Juan Angel García

Flight-to-liquidity flows in the euro area sovereign debt crisis

In periods of market stress, portfolio reallocations in bond markets reflect both safety and liquidity concerns. Using sovereign and national agency bonds, we construct indicators of liquidity premia in major euro area bond markets; we document the weakening of the correlation between core and periphery market liquidity during the euro area sovereign bond crisis; and we identify several episodes of significant flight-to-liquidity (FTL) flows above and beyond flight-to-safety (FTS) spells in the period 2009-13. We show that FTL flows led to significant inverse moves in sovereign bond yields in euro area core and periphery markets. Moreover, FTL flows triggered declines in core and periphery stock markets and are associated with lower macroeconomic confidence in the euro area as a whole, which underscores the importance of FTL episodes for investors and policymakers alike.

Relative Wage Concern and the Keynesian Contract Multiplier

Recent quantitative dynamic general equilibrium models have cast serious doubts on the explanatory power of staggered wage/price setting in accounting for both output and inflation persistence. The authors enlarge a dynamic general equilibrium model with staggered wages by incorporating Keynesian relative wage concern on the part of workers.

Price/Wage Staggering and Persistence

Recent literature reaches contrasting conclusions on the ability of price/wage staggering models to generate output persistence. The authors derive fairly general results from a stylised log-linear model which encompasses most of the microfound model of price/wage staggering.

Inflation News and Euro Area Inflation Expectations

Do euro area inflation expectations remain well-anchored? This paper finds that the protracted period of low (and below-target) inflation in the euro area since 2013 has weakened their anchoring. Testing their sensitivity to inflation and macroeconomic news, this paper expands existing results in two key dimensions. First, by analyzing all available (advanced) inflation releases. Second, the reactions of expectations are investigated at daily, time-varying and intraday frequency regressions to add robustness to our conclusions. Results point to a significant impact of inflation news over recent years that had not been observed before in the euro area.