if this message does not display correctly, click here | Table of Contents Stefano Herzel, University of Rome Tor Vergata - Faculty of Economics
Marco Nicolosi, Sapienza University of Rome Klaus Adam, University of Mannheim, European Central Bank (ECB) - Department of Research, Centre for Economic Policy Research (CEPR)
Andrey Alexandrov, University of Rome Tor Vergata - Department of Economics and Finance
Henning Weber, Deutsche Bundesbank Lorenzo Bozzoli, University of Toulouse Capitole - Toulouse School of Economics
Guillaume Pommey, University of Rome Tor Vergata | |
CEIS: CENTRE FOR ECONOMIC & INTERNATIONAL STUDIES
Marianna Brunetti - Director "Sensitivity of the Euro OIS Term Structure to ECB Policy Rate Surprises " 
CEIS Working Paper No. 619 STEFANO HERZEL, University of Rome Tor Vergata - Faculty of Economics
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MARCO NICOLOSI, Sapienza University of Rome
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We analyze the sensitivity of the euro-area yield curve to revisions in market expectations of the ECB policy rate. Using changes in the maintenance-period forward OIS as a market-based measure of policy-rate surprises, we document that yield responses vary systematically across maturities. To interpret these patterns, we adopt a short-rate model with stochastic jumps occurring only at scheduled ECB meeting dates and derive closed-form expressions for the conditional sensitivity of yields to changes in the expected jump size. We compare the model-implied term-structure responses with realized yield changes on days of large revisions in expectations. The model reproduces the cross-sectional shape and magnitude of observed sensitivities, especially the pronounced peak at intermediate maturities, underscoring the importance of incorporating scheduled jump times when modeling interest-rate dynamics. "The Misallocation Costs of Inflation: A Sufficient Statistics Approach"
CEIS Working Paper No. 620 KLAUS ADAM, University of Mannheim, European Central Bank (ECB) - Department of Research, Centre for Economic Policy Research (CEPR)
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ANDREY ALEXANDROV, University of Rome Tor Vergata - Department of Economics and Finance
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HENNING WEBER, Deutsche Bundesbank
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The misallocation costs associated with different aggregate inflation rates can be estimated from micro price data via a set of sufficient statistics. We show that this works for a broad class of price-setting models and in the presence of unobserved product-level heterogeneity in pricing frictions and flexible prices. Applying the sufficient statistics approach to the micro price data underlying the U.K. consumer price index, we find large misallocation costs: aggregate productivity falls by about 1% if aggregate inflation is 8 percentage points above or below its optimal rate of 1.8%. Our findings provide important lessons for the calibration of sticky-price models: standard calibration targets can be uninformative about the sufficient statistics characterizing misallocation costs. To correctly capture these costs, models should be directly calibrated to the sufficient statistics that we uncover. JEL Class. No.: E31, E58 * We thank Yvette Agape for valuable research assistance. Klaus Adam acknowledges support from the Deutsche Forschungsgemeinschaft through CRC-TR 224 (Project C02). The opinions expressed in this paper are those of the authors and do not necessarily reflect the views of the Deutsche Bundesbank or the Eurosystem. "Flexibility Versus Security in Agency Contracts with Moral Hazard"
CEIS Working Paper No. 621 LORENZO BOZZOLI, University of Toulouse Capitole - Toulouse School of Economics
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GUILLAUME POMMEY, University of Rome Tor Vergata
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We study agency contracts where a project owner (principal) privately learns her opportunity cost of continuing the relationship after the agent's effort is sunk. The principal controls the design of termination rights and faces a trade-off between preserving incentives and retaining exit flexibility. Even without legal constraints, fully flexible (at-will), fully rigid (lock-in), and intermediate contracts offering partial security and compensation can all arise at equilibrium. While some contracts may appear to protect the agent, they are always socially inefficient, justifying targeted legal constraints on termination rights. In particular, at-will contracts always under-secure the agent and under-enforce the project and can be banned on efficiency grounds. Inefficiencies also include excessive termination payments and over-securing, suggesting both too much and too little flexibility distort outcomes. Finally, we characterize a minimal mandatory termination fee, as commonly seen in employment protection laws, that partially restores efficiency. | | ^top
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