Magyar nyelven nem elérhető
Georgios Georgiadis
International & European Relations
- Division
International Policy Analysis
- Current Position
-
Principal Economist
- Fields of interest
-
Macroeconomics and Monetary Economics,International Economics
- Education
- 2006-2012
PhD in Economics at Goethe University Frankfurt (Advisers: Michael Binder, Thomas Laubach)
- Professional experience
- 2022-
Principal Economist - International Policy Analysis Division, Directorate General International & European Relations, European Central Bank
- 2020-2021
Senior Economist - International Policy Analysis Division, Directorate General International & European Relations, European Central Bank
- 2012-2020
Economist - International Policy Analysis Division, Directorate General International & European Relations, European Central Bank
- 20 November 2024
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 2, 2024Details
- Abstract
- Recent episodes of widening sovereign bond spreads have led to renewed concerns about financial stability related to sovereign risk in the euro area. Against this backdrop, this box presents an empirical analysis of the shifts in financing conditions for both sovereigns and non-financial corporations, as well as changes in the sovereign bond holdings of domestic and foreign investors following a sovereign stress shock. The analysis finds that financing conditions for sovereigns and firms deteriorate after sovereign stress events, while financial and political uncertainty increase. When sovereign stress events occur, investment funds and global investors withdraw from euro sovereign debt markets, while domestic investors step in.
- JEL Code
- F34 : International Economics→International Finance→International Lending and Debt Problems
F45 : International Economics→Macroeconomic Aspects of International Trade and Finance
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 5 December 2023
- WORKING PAPER SERIES - No. 2881Details
- Abstract
- We estimate spillovers from US monetary policy for different measures in the Federal Reserve’s toolkit. We make use of novel measures of exogenous variation in conventional rate policy, forward guidance and large-scale asset purchases (LSAPs) based on high-frequency asset-price surprises around Federal Open Market Committee meetings. The identification relies on relatively weak assumptions and accounts for the possible presence of residual endogenous components—such as central bank information effects—in these monetary policy surprises. We find that: (i) forward guidance and LSAPs trigger much larger spillovers than conventional rate policy; (ii) spillovers transmit predominantly through financial channels centering on global investors’ risk appetite and manifest in changes in equity prices, bond spreads, capital flows and the dollar exchange rate; (iii) LSAPs trigger immediate international portfolio re-balancing between US and advanced-economy bonds, but generally entail only rather limited term premium spillovers;(iv) both forward guidance and LSAPs entail trade-offs for emerging-market-economy central banks, either between stabilizing output and prices or between additionally ensuring financial stability in terms of capital inflows.
- JEL Code
- F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
C50 : Mathematical and Quantitative Methods→Econometric Modeling→General
- 31 May 2023
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2023Details
- Abstract
- Foreign investors have a significant footprint in euro area government bond markets, but this has fallen since the Eurosystem launched its asset purchase programmes. Against this background, this box analyses the role and behaviour of global and domestic investment funds in euro area government bond markets. The results indicate that after global risk shocks, domestic investment funds tend to turn to euro area government bonds, while global funds cut back their exposures. Moreover, after events that lead to spreads widening among euro area government bond markets, global investment funds tend to play a stabilising role in euro area government bond markets since they typically increase their exposure to medium or lower-rated euro area government bonds.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
F30 : International Economics→International Finance→General
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 17 December 2021
- WORKING PAPER SERIES - No. 2628Details
- Abstract
- How does global risk impact the world economy? In taking up this question, we focus on the dollar’s role in the international adjustment mechanism. First, we rely on high-frequency surprises in the price of gold to identify the effects of global risk shocks in a Bayesian Proxy VAR model. They cause a synchronized contraction of global economic activity and appreciate the dollar. Other key financial indicators adjust in line with pre-dictions of recent theoretical work. Second, we illustrate through counterfactuals that the dollar appreciation amplifies the adverse impact of global risk shocks outside of the US via a financial channel.
- JEL Code
- F31 : International Economics→International Finance→Foreign Exchange
F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
F44 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Business Cycles
- 19 November 2021
- WORKING PAPER SERIES - No. 2613Details
- Abstract
- We quantify spillbacks from US monetary policy based on structural scenario analysis and minimum relative entropy methods applied in a Bayesian proxy structural vector-autoregressive model estimated on data for the time period from 1990 to 2019. We find that spillbacks account for a non-trivial share of the overall slowdown in domestic real activity in response to a contractionary US monetary policy shock. Our analysis suggests that spillbacks materialise as Tobin’s q/cash flow and stock market wealth effects impinge on US investment and consumption. Contractionary US monetary policy depresses foreign sales of US firms, which reduces their valuations/cash flows and thereby induces cutbacks in investment. Similarly, as contractionary US monetary policy depresses US and foreign equity prices, the value of US households’ portfolios is reduced, which triggers a drop in consumption. Net trade does not contribute to spillbacks because US monetary policy affects exports and imports similarly. Finally, spillbacks materialise through advanced rather than emerging market economies, consistent with their relative importance in US firms’ foreign demand and US foreign equity holdings.
- JEL Code
- F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
C50 : Mathematical and Quantitative Methods→Econometric Modeling→General
- 21 September 2021
- OCCASIONAL PAPER SERIES - No. 263Details
- Abstract
- This paper assesses how globalisation has shaped the economic environment in which the ECB operates and discusses whether this warrants adjustments to the monetary policy strategy. The paper first looks at how trade and financial integration have evolved since the last strategy review in 2003. It then examines the effects of these developments on global productivity growth, the natural interest rate (r*), inflation trends and monetary transmission. While trade globalisation initially boosted productivity growth, this effect may be waning as trade integration slows and market contestability promotes a winner-takes-all environment. The impact of globalisation on r* has been ambiguous: downward pressures, fuelled by global demand for safe assets and an increase in the propensity to save against a background of rising inequality, are counteracted by upward pressures, from the boost to global productivity associated with greater trade integration. Headline inflation rates have become more synchronised globally, largely because commodity prices are increasingly determined by global factors. Meanwhile, core inflation rates show a lower degree of commonality. Globalisation has made a rather modest contribution to the synchronised fall in trend inflation across countries and contributed only moderately to the reduction in the responsiveness of inflation to changes in activity. Regarding monetary transmission, globalisation has made the role of the exchange rate more complex by introducing new mechanisms through which it affects financial conditions, real activity and price dynamics. Against the background of this discussion, the paper then examines the implications for the ECB’s monetary policy strategy. In doing so, it asks two questions. How is the ECB’s economic and monetary analysis affected by globalisation? And how does globalisation influence the choice of the ECB’s monetary policy objective and instruments? ...
- JEL Code
- E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
F44 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Business Cycles
F62 : International Economics→Economic Impacts of Globalization→Macroeconomic Impacts
F65 : International Economics→Economic Impacts of Globalization→Finance
- 27 July 2021
- WORKING PAPER SERIES - No. 2574Details
- Abstract
- The US dollar plays a dominant role in the invoicing of international trade, albeit not an exclusive one as more than half of global trade is invoiced in other currencies. Of particular interest are the euro, with a large role, and the renminbi, with a rising role. These two currencies are well suited to contrast the roles of economic fundamentals and policies, as European policy makers have taken a neutral stance in contrast to the promotion of the international role of the renminbi by the Chinese authorities. We assess the drivers of invoicing using the most recent and comprehensive data set for 115 countries over 1999-2019. We find that standard mechanisms that foster use of a large economy's currency predicted by theory – i.e. strategic complementarities in price setting and integration in cross-border value chains – underpin use of the dollar and the euro for trade with the United States and the euro area. These mechanisms also support the role of the dollar, but not the euro, in trade between non-US and non-euro area countries, making the dollar the globally dominant invoicing currency. Fundamentals and policies have played a contrasted role for the use of the renminbi. We find that China's integration into global trade has further strengthened the dominant status of the dollar at the expense of the euro. At the same time, the establishment of currency swap lines by the People's Bank of China has been associated with increases in renminbi invoicing, with an adverse effect on dollar use that is larger than for the euro.
- JEL Code
- F14 : International Economics→Trade→Empirical Studies of Trade
F31 : International Economics→International Finance→Foreign Exchange
F44 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Business Cycles
- 2 June 2021
- THE INTERNATIONAL ROLE OF THE EURO - SPECIAL FEATUREThe international role of the euro 2021
- 2 June 2021
- THE INTERNATIONAL ROLE OF THE EURO - BOXThe international role of the euro 2021
- 15 April 2021
- RESEARCH BULLETIN - No. 83Details
- Abstract
- ECB and Federal Reserve monetary policy both spill over to other countries. But these spillovers are asymmetric. Federal Reserve monetary policy shocks have a significant impact on economic activity in the euro area and the rest of the world, mainly by affecting financial conditions globally. Conversely, ECB monetary policy shocks have little impact on the US economy and on global financial conditions, but still significantly affect global trade and economic activity, especially in emerging markets.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
F3 : International Economics→International Finance
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
- 3 March 2021
- WORKING PAPER SERIES - No. 2530Details
- Abstract
- In a highly interlinked global economy a key question is how foreign shocks transmit to the domestic economy, how domestic shocks affect the rest of the world, and how policy actions mitigate or amplify spillovers. For policy analysis in such a context global multi-country macroeconomic models that allow a structural interpretation are needed. In this paper we present a revised version of ECB-Global, the European Central Bank's global macroeconomic model. ECB-Global 2.0 is a semi-structural, global multi-country model with rich channels of international shock propagation through trade, oil prices and global financial markets for the euro area, the US, Japan, the UK, China, oil-exporting economies, Emerging Asia, and a rest-of-the-world block. Relative to the original version of model, ECB-Global 2.0 features dominant-currency pricing, tariffs and trade diversion. We illustrate the usefulness of ECB-Global exploring scenarios motivated by recent trade tensions between China and the US.
- JEL Code
- C51 : Mathematical and Quantitative Methods→Econometric Modeling→Model Construction and Estimation
E30 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→General
E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General
- 20 October 2020
- RESEARCH BULLETIN - No. 76Details
- Abstract
- What does quantitative easing (QE) really mean for the exchange rate? This article explains how the relevant effects can be estimated using a statistical methodology derived from theory. The results suggest that QE has large and persistent effects on the USD/EUR exchange rate, mainly through shifts in exchange rate risk and short-term interest rates between the two currencies. Changes in expectations about the future monetary policy stance, reflecting the “signalling channel” of monetary policy, also affect how the USD/EUR exchange rate responds to QE.
- JEL Code
- F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
- 14 August 2020
- WORKING PAPER SERIES - No. 2456Details
- Abstract
- This paper presents the most comprehensive and up-to-date panel data set of invoicing currencies in global trade. It provides data on the shares of exports and imports invoiced in US dollars, euros, and other currencies for more than 100 countries since 1990. The evidence from these data confirms findings from earlier research regarding the globally dominant role of the US dollar in invoicing – despite the comparatively smaller role of the US in global trade – and the overall stability of invoicing currency patterns. But the evidence also points to several novel stylised facts. First, both the US dollar and the euro have been increasingly used for invoicing even as the share of global trade accounted for by the US and the euro area has declined. Second, the euro is used as a vehicle currency in parts of Africa, and some European countries have seen significant shifts toward euro invoicing. And third, as suggested by the dominant currency paradigm, countries invoicing more in US dollars (euros) tend to experience greater US dollar (euro) exchange rate pass-through to their import prices; also, their trade volumes are more sensitive to fluctuations in these exchange rates.
- JEL Code
- F14 : International Economics→Trade→Empirical Studies of Trade
F31 : International Economics→International Finance→Foreign Exchange
F44 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Business Cycles
- 13 May 2020
- WORKING PAPER SERIES - No. 2407Details
- Abstract
- This paper estimates and compares the international transmission of European Central Bank (ECB) and Federal Reserve System monetary policy in a unified and methodologically consistent framework. It identifies pure monetary policy shocks by purging them of the bias stemming from contemporaneous central bank information effects. The results suggest that there is a hierarchy in the global spillovers from ECB and Federal Reserve monetary policy: while the spillovers to consumer prices are relatively small in both directions, Federal Reserve monetary policy shocks have a larger impact on euro area financial markets and real activity. Federal Reserve monetary policy also has a significantly larger impact than ECB monetary policy on real and financial variables in the rest of the world.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
F3 : International Economics→International Finance
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission - Network
- Research Task Force (RTF)
- 13 May 2020
- DISCUSSION PAPER SERIES - No. 10Details
- Abstract
- This paper estimates and compares the international transmission of European Central Bank (ECB) and Federal Reserve System monetary policy in a unified and methodologically consistent framework. It identifies pure monetary policy shocks by purging them of the bias stemming from contemporaneous central bank information effects. The results suggest that there is a hierarchy in the global spillovers from ECB and Federal Reserve monetary policy: while the spillovers to consumer prices are relatively small in both directions, Federal Reserve monetary policy shocks have a larger impact on euro area financial markets and real activity. Federal Reserve monetary policy also has a significantly larger impact than ECB monetary policy on real and financial variables in the rest of the world.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
F3 : International Economics→International Finance
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
- 6 November 2019
- WORKING PAPER SERIES - No. 2327Details
- Abstract
- This paper draws a causal link between the rise of global value chain participation and the decline of exchange rate pass-through to import prices over the last decades. We first present a structural two-country model in order to illustrate how participation in global value chains can impact exchange rate pass-through to import prices. In the model, the sensitivity of an economy's domestic-currency production costs to exchange rate changes rises as it participates more in global value chains by importing a larger share of its intermediate inputs. The increased sensitivity of the economy's domestic-currency production costs to exchange rate changes translates into a higher sensitivity of its domestic-currency export prices. The latter implies a reduction of the sensitivity of the economy's foreign-currency export prices – i.e. its trading partner's local-currency import prices – to exchange rate changes. Hence, an increase in the economy's global value chain participation implies a fall in its trading partner's exchange rate pass-through to import prices. We then provide empirical evidence in a cross-country panel dataset for the time period from 1995 to 2014 that is consistent with the mechanisms spelled out in the structural model. In particular, the data suggest that exchange rate pass-though to export prices is higher in economies which participate more in global value chains, and that exchange rate pass-though to import prices is lower in economies whose trading partners participate more in global value chains. Quantitatively, our estimates imply that the rise in global value chain participation can account for about 50% of the decline in exchange rate pass-through to import prices since the mid-1990s.
- JEL Code
- F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
F62 : International Economics→Economic Impacts of Globalization→Macroeconomic Impacts
- 4 October 2019
- WORKING PAPER SERIES - No. 2321Details
- Abstract
- A large share of global trade being priced and invoiced primarily in US dollar rather than the exporter’s or the importer’s currency has important implications for the transmission of shocks. We introduce this “dominant currency pricing” (DCP) into ECB-Global, the ECB’s macroeconomic model for the global economy. To our knowledge, this is the first attempt to incorporate DCP into a major global macroeconomic model used at central banks or international organisations. In ECB-Global, DCP affects in particular the role of expenditure-switching and the US dollar exchange rate for spillovers: In case of a shock in a non-US economy that alters the value of its currency multilaterally, expenditure-switching occurs only through imports; in case of a US shock that alters the value of the US dollar multilaterally, expenditure-switching occurs both in non-US economies’ imports and – as these are imports of their trading partners – exports. Overall, under DCP the US dollar exchange rate is a major driver of global trade, even for transactions that do not involve the US. In order to illustrate the usefulness of ECB-Global and DCP for policy analysis, we explore the implications of the euro rivaling the US dollar as a second dominant currency in global trade. According to ECB-Global, in such a scenario the global spillovers from US shocks are smaller, while those from euro area shocks are amplified; domestic euro area monetary policy effectiveness is hardly affected by the euro becoming a second globally dominant currency in trade.
- JEL Code
- F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
C50 : Mathematical and Quantitative Methods→Econometric Modeling→General
- 14 August 2019
- WORKING PAPER SERIES - No. 2308Details
- Abstract
- Different export-pricing currency paradigms have different implications for a host of issues that are critical for policymakers such as business cycle co-movement, optimal monetary policy, optimum currency areas and international monetary policy co-ordination. Unfortunately, the literature has not reached a consensus on which pricing paradigm best describes the data. Against this background, we test for the empirical relevance of dominant-currency pricing (DCP). Specifically, we first set up a structural three-country New Keynesian dynamic stochastic general equilibrium model which nests DCP, producer-currency pricing (PCP) and local-currency pricing (LCP). In the model, under DCP the output spillovers from shocks that appreciate the US dollar multilaterally decline with an economy’s export-import US dollar pricing share differential, i.e. the difference between the share of an economy’s exports and imports that are priced in the dominant currency. Underlying this prediction is a change in an economy’s net exports in response to multilateral changes in the US dollar exchange rate that arises because of differences in the extent to which exports and imports are priced in the dominant currency. We then confront this prediction of DCP with the data in a sample of up to 46 advanced and emerging market economies for the time period from 1995 to 2018. Specifically, controlling for other cross-border transmission channels, we document that consistent with the prediction from DCP the output spillovers from US dollar appreciation correlate negatively with recipient economies’ export-import US dollar invoicing share differentials. We document that these findings are robust to considering US demand, US monetary policy and exogenous exchange rate shocks as a trigger of US dollar appreciation, as well as to accounting for the role of commodity trade in US dollar invoicing.
- JEL Code
- F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
C50 : Mathematical and Quantitative Methods→Econometric Modeling→General
- 14 August 2019
- WORKING PAPER SERIES - No. 2307Details
- Abstract
- This paper proposes mixed-frequency distributed-lag (MFDL) estimators of impulse response functions (IRFs) in a setup where (i) the shock of interest is observed, (ii) the impact variable of interest is observed at a lower frequency (as a temporally aggregated or sequentially sampled variable), (iii) the data generating process (DGP) is given by a VAR model at the frequency of the shock, and (iv) the full set of relevant endogenous variables entering the DGP is unknown or unobserved. Consistency and asymptotic normality of the proposed MFDL estimators is established, and their small-sample performance is documented by a set of Monte Carlo experiments. The proposed approach is then applied to estimate the daily pass-through of changes in crude oil prices observed at the daily frequency to U.S. gasoline consumer prices observed at the weekly frequency. We find that the pass-through is fast, with about 23% of the crude oil price changes passed through to retail gasoline prices within five working days, representing about 42% of the long-run pass-through.
- JEL Code
- C22 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models &bull Diffusion Processes
- 6 August 2019
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 5, 2019Details
- Abstract
- This article discusses the hypothesis that part of the decline in exchange rate pass-through to import prices has been the result of the rise of global value chains.
- JEL Code
- F13 : International Economics→Trade→Trade Policy, International Trade Organizations
F14 : International Economics→Trade→Empirical Studies of Trade
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
- 5 August 2019
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 5, 2019Details
- Abstract
- This box assesses recent empirical analysis claiming that services trade liberalisation could be a remedy for global imbalances. The main finding of the box is that global imbalances – i.e. the magnitude of current account surpluses and deficits across countries – would remain essentially unchanged as a result of services trade liberalisation. Nonetheless (services) trade liberalisation should be expected to raise welfare overall, e.g. by fostering productivity growth.
- JEL Code
- F13 : International Economics→Trade→Trade Policy, International Trade Organizations
F14 : International Economics→Trade→Empirical Studies of Trade
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
- 13 June 2019
- THE INTERNATIONAL ROLE OF THE EURO - SPECIAL FEATUREThe international role of the euro 2019
- 13 June 2019
- THE INTERNATIONAL ROLE OF THE EURO - BOXThe international role of the euro 2019
- 17 April 2019
- WORKING PAPER SERIES - No. 2267Details
- Abstract
- We assess the empirical validity of the trilemma (or impossible trinity) in the 2000s for a large sample of advanced and emerging economies. To do so, we estimate Taylor-rule type monetary policy reaction functions, relating the local policy rate to real-time forecasts of domestic fundamentals, global variables, as well as the base-country policy rate. In the regressions, we explore variations in the sensitivity of local to base-country policy rates across different degrees of exchange rate flexibility and capital controls. We find that the data are in general consistent with the predictions from the trilemma: Both exchange rate flexibility and capital controls reduce the sensitivity of local to base-country policy rates. However, we also find evidence that is consistent with the notion that the financial channel of exchange rates highlighted in recent work reduces the extent to which local policymakers decide to exploit the monetary autonomy in principle granted by flexible exchange rates in specific circumstances: The sensitivity of local to base-country policy rates for an economy with a flexible exchange rate is stronger when it exhibits negative foreign-currency exposures which stem from portfolio debt and bank liabilities on its external balance sheet and when base-country monetary policy is tightened. The intuition underlying this finding is that it may be optimal for local monetary policy to mimic the tightening of base-country monetary policy and thereby mute exchange rate variation because a depreciation of the local currency would raise the cost of servicing and rolling over foreign-currency debt and bank loans, possibly up to a point at which financial stability is put at risk.
- JEL Code
- F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
C50 : Mathematical and Quantitative Methods→Econometric Modeling→General
- 14 November 2018
- WORKING PAPER SERIES - No. 2197Details
- Abstract
- We estimate the effects of quantitative easing (QE) measures by the ECB and the Federal Reserve on the US dollar-euro exchange rate at frequencies and horizons relevant for policymakers. To do so, we derive a theoretically-consistent local projection regression equation from the standard asset pricing formulation of exchange rate determination. We then proxy unobserved QE shocks by future changes in the relative size of central banks’ balance sheets, which we instrument with QE announcements in two-stage least squares regressions in order to account for their endogeneity. We find that QE measures have large and persistent effects on the exchange rate. For example, our estimates imply that the ECB’s APP program which raised the ECB’s balance sheet relative to that of the Federal Reserve by 35 percentage points between September 2014 and the end of 2016 depreciated the euro vis-à-vis the US dollar by a 12%. Regarding transmission channels, we find that a relative QE shock that expands the ECB’s balance sheet relative to that of the Federal Reserve depreciates the US dollar-euro exchange rate by reducing euro-dollar short-term money market rate differentials, by widening the cross-currency basis and by eliciting adjustments in currency risk premia. Changes in the expectations about the future monetary policy stance, reflecting the “signalling” channel of QE, also contribute to the exchange rate response to QE shocks.
- JEL Code
- E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
F3 : International Economics→International Finance - Network
- Research Task Force (RTF)
- 23 June 2017
- WORKING PAPER SERIES - No. 2082Details
- Abstract
- Financial globalisation and spillovers have gained immense prominence over the last two decades. Yet, powerful cross-border financial spillover channels have not become a standard element of structural monetary models. Against this background, we hypothesise that New Keynesian DSGE models that do not feature powerful financial spillover channels confound the effects of domestic and foreign disturbances when confronted with the data. We derive predictions from this hypothesis and subject them to data on monetary policy shock estimates for 29 economies obtained from more than 280 monetary models in the literature. Consistent with the predictions from our hypothesis we find: Monetary policy shock estimates obtained from New Keynesian DSGE models that do not account for powerful financial spillover channels are contaminated by a common global component; the contamination is more severe for economies that are more susceptible to financial spillovers in the data; and the shock estimates imply implausibly similar estimates of the global output spillovers from monetary policy in the US and the euro area. None of these findings applies to monetary policy shock estimates obtained from VAR and other statistical models, financial market expectations and the narrative approach.
- JEL Code
- F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
C50 : Mathematical and Quantitative Methods→Econometric Modeling→General
- 18 April 2017
- WORKING PAPER SERIES - No. 2045Details
- Abstract
- In a highly interlinked global economy a key question for policy makers is how foreign shocks and policies transmit to the domestic economy. We develop a semi-structural multi-country model with rich real and financial channels of international shock propagation for the euro area, the US, Japan, the UK, China, oil-exporting economies and the rest of the world: ECB-Global. We illustrate the usefulness of ECB-Global for policy analysis by presenting its predictions regarding the global spillovers from a US monetary policy tightening, a drop in oil prices and a growth slowdown in China. The impulse responses implied by ECB-Global are well in line with those generated by other global models, with international spillovers in ECB-Global generally on the high side given its rich real and financial spillover structure.
- JEL Code
- C51 : Mathematical and Quantitative Methods→Econometric Modeling→Model Construction and Estimation
E30 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→General
E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General
- 24 November 2015
- WORKING PAPER SERIES - No. 1868Details
- Abstract
- Asymptotic analysis and Monte Carlo simulations show that spillover estimates obtained from widely-used bilateral (such as two-country VAR) models are significantly less accurate than those obtained from multilateral (such as global VAR) models. In particular, the accuracy of spillover estimates obtained from bilateral models depends on two aspects of economies
- JEL Code
- F44 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Business Cycles
C33 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Panel Data Models, Spatio-temporal Models
- 25 September 2015
- WORKING PAPER SERIES - No. 1854Details
- Abstract
- This paper assesses the global spillovers from identified US monetary policy shocks in a global VAR model. US monetary policy generates sizable output spillovers to the rest of the world, which are larger than the domestic effects in the US for many economies. The magnitude of spillovers depends on the receiving country
- JEL Code
- F4 : International Economics→Macroeconomic Aspects of International Trade and Finance
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
C3 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables
- 7 August 2015
- WORKING PAPER SERIES - No. 1839Details
- Abstract
- During the sovereign debt crisis investors rebalanced out of stressed and into non-stressed euro area countries, thereby contributing to the tensions in euro area financial markets. This paper examines the geographical pattern of this great rebalancing. Specifically, we test whether euro area and non-euro area investors adjusted their holdings of debt securities of euro area stressed and non-stressed countries dis-proportionately relative to benchmarks derived from a standard gravity model for portfolio choice. We find that non-euro area investors under-invested in stressed euro area countries, but did not over-invest in non-stressed euro area countries. As regards intra-euro area flows, we do not find evidence for a disproportionate slowdown of capital flows from non-stressed into stressed euro area countries. Instead, our results suggest that investors in stressed euro area countries disproportionately shifted capital into debt securities of non-stressed euro area countries. Finally, we find that both non-euro area investors' under-investment in stressed countries and stressed euro area investors' over-investment in non-stressed euro area countries ceased after the announcement of the ECB's OMT programme.
- JEL Code
- F34 : International Economics→International Finance→International Lending and Debt Problems
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
G15 : Financial Economics→General Financial Markets→International Financial Markets
- 16 July 2014
- THE INTERNATIONAL ROLE OF THE EURO - SPECIAL FEATUREThe international role of the euro
- 27 November 2013
- WORKING PAPER SERIES - No. 1618Details
- Abstract
- Existing evidence suggests that protectionist activity since the financial crisis has been muted, raising the question whether the historically well-documented relationship between growth, real exchange rates and trade protectionism has broken down. This paper re-visits this relationship for the time period since 2009. To this end, we use a novel and comprehensive dataset which considers a wide range of trade policies stretching beyond the traditionally considered tariff and trade defence measures. We find that the specter of protectionism has not been banished: Countries continue to pursue more trade-restrictive policies when they experience recessions and/or when their competitiveness deteriorates through an appreciation of the real exchange rate; and this finding holds for a wide array of contemporary trade policies, including
- JEL Code
- F13 : International Economics→Trade→Trade Policy, International Trade Organizations
F14 : International Economics→Trade→Empirical Studies of Trade
- 2 July 2013
- THE INTERNATIONAL ROLE OF THE EURO - SPECIAL FEATUREThe international role of the euro 2013
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