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No 16. Patrick Grüning. Heterogeneity in the internationalization of R&D: Implications for anomalies in finance and macroeconomics
2017-10-20
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No 15. Mariarosaria Comunale. Synchronicity of real and financial cycles and structural characteristics in EU countries
2017-08-18
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No 14. Rasa Stasiukynaitė. Understanding monetary policy stance
2017-03-24
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No 13. Mariarosaria Comunale, Jonas Striaukas. Unconventional monetary policy: Interest rates and low inflation. A review of literature and methods
2017-02-24
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No 12. Matthias Weber. The effects of listing authors in alphabetical order: A survey of the empirical evidence
2016-10-18
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No 11. Mariarosaria Comunale. A closer look at EU current accounts
2016-08-09
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No 10. Michael Donadelli, Patrick Grüning. Labor market dynamics, endogenous growth, and asset prices
2016-01-23
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No 9. Mariarosaria Comunale. Financial cycle measures for 41 countries: A new database
2015-11-17
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No 8. Jurgita Pesliakaitė, Tomas Šiaudvytis. Wage and price setting behaviour of Lithuanian firms: Survey–based evidence for 2008–2009 and 2010–2013
2015-10-12
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No 7. Igor Fedotenkov, Bas van Groezen, Lex Meijdam. International trade with pensions and demographic shocks
2015-09-24
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No 6. Igor Fedotenkov. A note on the bootstrap method for testing the existence of finite moments
2015-07-02
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No 5. Aldona Jočienė. Business models of Scandinavian banks subsidiaries in the Baltics: identification and analysis
2015-05-02
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No 16. Patrick Grüning. Heterogeneity in the internationalization of R&D: Implications for anomalies in finance and macroeconomics

Empirical evidence suggests that investments in research and development (R&D) by older and larger firms are more spread out internationally than R&D investments by younger and smaller firms. In this paper, I explore the quantitative implications of this type of heterogeneity by assuming that incumbents, i.e. current monopolists engaging in incremental innovation, have a higher degree of internationalization in their R&D technologies than entrants, i.e. new firms engaging in radical innovation, in a two-country endogenous growth general equilibrium model. In particular, this assumption allows the model to break the perfect correlation between incumbents’ and entrants’ innovation probabilities and to match the empirical counterpart exactly.

JEL Codes: E22, F31, G12, O30, O41.

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

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No 15. Mariarosaria Comunale. Synchronicity of real and financial cycles and structural characteristics in EU countries

In this paper, we examine the relationships between real, credit and house price cycles, by using a synchronicity index, and structural characteristics and macroeconomic variables of 17 EU countries. We find that the cycles between credit variables and the real cycle with the property or equity prices cycles seem relatively well synchronised. Credit and GDP fluctuations seem to be less synchronised, mostly because credit volumes tend to lag the real cycle by several quarters. The high rates of private homeownership tend to be associated with larger cycles in GDP, credit, and house prices. Higher Loan-To-Value ratios, seen as a proxy of borrowing constraints, and a higher percentage of flexiblerate mortgages, could also indicate that a country is more sensitive to shocks and possibly increase pro-cyclicality and increase cycle volatility. Finally, the pro-cyclicality of the credit and housing market to the GDP cycle can be linked to the fluctuation in current accounts and their misalignments with respect to the theoretical equilibrium value. The synchronicity and the cycles of credit may also be considered for signaling recessions.

JEL Codes: E32, E44, F36.

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

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No 14. Rasa Stasiukynaitė. Understanding monetary policy stance

The paper discusses monetary policy stance assessment in times of both conventional and unconventional monetary policy. Prior to the financial crisis, many central banks had one primary target and one instrument, the short-term rate. Over the years there was a consensus that the rule-of-thumb characterization known as the Taylor rule could broadly outline the policy and supplement discretionary policy. In the post-crisis period, one instrument was no longer sufficient and unconventional measures, such as large-scale asset purchases and forward guidance, were put in the policy makers’ agendas. Therefore, assessing the impact of the implemented unconventional measures and understanding the overall monetary policy stance in traditional ways no longer suffices, while finding new suitable ways is not an easy task. The shadow rate literature is able to circumvent the lower bound constraint and incorporate the monetary policy accommodation provided by the asset purchase programmes. However, application of the shadow rate estimates, in order to assess monetary policy stance, has to be done with caution since the estimates lack robustness.

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

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No 13. Mariarosaria Comunale, Jonas Striaukas. Unconventional monetary policy: Interest rates and low inflation. A review of literature and methods

In this paper we provide an overview of the different approaches identified to capture monetary policy in a period of Zero Lower Bound (ZLB). We focus here on the methods closely linked to interest rates, which include: spreads, synthetic indices from principal component analysis and different shadow rates.
In the second section of this review we calculate these measures for the euro area and also draw comparisons among different approaches and look at the effects on main macroeconomic variables, with a special focus on inflation. The impact of unconventional monetary policy shocks on inflation is found to be significantly positive by the majority of the studies and by using different methods.
Ultimately, we provide a summary of the literature on the Natural Real Rate of Interest, which may be useful for assessing how long low (real) interest rates in a ZLB may stay in place; also suggesting some possible improvement in the estimations which would lead to more accurate policy recommendations.

JEL Codes: E43, E52, E58, F42.

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

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No 12. Matthias Weber. The effects of listing authors in alphabetical order: A survey of the empirical evidence

Each time researchers jointly write an article, a decision must be made about the order in which the authors are listed. There are two main norms for doing so. The vast majority of scientific disciplines use a contribution-based norm according to which authors who contributed the most are listed first. Very few disciplines, most notably economics, instead resort primarily to the norm of listing authors in alphabetical order. It has been argued that (i) this alphabetical norm gives an unfair advantage to researchers with last names starting with a letter early in the alphabet and that (ii) researchers are aware of this “alphabetical discrimination” and react strategically to it, for example through avoiding collaborations with multiple others. This article surveys the empirical literature on these two related topics. Overall, there is convincing evidence that alphabetical discrimination exists and that researchers react to it.

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

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No 11. Mariarosaria Comunale. A closer look at EU current accounts

In this paper, we look at the determinants of current accounts in twenty-seven EU countries over the period 1994-2014. The twenty-seven countries of interest are divided into three sub-groups, namely: core, periphery and CEE new member states. We also assess the current accounts based on computed equilibrium values, and we provide a measure of misalignment for the medium run. As determinants we include capital flows as well as demographic, fiscal and relative development factors. The initial Net Foreign Asset position and oil balance seem to matter more in the core countries than in the periphery and CEE new member states. In contrast, the periphery and CEE new member states seem to be more strongly affected by capital flows. Fiscal balance negatively affects only the periphery, while an increase in government spending is positive for the current account for CEE new member states. In the past twenty years these misalignments have shown a cyclical behaviour in most EU countries, and the magnitude of the cycles themselves are highly heterogeneous across groups. Lastly, we compute an adjusted current account equilibrium, which tries to correct the equilibrium value by the role of expectations (proxied by IMF projections). This factor has more of an impact in the UK than in the euro-area countries.

JEL Codes: F32, F31, C33.

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

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No 10. Michael Donadelli, Patrick Grüning. Labor market dynamics, endogenous growth, and asset prices

We extend the endogenous growth model of Kung and Schmid (2015) by adding endogenous labor dynamics and wage rigidities. This leads to an increase of about 250 basis points in risk premia. Additionally, it brings labor market quantities much closer to their empirical counterparts. In particular, wage rigidities generate an increase of around 60 basis points in labor growth volatility.

JEL Codes: E22, G12, O30, O41.

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

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No 9. Mariarosaria Comunale. Financial cycle measures for 41 countries: A new database

We built different financial cycle measures, also applied recently in Comunale and Hessel (2014).
Our aim is to provide a comprehensive database with definitions of variables that may be of use for crosscountry comparative analysis.
The database includes 41 countries (EU28 and OECD members) from 1994 to 2014 with both annual and quarterly frequency.
The main contributions of our database are that: i) it is publicly available and freely downloadable from the website of the Bank of Lithuania and it can be used subject to a clear reference; ii) the data are updated to the most recent year/quarter available; ii) considers not only the EU members as of 2014 (Croatia is therefore included in the sample), but also other non-EU countries part of the OECD (including both advanced and developing economies); iii) is built using both HP filtering techniques and the Principal Component Analysis (PCA), the latter are used to compute synthetic indices, to come up to different applicable indicators; iv) we added also some business cycle measures for comparison reason.
Ultimately, we show an application of our data, checking whether the financial cycle can influence the estimation of inflation in the euro area and what is the difference between adding a business or a financial cycle measure for the exchange rate pass-through (ERPT). We find that the ERPT can be higher in the presence of house price fluctuations at the frequency of the financial cycle. 

JEL Codes: E32, E44, F36.

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

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No 8. Jurgita Pesliakaitė, Tomas Šiaudvytis. Wage and price setting behaviour of Lithuanian firms: Survey–based evidence for 2008–2009 and 2010–2013

This paper gives a broad descriptive overview on wage and price setting behaviour of Lithuanian firms during the last episode of the economic crisis in 2008–2009 and in the post-crisis period of 2010–2013. The evidence provided in this paper is based on the firm-level data from the third wave of the Wage Dynamic Network (WDN3) survey — the joint research project of the European Union (EU) countries launched within the European System of Central Banks (ESCB). Wage and price setting strategies of Lithuanian firms were evaluated by relating firms’ decision-making to the macroeconomic, financial and institutional environment under which the firms are operating. The preliminary conclusion drawn in this paper is that both wages and prices show rather high degree of flexibility in Lithuania. Low wage rigidity should primarily be attributable to labour market institutions — low collective wage bargaining coverage and completely decentralised wage setting process. Easing of employment protection laws during the last episode of economic downturn might also have contributed to the increased wage flexibility in the after-crisis period.

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

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No 7. Igor Fedotenkov, Bas van Groezen, Lex Meijdam. International trade with pensions and demographic shocks

The central question of this paper is how international trade and specialisation are affected by different designs of pension schemes and asymmetric demographic changes. In a model with two goods, two countries and two production factors, we find that countries with a relatively large unfunded pension scheme will specialise in the production of labour intensive goods. If these countries are hit by a negative demographic shock, this specialisation will intensify in the long run, which is contrary to the prediction of the classical Heckscher-Ohlin-Samuelson model. Eventually, these countries may even completely specialise in the production of those goods. The effects spill over to other countries, which will move away from complete specialisation in capital intensive goods as the relative size of their labour intensive goods sector will also increase. 

JEL Codes: E27, F16, H55, J19.

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

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No 6. Igor Fedotenkov. A note on the bootstrap method for testing the existence of finite moments

This paper discusses a bootstrap-based test, which checks if finite moments exist, and indicates cases of possible misapplication. The analysis indicates that a procedure for finding the smallest power to which observations need to be raised, such as the test rejects a hypothesis that the corresponding moment is finite, works poorly as an estimator of the tail index or moment estimator. This is the case especially for very low- and high-order moments. Several examples of correct usage of the test are also shown. The main result is derived analytically, and a Monte-Carlo experiment is presented.

MSC2010 Codes: 62G10, 65C05.

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

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No 5. Aldona Jočienė. Business models of Scandinavian banks subsidiaries in the Baltics: identification and analysis

Since the crisis in the Baltic countries in 2009, the question on the particularities of business models adopted by foreign-owned banks has been often raised. The business models of these banks have changed significantly, but they still remain of major concern. The aim of this paper is to identify what type of business models have been chosen by the Baltic foreign-owned banks, to assess them as well as to provide recommendations on how to address the outlined challenges.
The Literature Review showed that the Business Model Canvas approach can be used for bank business model analysis. However, banking specialness should be taken into account. Empirical research was carried out using a combination of qualitative and quantitative methods for nine Scandinavian banks subsidiaries operating in the Baltics. The main focus of this research was the complex analysis of bank business model components, using the newly created system of key business model indicators. Business model analysis was based only on publicly available information, which is limited and not standardised.
The main characteristics of the business model of Scandinavian banks subsidiaries established in the Baltics are as follows: retail banks operating in one jurisdiction, dependency on the parent bank decisions, aversion to risk, stronger focus on non-interest income and high efficiency due to cost cutting and e-banking, orientation on safety (banks meet prudential requirements with large reserves), and medium profitability with a negative trend for the future. It was determined that if banks keep on doing their business as they are currently, their possibilities of generating acceptable returns will be of major concern. The biggest opportunity for banks in a low interest rate environment is to focus on increasing the volume of interest bearing assets. Financing small and medium-sized enterprises (SMEs), especially in productive sectors and innovative companies, could be the best outcome for banks and Lithuania’s economy. To achieve this goal, banks need to set SMEs financing as a strategic priority, make fundamental changes in their lending policy. The EU and local governments should give financial support for SMEs to strengthen this sector, and that should encourage banks to finance SMEs more actively as well.
The analysis of bank business models is a relatively new approach towards banking industry analysis. This paper is the first attempt of deeper analysis of business models of Scandinavian banks subsidiaries operating in the Baltics. This paper can serve as an eye-opener for Financial Supervisory Authorities and Central Banks, Scandinavian banks when drafting strategies for their subsidiaries and Government representatives who are responsible for the banking system strategy and strengthening SMEs sector.

JEL Codes: G21, M21.

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

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