OREANDA-NEWS. The Central Bank of Ireland today pre-releases three signed articles from the forthcoming Central Bank Quarterly Bulletin 2015 Q3, entitled:

Labour Cost Adjustment during the Crisis: Firm-level Evidence

This article introduces a new firm-level dataset, based on the results from a survey on the wage-setting practices of Irish firms undertaken as part of the Eurosystem Wage Dynamics Network. These survey results represent a useful resource for policy makers, allowing for firm-level analysis of the approach to the adjustment of labour demand and wages in the face of a large negative shock.

A number of findings are worth highlighting in relation to the results of this survey:

  • In terms of the labour cost cutting approach, firms relied upon both reductions in the quantity of labour (employment and hours) and the price of labour (wages). Employee numbers were the most widely relied upon margin of adjustment, followed by wage cuts and hours.
  • While the majority of firms opted to freeze base wages, in the region of 60 per cent, there is strong evidence of downward wage flexibility, with around one quarter of firms cutting wages.
  • A comparison with previous findings in relation to Ireland and other euro area countries points to a dramatic increase in the incidence of wage freezes and wage cuts amongst Irish firms during the 2008-2013 period.   
  • A sizable share of firms, predominantly foreign-owned, did not implement pay freezes or cuts but increased wages - almost 14 per cent during 2008-2009, rising further to 19 per cent in 2010-2013.

The Expanded Asset Purchase Programme – What, Why and How of Euro Area QE

This article explains the what, why and how of the ECB’s expanded asset purchase programme, commonly referred to as ‘Quantitative Easing’. The announcement of the expanded APP by the Governing Council of the ECB in January 2015 marked the beginning of an unprecedented programme of asset purchases in the euro area, the effect of which is likely to be wide ranging.

This article discusses:

  • The reasons behind the decision to introduce the programme.
  • The details of how the programme will be carried out.
  • The channels through which the programme is expected to affect the real economy, namely:

            - the portfolio rebalancing channel,

            - the bank lending channel, and

            - the signalling channel.

  • The article also outlines some of main financial and macroeconomic variables which might reasonably be affected by the programme. While the article does not attempt to draw firm conclusions about the effect of the programme at this early stage, Box 2 outlines some of the methods that can be used when more data are available.

Data Gaps and Shadow Banking: Profiling Special Purpose Vehicles’ Activities in Ireland

The role of shadow banking and securitisation has gained increasing national and international attention since the start of the global financial crisis in 2007. Ireland has a sizeable non-bank financial sector with a number of key components including money market funds, investment funds and other financial intermediaries. This article focuses on the activities of financial vehicle corporations (FVCs) and special purpose vehicles (SPVs). 

The main findings of the article are:

  • Within the Section 110 framework, there are approximately 1,300 FVCs and SPVs registered in Ireland in 2012.
  • FVCs and SPVs have limited direct links to the domestic economy but are connected to the wider global financial system as the majority of their assets and liabilities are located outside of Ireland.
  • These vehicles are engaged in a diverse range of activities and have significant interconnectedness with the banking sector.
  • Although current and forthcoming regulations will improve oversight of the sector, some SPV activity will remain outside of the regulatory perimeter.
  • In order to better assess the financial stability impact of this sector, the Central Bank of Ireland will extend its reporting requirements to SPVs.