Working Papers

The objective of the Working Papers series is to disseminate original research studies on economics and finance, which since 2003 have been reviewed on an anonymous basis. Through their publication, the Banco de España hopes to contribute to the economic analysis and knowledge of the Spanish economy and its international context.

The opinions and analyses published in the Working Papers series are the responsibility of the authors and are not necessarily shared by the Banco de España or the Eurosystem.

All documents published in this collection are available in electronic format. If they are not directly available through this website, copies can be requested from the Publications Unit.

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  • 0741 Óscar Arce Price determinacy under non-Ricardian fiscal strategies (749 KB)

    This paper shows that there exist fiscal strategies that deliver equilibrium uniqueness in a monetary economy in which the central bank follows an interest rate peg. In contrast to the fiscal theory of the price level (FTPL), such strategies always satisfy a government intertemporal budget constraint. The government is able to rule out most prices using strategically its fiscal instruments, undercutting the private-market price whenever it is inconsistent with the fiscal targets. In the spirit of the FTPL, along the fiscal strategies of this paper the government does not follow a rule that mechanically links the fiscal surplus to the real value of its outstanding nominal debt. Like in the monetarist paradigm, the fiscal authority is forced to blink in face of an independent monetary policy, although in equilibrium the former achieves its own targets.

  • 0740 Alfredo Martín-Oliver and Vicente Salas-Fumás The Output and Profit Contribution of Information Technology and Advertising Investments in Banks (761 KB)

    This paper examines the contribution of investments in Information Technology (IT) and in advertising to the output and profits of Spanish banks, in the period 1983-2003. We find that the growth in the stock of IT capital explains one third of output growth of banks, and that an additional investment in IT of one million euros may be substituted for twenty-five workers. The paper also finds that advertising investments increase the demand for bank services with an elasticity of 0.22 for deposits and 0.11 for loans. For all the assets considered, the null hypothesis that banks use the profit-maximizing amount of services per period cannot be rejected with the data.

    Published in: Journal of Financial Intermediation, Elsevier, vol. 17(2), pp. 229-255 (April 2008)

  • 0739 Paloma López-García, Sergio Puente y Ángel Luis Gómez Firm productivity dynamics in Spain (505 KB)

    We have constructed a new database aimed at the study of the relation between firm demography and labour productivity, with a large number of Spanish firms from both industry and service sectors. This database allows us to analyze in detail the degree of dispersion and persistence of productivity levels, as well as the contribution of firm demography to productivity growth. This analysis has been done at different levels of sector aggregation. We have also studied explicitly the differential role of small and large firms.

  • 0738 Laura Hospido Modelling heterogeneity and dynamics in the volatility of individual wages (921 KB)

    In this paper I consider a model for the heterogeneity and dynamics of the conditional mean and the conditional variance of standarized individual wages. In particular, I propose a dynamic panel data model with individual effects both in the mean and in a conditional ARCH type variance function. I posit a distribution for earning shocks and I build a modified likelihood function for estimation and inference in a fixed-T context. Using a newly developed bias-corrected likelihood approach makes it possible to reduce the estimation bias to a term of order 1 over T squared. The small sample performance of bias corrected estimators is investigated in a Monte Carlo simulation study. The simulation results show that the bias of the maximum likelihood estimator is substantially corrected for designs that are broadly calibrated to thePSID. The empirical analysis is conducted on data drawn from the 1968-1993 PSID. I find that it is important to account for individual unobserved heterogeneity and dynamics in the variance, and that the latter is driven by job mobility. I also find that the model explains the non-normality observed in logwage data.

    Publicado en: Journal of Applied Econometrics, 27, 386-41( 2012)

  • 0737 Mario García-Ferreira y Ernesto Villanueva Employment risk and household formation: evidence from differences in firing costs (711 KB)

    The rate of new household formation among young adults who live with their parents has decreased in the last twenty years, specially in Southern Europe. At the same time, exposure to the risk that a young adult loses his or her job has increased. We use differences in firing costs across contract types in the Spanish labor market to identify if there is a causal link between both developments. Our first identification strategy exploits a legally-induced sharp increase in firing costs 3 years after the starting of a fixed-term contract between 1987 and 1996. The second uses variation in regional incentives to promote high-firing cost contracts between 1997 and 2001. Both strategies fail to detect a causal impact of job insecurity on the probability of forming a new household. Tentative evidence supports the notion that lower job insecurity has an impact on the form of tenure of the first house of residence, favoring home-ownership over renting.

  • 0736 Michiel van Leuvensteijn, Jacob A. Bikker, Adrian van Rixtel y Christoffer Kok-Sørensen A new approach to measuring competition in the loan markets of the euro area (718 KB)

    This paper is the first that applies a new measure of competition, the Boone indicator, to the banking industry. This approach is able to measure competition of bank market segments, such as the loan market, whereas many well-known measures of competition can consider the entire banking market only. A caveat of the Boone-indicator may be that it assumes that banks generally pass on at least part of their efficiency gains to their clients. Like most other model-based measures, this approach ignores differences in bank product quality and design, as well as the attractiveness of innovations. We measure competition on the lending markets in the five major euro countries as well as, for comparison, the UK, the US and Japan. Bearing the mentioned caveats in mind, our findings indicate that over the period 1994-2004 the US had the most competitive loan market, whereas overall loan markets in Germany and Spain were among the best competitive in the EU. The Netherlands occupied a more intermediate position, whereas in Italy competition declined significantly over time. The French, Japanese and UK loan markets were generally less competitive. Turning to competition among specific types of banks, commercial banks tend to be more competitive, particularly in Germany and the US, than savings and cooperative banks.

    Publicado en: Applied Economics, volume 43, issue 23, pp.3155-3167 (2011)

  • 0735 Antón Nákov and Andrea Pescatori Oil and the Great Moderation (1 MB)

    We assess the extent to which the great US macroeconomic stability since the mid-1980s can be accounted for by changes in oil shocks and the oil share in GDP. To do this we estimate a DSGE model with an oil-producing sector before and after 1984 and perform counterfactual simulations. We nest two popular explanations for the Great Moderation: (1) smaller (non-oil) real shocks; and (2) better monetary policy. We find that the reduced oil share accounted for as much as one-third of the inflation moderation, and 13% of the growth moderation, while smaller oil shocks accounted for 11% of the inflation moderation and 7% of the growth moderation. This notwithstanding, better monetary policy explains the bulk of the inflation moderation, while most of the growth moderation is explained by smaller TFP shocks.

    Published in: Economic Journal, vol. 120(3) (2010)

  • 0734 Pedro Albarrán, Raquel Carrasco y Maite Martínez-Granado Inequality for Wage Earners and Self-Employed: Evidence from Panel Data (629 KB)

    In this paper we study the evolution of income inequality for employees and self-employed workers. We highlight the importance of separately analyzing these different sources of income to gain a broader understanding of inequality. Using Spanish panel data on income and consumption from the ECPF for the period 1987-96, we decompose the variance of income shocks into a permanent and a transitory component. We find that there are noticeable differences in the evolution of income inequality, as well as in the relative importance of the permanent and transitory components across these groups. Our results point that the evolution of inequality can be basically explained by movements in the variance of the transitory component of income for the self-employed, while for the employees it is mainly driven by the variance of the permanent component, specially at the end of the period. Given these disparities, it seems that these two sources of income should be studied separately and that different policies are suitable for each group.

  • 0733 Paloma Acevedo, Enrique Alberola y Carmen Broto Local debt expansion... vulnerability reduction: an assessment for six crisis-prone countries (834 KB)

    In recent years, for most emerging markets, public debt has decreased and its composition has evolved toward domestic currency. This progress is remarkable in terms of reduced financial vulnerability, which has been underpinned by favourable financing conditions and related deepening of local debt markets. In this paper, we assess the vulnerability reductionconveyed in the ratio of total debt to GDPachieved for six selected="selected" emerging economies, focusing on the importance of exchange rate evolution relative to the proactive policies that fiscal authorities have implemented to reduce the external exposure of debt.
    We first disentangle both components in the current structure of debt to show that proactive debt management has been the dominant factor in the reduction of the forex debt share. We then perform a stress test within a debt sustainability analysis framework. The results show that proactive debt management policies have —somehow paradoxically— entailed a short-term cost, preventing a more dramatic reduction in the debt to GDP ratio, but this is more than compensated by the benefits in terms of financial vulnerability reduction in the face of financial turbulences, reducing simultaneously the probability of such contingency.

  • 0732 Pilar Cuadrado, Aitor Lacuesta, José María Martínez y Eduardo Pérez El futuro de la tasa de actividad española: un enfoque generacional (822 KB)

    En este trabajo se desarrolla una proyección de la tasa de actividad agregada de la economía española entre 2004 y 2020. Se construyen proyecciones independientes por nacionalidad y sexo a partir de los micro datos de la Encuesta de Población Activa desde 1977. En el caso de los hombres y mujeres de nacionalidad española se ha tenido en cuenta tanto el impacto de la tasa de desempleo estructural o NAIRU como los efectos derivados de la cohorte de nacimiento, el nivel educativo y la edad. Para los hombres y mujeres inmigrantes, las especificaciones empíricas incorporan el impacto tanto de la edad como del cambio de composición que han sufrido estos flujos en los últimos años, así como el efecto cohorte adicional observado para las mujeres. Como resultado del análisis empírico, se observa que es previsible que los efectos cohorte para hombres y mujeres de nacionalidad española se agoten en el futuro próximo. Sin embargo, los cambios en la composición de los inmigrantes podría seguir incrementado la tasa de actividad de este colectivo. La incorporación en el mercado laboral español de hombres y mujeres con un nivel educativo elevado así como el propio cambio generacional presentado por las mujeres, y a pesar del progresivo envejecimiento de la población, hacen prever una continuación en el incremento de la tasa de actividad que se viene observando desde 1995.

  • 0731 Rebeca Jiménez-Rodríguez The industrial impact of oil price shocks: evidence from the industries of six OECD countries (1 MB)

    Most of the studies existing in theoretical and empirical understanding of the macroeconomic consequences of oil price shocks have been focused on US aggregate data. In contrast to these studies, this paper assesses empirically the dynamic effects of oil price shocks on the output of the main manufacturing industries in six OECD countries using an identified vector autoregression for each economy. The pattern of responses to an oil price shock by industrial output is diverse across the four European Monetary Union (EMU) countries under consideration (France, Germany, Italy, and Spain), but broadly similar in the UK and the US. Evidence on cross-industry heterogeneity of oil shock effects within the EMU countries is also reported. Moreover, our baseline results are quite robust with respect to changes in the number of lags, identification assumptions, and real oil price definition.

  • 0730 Alfredo Martín-Oliver y Vicente Salas-Fumás How do intangible assets create economic value? An application to banks (571 KB)

    This paper examines the determinants of economic value and investment behavior of Spanish banks under the theory of investment for a multi-asset firm, focusing on three key issues: i) the distinction between immaterial and intangible assets and how each of them is related to the economic value of the firm; ii) the test of whether the accumulation of intangibles is a consequence of incurring adjustment costs or, on the contrary, intangibles are accumulated at no cost; iii) how to account for market power in the valuation of the multi-assets firm. The empirical results quantify the contribution of material, immaterial (information technology and advertising) and intangible (organization capital) assets to economic value of Spanish banks, separated from the contribution of market power. We find that intangible assets build up from adjustment costs of investments in IT and rents from market power split evenly the economic value of the bank above the replacement cost of material and immaterial assets.

    Publicado en: Decision Support Systems, 52, pp. 612-623 (2012)

  • 0729 Luis J. Álvarez What do micro price data tell us on the validity of the New Keynesian Phillips Curve? (668 KB)

    The New Keynesian Phillips Curve (NKPC) is now the dominant model of inflation dynamics. In recent years, a large body of empirical research has documented price setting behaviour at the individual level, allowing the assessment of the micro foundations of pricing models. This paper analyses the implications of 25 theoretical models in terms of individual behaviour and finds that they considerably differ in their ability to match the key micro stylised facts. However, none is available to account for all of them, suggesting the need to develop more realistic micro founded price setting models.

    Publicado en: Economics: The Open-Access, Open-Assessment E-Journal, 2(19) (2008)

  • 0728 Agustín Maravall and Ana del Río Temporal aggregation, systematic sampling, and the Hodrick-Prescott filter (728 KB)

    Maravall and del Río (2001), analized the time aggregation properties of the Hodrick Prescott (HP) filter, which decomposes a time series into trend and cycle, for the case of annual, quarterly, and monthly data, and showed that aggregation of the disaggregate component cannot be obtained as the exact result from direct application of an HP filter to the aggregate series. The present paper shows how, using several criteria, one can find HP decompositions for different levels of aggregation that provide similar results. We use as the main criterion for aggregation the preservation of the period associated with the frequency for which the filter gain is ½; this criterion is intuitive and easy to apply. It is shown that the Ravn and Uhlig (2002) empirical rule turns out to be a first order approximation to our criterion, and that alternative -more complex- criteria yield similar results. Moreover, the values of the parameter ? of the HP filter, that provide results that are approximately consistent under aggregation, are considerably robust with respect to the ARIMA model of the series. Aggregation is seen to work better for the case of temporal aggregation than for systematic sampling. Still a word of caution is made concerning the desirability of exact aggregation consistency. The paper concludes with a clarification having to do with the questionable spuriousness of the cycles obtained with HP filter.

    Published in: Computational Statistics and Data Analysis (2007)

  • 0727 Lucía Cuadro Sáez, Marcel Fratzscher y Christian Thimann The transmission of emerging market shocks to global equity markets (642 KB)

    The paper analyses whether, and to what extent, emerging market economies (EMEs) have systemic importance for global financial markets, above and beyond their influence during crises episodes. Using a novel database of exogenous economic and political shocks for 14 EMEs, we find that EME shocks not only have a statistically but also economically significant impact on global equity markets. The economic significance of EME shocks is in particular underlined by their remarkably persistent effects over time. Importantly, EMEs are found to influence global equity markets about just as much in "good" times as in "bad" times, i.e. during crises or periods of financial turbulence. Finally, we detect a large degree of heterogeneity in the transmission of EME shocks to individual countries' equity markets, stressing the different degrees of financial exposure, which is relatively higher for European equity markets.

    Publicado en: Journal of Empirical Finance, 16 (1), pp. 2-17 (2008)

  • 0726 Luis Gutiérrez de Rozas Testing for competition in the Spanish banking industry: The Panzar-Rosse approach revisited (1 MB)

    The aim of this paper is to assess the level of competition prevailing in the Spanish banking system. The current analysis employs a widely used non-structural methodology put forward by Panzar and Rosse (1987) -the so-called H-statistic- and draws upon a comprehensive panel dataset of Spanish commercial and savings banks covering the period 1986-2005. Standard estimates characterize a hump-shaped profile for the H-statistic throughout the time span under consideration. Nevertheless, a weighted procedure is subsequently performed in order to control for firm size and the number of branches. The estimation outcome reveals a gradual rising path for the H-statistic, thus suggesting a more competitive environment among larger banks. In both settings, a noteworthy increase in the degree of competition is identified at the turn of the eighties, when several liberalization-oriented policy measures came into force. The aforementioned findings discredit the widespread hypothesis which states that concentration impairs competition.

  • 0725 Donato Masciandaro, María J. Nieto y Henriette Prast Financial governance of banking supervision (557 KB)

    This article analyses the economics of financing banking supervision and attempts to respond to two questions: What are the most common financing practices? Can the differences in current financing practices be explained by country specific factors? We perform an empirical analysis that identifies the determinants of the financing structure of banks' prudential supervision using a sample of 90 banking supervisors (central banks and financial authorities). We conclude that supervisors in central banks are more likely publicly funded, while financial authorities are more likely funded via a levy on the regulated banks. The financing rule is also explained by the structure of the financial systems. Public funding is more likely in bank oriented structures. Finally, the geographical factor is also significant: European bank supervisors are more oriented towards the private funding regime. In general, we do not find evidence of the role of the political factor, the size of the economy, the level of development and the legal tradition.

  • 0724 Juan Ayuso, Juan F. Jimeno y Ernesto Villanueva The effects of the introduction of tax incentives on retirement savings (667 KB)

    This paper uses a Spanish panel of tax returns and another on household expenditure during the period 1985-1991 to examine the incidence of the introduction in 1988 of tax incentives to retirement savings on contributions to pension funds and on savings. We first identify the population cohorts who most used these incentives. Then we use data on the evolution of consumption of these cohorts to find that there is substantial heterogeneity in the response of household saving to tax incentives. Most contributions to pension funds are by older/high income individuals. While the overall amount of new saving we estimate is limited (at most 25 cents per euro contributed on average), saving responses differ substantially across age groups. In particular, we document very small consumption drops among the group of households between 56 and 65 years of age, the group that most actively contributed to the plan, while we find instead a larger decrease in consumption expenditures of the group of households between 46 and 55 years of age.

  • 0723 Anton Nakov and Andrea Pescatori Inflation-output gap trade-off with a dominant oil supplier (890 KB)

    An exogenous oil price shock raises inflation and contracts output, similar to a negative productivity shock. In the standard New Keynesian model, however, this does not generate a tradeoff between inflation and output gap volatility: under a strict inflation targeting policy, the output decline is exactly equal to the efficient output contraction in response to the shock. We propose an extension of the standard model in wich the presence of a dominant oil supplier(OPEC) leads to inefficient fluctuations in the oil price markup, reflecting a dynamic distortion of the economy's production process. As a result, in the face of oil sector shocks, stabilizing inflation does not automatically stabilize the distance of output from first-best, and monetary policymarkers face a tradeoff between the two goals.

    Published under the title Monetary Policy Tradeoffs with a Dominant Oil Producer en: Journal of Money, Credit and Banking, vol. 42(1) (2010)

  • 0722 Martín Vallcorba y Javier Delgado Determinantes de la morosidad bancaria en una economía dolarizada. El caso uruguayo (685 KB)

    En el trabajo se estudian los determinantes de la morosidad bancaria en Uruguay y se evalúa la existencia de relaciones de cointegración con un conjunto de variables macroeconómicas. Se obtiene evidencia de la existencia de una relación de equilibrio entre morosidad, variación de salarios en dólares y tipos de interés. Se concluye que menores salarios en dólares y mayores tipos de interés se traducen en una mayor morosidad a largo plazo. Esta conclusión enfatiza la relevancia del riesgo cambiario crediticio en economías con sistemas bancarios dolarizados.
    El modelo estimado sirve para realizar simulaciones, a partir de las que se aprecia que el sistema bancario uruguayo presentaría, actualmente, una mayor solidez que en el pasado, en particular previo a la crisis de 2002.

    Publicado en: Moneda y Crédito (2007)

  • 0721 Claudia Canals, Xavier Gabaix, Josep M. Vilarrubia y David Weinstein Trade patterns, trade balances and idiosyncratic shocks (726 KB)

    International Macroeconomics has long sought an explanation for current account fluctuations that matches the data. The approaches have typically focused on better models and new macroeconomic variables. We demonstrate the limitations of this approach by showing that idiosyncratic shocks are an important cause of macroeconomic volatility even for large countries. When explaining these fluctuations, standard macroeconomic models generally assume that firms are small and that their microeconomic shocks cancel out. We show that the high degree of concentration of bilateral trade flows means that idiosyncratic shocks can have a significant impact on aggregate economic fluctuations. We theoretically develop a descomposition components. Taking the model to data on bilateral trade flows from 1970 to 1997, we find that the most comprehensive macroeconomic model can only account for at most half of the observed variance in trade account volumes of each country. Thus, this paper highlights the importance of considering disaggregated data when modeling the current account.

  • 0720 Juan M. Ruiz y Josep M. Vilarrubia The wise use of dummies in gravity models: export potentials in the Euromed region (626 KB)

    In this paper, we estimate a gravity equation properly accounting for omitted exporter and importer's overall trade resistance, through country yearly dummies for exporter and importer countries. We find that the omission of time varying multilateral trade resistance terms in the estimation of a gravity equation introduces important biases in the results, although correcting them means we can only compute differences between actual and predicted export shares, instead of levels, as usually done. An application to the calculation of trade potentials in the Euromed region (Southern and Eastern Mediterranean countries) shows that the omission of time varying multilateral trade resistance terms greatly influences the computation of export potentials as well as the estimated effect of signing a free trade agreement. Overall, we find that, except for Algeria, Jordan and Lebanon, Euromed countries' share of exports to the EU as a whole is at, or slightly above, those predicted by a correctly specified gravity model, although the share of exports to some individual EU countries is significantly below the predictions of the gravity model. Except for those three countries, we find significant opportunities for export growth to the US, instead.

  • 0719 Fabio Canova, David López-Salido y Claudio Michelacci The labor market effects of technology shocks (1 MB)

    We analyze the effects of neutral and investment-specific technology shocks on hours worked and unemployment. We characterize the response of unemployment in terms of job separation and job finding rates. We find that job separation rates mainly account for the impact response of unemployment while job finding rates for movements along its adjustment path. Neutral shocks increase unemployment and explain a substantial portion of unemployment and output volatility; investment-specific shocks expand employment and hours worked and mostly contribute to hours worked volatility. We show that this evidence is consistent with the view that neutral technological progress prompts Schumpeterian creative destruction, while investment specific technological progress has standard neoclassical features.

  • 0718 Javier Andrés y Fernando Restoy Macroeconomic modelling in EMU: how relevant is the change in regime? (750 KB)

    We analyse the likely effects of changes in the monetary and financial regimes of EMU countries on the dynamics of output and inflation. In particular, we evaluate the impact of the regime shift on the forecasting performance of reduced-form models. Data for both the pre-EMU and the EMU regimes are generated by a relatively standard open-economy-DSGE model with sticky prices and wages and restricted access to financial markets for some individuals. We find that the effects of the shift in the monetary regime on the processes followed by macroeconomic variables depend on the nature of the shocks hitting the economy. For plausible shocks distributions the reduction in the accuracy of VAR-based inflation forecasts is relatively large and significant. The effect of the regime shift on output forecasts seem rather more modest and statistically insignificant. The impact on ouput forecasting accuracy would be comparatively much larger if the new monetary union regime is accompanied by a moderate relaxation of constraints affecting financial market access.

  • 0717 Eva Ortega, Pablo Burriel, José Luis Fernández, Eva Ferraz and Samuel Hurtado Update of the quarterly model of the Bank of Spain (813 KB)

    This paper presents the update of the macroeconometric model used at the Bank of Spain for medium term macroeconomic forecasting of the Spanish economy, as well as for performing policy simulations. The many changes that the Spanish economy has experimented in the last years, and the new system of national accounts published by the national statistical office, suggested that a reestimation of the model was due. This paper presents such reestimation with newer data (up to the end of 2005), and includes some modifications that were deemed necessary in certain equations.
    The quarterly model of the Bank of Spain keeps a similar structure to its previous version; it is basically a demand driven model. The Spanish economy is found, in general, more sensitive than in previous periods to changes in exogenous variables, especially to the financial conditions. The new model also shows changes in demographic trends, and presents an external sector less sensitive to changes in price competitiveness.

    The Spanish original of this publication has the same number.

  • 0716 Fernando Nieto The determinants of household credit in Spain (575 KB)

    This paper estimates a single-equation model to analyse the main explanatory factors behind changes in Spanish household credit, considering that the behaviour of its determinants is exogenous. According to the evidence reported, household borrowing is determined in the long run by real spending, gross wealth and the repayment term for outstanding credits, which have a positive influence, and by the cost of loans and the unemployment rate, the effect of which is of a negative sign. Developments in the short run are influenced by changes in long term interest rates and in employment. The evidence offered suggests that, in general terms, the financing received by households over the period analysed is in line with what may be inferred from its determinants; however, the high volume of debt incurred entails greater exposure of the sector to unexpected changes in its income, in its wealth or in the cost of borrowing, especially in a setting in which floating rate loans are increasingly significant.

  • 0715 Fabio Canova y Luca Sala Back to square one: identification issues in DSGE models (1 MB)

    We investigate identifiability issues in DSGE models and their consequences for parameter estimation and model evaluation when the objective function measures the distance between estimated and model impulse responses. Observational equivalence, partial and weak identification problems are widespread and they lead to biased estimates, unreliable t-statistics and may induce investigators to select false models. We examine whether different objective functions affect identification and study how small samples interact with parameters and shock identification. We provide diagnostics and tests to detect identification failures and apply them to a state-of-the-art model.

  • 0714 Mario Izquierdo, Juan F. Jimeno y Juan A. Rojas On the aggregate effects of immigration in Spain (654 KB)

    This paper presents a dynamic general equilibrium model designed to compute the aggregate impact of immigration, accounting for relevant supply and demand effects. We calibrate the model to the Spanish economy, allowing for enough heterogeneity in the demographic characteristics of immigrant and native workers. We consider an initial steady state characterized by the age structure of the Spanish population in 1995 and study the effects of several immigration scenarios on several macroeconomic variables (GDP, employment, productivity, etc.).

    Publicado en: SERIEs, v 1, n 4 pp409-432 (2010)

  • 0713 José Manuel Campa e Ignacio Hernando The reaction by industry insiders to M&As in the European financial industry (444 KB)

    This paper looks at the reaction by industry insiders, industry analysts and competing firms, to the announcement of M&As that took place in the European Union financial industry in the period 1998-2006. Analysts covering firms involved in an M&A transaction do not significantly alter their recommendation. This is consistent with the hypothesis that the transaction on average is "fairly priced" and that stock market prices reflect all relevant information on the assets. We also find that the correlation between excess returns for merging and competing firms is positive and, in some cases, significantly higher for domestic mergers than for international deals. This is consistent with the idea that domestic deals are more likely to have a negative impact on industry competition.

    Published in: Journal of Financial Services Research (2008)

  • 0712 Jesús Saurina and Carlos Trucharte An assessment of Basel II procyclicality in mortgage portfolios (488 KB)

    In this paper we develop a probability of default (PD) model for mortgage loans, taking advantage of the Spanish Credit Register, a comprehensive database on loan characteristics and credit quality. From that model, we calculate different types of PDs: point in time, PIT, through the cycle, TTC, average across the cycle and acyclical. Then, we compare capital requirements coming from the different Basel II approaches. We show that minimum regulatory capital under Basel II can be very sensitive to the risk measurement methodology employed. Thus, the procyclicality of regulatory capital requirements under Basel II is an open question, depending on the way internal rating systems are implemented and their output is utilised. We focus on the mortgage portfolio since it is one of the most under researched areas regarding the impact of Basel II and because it is one of the most important banks' portfolios.

    Published in: Journal of Financial Services Research (2007)

  • 0711 Alfredo Martín-Oliver, Vicente Salas-Fumás y Jesús Saurina Measurement of capital stock and input services of Spanish banks (895 KB)

    This paper contains estimates of physical and intangible (information technology, advertising and training) capital stock, together with capital, labor and externally provided input services, of Spanish commercial and saving banks in the period 1983 to 2003. Capital stocks are valued at replacement costs and assets’ services flows are computed using estimates of the risk-adjusted user cost of capital. Replacement costs of assets are substantially higher than book values and economic estimates of costs of input services allow for more accurate measures of efficiency and productivity of banks.

  • 0710 Javier Andrés, Rafael Doménech and Antonio Fatás The stabilizing role of government size (654 KB)

    This paper presents an analysis of how alternative models of the business cycle can replicate the stylized fact that large governments are associated with less volatile economies. Our analysis shows that adding nominal rigidities and costs of capital adjustment to an otherwise standard RBC model can generate a negative correlation between government size and the volatility of output. However, in the model, we find that the stabilizing effect is only due to a composition effect and it is not present when we look at the volatility of private output. Given that empirically we also observe a negative correlation between government size and the volatility of consumption, we modify the model by introducing rule-of-thumb consumers. In this modified version of our initial model we observe that consumption volatility is also reduced when government size increases in similar way to the observed pattern in OECD economies over the last 45 years.

    Published in: Journal of Economic Dynamics and Control (2008)

  • 0709 Gabriel Jiménez y Javier Mencía Modelling the distribution of credit losses with observable and latent factors (860 KB)

    This paper develops a flexible and computationally efficient model to estimate the credit loss distribution of the loans in a banking system. We consider a sectorial structure, where default frequencies and the total number of loans are allowed to depend on macroeconomic conditions as well as on unobservable credit risk factors, which can capture contagion effects between sectors. In addition, we also model the distributions of the Exposure at Default and the Loss Given Default. We apply our model to the Spanish credit market, where we find that sectorial default frequencies are affected by a persistent latent factor. Finally, we also identify the potentially riskier sectors and perform stress tests.

    Publicado en: Journal of Empirical Finance 16 (2), pp. 235-253

  • 0708 Enrique Alberola and Daniel Navia Equilibrium Exchange rates in new EU members: external imbalances vs. real convergence (811 KB)

    New EU members share two very marked features which have conflicting implications for the evolution of their real exchange rates in the long run: accelerated growth and systematic current account imbalances, which would anticipate, respectively an appreciation and a depreciation of their currencies, according to different theories of exchange rate determination. Furthermore, both elements are intertwined, for current account imbalances are the other side of capital inflows which have been central in boosting potential output and productivity convergence in these economies. In this paper, we aim at achieving some insight on the role of persistent and substantial capital inflows and the consequent accumulation of net foreign liabilities in improving competitiveness and in the determination of the exchange rate for the three largest new EU members: Poland, Hungary and the Czech Republic. We adopt a sequential approach that sheds light on the role of capital flows and their interaction with the Balassa-Samuelson hypothesis. We start by noting in a bivariate cointegration analysis that the accumulation of net foreign liabilities, far from depressing the exchange rate in the long-run, has gone hand-in-hand with exchange rate appreciation. We claim that this may be due to the induced effect that capital inflows are expected to have on productivity and competitiveness. After testing that foreign direct investment is cointegrated with productivity trends, we show that a extended empirical model comprising relative productivity and net foreign assets is well-suited in general to capture this indirect, opposite effect of liabilities accumulation on the real exchange rate. Finally, the model makes it possible to estimate for the considered countries equilibrium exchange rates and misalignments and perform some simulations on their expected future path.

    Published in: Review of Development Economics, vol. 12, issue 3, pages 605-619 (2008)

  • 0707 Ángel León, Javier Mencía and Enrique Sentana Parametric properties of semi-nonparametric distributions, with applications to option valuation (1 MB)

    We derive the statistical properties of the SNP  densities of Gallant and Nychka (1987). We show that these densities, which are always positive, are more flexible than truncated Gram-Charlier expansions with positivity restrictions. We use the SNP densities for financial derivatives valuation. We relate real and risk-neutral measures, obtain closed-form prices for European options, and analyse the semiparametric properties of our pricing model. In an empirical application to S&P500 index options, we compare our model to the standard and Practitioner's Black-Scholes formulas, truncated expansions, and the Generalised Beta and Variance Gamma models.

    Published in: Journal of business and economic statistics and American Statistical Association, vol. 27(2), pp. 176-192 (2009)

  • 0706 Enrique Alberola and José M.ª Serena Global financial integration, monetary policy and reserve accumulation. Assessing the limits in emerging economies (645 KB)

    This paper assesses whether domestic costs of reserve accumulation -and in particular monetary costs- constitute an eventual limit to the process in emerging markets. We find that sterilization is the first measure to deal with these costs. Then, we turn to study whether diminishing ability to deal with the monetary inflows through sterilization is an effective limit to the process, Indeed, when the scope for sterilization is reduced, accumulation diminishes. However, this constraint, albeit relevant in practice, has not constituted an effective limit to accumulation, hitherto.

    Published in: Moneda y Crédito (2007)

  • 0705 Olympia Bover y Juan F. Jimeno House prices and employment reallocation: international evidence (866 KB)

    Over the last decade house prices increased remarkably in many countries. However, while in several countries there was an employment boom in the construction sector, in others the share of employment in this sector did not significantly change. In this paper we estimate a model of labor demand in the construction sector, featuring building constraints, which explains many of the international differences in the response of sectoral reallocation of employment to house prices. Countries with more building possibilities (Spain, Sweden and the US) have a high sectoral reallocation of employment, and display larger elasticities of labor demand in the construction sector with respect to house prices than countries that seem to have fewer building possibilities (Belgium, the Netherlands, and the UK). Nevertheless, our estimates imply that, for the whole economy, the elasticity of labor demand with respect to house prices is broadly similar across countries.

  • 0704 Roberto Blanco y Fernando Restoy Have real interest rates really fallen that much in Spain? (527 KB)

    This paper analyses the behaviour of real interest rates in the Spanish economy over the last 15 years. Since inflation-indexed-bonds are not available, changes in implicit real interest rates are estimated using several approaches suggested by macroeconomic and financial theory. In particular, we employ equilibrium conditions of a representative agent under several specifications of preferences. Moreover, we exploit no-arbitrage conditions in securities markets. The evidence we report indicates that inflation uncertainty could account for a notable part of the observed decrease in nominal rates. Consequently, the actual real cost of financing might have decreased significantly less than what the course of ex-post real rates would suggest.

    Publicado en: Revista de Economía Aplicada Año 2011, Vol. 19, Número 55, pp. 153-170 (2011)

  • 0703 Philip Vermeulen, Daniel Dias, Maarten Dossche, Erwan Gautier, Ignacio Hernando, Roberto Sabbatini y Harald Stahl Price setting in the euro area: some stylised facts from individual producer price data (665 KB)

    This paper documents producer price setting in 6 countries of the euro area: Germany, France, Italy, Spain, Belgium and Portugal. It collects evidence from available studies on each of those countries and also provides new evidence. These studies use monthly producer price data. The following five stylised facts emerge consistently across countries. First, producer prices change infrequently: each month around 21% of prices change. Second, there is substantial cross-sector heterogeneity in the frequency of price changes: prices change very often in the energy sector, less often in food and intermediate goods and least often in non-durable non- food and durable goods. Third, countries have a similar ranking of industries in terms of frequency of price changes. Fourth, there is no evidence of downward nominal rigidity: price changes are for about 45% decreases and 55% increases. Fifth, price changes are sizeable compared to the inflation rate. The paper also examines the factors driving producer price changes. It finds that costs structure, competition, seasonality, inflation and attractive pricing all play a role in driving producer price changes. In addition producer prices tend to be more flexible than consumer prices.

  • 0702 María J. Nieto and Larry D. Wall Preconditions for a successful implementation of supervisors' Prompt Corrective Action: Is there a case for a banking standard in the EU? (538 KB)

    Over the past years, several countries around the world have adopted a system of prudential prompt corrective action (PCA). The European Union countries are being encouraged to adopt PCA by policy analysts who explicitly call for its adoption. To date, most of the discussion on PCA has focused on its overall merits. This paper focuses on the preconditions needed for the adoption of an effective PCA. These preconditions include conceptual elements such as a prudential supervisory focus on minimizing deposit insurance losses and mandating supervisory action as capital declines. These preconditions also include institutional aspects such as greater supervisory independence and authority, more effective resolution mechanisms and better methods of measuring capital.

    Published in: Journal of Banking Regulation (2006)

  • 0701 Praveen Kujal and Juan Ruiz Cost effectiveness of R&D and strategic trade policy (1.005 KB)

    This paper analyzes the incentives for governments to impose export subsidies when firms invest in a cost saving technology before market competition. Governments first impose an export subsidy or a tax. After observing export policy, firms invest in cost reducing R&D and subsequently compete in the market. Governments subsidize exports under Cournot competition. Under Bertrand competition, export subsidies are positive whenever R&D is sufficiently cost-effective at reducing marginal costs, and negative otherwise. The trade policy reversal found in models without endogenous sunk costs disappears if R&D is sufficiently cost-effective. Thus, output subsidies seem more robust than implied by the recent literature.

    Published in: The B.E. Journal of Economic Analysis & Policy (2007)

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