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

  • 09/01/2020
    1948. Bayesian VAR forecasts, survey information and structural change in the euro area (1 MB) Gergely Ganics and Florens Odendahl

    We incorporate external information extracted from the European Central Bank’s Survey of Professional Forecasters into the predictions of a Bayesian VAR, using entropic tilting and soft conditioning. The resulting conditional forecasts significantly improve the plain BVAR point and density forecasts. Importantly, we do not restrict the forecasts at a specific quarterly horizon, but their possible paths over several horizons jointly, as the survey information comes in the form of one- and two-year-ahead expectations. Besides improving the accuracy of the variable that we target, the spillover effects on “other-than-targeted” variables are relevant in size and statistically significant. We document that the baseline BVAR exhibits an upward bias for GDP growth after the financial crisis, and our results provide evidence that survey forecasts can help mitigate the effects of structural breaks on the forecasting performance of a popular macroeconometric model. Furthermore, we provide evidence of unstable VAR dynamics, especially during and after the recent Great Recession.

  • 08/01/2020
    1947. From fixed-event to fixed-horizon density forecasts: obtaining measures of multi-horizon uncertainty from survey density forecasts (9 MB) Gergely Ganics, Barbara Rossi and Tatevik Sekhposyan

    Surveys of Professional Forecasters produce precise and timely point forecasts for key
    macroeconomic variables. However, the accompanying density forecasts are not as widely
    utilized, and there is no consensus about their quality. This is partly because such surveys
    are often conducted for “fixed events”. For example, in each quarter panelists are asked
    to forecast output growth and inflation for the current calendar year and the next, implying
    that the forecast horizon changes with each survey round. The fixed-event nature limits the
    usefulness of survey density predictions for policymakers and market participants, who
    often wish to characterize uncertainty a fixed number of periods ahead (“fixed-horizon”). Is
    it possible to obtain fixed-horizon density forecasts using the available fixed-event ones?
    We propose a density combination approach that weights fixed-event density forecasts
    according to a uniformity of the probability integral transform criterion, aiming at obtaining
    a correctly calibrated fixed-horizon density forecast. Using data from the US Survey of
    Professional Forecasters, we show that our combination method produces competitive
    density forecasts relative to widely used alternatives based on historical forecast errors or
    Bayesian VARs. Thus, our proposed fixed-horizon predictive densities are a new and useful
    tool for researchers and policy makers.

  • 27/12/2019
    1946. The SHERLOC: an EWS-based index of vulnerability for emerging economies (1 MB) Irma Alonso and Luis Molina

    This paper presents a tool to detect the accumulation of risks in emerging market economies
    based on a synthetic index of “vulnerability” for three different types of crisis (sovereign, currency and banking crises). To build the index we first use a signalling approach (Auroc) to preselect the variables that issue adequate signals before the blown up of a crisis. The short-term interbank rate is a leading indicator for the three different types of crises and short term external debt also plays a prominent role. These variables are then introduced in a logistic estimation to obtain the predicted probability of being in a “vulnerable” state for each type of crisis. These indexes, labelled SHERLOC, which stands for Signalling Heightened Emerging Risks that Lead to the Occurrence of Crises, outperform all best single indicators in terms of in-sample and out-ofsample validation. Additionally, a synthetic index for each type of crisis seems to predict better  "vulnerable" states than the use of an aggregate index for all types of crises.

  • 27/12/2019
    1945. The gender gap in bank credit access (780 KB) Pablo de Andrés, Ricardo Gimeno and Ruth Mateos de Cabo

    We use a sample of over 80,000 Spanish companies started by a sole entrepreneur between 2004 and 2014, and distinguish between male and female entrepreneurs demand for credit, credit approval ratio, and credit performance. We find that female entrepreneurs who start a business are less likely to ask for a loan. Of the female entrepreneurs requesting a credit, the probability of obtaining one in the founding year is significantly lower than their male peers in the same industry. This lower credit access disappears over the subsequent years, once the company has a track record of profits and losses. We also observe that women-led companies that receive a loan in the founding year are less likely to default as compared to men-led companies. This superior performance disappears for subsequent years, coinciding with the disappearance of the lower credit access. Taking all these results together, we rule out both taste-based discrimination and statistical discrimination in the credit industry, and point to the possible presence of double standards which might be a consequence of implicit (unconscious) discrimination.

  • 23/12/2019
    1944. Dynamic effects of persistent shocks (746 KB) Mario Alloza, Jesús Gonzalo and Carlos Sanz

    We show that several shocks identified without restrictions from a model, and frequently
    used in the empirical literature, display some persistence. We demonstrate that the two
    leading methods to recover impulse responses to shocks (moving average representations
    and local projections) treat persistence differently, hence identifying different objects.
    In particular, standard local projections identify responses that include an effect due to
    the persistence of the shock, while moving average representations implicitly account
    for it. We propose methods to re-establish the equivalence between local projections and
    moving average representations. In particular, the inclusion of leads of the shock in local
    projections allows to control for its persistence and renders the resulting responses
    equivalent to those associated to counterfactual non-serially correlated shocks. We apply
    this method to well-known empirical work on fiscal and monetary policy and find that
    accounting for persistence has a sizable impact on the estimates of dynamic effects.

  • 11/12/2019
    1943. Taxation and the life cycle of firms (693 KB) Andrés Erosa and Beatriz González

    The Hopenhayn and Rogerson (1993) framework is extended to understand how different
    forms of taxing capital income affect firms’ investment and financial policies over their life
    cycle. Corporate income taxation slows down firm growth over the life cycle by reducing
    after-tax profits available for reinvesting, and it distorts optimal firms’ size. Dividend income
    taxation reduces external equity financing, but it does not affect size at maturity. Capital
    gains taxes make firms start larger, so that internal growth is lower. With these mechanisms
    in mind, we calibrate our economy to the US and discuss different revenue-neutral tax
    reforms that might lead to increases in aggregate output and capital.

  • 02/12/2019
    1942. The global financial cycle and US monetary policy in an interconnected world (6 MB) Stéphane Dées and Alessandro Galesi

    We assess the international spillovers of US monetary policy with a large-scale global VAR which models the world economy as a network of interdependent countries. An expansionary US monetary policy shock contributes to the emergence of a Global Financial Cycle, which boosts macroeconomic activity worldwide. We also find that economies with floating exchange rate regimes are not fully insulated from US monetary policy shocks and, even though they appear to be relatively less affected by the shocks, the differences in responses across exchange rate regimes are not statistically significant. The role of US monetary policy in driving these macrofinancial spillovers gets even reinforced by the complex network of interactions across countries, to the extent that network effects roughly double the direct impacts of US monetary policy surprises on international equity prices, capital flows, and global growth. This amplification increases as countries get more globally integrated over time, suggesting that the evolving network is an important driver for the increasing role of US monetary policy in shaping the Global Financial Cycle.

  • 17/12/2019
    1941. Modelling regional housing prices in Spain (14 MB) Laura Álvarez Román and Miguel García-Posada Gómez

    We estimate the long-run relationship between real housing prices of new dwellings and their
    fundamentals in a panel of the 50 Spanish provinces between 1985 and 2018. We find a
    cointegrating relationship between real house prices and per capita real income, unemployment rate and demographic density. According to our estimates, house prices were above their long-run equilibrium values in most provinces in 2007, during the peak of the previous boom, but there was substantial heterogeneity in the size of this gap. At the end of 2018 house prices were slightly below their estimated long-run equilibrium values in most provinces, but a few of them exhibited moderate positive deviations from those levels. Our results highlight the importance of modelling house prices at the regional level, as aggregate results may hide important heterogeneous developments.

  • 15/11/2019
    1940. Heterogeneous spillovers of housing credit policy (610 KB) Myroslav Pidkuyko

    We study the spillovers from government intervention in the mortgage market on households’ consumption using the household survey data from the US. After an expansionary mortgage market operation, the increase in consumption of homeowners with mortgage debt is large and significant, while the consumption response of homeowners without the mortgage debt is small and insignificant. Non-homeowners also increase their consumption but less than mortgagors. We also find that expansionary policy significantly increases the consumption inequality of mortgagors. We explain these facts through the lens of a lifecycle model with incomplete markets and endogenous housing choice. Reduction in credit rates creates extra wealth for the mortgagors while a reduction in interest rates shifts this wealth towards consumption. An increase in wealth is bigger for those with a larger mortgage- this exacerbates consumption inequality.

  • 14/11/2019
    1939. Outsourcing and public expenditure: an aggregate perspective with regional data (682 KB) Mar Delgado-Téllez, Enrique Moral-Benito and Javier J. Pérez

    Outsourcing can be defined as the delivery of public services by the private sector. The sign
    of the effect of outsourcing on public spending is ambiguous ex-ante. While outsourcing
    may reduce public spending through higher competition in the private sector, it may also
    increase public spending due to the presence of transaction costs or the so-called “hold-up”
    problem among others. Using a panel of Spanish regions over the 2002-2018 period, this
    paper explores the association between outsourcing and public spending empirically. Spain
    offers an interesting case study from a broad perspective, as the degree of decentralization of
    public health and education is almost complete, and the different regions have adopted quite
    distinct approaches as regards the public-private mix in the provision of these public services.
    In line with previous cross-country evidence [e.g. Alonso et al. (2017); Potrafke (2018)] our
    estimates point to a positive relationship between public spending and outsourcing. The result
    holds when a number of robustness exercises are carried out. By components, we find that
    outsourcing is associated with higher public consumption and health spending, while there is
    no statistical association with investment and education expenditure. In any case, it is worth
    mentioning that the impact of outsourcing on the efficiency of public spending cannot be
    ascertained with our approach, due to data limitations.

  • 20/11/2019
    1938. International Bank Lending Channel of Monetary Policy (836 KB) Silvia Albrizio, Sangyup Choi, Davide Furceri and Chansik Yoon

    How does domestic monetary policy in systemic countries spillover to the rest of the world? This paper examines the transmission channel of domestic monetary policy in the crossborder context. We use exogenous shocks to monetary policy in systemically important economies, including the U.S., and local projections to estimate the dynamic effect of monetary policy shocks on bilateral cross-border bank lending. We find robust evidence that an increase in funding costs following an exogenous monetary tightening leads to a statistically and economically significant decline in cross-border bank lending. The effect is weakened during periods of high uncertainty. In contrast, the effect is found to not vary according to the degree of borrower country riskiness, further weakening support for the international portfolio rebalancing channel.

  • 19/11/2019
    1937. Economic growth, institutional quality and financial development in middle-income countries (4 MB) Laura Heras Recuero and Roberto Pascual González

    This paper aims to investigate the relationship between economic growth, institutional quality and financial development whitin a sample of middle-income countries. We generate three hypothesis on the potential relationships between those three dimensions by reviewing the existing literature and test them in the framework of a Panel Vector Autoregressive (PVAR) model. The main results, derived from the Impulse Response Function (IRF) analysis, are two-fold. First, we find a unidirectional positive relationship from economic growth to financial development. Second, institutional quality and economic growth are positively related but the causality direction depends on the nature of the institutional quality proxies. Legal institutional quality has an impact on economic growth while the latter causes an improvement in public sector institutional quality.

  • 08/11/2019
    1936. External adjustment with a common currency: the case of the euro area (1 MB) Alberto Fuertes

    This paper analyzes the behaviour of the external adjustment path for the four main economies in the euro area. I find a structural break in the behaviour of the net external position at the time of the introduction of the euro for France, Italy and Spain, pointing out that the inception of the common currency changed their external adjustment process. Germany does not show this structural break, being its external position more affected by other events such as the country reunification in 1989. I also find that France and Italy will adjust the net external position mainly through the valuation component, while Germany and Spain will restore their external balance mostly through the trade component. The common currency area could have exacerbated Germany’s net creditor position as the evolution of the euro has reacted to the external adjustment needs of debtor countries such as Italy and Spain.

  • 21/10/2019
    1935. Child labor under cash and in-kind transfers: evidence from rural Mexico (654 KB) Federico Tagliati

    This paper studies the effects of cash versus in-kind transfers on child labor. Using data from a program which randomly transferred either cash or a basket of food to poor households in Mexico, I find that the cash transfer reduced children’s work participation by a significantly larger margin than the in-kind transfer. Both transfers had large negative effects on child labor among recipients in the middle tertile of the income distribution. However, the in-kind transfer did not reduce child labor among children in the bottom tertile, whereas the cash transfer did. Moreover, transfer recipients in different income tertiles adjust child labor on different margins (extensive versus intensive). I show that the different margins of adjustment across the income distribution can be rationalized by a model in which preferences for schooling respect a luxury axiom and the household could forego child labor earnings only when the transfer pushes consumption above subsistence.

  • 15/10/2019
    1934. Exchange rate shocks and inflation comovement in the euro area (1 MB) Danilo Leiva-Leon, Jaime Martínez-Martín and Eva Ortega

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

  • 18/10/2019
    1933. Domestic and foreign investment in advanced economies. The role of industry integration (1 MB) Teresa Sastre and Laura Heras Recuero

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

  • 18/10/2019
    1932. Staying dry on Spanish wine: the rejection of the 1905 Spanish-Italian trade agreement (Updated version May 2020) (841 KB) Jacopo Timini

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

  • 08/10/2019
    1931. Beyond the LTV ratio: new macroprudential lessons from Spain (2 MB) Jorge E. Galán and Matías Lamas

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

  • 02/09/2019
    1930. Mapping China´s time-varying house price landscape (1 MB) Michael Funke, Danilo Leiva-Leon and Andrew Tsang

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

  • 09/08/2019
    1929. On financial frictions and firm market power (927 KB) Miguel Casares, Luca Deidda and José E. Galdón-Sánchez

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

  • 07/08/2019
    1928. Propagation of sector-specific shocks within Spain and other countries (1 MB) Mario Izquierdo, Enrique Moral-Benito and Elvira Prades

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

  • 19/07/2019
    1927. Quality of enforcement and investment decisions. Firm-level evidence from Spain (1 MB)

    Published in: Economic ModellingOpens in a new window

    Daniel Dejuán and Juan S. Mora-Sanguinetti

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

  • 04/07/2019
    1926. Do SVARs with sign restrictions not identify unconventional monetary policy shocks? (630 KB) Jef Boeckx, Maarten Dossche, Alessandro Galesi, Boris Hofmann and Gert Peersman

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

  • 01/07/2019
    1925. Fluctuations in global macro volatility (1 MB) Danilo Leiva-Leon and Lorenzo Ductor

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

  • 18/07/2019
    1924. The elasticity of taxable income in Spain: 1999-2014 (1.017 KB) Miguel Almunia and David López-Rodríguez

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

  • 15/07/2019
    1923. The benefits and costs of adjusting bank capitalisation: evidence from Euro Area countries (6 MB) Katarzyna Budnik, Massimiliano Affinito, Gaia Barbic, Saiffedine Ben Hadj, Edouard Chretien, Hans Dewachter, Clara Isabel González, Jenny Hu, Lauri Jantunen, Ramona Jimborean, Otso Manninen, Ricardo Martinho, Javier Mencía, Elena Mousarri et al.

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

  • 05/06/2019
    1922. Jobs multipliers: evidence from a large fiscal stimulus in Spain (8 MB) Mario Alloza and Carlos Sanz

    We estimate the employment effect of a large fiscal stimulus in Spain (PlanE), in which the national government transferred funds to municipalities to carry out local investment projects. Using a difference-in-difference approach by exploiting variation in the timing of the execution of projects across municipalities, we find that 100,000 euros of stimulus reduced unemployment by 0.62 jobs per year. We allow for possible spatial effects, i.e. the propagation of the stimulus to neighboring municipalities, and find that these are sizable, representing 8.4% of the “local” effect. We also present evidence on the transmission mechanism, finding that the effect was: (i) initially concentrated in the construction and industrial sectors, but later spilled over to the broader economy, (ii) larger for males than females, (iii) larger when the shock represented a higher share of the budget, and (iv) not larger for municipalities headed by more educated mayors. Our estimate of the multiplier falls in the lower range of previous work.

  • 20/06/2019
    1921. Measuring retail trade using card transactional data (1 MB)

    Published in: International Journal of Forecasting. Volume 37, Issue 3, July–September 2021, Pages 1235-1246


    Diego Bodas, Juan R. García López, Juan Murillo Arias, Matías J. Pacce, Tomasa Rodrigo López, Juan de Dios Romero Palop, Pep Ruiz de Aguirre, Camilo A. Ulloa and Heribert Valero Lapaz

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

  • 21/06/2019
    1920. Inflation interdependence in advanced economies (1 MB) Luis J. Álvarez, María Dolores Gadea and Ana Gómez-Loscos

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

  • 21/06/2019
    1919. A framework for debt-maturity management (2 MB) Saki Bigio, Galo Nuño and Juan Passadore

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

  • 16/07/2019
    1918. Gender gaps in the evaluation of research: evidence from submissions to economics conferences (Updated February 2020) (717 KB) Laura Hospido and Carlos Sanz

    We study gender differences in the evaluation of submissions to economics conferences.
    Using data from the Annual Congress of the European Economic Association (2015-2017),
    the Annual Meeting of the Spanish Economic Association (2012-2017), and the Spring
    Meeting of Young Economists (2017), we find that all-female-authored papers are 3.3 p.p.
    (6.8%) less likely to be accepted than all-male-authored papers. This gap is present after
    controlling for number of authors of the paper; referee fixed effects; field; cites of the
    paper; authors’ previous publication record, affiliations, and experience; and connections
    between the authors of a given paper and the referees that evaluate it. We provide evidence
    suggesting that the gap is driven by stereotypes against female authors: it is entirely driven
    by male referees, only exists for lesser-known authors, and seems larger in more masculine
    fields, especially in finance.

  • 22/05/2019
    1917. Is market liquidity less resilient after the financial crisis? Evidence for US treasuries (663 KB) Carmen Broto and Matías Lamas

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

  • 19/06/2019
    1916. Quest for robust optimal macroprudential policy (1 MB) Pablo Aguilar, Stephan Fahr, Eddie Gerba and Samuel Hurtado

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

  • 16/04/2019
    1915. The gender promotion gap: evidence from central banking (612 KB) Laura Hospido, Luc Laeven and Ana Lamo

    We examine gender differences in career progression and promotions in central banking, a stereotypical male-dominated occupation, using confidential anonymized personnel data from the European Central Bank (ECB) during the period 2003-2017. A wage gap emerges between men and women within a few years of hiring, despite broadly similar entry conditions in terms of salary levels and other observables. We also find that women are less likely to be promoted to a higher salary band up until 2010 when the ECB issued a public statement supporting diversity and took several measures to support gender balance. Following this change, the promotion gap disappears. The gender promotion gap prior to this policy change is partly driven by the presence of children. Using 2012-2017 data on promotion applications and decisions, we explore the promotion process in depth, and confirm that during this most recent period women are as likely to be promoted as men. This results from a lower probability of women to apply for promotion, combined with a higher probability of women to be selected conditional on having applied. Following promotion, women perform better in terms of salary progression, suggesting that the higher probability to be selected is based on merit, not positive discrimination.

  • 29/04/2019
    1914. A new approach to dating the reference cycle (1 MB) Maximo Camacho, María Dolores Gadea and Ana Gómez Loscos

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

  • 17/04/2019
    1913. The effects of pension-related policies on household spending (624 KB) Susana Párraga Rodríguez

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

  • 13/05/2019
    1912. Drivers of productivity in the Spanish banking sector: recent evidence (653 KB) Christian Castro and Jorge E. Galán

    We analyse the drivers of total factor productivity of Spanish banks from early 2000,
    including the last financial crisis and the post-crisis period. This allows us to study changes
    in productivity following a major restructuring process in the banking sector such as the
    one experienced in Spain. Overall, we find that following a period of continued growth,
    productivity declined after the height of the crisis, though large banks were less affected. We also find that risk, capital levels, competition and input prices were important drivers of the differences in productivity change between banks. Finally, our results suggest that, by the end of our sample period, there was still some room for potential improvements in productivity via exploiting scale economies and enhancing cost efficiency. These opportunities appear to be generally greater for the smaller banks in our sample.

  • 28/03/2019
    1911. Monetary policy, corporate finance and investment (1.001 KB) James Cloyne, Clodomiro Ferreira, Maren Froemel and Paolo Surico

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

  • 16/04/2019
    1910. Monetary policy implications of state-dependent prices and wages (2 MB) James Costain, Anton Nakov and Borja Petit

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

  • 27/03/2019
    1909. Exploring trend inflation dynamics in euro area countries (1 MB) Mónica Correa-López, Matías Pacce and Kathi Schlepper

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

  • 06/03/2019
    1908. The China syndrome affects banks: the credit supply channel of foreign import competition (Updated February 2020) (800 KB) Sergio Mayordomo and Omar Rachedi

    Did the rise of Chinese import competition in the early 2000s affect banks’ credit supply policies? Using bank-firm-level data on the universe of Spanish corporate loans, we find that banks rebalanced their loan portfolios away from firms facing Chinese import competition and towards profitable firms in non-exposed sectors. Banks supplied more credit also to the construction sector, yet independently of firms’ profitability. This is not due to banks’ exposure to the housing boom. Rather, the high geographical concentration of the manufacturing industries competing with China left local banks with fewer alternatives to local construction firms for rebalancing their loan portfolios. The portfolio rebalancing had large real effects: it depressed further the economic activity of firms competing with Chinese imports, and contributed to the construction sector boom of the early 2000s.

  • 16/07/2019
    1907. The Spanish personal income tax: facts and parametric estimates (827 KB) Esteban García-Miralles, Nezih Guner and Roberto Ramos

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

  • 06/03/2019
    1906. A new economic policy uncertainty index for Spain (584 KB) Corinna Ghirelli, Javier J. Pérez and Alberto Urtasun

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

  • 05/03/2019
    1905. Measuring economic and economic policy uncertainty, and their macroeconomic effects: the case of Spain (595 KB) Corinna Ghirelli, María Gil, Javier J. Pérez and Alberto Urtasun

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

  • 04/03/2019
    1904. Timed to say goodbye: does unemployment benefit eligibility affect worker layoffs? (1 MB) Andrea Albanese, Corinna Ghirelli and Matteo Picchio

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

  • 07/02/2019
    1903. The impact of the ECB´s targeted long-term refinancing operations on banks´ lending policies: the role of competition (1 MB) Desislava C. Andreeva and Miguel García-Posada

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

  • 31/01/2019
    1902. Advertising, innovation and economic growth (879 KB) Laurent Cavenaile and Pau Roldan

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

  • 16/01/2019
    1901. Trade and credit: revisiting the evidence (547 KB) Eduardo Gutiérrez and Enrique Moral-Benito

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

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