Working Papers

The aim of the Working Papers series is to disseminate research papers on economics and finances by Banco de España researchers. The Working Papers are published once they have successfully come through an anonymous evaluation process. Through their publication, the Banco de España seeks 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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  • 2008
    Foreign direct investment and the equity home bias puzzle (491 KB) Sven Blank, Mathias Hoffmann and Moritz A. Roth

    The vast macroeconomic literature trying to explain the widely observed equity home bias
    disregards internationally active firms. In a DSGE model that features the endogenous choice of firms to become internationally active through either exports or foreign direct investment (FDI), we find that the optimal equity holdings of agents are biased towards domestic firms. Our finding indicates that international diversification is not as bad as empirical measures of the equity home bias suggest.

  • 2007
    The benefits are at the tail: uncovering the impact of macroprudential policy on growth-at-risk (2 MB) Jorge E. Galán

    This paper brings together recent developments on the growth-at-risk methodology and the literature on the impact of macroprudential policy. For this purpose, I extend the recent proposals on the use of quantile regressions of GDP growth by including macrofinancial variables with early warning properties of systemic risk, and macroprudential measures. I identify heterogeneous effects of macroprudential policy on GDP growth, uncovering important benefits on the left tail of its distribution. The positive effect of macroprudential policy on reducing the downside risk of GDP is found to be larger than the negative impact on the median, suggesting a net positive effect in the mid-term. Nonetheless, I identify heterogeneous effects depending on the position in the financial cycle, the direction of the policy, the type of instrument, and the time elapsed since its implementation. In particular, tightening capital measures during expansions may take up to two years in evidencing benefits on growth-at-risk, while the positive impact of borrower-based measures is rapidly observed. This suggests the need of implementing capital measures, such as the countercyclical capital buffer, early enough in the cycle; while borrower-based measures can be tightened in more advanced stages. Conversely, in downturns the benefits of loosening capital measures are immediate, while those of borrower-based measures are limited. Overall, this study provides a useful framework to assess costs and benefits of macroprudential policy in terms of GDP growth, and to identify the term-structure of specific types of instruments.

  • 2006
    Strategic interactions and price dynamics in the global oil market (825 KB) Irma Alonso Álvarez, Virginia Di Nino and Fabrizio Venditti

    In a simplied theoretical framework, we model the strategic interactions between OPEC and non-OPEC producers and the implications for the global oil market. Depending on market conditions, OPEC may find it optimal to act either as a monopolist on the residual demand curve, to move supply in-tandem with non-OPEC, or to offset changes in non-OPEC supply. We evaluate the implications of the model through a Structural Vector Auto Regression (VAR) that separates non-OPEC and OPEC production and allows OPEC to respond to supply increases in non-OPEC countries. This is done by either increasing production (Market Share Targeting) or by reducing it (Price Targeting). We find that Price Targeting shocks absorb half of the fluctuations in oil prices, which have left unexplained by a simpler model (where strategic interactions are not taken into account). Price Targeting shocks, ignored by previous studies, explain around 10 percent of oil price fluctuations and are particularly relevant in the commodity price boom of the 2000s. We confirm that the fall in oil prices at the end of 2014 was triggered by an attempt of OPEC to re-gain market shares. We also find the OPEC elasticity of supply three times as high as that of non-OPEC producers.

  • 2005
    Dollar borrowing, firm-characteristics, and FX-hedged funding opportunities (573 KB) Leonardo Gambacorta, Sergio Mayordomo and José María Serena

    We explore the link between firms’ dollar bond borrowing and their FX-hedged funding
    opportunities, as reflected in a positive corporate basis (the relative cost of local to synthetic currency borrowing). Consistent with previous research, we first document that firms substitute domestic for dollar borrowing when they have higher dollar revenues or long-term assets and when the corporate basis widens. Importantly, our novel firm-level dataset enables to show that when these funding opportunities appear, the currency substitution is stronger for very high-grade firms, as they can offer to investors close substitutes for safe dollar assets. However, firms with higher dollar revenues or long-term assets do not react to changes in the corporate basis. Altogether, the composition of dollar borrowers shifts when the basis widens, as high-grade firms gain importance, relative to firms with operational needs.

  • 2003
    Measuring the procyclicality of impairment accounting regimes: a comparison between IFRS 9 and US GAAP (2 MB) Alejandro Buesa, Francisco Javier Población García and Javier Tarancón

    The purpose of this paper is to compare the cyclical behavior of various credit impairment
    accounting regimes, namely IAS 39, IFRS 9 and US GAAP. We model the impact of credit
    impairments on the Prot and Loss (P&L) account under all three regimes. Our results
    suggest that although IFRS 9 is less procyclical than the previous regulation (IAS 39), it is
    more procyclical than US GAAP because it merely requests to provision the expected loss
    of one year under Stage 1 (initial category). Instead, since US GAAP prescribes that lifetime
    expected losses are fully provisioned at inception, the amount of new loans originated is
    negatively correlated with realized losses. This leads to relatively higher (lower) provisions
    during the upswing (downswing) phase of the financial cycle. Nevertheless, the lower
    procyclicality of US GAAP seems to come at cost of a large increase in provisions.

  • 2002
    ¿Cómo afecta la complejidad de la regulación a la demografía empresarial? Evidencia para España (1 MB) Juan S. Mora-Sanguinetti and Ricardo Pérez-Valls

    The volume and fragmentation of regulation are important for business demography. They
    may imply that the market is divided, reducing firm size and their chances of benefiting
    from economies of scale. This paper has two objectives: it analyzes the results of a new
    database on regulation in Spain and explores the impacts of the complexity of the regulatory
    framework on business demography. The volume of new norms enacted in Spain has
    increased by four-fold since the end of the 70s, reaching 11,737 regulations in 2018. The
    results of our analysis indicate that the complexity of the regulatory framework, broken down
    at the local level, is negatively related to the total number of firms in Spain and to firm entry
    (reducing the capital of the new firms). This conclusion hides an interesting composition
    effect: the complexity is negatively related to the presence of limited liability companies (SL),
    which have a larger size and could take advantage of economies of scale (doing business
    throughout the territory). However, it is positively related to the presence of individuals with
    business activity (which are smaller) and which may have activities connected with local
    regulations and local markets. The analysis proposed in this paper is relevant for the study
    of productivity in Spain.

  • 2001
    Debt sustainability and fiscal space in a heterogeneous Monetary Union: normal times vs the zero lower bound (668 KB) Javier Andrés, Pablo Burriel and Wenyi Shen

    In this paper we study fiscal policy effects and fiscal space for countries in a monetary union
    with different levels of public debt. We develop a dynamic stochastic general equilibrium
    (DSGE) model of a two-country monetary union, calibrated to match the characteristics of Spain and Germany, in which debt sustainability is endogenously determined a la Bi (2012) to shape the responses of the risk premium on public debt. Policy shocks change the market’s expectation about future primary surplus, producing a direct effect on the sovereign risk premium and macroeconomic responses of the economy. In normal times the costs of a government spending driven fiscal consolidation in the high-debt country are greatly diminished when this consolidation improves endogenously its debt sustainability prospects. Fiscal consolidations in both members of the monetary union decrease real interest rates and amplify the reduction in risk premium in the highly-indebted country, improving union-wide output in the long run, but at the cost of lower output in the low-debt country in the short term. On the contrary, when monetary policy is constrained at the zero lower bound, the risk premium channel arising from the endogenous determination of debt sustainability becomes muted. In the ZLB, a fiscal consolidation generates deflation expectations which increase the real interest rate and may compensate partially or completely, depending on the calibration, the benefits from a lower risk premium. In this context, a fiscal expansion in the low-debt country and a consolidation in the high-debt country delivers the greater positive impact on union-wide output. Finally, the risk premium channel only affects countries with medium or low levels of public debt indirectly through the negative spillovers from other high-debt members of the monetary union.

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