Economic analysis and research

Using almost 30 years of detailed firm-level data for the U.S. and U.K., we provide novel evidence on how monetary policy affects firm investment and finance. We find that relatively young firms paying no dividends are the most sensitive in terms of capital expenditures, and their response to interest rate changes drives the movement in aggregate investment. On the other hand, older firms (that pay dividends) don’t respond at all. The main mechanism behind these result works through the heterogeneous exposure to asset price movements. Standard theories of firm dynamics allow for only a marginal role of age as a predictor of the response to
shocks. We present an extension which can reconcile model and data.

This study analyzes empirically the direct effects of income changes on the elderly and pensioners’ spending behavior. The identification method exploits the introduction of a new pension system in Spain during the 1980s and 1990s and constructs a narrative series of legislated pension changes, which is used in an instrumental setting (CQIV). My findings imply that increases in the average pension have strong positive effects on pensioner spending, particularly on the pensioners with the highest levels of expenditure, income, and wealth.

We analyse the drivers of total factor productivity of Spanish banks from early 2000, including the last financial crisis and the post-crisis period. This allows us to study changes in productivity following a major restructuring process in the banking sector such as the one experienced in Spain. Overall, we find that following a period of continued growth, productivity declined after the height of the crisis, though large banks were less affected. We also find that risk, capital levels, competition and input prices were important drivers of the differences in productivity change between banks. Finally, our results suggest that, by the end of our sample period, there was still some room for potential improvements in productivity via exploiting scale economies and enhancing cost efficiency. These opportunities appear to be generally greater for the smaller banks in our sample.

The underrepresentation of women in Economics is nowhere as visible as in central banks. In a new paper, we use anonymised personnel data to analyse the career progression of men and women at the ECB. A wage gap in favour of men emerges within a few years of hiring, with one important driver being the presence of children. Women were also less likely to be promoted to a higher salary band up until 2010, when the ECB issued a statement supporting diversity and took measures to support gender balance. Following this change, the promotion gap disappears. This results from a lower probability of women to apply for promotion, combined with a higher probability of women to be selected conditional on having applied. Competition from other candidates partly explains this applications gap. Following promotion, women perform better in terms of salary progression, suggesting that the higher probability to be selected is based on merit, not positive discrimination.

We estimate the employment effect of a large fiscal stimulus in Spain (Plan E), in which the national government transferred funds to municipalities to carry out local investment projects. Using a difference-indifference approach by exploiting variation in the timing of the execution of projects across municipalities, we find that 100,000 euros of stimulus reduced unemployment by 0.62 jobs-years. We also present evidence on the transmission mechanism, finding that the effect was: i) initially concentrated in the construction and industrial sectors, but later spilled over to the broader economy, ii) larger for males than females, and iii) larger when the shock represented a higher share of the budget. Our estimate of the multiplier falls in the lower range of previous work.

We study the impact of negative interest rates on banks’ lending and risk-taking using a large sample of euro banks and their individual answers to the Bank Lending Survey (BLS). We find that banks whose net interest income is adversely affected by negative rates are concurrently lowly capitalized, take less risk and adjust loan terms and conditions to shore up their risk weighted assets and capital ratios. These banks also increase non-interest charges more. But, importantly, we find no differences in banks’ credit supply neither in the Euro area nor in Spain. These findings suggest that negative interest rates, while they may erode banks’ unit lending margins, do not necessarily lead to lower volume of supplied credit.

Large US firms, by diffusing embodied technology through trade in intermediates, appear to drive Europe's output over the medium term. We develop a twocountry model of endogenous growth in varieties, cross-country firm heterogeneity and trade to match this evidence. A US TFP slowdown generates a pronounced recession in Europe, while a negative investment-specific shock also imparts a protracted recession in the US since GDP and firm productivity stay below trend beyond a decade. Heterogeneous firms, with endogenously changing productivity cutoffs, and the responses of innovators and adopters determine medium-term adjustment, as import switching processes unfold

Both advanced and developing economies are experiencing a rapid process of population aging that will shape macroeconomic dynamics over the next decades. Indeed, demographic changes affect not only long-run trends (Krueger and Ludwig, 2007; Aksoy et al., 2019; Carvalho et al., 2016), but also short-term fluctuations (Jaimovich and Siu, 2009; Wong, 2016). We argue that population aging can also influence the effectiveness of fiscal policy. This effectiveness is often summarized by the size of the fiscal multipliers. In this feature, we highlight a novel determinant of the size of the government consumption spending fiscal multipliers: the age structure of an economy

The recession of the late 2000s and early 2010s greatly impacted the southern economies of the euro area such as Portugal, Greece and Spain. The recommendation that firms in those economies should reduce unit labour costs to gain international competitiveness in response to domestic economic crises was based on the assumption that domestic and foreign supply decisions are not linked at the firm level. This paper examines whether exports can have a significant impact in mitigating domestic slumps through an alternative channel: the venting-out mechanism. The paradigmatic case of Spain shows that firms with a falling domestic demand that had the ability to reduce their usage of flexible inputs relative to fixed achieved a short-term decrease in marginal costs gaining competitiveness abroad. The results in the paper help rationalize the coexistence of export booms during economic crises in economies in which internal devaluations had limited effectiveness in the short-run.

We analyze the effect of bank capital on credit cycles for nearly 150 years in Spain. We first build up a thorough measure of bank leverage (i.e. the capital to assets ratio) for the Spanish banking sector starting in the year 1880. Then, we analyze the impact that bank capital levels have on lending cycles, controlling for other determinants of credit growth. We find robust empirical evidence of an asymmetric relationship between bank capital and credit cycles. In particular, an increase in bank capital before expansions reduces credit growth, while it increases credit growth when the recession arrives. Conversely, a too depleted level of bank capital when entering in a recession has a severe impact on lending (i.e. may bring about quite negative and lasting effects in the economy and the wellbeing of the society as a whole). These findings support macroprudential policies (dynamic provisions and the countercyclical capital buffer) that have been very recently put in place, as they will help smooth the credit cycle.

We examine the link between exogenous changes in the risk of job loss and the timing of different forms of the demand for housing. We exploit large differences in firing costs across contract types in the Spanish labour market due to regional incentives to firms for the promotion of open-ended contracts. Using data from the 2002-2014 waves of the Spanish Survey of Household Finances, we document that an increase of 1% in the stock of permanent contracts increases the probability of household formation by a similar magnitude (especially through rental).