Bank of Lithuania
Category
Series
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All results 141
No 70
2019-12-27

Who did it? A European Detective Story. Was it Real, Financial, Monetary and/or Institutional: Tracking Growth in the Euro Area with an Atheoretical Tool

  • Abstract

    During the past thirty years, euro area countries have undergone significant changes and experienced diverse shocks. We aim to investigate which variables have consistently supported growth in this tumultuous period. The paper unfolds in three parts. First, we assemble a set of 35 real, financial, monetary and institutional variables for all euro area countries covering the period between 1990Q1 and 2016Q4. Second, using the Weighted-Average Least Squares (WALS) method, as well as other techniques, we gather clues about which variables to select. Third, we quantify the impact of various determinants of growth in the short and long runs. Our main finding is the positive and robust role of institutional reforms on long-term growth for all countries in the sample. An improvement in competitiveness matters for growth in the overall euro area in the long run as well as a decline in sovereign and systemic stress. The debt over GDP negatively influences growth for the periphery, but only in the short run. Property and equity prices have a significant impact only in the short run, whereas the loans to NFCs positively affect the core euro area. An increase in global GDP also supports growth.

    JEL Codes: C23, E40, F33, F43.

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

No 18
2019-12-27

Understanding macro and asset price dynamics during the climate transition

  • Abstract

    This paper analyzes the transition to a low-carbon economy and its effects on macroeconomic quantities and asset prices. Empirically, we document that the relative valuation of fossil fuel firms has significantly declined with the rise of climate change risk awareness. We develop a macro asset pricing model for the climate transition that matches this empirical fact and allows us to characterize the dynamics of macroeconomic aggregates and asset prices during and after the transition. In particular, we analyze (i) firm valuation dynamics, (ii) climate policy risk premia, (iii) capital reallocation between sectors, and (iv) the behavior of oil prices.

    JEL Codes: E2, E3, G12, Q43.

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

No 30
2019-12-20

Implementation of the macroprudential policy in Lithuania

  • Abstract


    Available only in Lithuanian

No 69
2019-12-13

Mortgage foreclosure risk after the Great Recession

  • Abstract

    The objective of increased regulation of mortgage origination activities after the Great Recession was to prevent another foreclosure crisis in the future. However, the literature is not conclusive about the actual effect of these policy changes. By using the 2007-09 panel and subsequent waves of the Survey of Consumer Finances (SCF), we predict foreclosure risk based on individual borrower characteristics. We show that the median mortgage foreclosure probability kept decreasing after 2010, but in 2016 it was still higher relative to the year 2007. The median foreclosure probability has remained high among both non-bank borrowers and bank borrowers. The regulatory changes started in 2010, so we also compare predicted foreclosure probabilities to the levels in 2010 and find that, despite the fact that banks were affected by this regulation more than non-banks, predicted foreclosure probabilities for bank mortgages declined slower than for non-bank mortgages. Our findings offer support for a thorough analysis of the regulatory effects because they might have been weaker than expected or worked in an unexpected way.

    JEL Codes: C53, G21, G23.

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

No 17
2019-12-13

Convergence and growth decomposition: an analysis on Lithuania

  • Abstract

    We study the behaviour of Lithuania relative to other 25 EU countries, looking specifically at convergence in terms of GDP per capita and its growth accounting components: capital accumulation, labour and its subcomponents, i.e. participation and employment, and the Total Factor Productivity (TFP). We find that Lithuanian Real GDP per capita shows indeed a convergence path similar to the other Baltic States and they all belong to the second club (includes part of the periphery and the other new member states). The convergence paths of labour or capital accumulation do not seem significantly different compared to the ones of other EU members. The Lithuanian transition path in TFP has become plateau after the crisis but this is seemingly not a divergence factor. Two components show noticeable changes in behaviour after 2010: the growth in total factor productivity (TFP) considerably slows down, and the employment-population ratio appears to increase accounting for around one third of the annual GDP growth in Lithuania. In addition, we explore several transition scenarios for Lithuania to the EU-25 average.

    JEL Codes: O47, F15, F45.

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

No 29
2019-12-10

CBDC – in a whirlpool of discussion

  • Abstract

    The topic of central bank digital currency (henceforth - CBDC) has recently gained significant share of attention among policy makers and academics. A wide range of CBDC setups are discussed from the universally accessible central bank accounts or digital tokens to less extreme suggestions of only partly broadening central bank balance sheet access by providing CBDC to wholesale consumers or getting private sector to mediate in the process by providing synthetic CBDC.

    This paper recalls the possible CBDC implementation types that are discussed in the current context; reviews some of the discussions among those researching the topic; gives a brief overview of the next-step initiatives taking place among central banks with a potential to lay ground for the practical CBDC implementation; and discusses the main policy implications from financial stability and monetary policy perspectives.

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

No 16
2019-12-04

The Life-cycle Profile of Worker Flows in Europe: an Empirical Investigation

  • Abstract

    In this paper, we first provide a comprehensive account of the relationship between cross-country differences in aggregate employment and disaggregated differences in worker flows along the life cycle. To this end, we use survey micro-data for 31 European countries, and estimate the life-cycle profiles of transition probabilities across employment, unemployment and non-participation for each country. We develop a decomposition measuring the contribution of these transition probabilities to aggregate employment differences. We find substantial cross-country and cross-gender heterogeneity with respect to the role of worker flows between each labor market state.

    JEL Codes: E02, E24, J21, J64, J82.

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

No 68
2019-11-29

Employment and Wages over the Business Cycle in Worker-Owned Firms: Evidence from Spain

  • Abstract

    This paper compares worker-owned firms and mainstream capital-owned enterprises over the business cycle. Specifically, I study whether conventional employees in worker-owned firms enjoy greater employment stability than similar workers in traditional enterprises over the business cycle, and investigate whether this stability is associated with greater volatility of working-time or wages. Unlike the literature that has compared partners of cooperatives to wage-earners of mainstream firms, I compare wage-earners across both type of organizations along the three margins of adjustment. To perform the econometric analysis, I rely on rich Spanish administrative data and panel data methods to account for composition differences between the two types of organizations. The results show that worker-owned firms offer higher job security because they do not adjust employment levels over the business cycle as much as mainstream enterprises. Wages and working-time, instead, are equally responsive across the two types of firms. The findings can be rationalized by the presence of similar labor regulations and differences in the objectives of the two type of organizations. Namely, both types of firms are constrained by regulations, such as the national Labor Code and collective bargaining, on the adjustments they can impose on wages and working-time. However, the social nature of worker-owned firms mitigates employment volatility in these organizations.

    JEL Codes: J21, J31, J54.

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

No 28
2019-11-19

Lithuanian house price index: modelling and forecasting

  • Abstract

    Timely monitoring of the housing market developments in Lithuania is one of the key elements in the analysis framework of the macroprudential authority aiming to contribute to financial stability in Lithuania. In this paper, we addressed three important questions related to Lithuanian house prices, namely, whether house prices are under- or over valuated, which explanatory variables have the biggest impact on the growth of house prices and what the future development of the Lithuanian house price index could be. Three separate modelling and forecasting exercises were performed in order to tackle these questions. The first exercise employs the vector error correction modelling (VECM) approach to assess under- or overvaluation of the house prices. We then use an autoregressive distributed lag model (ARDL) to evaluate which explanatory variables have the biggest impact on house price growth. As the last exercise, we develop a suite of models that are used to forecast future development of the house price index. The analysis presented in this paper may be viewed as a further step towards more formalised modelling and forecasting of the Lithuanian house price index.

    JEL Codes: C22, C32, C53, E37, R30.

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

No 27
2019-10-15

Reordering international trade: what will it cost?

  • Abstract

    This paper overviews early research which has gone into the possible effects of the recent tensions in international trade. We have witnessed the increase and the promises of future increase in tariffs, in the case of the new trade policy of the US, and the promises of the future increase in the non-tariff barriers (possibly even tariffs) in the UK’s decision to leave the EU. The focus in the research is mostly on trade policy and on the results, insights, and conclusions, while the discussion on the econometric specification or estimation of the models is out of scope.

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

No 67
2019-09-27

More Gray, More Volatile? Aging and (Optimal) Monetary Policy

  • Abstract

    The empirical and theoretical evidence on the inflation impact of population aging is mixed, and there is no evidence regarding the volatility of inflation. Based on advanced economies’ data and a DSGE-OLG model - a multi-period general equilibrium framework with overlapping generations, - we find that aging leads to downward pressure on inflation and higher inflation volatility. Our paper is also the first to discuss, using this framework, how aging affects the short-term cyclical behavior of the economy and the transmission channels of monetary policy. Further, we are also the first to examine the interplay between aging and optimal central bank policies. As aging redistributes wealth among generations, generations behave differently, and the labor force becomes more scarce with aging, our model suggests that aging makes monetary policy less effective, and aggregate demand less elastic to changes in the interest rate. Moreover, in more gray societies central banks should react more strongly to nominal variables, and in a very old society the nominal GDP targeting rule might become the most effective monetary policy rule to compensate for higher inflation volatility. 

    JEL Codes: E31, E52, J11.

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

No 66
2019-09-25

Does It Matter When Labor Market Reforms Are Implemented? The Role of the Monetary Policy Environment

  • Abstract

    Do labor market reforms initiated in periods of loose monetary policy yield different outcomes from those that were introduced in periods when monetary tightening prevailed? Since economic theory usually pays attention to the steady state change and ignores business cycle interactions of structural reforms, we connect local projection methodology with the Mallow’s Cp averaging criterion to arrive at an inference that does not require knowledge of the exact functional form, is robust to mis-specification, admits non-linearities, and cross-sectional dependence and addresses uncertainty regarding interactions between labor reforms and macroeconomy. We also develop a test to check the importance of monetary policy for any horizon and the entire impulse response function, taking the multiple testing problem into account. We document that replacement rates deliver substantially different outcomes on real GDP, inflation and real effective exchange rate, whereas labor activation schemes bear different effects on unemployment in low- and high-interest rate environments. There is also evidence of monetary policy trend playing an important role as well as increasing synchronized monetary and labor market policies across European countries.

    JEL Codes: C33, C54, E52, E62, J08, J38.

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

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