European Central Bank

Estimating the full effect of a partially anticipated event: a market-based approach applied to the case of TLTROIII

09/16/2024 European Central Bank Central banks

This paper presents an event-study methodology that combines market data and survey-based probabilities to infer the full effect of a policy decision, as seen through the lens of financial markets. The market reaction to an event’s outcome reflects its surprise or announcement effect, and generally not its full effect. However, under certain conditions, the unobserved full effect can be derived from the observed surprise effect. Most importantly, the ex-ante probabilities of different outcomes must be known.

Tackling the volatility paradox: spillover persistence and systemic risk

09/13/2024 European Central Bank Central banks

Financial losses can have persistent effects on the financial system. This paper proposes an empirical measure for the duration of these effects, Spillover Persistence. I document that Spillover Persistence is strongly correlated with financial conditions; during banking crises, Spillover Persistence is higher, whereas in the run-up phase of stock market bubbles it is lower. Lower Spillover Persistence also associates with a more fragile system, e.g., a higher probability of future crises, consistent with the volatility paradox.

Digital euro demand: design, individuals’ payment preferences and socioeconomic factors

09/13/2024 European Central Bank Central banks

By applying a structural demand model to unique consumer-level survey data from the euro area, we assess how different CBDC design options, combined with individual (revealed) preferences, influence the potential demand for a digital euro. Estimating the demand for a digital euro, we find that if it were unconstrained, it could range, in steady state, between 3-28% of household liquid assets or €0.12 - €1.11 trillion, depending on whether consumers would perceive the digital euro to be more cash-like or deposit-like.

Aim, focus, shoot. The choice of appropriate and effective macroprudential instruments

08/29/2024 European Central Bank Central banks

We examine the issue of the appropriate selection of macroprudential instruments according to the vulnerabilities identified and the policymakers’ objectives using a version of the 3D DSGE model following Mendicino et al. (2020) and Hinterschweiger et al. (2021) calibrated for the euro area. We consider a broad set of macroprudential instruments, including broad and sectoral countercyclical capital requirements, LTV and LTI limits and assess their transmission channels as well as their effectiveness in mitigating rising broad and sectoral vulnerabilities.

Macroeconomic modelling of CBDC: a critical review

08/29/2024 European Central Bank Central banks

Over the last decades, macro-economists have renewed their efforts to reduce the gap between monetary macroeconomics and real-world central banking. This paper reviews how macroeconomics has since 2016 approached the possible introduction of retail central bank digital currencies (CBDC). A review of the literature reveals that macroeconomic models of CBDC often rely on CBDC design features and narratives which are no longer in line with the one of central banks actually working on CBDC.

The aggregate and distributional implications of credit shocks on housing and rental markets

08/28/2024 European Central Bank Central banks

We build a model of the aggregate housing and rental markets in which houseprices and rents are determined endogenously. Households can choose their housingtenure status (renters, homeowners, or landlords) and the size of their homes dependingon their age, income and wealth. We use our model to study the impact of changesin credit conditions on house prices, rents and household welfare.

The life-cycle dynamics of wealth mobility

08/27/2024 European Central Bank Central banks

We use 25 years of tax records for the Norwegian population to study the mobility of wealth over people’s lifetimes. We find considerable wealth mobility over the life cycle. To understand the underlying mobility patterns, we group individuals with similar wealth rank histories using agglomerative hierarchical clustering, a tool from statistical learning. The mobility patterns we elicit provide evidence of segmented mobility. Over 60 percent of the population remains at the top or bottom of the wealth distribution throughout their lives.

The transmission of bank credit conditions to firms-evidence from linked surveys

08/21/2024 European Central Bank Central banks

Using a novel dataset linking firm level data from the Survey on Access to Finance of Enterprises (SAFE) and bank level data from the Bank Lending Survey (BLS), we explore how changes in credit standards pass through to firms at a granular level. We find that tighter credit standards decrease loan availability reported by firms, increase the likelihood they report access to finance as the worst problem and decrease their investment. After controlling for country-sector-time fixed effects that capture cyclical macroeconomic conditions, effects only remain for firms that need finance.

Corporate reorganization and the reallocation of labor in bankruptcy

08/14/2024 European Central Bank Central banks

We analyze how corporate reorganization and liquidation change labor reallocation during bankruptcy using randomized judge assignments and linked Portuguese employer-employee and firm data. Reorganization reduces the negative effect of bankruptcy on employee earnings, even with most workers leaving reorganized firms. We examine plausible mechanisms and find evidence that the retention of general skills and improved job-match quality contribute meaningfully to this effect. The average cost of labor misallocation caused by reorganization is small.

What shapes spillovers from monetary policy shocks in the United States to emerging market economies?

08/08/2024 European Central Bank Central banks

Monetary policy decisions by the Federal Reserve System in the US are widely recognised to have spillover effects on the rest of the world. In this paper, we focus on the asymmetric effects of US monetary policy shocks on macro-financial outcomes in emerging market economies (EMEs). We shed light on how domestic factors shape external monetary policy spillover effects using indicators on the macro-financial vulnerabilities and monetary policy stances of EMEs.

European Central Bank

Pages