Bank of Lithuania
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All results 136
No 80

Assessing the impact of macroprudential measures: The case of the LTV limit in Lithuania

  • Abstract

    In this paper, we adopt a dual micro-and-macro simulation strategy to assess the impact of introducing (or changing) the LTV limit. Due to the nature of borrower-based macroprudential measures, to assess this impact we need to use borrower-level micro data. Tightening (or loosening) the LTV limit increases the share of borrowers constrained by the policy measure in question; thus, the overall impact depends on initial market conditions. We find that the introduction of an LTV limit of 85 % in 2011 had a modest short-term impact on economic activity because the new regulatory limit was non-binding for most borrowers at the time. We estimate that if the LTV limit would not have been introduced, the household loan portfolio would have grown on average 1.5 percentage points faster per year (over 2012-2014). This would have led to a 0.5 percentage point higher housing price growth and a 0.2 percentage point higher real GDP growth. When the macroprudential LTV limit is binding for a significant portion of borrowers, lowering the LTV limit at current market conditions has a much more pronounced effect. We show that if the LTV limit had been implemented at the end of 2004, it would have substantially helped in tempering the credit and housing boom, albeit at the cost of lowering economic growth.

    Keywords: Financial stability, Macroprudential policy, Borrower-based macroprudential policy instruments, LTV limit.

    JEL Codes: C32, C53, E58, G28.

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

No 23

A First Glance at the Minimum Wage Incidence in Lithuania using Social Security Data

  • Abstract

    This document explores the incidence of the minimum wage in Lithuania. The descriptive analysis exploits high-frequency data on monthly labor income coming from Social Security records between July 2013 and July 2020 to characterize (i) the evolution of the monthly minimum wage, (ii) the percentage of workers who earn the minimum wage, (iii) the bite of the minimum wage in the wage distribution, and (iv) the heterogeneity of the findings with respect to gender and age. The evidence shows that the minimum wage was raised 7 times with an average (real) increase of 7.3% and, on average, less than 10% of the workers earn at most the minimum wage but low-pay incidence is around 20%. In terms of the impact of the wage distribution, the minimum wage relative to the average wage in the economy fluctuates between 45 and 50 percent. Females and young workers exhibit a larger low-pay incidence and minimum wage bite.

    JEL Codes: J38, J48

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

No 22

An analysis of investments and their drivers in Lithuania

  • Abstract

    The article analyzes recent developments in investments in Lithuania using a broad set of possible drivers, including EU funds. We apply a Bayesian VAR setup with data from 1997Q1 to 2019Q4. We also examine and compare business vs. government investments and different types of investments, especially innovative investments. We find that total investments are basically driven by the data on business investments. The main outcomes are mostly in line with the literature, but we do see some crucial differences across types. Key results include: (1) a small role for lending rates as compared to other factors, largely limited to the global financial crisis; (2) the crucial role of demand-side variables, i.e. foreign demand or private consumption; (3) pro-cyclicality in government investments and a positive correlation with business investments; (4) the importance of uncertainty for some sectors, that positively drives only the more innovative/intangible investments; and (5) despite the fact that EU funds do feed investments, there is a crowding-out in the short run for business-related investments, while there is some positive contribution to public investments.


    JEL Codes: E32, D24, D61, C32.

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

No 34

Overview of Compliance with the Corporate Governance Code for the Companies Listed on NASDAQ Vilnius

  • Abstract

    The objective of corporate governance is to create a sound, transparent and accountable environment and to contribute to the long-term participation of shareholders, corporate financial stability and business integrity, thus contributing to faster economic growth and greater public involvement.

    Proper communication to companies’ shareholders about their rights and effective implementation of property rights are essential aspects of corporate governance. To ensure this, all shareholders must have equal rights and access to all the information needed for making informed decisions. This is emphasised both by the Organisation for Economic Co-operation and Development (OECD) in its corporate governance principles, analyses and other documents, and by the European Union institutions when adopting legislation at various levels.

    Effective corporate governance is one of the key factors determining the attraction of investments, their preservation and the improvement of corporate competitiveness. The quality of corporate governance is key in building trust among investors and shareholders in the company and in creating its value.

    In this Overview, the Bank of Lithuania (LB) aims to assess the way companies disclose information on compliance with the recommendations set out in the principles of the Corporate Governance Code for the Companies Listed on Nasdaq Vilnius (hereinafter – the CGC). In 2017, when Lithuania was pursuing its accession to the OECD, major amendments were implemented in the Republic of Lithuania Law on Companies regarding ensuring the supervisory function of public limited liability companies whose shares are admitted to trading on a regulated market, ensuring the independence of collegial bodies formed by these companies, establishing requirements for transactions with a related party and their disclosure, establishing the shareholder’s right to submit questions to the company in advance, etc. This was also largely due to the recast of the CGC on 15 January 2019, as well as the new form of compliance.

    This overview assesses the information disclosed by 26 companies whose shares are admitted to the main and secondary trading lists of Nasdaq Vilnius, AB. The type of activity and specificity of these companies often also determine the specific features of their corporate governance (the structure and composition of bodies, etc.). An assessment of the responses provided by the companies in the reporting form of the CGC with regard to their compliance with recommendations shows that they consider the recommendations to be followed very well (except for principles 5 and 7, where quantitative indicators are lower).


No 79

Euro Area Monetary Communications: Excess Sensitivity and Perception Shocks

  • Abstract

    We explore new dimensions of the ECB’s monetary communications using the Euro Area Monetary Policy Event-Study Database (EA-MPD) built by Altavilla et al. (2019). We find that three new factors are needed to capture an excess sensitivity of long-term sovereign yields around monetary announcements. "Duration" surprises cause variations in real long-term rates and are mainly transmitted by term premiums. The "Sovereign spread" and "Save the Euro" surprises greatly influence the long-term yields of the periphery countries. These effects are difficult to reconcile with classic monetary policy shocks. We therefore study their underlying nature and discover that they have the characteristics of "Information", or what we label "Perception" shocks.

    Keywords: Monetary surprises, Event-study, Excess sensitivity, Perception shocks, High-frequency Identification.

    JEL Codes: E43, E44, E52, E58, G12.

No 33

Assessment of the impact of the euro introduction on Lithuania’s economy during the first five years of membership in the euro area

  • Abstract

    This paper examines the impact of the euro adoption on the economy of Lithuania during its first five years (2015-2019) as a member of the euro area. First, it assesses the impact of the euro adoption in Lithuania on interest rates and real exports, after which it investigates the impact on Lithuanian macroeconomic indicators with a LTDSGE model, using impulse response functions obtained in 2013 in research conducted by the Bank of Lithuania. The paper further estimates the impact of the euro adoption on Lithuanian macroeconomic indicators using the synthetic control method (SCM). The results of this paper confirm the main conclusions of the aforementioned 2013 study, namely, that the long-term benefits of the euro adoption were much higher than the costs, which were mainly short-term or could even be considered as valuable investments. 

    JEL Codes: E17, E52, F33, F45

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

    Available only in Lithuanian

No 78

Bowling Alone, Buying Alone: The Decline of Co-Borrowers in the US Mortgage Market

  • Abstract

    Using the universe of mortgage applications data and detailed credit performance data, we document that since the early 1990s there was a significant decline in the share of mortgages with co-borrowers. Although the decline was an almost universal phenomenon across different regions of the US, the rate of the decline showed significant spatial heterogeneity and in turn had implications for regional differences in economic activity. We show that the presence of a co-borrower reduces the mortgage default probability by more than 50 percent for both prime and subprime loans and those regions that had a lower co-borrower share prior to the crisis experienced higher mortgage default rates over the period 2007-2010. Higher default rates created spillovers on economic activity during the Great Recession: a lower co-borrower share at the regional level was also related to persistently lower house price growth, refinancing growth and mortgage credit growth. These results imply that the decrease in the share of mortgages with co-borrowers made the US mortgage market more vulnerable to the financial crisis and contributed to the divergence in economic outcomes across different regions.

    JEL Codes: G21, G51, R21. 

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

No 21

The persistently high rate of suicide in Lithuania: an updated view

  • Abstract

    This article examines possible factors related to the rate of suicide in Lithuania, which is the highest in Europe and one of the highest worldwide. Using statistical methods, we select possible determinants from the literature in the fields of economics, psychology and sociology. We look at annual data from 1994 to 2016 for the Baltic States, with a specific focus on Lithuania. The main factors linked to suicide in the region seem to be GDP growth, demographics, alcohol consumption, psychological factors and global warming. For Lithuania in particular, other macroeconomic variables (especially linked to the labor market) may matter. The percentage of rural population does not seem to be a key robust factor.

    JEL Codes: I15, I31, J11, J17, O15.

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

No 77

Macroeconomic implications of insolvency regimes

  • Abstract

    The impact of creditor and debtor rights following firm insolvency are studied in a firm dynamics model where defaulting firms choose between restructuring or exit. The model accounts for differing effects of productivity shocks across economies that differ in the credit/debtor rights. Following a negative shock labour productivity falls sharply in a creditor-friendly regime such as the UK while in a debtor-friendly regime such as the US, there is a larger employment response. This paper suggests a possible explanation for the different employment and labour productivity response in the UK and US since the financial crisis.  

    JEL Codes: D21, E22, G33.

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

No 76

Workers' job mobility in response to severance pay generosity

  • Abstract

    This paper studies the impact of severance pay generosity on workers' voluntary mobility decisions. The identification strategy exploits a major labor market reform in Spain in February 2012 together with the exposure of some workers to a layoff shock. I rely on rich administrative data to estimate a discrete time duration model with dynamic treatment effects. The results show that a decrease in mobility costs induced by a reduction in severance pay made workers who expected to be displaced in the near future more likely to voluntarily leave their employers. The results indicate that policies targeting employers may also affect workers' behavior. They further reveal the relevance of taking into account interactions between employment protection and unemployment insurance.

    JEL Codes: J62, J63, J65.

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

No 20

Relevance of Sovereign Bond Valuations Topic in the Speeches of ECB Officials

  • Abstract

    The aim of this paper is to assess how relevant is the topic of sovereign bond valuations in official ECB Executive Board member speeches and, in particular, under what circumstances do ECB officials begin communicating the driving factors of sovereign bond pricing. For this purpose, we downloaded over 2000 public ECB Executive Board member speeches and applied various text mining techniques. The visual analysis revealed that the importance of the topic of sovereign bond pricing and related risk factors in ECB officials’ speeches has greatly fluctuated over time. The main structural break points were linked to the financial market turbulences, but this topic, possibly due to the introduction of sovereign bond purchases, remained relatively popular even after stress episodes. The linkages between the publicly communicated terms of sovereign bond pricing and related risk factors were rather complex and change in respect to the market situation. Meanwhile, the sentiment balance of the credit risk factor was usually on the negative side, while the ones of other terms were much more neutral.

    JEL Codes: C80, E43, E58, G12.

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

No 19

Household Wealth and Finances. Results for Households in Lithuania for 2017

  • Abstract

    This paper reports new data on the household balance sheet and the consumption situation in Lithuania. It uses a unique Household Finance and Consumption Survey (HFCS) dataset, which collects detailed information about different asset classes and outlines the composition of the household balance sheet in Lithuania. At 93.2%, the homeownership rate in Lithuania is the highest in Europe. Real assets correspond to the highest share of households’ wealth and generate a median net wealth of 46 000 €. Lithuanian households participate poorly in financial assets, with only deposits and individual insurance/pensions generating more significant aggregate values. Household participation in debt markets is also limited in Lithuania, with only 11.7% of households having some mortgage-based liabilities. Lithuanian households spend a significant share of their income on food and utilities. This share is among the highest in Europe. A large number of Lithuanian households can be characterized as "hand-to-mouth" households, as they own a significant amount of wealth in illiquid real estate and very little wealth in liquid financial assets.

    JEL Codes: D1, D3.

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

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