Publications

This paper assesses reserves of Lithuania’s social insurance fund (Sodra) under demographic ageing and macroeconomic stress, projecting the budget through 2050 under two pension indexation rules: the current law and a seven-year average rule that allows for reserves to be used for pension expenses. The choice between the rules produces a sharp trade-off between reserve accumulation and pension adequacy. Within the seven-year average baseline, investment and fiscal instruments can ease the demographic pressure but cannot resolve it. Under a Global Financial Crisis-style shock, the indexation rule determines the distribution of crisis costs: reserves absorb the shock under one rule, pensioners under the other.

Keywords: pension reserves, pay-as-you-go, demographic ageing, replacement rate, crisis resilience

JEL codes: H55, J11, J26, G11.

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

This paper studies determinacy in a three-country New Keynesian DSGE model. Extending Gopinath et al. (2020), I examine how invoicing currencies and openness shape monetary policy effectiveness. Three results emerge. First, there is a robust trade-off such that stronger output gap targeting allows weaker inflation responses without loss of determinacy. Second, pricing paradigms matter. Producer currency pricing (PCP) yields the broadest determinacy regions, local currency pricing (LCP) lies in between, and dominant currency pricing (DCP) is most restrictive for non-issuers of the dominant currency. Third, openness narrows determinacy sets as it amplifies interactions among central banks’ policies, complicating the attainment of determinacy. An application with Bayesian estimates for the U.S. and the euro area confirms these patterns. The results highlight that determinacy depends not only on domestic rules but also on global invoicing structures and trade integration.

Keywords: Determinacy, Taylor rule, Three-country new Keynesian model, Pricing paradigms, Opennessy

JEL codes: E31, E52, E58, F33, F4

This document offers an ex-ante assessment of the proposal to allow the withdrawal of funds from the second pillar of the Lithuanian pension system. First, we use a quantitative macroeconomic model to quantify, under alternative scenarios, the potential impact that the withdrawal of Pillar II funds might have on the economy in the medium term. Second, we offer a long-term view of the current pension replacement rates and the consequences that the withdrawal of funds might have for those individuals who decide to opt-out of Pillar II.