Protection and Liberalization: A Review of Analytical Issues (Occasional Papers No. 54)

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On the one hand, exporting firms are larger, more productive and pay higher wages than non-exporting firms. Only these firms are able to bear export costs, related to various factors, such as tariff and non-tariff trade barriers, the quality of the legal system or access to finance. Hence, only few enterprises actually export, and the intensity of aggregate export concentration within few large firms varies across countries and sectors. One of the main standard determinants of export growth, namely changes in the real effective exchange rate, impacts aggregate performance differently across countries and sectors, depending on sectoral composition and on firm characteristics within a given sector.

Well-functioning economic structures are key for resilient and prospering euro area economies. Economic growth was masking underlying weaknesses in several euro area countries. With the inception of the crises, significant efforts have been undertaken by Member States individually and collectively to strengthen resilience of economic structures and the smooth functioning of the euro area. National fiscal policies were consolidated to keep the increase in government debt contained and structural reform momentum increased notably in the second decade, particularly in those countries most hit by the crisis.

The strengthened national economic structures were supported by a reformed EU crisis and economic governance framework. However, overall economic structures in euro area countries are still not fully commensurate with the requirements of a monetary union. Moreover, remaining challenges, such as population ageing, low productivity and the implications of digitalisation, will need to be addressed to increase economic resilience and long-term growth. First, it proposes a characterisation of crypto-assets in the absence of a common definition and as a basis for the consistent analysis of this phenomenon.

Second, it analyses recent developments in the crypto-assets market and unfolding links with financial markets and the economy. Finally, it assesses the potential impact of crypto-assets on monetary policy, payments and market infrastructures, and financial stability. However, this assessment is subject to change and should not prevent the ECB from continuing to monitor crypto-assets, raise awareness and develop preparedness. We show that, while the transmission of standard policy interest rate cuts to firms and households was diminished during the crisis, in a context of financial market stress and weak bank balance sheets, unconventional monetary policy measures have helped to restore monetary policy transmission and pass-through to interest rates.

We also document the extent to which these non-standard measures were successful in stimulating lending and which bank business models were more strongly affected. Finally, we show that the estimated impact of recent monetary policy measures on bank profitability does not appear to be particularly strong when all the effects on the macroeconomy and asset quality are taken into account.

They show how, and to what extent, a large set of economic variables and inter-linkages have been affected by international production sharing. The core conclusion is that GVC participation has major implications for the euro area economy. Consequently, there is a case for making adjustments to standard macroeconomic analysis and forecasting for the euro area, taking due account of data availability and constraints.

This paper analyses the impact of lending standards for residential real estate RRE loans on default rates, using a novel loan-level dataset from the European DataWarehouse EDW that covers eight euro area countries. Previous literature has used either national loan-level data, which does not allow for cross-country comparisons, or aggregate cross-country data. The dataset is first explored through an extensive descriptive analysis and this is followed by static probit regressions.

The findings confirm the key influence of lending standards — in particular, loan-to-value and loan-to-income ratios at origination, original loan maturity and borrower employment status — on loan default rates. The impact of other variables, such as interest rate fixation and payment type, varies depending on the country of loan origination. The highlighted country specificities should be taken into account in macroprudential policymaking.

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Protection and Liberalization: A Review of Analytical Issues exchange rate issues, relate to protection. Series: Occasional Paper No. Protection and Liberalization a Review of Analytical Issues ( Occasional Papers No. 54) (): W. Max Corden: Books.

This paper presents a tractable, transparent and broad-based domestic cyclical systemic risk indicator d-SRI that captures risks stemming from domestic credit, real estate markets, asset prices, and external imbalances. The d-SRI increases on average several years before the onset of systemic financial crises, and its early warning properties for euro area countries are superior to those of the total credit-to-GDP gap.

In addition, the level of the d-SRI around the start of financial crises is highly correlated with measures of subsequent crisis severity, such as GDP declines. Model estimates suggest that the d-SRI has significant predictive power for large declines in real GDP growth three to four years down the line, as it precedes shifts in the entire distribution of future real GDP growth and especially of its left tail. The d-SRI therefore provides useful information about both the probability and the likely cost of systemic financial crises many years in advance.

Given its timely signals, the d-SRI is a useful analytical tool for macroprudential policymakers. This paper provides an overview of supply and demand factors influencing the availability of euro-denominated debt instruments that qualify as high-quality liquid assets HQLA in the euro area. The paper estimates the supply of HQLA issued by the public and private sectors as well as the aggregated impact of Eurosystem monetary policy operations on the amount and composition of HQLA held by banks and other economic agents.

An assessment of the main demand factors is also presented. Finally, the paper provides some insights into the interaction with and implications for the Eurosystem monetary policy implementation framework in the longer run. We evaluate a broad range of options, their impact on economic growth, macroeconomic stabilisation and synchronisation of the euro area business cycle, and review how they could be designed so they do not undermine incentives for welfare-enhancing national economic policies.

A common macroeconomic stabilisation function, e. Yet, simulating the effects of such a function for suggests that its stabilisation properties would have been relatively limited. At the same time, design options with meaningful safeguards and relatively low financing requirements would have been most efficient when comparing the degree of stabilisation with the size of the funds distributed among countries. Benefit Analysis. The article analyses recent developments in business investment for a large group of EU countries, using a broad set of analytical tools and data sources.

We find that the assessment of whether or not investment is currently low varies across benchmarks and countries. At the euro area level and for most countries, the level of business investment is broadly in line with the level of overall activity. However rates of capital stock growth have slowed down since the crisis.

The main cyclical determinants of investment developments in the euro area include foreign and domestic demand, uncertainty and financial conditions. Uncertainty seems to have played a negative role during the financial and sovereign debt crises; however, given its low levels more recently, it has not acted as a drag on business investment overall during the recovery. Credit constraints appear to have hindered investment during the twin crises, especially in stressed countries. Aside from cyclical developments, important secular factors — relating to demographics, the changing nature and location of production, and the business environment — have influenced investment.

Another factor that may have amplified the decline in private investment, particularly in countries that were hit hardest by the sovereign debt crisis, is the low level of public investment. This is because when public investment enhances the productivity of the private sector, there may be positive spillovers from the former to the latter, including across countries. Finally, intra-sector capital misallocation, measured as the within-sector dispersion across firms in the marginal revenue product of capital, has been increasing in Europe since , which may in turn have exerted a significant drag on total factor productivity dynamics, and hence on aggregate output growth.

This study provides a conceptual and monitoring framework for systemic liquidity, as well as a legal assessment of the possible use of macroprudential liquidity tools in the European Union. It complements previous work on liquidity and focuses on the development of liquidity risk at the system-wide level. A dashboard with a total of 20 indicators is developed for the financial system, including banks and non-banks, to assess the build-up of systemic liquidity risk over time.

In addition to examining liquidity risks, this study sheds light on the legal basis for additional macroprudential liquidity tools under existing regulation Article of the Capital Requirements Regulation CRR , Articles and of the Capital Requirements Directive CRD IV and national law , which is a key condition for the implementation of macroprudential liquidity tools.

In this report, three methodological approaches are applied to assess the size of the International Monetary Fund: benchmarking Fund resources against a number of relevant global economic and financial indicators; an extrapolation of past and current IMF programme characteristics; and a shock scenario analysis. Overall, while the results of the different approaches depend on the assumptions and the timeframe considered, the quantitative analysis indicates that a prudent approach would call for maintaining Fund total resources at their current levels.

Yet, the quantitative analysis of the size of the Fund made in this report should be seen only as one element to assess the adequacy of Fund resources. It does not take into account qualitative considerations, such as the increased resilience of the global economy and the efforts made to strengthen regulation and supervision since the financial crisis, which should complement the quantitative analysis to complete the analytical basis for decision makers. Moreover, the final decision on the appropriate size of Fund resources will need to include political judgement.

Therefore, this report does not provide recommendations on the appropriate level of IMF resources after the expiration of borrowed resources. This paper analyses real income convergence in central, eastern and south-eastern Europe CESEE to the most advanced EU economies between and The relevance of this topic stems both from the far-reaching implications of real income convergence for economic welfare and the importance of convergence for economic and monetary integration with, and within the European Union. The paper establishes stylised facts of convergence, analyses the drivers of economic growth and identifies factors that might explain the differences between fast- and slow-converging economies in the region.

The results show that the most successful CESEE economies in terms of the pace of convergence share common characteristics such as, inter alia, a strong improvement in institutional quality and human capital, more outward-oriented economic policies, favourable demographic developments and the quick reallocation of labour from agriculture into other sectors. Looking ahead, accelerating and sustaining convergence in the region will require further efforts to enhance institutional quality and innovation, reinvigorate investment, and address the adverse impact of population ageing.

This occasional paper reviews the macroeconomic developments in the euro area countries over the past 20 years. It analyses the accumulation of macroeconomic imbalances in the first decade of the EMU and their unwinding during the second decade. It shows that while flow imbalances have been corrected to a large extent, stock imbalances persist. The presence of large stock imbalances implies that the adjustment process needs to continue in the years to come.

Accordingly, this paper reviews the national responses so far and the importance of well-functioning national economic structures for facilitating the adjustment process within the EMU. It shows that national structural policies are able to stimulate the supply side of the economy, increase adjustment capacity and mitigate the adverse growth effects of high debt and deleveraging. Finally, it gives an overview of the European response to address macroeconomic imbalances, i.

The MIP has contributed to increasing the general attention given to macroeconomic imbalances in the euro area and to the critical role that structural reforms play in facilitating their adjustment. Looking forward, further steps would appear to be warranted in order to move from greater awareness towards stronger ownership and implementation of reforms.

Structural policies in the euro area are of great interest for the Eurosystem, particularly as they can support the smooth functioning of the Economic and Monetary Union EMU and the effectiveness of monetary policy. This paper adopts a broad definition of structural policies, analysing not only the benefits of efficient labour, product and financial market regulations, but also emphasising the importance of good governance and efficient institutions that ensure high quality and impartial public services, the rule of law and the control of rent-seeking.

The paper concludes that there are many opportunities for enhanced structural policies in EU and euro area countries which can yield substantial gains by boosting long-term income and employment growth and supporting social fairness, also via better and more equal opportunities. It provides empirical and model-based analyses on the impacts and the interactions of structural policies, highlighting synergies between growth and inclusiveness, while acknowledging that structural policy changes need to be country-specific to reflect national conditions and social preferences.

Welldesigned structural policies would also strengthen economic resilience and convergence of Member States, bringing the euro area closer to the requirements of an optimal currency area and improving the transmission of monetary policy. The paper also discusses the political economy causes of the sluggish implementation of socially beneficial structural policies and assesses ways to deal with possible shortterm costs of reforms.

The paper also discusses the impact of monetary policy implementation on the Eurosystem's balance sheet, excess liquidity and money market liquidity conditions. This paper investigates the potential impact and appropriateness of several features of EDIS in the steady state.

The main findings are the following: first, a fully-funded DIF would be sufficient to cover payouts even in a severe banking crisis. Second, risk-based contributions can and should internalise specificities of banks and banking systems. This would tackle moral hazard and facilitate moving forward with risk sharing measures towards the completion of the Banking Union in parallel with risk reduction measures; this approach would also be preferable to lowering the target level of the DIF to take into account banking system specificities. Third, smaller and larger banks would not excessively contribute to EDIS relative to the amount of covered deposits in their balance sheet.

Fourth, there would be no unwarranted systematic cross-subsidisation within EDIS in the sense of some banking systems systematically contributing less than they would benefit from the DIF. This result holds also when country-specific shocks are simulated. Fifth, under a mixed deposit insurance scheme composed of national deposit insurance funds bearing the first burden and a European deposit insurance fund intervening only afterwards, cross-subsidisation would increase relative to a fully-fledged EDIS.

The key drivers behind these results are: i a significant risk-reduction in the banking system and increase in banks' loss-absorbing capacity in the aftermath of the global financial crisis; ii a super priority for covered deposits, further contributing to protect EDIS; iii an appropriate design of risk-based contributions, benchmarked at the euro area level, following a "polluter-pays" approach. RFAs have expanded, reaching an aggregate size comparable to that of the IMF and becoming an integral layer of the safety net.

Enhancing the cooperation between the IMF and RFAs so that they play complementary roles in case of global distress, becomes critical in order to further strengthen the multi-layered GFSN, while paying attention to issues such as moral hazard, stigma or exit strategies in connection with IMF-RFA cooperation. This paper presents recent experience and lessons learned in IMF-RFA cooperation and proposes how to improve their future interaction.

Sensitivity analysis underscores that the spillovers are dependent on the strengths of the various transmission channels, as well as the policy reaction by central banks and governments. This paper studies the cyclical properties of real GDP, house prices, credit, and nominal liquid financial assets in 17 EU countries, by applying several methods to extract cycles. The estimates confirm earlier findings of large medium-term cycles in credit volumes and house prices.

GDP appears to be subject to fluctuations at both business-cycle and medium-term frequencies, and GDP fluctuations at medium-term frequencies are strongly correlated with cycles in credit and house prices. Cycles in equity prices and long-term interest rates are considerably shorter than those in credit and house prices and have little in common with the latter. Credit and house price cycles are weakly synchronous across countries and their volatilities vary widely — these differences may be related to the structural properties of housing and mortgage markets.

Finally, DSGE models can replicate the volatility of cycles in house and equity prices, but not the persistence of house price cycles. The quality of banknotes in the cash cycles of countries in the Eurosystem varies, despite all of these countries using identical euro banknotes. While it is known that this is dependent on national characteristics, such as public use and the involvement of the central bank in cash processing operations, the influence of all relevant parameters has not yet been established. This paper presents two computer-based models for the simulation of banknote cash cycles.

The first model simulates a cash cycle using a theoretical approach based on key figures and models banknote fitness as a one-dimensional profile of fitness levels. The model identifies: i the frequency with which banknotes are returned to the central bank; ii the fitness threshold used in automated note processing at the central bank; and iii the note lifetime as the main drivers of banknote quality in circulation as well as central bank cash cycle costs.

Production variations in new banknotes, the fitness threshold applied by commercial cash handlers and the accuracy of the fitness sensors used in the sorting process have been found to have a lower but non-trivial impact. The second model simulates banknotes in circulation as single entities and is oriented towards modelling country-specific cash cycles using available single-note data. We compare the predicted quality results of the second data-based model against actual cash cycle data collected outside the circulation trial, discuss the reasons for the deviations found and conclude with considerations for an optimal theoretical national cash cycle.

In the euro area, there is mixed evidence that the GDP per capita of lower-income economies has been catching up with that of higher-income economies since the start of monetary union. The significant real convergence performance of some of the most recent members contrasts with that of the economies of southern Europe, which have not met expectations. However, attributing all the blame for this outcome to the introduction of the single currency simply misses the point. We conclude that it is critical that the euro area countries facing convergence challenges enhance the resilience of their economic structures by improving the relevant institutions and governance.

First, this Occasional Paper presents new EU-level evidence suggesting that leveraged funds exhibit stronger sensitivity of investor outflows to bad past performance than unleveraged funds, which has the potential to exacerbate systemic risk. Second, it devises a framework for assessing financial stability risks from leverage in investment funds.

Third, it discusses the potential effectiveness and efficiency of various designs for macroprudential leverage limits. To this end, it builds on the findings for the Dutch AIF sector and suggests design options for further exploration at EU level. Although euro banknotes and coins have been in circulation for fifteen years, not much is known about the actual use of cash by households.

This paper presents an estimation of the number and value of cash transactions in all 19 euro area countries in , based on survey results. It presents an extensive description of how euro area consumers pay at points of sale POS. Therefore, it provides central banks and relevant payment system stakeholders with fundamental information for the development of their policies and strategic decisions that can contribute to improving the efficiency of the cash cycle and the payment system as a whole.

Previous estimates of the value of cash usage by households in the euro area date from Since then some central banks have carried out their own research on cash usage. This paper is the first study to measure the transaction demand for cash in the euro area. However, results show substantial differences between euro area countries.

Since , excess liquidity — defined as the sum of holdings of central bank reserves in excess of reserve requirements and holdings of equivalent central bank deposits — has tended to accumulate in specific euro area countries and in a small, slowly changing group of credit institutions. Despite the stability of the concentration of excess liquidity in specific countries over time, the relevance of individual drivers has changed.

Second, the location of the relevant market infrastructures i. In addition, participation in Eurosystem longer-term refinancing operations and deposit inflows are associated with liquidity accumulation. Finally, new regulatory initiatives such as the liquidity coverage ratio are explained to be creating incentives to hold or not to distribute liquidity, thereby affecting its distribution.

Asset-backed securities ABSs and covered bonds CBs are structured finance instruments that require a range of key services, which may be provided by many firms. However, despite the prevalence of structured finance instruments in Europe, the network between issuers and service providers has to date remained unexplored.

This paper traces and describes these connections, using a new database covering the majority of public ABSs and CBs outstanding between August and March The paper finds similar results for networks based on the use of securities as Eurosystem collateral. Over recent years, several euro area countries have registered large and persistent net foreign liabilities. This paper examines the risks arising from these external stock imbalances, the prospects for their smooth unwinding and the menu of policy options.

The paper demonstrates that external stock imbalances remain a source of vulnerabilities in the former programme countries and, to a lesser extent, the euro area countries in central and eastern Europe. The net foreign liabilities of these economies stand at levels that are typically associated with an increased susceptibility to external crises. Mechanical projections indicate that the net foreign liabilities of the former programme countries will remain at elevated levels over the next decade despite some gradual adjustments, while those of the central and eastern European CEE countries could return to more sustainable levels more quickly.

There are also vulnerabilities related to the composition of external positions, most notably the unfavourable debt-equity mix in the former programme countries. However, the long maturity of public external debt — which is often owed to official creditors — and, in the CEE countries, the prevalence of stable foreign direct investment should mitigate external sustainability risks.

Furthermore, the net payments associated with the external positions of the euro area debtor countries are relatively low at the current juncture, although the burden could increase markedly if euro area interest rates were to normalise again. Against this backdrop, a timely and well-designed policy response would provide critical support to the orderly unwinding of the remaining external stock imbalances in the euro area.

An optimal policy mix would consist of measures simultaneously fostering GDP growth and sustainable current account improvements in the debtor economies, in particular reforms aimed at enhancing productivity growth and export performance. Limited access to finance is one of the main obstacles for firms located in the Western Balkans and hampers economic growth as well as the transmission of monetary policy.

The aim of this paper is to undertake an in-depth analysis of access to finance constraints in this region, where countries as EU candidates or potential candidates have a prospect of joining the European Union. Besides touching upon macroeconomic and banking sector indicators that influence access to finance, this paper empirically assesses firm-level factors that determine whether a firm operating in the Western Balkans is credit-constrained, both in actual and perceived terms.

In line with the literature, the results suggest that size, age, location, being audited, having outstanding loans and expectations about future performance matter for actual credit availability. The APP gives rise to substantial cross-border flows of reserves at the time of asset purchases and beyond, reflecting the interaction of decentralised monetary policy implementation and the integrated euro area financial structure.

This financial structure, in which only a handful of locations act as gateways between the euro area and the rest of the world, leads to rising TARGET balances at the time of APP purchases and the persistence of TARGET balances in the context of subsequent portfolio rebalancing. TARGET balances per se are not necessarily an indicator of stress in bank funding markets, financial market fragmentation or unsustainable balance of payments developments. This paper looks at how the profitability of banks in Sweden and Denmark has evolved in the context of negative interest rates.

Overall, it finds that profitability has continued to improve, even with negative monetary policy rates. Data and modelbased evidence confirm that the monetary policy transmission to bank lending rates has so far not been impaired, though they point to a downward stickiness in the bank deposit rate. Swedish and Danish banks rely mainly on wholesale funding to finance their activities, and the fall in wholesale funding costs has led to a significant decline in interest expenses, thereby bolstering the resilience of the net interest income margin.

All in all, this has created the prerequisites for positive credit supply developments, and possible unintended consequences of negative monetary policy rates, such as a reduction in credit supply, have not materialised. However, according to Sveriges Riksbank and Danmarks Nationalbank, the prevailing low level of interest rates has aggravated financial stability risks stemming from the large exposure of the banking sector to the housing market in both economies, in a context of rapidly rising housing prices and the resultant growing indebtedness of the household sector.

This paper presents a new database for financial crises in European countries, which serves as an important step towards establishing a common ground for macroprudential oversight and policymaking in the EU. The database focuses on providing precise chronological definitions of crisis periods to support the calibration of models in macroprudential analysis.

An important contribution of this work is the identification of financial crises by combining a quantitative approach based on a financial stress index with expert judgement from national and European authorities. Key innovations of this database are i the inclusion of qualitative information about events and policy responses, ii the introduction of a broad set of non-exclusive categories to classify events, and iii a distinction between event and post-event adjustment periods.

The paper explains the two-step approach for identifying crises and other key choices in the construction of the dataset. Moreover, stylised facts about the systemic crises in the dataset are presented together with estimations of output losses and fiscal costs associated with these crises.


A preliminary assessment of the performance of standard early warning indicators based on the new crises dataset confirms findings in the literature that multivariate models can improve compared to univariate signalling models. This paper considers the growth of dark pools: trading venues for equities without pre-trade transparency. It first documents the emergence and expansion of dark pools in European equity markets in the context of regulatory changes and increased high-frequency trading HFT. Second, this paper assesses the nature of competition between dark pools, which is based on price and services offered to clients.

It documents a substantial degree of horizontal differentiation among European dark pools, with venues providing different options for placing and processing orders likely to attract different types of traders. The hypothesis that most dark pools are primarily used to shield large orders from information leakage is not supported by evidence. This finding is based on a simple indicator that assesses different dark pools in terms of the level of protection from information leakage due to trading with HFT or predatory traders. Finally, this paper evaluates the benefits and costs of the use of dark pools from the perspective of individual traders as well as for market efficiency and financial stability.

Recent evidence appears to reject the notion that dark pools adversely affect volatility in stock markets. The WDN survey collected information on wage-setting practices at the firm level. This third wave sampled about 25, firms in 25 European countries with the aim of assessing how firms adjusted wages and employment in response to the various shocks and labour market reforms that took place in the European Union EU during the period It seeks to lay out the main lessons learnt from the survey in terms of both the general response of EU labour markets to the crisis and how these responses varied across the countries that took part in the survey.

This paper investigates the interrelations between monetary macro- and microprudential policies. It first provides an overview of the three policies, starting with their main instruments and objectives. Monetary policy aims at maintaining price stability and promoting balanced economic growth, macroprudential policies aim at safeguarding the stability of the overall financial system, while microprudential policies contribute to the safety and soundness of individual entities.

Subsequently, the paper provides a simplified description of their respective transmission mechanisms and analyses the interactions between them. A conceptual framework is first presented on the basis of which the analysis of the interactions across the different policies can be demonstrated in a stylised manner. These stylised descriptions are then further complemented by model-based simulations illustrating the significant complementarities and interactions between them.

Finally, the paper concludes that from a conceptual point of view there are numerous areas of interaction between the policies. These create scope for synergies, which can be reaped by sharing information and expertise across the various policy areas. This paper reviews and assesses financial stability challenges in countries preparing for EU membership i.

The paper focuses on the period since and on the banking sectors that dominate financial systems in this group of countries. It identifies two main near-term challenges applying to most of them. However, progress so far is limited, partly owing to structural impediments. The second relates to the still high share of foreign exchange denominated loans and deposits, which poses an indirect credit risk in the case of lending to unhedged borrowers and impairs the monetary transmission channel. In addition, profitability is worth monitoring going forward, as it remains subdued in many countries given high provisioning needs and a lacklustre credit growth and low interest rate environment.

These concerns are generally met with a solid shock-absorbing capacity, as exemplified by robust capital and liquidity buffers. Moreover, the financial and sovereign debt crisis and with it the increased reliance of banks on central bank credit have underlined the importance of central bank collateral frameworks. Broad collateral frameworks have helped prevent large-scale liquidity-driven defaults of financial institutions in all major advanced economies. More recently, they have allowed central banks to provide a large amount of — at times targeted — longer-term credit.

Nevertheless, a number of authors have argued that the ESCF is too forthcoming or broad and that it does not afford the central bank sufficient protection. This paper first explains and justifies the logic of collateral frameworks in general and that of the ESCF in particular.

It then reviews the main critical comments. It concludes that the ESCF has been effective i in providing an adequate level of elasticity for Eurosystem credit, and ii in protecting the Eurosystem from financial losses despite the severity of the financial and sovereign debt crisis and the large amounts of longer-term credit provided by the Eurosystem. This paper provides a comprehensive overview of the use of the Eurosystem's monetary policy instruments and the operational framework from the third quarter of until the first quarter of Starting with reference data from September , credit institutions in the euro area, and possibly elsewhere in the EU, will report to the ECB via the national central banks NCBs individual credit exposures falling within the reporting scope.

The reporting framework is the outcome of in-depth discussions within the ESCB involving several rounds of consultations with users, the industry and other stakeholders. As set out in the Regulation, AnaCredit will, already in Stage 1, significantly enhance the value for analysis on credit and credit risk in the euro area by providing detailed, timely and harmonised information on individual exposures to legal entities as counterparts.

The new data will be useful for several key tasks of the ESCB for a better analysis of credit distribution to the economy, e. The scope of the project might be further expanded in future stages to cover additional lenders, borrowers and instruments. The purpose of this paper is to reflect and illustrate the methodological work and process leading to the definition of the AnaCredit requirements that were eventually included in the Regulation.

This report updates and extends earlier assessments of quantitative inflation perceptions and expectations of consumers in the euro area and the EU using an anonymised micro data set collected by the European Commission in the context of the Harmonised EU Programme of Business and Consumer Surveys. Confirming earlier findings, consumers' quantitative estimates of inflation are found to be higher than actual HICP Harmonised Index of Consumer Prices inflation over the entire sample period The analysis shows that European consumers hold different opinions of inflation depending on their income, age, education and gender.

Although many of the features highlighted for the EU and the euro area aggregates are valid across individual Member States, differences exist also at the country level. Even respondents providing estimates largely above actual HICP inflation, demonstrate understanding of the relative level of inflation during both high and low inflation periods.

Based on these economically plausible results, the report concludes that further work should be devoted to defining concrete aggregate indicators of consumers' quantitative inflation perceptions and expectations on the basis of the dataset used in this study. Moreover, it outlines a number of future research topics that can be addressed by exploiting the enormous potential of the data set.

The euro area sovereign debt crisis has highlighted the importance of reducing public debt levels and building up sufficient fiscal buffers during normal and good times. It has also reaffirmed the need for a thorough debt sustainability analysis DSA to act as a warning system for national policies. This paper introduces a comprehensive DSA framework for euro area sovereigns that could be used for analysis of fiscal risks and vulnerabilities.

Specifically, this framework consists of three main building blocks: i a deterministic DSA, which embeds debt simulations under a benchmark and various narrative shock scenarios; ii a stochastic DSA, providing for a probabilistic approach to debt sustainability; and iii other relevant indicators capturing liquidity and solvency risks. The information embedded in the three main DSA blocks can be summarised in a heat map, which can provide guidance on the overall assessment of risks to debt sustainability. This method reflects the need to have a broad-based assessment, cross-checking information and perspectives from various sources with a view to deriving a robust debt sustainability assessment.

This paper reviews institutional and structural challenges in countries preparing for EU membership, i.

Protection and Liberalization : A Review of Analytical Issues

Sound institutions and solid economic structures are not only the cornerstones of EU accession as defined by the Copenhagen political and economic criteria , but are also crucial for achieving higher income levels and sustainable long-term growth. Countries such as the former Yugoslav Republic of Macedonia, Montenegro and, to a certain extent, Serbia and Turkey, tend to score on average higher than Albania, Bosnia and Herzegovina and Kosovo.

Papsdorf, Patrick , Testi, Sara. The study aims to assess the resilience of the system, defined as the network of its participants, and the appropriateness of liquidity levels under tightened liquidity conditions. The scenarios analysed are based on extreme shocks to the value of collateral of different levels and types that lead to a decrease in the intraday credit lines available in TARGET2 and, as a result, the payment capacity of TARGET2 participants.

The tool used to perform these stress tests is the TARGET2 simulator, which provides access to real transaction level data and allows simulations to be run by changing parameters, in this case the credit lines. The period under analysis is one maintenance period for the years to In general, the stress-testing indicates that the system is resilient under the stress scenarios; liquidity levels seem to be appropriate and supported by the efficient liquidity management features of TARGET2.

The scenario results take also into account that the period under analysis was characterised by unconventional monetary policy measures. This paper analyses the appropriateness of the euro area fiscal stance. In this context, the paper presents the relevant definitions and how the euro area fiscal stance has evolved over time. Furthermore, it contains an evaluation of the appropriateness of the euro area aggregated fiscal stance set out in the European Commission. After , inflation has been unexpectedly low across much of the developed world and economists speak of a.

The last decade has been characterised by the pronounced volatility of capital flows. While cross-border capital flows can have many benefits for both advanced and emerging market economies, they may also carry risks, which require appropriate policy responses. Disentangling the push from the pull factors driving capital flows is key to designing appropriate policies to deal with them. Strong institutions, sound fundamentals and a large domestic investor base tend to shield economies from adverse global conditions and attract less volatile types of capital.

However, when the policy space for using traditional macroeconomic policies is limited, countries may also turn to macroprudential and capital flow management policies in a pragmatic manner. The IMF can play an important role in helping countries to deal with capital flows, through its surveillance and lending policy and through international cooperation. Since its introduction in , the BLS has received growing attention and has become of key importance for the analysis and assessment of bank lending conditions in the euro area and at the national level. In particular in the context of the financial crisis, the BLS was used to gather additional information on the impact of the crisis and of the ECB.

Global trade has been exceptionally weak over the past four years. While global trade grew at approximately twice the rate of GDP prior to the Great Recession, the ratio of global trade to GDP growth has declined to about unity since This paper assesses to what extent the change in the relationship between global trade and global economic activity is a temporary phenomenon or constitutes a lasting change. It finds that global trade growth has been primarily dampened by two factors.

First, compositional factors, including geographical shifts in economic activity and changes in the composition of aggregate demand, have weighed on the sensitivity of trade to economic activity. Second, structural developments, such as waning growth in global value chains, a rise in non-tariff protectionist measures and a declining marginal impact of financial deepening, are dampening the support from factors that boosted global trade in the past.

Notwithstanding the particularly pronounced weakness in that is assessed to be mostly a temporary phenomenon owing to a number of country-specific adverse shocks, the upside potential for trade over the medium term appears to be limited. This paper critically reviews the theoretical basis for the provision of the global financial safety net GFSN and provides a comprehensive database covering four elements of the GFSN foreign exchange reserves, IMF financing, central bank swap lines and regional financing arrangements for over countries in the sample period This paper also presents some key stylised facts regarding the provision of GFSN financing and compares macroeconomic outcomes in capital flow reversal episodes depending on how much GFSN financing was available to countries.

Finally, this paper concludes with some avenues for further research on the possible evolution of the GFSN. This paper examines the overall macroeconomic impact arising from reform in government wages and employment, at times of fiscal consolidation. Reform of these two components of the government wage bill appeared necessary for containing the deterioration of the public finances in several EU countries, as a consequence of the financial crisis.

Such reforms entailed in some instances, but not always, the implementation of cost-cutting measures affecting the government wage bill, as part of broader consolidation packages that typically hinged more heavily on other fiscal instruments, like public investment. While such measures have adverse short-term macroeconomic effects, public wage bill restraining policy changes present the idiosyncrasy that they can yield medium- to longer-term benefits due to possible competitiveness and efficiency gains through their impact on labour market dynamics.

This paper provides some evidence of such medium- to long-run effects, based on a wealth of micro and macro data in the euro area and the EU. It concludes that appropriately designed government wage bill moderation could indeed produce positive dividends to the economy, which depend on certain country-specific conditions. These gains can be reinforced by relevant fiscal-structural reforms.

This paper revisits the empirical relationship between unemployment and output, and its evolution following the financial crisis of , with the aim of drawing potential consequences for labour market modelling strategies in place within the European System of Central Banks ESCB. Focusing on the euro area, the financial distress seems to have altered the dynamics of output and unemployment mainly at lower frequencies, interpreted as trend developments by the statistical filters used in the analysis.

In terms of policy implications, the importance of the interplay between financial and labour market frictions in trend developments should be read as strong support for an ambitious structural reform agenda in Europe, so as to make our labour and goods markets more flexible and resilient. This paper first highlights the structural features of shadow banking in the euro area, focussing on investment funds. It then discusses the potential systemic risks that the recent expansion of the investment fund sector presents. While investment funds provide important intermediation services to the real sector, including market and liquidity risk-sharing and the bridging of information gaps, their rapid expansion may present systemic risks that need to be detected, monitored and managed.

In particular, the risk of fund outflows and the possible negative impacts on the wider financial system have risen due to the rapid expansion of the investment fund sector, its growing involvement in capital markets, its use of synthetic leverage, and the inherent and growing maturity and liquidity mismatch arising from the demandable nature of fund share investments. While available data suggest that vulnerabilities within the investment fund sector are growing and links to the wider financial system and real economy have strengthened, data limitations prevent drawing a definitive conclusion on the sectors' contribution to systemic risk.

This paper reviews the debate on the longer-term requirements for safeguarding the euro as a currency beyond the state that is anchored through collective governance instead of a central government. The strengthening of EU economic and financial governance in the wake of the euro area crisis goes a long way towards creating the minimum conditions for a more perfect EMU.

At the same time, the current principle of nation states coordinating their sovereignty to. Over the last decade, information technology has contributed significantly to the evolution of financial markets, without, however, revolutionising the way in which financial institutions interact with one another.

This may be about to change, as some market players are now predicting that new database technologies, such as blockchain and other distributed ledger technologies DLTs , could be the source of an imminent revolution. This paper analyses the main features of DLTs that could influence their potential adoption by financial institutions and discusses how the use of these technologies could affect the European post-trade market for securities.

The original protocol underlying DLTs has its roots in the anarchic world of virtual currencies, which operate outside the conventional financial system. The public debate on DLTs has also been very much focused on the revolutionary potential of the technology. This paper concludes that, irrespective of the technology used and the market players involved, certain processes that feature in the post-trade market for securities will still need to be performed by institutions. DLTs could, however, stimulate a reorganisation of financial markets, which could in turn: i reduce reconciliation costs, ii streamline the post-trade value chain, and iii allow more efficient use to be made of collateral and regulatory capital.

It should, nevertheless, be remembered that research into DLTs and their uses is at an early stage. The scope for financial institutions to adopt DLTs and their potential impact on mainstream financial markets are still unclear. This paper discusses three potential models of how market players could adopt DLTs for performing core post-trade functions. The DLT could be adopted either: i in clusters, ii collectively, or iii peer to peer. The evaluation of the three adoption models assumes that they are all equally compatible with the regulatory framework.

It shows that, assuming this to be the case, they would each have different advantages and costs. Following the emergence of the financial crisis in August , the Basel Committee on Banking Supervision established in a new global regulatory framework. In addition to raising capital requirements, it introduced three ratios, two of which set out minimum standards for liquidity and funding risk, i. All three ratios can have a number of implications for monetary policy implementation, in particular the liquidity coverage ratio and the net stable funding ratio owing to the special role of central banks in providing liquidity.

This paper investigates the extent to which the regulatory initiatives might have already had an impact on banks. This paper deals with the phenomenon of high levels of unofficial euroisation in countries preparing for EU membership Albania, Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia, Serbia and Turkey. The challenges stemming from unofficial euroisation are particularly relevant for central banks as high degrees of euroisation reduce the effectiveness of monetary policy and create risks to financial stability.

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Why Does Trade Liberalization Take Place on a Reciprocal Basis?

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Protection and export performance in Sub-Saharan Africa

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