a b s t r a c t Ravn, Morten O., Schmitt-Grohė , Stephanie, Uribe, Martín, and Uuskula, Lenno-Deep habits and the dynamic effects of monetary policy shocksWe introduce deep habits into a sticky-price sticky-wage economy and examine the resulting models ability to account for the impact of monetary policy shocks. The deep habits mechanism gives rise to countercyclical markup movements even when prices are flexible and interacts with nominal rigidities in interesting ways. Key parameters are estimated using a limited information approach. The deep habits model can account very precisely for the persistent impact of monetary policy shocks on aggregate consumption and for both the price puzzle and inflation persistence. A key insight is that the deep habits mechanism and nominal rigidities are complementary: the deep habits model can account for the dynamic effects of monetary policy shock at low to moderate levels of nominal rigidities. The results are shown to be stable over time and not caused by monetary policy changes.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Information on all of the papers published in the ECB Working Paper Series can be found on the ECB's website, http://www.ecb. europa.eu/pub/scientific/wps/date/html/index.en.html Acknowledgements This paper presents the authors' personal opinions and does not necessarily reflect the views of the European Central Bank, the Bank of Estonia, the Eurosystem or the OECD. We thank Paolo Gambetti for research assistance, the editorial board and an anonymous referee of the ECB Working Paper Series as well as participants at seminars at the ECB, the Bank of Estonia, and a workshop at the Bank of Italy for useful comments. Terms of use: Documents in EconStor may Michael EhrmannEuropean Central Bank; e-mail: michael.ehrmann@ecb.europa.eu Chiara OsbatEuropean Central Bank; e-mail: chiara.osbat@ecb.europa.eu Jan StraskyOrganisation for Economic Co-operation and Development; e-mail: jan.strasky@oecd.org Lenno UuskülaBank of Estonia; e-mail: lenno.uuskyla@eestipank.ee AbstractThis paper studies the determinants of the euro exchange rate during the European sovereign debt crisis, allowing a role for macroeconomic fundamentals, policy actions and the public debate by policy makers. It finds that the euro exchange rate mainly danced to its own tune, with a particularly low explanatory power for macroeconomic fundamentals. Among the few factors that are found to have affected changes in exchanges rate levels are policy actions at the EU level and by the ECB. The findings of the paper also suggest that financial markets might have been less reactive to the public debate by policy makers than previously feared. Still, there are instances where exchange rate volatility was increasing in response to news, such as on days when several politicians from AAA-rated countries went public with negative statements, suggesting that communication by policy makers at times of crisis should be cautious about triggering undesirable financial market reactions. JEL-codes: E52, E62, F31, F42, G14Keywords: exchange rates; fundamentals; announcements; sovereign debt crisis.1 Non-technical summaryDuring the entire European sovereign debt crisis, the exchange rate of the euro against many currencies has remained extremely volatile. Several commentators have attributed the evolution of the euro exchange rate not only to the economic fundamentals, but also to the public controversy among policy makers about the European sovereign debt crisis and possible remedies. The current paper studies the deter...

PurposeLarge or increasing stocks of non-performing loans in the banking sector constitute threats to financial stability. This paper considers to which extent various macroeconomic and macro-financial factors may serve as leading indicators for the dynamics of the ratio of non-performing loans to total loans.Design/methodology/approachThe paper estimates panel data models for all EU countries and two groups of EU countries using quarterly data over approximately 20 years.FindingsThe estimations show that many macroeconomic and macro-financial variables are leading indicators for non-performing loans in the EU countries, even years ahead. Higher GDP growth, lower inflation and lower debt are robust leading indicators of a lower ratio of non-performing loans in the future. The current account balance and real house prices are important indicators for the Western European group but not for the Central and Eastern European group.Research limitations/implicationsThe estimations are carried out for panels of EU countries and the effects may hence be seen as averages for the countries in the particular panel and may not apply for individual countries.Practical implicationsNational and international authorities have brought in systems to detect and address imbalances and emerging problems in the financial sectors. Many of the measures operate with long lags, and so it is important to assess whether various macroeconomic and macro-financial variables may serve as leading indicators for future developments of non-performing loans.Originality/valueThe main contribution of the paper is that it estimates models meant expressly for predicting non-performing loans several years ahead. The results are thus of practical use for national and international authorities which typically have access to measures that operate with a long delay. The analysis also includes more macroeconomic and macro-financial variables as leading indicators than have typically been used in earlier studies.

This paper studies the effect of a monetary policy shock in the euro area on the main Estonian economic and financial variables between 2000 and 2012. Using a standard structural vector autoregression (SVAR) model we find strong and persistent effects on Estonian GDP, private consumption, corporate investment, and imports. A monetary policy shock also has strong and sluggish effects on the housing loan and consumer credit interest rates. The estimated reaction of Estonian GDP and the GDP deflator-based inflation rate is about four times stronger than the reaction of euro area-wide aggregates. The strength of the impact depends on the inclusion of the data from the years of the recent financial and economic crisis.

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