Publications

We provide evidence regarding how European and U.S. macroeconomic and monetary policy events affect euro area markets. By analyzing over 170 macroeconomic indicators from 2002 to 2024Q1, we assess the impacts across different events, countries, and time periods. We rely on a high-frequency impact identification strategy and estimate the effects of releases on market variability and the directional effects of surprises across different markets. We find that, compared to European data releases, U.S. events tend to have a more pronounced effects on euro area markets. On average, monetary and employment events induce the strongest repricing in euro area financial markets. In most of the specifications, long-term sovereign yields were more sensitive to macroeconomic releases than other instruments, while short-term bonds and stock prices were impacted much less frequently.

Keywords: macroeconomic news, macroeconomic releases, monetary policy, euro area, financial markets.

JEL codes: E43, E44, F40, G12, G14, G15

The Baltic states experienced the most substantial consumer price inflation of any of the EU countries shortly after the COVID-19 pandemic. The year-on-year all-items inflation rate averaged 11% from January 2021 to September 2023, peaking at around 22% in late 2022. This study examines how consumer price rigidity in the region during this period of high inflation differed from the preceding period of low inflation in 2019-2020. We use the detailed price records that underlie the official consumer price indexes to assess the frequency and the size margins of price changes. The average frequency of price changes increased by about four percentage points when inflation was high, as an increase of five percentage points in the frequency of price increases combined with a fall of one percentage point in the frequency of price cuts. The average size of price changes increased by 2.8 percentage points, mainly because the share of price increases changed. We further show that structural shocks in energy prices and aggregate demand contributed significantly to fluctuations in the inflation rate through the frequency of price changes during the period of high inflation. All this points to pricing being state-dependent in the Baltic states.

Keywords: consumer price rigidity, price-setting, high inflation, frequency of price changes.

JEL classification: D40, E31.

As house price growth accelerated during the pandemic, housing affordability in Lithuania started to deteriorate for the first time in a decade. This trend did not last long and, as price growth slowed down and incomes continued to rise rapidly, signs of improving affordability have already become visible from 2023. Although the deterioration in housing affordability in Lithuania was a temporary phenomenon caused by strong external shocks, it is important that housing policy in Lithuania provides the conditions for a structurally sustainable level of affordability. In this study, the Bank of Lithuania has analysed various indicators of housing affordability and the demand and supply factors that may it. The results of the study have led to four main orientations for sustainable housing policy: to achieve sustainable housing demand developments, a larger and more flexible supply of quality housing, meeting the housing needs of socially vulnerable people, and creating a long-term and common housing policy strategy.

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

Available only in Lithuanian

We document how worker flows between employment, unemployment, and out of the labor force, vary by age and gender for a large panel of European countries. We develop and calibrate an extended Diamond-Mortensen-Pissarides model that captures all the salient features of these data. The model assigns a major role to the production technology in driving differences in aggregate employment, while, in contrast to Standard analyses, labor-market policies play only a secondary role. Search intensity and a laborforce participation decision are key for propagating the effects of technology across age and gender groups, and for explaining the variation in aggregate employment.

Keywords: Employment, Unemployment, Labor Force Participation, Life cycle, Worker Flows, Labor Market Institutions

JEL classification: E02, E24, J21, J64, J82

Consensus forecasts by professionals are highly accurate, yet hide large heterogeneity. We develop a framework to extract the judgement component from survey forecasts and analyse the extent to which it contributes to respondents’ disagreement. For the average respondent, we find a substantial contribution of judgement about the current quarter, which often steers unconditional forecasts towards the realisation, thereby improving accuracy. We identify the structural components of judgement by exploiting stochastic volatility and give an economic interpretation to expected future shocks. For individual respondents, just over one-third of the disagreement is due to differences in the coefficients or models used, and the remainder is due to different assessments of future shocks; the latter mostly concerns the size of the shocks, while there is general agreement on their source.

Keywords: Expectations Formation, Identification via Stochastic Volatility, Judgement, Survey of Professional Forecasters

JEL classification: C32, C33, C51, D84, E37

In this paper, we investigate how the minimum wage has shaped the earnings distribution in Lithuania between 2010 and 2019. We rely on a distribution regression framework and detailed Social Security records to characterize the earnings distribution along with the minimum wage incidence at a monthly frequency. According to our preferred estimates, our results imply that minimum wage increases can explain about 32% (40%) of the decline in total (bottom-tail) earnings inequality and up to 20% of average earnings growth.

Keywords: Minimum wage, Earnings growth, Inequality

JEL codes: D31, J31, J38

This paper explores how fluctuations in the house price-rent spread influence household spending, taking into account credit constraints. We incorporate a housing spread shock, representing changes in the future value of residential property, into a model of household decisionmaking with borrowing frictions. Using halfcentury data from 28 OECD countries, we find that housing spread shocks are more persistent than credit shocks, which induce ‘boom-bust’ dynamics. We also identify asymmetries once the joint effect of shocks to housing spread and borrowing frictions is analyzed, particularly in crisis periods, underscoring the importance of policies addressing credit conditions and household expectations to stabilize the economy when traditional tools are less effective.

Keywords: household expectations; house price-rent spread; credit frictions; interest rates; household consumption

JEL classification: D15, E21, E5, G51
 

This paper uses national accounts data and relationships to analyse how developments in profits, labour costs, terms of trade and other components of gross output affected the domestic price level in 2004-2022 in Lithuania. The analysis shows that in both periods of rapid price growth (2005-2008 and 2021-2022), a strong initial impulse to price growth was provided by a deterioration in the terms of trade due to a significant increase in the prices of imported goods and services. In both periods, after the initial terms-of-trade shock, both unit labour costs and unit profits show an increase in their contribution to the price level. The contribution of unit labour costs to the price level was more significant in 2005-2008, while the contribution of unit profits was more significant in 2021-2022. The higher contribution of unit labour costs to price level growth in 2005-2008 is explained by the significantly tighter labour market situation due to the overheated economy during this period. Meanwhile, the more significant contribution of unit profits to price level growth in 2021-2022 is explained by strong supply-side shocks and a high inflation environment both in Lithuania and in Lithuania’s main trading partners. This environment has made it easier for firms to pass on rising production costs to final prices without losing competitiveness. This led to a faster evolution of the profit share in value added and a correspondingly strong increase in the contribution of unit profits to the price level. Since both the share of profits in value added and unit profits can grow even when profit margins are constant, this paper also assesses the evolution of corporate profit margins. The analysis shows that in both periods of high inflation, corporate profit margins have been declining economy-wide. This indicates that during the high inflation periods firms have borne at least part of the economy-wide increase in production costs themselves, and that the overall evolution of prices can be attributed mainly to changes in production costs.

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

Available only in Lithuanian

We quantify wage bargaining shocks’ effects on macroeconomic aggregates in Germany using a structural vector auto-regression model. We identify exogenous variation in bargaining power from episodes of minimum wage introduction and industrial disputes. This disciplines the impulse responses of unemployment and output, and sharpens inference on the behaviour of other variables, which is consistent with theoretical predictions from search and matching models. We find that wage bargaining shocks are an important contributor to agregate fluctuations in unemployment and inflation, exhibit close to full passthrough to consumer prices, and imply plausible dynamics for the vacancy rate, firms’ profits, and the labor share.

Keywords: Wage bargaining, minimum wage, industrial action, narrative restrictions, structural vector autoregression.

JEL classification: J2, J3, E32, C32.
 

Uneven family responsibilities are at the root of gender gaps. Using a new dataset  covering all firm-level agreements signed in Spain between 2010 and 2018, we explore whether the presence of female worker representatives can facilitate the negotiation of family-friendly policies with management. We compare firms that operate under the same set of labor regulations but differ in the presence of women among employee representatives. Our findings suggest that having female representatives at the bargaining table can help transform workplaces to better meet women’s needs and ultimately close the gender gap.

Keywords: women representation, bargaining, family-friendly firms

JEL codes: J16, J32, J53

Similar to eurozone as a whole, in Lithuania, the commercial real estate sector is closely linked with the financial system and the real economy: loans secured by commercial properties account for almost a third of the total bank loan portfolio, and the development of housing and other buildings creates about an eighth of Lithuania's GDP. However, so far both in Lithuania and across Europe, this sector has been supervised quite unsystematically, and the lack of harmonized indicators and data complicates monitoring at the international level. Aiming to ensure timely identification of risks to financial stability and improve international data comparability, the Bank of Lithuania, following the ESRB recommendation and methodology, has developed a commercial real estate market supervision framework. The main purpose of this article is to presents the developed framework. The article, alongside specific guidelines on how to consistently assess risks arising from the commercial real estate market, discusses methodological and data gaps that continue to pose challenges in ensuring a comprehensive risk assessment.

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

Available only in Lithuanian

In 2021, the Bank of Lithuania and the Competition Council published a study assessing the accessibility of financing sources for small and medium-sized businesses (SMEs) in Lithuania in 2018–2019 and the factors limiting it. The study results have revealed that the funding opportunities for SMEs in Lithuania could be limited by various long-term constraints, including the lack of the enterprises’ adequate collateral and a higher risk of some enterprise groups, which has not always received due consideration through state aid measures.

In order to obtain sufficient funding, SMEs are faced with the collateral requirements which are often more difficult to comply with due to the inadequate assets in their possession. One of the measures that allows addressing the problem of inadequate assets of SMEs is loan guarantees. With this measure, the guarantor assumes part of the credit risk, which makes it possible to mitigate the risk for the credit institution and to enable SMEs to obtain adequate funding. However, in the previous study of the Bank of Lithuania and the Competition Council, which analysed SMEs’ access to the funding sources in 2018-2019, the results of the econometric modelling applied did not indicate any significant impact of state guarantees on the size of collateral requested by lenders.

This study is aimed at reviewing in greater detail the international practice of applying state guarantees (Section1) and Lithuania’s experience (Section 2), and at assessing the effectiveness of guarantee instruments in Lithuania, taking into account the groups of enterprises that received a guarantee and the effect of guarantees on the terms of lending (Section 3). In light of the results, lines of action to contribute to the development of these measures are proposed (Section 4).

Keywords: State guarantees, small and medium-sized businesses, access to finance, collateral requirements

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

Available only in Lithuanian