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Occasional Papers

The Occasional Papers series seeks to disseminate the work carried out by the Banco de España within its sphere of competence that is considered to be of general interest for knowledge of the functioning of the Spanish economy and of its international environment.

The opinions and analyses published in the Occasional Papers are the responsibility of the authors and are not necessarily shared by the Banco de España or the Eurosystem.

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  • 30/12/2016
    1608. Determinants and implications of low global inflation rates (1 MB) Juan Carlos Berganza, Pedro del Río and Fructuoso Borrallo

    In this paper we look at global inflation trends over the last decade and try to disentangle factors that could explain the ultra-low levels of inflation during the recovery from the Great Recession. We review the literature on the subject, which points at possible structural shifts in price and wage setting processes in recent decades, such as inflation’s reduced cyclical sensitivity to domestic economic slack, a bigger role being played by forward-looking inflation expectations, and the increased importance of global factors. We then test empirically whether changes in the coefficients of the Phillips curve in the wake of the global financial crisis can explain the behaviour of inflation over this period for a large group of advanced economies. Our results show a wide range of variation between countries, and in some cases the findings are insufficiently robust to offer a satisfactory explanation of the recent course of inflation. Nevertheless, the persistence of inflation and the increased importance of backward-looking inflation expectations in some countries may pose risks for inflation-expectation anchoring and central bank credibility. Finally, we review the adverse effects on the real economy of ultra-low inflation over an extended period and analyse the policy options for addressing this problem.

  • 07/10/2016
    1607. The fiscal and macroeconomic effects of government wages and employment reform (680 KB) Javier J. Pérez, Marie Aouriri, Maria M. Campos, Dmitrij Celov, Domenico Depalo, Evangelia Papapetrou, Jurga Pesliakaitė, Roberto Ramos and Marta Rodríguez-Vives

    This paper examines the overall macroeconomic impact arising from reform in government wages and employment, at times of fiscal consolidation. Reform of these two components of  the government wage bill appeared necessary for containing the deterioration of the publicfinances in several EU countries, as a consequence of the financial crisis. Such reforms entailed in some instances, but not always, the implementation of cost cutting measures affecting the government wage bill, as part of broader consolidation packages that typically hinged more heavily on other fiscal instruments, like public investment. While such measures have adverse short-term macroeconomic effects, public wage bill restraining policy changes present the idiosyncrasy that they can yield medium- to longer-term benefits due to possible competitiveness and efficiency gains through their impact on labour market dynamics. This paper provides some evidence of such medium- to long-run effects, based on a wealth of micro and macro data in the euro area and the EU. It concludes that appropriately designed government wage bill moderation could indeed produce positive dividends to the economy, which depend on certain country-specific conditions. These gains can be reinforced by relevant fiscal-structural reforms.

  • 30/09/2016
    1606. Public finances and inflation: the case of Spain (492 KB) Pablo Hernández de Cos, Samuel Hurtado, Francisco Martí and Javier J. Pérez

    We empirically explore the influence of inflation on fiscal variables in the short, medium and long run, for the case of the Spanish economy, in particular to draw policy lessons for the design of the ongoing process of rebalancing of fiscal accounts. We focus on this topic through the lenses of: (i) the government budget constraint, to assess the influence of inflation on changes in public debt; (ii) accounting decompositions of nominal revenue and expenditure items into their real and price parts; (iii) a large-scale macroeconometric model that contains a detailed fiscal policy block; and (iv) a long-run accounting model on pension expenditure.

  • 28/07/2016
    1605. An exploration of real-time revisions of output gap estimates across European countries (476 KB) Pablo Hernández de Cos, Aitor Lacuesta and Enrique Moral-Benito

    This document analyses real-time revisions in output gap estimates published by the European Commission for 15 countries over the period 2002-2014. We find that output gap revisions (both in levels and changes) are mainly driven by GDP growth forecast errors. Also, output gap revisions have opposite signs across expansions and recessions: real-time output gaps are downward biased (smaller than the final estimates) during expansions and upward biased (higher than the final estimates) in recessions. Our findings may have relevant implications for the conduct and assessment of fiscal policy in real time. For instance, according to our results, real-time estimates of the structural balance would be upward biased in expansions and downward biased in recessions. This implies that the fiscal stance of an economy estimated in real time would be excessively expansionary in recessions as compared to the final estimate. As a result, we argue that corrections to real-time estimates of the structural balance suggested in the literature should be contingent on the degree of slack in the economy.

  • 30/03/2016
    1604. Macroprudential theory: advances and challenges (370 KB) Henrique S. Basso and James Costain

    This note discusses recent theoretical work analyzing the causes of financial instability, its consequences for the macroeconomy, and thus the potential role for macroprudential policy. After discussing how information asymmetries and strategic complementarities can cause balance sheet losses to propagate through the financial system and over time, we discuss the role of the major classes of macroprudential instruments in preventing instability ex ante and containing it ex post. We conclude with a discussion of current challenges for macroeconomic modeling and for the design of regulation and policy.

  • 19/02/2016
    1603. Potential growth of the Spanish economy (443 KB) Pilar Cuadrado and Enrique Moral-Benito

    This paper presents an estimate of the Spanish economy’s potential growth. This estimate is based on a production function methodology that includes certain refinements on previous versions and generates less procyclical potential output growth estimates than those traditionally considered in the literature. As a result, the (positive) output gap estimated in expansions is higher and that estimated in recessions is lower. According to these results, given the available population projections and under the assumption that total factor productivity (TFP) and structural unemployment will behave in line with historical patterns, the Spanish economy’s potential growth is expected to recover gradually over the coming years but, in line with projections by international organisations, to lower rates than those in the expansion period. However, per capita growth rates fully recover to the pre-crisis levels, which highlights the importance of population projections in shaping the Spanish potential growth.

    There is a Spanish version of this edition with the same number

  • 05/02/2016
    1602. El posicionamiento exterior de la economía española (624 KB) Luis Molina, Esther López and Enrique Alberola

    In this paper we analyze the external economic positioning of Spain by developing a composite indicator (IPEX). This index takes into account external trade in goods and services, and tourism revenues, as well as foreign direct investment (FDI) assets, and is built up through a principal components analysis. We examine the evolution over time of the IPEX and compare it with the IPEX of some of Spain’s major economic partners and with a world aggregate. The results show that Spain is positioned mainly in developed countries which are geographically close, such as the United Kingdom, the country with the highest weight in the Spanish IPEX, ahead of France, our most important trading partner. The emerging market economies have, overall, a lower weight than in the world aggregate, with the exception of Latin America, due to Spanish FDI assets in the region. Moreover, in recent years the weight of emerging economies in Spain’s external positioning has increased, although at a slower pace than in the world aggregate. The comparatively low positioning in emerging markets may limit, in principle, Spain’s ability to take advantage of the most dynamic global growth trends in some of these countries, located mainly in Asia. However, when we introduce risk considerations into the analysis, the above-mentioned results are qualified, since emerging economies have generally higher risk levels.

  • 18/01/2016
    1601. Macroprudential policy: objectives, instruments and indicators (377 KB) Javier Mencía and Jesús Saurina

    This document presents the analytical framework recently developed by the Banco de España for the implementation of its macroprudential policy. The methodology described uses a broad set of indicators that enables macroprudential risks to be monitored through risk mapping. This framework will provide support for the Banco de España’s broad macroprudential policy stance.

    There is a Spanish version of this edition with the same number

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