstract
We formulate and estimate a structural model of firm investment behavior that specifies the exact channel through which financial frictions bite. The model also allows for the existence of both convex and non-convex costs to adjusting capital. Essentially, we move beyond simply testing and rejecting a neoclassical model without frictions. Our quantitative estimates show that both real and financial frictions have an important effect on firm investment dynamics.
JEL Code
E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
26 June 2006
WORKING PAPER SERIES - No. 640
Details
Abstract
Small firms often do not change their number of employees from year to year. This paper investigates the role of adjustment costs and indivisibility of labor in the employment stickiness of manufacturing firms with less than 75 employees. When small firms have to adjust employment in units of at least one employee, indivisibility becomes an important source of stickiness. A structural model of dynamic labor demand with adjustment costs and indivisibility is estimated using indirect inference on a panel of small French manufacturing firms. Adjustment cost are estimated to be very small. Indivisibility explains around 50% of the stickiness of employment, adjustment costs explain the other 50%.
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
20 July 2006
WORKING PAPER SERIES - No. 658
Details
Abstract
We test whether firms with a single bank are better shielded from loss of credit and investment cuts in periods of adverse cash flow shocks than firms with multiple bank relationships. Our estimates of the cash flow sensitivity of investment show that both types of firms are equally subject to financing constraints that bind only in the event of adverse cash flow shocks. In these periods, firms incur lower cuts in investment expenditures when they can obtain extra credit. In periods of adverse cash flow shocks, the probability of obtaining extra bank debt becomes more sensitive to the size and leverage of the firm.
JEL Code
D92 : Microeconomics→Intertemporal Choice→Intertemporal Firm Choice, Investment, Capacity, and Financing
14 February 2007
WORKING PAPER SERIES - No. 727
Details
Abstract
This paper documents producer price setting in 6 countries of the euro area: Germany, France, Italy, Spain, Belgium and Portugal. It collects evidence from available studies on each of those countries and also provides new evidence. These studies use monthly producer price data. The following five stylised facts emerge consistently across countries. First, producer prices change infrequently: each month around 21% of prices change. Second, there is substantial cross-sector heterogeneity in the frequency of price changes: prices change very often in the energy sector, less often in food and intermediate goods and least often in non-durable non-food and durable goods. Third, countries have a similar ranking of industries in terms of frequency of price changes. Fourth, there is no evidence of downward nominal rigidity: price changes are for about 45% decreases and 55% increases. Fifth, price changes are sizeable compared to the inflation rate. The paper also examines the factors driving producer price changes. It finds that costs structure, competition, seasonality, inflation and attractive pricing all play a role in driving producer price changes. In addition producer prices tend to be more flexible than consumer prices.
JEL Code
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
D40 : Microeconomics→Market Structure and Pricing→General
C25 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Discrete Regression and Qualitative Choice Models, Discrete Regressors, Proportions
Network
Eurosystem inflation persistence network
28 June 2007
WORKING PAPER SERIES - No. 772
Details
Abstract
This paper shows that adjustment costs modelled as firing costs of moderate size go a long way in explaining the variability and counter-cyclicality of the labour share at the firm and aggregate level. Firing costs cause firms to hire less in recessions and hire less in booms causing wage costs to fluctuate less cyclically than output, thus inducing variability and counter-cyclicality in the labour share. The paper develops a dynamic labour demand model with firing costs. The model is then calibrated using moments derived from 1634 French manufacturing firms and aggregate French manufacturing data. The calibrated model is able to closely match the variability and counter-cyclicality of the labour share at the firm level while it also generates a countercyclical aggregate labour share with a variability 60% of that in French aggregate manufacturing.
JEL Code
D21 : Microeconomics→Production and Organizations→Firm Behavior: Theory
E25 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Aggregate Factor Income Distribution
31 January 2008
WORKING PAPER SERIES - No. 856
Details
Abstract
This paper provides estimates of price-marginal cost ratios or markups for 50 sectors in 8 euro area countries and the US over the period 1981-2004. The estimates are obtained applying the methodology developed by Roeger (1995) on the EU KLEMS March 2007 database. Five stylized facts are derived. First, perfect competition can be rejected for almost all sectors in all countries; markup ratios are generally larger than 1. Second, average markups are heterogenous across countries. Third, markups are heterogeneous across sectors, with services having higher markups on average than manufacturing. Fourth, services sectors generally have higher markups in the euro area than the US, whereas the pattern is the reverse for manufacturing. Fifth, there is no evidence that there is a broad range change in markups from the eighties to the nineties.
JEL Code
D3 : Microeconomics→Distribution
L11 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance→Production, Pricing, and Market Structure, Size Distribution of Firms
9 January 2009
OCCASIONAL PAPER SERIES - No. 100
Details
Abstract
The first part of this paper provides a brief survey of the recent literature that employs survey data on household finance and consumption. Given the breadth of the topic, it focuses on issues that are particularly relevant for policy, namely: i) wealth effects on consumption, ii) housing prices and household indebtedness, iii) retirement income, consumption and pension reforms, iv) access to credit and credit constraints, v) financial innovation, consumption smoothing and portfolio selection and vi) wealth inequality. The second part uses concrete examples to summarise how results from such surveys feed into policy-making within the central banks that already conduct such surveys.
JEL Code
C42 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Survey Methods
D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis
D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance
Network
Eurosystem Monetary Transmission Network
30 September 2011
OCCASIONAL PAPER SERIES - No. 128
Details
Abstract
The distributive trades sector, which is primarily accounted for by wholesale and retail trade, is not only economically important in its own right, but also relevant to monetary policy. Ultimately, it is retailers who set the actual prices of most consumer goods. They are the main interface between producers of consumer goods and consumers, with around half of private consumption accounted for by retail trade. The
JEL Code
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
1 February 2012
WORKING PAPER SERIES - No. 1417
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Abstract
The survey based monthly US ISM production index and Eurozone manufacturing PMI output index provide early information on industrial output growth before the release of the official industrial production index. I use the Carlson and Parkin probability method to construct monthly growth estimates from the qualitative responses of the US ISM production index and the Eurozone manufacturing PMI output index. I apply the method under different assumptions on the cross-sectional distribution of output growth using the uniform, logistic and Laplace distribution. I show that alternative distribution assumptions lead to very similar estimates. I also test the performance of the different growth estimates in an out of sample forecasting exercise of actual industrial production growth. All growth estimates beat a simple autoregressive model of output growth. Distribution assumptions again matter little most of the time except during the financial crisis when the estimates constructed using the Laplace distributional assumption perform the best. My findings are consistent with recent findings of Bottazzi and Sechi (2006) that the distribution of firm growth rates has a Laplace distribution.
JEL Code
C18 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Methodological Issues: General
E27 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Forecasting and Simulation: Models and Applications
14 July 2014
WORKING PAPER SERIES - No. 1692
Details
Abstract
The US Survey of Consumer Finances (SCF) and the Eurosystem
JEL Code
D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
Network
Household Finance and Consumption Network (HFCN)
20 August 2014
WORKING PAPER SERIES - No. 1722
Details
Abstract
Using the first wave of the Eurosystem Household Finance and Consumption Survey (HFCS), a large micro-level dataset on households
JEL Code
D1 : Microeconomics→Household Behavior and Family Economics
D3 : Microeconomics→Distribution
Network
Household Finance and Consumption Network (HFCN)
18 December 2014
WORKING PAPER SERIES - No. 1754
Details
Abstract
We provide evidence on the effect of elementary index choice on inflation measurement. Using scanner data for 15844 individual items from 42 product categories and 10 euro area countries, we compute product category level elementary price indexes using nine different elementary index formulas. Measured inflation outcomes of the different index formulas are compared with the Fisher Ideal index to quantify elementary index bias. Across product categories, mean levels of annual elementary index bias vary between -0.53 percentage points and 0.55 percentage points depending on the index, while the standard deviation is larger than 1 percentage point. National indexes based on aggregation of the elementary indexes remain biased. The average effect of elementary index bias on national inflation ranges from -0.45 to 0.45 percentage points depending on the index. The results show that elementary index bias is quantitatively more important than upper level substitution bias.
JEL Code
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
C43 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Index Numbers and Aggregation
Network
Nielsen Disaggregated Price Dataset
21 October 2015
WORKING PAPER SERIES - No. 1859
Details
Abstract
We use the recent financial crisis period to analyse the effect of bank credit tightening on real firm investment. We derive a new set of credit tightening indexes from the ECB Bank Lending Survey. Combining these with annual balance sheet data from Germany, France, Italy, Spain, Belgium and Portugal, we exploit the heterogeneity in the dependence on bank finance of different industries to identify real effects of credit tightening. We show that in response to tightening, investment falls substantially more in bank-dependent industries.
JEL Code
E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G01 : Financial Economics→General→Financial Crises
18 February 2016
WORKING PAPER SERIES - No. 1884
Details
Abstract
We provide empirical evidence on banks
JEL Code
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
24 May 2016
WORKING PAPER SERIES - No. 1907
Details
Abstract
Wealth survey data suffers simultaneously from under-representation at the top and underreporting of assets. Addressing both problems, I use the Household Finance and Consumption Survey to provide new estimates of the holdings of real assets, financial assets and liabilities and net wealth of the top one percent in Austria, Belgium, Finland, France, Germany, Italy, Spain and The Netherlands. Especially for countries doing little or no oversampling of the rich, financial asset and real asset shares held by the top 1 percent are substantially higher then survey data suggests.
JEL Code
E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G01 : Financial Economics→General→Financial Crises
Network
Household Finance and Consumption Network (HFCN)
28 October 2016
RESEARCH BULLETIN - No. 28
Details
Abstract
In the aftermath of the Great Recession, investment in the United States has recovered, whereas investment in the euro area has remained low following the sovereign debt crisis which temporarily halted the recovery in the euro area. Nevertheless, investment in the current cyclical phase is not unusual as such; rather, it is aggregate consumption that is growing more slowly than usual — a finding which highlights the importance of policies aimed at stimulating aggregate demand.
JEL Code
E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
18 July 2018
WORKING PAPER SERIES - No. 2170
Details
Abstract
This paper considers how monetary policy produces heterogeneous effects on euro area households, depending on the composition of their income and on the components of their wealth. We first review the existing evidence on how monetary policy affects income and wealth inequality. We then illustrate quantitatively how various channels of transmission — net interest rate exposure, inter-temporal substitution and indirect income channels — affect individual euro area households. We find that the indirect income channel has an overwhelming importance, especially for households holding few or no liquid assets. The indirect income channel is therefore also a substantial driver of changes in consumption at the aggregate level.
JEL Code
D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance
D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
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
16 October 2018
WORKING PAPER SERIES - No. 2187
Details
Abstract
The financial accounts of the household sector within the system of national accounts report the aggregate asset holdings and liabilities of all households within a country. In principle, when household wealth surveys are explicitly designed to be representative of all households, aggregating these micro data should correspond to the macro aggregates. In practice, however, differences are large. We first discuss conceptual and generic differences between those two sources of data. Thereafter we investigate missing top tail observation from wealth surveys as a source of discrepancy. By fitting a Pareto distribution to the upper tail, we provide an estimate of how much of the gap between the micro and macro data is caused by the underestimation of the top tail of the wealth distribution. Conceptual and generic differences as well as missing top tail observations explain part of the gap between financial accounts and survey aggregates.
JEL Code
C46 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Specific Distributions, Specific Statistics
D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
E01 : Macroeconomics and Monetary Economics→General→Measurement and Data on National Income and Product Accounts and Wealth, Environmental Accounts
Network
Household Finance and Consumption Network (HFCN)
21 November 2018
WORKING PAPER SERIES - No. 2204
Details
Abstract
We estimate the long- and short-run relationship between top income and wealth shares for France and the US since 1913. We find strong evidence for a long-run cointegration relationship governed by relative saving rates at the top. For both countries, we estimate a decline in the relative saving rates at the top – after 1968 in France and 1983 in the US, equivalent to a reduction of the long-run gap between wealth and income inequality compared to the period before. In the short-run, income inequality drives wealth inequality, while the converse link is weaker and slower. Using counterfactual simulations, we find that the recent rise in wealth inequality in the US is largely attributable to the contemporary increase in income inequality. Modest income concentration dynamics and a stronger decline in relative saving rates at the top than in the US contributed to a more subdued rise in wealth inequality in France.
JEL Code
D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E25 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Aggregate Factor Income Distribution
N32 : Economic History→Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy→U.S., Canada: 1913-
N34 : Economic History→Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy→Europe: 1913-
Network
Household Finance and Consumption Network (HFCN)
22 November 2018
WORKING PAPER SERIES - No. 2205
Details
Abstract
We estimate business cycle regime switching logit models for G7 countries to determine the effect of duration of the current business cycle phase and of foreign recessions on the likelihood that expansions and recessions come to an end. With respect to expansions in a G7 country, we find that the probability they end roughly doubles each time another G7 country falls into a recession. We also find that expansions in the US and Germany are duration dependent, i.e. are more likely to end as they grow older. This contrasts with other G7 countries where expansions are not duration dependent. With respect to recessions in a G7 country, we find that the likelihood of them coming to an end is not affected by other G7 countries’ recessions. We find duration dependence of recessions for all G7 countries, i.e. recessions that have gone on for a while are more likely to end.
JEL Code
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
C41 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Duration Analysis, Optimal Timing Strategies
7 April 2020
WORKING PAPER SERIES - No. 2390
Details
Abstract
This paper provides new evidence on the channels of monetary policy transmission combining 9 million observations on firm level investment and high-frequency identified monetary policy shocks. We show that the reaction of firms’ investment to a monetary policy shock is heterogeneous along dimensions that correspond to the two main channels of monetary policy transmission. First, we show that young firms are more sensitive to monetary policy shocks, supporting the existence of a credit channel of monetary policy. Second, we document large cross-sectional heterogeneity related to the industry the firm operates in. We find that firms producing durable goods react more than others, which is consistent with traditional interest rate channel effects of monetary policy. Third, we find that the effect of monetary policy shocks is longer lived for firms that are durable goods producers than for young firms indicating that demand effects last longer than credit effects.
JEL Code
E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
25 November 2020
RESEARCH BULLETIN - No. 77
Details
Abstract
We set out to analyse the monetary policy transmission mechanism by documenting how the annual investment of more than one million firms in Germany, Spain, France and Italy responded to monetary policy shocks between 2000 and 2016. We show that euro area firms react differently depending on their age and the industry they operate in: young firms and those producing durable goods react more strongly than the average firm. This confirms that monetary policy is affecting firms’ investment through two different channels. On the one hand, the “interest rate channel” affects demand for durable goods more than demand for services, which in turn affects investment demand from the producers of those goods. On the other hand, as young firms are more likely to face financing constraints, their stronger than average reaction can be explained by the “balance sheet channel” of monetary policy transmission.
JEL Code
E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
2019
German Economic Review
Elementary Index Bias: Evidence for the Euro Area from a Large Scanner Dataset
  • Gábor‐Tóth, E. and P. Vermeulen
2019
Journal of Official Statistics
Is the Top Tail of the Wealth Distribution the Missing Link between the Household Finance and Consumption Survey and National Accounts?
  • Chakraborty R., Kavonius I.K., Pérez-Duarte S. and Vermeulen P.
2018
Review of Income and Wealth
How fat is the top tail of the wealth distribution?
  • Vermeulen, P.
2017
Journal of Banking and Finance
Corporate investment and bank-dependent borrowers during the recent financial crisis
  • Buca, A. and Vermeulen, P.
2017
Applied Economics
Lenders on the storm of wholesale funding shocks: saved by the central bank?
  • de Haan, L., van den End, J.W. and Vermeulen, P.
2016
International Journal of Central Banking
How do households allocate their assets? Stylized facts from the Eurosystem household finance and consumption survey
  • Arrondel, L.,Bartiloro, L., Fessler, P., Lindner, P., Mathä, T.Y., Rampazzi, C., Savignac, F., Schmidt, T., Schürz, M. and Vermeulen, P.
2016
American Economic Review
Estimating the top tail of the wealth distribution
  • Vermeulen, P.
2014
International Journal of Forecasting
An evaluation of business survey indices for short-term forecasting: Balance method versus Carlson–Parkin method
  • P. Vermeulen
2012
Journal of Money Credit and Banking
Price setting in the euro area: some stylised facts from individual producer price data
  • Dias, D., Dossche, M., Gautier, E., Hernando, I., Sabbatini, R., Stahl, H. and Vermeulen, P.
2012
Empirical Economic
Markups in the Euro area and the US over the period 1981-2004: a comparison of 50 sectors
  • Christopoulou, R. and Vermeulen, P.
2008
Applied Economics
Firms' investment decisions in response to demand and price uncertainty
  • Fuss, C.and Vermeulen, P.
2008
Review of Business and Economics
The response of firms‘ investment and financing to adverse cash flow shocks: the role of bank relationships
  • Fuss, C. and Vermeulen, P.
2006
Journal of the European Economic Association
Sticky prices in the euro area: a summary of new micro evidence
  • Álvarez, L.J., Dhyne, E., Hoeberichts, M., Kwapil, C., Le Bihan, H., Lünnemann, P., Martins, F., Sabbatine, R. and Vermeulen, P.
2006
Economics letters
Factor content, size, and export propensity at the firm level
  • Vermeulen, P.
2003
Oxford Review of Economic Policy
New findings on firm investment and monetary transmission in the euro area
  • Châtelain, J-B, Generale, A., Hernando, I., Vermeulen, P. and von Kalckreuth, U.
2003
Journal of the European Economic Association,
Monetary policy transmission in the euro area: new evidence from micro data on firms and banks
  • Châtelain, J-B., Ehrmann, M., Generale, A., Martínez-Pagés, Vermeulen, P. and Worms, A.
2002
Journal of Banking and Finance,
Investment and monetary policy in the euro area
  • Mojon, B., Smets, F. and Vermeulen, P.
2002
Cahiers Économiques de Bruxelles
The interest rate and credit channel in Belgium: an investigation with micro-level firm data
  • Butzen, P., Fuss, C. and Vermeulen, P.
2002
Oxford Bulletin of Economics and Statistics
Business fixed investment: evidence of a financial accelerator in Europe
  • Vermeulen, P.