Bank of Finland Research Discussion Papers (1988- )

 

The Bank of Finland Discussion Paper series publishes academic research by economists in the Research Unit and the Bank more broadly, as well as by visiting scholars. The topics are relevant from the point of view of the Bank's strategic aims and contribute to the Bank's research focus on the interplay between and stability of the financial markets and the macroeconomy. Not all Discussion Papers for the years 1989–1994 are available electronically.

Recent Submissions

  • Kortela, Tomi; Nelimarkka, Jaakko (2020)
    Bank of Finland Research Discussion Papers 3/2020
    Since the Great Recession, the main evolution in monetary policy has been its attempts to affect the medium and the long-term interest rates with instruments other than the policy rate. Consequently, measuring the stance of monetary policy by a single interest rate becomes problematic. This study explores the macroeconomic effects of conventional and unconventional policy measures in the euro area in a unified framework. We identify simultaneously three monetary policy shocks that influence different parts of the yield curve. These shocks reflect various aspects of actions and communications of the European Central Bank in conventional and unconventional monetary policy periods. According to the results, conventional interest rate policy, forward guidance and quantitative easing have asymmetric output and price responses.
  • Faria, Gonçalo; Verona, Fabio (2020)
    Bank of Finland Research Discussion Papers 2/2020
    We assess the benefits of using frequency-domain information for active portfolio management. To do so, we forecast the bond risk premium and equity risk premium using a methodology that isolates frequencies (of the predictors) with the highest predictive power. The resulting forecasts are more accurate than those of traditional forecasting methods for both asset classes. When used in the context of active portfolio management, the forecasts based on frequency-domain information lead to better portfolio performances than when using the original time series of the predictors. It produces higher information ratio (0.57 vs 0.45), higher CER gains (1.12% vs 0.81%), and lower maximum drawdown (19.1% vs 19.6%).
  • Hamano, Masashige; Pappadà, Francesco (2020)
    Bank of Finland Research Discussion Papers 1/2020
    This paper revisits the case for exible vs. fixed exchange rate regime in a two-country model with firm heterogeneity and nominal wage rigidity under incomplete financial markets. Dampening nominal exchange rate fluctuations simultaneously stabilizes the firm turnover in the export market. When firms are homogeneous and low productive, the fixed exchange rate regime dominates the flexible one because it reduces the fluctuations in labor demand arising from entry and exit of exporters following a demand shock. We also show that an alternative regulation policy in the export market does not rule out the possible adoption of a managed floating regime.
  • Pancrazi, Roberto; Seoane, Hernán D.; Vukotic, Marija (2019)
    Bank of Finland Research Discussion Papers 25/2019
    We examine the welfare effects of bailouts in economies exposed to sovereign default risk. When a government of a small open economy requests a bailout from an international financial institution, it receives a non-defaultable loan of size G that comes with imposed debt limits. The government endogenously asks for the bailout during recessions and repays it when the economy recovers. Hence, the bailout acts as an imperfect state contingent asset that makes the economy better off. The bailout duration is endogenous and increases with its size. The bailout size creates non-trivial tradeoffs between receiving a larger amount of relatively cheap resources precisely in times of need on the one hand, and facing longer-lasting financial constraints and accumulated interest payments, on the other hand. We characterize and quantify these tradeoffs and document that welfare gains of bailouts are hump-shaped in the size of bailout loans.
  • Kolasa, Marcin; Rubaszek, Michał; Walerych, Małgorzata (2019)
    Bank of Finland Research Discussion Papers 24/2019
    In this paper we challenge the conventional view that increasing working time exibility limits the amplitude of unemployment fluctuations. We start by showing that hours per worker in European countries are much less procyclical than in the US, and in some economies even co-move negatively with output. This is confirmed by the results from a structural VAR model for the euro area, in which working hours increase after a contractionary monetary shock, exacerbating the upward pressure on unemployment. To understand these counterintuitive results, we develop a structural search and matching macroeconomic model with endogenous job separation. We show that this feature is key to generate countercyclical adjustments in working hours. When we augment the model with frictions in working hours adjustment and estimate it using euro area time series, we find that increasing flexibility of working time amplifies cyclical movements in unemployment.