The ‘Visible Hand’ of the ECB’s Quantitative Easing. CEPS Working Document No. 407/May 2015

Quantitative easing à la ECB has produced so far an impact on long-term nominal rates through ex ante channels: signalling channels, term duration channels, and risk premia channels. The term duration channel will also lead to a lengthening of the average maturity of government debts, with possible implications for fiscal policy. The ECB’s determination to buy government bonds in a fragmented market with a low net supply may also produce an ex post impact, during the actual asset purchases, but less on nominal rates and more on financial plumbing, as recent volatility suggests. As the effects of scarce supply in collateral markets are felt, repo rates remain well below zero. Lower supply and limited re-usability of high quality collateral, capped by regulatory requirements, is a constraint on market liquidity and compresses dealers’ balance sheets. By keeping a depressed yield curve and asset prices high, QE may also accelerate the consolidation of both traditional and capital-market based (dealer) bank business models. What is less clear is how these changing business models will interact with the sharp rise of the asset management industry in the aftermath of the crisis, which raises questions about the implications for global collateral flows and deposit-like funding channels.

The Crowding-out Effect of Mandatory Labour Market Pension Schemes on Private Savings. Evidence from renters in Denmark. CEPS Working Document No. 389, February 2014

This paper aims to estimate the crowding-out effect of the Danish mandatory labour market pension reforms begun in 1993 on the level of total household savings for renters. The effect is identified via a large panel of individual administrative records utilising the differences in speed, timing and sectoral coverage of the implementation of the reform in the period 1997 to 2005. Little substitutability was found between current mandatory labour market pension savings and private voluntary savings. Each euro paid into mandatory labour market pension accounts results in a reduction in private savings of approximately 0 to 30 cents, depending on age. This low rate of substitution is only, to a minor extent, explained by liquidity constraints. The results point to mandatory pension savings having a large effect on total household savings. Thus, pension reforms that introduce mandatory savings have macroeconomic implications.

Self-Fulfilling Crises in the Eurozone: An Empirical Test. CEPS Working Document No. 366, 22 June 2012

This paper tests the hypothesis that government bond markets in the eurozone are more fragile and more susceptible to self-fulfilling liquidity crises than in stand-alone countries. We find evidence that a significant part of the surge in the spreads of the PIGS countries (Portugal, Ireland, Greece and Spain) in the eurozone during 2010-11 was disconnected from underlying increases in the debt-to-GDP ratios and fiscal space variables, and was the result of negative self-fulfilling market sentiments that became very strong since the end of 2010. We argue that this can drive member countries of the eurozone into bad equilibria. We also find evidence that after years of neglecting high government debt, investors became increasingly worried about this in the eurozone, and reacted by raising the spreads. No such worries developed in stand-alone countries despite the fact that debt-to-GDP ratios and fiscal space variables were equally high and increasing in these countries.

Pre-empting technical barriers in the Single Market. CEPS Policy Brief No. 277, 11 July 2012

Effective enforcement and compliance with EU law is not just a legal necessity, it is also of economic interest since the potential of the Single Market will be fully exploited. Enforcement barriers generate unjustified costs and hindrances or uncertainty for cross-border business and might deprive consumers from receiving the full benefit of greater choice and/or cheaper offers. The EU has developed several types of enforcement efforts (preventive initiatives, pre-infringement initiatives and formal infringement procedures). More recently, the emphasis has been placed on effective prevention. This CEPS Policy Brief analyses the functioning of one preventive mechanism (the 98/34 Directive) and assesses its potential to detect and prevent technical or other barriers in the course of the last 25 years. Based on an empirical approach, it shows that this amazing mechanism has successfully prevented thousands of new technical barriers from arising in the internal goods market.