Publications

The COVID-19 crisis has elicited an immediate and forceful economic policy response.
With the height of the crisis behind us, the Governor has set out priority economic measures
for the post-lockdown phase. He calls for the urgent launch of an ambitious, comprehensive,
permanent and assessable strategy of structural reforms and fiscal consolidation.
In this second, gradual-recovery phase, laying the foundations for sustainable and balanced
growth will involve the economic policy response combining two objectives: to support the
recovery and to provide for structural adjustment. And, in this scenario, public finances
sustainability must be ensured.
Three elements are needed to boost the credibility and effectiveness of this initial response
and of the entire reform strategy. First, the fiscal expansion in the short term should go
hand-in-hand with a plan to restore health to public finances in the medium term, once the
economy resumes a sound growth path. Second, structural reforms should be expedited so
they positively affect spending, investment and hiring decisions in the very short term. And
third, political consensus must ensure the durability of the strategy over several legislatures.
In the short run, the policies supporting the recovery should be attuned to the health situation and economic circumstances. That will involve maintaining monetary and financial measures geared to preserving appropriate access to financing. It will further entail extending and recalibrating income support and furlough schemes. New measures will also be needed, namely: active labour market and training policies for the unemployed; enhanced business restructuring and insolvency procedures; and a fiscal impulse for the restructuring of the productive system through investment in technological capital, education and training.
In the medium term, the Spanish economy’s main challenges will determine the structural
reform agenda needed to increase our potential growth over the coming years. The paper
details the measures on this agenda in response to each of the challenges identified:
i) to improve productivity dynamics (promotion of business dynamics and growth, increased
sectoral competition, enhanced human capital and an increase in technological capital);
ii) to reduce unemployment and job insecurity (with a lower temporary employment ratio and
active labour market policies); iii) to address population ageing (pensions system reform);
iv) to bolster inclusion policies (minimum living income and housing affordability); v) to smooth the transition to a more sustainable economy (via fiscal policy and the financial system); vi) to maintain a healthy financial sector; vii) to tackle new challenges (globalisation and digitalisation); viii) to drive forward European governance reform (an appropriate European recovery fund, headway in the fiscal union, Stability and Growth Pact reform, completion of the Banking Union and a genuine Capital Markets Union); and ix) to ensure the sustainability of public finances (an ambitious multi-year fiscal consolidation programme).

The coronavirus pandemic has placed our economy in an unprecedented situation. The
adverse shock has been on an enormous scale and truly global in nature, and while it is
foreseeably temporary it has the potential to cause structural harm. Certain characteristics
of our economy – the sectoral specialisation of our productive system, the small average
size of firms and the high temporary employment ratio – make it more vulnerable than other
countries to this shock.
This situation initially calls for immediate and forceful economic policies. These should
be time-limited – until employment and economic activity regain momentum following the
shutdown imposed – and internationally coordinated. The aim is to alleviate the loss of
income of the households and firms affected by the crisis and to prevent a temporary shock
from causing persistent effects over time. And in this connection, fiscal policy is the most
suitable tool. Monetary policy should also operate actively to ensure appropriate financing
and liquidity conditions for economic agents. Micro- and macroprudential policies should
spur financial institutions to continue to see that lending reaches households and firms
and, in turn, they should preserve the system’s financial stability. Moreover, the crisis, as
it is global, requires an internationally coordinated response. At the European level, a joint
response is imperative, underpinned by a financial resources- and risk-sharing mechanism,
and a complete Banking Union.
Once the height of this crisis is behind us, economic policies should essentially tackle the
following challenges: to reduce the structural deficit and public debt, and to promote longterm growth. The strategy should rest on twin programmes: a medium-term budgetary
consolidation programme which, through a review of spending and of the tax structure
and capacity, enables health to be restored to our public finances; and a structural reforms
programme that raises economic growth capacity, with particular attention to enhancing
human capital and efficient R&D expenditure.

In order to curb the advance of COVID-19, Royal Decree-Law 10/2020 of 29 March 2020
stipulated the temporary shutdown of all activities considered non-essential between
30 March and 9 April 2020. This paper uses municipal-level information to quantify the
short-term effects of this measure both on employment and on containing the pandemic.
Specifically, we analyse the relationship between the share of firms forced to shut down in
each municipality and changes in Social Security registrations along with new COVID-19
cases in April. The results suggest that those municipalities most affected by the nonessential
activity shutdown endured higher reductions in employment but, at the same
time, they also witnessed a lower propagation of the pandemic during April. Finally,
other characteristics such as ageing, colder temperatures, higher population density and
proximity to the provincial capital are found to be associated with a higher incidence of
COVID-19 at the municipality level.

The COVID-19 pandemic has substantially affected the financial trajectory of governments,
which have seen their financing needs increase significantly. Against this background,
the European Union has launched a series of programmes to smooth this financing in the
short term, through the activation of credit lines to cover direct or indirect health expenses
and temporary unemployment scheme-related expenditure. Further, it has approved a
recovery fund (dubbed Next Generation EU), which will transfer resources from the European
budget to the Member States for investments that enhance competitiveness and social and
environmental sustainability. In this connection, this paper firstly estimates the increase in
financing needs at the European level. Secondly, it sets out the supranational measures
adopted to address the consequences of the pandemic, to be financed with debt issued
by the European Commission, on behalf of the Member States. Finally, it characterises
the starting point of this situation, i.e. it provides the main figures on euro-denominated
supranational debt currently in circulation and reviews the arguments in favour of the
importance of increasing this type of debt and pan-European safe assets.

The COVID-19 pandemic is exerting an unprecedented adverse impact on economic activity
and, in particular, on firms’ income. In some cases this means firms’ income is insufficient
to meet payments to which they have committed. This article presents the results of an
exercise simulating Spanish non-financial corporations’ liquidity needs for the four quarters
of this year. The needs derive both from the possible shortfalls caused by developments in
operating activity, and from investments in fixed assets and debt repayments. According to
the results, these liquidity needs, between April and December, might exceed €230 billion.
It is estimated that, through the public guarantee programmes for lending to firms, almost
three-quarters of this shortfall might be covered. To finance the remainder, companies
could use their liquidity buffers and/or resort to new debt without public guarantee. In this
respect, it should be borne in mind that, in recent months, firms with better access to
credit have managed to raise a high volume of funds without resorting to public guarantees.
Further, despite the unprecedented fall in business turnover, it is estimated that a significant
percentage of companies (more than 40%) would be able to withstand this situation without
undergoing a deterioration in their financial position. However, at the remaining companies,
the fall-off in activity would have led to significant increases in their level of financial
vulnerability, more sharply within the SME segment and especially among the firms in the
sectors most affected by the pandemic, such as tourism and leisure, motor vehicles, and
transport and storage.

The epidemiological crisis caused by the COVID-19 pandemic has prompted an
unprecedented shock. The containment measures adopted by the authorities have
involved the temporary shutdown of many productive activities and the general confinement
of the population. These events motivated the implementation of extraordinary fiscal
policy measures aimed at strengthening the health system and alleviating the adverse
effects of the pandemic on the economy, and supporting economic activity in the
subsequent recovery phase. This paper provides a descriptive and comparative analysis
of the measures adopted in some of the main advanced Western economies (Germany,
France, Italy, Spain, the United Kingdom and the United States). The objective is to have a
structured view of the similarities and differences in national responses to the health crisis
in the area of fiscal policy. To this end, the authors describe the budgetary and “extrabudgetary” (without an immediate direct budgetary cost, such as public guarantees) measures adopted according to their objective and functionality (health spending, support for firms’ liquidity and solvency, employment protection and support for households), their instrumentation and, to a lesser extent, their size. The analysis shows the presence of high cross-country heterogeneity in terms of the amount of the support packages, although not so much in the types of measures adopted. From the analysis, two messages should be highlighted. First, regarding budgetary measures, the countries’ greater commitment to subsidies and direct transfers to firms and households stands out, compared to other more indirect income support alternatives. Second, in relation to extra-budgetary measures, the main novelty of this crisis compared to previous ones is the prominence given to public guarantee programmes for the provision of liquidity to companies. These are generally implemented through public development banks, compared to other support mechanisms managed, for example, by central banks in collaboration with National Treasuries. Finally, during the recovery phase, public support is focusing on sustaining households’ income and firms’ liquidity – extending, in some cases, the temporary measures previously adopted – while stabilising the economy, supporting the solvency of strategic sectors and encouraging business investment.

We analyze the information content of alternative inflation expectations measures,
including those from consumers, firms, experts and financial markets, in the context of
open economy Phillips curves. We adopt a thick modeling approach with rolling regressions
and we assess the results of an out-of sample conditional forecasting exercise by means
of meta regressions. The information content varies substantially across inflation expectations
measures. In particular, we find that those from consumers and firms are better at predicting
inflation if compared to those from experts and, especially, those from financial markets.

The role of parenthood in the gender pay gap has been extensively discussed in the
literature. Using data from social security records, we adopt the methods used for other
countries to evaluate the existence of a child penalty in Spain, looking at disparities for
women and men across different labor outcomes following the birth of the first child. Our
findings suggest that, the year after the first child is born, mothers’ annual earnings drop
by 11 percent while men’s remain unaffected. The gender gap is even larger ten years after
the birth. Our estimate of the long-run child penalty in earnings equals 28 percent, similar
in magnitude to that found for Sweden and Denmark, and smaller than in the UK, the US,
Germany, and Austria. In addition, we identify channels that may drive this phenomenon,
including reductions in working days and shifts to part-time or fixed-term contracts. Finally,
we encounter heterogeneous responses in earnings and labor market participation by
educational level: college-educated women react to motherhood more on the intensive
margin (working part-time), while non-college-educated women are relatively more likely to
do so in the extensive margin (working fewer days).

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.