Publications

Public spending has been shown to stimulate private consumption and aggregate output. Less is known about the extent to which public demand and procurement markets can affect individual firms, particularly their financial stability and resilience to shocks, and can re-balance risks across businesses in the economy. In this paper, I focus on these issues and investigate them both empirically and theoretically. To do so, I first build a novel database with firm-level data on US government procurement programs and establish the unpredictability of competitive contracts through an event study. I then explore the effects of procurement contracts on firms’ balance sheets and find a significant positive impact on winning firms’ sales, profits and investments. I contribute to the literature by showing that public procurement can dampen perceived uncertainty and volatility associated with the firm in times of stringent financial conditions. I generalise and confirm my empirical findings in a general equilibrium model with two types of firms, contractors and outsiders. Using the theoretical model, I provide a deeper understanding of the design of procurement markets and their interplay with public policies to balance uncertainty and risks across firms.

Keywords: Government procurement, fiscal policy, firm uncertainty

JEL codes: H57, E62, H32

This paper estimates the natural real interest rate (r*) for Lithuania over the period 2000–2025 and assesses the implied monetary policy conditions. The paper employs a semi-structural unobserved-components model tailored to a small, open, and converging economy by incorporating real effective exchange rate dynamics, while also enhancing output-gap identification and exploring the role of survey-based inflation expectations. The results indicate that Lithuania’s r* was relatively high in the early 2000s, declined markedly during the global financial crisis, remained persistently low thereafter, and returned to positive values in recent years. Following the euro’s adoption, Lithuania’s estimated r* exhibits closer co-movement with the euro area’s natural rate, consistent with deeper economic and financial integration. Estimates of the real interest rate gap suggest that monetary conditions have been predominantly accommodative historically and broadly neutral in recent periods.

Keywords: Natural interest rate, r-star, unobserved components, Lithuania; small open economy, interest rate gap.

JEL codes: E43, E52, C11, C32, F41.

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

In this paper we propose a parsimonious way of combining survey expectations with empirical models to produce forecasts. We do so by augmenting a traditional vector autoregression model with forecasts for different variables and horizons from the ECB Survey of Professional Forecasters. The additional information improves estimation efficiency while maintaining a treatable model. In terms of forecasting performance, the gains from adding survey forecasts are greater at the one and two year ahead horizons, while they are limited at shorter horizons (below one year). Larger gains are found in terms of density performance than in terms of point. Forecasts of real GDP growth benefit the most from survey information, whereas inflation forecasts are improved the least. This latter result is partially driven by the very poor performance of SPF during the 2022 high inflation period. Forecasts for unemployment also benefit from including expectations for GDP and inflation, although not during the COVID pandemic period.

Keywords: Expectations, Forecasting, Judgement, Survey of Professional Forecasters

JEL codes: C32, C33, C51, D84, E37

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

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.