Publications

I provide the first statistics on producer and consumer price rigidity in Lithuania based on HICP and PPI item-level databases covering about 73% and 99.5% of their respective weights between 2010 and 2018. Producer prices are much more flexible than consumer prices, with an average monthly frequency of price change of 58% versus 18%. Contrariwise, the average size of price increases and decreases is higher in the HICP, reaching about 17-18% in absolute terms, whereas it is 7.5% in the PPI. In both price families, changes in item-level inflation are primarily due to variations in the size of price changes. However, the sources of these size changes are substantially shaped by shifts in the share of the number of price increases in the total.

JEL Codes: D40, E31, E50.

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

This paper evaluates the worker-level effects of a historically large and permanent increase in the minimum wage in Lithuania. Our identification strategy leverages variation in workers’ exposure to the new minimum wage, and exploits the fact that there has been no increase in the minimum wage in previous years, to account for heterogeneous labor market prospects of low-wage workers relative to high-wage workers. Using detailed administrative records to track workers before and after the policy change, we show that the minimum wage hike significantly increased the earnings of low-wage workers. This direct effect was amplified by wage spillovers reaching the median of the income distribution. Overall, we find no negative effects on the employment prospects of low-wage workers. However, we provide suggestive evidence that young workers, highly exposed municipalities, and tradable sectors may be more negatively affected. Taken together, our findings imply an employment elasticity with respect to the minimum wage of -0.021, and an own-wage elasticity of -0.033, suggesting that wage gains dominated employment losses.

Keywords: Minimum Wage, Employment, Wages.

JEL codes: J23, J38, J48.

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

In this paper we study how labor market duality affects human capital accumulation and wage trajectories of young workers. Using rich administrative data for Spain, we follow workers since their entry into the labor market to measure experience accumulated under different contractual arrangements and we estimate their wage returns. We document lower returns to experience accumulated in fixed-term contracts compared to permanent contracts and show that this difference is not due to unobserved firm heterogeneity or match quality. Instead, we provide evidence that the gap in returns is due to lower human capital accumulation while working under fixed-term contracts. This difference widens with worker ability, in line with skill-learning complementarity. Our results suggest that the widespread use of fixed-term work arrangements reduces skill acquisition of high-skilled workers, holding back life-cycle wage growth by up to 16 percentage points after 15 years since labor market entry.

Keywords: labor market duality, human capital, earnings dynamics.

JEL codes: J30, J41, J63.

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

ABSTRACT

This paper provides empirical evidence on how the aftermath of the 2008 crisis affected firm productivity in the UK, taking account of the cohort effect of firms established after 2008. We test this using firm-specific and time-varying credit scores to capture firms’ ability to access credit. To overcome the identification problem, a matched sample based on firm’s credit score, firm age, size and ownership status is used by undertaking the propensity score matching approach. While we find evidence that smaller firm size and changes in credit conditions affect productivity, about half of the difference in productivity remains unexplained. We extend the matching analysis to examine sectors and cohorts, and find that, during 2011-2016, the low productivity is driven primarily by newer firms operating in the services sector, rather than in manufacturing. Within services, the underlying productivity puzzle is driven by a cessation of growth in high-productivity financial services, while abundant labour supply has led to a ‘levelling down’ of performance of newer firms in the rest of services, in line with relatively low productivity manufacturing.

Keywords: Total Factor Productivity, Cohort, Crisis, Firm Survival, Credit Score.
JEL Classification: E00, D24, E30, G21

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

This paper proposes a new strategy for modeling and solving state-dependent forward guidance policies (SCFG). We study its transmission channels using a DSGE model with search and matching frictions in which agents account for the fact that the SCFG is an endogenous regime-switching system. A fully credible SCFG causes a boom in inflation and output but no rapid exit from the ZLB. Thus, the transmission of its effects is primarily through the realization of additional ZLB periods more than through changes in expectations. We next consider the implications of imperfect credibility. In this case of uncertainty, an SCFG is less impactful. Finally, using counterfactual experiments on the December 2012 FOMC statement, we find that it led to about 1.5 pp gain in unemployment and 0.5 pp in inflation.

Keywords: New Keynesian model, Search and matching, ZLB, Forward guidance.

JEL codes: E30, J60.

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

The analysis presents the results of a desk review carried out by the Bank of Lithuania, the aim of which was to assess whether the application of stricter anti-money laundering and counter-terrorism financing (AML/CTF) measures and de-risking policy by the payment service providers supervised by the Bank of Lithuania reduce the accessibility of payment services for various legitimate groups of users. 

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

Variable markups and multinational production have gathered considerable attention in the trade literature because of their empirical prevalence and welfare implications. This paper studies the welfare implication of tariffs and optimal tariffs in an environment that features firm heterogeneity, variable markups, and FDI. I find: (i) Tariffs endogenously affect firm entry level, producing different comparative statics in the short run versus long-run. (ii) Variable markups generate multiple externalities in this economy, causing market outcome to differ from the socially optimum outcome systematically. Permitting tariff-jumping FDI can lower the domestic cutoff levels and reduce the misallocation in the economy. (iii) Free trade is not always socially optimal. If the domestic marginal cost cutoff is sufficiently high, a positive tariff can be welfare-improving since it encourages firm entry. The Nash equilibrium tariff level will also be higher than the socially optimal tariff. (iv) The interaction of variable markup and FDI generates novel welfare implications that are absent if consumers possess CES preference.

Keywords: Optimal tariff, Firm heterogeneity, Misallocation, Variable markups, FDI.

JEL codes: F12, F13, F23, F60, R13.

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

Is there any specific structure of the financial system which promotes economic growth or does this structure depend on the level of economic growth itself? Financial development and financial reforms affect economic growth, but less is known on how this effect varies across different levels of the conditional distribution of the growth rates. We examine this by using panel data for 81 countries for more than 30 years. We account for unobserved heterogeneity and operate within alternative econometric approaches. The findings indicate that financial reforms are important determinants of growth, especially when a country faces relatively low levels of economic growth. Financial development does matter for growth, however, the size and significance of the effect vary. Financial reforms affect economic growth more than financial development. We reveal that the components of financial reforms, which are more important for economic growth, are the supervision of banks and the regulation of securities markets.

Keywords: Financial Development, Financial Reforms, Economic Growth, Quantile Regression, Panel Data.

JEL codes: O16; O40; G10; G20; C21; C23.

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

We contribute to research on mixed-frequency regressions by introducing an innovative Bayesian approach. We impose a Normal-inverse Wishart prior by adding a set of auxiliary dummies in estimating a Mixed-Frequency VAR. We identify a high frequency shock in a Monte Carlo experiment and in an illustrative example with uncertainty shock for the U.S. economy. As the main findings, we document a “temporal aggregation bias” when we adopt a common low-frequency model instead of estimating a mixed-frequency framework. The bias is amplified in case of a large mismatching between the high-frequency shock and low-frequency business cycle variables.

Keywords: Bayesian mixed-frequency VAR, MIDAS, Monte Carlo, uncertainty shocks, macro-financial linkages.

JEL codes: EC32, E44, E52.

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

The objective of disclosing non-financial information is to create a reliable, transparent and responsible environment and to contribute to long-term sustainable business. This will also contribute to faster economic growth and greater public involvement.

In recent years, with fast climate change and changes in people's lives, the themes of ecology and sustainability have become increasingly more important, with all institutions concerned and investors looking for investments in a cleaner and more transparent environment, even if this reduces their return.

Assessing and improving the sustainability factors – environmental, social and governance (ESG) – is an inseparable part of every company's operations. ESG principles are gradually becoming mandatory. Companies that comply with ESG principles get comprehensive benefits as they are important for all stakeholders: employees, customers, suppliers, investors, etc. In this Overview, the Bank of Lithuania seeks to assess how companies disclose information in their social responsibility reports. In accordance with the Republic of Lithuania Law on Financial Reporting by Undertakings and the Republic of Lithuania Law on Consolidated Financial Reporting by Groups of Undertakings, large public interest undertakings or public interest undertakings – large groups of undertakings, whose average annual number of  employees exceeds 500 as of the last day of the reporting financial year, are required to include the report on social responsibility in the annual report or to prepare a separate report.

In addition, an assessment was made of how companies took into account the 2020 enforcement priorities for financial statements published by the European Securities and Markets Authority (ESMA) related to the disclosure of non-financial information and alternative performance measures (APMs) related to the COVID-19 pandemic.

This Overview assesses the disclosures in the annual reports and corporate social responsibility reports, if any, of the 21 companies listed on the regulated market of AB Nasdaq Vilnius. The scope and specifics of these companies' activities often determine the peculiarities of disclosures (indicators, risks, solutions, etc.). Most companies indicated which European Union (EU) or international frameworks or methodologies they followed. The companies state that they consider themselves to be compliant with the guidelines on sustainable business and that they follow them.

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

The Circular Economy (CE) challenges the traditional linear economy model to arrive at a sustainable  economy that minimizes resource use, its negative environmental impact, and dependency on resource imports. We develop a multi-sector dynamic stochastic general equilibrium small open economy model with endogenous adoption of exogenous foreign technology innovations, endogenous environmental quality, and CE elements, comprising recyclable waste as well as recycling and refurbishing sectors. We analyze the model-implied impulse response functions with respect to several economic shocks and conduct a rich scenario-based analysis, for which the scenarios are derived from the 9R strategies. We find important trade-offs to be considered by the economy with respect to circularity, trade, environment, and growth – the four dimensions of the quadrilemma of a small open circular economy. We find that none of the six shocks considered and in none of the eight scenarios analyzed the quadrilemma can be resolved. However, a positive shock to the price of energy or a lower energy share in one of the two intermediate goods sectors provide benefits to three out of four dimensions of the quadrilemma.

Keywords: Circular economy, Small open economy, Recycling, Refurbishing, Endogenous economic growth, Technology adoption, General equilibrium, Energy.

JEL codes: E2, F4, O3, O4, Q4, Q5.

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

The use of social contacts in the labor market is widespread. This paper investigates the impact of personal connections on hiring probabilities and re-employment outcomes of displaced workers in Portugal. We rely on rich matched employer-employee data to define personal connections that arise from interactions at the workplace. Our empirical strategy exploits firm closures to select workers who are exogenously forced to search for a new job and leverages variation across displaced workers with direct connections to prospective employers. The hiring analysis indicates that displaced workers with a direct link to a firm through a former coworker are roughly three times more likely to be hired compared to workers displaced from the same closing event who lack such a tie. However, we find that the effect varies according to the type of connection as well as firms’ similarity. Finally, we show that successful displaced workers with a connection in the hiring firm have higher entry-level wages and enjoy greater job security although these advantages disappear over time.

Keywords: Job Displacement, Coworker Networks, Re-Employment.

JEL codes: J23, J63, L14.

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