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Working Paper Series in Economics
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No. wp2015-7
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- Manuel Buchholz
- How effective is macroprudential policy during financial downturns? Evidence from caps on banks̕ leverage
This paper investigates the effect of a macroprudential policy
instrument, caps on banks’ leverage, on domestic credit to the
private sector since the Global Financial Crisis. Applying a difference-in-differences
approach to a panel of 69 advanced and
emerging economies over 2002–2014, we show that real credit
grew after the crisis at considerably higher rates in countries
which had implemented the leverage cap prior to the crisis. This
stabilising effect is more pronounced for countries in which
banks had a higher pre-crisis capital ratio, which suggests that after
the crisis, banks were able to draw on buffers built up prior to
the crisis due to the regulation. The results are robust to different
choices of subsamples as well as to competing explanations such
as standard adjustment to the pre-crisis credit boom
- JEL-Codes: E51, E58, G21, G28
- Keywords: macroprudential policies, domestic credit, financial crisis
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No. wp2015-5
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- Merike Kukk and Karsten Staehr
- Macroeconomic factors in corporate and household saving. Evidence from Central and Eastern Europe
This paper uses panel data estimations on annual data from 10
Central and Eastern European countries to assess the effect of different
macroeconomic variables on the dynamics of corporate and
household saving. The analyses reveal that changes in the macroeconomic
environment are important for the saving rates in both
sectors, but with marked differences across the sectors. The differences
are most pronounced for the output gap, the real interest
rate, the inflation rate and the current account balance. Some variables
such as the unemployment rate and changes in the real exchange
rate are unimportant in both sectors. The differences
across the sectors underscore the importance of analysing corporate
and household saving separately
- JEL-Codes: E21, E32, E44
- Keywords: sectoral saving rates, Central and Eastern Europe, macroeconomic variables
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No. wp2015-4
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- Juan Carlos Cuestas, Karsten Staehr and Fabio Filipozzi
- Uncovered interest parity in Central and Eastern Europe : expectations and structural breaks
This paper examines the empirical validity of the hypothesis of
uncovered interest parity (UIP) using data from five Central and
Eastern European countries with floating exchange rates for the
period 2003–2014. The analysis includes forward-looking as well
as static expectations and also allows for different types of structural
breaks. The variable representing the deviation from UIP is
stationary when expectations are forward-looking, ruling out persistent
divergences from UIP. The deviation from UIP is however
typically not stationary when expectations are static, even when
structural breaks are incorporated, and this leads to the rejection
of the UIP hypothesis in this case. The results underscore the
importance of the expectations assumptions when the UIP hypothesis
is tested
- JEL-Codes: C32, F15
- Keywords: uncovered interest parity, carry trade, expectations, structural breaks, Central and Eastern Europe
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No. wp2015-3
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- Kadri Männasoo and Jaanika Merikull
- The impact of firm financing constraints on R&D over the business cycle
This paper studies financing constraints on R&D over the most
recent boom and bust episode in Central and Eastern Europe
(CEE). Given that financial and venture capital markets in CEE
are thin in comparison to those in high-income economies and
that many of CEE countries experienced a credit crunch during
the last recession, it is proposed that financing constraints have a
significant adverse effect on R&D activity in these countries. The
paper uses two complementary firm-level data-sources from ten
CEE countries. We find that financing constraints have a substantial
effect on R&D expenditures, as the probability of credit
constrained firms undertaking R&D activities is around 70%
lower than for other firms and firms� R&D expenditure sensitivity
to cash flow is very high. Despite the severity of the crisis, the
adverse effect of financing constraints for R&D did not increase
during the financial crisis. We also find that, conditional on credit
constraints, firms� R&D activity is higher during a recession
- JEL-Codes: O16, O32, O52, E32, P23
- Keywords: R&D financing constraints, credit constraints, business cycle, Central and Eastern Europe
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No. wp2015-2
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- Andres Kuusk, Karsten Staehr and Uku Varblane
- Sectoral change and labour productivity growth during boom, bust and recovery
This paper assesses the extent of structural or sectoral change
and its importance for aggregate productivity growth during times
of boom, bust and recovery. The analysis covers 10 EU countries
from Central and Eastern Europe over the years 2001–2012. The
reallocation of labour across sectors was substantial during the
boom, very extensive in 2009 at the depth of the crisis and modest
in the subsequent recovery period. The contribution of sectoral
change to aggregate productivity growth is computed using
various decomposition methods. Changes in labour productivity
within sectors play the dominant role for aggregate productivity
growth, while reallocation of labour between sectors is less important.
This pattern is found through most of the sample period
despite large differences in the extent of sectoral change during
the boom, crisis and recovery
- JEL-Codes: L16, E32, P23
- Keywords: labour productivity, structural change, reallocation, productivity decomposition
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No. wp2015-01
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- Lenno Uuskula
- Firm turnover and inflation
dynamics
This paper examines the role of firm turnover in explaining inflation
dynamics. I augment a New-Keynesian DSGE model with endogenous
entry and exogenous stochastic exit and estimate with the Bayesian full
information approach for the US economy. Results show that shocks to
the entry cost explain more than half of the inflation variance at the business
cycle frequencies. When it is cheap to create firms, the number of
new firms goes up and inflation increases as labour intensive creation of
firms pushes up the demand for labour. Only gradually, when the number
of firms is high and the number of new firms goes down again, does
inflation fall, as stressed by the standard mechanism for an increasing
number of firms
- JEL-Codes: E32, C11, E23
- Keywords: inflation, New-Keynesian Phillips curve, firm turnover
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No. wp2014-9
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- Jaanika Merikull and Pille Mõtsmees
- Do you get what you ask? The gender gap in desired and realised wages
This paper will study the gender wage gap in desired wages,
realised wages and reservation wages. The notion of desired
wages shows workers� first bet to potential employers during the
job-search process. Two datasets are employed, the electronic
job-search portal database, where individuals signal their desired
wages, and the labour force survey, where realised wages and
reservation wages are reported. The Oaxaca-Ransom decomposition
is implemented to investigate the contribution of characteristics
and coefficients to the gender gap. It is found that: (1) The
unexplained gender wage gap is 22�25% in desired and realised
wages. (2) The unexplained gender wage gap is much larger in
desired wages than in reservation wages for unemployed individuals
showing women�s higher disutility from unemployment.
(3) Women�s lower desired wages are revised up rather than
men�s higher desired wages being revised down on the job. The
results suggest that women are more risk averse in wage bargaining
and self-select into occupations and industries with stable
employment
- JEL-Codes: J16, J13, D13, J31
- Keywords: gender wage gap; reservation wage; family, marriage and work; labour market mobility
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No. wp2014-8
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- Liina Malk
- Determinants of reservation wages: empirical evidence for Estonia
This paper provides an empirical analysis of the individual and
macroeconomic determinants of reservation wages with a particular
focus on the influence of unemployment duration. Data from
the Estonian Labour Force Survey 2011–2013 and instrumental
variable regression analysis are used for estimating the determinants
of reservation wages. The findings indicate that personal
characteristics, the household’s income level and the regional unemployment
rate are important factors that affect reservation
wage setting. In addition, it appears that unemployment duration
has a significant negative influence on the reservation wage,
which is mainly driven by men and older individuals
- JEL-Codes: J31, J64
- Keywords: unemployment, reservation wage, unemployment duration, instrumental variable regression
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No. wp2014-10
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- Dmitry Kulikov
- Law of One Price in the euro area: an empirical investigation using Nielsen disaggregated price data
This paper examines the Law of One Price using Nielsen disaggregated
price data covering 13 euro area countries and 45 different product
categories over the time period 2008 to 2012. The empirical methodology
is based on a non-structural log-linear regression with spatial effects
in both the geographical and product-variety dimensions, estimated by
the Bayesian methods. The models link the relative prices of homogenous
products in the sample of euro area countries to four distinct groups
of factors: product-specific consumption preferences, country-specific
macroeconomic and regional characteristics, volatility of prices and volumes,
and spatial effects. The estimated reduced-form Law of One Price
models uncover a strong interdependence of relative prices both on the
geographical scale and across “similar” product varieties, going beyond
the included set of explanatory variables and warranting further empirical
investigation.
- JEL-Codes: C21, D40, E31
- Keywords: disaggregated prices, spatial dependence, Bayesian estimation, Law of One Price
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No. wp2000-02
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- Iikka Korhonen and Mare Randveer
- Assessment of the Euros's implications for European
economic development.
This paper assesses the impacts of Economic and Monetary Union and the euro on developments within the EU and
globally. The emphasis is on euro-11 countries and the eight most advanced accession candidates in Central and
Eastern Europe. The single currency completes the project for a single market in Europe, and overall, clear efficiency
gains for participating countries are expected. Low, stable interest rates should spur investment and the single
currency should promote the formation of large, liquid capital markets, eventually transforming the structure of
financial intermediation within the euro area. Although participating countries achieved a high degree of nominal
convergence in the 1990s, this process now appears to have ended. Moreover, the conduct of a common monetary
policy becomes more problematic with countries at different phases in the economic cycle.
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