CNB Research News

Borrower-Based Macroprudential Measures and Credit Growth: How Biased is the Existing Literature?

Journal of Economic Surveys, 2024, Vol. 39(1), pp. 66-102.

Economic Policy Uncertainty in Europe: Spillovers and Common Shocks

This paper proposes a novel approach to decompose the Economic Policy Uncertainty indices of European countries into the common and country-specific components using the time-varying total connectedness. Then, by employing a Bayesian panel VAR model, we assess how common and country-specific uncertainty shocks influence economic activity, prices, and monetary policy, with the shocks identified using zero and sign restrictions. Our results reveal that only common shocks have significant effects on all macroeconomic variables. This result is robust across alternative samples and structural identifications. Therefore, our findings imply that policymakers should focus on uncertainty shocks that are synchronized across countries.

Geopolitical Risks and Their Impact on Global Macro-Financial Stability: Literature and Measurements

Our paper reviews how geopolitical risks (GPR) impact macro-financial stability. We examine existing measures of geopolitical tensions and show that GPR causes episodic spikes in economic and financial uncertainty, especially during major events. Two main transmission channels are identified: the financial channel, which increases uncertainty and risk aversion, affecting investment and capital flows; and the real economy channel, which disrupts global trade, supply chains, and commodity markets. Event study analyses using data from recent decades confirm these patterns, highlighting the importance of event-specific responses to mitigate GPR's effects on financial and economic systems.

LUCI: Your Best Friend for Measuring Labor Market Tightness

Which labour market variable best captures labour market developments? To address this, we introduce the Labour Utilization Composite Index (LUCI), which represents the overall cyclical position of the labour market. The LUCI is defined as the first generalized dynamic principal component of the cyclical parts of selected labour market variables, filtered using a multivariate approach to separate trends and noise. Besides indicating labour market tightness, the LUCI serves as a measure of economic slack, aiding in estimating price and wage Phillips curves. It also enables the construction of a 'supercyclical inflation' measure, distinguishing between demand- and supply-driven inflation pressures, thus enhancing the analytical toolkit of the CNB's Monetary Department.

Crises and their Reflection on Financial Market Integration

The article examines financial market integration, introducing the concept of financially aligned markets and presenting methods for measuring alignment. It assesses the progress of financial alignment over the 25 years of the euro area's existence, focusing on the impact of various crises - such as the global financial crisis, Covid-19 and the energy crisis - on the alignment of foreign exchange, money, equity, and government bond markets.

Critical Materials and Commodities

The study explores the availability of critical materials and commodities, emphasising their strategic and geopolitical importance, particularly in the context of renewable energy and electromobility. It examines broader issues related to their use across various industries and analyses the approaches adopted by the EU and the USA to mitigate associated geopolitical risks.

Trends in Germany’s Manufacturing Industry and Foreign Trade after the Pandemic

The study examines the challenges facing Germany's economy, focusing on its manufacturing industry and foreign trade. It analyses the territorial and commodity structures, as well as the connections with domestic and European production, highlighting Germany's deep integration with European industry. The findings underscore the need for a revised growth model to address high energy prices, Chinese competition, and technological lags, as highlighted in Mario Draghi's report on European competitiveness.

A Look at Selected Central Banks’ Balance Sheets and Finances

The article examines the significant expansion of central banks' balance sheets over the past 15 years, their subsequent contraction since 2022, and the historically high levels they still maintain. It explores the impact of large balance sheets and monetary policy tightening on central banks' profitability and equity, highlighting that their primary focus remains on fulfilling their price and financial stability mandates rather than generating profits.