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The photo gallery of BEC 2024 in Tallinn is now available! Thank you for participating in the conference!

Central Bank Stabilisation Policy When Capital Flows Matter: Instruments, Targets, and Trade-offs

Working Papers of Eesti Pank 3/2024
Alfred V. Guender

Wealth disparities between elderly immigrants and natives: a study of Estonia and Latvia

Working Papers of Eesti Pank 4/2024
Liina Rebane, Merike Kukk and Tairi Rõõm

On 23 May at 10.30 am you are kindly invited to attend in Webex the Eesti Pankʼs research seminar in which András Borsos (Magyar Nemzeti Bank) will make the presentation on “Firm-level production networks:  what do we (really) know?”. 

Are standard production network properties similar across all available datasets, and if not, why? We provide benchmark results from two administrative datasets (Ecuador and Hungary), which are exceptional in that there is no reporting threshold. We compare these networks to a leading commercial dataset (FactSet) and published results on national firm-level production networks. Administrative datasets with no reporting thresholds have remarkably similar quantitative properties, while a number of important properties are biased in datasets with missing data.

Co-authors of the paper: Andrea Bacilieri, András Borsos, Pablo Astudillo-Estevez and François Lafond
Full-text of the paper

Meeting information in Webex:

https://eestipank.webex.com/eestipank/j.php?MTID=m96d2570935d3e0896b05eeead66fd202

Meeting number: 2744 731 6268
Password: Jnv5P3gPti5 (56857347, from phones and video systems)

You are welcome to join the Research Seminar of the Department of Economics and Finance of Tallinn University of Technology (TalTech) on Wednesday, 22 May at 16:00-17:00.

In MS Teams, please join via LINK

“Explaining consumer inertia: Drivers of attention and choice in car insurance market”
Kaido Kepp and Kadri Männasoo (Department of Economics and Finance, TalTech)

We study the vehicle lessees’ Motor Own Damage insurance search frictions and choices. We use a consumer-level annual panel of policy and insurance offers’ data from 2010-2018 from the biggest insurance broker consolidating the Estonian car insurance market offers. We apply the two-stage discrete choice model by Hortaçsu et al 2017 that identifies the sources of consumer inertia by separating the attention and choice decisions given the observed switches to new providers. Our results show strong inertia that stems from consumer inattention and considerable heterogeneity of inattention across consumer groups. Consumers choose from a set of offers and their decisions to switch or stay with the current provider reveal substantial price elasticity and a modest effect of insurance provider’s brand preference.

Keywords: car insurance, consumer behavior, choice frictions, consumer inertia, inattention
JEL classification: D12, D83, G22, G52, L84, M31
Authors: Kaido Kepp (Department of Economics and Finance, TalTech), Kadri Männasoo (Department of Economics and Finance, TalTech)
Funding: This work was supported by the European Economic Area (EEA) Financial Mechanism 2014–2021 Baltic Research Program under project S-BMT-21-8 (LT08-2-LMT-K-01-073), COST Action HiTEc, CA21163 (European Cooperation in Science and Technology) and the European Commission Research and Innovation program grant (agreement 952547).

On 16 May at 10.30 am you are kindly invited to attend in Webex the Eesti Pankʼs research seminar in which Julia Le Blanc (Joint Research Centre at the European Commission) will make the presentation on “Housing Wealth Across Countries: The Role of Expectations, Institutions and Preferences”. 

Homeownership rates and holdings of housing wealth differ immensely across countries. We specify and estimate a life cycle model with risky labor income and house prices in which households face a discrete–continuous choice between renting and owning a house, whose sale is subject to transaction costs. The model allows us to quantify three groups of explanatory factors for long-run, structural differences in the extensive and intensive margins of housing: the homeownership rate and the value of housing wealth of homeowners. First, in line with survey evidence, we allow for differences in expectations of house prices. Second, countries differ in the institutional set-up of the housing market: maximum loan–value ratio and costs of renting, maintaining and selling a house. Third, we allow for differences in household preferences: the dispersion in discount factors, the share of housing expenditure and the bequest motive. We estimate the model using micro data from five large economies and provide a decomposition to interpret what drives the cross-country differences in housing wealth. We find that all three groups of factors matter, although preferences less so. Differences in homeownership rates are strongly affected by (i) house price beliefs and (ii) the rental wedge, the difference between rents and maintenance costs, which reflects the quality of the rental market. Differences in the value of housing wealth are substantially driven by housing maintenance costs.

Meeting information in Webex:

https://eestipank.webex.com/eestipank/j.php?MTID=mcd3e9cf28363b1bd660c184bb6ef9c76

Meeting number: 2743 927 9631
Password: REgwGFpn973 (73494376, from phones and video systems

The 6th Baltic Economic Conference takes place in June 2024 in Tallinn.

The deadline for registration has been extended until 17th of May. Please register by 17th of May in conference website.

On 15 May at 11:00-12:00 you are invited to attend the research seminar of the School of Economics and Business Administration of the University of Tartu in which Thomas Post (Maastricht University) will present the research project “Savings goals matter – Cognitive constraints, retirement planning, and downstream economic behaviors”.

We study how cognitive constraints relate to each distinct step of the planning and execution process for retirement, that is, individuals’ propensity to plan, savings goals set, and economic outcomes (wealth accumulation and portfolio choice). We find that different cognitive constraints play distinct roles: Higher advanced financial literacy (and quantitative reasoning ability) predicts a greater propensity to plan, while higher basic financial literacy and verbal cognition predict setting higher savings goals. Math-related abilities are not associated with savings goals in a systematic way. Furthermore, our evidence shows that the economic consequences of retirement planning depend on the earlier set savings goals. In comparison to non-planners, only planners with a higher savings goal (above the median) accumulate more wealth and are more likely to hold risky assets and private annuities. Our findings suggest that when crafting public policy to develop individuals’ retirement readiness, next to improving financial literacy, other targets could be to enhance cognitive skills and to support setting concrete savings goals by, for example, providing better access to planning relevant information and tools.

Zoom meeting

Meeting ID: 923 5942 4506
Passcode: 111852

On 6 May at 14:15-15:15 you are invited to attend the research seminar of the School of Economics and Business Administration of the University of Tartu in which Attila Havas (Hungarian Academy of Sciences) will present the research project “Measurement of innovation: selection of indicators and (mis)use of scoreboards”.

The choice of indicators to measure innovation processes and assess performance is of vital significance. This paper argues that those economic theories give a more accurate, more reliable account of innovation activities that follow a broad approach of innovation, that is, consider all knowledge-intensive activities leading to new products (goods or services), processes, business models, as well as new organisational and managerial solutions, and thus take into account various types, forms and sources of knowledge exploited for innovation by all sorts of actors in all economic sectors. In contrast, the narrow approach to innovation focuses on the so-called high-tech goods and sectors. The broad approach is needed to collect data and other types of information, on which sound theories can be built and reliable and comprehensive analyses of innovation activities can be offered to decision-makers to underpin public policies and company strategies. Analysts and policy-makers need to avoid the trap of paying too much attention to simplifying ranking exercises. Instead, it is of utmost importance to conduct detailed, thorough comparative analyses, identifying the reasons for a disappointing performance, as well as the sources of – opportunities for – balanced, and sustainable, socio-economic development.

Zoom meeting

Meeting ID: 947 0791 2630
Passcode: 549711 Continue reading “Research seminar of the School of Economics and Business Administration of the University of Tartu on 6 May”

You are welcome to join the Research Seminar of the Department of Economics and Finance of Tallinn University of Technology (TalTech) on Wednesday, 15 May at 16:00-17:00.

In MS Teams, please join via LINK

“What Explains the Zero-Debt Puzzle in BRICS Countries? Disentangling the Financial Flexibility and Financial Constraints Hypotheses”
Eleuterio Vallelado (University of Valladolid)

Using a sample of firms from BRICS countries in the period 2010–21, this study assesses the demand and supply sides of debt of companies’ propensity to be unleveraged. This is the first study to provide a formal empirical test of the financial flexibility and financial constraints hypotheses using firm- as well as country-based variables in the context of emerging countries. A bivariate probit model with partial observability in the sense of Poirier (1980) is used as a primary econometric technique. On the demand side, the results show that the propensity for a company to be unleveraged increases when the managers are debt averse and/or the company is in its earliest life cycle stage. Enjoying significant growth opportunities, being solvent and exhibiting a concentrated ownership structure contribute to becoming a low-leveraged company. A country’s institutional quality correlates with the chances of being a debt-free firm. On the supply side, creditors will provide resources to companies without the best financial reporting records if they operate in countries with more developed capital markets and significant economic freedom. The likelihood of being a low-leveraged company due to financial flexibility increases with the firm’s market capitalization, pay-out-ratio, growth opportunities, financial health, and ownership structure. Financial restrictions drive companies’ low-leveraged capital structure as they are small, exhibit shrinking profitability, dispersed ownership structure, reduced dividends, and operate in BRICS-based countries with low economic freedom.

Keywords: zero leverage; BRICS; financial flexibility, financial restrictions, capital structure; bivariate probit model
JEL classification: G14, G32
Authors: Paolo Saona (Saint Louis University; Universidad Católica de la Santísima Concepción and Universidad Pontificia Comillas), Pablo San-Martin (Universidad Católica de la Santísima Concepción), Eleuterio Vallelado (Universidad de Valladolid)

The 2nd Baltic Central Banks’ Invited Lecture Series (BCBILS) was held on 9-11 April 2024

The event took place in Tallinn and consisted of a seminar and a six-lecture long course by a famous macroeconomist Ricardo Reis. The topic of the training course was “How do central banks control inflation? Theory and applications to the recent inflation disaster”. The course was structured around the research paper “How do central banks control inflation? A guide for the perplexed” by Laura Castillo-Martinez (Duke University) and Ricardo Reis (LSE).

On the first day of the event, participants presented their own research on topical issues in monetary policy, such as quantitative tightening and inflation expectations.

Looking forward to meeting you at the 3rd edition of BCBILS, which will take place in spring 2025 in Latvia. The announcement will be published in December 2024 on this website and Inomics.