Bank of Lithuania
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No 25
2021-05-11

ECB Communication: What Is It Telling Us?

  • Abstract

    This paper examines changing ECB communication and how it has impacted euro area financial markets over the past two decades. We applied a combination of topic modelling and sentiment analysis for over 2000 public ECB Executive Board member speeches, as well as over 200 ECB press conferences. Topic analysis revealed that the ECB’s main focus has shifted from strategy and objectives, at the inception of the euro area, to various policy actions during the global financial crisis and, more recently, to instruments and economic developments. Sentiment analysis showed an expected trend of a more negative communication tone during periods of turmoil and a gradual shift to a more dovish monetary policy tone over time. Regression analysis revealed that sentiment indices had the expected impact on financial market indicators, while press conferences showed substantially stronger effects than speeches.

    JEL Codes: C80, E43, E44, E58, G12.

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

No 24
2021-03-10

Natural real rates of interest across euro area countries: Are R-stars getting closer together?

  • Abstract

    Using two different methodologies, we estimate time-varying natural real rates of interest for a majority of euro area (EA) countries, including Lithuania. We find that natural real rates have been declining, particularly since 2008, albeit to different extent across EA countries. Lower rates could (at least partly) be explained by lower productivity and population growth. In line with previous literature, we find evidence of a substantial dispersion of the natural interest rate across EA economies. This became especially evident during the financial crisis of 2008-2009 and the sovereign debt crisis of 2010-2012, while estimates of natural rates tend to converge during "calm" periods. Estimates of natural rates for Lithuania were significantly above the estimates of core EA countries over 2002-2008, but this has changed after the crisis. From 2011 the estimates of natural rates for Lithuania tend to be close to the average for EA countries.

    JEL Codes: C32, E32, E43, E52.

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

No 33
2020-09-07

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 20
2020-06-01

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 60
2019-05-27

Euro Area government bond yield and liquidity dependence during different monetary policy accommodation phases

  • Abstract

    In this paper, we analyze the relationship between various risk factors and euro area government bond yield spreads, focusing particularly on the monetary policy stance. Our results show that credit and common risk factors are consistently priced in government bond yield spreads, while liquidity differentials are relevant especially during periods of stressed market conditions. We demonstrate that the liquidity component has been more prominent during periods of declining interest rates and increasing reserves, while it has diminished on announcement days of monetary policy decisions related to PSPP. Overall, the liquidity component has been statistically insignificant since the announcement of accommodative non-standard monetary policy measures.

    JEL Codes: C23, E62, H50.

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