The Interaction between Mortgage Financing and Housing Prices in Greece

Although the close empirical relationship between the evolution of mortgage lending and housing prices is well established in the literature, the direction of causation is less clear from a theoretical standpoint. We apply multivariate cointegration techniques in order to address this issue empirically for the Greek economy. Our results, based on a cointegration relationship that we identify as a mortgage loan demand equation, indicate that housing prices do not adjust to disequilibria in the market for housing loans. This suggests that in the long run the causation does not run from mortgage lending to housing prices. In the short run we find evidence of a contemporaneous bi-directional dependence.Housing loans; Housing prices; Multivariate cointegration

Capital Flows, Capital Account Liberalisation and the Mediterranean Countries

This paper examines questions related to possible capital account liberalisation in the Mediterranean countries. First, we provide an overview of the extent to which these countries have capital controls along with their exchange rate regimes and some basic macroeconomic aggregates. Second, we examine the case for capital account liberalisation, along with the prerequisites for successful liberalisation. Here we consider issues such as sequencing and possible benefits of synchronisation. Finally, we examine the experience with capital flows – both FDI and other capital flows. We explain these flows and use the past experience of these countries to draw some conclusions for the successful opening up of the capital account.capital account liberalisation, Mediterranean countries, capital flows

Home bias in bank sovereign bond purchases and the bank-sovereign nexus

We study whether a pre-existing link between bank and sovereign credit risk biased euro area banks' sovereign debt portfolio choices during 2011Q4 and 2012Q1 – a period of exceptional increases in their domestic sovereign bond holdings. We find that banks whose creditworthiness is linked to that of the respective sovereign tended to purchase higher amounts of domestic sovereign bonds relative to their main assets if the CDS spreads on domestic sovereign bonds were higher. Moreover, for elevated sovereign CDS levels, banks whose creditworthiness is ex ante more strongly positively correlated with that of the local sovereign exhibit larger purchases of domestic government bonds. These findings are consistent with 'risk shifting' behaviour, where by investing in domestic government bonds banks earn the full, high risk premium while the risk is largely borne by their creditors as it materialises in states of the world where the banks are likely to be insolvent anyway. As a result, domestic sovereign debt offers ex ante higher returns to bank shareholders than alternative ways to build up precautionary liquidity buffers or indeed to execute carry trades, such as to invest in non-domestic government bonds

Dynamic Incentive Effects of Team Formation: Experimental Evidence

Optimal team composition has been the focus of exhaustive analysis, academic and otherwise. Yet, much of this analysis has ignored possible dynamic effects: e.g., anticipating that team formation is based on prior performance will affect prior performance. We test this hypothesis in a lab experiment with two stages of a real effort task. Participants first work individually without monetary incentives and are then assigned to teams of two where compensation is based on team performance. Our results are consistent with a simple investment-cum-matching model: pairing the worst performing individuals with the best yields 20% lower first stage effort than random matching. Pairing the best with the best, however, yields 5% higher first stage effort than random matching. In line with the theory the latter result is more pronounced when the task has less scope for learning-by-doing. Moreover, pairing the best with the best achieves the same effort response as having explicit monetary incentives in the first stage

Some Thoughts on the External Finance Premium and the Cost of Internal Finance

We draw a conceptual distinction between the cost and the opportunity cost of internal finance, the latter being an integral part of the definition of the external finance premium in the literature. We come up with an operational definition of the cost of internal finance and calculate its differential with the cost of external finance. We further delve into the concept of the equilibrium real interest rate and measure it in terms of the cost of internal finance as the rate that would prevail in the long run after temporary shocks in the economy have died out

Corporate finance in the euro area – including background material

This report analyses the financial position of non-financial enterprises in the euro area, in particular the amount of external financing, the choice between debt and equity and the composition and maturity structure of debt. It aims at identifying the main features of the euro area, as well as the peculiarities that depend on the country of origin and the sector of activity. Attention is also devoted to assessing whether a country’s institutional eatures are correlated with different financial structures by firms. In light of the particular interest in the access of small and medium-sized enterprises (SMEs) to financing, the report also analyses how financing patterns differ across large, medium-sized and small enterprises. Finally, the report discusses the recent trends observed in the corporate finance landscape of the euro area over the past few years. Although it is still too early to pass final judgement, vast structural changes are underway that could have already influenced in a positive way in the availability of external funds for firms. All in all, a comprehensive understanding of corporate finance in the euro area is important from a monetary policy perspective, given its impact on the transmission mechanism and for productivity and economic growth. Moreover, such an understanding is also relevant from a financial stability perspective. A first assessment is now possible eight years into the third stage of Economic and Monetary Union (EMU), given that sufficient data have been accumulated during this period. This assessment is particularly important as the introduction of the single currency has had significant structural effects on the working of financial markets, increasing their size and liquidity, and fostering cross-border competition. The data available for this report generally cover the period 1995-2005, and the cut-off date for the statistics included is 10 March 2007.

The Interaction between Mortgage Financing and Housing Prices in Greece

Housing loans, Housing prices, Multivariate cointegration,

Central bank digital currency and monetary policy implementation

This paper discusses the impact that a retail central bank digital currency (CBDC) could have on the implementation of monetary policy. Monetary policy implementation could be affected if the introduction of the retail CBDC changes the volume of commercial bank deposits held by customers, which would, in turn, affect central bank reserves. While it is often assumed that customer deposits would decrease if a CBDC was introduced, we provide arguments why this is by no means clear cut and deposits could even increase. If bank deposits do decrease, banks would need to draw on, and therefore reduce, their central bank reserve holdings. Moreover, uncertainty as to the timing and extent of any conversions of deposits into CBDC might prompt banks to scale up their demand for central bank reserves in order to hold larger precautionary buffers. Consequently, central banks might need to adjust their reserve supply and other features of their monetary policy implementation, depending, for example, on whether they use a floor or a corridor system for monetary policy implementation. In the specific case of the digital euro, the features already envisaged for its design would make it possible to minimise the risk of negative consequences for monetary policy implementation

Incentivizing Team Leaders: A Firm-Level Experiment on Subjective Performance Evaluation of Leadership Skills

In teamwork settings, providing effective leadership can be challenging for team leaders due to multitasking and the difficulty in measuring and rewarding leadership input. These challenges might lead to underprovision of leadership activities, which can ultimately impede the productivity of the team. To address this problem, we conduct a field experiment at a manufacturing firm, introducing a relative subjective performance evaluation of team leaders' leadership activities by their managers, coupled with bonuses based on their leadership rank among all leaders. Our intervention increased worker productivity by approximately 7%, while leaving team leaders' productivity unchanged, and was profitable for the firm. During the intervention, we observe a positive correlation between the evaluations of team leaders and the productivity of team members, suggesting that the subjective evaluation indeed increased leadership activities and thus productivity