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on European Economics |
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Issue of 2022‒09‒12
24 papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Thomas Nitschka; Diego M. Hager |
| Abstract: | We analyse spillovers from European Central Bank (ECB) policy surprises to asset markets outside the euro area using Switzerland as a case study. Our results suggest that Swiss asset price responses to ECB policy surprises are significant. They depend on the type and nature of the surprise and change over time. Decomposing bond yields into expected short-term interest rates and the term premium reveals that both signalling and portfolio rebalancing effects explain the responses of bond yields of various maturities to surprises resulting from scheduled ECB policy decisions. ECB policy surprises are more important to Swiss government bond yields than Swiss stock prices. |
| Keywords: | Bond, event study, international spillovers, monetary policy, stock |
| JEL: | E43 E52 G15 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2022-08&r= |
| By: | Schuler, Tobias; Sun, Yiqiao |
| Abstract: | We investigate the factors driving current account and monetary policy developments in the euro area. We estimate an open-economy structural vector autoregression (VAR) model with zero and sign restrictions derived from a multi-country dynamic stochastic general equilibrium (DSGE) model to identify relevant shocks and analyse their impact on the current account and interest rate. Examining the VAR impulse responses for Germany, Italy and Spain we find that investment shocks and preference shocks drive the current account and interest rates in the opposite directions. By contrast, external demand shocks and productivity shocks cause both the current account balance and interest rate to move in the same direction. We also provide evidence for spillovers to the euro area from US preference shocks and US interest rate policy shocks. JEL Classification: E32, F32, F45 |
| Keywords: | current account, macroeconomic shocks, monetary policy |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222696&r= |
| By: | Bletzinger, Tilman; Greif, William; Schwaab, Bernd |
| Abstract: | A safe asset is of high credit quality, retains its value in bad times, and is traded in liquid markets. We show that bonds issued by the European Union (EU) are widely considered to be of high credit quality, and that their yield spread over German Bunds remained contained during the 2020 Covid-19 pandemic recession. Recent issuances and taps under the EU’s SURE and NGEU initiatives helped improve EU bonds' market liquidity from previously low levels, also reducing liquidity risk premia. Eurosystem purchases and holdings of EU bonds did not impair market liquidity. Currently, one obstacle to EU bonds achieving a genuine euro-denominated safe asset status, approaching that of Bunds, lies in the one-off, time-limited nature of the EU’s Covid-19-related policy responses. JEL Classification: E58, G12, H63 |
| Keywords: | EU-issued bonds, European Central Bank, European Union, market liquidity, NextGenerationEU (NGEU), Pandemic Emergency Purchase Programme (PEPP) |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222712&r= |
| By: | Tom Beernaert; Nicolas Soenen; Rudi Vander Vennet (-) |
| Abstract: | Euro Area banks have been confronted with unprecedented monetary policy actions by the ECB. Monetary policy may affect bank risk profiles, but the consequences may differ for short-term risk versus long-term or structural bank risk. We empirically investigate the association between the ECB’s monetary policy stance and market-perceived shortterm and long-term bank risk, using the term structure of default risk captured by bank CDS spreads. The results demonstrate that, during the period 2009-2020, ECB expansionary monetary policy diminished bank default risk in the short term. However, we do not observe a similar decline in long-term bank default risk, since we document that monetary stimulus is associated with a steepening of the bank default risk curve. The reduction of bank default risk is most pronounced during the sovereign debt crisis and for periphery Euro Area banks. From 2018 onwards, monetary policy accommodation is associated with increased bank default risk, both short term and structurally, which is consistent with the risk-taking hypothesis under which banks engage in excessive risk-taking behavior in their loan and securities portfolios to compensate profitability pressure caused by persistently low rates. The increase in perceived default risk is especially visible for banks with a high reliance on deposit funding. |
| Keywords: | Monetary policy, ECB, Bank default risk, Term structure of credit risk |
| JEL: | C58 G21 G32 E52 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:22/1050&r= |
| By: | Barbieri, Claudio; Couaillier, Cyril; Perales, Cristian; Rodriguez d’Acri, Costanza |
| Abstract: | Macroprudential policies should strengthen the banking sector throughout the financial cycle. However, while bank credit growth is used to capture cyclical exuberance and calibrate buffer requirements, it depends on potentially heterogeneous dynamics on the borrower and lender side. By decomposing credit growth into a common component and components capturing heterogeneity in supply and demand à la Amiti and Weinstein, 2018 applied on the euro area credit register ("AnaCredit"), we can inform the policy debates in two ways. Ex ante, we introduce a framework mapping the decomposition to different types of macroprudential instruments, specifically broad vs. targeted measures. Ex post, we also show that the resulting decomposition can be used to assess the effectiveness of adopted measures on credit supply or demand. We find evidence that buffer releases and credit guarantees increased bank credit supply during the COVID-19 pandemic and interacted positively with banks' profitability. JEL Classification: E58, E52, E44, G21 |
| Keywords: | bank-lending channel, buffer releases, capital requirements, credit dynamics, European economy |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222702&r= |
| By: | Fraccaroli, Nicolò; Giovannini, Alessandro; Jamet, Jean-Francois; Persson, Eric |
| Abstract: | Parliamentary hearings are a fundamental tool to hold independent central banks accountable. However, it is not clear what type of information central banks provide when they communicate with parliaments compared to other existing information channels. In this article, we address this question by comparing the communication of the European Central Bank (ECB) in parliamentary hearings to its communication in the regular press conferences that follow monetary policy decisions. Using text analysis on the ECB President’s introductory statements in parliamentary hearings and press conferences from 1998 to 2021, we show that the ECB uses parliamentary hearings to discuss topics that are less covered in press conferences. We also find that the ECB’s policy stance in the hearings tends to reflect the stance in press conferences, and that the degree of language complexity is similar in the two fora. These findings support the view that the ECB mainly uses parliamentary hearings to further explain policy decisions first presented at press conferences but also to put them in a broader context. JEL Classification: E02, E52, E58 |
| Keywords: | Central Bank accountability, Central Bank communication |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222705&r= |
| By: | Carlos Montes-Galdón (European Central Bank); Eva Ortega (Banco de España) |
| Abstract: | This paper proposes a vector autoregressive model with structural shocks (SVAR) that are identified using sign restrictions and whose distribution is subject to time-varying skewness. It also presents an efficient Bayesian algorithm to estimate the model. The model allows for the joint tracking of asymmetric risks to macroeconomic variables included in the SVAR. It also provides a narrative about the structural reasons for the changes over time in those risks. Using euro area data, our estimation suggests that there has been a significant variation in the skewness of demand, supply and monetary policy shocks between 1999 and 2019. This variation lies behind a significant proportion of the joint dynamics of real GDP growth and inflation in the euro area over this period, and also generates important asymmetric tail risks in these macroeconomic variables. Finally, compared to the literature on growth- and inflation-at-risk, we found that financial stress indicators do not suffice to explain all the macroeconomic tail risks. |
| Keywords: | Bayesian SVAR, skewness, growth-at-risk, inflation-at-risk |
| JEL: | C11 C32 C51 E31 E32 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2208&r= |
| By: | Andrea Carriero (Queen Mary University of London, University of Bologna); Lorenzo Ricci (ESM); Elisabetta Vangelista (ESM) |
| Abstract: | The European Financial Stability Facility (EFSF) was set up in June 2010 as a temporary crisis resolution mechanism. In October 2012, its tasks were taken over by European Stability Mechanism (ESM), a permanent institution with a capital-based structure. Liquidity conditions for EFSF bonds in the secondary market are different from those of large sovereign bond issuers, which affects bond pricing. This paper offers the first study of the term structure of EFSF bond yields and a decomposition into expected interest rates and risk premia, based on a state-of-the-art no-arbitrage term structure model. A joint model of the EFSF curve and the swap curve allows to further identify the liquidity and credit components of both yield curves and disentangle an additional element of liquidity typical of bonds. This component is closely related to the ECB monetary policy. This model can be extended to other supranational institutions. |
| Keywords: | Term structure, volatility, density forecasting, no arbitrage |
| JEL: | C32 C53 E43 E47 G12 |
| Date: | 2022–07–29 |
| URL: | http://d.repec.org/n?u=RePEc:stm:wpaper:54&r= |
| By: | Bats, Joost; Hoondert, Jurian J.A. |
| Abstract: | This paper investigates the relationship between central bank (reverse) auctions and bill market liquidity. The analysis includes data on the purchases of bills in the auctions by the Dutch Central Bank under the European Central Bank’s Pandemic Emergency Purchase Programme (PEPP). The results indicate that auctions contribute to smooth market functioning. Two findings stand out. First, by purchasing bills using auctions rather than bilaterally, the central bank increases the bid-to-cover ratio at bill issuance, especially in times of stress. Second, bills are offered at larger sizes and lower prices in central bank auctions near primary issuance. JEL Classification: E42, E44, E52, E58, G12 |
| Keywords: | bills, Central bank auctions, liquidity |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222708&r= |
| By: | Francesco Corti; Daniel Gros; Tomas Ruiz; Alessandro Liscai; Tamas Kiss-Galfalvi; David Gstrein; Elena Herold; Mathias Dolls; Clemens Fuest |
| Abstract: | This paper conducts an in-depth analysis of the National Recovery and Resilience Plans (NRRPs) of Austria, Belgium, and Germany. Exploiting a detailed database that covers all the investments and reforms included in the NRRPs and building on insights from semi-structured expert interviews, we study their alignment with EU objectives, the additionality of the spending, and the cross-border effects. We find that all three NRRPs are well aligned with the objectives defined in the RRF Regulation but differ greatly in terms of additionality. Cross-border projects are only of limited importance. We finally highlight some missed opportunities for other cross-border projects. |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:econpr:_39&r= |
| By: | Durrani, Agha; Ongena, Steven; Ponte Marques, Aurea |
| Abstract: | What is the impact of stress tests on bank stock prices? To answer this question we study the impact of the publication of the EU-wide stress tests in 2014, 2016, 2018, and 2021 on the first (λ) and second (δ) moment of equity returns. First, we study the effect of the disclosure of stress tests on (cumulative) excess/abnormal returns through a one-factor market model. Second, we study whether both returns and volatility of bank stock prices changes upon the disclosure of stress tests through a structural GARCH model, developed by Engle and Siriwardane (2018). Our results suggest that the publication of stress tests provides new information to markets. Banks performing poorly in stress tests experience, on average, a reduction in returns and an increase in volatility, while the reverse holds true for banks performing well. Banks performing moderately have rather a small effect on both mean and variance process. Our findings are corroborated by the observed rank correlation between bank abnormal returns or equity volatility and stress test performance, which experiences a steady increase after each publication event. These results suggest that the publication of stress tests improves price discrimination between 'good' and 'bad' banks, which can be interpreted as a certification role of the stress tests in the stock market. JEL Classification: G11, G14, G21, G28 |
| Keywords: | excess return, financial stability, stock markets, stress tests, volatility |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222711&r= |
| By: | Bochmann, Paul; Hiebert, Paul; Schüler, Yves S.; Segoviano, Miguel |
| Abstract: | We propose the CoJPoD, a novel framework explicitly linking the cross-sectional and cyclical dimensions of systemic risk. In this framework, banking sector distress in the form of the joint probability of default of financial intermediaries (reflecting contagion from both direct and indirect interconnectedness) is conditioned on the financial cycle (reflecting the buildup and unwinding of system-wide balance sheet leverage). An empirical application to large systemic banks in the euro area, US and UK illustrates how the unravelling of excess leverage can magnify banking sector distress. Capturing this dependence of banking sector distress on prevailing financial imbalances can enhance risk surveillance and stress testing alike. An empirical signaling exercise confirms that the CoJPoD outperforms the individual capacity of either its unconditional counterpart or the financial cycle in signaling financial crises particularly around their onset - suggesting scope to increase the precision with which macroprudential policies are calibrated. JEL Classification: C19, C54, E58, G01, G21 |
| Keywords: | financial crises, financial cycle, multivariate density optimization, portfolio credit risk, systemic risk |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222698&r= |
| By: | Petr Jakubik (European Insurance and Occupational Pensions Authority (EI-OPA), Germany & Charles University in Prague, Faculty of Social Sciences, Institute of Economic Studies, Czech Republic); Saida Teleu (Central Bank of Malta, Malta & Charles University in Prague, Faculty of Social Sciences, Institute of Economic Studies, Czech Republic) |
| Abstract: | The article employs panel data to investigate whether stress test results and other characteristics associated with European insurers vulnerabilities affect dividend distributions and share buybacks. We focus on the EU wide insurance stress test conducted in 2018 and 2021 as in this way we can also capture a behaviour of insurers during the COVID-19 crisis. Our empirical results suggest that two stress tests considered had no significant impact on changes in dividend distributions. However, more resilient insurers measured by assets-over-liabilities ratio seem to have higher dividend payout ratios including share buybacks. On the contrary, higher generated profit tend to be reflected in lower payout ratio. |
| Keywords: | dividend distributions; dividends and share buybacks; European insurers; EU-wide insurance stress test, COVID-19 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2022_17&r= |
| By: | Kavonius, Ilja Kristian; Törmälehto, Veli-Matti |
| Abstract: | Globalisation has a major impact on the levels and distribution of wealth. The financial markets are highly integrated, and valuations of financial assets follow international patterns, which has contributed to large increases in financial wealth over the past 25 years. Nonetheless, this has not led to an equally large increase in property income because the rates of return have decreased during the same era. Moreover, changes in functional income distribution (capital/labour shares) have not been fully transmitted to the distribution of primary income between households because other institutional sectors – particularly the government sector – hold considerable amounts of financial assets. At least in the short term, the decrease in rates of return seems to contradict claims that, due to an increase in both financial and inherited wealth, we are entering an era of increasing income inequality. In this article, the link between financial wealth and pre-tax household income distribution is scrutinised for three European countries using a conceptually fully consistent macro framework. First, national balance sheets are combined with the related income flows. After this, income flows that are not property income but are considered part of national income (e.g., wages and salaries) are added, the national income flows are broken down by institutional sector and the household sector income flows separated. Finally, distributional household micro data are used to break down the aggregate household sector income flows by income decile. The article utilises this framework to analyse the evolution of rates of return and capital and labour shares as well as how the property income flows created by financial wealth have affected household primary income distribution. JEL Classification: D10, D31, D32, E21, G51 |
| Keywords: | functional distribution, households, income distribution, national income, wealth |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222707&r= |
| By: | Grebe, Moritz; Tillmann, Peter |
| Abstract: | This paper studies the impact of dissent in the ECB's Governing Council on uncertainty surrounding households' inflation expectations. We conduct a randomized controlled trial using the Bundesbank Online Panel Households. Participants are provided with alternative information treatments concerning the vote in the Council, e.g. unanimity and dissent, and are asked to submit probabilistic inflation expectations. The results show that the vote is informative. Households revise their subjective inflation forecast after receiving information about the vote. Dissenting votes cause a wider individual distribution of future inflation. Hence, dissent increases households' uncertainty about inflation. This effect is statistically significant once we allow for the interaction between the treatments and individual characteristics of respondents. The results are robust with respect to alternative measures of forecast uncertainty and hold for different model specifications. Our findings suggest that providing information about dissenting votes without additional information about the nature of dissent is detrimental to coordinating household expectations. |
| Keywords: | central bank communication,disagreement,inflation expectations,randomized controlled trial,survey |
| JEL: | E52 E43 E32 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:169&r= |
| By: | Eisenschmidt, Jens; Ma, Yiming; Zhang, Anthony Lee |
| Abstract: | We show that dealer market power impedes the pass-through of monetary policy in repo markets, which is an important first stage of monetary policy transmission. In the European repo market, most participants do not have access to trade on centralized exchanges. Rather, they rely on OTC intermediation by a small number of dealers that exhibit significant market power. As a result, the passthrough of the ECB’s policy rate to the majority of non-dealer banks and non-banks is inefficient and unequal in repo markets. Our estimates imply that a secured funding facility like the Fed’s RRP may alleviate dealer market power and improve the transmission efficiency of monetary policy to banks and non-bank financial institutions. JEL Classification: E4, E5, G2 |
| Keywords: | market power, monetary policy, non-banks, pass-through efficiency, repo market |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222706&r= |
| By: | Burlon, Lorenzo; Montes-Galdón, Carlos; Muñoz, Manuel A.; Smets, Frank |
| Abstract: | We provide evidence on the estimated effects of digital euro news on bank valuations and lending and find that they depend on deposit reliance and design features aimed at calibrating the quantity of CBDC. Then, we develop a quantitative DSGE model that replicates such evidence and incorporates key selected mechanisms through which CBDC issuance could affect bank intermediation and the economy. Under empirically-relevant assumptions (i.e., central bank collateral requirements and imperfect substitutability across CBDC, cash and deposits), the issuance of CBDC yields non-trivial trade-offss and effects through an expansion of the central bank balance sheet and profits. The issuance of CBDC exerts a smoothing effect on lending and real GDP by stabilizing deposit holdings. Such "stabilization effect" improves the well-known liquidity services/disintermediation trade-off induced by CBDC and permits to rank different types of CBDC rules according to individual and social preferences. Welfare-maximizing CBDC policy rules are effective in mitigating the risk of bank disintermediation and induce significant welfare gains. JEL Classification: E42, E58, G21 |
| Keywords: | bank intermediation, central bank digital currency, DSGE models |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222689&r= |
| By: | Dräger, Lena; Lamla, Michael; Pfajfar, Damjan |
| Abstract: | We study the effects of forward looking communication in an environment of rising inflation rates on German consumers' inflation expectations using a randomized control trial. We show that information about rising inflation increases short- and long-term inflation expectations. This initial increase in expectations can be mitigated using forward looking information about inflation. Among these information treatments, professional forecasters' projections seems to reduce inflation expectations by more than policymaker's characterization of inflation as a temporary phenomenon. |
| Keywords: | short-run and long-run inflation expectations,inflation surge,randomized control trial,survey experiment,persistent or transitory inflation shock |
| JEL: | E31 E52 E58 D84 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:168&r= |
| By: | Aleksandar Vasilev (Lincoln International Business School, UK) |
| Abstract: | This paper attempts to assess the size of the grey economy, and provide a decomposition by evasion type. The modelling approach utilizes a standard micro-founded general-equilibrium setup, which is augmented with a revenue-extraction mechanism and a government sector. The model is calibrated to Bulgaria after the introduction of the currency board (1999-2018). A computational experiment performed within this setup estimates that on average, the size of total evasion is a bit more than one-fourth of output, an estimate which is in line with the figures provided in both Philip (2014) and the European Commission (2014). Two-thirds of the model-predicted evasion is a combined result of income- and social security evasion, while the rest is due to VAT evasion. |
| Keywords: | tax evasion, general equilibrium, Bulgaria |
| JEL: | D58 E26 H26 K42 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:sko:wpaper:bep-2022-06&r= |
| By: | Leogrande, Angelo; Costantiello, Alberto; Laureti, Lucio |
| Abstract: | In this article we analyze the determinants and the export trend of European countries of medium and high technology products. The data were analyzed using various econometric models, namely WLS, Pooled OLS, Dynamic Panel, Panel Data with Fixed Effects, Panel Data with Random Effects. The results show that exports of medium and high-tech products are positively associated, among other variables, with the value of “Average Annual GDP Growth”, “Total Entrepreneurial Activity” and “Sales Impacts”, and negatively associated with, among other variables, “Human Resources”, “Government and Procurement of Advanced Technology Products” and “Buyer Sophistication”. A cluster analysis was realized with the k-Means algorithm optimized with the Silhouette coefficient. The result showed the presence of only two clusters. Since this result was considered poorly representative of the industrial complexity of the European Union countries, a further analysis was carried out with the Elbow method. The result showed the presence of 6 clusters with the dominance of Germany and the economies connected to the German economy. In addition, a network analysis was carried out using the distance to Manhattan. Four complex network structures and two simplified network structures were detected. A comparison was then made between 10 machine learning algorithms for predicting the value of exports of medium and high-tech products. The result shows that the best performing algorithm is the SGD. An analysis with Augmented Data-AD was implemented with a comparison between 10 machine learning algorithms for prediction and the result shows that the Linear Regression algorithm is the best predictor. The prediction with the Augmented Data-AD allows to reduce the MAE by about 0.0022131 compared to the prediction with the Original Data-OD. |
| Keywords: | Innovation, and Invention: Processes and Incentives; Management of Technological Innovation and R&D; Diffusion Processes; Open Innovation |
| JEL: | O30 O31 O32 O33 O34 |
| Date: | 2022–08–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:114215&r= |
| By: | ASTARITA, Caterina; ALCIDI, Cinzia |
| Abstract: | This analysis aims to explore how employee income distribution performed during the first year of the COVID-19 pandemic; it further aims to compare it with a pre-pandemic scenario (2019) and with the financial and the sovereign debt crisis. By referring to the EU Labour Force Survey (LFS) database for six EU Member States (Denmark, Estonia, Greece, Ireland, Italy, and Portugal), and by using transition matrices and a selection of mobility indices as empirical tools, the direction and the magnitude of the movement across quantiles experienced by employees are explored. For each of the years under scrutiny, the transition across quintiles is computed between two very close periods (e.g. from one quarter to another). Sudden changes in the structure of the transition matrices and the value of the respective mobility indicators, when observed in comparison with a ‘benchmark’ year, may be interpreted either as a shock to the economic system, or the (counter) effect of automatic stabilisers and discretionary public policy measures (and as a combination of the two). The direction and the magnitude of the change may depend on different factors, including the kind of crisis, labour market and market income response, along with the design and timing of public policy discretionary cushioning measures. This conclusion emerges from the comparison of results collected for the COVID-19 crisis with those of the Great Recession: Two different kinds of crisis, two different sets of transmission mechanisms from the origin of the crisis to the real economy, two different responses of the labour market and of the public policy intervention. During the COVID-19 crisis, the overall level of income mobility increased, while during the financial crisis and sovereign debt crisis it decreased. The reason lies both in the different magnitude of flows from employment to unemployment and in the type and timing of the measures taken. As for the COVID-19 pandemic vs a pre-pandemic scenario, in-depth observation of the transition matrices and of the relative mobility indices suggests an increase of the overall mobility that is explained by specific movements of the ‘upward’ and ‘downward’ movers, as well as from the patterns followed by the proportion of individuals belonging to the single quantiles. When the figures for different indicators are broken down, it seems that there is a general worsening condition of females compared to males, of the youngest (16-29-year-olds) and of employees without tertiary education (ISCED 6-8). |
| Keywords: | COVID-19 pandemic, labour income, income distribution, income mobility, transition matrices, income mobility index, quantile analysis. |
| JEL: | D3 D31 D6 D63 H1 H12 H2 H23 H24 J3 J6 |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:113851&r= |
| By: | Muñoz, Manuel A.; Smets, Frank |
| Abstract: | Since the onset of the Global Financial Crisis, the presence of institutional investors in housing markets has steadily increased over time. Real estate funds (REIFs) and other housing investment •rms leverage large-scale buy-to-rent real estate investments that enable them to set prices in rental markets. A significant fraction of this funding is being provided in the form of non-bank lending - which is not subject to regulatory LTV ratios - and REIFs are generally not constrained by leverage limits. We develop a quantitative DSGE model that incorporates the main features of the REIF industry and identify leakages of existing macroprudential policy: (i) already existing countercyclical LTV rules on residential mortgages trigger a credit reallocation towards the REIF sector that can amplify financial and business cycles; while (ii) "non-existent" countercyclical LTV rules on lending to REIFs are particularly effective in taming such cycles. Due to the different mechanisms through which they operate, both types of LTV rules complement each other and jointly yield larger welfare gains (for savers and borrowers) than in isolation. JEL Classification: E44, G23, G28 |
| Keywords: | leakages, leverage, loan-to-value ratios, real estate funds, rental housing |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:20220&r= |
| By: | Muñoz, Manuel A.; Smets, Frank |
| Abstract: | Since the onset of the Global Financial Crisis, the presence of institutional investors in housing markets has steadily increased over time. Real estate funds (REIFs) and other housing investment •rms leverage large-scale buy-to-rent real estate investments that enable them to set prices in rental markets. A significant fraction of this funding is being provided in the form of non-bank lending - which is not subject to regulatory LTV ratios - and REIFs are generally not constrained by leverage limits. We develop a quantitative DSGE model that incorporates the main features of the REIF industry and identify leakages of existing macroprudential policy: (i) already existing countercyclical LTV rules on residential mortgages trigger a credit reallocation towards the REIF sector that can amplify financial and business cycles; while (ii) "non-existent" countercyclical LTV rules on lending to REIFs are particularly effective in taming such cycles. Due to the different mechanisms through which they operate, both types of LTV rules complement each other and jointly yield larger welfare gains (for savers and borrowers) than in isolation. JEL Classification: E44, G23, G28 |
| Keywords: | leakages, leverage, loan-to-value ratios, real estate funds, rental housing |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:2022137&r= |
| By: | Ahnert, Toni; Assenmacher, Katrin; Hoffmann, Peter; Leonello, Agnese; Monnet, Cyril; Porcellacchia, Davide |
| Abstract: | This paper provides a structured overview of the burgeoning literature on the economics of CBDC. We document the economic forces that shape the rise of digital money and review motives for the issuance of CBDC. We then study the implications for the financial system and discuss of a number of policy issues and challenges. While the academic literature broadly echoes policy makers’ concerns about bank disintermediation and financial stability risks, it also provides conditions under which such adverse effects may not materialize. We also point to several knowledge gaps that merit further work, including data privacy and the study of end‐user preferences for attributes of digital payment methods. JEL Classification: E41, E42, E51, E52, E58, G21 |
| Keywords: | Central Bank Digital Currency, digital money, financial stability, monetary policy, payments |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222713&r= |