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Working Paper Series

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Working papers disseminate economic research relevant not only to the tasks and functions of the Bank of Lithuania and of the European System of Central Banks but also appealing more broadly to the academic community in economics and finance. They present, discuss and analyse the results of original and academically rigorous theoretical and/or empirical research. Working papers constitute the basis for publications in leading academic journals, making contributions to the existing literature in the fields of economics and finance. They encourage collaboration between the researchers of the Bank of Lithuania and other central banks, Lithuanian and foreign universities and research institutes.

Papers are only available in English.

No 113

Employee-Owned Firms and the Careers of Young Workers

  • Abstract

    Using detailed administrative data from Spain, we investigate the impact of having an initial work experience in an employee-owned firm (EOF) versus a conventional business on subsequent earnings. We find that young workers’ exposure to EOFs at the time of labour market entry reduces earnings by about 8% during the first 15 years in the labour market. The selection of individuals with low initial ability in EOFs does not appear to be a relevant channel. Our results seem to be rather related to differences in job mobility and wage returns to experience. On the one hand, we document lower wage returns to experience acquired in EOFs, although no differences in subsequent career progression in terms of promotions. On the other hand, we find that workers who had their first job in EOFs show a strong attachment to such a business model and are less likely to voluntarily leave their employers. Taken together, our findings suggest the existence of nonpecuniary job attributes offered by EOFs that might compensate for lower lifetime earnings.

    Keywords: Employee-Owned Firms, Careers, Wages, Job Mobility

    JEL Classification: J31, J50, J62

No 112

Determinants of House Price Expectations in Europe

  • Abstract

    I use data from the European Central Bank’s Household Finance and Consumption Survey (HFCS) to examine how house price expectations differ across Europe and to identify the main drivers of such expectations. During the period 2010-2017, housing-related assets drove the household balance sheet evolution. Therefore, house price expectations remained highly heterogenous across European countries. The paper found that changes in income and house prices are the key determinants of house price expectations. Homeownership status, income and wealth distributions also explain part of the heterogeneity in household expectations about house prices in Europe. All these effects appear to be stronger for renters and for households from the bottom quintiles in income and wealth distributions.

    Keywords: house price expectations; housing; household portfolio.

    JEL Classification: D10, D31, D84, G11

No 111

A factor-augmented new Keynesian Phillips curve for the European Union countries

  • Abstract

    In this paper, a factor-augmented version of the hybrid New Keynesian Phillips curve (NKPC) is assessed using a data set comprised of a large panel of European Union (EU) member countries. The factor-augmentation is natural given that country-level inflation rates are highly co-moving. The presence of unattended common factors is important because it raises the issue of omitted variables bias, as the real marginal cost, which is a regressor of the NKPC, is likely to load on the same factors as inflation. One possibility here is to employ the regular instrumental variables approach. However, if the external instruments are subject to the same factors as those in the error term of the NKPC, the instruments would be invalid and the approach would therefore be inappropriate. We propose a novel econometric approach to estimate the hybrid NKPC, which allows for very general forms of factor dependencies and endogeneity, and should as a result lead to improved identification. Our main findings provide support for the hybrid NKPC when the presence of unknown common factors as well as external instruments are accounted for, although the results differ depending on the countries included in the estimation. More specifically, the evidence is stronger when the full sample of EU or Euro Area countries is used, rather than solely the new EU member countries which joined the EU in 2004 or later.

    Keywords: New Keynesian Phillips curve, Inflation, Dynamic panel data model, Cross-sectional dependence, Common factors.

    JEL codes: E31; E52; C13; C23.

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

No 110

The Impact of CBDC on Bank Deposits and the Interbank Market

  • Abstract

    This paper investigates how the introduction of a central bank digital currency (CBDC) impacts the banking sector. The deposit market is modeled as a Salop circle and deposits are subject to liquidity shocks. Absent a CBDC the interbank market can redistribute liquidity between banks. However, the central bank does not take part in the interbank market and CBDC leads to greater reliance of the banking sector on central bank standing facilities. The model shows adjusting the remuneration rate of CBDC has little pass-through to the deposit rate set by banks and may have implications for transmission of monetary policy.

    Keywords: central bank digital currency, banking, money, interbank Market.

    JEL Classification: E42, E52, E58, G21.