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Working Paper Series in Economics
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No. wp2024-2
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- Natalia Levenko
- Monetary policy transmission in different credit markets
The paper examines the intermediate stage of monetary policy transmission by
analysing how credit growth responds to interest rate changes. It studies the markets
for mortgages, consumer credit, and corporate loans separately, and pays special
attention to periods when the short-term interest rate was very low. It uses quarterly
country-level data from 2005Q1 to 2022Q4 for 15 euro area countries and applies
standard panel-data estimation techniques. The results indicate that credit markets
respond to changes in monetary policy in the expected way. While the magnitude
of the reaction varies across credit markets, there are no discernible differences
between the reactions of different subgroups in the sample. The hypothesis that
monetary policy might be less effective when interest rates are very low is not
supported by the empirical evidence. Rather the opposite, the paper finds that when
Euribor is very low, credit markets become more responsive to changes in interest
rates. This holds true primarily in the market for corporate loans and to some extent
in the market for mortgages.
- JEL-Codes: E44, E51, E52
- Keywords: monetary policy transmission, interest rate channel, bank lending channel, credit growth, housing loans, corporate loans, consumer credit
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No. wp2024-1
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- Konstantins Benkovskis, Jaanika Meriküll and Aurelija Proškute
- The transmission of trade shocks across countries: firm-level evidence from the Covid-19 crisis
This paper studies the margins and heterogeneity of adjustments to trade shocks by estimating
how Covid-19 restrictions affected imports and exports. We use data from Lithuania, Latvia
and Estonia on foreign trade at the level of the firm and the partner country and at monthly
frequency from January 2019 to December 2020. The focus is on the short-term adjustment
and on the first wave of the pandemic. We find that the adjustment to the restrictions mostly
occurs through the intensive margin, meaning trade values are reduced rather than trade in certain
markets or products ceasing. It is further observed that quantity played a more important
role in the adjustment process than prices and that both upstream and downstream restrictions
played an equally important role in the decline of foreign trade. It is shown that differentiated
products that are difficult to replace are responsible for this adjustment pattern.
- JEL-Codes: F14, F61, D22
- Keywords: transmission of shocks, input-output linkages, global value chains, Covid-19, workplace closing
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No. wp2023-7
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- Merike Kukk, Jan Toczynski and Christopher Basten
- Beyond the Headline: How Personal Exposure to
Inflation Shapes the Financial Choices of Households
Using individual level panel data from a period of volatile inflation in Estonia
in 2005-11 and interactive fixed effect estimation, we find individual consumption to
respond to personal inflation beyond the headline rate. Households are exposed to
different inflation due to different consumption baskets. For each percentage point of
higher personal inflation exposure, they increase consumption by more than 1%, and
also increase stock market investments. These responses are consistent with backwardlooking
inflation expectations. They are financed with savings or borrowing, except
when the household is liquidity-constrained or over-indebted. Extra demand when
inflation is already high can make inflation persistent and dependent on its current
distribution
- JEL-Codes: D14, D15, E21, E31
- Keywords: inflation heterogeneity, personal inflation exposure, consumption, borrowing, interactive fixed effects, intertemporal choices
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No. wp2023-6
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- Dmitry Kulikov and Nicolas Reigl
- The natural rate of unemployment in Estonia: empirical
determinants and a new semi-structural model
This paper addresses the empirical modelling of the natural rate of unemployment in
Estonia. It has two interlinked parts. The first part considers potential empirical determinants
of the natural rate of unemployment in a sample of 31 OECD countries, and
the second incorporates many of those determinants into a new quarterly semi-structural
model of the natural rate of unemployment for Estonia, which we estimate over the period
1998–2019. Our methodological approach to building this new semi-structural model is to
explore a space of 4 212 alternative model specifications, each one featuring a distinct
combination of extrinsic determinants of the natural rate, and measures of the rate of unemployment
and the state of the labour market in Estonia. We find that although some of
these potential determinants enter our model in a statistically significant way, the overall
time dynamics of the estimated natural rate of unemployment for Estonia are not much
affected by these factors, and our estimates of the natural rate are quite similar across all of
these determinants over the full sample period. However, we also find that our estimates of
the natural rate of unemployment are quite sensitive to the choice of measures of the state
of the labour market and the rate of unemployment used in estimating the new model
- JEL-Codes: E32, E58, C32, C52
- Keywords: natural rate of unemployment, unemployment gap, NAIRU, panel data, semistructural modelling, model averaging
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No. wp2023-5
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- Eva Branten
- Income expectations, risk attitudes and household borrowing decisions
This paper studies whether positive expectations for real income and risk
aversion can provide information beyond that given by the main economic and
sociodemographic characteristics for predicting whether a household applied for a
loan or increased its outstanding liabilities. Microdata from the Eurosystem
Household Finance and Consumption Survey (HFCS) are employed in the study,
which covers a subgroup of the countries conducting the survey that have a panel
component. The main estimation method used is a set of panel data fixed effects
models. The estimation results imply that positive expectations for real income
matter for increases in mortgage loans, but not for non-mortgage loans. Risk
aversion is negatively related with the probability of applying for a loan but has no
significant effect on an increase in debt
- JEL-Codes: G51, D14
- Keywords: household borrowing, financial expectations, risk attitudes, Eurosystem Household Finance and Consumption Survey
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No. wp2023-07
(Download at EconPapers)
- Merike Kukk and Jan Toczynski
- Beyond the Headline: How Personal Exposure to
Inflation Shapes the Financial Choices of Households
Using individual level panel data from a period of volatile inflation in Estonia
in 2005-11 and interactive fixed effect estimation, we find individual consumption to
respond to personal inflation beyond the headline rate. Households are exposed to
different inflation due to different consumption baskets. For each percentage point of
higher personal inflation exposure, they increase consumption by more than 1%, and
also increase stock market investments. These responses are consistent with backwardlooking
inflation expectations. They are financed with savings or borrowing, except
when the household is liquidity-constrained or over-indebted. Extra demand when
inflation is already high can make inflation persistent and dependent on its current
distribution
- JEL-Codes: D14, D15, E21, E31
- Keywords: inflation heterogeneity, personal inflation exposure, consumption, borrowing, interactive fixed effects, intertemporal choices
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No. wp2023-06
(Download at EconPapers)
- Dmitry Kulikov and Nicolas Reigl
- The natural rate of unemployment in Estonia: empirical determinants and a new semi-structural model
This paper addresses the empirical modelling of the natural rate of unemployment in
Estonia. It has two interlinked parts. The first part considers potential empirical determinants
of the natural rate of unemployment in a sample of 31 OECD countries, and
the second incorporates many of those determinants into a new quarterly semi-structural
model of the natural rate of unemployment for Estonia, which we estimate over the period
1998–2019. Our methodological approach to building this new semi-structural model is to
explore a space of 4 212 alternative model specifications, each one featuring a distinct
combination of extrinsic determinants of the natural rate, and measures of the rate of unemployment
and the state of the labour market in Estonia. We find that although some of
these potential determinants enter our model in a statistically significant way, the overall
time dynamics of the estimated natural rate of unemployment for Estonia are not much
affected by these factors, and our estimates of the natural rate are quite similar across all of
these determinants over the full sample period. However, we also find that our estimates of
the natural rate of unemployment are quite sensitive to the choice of measures of the state
of the labour market and the rate of unemployment used in estimating the new model.
- JEL-Codes: E32, E58, C32, C52
- Keywords: natural rate of unemployment, unemployment gap, NAIRU, panel data, semistructural modelling, model averagin
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