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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 96

The Quadrilemma of a Small Open Circular Economy Through a Prism of the 9R Strategies

  • Abstract

    The Circular Economy (CE) challenges the traditional linear economy model to arrive at a sustainable  economy that minimizes resource use, its negative environmental impact, and dependency on resource imports. We develop a multi-sector dynamic stochastic general equilibrium small open economy model with endogenous adoption of exogenous foreign technology innovations, endogenous environmental quality, and CE elements, comprising recyclable waste as well as recycling and refurbishing sectors. We analyze the model-implied impulse response functions with respect to several economic shocks and conduct a rich scenario-based analysis, for which the scenarios are derived from the 9R strategies. We find important trade-offs to be considered by the economy with respect to circularity, trade, environment, and growth – the four dimensions of the quadrilemma of a small open circular economy. We find that none of the six shocks considered and in none of the eight scenarios analyzed the quadrilemma can be resolved. However, a positive shock to the price of energy or a lower energy share in one of the two intermediate goods sectors provide benefits to three out of four dimensions of the quadrilemma.

    Keywords: Circular economy, Small open economy, Recycling, Refurbishing, Endogenous economic growth, Technology adoption, General equilibrium, Energy.

    JEL codes: E2, F4, O3, O4, Q4, Q5.

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

No 95

Coworker Networks and the Labor Market Outcomes of Displaced Workers: Evidence from Portugal

  • Abstract

    The use of social contacts in the labor market is widespread. This paper investigates the impact of personal connections on hiring probabilities and re-employment outcomes of displaced workers in Portugal. We rely on rich matched employer-employee data to define personal connections that arise from interactions at the workplace. Our empirical strategy exploits firm closures to select workers who are exogenously forced to search for a new job and leverages variation across displaced workers with direct connections to prospective employers. The hiring analysis indicates that displaced workers with a direct link to a firm through a former coworker are roughly three times more likely to be hired compared to workers displaced from the same closing event who lack such a tie. However, we find that the effect varies according to the type of connection as well as firms’ similarity. Finally, we show that successful displaced workers with a connection in the hiring firm have higher entry-level wages and enjoy greater job security although these advantages disappear over time.

    Keywords: Job Displacement, Coworker Networks, Re-Employment.

    JEL codes: J23, J63, L14.

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

No 94

Emergence of Subprime Lending in Minority Neighborhoods

  • Abstract

    Subprime lending is concentrated among minorities and in minority neighborhoods. However, the literature has little evidence for what led to the rise of subprime lending in minority neighborhoods. We use the endorsement of FICO credit scores in mortgage underwriting by the Government Sponsored Enterprises (GSEs) in 1995 to answer this question. The use of credit scores led to the sorting of prime and subprime lenders across minority and non-minority neighborhoods. In minority neighborhoods prime lenders were substituted by subprime lenders and, as a result, the share of subprime lending in minority neighborhoods increased by 5 percentage points. Prime lenders with a stronger relationship with the GSEs reduced their lending in minority neighborhoods more. The level of securitization by the GSEs in minority neighborhoods also decreased.

    Keywords: Mortgages, Subprime lenders, GSEs, Securitization, Minorities

    JEL codes: G21, G28, J15, R23.

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

No 93

The Effect of the Euro Changeover on Prices: Evidence from Lithuania

  • Abstract

    At the aggregate level, I find that the euro changeover did not lead to a significant change in the overall inflation rate between 2015 and 2019 in Lithuania. When the measures are diversified, however, some inflationary effects emerge in sub-categories. I therefore analyze this heterogeneity at the disaggregated level using a large sample of prices that constitutes the CPI from 2010 to 2018. I show that significant price changes have been confined to the low-weighted components of the HICP. This explains why a spike in the overall price level did not occur at the time of the changeover.

    Keywords: Euro changeover, synthetic difference-in-differences, regression discontinuity in time, price changes.

    JEL codes: E31, F33, L11.

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