Kabir Dasgupta, Keisha SolomonThe Medicaid continuous enrollment provision, which ensured uninterrupted coverage for beneficiaries during the COVID-19 pandemic, was ended in March 2023. This unwinding process has led to large-scale Medicaid disenrollments, as states resumed their standard renewal process to evaluate enrolled individuals' eligibility status.
We study the implications of deviations from covered interest rate parity for international capital flows using novel data covering euro-area derivatives and securities holdings. Consistent with a dynamic model of currency risk hedging, we document that investors’ holdings of USD bonds decrease following a widening in the USD-EUR cross-currency basis (CCB). This effect is driven by investors with larger FX rollover risk and hedging mandates, and it is robust to instrumenting the CCB. These shifts in bond demand significantly affect bond prices.
This paper explores the impact of the regulatory leverage ratio (LR) on banks’ demand for reserves and thus the pricing of overnight liquidity in the euro area money markets. We use daily transaction-level money market data during the period between January 2017 - February 2023 and examine the two major overnight money market segments – the unsecured and the secured one, distinguishing between over-the-counter (OTC) and CCP-cleared trades for the latter. We find a significant positive link between a bank’s LR and the spread between its money market borrowing rate and the DFR.
Benjamin Knox and Annette Vissing-JorgensenWe propose a new method for decomposing realized stock market capital gains into contributions from changes to the real yield curve, equity premia, and expected dividends. The method centers on changes to observable inputs of the present value formula and requires no regressions or log-linearization.
This paper examines the great supply shock following the pandemic and the invasion of Ukraine, using a novel suite of supply indices. The suite has indices for the euro area total economy, euro area industries, sectors and countries. The suite also computes the contributions to the indices from supply drivers at origin, in transport, or at destination. The results from the suite show that the supply shock has had wide-spread effects, and that their dynamics have been industry-, sector- and country-specific.
This paper investigates the growth impact of the EU’s Structural, Cohesion and Pre-accession Funds. We look at a large sample of 27 EU countries and the UK, over a period of 1989 and 2020, essentially covering the full history of these funds.
The Bank of England welcomes the extension of EU equivalence for the UK’s legal and supervisory framework for central counterparties (CCPs).
Housing affordability is at the centre of the political debate in many euro area countries. With steadily increasing rents and house prices still high relative to historical standards, many young households, particularly in large cities, are devoting an ever larger share of their income to housing expenses, and are finding it increasingly hard to access their desired size and quality of housing.
Flexibility has progressively become a distinctive feature of the implementation of the Eurosystem’s asset purchases. In its many manifestations, flexibility has also been used by asset managers in the daily selection of sovereign bonds to limit the impact of asset purchases on repo market specialness. This study shows that, since the inception of the Public Sector Purchase Programme, flexible purchases of bonds greatly mitigated the Eurosystem’s footprint on the repo market.
Inflation risk premiums tend to be positive in an economy mainly hit by supply shocks, and negative if demand shocks dominate. Risk premiums also fluctuate with risk aversion. We shed light on this nexus in a linear-quadratic equilibrium microfinance model featuring time variation in inflation-consumption correlation and risk aversion. We obtain analytical solutions for real and nominal yield curves and for risk premiums. While changes in the inflation-consumption correlation drive nominal yields, changes in risk aversion drive real yields and act as amplifier on nominal yields.
