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WP201617.pdf
WP201617
Surviving the perfect storm: the role of the lender of last resortNuno Alves; Diana Bonfim; Carla SoaresE44 - Financial Markets and the Macroeconomy; E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; G21 - Banks; Other Depository Institutions; Mortgages2016Working PaperBdP Publication
When banks are hit by a severe liquidity shock, central banks have a key role as lenders of last resort. Despite the well-established importance of this mechanism, there is scarce empirical evidence that allows analyzing this key role of central banks. We are able to explore a unique setting in which banks suddenly lose access to market funding due to contagion fears at the onset of the euro area sovereign debt crisis. Using monthly data at the loan, bank, and firm level, we are able to test the role of the central bank in a scenario of imminent collapse. We find that the liquidity obtained from the central bank played a critical role in avoiding the materialization of such a scenario.
Approved
201,617
WP201616.pdf
WP201616
Leverage and Risk Weighted Capital RequirementsLeonardo Gambacorta; Sudipto KarmakarG21 - Banks; Other Depository Institutions; Mortgages; G28 - Government Policy and Regulation; G32 - Financing Policy; Capital and Ownership Structure2016Working PaperBdP Publication
The global financial crisis has highlighted the limitations of risk-sensitive bank capital ratios. To tackle this problem, the Basel III regulatory framework has introduced a minimum leverage ratio, defined as a bank's Tier 1 capital over an exposure measure, which is independent of risk assessment. Using a medium sized DSGE model that features a banking sector, financial frictions and various economic agents with differing degrees of creditworthiness, we seek to answer three questions: 1) How does the leverage ratio behave over the cycle compared with the risk-weighted asset ratio? 2) What are the costs and the benefits of introducing a leverage ratio, in terms of the levels and volatilities of some key macro variables of interest? 3) What can we learn about the interaction of the two regulatory ratios in the long run? The main answers are the following: 1) The leverage ratio acts as a backstop to the risk-sensitive capital requirement: it is a tight constraint during a boom and a soft constraint in a bust; 2) the net benefits of introducing the leverage ratio could be substantial; 3) the steady state value of the regulatory minima for the two ratios strongly depends on the riskiness and the composition of bank lending portfolios.
Approved
201,616
WP201615.pdf
WP201615
The unsecured interbank money market: A description of the Portuguese caseSofia SaldanhaE58 - Central Banks and Their Policies; G21 - Banks; Other Depository Institutions; Mortgages2016Working PaperBdP Publication
Money markets were severely impaired by the financial and subsequent sovereign debt crises. Although the euro money market has been studied substantially, little has been done for the particular case of Portugal. This thesis investigates how the Portuguese part of the euro unsecured interbank money market was affected by the two consecutive crises. I constructed and adapted a Furfine-based algorithm to identify the loans traded and settled in TARGET2, in which a least one of the counterparties is a Portuguese bank. Identified loans have overnight and one-week maturities. Data shows a clear trend towards a closed interbank money market. In addition, there is a visibly significant reduction in the number of times banks trade in the market, accompanied by a parallel drop in volumes transacted. Finally, I find that interest rates rise above the benchmark and those in the domestic market are persistently higher than rates agreed upon through cross-border operations.
Approved
201,615
WP201614.pdf
WP201614
A tale of two sectors: why is misallocation higher in services than in manufacturing?Daniel Dias; Carlos Robalo Marques; Christine RichmondD24 - Production; Capital and Total Factor Productivity; Capacity; O11 - Macroeconomic Analyses of Economic Development; O41 - One, Two, and Multisector Growth Models; O47 - Measurement of Economic Growth; Aggregate Productivity2016Working PaperBdP Publication
Recent empirical studies document that the level of resource misallocation in the service sector is signicantly higher than in the manufacturing sector.We quantify the importance of this difference and study its sources. Conservative estimates for Portugal (2008) show that closing this gap, by reducing misallocation in the service sector to manufacturing levels, would boost aggregate gross output by around 12 percent and aggregate value added by around 31 percent. Differences in the effect and size of productivity shocks explain most of the gap in misallocation between manufacturing and services, while the remainder is explained by differences in firm productivity and age distribution. We interpret these results as stemming mainly from higher output-price rigidity, higher labor adjustment costs and higher informality in the service sector.
Approved
201,614
WP201613.pdf
WP201613
Forecasting banking crises with dynamic panel probit modelsAntónio R. Antunes; Diana Bonfim; Nuno Monteiro; Paulo M.M. RodriguesC12 - Hypothesis Testing; C22 - Time-Series Models2016Working PaperBdP Publication
Banking crises are rare events, but when they occur their consequences are often dramatic. The aim of this paper is to contribute to the toolkit of early warning models available to policy makers by exploring the dynamics and non-linearities embedded in a panel dataset covering several countries over four decades (from 1970Q1 to 2010Q4). The in-sample and out-of-sample forecast performance of several dynamic probit models is evaluated, with the objective of developing a common vulnerability indicator with early warning properties. The results obtained show that adding dynamic components and exuberance indicators to the models substantially improves the ability to forecast banking crises.
Approved
201,613
WP201612.pdf
WP201612
A wavelet-based multivariate multiscale approach for forecastingAntónio RuaC22 - Time-Series Models; C40 - General; C53 - Forecasting and Other Model Applications2016Working PaperBdP Publication
In an increasingly data rich environment, factor models have become the workhorse approach for modelling and forecasting purposes. However, factors are non-observable and have to be estimated. In particular, the space spanned by the unknown factors is typically estimated via principal components. Herein, it is proposed a novel procedure to estimate the factor space resorting to a wavelet based multiscale principal component analysis. Through a Monte Carlo simulation study, it is shown that such an approach allows to improve both factor model estimation and forecasting performance. In the empirical application, one illustrates its usefulness for forecasting GDP growth and inflation in the United States.
Approved
201,612
WP201611.pdf
WP201611
Temporary contracts' transitions: the role of training and institutionsSara SerraE24 - Employment; Unemployment; Wages; J24 - Human Capital; Skills; Occupational Choice; Labor Productivity; J41 - Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets2016Working PaperBdP Publication
Despite recent reforms, labour market segmentation is still a marked feature of several European countries. This work empirically analyses transitions out of temporary contracts, by means of a discrete duration model, with a particular focus on human capital features, labour market protection and their interaction. Transitions to open-ended contracts with the same or with a new employer are considered separately, as well as transitions to joblessness, based on data for ten European countries taken from the European Community Household Panel. Conclusions suggest that firm training policies are more relevant for intra-firm transitions, while worker characteristics are more determinant for inter-firm transitions. Labour market regulation plays a signicant role in what concerns transitions to open-ended contracts, but not to joblessness, particularly in strongly segmented labour markets. In countries characterized by this type of labour market institutions, human capital features assume an increased relevance, and firm provided training may reduce the influence of the strictness of labour market regulations on the conversion of temporary contracts into open-ended.
Approved
201,611
WP201610.pdf
WP201610
EAGLE-FLI - A macroeconomic model of banking and financial interdependence in the euro areaN. Bokan; A. Gerali; Sandra Gomes; P. Jacquinot; M. PisaniE51 - Money Supply; Credit; Money Multipliers; E32 - Business Fluctuations; Cycles; E44 - Financial Markets and the Macroeconomy; F47 - Forecasting and Simulation2016Working PaperBdP Publication
We incorporate financial linkages in EAGLE, a New Keynesian multi-country dynamic general equilibrium model of the euro area (EA) by including financial frictions and country-specific banking sectors. In this new version of the model, termed EAGLE-FLI (Euro Area and GLobal Economy with Financial LInkages), banks collect deposits from domestic households and cross-country interbank market and raise capital to finance loans issued to domestic households and firms. In order to borrow from local (regional) banks, households use domestic real estate as collateral whereas firms use both domestic real estate and physical capital. These features - together with the full characterization of trade balance and real exchange rate dynamics and with a rich array of financial shocks - allow to properly assess domestic and cross-country macroeconomic effects of financial shocks. Our results support the views that (1) the business cycles in the EA can be driven not only by real shocks, but also by financial shocks, (2) the financial sector could amplify the transmission of (real) shocks, and (3) the financial/banking shocks and the banking sectors can be sources of business cycle asymmetries and spillovers across countries in a monetary union.
Approved
201,610
WP201609.pdf
WP201609
Market integration and the persistence of electricity pricesJoão Pedro Pereira; Vasco Pesquita; Paulo M.M. Rodrigues; António RuaC50 - General; E31 - Price Level; Inflation; Deflation; F36 - Financial Aspects of Economic Integration2016Working PaperBdP Publication
There is an ongoing trend of deregulation and integration of electricity markets in Europe and North America. This change in market structure has naturally affected the interaction between agents and has contributed to an increasing commoditization of electric power. This paper focuses on one specific market, the Iberian Electricity Market (MIBEL). In particular, we assess the persistence of electricity prices in the Iberian market and test whether it has changed over time. We consider each hour of the day separately, that is, we analyze 24 time-series of day-ahead hourly prices for Portugal and another 24 series for Spain. We find results consistent with the hypothesis that market integration leads to a decrease in the persistence of the price process. More precisely, the tests detect a break in the memory parameter of most price series around the year 2009, which coincides with a significant increase in the integration of Portuguese and Spanish markets. The results reinforce the view that market integration has an impact on the dynamics of electricity prices.
Approved
201,609
WP201608.pdf
WP201608
The Effect of Quantitative Easing on Lending ConditionsLaura Blattner; Luisa Farinha; Gil NogueiraE43 - Determination of Interest Rates; Term Structure of Interest Rates; E44 - Financial Markets and the Macroeconomy; E52 - Monetary Policy (Targets, Instruments, and Effects); G21 - Banks; Other Depository Institutions; Mortgages; G28 - Government Policy and Regulation2016Working PaperBdP Publication
We analyze the effect of the ECB's Quantitative Easing program (Expanded Asset Purchase Program - EAPP) on bank lending using security-level bank balance sheet data combined with a comprehensive dataset on new loans in Portugal. Our identification relies on the fact that only a subset of Portuguese banks was exposed to EAPP via prior holdings of EAPP-eligible securities and origination of eligible ABS and covered bonds. Using a difference-in-differences specication with borrower and bank xed effects, we find that lending rates to the same borrower drop by 64 b.p. at banks exposed to QE relative to banks not exposed to QE. Loan volumes to existing corporate clients grow by one percentage point faster at exposed banks relative non-exposed banks. This result is robust to including both bank and borrower*time fixed effects, as well as a wide range of loan and borrower characteristics. At the extensive margin, the probability of credit approval to a new corporate client is about 1 percentage point higher at exposed banks post-QE announcement.
Approved
201,608
WP201607.pdf
WP201607
Sorry, We're Closed: Loan Conditions When Bank Branches Close and Firms Transfer to Another BankDiana Bonfim; Gil Nogueira; Steven OngenaG21 - Banks; Other Depository Institutions; Mortgages; L11 - Production, Pricing, and Market Structure; Size Distribution of Firms; L14 - Transactional Relationships; Contracts and Reputation; Networks2016Working PaperBdP Publication
We study loan conditions when bank branches close and firms subsequently transfer to a branch of another bank in the vicinity. Such transfer loans allow us for the first time to observe the conditions granted when banks pool-price new applicants. Consistent with recent theoretical work on hold up in bank-firm relationships we find that transfer loans do not receive the discount in loan rates that prevails when firms otherwise switch banks. We hereby critically augment recent empirical evidence on dynamic cycles in loan rates.
Approved
201,607
WP201606.pdf
WP201606
Understanding the public sector pay gapMaria Manuel Campos; Domenico Depalo; Evangelia Papapetrou; Javier J. Perez; Roberto RamosJ31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.; J45 - Public Sector Labor Markets; H50 - General2016Working PaperBdP Publication
We uncover the short- and long-run structural determinants of the existing cross-country heterogeneity in public-private pay differentials for a broad set of OECD countries. We explore micro data (EU-SILC, 2004-2012) and macro data (1970-2014). Three results stand out. First, when looking at pay gaps based on individual data, more than half of the cross-sectional variation of the sample can be accounted for by the degree of exposure to international competition, and by the size of the public sector labour force and its composition (i.e. the intensity in the provision of pure public goods), while labour market institutions play a very limited role. Second, we find that pay gaps have narrowed significantly during the recent financial crisis; nevertheless, this decrease can be explained by the widespread process of fiscal consolidation rather than by structural factors. Third, we find that in the log-run openness to international trade and improvements in the institutional quality of governments are associated with decreases in the public-private wage gap. Our findings can be rationalised by a body of research stressing non-competitive wage settlements in the public sector.
Approved
201,606
WP201605.pdf
WP201605
Residual-augmented IVX predictive regressionPaulo M.M. Rodrigues; Matei DemetrescuC12 - Hypothesis Testing; C22 - Time-Series Models2016Working PaperBdP Publication
Bias correction in predictive regressions stabilizes the empirical size properties of OLS-based predictability tests. This paper shows that bias correction also improves the finite sample power of tests, in particular so in the context of the extended instrumental variable (IVX) predictability testing framework introduced by Kostakis et al. (2015, Review of Financial Studies). We introduce new IVX-statistics subject to a bias correction analogous to that proposed by Amihud and Hurvich (2014, Journal of Financial and Quantitative  Analysis). Three important contributions are provided: first, we characterize the effects that bias-reduction adjustments have on the asymptotic distributions of the IVX test statistics in a general context allowing for short-run dynamics and heterogeneity; second, we discuss the validity of the procedure when predictors are stationary as well as near-integrated; and third, we conduct an exhaustive Monte Carlo analysis to investigate the small-sample properties of the test procedure and its sensitivity to distinctive features that characterize predictive regressions in practice, such as strong persistence, endogeneity, non-Gaussian innovations and heterogeneity. An application of the new procedure to the Welch and Goyal (2008) database illustrates its usefulness in practice.
Approved
201,605
WP201604.pdf
WP201604
Productivity and Organization in Portuguese FirmsLorenzo Caliendo; Giordano Mion; Luca David Opromolla; Esteban Rossi-HansbergD22 - Firm Behavior: Empirical Analysis; D24 - Production; Capital and Total Factor Productivity; Capacity; L23 - Organization of Production; F16 - Trade and Labor Market Interactions; J24 - Human Capital; Skills; Occupational Choice; Labor Productivity; J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.2016Working PaperBdP Publication
The productivity of firms is, at least partly, determined by a firm’s actions and decisions. One of these decisions involves the organization of production in terms of the number of layers of management the firm decides to employ. Using detailed employer-employee matched data and firm production quantity and input data for Portuguese firms, we study the endogenous response of revenue-based and quantity-based productivity to a change in layers: a firm reorganization. We show that as a result of an exogenous demand or productivity shock that makes the firm reorganize and add a management layer, quantity based productivity increases by about 4%, while revenue-based productivity drops by more than 4%. Such a reorganization makes the firm more productive, but also increases the quantity produced to an extent that lowers the price charged by the firm and, as a result, its revenue-based productivity.
Approved
201,604
WP201603.pdf
WP201603
Output and unemployment, Portugal, 2008–2012José R. MariaC51 - Model Construction and Estimation; E32 - Business Fluctuations; Cycles; E52 - Monetary Policy (Targets, Instruments, and Effects)2016Working PaperBdP Publication
The Portuguese economy experienced a dramatic 2008–2012 period. Gross Domestic Product fell around 10%, while the unemployment rate jumped 8 percentage points, reaching almost 17% by 2012Q4. A semi-structural model with rational expectations—named, for ease of reference, Model Q—largely assigns such developments to “non-cyclical disturbances” in product and labour markets. The economy was also severely hit by two recessive periods in the euro area, and to a lesser extent by abnormally high risk premia. Model Q embodies a relatively robust Okun’s law, but not without important revisions in trend components. Recursive estimates over 2008-2012 include a decrease in the longrun real interest rate, shared by both Portugal and the euro area, as well as a decrease in the long-run growth rate of the trend component of output, mirrored by an increase in long-run unemployment, which raises “secular stagnation” concerns. ModelQ fits the characteristics of a small economy integrated in the credible monetary union, and is parametrized with Bayesian techniques.
Approved
201,603
WP201602.pdf
WP201602
Monetary Developments and Expansionary Fiscal Consolidations: Evidence from the EMUAntónio Afonso; Luis MartinsC23 - Models with Panel Data; E21 - Consumption; Saving; E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation; H5 - National Government Expenditures and Related Policies; H62 - Deficit; Surplus2016Working PaperBdP Publication
We provide new insights into the existence of expansionary fiscal consolidations in the Economic and Monetary Union, using annual panel data from 14 European Union countries, over the period of 1970-2013. Different measures were calculated for assessing fiscal consolidations, based on the changes in the cyclically adjusted primary balance. A similar ad-hoc approach was used to compute monetary episodes. Panel estimations for private consumption show that, in some cases, when fiscal consolidations are coupled with monetary expansions, the traditional Keynesian signals are reversed for general government final consumption expenditure, social transfers and taxes. Keynesian effects prevail when fiscal consolidations are not matched by monetary easing. Panel probit estimations suggest that longer consolidations contribute positively to its success, whilst the opposite is the case for revenue-based ones.
Approved
201,602
WP201601.pdf
WP201601
A Mixed Frequency Approach to Forecast Private Consumption with ATM/POS DataCláudia Duarte; Paulo M.M. Rodrigues; António RuaC53 - Forecasting and Other Model Applications; E27 - Forecasting and Simulation2016Working PaperBdP Publication
The recent worldwide development and widespread use of electronic payment systems opened the opportunity to explore new data sources for monitoring macroeconomic activity. In this paper, we analyse the usefulness of data collected from Automated Teller Machines (ATM) and Points-Of-Sale (POS) for nowcasting and forecasting quarterly private consumption. To take advantage of the high frequency availability of such data, we use Mixed Data Sampling (MIDAS) regressions. A comparison of several MIDAS variants proposed in the literature is conducted, both single- and multiple variable models are considered, as well as different information sets within the quarter. Given the high penetration of ATM/POS technology in Portugal, it becomes a natural case study to assess its information content for tracking private consumption behaviour. We find that ATM/POS data displays better forecast performance than typical indicators, reinforcing the potential usefulness of this novel type of data among policymakers and practitioner.
Approved
201,601
RE201609_e.pdf
RE201609_e
Bank Runs: Theories and Policy ApplicationsEttore PanettiE21 - Consumption; Saving; E44 - Financial Markets and the Macroeconomy; G01 - Financial Crises; G20 - General2016Economic StudiesBdP Publication
In the present paper, I review the foundations of bank runs, and of the incentives of the economic agents to join them, as a base for discussing possible regulatory interventions to alleviate their effects. To this end, I study both self-fulfilling as well as fundamental runs, and propose a reconciliation of the two approaches, via the introduction of "global games". My policy conclusions highlight the role of competition and liquidity requirements to tame self-fulfilling runs. Moreover, market incompleteness and the increasing complexity of modern financial systems justify the imposition of liquidity requirements, in the presence of systemic aggregate liquidity risk.
Approved
201,609
RE201608_e.pdf
RE201608_e
Portugal: Trends, cycles, and instability in output and unemployment over 2008-2012José R. MariaC51 - Model Construction and Estimation; E32 - Business Fluctuations; Cycles; E4 - Money and Interest Rates2016Economic StudiesBdP Publication
This article presents a trend-cycle decomposition of Portuguese Gross Domestic Product and unemployment over 2008-2012. Results show that product and labour markets were primarily marked by low frequency movements in the trend component, and less so by cyclical factors. Economic policy should therefore not neglect the structural properties of these markets, resting solely centered around standard business cycle objectives. Okun's law - the negative correlation between the output and unemployment gaps - remained empirically relevant, but not without noteworthy trend instability. All results are based on a semi-structural model with rational expectations, tailored for a small economy integrated in a credible monetary union.
Approved
201,608
RE201607_e.pdf
RE201607_e
A bottom-up approach for forecasting GDP in a data rich environmentFrancisco Craveiro Dias; Maximiano Pinheiro; António RuaC22 - Time-Series Models; C53 - Forecasting and Other Model Applications2016Economic StudiesBdP Publication
In an increasingly data-rich environment, the use of factor models for forecasting purposes has gained prominence in the literature and among practitioners. In this article, we extend the work of Dias, Pinheiro and Rua (2015) by assessing the forecasting behaviour of factor models to predict several GDP components and investigate the performance of a bottom-up approach to forecast Portuguese GDP growth. We find supporting evidence of the usefulness of factor models and noteworthy forecasting gains when conducting a bottom-approach drawing on the main aggregates of GDP.
Approved
201,607
RE201606_e.pdf
RE201606_e
The sources of the gender wage gapAna Rute Cardoso; Paulo Guimarães; Pedro Portugal; Pedro S. RaposoJ16 - Economics of Gender; J24 - Human Capital; Skills; Occupational Choice; Labor Productivity; J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.; J71 - Discrimination2016Economic StudiesBdP Publication
In Portugal, over the last two decades, the proportion of women among employed workers increased from 35 to 45 percent. This evolution was accompanied by a sharp fall in the gender wage gap from 32 to 20 percent. The improvement in the wage outcome of the women, however, is fully accounted by the catching up of their skills in comparison to males, after two decades of human capital investments. By 2013 women already possess observable characteristics that enhance productivity identical to their male counterparts. This means that gender discrimination remained roughly constant over the 1991-2013 period. In this study, we investigate the sources of the wage gender gap and conclude that sorting among firms and job-titles can explain about two fifths of the wage gender gap.
Approved
201,606
RE201605_e.pdf
RE201605_e
Firm default probabilities revisitedAntónio R. Antunes; Pedro Prego; Homero GonçalvesC25 - Discrete Regression and Qualitative Choice Models; G24 - Investment Banking; Venture Capital; Brokerage; G32 - Financing Policy; Capital and Ownership Structure2016Economic StudiesBdP Publication
This article describes a tool to assess the creditworthiness of the Portuguese non-financial firms. In its design, the main goal is to find factors explaining the probability that any given firm will have a significant default episode vis-\`{a}-vis the banking system during the following year. Using information from the central credit register for period 2002--2015 and a comprehensive balance sheet data set for period 2005--2014, we develop a method to select explanatory variables and then estimate binary response models for ten strata of firms, defined in terms of size and sector of activity. We use this methodology for the classification of firms in terms of one-year probability of default consistent with typical values of existing credit rating systems, in particular the one used within the Eurosystem. We provide a brief characterisation of the Portuguese non-financial sector in terms of probabilities of default and transition between credit rating classes.
Approved
201,605
RE201604_e.pdf
RE201604_e
How can the Phillips curve be used for today's policy?Pedro Teles; Joana GarciaE31 - Price Level; Inflation; Deflation; E40 - General; E52 - Monetary Policy (Targets, Instruments, and Effects); E58 - Central Banks and Their Policies; E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation2016Economic StudiesBdP Publication
Simple observation seems to suggest a downward shift of the Phillips curve to low levels of inflation for countries such as the US, Germany, France and Japan. A cloud of inflation-unemployment data points can be read as a family of short run negatively sloped Phillips curves intersecting a vertical long run Phillips curve. How can the evidence on these families of Phillips curves be used for policy? How can it be used to induce higher inflation in today's low inflation context?
Approved
201,604
RE201603_e.pdf
RE201603_e
How the Portuguese firms adjusted to the economic and financial crisis: main shocks and channels of adjustmentFernando MartinsJ23 - Employment Determination; Job Creation; Demand for Labor; Self-Employment; J30 - General; J50 - General2016Economic StudiesBdP Publication
This article reports the findings of a survey conducted in 2014/2015 on a sample of Portuguese firms with the main purpose of identifying the major shocks faced by firms during the recent crisis and detecting their response in terms of wage-setting, price setting and labour force composition. Firms’ difficulties in being repaid by their customers and the decline of demand were reported as the two most important factors affecting firms negatively during the crisis. The impact of these two shocks was particularly felt in very small firms, in sectors such as construction, energy or trade and in firms that sell mostly to domestic markets. Reducing employment was the main instrument to accommodate negative shocks, in particular through the freeze or reduction of new hires, non-renewal of temporary contracts at expiration or individual dismissals. An increasing number of firms also froze the base wages of their workers and reduce their prices.
Approved
201,603
RE201602_e.pdf
RE201602_e
Comparing misallocation between sectors in PortugalDaniel Dias; Carlos Robalo Marques; Christine RichmondD24 - Production; Capital and Total Factor Productivity; Capacity; O11 - Macroeconomic Analyses of Economic Development; O41 - One, Two, and Multisector Growth Models; O47 - Measurement of Economic Growth; Aggregate Productivity2016Economic StudiesBdP Publication
Recent empirical studies documented that the level of resource misallocation in the service sector is significantly higher than in the manufacturing sector. In this article, we try to understand to what extent the documented differences are due to methodological reasons or reflect structural differences between the two sectors. Our results suggest that about 50 percent of the original estimated differences can be attributed to methodological choices, while the other 50 percent can be attributed to differences in the characteristics of the two sectors. We also conclude that higher output-price rigidity and labour adjustment costs, together with higher informality in the service sector, account for the remaining differences of allocative efficiency between the two sectors.
Approved
201,602
RE201601_e.pdf
RE201601_e
Structure of corporate fundingLuciana Barbosa; Paulo Soares de PinhoG21 - Banks; Other Depository Institutions; Mortgages; G32 - Financing Policy; Capital and Ownership Structure2016Economic StudiesBdP Publication
Funding is crucial for firms to invest but also to operate their daily business. Different types of debt have different characteristics and requirements for firms. This paper aims to identify the main determinants of the composition of corporate funding. In addition to bank and trade credit, two relevant funding sources, we also include in the analysis tax liabilities and loans from shareholders or intra-group operations. The results suggest that some firms’ characteristics present a similar impact on alternative funding sources, such as profitability, while others show a heterogeneous effect. Moreover, the results suggest the relevance of variables related to firms’ operational activity and business risk in funding structure.
Approved
201,601
OP201601.pdf
OP201601
Public debt sustainability: Methodologies and debates in European institutionsJoão Amador; Cláudia Braz; Maria Manuel Campos; Sharmin Sazedj; Lara WemansH60 - General; H63 - Debt; Debt Management2016Occasional PaperBdP Publication
Following the recent economic and financial crisis, public debt ratios increased considerably in most European Union countries, reaching historically high levels. Against this background, issues regarding the outlook for the debt ratio and the analysis of the sustainability of public finances in Member States became central in the economic policy analysis of European authorities. This Occasional Paper aims to address, in an integrated manner, the various aspects of the discussion on public debt sustainability, with a particular focus on the Portuguese case and on the constraints associated with the institutional and economic environment in the euro area. In this respect, the text approaches the concepts and methodologies used to assess sustainability, lists the existing assessment rules for euro area countries, presents its results for Portugal and refers to the main ongoing discussions on high debt levels.
Approved
201,601
blank_WP201602.pdf
blank_WP201602
On domestic demand and export performance in the euro area countries: Does export concentration matter?Paulo Soares Esteves2016OtherOther Publication
On domestic demand and export performance in the euro area countries: Does export concentration matter?On domestic demand and export performance in the euro area countries: Does export concentration matter?Approved
201,602
blank_WP201601.pdf
blank_WP201601
Exports and domestic demand pressure: a dynamic panel data model for the euro area countriesElena Bobeica; Paulo Soares Esteves; António Rua; Karsten Staehr2016OtherOther Publication
Exports and domestic demand pressure: a dynamic panel data model for the euro area countriesExports and domestic demand pressure: a dynamic panel data model for the euro area countriesApproved
201,601
blank_WP201414.pdf
blank_WP201414
–“Fiscal devaluation in the euro area: a model-based analysisSandra Gomes; P. Jacquinot; M. Pisani2016OtherOther Publication
–“Fiscal devaluation in the euro area: a model-based analysisApproved
2,016
WP201517.pdf
WP201517
House prices: bubbles, exuberance or something else? Evidence from euro area countriesRita Lourenço; Paulo M.M. RodriguesC12 - Hypothesis Testing; C22 - Time-Series Models2015Working PaperBdP Publication
The real estate market plays a crucial role in a country's economy. Since residential property is the most important component of households' wealth, real estate markets price trends can affect households' consumption and investment decisions via wealth effects. As real estate is often used as collateral for loans, changes in real estate prices affect households' debt and their ability to repay loans, and consequently also impact on the banking sector. As housing covers a basic human need, analyzing fluctuations in residential property prices is also important from a social perspective. Furthermore, since the construction industry is a main employer, investment in construction has a major influence on economic activity. Thus, developments in the real estate market have far-reaching implications on the economy as a whole as well as on financial stability. In this paper we use different methodologies with the objective of providing evidence regarding potential bubble/exuberant behaviour of economic agents in several European countries and the US, over the last four decades.
Approved
201,517
WP201516.pdf
WP201516
Networks of value added tradeJoão Amador; Sónia CabralF14 - Country and Industry Studies of Trade; F15 - Economic Integration; C67 - Input-Output Models; D85 - Network Formation2015Working PaperBdP Publication
Global Value Chains (GVCs) became the paradigm for the production of most goods and services around the world. Therefore, linkages among countries can no longer be adequately assessed through standard bilateral gross trade flows and new methods of analysis are needed. In this paper, we apply visualisation tools and measures of network analysis on value-added trade flows in order to understand the nature and dynamics of GVCs. The paper uses data on the bilateral foreign value added in exports from the World Input-Output Database (WIOD) for the period 1995-2011 and, in each period, the GVC is represented as a directed network of nodes (countries) and edges (value added flows). The analysis is extended beyond total trade flows with a view to discussing the distinct roles of goods and services in GVCs. Moreover, the differences between Germany, the US, China and Russia as major suppliers of value added in GVCs are also examined.
Approved
201,516
WP201515.pdf
WP201515
The Effect of Bank Shocks on Firm-Level and Aggregate InvestmentJoão Amador; Arne J. NagengastE32 - Business Fluctuations; Cycles; E44 - Financial Markets and the Macroeconomy; G21 - Banks; Other Depository Institutions; Mortgages; G32 - Financing Policy; Capital and Ownership Structure2015Working PaperBdP Publication
We show that credit supply shocks have a strong impact on firm-level as well as aggregate investment by applying the methodology developed by Amiti and Weinstein (2013) to a rich dataset of matched bank-firm loans in the Portuguese economy for the period 2005 to 2013. We argue that their decomposition framework can also be used in the presence of small firms with only one banking relationship as long as they account for a small share of the total loan volume of their banks. The growth rate of individual loans in our dataset is decomposed into bank, firm, industry and common shocks. Adverse bank shocks are found to strongly impair firm-level investment, particularly in small firms and in those with no access to alternative financing sources. For the economy as a whole, granular shocks in the banking system account for around 20-40% of aggregate investment dynamics.
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WP201514.pdf
WP201514
A New Regression-Based Tail Index Estimator: An Application to Exchange RatesJoão Nicolau; Paulo M.M. RodriguesC16 - Specific Distributions; C58 - Financial Econometrics2015Working PaperBdP Publication
In this paper, a new regression-based approach for the estimation of the tail index of heavy-tailed distributions is introduced. Comparatively to many procedures currently available in the literature, our method does not involve order statistics and can be applied in more general contexts than just Pareto. The procedure is in line with approaches used in experimental data analysis with xed explanatory variables, and has several important features which are worth highlighting. First, it provides a bias reduction when compared to available regression-based methods and a fortiori over standard least-squares based estimators of the tail index. Second, it is more resilient to the choice of the tail length used in the estimation of the index than the widely used Hill estimator. Third, when the effect of the slowly varying function at innity of the Pareto distribution (the so called second order behaviour of the Taylor expansion) vanishes slowly our estimator continues to perform satisfactorily, whereas the Hill estimator rapidly deteriorates. Fourth, our estimator performs well under dependence of unknown form. For inference purposes, we also provide a way to compute the asymptotic variance of the proposed estimator under time dependence and conditional heteroscedasticity. An empirical application of the procedure to exchange rates is also provided.
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WP201513.pdf
WP201513
Assessing European Firms’ Exports and Productivity Distributions: The CompNet Trade ModuleAntoine Berthou; Emmanuel Dhyne; Matteo Bugamelli; Ana-Maria Cazacu; Calin-Vlad Demian; Peter Harasztosi; Tibor Lalinsky; Jaanika Meriküll; Filippo Oropallo; Ana Cristina SoaresF10 - General; F14 - Country and Industry Studies of Trade2015Working PaperBdP Publication
This paper provides a new cross-country evaluation of competitiveness, focusing on the linkages between productivity and export performance among European economies. We use the information compiled in the Trade module of CompNet to establish new stylized facts regarding the joint distributions of the firm-level exports performance and productivity in a panel of 15 countries, 23 manufacturing sectors during the 2000’s. We confirm that exporters are more productive than non-exporters. However, this productivity premium is rising with the export experience of firms, with permanent exporters being much more productive than starters. At the intensive margin, we show that both the level and the growth of firm-level exports rise with firm productivity, and that the bulk of aggregate exports in each country are made by few highly productive firms. Finally, we show that during the crisis, the growth of exports by high productive firms sustained the current account adjustment of European “stressed” economies. This last result confirms that the shape of the productivity distribution within each country can have important consequences from the point of view of the dynamics of aggregate trade patterns.
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WP201512.pdf
WP201512
Sources of the Union Wage Gap: Results from High-Dimensional Fixed Effects Regression ModelsJohn T. Addison; Pedro Portugal; Hugo VilaresJ31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.; J33 - Compensation Packages; Payment Methods; J41 - Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets; J51 - Trade Unions: Objectives, Structure, and Effects; J52 - Dispute Resolution: Strikes, Arbitration, and Mediation2015Working PaperBdP Publication
We estimate the impact of union density on wages using matched employer-employee contract data for Portugal. We extend omitted variable bias decomposition procedure of Gelbach (2016) to obtain the contribution of worker, firm, and job-title heterogeneity to the union wage premium. The principal result is the dominance of the allocation or workers among firms with different wage policies. The unobserved skills of union workers have a modest impact on wages; unions do not place their members into higher job-titles along the job career hierarchy; the wage cushion enables firms to partially undo the bargained wage; and, while fringes matter, matching does not.
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WP201511.pdf
WP201511
Decomposing the wage losses of displaced workers: the role of the reallocation of workers into firms and job titlesPedro Portugal; Pedro S. Raposo; Anabela CarneiroE21 - Consumption; Saving; E60 - General; F40 - General2015Working PaperBdP Publication
Using an unusually rich matched employer-employee-job title data set for Portugal, this paper evaluates the sources of wage losses of workers displaced due to firm closure based on the comparison of workers’ wages differentials before and after displacement. Potential wage losses of displaced workers can be related to firm, job title, and match heterogeneity in the pre- and post-displacement jobs. In this vein, we estimate a threeway high-dimensional fixed effects regression model that enables us to decompose the sources of the wage losses into the contribution of firm, job title, and match fixed effects. The worker-firm match plays a very sizable role. We found that the allocation of workers into poorer matches accounts for 38 percent of the total average wage loss. Sorting among firms accounts for 36 percent. Job downgrading also plays a significant role in explaining the wage loss of displaced workers, accounting for the remaining 26 percent.
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WP201510.pdf
WP201510
Income smoothing mechanisms after labor market transitionsNuno Alves; Carlos MartinsD31 - Personal Income, Wealth, and Their Distributions; J6 - Mobility, Unemployment, and Vacancies; O15 - Human Resources; Income Distribution; Migration2015Working PaperBdP Publication
This article quantifies several household income smoothing mechanisms following labor market shocks. These shocks correspond to individual transitions between employment, unemployment and inactivity. The analysis covers 25 European countries for the period 2004-2011. We identify the relative role of labor and non-labor household income sources, income taxes and individual and household transfers in smoothing income fluctuations. We conclude that the tax and transfer system is the main household insurance mechanism following individual labor market transitions. This finding is robust before and after the Great Recession of 2009. Quantitatively, the relative role of these smoothing mechanisms is conditional on the characteristics of the labor market shock and varies across countries in the sample. Finally, even though we do not identify a relevant labor market response of household members in the intensive margin, household income pooling is an important smoothing mechanism among couples.
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WP201509.pdf
WP201509
Central Bank Interventions, Demand for Collateral, and Sovereign Borrowing CostsLuís Fonseca; Matteo Crosignani; Miguel Faria-e-CastroE44 - Financial Markets and the Macroeconomy; E52 - Monetary Policy (Targets, Instruments, and Effects); E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; G21 - Banks; Other Depository Institutions; Mortgages2015Working PaperBdP Publication
We analyze the effect of unconventional monetary policy, in the form of collateralized lending to banks, on sovereign borrowing costs. Using our unique dataset on monthly security- and bank-level holdings of government bonds, we document that Portuguese banks increased their holdings of domestic public debt during the allotment of the three year Long-Term Refinancing Operations (LTRO) of the European Central Bank. We argue that domestic banks engaged in a "collateral trade", which involved the purchase of high-yield bonds with short maturities that could be pledged as collateral for low cost and long-term borrowing from the ECB. This significant increase in bond holdings was concentrated in shorter maturities, as these were especially suited to mitigate funding liquidity risk. The resulting steepening of the sovereign yield curve and the timing and characteristics of government bond auctions are consistent with a strategic response by the debt management agency.
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WP201508.pdf
WP201508
Financial Fragmentation ShocksPaulo Júlio; Ricardo Mourinho Félix; Gabriela Lopes de Castro; José R. MariaE27 - Forecasting and Simulation; E44 - Financial Markets and the Macroeconomy2015Working PaperBdP Publication
We define "financial fragmentation shocks" as fluctuations in credit market frictions in a small euro area economy. The shock changes the financial integration status quo of the monetary union, given its negligible international spillover. An increase in credit market frictions triggers a recession in the small economy. Perfect competition and the absence of nominal rigidities attenuate output volatility. Expectations also matter: real impacts weaken when long fragmentation time spans are perceived to be short lived. Contrarily to "risk shocks", defined as fluctuations in borrowers' riskiness, fragmentation shocks do not imply strongly countercyclical bankruptcy rates. The results are based on PESSOA, a general equilibrium model with a Bernanke-Gertler-Gilchrist financial accelerator mechanism.
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WP201507.pdf
WP201507
Covariate-augmented unit root tests with mixed-frequency dataCláudia DuarteC12 - Hypothesis Testing; C15 - Statistical Simulation Methods; Monte Carlo Methods; C22 - Time-Series Models2015Working PaperBdP Publication
Unit root tests typically suffer from low power in small samples, which results in not rejecting the null hypothesis as often as they should. This paper tries to tackle this issue by assessing whether it is possible to improve the power performance of covariate-augmented unit root tests, namely the ADF family of tests, by exploiting mixed-frequency data. We use the mixed data sampling (MIDAS) approach to deal with mixed-frequency data. The results from a Monte Carlo exercise indicate that mixed-frequency tests have better power performance than low-frequency tests. The gains from exploiting mixed-frequency data are greater for near-integrated variables. An empirical illustration using the US unemployment rate is presented.
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WP201506.pdf
WP201506
Unions and Collective Bargaining in the Wake of the Great RecessionJohn T. Addison; Pedro Portugal; Hugo VilaresJ31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.; J52 - Dispute Resolution: Strikes, Arbitration, and Mediation; J53 - Labor-Management Relations; Industrial Jurisprudence2015Working PaperBdP Publication
This paper provides the first definitive estimates of union density in Portugal, 2010-2012, using a unique dataset. The determinants of union density at firm level are first modeled. Next, estimates of the union wage gap are provided for different ranges of union density. Since these estimates fully reflect the reality of an industrial relations system in which collective agreements are extended to nonunion workers and firms, the final issue examined is contract coverage. The pronounced reduction in the number of industry-wide agreements and extension ordinances in recent years has been uncritically equated with a fall in coverage. However, the authors show that the number of workers covered by new and existing agreements has remained largely unaffected by economic crisis. The reduced frequency of new agreements and extensions is instead attributed to downward nominal wage rigidity in deflationary times, rather than (as yet) the expression of a crisis in collective bargaining.
Unions and Collective Bargaining in the Wake of the Great RecessionApproved
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Seriously Strengthening the Tax-Benefit LinkPedro Portugal; Pedro S. RaposoJ14 - Economics of the Elderly; J26 - Retirement; Retirement Policies; J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.2015Working PaperBdP Publication
On January 1st 1994 Portugal introduced, for the first time, inflation indexation in the old-age pension formula. This change considerably decreased the uncertainty regarding the perception of the link between the stream of labor earnings and future pensions. The effect of indexation was large and, by itself, increased the expected pension amount by 28% in real terms. Individuals appear to have reacted to the policy change: labor earnings increase significantly during the eligible years approaching retirement age.
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Expectation-Driven Cycles: Time-varying EffectsA. D’Agostino; Caterina Mendicino2015Working PaperBdP Publication
This paper provides new insights into expectation-driven cycles by estimating a structural VAR with time-varying coefficients and stochastic volatility, as in Cogley and Sargent (2005) and Primiceri (2005). We use survey-based expectations of the unemployment rate to measure expectations of future developments in economic activity. We find that the effect of expectation shocks on the realized unemployment rate have been particularly large during the most recent recession. Unanticipated changes in expectations contributed to the gradual increase in the persistence of the unemployment rate and to the decline in the correlation between the inflation and the unemployment rate over time. Our results are robust to the introduction of financial variables in the model.
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WP201503
Capital Regulation in a Macroeconomic Model with Three Layers of DefaultLaurent Clerc; Alexis Derviz; Caterina Mendicino; Stephane Moyen; Kalin Nikolov; Livio Stracca; Javier Suarez; Alexandro VardulakisE3 - Prices, Business Fluctuations, and Cycles; E44 - Financial Markets and the Macroeconomy; G01 - Financial Crises; G21 - Banks; Other Depository Institutions; Mortgages2015Working PaperBdP Publication
We develop a dynamic general equilibrium model for the positive and normative analysis of macroprudential policies. Optimizing financial intermediaries allocate their scarce net worth together with funds raised from saving households across two lending activities, mortgage and corporate lending. For all borrowers (households, firms, and banks) external financing takes the form of debt which is subject to default risk. This “3D model” shows the interplay between three interconnected net worth channels that cause financial amplification and the distortions due to deposit insurance. We apply it to the analysis of capital regulation.
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WP201502.pdf
WP201502
Macroeconomic Forecasting Starting from Survey NowcastsJoão Valle e Azevedo; Inês GonçalvesC14 - Semiparametric and Nonparametric Methods; C32 - Time-Series Models; C51 - Model Construction and Estimation; C53 - Forecasting and Other Model Applications2015Working PaperBdP Publication
We explore the use of nowcasts from the Philadelphia Survey of Professional Forecasters as a starting point for macroeconomic forecasting. Specifically, survey nowcasts are treated as an additional observation of the time series of interest. This simple approach delivers enhanced model performance through the straightforward use of timely information. Important gains in forecast accuracy are observed for multiple methods/models, especially at shorter horizons. Still, given that survey nowcasts are very hard to beat, this approach proves most useful as a means of developing a sharper forecasting routine for longer-term predictions.
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WP201501.pdf
WP201501
Unpleasant debt dynamics: Can fiscal consolidations raise debt ratios?Gabriela Lopes de Castro; Ricardo Mourinho Félix; Paulo Júlio; José R. MariaE12 - Keynes; Keynesian; Post-Keynesian; E30 - General; E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation; H60 - General2015Working PaperBdP Publication
Using PESSOA, a medium-scale DSGE model for a small euro-area economy, we evaluate how fiscal adjustments impact short- and medium-term debt dynamics and output for alternative policy options, and budgetary and economic conditions. Fiscal adjustments may increase the public debt-to-GDP ratio in the short run, even for consolidations carried out in normal times in economies characterized by moderate indebtedness levels. Financial turmoils and hikes in the nationwide risk premia, coupled with high indebtedness levels and stiff fiscal measures, boost the output costs of fiscal consolidations and severely affect their effectiveness in bringing the public debtto-GDP ratio down in the short term. In the medium run credible fiscal adjustments entail a decline in the public debt ratio, though at potentially very large output losses when carried out under unfavorable budgetary and economic conditions.
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RE201513_e.pdf
RE201513_e
A Reappraisal of Eurozone Countries Output DifferentialsJorge M. L. G. Andraz; Paulo M.M. RodriguesC12 - Hypothesis Testing; C22 - Time-Series Models; O4 - Economic Growth and Aggregate Productivity2015Economic StudiesBdP Publication
In this paper, we use the concept of real convergence (considering the stationarity of per capita cross-country output differences) and present updated evidence on the persistence properties of output differential data, accounting for the potential occurrence of persistence changes. We focus on per capita output differences for 14 Eurozone countries over the period  1950-2015. Results suggest that the gap between the central and northwestern countries has been reduced through persistent convergence paths. However, the convergence path of the southern countries to the central and northern countries seems to have been interrupted.
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RE201512_e
The Portuguese money market throughout the crisis:  What was the impact of ECB liquidity provision?Ana Sofia Saldanha; Carla SoaresE58 - Central Banks and Their Policies; G21 - Banks; Other Depository Institutions; Mortgages2015Economic StudiesBdP Publication
Money markets were severely impaired by the financial and sovereign debt crises. We investigate how the Portuguese part of the euro unsecured interbank money market was affected by the crises and how the ECB’s unconventional policy measures, in particular the fixed rate full allotment procedure, impacted the market. We adapt a widely used method in the economic literature to identify unsecured interbank loans – with maturities ranging from overnight to one-month – settled in TARGET payment system, in which at least one of the counterparties is a Portuguese bank. We find that the Portuguese unsecured money market was hit especially by the sovereign debt crisis. There was a significant reduction in market activity, both in the number of operations and in market turnover. Alongside, price dispersion increased and rates agreed upon loans became on average more expensive than the reference rate for the respective maturity. We also find that domestic loans were more expensive than loans traded with a foreign bank. Finally, by analyzing the impact of monetary policy measures taken during the crises’ periods, we find that the increased intermediation by the central bank contributed to a compression of spreads and a reduction in loan amounts. We observe that banks perceived as riskier began being penalized during the crisis.
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RE201511_e
The euro area financial network and the need for better integrationNuno SilvaE21 - Consumption; Saving; E60 - General; F40 - General2015Economic StudiesBdP Publication
At the time of the creation of the Economic and Monetary Union (EMU), it was widely held that balance of payments constraints for individual euro area countries would disappear. Contrary to this dominant view, private capital suddenly stopped flowing into euro area deficit countries in the wake of the financial crisis. Understanding why these financial constraints might emerge inside a monetary union is of crucial importance given its potential impact on resources allocation. We find that that the euro area financial system mirrors an arrangement of relatively closed networks connected mostly through banks and governments, two sectors that are strongly interconnected, over dependent on domestic economies and for which default is typically a complex way of satisfying their budget constraints. This fact is argued to lead to the amplification of shocks within each country. This has been observed in countries like Portugal during the recent european sovereign debt crisis. The article concludes that it is vital to mitigate the impact coming from the home bias in banks’ balance sheets, and consequent underdiversification, on the flow of funds between institutions with excess savings and non-financial sectors in any country. Cross-border expansion preferably following a branches model is one possibility. Nevertheless, mergers and acquisitions between banks from different euro area countries have not been very significant. In addition, the emergence of pan-european banks may increase the too-big-to-fail problem. This study suggests that asset-backed securities could be an efficient alternative to solve the problem.
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RE201510.pdf
RE201510
The Portuguese labor market legislation: a technological shockÁlvaro A. NovoJ8 - Labor Standards: National and International; J41 - Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets; J65 - Unemployment Insurance; Severance Pay; Plant Closings2015Economic StudiesBdP Publication
The recovery of the Portuguese labor market is tenuous. Employment is 5.2 percent below the pre-crisis level; in Spain, it is only 1.3 percent below and, in Ireland, it already exceeds pre-crisis by 3.6 percent. The population loss, at levels similar to the 1960s, reduced the productive potential of the Portuguese economy. The lower oil prices and the devaluation of the euro alleviated the problem, but they are not structural growth factors. In this context, it is necessary to design a labor market regulation closer to the technological frontier. Standardize employment contracts and proper incentives in the unemployment insurance are two steps needed to promote steady growth. Growth based on the investment in the quality of labor matches.
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RE201509.pdf
RE201509
On fallacies surrounding the discussion about the reduction of social security contributionsPedro Portugal2015Economic StudiesBdP Publication
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RE201508.pdf
RE201508
On the wage bargaining system in PortugalFernando Martins2015Economic StudiesBdP Publication
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RE201507.pdf
RE201507
Trade Unions: The winners curse?Hugo Vilares2015Economic StudiesBdP Publication
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The Portuguese Banking System during the Sovereign Debt CrisisMatteo Crosignani; Miguel Faria-e-Castro; Luís FonsecaE50 - General; E58 - Central Banks and Their Policies; G20 - General; G21 - Banks; Other Depository Institutions; Mortgages; H63 - Debt; Debt Management2015Economic StudiesBdP Publication
We describe the evolution of balance sheets of monetary financial institutions (MFI) in Portugal before, during, and after the sovereign debt crisis of the late 2000’s. We account for several dimensions of heterogeneity including size, type, and nationality. We find that the Portuguese MFI sector rapidly expanded and increased its leverage before and during the crisis until 2012, after which it started a long deleveraging process. Many of the major aggregates, such as lending and deposits, follow this pattern. We observe a steady rise of non-traditional banking activities on both sides of the balance sheet of domestic institutions. The crisis weakened the international integration of the Portuguese financial sector, as domestic banks became less exposed to international counterparties. Finally, the Eurosystem and the Portuguese government have become relevant sources of funding as a result of the recent unprecedented monetary and fiscal interventions in the domestic financial system.
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RE201505
Temporary contracts’ transitions: the role of training and institutionsSara SerraE24 - Employment; Unemployment; Wages; J24 - Human Capital; Skills; Occupational Choice; Labor Productivity; J41 - Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets2015Economic StudiesBdP Publication
Despite recent reforms, labour market segmentation is still a marked feature of several European countries. This work empirically analyses transitions out of temporary contracts, by means of a discrete duration model, with a particular focus on human capital features, labour market protection and their interaction. Transitions to open-ended contracts with the same or with a new employer are considered separately, as well as transitions to joblessness, based on data for ten European countries taken from the European Community Household Panel. Firm-training significantly increases the likelihood of transitioning to an open-ended contract with the same employer, but not in countries with more segmented labor markets. In these countries, instead, educational attainment and labour market flexibility are more important determinants of transitions to open-ended contracts. Interestingly, in these countries, firm training actually mitigates the positive (and significant) impact of labour market flexibility on the likelihood of transitioning to an opened contract with the same employer.
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RE201504
Increased strength of monetary policyBernardino Adão; André C. SilvaE40 - General; E50 - General; G12 - Asset Pricing; G31 - Capital Budgeting; Investment Policy2015Economic StudiesBdP Publication
Firms cash holdings distribution changed substantially from 1980 to 2013. We study the effects of this change in the formulation of monetary policy using a model with financial segmentation. We find that the interest rate channel of the transmission mechanism of monetary policy has become more powerful, as the impact of monetary policy over the real interest rate increased. Now, with the increase in firm cash holdings, the real interest rate takes 3.4 months more to return to its initial value after a shock to the nominal interest rate.
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RE201503_e
Revisiting the monthly coincident indicators of Banco de PortugalAntónio RuaC10 - General; E32 - Business Fluctuations; Cycles2015Economic StudiesBdP Publication
After a decade releasing the monthly coincident indicators of Banco de Portugal, this article revisits the main features of these indicators which play an important role in the conjunctural assessment of the Portuguese economy. In particular, it is analyzed its behavior as underlying measures of the evolution of the corresponding macroeconomic aggregates as well as their real-time behavior in monitoring economic developments.
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RE201502_e
Determinants of civil litigation in PortugalManuel Coutinho Pereira; Lara WemansK41 - Litigation Process; R10 - General2015Economic StudiesBdP Publication
This article studies the evolution of the resort to civil justice in Portugal in the last two decades, particularly seeking to identify the main determinants of the litigation rate observed in the different regions, benefiting from a dataset with information by comarca. We conclude that the length of proceedings tends to reduce litigation and, therefore, there is evidence of rationing by waiting list in the access to justice. At the same time there is some evidence of demand inducement by lawyers. Socioeconomic characteristics as the illiteracy rate, purchasing power and the location of enterprises influence the level of litigation in the different regions of the country. Moreover there are significant spatial spillovers in the generation of litigation - not only the characteristics of the comarca itself, but also those of the neighbouring ones, play a relevant role.
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RE201501_e.pdf
RE201501_e
Co-movement of revisions in short- and long-term inflation expectationsAntónio R. AntunesC14 - Semiparametric and Nonparametric Methods; C46 - Specific Distributions; Specific Statistics; G12 - Asset Pricing2015Economic StudiesBdP Publication
This article studies the co-movement between large daily revisions of short- and long-term inflation expectations using copulas. The main findings are: first, the co-movement between unusually large changes in short- and long-term inflation expectations increased markedly since mid-2012, which implies that long-term inflation expectations might not be, in a precise sense, well-anchored. Second, this co-movement measure is quite noisy. Finally, the result is shown not to be an artifact of the methodology or of the specific data used in the analysis.
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OP201501.pdf
OP201501
Quarterly Series for the Portuguese Economy: 1977-2014Fátima Cardoso; Ana SequeiraC82 - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; E0 - General2015Occasional PaperBdP Publication
This article presents quarterly historical series (1977-2014) which are consistent with the latest version of National Accounts published by Statistics Portugal. The information provided covers a wide set of variables and corresponds to the quarterly historical series update, regularly published by Banco de Portugal. It includes data for 2014 and incorporates the revision of the previous data according to ESA 2010. Simultaneously, we describe in detail the methodological procedures applied in the construction of the series, aiming for a greater comparability over time. The series released in this paper are distributed in three blocks: expenditure, disposable income and the labour market.
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Is there a role for domestic demand pressure on export performance?Paulo Soares Esteves; António Rua2015OtherOther Publication
Is there a role for domestic demand pressure on export performance?Is there a role for domestic demand pressure on export performance?Approved
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What survey data reveal about price and wage rigidity in PortugalFernando Martins2015OtherOther Publication
What survey data reveal about price and wage rigidity in PortugalApproved
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A replication note on downward nominal and real wage rigidity: survey evidence from European firmsDaniel Dias; Carlos Robalo Marques; Fernando Martins2015OtherOther Publication
A replication note on downward nominal and real wage rigidity: survey evidence from European firmsApproved
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Understanding Price Stickiness: Firm-level Evidence on Price Adjustment Lags and Their AsymmetriesDaniel Dias; Carlos Robalo Marques; Fernando Martins; J.M.C.Santos Silva2015OtherOther Publication
Understanding Price Stickiness: Firm-level Evidence on Price Adjustment Lags and Their AsymmetriesApproved
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Lost in translation? The relative wages of immigrants in the Portuguese labour marketSónia Cabral; Cláudia Duarte2015OtherOther Publication
Lost in translation? The relative wages of immigrants in the Portuguese labour markethttp://dx.doi.org/10.1080/02692171.2015.1070129Approved
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The Tip of the Iceberg: A Quantitative Framework for Estimating Trade CostsLuca David Opromolla; Alfonso A. Irarrazabal; Andreas Moxnes2015OtherOther Publication
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Assessing European Firms’ Exports and Productivity Distributions: The CompNet Trade ModuleAna Cristina Soares; Others2015OtherOther Publication
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Assessing European competitiveness: the new CompNet microbased databaseAna Cristina Soares; João Amador; Others2015OtherOther Publication
Assessing European competitiveness: the new CompNet microbased databaseApproved
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Model-Based vs. Professional Forecasts: Implications for Models with Nominal RigiditiesJoão Valle e Azevedo; João Jalles2015OtherOther Publication
Model-Based vs. Professional Forecasts: Implications for Models with Nominal RigiditiesApproved
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Is Quantity Theory Still Alive?João Valle e Azevedo; Pedro Teles; Harald Uhligh2015OtherOther Publication
Is Quantity Theory Still Alive?Approved
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WP201416.pdf
WP201416
Real-time nowcasting the US output gap: Singular spectrum analysis at workMiguel de Carvalho; António RuaC50 - General; E32 - Business Fluctuations; Cycles2014Working PaperBdP Publication
We explore a new approach for nowcasting the output gap based on singular spectrum analysis. Resorting to real-time vintages, a recursive exercise is conducted so to assess the real-time reliability of our approach for nowcasting the US output gap, in comparison with some well-known benchmark models. For our applied setting of interest, the preferred version of our approach consists of a two-channel singular spectrum analysis, where we use a Fisher g test to infer which components, within the standard business cycle range, should be included in the grouping step. We find that singular spectrum analysis provides a reliable assessment of the cyclical position of the economy in real-time, with the two-channel approach outperforming substantially the univariate counterpart.
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wp201415.pdf
wp201415
Exports and Domestic Demand Pressure: a Dynamic Panel Data Model for the Euro Area CountriesElena Bobeica; Paulo Soares Esteves; António Rua; Karsten StaehrC22 - Time-Series Models; C50 - General; F16 - Trade and Labor Market Interactions2014Working PaperBdP Publication
The paper investigates the link between domestic demand pressure and exports by considering an error correction dynamic panel model for eleven euro area countries over the last two decades. The results suggest that there is a statistically signi?cant substitution e¤ect between domestic and foreign sales. Furthermore, this relationship appears to be asymmetric, as the link is much stronger when domestic demand falls than when it increases. Weakness in the domestic market translates into increased e¤orts to serve markets abroad, but, conversely, during times of boom, exports are not negatively a¤ected by increasing domestic sales. This reorientation towards foreign markets was particularly important during the crisis period, and thus could represent a new adjustment channel to strong negative domestic shocks. The results have important policy implications, as this substitution effect between domestic and external markets might allow the euro area countries under stress to improve their trade outcomes with a relatively small downward pressure on domestic prices.
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WP201414
Fiscal devaluation in the euro area: a model-based analysisSandra Gomes; P. Jacquinot; M. PisaniF32 - Current Account Adjustment; Short-Term Capital Movements; F47 - Forecasting and Simulation; H20 - General2014Working PaperBdP Publication
We assess the effects of a temporary fiscal devaluation enacted in Spain or Portugal on the trade balance by simulating EAGLE, a large-scale multi-country dynamic general equilibrium model of the euro area. Social contributions paid by firms are reduced by 1 percent of GDP for four years and are financed by increasing the consumption tax. Our main results are the following. First, in the first year following implementation, the Spanish trade balance improves by 0.5 percent of GDP, the (before-consumption tax) real exchange rate depreciates by 0.7 percent and the terms of trade deteriorate by 1 percent. Second, similar results are obtained in the case of Portugal. Third, the trade balance improves when the fiscal devaluation is also enacted in the rest of the euro area, albeit to a lower extent than in the case of unilateral (country-specific) implementation. Fourth, quantitative results crucially depend on the degree of substitutability between domestic and imported tradables.
Fiscal devaluation in the euro area: a model-based analysisApproved
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WP201413
A Dynamic Quantitative Macroeconomic Model of Bank RunsElena Mattana; Ettore PanettiE21 - Consumption; Saving; E44 - Financial Markets and the Macroeconomy; G01 - Financial Crises; G20 - General2014Working PaperBdP Publication
We study the macroeconomic effects of bank runs in a neoclassical growth model with a fully microfounded banking system. In every period, the banks provide insurance against idiosyncratic liquidity shocks, but the possibility of sunspot-driven bank runs distorts the equilibrium allocation. In the quantitative exercise, we find that the banks, for low values of the probability of the sunspot, choose a contract that is not run-proof, and satisfy an “equal service constraint” if the run is realized. In equilibrium, a shock to the probability of a bank run leads to a drop in GDP of between 0.001 and 5.6 percentage points.
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WP201412
Global Value Chains: A View From the Euro AreaJoão Amador; Rita Cappariello; Robert StehrerF1 - Trade; F14 - Country and Industry Studies of Trade; F15 - Economic Integration2014Working PaperBdP Publication
This paper describes the main features of Global Value Chains (GVCs) in the euro area taken as a whole and compares with other large trade players like the US, China and Japan. In addition, the perspective of individual euro area countries is considered, with a focus on intra euro area linkages. The analysis relies primarily on the concept of foreign value added in exports, as a way to assess the pervasiveness of GVCs, it covers the period 2000-2011 and bases on the World Input-Output Database (WIOD). The paper finds that GVCs are important for the euro area as whole and they have rebounded after the great trade collapse. Moreover, there is a strong relevance of regional production linkages in Europe, with Germany playing a key role.
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wp201411
Misallocation and productivity in the lead up to the Eurozone crisisDaniel Dias; Carlos Robalo Marques; Christine RichmondD24 - Production; Capital and Total Factor Productivity; Capacity; O11 - Macroeconomic Analyses of Economic Development; O47 - Measurement of Economic Growth; Aggregate Productivity; O41 - One, Two, and Multisector Growth Models2014Working PaperBdP Publication
We use Portuguese firm-level data to investigate whether changes in resource misallocation may have contributed to the poor economic performance of some southern and peripheral European countries leading up to the Eurozone crisis. We extend Hsieh and Klenow's (2009) methodology to include intermediate inputs and consider all sectors of the economy (agriculture, manufacturing, and services). We find that within-industry misallocation almost doubled between 1996 and 2011. Equalizing total factor revenue productivity across firms within an industry could have boosted valued-added 48 percent and 79 percent above actual levels in 1996 and 2011, respectively. This implies that deteriorating allocative eficiency may have shaved around 1.3 percentage points of the annual GDP growth during the 1996-2011 period. Allocative eficiency deterioration, despite being a widespread phenomenon, is significantly higher in the service sector, with 5 industries accounting for 72 percent of the total variation. Capital distortions are the most important source of potential value-added eficiency gains, especially in the service sector, with a relative contribution increasing over time.
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wp201410
Capital inflows and euro area long-term interest ratesDaniel Carvalho; Michael FidoraE43 - Determination of Interest Rates; Term Structure of Interest Rates; E44 - Financial Markets and the Macroeconomy; F21 - International Investment; Long-Term Capital Movements; F41 - Open Economy Macroeconomics; G15 - International Financial Markets2014Working PaperBdP Publication
Capital flows into the euro area were particularly large in the mid-2000s and the share of foreign holdings of euro area securities increased substantially between the introduction of the euro and the outbreak of the global financial crisis. We show that the increase in foreign holdings of euro area bonds in this period is associated with a reduction of euro area long-term interest rates by about 1.55 percentage points, which is in line with previous studies that document a similar impact of foreign bond buying on US Treasury yields. These results are relevant for understanding developments both in the euro area and abroad, as lower levels of long-term interest rates resulting from foreign accumulation of euro area debt securities may have added to increased risk appetite and hunt for yield at the global level.
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Labour Demand Research: Towards a Better Match between Better Theory and Better DataJohn T. Addison; Pedro Portugal; José VarejãoJ23 - Employment Determination; Job Creation; Demand for Labor; Self-Employment; J3 - Wages, Compensation, and Labor Costs; J4 - Particular Labor Markets; J5 - Labor-Management Relations, Trade Unions, and Collective Bargaining; D4 - Market Structure and Pricing2014Working PaperBdP Publication
At first blush, most advances in labour demand were achieved by the late 1980s. Since then progress might appear to have stalled. We argue to the contrary that significant progress has been made in understanding labour market frictions and imperfections, and in modelling search behaviour and heterogeneous preferences. Perhaps most notable have been the improvements in data, in the form of longitudinal matched employer-employee data, and in techniques and algorithms (e.g. for solving heterogeneous parameter models). In short, the Cinderella status of the field is frankly overdrawn.  Nevertheless, a chief lacuna remains the need for a better match between theory and data. This paper provides a critical albeit eclectic assessment of these developments, along the dimensions of the static and dynamic theory of labour demand, wage formation, and estimation, noting advances and limitations. As is conventional, somewhat greater emphasis is placed on the latter.
Labour Demand Research: Towards a Better Match between Better Theory and Better DataApproved
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Euro area structural reforms in times of a global crisisSandra GomesE52 - Monetary Policy (Targets, Instruments, and Effects); F42 - International Policy Coordination and Transmission; F47 - Forecasting and Simulation2014Working PaperBdP Publication
The global financial crisis that started in mid-2007 brought back to the monetary policy debate the issue of the zero lower bound on nominal interest rates and the policy options available when this is a binding constraint. Given the significative macroeconomic impact of the crisis it has also brought to the forefront of the discussion ways to revive economic growth. This paper looks at structural reforms as a policy option of economic stimulus for an economy where the zero lower bound binds. We focus in the euro area economy. Our main results show that structural reforms may have positive short run effects that reduce the size of a recession and if coordinated they can drive the euro area out of the zero lower bound. We also show that the short to medium run impact of structural reforms is also crucially dependent on the design of such reforms, namely if the reforms are implemented gradually or not and if the reforms are announced (or perceived) as temporary or permanent. Finally, we show that the zero lower bound does not change significantly the impact of the reforms if the reform is permanent but it does have an important effect if the reform is transitory.
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Financial Integration and the Great LeveragingDaniel CarvalhoE44 - Financial Markets and the Macroeconomy; F30 - General; G15 - International Financial Markets2014Working PaperBdP Publication
This paper studies how international capital flows affect domestic credit and money holdings. While previous studies have focused on credit growth and highlighted the importance of the equity/debt mix of flows, this paper shows that there are also important implications of flows going to different domestic recipient sectors, especially concerning money dynamics. In particular, cross-border banking flows display a strong comovement with credit but none with broad money; in turn, flows of domestic non-banks display comovement with both credit and money. For this reason, banking flows correlate with the decoupling of these two variables – the Great Leveraging –, a stylised fact documented for several economies in the past decades and associated to the rapid expansion of banks non-monetary liabilities. These results thus shed light on the mechanisms through which the international banking activity might have consequences for the composition of the domestic bank balance sheet.
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Persistence in the Banking Industry: Fractional integration and breaks in memoryUwe Hassler; Antonio Rubia; Paulo M.M. RodriguesC22 - Time-Series Models; G21 - Banks; Other Depository Institutions; Mortgages; G32 - Financing Policy; Capital and Ownership Structure2014Working PaperBdP Publication
Certain ”spurious long memory” processes mimic the behavior of fractional integration in that the variance of their sample mean behaves like that of a fractionally integrated process of some order D. We show, however, experimentally that a fractional integration test may discriminate between spurious long memory of order D and integration of order D. Further, we suggest a test for the null hypothesis that the order of integration does not change from one subperiod to another. It simply builds on the difference of the estimates from the respective subsamples that are split exogenously. Upon appropriate normalization a limiting standard normal distribution arises. With these methods we tackle the question whether international and sectoral bank equity index returns are fractionally integrated and whether the memory parameters have changed. The daily data are split into three regimes: one pre-crises subsample, a second including the collapse of the Lehman Brothers bank, and a third covering the Euro area sovereign debt crisis. In particular, we provide evidence that both turmoils had differing international effects.
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The Weather Effect: estimating the effect of voter turnout on electoral outcomes in ItalyAlessandro SforzaD72 - Economic Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior; P16 - Political Economy2014Working PaperBdP Publication
This paper examines the effect of variation in voter turnout to electoral outcomes in Italy. I use data on spatial distribution of turnout for 2008 and 2013 to examine how it can affect differences in electoral outcomes. Exploiting the exogenous variation in weather conditions across municipalities I use rainfalls to instrument for turnout levels: if non-voters systematically differ from habitual voters in terms of their characteristics or preferences, the effect of turnout on the electoral outcome can generate "extreme" outcomes. I find that bad weather decreases turnout and that a higher turnout favours the Movimento 5 Stelle, while both the Democrats and the Centre are negatively affected.
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Has US Household Deleveraging Ended? A Model-Based Estimate of Equilibrium DebtBruno Albuquerque; Ursel Baumann; Georgi KrustevC13 - Estimation; C23 - Models with Panel Data; C52 - Model Evaluation and Testing; D14 - Personal Finance; H31 - Household2014Working PaperBdP Publication
The balance sheet adjustment in the household sector was a prominent feature of the Great Recession that is widely believed to have held back the cyclical recovery of the US economy. A key question for the US outlook is therefore whether household deleveraging has ended or whether further adjustment is needed. The novelty of this paper is to estimate a time-varying equilibrium household debt-to-income ratio determined by economic fundamentals to examine this question. The paper uses state-level data for household debt from the FRBNY Consumer Credit Panel over the period 1999Q1 to 2012Q4 and employs the Pooled Mean Group (PMG) estimator developed by Pesaran et al. (1999), adjusted for cross-section dependence. The results support the view that, despite significant progress in household balance sheet repair, household deleveraging still had some way to go as of 2012Q4, as the actual debt-to-income-ratio continued to exceed its estimated equilibrium. The baseline conclusions are rather robust to a set of alternative specifications. Going forward, our model suggests that part of this debt gap could, however, be closed by improving economic conditions rather than only by further declines in actual debt. Nevertheless, the normalisation of the monetary policy stance may imply challenges for the deleveraging process by making a given level of household debt less affordable and therefore less sustainable.
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Global Value Chains: Surveying Drivers, Measures and ImpactsJoão Amador; Sónia CabralF60 - Globalization: General2014Working PaperBdP Publication
The production of most goods and services is nowadays vertically fragmented across different countries. This paper surveys the growing empirical literature on global value chains (GVCs), acknowledged as the current paradigm for the international organisation of production. The paper starts by discussing the driving forces behind the significant expansion of GVCs in recent decades. Next, it surveys the indicators used to measure this phenomenon, accounting for their different scope and required datasets. Finally, the impacts of GVCs on trade flows, productivity and labour market developments, as well as some policy implications, are reviewed.
GLOBAL VALUE CHAINS: A SURVEY OF DRIVERS AND MEASURESGo to Journal of Economic SurveysApproved
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The risk-taking channel of monetary policy – exploring all avenuesDiana Bonfim; Carla SoaresE44 - Financial Markets and the Macroeconomy; E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; G21 - Banks; Other Depository Institutions; Mortgages2014Working PaperBdP Publication
It is well established that when monetary policy is accommodative, banks tend to grant more credit. However, only recently attention was given to the quality of credit granted and, naturally, the risk assumed during those periods. This article makes an empirical contribution to the analysis of the so-called risk-taking channel of monetary policy. We use bank loan level data and different methodologies to test whether banks assume more credit risk when monetary policy interest rates are lower. Our results provide evidence in favor of this channel through different angles. We show that banks, most notably smaller banks, grant more loans to non-financial corporations with recent defaults or without credit history when policy interest rates are lower. We also find that loans granted when interest rates are low are more likely to default in the hiking phase of the interest rate cycle. However, the level of policy interest rates at the moment of loan concession does not seem to be relevant for the ex-post probability of default of the overall loan portfolio.
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wp201401
Autoregressive augmentation of MIDAS regressionsCláudia DuarteC53 - Forecasting and Other Model Applications; E37 - Forecasting and Simulation2014Working PaperBdP Publication
Focusing on the MI(xed) DA(ta) S(ampling) regressions for handling different sampling frequencies and asynchronous releases of information, alternative techniques for the autoregressive augmentation of these regressions are presented and discussed. For forecasting quarterly euro area GDP growth using a small set of selected indicators, the results obtained suggest that no specific kind of MIDAS regressions clearly dominates in terms of forecast accuracy. Nevertheless, alternatives to common-factor MIDAS regressions with autoregressive terms perform well and in some cases are the best performing regressions.
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FS201403.pdf
FS201403
Credit rationing for Portuguese SMEsLuisa Farinha; Sónia FélixE51 - Money Supply; Credit; Money Multipliers; G21 - Banks; Other Depository Institutions; Mortgages2014Financial Stability Report ArticleBdP Publication
This study examines the importance of credit demand and credit supply-related
factors in explaining the evolution of credit granted to Portuguese small and
medium-sized enterprises (SMEs). The results suggest that the interest rate is a
strong driver of SMEs' demand for bank loans, as well as their internal nancing
capacity. On the other hand, credit supply mostly depends on the rms' ability
to generate cash-
ows and reimburse their debt, and on the amount of assets
available to be used as collateral. The model was estimated for the period between
2010 and 2012, and the estimated coecients were used to compute the
probability of credit rationing. The results suggest that a considerable fraction
of Portuguese SMEs were a ected by credit rationing in this period.
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The impact of bank recapitalization on firms' access to credit: Evidence from PortugalFrancisco Augusto; Sónia FélixG21 - Banks; Other Depository Institutions; Mortgages; G28 - Government Policy and Regulation; G32 - Financing Policy; Capital and Ownership Structure2014Financial Stability Report ArticleBdP Publication
During the recent nancial crisis the Portuguese banks experienced several private and government capital injections. This paper investigates the impact of bank recapitalizations on the supply of credit in the period between the first quarter of 2010 and the fourth quarter of 2013. The results suggest that bank bailouts contributed to an increase in the supply of credit. This effect is negatively related to the capital bu er of recapitalized banks and applies to the sectors of manufacturing and trade. There is no evidence that bank recapitalizations contributed to a selective behavior in the supply of credit to distressed firms when compared to other firms.
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FS201401
Composite Indicator of Financial Stress for PortugalJosé Pedro Braga; Inês Pereira; Teresa Balcão ReisG01 - Financial Crises; G10 - General; G20 - General; E44 - Financial Markets and the Macroeconomy2014Financial Stability Report ArticleBdP Publication
This paper proposes a Composite Indicator of Financial Stress for Portugal (ICSF). Since
financial stress can have a vast impact in the real economy, monitoring and measuring the
level of stress can contribute to formulate appropriate policy measures. Similar to Holló et al.
(2012), the construction of the ICSF involves the aggregation of five subindices from the money
market, bond market, equity market, financial intermediaries and foreign exchange market
into a composite indicator, using portfolio theory (where the subindices aggregation reflects
their time-varying cross-correlation structure). The article shows that the ICSF identifies and
measures adequately the most relevant stress events that affected the Portuguese financial
markets since 1999, showing a clear divergence in some moments from euro area composite
stress indicators.
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The Effects of Public Spending ExternalitiesValerio Ercolani; João Valle e Azevedo2014OtherOther Publication
The Effects of Public Spending ExternalitiesApproved
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Labour Demand Research: Towards a Better Match between Better Theory and Better DataJohn T. Addison; Pedro Portugal; José VarejãoJ23 - Employment Determination; Job Creation; Demand for Labor; Self-Employment; J4 - Particular Labor Markets; J5 - Labor-Management Relations, Trade Unions, and Collective Bargaining; J3 - Wages, Compensation, and Labor Costs; D4 - Market Structure and Pricing2014OtherOther Publication
Labour Demand Research: Towards a Better Match between Better Theory and Better DataApproved
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GLOBAL VALUE CHAINS: A SURVEY OF DRIVERS AND MEASURESJoão Amador; Sónia Cabral2014OtherOther Publication
GLOBAL VALUE CHAINS: A SURVEY OF DRIVERS AND MEASURESGo to Journal of Economic SurveysApproved
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Global Value Chains: Surveying Drivers and MeasuresJoão Amador; Sónia Cabral2014OtherOther Publication
Global Value Chains: Surveying Drivers and MeasuresGo to ECB Working Paper No. 1739, October 2014Approved
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Competition in the Portuguese economy: Estimated price-cost margins under imperfect labour marketsJoão Amador; Ana Cristina Soares2014OtherOther Publication
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Counterfactual Analysis of Bank MergersPedro Pita Barros; Diana Bonfim; Moshe Kim; Nuno C. Martins2014OtherOther Publication
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Nominal and real wage rigidity: Does nationality matter?Sónia Cabral; Cláudia Duarte2014OtherOther Publication
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Managers’ Mobility, Trade Performance and WagesLuca David Opromolla; Giordano Mion2014OtherOther Publication
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Micro-based evidence of EU competitiveness: The CompNet databaseAna Cristina Soares; João Amador; Others2014OtherOther Publication
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The Effects of Credit Subsidies on DevelopmentAntónio R. Antunes; Tiago V. de V. Cavalcanti; Anne Villamil2014OtherOther Publication
The Effects of Credit Subsidies on DevelopmentApproved
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Strategy and instruments of macro-prudential policyFinancial Stability Department2014Financial Stability Report ArticleBdP Publication
The international financial crisis and its impact on the international economy were the key drivers of a number of reforms in the regulation and supervision of the financial systems at the global level. In this context, various countries have developed an institutional and operational framework for macro-prudential policy implementation, aimed at promoting financial stability. In Portugal, the authority to implement macro-prudential policy was conferred upon Banco de Portugal. Therefore, the Bank is responsible for defining a strategy and the instruments to prevent systemic risks. This function implies analysing the risks deemed more relevant within the national financial system and selecting the appropriate instruments to prevent them. This article aims to contribute to this analysis: section 1 analyses the motivation underlying the definition of a macro-prudential policy strategy and the criteria to take into consideration when selecting its instruments; section 2 reviews the most relevant systemic risks within the national financial system; section 3 describes the appropriate instruments to prevent the various risks analysed; and section 4 concludes.
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Cash holdings determinants in the Portuguese economyLuisa Farinha; Pedro Prego2014Financial Stability Report ArticleBdP Publication
The analysis of liquidity management decisions by firms has recently been used as a tool to investigate the impact of financial constraints.Firms facing funding constraints need to accumulate more cash in order to protect themselves from the possibility of not being able to finance viable investment projects. This question is particularly relevant in the context of the current financial crisis. Thus, this article analyses the determinants of holding liquid assets (cash and deposits) by Portuguese companies based on annual accounting data for the period 1990-2012 from the Central Balance Sheet of the Banco de Portugal. The results show that the share of liquid assets in total assets is positively affected by current cash flows and its past volatility, which suggests that Portuguese companies are in fact subject to liquidity constraints. In addition, the results suggest that the need to accumulate funds as a protection against future shocks is more pronounced for smaller companies (especially small and micro enterprises).
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AB201415_e
Wage adjustments during a severe economic downturnPedro Portugal; Fernando Martins2014Economic Bulletin ArticleBdP Publication
In this article we present the recent developments
of the wage distribution in Portugal. The
behaviour of nominal wages reflects the effect of
a severe contraction of economic activity which
translated, above all, into a marked increase in
the proportion of zero nominal wage changes
(wage freezes). The consequences of the pentup
wage deflation may decisively influence the
future development of the Portuguese labour
market.
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AB201414_e.pdf
AB201414_e
Sovereign Debt Crises Pedro Teles2014Economic Bulletin ArticleBdP Publication
Sovereign debt crises can be triggered by high
default probabilities induced by high interest
rates. This is more likely if debt is relatively large.
In this context, the intervention of a large lender
with deep pockets, such as the European Central
Bank (ECB), can help coordinate on low interest
rates. The article is based on the work of
Navarro, Nicolini and Teles (2014).
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AB201413_e.pdf
AB201413_e
The Dynamics and Contrast of House Prices in Portugal and SpainRita Lourenço; Paulo C. Rodrigues2014Economic Bulletin ArticleBdP Publication
Following the accession to the European Union
(EU) in the eighties, the housing market has
evolved very differently in Portugal and Spain.
This article provides evidence on these differences
and tries to explain the behaviour of house
prices in both cases. For this purpose, we analyze
the evolution of house prices using three
different approaches: (1) a comparative analysis
of the evolution of the price-to-rent and priceto-
income ratios; (2) an assessment of the determinants
of house prices based on a Error
Correction Model; and (3) an analysis of the existence
of speculative bubbles in the Portuguese
and Spanish housing markets, using an econometric
methodology based on the arbitrage-free
model. These three approaches allow us to draw
some conclusions regarding the dynamics and
contrast of house prices in Portugal and Spain.
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Structural reforms in the euro areaSandra Gomes2014Economic Bulletin ArticleBdP Publication
This article is about structural reforms, i.e. (policy) measures with the purpose of enhancing the supply side capacity of an economy. In particular, the article is focused on the euro area. The need for structural reforms in the euro area is not new but the financial crisis made it more urgent. The article overviews the main results regarding the macroeconomic impact of these reforms in the economic literature based on general equilibrium structural models. It also addresses the issue of the relationship between structural reforms and monetary policy, in particular when nominal interest rates are at the zero lower bound.
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AB201411_e
A review of the pharmaceutical market in PortugalManuel Coutinho Pereira; Hugo Vilares2014Economic Bulletin ArticleBdP Publication
This article examines the main developments of the pharmaceutical market in Portugal over the last decade. There has been a growth in the quantities traded and a reduction in retail prices, resulting from an intense legislative intervention. This price reduction has stalled expenditure on outpatient medicines, making it even possible some reduction in the last years. Such an evolution reflects a cutback in the economic rents of market agents, benefiting the National Health Service. The enhanced competition in the market segments open to generic drugs has contributed importantly to this outcome. The estimation of a demand function for pharmaceutical drugs indicates a relatively reduced price-sensitivity of quantities consumed, at the upper bound of the estimates in several studies for other countries. Furthermore, it is inferred that the resistance to the prescription of generics is waning as, holding constant other factors, prescribers already induce consumers to preferably acquire generics. In the future, a further increase in the penetration of generics is likely to take place by the extension of the range of active ingredients covered by them.
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AB201410_e
The cyclicality of the Portuguese labour market: a macroeconomic perspective in the OECD contextPedro Amaral2014Economic Bulletin ArticleBdP Publication
The portuguese labour market’s cyclical fluctuations show little correlation with the aggregate business cycle as given by fluctuations in GDP per worker. Even though there are other OECD countries whose labour markets exhibit an equally tenuous relation with the business cycle as Portugal, the norm is a higher correlation. On the other hand, the Portuguese business cycle shows a degree of persistency, or temporal correlation, that ranks among the lowest in the OECD.This article argues that such facts have important implications for macroeconomics models of the labour market.
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AB201409_e
Resource allocation, productivity and growth in PortugalDaniel Dias; Carlos Robalo Marques; Christine Richmond2014Economic Bulletin ArticleBdP Publication
Allocative efficiency in the Portuguese economy strongly deteriorated during the 1996-2011 period. According to our estimates, such deterioration may have shaved, on average, around 1.3 percentage points off the annual GDP growth during that period, contributing significantly to the decrease in productivity and the economic stagnation witnessed by the Portuguese economy after 2001. Allocative efficiency deterioration is a widespread phenomenon but the relative contributions differ significantly across industries being higher in the service sector than in manufacturing sector. Capital distortions emerge as more important than labor and output distortions in explaining potential valueadded efficiency gains, especially in the service sector. Furthermore, their relative contribution to total efficiency gains increased over time.
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AB201408_e
Forecasting Portuguese GDP with factor modelsFrancisco Craveiro Dias; Maximiano Pinheiro; António Rua2014Economic Bulletin ArticleBdP Publication
In this article, we assess the relative performance of factor models to forecast GDP growth in Portugal. A large dataset is compiled for the Portuguese economy and its usefulness for nowcasting and short-term forecasting is investigated. Since, in practice, one has to cope with different publication lags and unbalanced data, we also address the real-time performance of such models.
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AB201407_e
Grade retention during basic education in Portugal: determinants and impact on student achievementManuel Coutinho Pereira; Hugo J. Reis2014Economic Bulletin ArticleBdP Publication
The percentage of students repeating a school year is not homogeneous among European countries. In Portugal grade retention is a common practice. This article examines the determinants of grade retention and analyzes its impact on student performance in Portugal, presenting at the same time some results for a set of European countries. In Portugal, individual, family and peer characteristics are important factors explaining grade retention. In particular, students with less maturity and worse economic conditions are more likely to repeat. The effects of school retention are evaluated in the framework of a treatment effects model. Academic performance at a later stage of basic education is negatively affected by repeating at an early stage, which suggests that there will be advantage in implementing alternatives to support students. The short-term effects of repeating at a later stage are positive, although small. In this case, the results do not call into question grade retention.
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Financial frictions and shock transmission: the Portuguese case   Gabriela Lopes de Castro; Ricardo Mourinho Félix; Paulo Júlio; José R. Maria2014Economic Bulletin ArticleBdP Publication
This article uses the PESSOA model to assess the macroeconomic impact of two relevant shocks that conditioned the Portuguese economy in the recent past: the fall in external demand and the rise in sovereign debt risk premium. PESSOA is a general equilibrium model, calibrated to incorporate the main features of the Portuguese economy. The recession driven by the external demand shock is magnified by the prevalence of financial frictions, in particular due to the drop in investment, which does not occur in the case of the risk premium shock. Financial frictions increase the persistence of recessionary effects, especially in the external demand shock, to the extent that capital holders experience a persistent reduction of their net worth, which increases the degree of leverage, the risk levels associated with investment projects, and the costs of external financing. Results show also that the recession causes a decrease in fiscal revenues in both shocks, and thus fiscal policy must take a restrictive stance to ensure the stability of public debt in the medium and long term.
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The 3D Model: a Framework to Assess Capital RegulationLaurent Clerc; Alexis Derviz; Caterina Mendicino; Stephane Moyen; Kalin Nikolov; Livio Stracca; Javier Suarez; Alexandro Vardulakis2014Economic Bulletin ArticleBdP Publication
This article discusses the contribution of the MaRS WS1 cross-country project, which aims at providing a framework for the positive and normative analysis of macroprudential policies. The analysis relies on a micro-founded model that introduces financial intermediation and three layers of default (3D) into an otherwise standard dynamic stochastic general equilibrium (DSGE) model. A distinctive feature of the model is a clear rationale for capital regulation, which arises as a welfare improving response to excessive risk taking by banks.
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Early Warning Indicators of Banking Crises: Exploring new Data and ToolsAntónio R. Antunes; Diana Bonfim; Nuno Monteiro; Paulo M.M. Rodrigues2014Economic Bulletin ArticleBdP Publication
Forecasting rare events is a challenge, especially if these events are driven by many different factors and assume different characteristics. We explore the dynamic dimension of discrete choice models to improve the forecasting accuracy of early warning models of systemic banking crises. Our results show that introducing this dynamic component into the models signifi cantly improves the quality of the results.
Early Warning Indicators of Banking Crises: Exploring new Data and ToolsApproved
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Capitalization and Credit Provision: Evidence from the United StatesSudipto Karmakar2014Economic Bulletin ArticleBdP Publication
This article tries to study the relationship between capital ratios and lending patterns of banks. Using an unbalanced panel of around nine thousand commercial banks in the United States, from 1996:Q1 to 2010:Q4, we find a moderate relationship between loan growth rates and capital ratios. We use three different capital ratios to perform the analysis. The sensitivity is higher for banks with lower capital ratios. We also fi nd a higher sensitivity, of lending to capital ratios, in the crisis period, compared to the pre crisis period.
Capitalization and Credit Provision: Evidence from the United StatesApproved
201,403
AB201402_e.pdf
AB201402_e
Portuguese Exports in the Global Value ChainsJoão Amador; Robert Stehrer2014Economic Bulletin ArticleBdP Publication
A very important part of world production is nowadays organized along Global Value Chains (GVCs). The success of individual countries in the global economy depends on their ability to combine domestic and foreign value added in order to produce exports, which are later embodied in other products or consumed as final goods and services. The pervasiveness of GVCs strongly affects the interpretation of classical international trade measures computed in gross terms, emerging the need to assess trade flows in value added terms. This article analyzes the participation of the Portuguese economy in GVCs in the period 1995-2011. On the one hand, the level of foreign value added in exports indicates the degree of integration in GVCs. On the other hand, the re-export of national value added incorporated in imports provides indications on the positioning in the value chain.
Portuguese Exports in the Global Value ChainsApproved
201,402
AB201401_e.pdf
AB201401_e
Household Income Mobility in the European Union and in Portugal: an Analysis of Labor Market and Demographic EventsNuno Alves; Carlos Martins2014Economic Bulletin ArticleBdP Publication
This article aims to assess the impact on income mobility of transitions in the labor market and of changes in the composition of households in Portugal and in the European Union. The analysis combines two concepts of income mobility: the growth in household income and the changes in the relative position of each household in the income distribution. Based on longitudinal microdata for the period 2004-2008, the article highlights the role of social transfers and income generation at the household level in cushioning shocks on individuals. The events identified have a material impact on income mobility. For example, in the European Union, the point estimates suggest that in the case of households who experience an increase in the number of unemployed, the average fall in equivalized household income is about 19 percent. In the case in which individuals move from employment to retirement, the average fall in equivalized household income is about 6 percent. The corresponding estimates for Portugal are not statistically different from those obtained for the European Union. Additionally, the article reveals some heterogeneity in the impact of those shocks along the income distribution.
Household Income Mobility in the European Union and in Portugal: an Analysis of Labor Market and Demographic EventsApproved
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wp201318.pdf
wp201318
Bank Capital and Lending: An Analysis of Commercial Banks in the United StatesSudipto Karmakar; Junghwan MokG21 - Banks; Other Depository Institutions; Mortgages; G28 - Government Policy and Regulation; G32 - Financing Policy; Capital and Ownership Structure2013Working PaperBdP Publication
This paper empirically evaluates the impact of bank capital on lending patterns of commercial banks in the United States. We construct an unbalanced quarterly panel of around seven thousand medium sized commercial banks over sixty quarters, from 1996 to 2010. Using two different measures of capital namely the capital adequacy ratio and tier 1 ratio, we find a moderate relationship between bank equity and lending. We also use an innovative instrumenting methodology which helps us overcome the endogeneity issues that are common in such analyses. Our results are broadly consistent with some other recent studies that have analyzed US banking data.
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201,318
wp201317.pdf
wp201317
Macroprudential Regulation and Macroeconomic ActivitySudipto KarmakarG01 - Financial Crises; G21 - Banks; Other Depository Institutions; Mortgages; G28 - Government Policy and Regulation2013Working PaperBdP Publication
This paper develops a dynamic stochastic general equilibrium model to examine the impact of macroprudential regulation on bank’s financial decisions and the implications for the real sector. I explicitly incorporate costs and benefits of capital requirements. I model an occasionally binding capital constraint and approximate it using an asymmetric non linear penalty function. This friction means that the banks refrain from valuable lending. At the same time, countercyclical buffers provide structural stability to the financial system. I show that higher capital requirements can dampen the business cycle fluctuations. I also show that stronger regulation can induce banks to hold buffers and hence mitigate an economic downturn as well. Increasing the capital requirements do not seem to have an adverse effect on the welfare. Lastly, I also show that switching to a countercyclical capital requirement regime can help reduce fluctuations and raise welfare.
Approved
201,317
wp201316.pdf
wp201316
Inside PESSOA - A Detailed Description of the ModelVanda Almeida; Gabriela Lopes de Castro; Ricardo Mourinho Félix; Paulo Júlio; José R. MariaE62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation; F41 - Open Economy Macroeconomics; H62 - Deficit; Surplus2013Working PaperBdP Publication
This article presents a detailed description of PESSOA - Portuguese Economy Structural Small Open Analytical model. PESSOA is a dynamic general equilibrium model that can be applied to any small economy integrated in a monetary union. The main theoretical reference behind its structure is Kumhof, Muir, Mursula, and Laxton (2010). The model features non-Ricardian characteristics, a multi-sectoral production structure, imperfect market competition, and a number of nominal, real, and financial rigidities. PESSOA has been calibrated to match Portuguese and euro area data and used to illustrate a number of key macroeconomic issues, ranging from the effects of structural reforms to alternative fiscal policy options.
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wp201315.pdf
wp201315
Output effects of a measure of tax shocks based on changes in legislation for PortugalManuel Coutinho Pereira; Lara WemansE62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation; E43 - Determination of Interest Rates; Term Structure of Interest Rates; E32 - Business Fluctuations; Cycles2013Working PaperBdP Publication
This paper develops a new measure of quarterly discretionary tax shocks for Portugal that result from changes in legislation, following the narrative approach. It covers the years from 1996 to 2012 and was based on a comprehensive analysis of tax policy measures taken in the course of this period. The …ndings point to strongly negative and persistent e¤ects of legislated tax increases on GDP and private consumption, matching the tendency of the narrative approach to yield comparatively high tax multipliers.
Approved
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wp201314.pdf
wp201314
Catastrophic Job destructionAnabela Carneiro; Pedro Portugal; José VarejãoE24 - Employment; Unemployment; Wages; J23 - Employment Determination; Job Creation; Demand for Labor; Self-Employment; J63 - Turnover; Vacancies; Layoffs2013Working PaperBdP Publication
In this article we study the resilience of the Portuguese labor market, in terms of job flows, employment and wage developments, in the context of the current recession. We single out the huge contribution of job destruction, especially due to the closing of existing firms, to the dramatic decline of total employment and increase of the unemployment rate. We also document the very large increase in the incidence of minimum wage earners and nominal wage freezes. We explore three different channels that may have amplified the employment response to the great recession: the credit channel, the wage rigidity channel, and the labor market segmentation channel. We uncover what we believe is convincing evidence that the severity of credit constraints played a significant role in the current job destruction process. Wage rigidity is seen to be associated with lower net job creation and higher failure rates of firms. Finally, labor market segmentation seems to have favored a stronger job destruction that was facilitated by an increasing number of temporary workers.
Approved
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WP201313.pdf
WP201313
Characterizing economic growth paths based on new structural change testsNuno Sobreira; Luís Catela Nunes; Paulo M.M. RodriguesC22 - Time-Series Models; F43 - Economic Growth of Open Economies; O40 - General2013Working PaperBdP Publication
One of the prevalent topics in the economic growth literature is the debate between neoclassical, semi-endogenous, and endogenous growth theories regarding the model that best describes the data. An important part of this discussion can be summarized in three mutually exclusive hypotheses: the \constant trend", the \level shift", and the \slope shift" hypotheses. In this paper we propose the characterization of a country's economic growth path according to these break hypotheses. We address the problem in two steps. First, the number and timing of trend breaks is determined using new structural change tests that are robust to the presence, or not, of unit roots, surpassing technical and methodological concerns of previous empirical studies. Second, conditional on the estimated number of breaks, break dates, and coefficients, a statistical framework is introduced to test for general linear restrictions on the coefficients of the suggested linear disjoint broken trend model. We further show how the aforementioned hypotheses, regarding the economic growth path, can be analysed by a test of linear restrictions on the parameters of the breaking trend model. We apply the methodology to historical per capita GDP for an extensive list of countries. The results support the three alternative hypotheses for different sets of countries.
Approved
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wp201312
Survey evidence on price and wage rigidities in PortugalFernando MartinsD21 - Firm Behavior; E30 - General; J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.2013Working PaperBdP Publication
This paper exploits the information collected from a survey conducted on a sample of Portuguese firms to study the patterns of firms’ price and wage adjustments and the extent of nominal price and wage rigidities. The evidence shows that the frequency of price changes varies substantially across sectors and depends on a number of factors such as the intensity of competition, the share of labour costs and firms’ price reviewing behaviour. The results also show that wages are more flexible in those firms where the fraction of permanent and high-skilled workers is lower and where the share of flexible pay components is higher.
What survey data reveal about price and wage rigidity in PortugalApproved
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wp201311.pdf
wp201311
Fiscal multipliers in a small euro area economy: How big can they get in crisis times?Gabriela Lopes de Castro; Ricardo Mourinho Félix; Paulo Júlio; José R. MariaE62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation; F41 - Open Economy Macroeconomics; H62 - Deficit; Surplus2013Working PaperBdP Publication
Using PESSOA, a small open economy DSGE model, we analyze the size of short-runfiscal multipliers associated with fiscal consolidation under two distinct alternative scenarios, viz "normal times" and "crisis times." The crisis times scenario embodies a higher share of hand-to-mouth households, stronger nominal rigidities, and more severe financial frictions, which purportedly better refflect the underlying economic environment during the "Great Recession." Results show that fiscal multipliers can be twice as large in crisis times, being approximately 2 for a government consumptionbased fiscal consolidation in the first year. One-year ahead effects are also substantially larger if this type of consolidation is performed in crisis times. Revenue-based fiscal consolidations are also more recessive in crisis times, though the differences against normal times are less pronounced.
Approved
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wp201310.pdf
wp201310
The Output Effects of (Non-Separable) Government Consumption at the Zero Lower BoundValerio Ercolani; João Valle e AzevedoE32 - Business Fluctuations; Cycles; E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation2013Working PaperBdP Publication
We investigate the reaction of output to government spending shocks at the zero lower bound (ZLB) on the nominal interest rate when government and private consumption are non-separable in preferences. In particular, substitutability between private and government consumption significantly reduces the otherwise large output multipliers obtained at the ZLB. Additionally, the coupling of substitutability with a debt-stabilizing fiscal rule can generate negative output multipliers on impact.
Approved
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wp201309.pdf
wp201309
The sources of wage variation: a three-way high-dimensional fixed effects regression modelSónia Torres; Pedro Portugal; John T. Addison; Paulo GuimarãesJ2 - Time Allocation, Work Behavior, and Employment Determination and Creation; J41 - Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets2013Working PaperBdP Publication
This paper estimates a wage equation with three high-dimensional fixed effects, using a longitudinal matched employer-employee dataset covering virtually all Portuguese wage earners over a little more than two decades. The variation in log real hourly wages is decomposed into different components related to worker, firm, and job title characteristics (both observed and unobserved) and a residual component. It is found that worker permanent heterogeneity is the most important source of wage variation (36.0 percent) and that the unobserved component plays a more important role (21.0 percent) than the observed component (15.0 percent) in explaining wage differentials. Firm permanent effects are less important overall (28.7 percent) and are due in almost equal parts to the unobserved component and the observed component. Job title effects emerge as the least important dimension but they still explain close to 10 percent of wage variation. Equally important, we found definitive evidence of positive assortative matching.
Approved
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wp201308.pdf
wp201308
Competition in the Portuguese economy: Estimated price-cost margins under imperfect labour marketsJoão Amador; Ana Cristina SoaresL50 - General; L60 - General; O50 - General2013Working PaperBdP Publication
This article estimates price-cost margins for the Portuguese markets in a context of imperfect competition in the labour market. The database used includes virtually the universe of Portuguese firms for the period 2005-2009. The results strongly reject the hypothesis of perfect competition in both labour and product markets. Estimated price-cost margins are very heterogeneous across markets and the average for the overall economy ranges between 25 and 28 per cent, depending on the variables used to weight each market. In addition, the tradable sector presents a lower price-cost margin than the non-tradable sector. According to the methodology used, workers’ bargaining power in the Portuguese economy is approximately 13 per cent, without a clear distinction between tradable and non-tradable sectors. Finally, workers’ bargaining power is highly and positively correlated with price-cost margins across markets.
Competition in the Portuguese economy: Estimated price-cost margins under imperfect labour marketsApproved
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wp201307.pdf
wp201307
Monetary policy shocks: We got news!Sandra Gomes; Nikolay Iskrev; Caterina MendicinoC50 - General; E32 - Business Fluctuations; Cycles; E44 - Financial Markets and the Macroeconomy2013Working PaperBdP Publication
We augment a medium-scale DSGE model with monetary policy news shocks and …t it to US data. Monetary policy news shocks improve the performance of the model both in terms of marginal data density and in terms of its ability to match the empirical moments of the variables used as observables. We estimate several versions of the model and …nd that the one with news shocks over a two-quarter horizon dominates in terms of overall goodness of …t. We show that, in the estimated model: (1) adding monetary policy news shocks to the model does not lead to identi…cation problems; (2) monetary policy news shocks account for a larger fraction of the unconditional variance of the observables than the standard unanticipated monetary policy shock; (3) these news shocks also help to achieve a better matching of the covariances of consumption growth and the interest rate.
Approved
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wp201306.pdf
wp201306
Foreign direct investment and institutional reform: evidence and an application to PortugalPaulo Júlio; Ricardo Pinheiro-Alves; José TavaresF30 - General; H00 - General2013Working PaperBdP Publication
We examine the role of geographic, economic, and institutional factors in attracting Foreign Direct Investment (FDI) in Europe, using a cross-section of inward bilateral investments.
We estimate and assess the expected benefits, the required reform efforts, and the efficiency of reform options corresponding to a convergence of Portuguese institutions to EU
standards. We conclude that improving home institutions is likely to have a quantitatively very significant role in attracting FDI. Geographical and market size factors also play a role.
Reforms promoting the independence of financial institutions and a leaner bureaucracy, lowering political risk and corruption, and improving the investment code may significantly
affect the amount of bilateral inward FDI that is targeted to Portugal.
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Mind the gap! The relative wages of immigrants in the Portuguese labour marketSónia Cabral; Cláudia DuarteF22 - International Migration; J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.; J61 - Geographic Labor Mobility; Immigrant Workers2013Working PaperBdP Publication
Using matched employer-employee data, we examine the wage gaps between immigrant and native workers in the Portuguese labour market in the 2002-2008 period. We use the
relation between the Gelbach’s and Oaxaca-Blinder’s decompositions to split the unconditional average wage gap as the sum of a composition effect and a wage structure effect.
Most of the wage gap is not due to worst endowments of the immigrants but to differences in the returns to those characteristics and to the immigrant status effect. In particular,
education and foreign experience of the average immigrants are significantly less valued in the Portuguese labour market. Overall, the wages of immigrants do not fully converge to
those of comparable natives as experience in the Portuguese labour market increases. The assimilation rates tend to be stronger in the first years after migration and for immigrants
with higher levels of pre-immigration experience. Total immigrants are a heterogeneous group of different nationalities, with immigrants from the EU15 and China starring as the two
extreme cases.
Approved
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wp201304.pdf
wp201304
Ageing and fiscal sustainability in a small euro area economyGabriela Lopes de Castro; José R. Maria; Ricardo Mourinho Félix; Cláudia BrazE62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation; F41 - Open Economy Macroeconomics; H62 - Deficit; Surplus; J11 - Demographic Trends and Forecasts2013Working PaperBdP Publication
Population ageing is a key trend in Western economies. The impact of this trend will be widespread, affecting investment and saving decisions over the next decades, and
represents a major challenge to policymakers. Debt sustainability issues in euro area economies may (re)emerge, particularly given the pay-as-you-go nature of most public pension
systems. In a decentralised fiscal policy framework, ageing and the respective policy response might intensify the latent macroeconomic imbalances that underlie the ongoing
sovereign debt crisis. In this paper, we include a stylised pension system in an open economy New-Keynesian general equilibrium model with non-Ricardian agents. The model is
used to assess the macroeconomic impacts of ageing in a small euro area economy. The results suggest that the impact can be significant, depending on the magnitude and pace
of the ageing dynamics, the existing rules for social benefits and the policy response. It can be inferred from the results that supranational policy coordination at euro area level is
crucial to foster economic and financial stability.
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1,304
wp201303.pdf
wp201303
Is there a role for domestic demand pressure on export performance?Paulo Soares Esteves; António RuaC22 - Time-Series Models; C50 - General; F10 - General2013Working PaperBdP Publication
Traditionally, exports behavior is modeled only as a function of the foreign demand and the real exchange rate. However, it is by now widely acknowledged that these variables are not able to fully explain exports developments. This paper suggests considering domestic demand pressure as an additional variable, revisiting its economic rationale and assessing its empirical importance. In particular, we consider the Portuguese case and find that domestic demand developments are relevant for the short-run dynamics of exports. Moreover, it is found that such relationship is asymmetric, being stronger and more significant when domestic demand is falling than when it is increasing.
Approved
201,303
wp201302.pdf
wp201302
Everything you always wanted to know about sex discriminationAna Rute Cardoso; Paulo Guimarães; Pedro PortugalJ31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.; J16 - Economics of Gender; J24 - Human Capital; Skills; Occupational Choice; Labor Productivity; J71 - Discrimination2013Working PaperBdP Publication
Earlier literature on the gender pay gap has taught us that occupations matter and so do firms. However, the role of the firm has received little scrutiny; occupations have most often been coded in a rather aggregate way, lumping together different jobs; and the use of samples of workers prevents any reliable determination of either the extent of segregation or the relative importance of access to firms versus occupations. Our contribution is twofold. We provide a clear measure of the impact of the allocation of workers to firms and to job titles shaping the gender pay gap. We also provide a methodological contribution that combines the estimation of sets of high-dimensional fixed effects and Gelbach's (2009) unambiguous decomposition of the conditional gap. We find that one fifth of the gender pay gap results from segregation of workers across firms and one fifth from job segregation. We also show that the widely documented glass ceiling effect operates mainly through worker allocation to firms rather than occupations.
What drives the gender wage gap? A look at the role of firm and job-title heterogeneityApproved
201,302
wp201301.pdf
wp201301
Macroeconomic Forecasting Using Low-Frequency FiltersJoão Valle e Azevedo; Ana PereiraC14 - Semiparametric and Nonparametric Methods; C32 - Time-Series Models; C51 - Model Construction and Estimation; C53 - Forecasting and Other Model Applications2013Working PaperBdP Publication

We explore the use of univariate low-frequency filters in macroeconomic forecasting. This amounts to targeting only specific fluctuations of the time series of interest. We show through simulations that such approach is warranted and, using US data, we confirm empirically that consistent gains in forecast accuracy can be obtained in comparison with a variety of other methods. There is an inherent arbitrariness in the choice of the cut-off defining low and high frequencies, but we show that some patterns characterize the implied optimal (for forecasting) degree of smoothing of the key macroeconomic indicators we analyze. For most variables the optimal choice amounts to disregarding fluctuations well below the standard business cycle cut-off of 32 quarters while generally increasing with the forecast horizon; for inflation and variables related to housing this cut-off lies around 32 quarters for all horizons, which is below the optimal level for federal spending.

Approved
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blank2_WP201106.pdf
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Choosing between Time and State Dependence: Micro Evidence on Firms’ Price-Reviewing StrategiesDaniel Dias; Carlos Robalo Marques; Fernando Martins2013OtherOther Publication
Choosing between Time and State Dependence: Micro Evidence on Firms’ Price-Reviewing StrategiesApproved
1
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Direct vs bottom–up approach when forecasting GDP: Reconciling literature results with institutional practicePaulo Soares Esteves2013OtherOther Publication
Direct vs bottom–up approach when forecasting GDP: Reconciling literature results with institutional practiceDirect vs bottom–up approach when forecasting GDP: Reconciling literature results with institutional practiceApproved
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Financial Depth in the WAEMU: Benchmarking Against Frontier SSA CountriesCalixte Ahokpossi; Kareem Ismail; Sudipto Karmakar; Mesmin Koulet-Vickot2013OtherOther Publication
Financial Depth in the WAEMU: Benchmarking Against Frontier SSA CountriesApproved
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The Impact of Persistent Cycles on Zero Frequency Unit Root TestsTomás del Barrio Castro; Paulo M.M. Rodrigues; A. M. Robert Taylor2013OtherOther Publication
The Impact of Persistent Cycles on Zero Frequency Unit Root TestsApproved
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How to create indices for bank branch financial performance measurement using MCDA techniques: an illustrative exampleFernando A. F. Ferreira; Sérgio P. Santos; Paulo M.M. Rodrigues; Ronald W. Spahr2013OtherOther Publication
How to create indices for bank branch financial performance measurement using MCDA techniques: an illustrative exampleApproved
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Evaluating retail banking quality service and convenience with MCDA techniques: a case study at the bank branch level Fernando A. F. Ferreira; Sérgio P. Santos; Paulo M.M. Rodrigues; Ronald W. Spahr2013OtherOther Publication
Evaluating retail banking quality service and convenience with MCDA techniques: a case study at the bank branch level Approved
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Regional tourism development: culture, nature, life cycle and attractivenessPaulo M.M. Rodrigues; J. Romão; J. Guerreiro2013OtherOther Publication
Regional tourism development: culture, nature, life cycle and attractivenessApproved
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Finite Sample Performance of Frequency and Time Domain Tests for Seasonal Fractional IntegrationPaulo M.M. Rodrigues; Antonio Rubia; João Valle e Azevedo2013OtherOther Publication
Finite Sample Performance of Frequency and Time Domain Tests for Seasonal Fractional IntegrationApproved
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Determinants of the EONIA spread and the financial crisis Carla Soares; Paulo M.M. Rodrigues2013OtherOther Publication
Determinants of the EONIA spread and the financial crisis Approved
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Macro-financial linkages in the Euro areaCaterina Mendicino; A. D’Agostino; M. Cervena; M. Ciccarelli; P. Guarda; M. Haavio; K. Hubrich; P. Jeanfils; E. Ortega; M. Valderrama; M. Valentinyiné2013OtherOther Publication
Macro-financial linkages in the Euro areaApproved
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Housing collateral, residential investment and the Canadian business cycleCaterina Mendicino; I. Christensen; P. Corrigan; S. Nishiyama2013OtherOther Publication
Housing collateral, residential investment and the Canadian business cycleApproved
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House prices, credit growth, and excess volatility: implications for monetary and macroprudential policyCaterina Mendicino; Paolo Gelain; Kevin LansingD84 - Expectations; Speculations; E32 - Business Fluctuations; Cycles; E44 - Financial Markets and the Macroeconomy; G12 - Asset Pricing; O40 - General2013OtherOther Publication
House prices, credit growth, and excess volatility: implications for monetary and macroprudential policyApproved
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Price-level targeting rules for financial shocks: the case of CanadaCaterina Mendicino; A. Dib; Y. ZhangE31 - Price Level; Inflation; Deflation; E32 - Business Fluctuations; Cycles; E52 - Monetary Policy (Targets, Instruments, and Effects)2013OtherOther Publication
Price-level targeting rules for financial shocks: the case of CanadaApproved
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Costly intermediation and consumption smoothingAntónio R. Antunes; Tiago V. de V. Cavalcanti; Anne VillamilE60 - General; G38 - Government Policy and Regulation2013OtherOther Publication
Costly intermediation and consumption smoothingApproved
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The welfare gains of financial liberalization: capital accumulation and heterogeneityAntónio R. Antunes; Tiago V. de V. CavalcantiE21 - Consumption; Saving; E60 - General; F40 - General2013OtherOther Publication
The welfare gains of financial liberalization: capital accumulation and heterogeneityApproved
1
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Competition in the Portuguese economy: Insights from a profit elasticity approachJoão Amador; Ana Cristina Soares2013OtherOther Publication
Competition in the Portuguese economy: Insights from a profit elasticity approachApproved
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Wage rigidity and employment adjustment at the firm level: Evidence from survey dataDaniel Dias; Carlos Robalo Marques; Fernando Martins2013OtherOther Publication
Wage rigidity and employment adjustment at the firm level: Evidence from survey dataApproved
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Leaning Against Boom-Bust Cycles in Credit and Housing Prices: Monetary and Macroprudential PolicyLuisa Lambertini; Caterina Mendicino; Maria Tereza PunziE32 - Business Fluctuations; Cycles; E44 - Financial Markets and the Macroeconomy; E52 - Monetary Policy (Targets, Instruments, and Effects)2013OtherOther Publication
Leaning Against Boom-Bust Cycles in Credit and Housing Prices: Monetary and Macroprudential PolicyApproved
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Structural reforms and macroeconomic performance in the euro area countries: a model-based assessmentSandra Gomes; P. Jacquinot; M. Mohr; M. Pisani2013OtherOther Publication
Structural reforms and macroeconomic performance in the euro area countries: a model-based assessmentApproved
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Testing for persistence change in fractionally integrated models: an application to world ination ratesPaulo M.M. Rodrigues; Luis F. Martins2013OtherOther Publication
Testing for persistence change in fractionally integrated models: an application to world ination ratesApproved
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A Theory of Entry into and Exit from Export MarketsAlfonso A. Irarrazabal; Luca David Opromolla; Giammario Impullitti2013OtherOther Publication
A Theory of Entry into and Exit from Export MarketsApproved
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Approximating and Forecasting Macroeconomic Signals in Real-TimeJoão Valle e Azevedo; Ana Pereira2013OtherOther Publication
Approximating and Forecasting Macroeconomic Signals in Real-TimeApproved
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Product and Destination Mix in Export MarketsJoão Amador; Luca David Opromolla2013OtherOther Publication
Product and Destination Mix in Export MarketsApproved
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Recursive adjustment, unit root tests and structural breaksPaulo M.M. Rodrigues2013OtherOther Publication
Recursive adjustment, unit root tests and structural breaksApproved
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A market-based approach to sector risk determinants and transmission in the euro areaMartín Saldías2013OtherOther Publication
A market-based approach to sector risk determinants and transmission in the euro areahttp://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1574.pdfApproved
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Systemic risk analysis using forward-looking Distance-to-Default seriesMartín Saldías2013OtherOther Publication
Systemic risk analysis using forward-looking Distance-to-Default serieshttp://dx.doi.org/10.1016/j.jfs.2013.07.003Approved
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A Market-based Approach to Sector Risk Determinants and Transmission in the Euro AreaMartín Saldías2013OtherOther Publication
A Market-based Approach to Sector Risk Determinants and Transmission in the Euro Areahttp://dx.doi.org/10.1016/j.jbankfin.2013.01.026Approved
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Time-varying fiscal policy in the U.S.Manuel Coutinho Pereira; Artur Silva Lopes2013OtherOther Publication
Time-varying fiscal policy in the U.S.Approved
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The Margins of Multinational Production and the Role of Intrafirm TradeLuca David Opromolla; Alfonso A. Irarrazabal; Andreas Moxnes2013OtherOther Publication
The Margins of Multinational Production and the Role of Intrafirm TradeApproved
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Catastrophic Job destructionAnabela Carneiro; Pedro Portugal; José VarejãoE24 - Employment; Unemployment; Wages; J23 - Employment Determination; Job Creation; Demand for Labor; Self-Employment; J63 - Turnover; Vacancies; Layoffs2013OtherOther Publication
Catastrophic Job destructionApproved
1
AR201306_e.pdf
AR201306_e
The implementation of the countercyclical capital buffer: rules versus discretionDiana Bonfim; Nuno Monteiro2013Financial Stability Report ArticleBdP Publication
One of the key lessons of the global financial crisis is that policymakers need instruments to mitigate the potential impact of a build-up of risks in the financial system. Against this background, the countercyclical capital buffer will be one of the main instruments available to macroprudential authorities. According to the Basel Committee, the calibration of this buffer will be guided by the calculation of the deviations of the credit-to-GDP ratio from its long-term trend. In this article, we perform a sensitivity analysis to the calibration of this so-called “buffer guide”, showing that the results are sensitive to the methodologies used and to the assumptions made. Furthermore, we analyze several other indicators with leading and near-coincident properties, which may potentially be relevant in guiding buffer decisions. Our analysis confirms that the credit-to-GDP gap is amongst the best performing indicators in predicting banking crises, but shows that other indicators also display good signalling properties. As such, a large set of quantitative and qualitative information should be considered when setting the countercyclical buffer rate.
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AR201305_e.pdf
AR201305_e
A Macro-prudential Policy for Financial StabilityRita Basto2013Financial Stability Report ArticleBdP Publication
The recent financial crisis and its impact on the global economy led the analysis and policies conducted so far for financial stability to be questioned. In this context, there is a general agreement that risks related to excessive financial leverage and to signs of speculative bubbles were largely neglected in the period prior to the crisis. This fact has motivated a profound reform in financial regulation and supervision at the international level, aimed at promoting a more efficient identification and prevention of risks and of the various channels that facilitate their propagation. Macro-prudential policy, aimed at preventing and mitigating systemic risk, has a prominent role in these reforms. In this context, several countries have been developing methodologies and an institutional framework appropriate to the implementation of macro-prudential policy. In several countries, including Portugal, this function has been attributed to the central bank. This article analyses the role of macro-prudential policy in the new policy framework for financial stability and the challenges related to its implementation.
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AR201304_e.pdf
AR201304_e
Option trade volume and volatility of banks’ stock returnsMartín Saldías; Rafael Barbosa2013Financial Stability Report ArticleBdP Publication
This article focuses on the linkages between the trading activity in option markets and the volatility of their corresponding underlying stocks. More specifically, we try to answer the question of whether the trading volume in the option markets has explanatory power over the volatility of the underlying stocks. We focus on option and stock prices information from 16 large European and US banks between 2004 and 2008. Our results show that option trading volume has explanatory power over returns’ volatility and it is robust after controlling for increased overall volatility and shifts in the volatility regime in the early stages of the crisis. The analysis of this particular linkage is scarce in the existing literature and almost non-existent for the European banking sector.
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AR201303_e.pdf
AR201303_e
Bank interest rates on new loans to non-financial corporations– one first look at a new set of micro dataCarlos Santos2013Financial Stability Report ArticleBdP Publication
This note aims at contributing to the assessment of the empirical relevance of a set of determining factors for bank interest rates in Portugal. For such purpose, an innovative dataset is used, considering micro-information on most new loan operations to non-financial corporations in the period June 2012 to February 2013. The results obtained point to the existence of a set of factors that induce discrimination in the setting of interest rates by the different customers. These factors include the risk attached to the customer, the size of the loan and the customer, their private or public nature, and the fact of having or not exporting activity.
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AR201302_e.pdf
AR201302_e
Investment Decisions and Financial Standing of Portuguese Firms – recent evidenceLuisa Farinha; Pedro Prego2013Financial Stability Report ArticleBdP Publication

The analysis of firms’ investment decisions and the firm’s financial standing is particularly relevant under a scenario of (i) the high indebtedness levels of Portuguese firms, (ii) the reduction in profitability of these firms, which reduces the amount of internally available funds thus increasing the demand for external financing, and (iii) the ongoing Financial and Economic Crisis that considerably changed the conditions and access to the credit markets. In this article, yearly balance sheet and financial statements data from the Central Balance Sheet since 2006 until 2011 is used. The results obtained indicate that firms’ financial standing is indeed relevant in explaining corporate investment decisions, where the burden of servicing debt, the cost of capital, and the firm’s indebtedness all have a negative relationship with firm’s investment rate. As for profitability the results suggest a strongly and positive relationship with firms’ investment rate. Nonetheless, these results are predominantly seen for smaller firms where large firms investment rate only seem to be affected by the profitability levels. Moreover, there is evidence suggesting that the impact of firms’ financial standing became more relevant during the period of the sovereign debt crisis in the euro area.

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AR201301_e.pdf
AR201301_e
Is there a risk-taking channel of monetary policy in Portugal?Diana Bonfim; Carla Soares2013Financial Stability Report ArticleBdP Publication
It is well established that when monetary policy is accommodative, banks tend to grant more credit. However, only recently attention was given to the quality of credit granted and, naturally, the risk assumed during those periods. This article makes an empirical contribution to the analysis of the so-called risk-taking channel of monetary policy, by testing whether Portuguese banks grant more risky loans when monetary policy interest rates are lower. Our results show that banks grant more loans to non-financial corporations with recent defaults or without credit history when policy interest rates are lower. Even though these loans turn out to have higher ex-post default probabilities, as expected, the overall loan portfolio does not show an increase in the likelihood of default in the aftermath of a period of lower monetary policy rates. All in all, the evidence on the risk-taking channel in Portugal is not as strong as in other countries where similar methodologies were implemented. The results obtained are generally more supportive of the credit channel hypothesis than of a pure risk-taking channel.
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AB201318_e.pdf
AB201318_e
The price elasticity of external demand of Portuguese exports: a comparison with other euro area countriesSónia Cabral; Cristina Manteu2013Economic Bulletin ArticleBdP Publication
We compute the price elasticity of external demand of Portuguese exports in the period 1995-2009, comparing it with other euro area countries. This proxy of the export price elasticity is
calculated as a weighted average of the import demand elasticities in each individual country-product destination market, using the elasticities of substitution across imported varieties of
Broda et al. (2006). Overall, Portugal tends to export to individual markets that have, on average, a lower price elasticity than the markets where other euro area countries export to.
Therefore, the product and geographical composition of Portuguese exports reduces their exposure to relative price fluctuations.
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AB201317_e.pdf
AB201317_e
Labor unions, union density and the union wage premiumPedro Portugal; Hugo Vilares2013Economic Bulletin ArticleBdP Publication
The influence of trade unions’ activity in the Portuguese labor market is reviewed, resorting to the information provided by around 200 000 firms on the number of unionized workers. In
particular, the membership determinants are studied; the workers’ wage benefit in more unionized firms is estimated; and the wages’ compositional changes, due to different levels of firm’s
unionization, are revealed.
As in other developed countries, Portugal has recorded a steady erosion of the union representation. For 2010, the estimate of the union density in the private sector of the economy is
around 11 percent. The union presence is more important in sizeable firms, when the company’s equity is public, and in industries sheltered from competition. The unionized workers benefit
from a substantial wage premium. In more unionized firms, this gap reaches levels above 30 percent, in contrast with non-unionized firms, with the same observed characteristics, that work
in the same industry and region.
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AB201316_e.pdf
AB201316_e
Segmenting wagesMário Centeno; Álvaro A. Novo2013Economic Bulletin ArticleBdP Publication
Employment protection entails costs for firms that reduce the demand for labor, and benefits for employees that increase their labor supply. In equilibrium, wages fall and employment may
also fall. However, in a segmented labor market, the different adjustment margins lead to results that vary with the degree of employment protection. In 2004, a reform of the labor code
increased employment protection for permanent contracts in a subset of firms (the treatment group), leaving it unchanged for other companies (the control group). The quasi-experimental
setting provides causal evidence that points to (i) a reduction of wages for new permanent contracts and temporary contracts and (ii) no impact on earnings of permanent workers with
longer tenure. The estimated reductions for new contracts range between -0.9 and -0.5 percentage points, enabling companies to cover a significant part of the expected increase in firing
costs.
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AB201315_e.pdf
AB201315_e
Confidence and economic activity: the case of PortugalCaterina Mendicino; Maria Tereza Punzi2013Economic Bulletin ArticleBdP Publication
The idea that aggregate economic activity might be driven in part by confidence and changes in expectations is not new in economics. Earlier discussions date back to Pigou (1927) and
Keynes (1936). Over the last few decades, boom and bust cycles in industrialized countries gave an impulse to explore further the importance of changes in expectations as sources of
business cycle fluctuations. This article estimates a structural VAR to identify the effects of confidence shocks in Portugal. Shocks to economic confidence and economic sentiment account
for a non-negligible fraction of variation in economic activity. The results are robust to the use of alternative measures of economic activity and various survey indicators.
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AB201314_e.pdf
AB201314_e
The import content of global demand in PortugalFátima Cardoso; Paulo Soares Esteves; António Rua2013Economic Bulletin ArticleBdP Publication
The analysis of the importance of imports in global demand is crucial for a better understanding of the behaviour of the main macroeconomic variables. In this article we assess the import content of global demand over the last three decades, highlighting the heterogeneity across demand components and across products.
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AB201313_e.pdf
AB201313_e
The determinants of downward wage rigidity: Some methodological considerations and new empirical evidenceDaniel Dias; Carlos Robalo Marques; Fernando Martins2013Economic Bulletin ArticleBdP Publication
This article discusses the identification of the determinants of downward wage rigidity and illustrates empirically its importance in Europe. It is shown that the models estimated so far in the literature suffer from econometric problems that prevent the contributions of those determinants to be correctly identified or precisely estimated. An empirical exercise, along the lines discussed in this article, using survey data for 15 European Union countries, shows that the results may significantly differ from the ones previously obtained in the literature. Together, the theoretical considerations and the estimated results suggest that new empirical evidence is required before definite conclusions on the determinants of downward nominal or real wage rigidity can be drawn.
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AB201312_e.pdf
AB201312_e
The macroeconomic effects of legislated tax changes in PortugalManuel Coutinho Pereira; Lara Wemans2013Economic Bulletin ArticleBdP Publication
This paper develops a new measure of quarterly discretionary tax shocks for Portugal that covers the period from 1996 to 2012 and was based on the so-called narrative approach. The main distinctive feature of this approach is that tax shocks are dated and quantified on the basis of a comprehensive analysis of tax policy measures, and not by econometric estimations. The findings point to strongly negative and persistent effects of legislated tax increases on GDP and private consumption, in line with narrative studies for other countries that yielded comparatively high tax multipliers.
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AB201311_e.pdf
AB201311_e
Short-term macroeconomic forecasts for the U.S. economy using nowcasts of the survey of professional forecastersInês Gonçalves2013Economic Bulletin ArticleBdP Publication
This paper proposes a forecasting strategy for a set of macroeconomic variables using information from surveys to professional analysts. Specifically, it is assumed that certain forecasts for the current state of the economy (nowcasts) are very difficult to beat in the short-term, so that there are benefits in including them in the time series of the variables to predict. For the U.S. economy, the Survey of Professional Forecasters (SPF) of the Federal Reserve Bank of Philadelphia is a renowned source of nowcasts and is therefore the starting point chosen to predict seven macroeconomic variables of interest. Using several models, both univariate and multivariate, it is possible to compare the forecasts that result from the use of this strategy with the predictions that would be obtained if the series did not include the additional information. Moreover, the performance of the models with nowcasts is compared with the predictions of the survey professional themselves. While the SPF asserts itself as highly reliable, the nowcasts appear to contribute for increasing the accuracy of the models used. Although sensitive to the choice of variables, the approach proposed in this paper proves to be quite promising and paves the way for further research, namely the application to other variables and/or economies.
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AB201310_e.pdf
AB201310_e
Predicting aggregate returns using valuation ratios out-of-sampleAna Sequeira2013Economic Bulletin ArticleBdP Publication
It is well established that valuation ratios (indicators of the financial market situation) provide, in-sample, relevant signals regarding future returns on assets. Specifically, periods of high prices, relative to dividends, are proceeded by years of low returns; and periods of low prices, relative to dividends, precede years of high returns. This pattern of predictability is pervasive across financial markets. In this paper, we assess the ability of valuation ratios to predict out-of-sample aggregate returns for the stock and the housing markets in the U.S.. We find that there is statistical evidence supporting the extension of the in-sample results to an out-of-sample framework. The dividend-price ratio and the rent-price ratio display a significant ability for predicting in real-time stock and housing returns, respectively. Nevertheless, we note that these findings may be sample dependent. Especially for the stock market, the sample’s ending data, including the recent financial crisis, may be responsible for the good results.
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AB201309_e.pdf
AB201309_e
The world tourism exports cycleP.M.D.C.B. Gouveia; Raul Filipe C. Guerreiro; Paulo M.M. Rodrigues2013Economic Bulletin ArticleBdP Publication
Considering that tourism is an important industry on a global scale, this study analyses and compares the deviations cycles from the long-term trend of tourism exports for all regions of the world with the cycle of the European Union with 27 member states (EU27). In this context, the approach followed allows us to analyse and determine the synchronization between tourism exports cycles of various regions of interest. In parallel, lagged concordance indices of cycles are identified which can play an important role in forecasting and used as an important tool to support decision making of public and private entities associated to the tourism industry. In methodological terms, this paper is based on work originally developed in the literature by Gouveia and Rodrigues (2005), who analyse the tourism demand cycle following the method proposed by Harding and Pagan (2001) and obtain evidence of a strong degree of synchronization between the economic and the tourism cycle. This paper is innovative in the approach used to investigate the relationship between tourism exports cycles and in the identification of the trend and cycle components through the application of state-space methods and the Kalman filter (Kalman 1960, Kalman and Bucy, 1961).
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AB201308_e.pdf
AB201308_e
Short-term forecasting of indirect tax revenues: an application for PortugalPaulo Soares Esteves; Cláudia Braz2013Economic Bulletin ArticleBdP Publication
In recent times the prompt assessment of the evolution of the fiscal situation has become increasingly important. This topic is even more relevant in the case of Portugal, which is currently subject to an Economic and Financial Assistance Programme. In this context, this paper aims to produce short-term forecasts at an infra-annual frequency for the general government deficit, on a national accounts basis, in Portugal. It focuses on indirect tax revenues and uses “short-term forecasting” techniques which, in the literature, are essentially geared to economic developments. The results vary in line with the considered taxes: VAT, tax on oil products and tax on vehicle sales.
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AB201307_e.pdf
AB201307_e
Oil price shocks and their effects on economic activity and prices: an application for PortugalFrancisco Craveiro Dias2013Economic Bulletin ArticleBdP Publication
In this article, effects of oil shocks on GDP, employment and inflation are estimated for the Portuguese economy, relying on a structural VAR model. In the ongoing period of domestic adjustment it is relevant to have a quantitative measure of these effects, especially since the international economic environment has been cooling sharply and a large uncertainty subsists around the adjustment process. The results of the estimations, for an increase in oil prices of approximately 13 percent in dollars, envisage a depressive effect on the level of GDP in the long run - after five years - of 0.7 percentage points with nearly half of the adjustment taking place in the second year after the shock. The profile of the effect on employment in the private sector is very similar, albeit somewhat smaller. As for the consumer prices, the results translate into higher inflation in the first two years subsequent to the shock (0.25 and 0.05 percentage point in the first and second year, respectively). However this effect shows to be temporary, since as from the third year, the impact reduces slowly, with a virtually nil long-term effect on the price level.
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AB201305_e.pdf
AB201305_e
Business cycle accounting for PortugalNikolay Iskrev2013Economic Bulletin ArticleBdP Publication
This article analyzes the sources of business cycle fluctuations in Portugal using the business cycle accounting methodology developed by Chari et al., (2007). In this approach, various types of distortions are represented as “wedges” in standard equilibrium relationships. This allows a quantitative assessment of the relative importance of those wedges. It is found that distortions affecting total factor productivity play a key role in explaining the behavior of output from 1998 through 2012.
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AB201304_e.pdf
AB201304_e
Foreign investment and institutional reform: Portugal in European perspectivePaulo Júlio; Ricardo Pinheiro-Alves; José Tavares2013Economic Bulletin ArticleBdP Publication
As intraregional transaction costs across the globe were reduced, national jurisdictions tended to rely more heavily on business facilitation measures that provide incoming firms with a suitable business environment. It is therefore of utmost importance to understand the role played by the institutional framework on inward Foreign Direct Investment (FDI), as well as to evaluate the potential benefits and costs in terms of FDI inflows of improving/reforming national institutions. This article points out the major institutional gaps between Portugal and the most institutionally advanced countries in the European Union (EU) for those areas impacting FDI positively, and estimates and assesses the expected benefits, the required reform efforts, and the efficiency of reform options corresponding to a convergence of Portuguese institutions with the EU’s best institutional standards. Reform options are evaluated through three distinct institutional databases: the 2013 Index of Economic Freedom, the 2006 Political Risk Rating from the International Country Risk Guide, and the 2013 Doing Business. Our results indicate that institutional reforms promoting a leaner bureaucracy, lowering political risk, corruption, and the constraints on the flow of investment capital, improving the respect and protection of property rights, and promoting a strong and impartial legal environment–institutional areas where Portugal is behind the EU’s best institutional standards–may significantly affect the amount of bilateral inward FDI that is targeted to Portugal. Business friendly regulations per se have an estimated second order effect on FDI. Closing the Portuguese institutional gap vis-à-vis the EU’s most institutionally advanced countries has an estimated effect on FDI that can go up to 60 percent.
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AB201303_e.pdf
AB201303_e
Competition in the Portuguese economy: Estimated price-cost margins under imperfect labour marketsJoão Amador; Ana Cristina Soares2013Economic Bulletin ArticleBdP Publication
This article estimates price-cost margins for the Portuguese markets in a context of imperfect competition in the labour market. The database used includes virtually the universe of Portuguese firms for the period 2005-2009. The results strongly reject the hypothesis of perfect competition in both labour and product markets. Estimated price-cost margins are very heterogeneous across markets and the average for the overall economy ranges between 25 and 28 per cent, depending on the variables used to weight each market. In addition, the tradable sector presents a lower price-cost margin than the non-tradable sector. According to the methodology used, workers’ bargaining power in the Portuguese economy is approximately 13 per cent, without a clear distinction between tradable and non-tradable sectors. Finally, workers’ bargaining power is positively correlated with price-cost margins.
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AB201302_e.pdf
AB201302_e
Trade and wage inequalityLuca David Opromolla2013Economic Bulletin ArticleBdP Publication
A classic question in international trade theory is how a change in a country’s exposure to trade affects the distribution of resources across economic activities within a country and the distribution of incomes across factors of production. Classical trade theory predicts changes in wage inequality due to reallocation of resources among industries. However, the empirical labor literature points to the importance of within-industry wage inequality and the empirical trade literature emphasizes within-industry, across firms, heterogeneity. To reconcile theory and data, we present a number of recent theoretical developments in the trade literature that emphasize the consequences of a reduction in export and import barriers on within-industry wage inequality. These theories could prove useful to revisit the change in wage inequality in Portugal after the entrance into the EU and to explain more recent patterns.
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AB201301_e.pdf
AB201301_e
Assessment of Banco de Portugal’s projection errors for economic activity in the period 2009-12Ricardo Mourinho Félix2013Economic Bulletin ArticleBdP Publication
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AB201300_e.pdf
AB201300_e
Output effects of fiscal policy in Portugal: a structural VAR approachManuel Coutinho Pereira; Lara Wemans2013Economic Bulletin ArticleBdP Publication
This study applies the structural VAR methodology to the identification of fiscal policy shocks in Portugal, using quarterly general government accounts from 1995 to 2011. Using a more detailed breakdown of variables than is usual, an estimate is made of the impact on economic activity of shocks to taxes, broken down into direct and indirect taxes, transfers, and government consumption, broken down into compensation of employees and expenditure on goods and services. The findings point to the existence of multiplier effects on output with a conventional sign (except for expenditure on goods and services) in the sample period, stronger for compensation of employees and direct taxes than for the remaining variables analysed. At the same time, changes in indirect taxes and, to a lesser degree, in transfers, tend to cause less of an impact on economic activity.
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wp201219.pdf
wp201219
Bank size and lending specializationDiana Bonfim; Qinglei DaiG21 - Banks; Other Depository Institutions; Mortgages; G30 - General2012Working PaperBdP Publication
Using micro-level data on the entire population of business loans of a bank-based economy, we empirically test some of the core predictions of the SME financing literature, examining banks’ lending specializations in firm size and lending technologies. Rejecting the conventional belief that smaller banks focus more on relationship loans than do larger banks, we find that banks of different sizes dedicate similar proportions of loans to relationship lending. However, supporting the SME finance theories on the organizational advantages of small banks, we find that smaller banks provide more access to relationship loans to small firms, though such loans are usually more expensive.
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wp201218.pdf
wp201218
Liquidity risk in banking: is there herding?Diana Bonfim; Moshe KimG21 - Banks; Other Depository Institutions; Mortgages; G28 - Government Policy and Regulation2012Working PaperBdP Publication
Banks individually optimize their liquidity risk management, often neglecting the externalities generated by their choices on the overall risk of the financial system. This is the main argument to support the regulation of liquidity risk. However, there may be incentives, related for instance to the role of the lender of last resort, for banks to optimize their choices not strictly at the individual level, but engaging instead in collective risk taking strategies, which may intensify systemic risk. In this paper we look for evidence of such herding behaviors, with an emphasis on the period preceding the global financial crisis. Herding is significant only among the largest banks, after adequately controlling for relevant endogeneity problems associated with the estimation of peer effects. This result suggests that the regulation of systemically important financial institutions may play an important role in mitigating this specific component of liquidity risk.
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wp201217.pdf
wp201217
Competition in the Portuguese economy: Insights from a profit elasticity approachJoão Amador; Ana Cristina SoaresL10 - General; L60 - General; O50 - General2012Working PaperBdP Publication
This article takes the set of Portuguese markets and computes a new competition measure suggested by Boone (2008), which draws on the concept of profit elasticity to marginal costs in a given market. The article concludes that the majority of markets presented a reduction in competition in the period 2000-2009, though there is substantial heterogeneity. In addition, markets that faced competition reductions represent the large majority of sales, gross value added and employment in the Portuguese economy. The non-tradable sector presents lower competition intensity than the tradable sector. Moreover, reductions in competition are relatively widespread across markets in both sectors, but in terms of sales, gross value added and employment these reductions are more substantial in the non-tradable. In the majority of markets the assessment on the evolution of competition using profit elasticities is similar to that obtained with classical competition indicators.
Competition in the Portuguese economy: Insights from a profit elasticity approachApproved
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wp201216.pdf
wp201216
Systemic Risk Analysis using Forward-Looking Distance-to-Default SeriesMartín SaldíasG01 - Financial Crises; G12 - Asset Pricing; G21 - Banks; Other Depository Institutions; Mortgages2012Working PaperBdP Publication
Based on Contingent Claims Analysis, this paper develops a method to monitor systemic risk in the European banking system. Aggregated Distance-to-Default series are generated using option prices information from systemically important banks and the STOXX Europe 600 Banks Index. These indicators provide methodological advantages in monitoring vulnerabilities in the banking system over time: 1) they
capture interdependences and joint risk of distress in systemically important banks; 2) their forward-looking feature endow them with early signaling properties compared to traditional approaches in the literature and other market-based indicators; 3) they produce simultaneously smooth and informative long-term signals and quick and clear reaction to market distress and 4) they incorporate additional information through option prices about tail risk and correlation breaks, in line with recent findings in the literature.
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wp201215.pdf
wp201215
Identifying the determinants of downward wage rigidity: some methodological considerations and new empirical evidenceDaniel Dias; Carlos Robalo Marques; Fernando MartinsC31 - Cross-Sectional Models; Spatial Models; J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.; J50 - General2012Working PaperBdP Publication
This paper discusses the identification of the determinants of downward wage rigidity and provides new empirical evidence concerning its importance in Europe. It is shown that the models estimated so far in the literature suffer from econometric problems that prevent the contributions of those determinants to be correctly identified or precisely estimated. An empirical exercise, along the lines discussed in this paper, using survey data for 15 European Union countries, shows that the results may significantly differ from the ones previously obtained in the literature. Together, the theoretical considerations and the estimated results suggest that new empirical evidence is required before definite conclusions on the determinants of downward nominal or real wage rigidity can be drawn.
A replication note on downward nominal and real wage rigidity: survey evidence from European firmsApproved
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wp201214.pdf
wp201214
On International Policy Coordination and the Correction of Global ImbalancesBruno Albuquerque; Cristina ManteuE17 - Forecasting and Simulation; F32 - Current Account Adjustment; Short-Term Capital Movements; F42 - International Policy Coordination and Transmission; F47 - Forecasting and Simulation2012Working PaperBdP Publication
Global current account imbalances are generally seen as a threat to world growth. Given that they are projected to remain high, in an environment of
prevailing downside risks, what could be done to reduce these imbalances? Using NiGEM, a large-scale multi-country model, we build up a global rebalancing
scenario by assuming policy coordination at world level. This scenario considers that advanced economies adopt more ambitious fiscal consolidation (Layer
1) and structural reforms to boost potential output (Layer 2), whereas large emerging market surplus economies increase exchange rate flexibility and carry
out structural reforms aimed at supporting domestic demand (Layer 3). Our main findings are the following. The global rebalancing scenario would reduce
global imbalances by one quarter and world GDP would rise in a five-year period, lending support to the view that multilateral coordinated policy action would
imply stronger, more sustainable and balanced growth of the world economy. Nevertheless, and contrary to recent analysis by the IMF, this scenario would
carry some costs, specifically for some of the major advanced deficit economies which would experience a fall in GDP relative to the baseline.
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wp201213.pdf
wp201213
How to create indices for bank branch financial performance measurement using MCDA techniques: an illustrative exampleFernando A. F. Ferreira; Paulo M.M. Rodrigues; Sérgio P. Santos; Ronald W. SpahrA12 - Relation of Economics to Other Disciplines; E44 - Financial Markets and the Macroeconomy; G20 - General2012Working PaperBdP Publication
Most banks have been negatively affected by the recent economic recession, which has forced them to evaluate their operating performance including the financial performance of bank branches. Approaches that have been applied to address the financial performance evaluation of bank branches include: optimization techniques, simulations, stochastic tools, fuzzy logics and decision support systems. Although recent improvements have been made in assessing financial performance, the potential for significant further improvement remains since the recent World economic crisis is adding pressure on business margins. The purpose of this paper is to construct an exemplificative evaluation index for bank branch financial performance by integrating cognitive maps with measuring attractiveness by a categorical based evaluation technique. We aim to apply this methodology constructively to serve as a learning mechanism and introduce transparency in the decision making process. Practical applications, strengths and weaknesses of the proposed evaluation index are also discussed.
How to create indices for bank branch financial performance measurement using MCDA techniques: an illustrative exampleApproved
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wp201212.pdf
wp201212
Wage rigidity and employment adjustment at the firm level: evidence from survey dataDaniel Dias; Carlos Robalo Marques; Fernando MartinsJ32 - Nonwage Labor Costs and Benefits; Private Pensions; J60 - General2012Working PaperBdP Publication

This paper uses firm level survey data from Portugal to investigate how firms adjust their labour costs in the presence of wage rigidities. We document that Portuguese firms, besides reducing employment or freezing nominal base wages, also make frequent use of other cost-cutting strategies, like freezing or cutting bonus and other monetary or non-monetary benefits, slowing down or freezing the rate at which promotions are filled, or recruiting new employees at wageslower than those received by the employees that have left the firm. We show that the utilization of these different adjustment strategies is affected by workers’ and firms’ attributes, as well as by some indicators of the economic environment in which firms operate. More importantly, we provide evidence that firms with more flexible base wages are less likely to reduce employment, and that such effect may be significantly strengthened by the availability of alternative labourcost adjustment margins that firms can use in bad times.
Wage rigidity and employment adjustment at the firm level: Evidence from survey dataApproved
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wp201211.pdf
wp201211
Collateral Requirements: Macroeconomic Fluctuations and Macro-Prudential PolicyCaterina MendicinoE21 - Consumption; Saving; E22 - Capital; Investment (including Inventories); Capacity; E44 - Financial Markets and the Macroeconomy; G20 - General2012Working PaperBdP Publication
What are the macroeconomic implications of higher leveraged borrowing? To address this question, we develop a business cycle model with credit frictions in which firms reallocate capital among themselves through the credit market. We find that looser collateral requirements moderate the sensitivity of investment and output to changes in productivity but sharpen the response to shocks originated in the credit market. This result poses a challenge to the design of a macro-prudential policy framework that aims to mitigate pro-cyclicality in the financial market and improve macroeconomic stability. We document that, contrary to discretionary lower caps on loan-to-value ratios, time-varying caps that counter-cyclically respond to indicators of financial imbalances are successful in smoothing credit-cycles without increasing the sensitivity of the economy to real shocks. Further, countercyclical loan-to-value ratios also dampen macroeconomic volatility without reducing the size of the economy.
 
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wp201210.pdf
wp201210
The Effects of Public Spending ExternalitiesValerio Ercolani; João Valle e AzevedoE32 - Business Fluctuations; Cycles; E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation2012Working PaperBdP Publication
We take to the data an RBC model with two salient features. First, we allow government consumption to directly affect the marginal utility of consumption. Second, we allow public capital to affect the productivity of private factors. On the one hand, private and government consumption are estimated to be substitute goods. As a consequence, the estimated response of private consumption to a government consumption shock is negative, as in models with separable government consumption, but such response is much stronger. Further, substitutability makes labor supply to react less, so the estimated output multiplier is lower than in models with separabilities, peaking - on impact - at 0.39. On the other hand, non-defense public investment enhances mildly or negligibly, depending on the specification, the productivity of private factors. In those specifications where non-defense public investment is found to be productive, a non-defense investment shock generates the following estimated responses (after several quarters): a positive reaction for private consumption, Tobin’s q, private investment and real wages. Unlike models with unproductive government investment, the estimated output multiplier builds up over time, starting well below one on impact, then reaching 0.93 after three years and 1.44 after six.
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wp201209.pdf
wp201209
Market perception of fiscal sustainability: An application to the largest euro area economiesMaximiano PinheiroC58 - Financial Econometrics; G12 - Asset Pricing; H63 - Debt; Debt Management; H68 - Forecasts of Budgets, Deficits, and Debt2012Working PaperBdP Publication
Debt intolerance may rule out fiscal trajectories which otherwise appear to be sustainable. If fiscal policy lacks credibility, the interest on the sovereign debt may rise sharply and the country may lose market access. Indicators for assessing the market perception of fiscal sustainability should complement the conventional empirical sustainability analysis. I propose an approach for extracting information from sovereign bond data, which provides snapshots of market sentiment. It is based on a multi-borrower default-intensity pricing model, allowing for the cross-section estimation (under a risk-neutral probability measure) of the term-structure of the unobservable default-free interest rates, as well as (for all sovereigns included in the sample) of the probabilities of default (for any horizon deemed relevant) and the associated recovery rates given default. The approach is illustrated by the estimation of the model for Germany, France, Italy and Spain for every Friday from October 2, 2009 to November 25, 2011.
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wp201208.pdf
wp201208
Competition in the Portuguese Economy:An overview of classical indicatorsAna Cristina Soares; João AmadorL10 - General; L60 - General; O50 - General2012Working PaperBdP Publication
This article offers an extensive overview of competition indicators in the Portuguese economy in the period 2000-2009. The article covers qualitative competition indicators as well as classical
profitability and concentration measures, focusing on the differences between tradable and non-tradable sectors. The analysis carried out is distinct from that of competition authorities, aiming to set an overall scenario for competition developments. The article concludes that, although there are apparently no widespread problems, there is substantial room for improvements in business competition environment in several markets, notably in the non-tradable area.
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Quantile regression for long memory testing: A case of realized volatilityUwe Hassler; Paulo M.M. Rodrigues; Antonio RubiaC12 - Hypothesis Testing; C22 - Time-Series Models2012Working PaperBdP Publication
In this paper we derive a quantile regression approach to formally test for long memory in time series. We propose both individual and joint quantile tests which are useful to determine the order of integration along the different percentiles of the conditional distribution and, therefore, allow to address more robustly the overall hypothesis of fractional integration. The null distributions of these tests obey standard laws (e.g., standard normal) and are free of nuisance parameters. The finite sample validity of the approach is established through Monte Carlo simulations, showing, for instance, large power gains over several alternative procedures under non-Gaussian errors. An empirical application of the testing procedure on different measures of daily realized volatility is presented. Our analysis reveals several interesting features, but the main finding is that the suitability of a long-memory model with a constant order of integration around 0.4 cannot be rejected along the different percentiles of the distribution, which provides strong support to the existence of long memory in realized volatility from a completely new perspective.
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The dynamics of capital structure decisionsPaula Antão; Diana BonfimG32 - Financing Policy; Capital and Ownership Structure2012Working PaperBdP Publication
In this paper we explore the process of convergence to firms’ target leverage ratios. Using a unique dataset of micro, small, medium and large firms, we find that this process is very fast, most notably for smaller firms. We further explore these results by analyzing different convergence trajectories. We find that firms that are currently below their target leverage ratio take more time to reach this target than firms with a symmetrical departure point. Furthermore, smaller firms are able to converge faster to their optimal capital structure, regardless of whether they have to increase or decrease their current leverage ratios. Using a duration analysis framework, we also find that firms that have to increase debt to reach their target leverage ratio take more time to do so if they have more free cash-flow.
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Excess worker turnover and fixed-term contracts: Causal evidence in a two-tier systemMário Centeno; Álvaro A. NovoJ21 - Labor Force and Employment, Size, and Structure; J23 - Employment Determination; Job Creation; Demand for Labor; Self-Employment; J63 - Turnover; Vacancies; Layoffs2012Working PaperBdP Publication
Portuguese firms engage in intense reallocation, most employers simultaneously hire and separate from workers, resulting in high
excess worker turnover flows. These flows are constrained by the employment protection gap between open-ended and fixed-term
contracts. We explore a reform that increased the employment protection of open-ended contracts and generated a
quasi-experiment. The causal evidence points to an increase in the share and in the excess turnover of fixed-term contracts in
treated rms. The excess turnover of open-ended contracts remained unchanged. This result is consistent with a high degree of substitution between open-ended and fixed-term contracts. At the firm level, we also show that excess turnover is quite
heterogeneous and quantify its association with firm, match, and worker characteristics.
 
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Cohesion within the euro area and the U. S.: a wavelet-based viewAntónio Rua; Artur Silva LopesC40 - General; E32 - Business Fluctuations; Cycles2012Working PaperBdP Publication
The assessment of synchronization of macroeconomic fluctuations across countries or regions has been crucial, for example, for the debate on economic integration. In this paper, we propose a multivariate measure of synchronization to assess cohesion across countries or regions by resorting to wavelet analysis. This wavelet-based measure of cohesion allows one to assess how synchronization has evolved over time and across frequencies simultaneously. In particular, we investigate the cohesion among euro area countries and the cohesion within the U.S. both at the regional and state levels over the last decades. In addition, an analysis at the sectoral level is also conducted. The results obtained unveil a noteworthy heterogeneity and highlight the usefulness of a wavelet-based measure of cohesion.
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A wavelet-based assessment of market risk: The emerging markets caseAntónio Rua; Luís Catela NunesC40 - General; F30 - General; G15 - International Financial Markets2012Working PaperBdP Publication
The measurement of market risk poses major challenges to researchers and different economic agents. On one hand, it is by now widely recognized that risk varies over time. On the other hand, the risk profile of an investor, in terms of investment horizon, makes it crucial to also assess risk at the frequency level. We propose a novel approach to measuring market risk based on the continuous wavelet transform. Risk is allowed to vary both through time and at the frequency level within a unified framework. In particular, we derive the wavelet counterparts of well-known measures of risk. One is thereby able to assess total risk, systematic risk and the importance of systematic risk to total risk in the time-frequency space. To illustrate the method we consider the emerging markets case over the last twenty years, finding noteworthy heterogeneity across frequencies and over time, which highlights the usefulness of the wavelet approach.
A wavelet-based assessment of market risk: The emerging markets caseApproved
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Asset pricing with a bank risk factorJoão Pedro Pereira; António RuaG12 - Asset Pricing; G21 - Banks; Other Depository Institutions; Mortgages2012Working PaperBdP Publication
This paper studies how the state of the banking sector influences stock returns of nonfinancial firms. We consider a two-factor pricing model, where the first factor is the traditional market excess return and the second factor is the change in the average distance to default of the banking sector. We find that this bank factor is priced in the cross section of U.S. nonfinancial firms. Controlling for market beta, the expected excess return for a stock in the top quintile of bank risk exposure is on average 2.67% higher than for a stock in the bottom quintile.
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Public-private wage gaps in the period prior to the adoption of the euro: an application based on longitudinal data Maria Manuel Campos; Mário CentenoJ31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.; J45 - Public Sector Labor Markets; C21 - Cross-Sectional Models; Spatial Models; C23 - Models with Panel Data2012Working PaperBdP Publication
This paper analyses the evolution of public wages and the public-private wage gaps in the period prior to the adoption of the euro in the countries then engaged on the fulfillment of the Maastricht criteria. The wage gaps are estimated controlling for employees’ observed and unobservable individual attributes, using a novel methodology of fixed effects quantile regressions. The results suggest, on the one hand, a relative moderation in the growth of public sector wages in several European countries in the 1990s. On the other hand, estimates obtainedfor the public-private wage differential imply an increase in the same period in the majority of
countries in the sample, with public employees generally becoming more beneficiated vis-à-vis private sector employees with the same observed and unobservable characteristics. Therefore, the fact that European countries were undertaking efforts to comply with the requirements for adopting the single currency does not seem to have contributed to the reduction of the wage premium that the literature has typically associated with public sector employment. It is noteworthy that the countries where the wage differential is higher are Portugal, Ireland, Greece and Spain. This differential is, to a large extent, an actual wage premium associated with the public sector, but self-selection effects determining that the best workers prefer the public sector can not be neglected. Nevertheless, the wage premia tend to be smaller in the case of individuals with higher earnings, making it difficult to attract the more qualified workers to the public sector. This difficulty may be worsened by accross-the-board measures to reduce wages and employees.
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On the uncertainty and risks of macroeconomic forecasts: combining judgements with sample and model informationMaximiano Pinheiro; Paulo Soares Esteves2012OtherOther Publication
On the uncertainty and risks of macroeconomic forecasts: combining judgements with sample and model informationOn the uncertainty and risks of macroeconomic forecasts: combining judgements with sample and model informationApproved
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On the amplification role of collateral constraintsCaterina Mendicino2012OtherOther Publication
On the amplification role of collateral constraintsApproved
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The Flexible Fourier Form and Local GLS De-trended Unit Root TestsPaulo M.M. Rodrigues; A. M. Robert Taylor2012OtherOther Publication
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Assessing the impact of shocks on international tourism demand for PortugalAna C. M. Daniel; Paulo M.M. Rodrigues2012OtherOther Publication
Assessing the impact of shocks on international tourism demand for PortugalApproved
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A wavelet-based assessment of market risk: The emerging markets caseAntónio Rua; Luís Catela Nunes2012OtherOther Publication
A wavelet-based assessment of market risk: The emerging markets caseApproved
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Money growth and inflation in the euro area: a time-frequency viewAntónio Rua2012OtherOther Publication
Money growth and inflation in the euro area: a time-frequency viewApproved
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A Multiple Criteria Framework to Evaluate Bank Branch Potential AttractivenessPaulo M.M. Rodrigues2012OtherOther Publication
A Multiple Criteria Framework to Evaluate Bank Branch Potential AttractivenessApproved
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Tracking the US business cycle with a singular spectrum analysisAntónio Rua; Miguel de Carvalho; Paulo C. Rodrigues2012OtherOther Publication
Tracking the US business cycle with a singular spectrum analysisApproved
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The EAGLE. A model for policy analysis of macroeconomic interdependence in the euro areaSandra Gomes; P. Jacquinot; M. Pisani2012OtherOther Publication
The EAGLE. A model for policy analysis of macroeconomic interdependence in the euro areaApproved
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What happens after corporate default? Stylized facts on access to creditDiana Bonfim; Daniel Dias; Christine Richmond2012OtherOther Publication
What happens after corporate default? Stylized facts on access to credithttp://www.sciencedirect.com/science/article/pii/S0378426612000696Approved
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Dynamic threshold modelling and the US business cycleMiguel de Carvalho; K. Feridum Turkman; António Rua2012OtherOther Publication
Dynamic threshold modelling and the US business cycleApproved
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Dynamic factor models with jagged edge panel data: Taking on board the dynamics of the idiosyncratic componentsMaximiano Pinheiro; António Rua; Francisco Craveiro Dias2012OtherOther Publication
Dynamic factor models with jagged edge panel data: Taking on board the dynamics of the idiosyncratic componentsApproved
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Determining the number of global and country-specific factors in the euro areaAntónio Rua; Francisco Craveiro Dias; Maximiano Pinheiro2012OtherOther Publication
Determining the number of global and country-specific factors in the euro areaApproved
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Competitiveness and external imbalances within the euro areaSandra Gomes; A Team of the Working Group on Econometric Modelling of the European System of Central Banks2012OtherOther Publication
Competitiveness and external imbalances within the euro areaApproved
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Firms´ price and wage adjustment in Europe: survey evidence on nominal stickinessM. Druant; S. Fabiani; Gabor Kezdi; Ana Lamo; Fernando Martins; R. Sabbatini2012OtherOther Publication
Firms´ price and wage adjustment in Europe: survey evidence on nominal stickinessApproved
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Worldwide synchronization since the nineteenth century: a wavelet-based viewAntónio Rua2012OtherOther Publication
Worldwide synchronization since the nineteenth century: a wavelet-based viewApproved
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The impact of education on household income and expenditure inequalityNuno Alves2012OtherOther Publication
The impact of education on household income and expenditure inequalityApproved
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A Scoring Model For Portuguese Non-Financial EnterprisesRicardo Martinho; António R. Antunes2012Financial Stability Report ArticleBdP Publication
This article presents an econometric model for identifying credit failure based on individual characteristics of Portuguese enterprises. The coefficients associated with the financial ratios proved to be significant and are consistent with economic intuition. The estimated model reveals a high level of sectoral heterogeneity with regard to firms’ credit quality. From 2011 to 2012, there was, on average, an increase in the probability of default of firms with credit records, most notably the negative evolution of large enterprises and enterprises in the construction, real estate, restaurant & hotels and mining & quarrying sectors. As a result, in the recent period, there has been a general deterioration in the loan portfolio quality of the Portuguese banking system, which is heavily concentrated in higher risk firms.
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Households’ Default Probability: An Analysis Based on the Results of the HFCSSónia Costa2012Financial Stability Report ArticleBdP Publication
In an environment where the Portuguese banking system has a high exposure to the household sector, identifying the households’ characteristics associated with a higher probability of default on loans is of great importance to monitor the outlook for credit risk and its consequences for the stability of the financial system. This article estimates a probability of default for households which depends on their economic and socio-demographic characteristics and takes into account the existence of shocks that adversely affected their financial situation. The estimated probability is used to characterize the distribution of credit risk for some household’s groups, which differ on their situation in the debt market, and for different types of loans. The analysis uses data from the Household Finance and Consumption Survey which took place during the second quarter of 2010.
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Systemic Liquidity RiskDiana Bonfim; Moshe Kim2012Financial Stability Report ArticleBdP Publication
The new Basel III regulatory package offers the first global framework for the regulation of liquidity risk. This new regulation intends to address the externalities imposed upon the rest of the financial system (and, ultimately, on the real economy) generated by excessive maturity mismatches. Nevertheless, the new regulation focuses essentially on the externalities generated by each bank individually, thus being dominantly microprudential. We argue that there might also be a specific role for the macroprudential regulation of liquidity risk, most notably in what concerns systemic risk. Our argument is based on theoretical results by Farhi and Tirole (2012) and Ratnovski (2009), and on empirical evidence by Bonfim and Kim (2012). In this article we present some of those empirical results, which provide evidence supporting the existence of collective risk-taking strategies in liquidity risk management, most notably amongst the largest banks.
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Systemic risk analysis and option-based theory and informationMartín Saldías2012Financial Stability Report ArticleBdP Publication
This article describes the methodology to compute and the properties of aggregated and forward-looking Distance-to-Default series. These are a set of two market-based indicators to monitor systemic risk in the European banking system based on Contingent Claims Analysis and constructed using information of banks’ balance sheets and equity and option quotes. These indicators are generated using information from systemically important banks and the STOXX Europe 600 Banks Index and provide methodological advantages in monitoring vulnerabilities in the banking system over time.
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Access to credit by non-financial firmsAntónio R. Antunes; Ricardo Martinho2012Financial Stability Report ArticleBdP Publication

In order to study the availability of credit to non-financial firms, we use in this article two different approaches, one based on prices and the other on amounts of loans. Using unique data sets, the first exercise is to estimate an econometric model for the interest rates on new or renegotiated loans made by non-financial firms in June 2010, controlling for characteristics of the loan and the company. Then, we show that the part of the increase between June 2010 and October 2011 in interest rates for similar loans that is explained by variations in the characteristics of loans and businesses is residual. This suggests that factors such as the increase in banks’ financing and capital costs may have been the source of this increase in interest rates. In the exercise with quantities, we estimate a model of the amount of credit using a panel of loans (or companies), including loan (or firm) fixed effects. We show that the typical credit amount of a non-financial firm fell rapidly from the beginning of 2009 on, attaining a minimum of several years. This decline was especially sharp for companies which first sought credit.
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Households’ indebtedness: a microeconomic analysis based on the results of the households’ financial Sónia Costa; Luisa Farinha2012Financial Stability Report ArticleBdP Publication
The analysis of the Portuguese households’ indebtedness based on microeconomic information is particularly useful at the present time, given the high level of debt of this sector and the increase in credit default. Using this type of data it is possible to identify structural relationships between the households’ characteristics and their indebtedness and, in particular, to detect the situations of greater vulnerability, which should be taken into account in the analysis and monitoring of the adjustment process that is underway in the Portuguese economy. This paper uses data from a new survey, the Household Finance and Consumption Survey (HFCS), which took place during the second quarter of 2010. According to the results obtained, low income and young households who have taken mortgages are the most vulnerable groups of the population, for which the probability of materialisation of credit risk is higher. However, the fact that low income households have relatively low participation in the debt market mitigates the impact of their eventual entry into default on the financial situation of banks. As for young households, although their market share and the value of their loans are high, their debts are often guaranteed by real estate and the value of the debt service to income ratio for the majority of these households is lower than the usual threshold, used to identify situations of greater vulnerability.
 
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ab201217_e.pdf
ab201217_e
The wage gap of immigrants in the Portuguese labour marketSónia Cabral; Cláudia Duarte2012Economic Bulletin ArticleBdP Publication
Using matched employer-employee data, we examine the wage gap upon arrival between immigrant and native workers in the Portuguese labour market in the 2002-2008 period. We use the relation between Gelbach’s and Oaxaca-Blinder’s decompositions to split the unconditional average wage gap as the sum of a composition effect and a wage structure effect. Our results show that most of the wage gap is not due to worst endowments of the immigrants compared to natives but to differences in the returns to those characteristics and to the immigrant status effect. In particular, education and foreign experience of the average immigrant are significantly less valued in the Portuguese labour market than natives’ education and experience. Total immigrants are a heterogeneous group of different nationalities, with immigrants from the EU15 and China starring as the two extreme cases.
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ab201216_e
What accounts for Portuguese regional differences in students’ performance? Evidence from OECD PISAManuel Coutinho Pereira; Hugo J. Reis2012Economic Bulletin ArticleBdP Publication
This paper studies regional differences in students’ educational performance and inequality in Portugal. Despite the centralized nature of the Portuguese educational system, there are significant differences across regions. We consider firstly the role of school and family factors. Results suggest that individual and family backgrounds play an important role in explaining both achievement and inequality. School characteristics are also important but only in terms of performance, while the role of “pure” regional effects is limited. From a policy perspective there is scope for school intervention, namely regarding school organization and teachers’ responsibilities. Nevertheless, to target educational inequality, educational policy needs to take into account the school-family-community context and should not focus exclusively on schools.
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A view on income redistribution in Portugal and in the European UnionNuno Alves2012Economic Bulletin ArticleBdP Publication
This article assesses the impact and efficiency of redistributive policies in Portugal and in the European Union. The analysis is based on microdata from EU-SILC 2010 and focuses on the role of cash benefits (excluding pensions) and income taxes. The Portuguese economy has a high level of income inequality in the context of the European Union and a degree of redistribution close to the European average. In terms of efficiency, the evidence suggests that cash benefits (excluding pensions) in Portugal are relatively well targeted towards the lower income levels and income taxes have a higher degree of progressivity compared to the European average. The analysis also highlights the heterogeneity of the redistributive process in the various income deciles in Portugal.
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AB201214_e.pdf
AB201214_e
The evolution of public expenditure: Portugal in the euro area contextJorge Correia da Cunha; Cláudia Braz2012Economic Bulletin ArticleBdP Publication
The objective of this article is to present the main aspects of the evolution of public expenditure in Portugal from 1995 to 2011. Developments in the current composition of the euro area are used as a benchmark. Primary expenditure in Portugal increased substantially up to 2010, particularly in the period 1995 - 2005. In terms of the economic classification of expenditure, social benefits in cash, mostly pension expenditure, and, to a lesser extent, social benefits in kind and intermediate consumption were the main contributors to the strong growth in spending. The total expenditure to GDP ratio, however, was, throughout the period, below the euro area average and has shown a similar pattern of evolution in the recent years, when correcting for the impact of temporary measures and special factors in Portugal. However, Portugal as a euro area member state, despite its negligible increase in GDP per capita, recorded one of the highest increases in public spending as a percentage of GDP in the period under analysis.  In 2011, its level of total public expenditure to GDP ratio was higher than in many other euro area countries, including several ones with substantially higher GDP per capita. This relationship is also reflected in the four main types of expenditure by functional classification (defence and security and public order, health, education and social protection). Portugal converged to the euro area average functional structure.  A simple evaluation of efficiency in the health sector shows a substantial improvement in health status indicators in Portugal between 1995 and 2010. In the last year of that period, expenditure was slightly below that of the countries with the best results. Regarding the education sector, in spite of the improvement in terms of participation rates and in international exams, Portugal emerged in 2009 as a country with unfavourable results in terms of its educational process and high expenditure in relative terms.
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ab201213_e.pdf
ab201213_e
Short-term forecasting for the portuguese economy: a methodological overviewPaulo Soares Esteves; António Rua2012Economic Bulletin ArticleBdP Publication
The aim of this article is to provide a stylised, concise description of the methodology underlying the short-term forecasting exercise for the economic activity regularly conducted at
Banco de Portugal. As in the case of other central banks, it is useful to share the experience acquired in the development of tools aimed at obtaining short-term forecasts for the
Portuguese economy. The rationale underlying the methodology is discussed intuitively and its corresponding presentation should be considered merely illustrative due to the
dynamics of the process. This approach may potentially change, due to the continuous search for additional indicators and use of alternative econometric models. The article also
presents an overview of analogous experiences at other central banks, namely within the Eurosystem.
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AB201212_e.pdf
AB201212_e
Product switching or re-classification? An application to portuguese international tradeRúben Branco; Luca David Opromolla2012Economic Bulletin ArticleBdP Publication
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AB201211_e
An evaluation of government expenditures’ externalitiesJoão Valle e Azevedo; Valerio Ercolani2012Economic Bulletin ArticleBdP Publication
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AB201210_e.pdf
AB201210_e
Measuring competition in the Portuguese economy using profit elasticitiesJoão Amador; Ana Cristina Soares2012Economic Bulletin ArticleBdP Publication
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Wavelets in economicsAntónio Rua2012Economic Bulletin ArticleBdP Publication
The aim of this article is to highlight the usefulness of wavelet analysis in economics. Wavelet analysis is a very promising tool as it represents a refinement of Fourier analysis. In particular, it allows one to take into account both the time and frequency domains within a unified framework, that is, one can assess simultaneously how variables are related at different frequencies and how such relationship has evolved over time. Despite the potential value of wavelet analysis, it is still a relatively unexplored tool in the study of economic phenomena. The basic theoretical building blocks are reviewed and some empirical applications are provided.
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Mobility and income inequality in the European Union and in PortugalNuno Alves; Carlos Martins2012Economic Bulletin ArticleBdP Publication
This article aims at establishing some facts on mobility and income distribution in the European Union countries, with a special focus on the Portuguese case. The analysis was developed with the latest information from the EU-SILC database, for the period 2005-2009. There is substantial mobility between the various income deciles in the EU and, to a lesser extent, in Portugal. Income mobility decreases the degree of inequality in non-negligible terms, but the fraction of inequality that takes a permanent nature remains quite high in all EU countries and in particular in Portugal. Additionally, there is no relation between
the level of inequality and the contribution of income mobility to the reduction in inequality in the EU countries. In the recent past, income growth in the EU countries, including Portugal, was skewed towards lower income individuals. However, the contribution of this “progressive” growth to the reduction of inequality was mitigated, or even canceled, by the re-ranking of individuals in the income distribution.
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Labour cost-cutting strategies microeconomic evidence from survey dataDaniel Dias; Carlos Robalo Marques; Fernando Martins2012Economic Bulletin ArticleBdP Publication
This article investigates how firms adjust their labour costs in the presence of adverse shocks on labour demand and supply. The information obtained from a survey on a sample of firms show that, besides reducing employment or freezing nominal base wages, firms also make frequent use of other cost-cutting
strategies, like freezing or cutting bonus and other monetary or non-monetary benefits, slowing down or freezing the rate at which promotions are filled, or recruiting new employees at wages lower than the wages received by the employees that have left the firm. We show that the use of these different adjustment strategies is affected by workers’ and firms’ attributes, as well as by some indicators of the economic environment in which firms operate. More importantly, we provide evidence that firms with more flexible base wages are less likely to reduce employment, and that such effect may be strengthened by the availability of the above-mentioned alternative labour-cost adjustment margins. It is important to stress that all the results presented in this article
stemmed directly from the information collected in the survey and, consequently, they do not have a normative nature.
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On the targeting of short and long term interest ratesBernardino Adão; Isabel Horta Correia; Pedro Teles2012Economic Bulletin ArticleBdP Publication
This article is a theoretical reappraisal of the infrequent policy of central banks in targeting interest rates at both short and longer maturities.
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Revisiting the effectiveness of monetary and fiscal policy in the US, measured on the basis of structural VARsManuel Coutinho Pereira2012Economic Bulletin ArticleBdP Publication
Neste artigo apresenta-se evidência sobre a variação temporal da eficácia das políticas monetária e orçamental nos Estados Unidos com base em modelos autorregressivos vetoriais (VAR) estruturais. Os resultados para um modelo tradicional de coeficientes fixos, estimado com base em amostras rolantes, apontam para bastante instabilidade das respostas do produto aos choques de política e um claro enfraquecimento ao longo do tempo. No caso dos choques orçamentais, em particular, os multiplicadores assumem sinais não convencionais durante uma parte do período. Quando a variação temporal é incorporada diretamente, através de uma especificação com coeficientes variáveis, o perfil das respostas do produto torna-se mais estável. Neste caso, os resultados indicam uma quase estabilização do impacto da política monetária no período recente, enquanto para a política orçamental continua a ser patente uma quebra.
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Welfare costs of inflation with distortionary taxationBernardino Adão; André C. Silva2012Economic Bulletin ArticleBdP Publication
We show that the welfare cost of inflation decreases when distortionary taxation is taken into account. The estimates of the welfare cost of inflation usually consider that governments are able to use lump sum taxation to finance their budget. However, governments can only use distortionary taxation, such as labor income taxes. When only distortionary taxation is available, the government can decrease the size of distortionary taxes by compensating the decrease in revenues with the revenues generated by inflation. We compare the case in which the government has access to lump sum taxes with the case in which only distortionary taxes are available. We keep the level of government expenditures as a percentage of output constant. We find that the welfare cost of an increase in inflation from 0 to 10% per year decreases from 1.3% in terms of income to 0.8%.
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AB201202_e
Fiscal institutions and public spending volatility in EuropeBruno Albuquerque2012Economic Bulletin ArticleBdP Publication
This article provides empirical evidence for a sizeable, statistically significant negative impact of the quality of fiscal institutions on public spending volatility for a panel of 23 EU countries over the 1980-2007 period. The dependent variable is the volatility of discretionary fiscal policy, which does not represent reactions to changes in economic conditions. Our baseline results thus give support to the strengthening of institutions to deal with excessive levels of discretion volatility, as more checks and balances make it harder for governments to change fiscal policy for reasons unrelated to the current state of the economy. Our results also show that bigger countries and bigger governments have less public spending volatility. In contrast to previous studies, the political factors do not seem to play a role, with the exception of the Herfindahl index, which suggests that a high concentration of parliamentary seats in a few parties would increase public spending volatility.
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AB201201_e
Competition in the Portuguese Economy: a view on tradables and non-tradablesJoão Amador; Ana Cristina Soares2012Economic Bulletin ArticleBdP Publication
This article analyzes competition indicators in the Portuguese economy in the period 2000-2009, focusing on the differences between tradable and non-tradable sectors. The article computes the Herfindahl-Hirschman index and the price-cost margin, i.e., classical concentration and profitability measures, for a large set of markets. The analysis carried out is fundamentally distinct from the one conducted by competition authorities, aiming to set an overall scenario for competition developments. The article concludes that, although there are apparently no widespread problems, there is substantial room for improvements in the business competition environment in several markets, notably in the non-tradable sector.
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AB201200_e
SegmentationMário Centeno; Álvaro A. Novo2012Economic Bulletin ArticleBdP Publication
Segmentation is at the core of the problems that affect the Portuguese labor market. The ever increasing number of workers with temporary contracts, already above one ?fth of salaried workers, shares the larger burden of the unavoidable and continuous adjustments of the economy. In general, segmented markets are ineffcient; the stronger side of the market corners rents at the cost of the weak side. In labor markets, where the product transacted has independent will, the maladies of segmentation are only worse. The continuous rotation of certain workers and their comparatively lower wages generate a vicious cycle of underinvestment in education and training that traps the economy at a low-productivity equilibrium. The long-term success of the Portuguese economy rests on breaking this vicious cycle. Forming a modern labor market supported on market-based reputation mechanisms and simplifying labor relations under a single contract is the only way out and up.
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Evaluating retail banking quality service and convenience with MCDA techniques: a case study at the bank branch levelFernando A. F. Ferreira; Sérgio P. Santos; Paulo M.M. Rodrigues; Ronald W. SpahrC44 - Statistical Decision Theory; Operations Research; G21 - Banks; Other Depository Institutions; Mortgages; L25 - Firm Size and Performance; M10 - General2011Working PaperBdP Publication
The intangibility of banking services makes the evaluation of service quality and customer convenience difficult to measure. Bankers obviously recognize the importance of intangible factors, but because of pressures placed on operating margins caused by the current economic climate and chronically low margins, the evaluation of factors related to quality service becomes paramount for bank managers. Bankers, by necessity, seek to promote improvement initiatives, which will assist banks in improving their perceived costumer portfolio quality. This paper aims to construct an integrated evaluation system for retail banking service quality and convenience at the bank branch level. By combining cognitive mapping with measuring attractiveness by a categorical based evaluation technique, we strive to introduce transparency in the decision making process and add to the performance literature in retail banking. Strengths, weaknesses and practical applications of our multiple criteria evaluation system are also discussed.
Evaluating retail banking quality service and convenience with MCDA techniques: a case study at the bank branch levelApproved
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A Market-based Approach to Sector Risk Determinants and Transmission in the Euro AreaMartín SaldíasG01 - Financial Crises; G13 - Contingent Pricing; Futures Pricing; C31 - Cross-Sectional Models; Spatial Models; C33 - Models with Panel Data2011Working PaperBdP Publication
In a panel data framework applied to Portfolio Distance-to-Default series of corporate sectors in the euro area, this paper evaluates systemic and idiosyncratic determinants of default risk and examines how distress is transferred in and between the financial and corporate sectors since the early days of the euro. This approach takes into account observed and unobserved common factors and the presence of different degrees of cross-section dependence in the form of economic proximity. This paper contributes to the financial stability literature with a contingent claims approach to a sector-based analysis with a less dominant macro focus while being compatible with existing stress-testing methodologies in the literature. A disaggregated analysis of the different corporate and financial sectors allows for a more detailed assessment of specificities in terms of risk pro le, i.e. heterogeneity of business models, risk exposures and interaction with the rest of the macro environment.
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wp201129
Direct vs bottom-up approach when forecasting GDP: reconciling literature results with institutional practicePaulo Soares EstevesC32 - Time-Series Models; C53 - Forecasting and Other Model Applications; E27 - Forecasting and Simulation2011Working PaperBdP Publication
How should we forecast GDP? Should we forecast directly the overall GDP or aggregate the forecasts for each of its components using some level of disaggregation? The search for the answer continues to motivate several horse races between these two approaches. Nevertheless, independently of the results, institutions producing shortterm forecasts usually opt for a bottom-up approach. This paper uses an application for the euro area to show that the option between direct and bottom-up approaches as the level of disaggregation chosen by forecasters is not determined by the results of those races.
Economic Modelling, 2013, 33, 416-420http://www.sciencedirect.com/science/article/pii/S026499931300151XApproved
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Modeling and Forecasting Interval Time Series with Threshold Models: An Application to S&P500 Index ReturnsPaulo M.M. Rodrigues; Nazarii SalishC12 - Hypothesis Testing; C22 - Time-Series Models; C52 - Model Evaluation and Testing; C53 - Forecasting and Other Model Applications2011Working PaperBdP Publication
Over recent years several methods to deal with high-frequency data (economic, financial and other) have been proposed in the literature. An interesting example is for instance interval valued time series described by the temporal evolution of high and low prices of an asset. In this paper a new class of threshold models capable of capturing asymmetric e¤ects in interval-valued data is introduced as well as new forecast loss functions and descriptive statistics of the forecast quality proposed. Least squares estimates of the threshold parameter and the regression slopes are obtained; and forecasts based on the proposed threshold model computed. A new forecast procedure based on the combination of this model with the k nearest neighbors method is introduced. To illustrate this approach, we report an application to a weekly sample of S&P500 index returns. The results obtained are encouraging and compare very favorably to available procedures.
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The price elasticity of external demand: how does Portugal compare with other euro area countries?Sónia Cabral; Cristina ManteuF12 - Models of Trade with Imperfect Competition and Scale Economies; F14 - Country and Industry Studies of Trade2011Working PaperBdP Publication
This paper estimates the price elasticity of external demand of Portuguese exports in the period 1995-2009 and compares it with those of other euro area countries. This proxy of the export price elasticity is computed as a weighted average of the import demand elasticities in each individual country-product destination market, using the elasticities of substitution across imported varieties of Broda et al. (2006). Overall, Portugal tends to export to individual markets which have, on average, a lower price elasticity than the markets where other euro area countries export to. Therefore, the product and geographical composition of Portuguese exports reduces their exposure to relative price fluctuations.
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A Class of Robust Tests in Augmented Predictive RegressionsPaulo M.M. Rodrigues; Antonio RubiaC12 - Hypothesis Testing; C22 - Time-Series Models2011Working PaperBdP Publication
This paper focuses on the analytical discussion of a robust t-test for predictability and on the analysis of its finite-sample properties. Our analysis shows that the procedure proposed exhibits approximately correct size even in fairly small samples. Furthermore, the test is well-behaved under short-run dependence, and can exhibit improved power performance over
alternative procedures. These appealing properties, together with the fact that the test can be applied in a simple and direct way in the linear regression context, suggests that the modified t-statistic introduced in this paper is well suited for addressing predictability in empirical applications.
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The Tip of the Iceberg: A Quantitative Framework for Estimating Trade CostsAlfonso A. Irarrazabal; Andreas Moxnes; Luca David OpromollaF10 - General2011Working PaperBdP Publication
International economics has overwhelmingly relied on Samuelson's (1954) assumption that trade costs are proportional to value. We develop a quantitative analytical framework that features both additive and multiplicative (iceberg) trade costs, building on a model of international trade with heterogeneous firms and demand heterogeneity. We structurally estimate the magnitude of additive trade costs, for every product and destination available in our firm-level data of Norwegian exporters. Identification is aided by the theoretical finding that the elasticity of demand to producer price is dampened, in absolute value, when prices are low, and this mechanism is magnified when additive trade costs are high. This magnification mechanism becomes useful in
the subsequent econometric analysis. Estimated additive trade costs are substantial. On average, additive costs are 33 percent, expressed relative to the median price. This leads us to reject the pure iceberg cost assumption. We assess the importance of these costs in shaping global trade flows. Our micro estimates of additive trade costs explain most of the geographical variation in aggregate trade. An implication of our work is that inferring trade costs from standard gravity models suffers from specification bias, since these models assume away the role of additive trade costs.
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The Impact of Persistent Cycles on Zero Frequency Unit Root TestsTomás del Barrio Castro; Paulo M.M. Rodrigues; A. M. Robert TaylorC20 - General; C22 - Time-Series Models2011Working PaperBdP Publication
In this paper we investigate the impact of non-stationary cycles on the asymptotic and finite sample properties of standard unit root tests. Results are presented for the augmented Dickey-Fuller normalised bias and t-ratio-based tests (Dickey and Fuller, 1979, and Said and Dickey, 1984), the variance ratio unit root test of Breitung (2002) and the M class of unit-root tests introduced by Stock (1999) and Perron and Ng (1996). The limiting distributions of these statistics are derived in the presence of non-stationary cycles. We show that while the ADF statistics remain pivotal (provided the test regression is properly augmented), this is not the case for the other statistics considered and show numerically that the size properties of the tests based on these statistics are too unreliable to be used in practice. We also show that the t-ratios associated with lags of the dependent variable of order greater than two in the ADF regression are asymptotically normally distributed. This is an important result as it implies that extant sequential methods (see Hall, 1994 and Ng and Perron, 1995) used to determine the order of augmentation in the ADF regression remain valid in the presence of non-stationary cycles.
The Impact of Persistent Cycles on Zero Frequency Unit Root TestsApproved
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Why Ex(Im)porters Pay More: Evidence from Matched Firm-Worker PanelsPedro Martins; Luca David OpromollaF16 - Trade and Labor Market Interactions; J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.; F15 - Economic Integration2011Working PaperBdP Publication
We investigate the relationship between exporting, importing, and wage premia using a rich matched employer-employee data set. We improve on the previous literature (i) by using a new methodology to quantify the contribution of an extensive set of worker- and rm-level observable and  unobservable characteristics to the wage gap, and (ii) by controlling for the import as well as the export activity of the firm. These two innovations allow us to avoid large biases that characterized the previous literature. A robust result is that the hiring policy of exporters is quite different than the one of importers. While firm size and sales are, to different extents, important components of the wage gap both for exporters and importers, importers hire workers that are overwhelmingly more able than the average. Workers at exporting firms, on the contrary, are no different in terms of unobserved time-invariant characteristics.Our analysis provides a useful guidance for recent theories that aim at explaining participation both in export and import markets and at including non-neoclassical labor market features into trade models.
Approved
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wp201122
Money growth and inflation in the euro area: a time-frequency viewAntónio RuaC40 - General; E30 - General; E40 - General; E50 - General2011Working PaperBdP Publication
This paper provides new insights on the relationship between money growth and inflation in the euro area over the last forty years. This highly relevant link for the European Central Bank monetary policy strategy is assessed using wavelet analysis. In particular, wavelet analysis allows to study simultaneously the relationship between money growth and inflation in the euro area at the frequency level and assess how it has changed over time. The findings indicate a stronger link between inflation and money growth at low frequencies over the whole sample period. At the typical business cycle frequency range the link is only present until the beginning of the 1980’s. Moreover, there seems to be a recent deterioration of the leading properties of money growth with respect to inflation in the euro area. These results highlight the importance of a regular assessment of the role of money growth in tracking inflation developments in the euro area since such relationship varies across frequencies and over time.
Money growth and inflation in the euro area: a time-frequency viewApproved
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Housing Market Dynamics: Any News?Sandra Gomes; Caterina MendicinoC50 - General; E32 - Business Fluctuations; Cycles; E44 - Financial Markets and the Macroeconomy2011Working PaperBdP Publication
This paper quantifies the role of expectation-driven cycles for housing market fluctuations in the United States. We find that news shocks: (1) account for a sizable fraction of the variability in house prices and other macroeconomic variables over the business cycle and (2) significantly contributed to booms and busts episodes in house prices over the last three decades. By linking news shocks to agents’ expectations, we find that house prices were positively related to inflation expectations during the boom of the late 1970’s while they were negatively related to interest rate expectations during the housing boom that peaked in the mid-2000’s.
Approved
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International organisations’ vs. private analysts’ forecasts: an evaluationIldeberta AbreuE37 - Forecasting and Simulation2011Working PaperBdP Publication
This paper evaluates the performance of the macroeconomic forecasts disclosed by three leading international organisations - the IMF, the European Commission and the OECD - and compares it with that of the mean forecasts of two surveys of private analysts - the Consensus Economics and The Economist. The publication of forecasts twice a year by international organisations always receives a great deal of public attention but the timely forecasts disclosed monthly by private institutions have been gaining increased visibility. The aim of this work is to help forecast users in answering the question of how much (little) confidence they should place in the alternative forecasts that are available at each moment. The evaluation covers real GDP growth and inflation projections for nine main advanced economies, over the period 1991-2009. Several evaluation criteria are used. The quantitative accuracy of forecasts is assessed and their unbiasedness and efficiency is tested. The directional accuracy of forecasts and the ability to predict economic recessions are also examined. The results suggest that the forecasting performance of the international organisations is broadly similar to that of the surveys of private analysts. By and large, current-year forecasts present desirable features and clearly outperform year-ahead forecasts for which evidence is more mixed both in terms of quantitative and qualitative accuracy.
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Asset Returns Under Model Uncertainty: Evidence from the euro area, the U.K. and the U.S.João Sousa; Ricardo M. SousaE21 - Consumption; Saving; G11 - Portfolio Choice; E44 - Financial Markets and the Macroeconomy2011Working PaperBdP Publication
The goal of this paper is to analyze predictability of future asset returns in the context of modeluncertainty. Using data for the Euro Area, the US and the U.K., we show that one can improve the forecasts of stock returns using a Bayesian Model Averaging (BMA) approach, and there is a large amount of model uncertainty.
The empirical evidence for the Euro Area suggests that several macroeconomic, financial and macro-financial variables are consistently among the most prominent determinants of risk premium.As for the US, only a few number of predictors play an important role. In the case UK, future stock returns are better forecasted by financial variables. These results are corroborated for both the M-open and the M-closed perspectives and in the context of "in-sample" and out-of-sample" forecasting. Finally, we highlight that the predictive ability of the BMA framework is stronger at longer periods, and clearly outperforms the constant expected returns and the autoregressive benchmark models.
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wp201118.pdf
wp201118
Money is an experience good: competition and trust in the private provision of moneyRamon Marimon; Juan Pablo Nicolini; Pedro TelesE40 - General; E50 - General; E58 - Central Banks and Their Policies; E60 - General2011Working PaperBdP Publication
We study the interplay between competition and trust as efficiency enhancing mechanisms in the private provision of money. With commitment, trust is automatically achieved and competition ensures efficiency. Without commitment, competition plays no role. Trust does play a role but requires a bound on efficiency. Stationary inflation must be non-negative and, therefore, the Friedman rule cannot be achieved.
The quality of money can only be observed after its purchasing capacity is realized. In that sense money is an experience good.
Approved
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wp201117.pdf
wp201117
Banks’ corporate control and relationship lending: evidence from retail loansPaula Antão; Miguel A. Ferreira; Ana LacerdaG21 - Banks; Other Depository Institutions; Mortgages; G34 - Mergers; Acquisitions; Restructuring; Corporate Governance2011Working PaperBdP Publication
Universal banks can have control over borrowers by holding equity stakes in the borrower firm. Banks’ corporate control is likely to increase the likelihood of providing a future loan as they mitigate information asymmetry and agency costs of debt. Using panel data on Portuguese companies, we find that a bank corporate control enhances the probability of providing a future loan by 10 percentage points relative to a relationship lender with no control. This finding is robust to the inclusion of many firm-level controls, including firm fixed effects, and to instrumental variable methods to correct for the potential endogeneity of banks’ equity stakes in borrower firms. Consistent with our hypotheses, the effect is significantly higher for borrowers with greater information asymmetry, while the effect is lower when the borrower has multiple lending relationships or multiple banks as shareholders. Our results suggest banks’ corporate control affect the choice of the lender in the corporate loan market.
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201,117
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Moment conditions model averaging with an application to a forward-looking monetary policy reaction functionLuis F. MartinsC22 - Time-Series Models; C52 - Model Evaluation and Testing; E43 - Determination of Interest Rates; Term Structure of Interest Rates; E52 - Monetary Policy (Targets, Instruments, and Effects)2011Working PaperBdP Publication
In this paper, we examine the empirical validity of the baseline version of the forward-looking monetary policy reaction function proposed by Clarida, Gali, and Gertler (2000). For that purpose, we propose a moment conditions model averaging estimator in the Generalized Method of Moments and Generalized Empirical Likelihood setups. We derive some of their asymptotic properties under correctly specified and misspecified models. Although the model averaging estimates and the standard procedures point to a stabilizing policy rule during the Paul Volcker and Alan Greenspan tenures but not so during the pre-Volker period, our results cast serious doubts on the significance of the cyclical output variable as a forcing variable in the FED funds dynamics during the Volcker-Greenspan period.
Approved
201,116
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On the amplification role of collateral constraintsCaterina MendicinoE20 - General; E3 - Prices, Business Fluctuations, and Cycles; E21 - Consumption; Saving2011Working PaperBdP Publication
How important are collateral constraints for the propagation and amplification of shocks? To address this question, we analyze a stochastic general equilibrium version of the model by Kiyotaki and Moore (JPE, 1997) in which all agents face concave production and utility functions and are generally identical, except for the subjective discount factor. We document that the existence of costly debt enforcement plays an important role in the endogenous amplification generated by the model. Limiting the amount of borrowing up to a reasonable fraction of the value of the collateral asset, makes the amplification generated by collateral constraints sizable and significantly larger than what we observe either in the representative agent version of the model, or in the version of the model where inefficiencies in the liquidation of the collateralized asset are neglected.
On the amplification role of collateral constraintsApproved
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Rational vs. Professional ForecastsJoão Valle e Azevedo; João Tovar JallesC32 - Time-Series Models; C53 - Forecasting and Other Model Applications; C68 - Computable General Equilibrium Models; E12 - Keynes; Keynesian; Post-Keynesian; E13 - Neoclassical; E17 - Forecasting and Simulation2011Working PaperBdP Publication
We compare theoretical and empirical forecasts computed by rational agents living in a model economy to those produced by professional forecasters. We focus on the variance of the prediction errors as a function of the forecast horizon and analyze the speed with which it converges to a constant (which can be seen as a measure of the speed of convergence of the economy to the steady state). We look at a standard sticky-prices-wages model, concluding that it delivers a strong theoretical forecastability of the variables under scrutiny, at odds with the data (professional forecasts). The flexible prices-wages version delivers a forecastability closer to the data and performs relatively better empirically (with actual data), but mainly because forecasts deviate little from the unconditional mean. These results can be interpreted in at least two ways: first, actual deviations from the steady-state are not persistent, in which case the implications of the specific formulation of nominal rigidities for short-run dynamics are unrealistic; second, and still looking through the lens of a model, exogenous (or unmodelled) steady-state shifts attributable to, e.g., changes in monetary-policy, taxation, regulation or in the growth of the technological frontier, occur in such a way as to strongly limit the performance of professional forecasters.
 
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wp201113
Structural reforms and macroeconomic performance in the euro area countries: a model-based assessmentSandra Gomes; P. Jacquinot; M. Mohr; M. PisaniC53 - Forecasting and Other Model Applications; E52 - Monetary Policy (Targets, Instruments, and Effects); F47 - Forecasting and Simulation2011Working PaperBdP Publication
We quantitatively assess the macroeconomic effects of country-specific supply-side reforms in the euro area by simulating a large scale multi-country dynamic general equilibrium model. We consider reforms in the labor and services markets of Germany (or, alternatively, Portugal) and the rest of the euro area. Our main results are as follows. First, there are benefits from implementing unilateral structural reforms. A reduction of markup by 15 percentage points in the German (Portuguese) labor and services market would induce an increase in the long-run German (Portuguese) output equal to 8.8 (7.8) percent. As reforms are implemented gradually over a period of five years, output would smoothly reach its new long-run level in seven years. Second, cross-country coordination of reforms would add extra benefits to each region in the euro area, by limiting the deterioration of relative prices and purchasing power that a country faces when implementing reforms unilaterally. This is true in particular for a small and open economy such as Portugal. Specifically, in the long run German output would increase by 9.2 percent, Portuguese output by 8.6 percent. Third, cross-country coordination would make the macroeconomic performance of the different regions belonging to the euro area more homogeneous, both in terms of price competitiveness and real activity. Overall, our results suggest that reforms implemented apart by each country in the euro area produce positive effects, cross-country coordination produces larger and more evenly distributed (positive) effects.
Structural reforms and macroeconomic performance in the euro area countries: a model-based assessmentApproved
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Determinants of the EONIA spread and the financial crisisCarla Soares; Paulo M.M. RodriguesE43 - Determination of Interest Rates; Term Structure of Interest Rates; E52 - Monetary Policy (Targets, Instruments, and Effects); G21 - Banks; Other Depository Institutions; Mortgages2011Working PaperBdP Publication
The financial markets turmoil of 2007-09 impacted on the overnight segment, which is the first step of monetary policy implementation. We model the volatility of the EONIA spread as an EGARCH. However, the nature of the EGARCH considered will be different in the period before the fixed rate full allotment policy of the ECB (2004 - 2008) where we follow the approach of Hamilton (1996) and in the period afterwards (2008 - 2009) where a conventional EGARCH seems sufficient to capture the behaviour of volatility. The results suggest a greater difficulty during the turmoil for the ECB to steer the level of the EONIA spread relative to the main reference rate. The liquidity effect has been reduced since 2007 and in particular since the full allotment policy at the refinancing operations. On the other hand, the liquidity policy and especially the provision of long-term liquidity followed was effective in reducing market volatility. Liquidity provision conditions were also found to have influenced the EONIA spread only since the financial market turmoil. Fine-tuning operations contributed to stabilize money market conditions, especially during the turmoil. The EGARCH parameter estimates also suggest a structural change in the behaviour of the EONIA spread in reaction to shocks.
Determinants of the EONIA spread and the financial crisisApproved
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Assessing monetary policy in the euro area: a factor-augmented VAR approachRita SoaresC32 - Time-Series Models; E52 - Monetary Policy (Targets, Instruments, and Effects); E58 - Central Banks and Their Policies2011Working PaperBdP Publication
In order to overcome the omitted information problem of small-scale vector autoregression (VAR) models, this study combines the VAR methodology with dynamic factor analysis and assesses the effects of monetary policy shocks in the euro area in the period during which there is a single monetary policy. Using the factor-augmented vector auto-regressive (FAVAR) approach of Bernanke et al. (2005), we summarise the information contained in a large set of macroeconomic time series with a small number of estimated factors and use them as regressors in recursive VARs to evaluate the impact of the non-systematic component of the ECB’s actions. Overall, our results suggest that the inclusion of factors in the VAR allows us to obtain a more coherent picture of the effects of monetary policy innovations, both by achieving responses easier to understand from the theoretical point of view and by increasing the precision of such responses. Moreover, this framework allows us to compute impulse-response functions for all the variables included in the panel, thereby providing a more complete and accurate depiction of the effects of policy disturbances. However, the extra information generated by the FAVAR also delivers some puzzling responses, in particular those relating to exchange rates.
 
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Energy content in manufacturing exports: a cross-country analysisJoão AmadorF10 - General; F14 - Country and Industry Studies of Trade; Q40 - General2011Working PaperBdP Publication
This paper compares the energy content in manufacturing exports in a set of 30 advanced and emerging economies and examines its evolution from 1995 to 2005. The paper combines
information from the OECD input-output matrices and international trade data in 18 manufacturing sectors. Energy inputs are defined as those from sectors “coke, refined petroleum products
and nuclear fuel” and “electricity, gas and water supply”. In addition, the value of energy inputs that is required for the production of one unit of output in a given manufacturing sector is defined
as the corresponding sector's coefficient in the inverse Leontief matrix. Finally, these coefficients are weighted according to sectors' shares in countries' total manufacturing exports. The
resulting indicator for the energy content of manufacturing exports is compared across countries in periods where comparable input-output matrices exist. The paper also suggests a
methodology to disentangle the effects attributable to the structure of manufacturing exports and sectoral energy efficiency, presenting results according to technological categories. The
paper concludes that Brazil, India and, mostly, China, present a high energy content in manufacturing exports, which has increased from 1995 to 2005. Conversely, many advanced
economies, notably in Europe and North America, which showed energy contents below the world average in 1995, reinforced their position as relatively low energy intensive economies. The
contribution of trade specialization and energy efficiency effects to explain differences in the energy content of exports draws attention to the situation of China. This country increased its
relative energy usage in the exports of all technological categories of goods. Nevertheless, this effect was reinforced by the stronger export specialization in high-tech products and a
comparatively lower specialization in medium-high-tech products.
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wp201109.pdf
wp201109
Price and wage setting in Portugal learning by askingFernando MartinsD21 - Firm Behavior; E30 - General; J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.2011Working PaperBdP Publication
This paper presents the main findings of a survey conducted on a sample of Portuguese firms. The main aim was to identify some relevant characteristics about the dynamics of prices and
wages in Portugal. The most important conclusions are: i) changes to wages are more synchronized than changes to prices; ii) most wages are defined using inflation as a yardstick, even
though there are no formal rules; iii) the wages of most workers are defined in terms of sector-related collective agreements; iv) a considerable proportion of workers receive wages above
those been agreed under the collective agreement; v) firms make frequent use of other mechanisms to cut payroll costs as a way of overcoming the restrictions imposed by downward
nominal wage rigidity.
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Leaning Against Boom-Bust Cycles in Credit and Housing PricesLuisa Lambertini; Caterina Mendicino; Maria Tereza PunziE32 - Business Fluctuations; Cycles; E44 - Financial Markets and the Macroeconomy; E52 - Monetary Policy (Targets, Instruments, and Effects)2011Working PaperBdP Publication
This paper studies the potential gains of monetary and macro-prudential policies that lean against news-driven boom-bust cycles in housing prices and credit generated by expectations of future macroeconomic developments. First, we find no trade-off between the traditional goals of monetary policy and leaning against boom-bust cycles. An interest-rate rule that completely stabilizes inflation is not optimal. In contrast, an interest-rate rule that responds to financial variables mitigates macroeconomic and financial cycles and is welfare improving relative to the estimated rule. Second, counter-cyclical Loan-to-Value rules that respond to credit growth do not increase inflation volatility and are more effective in maintaining a stable provision of financial intermediation than interest-rate rules that respond to financial variables. Heterogeneity in the welfare implications for borrowers and savers make it difficult to rank the two policy frameworks.
Leaning Against Boom-Bust Cycles in Credit and Housing Prices Approved
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Why Are Some Prices Stickier Than Others? Firm-Data Evidence on Price Adjustment LagsDaniel Dias; Carlos Robalo Marques; Fernando Martins; J.M.C.Santos SilvaC41 - Duration Analysis; D40 - General; E31 - Price Level; Inflation; Deflation2011Working PaperBdP Publication
Infrequent price changes at the firm level are now well documented in the literature. However, a number of issues remain partly unaddressed. This paper contributes to the literature on price stickiness by investigating the lags of price adjustments to different types of shocks. We find that adjustment lags to cost and demand shocks vary with firm characteristics, namely the firm’s cost structure, the type of pricing policy, and the type of good. We also document that firms react asymmetrically to demand and cost shocks, as well as to positive and negative shocks, and that the degree and direction of the asymmetry varies across firms.
Why Are Some Prices Stickier Than Others? Firm-Data Evidence on Price Adjustment LagsApproved
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Choosing Between Time and State Dependence: Micro Evidence on Firms' Price-Reviewing StrategiesDaniel Dias; Carlos Robalo Marques; Fernando MartinsC41 - Duration Analysis; D40 - General; E31 - Price Level; Inflation; Deflation2011Working PaperBdP Publication
Thanks to recent findings based on survey data, it is now well known that firms differ from each other with respect to their price-reviewing strategies. While some firms review their prices at fixed intervals of time, others prefer to perform price revisions in response to changes in economic conditions. In order to explain this fact, some theories have been suggested in the literature. However, empirical evidence on the relative importance of the factors determining firms' different strategies is virtually nonexistent. This paper contributes to filling this gap by investigating the factors that explain why firms follow time-, state- or time- and state-dependent price-reviewing rules. We find that firms' strategies vary with firm characteristics that have a bearing on the importance of information costs, the variability of the optimal price and the sensitivity of profits to non-optimal prices. Menu costs, however, do not seem to play a significant role.
Choosing Between Time and State Dependence: Micro Evidence on Firms' Price-Reviewing StrategiesApproved
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Fiscal Consolidation in a Small Euro Area EconomyVanda Almeida; Gabriela Lopes de Castro; Ricardo Mourinho Félix; José R. MariaE62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation; F41 - Open Economy Macroeconomics; H62 - Deficit; Surplus2011Working PaperBdP Publication
This article focuses on the costs and benefits of a fiscal consolidation in a small euro area economy. The macroeconomic impacts and the welfare analysis are conducted in a New-Keynesian general equilibrium model with non-Ricardian agents. We define a benchmark fiscal consolidation strategy based on a permanent reduction in Government expenditure. We find that, over the long run, fiscal consolidation leads to a considerable increase in the level of output and consumption, and is welfare improving. In addition, the gains are boosted if the fiscal strategy also involves a tax reform that shifts the tax burden away from labour income towards the final goods consumption. However, important short-run costs arise, notably output, consumption and welfare losses. Finally, we assess the effect of alternative fiscal consolidation paths in terms of the degree of front loading, the speed of its completion and the interaction with risk premium.
Approved
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Managers’ Mobility, Trade Status, and WagesGiordano Mion; Luca David OpromollaF10 - General; L25 - Firm Size and Performance; J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.; J60 - General; M50 - General2011Working PaperBdP Publication
This paper investigates whether the arrival of managers with export experience, i.e. experience acquired through participation in the export activity of previous employers, is related to firms’ international trade status and to what extent this relationship is of a causal nature. We construct a worker-firm matched panel dataset which enables us to track managers across different firms over time and observe firms’ trading stance as well as a large set of workers’ and firms’ characteristics. Contrary to blue and white collars, we find that managers are paid a sizeable premium for export experience which has both a level and a trend component. Conditioning for the firm past trade status, we find that a one standard deviation increase in the firm’s share of managers’ with export experience corresponds to about 35% more chances of starting to export. The impact is stronger for larger firms and is roughly of the same order of magnitude of the firm productivity effect. On the contrary, export experience acquired by managers from previous employers positively affects the capacity to keep exporting in small firms only. To give a causality flavor to our findings, we use in a final step an IV strategy that mimics a random matching between managers with export experience and firms. IV estimations indicate that export experience matters even more for entry while it has no effect on exit.
Approved
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Unconventional Fiscal Policy at the Zero BoundIsabel Horta Correia; Emmanuel Farhi; Juan Pablo Nicolini; Pedro TelesE31 - Price Level; Inflation; Deflation; E40 - General; E52 - Monetary Policy (Targets, Instruments, and Effects); E58 - Central Banks and Their Policies; E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation; E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization2011Working PaperBdP Publication
When the zero lower bound on nominal interest rates binds, monetary policy cannot provide appropriate stimulus. We show that in the standard New Keynesian model, tax policy can deliver such stimulus at no cost and in a time-consistent manner. There is no need to use inefficient policies such as wasteful public spending or future commitments to inflate. We conclude that in the New Keynesian model, the zero bound on nominal interest rates is not a relevant constraint on both .fiscal and monetary policy.
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wp201102
Is the World Spinning Faster? Assessing the Dynamics of Export SpecializationJoão AmadorC14 - Semiparametric and Nonparametric Methods; F14 - Country and Industry Studies of Trade; F15 - Economic Integration2011Working PaperBdP Publication
The article suggests a methodology to measure the intra-distribution dynamics of export specialization and applies it to a large set of countries in the last four decades. The article contributes to the literature on the dynamics of international trade specialization, making use of the information contained in the distribution of specialization indices, as initially suggested in Proudman and Redding (1997, 2000). In addition, the article makes use of conditional kernel densities and highest density regions to measure persistency/mobility in way that is applicable to other studies. Finally, the article empirically tests the determinants of specialization dynamics. The results reveal that there is considerable export specialization dynamics and heterogeneity across countries. In addition, it seems that the export specialization dynamics decelerated in most countries from 1967-1994 to 1980-2008 and there is a significant positive correlation between the indicators in the two periods. The econometric formulations reveal that higher human capital, improvement in infrastructures and macroeconomic stability seem to increase specialization dynamics.
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What Happens After Default? Stylized Facts on Access to CreditDiana Bonfim; Daniel Dias; Christine RichmondC41 - Duration Analysis; G21 - Banks; Other Depository Institutions; Mortgages; G32 - Financing Policy; Capital and Ownership Structure; G33 - Bankruptcy; Liquidation2011Working PaperBdP Publication
In this paper we investigate what happens to firms after they default on their bank loans. We approach this question by establishing a set of stylized facts concerning the evolution of default and its resolution, focusing on access to credit after default. Using a unique dataset from Portugal, we observe that half of the default episodes last 5 quarters or less and that larger firms have shorter default periods. Most firms continue to have access to credit immediately after default, though only a minority has access to new loans. Firms have more difficulties in regaining access to credit if they are small, if their default was long and severe, if they borrow from only one bank or if they default with their main lender. Further, half of the defaulting firms record another default in the future. We observe that firms with repeated defaults are, on average, smaller and have experienced longer and more severe defaults.
What happens after corporate default? Stylized facts on access to credithttp://www.sciencedirect.com/science/article/pii/S0378426612000696Approved
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wp201011
The Effects of Additive Outliers and Measurement Errors when Testing for Structural Breaks in VariancePaulo M.M. Rodrigues; Antonio RubiaC12 - Hypothesis Testing; C15 - Statistical Simulation Methods; Monte Carlo Methods; C52 - Model Evaluation and Testing2011Working PaperBdP Publication
This paper discusses the asymptotic and finite-sample properties of CUSUM-based tests for detecting structural breaks in volatility in the presence of stochastic contamination, such as additive outliers or measurement errors. This analysis is particularly relevant for financial data, on which these tests are commonly used to detect variance breaks. In particular, we focus on the tests by Inclán and Tiao [IT] (1994) and Kokoszka and Leipus [KL] (1998, 2000), which have been intensively used in the applied literature. Our results are extensible to related procedures. We show that the asymptotic distribution of the IT test can largely be affected by sample contamination, whereas the distribution of the KL test remains invariant. Furthermore, the break-point estimator of the KL test renders consistent estimates. In spite of the good large-sample properties of this test, large additive outliers tend to generate power distortions or wrong break-date estimates in small samples.
The Effect of Additive Outliers and Measurement Errors when Testing for Structural Breaks in VarianceApproved
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WP200910.pdf
WP200910
Real Wages and the Business Cycle: Accounting for Worker and Firm HeterogeneityAnabela Carneiro; Paulo Guimarães; Pedro PortugalJ31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.; E24 - Employment; Unemployment; Wages; E32 - Business Fluctuations; Cycles2011Working PaperBdP Publication
Using a longitudinal matched employer-employee data set for Portugal over the 1986-2005 period, this study analyzes the heterogeneity in wages responses to aggregate labor market conditions for newly hired workers and existing workers. Accounting for both worker and firm heterogeneity, the data support the hypothesis that entry wages are much more procyclical than current wages. A one-point increase in the unemployment rate decreases wages of newly hired male workers by around 2.8% and by just 1.4% for workers in continuing jobs. Since we estimate the fixed effects, we were able to show that unobserved heterogeneity plays a non-trivial role in the cyclicality of wages. In particular, worker fixed effects of new hires and separating workers behave countercyclically, whereas firm fixed effects exhibit a procyclical pattern. Finally, the results reveal, for all workers, a wage-productivity elasticity of 1.2, slightly above the one-for-one response predicted by the Mortensen-Pissarides model.
Real Wages and the Business Cycle: Accounting for Worker, Firm, and Job-Title HeterogeneityApproved
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The public sector pay gap in a selection of Euro area countriesRaffaela Giordano; Domenico Depalo; Manuel Coutinho Pereira; Bruno Eugène; Evangelia Papapetrou; Javier J. Perez; Lukas Reiss; Mojca Roter2011OtherOther Publication
The public sector pay gap in a selection of Euro area countriesApproved
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From traditional operational research to multiple criteria decision analysis: basic ideas on an evolving fieldPaulo M.M. Rodrigues; Fernando A. F. Ferreira; Sérgio P. Santos2011OtherOther Publication
From traditional operational research to multiple criteria decision analysis: basic ideas on an evolving fieldApproved
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Threshold effects in credit risk and stress scenariosPaulo M.M. Rodrigues; T.M.T. Nunes2011OtherOther Publication
Threshold effects in credit risk and stress scenariosApproved
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Why are some prices stickier than others? Firm-data evidence on price adjustment lagsDaniel Dias; Carlos Robalo Marques; Fernando Martins; J.M.C.Santos Silva2011OtherOther Publication
Why are some prices stickier than others? Firm-data evidence on price adjustment lagsApproved
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Chooosing between time and state dependence: micro evidence on firms' price-reviewing strategiesDaniel Dias; Carlos Robalo Marques; Fernando Martins2011OtherOther Publication
Chooosing between time and state dependence: micro evidence on firms' price-reviewing strategiesApproved
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Fiscal Institutions and Public Spending Volatility in EuropeBruno Albuquerque2011OtherOther Publication
Fiscal Institutions and Public Spending Volatility in Europehttp://www.sciencedirect.com/science/article/pii/S0264999311001891Approved
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A wavelet approach for factor-augmented forecastingAntónio Rua2011OtherOther Publication
A wavelet approach for factor-augmented forecastingApproved
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Are ATM/POS Data Relevant When Nowcasting Private Consumption?Paulo Soares Esteves2011OtherOther Publication
Are ATM/POS Data Relevant When Nowcasting Private Consumption?Approved
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Adding Value to Bank Branch Performance Evaluation Using Cognitive Maps and MCDA: A Case StudyFernando A. F. Ferreira; Sérgio P. Santos; Paulo M.M. Rodrigues2011OtherOther Publication
Adding Value to Bank Branch Performance Evaluation Using Cognitive Maps and MCDA: A Case StudyApproved
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On LM-Type Tests for Seasonal Unit Roots in the Presence of a Break in TrendLuís Catela Nunes; Paulo M.M. Rodrigues2011OtherOther Publication
On LM-Type Tests for Seasonal Unit Roots in the Presence of a Break in TrendApproved
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Real Wages and the Business Cycle: Accounting for Worker and Firm HeterogeneityAnabela Carneiro; Paulo Guimarães; Pedro PortugalJ31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.; E24 - Employment; Unemployment; Wages; E32 - Business Fluctuations; Cycles2011OtherOther Publication
Real Wages and the Business Cycle: Accounting for Worker, Firm, and Job-Title HeterogeneityApproved
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A Simple Cross-Country Index of Trade SpecializationJoão Amador; Sónia Cabral; José R. Maria2011OtherOther Publication
A Simple Cross-Country Index of Trade Specializationhttp://www.springerlink.com/content/3767gu54t1j74774/Approved
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The Transmission of Monetary and Technology Shocks in the Euro AreaNuno Alves; José Brandão de Brito; Sandra Gomes; João Sousa2011OtherOther Publication
The Transmission of Monetary and Technology Shocks in the Euro AreaApproved
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Macroeconomic Implications of Greater Competition in the Euro AreaSandra Gomes2011OtherOther Publication
Macroeconomic Implications of Greater Competition in the Euro AreaApproved
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A Multivariate Band-Pass Filter For Economic Time SeriesJoão Valle e Azevedo2011OtherOther Publication
A Multivariate Band-Pass Filter For Economic Time SeriesApproved
1
AR201106_e.pdf
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Modelling the Evolution of Households’ DefaultsNuno Alves; Nuno Ribeiro2011Financial Stability Report ArticleBdP Publication
The implementation of stress tests requires, inter alia, having available instruments to project losses in credit portfolios, in particular under different macroeconomic scenarios. This article presents empirical regularities between measures of credit risk in banks’ portfolios and macro-economic variables. Two econometric models are estimated, respectively for the mortgage segments (loans to households for housing purpose) and loans for consumption and other purposes.
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The Behaviour of Domestic and non Domestic Banks in the Housing Credit Market: an Analysis Based on Microeconomic DataSónia Costa; Luisa Farinha2011Financial Stability Report ArticleBdP Publication
Non-domestic financial institutions have played an important role in smoothing the process of deleveraging of the Portuguese economy, contributing in particular to a minor slowdown in housing credit. The weight of new loans extended by non-domestic banks increased significantly throughout 2010. In addition, the non-domestic banks have charged lower interest rates on new loans than domestic banks. The difference between the rates for both types of institutions has increased in mid-2010, with the deepening of the sovereign debt crisis. In this paper we use microeconomic data on new loans for house purchase to examine whether the domestic and non-domestic banks behave differently regarding the tightness of their credit standards. The results suggest that domestic banks are more sensitive to the riskiness of borrowers than the non-domestic. This behaviour seems to have been more marked in the period in which the difference between interest rates charged by domestic and non-domestic banks widened.
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AR201104_e.pdf
AR201104_e
Towards a CCA-based Systemic Risk IndicatorNuno Silva; Nuno Ribeiro; António R. Antunes2011Financial Stability Report ArticleBdP Publication
This paper presents the foundations of a new systemic risk indicator based on contingent claim analysis. The proposed model adapts Gray, Merton and Bodie (2007) methodology to the characteristics of euro area countries. Based on sector balance sheets and assuming a totally marked to market shock transmission mechanism, our methodology consists in estimating all sets of shocks able to deplete the equity base of at least one sector. The probability of these shocks happening is then estimated. The methodology is applied to Portugal for the period between 2002 and 2010. We considered shocks in seven dimensions, notably, shocks in some sectors equity (non-financial corporations, financial institutions, insurance companies and the general government) and liabilities (non-financial corporations, households). Shocks in households’ mortgages were distinguished from the remaining. The proposed indicator points to a substantial level of systemic risk since the end of 2007.
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AR201103_e.pdf
AR201103_e
Estimating the impact of bank mergers: an application to the Portuguese banking systemDiana Bonfim; Pedro Pita Barros; Moshe Kim; Nuno C. Martins2011Financial Stability Report ArticleBdP Publication
Most studies assessing the impact of bank mergers analyze the differential impact of these processes on a number of variables that characterize the banking system. However, this approach has important limitations, ignoring endogenous changes in market structure that might occur after the merger. This article analyzes the impact on credit markets of a number of bank mergers in the Portuguese banking system using this methodology usually employed in the literature, as well as an alternative methodology based on the estimation of a structural model, which allows for the derivation of a counterfactual scenario. In this framework it becomes possible to evaluate, using this structural model, what would have happened if the mergers had not occurred. We find that these mergers have contributed to a decrease in loan interest rates larger than what could have been anticipated. The flow of credit to non financial firms was larger than what was suggested by the combination of the pre-merger equilibrium with the post-merger environment. In contrast, the flow of loans to households was lower than expected, even though the loans granted to this sector have recorded a significant growth during the period analysed.
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AR201102_e.pdf
AR201102_e
Bank loans and banks’ corporate control: evidence for PortugalPaula Antão; Miguel A. Ferreira; Ana Lacerda2011Financial Stability Report ArticleBdP Publication
Banks’ corporate control of firms is likely to increase the likelihood of providing a future loan as it mitigates information asymmetry and agency costs of debt. Using a sample of retail loans to Portuguese firms, we find that a bank corporate control enhances the probability of providing a future loan by 10 percentage points relative to a relationship lender with no control. This finding is robust to the inclusion of many firm-level controls and to instrumental variable methods to correct for the potential endogeneity of banks’ equity stakes in borrower firms. The effect is lower when the borrower has multiple lending relationships or multiple banks as shareholders. Our results suggest that banks’ corporate control affect the choice of the lender in the corporate loan market.
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AR201101_e.pdf
AR201101_e
Debt and extinction of firmsAntónio R. Antunes; José Mata; Pedro Portugal2011Financial Stability Report ArticleBdP Publication
The fact that a firm comes to the end of its activity through bankruptcy may be traumatic for its creditors. A firm which stops trading and voluntarily pays off its debts will rarely represent a significant economic problem. In this article we shall endeavour to validate the theoretical results which, in general, show that the higher the debt the greater the probability of exit through bankruptcy and lower the probability of voluntary liquidation. Using data from the Central Credit Register and staff payrolls, we show that all things being equal, a firm with double the amount of debt in comparison to another will have a 25 per cent higher annual probability of exit through bankruptcy, whereas the probability, in the case of exit through voluntary liquidation, will fall to 5 per cent. These results have evident implications for the pricing of loans to non-financial corporations in debt, owing to the fact that the higher the probabilities of exit, the higher the credit spreads.
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AB201116_e.pdf
AB201116_e
Sectoral credit risk in the euro areaMartín Saldías2011Economic Bulletin ArticleBdP Publication
This article outlines a method to compute market-based corporate default risk indicators at sectoral level and evaluates systemic and idiosyncratic determinants of default risk. This approach takes into account observed and unobserved common factors and the presence of different degrees of cross-section dependence in the form of economic proximity. The results contribute to the financial stability literature with a contingent claims approach to a sector-based analysis with a less dominant macro focus while being compatible with existing stress-testing methodologies in the literature. A disaggregated analysis of the different corporate and financial sectors allows for a more detailed assessment of specificities in terms of sectoral risk profile, i.e. heterogeneity of business models, risk exposures and interaction with the rest of the macro environment.
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AB201115_e.pdf
AB201115_e
Public-private wage gaps in the period prior to the adoption of the euro: an application based on longitudinal dataMaria Manuel Campos; Mário Centeno2011Economic Bulletin ArticleBdP Publication
This paper analyses the evolution of public wages and the public-private wage gaps in the period prior to the adoption of the euro in the countries then engaged on the fulfillment of the Maastricht criteria. The results suggest a relative moderation in the growth of public sector wages in several European countries in the 1990s and the existence of a positive wage differential benefiting public employees that appears to have increased along the period. Therefore, the fact that European countries were undertaking efforts to comply with the requirements for adopting the single currency does not seem to have contributed to the reduction of the wage premium that the literature has typically associated with public sector employment. It is noteworthy that the countries where the wage differential is higher are Portugal, Ireland, Greece and Spain. This differential is, to a large extent, an actual wage premium associated with the public sector, but self-selection effects determining that the best workers prefer the public sector cannot be neglected. Nevertheless, the wage premia tend to be smaller in the case of individuals with higher earnings, making it difficult for the public sector to attract the more qualified workers. This difficulty may be worsened by across-the-board measures to reduce wages and employees.
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AB201114_e.pdf
AB201114_e
A comparison of the cyclical evolution of various geographic areas of reference with PortugalRaul Filipe C. Guerreiro; Paulo C. Rodrigues; Jorge M. L. G. Andraz2011Economic Bulletin ArticleBdP Publication
This article evaluates the existing relative degree of association among several developed economies, including Portugal. Using the Kalman filter the cyclical evolution of GDP in Portugal is compared with the cyclical evolution of GDP from several other economies of reference, such as the euro area, France, Germany, Greece, Ireland, Italy, Japan, Spain, the UK and the US.
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AB201113_e.pdf
AB201113_e
Fiscal devaluationIsabel Horta Correia2011Economic Bulletin ArticleBdP Publication
This article discusses the state of the art relatively to policy makers decisions when the use of the nominal exchange rate is no more feasible. Namely we describe the existence of a set of instruments, conventional fiscal instruments, which under rather strict conditions, can replicate the effects of a nominal devaluation. However this is a relevant question when there is no doubt on the desirability to use the exchange rate as a policy instrument. Therefore, the two question will be jointly addressed in this article.
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AB201112_e.pdf
AB201112_e
The Quarterly National Accounts in real-time: an analysis of the revisions over the last decadeFátima Cardoso; António Rua2011Economic Bulletin ArticleBdP Publication
In this article, the revisions of the Portuguese Quarterly National Accounts over the last decade are analyzed. We assess the real-time behaviour of GDP estimates and corresponding expenditure and supply side components. In particular, we focus on the revisions up to one year after the release of the first estimate as well as on the revisions resulting from the inclusion of the Annual National Accounts. In the case of GDP, the reliability of the flash estimate, more recently made available by INE, is also assessed. The results for GDP suggest that the revisions up to one year are not significant although the revisions can be larger when the Annual National Accounts are included. The expenditure components related with external trade present the largest revisions while the supply side estimates are more fragile than those from the expenditure side.
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AB201111_e.pdf
AB201111_e
An analysis of Portuguese students’ performance in the OECD Programme for International Student Manuel Coutinho Pereira2011Economic Bulletin ArticleBdP Publication
This study focuses on the evolution of the scores of Portuguese students in PISA cycles from 2003 to 2009. It may be concluded that the variation in scores is strongly influenced by changes in the family background of students and other variables, such as the distribution of students by degrees. The sampling methods used for data collection under the programme tend to amplify
these changes. When such factors are taken into account for the analysis, holding constant the score determinants, there has been a continued improvement in student performance over the cycles considered.
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AB201110_e.pdf
AB201110_e
The impact of the minimum wage on low-wage earnersMário Centeno; Cláudia Duarte; Álvaro A. Novo2011Economic Bulletin ArticleBdP Publication
This paper estimates the impact of increases in the minimum wage on employment stability, wages and inequality in Portugal. We use data from 2002 to 2010; from 2002 to 2006 the real minimum wage was stable, but it increased quite substantially afterwards. Lower-tail wage inequality widen up to 2006 and declined strongly afterwards. The results point towards a negative
employment elasticity for workers whose initial wage is between the old and the new minimum wages. This elasticity is similar to the one obtained in the US, a country with a low minimum wage when compared to the average wage, and smaller than the one obtained for France, a country with a high minimum wage. The wage elasticity to the minimum wage is naturally higher for workers earning exactly the old minimum wage. The wages of all other workers remain unaffected. These results point to a detrimental effect of minimum wage increases for employment stability of low-wage workers, with only minor gains in terms of wages.
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AB201109_e.pdf
AB201109_e
Stabilization Policy and Boom-Bust Cycles - Monetary and Macro-Prudential RulesCaterina Mendicino; Maria Tereza Punzi2011Economic Bulletin ArticleBdP Publication
The recent financial crisis has posed a challenge to the conduct of financial stability and
monetary policy. The international debate mainly focused on the potential benefits of reducing
pro-cyclicality in financial intermediation in order to avoid boom and bust cycles in the supply of credit. We study the stabilization benefits of macro-prudential and monetary policy rules that react to an indicator of financial imbalances. In particular, we investigate the benefits of dampening credit cycles and explore the effectiveness of alternative policy instruments, such as the interest rate and the loan to value for macroeconomic and financial stabilization. We find that indeed it is appropriate to react to financial imbalances indicators, but such reaction should preferably be undertaken by macro-prudential instruments.
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AB201108_e.pdf
AB201108_e
Rational vs. professional forecastsJoão Valle e Azevedo2011Economic Bulletin ArticleBdP Publication
We compare theoretical and empirical forecasts computed by rational agents living in a model economy to those produced by professional forecasters. We focus on the variance of the prediction errors as a function of the forecast horizon and analyze the speed with which it converges to a constant (which can be seen as a measure of the speed of convergence of the economy to the steady state). We look at a standard sticky-prices-wages model, concluding that it delivers a strong theoretical forecastability of the variables under scrutiny, at odds with the data (professional forecasts). The flexible prices-wages version delivers a forecastability closer to the data and performs relatively better empirically (with actual data), but mainly because forecasts deviate little from the unconditional mean. These results can be interpreted in at least two ways: first, actual deviations from the steady-state are not persistent, in which case the implications of the specific formulation of nominal rigidities for short-run dynamics are unrealistic; second, exogenous (or unmodelled) steady-state shifts attributable to, e.g., changes in monetary-policy, taxation, regulation or in the growth of the technological frontier, occur in such a way as to strongly limit the performance of professional forecasters.
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AB201107_e.pdf
AB201107_e
Learning from the past: fiscal adjustments on the run-up to the euro areaMaria Manuel Campos2011Economic Bulletin ArticleBdP Publication
This paper examines the fiscal adjustments that took place on the run-up to the euro area. OECD data are used to identify and characterize episodes of fiscal consolidation in a broad set of countries and within the 1980-2008 time-frame, but focusing, in particular, on those corresponding to the founding Member-states of the euro area and to the 1993-1997 period. Results suggest that, on the period prior to the inception of the euro area, cyclical and interest rate conditions made it easier to comply with the Maastricht criteria without requiring strong primary expenditure cuts, particularly as regards sensitive items such as social transfers and compensation of employees. This may explain why none of the fiscal adjustments identified in 1993-1997 in countries that would become members of the euro area was successful in persistently reducing public debt ratios.
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AB201106_e.pdf
AB201106_e
Fiscal consolidation in a small euro area economyVanda Almeida; Gabriela Lopes de Castro; Ricardo Mourinho Félix; José R. Maria2011Economic Bulletin ArticleBdP Publication
This article focuses on the costs and benefits of a fiscal consolidation in a small euro area economy. The macroeconomic impacts and the welfare analysis are conducted in a New-Keynesian general equilibrium model with non-Ricardian agents. We define a benchmark fiscal consolidation strategy based on a permanent reduction in Government expenditure. We find that, over the long run, fiscal consolidation leads to a considerable increase in the level of output and consumption, and is welfare improving. In addition, the gains are boosted if the fiscal strategy also involves a tax reform that shifts the tax burden away from labour income towards the final goods consumption. However, important short-run costs arise, notably through output, consumption and welfare losses. Finally, we assess the effect of alternative fiscal consolidation paths in terms of its degree of front loading, speed of completion and interaction with the risk premium.
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AB201105_e.pdf
AB201105_e
International organisations’ vs. private analysts’ growth forecasts: an evaluationIldeberta Abreu2011Economic Bulletin ArticleBdP Publication
This article evaluates the performance of economic growth forecasts disclosed by three international organisations - the IMF, the European Commission and the OECD - and compares it with that of the mean forecasts of two surveys of private analysts - the Consensus Economics and The Economist. The aim is to help forecast users in answering the question of how much (little) confidence they should place in the alternative forecasts that are available at each moment. The evaluation covers projections for nine advanced economies over the period 1991-2009. Several evaluation criteria are used: the quantitative and the directional accuracy of forecasts and, also, the ability to predict economic recessions. The results suggest that the forecasting performance of the international organisations is broadly similar to that of the surveys of private analysts. By and large, current-year forecasts present desirable features and clearly outperform year-ahead forecasts for which evidence is more mixed.
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AB201104_e.pdf
AB201104_e
Immigrants in the Portuguese labour marketSónia Cabral; Cláudia Duarte2011Economic Bulletin ArticleBdP Publication
Using matched employer-employee data, we examine the main characteristics of immigrants in the Portuguese labour market in the 2002-2008 period. We find substantial differences in labour market outcomes between native and immigrant workers and among different nationality groups, in terms of age, gender, tenure, worker flows, geographical and sectoral concentration and education levels. As in other countries, the average wages of immigrants are lower than the wages of natives, even controlling for worker, firm and match characteristics, although growing at a higher pace in the period analysed.
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AB201103_e.pdf
AB201103_e
Productivity, size and capital intensity in selected Portuguese manufacturing sectors: a non-parametric analysisJoão Amador2011Economic Bulletin ArticleBdP Publication
This article adopts a non-parametric approach to explore the relation between size, capital intensity and productivity in a set of Portuguese manufacturing sectors. The article makes use of 2007 data from firm’s balance sheets and income statements in sectors “food and beverages”, “clothing”, “manufactured non-metallic mineral products” and “metallic products, except machinery and equipment”. In 2007, these four sectors represented almost half of the total number of manufacturing firms, more than one third of gross value added and sales and more than forty per cent of employment and capital stock in the Portuguese manufacturing sector. Firstly, the article presents basic descriptive statistics regarding the distribution of firms along the selected variables. Secondly, the analysis is enlarged by estimating robust conditional kernel distributions for the pairs of variables capital intensity-productivity, size-productivity and size-capital intensity. The unconditional distributions for the selected variables reveal some similarities between sectors. There is substantial heterogeneity within sectors but firms are concentrated in classes that correspond to small size, low capital-labour ratios and small number of workers. The conditional distributions reveal that the largest firms in terms of sales tend to be those with higher capital-labour ratios and these two characteristics tend to lead to higher levels of apparent labour productivity.
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201,103
AB201102_e.pdf
AB201102_e
Fiscal policy in a small euro area economyVanda Almeida; Gabriela Lopes de Castro; Ricardo Mourinho Félix; José R. Maria2011Economic Bulletin ArticleBdP Publication
This article discusses the role of fiscal policy in a small open economy of the euro area. In the context of a general equilibrium model, results suggest that fiscal policy can play an active role in stabilising the business cycle, having effects on production and households consumption. The analysis of the impact of fiscal measures should not, however, focus exclusively on its short-run effects, ignoring the medium-run impacts of the exit strategies necessary to ensure a sustainable path of public debt. Results suggest that, if fiscal stimulus measures are implemented, these should be temporary and that the adequate time lag to return to the initial fiscal stance depends, among other factors, on the evolution of the sovereign debt risk premium.
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AB201101_e.pdf
AB201101_e
Good (and not so good) policy at the zero boundSandra Gomes; João Sousa; Pedro Teles2011Economic Bulletin ArticleBdP Publication
The fact that nominal interest rates cannot be negative implies that when nominal interest rates cannot be further reduced, alternative policies must be considered to provide stimulus, should it be needed. This note is an assessment of fiscal policies at the zero bound. Using a model for the euro area, we illustrate and quantify the effects of fiscal policy responses to a major recession that leads the economy to the zero lower bound on interest rates. First, we show that ad-hoc fiscal policy measures lead to results that are very different from the efficient allocation. Then, drawing on the results in Correia, Farhi, Nicolini and Teles (2011), we show how fiscal policy should be designed to replicate the efficient allocation.
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AB201100_e.pdf
AB201100_e
Monetary policy and financial stability: an open debateIsabel Marques Gameiro; Carla Soares; João Sousa2011Economic Bulletin ArticleBdP Publication
The recent global financial crisis triggered the need to better understand the link between the financial sector and the macroeconomy and the role of central banks in addressing financial stability concerns, in particular regarding the interaction with monetary policy. This paper surveys the main contributions from the economic literature on this issue. There is a wide set of perspectives on how monetary policy should take into account financial stability. Proposals range from strengthening the understanding and monitoring of macro-financial interactions to more drastic ones that propose to add financial stability as an additional objective for monetary policy or use monetary policy for financial stability purposes. We conclude that given the importance of the financial system for the monetary policy transmission mechanism, financial stability concerns need to be taken into account in monetary policy. On the other hand, monetary policy, including unconventional measures, contributes to financial stability (it is even crucial to it under certain circumstances). However, the monetary policy primary objective should remain focused on price stability. It should also be noted that, in general, price stability does not guarantee financial stability and potential conflits between the two are highly unfavourable. Therefore, it is essential for other policies, in particular micro and macro-prudential ones, to maintain a close surveillance of the financial system and, whenever needed, act to reduce the likelihood of systemic events and minimize the negative effects on the economy.
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wp201033.pdf
wp201033
JoblessnessJosé A. F. Machado; Pedro Portugal; Pedro S. RaposoC14 - Semiparametric and Nonparametric Methods; C21 - Cross-Sectional Models; Spatial Models; C41 - Duration Analysis; J64 - Unemployment: Models, Duration, Incidence, and Job Search2010Working PaperBdP Publication
The U.S. labor market has been experiencing unprecedented high average unemployment duration. The shift in the unemployment duration distribution can be traced back to the early nineties. In this paper, censored quantile regression methods are employed to analyze the changes in the US unemployment duration distribution. We explore the decomposition method proposed by Machado and Mata (2005) to disentangle the contribution of compositional vis-à-vis structural changes. The data used in this inquiry are taken from the nationally representative Displaced Worker Surveys of 1988 and 2008. Apart from the effect of economic improvement we find that the sensitivity of joblessness duration to education and the aging of the population were the two main forces behind the increase of the unemployment duration, in the last twenty years. We tentatively argue that firms use education as a signaling device during recessions, but the signaling power of education during the recent low-unemployment environment faded significantly.
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Evaluating the strength of identification in DSGE models. An a priori approachNikolay IskrevC32 - Time-Series Models; C51 - Model Construction and Estimation; C52 - Model Evaluation and Testing; E32 - Business Fluctuations; Cycles2010Working PaperBdP Publication
This paper presents a new approach to parameter identification analysis in DSGE models wherein the strength of identification is treated as property of the underlying model and studied prior to estimation. The strength of identification reflects the empirical importance of the economic features represented by the parameters. Identification problems arise when some parameters are either nearly irrelevant or nearly redundant with respect to the aspects of reality the model is designed to explain. The strength of identification therefore is not only crucial for the estimation of models, but also has important implications for model development. The proposed measure of identification strength is based on the Fisher information matrix of DSGE models and depends on three factors: the parameter values, the set of observed variables and the sample size. By applying the proposed methodology, researchers can determine the effect of each factor on the strength of identification of individual parameters, and study how it is related to structural and statistical characteristics of the economic model. The methodology is illustrated using the medium-scale DSGE model estimated in Smets and Wouters (2007).
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Employment and wages of immigrants in PortugalSónia Cabral; Cláudia DuarteF22 - International Migration; J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.; J61 - Geographic Labor Mobility; Immigrant Workers2010Working PaperBdP Publication
Using matched employer-employee data, we examine the main characteristics of immigrants in the Portuguese labour market in the 2002-2008 period. We find substantial differences in labour market outcomes between native and immigrant workers and among different nationality groups, in terms of age, gender, tenure, worker flows, geographical and sectoral concentration, and education levels. As in other countries, the wages of immigrants in Portugal are lower than the wages of natives, though growing at a higher pace in the period analysed. Moreover, downward wage rigidity appears to be slightly higher for immigrants than for natives.
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Testing for Persistence Change in Fractionally Integrated Models: An Application to World Inflation RatesLuis F. Martins; Paulo M.M. RodriguesC20 - General; C22 - Time-Series Models2010Working PaperBdP Publication
In this paper we propose an approach to detect persistence changes in fractionally integrated models based on recursive forward and backward estimation of the Breitung and Hassler (2002) test. This procedure generalises to fractionally integrated processes the approaches of Leybourne, Kim, Smith and Newbold (2003) and Leybourne and Taylor (2003),which are ADF and seasonal unit root type tests, respectively, for the conventional intenger value context. Asymptotic results are derived and the performance of the new procedures evaluated in a Monte Carlo exercise. The ?nite sample size and power performance of the procedures are very encouraging and compare very favourably to available tests, such as those recently proposed by Hassler and Sheithauer (2009) and Sibbertsen and Kruse (2007).We also apply the test statistics introduced to several world inflation rates and and evidence of change in persistence in most series.
Testing for Persistence Change in Fractionally Integrated Models: An Application to World Inflation RatesApproved
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The Hidden Side of Temporary Employment: Fixed-term Contracts as a Screening DevicePedro Portugal; José VarejãoJ23 - Employment Determination; Job Creation; Demand for Labor; Self-Employment; J41 - Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets2010Working PaperBdP Publication
In this article we look at how one specific form of temporary employment - employment with fixed-term contracts - fits into employers’ hiring policies. We find that human capital variables, measured at the levels of the worker and the workplace, are important determinants of the employers’ decisions to hire with temporary contracts and to promote temporary workers to permanent positions. Those employers that hire more with temporary contracts are also those that are more likely to offer a permanent position to their newlyhired temporary employees. Our results indicate that fixed-term contracts are a mechanism for screening workers for permanent positions.
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The Instability of Joint Ventures: Learning from Others or Learning to Work with OthersJosé Mata; Pedro PortugalL25 - Firm Size and Performance; L10 - General2010Working PaperBdP Publication
We analyze the patterns of international joint venture termination, to compare the learning and trust views of joint ventures. We distinguish between three ways in which termination may occur and allow for the possibility that some joint ventures never confront the chances of terminating in these ways. We find that the chances of terminating a joint venture increase over time, in particular when the joint venture is terminated by dissolution of the firm and by acquisition by the foreign partner. Our findings thus support the view thatlearning outperforms trust in explaining the time patterns of joint venture survival.
The termination of international joint ventures: Closure and acquisition by domestic and foreign partnersApproved
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Borrowing Patterns, Bankruptcy and Voluntary LiquidationJosé Mata; António R. Antunes; Pedro PortugalG33 - Bankruptcy; Liquidation; G21 - Banks; Other Depository Institutions; Mortgages; D22 - Firm Behavior: Empirical Analysis; C35 - Discrete Regression and Qualitative Choice Models2010Working PaperBdP Publication
We study the impact of financial variables upon bankruptcy and voluntary exit. Controlling for efficiency, which we find to decrease the odds of both bankruptcy and voluntary exit, characteristics of firms which correlate with the firms' access to funds, exert very different impacts upon the two modes of exit.
Our findings support the idea that information asymmetries create cash constraints and that financial decisions are used to signal firms' quality and reduce the degree of information asymmetries between borrowers and lenders.
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The Reservation Wage Unemployment Duration NexusJohn T. Addison; José A. F. Machado; Pedro PortugalJ64 - Unemployment: Models, Duration, Incidence, and Job Search; J65 - Unemployment Insurance; Severance Pay; Plant Closings2010Working PaperBdP Publication
A thorny problem in identifying the determinants of reservation wages and particularly the role of continued joblessness in their evolution is the simultaneity issue. We deploy a natural control function approach to the problem that involves conditioning elapsed duration on completed unemployment duration in the reservation wage equation. Our analysis confirms that the use of elapsed duration alone compounds two separate and opposing influences. Only with the inclusion of completed duration is the negative effect of continued joblessness on reservation wages apparent. For its part, the completed duration coefficient suggests that higher reservation wages negatively influence the probability of exiting unemployment.
The Reservation Wage Unemployment Duration NexusApproved
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The Sources of Wage Variation: An Analysis Using Matched Employer-Employee DataSónia Torres; Pedro Portugal; John T. Addison; Paulo GuimarãesJ2 - Time Allocation, Work Behavior, and Employment Determination and Creation; J41 - Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets2010Working PaperBdP Publication
This paper estimates a wage equation that includes worker- and firm fixed effects simultaneously, using a longitudinal matched employer-employee dataset covering virtually all Portuguese employees over a little more than two-decades. The exercise is performed under optimal conditions by using (a) data covering the whole population of employees and (b) adequate econometric methods and algorithms. The variation in log real hourly wages is then decomposed into six different components related to worker and firm characteristics (either observed or unobserved) and a residual component. It is found that worker heterogeneity is the most important source of wage variation (46.2 percent), due in roughly equal parts to the unobserved component (24.2 percent) and the observed component (22 percent). Firm effects are less important overall (29.6%), although firms’ observed characteristics do play an important role (14.8) in explaining wage differentials.
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Forecasting Inflation (and the Business Cycle?) with Monetary AggregatesJoão Valle e Azevedo; Ana PereiraC51 - Model Construction and Estimation; E31 - Price Level; Inflation; Deflation; E32 - Business Fluctuations; Cycles; E52 - Monetary Policy (Targets, Instruments, and Effects); E58 - Central Banks and Their Policies2010Working PaperBdP Publication
We show how monetary aggregates can be usefully incorporated in forecasts of inflation. This requires fully disregarding the high-frequency fluctuations blurring the money/inflation relation, i.e., the projection of inflation onto monetary aggregates must be restricted to the low frequencies. Using the same tools, we show that money growth has (little) predictive power over output at business cycle frequencies.
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Fiscal stimulus and exit strategies in a small euro area economyVanda Almeida; Gabriela Lopes de Castro; Ricardo Mourinho Félix; José R. MariaE62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation; F41 - Open Economy Macroeconomics; H62 - Deficit; Surplus2010Working PaperBdP Publication
This article is focused on fiscal stimulus and exit strategies in a small euro area economy. The analysis is based on a New-Keynesian general equilibrium model with non-Ricardian features introduced in Almeida, Castro and Félix (2010). We define a benchmark fiscal stimulus and, conditional on alternative exit strategies, clarify its macroeconomic effects. We investigate if a fiscal stimulus can be enhanced (or harmed) by particular exit strategies. The impact multipliers proved insufficient to discriminate between alternative strategies. However, since the policy impacts are not limited to the short run, there are relevant effects over the medium run that can be used to evaluate the different strategies. It will be claimed that (i) the announcement of a promptly and timely exit strategy, contemporaneous to the announcement of the fiscal stimulus, with a consolidation period that is not prolonged indefinitively, may improve the effectiveness of the stimulus and that (ii) exit strategies based on Government
consumption cuts tend to dominate over other alternatives, such as transfers cuts or tax rate increases.
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Determinants of sovereign bond yield spreads in the euro area inLuciana Barbosa; Sónia CostaE43 - Determination of Interest Rates; Term Structure of Interest Rates; G12 - Asset Pricing; G15 - International Financial Markets2010Working PaperBdP Publication
This paper aims to identify the determinants behind the different evolution of sovereign bond yields in euro area countries for the period of the current crisis. Up to the time of the collapse of Lehman Brothers, global risk premium was the main driver of spreads. Afterwards, the relevance of idiosyncratic factors increased. Although liquidity premiums played a larger role in the months following September 2008, as the financial crisis spilled over into a strongly deteriorating macroeconomic environment, the importance of country credit risk factors increased. In the first five months of 2010, heterogeneity in sovereign credit risk premiums and a further increase in global risk aversion were, to a large extent, the determining factors behind the evolution of spreads.
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Time-varying fiscal policy in the U.S.Manuel Coutinho Pereira; Artur Silva LopesC11 - Bayesian Analysis; E32 - Business Fluctuations; Cycles; E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation2010Working PaperBdP Publication
To investigate time heterogeneity in the e¤ects of fiscal policy in the U.S., we use a non-recursive, Blanchard and Perotti-like structural VAR with time-varying parameters, estimated through Bayesian simulation over the 1965:2-2009:2 period. Our evidence suggests that fiscal policy has lost some capacity to stimulate output but that this trend is more pronounced for taxes net of transfers than for government expenditure, whose e¤ectiveness
declines only slightly. Fiscal multipliers keep conventional signs throughout. An investigation of changes in ?scal policy conduct indicates an increase in the countercyclical activism of net taxes over time, which appears to have reached a maximum during the 2008-09 recession.
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Taxation and GlobalizationIsabel Horta CorreiaD63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement; E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation; F42 - International Policy Coordination and Transmission2010Working PaperBdP Publication

The decline of capital taxation is associated with efficiency gains.
We show that, when agents are heterogeneous, equity concerns can change the policy recommendation driven by efficiency. Given the empirical evidence on the roots of heterogeneity inside each country, either in developing or developed economies, the elimination of capital taxation would lead always to a decline in inequality and to an increase of welfare of the poorest, in a small open economy acting unilaterally. On the contrary for a group of open economies following the same policy, the opposite occurs: with the elimination of capital taxation inequality worsens and it hurts the poorest of each country. Therefore globalization can be important to support a positive tax on capital.
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Labor Immobility and the Transmission Mechanism of Monetary Policy in a Monetary UnionBernardino Adão; Isabel Horta CorreiaE31 - Price Level; Inflation; Deflation; E41 - Demand for Money; E58 - Central Banks and Their Policies; E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation2010Working PaperBdP Publication
It is believed that a shock, common to a set of countries with identical fundamentals, has identical outcomes across countries. We show that in general, when specialization in production is such that a common shock creates a missing role for labor mobility across countries, the terms of trade of any country reacts to the shock. This is the case even if state contingent assets can be traded across countries. The transmission mechanism of a monetary shock in a monetary union has in this case an additional channel, the terms of trade. We also show that the country outcomes are significantly different, when compared with the effect of the shock on the union’s aggregate. Monetary shocks
impose cycles with higher volatility in "poor" countries relatively o
the volatility of "richer" ones.
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Global policy at the Zero Lower Bound in a large-scale DSGE modelSandra Gomes; P. Jacquinot; Ricardo Mestre; João SousaE52 - Monetary Policy (Targets, Instruments, and Effects); E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation; E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; F42 - International Policy Coordination and Transmission2010Working PaperBdP Publication
The purpose of this paper is to analyse whether fiscal policies can alleviate the effects of the zero lower bound (ZLB) on interest rates and if they should be coordinated internationally. The analysis is carried out using EAGLE, a DSGE model of the global economy. We consider that the fiscal shocks are temporary and that fscal policy retains full credibility at all times. In this setup we find significant non-linearities in a ZLB situation that amplify the
effects of fiscal shocks compared to the non-ZLB case. International coordination is helpful but does not play a major role in the results.
Global policy at the Zero Lower Bound in a large-scale DSGE ModelApproved
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Fiscal Institutions and Public Spending Volatility in EuropeBruno AlbuquerqueE32 - Business Fluctuations; Cycles; E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation; H30 - General2010Working PaperBdP Publication
This work provides empirical evidence for a sizeable, statistically significant negative impact of the quality of fiscal institutions on public spending volatility for a panel of 25 EU countries over the 1980-2007 period. The dependent variable is the volatility of discretionary fiscal policy, which does not represent reactions to changes in economic conditions. Our baseline results thus give support to the strengthening of institutions to deal with excessive levels of discretion volatility, as more checks and balances make it harder for governments to change fiscal policy for reasons unrelated to the current state of the economy. Our results also show that bigger countries and bigger governments have less public spending volatility. In contrast to previous studies, the political factors do not seem to play a role, with the exception of the Herfindahl index, which suggests that high concentration of parliamentary seats in a few parties would increase public spending volatility.
Fiscal Institutions and Public Spending Volatility in Europehttp://www.sciencedirect.com/science/article/pii/S0264999311001891Approved
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Fiscal Stimulus in a Small Euro Area EconomyVanda Almeida; Gabriela Lopes de Castro; Ricardo Mourinho Félix; José R. MariaE62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation; F41 - Open Economy Macroeconomics; H62 - Deficit; Surplus2010Working PaperBdP Publication
The international economic and financial crisis elicited an intensive debate on fiscal stimulus programmes. Although the topics have been diverse, most of the research is
focused on large countries, some of them in autarky. The literature covering small economies is thinner and for those integrated in a monetary union is virtually nonexistent.
This paper is a contribution to fill this gap. The discussion draws on a New-Keynesian general equilibrium model introduced in Almeida, Castro and Félix (2008), which
features a small euro area economy. Contrary to most of the literature that considers infinitely lived households, the model features stochastic finite lifetime households
following Blanchard (1985), which are a source of non-Ricardian behaviour and allow for pinning-down the steady state net foreign asset position endogenously. Since in a
small euro area economy monetary policy is not an available business cycle stabilisation tool, the use of fiscal policy to pursue this goal seems the only alternative. The
results reveal that permanent government expenditure increases should be avoided, as opposed to temporary stimulus. This outcome is identical to the one obtained in the
literature for large economies. Lags in the program implementation and limited credibility can however undermine the objectives of a temporary stimulus. In particular, in
financial distress circumstances, under which the stimulus may trigger a hike in the country's risk premium, the effectiveness of the stimulus might be negligible.
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Short and Long Interest Rate TargetsBernardino Adão; Isabel Horta Correia; Pedro TelesE3 - Prices, Business Fluctuations, and Cycles; E4 - Money and Interest Rates; E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit2010Working PaperBdP Publication
We show that short and long nominal interest rates are independent monetary policy instruments. The pegging of both helps solving the problem of multiplicity that arises when only short rates are used as the instrument of policy. A peg of the nominal returns on assets of different maturities is equivalent to a peg of state-contingent interest rates. These are the rates that should be targeted in order to implement unique equilibria. At the zero bound, while it is still possible to target state-contingent interest rates, that is no longer equivalent to the target of the term structure.
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Monetary Policy Effects: Evidence from the Portuguese Flow of FundsIsabel Marques Gameiro; João SousaE52 - Monetary Policy (Targets, Instruments, and Effects); G11 - Portfolio Choice2010Working PaperBdP Publication
This paper uses a VAR approach to study the transmission of monetary policy shocks in Portugal, focusing in particular on the financial decisions of households, corporations (financial/non-financial), the government and the rest of the world. We confirm that, in many ways, households and firms react in a similar way as found in other countries, with evidence that the monetary policy shock has a contractionary effect on economic activity and increases the financing needs of households and non-financial corporations. We also find evidence that the financial sector plays an important role, supplying the necessary funds to these sectors. We do not find much evidence of a significant systematic behaviour of the government or the rest of the world.
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Marginal Distributions of Random Vectors Generated by Affine Transformations of Independent Two-Piece Normal VariablesMaximiano PinheiroC16 - Specific Distributions; C46 - Specific Distributions; Specific Statistics2010Working PaperBdP Publication
Marginal probability density and cumulative distribution functions are presented for multidimensional variables defined by non-singular affine transformations of vectors of independent two-piece normal variables, the most important subclass of Ferreira and Steel’s general multivariate skewed distributions. The marginal functions are obtained by first expressing the joint density as a mixture of Arellano-Valle and Azzalini’s unified skew-normal densities and then using the property of closure under marginalization of the latter class.
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Calendar Effects in Daily ATM WithdrawalsPaulo Soares Esteves; Paulo M.M. RodriguesC32 - Time-Series Models; C51 - Model Construction and Estimation2010Working PaperBdP Publication
This paper analyses the calendar effects present in Automated Teller Machines (ATM) withdrawals of residents, using daily data for Portugal for the period from January 1st 2001 to December 31st 2008. The results presented may allow for a better understanding of consumer habits and for adjusting the original series for calendar effects. Considering the Quarterly National Accounts’ procedure of adjusting data for seasonality and working days effects, this correction is important to ensure the use of the ATM series as an instrument to nowcast private consumption.
Calendar Effects in Daily ATM WithdrawalsApproved
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A Multiple Criteria Framework to Evaluate Bank Branch Potential AttractivenessFernando A. F. Ferreira; Ronald W. Spahr; Sérgio P. Santos; Paulo M.M. RodriguesC44 - Statistical Decision Theory; Operations Research; G21 - Banks; Other Depository Institutions; Mortgages; L25 - Firm Size and Performance; M10 - General2010Working PaperBdP Publication
Remarkable progress has occurred over the years in the performance evaluation of bank branches. Even though financial measures are usually considered the most important in assessing branch viability, we posit that insufficient attention has been given to other factors that affect the branches’ potential profitability and attractiveness. Based on the integrated used of cognitive maps and MCDA techniques, we propose a framework that adds value to the way that potential attractiveness criteria to assess bank branches are selected and to the way that the trade-offs between those criteria are obtained. This framework is the result of a process involving several directors from the five largest banks operating in Portugal, and follows a constructivist approach. Our findings suggest that the use of cognitive maps systematically identifies previously omitted criteria that may assess potential attractiveness. The use of MCDA techniques may clarify and add transparency to the way trade-offs are dealt with. Advantages and disadvantages of the proposed framework are also discussed.
A Multiple Criteria Framework to Evaluate Bank Branch Potential AttractivenessApproved
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Tracking the US Business Cycle With a Singular Spectrum AnalysisMiguel de Carvalho; Paulo C. Rodrigues; António RuaC50 - General; E32 - Business Fluctuations; Cycles2010Working PaperBdP Publication
The monitoring of economic developments is an exercise of considerable importance forpolicy makers, namely, central banks and fiscal authorities as well as for other economic agents such as financial intermediaries, firms and households. However, the assessment of the business cycle is not an easy endeavor as the cyclical component is not an observable variable. In this paper we resort to singular spectrum analysis in order to disentangle the US GDP into several underlying components of interest. The business cycle indicator yielded through this method is shown to bear a resemblance with band-pass filtered output. As the end-of-sample behavior is typically a thorny issue in business cycle assessment, a real-time estimation exercise is here conducted to assess the reliability of the several filters. The obtained results suggest that the business cycle indicator proposed herein possesses a better revision performance than other filters commonly applied in the literature.
Tracking the US Business Cycle With a Singular Spectrum AnalysisApproved
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Extremal Dependence in International Output Growth: Tales from the TailsMiguel de Carvalho; António RuaC40 - General; C50 - General; E32 - Business Fluctuations; Cycles2010Working PaperBdP Publication
The statistical modelling of extreme values has recently received substantial attention in a broad spectrum of sciences. Given that in a wide variety of scenarios, one is mostly concerned with explaining tail events (say, an economic recession) than central ones, the need to rely on statistical methods well qualified for modelling extremes arises. Unfortunately, several classical tools regularly applied in the analysis of central events, are simply innapropriate for the analysis of extreme values. In particular, Pearson correlation is not a proper measure for assessing the level of agreement of two variables when one is concerned with tail events. This paper explores the comovement of the economic activity of several OECD countries during periods of large positive and negative growth (right and left tails, respectively). Extremal measures are here applied as means to assess the degree of cross-country tail dependence of output growth rates. Our main empirical findings are: (i) the comovement is much stronger in left tails than in right tails; (ii) asymptotic independence is claimed by the data; (iii) the dependence in the tails is considerably stronger than the one arising from a Gaussian dependence model. In addition, our results suggest that, among the typical determinants for explaining international output growth synchronization, only economic specialization similarity seems to play a role at extreme events.
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A Wavelet Approach for Factor-Augmented ForecastingAntónio RuaC22 - Time-Series Models; C40 - General; C53 - Forecasting and Other Model Applications2010Working PaperBdP Publication
It has been acknowledged that wavelets can constitute a useful tool for forecasting in economics. Through a wavelet multiresolution analysis, a time series can be decomposed into different time-scale components and a model can be fitted to each component to improve the forecast accuracy of the series as a whole. Up to now, the literature on forecasting with wavelets has mainly focused on univariate modelling. On the other hand, in a context of growing data availability, a line of research has emerged on forecasting with large datasets. In particular, the use of factor-augmented models have become quite widespread in the literature and among practitioners. The aim of this paper is to bridge the two strands of the literature. A wavelet approach for factor-augmented forecasting is proposed and put to test for forecasting GDP growth for the major euro area countries. The results show that the forecasting performance is enhanced when wavelets and factor-augmented models are used together.
A Wavelet Approach for Factor-Augmented ForecastingApproved
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The EAGLE. A model for policy analysis of macroeconomic interdependence in the euro areaSandra Gomes; P. Jacquinot; M. PisaniC53 - Forecasting and Other Model Applications; E32 - Business Fluctuations; Cycles; E52 - Monetary Policy (Targets, Instruments, and Effects); F47 - Forecasting and Simulation2010Working PaperBdP Publication
Building on the New Area Wide Model, we develop a 4-region macroeconomic model of the euro area and the world economy. The model (EAGLE, Euro Area and Global Economy model) is microfounded and designed for conducting quantitative policy analysis of macroeconomic interdependence across regions belonging to the euro area and between euro area regions and the world economy. Simulation analysis shows the transmission mechanism of region-specific or common shocks, originating in the euro area and abroad.
The EAGLE. A model for policy analysis of macroeconomic interdependence in the euro areaApproved
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Counterfactual Analysis of Bank MergersPedro Pita Barros; Diana Bonfim; Moshe Kim; Nuno C. MartinsG21 - Banks; Other Depository Institutions; Mortgages; G34 - Mergers; Acquisitions; Restructuring; Corporate Governance; L10 - General2010Working PaperBdP Publication
Estimating the impact of bank mergers on credit granted and on interest rates requires a framework that allows to disentangle the effect of changes in market structure generated by mergers from the effects arising from changes in banks’ operating environment. However, most of the literature on the impact of bank mergers relies on a simple differential analysis of the relevant variables. We propose a new methodology. It relies on the estimation of a structural model of the credit market. Using this model we are able to derive a counterfactual scenario, considering the pre-merger market equilibrium together with the post-merger environment. The counterfactual analysis makes possible to take into account changes in market structure and conduct, which could affect the results if neglected. We analyze separately two segments of the credit market (households and firms) and take into account two groups of institutions (those that were directly involved in mergers and those that were not). We find that mergers increased the total amount of credit granted to the corporate sector, but had negative impacts on households’ access to credit. Moreover, we find that mergers led to a widespread decrease in interest rates.
Counterfactual analysis of bank mergershttp://rd.springer.com/article/10.1007/s00181-012-0666-1Approved
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Expectations-Driven Cycles in the Housing MarketLuisa Lambertini; Caterina Mendicino; Maria Tereza PunziE32 - Business Fluctuations; Cycles; E44 - Financial Markets and the Macroeconomy; E52 - Monetary Policy (Targets, Instruments, and Effects)2010Working PaperBdP Publication
This paper analyzes housing market boom-bust cycles driven by changes in households' expectations. We explore the role of expectations not only on productivity but on several other shocks that originate in the housing market, the credit market and the conduct of monetary policy. We find that, in the presence of nominal rigidities, expectations on both the conduct of monetary policy and future productivity can generate housing market boom-bust cycles in accordance with the empirical findings. Moreover, expectations of either a future reduction in the policy rate or a temporary increase in the central bank's inflation target that are not fulfilled generate a macroeconomic recession. Increased access to credit generates a boom-bust cycle in most variables only if it is expected to be reversed in the near future.
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Nonstationary Extremes and the US Business CycleMiguel de Carvalho; K. Feridum Turkman; António RuaC16 - Specific Distributions; C50 - General; E32 - Business Fluctuations; Cycles2010Working PaperBdP Publication
Considerable attention has been devoted to the statistical analysis of extreme events. Classical peaks over threshold methods are a popular modelling strategy for extreme value statistics of stationary data. For nonstationary series a variant of the peaks over threshold analysis is routinely applied using covariates as a means to overcome the lack of stationarity in the series of interest. In this paper we concern ourselves with extremes of possibly nonstationary processes. Given that our approach is, in some way, linked to the celebrated Box-Jenkins method, we refer to the procedure proposed and applied herein as Box-Jenkins-Pareto. Our procedure is particularly appropriate for settings where the parameter covariate model is non-trivial or when well qualified covariates are simply unavailable. We apply the Box-Jenkins-Pareto approach to the weekly number of unemployment insurance claims in the US and exploit the connection between threshold exceedances and the US business cycle.
Dynamic threshold modelling and the US business cycleApproved
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Exports, Imports and Wages:Evidence from Matched Firm-Worker-Product PanelsPedro Martins; Luca David OpromollaF16 - Trade and Labor Market Interactions; J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.; F15 - Economic Integration2010Working PaperBdP Publication
The analysis of the effects of firm-level international trade on wages has so far focused on the role of exports, which are also typically treated as a composite good. However, we show in this paper that firm-level imports can actually be a wage determinant as important as exports. Furthermore, we also find significant differences in the relationship between trade and wages across types of products. In particular, firms that increase their exports (imports) of high- (intermediate-) technology products tend to increase their salaries. Our analysis is based on unique data from Portugal, obtained by merging a matched firm-worker panel and a matched firm-transaction panel. Our data set follows the population of manufacturing firms and all their workers from 1995 to 2005 and allows for several control variables, including jobspell fixed effects.
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Measuring comovement in the time-frequency spaceAntónio RuaC40 - General; E32 - Business Fluctuations; Cycles2010Working PaperBdP Publication
The measurement of comovement among variables has a long tradition in the economic and financial literature. Traditionally, comovement is assessed in the time domain through the well-known correlation coefficient while the evolving properties are investigated either through a rolling window or by considering non-overlapping periods. More recently, Croux, Forni and Reichlin [Review of Economics and Statistics 83 (2001)] have proposed a measure of comovement in the frequency domain. While it allows to quantify the comovement at the frequency level, such a measure disregards the fact that the strength of the comovement may vary over time. Herein, it is proposed a new measure of comovement resorting to wavelet analysis. This wavelet-based measure allows one to assess simultaneously the comovement at the frequency level and over time. In this way, it is possible to capture the time and frequency varying features of comovement within a unified framework which constitutes a refinement to previous approaches.
Measuring comovement in the time-frequency spaceApproved
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WP200909
A Simple Feasible Alternative Procedure to Estimate Models with High-Dimensional Fixed EffectsPaulo Guimarães; Pedro PortugalC01 - Econometrics; C81 - Methodology for Collecting, Estimating, and Organizing Microeconomic Data2010Working PaperBdP Publication
In this paper we describe an alternative iterative approach for the estimation of linear regression models with high-dimensional fixed-effects such as large employer-employee data sets. This approach is computationally intensive but imposes minimum memory requirements. We also show that the approach can be extended to non-linear models and potentially to more than two high dimensional fixed effects.
A Simple Feasible Procedure to Fit Models with High-Dimensional Fixed EffectsGo to publication The Stata JournalApproved
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WP200301.pdf
WP200301
Founding Conditions and the Survival of New FirmsP.A. Geroski; José Mata; Pedro Portugal2010Working PaperBdP Publication
This paper explores the effects that founding conditions have on the survival of new firms. A regression model which allows us to examine the role played by a number of different features of founding conditions on survival rates was estimated. The effect of founding conditions is estimated taking also into account that survival may be affected by current market conditions. Further, the model allows the effects of founding conditions to be transitory, and provides a way to assess how long such effects last. Using data on 118,114 Portuguese new firms observed over the period 1983 – 1993, we find that founding effects are important determinants of exit rates, and in some cases, they are more important that current conditions. In most cases, founding effects seem to persist without much of an attenuation in their effect on survival rates for at least several years after the founding of the firm.
Founding Conditions and the Survival of New FirmsGo to publication Strategic Management JournalApproved
1
op201001.pdf
op201001
Financial Stability and Policy CooperationVítor Gaspar; Garry Schinasi2010Occasional PaperBdP Publication
Within the context of the Global Crisis, this paper examines the ongoing policy challenges in establishing a European framework for financial regulation and supervision. We do so taking into account the evidence provided during the crisis of pervasive spillover effects and cross-country interdependence. The paper applies game-theoretic models as tools to think about the cross-country aspects of European financial integration over time. Specifically, the paper applies the economic theory of alliances of Olson and Zechauser (1966) and the private provision of public goods of Bergstrom, Blume and Varian (1986). We contrast the non-cooperative Nash equilibrium allocation with cooperative (Coase) outcomes. The latter can be expected to obtain under zero transaction costs. We follow Coase in taking zero transaction costs as a benchmark to examine the factors that may favor (or hinder) cooperation in specific circumstances. We consider the importance of iterated interactions through the theory of repeated games, case studies, and experimental evidence to identify factors favoring or hindering successful cooperation. The total number of participants, time, foresight, multiple equilibria, leadership, the magnitude and volatility of gains and losses, imperfect and asymmetric information, decision and bargaining costs, monitoring, and enforcement are all important factors. In the paper we stress the importance of an institutional approach that minimizes obstacles to reaching cooperative outcomes. We highlight the need for effective procedures to deal with systemic risk, an agreed set of rules underpinning the single European financial market (e.g. state aid rules and a single rule book), and effective restructuring, resolution and crisis management mechanisms.
Approved
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Housing market and macroeconomic boom-bust cyclesCaterina Mendicino; Maria Tereza Punzi2010OtherOther Publication
Housing market and macroeconomic boom-bust cyclesApproved
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The Reservation Wage Unemployment Duration NexusJohn T. Addison; José A. F. Machado; Pedro PortugalJ64 - Unemployment: Models, Duration, Incidence, and Job Search; J65 - Unemployment Insurance; Severance Pay; Plant Closings2010OtherOther Publication
A thorny problem in identifying the determinants of reservation wages and particularly the role of continued joblessness in their evolution is the simultaneity issue. We deploy a natural control function approach to the problem that involves conditioning elapsed duration on completed unemployment duration in the reservation wage equation. Our analysis confirms that the use of elapsed duration alone compounds two separate and opposing influences. Only with the inclusion of completed duration is the negative effect of continued joblessness on reservation wages apparent. For its part, the completed duration coefficient suggests that higher reservation wages negatively influence the probability of exiting unemployment.
The Reservation Wage Unemployment Duration NexusApproved
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Boom-bust cycles and stabilisation policy – monetary and macroprudential rules: a loss function approachMaria Tereza Punzi; Caterina Mendicino2010OtherOther Publication
Boom-bust cycles and stabilisation policy – monetary and macroprudential rules: a loss function approachApproved
23
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Global policy at the Zero Lower Bound in a large-scale DSGE ModelSandra Gomes; P. Jacquinot; Ricardo Mestre; João Sousa2010OtherOther Publication
Global policy at the Zero Lower Bound in a large-scale DSGE ModelApproved
0
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The Effect of Additive Outliers and Measurement Errors when Testing for Structural Breaks in VariancePaulo M.M. Rodrigues; Antonio Rubia2010OtherOther Publication
The Effect of Additive Outliers and Measurement Errors when Testing for Structural Breaks in VarianceApproved
11
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Measuring comovement in the time-frequency spaceAntónio Rua2010OtherOther Publication
Measuring comovement in the time-frequency spaceApproved
blank_wp200909.pdf
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A Simple Feasible Alternative Procedure to Estimate Models with High-Dimensional Fixed EffectsPaulo Guimarães; Pedro PortugalC01 - Econometrics; C81 - Methodology for Collecting, Estimating, and Organizing Microeconomic Data2010OtherOther Publication
A Simple Feasible Procedure to Fit Models with High-Dimensional Fixed EffectsGo to publication The Stata JournalApproved
1
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Local identification in DSGE modelsNikolay Iskrev2010OtherOther Publication
Local identification in DSGE modelsGo to Journal of Monetary EconomicsApproved
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Inflation expectations in the euro area: Are consumers rational?António Rua; Francisco Craveiro Dias; Cláudia Duarte2010OtherOther Publication
Inflation expectations in the euro area: Are consumers rational?Approved
1
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Improving competition in the non-tradable goods and labour markets: the Portuguese caseVanda Almeida; Gabriela Lopes de Castro; Ricardo Mourinho Félix2010OtherOther Publication
Improving competition in the non-tradable goods and labour markets: the Portuguese caseApproved
0
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Forecasting Using Targeted Diffusion IndexesFrancisco Craveiro Dias; Maximiano Pinheiro; António Rua2010OtherOther Publication
Forecasting Using Targeted Diffusion IndexesApproved
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Inflation (mis)perceptions in the euro areaFrancisco Craveiro Dias; Cláudia Duarte; António Rua2010OtherOther Publication
Inflation (mis)perceptions in the euro areaApproved
1
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What can we learn from the distribution of trade patterns? Evidence for Portugal, Spain, Greece and Ireland João Amador; Sónia Cabral; José R. Maria2010OtherOther Publication
What can we learn from the distribution of trade patterns?Go to Portuguese Economic JournalApproved
200,714
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Founding Conditions and the Survival of New FirmsP.A. Geroski; José Mata; Pedro Portugal2010OtherOther Publication
Founding Conditions and the Survival of New FirmsGo to publication Strategic Management JournalApproved
1
blank_PT201002.pdf
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Unique Monetary Equilibria with Interest Rate RulesBernardino Adão; Isabel Horta Correia; Pedro Teles2010OtherOther Publication
Unique Monetary Equilibria with Interest Rate RulesGo to Review of Economic DynamicsApproved
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Wage and Price Rigidity in a Monetary UnionBernardino Adão; Isabel Horta Correia; Pedro Teles2010OtherOther Publication
Wage and Price Rigidity in a Monetary UnionGo to Open Economies ReviewApproved
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A Tourism Research Agenda for PortugalJ. A. Silva; Paulo M.M. Rodrigues; J. Mendes; L. N. Pereira2010OtherOther Publication
A Tourism Researc