Bank of Lithuania
Topic
Target group
Year
Full list Attention! You are viewing a shorter list of entries within the selected filter category. To view the full list, cancel the filter settings.

Discussion Paper Series

Discussion Paper Series

Discussion papers disseminate economic research relevant to the tasks and functions of the Bank of Lithuania and of the European System of Central Banks. One of the main objectives of the series is to deepen the understanding of policy-relevant questions and stimulate more in-depth expert discussions by offering a more rigorous analysis of an issue under review. The research featured in the Discussion Paper Series provides a theoretically and empirically founded basis for policy-making. Discussion papers help to develop and strengthen collaboration between the Bank of Lithuania and other central banks, Lithuanian and foreign institutions acting in the fields of economic policy, analysis and/or research.

Papers are only available in English.

No 43
2025-07-03

Housing Energy Efficiency and the Horizon Effect

  • Abstract

    This paper examines howthe investment horizon effect influences energy-efficiency investments, showing that older individuals have lower incentives to invest in energy efficiency. Using detailed microdata from England, we document that properties occupied by older households are systematically less energy efficient. We develop a two-period model where households make energyefficiency investment decisions under mortality risk, generating predictions about both individual and neighborhood-level investment patterns. Testing these predictions using historical instruments for neighborhood age structure, we find that a one-year increase in neighborhood mean age causes a 0.7 percentage point increase in energy inefficiency.

    Keywords: household balance sheet, inflation; fiscal policy, interest rates, household consumption.

    JEL codes: Q40, R31, J14, D14, Q48

No 42
2025-02-21

Distributional Inflation Effect on Household Balance Sheet

  • Abstract

    The recent surge in inflation hit Lithuania with a 20 percent increase in 2022, affecting many households. This paper examines the heterogeneous wealth effects of the recent inflation surge in Lithuania. Specifically, I consider different channels – wealth, income, and consumption – but also the monetary and fiscal policy responses to the inflationary shock. I quantify these channels by using data from the Household Finance and Consumption Survey (HFCS). The results show that the consumption channel affected all households similarly, while the income channel disproportionately affected low-income and elderly households. Moreover, the impact of inflation was closely related to households’ net nominal wealth position. The wealth channel significantly eroded the wealth of older households but had a positive impact on younger households, especially those with mortgages. Fiscal policy adjustments partially mitigated the impact of inflation on the most vulnerable households. Meanwhile, the monetary policy response helped offset losses for households with substantial nominal asset holdings. In addition, all these channels influenced changes in wealth inequality in the country. While aggregate wealth inequality remained broadly unchanged, distributional effects showed a decrease in inequality measures for renters and a slight increase for homeowners and mortgage holders.

    JEL codes: D15, E21, E5, G51

No 41
2025-01-15

Systemic Risk Modelling System (SRMS): a macroprudential stress testing model

  • Abstract

    This paper introduces the Systemic Risk Modelling System (SRMS), a new macroprudential stress testing model for the Lithuanian banking sector. The SRMS addresses the limitations of traditional static models by incorporating dynamic balance sheet assumptions and capturing second-round effects, providing a more comprehensive assessment of systemic risks. The model’s applications extend beyond stress testing, including macroprudential policy stance assessment, capital-at-risk analysis, and macroprudential policy impact evaluation. The SRMS model enhances the understanding of systemic risks within the Lithuanian banking sector and offers a potential benchmark for other national central banks seeking to strengthen their financial stability frameworks.

    Keywords: macroprudential stress testing, macroprudential policy, feedback loop, secondround effects.

    JEL codes: E37, E58, G21, G28

No 40
2025-01-08

The Public-Private Sector Wage Gap in Lithuania: Evidence from Social Security Data

  • Abstract

    This paper estimates high-dimensional fixed effects models using detailed administrative data to characterize the public-private wage gap in Lithuania between 2010 and 2020. We document that public sector employees earn on average 10% more than their private sector counterparts. However, when comparing firm-specific wage effects, the gap almost disappears, with public sector employers paying a 0.3% lower premium. Interestingly, women benefit from working in the public sector, as they have a 16% premium due to both being employed by organizations with higher premiums and having higher returns to individual-specific components relative to women in private firms. In contrast, men have higher returns to unobserved permanent heterogeneity, which are particularly high for public sector workers, but they are with employers that have lower premiums relative to men in the private sector, resulting in an observed public sector premium of 4%. Our results highlight the importance of using mobility across firms, not just across sectors, and of isolating firm-specific wage components from other sources of wage variation to properly understand pay differentials across employers with different wage-setting protocols.