Economic analysis and research

The paper studies how labor market duality affects human capital accumulation and the wage trajectories of young workers in Spain. Using rich administrative data, we follow workers from their entry into the labor market to measure the experience accumulated under different contractual arrangements and we estimate their wage returns. We document lower returns on experience accumulated under fixed-term contracts (FTCs) compared with open-ended contracts and show that this gap in returns is due to lower human capital accumulation while working under FTCs. This gap widens with worker skill, suggesting that experience and skill-learning are complementary. The widespread use of FTCs holds back wage growth by up to 16 percentage points after 15 years since labor market entry. 

In this study we disentangle the effect of roots from other confounding factors, including discrimination, to explain differences in immigrants’ outcomes in the mortgage market. Using loan-level data from the Spanish Credit Register complemented with data on securitized mortgages over a complete financial cycle, we identify that foreign-born borrowers with feeble roots to the host country pay higher mortgage rates at origination than similar debtors that are better-settled. We also find that weak roots are associated with higher default rates and with greater incentives to go into default in negative equity situations. Overall, we show that rootedness explains differential loan conditions at origination and default behavior in mortgages. From a policy perspective, our results have important implications for the identification of discriminatory lending practices, for understanding the potential consequences of moving away from recourse mortgage regimes, and for the effectiveness of macroprudential policy.

The negotiation period following the 2016 Brexit referendum was characterized by high uncertainty regarding the new framework for bilateral relations between the European Union and the United Kingdom. In this context, an important fraction of Spanish trade with the United Kingdom was diverted to alternative markets after the referendum, in the case of those firms with a high exposure to the UK (above 10 % of foreign sales and purchases). Trade diversion was higher for exports (than for imports) and to/from EU countries.

Does expansionary monetary policy foster capital misallocation? In a recent study we tackle this question both theoretically and empirically. We show how unexpected monetary policy expansions increase the investment of high-productivity firms relatively more than that of low-productivity ones, decreasing capital misallocation and increasing aggregate productivity. This has profound implications for the optimal design of monetary policy.

Unconventional Monetary Policies gained momentum since the global financial crisis and were used extensively throughout the pandemic. An extensive literature has studied their effects on growth, prices and financial variables, but much less is known about their impact on ex-ante tail risk perceptions. Our paper analyses the impact of the unconventional monetary policies of four major central banks (the Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan) on the probability of future market crashes. We exploit the heterogeneity of different unconventional actions to disentangle their influence on reducing the ex-ante perception of extreme events (tail risks) using the information contained in risk-neutral densities from the most liquid stock index options. We empirically show that the announcement of unconventional policies reduces the risk-neutral probability of extreme events across various horizons and thresholds, supporting the hypothesis of the risk-taking channel. Finally, the dynamics of the UMPs are captured by a structural model that confirms a transitory impact of UMPs on market tail risk perceptions and a positive effect on the real economy.

We document that overcollateralisation of banks' secured liabilities is positively associated with the risk premium on their unsecured funding. We rationalize this finding in a theoretical model in which costs of asset encumbrance increase collateral haircuts and the endogenous risk of a liquidity-driven bank run. We then test the model's predictions using a novel dataset on asset encumbrance of the European banks. Our empirical analysis demonstrates that banks with more costly asset encumbrance have higher rates of overcollateralisation and rely less on secured debt. Consistent with theory, the effects are stronger for banks that are likely to face higher fire-sales discounts. This evidence acts in favour of the hypothesis that asset encumbrance increases bank risk, although this relationship is rather heterogeneous.