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Lorenzo Burlon
Monetary Policy
- Division
Monetary Analysis
- Current Position
-
Head of Section
- Fields of interest
-
Macroeconomics and Monetary Economics,Financial Economics
- Education
- 2008-2011
PhD, Universitat Autònoma de Barcelona, Barcelona, Spain
- 2007-2008
MA (Erasmus Mundus), Université de Paris I "Panthéon - Sorbonne" and Universitat Autònoma de Barcelona, Paris and Barcelona, France and Spain
- 2006-2007
Diplôme Universitaire, Université de Paris I "Panthéon - Sorbonne", Paris, France
- Professional experience
- 2023-
Head of Bank Lending Conditions Section, Monetary Analysis Division, Directorate General Monetary Policy, European Central Bank
- 2021-2023
Lead Economist - Monetary Analysis Division, Directorate General Monetary Policy, European Central Bank
- 2020-2021
Senior Economist - Monetary Analysis Division, Directorate General Monetary Policy, European Central Bank
- 2018-2019
Economist - Monetary Analysis Division, Directorate General Monetary Policy, European Central Bank
- 2012-2018
Economist - Modelling and Forecasting Division, Directorate General Economics, Statistics and Research, Banca d'Italia
- 2016
Secondee (EWE) - Monetary Policy Strategy Division, Directorate General Economics, European Central Bank
- 2012
Temporary lecturer - Ljubljana Summer School, University of Ljubljana, Slovenia
- 2011-2012
Postdoctoral Research Fellow, University of Barcelona, Spain
- Awards
- 2010
Louis-André Gérard-Varet Prize (best paper by a young economist) at the Annual Meeting of ASSET
- 2010
Urrutia Elejalde Foundation Award for Excellence in Doctoral Studies
- 2010
Best Paper Award at the III Doctoral Meeting of Montpellier
- Teaching experience
- 2012
Lecturer (Undergraduate: Macroeconomics I), University of Ljubljana, Slovenia
- 2011-2012
Lecturer (Graduate: Macroeconomics I; Undergraduate: Macroeconomics), University of Barcelona, Spain
- 2008-2011
Teaching Assistant (Undergraduate: Econometrics, Advanced Macroeconomics, Introduction to Economics, Macroeconomics I, Macroeconomics II, Optimization, Macroeconomic Theory), Universitat Autònoma de Barcelona, Spain
- 8 May 2024
- WORKING PAPER SERIES - No. 2937Details
- Abstract
- We construct a novel measure of bank performance, investigate its determinants, and show that it affects bank resilience, lending behaviour and real outcomes. Using confidential and granular data, we measure performance against a market-based benchmark portfolio that mimics individual banks’ interest rate and credit risk exposure. From 2015 to mid-2022, euro area banks underperformed market benchmarks by around e160 billion per year, amid substantial heterogeneity. Structural factors, such as cost inefficiencies, rather than monetary or regulatory measures, were the main driver of bank underperformance. We also show that higher edge banks are less reliant on government support measures and less likely to experience the materialisation of interest rate or credit risk when hit by shocks. Using the euro area credit register and the pandemic shock for identification, we find that higher edge banks originate more credit, direct it towards more productive firms, and support more firm investment.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 12 September 2022
- OCCASIONAL PAPER SERIES - No. 302Details
- Abstract
- This paper reviews the experience of the ECB with the two-tier system for excess reserve remuneration that exempted a portion of banks’ excess liquidity (EL) holdings from the negative interest rate of the ECB’s deposit facility.
- JEL Code
- E41 : Macroeconomics and Monetary Economics→Money and Interest Rates→Demand for Money
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
- 28 July 2022
- WORKING PAPER SERIES - No. 2689Details
- Abstract
- We provide evidence on the estimated effects of digital euro news on bank valuations and lending and find that they depend on deposit reliance and design features aimed at calibrating the quantity of CBDC. Then, we develop a quantitative DSGE model that replicates such evidence and incorporates key selected mechanisms through which CBDC issuance could affect bank intermediation and the economy. Under empirically-relevant assumptions (i.e., central bank collateral requirements and imperfect substitutability across CBDC, cash and deposits), the issuance of CBDC yields non-trivial trade-offss and effects through an expansion of the central bank balance sheet and profits. The issuance of CBDC exerts a smoothing effect on lending and real GDP by stabilizing deposit holdings. Such "stabilization effect" improves the well-known liquidity services/disintermediation trade-off induced by CBDC and permits to rank different types of CBDC rules according to individual and social preferences. Welfare-maximizing CBDC policy rules are effective in mitigating the risk of bank disintermediation and induce significant welfare gains.
- JEL Code
- E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 22 July 2022
- WORKING PAPER SERIES - No. 2682Details
- Abstract
- We assess whether central bank credit operations influence the size and composition of bank credit in a negative interest rate environment. We exploit confidential information from the newly established European credit registry to capture bank lending conditions and bank risk taking. For identification, we use high-frequency reactions of bank bonds around the announcement of the April 2020 recalibration of the ECB’s Targeted Longer-Term Refinancing Operations (TLTROs). We find that the credit easing measures had a strong positive effect on bank credit, even when controlling for possible confounding factors. The increase in lending was not accompanied by excessive risk-taking, especially for banks with low intermediation margin, that is, those that were poised to benefit the most from TLTROs’ borrowing rates below the interest rates on central bank reserves.
- JEL Code
- E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 12 May 2022
- OCCASIONAL PAPER SERIES - No. 293Details
- Abstract
- In July 2021 the Eurosystem decided to launch the investigation phase of the digital euro project, which aims to provide euro area citizens with access to central bank money in an increasingly digitalised world. While a digital euro could offer a wide range of benefits, it could prompt changes in the demand for bank deposits and services from private financial entities (ECB, 2020a), with knock-on consequences for bank lending and resilience. By inducing bank disintermediation, a central bank digital currency, or CBDC, could in principle alter the transmission of monetary policy and impact financial stability. To prevent this risk, options to moderate CBDC take-up are being discussed widely.In view of the significant degree of uncertainty surrounding the design of a potential digital euro, its demand and the prevailing environment in which it would be introduced, this paper explores a set of analytical exercises that can offer insights into the consequences it could have for bank intermediation in the euro area.Based on assumptions about the degree of substitution between different forms of money in normal times, several take-up scenarios are calculated to illustrate how the potential demand for a digital euro might shape up. The paper then analyses the mechanisms through which commercial banks and the central bank could react to the introduction of a digital euro. Overall, effects on bank intermediation are found to vary across credit institutions in normal times and to be potentially larger in stressed times. Further, a potential digital euro’s capacity to alter system-wide bank run dynamics appears to depend on a few crucial factors, such as CBDC remuneration and usage limits.
- JEL Code
- E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 25 February 2022
- WORKING PAPER SERIES - No. 2649Details
- Abstract
- Exploiting the introduction of the ECB’s tiering system for remunerating excess reserve holdings, we document the importance of access to the money market for bank lending. We show that the two-tier system produced positive wealth effects for banks with excess reserves and encouraged a reallocation of liquidity toward banks with unused exemptions. This ultimately decreased the fragmentation in the money market and enhanced the monetary policy transmission mechanism. The increased access to money market by banks with unused allowances incentivizes them to extend more credit than other banks, including banks with excess liquidity whose valuations increase the most.
- JEL Code
- G2 : Financial Economics→Financial Institutions and Services
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
- 20 September 2021
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 6, 2021Details
- Abstract
- The third series of targeted longer-term refinancing operations (TLTRO III) enabled one of the largest liquidity injections by the European Central Bank (ECB). This article provides an assessment of the effectiveness of the operations in supporting bank lending conditions. It discusses the main transmission channels of TLTRO III, including in relation to other policy measures. This article also includes a box on the importance of collateral easing measures, a box on the impact of TLTRO III on money market rates, and a box on the consequences of high participation in TLTRO III for excess liquidity levels. The article then documents, based on hard data on banks’ balance sheets and soft information from bank surveys, the extent to which TLTRO III has eased bank lending conditions, thereby helping to support access to credit for households and firms during the coronavirus (COVID-19) crisis.
- JEL Code
- E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 9 October 2020
- WORKING PAPER SERIES - No. 2480Details
- Abstract
- We quantify the impact that central bank refinancing operations and funding facilities had at reducing the banking sector’s intrinsic fragility in the euro area in 2014-2019. We do so by constructing, estimating and calibrating a micro-structural model of imperfect competition in the banking sector that allows for runs in the form of multiple equilibria, in the spirit of Diamond & Dybvig (1983), banks’ default and contagion, and central bank funding. Our framework incorporates demand and supply for insured and uninsured deposits, and for loans to firms and households, as well as borrowers’ default. The estimation and the calibration are based on confidential granular data for the euro area banking sector, including information on the amount of deposits covered by the deposit guarantee scheme and the borrowing from the European Central Bank (ECB). We document that the quantitative relevance of non-fundamental risk is potentially large in the euro area banking sector, as witnessed by the presence of alternative equilibria with run-type features, but also that central bank interventions exerted a crucial role in containing fundamental as well as non-fundamental risk. Our counterfactuals show that 1 percentage point reduction (increase) in the ECB lending rate of its refinancing operations reduces (increases) the median of banks’ default risk across equilibria by around 50%, with substantial heterogeneity of this pass-through across time, banks and countries.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
L13 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance→Oligopoly and Other Imperfect Markets - Network
- Research Task Force (RTF)
- 11 September 2020
- WORKING PAPER SERIES - No. 2465Details
- Abstract
- This study analyses the policy measures taken in the euro area in response to the outbreak and the escalating diffusion of new coronavirus (COVID-19) pandemic. We focus on monetary, microprudential and macroprudential policies designed specifically to support bank lending conditions. For identification, we use proprietary data on participation in central bank liquidity operations, high-frequency reactions to monetary policy announcements, and confidential supervisory information on bank capital requirements. The results show that in the absence of the funding cost relief and capital relief associated with the pandemic response measures, banks’ ability to supply credit would have been severely affected. The results also indicate that the coordinated intervention by monetary and prudential authorities amplified the effects of the individual measures in supporting liquidity conditions and helping to sustain the flow of credit to the private sector. Finally, we investigate the potential real effects of the joint pandemic response measures by estimating the adjustment in labour input variables for firms that in the past have been more exposed to similar policies. We find that, in absence of monetary and prudential policies, the pandemic would lead to a significantly larger decline in firms’ employment.
- JEL Code
- E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 13 May 2020
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 3, 2020Details
- Abstract
- This article explains how negative rates are transmitted via banks and financial markets, both via standard transmission channels and via channels specific to negative interest rates. The latter can enhance the stimulus, but may also hinder it, in particular in the case of protracted periods of negative rates. Euro area bank profitability has been persistently low since the financial crisis, and this has the potential to impair bank lending. At the same time, profits have increased since 2014 and the impact of negative interest rates is assessed as broadly neutral so far, as the negative contribution to net interest income has been offset by the positive impact on borrower creditworthiness. Finally, the article reports empirical evidence – drawn from a range of studies – on how negative rates affect the broader economy, starting with bank portfolio allocation decisions, lending volumes and lending rates. The article then elaborates on the impact of the negative rate policy on key macroeconomic aggregates, notably economic activity and inflation.
- JEL Code
- E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 27 December 2019
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 8, 2019Details
- Abstract
- This article examines bank lending conditions for euro area non-financial corporations (NFCs), making use of the wealth of soft information available in the euro area bank lending survey (BLS) since its inception in 2003. One relevant question in this context is whether the tightening of the bank loan supply during the financial and sovereign debt crises has been offset by the easing of bank lending conditions for NFC loans since 2014. The article illustrates that the easing over this period has come mainly through a substantial loosening of the actual terms and conditions applied by banks to new loans to firms of average credit quality, while the credit standards that banks have established for their loan approval decisions have eased by less. The article also draws on the responses of individual banks to examine the differences in bank lending conditions for NFC loans across bank business models. This analysis reveals that the change in credit conditions of banks with business models more reliant on stable funding sources, such as deposits, is more muted. In short, it looks at additional aspects that enhance the regular assessment of bank lending conditions faced by firms based on the euro area BLS.
- JEL Code
- E4 : Macroeconomics and Monetary Economics→Money and Interest Rates
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 7 June 2019
- WORKING PAPER SERIES - No. 2289Details
- Abstract
- Exploiting confidential data from the euro area, we show that sound banks pass on negative rates to their corporate depositors without experiencing a contraction in funding and that the degree of pass-through becomes stronger as policy rates move deeper into negative territory. The negative interest rate policy provides stimulus to the economy through firms’ asset rebalancing. Firms with high cash-holdings linked to banks charging negative rates increase their investment and decrease their cash-holdings to avoid the costs associated with negative rates. Overall, our results challenge the common view that conventional monetary policy becomes ineffective at the zero lower bound.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
D22 : Microeconomics→Production and Organizations→Firm Behavior: Empirical Analysis
D25 : Microeconomics→Production and Organizations - Network
- Research Task Force (RTF)
- 9 January 2018
- OCCASIONAL PAPER SERIES - No. 205Details
- Abstract
- This paper studies the cyclical properties of real GDP, house prices, credit, and nominal liquid financial assets in 17 EU countries, by applying several methods to extract cycles. The estimates confirm earlier findings of large medium-term cycles in credit volumes and house prices. GDP appears to be subject to fluctuations at both business-cycle and medium-term frequencies, and GDP fluctuations at medium-term frequencies are strongly correlated with cycles in credit and house prices. Cycles in equity prices and long-term interest rates are considerably shorter than those in credit and house prices and have little in common with the latter. Credit and house price cycles are weakly synchronous across countries and their volatilities vary widely – these differences may be related to the structural properties of housing and mortgage markets. Finally, DSGE models can replicate the volatility of cycles in house and equity prices, but not the persistence of house price cycles.
- JEL Code
- C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
- 2024
- American Economic Journal: Macroeconomics
- 2023
- European Economic Review
- 2022
- Journal of Financial Economics
- 2021
- Economic Modelling
- 2021
- The Manchester School
- 2020
- Journal of Macroeconomics
- 2020
- CESifo Forum, vol. 21(01), pages 13-17
- 2020
- VoxEU article
- 2019
- Journal of Policy Modelling
- 2019
- Statistical Methods & Applications
- 2019
- VoxEU article
- 2018
- Journal of International Money and Finance
- 2017
- International Finance
- 2017
- Journal of Public Economic Theory
- 2016
- IZA Journal of Labor Policy