Financial institutions

We introduce an information provision experiment into a standard dynamic rational inattention model. We derive analytical results about how the treatment effect varies with characteristics of the environment and the individual. We use these results to discuss findings in the empirical literature on information provision experiments that can be explained by rational inattention of survey respondents and what this interpretation implies about behavior outside the survey.

I assess the impact of the recent hike in bank lending rates on euro area retail borrowers using a novel microsimulation framework that updates household-level data of a recent representative survey with up-to-date macro-financial information. The key novelty is that existing mortgages are gradually repaid, and new ones are extended, a feature necessary for medium-term simulations in a period of sizable credit growth. Since lending rates have increased, debt servicing has become more demanding, and the simulated share of distressed loans has increased.

We propose a novel empirical structural inflation model that captures non-linear shock transmission using a Bayesian machine learning framework that combines VARs with non-linear structural factor models. Unlike traditional linear models, our approach allows for non-linear effects at all impulse response horizons. Identification is achieved via sign, zero, and magnitude restrictions within the factor model. Applying our method to euro area energy shocks, we find that inflation reacts disproportionately to large shocks, while small shocks trigger no significant response.

A new partnership, launched at The University of Manchester today, will see existing teachers offered training to deliver A Level economics alongside their core subject.