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Chiara Osbat
Economics
- Division
Prices & Costs
- Current Position
-
Adviser
- Fields of interest
-
Macroeconomics and Monetary Economics,International Economics,Mathematical and Quantitative Methods
- Other current responsibilities
- 2015-
Editorial Board Member, ECB Working Paper Series
- Education
- 2003
PhD in Economics, European University Institute, Florence, Italy
- 1996
Degree in Political Science with specialisation in International Relations and Economics, University of Pisa, Italy
- Professional experience
- 2014
Adviser, Prices and Costs Division, DG-Economics, ECB
- 2000-2012
Economist, Senior Economist and Principal Economist, External Developments Division, DG-Economics, ECB
- 2012-13
Principal Economist, Euro Area Macroeconomic Developments Division, DG-Economics, ECB
- 24 April 2024
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 3, 2024Details
- Abstract
- The pricing decisions of firms are a key determinant of inflation. To understand inflation dynamics, it is necessary to analyse how often and by how much individual prices change. This article discusses what micro price data gathered by the European System of Central Banks’ Price-setting Microdata Analysis Network (PRISMA) tell us about the way firms set their prices. The results point to state dependence in pricing, whereby firms change prices more frequently following large shocks. This also affects the transmission of monetary policy. Evidence from recent microdata as at the end of 2023 suggests that, after an increase in the frequency of price changes following the unusually large shocks experienced since 2020, price changes in the euro area are starting to behave in a more similar way to the pre-pandemic period.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
- 17 July 2023
- OCCASIONAL PAPER SERIES - No. 323Details
- Abstract
- This paper provides an extensive literature review and analyses some open issues in the measurement of inflation that can only be explored in depth using micro price data. It builds on the analysis done in the context of the ECB’s strategy review, which pointed at directions for improvement of the Harmonised Index of Consumer Prices (HICP), including better quantification of potential biases. Two such biases are the substitution bias and the quality adjustment bias. Most analyses of substitution bias rest on the concept of the cost of living, positing that preferences are stable, homogeneous and homothetic. Consumer behaviour is characterised by preference shifts and heterogeneity, which influence the measurement of the cost of living and substitution bias. Climate change may make the impact of preference shifts particularly relevant as it causes the introduction of new varieties of “green” goods and services (zero-kilometre food, sustainable tourism) and a shift from “brown” to “green” products. Furthermore, PRISMA data show that consumption baskets and thus inflation vary across income classes (e.g. higher-income households tend to buy more expensive goods), pointing to non-homotheticity of preferences. When preferences are heterogeneous and/or non-homothetic, it is important to monitor different experiences of inflation across classes of consumers/citizens. This is particularly important when very large relative price changes affect items that enter the consumption baskets of the rich and the poor, the young and the old, in very different proportions. Another open area of analysis concerns the impact of quality adjustment on measured inflation. Evidence based on web-scraped prices shows that the various implicit quality adjustment methods can produce widely varying inflation trends when product churn is fast. In the euro area specifically, using different quality adjustment methods can be an overlooked source of divergent inflation trends in sub-categories, and, if pervasive, shows up in overall measured inflation divergence across countries.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
- 17 July 2023
- OCCASIONAL PAPER SERIES - No. 320Details
- Abstract
- E-commerce has become more prevalent throughout Europe in the last decade. The coronavirus (COVID-19) pandemic accelerated this trend, particularly in the retail sector. This paper focuses on the implications of increasing business-to-consumer e-commerce for prices and inflation in the euro area. It highlights three key results. First, whether online prices and inflation are higher or lower than their offline counterparts depends on the distribution model, the sector and the country. Moreover, properly selected online prices track official inflation indices even in real time. Second, the effect of e-commerce on inflation appears to be transient and differs between countries. However, as the penetration of some markets is still low, these transitory effects will likely persist at the euro area level for several years. Third, online prices change more frequently than offline prices. This might lead to greater price flexibility overall as online trade gains market share in a growing number of sectors.
- JEL Code
- D4 : Microeconomics→Market Structure and Pricing
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
L11 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance→Production, Pricing, and Market Structure, Size Distribution of Firms
- 16 May 2023
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 3, 2023Details
- Abstract
- This article presents evidence on the distributional effects of the recent surge in inflation on households. Households experience inflation differently depending on their spending allocation. When the prices of essential goods rise, low-income households are particularly affected. Households also have different exposures to inflationary shocks depending on the income they allocate to consumption, their income risk and the composition of their wealth. In the current inflationary episode, the resilience of the labour market and the provision of fiscal support have so far tempered some of the adverse distributional consequences of high inflation on social welfare.
- JEL Code
- E01 : Macroeconomics and Monetary Economics→General→Measurement and Data on National Income and Product Accounts and Wealth, Environmental Accounts
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E64 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Incomes Policy, Price Policy
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
- 9 November 2022
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 7, 2022Details
- Abstract
- This box examines the impact of the recent rise in inflation on low-income households in the euro area. Low-income households face significantly higher effective inflation rates than high-income households, due to a different composition of their consumption basket. Moreover, they are more liquidity-constrained and have less room to buffer sharp increases in their cost of living. Survey-based evidence shows that low-income households perceive the recent government measures aimed at easing the burden of higher energy prices as less adequate than high-income households do. This could suggest that there is potential for government support measures to be more targeted towards low-income households.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
- 13 July 2022
- WORKING PAPER SERIES - No. 2681Details
- Abstract
- We estimate the response of product-level retail prices to changes in the corporate tax rates paid by wholesale producers (pass-through). Under perfect competition in goods and factor markets, pass-through of corporate taxes should be zero, and their incidence mainly falls on factor prices. We use variation in tax rates across time and space in Germany, where municipalities set the local business tax once a year, to provide estimates of tax pass-through into the retail prices of more than 125,000 food and personal care products sold across Germany. By leveraging 1,058 changes in the local business tax rate between 2013 and 2017, we find that a one percentage point tax increase results in a 0.4% increase in the retail prices of goods produced by taxed _rms and purchased by consumers in the rest of Germany, who thus end up bearing a substantial share of the tax burden. This finding suggests that manufacturers may exploit their market power to shield profits from corporate taxes, complicating the analysis of the redistributive effects of tax reforms. We also explore various dimensions of heterogeneity in pass-through related to market power, including producer size, market shares, and retail store types. While producer heterogeneity does not seem to matter, the significant passthrough of corporate taxes to consumer prices in the low inflation period covered by our sample is mostly due to price changes in supermarkets and hypermarkets.
- JEL Code
- F12 : International Economics→Trade→Models of Trade with Imperfect Competition and Scale Economies, Fragmentation
F45 : International Economics→Macroeconomic Aspects of International Trade and Finance
E13 : Macroeconomics and Monetary Economics→General Aggregative Models→Neoclassical
H71 : Public Economics→State and Local Government, Intergovernmental Relations→State and Local Taxation, Subsidies, and Revenue
L11 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance→Production, Pricing, and Market Structure, Size Distribution of Firms
- 27 May 2022
- RESEARCH BULLETIN - No. 95Details
- Abstract
- To what extent are corporate taxes passed on to consumers? And more generally, how do wholesaleproducers affect retail prices? Using data from Germany, where individual municipalities set local corporate taxrates, we shed new light on these questions. To estimate the impact of changes in producers’ tax rates onconsumer prices, we link 1,058 tax changes between 2013 and 2017 to changes in the retail prices of morethan 125,000 food and personal care products sold across Germany. A one percentage point increase in thelocal corporate tax leads on average to a 0.4% increase in the retail price of goods “exported” by the taxedfirms to stores in the rest of Germany. While neither the size of producers nor their market shares seem toaffect the strength of this pass-through, the type of store selling the product does: supermarkets andhypermarkets account for most of the increase in prices. Our findings suggest the following policy-relevantimplications: i) producers use their market power to shield profits from corporate taxes; ii) some retailers passon a large share of wholesale price changes; iii) the low-inflation period from 2013 to 2017 did not impair thepass-through of shocks to consumer prices.
- JEL Code
- F12 : International Economics→Trade→Models of Trade with Imperfect Competition and Scale Economies, Fragmentation
F45 : International Economics→Macroeconomic Aspects of International Trade and Finance
E13 : Macroeconomics and Monetary Economics→General Aggregative Models→Neoclassical
H71 : Public Economics→State and Local Government, Intergovernmental Relations→State and Local Taxation, Subsidies, and Revenue
L11 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance→Production, Pricing, and Market Structure, Size Distribution of Firms - Network
- Price-setting Microdata Analysis Network (PRISMA)
- 22 December 2021
- WORKING PAPER SERIES - No. 2634Details
- Abstract
- We study exchange rate pass-through (ERPT), i.e., the impact of exchange rate movements on inflation, focusing on euro area import prices at a sectorally disaggregated level. Our estimation strategy is based on VAR-X models, thus incorporating both endogenous and exogenous explanatory variables. The impulse response functions not only allow to study the extent but also the dynamics of ERPT. We find that ERPT is heterogeneous in terms of magnitude across sectors. We further investigate what industry-specific characteristics affect the heterogeneity of ERPT. Across various model specifications including import penetration, market integration, competition and value chain integration, we find that higher market concentration and higher backward integration in global value chains decrease pass-through, in line with previous findings in the literature.
- JEL Code
- C50 : Mathematical and Quantitative Methods→Econometric Modeling→General
F30 : International Economics→International Finance→General
F40 : International Economics→Macroeconomic Aspects of International Trade and Finance→General
- 26 November 2021
- WORKING PAPER SERIES - No. 2617Details
- Abstract
- Price inflation in the euro area has been stable and low since the Global Financial Crisis, despite notable changes in output and unemployment. We show that an increasing share of high markup firms is part of the explanation of why inflation remained stubbornly stable and low in the euro area over the past two decades. For this purpose, we exploit a rich firm-level database to show that over the period 1995–2018 the aggregate markup in the euro area has been on the rise, mainly on account of a reallocation towards high-markup firms. We document significant heterogeneity in markups across sectors and countries and, by linking these markup developments to the evolution of sectoral level producer and consumer price inflation, we find that (i) inflation in high-markup sectors tends to be less volatile than in low-markup sectors and (ii) inflation in high-markup sectors responds significantly less to oil supply, global demand and euro area monetary policy shocks.
- JEL Code
- D2 : Microeconomics→Production and Organizations
D4 : Microeconomics→Market Structure and Pricing
N1 : Economic History→Macroeconomics and Monetary Economics, Industrial Structure, Growth, Fluctuations
O3 : Economic Development, Technological Change, and Growth→Technological Change, Research and Development, Intellectual Property Rights - Network
- Price-setting Microdata Analysis Network (PRISMA)
- 21 September 2021
- OCCASIONAL PAPER SERIES - No. 280Details
- Abstract
- From 2013 up to the launch of the ECB’s strategy review in January 2020, inflation in the euro area was low and over-predicted. This low inflation during the years 2013-19 can be attributed to a combination of interconnected factors. Cyclical developments account for a substantial share of the fall in underlying inflation, mainly in the first part of the low inflation period. Additionally, there is evidence that an underestimation of the amount of economic slack and less well-anchored longer-term inflation expectations, in combination with monetary policy in the euro area being constrained by the effective lower bound, have played an important role in the long period of subdued inflation. Ongoing disinflationary structural trends (such as globalisation, digitalisation and demographic factors) are likely to have had a dampening effect on inflation over the last few decades, but were in themselves not the main drivers of low inflation in the euro area from 2013 to 2019. However, as they could not have been easily offset by interest rate policy in an effective lower bound environment, they might also have contributed to the more subdued inflation dynamics in the euro area from 2013 to 2019.
- JEL Code
- C51 : Mathematical and Quantitative Methods→Econometric Modeling→Model Construction and Estimation
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
F62 : International Economics→Economic Impacts of Globalization→Macroeconomic Impacts
J11 : Labor and Demographic Economics→Demographic Economics→Demographic Trends, Macroeconomic Effects, and Forecasts
J30 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→General
- 21 September 2021
- OCCASIONAL PAPER SERIES - No. 266Details
- Abstract
- The digitalisation workstream report analyses the degree of digital adoption across the euro area and EU countries and the implications of digitalisation for measurement, productivity, labour markets and inflation, as well as more recent developments during the coronavirus (COVID-19) pandemic and their implications. Analysis of these key issues and variables is aimed at improving our understanding of the implications of digitalisation for monetary policy and its transmission. The degree of digital adoption differs across the euro area/EU, implying heterogeneous impacts, with most EU economies currently lagging behind the United States and Japan. Rising digitalisation has rendered price measurement more challenging, owing to, among other things, faster changes in products and product quality, but also new ways of price setting, e.g. dynamic or customised pricing, and services that were previously payable but are now “free”. Despite the spread of digital technologies, aggregate productivity growth has decreased in most advanced economies since the 1970s. However, it is likely that without the spread of digital technologies the productivity slowdown would have been even more pronounced, and the recent acceleration in digitalisation is likely to boost future productivity gains from digitalisation. Digitalisation has spurred greater automation, with temporary labour market disruptions, albeit unevenly across sectors. The long-run employment effects of digitalisation can be benign, but its effects on wages and labour share depend on the structure of the economy and its labour market institutions. The pandemic has accelerated the use of teleworking: roughly every third job in the euro area/EU is teleworkable, although there are differences across countries. ...
- JEL Code
- E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
O33 : Economic Development, Technological Change, and Growth→Technological Change, Research and Development, Intellectual Property Rights→Technological Change: Choices and Consequences, Diffusion Processes
O57 : Economic Development, Technological Change, and Growth→Economywide Country Studies→Comparative Studies of Countries
- 21 September 2021
- OCCASIONAL PAPER SERIES - No. 265Details
- Abstract
- This paper – which takes into consideration overall experience with the Harmonised Index of Consumer Prices (HICP) as well as the improvements made to this measure of inflation since 2003 – finds that the HICP continues to fulfil the prerequisites for the index underlying the ECB’s definition of price stability. Nonetheless, there is scope for enhancing the HICP, especially by including owner-occupied housing (OOH) using the net acquisitions approach. Filling this long-standing gap is of utmost importance to increase the coverage and cross-country comparability of the HICP. In addition to integrating OOH into the HICP, further improvements would be welcome in harmonisation, especially regarding the treatment of product replacement and quality adjustment. Such measures may also help reduce the measurement bias that still exists in the HICP. Overall, a knowledge gap concerning the exact size of the measurement bias of the HICP remains, which calls for further research. More generally, the paper also finds that auxiliary inflation measures can play an important role in the ECB’s economic and monetary analyses. This applies not only to analytical series including OOH, but also to measures of underlying inflation or a cost of living index.
- JEL Code
- C43 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Index Numbers and Aggregation
C52 : Mathematical and Quantitative Methods→Econometric Modeling→Model Evaluation, Validation, and Selection
C82 : Mathematical and Quantitative Methods→Data Collection and Data Estimation Methodology, Computer Programs→Methodology for Collecting, Estimating, and Organizing Macroeconomic Data, Data Access
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
- 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
- 11 May 2020
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 3, 2020Details
- Abstract
- Aggregate exchange rate pass-through (ERPT) to import and consumer prices is lower in the EU than it was in the 1990s and is found to be non-linear. Low estimated aggregate ERPT to consumer prices does not mean that the exchange rate movements do not matter for inflation, as aggregate estimates mask substantial heterogeneities across countries, industries and time periods due to structural, cyclical and policy factors. Key structural characteristics that explain ERPT across industries or sectors are: import content of consumption; share of imports invoiced in own currency or in a third dominant currency; integration of a country and its trading partners in global value chains; and market power. In line with the literature, different types of shocks that move the exchange rate in the euro area elicit different price responses, so the combination of shocks that lie behind changes in the exchange rate at any point in time matters for the ERPT. Finally, monetary policy itself affects the ERPT and credible and active monetary policy lowers the observed ex post ERPT. Moreover, under the effective lower bound, credible non-standard monetary policy actions have a larger ERPT to consumer prices. Instead of rules of thumb, in order to assess the impact of exchange rate changes when forecasting inflation, it is better to use structural models with sufficient feedback loops that take into account the role of expectations and monetary policy reaction., share of imports invoiced in own currency or in a third dominant currency, integration of a country and its trading partners in global value chains, and market power. In line with the literature, different types of shocks that move the exchange rate in the euro area elicit different price responses, so the combination of shocks that lie behind changes in the exchange rate at any point in time matters for the ERPT. Finally, monetary policy itself affects the ERPT and credible and active monetary policy lowers the observed ex post ERPT. Moreover, under the effective lower bound, credible non-standard monetary policy actions have a larger ERPT to consumer prices. Instead of rules of thumb, in order to assess the impact of exchange rate changes when forecasting inflation, it is better to use structural models with sufficient feedback loops that take into account the role of expectations and monetary policy reaction.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
F31 : International Economics→International Finance→Foreign Exchange
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
- 5 May 2020
- WORKING PAPER SERIES - No. 2400Details
- Abstract
- We explain the role of the Phillips Curve in the analysis of the economic outlook and the formulation of monetary policy at the ECB. First, revisiting the structural Phillips Curve, we highlight the challenges in recovering structural parameters from reduced-form estimates and relate the reduced-form Phillips Curve to the (semi-)structural models used at the ECB. Second, we identify the slope of the structural Phillips Curve by exploiting cross-country variation and by using high-frequency monetary policy surprises as instruments. Third, we present reduced-form evidence, focusing on the relation between slack and inflation and the role of inflation expectations. In relation to the recent weakness of inflation, we discuss the role of firm profits in the pass-through from wages to prices and the contribution of external factors. Overall, the available evidence supports the view that the absorption of slack and a firm anchoring of inflation expectations remain central to successful inflation stabilisation.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
- 22 April 2020
- OCCASIONAL PAPER SERIES - No. 241Details
- Abstract
- Aggregate exchange rate pass-through (ERPT) to import and consumer prices in the EU is currently lower than it was in the 1990s and is non-linear. Low estimated aggregate ERPT to consumer prices does not at all mean that exchange rate movements do not have an impact on inflation, as aggregate rules of thumb mask substantial heterogeneities across countries, industries and time periods owing to structural, cyclical and policy factors. Looking also at new micro evidence, four key structural characteristics explain ERPT across industries or sectors: (i) import content of consumption, (ii) share of imports invoiced in own currency or in a third dominant currency, (iii) integration of a country and its trading partners in global value chains, and (iv) market power. In the existing literature there is also a robust evidence across models showing that each shock which causes the exchange rate to move has a different price response, meaning that the combination of shocks that lies behind the cycle at any point in time has an impact on ERPT.Finally, monetary policy itself affects ERPT. Credible and aggressive monetary policy reduces the observed ex post ERPT, as agents expect monetary policy to counteract deviations of inflation from target, including those relating to exchange rate fluctuations. Moreover, under the effective lower bound, credible non-standard monetary policy actions result in greater ERPT to consumer prices. This paper recommends moving away from rule-of-thumb estimates and instead using structural models with sufficient feedback loops, taking into account the role of expectations and monetary policy reactions, to assess the impact of exchange rate changes when forecasting inflation.
- JEL Code
- C50 : Mathematical and Quantitative Methods→Econometric Modeling→General
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
F31 : International Economics→International Finance→Foreign Exchange
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
- 30 April 2019
- OCCASIONAL PAPER SERIES - No. 221Details
- Abstract
- The studies summarised in this paper focus on the economic implications of euro area firms’ participation in global value chains (GVCs). 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.
- JEL Code
- F6 : International Economics→Economic Impacts of Globalization
F10 : International Economics→Trade→General
F14 : International Economics→Trade→Empirical Studies of Trade
F16 : International Economics→Trade→Trade and Labor Market Interactions
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
- 31 July 2017
- WORKING PAPER SERIES - No. 2090Details
- Abstract
- What drives external performance of countries? This is a recurring question in academia and policy. The factors underlying export growth are receiving great attention, as countries struggle to grow out of the crisis by increasing exports and as protectionist discourses take foot again. Despite decades of debates, it is still unclear what the drivers of external performance are and, importantly, which ones policy makers can influence. We use Bayesian Model Averaging in a panel setting to investigate the drivers of export market shares of 25 EU countries, considering a wide range of traditional indicators along with novel ones developed within the CompNet Competitiveness Research Network. We find that export market share growth is linked to different factors in the old and in the new Member States, with one exception: for both groups, competitive pressures from China have strongly affected export performance since the early 2000s. In the case of old EU Member States, investment, quality of institutions and available liquidity to firms also appear to play a role. For the new EU Member States, labour and total factor productivity are particularly important, while inward FDI matters rather than domestic investment. Price competitiveness does not seem to play a very important role in either set of countries: relative export prices do show correlation with export performance for the new Member States, but only when they are adjusted for quality. Our results point to the importance of considering the “exporting stage” of a country when discussing export-enhancing policies.
- JEL Code
- C23 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Panel Data Models, Spatio-temporal Models
C51 : Mathematical and Quantitative Methods→Econometric Modeling→Model Construction and Estimation
C55 : Mathematical and Quantitative Methods→Econometric Modeling→Modeling with Large Data Sets?
F14 : International Economics→Trade→Empirical Studies of Trade
O52 : Economic Development, Technological Change, and Growth→Economywide Country Studies→Europe - Network
- Competitiveness Research Network
- 25 January 2017
- OCCASIONAL PAPER SERIES - No. 181Details
- Abstract
- After 2012, inflation has been unexpectedly low across much of the developed world and economists speak of a
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies - Network
- Task force on low inflation (LIFT)
- 9 December 2016
- WORKING PAPER SERIES - No. 1986Details
- Abstract
- We propose a model for analyzing euro area trade based on the interaction between macroeconomic and trade variables. First, we show that macroeconomic variables are necessary to generate accurate short-term trade forecasts; this result can be explained by the high correlation between trade and macroeconomic variables, with the latter being released in a more timely manner. Second, the model tracks well the dynamics of trade variables conditional on the path of macroeconomic variables during the great recession; this result makes our model a reliable tool for scenario analysis.
- JEL Code
- F17 : International Economics→Trade→Trade Forecasting and Simulation
F47 : International Economics→Macroeconomic Aspects of International Trade and Finance→Forecasting and Simulation: Models and Applications
C38 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Classification Methods, Cluster Analysis, Principal Components, Factor Models
- 12 September 2016
- WORKING PAPER SERIES - No. 1958Details
- Abstract
- The local network structure of international trade relations offers a new dimension for understanding a country
- JEL Code
- F14 : International Economics→Trade→Empirical Studies of Trade
F63 : International Economics→Economic Impacts of Globalization→Economic Development
D85 : Microeconomics→Information, Knowledge, and Uncertainty→Network Formation and Analysis: Theory - Network
- Competitiveness Research Network
- 15 July 2015
- OCCASIONAL PAPER SERIES - No. 163Details
- Abstract
- This Compendium describes the contribution of CompNet to the improvement of the analytical framework and indicators of competitiveness. It does this by presenting a comprehensive database of novel competitiveness indicators. These are more than 80 novel indicators designed by CompNet members that capture macro, micro and cross-country dimensions, thus providing a comprehensive view of the competitive position of EU countries and their peers. A short description of each innovative indicator
- JEL Code
- F14 : International Economics→Trade→Empirical Studies of Trade
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
F60 : International Economics→Economic Impacts of Globalization→General
D24 : Microeconomics→Production and Organizations→Production, Cost, Capital, Capital, Total Factor, and Multifactor Productivity, Capacity
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
- 16 April 2013
- WORKING PAPER SERIES - No. 1535Details
- Abstract
- We estimate the elasticity of substitution of a country's imports, and that of its exports on the world market, for EU countries using sector level trade data. We present a new empirical strategy based on the identification scheme by Feenstra (1994), which enables the estimation of elasticities from data on exports. Moreover, our use of bootstrap methods allows us to obtain better elasticity measures, and to better characterize their accuracy. Our results show much heterogeneity in the estimates of the elasticity of substitution across industrial sectors. This, in turn, points to heterogeneity across countries, due to different production and trade structures. We obtain aggregate elasticities for the EU27 countries, with a mean of 3.5 for imports and 4.0 for exports, bringing us closer to traditional estimates and bridging the gap between the newer micro data estimates and the more traditional estimates found in the macroeconomic literature.
- JEL Code
- C23 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Panel Data Models, Spatio-temporal Models
F14 : International Economics→Trade→Empirical Studies of Trade
F47 : International Economics→Macroeconomic Aspects of International Trade and Finance→Forecasting and Simulation: Models and Applications - Network
- Competitiveness Research Network
- 15 April 2013
- WORKING PAPER SERIES - No. 1532Details
- Abstract
- This paper studies the determinants of the euro exchange rate during the European sovereign debt crisis, allowing a role for macroeconomic fundamentals, policy actions and the public debate by policy makers. It finds that the euro exchange rate mainly danced to its own tune, with a particularly low explanatory power for macroeconomic fundamentals. Among the few factors that are found to have affected changes in exchanges rate levels are policy actions at the EU level and by the ECB. The findings of the paper also suggest that financial markets might have been less reactive to the public debate by policy makers than previously feared. Still, there are instances where exchange rate volatility was increasing in response to news, such as on days when several politicians from AAA-rated countries went public with negative statements, suggesting that communication by policy makers at times of crisis should be cautious about triggering undesirable financial market reactions.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
F31 : International Economics→International Finance→Foreign Exchange
F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading
- 7 December 2012
- OCCASIONAL PAPER SERIES - No. 139Details
- Abstract
- The onset of the financial crisis in 2008 has highlighted the problems of diverging external imbalances within Economic and Monetary Union (EMU) and the role of persistent losses in competitiveness. This paper starts by investigating some of the competitiveness factors which contributed to external imbalances in euro area countries. The evidence suggests significant heterogeneity across countries in both price/cost and non-price competitiveness in the euro area and that there is no one factor, but rather a range of potential factors explaining diverging external imbalances. In particular, while non-price competitiveness effects contributed largely to the trade surplus in some countries, for some southern European countries the trade balance was also driven by price factors. The second part of the paper studies the implications of competitiveness adjustment by means of quantitative tools. Using four different multi-country macro models, improvements in both price/cost aspects (namely wage reduction, productivity improvements or fiscal devaluation) and non-price competitiveness factors (quality improvements) were shown - under certain conditions - to improve external imbalances. The analysis suggests differences in countries' composition of trade could lead to heterogeneity in the potential gains from improvements in competitiveness.
- JEL Code
- F10 : International Economics→Trade→General
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
F43 : International Economics→Macroeconomic Aspects of International Trade and Finance→Economic Growth of Open Economies
F47 : International Economics→Macroeconomic Aspects of International Trade and Finance→Forecasting and Simulation: Models and Applications
O52 : Economic Development, Technological Change, and Growth→Economywide Country Studies→Europe
- 2 October 2012
- WORKING PAPER SERIES - No. 1482Details
- Abstract
- The elasticity of substitution between domestic and imported goods is a central parameter in macroeconomic models, but after decades of empirical studies there is no consensus on its magnitude. Earlier literature using time series arrives at low values, while more recent studies using panel-based econometric methods on disaggregated data find higher values. We examine the econometric methodology of this more recent literature, which follows the seminal work by Feenstra (1994), looking in more detail at the effect on the results of the non-linear mapping between reduced-form and structural parameters. Our main contribution is the use of bootstrap methods, which offer more insight into the Feenstra method and can explain why researchers applying it may tend to find high estimates. The bootstrap not only allows us to obtain considerably less biased estimates of the structural elasticity parameter, but also to better characterize their accuracy, a point vastly overlooked by the literature.
- JEL Code
- C14 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Semiparametric and Nonparametric Methods: General
C23 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Panel Data Models, Spatio-temporal Models
F14 : International Economics→Trade→Empirical Studies of Trade - Network
- Competitiveness Research Network
- 14 April 2010
- WORKING PAPER SERIES - No. 1170Details
- Abstract
- In this paper we examine linkages across non-energy commodity price developments by means of a factor-augmented VAR model (FAVAR). From a set of non-energy commodity price series, we extract two factors, which we identify as common trends in metals and a food prices. These factors are included in a FAVAR model together with selected macroeconomic variables, which have been associated with developments in commodity prices. Impulse response functions confirm that exchange rates and of economic activity affect individual nonenergy commodity prices, but we fail to find strong spillovers from oil to non-oil commodity prices or an impact of the interest rate. In addition, we find that individual commodity prices are affected by common trends captured by the food and metals factors.
- JEL Code
- E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
F3 : International Economics→International Finance
- 28 December 2006
- WORKING PAPER SERIES - No. 706Details
- Abstract
- We apply the Campbell-Shiller return decomposition to exchange rate returns and fundamentals in a stationary panel vector autoregression framework. The return decomposition is then used to analyse how different investor segments react to news as captured by the different return components. The results suggest that intrinsic value news are dominating for equity investors and speculative money market investors while investors in currency option markets react strongly to expected return news. The equity and speculative money market investors seem able to distinguish between transitory and permanent FX movements while options investors mainly focus on transitory movements. We also find evidence that offsetting impact on the various return components can blur the effect of macroeconomic data releases on aggregate FX excess returns.
- JEL Code
- C23 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Panel Data Models, Spatio-temporal Models
F31 : International Economics→International Finance→Foreign Exchange
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
G15 : Financial Economics→General Financial Markets→International Financial Markets
- 28 April 2004
- WORKING PAPER SERIES - No. 353Details
- Abstract
- This paper provides a discussion of methodological issues relating to the estimation of the long-run relationship between exchange rates and fundamentals for Central and Eastern European acceding countries, focusing on the so-called behavioural equilibrium exchange rate (BEER) approach. Given the limited availability and reliability of data as well as the rapid structural change acceding countries have been undergoing in the transition phase, this paper identifies several pitfalls in following the most straightforward and standard econometric procedures. As an alternative, it looks at the merits of a two-step strategy that consists of estimating the relationship between exchange rates and economic fundamentals in a panel cointegration setting - using a sample which excludes acceding countries - and then "extrapolating" the estimated relationships to the latter. While focusing on the first step of such a strategy, the paper also delves into discussing technical aspects underlying the "extrapolation" stage. As a result, the paper endows the reader with the methodological and empirical ingredients for computing equilibrium exchange rates for acceding countries, providing estimates for the long-run coefficients between real exchange rates and economic fundamentals and a discussion of how to apply these results to acceding countries data.
- JEL Code
- C23 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Panel Data Models, Spatio-temporal Models
F31 : International Economics→International Finance→Foreign Exchange
- 1 April 2003
- WORKING PAPER SERIES - No. 225Details
- Abstract
- This paper analyses the impact of productivity developments in the United States and the euro area on the euro-dollar exchange rate. The paper presents a new measure of relative average labour productivity (ALP), which does not suffer from the biases implicit in readily available relative ALP data. Importantly, the patterns of these series differ widely. Employing the Johansen cointegration framework, four Behavioural Equilibrium Exchange Rate models are estimated using four different productivity proxies. Our results indicate that the extent to which productivity can explain the euro depreciation varies with the productivity proxy used: readily available measures explain most, our new, preferred measure least. If foreign exchange traders used the former to assess productivity developments, this might thus have contributed to the weakness of the euro in 2000/2001. In all models, however, productivity can explain only a fraction of the actual euro depreciation experienced in 1999/2000.
- JEL Code
- F31 : International Economics→International Finance→Foreign Exchange
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
O47 : Economic Development, Technological Change, and Growth→Economic Growth and Aggregate Productivity→Measurement of Economic Growth, Aggregate Productivity, Cross-Country Output Convergence
- 1 April 2003
- WORKING PAPER SERIES - No. 224Details
- Abstract
- This paper examines the long-run determinants of the euro-yen exchange rate. Using cointegration analysis, we find a consistent and significant relationship between the real exchange rate and relative productivity, the net foreign asset position, relative government spending and terms of trade shocks, as well as a fairly rapid mean reversion of the exchange rate to its equilibrium. The "equilibrium" rate tracks the trends in the actual exchange rate quite well, accounting for a large part of the yen appreciation from the mid-1970s to 2001. Our findings suggest that the euro appreciation against the yen in 2001 represented an equilibrium correction of its previous depreciation. Moreover, the width of the error bands highlights the difficulties arising when attempting to determine the precise equilibrium value of a currency.
- JEL Code
- F31 : International Economics→International Finance→Foreign Exchange
C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
- 1 November 2001
- WORKING PAPER SERIES - No. 85Details
- Abstract
- This paper presents an empirical analysis of the medium-term determinants of the euro effective exchange rate. The empirical analysis builds on synthetic quarterly data from 1975 to 1998, and derives a Behavioural Equilibrium Exchange Rate (BEER) and a Permanent Equilibrium Exchange Rate (PEER). Four different model specifications are retained, due to the difficulties encountered in specifying an encompassing model. Results indicate that differentials in real interest rates and productivity, and (in some specifications) the relative fiscal stance and the real price of oil, have a significant influence on the euro effective exchange rate. Assessing the existence and the extent of the over- or undervaluation of the exchange rate is not straightforward, since these different specifications often lead to contrasting findings. However, all four models point unambiguously to the undervaluation of the euro in 2000, although the extent of this undervaluation largely depends on the specification chosen
- JEL Code
- F31 : International Economics→International Finance→Foreign Exchange
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
- 2020
- Empirical EconomicsWhat drives export market shares? It depends! An empirical analysis of competitiveness drivers using Bayesian Model Averaging
- 2020
- Manchester SchoolThe Phillips Curve at the ECB
- 2017
- International Journal of Central BankingA Global Trade Model for the Euro Area
- 2014
- Journal of International Money and FinanceThe euro exchange rate during the European sovereign debt crisis: Dancing to its own tune?
- 2012
- Empirical EconomicsGlobal commodity cycles and linkages: a FAVAR approach
- 2006
- Journal of Comparative EconomicsTowards the estimation of equilibrium exchange rates for transition economies: Methodological issues and a panel cointegration perspective
- 2005
- Economic SystemsPitfalls in estimating equilibrium exchange rates for transition economies
- 2005
- Empirical EconomicsTesting for PPP: Should we use panel methods?
- 2004
- Econometrics JournalSome cautions on the use of panel methods for integrated series of macroeconomic data
- 2004
- Review of World Economics (Weltwirtschaftliches Archiv)Productivity and the Euro-Dollar exchange rate
- 2002
- Australian Economic PapersDeterminants of the Euro RealEffective Exchange Rate: A BEER/PEER Approach