Bank of Lithuania

Economic research

Economic research at the Bank of Lithuania is primarily conducted at two units, namely, the Center for Excellence in Finance and Economic Research (CEFER) and the Applied Macroeconomic Research Division (TMTS), which is part of the Economics Department. The main aim of CEFER is to conduct and publish high-quality academic research and contribute to knowledge at the forefront of economic and financial research. The TMTS aims in particular at conducting economic and financial research with direct importance for central banking and policy-making.

[[#ex]]

Research priorities

Economists at CEFER conduct academic research and publish their papers in well-reputed scientific journals. Main research topics include the following:

  • Macrofinance
  • Behavioural macroeconomics and finance
  • International economics and finance
  • Macroeconometric methods and modelling
  • Dynamic Stochastic General Equilibrium (DSGE) models
  • Experimental economics
  • Labour economics

Priority areas at the TMTS are determined on the basis of the demand for sound economic analysis, forecasting and decision-making in the areas of monetary policy, exchange rates and financial stability, as well as in the light of the Bank’s cooperation with the European System of Central Banks (ESCB). The four priority research areas are as follows:

  • Monetary and fiscal policy
    • inflation
    • monetary policy transmission mechanism
    • automatic fiscal stabilisers and fiscal rules
  • Modelling and forecasting
    • development and estimation of the DSGE model for Lithuania
    • short-run forecasting models
  • Convergence research
    • long-run trends and equilibrium values
    • structural changes in aggregate supply
  • Financial stability
    • liquidity risk in the banking sector
    • credit risk in the banking sector
    • development of the macro stress testing model
    • international contagion risk

[[#ex]]

Recent publications

More
4850_54f3a873d23a25c700cc954aae7aa10f.png
No 17. Gintarė Zelionkaitė, Vaidotas Tuzikas. Sustainability of general government finances in Lithuania and other Baltic countries
2018-02-20
0
4792_14af11d648e49d18dcea26e5ee8515b3.png
No 48. Claudio Battiati. R&D, growth, and macroprudential policy in an economy undergoing boom-bust cycles
2017-12-11
0
4774_dca27f7f5547c530e5bb62adae007534.png
No 16. Patrick Grüning. Heterogeneity in the internationalization of R&D: Implications for anomalies in finance and macroeconomics
2017-10-20
0
4769_0f87c0facb364adfbc5949780d84a75a.png
No 47. Giuliano Curatola, Michael Donadelli, Patrick Grüning. Technology trade with asymmetric tax regimes and heterogeneous labor markets: Implications for macro quantities and asset prices
2017-10-05
0
Close description

No 17. Gintarė Zelionkaitė, Vaidotas Tuzikas. Sustainability of general government finances in Lithuania and other Baltic countries

The analysis of estimates of sustainability indicators of general government finances shows that the mid-to-long term risk to the sustainability of Lithuania’s general government finances is higher than the respective risk for Latvia or Estonia. The lower score results from the impact of ageing-related expenditure, the bulk of which goes towards pension benefits. However, the previous estimates of sustainability indicators of general government finances do not take into account the changes to Lithuania’s state social insurance system, which were adopted in 2016 and will come into effect in 2017 and 2018. The analysis shows that when taking into account these changes, the evolution of old-age pension expenditure in Lithuania becomes more aligned with the expected developments in other Baltic countries hence the country’s fiscal sustainability score should become similar as well.
Long-term developments in the ratio of old-age pension expenditure to GDP are driven by demographic factors, factors stemming from pension arrangements as well as the country’s macroeconomic situation. Population ageing-related factors will put upward pressure on pension expenditure in all three Baltic countries in the long term. This impact, however, will be offset by the decreasing generosity of the pension system, the rising retirement age and the increasing employment rate. As a result, the old-age pension expenditure-to-GDP ratio will decrease by 2060 in all Baltic states.
Even though the situation of pension systems of all Baltic countries may look sustainable in the long term from a formal point of view, i.e. when measured in terms of financial flows (the ratio between pension expenditure and GDP will decrease by 2060), the key factor underlying sustainability, i.e. the decreasing ratio of the average pension to the average wage, raises serious doubts. This ratio implies a substantial future decrease in the generosity of the pension system and insufficient adequacy of old-age pensions. The assessment of fiscal sustainability, which disregards the adequacy of the pension system, is too narrow and limited. The anticipated low old-age pension-to-average wage ratio might act as a deterrent to participation in the social insurance system. Therefore, the authorities would likely end up seeking resources to increase pensions, which would undermine fiscal sustainability. In a scenario which implies no change in the old-age pension replacement rate from its current level and which looks the most feasible due to political risks, Lithuania’s fiscal sustainability score is likely to be lower than estimated by the European Commission, which points to the need to take measures that could ensure fiscal and social sustainability.
The alternative scenario analysis of Lithuania’s pension expenditure–to-GDP ratio indicates that some measures could partly offset the effect of ageing. The analysis of various demographic scenarios indicates that population ageing is inevitable in Lithuania, i.e. the proportion of older persons in the population will increase compared to the proportion of the working age group. This implies that an increasing share of the budget will have to be allocated for old-age pensions and that the replacement rates of the first pillar pensions will be negatively affected. Such measures as increasing labour market activity, promoting employment, and raising the retirement age could increase sustainability of Lithuania’s pension system in the long term.

The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.


Available only in Lithuanian

Close description

No 48. Claudio Battiati. R&D, growth, and macroprudential policy in an economy undergoing boom-bust cycles

Recent evidence suggests that credit booms and asset price bubbles may undermine economic growth even as they occur, regardless of whether a crisis follows, by crowding out investment in more productive, R&D-intensive industries. This paper incorporates Schumpeterian endogenous growth into a DSGE model with credit-constrained entrepreneurs to show how shocks affecting firms' access to credit can generate boom-bust cycles featuring large fluctuations in land prices, consumption, and investment. During the expansion, rising land prices tend to crowd out capital and (especially) R&D investment: in the long run, this results in lower productivity levels, which in turn implies lower levels of aggregate output and consumption. Moreover, higher initial loan-to-value ratios tend to be associated with larger macroeconomic fluctuations. A counter-cyclical LTV ratio targeting credit growth has relevant stabilization effects but brings about small gains in terms of long-run consumption levels, and thus of welfare.

JEL Codes: E22, E32, E44, O30, O40.

The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

Close description

No 16. Patrick Grüning. Heterogeneity in the internationalization of R&D: Implications for anomalies in finance and macroeconomics

Empirical evidence suggests that investments in research and development (R&D) by older and larger firms are more spread out internationally than R&D investments by younger and smaller firms. In this paper, I explore the quantitative implications of this type of heterogeneity by assuming that incumbents, i.e. current monopolists engaging in incremental innovation, have a higher degree of internationalization in their R&D technologies than entrants, i.e. new firms engaging in radical innovation, in a two-country endogenous growth general equilibrium model. In particular, this assumption allows the model to break the perfect correlation between incumbents’ and entrants’ innovation probabilities and to match the empirical counterpart exactly.

JEL Codes: E22, F31, G12, O30, O41.

The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

Close description

No 47. Giuliano Curatola, Michael Donadelli, Patrick Grüning. Technology trade with asymmetric tax regimes and heterogeneous labor markets: Implications for macro quantities and asset prices

The international diffusion of technology plays a key role in stimulating global growth and explaining co-movements of international equity returns. Existing empirical evidence suggests that countries are heterogeneous in their attitude toward innovation: Some countries rely more on technology adoption while other countries rely more on internal technology production. European countries that rely more on adoption are also typically characterized by lower fiscal policy flexibility and higher labor market rigidity. We develop a two-country model, in which both countries rely on R&D and adoption, to study the shortand long-run effects of aggregate technology and adoption probability shocks on economic growth in the presence of the aforementioned asymmetries. Our framework suggests that an increase in the ability to adopt technology from abroad stimulates future economic growth in the country that benefits from higher adoption rates but the beneficial effects also spread to the foreign country. Moreover, it helps to explain the differences in macro quantities and equity returns observed in the international data.

JEL Codes: E3, F3, F4, G12.

The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

Last update: 18-04-2017