Publications

Aggregate exchange rate pass-through (ERPT) to import and consumer prices in the EU is
currently lower than it was in the 1990s and is non-linear. Low estimated aggregate ERPT to
consumer prices does not at all mean that exchange rate movements do not have an impact
on inflation, as aggregate rules of thumb mask substantial heterogeneities across countries,
industries and time periods owing to structural, cyclical and policy factors. Looking also at
new micro evidence, four key structural characteristics explain ERPT across industries or
sectors: (i) import content of consumption, (ii) share of imports invoiced in own currency
or in a third dominant currency, (iii) integration of a country and its trading partners in global
value chains, and (iv) market power. In the existing literature there is also a robust evidence
across models showing that each shock which causes the exchange rate to move has a
different price response, meaning that the combination of shocks that lies behind the cycle
at any point in time has an impact on ERPT.
Finally, monetary policy itself affects ERPT. Credible and aggressive monetary policy reduces
the observed ex post ERPT, as agents expect monetary policy to counteract deviations of
inflation from target, including those relating to exchange rate fluctuations. Moreover, under
the effective lower bound, credible non-standard monetary policy actions result in greater
ERPT to consumer prices. This paper recommends moving away from rule-of-thumb
estimates and instead using structural models with sufficient feedback loops, taking into
account the role of expectations and monetary policy reactions, to assess the impact of
exchange rate changes when forecasting inflation.

The aim of this paper is to analyze the variety of internationalization strategies used by
Chinese firms since the onset of its process of economic liberalization until now, in a
context in which China is adjusting its growth model to a new equilibrium. It is evident that
the relationship between China and the rest of the world could be changing. On the one
hand, the country seems to be restructuring its export profile towards a more sophisticated
one, directed to innovation, and less dependent on external input. On the other hand,
the important and growing exit of the Chinese multinationals is due to the will of the Chinese
government to invest in those sectors in which this country is at a competitive disadvantage
(raw materials, consumer goods, technology). Both strategies seek to meet a domestic
development objective.

The European Union (EU) requires swift, lasting and sufficient action to combat the health and economic crisis triggered by COVID-19. The ECB and EU Council’s responses have been effective in mitigating the short-term impact of the crisis and reducing the risks of it becoming protracted by enabling the Member States (MSs) to mobilise a significant volume of funds. Nevertheless, the scale of the crisis has underlined the absence of key shared economic policy instruments.
This article analyses the conditions required for an effective European response to the crisis and its possible consequences in the future. First, the article outlines the basic features which should underpin a recovery strategy based on providing a joint response to common structural challenges (the fight against climate change, digitalisation, higher investment in public health and disease prevention, and a restructuring of broad areas of the productive system) with fresh funds and a renewed reform drive.
Second, a design proposal for a “Recovery Fund” is set out. Funds will be mobilised with the twofold objective of maintaining suitable financing conditions for MSs’ sovereign debt (which requires giving the Fund the capacity to purchase government debt securities for an extended period of time) and boosting the financing of specific structural projects aligned with the strategic needs of the EU as a whole. This instrument must be efficient (governed by the principle of a suitable and proportionate use of public funds), show solidarity (by making its funds particularly available to those who most need them), be balanced (by eliminating permanent transfer risks resulting from the opportunistic behaviour of Member States) and have conditions attached to ensure that the funds are used to advance the objectives of the recovery strategy. Insofar as its creation is tied to a medium and long-term European strategy, the Fund’s effectiveness should be geared to covering a very extensive time frame, potentially laying the foundations for a permanent structure. And it should be backed by the EU budget, duly strengthened by additional funds from the MSs and receipts from the future introduction of new EU-wide taxes.

This paper describes the main features of the Spanish housing market during the latest
expansionary period (2014-2019), and discusses two aspects relating to its recent situation.
First, it analyses the evidence of households’ possible housing affordability difficulties. It
finds that these difficulties have been exacerbated in recent years, especially for specific
groups such as the young and low-income households, and particularly in certain zones,
such as the major metropolitan areas. Next, it reviews the ensuing consequences from
the standpoint of economic efficiency and of social challenges, analysing potential public
measures that might be considered to alleviate these difficulties. Finally, it assesses the
potential systemic risks associated with the residential real estate market, concluding that
these were, at end-2019, more limited than those prevalent in the run-up to the financial
crisis that broke in 2008.

The paper describes the main transmission channels of the spillovers of national fiscal
policies to other countries within the euro area and investigates their magnitude using
different models. In the context of Economic and Monetary Union (EMU), fiscal spillovers
are relevant for the accurate assessment of the cyclical outlook in euro area countries, as
well as in the debates on a coordinated change in the euro area fiscal stance and on a euro
area fiscal capacity. The paper focuses on spillovers from expenditure-based expansions by
presenting two complementary exercises. The first is an empirical investigation of spillovers
based on a new, long quarterly dataset for the largest euro area countries and on new
estimates based on annual data for a panel of 11 euro area countries. The second uses a
multi-country general equilibrium model with a rich fiscal specification and the capacity to
analyse trade spillovers. Fiscal spillovers are found to be heterogeneous but generally
positive among euro area countries. The reaction of interest rates to fiscal expansions is an
important determinant of the magnitude of spillovers.

The Spanish economy prolonged its expansionary phase in 2019. However, its growth rate
moderated, owing to the loss of momentum of domestic demand, which countered the larger
contribution of the external sector. The deceleration of domestic demand reflected flatter
private consumption and investment, while the external demand contribution was the result
of an easing in imports and some acceleration in exports. In line with these developments,
employment creation grew at a slower pace. In any event, the Spanish economy showed
greater resilience to the deterioration of the external context than the euro area, and hence
retained its positive growth differential. Inflationary pressures remained contained despite
the increase in unit labour costs. Against this background, the Spanish economy moved
in early 2020 on a progressively decelerating path towards its potential growth rate. This
outlook has been completely changed by the global health crisis caused by COVID-19. It
has affected with virulence a large number of countries, including Spain, and is severely
disrupting economic activity. The duration and intensity of the crisis is currently shrouded
in great uncertainty.

The 2008 crisis evidenced that real-estate appraisal for mortgage lending is key to financial
stability. This paper focuses on describing the Spanish mortgage-lending appraisal system and comparing it with those used in other advanced economies. A wide range of appraisal models is used. The model used depends, inter alia, on the relative importance of the real-estate sector in each country. For instance, there are countries in which the appraisal profession is unregulated and there are no rules on the use of a specific methodology, the model reports are not standardised, the appraisers are not certified and the sector is self-regulated. Others, by contrast, Spain included, have drawn up standards establishing the valuation methodology, the model appraisal report, and the requirements for incorporation and certification of appraisal companies. These countries also have a national supervisory authority.

After the financial and economic crisis in Europe, a broad consensus has emerged that
a stronger fiscal dimension may be needed to complete the architecture of Economic
and Monetary Union (EMU). This paper analyses the performance of interregional transfers
in existing fiscal-federal systems, notably in Austria, Belgium, Germany, Spain and the
United States, and aims to draw lessons for the design of a euro area fiscal instrument.
The empirical risk-sharing analysis in this paper suggests that effective cross-regional
stabilisation of asymmetric shocks tends to work via direct cash transfers to households,
such as unemployment benefits, which are financed out of cyclical central government
taxes and social security contributions. This would suggest that a euro area budgetary
instrument for stabilisation should be designed as a tool that enhances the automatic
stabilisation capacity in the single currency area. At the same time, it seems important that
a prospective central stabilisation instrument for the euro area would be integrated in an
overall fiscal policy framework that ensures proper incentives for national policymakers.

The aim of this paper is to present a methodology on the application of neuroanalysis
to the design of banknotes and security features. Traditionally, evaluation of the perception
of banknotes is based on explicit personal responses obtained through questionnaires
and interviews. The implicit measures refer to methods and techniques capable
of capturing people’s implicit mental processes. Neuroscience has shown that, in most
brain processes regulating emotions, attitudes, behaviours and decisions, human
consciousness does not intervene. That is to say, these implicit processes are brain
functions that occur automatically and without conscious control.
The methodology on neuroanalysis can be applied to the design of banknotes and security
features, and used as an effective analysis tool to assess people’s cognitive processes,
namely: visual interest, attention to certain areas of the banknote, emotions, motivation
and the mental load to understand the design and level of stimulation. The proposed
neuroanalysis methodology offers a criterion for making decisions about which banknote
designs and security features have a more suitable configuration for the public. It is
based on the monitoring of conscious processes, using traditional explicit measures, and
unconscious processes, using neurometric techniques.
The neuroanalysis methodology processes quantifiable neurometric variables obtained
from the public when processing events, such as eye movement, sight fixation, facial
expression, heart rate variation, skin conductance, etc. A neuroanalysis study is performed
with a selected group of people representative of the population for which the design of a
banknote or security features is made. In the neurometric study, suitably prepared physical
samples are shown to the participants to collect their different neurometric responses,
which are then processed to draw conclusions.

In IMF lending to countries in balance of payments difficulties, access to Fund resources
is conditional to complying with series of measures and reforms contained in an
economic program. The IMF periodically revises the design and conditionality of economic
programs. One of the key findings of the latest Review of Conditionality concluded
in 2019, comprising programs between 2011 and 2017, is a proposal to measure
the effectiveness of IMF programs in terms of their objective of correcting borrowing
countries imbalances. This exercise shows modest results. In addition, the review has
revealed the excessive optimism of macroeconomic projections used in programs,
together with an overestimation of the positive effects of structural reforms. These
factors may jeopardize the effectiveness of economic programs. There remain open
questions when revising the design and conditionality of IMF programs. Among them, the
links between conditionality and stigma, the social impact and communication strategy
of adjustment policies so that they can be more socially acceptable, the duration of IMF
programs, the role of debt restructurings, and the adequacy of policy recommendations,
beyond the strict compliance with conditionality procedures.

Income per capita in Spain relative to that of other advanced EU countries held stable at
around 90% from 2000 to 2016. Stagnant labour productivity is at the root of this lack
of convergence. This paper examines these developments from a sectoral perspective
based on recently released EU KLEMS data. Our main findings are as follows: i) Spain
has lower productivity levels vis-à-vis other EU countries in most sectors, with only
4 out of 23 sectors exhibiting higher productivity in Spain: accommodation and food
services, agriculture, electricity and gas supply, and information and communication services;
moreover, the allocation of employment towards low-productivity sectors accounts for
half of the aggregate Spain-EU productivity gap in levels; ii) turning to the changes in the
2000-2016 period, the overall lack of convergence is driven by a divergence in productivity
relative to EU countries, especially within services sectors; iii) while both ICT (Information
and Communication Technology) and non-ICT capital in Spain converged towards
European levels, Total Factor Productivity (TFP) divergence in most sectors explains the
lack of convergence in labour productivity. Finally, we explore one potential explanation for
this pattern: the TFP divergence and ICT capital convergence can be rationalised in the
presence of complementarities between ICT-capital and labour force skills. Indeed, our
industry-country regression analysis suggests that the dismal performance of Spanish
TFP might be related to the significant deficit in the population’s skills as proxied by
PIAAC-OECD scores.

This paper offers a general approach to the concept of central bank digital currency (CBDC)
to set the scene for an ordered discussion on their pros and cons. Potential motivations for
issuing a CBDC are reviewed as well as their implications, in particular for those modalities
that fit better the motivations of the central banks that, at this time, seem to be more
advanced regarding potential issuance.

We investigate which firm characteristics are associated with investment in tangible and intangible fixed assets, paying special attention to the case of R&D, and which funding sources are used for each type of investment. Regarding firm characteristics, we find that younger and more profitable firms tend to invest more in all asset types. In the case of size, larger firms invest more in R&D and intangibles but less in tangible fixed assets. In addition, there is a concave relationship between leverage and investment. Regarding funding sources, we find that cash flow is the most important source of funding for intangibles and R&D, whereas financial debt is the most important funding source for tangible fixed assets. Stock issues are used to fund R&D and, especially, tangible fixed assets. Firms use cash holdings to smooth investment in R&D.

This paper studies how the variation in sectoral productivities shapes the sectoral
composition of the Spanish economy from 1980 to 2015. I first document an asymmetric
behavior of sectoral productivities: the productivity of services declines over time, whereas
the productivity of manufacturing increases until the 1990s, before slowing down. I feed the
path of sectoral productivities observed in the data into a model of structural transformation
with two sectors (services and manufacturing) which are connected by an Input-Output
matrix. The model reproduces the variation of the gross output services share of the
Spanish economy between 1980 and 2015. The model implies that – even absent changes
in the trends of sectoral productivities – the annual growth rate of GDP between 2015 and
2050 shrinks by 0.6 percentage points with respect to the average growth rate between
1980 and 2015. Hence, annual GDP growth would decline from 2.3% to 1.7%. If sectoral
productivities were to equal the levels observed in the Euro Area between 1980 and 2015,
the average growth rate of Spanish GDP between 2015 and 2050 would be 2.1%.

In recent years, residential rental prices have experienced remarkable growth in many
of the major metropolitan areas of advanced economies. On occasions, these increases
in rental prices have caused a significant increase in the cost of rental housing in the
household consumption basket and difficulties in access to housing for certain groups. In
this context, there has been a resurgence of the debate about the role of public policies
in the rental housing market, designed to mitigate both the problems of access to housing
and the potential negative effects of the growth of rental prices on workers’ mobility or on
the macro-financial stability of the economy. In this paper we review the main instruments
of public intervention in the residential rental market, in the light of international experience
among the main advanced economies. Broadly speaking, the different policies can be
classified into three main groups: rent controls; public provision of rental housing; and a
wide range of heterogeneous measures aimed at both incentivising the supply of private
rental housing and containing the increase in household spending caused by rising rents.
The experience accumulated over decades in the development of these policies and the
increasing availability of quantitative evaluations of their impact illustrate some of
the implementation challenges presented by support policies for residential rentals, as
well as the wanted and unwanted consequences associated with this type of intervention.

The process of internationalisation that many Spanish banks have embarked upon in recent years has resulted in the need for much closer monitoring of the economies in which they are present, especially by a supervisory body such as the Banco de España. In this paper, we present a comprehensive theoretical and empirical modelling approach, developing a set of five country-specific structural BVARs for Brazil, Mexico, Turkey, Chile and Peru, the economies representing the largest exposures of Spanish banks to the emerging markets. The results obtained show that our modelling strategy provides useful tools to: (i) analyse the structural shocks that underlie their recent macroeconomic behaviour; (ii) study the impact of certain decisions of policymakers on GDP, inflation and other variables; and (iii) carry out accurate conditional and unconditional projections two years ahead of the most policy-relevant variables. These projections, together with the “analyst’s judgement”, constitute the bulk of our assessment of the future behaviour of these economies.