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 the Working Papers published since 1990 are available here. Earlier ones, going back to the first one published in 1978, are available in the Institutional RepositoryOpens in a new window

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  • 26/12/2013
    1323. Meeting our D€STINY. A Disaggregated €uro area Short Term INdicator model to forecast GDP (Y) growth (1 MB) Pablo Burriel and María Isabel García-Belmonte

    In this paper we propose a new real-time forecasting model for euro area GDP growth, D€STINY, which attempts to bridge the existing gap in the literature between large- and small-scale dynamic factor models. By adopting a disaggregated modelling approach, D€STINY uses most of the information available for the euro area and the member countries (around 100 economic indicators), but without incurring in the nite sample problems of the large-scale methods, since all the estimated models are of a small scale. An empirical pseudo-real time application for the period 2004-2013 shows that D€STINY´s forecasting performance is clearly better than the standard alternative models and than the publicly available forecasts of other institutions. This is especially true for the period since the beginning of the crisis, which suggests that our approach may be more robust to periods of highly volatile data and to the possible presence of structural breaks in the sample.

  • 23/12/2013
    1322. Measurement error in imputation procedures (487 KB) Rodolfo G. Campos and Iliana Reggio

    We study how estimators used to impute consumption in survey data are inconsistent due to measurement error in consumption. Previous research suggests instrumenting consumption to overcome this problem. We show that, if additional regressors are present, then instrumenting consumption may still produce inconsistent estimators due to the likely correlation between additional regressors and measurement error. On the other hand, low correlations between additional regressors and instruments may reduce bias due to measurement error. We apply our findings by revisiting recent research that imputes consumption data from the CEX to the PSID.

  • 20/12/2013
    1321. Employment polarisation in Spain over the course of the 1997-2012 cycle (797 KB) Brindusa Anghel, Sara de la Rica and Aitor Lacuesta

    This article analyses changes in the occupational employment share in Spain for the period 1997-2012 and the way particular sociodemographics adapt to those changes. There seems to be clear evidence of employment polarisation between 1997 and 2012, which accelerates over the recession. Changes in the composition of the labour supply cannot explain the increase in the share of occupations at the low end of the wage distribution. Sector reallocation might have partially contributed to explaining the polarisation process in Spain during the years of expansion (1997-2007), but it is a minor factor during the recession. The polarisation of occupations within sectors observed especially during the recession appear to be related to a decline in routine tasks. This is compensated by an increase in occupations with non-routine service contents, which are found both at the low and high end of the wage distribution. Instead, abstract content-intensive jobs do not appear to increase their share in total employment during these 15 years. The paper finds that this process has affected males more than females because of the higher concentration of the former in more routine-intensive occupations. Among males, for workers under 30 years we find a decrease in the share of occupations with more routine tasks, which turns into increases in others with more abstract content and particularly with more nonroutine service content. Instead, male workers over 30 years seem to remain in declining occupations to a greater extent. Females of different ages are not affected by the abovementioned changes.

  • 29/11/2013
    1320. The distribution of debt across euro area countries: the role of Individual characteristics, institutions and credit conditions (2 MB) Olympia Bover, Jose Maria Casado, Sonia Costa, Philip Du Caju, Yvonne McCarthy, Eva Sierminska, Panagiota Tzamourani, Ernesto Villanueva and Tibor Zavadil

    The aim of this paper is twofold. First, we present an up-to-date assessment of the differences across euro area countries in the distributions of various measures of debt conditional on household characteristics. We consider three different outcomes: the probability of holding debt, the amount of debt held and, in the case of secured debt, the interest rate paid on the main mortgage. Second, we examine the role of legal and economic institutions in accounting for these differences. We use data from the first wave of a new survey of household finances, the Household Finance and Consumption Survey, to achieve these aims. We find that the patterns of secured and unsecured debt outcomes vary markedly across countries. Among all the institutions considered, it is the length of asset repossession periods that best accounts for the features of the distribution of secured debt. In countries with longer repossession periods, the fraction of people who borrow is smaller, the youngest group of households borrow lower amounts (conditional on borrowing), and the mortgage interest rates paid by low-income households are higher. Regulatory loan-to-value ratios, the taxation of mortgages and the prevalence of interest-only or fixed-rate mortgages deliver less robust results.

  • 15/11/2013
    1319. The impact of interbank and public debt markets on the competition for bank deposits (701 KB) Carlos Pérez Montes

    The growth in the interest rates paid on Spanish public debt since 2008 and the impairment of the interbank market have generated concerns about their effects on competition for bank deposits in Spain. I combine a nested logit model of bank deposit supply with a structural model of competition to measure the impact of the reference interest rates on public debt and interbank markets on the returns on deposits and funding policy of Spanish banks in the period 2003-2010. The interbank rate is found to be more closely correlated with the return on deposits than the interest rate on public debt, but the connection between interbank rates and deposit returns is significantly weaker in the crisis period 2008-2010. Counterfactual analysis shows a significant effect of the interbank rate and investment opportunities in public debt on deposit rates and bank profits, and that observed deposit rates are on average 115bp above collusive levels.

  • 13/11/2013
    1318. Short-term forecasting for empirical economists. A survey of the recently proposed algorithms (711 KB) Maximo Camacho, Gabriel Perez-Quiros and Pilar Poncela

    Practitioners do not always use research findings, as the research is not always conducted in a manner relevant to real-world practice. This survey seeks to close the gap between research and practice in respect of short-term forecasting in real time. To this end, we review the most relevant recent contributions to the literature, examining their pros and cons, and we take the liberty of proposing some avenues of future research. We include bridge equations, MIDAS, VARs, factor models and Markov-switching factor models, all allowing for mixed-frequency and ragged ends. Using the four constituent monthly series of the Stock-Watson coincident index, industrial production, employment, income and sales, we evaluate their empirical performance to forecast quarterly US GDP growth rates in real time. Finally, we review the main results having regard to the number of predictors in factorbased forecasts and how the selection of the more informative or representative variables can be made.

  • 12/11/2013
    1317. Retirement patterns of couples in Europe (557 KB) Laura Hospido and Gema Zamarro

    In this paper we study the retirement patterns of couples in a multi-country setting using data from the Survey of Health, Aging and Retirement in Europe. In particular, we test whether women’s (men’s) transitions out of the labor force are causally related to the actual realization of their husbands’ (wives’) transition, using the institutional variation in country-specific early and full statutory retirement ages to instrument the latter. Exploiting the discontinuities in retirement behavior across countries, we find a significant joint retirement effect, especially for women, of around 16 to 18 percentage points. For men, we find a similar but less precise effect. Our empirical strategy allows us to give a causal interpretation to the effect we estimate. In addition, this effect has important implications for policy analysis.

  • 04/11/2013
    1316. Agglomeration matters for trade (995 KB) Roberto Ramos and Enrique Moral-Benito

    We use a unique administrative dataset of Spanish exporters to document the existence of exporters’ geographical agglomeration by export destination. We reveal that firms selling to countries with worse business regulations, a dissimilar language and a different currency tend to cluster significantly more. We then assess the implications of exporters’ geographical agglomeration for firms’ behavior and for the estimated welfare gains from trade. On the one hand, we find that exporters engage in more stable trade relationships with those countries that are the export destinations of nearby firms. On the other, we introduce agglomeration in a model of international trade à la Melitz (2003). Using our Spanish firm-level data, we find that, relative to a model without agglomeration, taking this phenomenon into account increases the elasticity of welfare with respect to fixed trade costs by 44 %.

  • 16/10/2013
    1315. Are there alternatives to bankruptcy? A study of small business distress in Spain (2 MB) Miguel García-Posada and Juan S. Mora-Sanguinetti

    Small businesses, the majority of Spanish firms, rarely file for formal bankruptcy, and this has been the case even during the current economic crisis. This suggests that bankruptcy law has a limited role to play in the distress of small firms. We propose an explanation based on two premises: (i) bankruptcy procedures are more costly and drawn out than the main alternative procedure, the mortgage foreclosure; (ii) personal bankruptcy law is unattractive to the individual debtor. Empirical analyses on a large micro data sample of Spanish, French and UK firms corroborate our hypothesis. It is important to note that these results are based on data that do not yet capture the impact of recent reforms of the Spanish insolvency framework.

  • 15/10/2013
    1314. Disentangling contagion among sovereign CDS spreads during the European debt crisis (594 KB) Carmen Broto and Gabriel Perez-Quiros

    During the last crisis, developed economies’ sovereign Credit Default Swap (hereafter CDS) premia have gained in importance as a tool for approximating credit risk. In this paper, we fit a dynamic factor model to decompose the sovereign CDS spreads of ten OECD economies into three components: a common factor, a second factor driven by European peripheral countries and an idiosyncratic component. We use this decomposition to propose a novel methodology based on the real-time estimates of the model to characterize contagion among the ten series. Our procedure allows the country that triggers contagion in each period, which can be any peripheral economy, to be disentangled. According to our findings, since the onset of the sovereign debt crisis, contagion has played a non-negligible role in the European peripheral countries, which confirms the existence of significant financial linkages between these economies.

  • 10/10/2013
    1313. Growth beyond imbalances. Sustainable growth rates and output gap reassessment (1 MB) Enrique Alberola, Ángel Estrada and Daniel Santabárbara

    ‘The Great Recession’ was preceded by a prolonged period of high growth accompanied by low and stable inflation, the so called ‘Great Moderation’. During that period, potential growth estimates were trending upwards and output gaps remained small. However, other imbalances were progressively accumulating, eventually bringing about the worst crisis in decades. Standard potential growth estimates, which consider inflation as the only indicator of macroeconomic imbalances, along with the stability of inflation in that period, therefore provided misleading signals to policymakers. This paper introduces a methodology to obtain sustainable growth rates, as an alternative measure to potential growth. Sustainable growth is defined as the output growth that does not generate or widen macroeconomic imbalances, identified through a wide set of domestic and external indicators. This allow us to reassess the behavior of output gaps in the US, the UK, Spain, Germany and China both in ‘the Great Moderation’ period and during ‘the Great Recession’. In countries with large imbalances, sustainable growth rates are more stable than potential growth resulting in output gaps that were substantially larger in the period prior to the crisis.

  • 01/10/2013
    1312. Does income deprivation affect people’s mental well-being? (679 KB) Maite Blázquez Cuesta and Santiago Budría

    This paper uses panel data from the 2002-2010 waves of the German Socio-Economic Panel dataset (SOEP) to assess the impact of income deprivation upon individual mental well-being. Unobserved heterogeneity is controlled for by means of a random effects model extended to include a Mundlak term and explicit controls for the respondents’ personality traits. The paper shows that, for a given household income, a less favourable relative position in the income distribution is associated with lower mental well-being. This effect is not statistically significant among women, though. Among men, a one standard deviation increase in income deprivation is found to be as harmful as a reduction in permanent household income of almost 30%. Interestingly, this impact is found to differ among individuals endowed with different sets of non-cognitive skills. We suggest that policies, practices and initiatives aimed at improving well-being among European citizens require a better understanding of individuals’ sensitiveness to others’ income.

  • 05/09/2013
    1311. Fiscal delegation in a monetary union with decentralized public spending (1 MB) Henrique S. Basso and James Costain

    This paper studies the effects of delegating control of sovereign debt issuance to an independent authority in a monetary union where public spending decisions are decentralized. The model assumes that no policy makers are capable of commitment to a rule. However, consistent with Rogoff (1985) and with the recent history of central banking, it assumes that an institution may be designed to have a strong preference for achieving some clear, simple, quantitative policy goal.


    Following Beetsma and Bovenberg (1999), we show that in a monetary union where a single central bank interacts with many member governments, debt is excessive relative to a social planner’s solution. We extend their analysis by considering the establishment of an independent fiscal authority (IFA) mandated to maintain long-run budget balance. We show that delegating sovereign debt issuance to an IFA in each member state shifts down the time path of debt, because this eliminates aspects of deficit bias inherent in democratic politics. Delegating to a single IFA at the union level lowers debt further, because common pool problems across regions’ deficit choices are internalized.


    The establishment of a federal government with fiscal powers over the whole monetary union would be less likely to avoid excessive deficits, because only the second mechanism mentioned above would apply. Moreover, the effective level of public services would be lower, if centralized spending decisions are less informationally efficient.

    Published in: CESifo Economic Studies 62 (2), June 2016, pp. 256-288.

  • 09/08/2013
    1310. DSGE models and the Lucas critique (783 KB) Samuel Hurtado

    Modern DSGE models are microfounded and have deep parameters that should be invariant to changes in economic policy, so in principle they are not subject to the Lucas critique. But the literature has already established that misspecification issues also cause parameter instability after policy changes in DSGE models. This paper will look at the implications of parameter shifts for econometric policy evaluation, to see whether policy advice derived from DSGE models would have differed fundamentally from that which the policymakers of the 1970s derived from their reduced-form Phillips curves. The results show drift in most parameters, including those that are supposedly structural (such as the share of capital in production, habits or the elasticity of labor supply to the real wage), and major shifts in the impulse response functions derived from the real-time estimation of the model. After the expansionary monetary shocks of the early 1970s, a standard DSGE model would have behaved very similarly to an old-style Phillips curve, with marked shifts in parameter values and impulse response functions.

  • 20/06/2013
    1309. Fiscal multipliers in turbulent times: the case of Spain (731 KB) Pablo Hernández de Cos and Enrique Moral-Benito

    What are the output responses to fiscal policy? Despite important advances reported in the literature, quantifying the size of the fiscal multiplier remains a challenge. Indeed, the quest to estimate a unique fiscal multiplier is probably an ill-posed one. The magnitude of the multiplier may well depend on country- and time-specific characteristics of the fiscal stance under scrutiny. In this paper, we estimate state-specific multipliers for Spain depending on the state of the economy in several of its dimensions. The government spending multiplier is estimated to be larger during recessions and periods of banking stress, but much smaller (or even negative) during periods of weak public finances. Combining these three dimensions into a single global turmoil indicator by the use of principal component analysis, the estimated multipliers are 1.4 for crisis (or turbulent) times and 0.6 for tranquil times.

  • 31/07/2013
    1308. Term structure estimation, liquidity-induced heteroskedasticity and the price of liquidity risk (1 MB) Emma Berenguer, Ricardo Gimeno and Juan M. Nave

    Since the seminal paper of Vasicek and Fong (1982), the term structures of interest rates have been fitted assuming that yields are cross-sectionally homoskedastic. We show that this assumption does not hold when there are differences in liquidity, even for bonds of the same issuer. Lower turnover implies higher volatility. In addition, a minimum tick size for bond price negotiation will produce higher volatility for bonds approaching their maturity dates. To show these effects, we use data for Spanish sovereign bonds from 1988 to 2010, covering more than 700 bonds and 5000 trading days. We estimate the out-of-sample error for each bond and day. The variance of these errors is found to be negatively correlated with each bond’s turnover and duration, while the mean of the errors is found to be directly correlated with the estimated variance. As a result, we propose a modified Svensson (1994) yield curve model to fit the term structure, adding a liquidity term and estimating parameters by weighted least-squared errors to take into account the liquidity-induced heteroskedasticity.

  • 10/05/2013
    1307. Testing weak exogeneity in cointegrated panels (508 KB) Enrique Moral-Benito and Luis Serven

    For reasons of empirical tractability, analysis of cointegrated economic time series is often developed in a partial setting, in which a subset of variables is explictly modeled conditional on the rest. This approach yields valid inference only if the conditioning variables are weakly exogenous for the parameters of interest. This paper proposes a new test of weak exogeneity in panel cointegration models. The test has a limiting Gumbel distribution that is obtained by first letting T → ∞ and then letting N → ∞. We evaluate the accuracy of the asymptotic approximation in finite samples via simulation experiments. Finally, as an empirical illustration, we test weak exogeneity of disposable income and wealth in aggregate consumption.

  • 14/05/2013
    1306. The effect of foreclosure regulation: evidence for the US mortgage market at state level (913 KB) Fernando López Vicente

    Do laws to protect borrowers curb foreclosures? This question is addressed by analysing the impact of foreclosure laws on default rates at state level in the US mortgage market. Using panel data techniques, we find a statistically significant effect of regulation on the different stages of the foreclosure process. More precisely, we analyse the effect of regulation on 60- day delinquencies and foreclosure starts, with a focus on three protective elements commonly found in state foreclosure laws, namely requiring a judicial process, granting a redemption period and banning a deficiency judgment. We find that, whereas protective states exhibit, on average, lower 60-day delinquency rates, more protection does not ultimately bring about lower foreclosure rates. Lenders seem to ration credit to mitigate costly protective laws, thereby reducing delinquency rates; but this effect is overshadowed by a moral hazard problem since, once borrowers are delinquent, they have incentives to take advantage of the protection due to the lower costs of foreclosure. We also find that the recent housing market crisis has exacerbated that behaviour. Finally, we show that lengthening the foreclosure process is no cure for the foreclosure crisis.

  • 27/03/2013
    1305. Estimation of regulatory credit risk models (1 MB) Carlos Pérez Montes

    This article estimates a general credit risk model with both macroeconomic and latent credit factors for Spanish banks during the period 2004-2010. The proposed framework allows to estimate with bank level data both the standard credit risk model of Basel II and generalized models. I find evidence of persistence in the credit latent factor and of a significant effect of GDP growth and interbank rates on loan default rates. The estimated default correlation is low across specifications. The model is also used to calculate the impact on the probabilities of default of stressed economic scenarios.

  • 22/02/2013
    1304. Commodity prices and the business cycle in Latin America: living and dying by commodities? (887 KB) Maximo Camacho and Gabriel Perez-Quiros

    We analyze the dynamic interactions between commodity prices and output growth of the seven biggest Latin American exporters: Argentina, Brazil, Colombia, Chile, Mexico, Peru and Venezuela. Using a novel definition of Markovswitching impulse response functions, we find that the response of their respective output growth to commodity price shocks is time-dependent, size-dependent and sign-dependent. Overall, the major evidence of asymmetries in output growth responses occurs when commodity price shocks lead to regime shifts. Accordingly, we consider that the design of optimal counter-cyclical stabilization policies in this region should take into account that the reactions of economic activity vary considerably across business cycle regimes.

  • 19/02/2013
    1303. Firm size and judicial efficacy: evidence for the new civil procedures in Spain (2 MB) Miguel García-Posada and Juan S. Mora-Sanguinetti

    The literature has found that the size of firms matters for innovation and productivity and, thus, for economic performance. It is therefore worth explaining why enterprises in Spain are small in international terms. Our findings indicate that the quality of the institutional environment plays a role. Specifically, this paper analyses the different channels through which the efficacy of Spanish courts may affect the size of the companies at the provincial level. Regarding the existing literature, this paper is innovative in several important respects. First, we disentangle the impact of judicial efficacy on average firm size by differentiating between the effect on the growth of incumbent firms (intensive margin) and the effect on entry and exit rates (extensive margin), finding clear evidence of the former but not of the latter. We do so by using a firm-level database of more than half a million companies and real data (not estimates) on judicial efficacy at the local level. Second, this paper is the first to analyse the relationship between firm size and the effectiveness of justice after the reform of the civil procedures in 2000. Finally, and most significantly, it is the first paper in the literature to analyse the specific impact of the various civil procedures, both at the declaratory and the executory stage. In general, we find that judicial efficacy has a positive effect on firm size, but it critically depends on the type of the procedure, something that the previous literature has overlooked. More specifically, judicial efficacy matters at the declaratory stage (e.g. when a debt is declared and recognised by a judge), while it does not have a significant impact on size at the executory stage.

  • 08/02/2013
    1302. Insolvency institutions and efficiency: the Spanish case (1 MB) Miguel García-Posada

    The paper warns about the potential efficiency losses associated with low business bankruptcy rates (number of firms filing for bankruptcy as a proportion of the total stock of firms) and shows that welfare could be improved by increasing the protection of creditors in the bankruptcy system. These ideas are illustrated with the Spanish case. The paper also predicts a positive correlation between welfare and bankruptcy rates, a finding that seems consistent with the empirical evidence. The argument, analysed with an incomplete contracts model à la Bolton and Scharfstein (1996), is as follows. The low efficiency and low creditor protection of the Spanish bankruptcy system relative to those of an alternative insolvency institution, namely the mortgage system, mean that firms and their creditors mainly deal with credit provision and eventual insolvency through the latter. However, in order to use the mortgage system, some firms must overinvest in capital assets (real estate, equipment) since those are the assets that can be pledged as mortgage collateral. This overinvestment leads to productive inefficiencies, which may be very costly for industries that require a high level of other factors of production (e.g. R&D). Furthermore, the mortgage system is too creditor friendly, in the sense that it always grants the control of the firm’s assets to creditors in the event of default. Since creditors are inherently biased towards
    liquidation, this leads to some inefficient liquidations.

  • 06/02/2013
    1301. Logit price dynamics (778 KB) James Costain and Anton Nakov

    We propose a near-rational model of retail price adjustment consistent with microeconomic and macroeconomic evidence on price dynamics. Our framework is based on the idea that avoiding errors in decision making is costly. Given our assumed cost function for error avoidance, the timing of firms’ price adjustments is determined by a weighted binary logit, and the prices they choose are determined by a multinomial logit. We build this behavior into a DSGE model, estimate the decision cost function by matching microdata, and simulate aggregate dynamics using a tractable algorithm for heterogeneous-agent models. Both errors in the prices firms set, and errors in the timing of these adjustments, are relevant for our results. Errors of the first type help make our model consistent with some puzzling observations from microdata, such as the coexistence of large and small price changes, the behavior of adjustment hazards, and the relative variability of prices and costs. Errors of the second type increase the real effects of monetary shocks, by reducing the correlation between the value of price adjustment and the probability of adjustment, (i.e., by reducing the «selection effect»). Allowing for both types of errors also helps reproduce the effects of trend infl ation on price adjustment behavior. Our model of error-prone pricing in many ways resembles a stochastic menu cost (SMC) model, but it has less free parameters than most SMC models have, and unlike those models, it does not require the implausible assumption of i.i.d. adjustment costs. Our derivation of a weighted logit from control costs oers an alternative justication for the adjustment hazard derived by Woodford (2008). Our assumption that costs are related to entropy is similar to the framework of Sims (2003) and the subsequent \rational inattention» literature. However, our setup has the major technical advantage that a firm’s idiosyncratic state variable is simply its price level and productivity, whereas under rational inattention a firm’s idiosyncratic state is its prior (which is generally an infinite-dimensional object).

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