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

All documents are available in PDF format PDF File. Opens in a new window

  • 08/01/2019
    1851. A large central bank balance sheet? Floor vs corridor systems in a New Keynesian environment (1 MB) Óscar Arce, Galo Nuño, Dominik Thaler and Carlos Thomas

    The quantitative easing (QE) policies implemented in recent years by central banks have had a profound impact on the working of money markets, giving rise to large excess reserves and pushing down key interbank rates against their floor – the interest rate on reserves. With macroeconomic fundamentals improving, central banks now face the dilemma as to whether to maintain this large balance sheet/floor system, or else to reduce their balance sheet size towards pre-crisis trends and operate traditional corridor systems. We address this issue using a New Keynesian model featuring heterogeneous banks that trade funds in an interbank market characterized by matching frictions. In this environment, balance sheet expansions push market rates towards their floor by slackening the interbank market. A large balance sheet regime is found to deliver ampler “policy space” by widening the steady-state distance between the interest on reserves and its effective lower bound (ELB). Nonetheless, a lean-balance-sheet regime that resorts to temporary but prompt QE in response to recessions severe enough for the ELB to bind achieves similar stabilization and welfare outcomes as a large-balance-sheet regime in which interest-rate policy is the primary adjustment margin thanks to the larger policy space.

  • 08/01/2019
    1850. Welfare effects of an in-kind transfer program: evidence from Mexico (2 MB) Federico Tagliati

    This paper shows how a theory-consistent demand system can be used to quantify recipient welfare under in-kind and cash transfers. Since welfare under an in-kind subsidy depends on the extent to which the transfer is extra-marginal, I compute the shadow prices at which a recipient would be as well off as with the in-kind transfer. Shadow prices are then used to compute the distribution of the willingness to pay for in-kind benefits among beneficiaries. As an application of this approach, I study the welfare effects of a governmental program which randomly transferred either a food basket or cash to poor households in rural Mexico. Results suggest that on average a recipient values the in-kind transfer at 80 percent of its face value. Despite the welfare loss, the in-kind transfer is more cost-efficient than cash. This is due to the fact that the food basket was significantly more expensive at the retail level than at the procurement level, which implies that a cash transfer of the same cost to the government could only buy a fraction of the food basket in recipient’s local markets. Because the food basket is mainly formed of normal goods, I also find that the willingness to pay is larger among recipients at the top of the income distribution, suggesting a regressive effect of the in-kind transfer.

  • 28/12/2018
    1849. The risk of job loss, household formation and housing demand: evidence from differences in severance payments (803 KB) Cristina Barceló and Ernesto Villanueva

    Recent cohorts in various developed countries take a longer time to form their own
    household and display lower rates of home ownership than older cohorts. Previous
    literature has linked these developments to higher job instability, especially among youths.
    We exploit the large differences in firing costs across contract types in the Spanish
    labor market to identify the causal link between sharp changes in the risk of job loss
    and the timing of different forms of household formation among youths. Our identification
    strategy uses variation in regional incentives for firms to promote high firing cost contracts
    between 1997 and 2009. Using data from the 2002-2014 waves of the Spanish Survey
    of Household Finances, we document that an increase of 1% in the stock of workers with
    an open-ended contract increases the probability of forming a new household by a similar
    magnitude (especially through renting new accommodation). The results are consistent
    with the predictions of precautionary saving models, whereby individuals exposed to the
    risk of job loss postpone their consumption of housing services.

  • 26/12/2018
    1848. Policy uncertainty and investment in Spain (610 KB) Daniel Dejuán and Corinna Ghirelli

    The aim of this paper is to investigate the effect of policy uncertainty on firms’ investment
    decisions. We focus on Spain for the period 1998-2014. To measure policy-related uncertainty,
    we use a new macroeconomic indicator constructed for this country. We find strong evidence
    that policy uncertainty reduces corporate investment. Furthermore, the heterogeneous results
    suggest that the adverse effect of policy uncertainty is particularly relevant for highly vulnerable
    firms. In particular, non-exporting firms, small and medium enterprises, as well as firms in
    poorer financial condition are shown to decrease investment significantly more than their
    counterparts. Overall, these results are consistent with the hypotheses that policy-related
    uncertainty reduces corporate investment through increases in precautionary savings or to
    worsening of credit conditions.

  • 26/12/2018
    1847. Bank capital, lending booms, and busts. Evidence from Spain in the last 150 years (1 MB) Mikel Bedayo, Ángel Estrada and Jesús Saurina

    In this paper we analyze the effect of bank capital on lending expansion and contraction for
    nearly 150 years in Spain. We first build up thoroughly a measure of bank leverage (i.e. the
    capital to assets ratio) for the Spanish banking sector starting in year 1880. Then, we run
    a proper econometric test to analyze the impact that bank capital levels have on lending
    cycles, controlling for other determinants of credit growth. We do find robust empirical
    evidence of an asymmetric relationship between bank capital and credit cycle. In particular,
    an increase in the bank capital before expansions reduces credit growth while it increases
    credit growth when the recession arrives. Conversely, a too depleted level of bank capital
    when entering in a recession has a severe impact on lending (i.e. may bring about a deep
    credit crunch) with quite negative and lasting effects in the economy and the wellbeing of
    the society as a whole. The paper is particularly useful to support macroprudential policies
    (dynamic provisions and the countercyclical capital buffer) that have been very recently put
    in place as they will help to smooth the credit cycle. The experience of Spain over more
    than a century, with very marked lending cycles, provides a fertile ground for analyzing and
    supporting them, not only based on the last lending cycle, but also on those occurred in
    the more distant past.

  • 21/12/2018
    1846. An economic analysis of court fees: evidence from the Spanish civil jurisdiction (1 MB) Juan S. Mora-Sanguinetti and Marta Martínez-Matute

    The adoption of court fees has been traditionally justified as a means to improve the performance of enforcement institutions as they may have an effect of deterrence of the dispute. Judicial congestion has clear negative impacts on economic performance. Spain, which has one of the highest rates of litigation of the OECD, has traditionally lacked a general system of court fees. In 2002, the Congress passed a system of court fees to be paid by legal entities and enterprises. In 2012, the fees were extended to individuals and abrogated in 2015. This bounded period of enforcement allows us to empirically test the impacts of court fees on congestion. In order to do this, we collected a comprehensive database of quarterly data on the real workload of civil courts. This study concludes that the effects of court fees, although reduced courts’ congestion, are far from homogeneous and depend on the type of procedure, the workload of the courts and the local macroeconomic conditions.

  • 21/12/2018
    1845. The paradox of global thrift (1 MB) Luca Fornaro and Federica Romei

    This paper describes a paradox of global thrift. Consider a world in which interest rates are low and monetary policy is constrained by the zero lower bound. Now imagine that governments implement prudential financial and fiscal policies to stabilize the economy. We show that these policies, while effective from the perspective of individual countries, might backfire if applied on a global scale. In fact, prudential policies generate a rise in the global supply of savings and a drop in global aggregate demand. Weaker global aggregate demand depresses output in countries at the zero lower bound. Due to this effect, noncooperative financial and fiscal policies might lead to a fall in global output and welfare.

  • 12/12/2018
    1844. Venting out: exports during a domestic slump (6 MB) Miguel Almunia, Pol Antràs, David López-Rodríguez and Eduardo Morales

    We exploit plausibly exogenous geographical variation in the reduction in domestic demand
    caused by the Great Recession in Spain to document the existence of a robust, within-firm
    negative causal relationship between demand-driven changes in domestic sales and export
    flows. Spanish manufacturing firms whose domestic sales were reduced by more during
    the crisis observed a larger increase in their export flows, even after controlling for firms’
    supply determinants (such as labor costs). This negative relationship between demand-driven
    changes in domestic sales and changes in export flows illustrates the capacity of export markets to counteract the negative impact of local demand shocks. We rationalize our findings through a standard heterogeneous-firm model of exporting expanded to allow for non-constant marginal costs of production. Using a structurally estimated version of this model, we conclude that the firm-level responses to the slump in domestic demand in Spain could well have accounted for around one-half of the spectacular increase in Spanish goods exports (the so-called “Spanish export miracle”) over the period 2009-13.

  • 12/12/2018
    1843. What drives sovereign debt portfolios of banks in a crisis context? (650 KB) Matías Lamas and Javier Mencía

    We study determinants of sovereign portfolios of Spanish banks over a long time-span, starting
    in 2008. Our findings challenge the view that banks engaged in moral hazard strategies to
    exploit the regulatory treatment of sovereign exposures. In particular, we show that being a
    weakly capitalized bank is not related to higher holdings of domestic sovereign debt. While
    a strong link is present between central bank liquidity support and sovereign holdings,
    opportunistic strategies or reach-for-yield behavior appear to be limited to the non-domestic
    sovereign portfolio of well-capitalized banks, which might have taken advantage of their higher
    risk-bearing capacity to gain exposure (via central bank liquidity) to the set of riskier sovereign
    bonds. Furthermore, we document that financial fragmentation in EMU markets has played a
    key role in reshaping sovereign portfolios of banks. Overall, our results have important
    implications for the ongoing discussion on the optimal design of the risk-weighted capital
    framework of banks.

  • 11/12/2018
    1842. Nowcasting private consumption: traditional indicators, uncertainty measures, credit cards and some internet data (822 KB) María Gil, Javier J. Pérez, A. Jesús Sánchez and Alberto Urtasun

    The focus of this paper is on nowcasting and forecasting quarterly private consumption. The
    selection of real-time, monthly indicators focuses on standard (“hard” / “soft” indicators)
    and less-standard variables. Among the latter group we analyze: i) proxy indicators
    of economic and policy uncertainty; ii) payment cards’ transactions, as measured at “Point-of-sale” (POS) and ATM withdrawals; iii) indicators based on consumption-related search queries
    retrieved by means of the Google Trends application. We estimate a suite of mixed-frequency,
    time series models at the monthly frequency, on a real-time database with Spanish data, and
    conduct out-of-sample forecasting exercises to assess the relevant merits of the different
    groups of indicators. Some results stand out: i) “hard” and payments cards indicators are the
    best performers when taken individually, and more so when combined; ii) nonetheless, “soft”
    indicators are helpful to detect qualitative signals in the nowcasting horizon; iii) Google-based
    and uncertainty indicators add value when combined with traditional indicators, most notably
    at estimation horizons beyond the nowcasting one, what would be consistent with capturing
    information about future consumption decisions; iv) the combinations of models that include
    the best performing indicators tend to beat broader-based combinations.

  • 19/12/2018
    1841. Confidence intervals for bias and size distortion in IV and local projections - IV models (846 KB) Gergely Ganics, Atsushi Inoue and Barbara Rossi

    In this paper we propose methods to construct confidence intervals for the bias of the two-stage least squares estimator, and the size distortion of the associated Wald test in instrumental variables models. Importantly our framework covers the local projections — instrumental variable model as well. Unlike tests for weak instruments, whose distributions are non-standard and depend on nuisance parameters that cannot be estimated consistently, the confidence intervals for the strength of identification are straightforward and computationally easy to calculate, as they are obtained from inverting a chi-squared distribution. Furthermore, they provide more information to researchers on instrument strength than the binary decision offered by tests. Monte Carlo simulations show that the confidence intervals have good small sample coverage. We illustrate the usefulness of the proposed methods to measure the strength of identification in two empirical situations: the estimation of the intertemporal elasticity of substitution in a linearized Euler equation, and government spending multipliers.

  • 28/11/2018
    1840. The changing structure of government consumption spending (1 MB) Alessio Moro and Omar Rachedi

    We document a secular increase in the share of purchases from the private sector in
    government consumption spending: over time the government purchases relatively more
    private-sector goods, and relies less on its own production of value added. We build a
    general equilibrium model in which investment-specific technological change accounts
    for the changing structure of government spending. The model predicts that this secular
    process alters the transmission of government spending shocks by raising the response of
    private value added, while dampening the response of hours. We validate these results with
    novel empirical evidence on the effects of government spending across countries.

  • 07/11/2018
    1839. Should I stay or should I go? Austerity, unemployment and migration (1 MB) Guilherme Bandeira, Jordi Caballé and Eugenia Vella

    High unemployment and fiscal austerity during the Great Recession have led to significant migration outflows in those European countries that suffered a deep deterioration of their economy, Greece being the most obvious case. This paper introduces endogenous migration in a small open economy DSGE model to analyze the business cycle effects from the interaction of fiscal consolidation instruments with migration. A tax-based consolidation induces the strongest increase in emigration, leading to the highest costs in terms of aggregate GDP and unemployment in the medium run. As a result, the unemployment gains from migration are only temporary. However, in terms of per capita GDP, cuts in the components of public spending that are either productive or utility-enhancing can lead to a deeper contraction than tax hikes or wasteful spending cuts. The introduction of potential migration by the employed implies even higher unemployment costs, a deeper demand contraction, and an increase in both the tax hike and the time required to achieve the same size of fiscal consolidation.

  • 05/11/2018
    1838. Firm dynamics and pricing under customer capital accumulation (1 MB) Pau Roldan and Sonia Gilbukh

    This paper analyzes the macroeconomic implications of customer capital accumulation at
    the firm level. We build an analytically tractable search model of firm dynamics in which firms
    compete for customers by posting pricing contracts in the product market. Cross-sectional
    price dispersion emerges in equilibrium because firms of different sizes and productivities use
    different pricing strategies to strike a balance between attracting new customers and exploiting incumbent ones. Using micro-pricing data from the U.S. retail sector, we calibrate the model to match moments from the cross-sectional distribution of sales and prices, and use our estimated model to explain sluggish aggregate dynamics and cross-sectional heterogeneity in the response of markups to aggregate shocks. We find that there is incomplete price pass-through leading to procyclicality in the average markup, with smaller firms being more responsive to shocks than larger firms.


  • 29/10/2018
    1837. The young, the old, and the government: demographics and fiscal multipliers (875 KB) Henrique S. Basso and Omar Rachedi

    We document that fiscal multipliers depend on the age structure of the population. Using the variation in military spending and birth rates across U.S. states, we show that local fiscal multipliers increase with the share of young people in total population. We rationalize this fact with a parsimonious life-cycle open-economy New Keynesian model with credit market imperfections. The model explains 65% of the relationship between local fiscal multipliers and demographics. We use the model to study the implications of population aging, and find that nowadays U.S. national fiscal multipliers are 36% lower than in 1980.


  • 01/09/2020
    1836. The drivers of Italian exports and product market entry: 1862-1913 (Updated: August 2020) (925 KB) Jacopo Timini

    Between its Unification and WWI, Italy’s changing export composition echoed its economic
    transformation. In this paper I decompose Italian export growth in its margins, and then
    analyse the determinants of Italian exports and product market entry (and exit). To do
    so, I use two different databases (aggregate and product-level bilateral trade data) and
    methodologies (gravity and logit models). Besides confirming some well-known empirical
    and historical facts for the Italian case (gravity variables hold; trade follows a Heckscher-
    Olhin pattern), the regression results offer a new perspective on two distinctive features of
    its history: trade policy and emigration. These two factors are positively associated with
    Italian exports and product market entry. These findings also have additional implications
    for the role of emigration on the course of the Italian economy: accounting for the trade
    channel, its overall effect may be larger than previously thought.

  • 12/06/2019
    1835. Faraway, so close! Technology diffusion and firm heterogeneity in the medium term cycle of advanced economies (Updated May 2019) (1 MB) Mónica Correa-López and Beatriz de Blas

    Large US firms, by diffusing embodied technology through trade in intermediates, appear
    to drive Europe’s output over the medium term. We develop a two-country model of
    endogenous growth in varieties, cross-country firm heterogeneity and trade to match
    this evidence. A US TFP slowdown generates a pronounced recession in Europe, while
    a negative investment-specific shock also imparts a protracted recession in the US since
    GDP and firm productivity stay below trend beyond a decade. Heterogeneous firms, with
    endogenously changing productivity cut-offs, and the responses of innovators and adopters
    determine medium-term adjustment, as import switching processes unfold.

  • 22/10/2018
    1834. Women’s representation in politics: voter bias, party bias, and electoral systems (919 KB)

    Published in:

    Journal of Public Economics, Volume 198, June 2021, 104399Opens in a new window

    As “Women’s representation in politics: the effect of electoral systems”

    Martín Gonzalez-Eiras and Carlos Sanz

    We study how electoral systems affect the presence of women in politics using a model
    in which both voters and parties might have a gender bias. We apply the model to Spanish
    municipal elections, in which national law mandates that municipalities follow one of two
    different electoral systems: a closed-list system in which voters pick one party-list, or an
    open-list system, in which voters pick individual candidates. Using a regression discontinuity
    design, we find that the closed-list system increases the share of women among candidates
    and councilors by 2.5 percentage points, and the share of women among mayors by 4.3
    percentage points. Our model explains these results as mostly driven by voter bias against
    women. We provide evidence that supports the mechanism of the model. In particular, we
    show that, when two councilors almost tied in general-election votes, the one with “one more
    vote” is substantially more likely to be appointed mayor, but this does not happen when the
    most voted was female and the second was male, suggesting the presence of some voter bias.
    We also show that, in a subsample of municipalities with low bias — proxied by having had
    a female mayor in the past — the difference between the two electoral systems disappears.

  • 08/10/2018
    1833. Corporate cost and profit shares in the euro area and the US: the same story? (1.016 KB) Vicente Salas, Lucio San Juan and Javier Vallés

    This paper presents evidence of how the shares of labour and capital costs and profits in the
    gross value added of corporate sectors of France, Germany, Italy, Spain and the US varied
    between 1995 and 2016, and seeks to explain the differences between countries and how
    they have developed over time. The descriptive evidence does not support the hypothesis
    of a convergence in the composition of the countries’ corporate gross value added in the
    period, either within the euro area or between Europe and the US, nor is there evidence of
    a generalised downward trend in the share of labour costs over time. The parallel upward
    trend in the corporate profit share of the US and Germany between 2000 and 2016 stands
    out, with German corporate profit share consistently above that of the US. The evidence
    presented here supports the claim made by other studies that increasing corporate market
    power is the main driver of changes in the composition of gross value added over time in
    the case of the US. In the euro area countries, labour and capital shares are also sensitive to
    changes in the relative input prices of labour and capital (consistent with an inferred elasticity
    of substitution between labour and capital in production that is less than one, compared
    with the inferred value of one for the US). Finally, to explain the high and increasing German
    corporate profit share, it is necessary to account for the sustained comparative production
    cost advantage of German corporations.

  • 11/09/2018
    1832. Adapting lending policies in a "negative-for-long" scenario (Updated October 2020) (695 KB) Óscar Arce, Miguel García-Posada, Sergio Mayordomo and Steven Ongena

    What is the long-term impact of negative interest rates on bank lending? To answer
    this question we construct a unique summary measure of negative rate exposure by
    individual banks based on exclusive survey data, and couple it with the credit register of
    Spain to identify this impact on the supply of credit to firms. We find that only after a few
    years of negative rates do affected banks (relative to non-affected banks) decrease their
    supply and increase their rates, especially when lowly capitalized and lending to risky
    firms. However, no firms are facing funding constraints, yet.

  • 01/10/2018
    1831. Households´ balance sheets and the effect of fiscal policy (1 MB) Javier Andrés, José E. Boscá, Javier Ferri and Cristina Fuentes-Albero

    Using households’ balance sheet composition in the Panel Survey of Income Dynamics, we
    identify six household types. Since 1999, there has been a decline in the share of patient
    households and an increase in the share of impatient households with negative wealth.
    Using a six-agent New Keynesian model with search and matching frictions, we explore how
    changes in households’ shares affect the transmission of government spending shocks. We
    show that the relative share of households in the left tail of the wealth distribution plays a key
    role in the aggregate marginal propensity to consume, the magnitude of fiscal multipliers,
    and the distributional consequences of government spending shocks. While the output
    and consumption multipliers are positively correlated with the share of households with
    negative wealth, the size of the employment multiplier is negatively correlated. Moreover,
    our calibrated model delivers jobless fiscal expansions.

  • 11/09/2018
    1830. Chinese exports and non-tariff measures: testing for heterogeneous effects at the product level (631 KB) Jacopo Timini and Marina Conesa

    Concerns about a possible turn of the global trade policy agenda are on the rise. Indeed,
    even if tariffs are at a historically low levels, non-tariff measures (NTMs) play an important –
    and growing – role in global trade policy. In this paper, using a recently released database on
    NTMs (UNCTAD), and relying on a gravity model, we focus on Chinese exports with two
    aims in mind: the first is to test for possible heterogeneous effects of different type of NTMs.
    The second is to verify empirically whether NTMs have larger negative effects for specific set
    of goods, i.e. final goods. We find that 1) technical NTMs tend to have positive effects on
    trade flows, whereas non-technical NTMs do not have clear effects at the aggregate level
    and 2) NTMs have heterogeneous effects at the product level: in the case of final goods,
    non-technical NTMs have negative and significant effects.

  • 05/09/2018
    1829. The G-20 regulatory agenda and bank risk (802 KB) Matías Cabrera, Gerald P. Dwyer and María J. Nieto

    Using international listed banks from the United States, Europe, Japan and China from 2004 to 2014, we analyse the effect on bank risk of some of the most relevant new elements of the prudential regulatory framework proposed in the wake of the Great Financial Crisis. We measure risk by a market measure, namely the volatility of banks’ stock returns. We also examine the effect of government support during the financial crisis and of designation as a G-SIB. We find little support for an association with government support and none for a negative relationship. We find support for a positive effect of designation as a G-SIB on risk. We find a positive association with securities trading and a negative association with capital. Banks’ chosen liquidity is unimportant for this measure of risk.

  • 07/09/2018
    1828. The effects of tax changes on economic activity: a narrative approach to frequent anticipations (1.023 KB) Sandra García-Uribe

    This paper studies the effects of anticipations of tax changes in the USA through the release of tax news in the media. I construct a new measure that captures the anticipation of tax bill approvals by exploiting the content of news in the US television. Since this information typically flows faster than standard measures of GDP, I propose a mixed frequency dynamic factor model to estimate both the economic activity latent factor and the effects of anticipated tax shocks on it. I find that onemonth-ahead media anticipations of tax approvals significantly stimulate current economic activity. This stimulation comes from anticipations of tax cuts.

  • 22/08/2018
    1827. The relevance of currency-denomination for the cross-border effects of monetary policy (932 KB) Isabel Argimón

    We analyze how a change in ECB monetary policy affects lending of internationally active banks, depending on whether the currency of the claim is the one of the counterparty country, using Spanish individual bank data. We analyse the transmission from an outward perspective, exploring how banks adjust their foreign lending denominated in local and in foreign currency to changes in monetary policy, both cross-border and also through their affiliates located in other countries. We find that non-bank private claims in local currency respond much less to the ECB monetary policy stance than claims in foreign currency. We also find that the spillover effects on cross-border lending denominated in foreign currency depend on banks’ characteristics. When we broaden the analysis to include claims to the public and the financial sector, the transmission of monetary policy is mainly through foreign currency loans, but bank heterogeneity plays a role in the transmission to local currency loans. In general, a tightening of the ECB monetary policy results in an increase in lending abroad. Exchange rate changes only affect foreign currency-denominated lending.

  • 07/08/2018
    1826. Credit allocation along the business cycle: evidence from the latest boom bust credit cycle in Spain (710 KB) Roberto Blanco and Noelia Jiménez

    Using a dataset that merges information of loan applications from the Spanish CCR with firms’ financial accounts, we find that during the great recession access to credit of firms with weak balance sheets deteriorated relative to other firms. However, contrary to the financial accelerator theory, we find that during the recovery phase after the latest recession access to credit of weaker firms did not improve relative to other firms and it even further deteriorated somewhat. We also provide empirical evidence that lending policies of banks with firms they are exposed to before the lending decision is taken are comparatively less sensitive to public information than those applied to new firms. This result, together with the positive correlation we find between firms’ access to bank loans and the number of firms’ bank credit relationships, might be linked to the existence of private information developed by banks through their interaction with borrowers. We also find that this relationship lending contributed to smooth credit contraction during the crisis.

  • 06/08/2018
    1825. Empirical assessment of alternative structural methods for identifying cyclical systemic risk in Europe (962 KB) Jorge E. Galán and Javier Mencía

    The credit-to-GDP gap, as proposed by the Basel methodology, has become the reference measure for the activation of the Countercyclical Capital Buffer (CCyB) due to its simplicity and good predictive power for future systemic crises. However, it presents several shortcomings that could lead to suboptimal decisions in many countries if it were used as an automatic rule for the activation of the CCyB. We study to what extent the purely statistical nature of the Basel methodology is responsible for these undesired effects by considering potential complementary credit gap measures that incorporate economic fundamentals. Specifically, we analyse the performance of two alternative (semi-) structural models that may account for these factors. We assess the proposed measures using time series data from the 70’s for six European countries and compare them to the Basel gap. We find that the proposed models provide more accurate early warning signals of the build-up of cyclical systemic risk than the Basel gap, as well as lower upward and downward biases after rapid changes in fundamentals. Nonetheless, results evidence heterogeneity in the ability from different models and specifications across countries to forewarn about future crises. This result evidences the differences in the financial cycles and their drivers across countries, and shows the importance in macroprudential policy of considering flexible approaches that adapt to national specificities.

  • 20/07/2018
    1824. Sovereign default, domestic banks and exclusion from international capital markets (926 KB) Dominik Thaler

    Why do governments borrow internationally, so much as to risk default? Why do they remain
    out of financial markets for a while after default? This paper develops a quantitative model
    of sovereign default with endogenous default costs to propose a novel and unified answer
    to these questions. In the model, the government has an incentive to borrow internationally
    due to a difference between the world interest rate and the domestic return on capital, which
    arises from a friction in the domestic banking sector. Since banks are exposed to sovereign
    debt, sovereign default causes losses for them, which translate into a financial crisis. When
    deciding upon repayment, the government trades off these costs against the advantage
    of not repaying international investors. After default, it only reaccesses international capital
    markets once banks have recovered, because only then are they able to efficiently allocate
    the marginal unit of investment again. Exclusion hence arises endogenously. The model
    is able to generate significant levels of domestic and foreign debt, realistic spreads,
    quantitatively plausible drops of lending and output in default episodes, and periods of postdefault international financial market exclusion of a realistic duration.

  • 18/07/2018
    1823. The financial transmission of housing bubbles: evidence from Spain (978 KB) Alberto Martín, Enrique Moral-Benito and Tom Schmitz

    What are the effects of a housing bubble on the rest of the economy? We show that if
    firms and banks face collateral constraints, a housing bubble initially raises credit demand
    by housing firms while leaving credit supply unaffected. It therefore crowds out credit to
    non-housing firms. If time passes and the bubble lasts, however, housing firms eventually
    pay back their higher loans. This leads to an increase in banks’ net worth and thus to an
    expansion in their supply of credit to all firms: crowding-out gives way to crowding-in. These
    predictions are confirmed by empirical evidence from the recent Spanish housing bubble. In
    the early years of the bubble, non-housing firms reduced their credit from banks that were
    more exposed to the bubble, and firms that were more exposed to these banks had lower
    credit and output growth. In its last years, these effects were reversed.

  • 09/07/2018
    1822. The rise and fall of the natural interest rate (3 MB) Gabriele Fiorentini, Alessandro Galesi, Gabriel Pérez-Quirós and Enrique Sentana

    We document a rise and fall of the natural interest rate (r*) for several advanced economies,
    which starts increasing in the 1960’s and peaks around the end of the 1980’s. We reach this
    conclusion after showing that the Laubach and Williams (2003) model cannot estimate r*
    accurately when either the IS curve or the Phillips curve is flat. In those empirically relevant
    situations, a local level specification for the observed interest rate can precisely estimate r*.
    An estimated Panel ECM suggests that the temporary demographic effect of the young
    baby-boomers mostly accounts for the rise and fall.

  • 12/07/2018
    1821. Uncertainty, firm heterogeneity and labour adjustments. Evidence from European countries (596 KB) Marta Martínez-Matute and Alberto Urtasun

    Firms are significantly affected by uncertainty about economic activity. Recent literature has
    shown that uncertainty is a factor of increasing importance in a globalized world, especially
    after its sharp increase during the last crisis. However, uncertainty did not impact all the firms in
    the same way. In this paper, we analyze if uncertainty may have different effects depending on
    firms’ characteristics. We would also like to understand how firms react to uncertainty diversely.
    Using data from the 3rd wave of the Wage Dynamic Network Survey for 25 European countries, we first construct a set of uncertainty indicators exploiting firms environment. We combine variability from country, sector and size at the firm level in order to disaggregate microeconomic uncertainty, which offers richer information than the traditional macroeconomic indicators. Secondly, we estimate the effect of uncertainty on labour adjustments. Results reveal that firms reduce hiring and increase the adjustment of labour demand with more frequency when uncertainty is higher. An increase of 1% in our uncertainty indicator increases the probability of having frozen hiring in between 21% to 35% during the period 2010-2013. Furthermore, other labour strategies have been also taken by firms, such as altering labour workforce: the more the uncertainty is, the more probability of recurring to individual layoffs. Significant effects have been found in firms subject to credit constraints, and country heterogeneity has also been studied: when EPL is stricter, labour response to uncertainty is also more significant.

  • 02/07/2018
    1820. Fiscal policies in the euro area: revisiting the size of spillovers (741 KB) Mario Alloza, Pablo Burriel and Javier J. Pérez

    The issue of the size of fiscal spillovers in the euro area has gained prominence recently, given
    proposals to coordinate fiscal policies that aim at achieving an appropriate “aggregate fiscal
    stance”, consistent with economic and monetary policy conditions. Given the heterogeneous
    fiscal positions of member states, such stance would be achieved by fine-tuning policies of
    countries with enough fiscal space. Appealing as they are, such proposals have so far been
    based on limited empirical evidence. On the one hand, the literature based on calibrated/
    estimated general equilibrium models tends to find that fiscal spillovers within the euro area are
    small once all channels are considered (trade channel vs. monetary policy reaction, exchange
    rate, and risk premium). On the other hand, the available empirical studies hinge on pools of
    countries, given data limitations, and do not provide robust country-specific estimates. In our
    paper we revisit the issue at hand. To do so, first, we compile quarterly datasets of fiscal policy
    variables for the four major euro area economies (1980q1-2016q4), based on consistent and
    comparable criteria and sources. This rich dataset allows us to effectively exploit exclusion
    restrictions within a structural VAR framework to identify country-specific government spending
    shocks. We use these shocks to explore the dynamic effects of fiscal changes in one country
    on neighbor countries (spillovers), finding significant and economically-relevant effects. We
    document that these spillover effects are notably heterogeneous in euro area countries and are
    particularly powerful when the fiscal actions are based on public investment expansions. We
    find that trade is a key transmission mechanism in explaining our results.

  • 29/06/2018
    1819. Extraction of inflation expectations from financial instruments in Latin America (732 KB) Alberto Fuertes, Ricardo Gimeno and José Manuel Marqués

    In this paper we estimate inflation expectations for several Latin American countries using
    an affine model that takes as factors the observed inflation and the parameters generated
    from zero-coupon yield curves of nominal bonds. By implementing this approach, we avoid
    the use of inflation-linked securities, which are scarce in many of these markets, and obtain
    market measures of inflation expectations free of any risk premium, eliminating potential
    biases included in other measures such as breakeven rates. Our method provides several
    advantages, as we can compute inflation expectations at any horizon and forward rates
    such as the expected inflation over the five year period that begins five years from today.
    We find that inflation expectations in the long-run are fairly anchored in Chile and Mexico,
    while those in Brazil and Colombia are more volatile and less anchored. We also find that
    expected inflation increases at longer horizons in Brazil and Chile, while it is decreasing in
    Colombia and Mexico.

  • 22/06/2018
    1818. Price strategies of independent and branded dealers in retail gas market. The case of a contract reform in Spain (630 KB) Pilar Cuadrado, Aitor Lacuesta, María de los Llanos Matea and F. Javier Palencia-González

    This paper analyses how the contract structure between gas stations and the wholesale operator affects price strategies. Using daily data on prices of different gas stations the paper finds that independent dealers charge lower margins than other dealers with different contracts. One potential hypothesis is that this is the case because independent stations react more to the number of competitors. We use the introduction of a discretional regional excise duty (IVMDH) on gas stations to check the reaction of markups to changes in marginal costs of the actual number of competitors. Results are consistent with the idea that regardless the type of contract all dealers react notably to the increases in relative marginal costs by decreasing average markups. We use those results to interpret the inexistent reduction in markups that followed a change in the Spanish regulation that took place in 2013 fostering competition in the retail sector. One potential interpretation is that the big increase in independent stations following the reform was not considered an increase in actual competition for most of the incumbent stations.

  • 14/06/2018
    1817. Multidimensional media slant: complementarities in news reporting by US newspapers (2 MB) Sandra García-Uribe

    Are editors’ choices of front page news based on the potential complementarities between
    the news items? This paper studies front page choices made by editors of major newspapers
    in the US. I document that newspapers front pages are biased to certain combinations of
    news on top of biased to certain news. To identify my measures of bias, I exploit the variation
    in news relevance across different topics and days. To measure the news relevance I use lead
    news choices of other US mass media. As a consequence, my measures of bias are relative
    to the overall media bias. I also provide a reader-maximization model for front page decisions
    that I use to interpret the empirical biases of the newspaper as preferences of its population
    of target readers. From my estimation, I recover maps of complementarities among pairs of
    topics for each of the major US newspapers. I find that complementarities between news
    contribute in a large portion to the probability that news on a topic appears in the front page.

  • 08/06/2018
    1816. Competition and the welfare gains from transportation infrastructue: evidence from the Golden Quadrilateral of India (4 MB) Jose Asturias, Manuel García-Santana and Roberto Ramos

    A significant amount of resources is spent every year on the improvement of transportation
    infrastructure in developing countries. In this paper, we investigate the effects of one such
    large project, the Golden Quadrilateral in India. We do so using a model of internal trade
    with variable markups. In contrast to the previous literature, our model incorporates several
    channels through which transportation infrastructure affects welfare. In particular, the model
    accounts for gains stemming from improvements in the allocative efficiency of the economy.
    We calibrate the model to the Indian manufacturing sector and find real income gains of
    2.7%. We also find that allocative efficiency accounts for 7.4% of these gains. The importance
    of allocative efficiency varies greatly across states, and can account for up to 18% of the
    overall gains in some states. The remaining welfare gains are accounted for by changes in
    labor income, productive efficiency, and average markups that affect states’ terms of trade.

  • 06/06/2018
    1815. Financial institutions’ business models and the global transmission of monetary policy (862 KB) Isabel Argimón, Clemens Bonner, Ricardo Correa, Patty Duijm, Jon Frost, Jakob de Haan, Leo de Haan and Viktors Stebunovs

    Global financial institutions play an important role in channeling funds across countries and, therefore, transmitting monetary policy from one country to another. In this paper, we study whether such international transmission depends on financial institutions’ business models. In particular, we use Dutch, Spanish, and U.S. confidential supervisory data to test whether the transmission operates differently through banks, insurance companies, and pension funds. We find marked heterogeneity in the transmission of monetary policy across the three types of institutions, across the three banking systems, and across banks within each banking system. While insurance companies and pension funds do not transmit homecountry monetary policy internationally, banks do, with the direction and strength of the transmission determined by their business models and balance sheet characteristics.

  • 24/05/2018
    1814. The costs of trade protectionism: evidence from Spanish firms and non-tariff measures (556 KB) Dmitri Kirpichev and Enrique Moral-Benito

    The rise in non-tariff protectionist measures has been associated to the weakness in global trade over the last few years. We investigate the effect of non-tariff barriers (NTBs) on exports growth over the period 2009-2013 using administrative data at the firm-product-destination level in Spain. According to our findings, non-tariff protectionist measures significantly reduce exports growth at the product-destination level. Moreover, NTBs also hinder exports growth at the firm level and negatively affect other firm outcomes such as productivity growth. In contrast, the impact of liberalizing non-tariff measures is not statistically significant.

  • 30/05/2018
    1813. Monetary policy when households have debt: new evidence on the transmission mechanism (937 KB) James Cloyne, Clodomiro Ferreira and Paolo Surico

    How do changes in monetary policy affect consumption? Using household data for the US
    and the UK, we show that most of the aggregate response of consumption to interest rates
    is driven by households with a mortgage. Outright home owners do not adjust expenditure
    at all and renters change their spending but by less than mortgagors. Income rises for all
    households as interest rate cuts directly affect firm investment and household consumption,
    boosting aggregate demand. A key dierence between these housing tenure groups is the
    composition of their balance sheets: mortgagors hold sizable illiquid assets but little liquid
    wealth, consistent with a higher marginal propensity to consume.

  • 27/04/2018
    1812. Industry vs Services: do enforcement institutions matter for specialization patterns? Disaggregated evidence from Spain (3 MB) Juan S. Mora-Sanguinetti and Rok Spruk

    We exploit historical differences in foral law to consistently estimate the contribution of the
    quality of enforcement institutions to economic specialization across Spanish provinces in
    the period 1999-2014. The distribution of economic activity in Spain as of today shows a
    strong pattern of geographical specialization. Regions less specialized in manufacturing
    (industry) and oriented to services sectors (Andalusia, Extremadura) in the south are compared
    with industrialized/manufacturing regions in the north such as the Basque Country, Navarre
    or Aragon. We construct province-level congestion rates across three different jurisdictions
    (civil, labor and administrative) from real judicial data measuring the performance of the
    Spanish judicial system over time, and estimate the effect of judicial efficacy on the share of
    manufacturing and services in the total output. Using a variety of estimation techniques, the
    evidence unveils strong and persistent effects of judicial efficacy on province-level economic
    specialization with notable distributional differences. The provinces with a historical experience
    of foral law are significantly more likely to have more efficient enforcement institutions at the
    present day. In turn, greater judicial efficacy facilitates specialization in high-productivity
    manufacturing while greater judicial inefficacy encourages service-intensive specialization. The
    effect of judicial efficacy on economic specialization does not depend on confounders, holds
    across a number of specification checks and appears to be causal. Lastly, the three
    jurisdictions seem relevant to explain specialization, although the administrative jurisdiction
    appears to have a more pronounced impact than the labor or civil jurisdictions.

  • 16/04/2018
    1811. Bank lending standards over the cycle: the role of firms’ productivity and credit risk (646 KB) Gabriel Jiménez, Enrique Moral-Benito and Raquel Vegas

    We show that bank lending standards are influenced by macroeconomic conditions. We use
    monthly data from the Banco de España Central Credit Register, which allow us to monitor all
    loan applications made by non-financial firms to non-current banks from 2002 to 2015. To
    test the pro-cyclicality of banks’ appetite for risk, we investigate how two firm characteristics
    (ex-ante credit risk and productivity) interacting with two macroeconomic indicators (business
    cycle and the monetary policy stance) affect the probability of granting a loan. In order to
    enhance identification we account for unobserved heterogeneity by means of firm and banktime
    fixed effects. Our findings indicate that banks soften their credit standards during booms
    or when monetary policy is loose to harden them during busts or when short-term interest
    rates increase. This pattern is especially relevant in the case of firms’ productivity, which might
    partly explain the dismal evolution of aggregate productivity in Spain during the pre-crisis
    period. Finally, we also find that these results are more pronounced among less capitalized,
    less liquid and more profitable banks.

  • 06/03/2018
    1810. Backing the incumbent in difficult times: the electoral impact of wildfires (734 KB) Roberto Ramos and Carlos Sanz

    How do voters react to large shocks that are (mostly) outside the control of politicians? We address this question by studying the electoral effects of wildfires in Spain during 1983-2011. Using a difference-in-difference strategy, we find that a large accidental fire up to nine months ahead of a local election increases the incumbent party’s vote share by almost 8 percentage points. We find that a rally-behind-the-leader effect best explains the results. A simple formalization of this mechanism yields an implication – that the effect should be larger for stronger (more voted) incumbents – that is supported by the data.

  • 02/03/2018
    1809. On the direct and indirect real effects of credit supply shocks (920 KB) Laura Alfaro, Manuel García-Santana and Enrique Moral-Benito

    We consider the real effects of bank lending shocks and how they permeate the economy through buyer-supplier linkages. We combine administrative data on all firms in Spain with a matched bank-firm-loan dataset incorporating information on the universe of corporate loans for 2003-2013. Using methods from the matched employer-employee literature for handling large data sets, we identify bank-specific shocks for each year in our sample. Combining the Spanish Input-Output structure and firm-specific measures of upstream and downstream exposure, we construct firm-specific exogenous credit supply shocks and estimate their direct and indirect effects on real activity. Credit supply shocks have sizable direct and downstream propagation effects on investment and output throughout the period but no significant impact on employment during the expansion period. Downstream propagation effects are comparable or even larger in magnitude than direct effects. The results corroborate the importance of network effects in quantifying the real effects of credit shocks and show that real effects vary during booms and busts.

  • 12/02/2018
    1808. Credit constraints, firm investment and growth: evidence from survey data (920 KB) Miguel García-Posada Gómez

    We assess the impact of credit constraints on investment, inventories and other working capital and firm growth with a large panel of small and medium-sized enterprises from 12 European countries for the period 2014-2016. The data come from the Survey on the access to finance of enterprises (SAFE), a survey that is especially designed to analyse the problems in the access to external finance of European SMEs. The key identification challenge is a potential reverse-causality bias, as firms with poor investment and growth opportunities may have a higher probability of being credit constrained. We implement several strategies to overcome this obstacle: proxies for investment opportunities, lagged regressors, random effects and instrumental variables. Our findings suggest that credit constraints, both in bank financing and other financing (e.g. trade credit), have strong negative effects on investment in fixed assets, while the impact on firm growth and working capital is less robust.

  • 09/02/2018
    1807. Fiscal transfers in a monetary union with sovereign risk (707 KB) Guilherme Bandeira

    This paper investigates the welfare and economic stabilization properties of a fiscal transfers scheme between members of a monetary union subject to sovereign spread shocks. The scheme, which consists of cross-country transfer rules triggered when sovereign spreads widen, is incorporated in a two-country model with financial frictions. In particular, banks hold government bonds in their portfolios, being exposed to sovereign risk. When this increases, a drop bank’s equity value forces them to contract credit and to raise lending rates at the same time as they retain funds to build up their net worth. I show that, when domestic fiscal policy is not distortionary, fiscal transfers improve welfare and macroeconomic stability. This is because fiscal transfers can reduce banks’ exposure to government debt, freeing credit supply to the private sector. On the contrary, when domestic fiscal policy is distortionary, fiscal transfers cause welfare losses, despite stabilizing the economy. This result arises because the distortions caused by funding the scheme outweigh the positive effects of fiscal transfers in smoothing the adjustment of the economy hit by the shock.

  • 19/02/2018
    1806. Money in Spain. New historical statistics (1830-1998) (10 MB) Pablo Martín-Aceña

    The purpose of this Working Paper is to present a reconstruction of the main monetary aggregates for the period 1830, when the first modern banknotes were issue, to 1998, the last year before the substitution of the peseta by the euro. It offers series for currency in circulation and its components, bank deposits and its components, high-powered money and the money supply. With regard to previous monetary historical statistics, this Working Paper improves the quality and the time-span of the series, covering a period of more than 150 years. The Working Paper offers also a short approach to the long-term evolution of the quantity of money in Spain and the changes in its composition. The sources and methodology employed is explain in detail.

  • 06/02/2018
    1805. Monetary policy and the asset risk-taking channel (762 KB) Angela Abbate and Dominik Thaler

    How important is the risk-taking channel for monetary policy? To answer this question, we develop and estimate a quantitative monetary DSGE model where banks choose excessively risky investments, due to an agency problem which distorts banks’ incentives. As the real interest rate declines, these distortions become more important and excessive risk taking increases, lowering the efficiency of investment. We show that this novel transmission channel generates a new and quantitatively significant monetary policy trade-off between inflation and real interest rate stabilization: it is optimal for the central bank to tolerate greater inflation volatility in exchange for lower risk taking.

  • 30/01/2018
    1804. International co-movements in recessions (1 MB) Moritz A. Roth

    Business cycle correlations are state-dependent and higher in recessions than in expansions. In this paper, I suggest a mechanism to explain why this is the case. For this purpose, I build an international real business cycle model with occasionally binding constraints on capacity utilization which can account for state-dependent cross-country correlations in GDP growth rates. The intuition is that firms can only use their machines up to a capacity ceiling. Therefore, in booms the growth of an individual economy can be dampened when the economy hits its capacity constraint. This creates an asymmetry that can spill-over to other economies, thereby creating state-dependent cross-country correlations in GDP growth rates. Empirically, I successfully test for the presence of capacity constraints using data from the G7 advanced economies in a Bayesian threshold autoregressive (T-VAR) model. This finding supports capacity constraints as a prominent transmission channel of cross-country GDP asymmetries in recessions compared to expansions.

  • 31/01/2018
    1803. Term structure and real-time learning (1 MB) Pablo Aguilar and Jesús Vázquez

    This paper introduces the term structure of interest rates into a medium-scale DSGE model. This extension results in a multi-period forecasting model that is estimated under both adaptive learning and rational expectations. Term structure information enables us to characterize agents’ expectations in real time, which addresses an imperfect information issue mostly neglected in the adaptive learning literature. Relative to the rational expectations version, our estimated DSGE model under adaptive learning largely improves the model fit to the data, which include not just macroeconomic data but also the yield curve and the consumption growth and inflation forecasts reported in the Survey of Professional Forecasters. Moreover, the estimation results show that most endogenous sources of aggregate persistence are dramatically undercut when adaptive learning based on multi-period forecasting is incorporated through the term structure of interest rates.

  • 18/01/2018
    1802. Private Saving. New Cross-Country Evidence Based on Bayesian Techniques (658 KB) Ignacio Hernando, Irene Pablos, Daniel Santabárbara and Javier Vallés

    The existing literature exhibits high uncertainty over the theoretical and empirical determinants of private world saving. This paper reports new evidence on the drivers of private saving by applying Bayesian techniques, using data from the world’s 35 largest economies in the period 1980-2012. After reviewing the main theories of consumption and saving decisions, and discussing the potential effects of different determinants, we specify a general model that incorporates the most commonly used factors in the literature, considering the potential endogeneity of some of the regressors. The Bayesian Model Averaging (BMA) approach summarises the information embedded in all combinations of the explanatory variables considered by averaging each specification according to its likelihood. We find that in the medium term private credit to GDP ratio, the government surplus to GDP ratio, the terms of trade, life expectancy and the old-age dependency ratio are key determinants of cross-country private saving behaviour. Lastly, we assess the long-term effect of expected demographic changes in private saving globally.

  • 17/01/2018
    1801. The impact of high school financial education on financial knowledge and choices: evidence from a randomized trial in Spain (654 KB)

    Published in: Economia Journal.

    Olympia Bover, Laura Hospido and Ernesto Villanueva

    We study how a 10-hour course about personal finance delivered in compulsory secondary education affects a wide range of student’s outcomes over a three months horizon. The contents of the course covered budgeting, banking relationship and saving vehicles, but also awareness about future outcomes. To obtain reliable estimates, we conducted a randomized field experiment where 3,000 9th grade students coming from 78 Spanish high schools received financial education at different points of the academic year. Right after the course, performance in standardized tests of financial knowledge increased by 16% of one standard deviation, and treated youths were more likely to become involved in financial matters at home and showed a higher degree of patience in hypothetical saving choices. An incentivized saving task conducted three months after delivering the course suggests that treated youths displayed more patient choices at various interest rates and maturities than a control group of 10th graders. The results of higher performance in financial test scores and the higher degree of patient choices in the incentivized saving task among the treated are statistically significant in strata with students with a relatively more disadvantaged background.

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