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Roberto A. De Santis

Economics

Division

Business Cycle Analysis

Current Position

Senior Lead Economist

Fields of interest

Macroeconomics and Monetary Economics,International Economics

Email

roberto.de_santis@ecb.europa.eu

Education
1993-1998

PhD Economics, University of Warwick, Coventry, UK

1991-1993

MSc in Quantitative Development Economics, University of Warwick, Coventry, UK

Professional experience
2019-

Senior Lead Economist - Business Cycle Analysis Division, DG Economics, ECB

2018-2019

Principal Economist - Monetary Strategy Division, DG Monetary Policy, ECB

2009-2018

Principal Economist/Senior Economist - Capital Markets and Financial Structures Division, DG Monetary Policy, ECB

2009-2009

Senior Economist - Macro Financial Analysis Division, DG Monetary Analysis and Statistics, Bank of England

2000-2009

Senior Economist/Economist - External Developments Division, DG Economic Developments, ECB

1997-2000

Economist - Kiel Institute of World Economics, University of Kiel, Germany

Awards
2018

First prize in the Best Paper Awards at the 2018 World Finance Conference

2017

Outstanding paper in Institutions and Markets at the 53rd meeting of the Eastern Finance Association

1 February 2003
WORKING PAPER SERIES - No. 216
Details
Abstract
The enlargement of the European monetary union to include the accession countries (ACs) will not lead to higher average inflation in the enlarged euro area, but only to inflation redistribution across countries if continuity of the monetary policy framework is preserved. In the short term, unanticipated shocks to the real exchange rate may instead affect aggregate inflation if member countries' economic structure differs. When comparing welfare, inflation and output stabilisation, we find that the size, differences in economic structure and the variance-covariance matrix of supply and real exchange rate shocks play a key role. The numerical results indicate that the implications for the euro area are significant only if we assume a strong real exchange rate appreciation and if ACs are weighted in terms of purchasing power parity standards. In the event of real exchange rate or country-specific supply shocks in ACs, the consequences would be limited for both the current and the enlarged euro area, but sizeable for ACs themselves.
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
F33 : International Economics→International Finance→International Monetary Arrangements and Institutions
F40 : International Economics→Macroeconomic Aspects of International Trade and Finance→General
6 April 2004
WORKING PAPER SERIES - No. 329
Details
Abstract
The long-run determinants of euro area FDI to the United States during the period 1980-2001 are explained by employing the Tobin's Q-model of investment. By using the fixed effects panel estimator, stock market developments in the euro area countries - including a measure adjusted for economic developments common to both the United States and the euro area - are found to influence euro area FDI to the United States. Moreover, the inclusion of the Tobin's Q enhances the traditional knowledge-capital framework specification. Overall, the empirical findings suggest that euro area patents (ownership advantage), various variables related to productivity in the United States (location advantage), the volume of bilateral telephone traffic to the United States relative to euro area GDP (ownership advantage), euro area stock market developments (Tobin's Q), and the real exchange rate are statistically significant determinants of euro area FDI to the United States.
JEL Code
F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
F23 : International Economics→International Factor Movements and International Business→Multinational Firms, International Business
28 February 2005
WORKING PAPER SERIES - No. 445
Details
Abstract
This paper examines the welfare implications of a country joining a currency union as opposed to operating in a flexible exchange rate regime. At the country level, the suboptimal response to domestic and foreign shocks and the inability of setting inflation at the desired level may be offset by a positive impact on potential output. We show that for entry to be welfare enhancing, the potential output gain must be the larger, the smaller the country, the larger the difference between the standard deviation of supply shocks across the participating countries, the smaller the correlation of countries’ supply shocks and the larger the variance of real exchange rate shocks.
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
F33 : International Economics→International Finance→International Monetary Arrangements and Institutions
F40 : International Economics→Macroeconomic Aspects of International Trade and Finance→General
9 June 2005
OCCASIONAL PAPER SERIES - No. 30
Details
Abstract
Chapter 1 provides an overview and assessment of the price competitiveness and export performance of the euro area and the larger euro area countries, as well as an evaluation of how standard equations have been able to explain actual export developments. Chapter 2 carries out a constant market share analysis for the euro area and thereby sheds light on the reasons for movements in aggregate export market shares by looking at the sectoral and geographical composition of euro area exports. Chapter 3 looks at the evolution of the technological competitiveness of the euro area and major competitors
JEL Code
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
28 September 2005
WORKING PAPER SERIES - No. 529
Details
Abstract
By employing Lucas' (1982) model, this study proposes an arbitrage relationship - the Uncovered Equity Return Parity (URP) condition - to explain the dynamics of exchange rates. When expected equity returns in a country/region are lower than expected equity returns in another country/region, the currency associated with the market offering lower returns is expected to appreciate. First, we test the URP assuming that investors are risk neutral and next we relax this hypothesis. The resulting risk premia are proxied by economic variables, which are related to the business cycle. We employ differentials in corporate earnings' growth rates, short-term interest rate changes, annual inflation rates, and net equity flows. The URP explains a large fraction of the variability of some European currencies vis-à-vis the US dollar. When confronted with the naïve random walk model, the URP for the EUR/USD performs better in terms of forecasts for a set of alternative statistics.
JEL Code
D82 : Microeconomics→Information, Knowledge, and Uncertainty→Asymmetric and Private Information, Mechanism Design
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading
G15 : Financial Economics→General Financial Markets→International Financial Markets
26 May 2006
WORKING PAPER SERIES - No. 626
Details
Abstract
We investigate the determinants of bilateral international equity and bond portfolio reallocation across a large cross section of countries over the 1997 to 2001 period. We first argue that financial integration is not a global phenomenon, as equity and bond home biases declined significantly only among European countries, Australia, New Zealand and Singapore. Then, we show that the European Economic and Monetary Union (EMU) eased the access to the equity market and, to a larger extent, the bond market; thereby, enhancing regional financial integration in the euro area. Beside the effect of the EMU, the strongest determinants of the changes in portfolio weights are expected diversification benefits and the initial degree of underweight.
JEL Code
C13 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Estimation: General
C21 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Cross-Sectional Models, Spatial Models, Treatment Effect Models, Quantile Regressions
F37 : International Economics→International Finance→International Finance Forecasting and Simulation: Models and Applications
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
17 July 2006
WORKING PAPER SERIES - No. 651
Details
Abstract
In a panel covering a large number of countries from 1970 to 2003, we show that net portfolio flows play an important role in correcting external imbalances, since they are driven by common determinants represented by countries’ demographic profiles, the quality of institutions, monetary aggregates and initial net financial asset positions. Population ageing causes current account deficits, net equity inflows and net outflows in debt instruments. A higher money to GDP ratio – associated with lower interest rates – favours international investments in domestic stocks to the detriment of the less attractive domestic bonds. Additionally, current account balances are driven negatively by real GDP growth, losses in competitiveness and increases in the quality of the institutions; net equity flows are driven positively by the quality of the institutions and negatively by per capita income; while net flows in debt instruments are driven by long-term interest rate differentials and deviations from the UIP.
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
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
O16 : Economic Development, Technological Change, and Growth→Economic Development→Financial Markets, Saving and Capital Investment, Corporate Finance and Governance
29 September 2006
WORKING PAPER SERIES - No. 678
Details
Abstract
Using bilateral data on international equity and bond flows, we find that the prediction of the International Capital Asset Pricing Model is partially met and that global equity markets might be more integrated than global bond markets. Moreover, over the turbulent 1998-2001 period characterised by an equity bubble and the subsequent burst, we find evidence that investors preferred portfolio assets of countries where the central bank gave relative importance to money. As for EMU, once controlling for diversification benefits and the elimination of the exchange rate risk, we show that cross-border portfolio flows among euro area countries have increased due to the catalyst effect of EMU. Country's shares in the world market portfolio, home bias, initial degree of misallocation across countries, past returns, diversification benefits and EMU can explain 35-40% of the total variation in equity and bond asset flows.
JEL Code
C13 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Estimation: General
C21 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Cross-Sectional Models, Spatial Models, Treatment Effect Models, Quantile Regressions
F37 : International Economics→International Finance→International Finance Forecasting and Simulation: Models and Applications
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
27 September 2007
WORKING PAPER SERIES - No. 815
Details
Abstract
We analyse the inter-linkages between foreign direct investment (FDI) and foreign portfolio investment (FPI) between Germany and the major economies. First, we show that Tobin's q helps explaining the variation of the growth rate of the stock of FDI. Second, we show that foreign and the home stock market returns explain the variation of the growth rate of the stock of FPI. Most importantly, we find that information about foreign fundamentals is revealed via direct investment. In other words, FDI transactions measured by fitted growth rates of the stock of FDI help explaining current growth rates of the stock of FPI. To our knowledge this observation is the first unambiguous evidence that international portfolio investors follow firms' expected foreign investment decisions.
JEL Code
F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
F23 : International Economics→International Factor Movements and International Business→Multinational Firms, International Business
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G15 : Financial Economics→General Financial Markets→International Financial Markets
Network
ECB Lamfalussy Fellowship Programme
27 September 2007
WORKING PAPER SERIES - No. 812
Details
Abstract
This paper proposes an equilibrium relationship between expected exchange rate changes and differentials in expected returns on risky assets. We show that when expected returns on a risky asset in a certain economy are higher than the returns that are expected from investing in a risky asset in another economy, then the currency corresponding to the economy whose asset offers higher returns is expected to depreciate. Due to its similarity with Uncovered Interest Parity (UIP), we call this equilibrium condition "Uncovered Return Parity" (URP). However, in the URP condition returns' differentials are not known ex ante, while in the UIP they are. The paper finds empirical support in favour of URP for certain markets over some sample periods.
JEL Code
F30 : International Economics→International Finance→General
F31 : International Economics→International Finance→Foreign Exchange
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
13 March 2008
OCCASIONAL PAPER SERIES - No. 81
Details
Abstract
The study considers three broad categories of financial integration measures: (i) price-based, which capture discrepancies in asset prices across different national markets; (ii) news-based, which analyse the impact that common factors have on the return process of an asset; (iii) quantity-based, which aim at quantifying the effects of frictions on the demand for and supply of securities. This paper finds that financial markets in the new EU Member States (plus Cyprus, Malta and Slovenia) are significantly less integrated than those of the euro area. Nevertheless, there is strong evidence that the process of integration is well under way and has accelerated since accession to the EU.
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
F30 : International Economics→International Finance→General
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
31 March 2008
WORKING PAPER SERIES - No. 883
Details
Abstract
This paper considers a stylized asset pricing model where the returns from exchange rates, stocks and bonds are linked by basic risk-arbitrage relationships. Employing GMM estimation and monthly data for 18 economies and the US (treated as the domestic country), we identify through a simple test the countries whose assets strongly comove with US assets and the countries whose assets might other larger diversification benefits. We also show that the strengthening of the comovement of returns across countries is neither a gradual process nor a global phenomenon, reinforcing the case for international diversification. However, our results suggest that fund managers are better other constructing portfolios selecting assets from a subset of countries than relying on either fully inter-nationally diversified or purely domestic portfolios.
JEL Code
F31 : International Economics→International Finance→Foreign Exchange
G10 : Financial Economics→General Financial Markets→General
31 July 2008
WORKING PAPER SERIES - No. 921
Details
Abstract
This paper studies the effect of foreign direct investment (FDI) on environmental policy stringency in a two-country model with trade costs, where FDI could be unilateral and bilateral and both governments address local pollution through environmental taxes. We show that FDI does not give rise to ecological dumping because the host country has an incentive to shift rents away from the source country towards the host country. Environmental policy strategies and welfare effects are studied under the assumption that parameter values support FDI to be profitable.
JEL Code
F12 : International Economics→Trade→Models of Trade with Imperfect Competition and Scale Economies, Fragmentation
F18 : International Economics→Trade→Trade and Environment
F23 : International Economics→International Factor Movements and International Business→Multinational Firms, International Business
21 August 2008
WORKING PAPER SERIES - No. 926
Details
Abstract
The long-run relationship between money and prices in the euro area embedded in traditional money demand models with income and interest rates broke down after 2001. We develop a money demand model where investors hold a diversified portfolio with money, domestic and foreign stocks and long-term bonds in which, in addition to the classical wealth effect, also a size and an international portfolio allocation effects arise. The estimated model identifies three cointegrating vectors stable over the sample 1980-2007: a long-run money demand, which depends on income and all risky assets' returns, and two equilibria for the euro area and the US financial markets. Steady state equilibrium of nominal M3 growth is estimated to be about 7% in 2007 with large standard errors mainly due to uncertainty in asset prices. The gap between actual euro area M3 growth and model-based fitted or predicted values helps forecast euro area inflation.
JEL Code
E41 : Macroeconomics and Monetary Economics→Money and Interest Rates→Demand for Money
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G15 : Financial Economics→General Financial Markets→International Financial Markets
3 March 2009
WORKING PAPER SERIES - No. 1018
Details
Abstract
Cross-border mergers and acquisitions (M&As) sharply increased over the last two decades. It is often pointed out that cross-border capital reallocation is partly the result of financial liberalization policies, government policies and regional agreements. In this paper, we identify some of the main forces driving cross-border M&As using a unique database on bilateral cross-border M&As at the sectoral level (in manufacturing and services) over the period 1985-2004. We focus on the role of institutional and financial developments with a special attention to the role played by the European Integration process. We identify the impact of (i) joining the European Union and (ii) joining the Euro on cross-border M&As. We show that EU and EMU have almost doubled M&As in manufacturing towards their members from all over the globe, with an additional 50% increase within EMU countries. Conversely, the service sector did not exploit the opportunity offered by the single currency. We also show how cross-border M&As are linked to the acquirer expected profitability and provide insights on the effectiveness of policies to attract foreign capital (such as corporate tax incentives, and interventions to improve the country's financial system and product market regulations).
JEL Code
F30 : International Economics→International Finance→General
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
1 February 2012
WORKING PAPER SERIES - No. 1419
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Abstract
Since the intensification of the crisis in September 2008, all euro area long-term government bond yields relative to the German Bund have been characterised by highly persistent processes with upward trends for countries with weaker fiscal fundamentals. Looking at the daily period 1 September 2008 - 4 August 2011, we find that three factors can explain the recorded developments in sovereign spreads: (i) an aggregate regional risk factor, (ii) the country-specific credit risk and (iii) the spillover effect from Greece. Specifically, higher risk aversion has increased the demand for the Bund and this is behind the pricing of all euro area spreads, including those for Austria, Finland and the Netherlands. Country-specific credit ratings have played a key role in the developments of the spreads for Greece, Ireland, Portugal and Spain. Finally, the rating downgrade in Greece has contributed to developments in spreads of countries with weaker fiscal fundamentals: Ireland, Portugal, Italy, Spain, Belgium and France.
JEL Code
G15 : Financial Economics→General Financial Markets→International Financial Markets
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
Network
Macroprudential Research Network
14 May 2012
WORKING PAPER SERIES - No. 1435
Details
Abstract
We challenge the view that the relationship between money and prices is too loose in countries with low inflation rates and argue that cross-border portfolio shifts are the root cause of the volatility in real money balances. The novelty of this paper is that we model jointly in the euro area and the United States (i) the equilibrium in the money market that takes into account the cross-border portfolio shifts, and (ii) the equilibrium in the domestic asset markets, by finding a no-arbitrage relation between domestic long-horizon expected stock and bond returns. We estimate a stable money demand in the long-run and find that the short-run correlation between annual inflation and model-based excess money growth is not statistically different from unity in both the euro area and the United States. We also find that the resulting long-run equity risk premium comoves counter-cyclically with quarterly real GDP growth in both economies.
JEL Code
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E41 : Macroeconomics and Monetary Economics→Money and Interest Rates→Demand for Money
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
F40 : International Economics→Macroeconomic Aspects of International Trade and Finance→General
24 January 2013
WORKING PAPER SERIES - No. 1508
Details
Abstract
The identification of non-standard monetary policy shocks is a key challenge for econometricians, not least as these measures are somewhat unprecedented in modern central banking history and as the instruments vary widely across the various non-standard measures. This paper focuses on the 3-year long-term re-financing operations (LTROs), implemented by the ECB in December 2011 and February 2012. The macroeconomic impact of this measure is identified using the April 2012 Bank Lending Survey (BLS) as well as the special ad-hoc questions on the LTROs conducted in mid-February 2012. We estimate a panel-VAR for the euro area countries, which include relevant BLS variables, and identify credit supply shocks both recursively and with sign restriction methods. The macroeconomic effects of the 3-year LTROs are associated with the favorable credit supply shocks extracted through BLS information for the first half of 2012. Compared with the most likely developments one could have expected at the end of 2011 when financial tensions culminated, our counterfactual exercises suggest that the 3-year LTROs significantly lifted prospects for real GDP and loan provision to non-financial corporations over the next two-to-three years.
JEL Code
C23 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Panel Data Models, Spatio-temporal Models
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
22 July 2013
WORKING PAPER SERIES - No. 1568
Details
Abstract
To what extent does the availability of credit depend on monetary policy? And, does this relationship vary with bank characteristics? Based on a common source of balance sheet data for the four largest economies of the euro area over the period 1999-2011, we uncover three main regularities. First, the effect of monetary policy on bank lending is significant and heterogeneous in Germany and Italy, which are characterised by a large number of banks; but it is very weak in Spain and more homogeneous in France, where the banking industry has a higher degree of market concentration. Second, there is some evidence that monetary policy exerts larger effects on cooperative and savings banks with lower liquidity and less capital in Germany and savings banks with smaller size in Italy. Third, heterogeneity across groups of banks belonging to the same category in any particular country is found to be less pronounced.
JEL Code
C33 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Panel Data Models, Spatio-temporal Models
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
4 December 2014
WORKING PAPER SERIES - No. 1746
Details
Abstract
We use a Smooth Transition Conditional Correlation GARCH (STCC-GARCH) model applied to the euro area monetary policy rates and sovereign yields of Italy, Spain and Germany at 5-year maturity to estimate the threshold level of the signals above which the sovereign bond market moves to a crisis regime. We show that the threshold to a crisis regime for Italy and Spain is reached when (i) their 5-year sovereign yield spreads amount to 80-90 basis points; (ii) their 5-year CDS spreads amount to 120-130 basis points or (iii) the 5-year spread between the Kreditanstalt f
JEL Code
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G15 : Financial Economics→General Financial Markets→International Financial Markets
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
27 April 2015
WORKING PAPER SERIES - No. 1785
Details
Abstract
Euro redenomination risk is the risk that a euro asset will be redenominated into a devalued legacy currency. We propose a time-varying, country-specific market perception of intra-euro area redenomination risk measure, defined as the quanto CDS of a member country relative to the quanto CDS of a benchmark member country. Focusing on Italy, Spain and France and using Germany as benchmark, we show that the redenomination risk shocks, defined as the unexplained component of the market perception of redenomination risk orthogonal to exchange rate, global, regional and liquidity risks, significantly affect sovereign yield spreads, with Italy and Spain being the countries most adversely affected, followed by France. Finally, foreign redenomination risk shocks spill over and above local redenomination risk shocks, corroborating the fact that this risk is systemic.
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
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G15 : Financial Economics→General Financial Markets→International Financial Markets
9 October 2015
WORKING PAPER SERIES - No. 1858
Details
Abstract
We introduce a non-linear model to study the adjustment of fiscal policy variables in Greece, Ireland, Portugal and Spain over the last 50 years, based on endogenously estimated budget deficit-to-GDP thresholds, which vary with fiscal disequilibria, the economic cycle and financial market conditions. We find that the budget deficit-to-GDP thresholds were rather high for Greece and Portugal particularly after 1999 and that the fiscal adjustments in "good" times were very different from the adjustments that took place in "bad" times. We also found that only in Spain fiscal deficits were reduced in expansionary times. Finally, we provide evidence that, under financial market pressure, fiscal authorities relaxed the fiscal deficit-to-GDP threshold for the adjustment in Ireland and Spain and reduced such threshold for the adjustment in Portugal.
JEL Code
H63 : Public Economics→National Budget, Deficit, and Debt→Debt, Debt Management, Sovereign Debt
H20 : Public Economics→Taxation, Subsidies, and Revenue→General
H60 : Public Economics→National Budget, Deficit, and Debt→General
C22 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models &bull Diffusion Processes
5 July 2016
WORKING PAPER SERIES - No. 1930
Details
Abstract
Credit spreads may be jointly driven by developments that are orthogonal to the current state of the economy. We show that this unobserved systematic component is demanded to hedge against adverse economic fl?uctuations. Using either yield-to-maturity spreads or asset swap spreads for 2345 Eurobonds across euro area non-fi?nancial industries, we estimate a market-wide relative excess bond premium - a function of the unobserved systematic component -, which can predict real economic activity, the stock market and survey-based economic sentiment. This premium was highly negative between March 2003 and June 2007 in all bond segments and turned positive since then up to the launch of the 3-years long term re?financing operations in December 2011, predicting the ?financial crisis and the two recessions. Finally, using the countries?excess bond premia, we fi?nd that fragmentation risk increased sharply after Lehman?s bankruptcy and during the sovereign debt crisis.
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
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G15 : Financial Economics→General Financial Markets→International Financial Markets
14 July 2016
WORKING PAPER SERIES - No. 1939
Details
Abstract
Assessing the impact of the Asset Purchase Programme (APP) by the European Central Bank (ECB) on euro area sovereign yields is challenging, because the monetary policy announcement in January 2015 was already implicitly communicated to the market in the second half of 2014. Therefore, to identify the APP for the euro area, we rely upon Bloomberg news on euro area APP. The econometric results suggest that the impact of APP on euro area long-term sovereign yields is sizeable, albeit the programme was announced at a time of low fi?nancial distress. Most of the impact took place before the purchases took place with the vulnerable countries bene?fiting most.
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
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading
17 November 2016
WORKING PAPER SERIES - No. 1979
Details
Abstract
We study correlations between the risk-free rate and sovereign yields of ten euro area countries using smooth transition conditional correlation GARCH (STCC-GARCH) specifications, controlling for credit risk in mean and variance equations and conditioning non-linearly to liquidity risk. Correlations are state-dependent and heterogeneous across jurisdictions. Using panel vector autoregression models, we identify the macro factors influencing the correlations: interbank credit risk, the Greek crisis, and break-up risk. We show that the European Central Bank
JEL Code
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G15 : Financial Economics→General Financial Markets→International Financial Markets
4 May 2017
WORKING PAPER SERIES - No. 2052
Details
Abstract
We estimate the response of euro area sovereign bond yields to purchase operations under the ECBs Public Sector Purchase Programme (PSPP), using granular data on all PSPP-eligible securities at daily frequency. To avoid simultaneity bias in the estimated relationship between yields and purchase volumes, we exploit a PSPP design feature that renders certain securities temporarily ineligible for reasons unrelated to their yields. Using these temporary purchase restrictions as an instrument to identify exogenous variation in purchase volumes, we find that the “flow effect” of PSPP operations has, on average, led to a temporary 7 basis-point decline in sovereign bond yields on the day of purchase. This impact estimate is well above those found in similar studies for the US; at the same time, our results imply that flow effects have accounted for only a limited share of the downward pressure of PSPP on sovereign yields, most of which instead derived from anticipation and announcement effects at the onset of the programme.
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
E65 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Studies of Particular Policy Episodes
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
5 May 2017
WORKING PAPER SERIES - No. 2055
Details
Abstract
This paper studies spillovers among US and European sovereign yields. We provide a new method based on absolute magnitude restrictions of the impact matrix to identify the countries that were the main sources of spillovers. Despite the large size of shocks from euro area stressed countries, connectedness among sovereign yields declined between 2008 and 2012 due to financial fragmentation, particularly between countries with more divergent business and fiscal cycles. We show that none of the sovereign yields are insulated from foreign shocks and that shocks to the Greek bond market in 2010 explained 20-30% of the variance of sovereign yields in stressed countries, while in 2011-2012 Italy (not Spain) was the source of systemic risk.
JEL Code
C3 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables
G2 : Financial Economics→Financial Institutions and Services
8 May 2018
ECONOMIC BULLETIN - ARTICLE
Economic Bulletin Issue 3, 2018
Details
Abstract
This article reviews the impact of the ECB’s corporate sector purchase programme (CSPP) on corporate bond markets and the financing of euro area non-financial corporations (NFCs). It finds that the CSPP has led to a significant easing in financing conditions for euro area NFCs, including declines in corporate bond spreads, improved supply conditions in the corporate bond primary market and increased bank lending to NFCs that do not have access to bond-based financing. The operational set-up of the CSPP, in particular its flexibility and adaptability, minimises any impact that could be detrimental to the functioning of the corporate bond market.
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
G01 : Financial Economics→General→Financial Crises
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
8 November 2018
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 7, 2018
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Abstract
This box analyses the impact of the Eurosystem's asset purchase programme (APP) on the growing market for 'green bonds'. It describes the composition of the Eurosystem's green bond holdings and assesses developments in prices and outstanding volumes of green bonds, before discussing the extent to which these may have been affected by the APP.
JEL Code
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
Q59 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Other
E59 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Other
15 January 2019
WORKING PAPER SERIES - No. 2221
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Abstract
We show that medium-term interest rates in the euro area, Japan, UK and US are affected by domestic and foreign shocks. We find that US rates are the main source of spillovers globally and are less exposed to foreign shocks. Foreign spillovers to European rates were negligible only during the sovereign debt crisis and the introduction of more aggressive monetary policies by the ECB. We identify causal relations among asset prices through structural vector autoregressions (SVAR) and magnitude restrictions. We use preliminary regressions on event days to estimate key parameters employed to constrain the structural parameter space of the SVAR.
JEL Code
C3 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables
G2 : Financial Economics→Financial Institutions and Services
4 September 2019
WORKING PAPER SERIES - No. 2314
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Abstract
Using a representative sample of businesses in the euro area, we show that Eurosystempurchases of corporate bonds under the Corporate Sector Purchase programme (CSPP)increased the net issuance of debt securities, triggering a shift in bank loan supply infavour of firms that do not have access to bond-based financing. Identification comes frommatching bank-dependent firms to their lenders and accounting for the effect of CSPPon banks’ activity in the syndicated loan market. In a difference-in-differences setting,we show that credit access improved relatively more for firms borrowing from banksrelatively more exposed to CSPP-eligible firms. Unlike in previous studies, this resultapplies regardless of bank balance sheet quality as measured by Tier 1 and NPL ratios.
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
G01 : Financial Economics→General→Financial Crises
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
23 September 2019
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 6, 2019
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Abstract
Using a structural vector autoregression (SVAR) model, the box suggests that the fall in industrial production growth in the euro area in the past year has been driven by both the intensification of global trade tensions and adverse domestic shocks. Whereas in the first half of 2018 weakness in international trade in an environment of global uncertainties was the main contributor to the fall in industrial production, since July 2018 euro area-specific developments have also played a major role.
JEL Code
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
F44 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Business Cycles
C50 : Mathematical and Quantitative Methods→Econometric Modeling→General
14 November 2019
WORKING PAPER SERIES - No. 2329
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Abstract
We assess the effect and the timing of the corporate arm of the ECB quantitative easing (CSPP) on corporate bond issuance. Because of several contemporaneous measures, to isolate the programme effects we rely on one key eligibility feature: the euro denomination of newly issued bonds. We find that the significant increase in bonds issuance by eligible firms is due to the CSPP and that this effect took at least six months to unfold. This result holds even when comparing firms with similar ratings, thus providing evidence that unconventional monetary policy can foster a financing diversification regardless of firms risk profile.
JEL Code
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
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
12 May 2020
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 3, 2020
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Abstract
This box suggests that between January 2018 and February 2020 both foreign and domestic factors contributed substantially to the decline in manufacturing growth in the euro area, while services were more resilient. Economic activity fell sharply in March 2020 as a result of the spread of the coronavirus (COVID-19), although part of the drop in manufacturing and services is explained by domestic factors. Owing to the coronavirus and the associated containment measures, the economic outlook remains highly uncertain.
JEL Code
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
F44 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Business Cycles
C50 : Mathematical and Quantitative Methods→Econometric Modeling→General
2 July 2020
WORKING PAPER SERIES - No. 2436
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Abstract
We show that financial variables contribute to the forecast of GDP growth during the Great Recession, providing additional insights on both first and higher moments of the GDP growth distribution. If a recession is due to an unforeseen shock (such as the Covid-19 recession), financial variables serve policymakers in providing timely warnings about the severity of the crisis and the macroeconomic risk involved, because downside risks increase as financial stress and corporate spreads become tighter. We use quantile regression and the skewed t-distribution and evaluate the forecasting properties of models using out-of-sample metrics with real-time vintages.
JEL Code
C53 : Mathematical and Quantitative Methods→Econometric Modeling→Forecasting and Prediction Methods, Simulation Methods
E23 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Production
E27 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Forecasting and Simulation: Models and Applications
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
11 August 2020
WORKING PAPER SERIES - No. 2452
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Abstract
Corporate bond returns in the major developed economies increase with risk, as measured by maturity and ratings. From a pricing perspective, we find little to no evidence against the World CAPM model, where the market consists out of equity, sovereign and corporate bonds. However, from a factor model perspective, local factors contribute substantially more to the variation of corporate bond returns than global factors. The factor exposures show intuitive patterns: as ratings worsen, equity betas show a hockey stick pattern, sovereign betas decline monotonically and corporate bond betas increase steeply.
JEL Code
G10 : Financial Economics→General Financial Markets→General
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G15 : Financial Economics→General Financial Markets→International Financial Markets
11 September 2020
WORKING PAPER SERIES - No. 2466
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Abstract
We characterise the distribution of expected GDP growth during the Great Influenza Pandemic (known also as Spanish Flu) using a non-linear method in a country panel setting. We show that there are non-negligible risks of large GDP losses with the 5% left tail of the distribution suggesting a drop in the typical country's real per capita GDP equal to 29.1% in 1918, 10.9% in 1919 and 3.6% in 1920. Moreover, the fall in per capita GDP after the Spanish FLu was on average particularly large in low-income countries. Particularly, the size of the GDP drop in the lower tail of the distributions is high for higher income countries and immense for lower income countries. As for the United States, the estimated size of the recession in the lower tail of the distribution following the Spanish Flu is not negligible.
JEL Code
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
I0 : Health, Education, and Welfare→General
5 January 2021
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 8, 2020
Details
Abstract
The exceptional contraction in economic activity induced by the outbreak of the coronavirus (COVID-19) has warranted an update of the standard toolkit used to forecast euro area real GDP in real time. This box describes the adjustments and the additions to the standard toolkit developed by ECB staff to account for the dramatic change in statistical and economic relationships due to COVID-19. The use of each individual tool is subject to a considerable degree of judgment as to the type of adjustment needed to best capture the sharp movements in economic activity. These tools have provided helpful insights into forecasting euro area real GDP in real time, even if they imply some shortcomings.
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
2021
European Economic Review
  • De Santis, Roberto A. and Zaghini, Andrea
2021
Journal of International Financial Markets, Institutions & Money.
  • Bekaert, Geert and and De Santis, Roberto A.
2021
International Journal of Central Banking
ECB Corporate QE and the Loan Supply to Bank-Dependent Firms
  • Betz, Frank and De Santis, Roberto A.
2020
Economic Modelling
  • De Santis, Roberto A.
2020
Journal of Money, Credit and Banking
  • De Santis, Roberto A. and Holm-Hadulla, Federic
2019
Journal of Money, Credit and Banking
  • De Santis, R.A.
2019
Journal of Banking and Finance
  • De Santis, R.A.
2018
Journal of International Money and Finance
  • De Santis, R.A.
2018
Journal of Applied Econometrics
  • De Santis, R.A. and Zimic, S.
2015
Journal of Banking and Finance
  • De Santis, R.A. and Stein, M.
2015
Journal of International Money and Finance
  • Darracq-Paries, M. and De Sants, R.A.
2015
Empirical Economics
  • De Santis, R.A.
2015
Applied Economics Letters
  • De Santis, R.A.
2014
Journal of Empirical Finance
  • De Santis, R.A.
2013
Economic Policy
  • De Santis, R.A. and Surico, P.
2013
Journal of International Money and Finance
  • De Santis, R.A., Favero, C.A. and Roffia, B.
2012
German Economic Review
  • Ca' Zorzi, M. De Santis, R.A. and Zampolli, Z.
2010
International Journal of Central Banking
  • De Santis, R.A.
2009
European Economic Review
  • De Santis, R.A. and Gerard, B.
2009
Journal of International Money and Finance
  • De Santis, R.A. and Lührmann, M.
2009
Economic Policy
  • Coeurdacier, N., De Santis, R.A. and Aviat, A.
2005
Journal of Economic Integration
  • De Santis, R.A. and Stähler, F.
2004
Journal of International Economics
  • De Santis, R.A. and Stähler, F.
2004
Economics Letters
  • Ca’ Zorzi, M. and De Santis, R.A.
2003
Energy Economics
  • De Santis, R.A.
2003
Journal of Regional Science
  • De Santis, R.A.
2002
Economic Modelling
  • De Santis, R.A.
2002
Journal of Economic Integration
  • De Santis, R.A.
2001
German Economic Review
  • De Santis, R.A. and Stähler, F.
2000
Review of International Economics
  • De Santis, R.A.