Publications

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.