Financial institutions

Housing wealth across countries: the role of expectations, institutions and preferences

02/11/2025 European Central Bank Central banks

Homeownership rates and holdings of housing wealth differ immensely across countries. Using micro data from five economies, we estimate a life-cycle model with illiquid housing in which households face a discrete–continuous choice between renting and owning a house. We use the model to decompose the cross-country differences in the homeownership rate and the value of housing wealth into three groups of explanatory factors: house price expectations, the institutional set-up of the housing market and preferences. We find that all three groups of factors matter, although preferences less so.

Carbon pricing, border adjustment and renewable energy investment: a network approach

02/07/2025 European Central Bank Central banks

An increase of e100 per tonne in the EU carbon price reduces the carbon footprint but lowers GDP due to higher energy costs and carbon leakage. Using a dynamic multi-sector, multi-country model augmented with an energy block that includes endogenous renewable energy investment, we analyze the macroeconomic and emissions effects of a carbon price. Investment in renewable energy mitigates electricity price increases in the medium term, leading to a smaller GDP loss (up to -0.4%) and a larger emissions reduction (24%) in the EU.

FEDS Paper: Shedding Light on Survey Accuracy—A Comparison between SHED and Census Bureau Survey Results

02/06/2025 Federal Reserve Central banks

Kabir Dasgupta, Fatimah Shaalan, and Mike ZabekThe annual Survey of Household Economics and Decisionmaking (SHED) receives substantial research attention for topics related to household finances and economic well-being. To assess the reliability of data from the SHED, we compare aggregate statistics from the SHED with prominent, nationally representative surveys that use different survey designs, sample methodologies, and interview modes.

Banking networks and economic growth: from idiosyncratic shocks to aggregate fluctuations

02/06/2025 European Central Bank Central banks

This paper investigates the role of banking networks in the transmission of shocks across borders. Combining banking deregulation in the US with state-level idiosyncratic demand shocks, we show that geographically diversified banks reallocate funds from economies experiencing negative shocks to unaffected regions. Our findings indicate that in the presence of idiosyncratic shocks, financial integration reduces business cycle comovement and synchronizes consumption patterns.

Non-homothetic housing demand and geographic worker sorting

02/06/2025 European Central Bank Central banks

Housing expenditure shares decline with income. A household’s income determines its sensitivity to housing costs and drives its location decision. Has spatial skill sorting increased because low income individuals are avoiding increasingly expensive regions? I augment a standard quantitative spatial model with flexible non-homothetic preferences to estimate the effect of the national increase in the relative supply of high skilled workers that has put upward pressure on housing costs in skill-intensive cities.

FEDS Paper: Regulating Bank Portfolio Choice Under Asymmetric Information

02/04/2025 Federal Reserve Central banks

Chris AndersonRegulating bank risk-taking is challenging since banks know more than regulators about the risks of their portfolios and can make adjustments to game regulations. To address this problem, I build a tractable model that incorporates this information asymmetry. The model is flexible enough to encompass many regulatory tools, although I focus on taxes. These taxes could also be interpreted as reflecting the shadow costs of other regulations, such as capital requirements.

FEDS Paper: The effect of ending the pandemic-related mandate of continuous Medicaid coverage on health insurance coverage

02/03/2025 Federal Reserve Central banks

Kabir Dasgupta, Keisha SolomonThe Medicaid continuous enrollment provision, which ensured uninterrupted coverage for beneficiaries during the COVID-19 pandemic, was ended in March 2023. This unwinding process has led to large-scale Medicaid disenrollments, as states resumed their standard renewal process to evaluate enrolled individuals' eligibility status.

The implications of CIP deviations for international capital flows

02/03/2025 European Central Bank Central banks

We study the implications of deviations from covered interest rate parity for international capital flows using novel data covering euro-area derivatives and securities holdings. Consistent with a dynamic model of currency risk hedging, we document that investors’ holdings of USD bonds decrease following a widening in the USD-EUR cross-currency basis (CCB). This effect is driven by investors with larger FX rollover risk and hedging mandates, and it is robust to instrumenting the CCB. These shifts in bond demand significantly affect bond prices.

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