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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  • 1934
    Exchange rate shocks and inflation comovement in the euro area (1 MB) Danilo Leiva-Leon, Jaime Martínez-Martín and Eva Ortega

    This paper decomposes the time-varying effect of exogenous exchange rate shocks on euro area countries inflation into country-specific (idiosyncratic) and region-wide (common) components. To do so, we propose a flexible empirical framework that is based on dynamic factor models subject to drifting parameters and exogenous information. We show that exogenous shocks to the euro/USD account for over 50% of the nominal euro/USD exchange rate fluctuations in more than 1/3 of the quarters over the past six years – especially in turning points periods. Our main results indicate that headline inflation in euro area countries, and in particular its energy-related component, has significantly become more affected by these exogenous exchange rate shocks since the early 2010s, in particular, for the largest economies of the region. While such increasing sensitivity relies solely on a sustained surge in the degree of comovement for headline inflation, it is also based on a higher region-wide effect of the shocks for the case of energy inflation. Instead, purely exogenous exchange rate shocks do not seem to have a significant effect on the core component of headline inflation, which also displays a lower degree of comovement across euro area countries.

  • 1933
    Domestic and foreign investment in advanced economies. The role of industry integration (1 MB) Teresa Sastre and Laura Heras Recuero

    Previous research using country or firm data has been inconclusive on the sign of the relation between domestic and foreign investment. Though several hypotheses have been formulated, the factors determining the sign of this relationship are not clearly identified yet. In this paper we explore the role of industry integration in determining the relation between outward foreign direct investment (FDI) and domestic investment by using disaggregated data at the industry level and several indicators of industry integration. The proportion of intangible investment is used as a proxy of horizontal integration and several measures of participation in Global Value Chains (GVCs) as proxies of vertical integration. The empirical results confirm that the relationship between outward FDI and domestic investment is very varied and differs across industries and countries. That relation is positive (complementary) for those industries with low intensity in intangible investment and high forward integration in GVCs –two features of vertically integrated industries– and becomes negative for those industries with high intangible investment (usually more horizontally integrated).

  • 1932
    Staying dry on Spanish wine: the rejection of the 1905 Spanish-Italian trade agreement (703 KB) Jacopo Timini

    After a long debate on wine import tariffs, the Italian Parliament failed to ratify the Spanish-
    Italian trade agreement on December 17th, 1905. This decision – an unusual episode for a
    country with relatively low level of protection – left Spain and Italy without a bilateral trade
    treaty for an entire decade. In the literature, broader political issues and local interests are
    alternatively indicated as the main drivers of the rejection. Based on a manually assembled
    database which collects economic and political variables, including MPs personal features,
    and using a probit model, this paper provides a quantitative analysis of the vote. Results
    show that constituency interests had a role in determining the result of the vote on the trade
    treaty. Moreover, constituency interests were also important for the “vote switchers”, i.e.
    those MPs that supported the overall government policy stance in the first round, but
    opposed the Spanish-Italian trade agreement in the second.

  • 1931
    Beyond the LTV ratio: new macroprudential lessons from Spain (2 MB) Jorge E. Galán and Matías Lamas

    Booming house prices have been historically correlated with the loosening of banks’ lending standards. Nonetheless, the evidence in Spain shows that the deterioration of lending policies may not be fully captured by the popular loan-to-value (LTV) ratio. Drawing on two large datasets comprising more than five million mortgage operations that cover the last financial cycle, we show that the LTV indicator may exhibit a misleading picture of actual mortgage credit imbalances and risk. In turn, risk identification improves when other metrics are considered. In particular, we show that loan-to-price (LTP) as well as ratios that consider the income of borrowers are major determinants of mortgage defaults. Moreover, we identify relevant non-linear effects of lending standards on default risk. Finally, we document that the relationship between lending standards and default rates changes over the cycle. Overall, the findings provide useful insights for the design of the macroprudential policy mix and, in particular, for the implementation of borrower-based measures.

  • 1930
    Mapping China´s time-varying house price landscape (1 MB) Michael Funke, Danilo Leiva-Leon and Andrew Tsang

    The recent increase in China’s house prices at the national level masks tremendous variation at the city level – a feature largely overlooked in the macroprudential literature. This paper measures the evolving heterogeneity in China’s house price dynamics across 70 major cities and assesses its relationship with housing market characteristics. We gauge the heterogeneity of house price dynamics using a novel regime-switching modelling approach to estimate the time-varying patterns of China’s city-level housing price synchronization. The estimates indicate an increasing synchronization leading up to 2015, and a decoupling pattern thereafter, which is associated to the heterogeneous strength of regional macroprudential policies. After sorting city-level housing prices into four clusters sharing similar cyclical features, we document high synchronization within clusters, but low synchronization among them. The empirical evidence suggests that differentials in the growth of population, income, and air quality are relevant explanatory factors of housing price synchronization among cities.

  • 1929
    On financial frictions and firm market power (927 KB) Miguel Casares, Luca Deidda and José E. Galdón-Sánchez

    We build a static general-equilibrium model with monopolistically competitive firms that
    borrow funds from competitive banks in an economy subject to financial frictions. These
    frictions are due to non verifiability of both ex post firm returns and managerial effort. Market
    power has opposing effects. On one side, firms’ pricing over marginal cost reduces output
    compared to perfect competition. On the other, by increasing firms’ profitability, market
    power reduces the impact of financial frictions. The resulting tradeoff is ambiguous. We
    show that, other things equal, there exists an optimal positive level of market power that
    maximizes welfare. Such optimal degree of market power increases with moral hazard and
    decreases with the efficiency of firm liquidation following bankruptcy.

  • 1928
    Propagation of sector-specific shocks within Spain and other countries (1 MB) Mario Izquierdo, Enrique Moral-Benito and Elvira Prades

    We explore the propagation of sector-specific shocks through the Spanish input-output network. First, we outline a theoretical framework borrowed from the networks literature that allows us to distinguish between downstream (from suppliers to customers) and upstream (from customers to suppliers) propagation depending on the nature of the shocks considered, either supply- or demand-driven. Second, we compute industry-specific domestic multipliers and compare the propagation features of the Spanish production network with those of other countries using the National Input-Output Tables (NIOTs) for the year 2014. According to our findings, the electricity sector in Spain is the most systemic industry in terms of its economy-wide impact, which is significantly larger than in other European countries. We also find that the introduction of the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) in the second half of 2018 and its propagation through input-output linkages might have a larger aggregate impact in Germany than in Spain.

  • 1927
    Quality of enforcement and investment decisions. Firm-level evidence from Spain (1 MB) Daniel Dejuán and Juan S. Mora-Sanguinetti

    Investment decisions are generally irreversible and could be affected by holdup problems and opportunism. Thus, investment may need sound enforcement institutions. This paper analyzes firm level data to identify the impact of judicial system efficacy, as representative of the institutional quality, in business investment decisions. More specifically, this research measures the effects of congestion in the Spanish civil (private) jurisdiction at the local level, both when solving ordinary trials and executions (when a judge forces the debtor to pay or to fulfill an obligation) and finds a negative and significant relationship between judicial inefficacy and the gross investment ratio. The effect holds after running several robustness checks. This paper also analyzes the efficacy of the administrative jurisdiction, inspired by the hypothesis of Acemoglu and Johnson (2005), but it does not have a significant impact on investment in our sample.

  • 1926
    Do SVARs with sign restrictions not identify unconventional monetary policy shocks? (630 KB) Jef Boeckx, Maarten Dossche, Alessandro Galesi, Boris Hofmann and Gert Peersman

    A growing empirical literature has shown, based on structural vector autoregressions (SVARs)
    identified through sign restrictions, that unconventional monetary policies implemented after the outbreak of the Great Financial Crisis (GFC) had expansionary macroeconomic effects. In a recent paper, Elbourne and Ji (2019) conclude that these studies fail to identify true unconventional monetary policy shocks in the euro area. In this note, we show that their findings are actually fully consistent with a successful identification of unconventional monetary policy shocks by the earlier studies and that their approach does not serve the purpose of evaluating identification strategies of SVARs.

  • 1925
    Fluctuations in global macro volatility (1 MB) Danilo Leiva-Leon and Lorenzo Ductor

    We rely on a hierarchical volatility factor approach to estimate and decompose time-varying
    second moments of countries output growth into global, regional and idiosyncratic contributions. We document a “global moderation” of international business cycles, defined as a persistent decline in macroeconomic volatility across the main world economies. This decline in volatility was induced by a reduction in the underlying global component, uncovering a new level of interconnection of the world economy. After assessing the importance of different economic factors, we find that the reduction in overall countries macroeconomic volatility can be mainly explained by the increasing trade openness exhibited in recent decades. Likewise, the idiosyncratic component of countries volatility is also influenced by domestic monetary policies.

  • 1924
    The elasticity of taxable income in Spain: 1999-2014 (1.017 KB) Miguel Almunia and David López-Rodríguez

    We study how taxable income responds to changes in marginal tax rates, using as a main source of identifying variation three large reforms to the Spanish personal income tax implemented in the period 1999-2014. The most reliable estimates of the elasticity of taxable income (ETI) with respect to the net-of-tax rate for this period are between 0.45 and 0.64. The ETI is about three times larger for selfemployed taxpayers than for employees, and larger for business income than for labor and capital income. The elasticity of broad income (EBI) is smaller, between 0.10 and 0.24, while the elasticity of some tax deductions such as the one for private pension contributions exceeds one. Our estimates are similar across a variety of estimation methods and sample restrictions, and also robust to potential biases created by mean reversion and heterogeneous income trends.

  • 1923
    The benefits and costs of adjusting bank capitalisation: evidence from Euro Area countries (6 MB) Katarzyna Budnik, Massimiliano Affinito, Gaia Barbic, Saiffedine Ben Hadj, Edouard Chretien, Hans Dewachter, Clara Isabel González, Jenny Hu, Lauri Jantunen, Ramona Jimborean, Otso Manninen, Ricardo Martinho, Javier Mencía, Elena Mousarri et al.

    The paper proposes a framework for assessing the impact of system-wide and bank-level capital buffers. The assessment rests on a factor-augmented vector autoregression (FAVAR) model that relates individual bank adjustments to macroeconomic dynamics. We estimate FAVAR models individually for eleven euro area economies and identify structural shocks, which allow us to diagnose key vulnerabilities of national banking systems and estimate short-run economic costs of increasing banks’ capitalisation. On this basis, we run a fullyfledged cost-benefit assessment of an increase in capital buffers. The benefits are related to an increase in bank resilience to adverse shocks. Higher capitalisation allows banks to withstand negative shocks and moderates the reduction of credit to the real economy that ensues in adverse circumstances. The costs relate to transitory credit and output losses that are assessed both on an aggregate and bank level. An increase in capital ratios is shown to have a sharply different impact on credit and economic activity depending on the way banks adjust, i.e. via changes in assets or equity.

  • 1922
    Jobs multipliers: evidence from a large fiscal stimulus in Spain (8 MB) Mario Alloza and Carlos Sanz

    We estimate the employment effect of a large fiscal stimulus in Spain (PlanE), in which the national government transferred funds to municipalities to carry out local investment projects. Using a difference-in-difference 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 per year. We allow for possible spatial effects, i.e. the propagation of the stimulus to neighboring municipalities, and find that these are sizable, representing 8.4% of the “local” effect. 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, (iii) larger when the shock represented a higher share of the budget, and (iv) not larger for municipalities headed by more educated mayors. Our estimate of the multiplier falls in the lower range of previous work.

  • 1921
    Measuring retail trade using card transactional data (1 MB) Diego Bodas, Juan R. García López, Juan Murillo Arias, Matías J. Pacce, Tomasa Rodrigo López, Juan de Dios Romero Palop, Pep Ruiz de Aguirre, Camilo A. Ulloa and Heribert Valero Lapaz

    In this paper we present a high-dimensionality Retail Trade Index (RTI) constructed to
    nowcast the retail trade sector economic performance in Spain, using Big Data sources
    and techniques. The data are the footprints of BBVA clients from their credit or debit card
    transactions at Spanish point of sale (PoS) terminals. The resulting indexes have been
    found to be robust when compared with the Spanish RTI, regional RTI (Spain’s autonomous
    regions), and RTI by retailer type (distribution classes) published by the National Statistics
    Institute (INE). We also went one step further, computing the monthly indexes for the
    provinces and sectors of activity and the daily general index, by obtaining timely, detailed
    information on retail sales. Finally, we analyzed the high-frequency consumption dynamics
    using BBVA retailer behavior and a structural time series model.

  • 1920
    Inflation interdependence in advanced economies (1 MB) Luis J. Álvarez, María Dolores Gadea and Ana Gómez-Loscos

    Although there is a vast literature on GDP comovement across countries, there is scant evidence on inflation interdependence. We analyze inflation comovements across a wide set of advanced economies and across the subset of euro area countries. Some of our findings are expected, such as the fact that inflation interdependence among advanced economies is quite relevant, but is higher among euro area countries, which show strong trade links and a share common monetary policy, or the fact that inflation synchronization among countries is highest for energy prices, reflecting common oil shocks. We also find a robust puzzle: core inflation interdependence is fairly low and this result holds for both core goods and services. Inflation synchronization seems to be particularly linked to comovements in driving variables of open economy new Keynesian Phillips curve and mark-up pricing models.

  • 1919
    A framework for debt-maturity management (2 MB) Saki Bigio, Galo Nuño and Juan Passadore

    We characterize the optimal debt-maturity management problem of a government in a small open economy. The government issues a continuum of finite-maturity bonds in the presence of liquidity frictions. We find that the solution can be decentralized: the optimal issuance of a bond of a given maturity is proportional to the difference between its market price and its domestic valuation, the latter defined as the price computed using the government’s discount factor. We show how the steady-state debt distribution decreases with maturity. These results hold when extending the model to incorporate aggregate risk or strategic default.

  • 1918
    Is market liquidity less resilient after the financial crisis? Evidence for US treasuries (566 KB) Laura Hospido and Carlos Sanz

    We study gender differences in the evaluation of submissions to economics conferences. Using data from the Annual Congress of the European Economic Association (2015-2017), the Annual Meeting of the Spanish Economic Association (2012-2017), and the Spring Meeting of Young Economists (2017), we find that allfemale-authored papers are 3.2 p.p. (6.8%) less likely to be accepted than all-male-authored papers. This gap is present after controlling for (i) number of authors, (ii) referee fixed effects, (iii) field, (iv) cites of the paper at submission year, (v) previous publication record of the authors, and (vi) the quality of the affiliations of the authors. We also find that the gap is entirely driven by male referees—female referees evaluate male and female-authored papers similarly, but male referees are more favorable towards papers written by men.

  • 1917
    Is market liquidity less resilient after the financial crisis? Evidence for US treasuries (663 KB) Carmen Broto and Matías Lamas

    We analyse the market liquidity level and resilience of US 10-year Treasury bonds. Having
    checked that five indicators show inconclusive results on the liquidity level, we fit a bivariate
    CC-GARCH model to evaluate its resilience, that is, how liquidity reacts to financial shocks. According to our results, spillovers from liquidity volatility to returns volatility and vice versa are more intense after the crisis. Further, the volatility persistence of both returns and liquidity becomes lower after the crisis. These results are consistent with the existence of more frequent short-lived episodes of high volatility and more unstable liquidity that is more prone to evaporation.

  • 1916
    Quest for robust optimal macroprudential policy (1 MB) Pablo Aguilar, Stephan Fahr, Eddie Gerba and Samuel Hurtado

    This paper contributes by providing a new approach to study optimal macroprudential
    policies based on economy wide welfare. Following Gerba (2017), we pin down a welfare
    function based on a first-and second order approximation of the aggregate utility in the
    economy and use it to determine the merits of different macroprudential rules for Euro Area.
    With the aim to test this framework, we apply it to the model of Clerc et al. (2015). We
    find that the optimal level of capital is 15.6 percent, or 2.4 percentage points higher than
    the 2001-2015 value. Optimal capital reduces significantly the volatility of the economy
    while increasing somewhat the total level of welfare in steady state, even with a time-invariant instrument. Expressed differently, bank default rates would have been 3.5 percentage points lower while credit and GDP 5% and 0.8% higher had optimal capital level been in place during the 2011-2013 crisis. Further, using a model-consistent loss function, we find that the optimal Countercyclical Capital Buffer (CCyB) rule depends on whether observed or optimal capital levels are already in place. Conditional on optimal capital level, optimal CCyB rule should respond to movements in total credit and mortgage lending spreads. Gains in welfare from optimal combination of instruments is higher than the sum of their individual effects due to synergies and positive mutual spillovers.

  • 1915
    The gender promotion gap: evidence from central banking (612 KB) Laura Hospido, Luc Laeven and Ana Lamo

    We examine gender differences in career progression and promotions in central banking, a stereotypical male-dominated occupation, using confidential anonymized personnel data from the European Central Bank (ECB) during the period 2003-2017. A wage gap emerges between men and women within a few years of hiring, despite broadly similar entry conditions in terms of salary levels and other observables. We also find that women are less likely to be promoted to a higher salary band up until 2010 when the ECB issued a public statement supporting diversity and took several measures to support gender balance. Following this change, the promotion gap disappears. The gender promotion gap prior to this policy change is partly driven by the presence of children. Using 2012-2017 data on promotion applications and decisions, we explore the promotion process in depth, and confirm that during this most recent period women are as likely to be promoted as men. 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. 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.

  • 1914
    A new approach to dating the reference cycle (1 MB) Maximo Camacho, María Dolores Gadea and Ana Gómez Loscos

    This paper proposes a new approach to the analysis of the reference cycle turning points, defined on the basis of the specific turning points of a broad set of coincident economic indicators. Each individual pair of specific peaks and troughs from these indicators is viewed as a realization of a mixture of an unspecified number of separate bivariate Gaussian distributions whose different means are the reference turning points. These dates break the sample into separate reference cycle phases, whose shifts are modeled by a hidden Markov chain. The transition probability matrix is constrained so that the specification is equivalent to a multiple changepoint model. Bayesian estimation of finite Markov mixture modeling techniques is suggested to estimate the model. Several Monte Carlo experiments are used to show the accuracy of the model to date reference cycles that suffer from short phases, uncertain turning points, small samples and asymmetric cycles. In the empirical section, we show the high performance of our approach to identifying the US reference cycle, with little difference from the timing of the turning point dates established by the NBER. In a pseudo real-time analysis, we also show the good performance of this methodology in terms of accuracy and speed of detection of turning point dates.

  • 1913
    The effects of pension-related policies on household spending (624 KB) Susana Párraga Rodríguez

    This paper estimates the impact of pension-related policies on household spending. The identification strategy exploits the deviation in pensioner income and expenditure caused by the introduction of a new pension system during the 1980s and 1990s in Spain and constructs a new narrative series of legislated pension changes. I present a variety of estimates, some of them imply that increases in the average pension have a roughly one-for-one effect on pensioner spending. The strongest effects are on the pensioners with the highest levels of expenditure, income, and wealth. Estimates for different categories of expenditure indicate that benefit increases trigger these pensioners to spend more on durables. At the same time, pension-related policies targeted to pensioners with low income levels seem to affect the spending on non-durables and necessities such as food positively.

  • 1912
    Drivers of productivity in the Spanish banking sector: recent evidence (653 KB) Christian Castro and Jorge E. Galán

    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.

  • 1911
    Monetary policy, corporate finance and investment (1.001 KB) James Cloyne, Clodomiro Ferreira, Maren Froemel and Paolo Surico

    We provide new evidence on how monetary policy affects investment and firm finance in the United States and the United Kingdom. Younger firms paying no dividends exhibit the largest and most signifcant change in capital expenditure – even after conditioning on size, asset growth, Tobin’s Q, leverage or liquidity – and drive the response of aggregate investment. Older companies, in contrast, hardly react at all. After a monetary policy tightening, net worth falls considerably for all firms but borrowing declines only for younger non-dividend payers, as their external finance is mostly exposed to asset value fluctuations. Conversely, cash-flows change less markedly and more homogeneously across groups. Our findings highlight the role of firm finance and financial frictions in amplifying the effects of monetary policy on investment.

  • 1910
    Monetary policy implications of state-dependent prices and wages (2 MB) James Costain, Anton Nakov and Borja Petit

    We study the effects of monetary shocks in a model of state-dependent price and wage adjustment based on “control costs”. Suppliers of retail goods and of labor are both monopolistic competitors that face idiosyncratic productivity shocks and nominal rigidities. Stickiness arises because precise decisions are costly, so agents choose to tolerate small errors in the timing of adjustments. Our simulations are calibrated to microdata on the size and frequency of price and wage changes. Money shocks have less persistent real effects in our state-dependent model than they would a time-dependent framework, but nonetheless we obtain sufficient monetary nonneutrality for consistency with macroeconomic evidence. Nonneutrality is primarily driven by wage rigidity, rather than price rigidity. State-dependent nominal rigidity implies a flatter Phillips curve as trend inflation declines, because nominal adjustments become less frequent, making short-run inflation less reactive to shocks.

  • 1909
    Exploring trend inflation dynamics in euro area countries (1 MB) Mónica Correa-López, Matías Pacce and Kathi Schlepper

    This paper analyzes the inflation processes of twelve Euro Area countries over the period 1984:q1-2017:q4. The stylized features of inflation uncover its changing nature and cross-country heterogeneity, in terms of mean, volatility and persistence. After estimation of a wide array of unobserved components models, we isolate trend inflation rates in a framework that allows for time-varying inflation gap persistence and stochastic volatility in both the trend and transitory components. On average, a sizeable share of overall inflation dynamics is accounted for by movements in the trend. In explaining trend dynamics, we consistently find a signficant role for short-term inflation expectations, economic slack, and openness variables. However, the cumulated impacts of these are fairly small, except in certain, sustained episodes. This is of policy relevance since the monetary authority might want to respond to shocks that are prone to affect the inflation trend in order to ensure that long-term inflation expectations remain anchored.

  • 1908
    The China syndrome affects banks: the credit supply channel of foreign import competition (736 KB) Sergio Mayordomo and Omar Rachedi

    We study the effect of rising Chinese import competition in the early 2000s on banks’ credit supply policies. Using bank-firm-level data on the universe of Spanish corporate loans, we exploit heterogeneity across banks in the exposure of their loan portfolios towards firms competing with Chinese imports. Exposed banks rebalanced their loan portfolios by cutting the supply of credit to firms affected by Chinese competition, while raising their lending towards non-exposed sectors. This portfolio reallocation depressed further the economic activity of firms competing with Chinese imports.

  • 1907
    The Spanish personal income tax: facts and parametric estimates (827 KB) Esteban García-Miralles, Nezih Guner and Roberto Ramos

    In this paper, we use administrative data on tax returns to characterize the distributions of before and after-tax income, tax liabilities, and tax credits in Spain for individuals and households. We use the most recent available data, 2015 for individuals and 2013 for households, but also discuss how the income distribution and taxes have changed since 2002. We also estimate effective tax functions that capture the underlying heterogeneity of the data in a parsimonious way. These parametric functions can be used to calculate after-tax incomes in surveys where this information is not directly available, and can also be used in quantitative work in macroeconomics and public finance.

  • 1906
    A new economic policy uncertainty index for Spain (584 KB) Corinna Ghirelli, Javier J. Pérez and Alberto Urtasun

    We construct a new Economic Policy Uncertainty (EPU) index for Spain, building on the
    influential methodology of Baker, Bloom and Davis (2016), and compare it with the EPU for
    Spain that these authors provide. We refine the index in several dimensions: we expand
    the headline newspaper coverage from 2 to 7, including economic-financial ones, use a
    much richer set of keywords to form the search expressions, and cover a longer sample
    period. Two results stand out: (i) the new index presents a more consistent chronology
    of economic policy events; (ii) the macroeconomic effects of uncertainty shocks identified
    from the new index yield significant negative responses of GDP, private consumption and
    private investment, compared to mute responses obtained using the original one. Beyond
    the results for the Spanish case, our results suggest that, in addition to the richness of the
    keywords in the search expressions, widening the press and time coverage is key to improve
    the quality of the aggregate EPU index.

  • 1905
    Measuring economic and economic policy uncertainty, and their macroeconomic effects: the case of Spain (595 KB) Corinna Ghirelli, María Gil, Javier J. Pérez and Alberto Urtasun

    We provide additional evidence on the relationship between uncertainty and economic activity. For this purpose, we gather and construct a wide range of proxy indicators of economic and economic policy uncertainty from Spain. We distinguish between the relative merits of different types of measures based on: (i) the volatility of financial markets; (ii) economic analysts’ disagreement; (iii) economic policy uncertainty. We show that the first and the third block of measures are the most relevant to grasp the negative effects of unexpected changes in uncertainty on aggregate economic developments, as measured by real GDP. In addition, we find that economic policy uncertainty and financial uncertainty shocks produce visible negative effects on private consumption. The negative responses on capital goods investments are initially bigger in magnitude but vanish more quickly.

  • 1904
    Timed to say goodbye: does unemployment benefit eligibility affect worker layoffs? (1 MB) Andrea Albanese, Corinna Ghirelli and Matteo Picchio

    We study how unemployment benefit eligibility affects the layoff exit rate by exploiting quasi-experimental variation in eligibility rules in Italy. By using a difference-indifferences estimator, we find an instantaneous increase of about 12% in the layoff probability when unemployment benefit eligibility is attained, which persists for about 16 weeks. These findings are robust to different identifying assumptions and are mostly driven by jobs started after the onset of the Great Recession, in the South and for small firms. We argue that the moral hazard from the employer’s side is the main force driving these layoffs.

  • 1903
    The impact of the ECB´s targeted long-term refinancing operations on banks´ lending policies: the role of competition (1 MB) Desislava C. Andreeva and Miguel García-Posada

    We assess the impact of the Eurosystem’s Targeted Long-Term Refinancing Operations
    (TLTROs) on the lending policies of euro area banks. To guide our empirical research, we build a theoretical model in which banks compete à la Cournot in the credit and deposit markets. According to the model, we distinguish between direct and indirect effects. Direct effects take place because bidding banks expand their loan supply due to the lower marginal costs implied by the TLTROs. Indirect effects on non-bidders operate via changes in the competitive environment in banks’ credit and deposit markets and are a priori ambiguous. We then test these theoretical predictions with a sample of 130 banks from 13 countries and the confidential answers to the ECB’s Bank Lending Survey. Regarding direct effects on bidders, we find an easing impact on margins on loans to relatively safe borrowers, but no impact on credit standards. Regarding indirect effects, there is a positive impact on the loan supply on non-bidders but, contrary to the direct effects, the transmission of the TLTROs takes place through an easing of credit standards, and it is mainly concentrated in banks facing high competitive pressures. We also find evidence of positive funding externalities.

  • 1902
    Advertising, innovation and economic growth (879 KB) Laurent Cavenaile and Pau Roldan

    This paper analyzes the implications of advertising for firm dynamics and economic growth through its interaction with R&D investment at the firm level. We develop a model of endogenous growth with firm heterogeneity that incorporates advertising decisions. We calibrate the model to match several empirical regularities across firm size using U.S. data. Through a novel interaction between R&D and advertising, our model provides microfoundations for the empirically observed negative relationship between both firm R&D intensity and growth, and firm size. Our model predicts substitutability between R&D and advertising at the firm level. Lower advertising costs are associated with lower R&D investment and slower economic growth. We provide empirical evidence supporting substitution between R&D and advertising using exogenous changes in the tax treatment of R&D expenditures across U.S. states. Finally, we find that R&D subsidies are more effective under an economy that includes advertising relative to one with no advertising.

  • 1901
    Trade and credit: revisiting the evidence (547 KB) Eduardo Gutiérrez and Enrique Moral-Benito

    This paper explores the effects of bank lending shocks on export behavior of Spanish
    firms. For that purpose, we combine Balance of Payments data on exports at the firm-product-
    destination level with a matched bank-firm dataset incorporating information on the
    universe of corporate loans from 2002 to 2013. Armed with this dataset, we identify bankyear
    specific credit supply shocks following Amiti and Weinstein (2018) and estimate their
    impact on firms’ exports at the product-destination level. According to our estimates, credit
    supply shocks have sizable effects on both the intensive margin (amount exported) and the
    extensive margin of trade (decision to export).

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