Financial institutions

Using detailed micro-data, this paper documents that households with lower income risk (and higher income levels) exhibit a higher Marginal Propensity to Consume (MPC) in response to transitory income shocks, all else being equal. This finding is particularly significant among unconstrained households and supported by models with precautionary saving only if designed to account for the empirically observed negative correlation between income levels and income risk.

Manuel González-Astudillo and Rakeen TanvirThis paper estimates a time-varying reaction function of the median participant of the Federal Open Market Committee, using a Taylor rule with time-varying coefficients estimated on one- to three-year ahead median forecasts of the federal funds rate, inflation, and the unemployment rate from the Summary of Economic Projections (SEP). We estimate the model with Bayesian methods, incorporating the effective lower bound on the median federal funds rate projections.

This box summarises the findings of an ad hoc survey of leading firms operating in the euro area, looking at current trends in global production location and input sourcing, and their impact on activity and prices. The responses indicate that firms increasingly expect to respond to heightened geopolitical risk. In the next five years, more so than in the last five years, firms expect to diversify the location of their operations and their sources of inputs, and to move operations and supply chains to countries that are geographically and geopolitically closer to the final points of sale.

This paper investigates the contribution of capital markets to international risk sharing in the euro area over the 2000Q1-2021Q1 period. It provides three main contributions: First, the estimation of country-specific vector autoregressions (VAR) shows that shock absorption through capital markets remains modest, particularly in the southern euro area. Second, we analyse the geographical patterns of the capital channel.