Browsing by Author "Ambrocio, Gene"

Sort by: Order: Results:

Now showing items 1-17 of 17
  • Ambrocio, Gene; Hasan, Iftekhar; Jokivuolle, Esa; Ristolainen, Kim (2020)
    Bank of Finland Research Discussion Papers 10/2020
    Published in Journal of Financial Stability 2020 ; 50 ; October https://doi.org/10.1016/j.jfs.2020.100772
    We survey 149 leading academic researchers on bank capital regulation. The median (average) respondent prefers a 10% (15%) minimum non-risk-weighted equity-to-assets ratio, which is considerably higher than the current requirement. North Americans prefer a significantly higher equity-to-assets ratio than Europeans. We find substantial support for the new forms of regulation introduced in Basel III, such as liquidity requirements. Views are most dispersed regarding the use of hybrid assets and bail-inable debt in capital regulation. 70% of experts would support an additional market-based capital requirement. When investigating factors driving capital requirement preferences, we find that the typical expert believes a five percentage points increase in capital requirements would “probably decrease” both the likelihood and social cost of a crisis with “minimal to no change” to loan volumes and economic activity. The best predictor of capital requirement preference is how strongly an expert believes that higher capital requirements would increase the cost of bank lending.
  • Ambrocio, Gene; Hasan, Iftekhar; Jokivuolle, Esa; Ristolainen, Kim (2020)
    Journal of Financial Stability October ; 2020
    Published in BoF DP 10/2020 http://urn.fi/URN:NBN:fi:bof-202006012160
    We survey 149 leading academic researchers on bank capital regulation. The median (average) respondent prefers a 10% (15%) minimum non-risk-weighted equity-to-assets ratio, which is considerably higher than the current requirement. North Americans prefer a significantly higher equity-to-assets ratio than Europeans. We find substantial support for the new forms of regulation introduced in Basel III, such as liquidity requirements. Views are most dispersed regarding the use of hybrid assets and bail-inable debt in capital regulation. 70% of experts would support an additional market-based capital requirement. When investigating factors driving capital requirement preferences, we find that the typical expert believes a five percentage points increase in capital requirements would “probably decrease” both the likelihood and social cost of a crisis with “minimal to no change” to loan volumes and economic activity. The best predictor of capital requirement preference is how strongly an expert believes that higher capital requirements would increase the cost of bank lending.
  • Ambrocio, Gene; Juselius, Mikael (2020)
    BoF Economics Review 2/2020
    The main problem facing policymakers during the corona virus pandemic is how to mitigate its humanitarian and economic costs. Doing so invariably involves trading off some costs against others as well as short-term against longer-term consequences. We provide an overview of economic literature that is relevant for understanding these trade-offs in the context of the current pandemic. We also discuss a range of fiscal measures that can be adopted with the aim of achieving the preferred trade-offs at lowest cost.
  • Ambrocio, Gene (2021)
    Bank of Finland Research Discussion Papers 4/2021
    I study the effects of the Covid-19 pandemic on business confidence in 11 Euro area countries and its consequent impact on economic activity. To obtain causal effects, I instrument business confidence with domestic household confidence as well as average household confidence in neighboring countries. I find evidence suggesting that the confidence and expectations channel was an important component to the economic transmission of Covid-19. A one standard deviation drop in business confidence leads to between 5-6 and 9 percent fall in economic activity in the industrial and wholesale and retail trade sectors respectively. These results highlight the importance of managing confidence and expectations in crises episodes.
  • Ambrocio, Gene (2020)
    BoF Economics Review 6/2020
    Confidence dropped universally across countries and sectors during the height of the COVID-19 pandemic in Europe. Latest survey data suggest that confidence is on track for a v-shaped recovery. The swift implementation of stringent containment measures as well as economic stimulus policy measures, along with several other country characteristics, correlate well with both the drop and recovery of confidence across countries.
  • Ambrocio, Gene (2021)
    Applied Economics Letters 9
    I study the effects of expected and realized uncertainty on Euro area macroeconomic conditions. I use a range of expected and realized uncertainty measures including those based on survey forecasts and find that the effects of expected uncertainty vanish once realized uncertainty is accounted for when using financial or news media-based measures. On the other hand, shocks to a survey-based measure of expected uncertainty do appear to have dampening effects.
  • Ambrocio, Gene; Hasan, Iftekhar (2019)
    Bank of Finland Research Discussion Papers 13/2019
    Do closer political ties with a global superpower improve sovereign borrowing conditions? We use data on voting at the United Nations General Assembly along with foreign aid flows to construct an index of political ties and find evidence that suggests closer political ties leads to both better sovereign credit ratings and lower yields on sovereign bonds. We use heads-of-state official visits and coalition forces troop contributions as exogenous instruments to further strengthen the findings.
  • Ambrocio, Gene (2020)
    Bank of Finland Research Discussion Papers 5/2020
    I construct a novel measure of household uncertainty based on survey data for European countries. I show that household uncertainty shocks are not universally like negative demand shocks. Notably, household uncertainty shocks are largely inflationary in Europe. These results lend support to a pricing bias mechanism as an important transmission channel. A comparison of results across countries suggest that demographics and factors related to average markups along with monetary policy play a role in the transmission of household uncertainty to inflation. I develop an Overlapping Generations New Keynesian model with Deep Habits to rationalize these results.
  • Ambrocio, Gene (2019)
    Bank of Finland Research Discussion Papers 17/2019
    I provide a measure of household uncertainty available for European Union (EU) countries. The measure draws from the same consumer survey data used to construct widely-used consumer sentiment indices. I find that increases in household uncertainty are followed by declines in consumer sentiment and household financial conditions. Using Euro Area-wide indices, I also find that the effects of increases in household uncertainty differ from increases in uncertainty from other sources such as financial markets and economic policy. Notably, household uncertainty shocks are inflationary. These results challenge the notion that (household) uncertainty shocks act like negative demand shocks.
  • Ambrocio, Gene (2021)
    Bank of Finland Bulletin. Blog
    Should monetary policy concern itself with financial stability? If yes, how should it do so? These are some of the questions tackled in the recently concluded monetary policy strategy review by the European Central Bank (ECB).[1] This is an important topic, central to many of the challenges that the Eurosystem has faced since the previous review in 2003. In what follows, I cover some of the major findings on monetary policy and financial stability.
  • Ambrocio, Gene; Hasan, Iftekhar (2018)
    Bank of Finland Research Discussion Papers 17/2018
    Published in Journal of Banking and Finance (Vol 106, September, 2019) as What drives discretion in bank lending? Some evidence and a link to private information
    We assess the extent to which discretion, unexplained variations in the terms of a loan contract, has varied across time and lending institutions and show that part of this discretion is due to private information that lenders have on their borrowers. We find that discretion is lower for secured loans and loans granted by a larger group of lenders, and is larger when the lenders are larger and more profitable. Over time, discretion is also lower around recessions although the private information content is higher. The results suggest that bank discretionary and private information acquisition behaviour may be important features of the credit cycle.
  • Ambrocio, Gene; Hasan, Iftekhar (2021)
    Journal of International Economics November
    Do stronger political ties with a global superpower improve sovereign borrowing conditions? We use data on voting at the United Nations General Assembly along with foreign aid flows to construct an index of political ties and find evidence that suggests stronger political ties with the US is associated with both better sovereign credit ratings and lower yields on sovereign bonds especially among lower income countries. We use official heads-of-state visits to the White House and coalition forces troop contributions as additional measures of the strength of political ties to further reinforce our findings.
  • Ambrocio, Gene (2020)
    Review of Economic Dynamics January
    Published in Bank of Finland DP 24/2015 http://urn.fi/URN:NBN:fi:bof-201511261453
    I provide a theory of information production and learning that can help account for both the excessive optimism that fueled booms preceding crises and the slow recoveries that followed. In my theory, persistence and the size of expectation errors depend on information production about changes in aggregate fundamentals. In turn information production, via credit screening, tends to fall during both very good and very bad times. The former gives rise to episodes of rational exuberance in which optimistic beliefs may sustain booms even as fundamentals decline. I also document evidence from survey forecasts consistent with the model predictions.
  • Ambrocio, Gene (2015)
    Bank of Finland Research Discussion Papers 24/2015
    Published in Review of Economic Dynamics 2020 ; 35 ; January ; pp. 263-282 ; https://doi.org/10.1016/j.red.2019.07.002
    I propose a theory of information production and learning in credit markets in which the incentives to engage in activities that reveal information about aggregate fundamentals vary over the business cycle and may account for both the excessive optimism that fueled booms preceding financial crises and the slow recoveries that followed. In my theory, information about aggregate fundamentals is produced along two dimensions. First, optimistic beliefs lead to a fall in private investment in information reducing the quality of information available, an intensive margin. This gives rise to episodes of rational exuberance where optimism sustains booms even as fundamentals decline in the buildup to crises. Second, the quantity of information is increasing in the level of economic activity, an extensive margin. Thus, recoveries are slow since the low levels of investment and output provide little information about improvements in the state of the economy. Consistent with model predictions, I find supporting evidence in terms of a U-shaped pattern in macro-uncertainty measures over the business cycle. I also discuss the implications on endogenous information production on cyclical macro-prudential policy.
  • Ambrocio, Gene; Jokivuolle, Esa (2017)
    Bank of Finland Research Discussion Papers 10/2017
    We consider optimal capital requirements for banks' lending activities when the potential trade-off between financial stability and economic (productivity) growth is taken into account. Both sides of the trade-off are affected by banks' credit allocation, which in turn is affected by the risk weights used to set capital requirements on bank loans. We find that when firms are credit constrained, the optimal risk weights are flatter than those that are only set to safeguard against bank failures and their social costs. This provides an additional rationale for capital requirements to be less 'risk-sensitive'. Differences in company productivity have a further effect on the profile of optimal risk weights, and may amplify the ‘flattening’ effect.
  • Ambrocio, Gene (2017)
    Bank of Finland Research Discussion Papers 37/2017
    This study provides estimates of the real effects of macro-uncertainty de- composed into fundamental and overconfidence bias components. Crucially, overconfidence biases lower ex-ante measures of uncertainty, while fundamen- tal uncertainty raises both ex-ante and ex-post measures. This distinction is useful since the estimates on the real effects of the overconfidence component of uncertainty mitigate endogeneity concerns. I first document evidence for overconfidence biases from survey density forecasts in the US survey of pro- fessional forecasters. Then, using a sign and zero restrictions identification scheme in a vector autoregression (VAR), I find that increases in fundamental uncertainty and declines in overconfidence tend to lower real activity.
  • Ambrocio, Gene; Hasan, Iftekhar (2019)
    Journal of Banking & Finance September
    Published in Bank of Finland Research Discussion Papers 17/2018.
    We assess the extent to which discretion, unexplained variations in the terms of a loan contract, has varied across time and lending institutions and show that part of this discretion is due to private information that lenders have on their borrowers. We find that discretion is lower for secured loans and loans granted by a larger group of lenders, and is larger when the lenders are larger and more profitable. Over time, discretion is also lower around recessions although the private information content is higher. The results suggest that bank discretionary and private information acquisition behavior may be important features of the credit cycle.