Article

Macro Price setting in the euro area: Some stylised facts from Individual Producer Price

Banque de France, Documents de Travail 01/2007;
Source: RePEc

ABSTRACT This paper analyzes the relationship between banks’ divergent strategies toward specialization and diversification of financial activities and their ability to withstand a banking sector crash. We first generate market-based measures of banks’ systemic risk exposures using extreme value analysis. Systemic banking risk is measured as the tail beta, which equals the probability of a sharp decline in a bank’s stock price conditional on a crash in a banking index. Subsequently, the impact of (the correlation between) interest income and the components of non-interest income on this risk measure is assessed. The heterogeneity in extreme bank risk is attributed to differences in the scope of non-traditional banking activities: non-interest generating activities increase banks’ tail beta. In addition, smaller banks and better-capitalized banks are better able to withstand extremely adverse conditions. These relationships are stronger during turbulent times compared to normal economic conditions. Overall, diversifying financial activities under one umbrella institution does not improve banking system stability, which may explain why financial conglomerates trade at a discount.

0 Bookmarks
 · 
61 Views
  • [Show abstract] [Hide abstract]
    ABSTRACT: So far, there is no consensus on the price adjustment determinants in the empirical literature. Analyzing a novel firm-level business survey data set, we provide new insights on the price setting behavior of German retailers during a low inflation period. Relating the probability of both price and pricing plan adjustment to time- and state-dependent variables, we find that state-dependence is important; the macroeconomic environment as well as the firm-specific condition significantly determines the timing of both actual price changes and pricing plan adjustments. Moreover, input cost changes are important determinants of price setting. Finally, price increases respond more strongly to cost shocks compared to price decreases.
    German Economic Review 03/2013; 15(3). DOI:10.1111/geer.12011 · 0.67 Impact Factor
  • [Show abstract] [Hide abstract]
    ABSTRACT: This article investigates the degree of persistence of different inflation rates for the Spanish economy using the Consumer Price Index (CPI) for the aggregate as well as for the regions, provinces and eight groups of goods and services, in addition to the Producer Price Index (PPI) for the aggregate and 24 industrial sectors. For that purpose, we employ: (1) the unit-root tests with good size and power of Ng and Perron (2001) with the small-sample bias correction developed by Perron and Qu (2007); (2) the nonlinear Exponential Smooth Transition Autoregressive (ESTAR) unit-root test proposed by Kapetanios et al. (2003); (3) median-unbiased estimations of the persistence parameter and the respective confidence intervals through the grid-bootstrap method proposed by Hansen (1999) and (4) median-unbiased estimations of the half-life of a shock in addition to the associated confidence intervals through the method based on impulse-response functions proposed by Gospodinov (2004). The results from the application of these techniques indicate that most of the CPI-based inflation rate series clearly contain a unit root. As regards the results for the PPI-based inflation rate series, we have provided evidence that the aggregate series appears to contain a unit root, while at the industry level the inflation rate series are found to be nonlinear stationary in 13 sectors. On the basis of this robust evidence of high persistence in inflation, policymakers should pay more attention to any shock hitting inflation, since the effects are expected to be long-lasting, particularly for consumer prices. Along these lines, it is essential to implement correcting reforms with the aim of raising price adjustment flexibility if one wants to avoid having to intervene actively in the markets to reach the inflation target.
    Applied Economics 08/2012; 44(23):3029-3046. DOI:10.1080/00036846.2011.568412 · 0.46 Impact Factor
  • [Show abstract] [Hide abstract]
    ABSTRACT: We construct experimental economies, populated with human subjects, with a structure based on a nonlinear version of the New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model. We analyze the behavior of firms’ pricing decisions in four different experimental economies. We consider how well the experimental data conform to a number of accepted empirical stylized facts. Pricing patterns mostly conform to these patterns. Most price changes are positive, and inflation is strongly correlated with average magnitude, but not the frequency, of price changes. Prices are affected negatively by the productivity shock and positively by the output gap. Lagged real interest rate has a negative effect on prices, unless human subjects choose the interest rate, or firms sell perfect substitutes in the output market. There is inertia in price setting, firms integrate wage increases into their prices, and there is evidence of adaptive behavior in price-setting in our laboratory economy. The hazard function for price changes, however, is upward-sloping, in contrast to most empirical studies.
    Journal of Economic Behavior & Organization 11/2014; 109. DOI:10.1016/j.jebo.2014.10.016 · 1.01 Impact Factor

Full-text (2 Sources)

Download
17 Downloads
Available from
Jun 1, 2014