Rapid recovery after the lockdowns has resulted in recruitment difficulties for companies. Economic growth is expected to continue, with the economy moving into a moderate boom. Bottlenecks are not expected to develop into an actual overheating of the economy, but several prerequisites are present for a scenario with significantly stronger growth. The Government should therefore be prepared to tighten its economic policy more than planned.

The recovery of the western economies has contributed to higher corporate earnings in Denmark and higher equity prices. Danish long-term bond yields have edged up slightly since March, but remain low. Overall, financial conditions are accommodative for the growth in GDP.

The pension sectors alternative investments of kr. 500 billion have provided diversification and stable returns. Most companies have room to invest even more in alternatives if deemed appropriate in terms of risk and return. An increased share of alternatives can impact both solvency and liquidity, where especially liquidity can become tight if e.g. interest rates increase. Strong management of short- and long-term risks is thus important.

In this Working Paper, I study the effects of local government spending on local retail prices using retail scanner data from the United States. Estimates show that retail prices increase following an increase in government spending. I provide evidence which indicates that this cannot be accounted for by changes in marginal costs.

The ECB's new monetary policy strategy was published on 8 July 2021. The analysis presents the changes and their potential impacts on the Danish economy. ECB's new monetary policy strategy does not influence the way in which Danmarks Nationalbank conducts monetary policy. Overall, the changes are assessed to have small potential positive impacts on the Danish economy.

Key financial sector participants have strong external defences and have improved their capability to detect and respond to cyber attacks. Increased focus is required on the protection of critical data and the capability for safe and effective recovery of core systems. This is demonstrated by Danmarks Nationalbank's cyber resilience surveys.

The pandemic has accelerated the digital transition in many countries. This Economic Memo finds that the degree of digitalisation has had an impact on the magnitude of economic losses during the pandemic. Differences in the EU countries' objectives for digital transition can imply greater digital inequality in the future and a deeper economic gap between the countries. (Memo available in Danish only).

This memo aims to take the first steps in analysing the use of the wage compensation scheme in Denmark and its effectiveness to preserve job matches. We find that firms used the furlough programme extensively to save at-risk workers. This focus has been particularly on saving full-time workers and workers with higher tenure.

Danmarks Nationalbank owns and operates the only system for real-time settlement of large, time-critical payments in Danish kroner. The central position of Kronos in the financial infrastructure entails high safety and efficiency requirements. This report provides a detailed description of Kronos' observance of the international principles for financial market infrastructures.

The pandemic has led to high trading activity and house price increases. This creates extraordinary uncertainty about future house prices. By the end of 2023, house prices are expected to have risen significantly. Measures are needed now, such as increased amortisation requirements and lower interest deductions that can strengthen the robustness of the Danish economy – both now and in the future.

For the first time, Danmarks Nationalbank takes an overall stand on its role in relation to climate change and the transition to a green economy. Climate change and the transition may pose challenges to the objectives of price and financial stability. Central banks have a task in adapting to the new challenges.

In 2014, the EU adopted a new framework for recovery and resolution in order to sever the tie between banks and government, so that the taxpayers no longer had to pick up the tab for failing banks. In Denmark, the framework for recovery and resolution constituted a minor innovation because Denmark already had a framework ensuring that the creditors of failing banks absorbed losses. The European framework is still evolving. The Danish experiences are useful in a European context.

From 2000-2006 US house prices and mortgage credit grew while the relative cost of mortgage credit fell particularly for privately securitized mortgages suggesting a credit supply expansion. This paper explores two (credit supply) shocks: an increased inflow of global savings into the US, and innovations in the securitization of mortgage credit. Only innovation in securitization matches mortgage market dynamics.

Investors who arbitrage between long term government debt and corporate debt expand the Portfolio Balance Channel in that the effects of Quantitative Easing (QE) spill over to the overall cost of corporate borrowing. I find that overall the Federal Reserve’s second round of QE boosts output between 0.5 - 1.7%.

Using microdata, the analysis demonstrates that female company owners pay higher interest rates on corporate loans than their male counterparts. The interest rate differential is both economically and statistically significant, and does not disappear when adjusting for relevant company and loan characteristics using sophisticated statistical methods.

Female owners of small and medium-sized enterprises, on average, pay almost 1 percent higher interest rates than male owners. Firm and loan characteristics explain most of this difference. Nonetheless, a 26 basis point gap cannot be explained, suggesting that female business owners tend to leave a disproportionate share of money on the table during negotiations with credit institutions.

The reopening of the Danish society is in full swing characterised by high private demand. Growth is expected to continue, and there are already large price increases in the housing market as well as signs of bottlenecks building up. The Government should prepare tightening fiscal policy more than planned, and there is a need for measures to strengthen robustness in the housing market.

The target for sales of domestic government bonds in 2021 is lowered to kr. 110 billion from kr. 125 billion. The on-the-run issues remain unchanged and focus will continue to be on issuance in the 2-year and 10-year nominal bonds. Issuance of short-term papers is increased and the total outstanding amount of T-bills and commercial papers is expected to be kr. 95 billion by the end of 2021, of which up to kr. 60 billion in T-bills.

Danish credit institutions have substantial exposures collateralised by real estate at risk of flooding in future climate scenarios. These exposures could amount to kr. 200 billion by the end of this century. Some credit institutions have a large share of the exposures at risk concentrated in the same geographical area.

The banks are ready for the ongoing economic recovery: Their lending to hard-hit corporations is limited, and provisions have been made to handle losses. But the booming housing market gives cause for concern. Higher down payment requirement and amortisation requirement for highly indebted homeowners are among the measures that should be considered in order to limit vulnerability in connection with a subsequent drop in house prices.

A stress test of the banking sector shows that a few systemic banks fall short of their risk-based capital requirements in a severe recession scenario. Most banks are generally better capitalised than previously, but they are challenged in the stress test by weaker earnings, which means they are less resilient under stress. The stress test also shows that the banks must continuously ensure sufficient surplus relative to the MREL.

The Working Paper evaluates the economic sources of the stock market responses of 40 countries to surprises in US monetary policy. We show that fed funds rate and large-scale asset purchases surprises affect foreign stock markets because they influence foreign countries’ real economic outlook. Forward guidance surprises seem to convey non-monetary information.

The banks are well equipped to make loans to viable corporations when the deferred tax payment deadlines and tax loans fall due. At the same time, the corporations' use of the relief packages have dropped to a low level. On this basis, it is assessed that the banks will be able to handle any deterioration in the creditworthiness of their customers on expiry of the relief packages.

The report presents the conclusions of Danmarks Nationalbank's oversight of the Danish payments infrastructure in 2020. The core payment and settlement systems and most important payment solutions extensively comply with international safety and efficiency standards. Efforts are continuously made to enhance the cyber resilience of systems/solutions. Due to the evolving nature of the cyber threat landscape, there is room for improvement – despite ongoing progress.

Negative deposit rates for household customers are now used by most banks in Denmark. Furthermore, the thresholds for when negative interest rates are payable have gradually been reduced. There are indications that household customers reduce their deposits when their bank announces negative interest rates. They also appear to react to the prospects of negative deposit rates by increasing their demand for investment fund shares and switching their deposits to pool schemes.

We show that payment system data can be used to improve forecasts of short-term changes in economic activity in Denmark. We compare the predictive performance of payment system data to a set of high‑frequency variables that includes industrial production and consumer prices, among many others.

When households search more for low prices on consumer goods, they lower firms' markups. The extent to which household search affects these markups fluctuates with the business cycle, which has been used in various macroeconomic models to generate pro-cyclical fluctuations in the markups. This Working Paper shows that it is difficult to align the basic underlying search model with the empirical differences in search between employed and unemployed individuals, and cautions against using these models in the context of business cycles.

We use survey expectations about future monetary policy to decompose excess returns on fed funds futures and overnight index swaps into a term premium and an expectation error component. We find that excess returns are primarily driven by expectation errors, while term premia are economically small and negative on average. Most expectation errors stem from market participants underestimating how aggressively the Federal Reserve has eased policy during the last three decades. Our findings reveal that market participants are continuously learning about the central bank's reaction function and have been slow to recognize the rising importance attributed to deteriorating financial conditions and falling stock prices. We document similar results in an international sample of six major currency areas.

Half of homeowners in Denmark finance their mortgages via fixed rate loans. Danish fixed rate mortgages are special, as they can be re-financed without the outstanding debt being significantly increased. This makes refinancing attractive when interest rates decrease. Declin-ing interest rates since the financial crisis have implied that many homeowners have refinanced their fixed rate mortgages to lower rates. This has increased the interest rate pass-through and thus supported the transmission of monetary policy rates to homeowners' budgets.

In this paper, I study how mortgage refinancing influences the interest rate pass-through to household budgets via fixed-rate mortgage contracts in Denmark. The paper shows that the long-run interest rate pass-through is significantly below unity in the years after the financial crisis and subsequently converges towards a level close to unity. The result can be used to understand the importance of the asymmetric effects of monetary policy transmission.

This memo reviews the academic literature on the effectiveness of non-pharmaceutical interventions in mitigating the spread of COVID-19. Only empirical studies are included. Interventions generally reduce COVID-19 spread but the literature is less conclusive for some interventions than others. Intervention timing and local characteristics are determinants of effectiveness.

Using micro-level data, we document a systematic income-related component in household income forecasting errors. We show that this bias can be formalized by a modest deviation from rational expectations, where agents overestimate the persistence of their income process. The bias alters the distribution of marginal propensities to consume which makes government stimulus policies less effective.

This memo documents a nowcasting model for Danish GDP used during the economic crisis related to the outbreak of COVID-19. During this crisis, the model provided timely and more accurate nowcasts than a simple model. To improve the timeliness of nowcasts we make use of new high-frequency indicators.

This working paper documents an econometric model for detecting turning points in the Danish economy. The model can be updated immediately as data comes through. It is shown that the model gives correct signals about the activity in the Danish economy in real time.

The second wave of the pandemic and new lockdowns have temporarily interrupted economic recovery and resulted in new large losses of activity in large parts of the Danish and international economies during the winter. However, other parts of the economy are seeing high activity, including construction and the housing market. Vaccination of the population and reopening of society have begun. Large savings, disbursement of holiday pay funds and accumulated demand provide a sound basis for a heavy increase in activity when the economy is less constrained by restrictions. Overall, activity is expected to have recovered towards the end of 2021.

Despite long term yields in particular having increased in 2021, the interest rate level is still low. Simultaneously, equity and house prices have increased during the past six month, and the financial conditions are considered accommodative. The Danish krone is moderately strengthened against the euro since March 2020.

Danmarks Nationalbank posted a profit of kr. 1,616 million in 2020 against a profit of kr. 6,096 million in 2019. Gold stock, equity exposure and bond holdings all contributed significantly to the profit for the year.

Danmarks Nationalbank introduces one single rate for deposits and one single rate for monetary policy loans. Simultaneously, the difference between the monetary policy rates is narrowed. The adjustments ensure more stable money market rates and thus a more predictable effect on the Danish krone. The adjustments are not intended nor expected to affect the level of money market rates or the Danish krone.

I analyze the effects of liquidity risk regulation in a model of investors, mutual funds, and the underlying asset market. Investor redemptions lead mutual funds to sell assets, which may result in fire sales if market liquidity, driven by the anticipation of fire sales, is scarce. Mutual funds optimally choose to pass fire sales of their assets on to investors. Pecuniary externalities make liquidity supply to the underlying asset market inefficiently low. Regulatory policies, liquidity requirements for mutual funds, and redemption gates have adverse effects on liquidity provision to the asset market and may increase the incidence of fire sales.

Today, we have crisis management rules in Denmark and the rest of the EU which ensure crisis management of failing credit institutions without the use of government funds. A recent revision of the rules makes it more likely that senior unsecured creditors will have to contribute to the crisis management of a failing credit institution. It is important that senior unsecured creditors are aware of the risk and take it into account in their risk management.

This paper analyzes the role of underwriters for issuers of corporate bonds. The results suggest that – in terms of issuance costs – bond issuers benefit from using underwriters they have used before, but, at the same time, this exposes the issuer to a credit risk spillover from the underwriter.

Households' savings increased significantly during the first wave of the corona pandemic in Denmark and several other countries. This Economic Memo finds that the higher savings in Denmark were driven by restrictions rather than precautionary consumers. Precautionary savings have so far been relatively limited and smaller than during the financial crisis. (Memo available in Danish only).

The government budget developed better than expected in 2020. The Danish central government debt amounted to kr. 536 billion, equal to 23 per cent of GDP at the end of 2020. The course of the covid-19 crisis has clearly highlighted the importance of the central government having access to a broad and diversified investor base through multiple financing channels. Despite periods with market turmoil, domestic government bonds were sold at record low yields. On average, nominal government bonds were sold at a yield to maturity of -0.33 per cent p.a. and an average maturity of 11.6 years. Interest costs on the central government debt totalled 0.7 per cent of GDP.

We construct measures of physical and transition risks by conducting textual analysis of climate news. Using U.S. stock prices, we find that only the short-term risks elicited by the political debate are priced. Longer running risks elicited by news on international summits, global warming and natural disasters are not priced.

We construct proxies of physical and transition risks by conducting textual analysis of climate news. Using U.S. stock prices, we find that only the short-term risks elicited by the political debate are priced. Longer running risks elicited by news on international summits, global warming and natural disasters are not priced.

The International Monetary Fund (IMF) has approved a historically large number of loans during the coronavirus crisis. The demand for IMF loans is expected to increase further as a result of the coronavirus crisis and vulnerabilities in a number of countries. Danmarks Nationalbank contributes to the IMF's crisis response and has made new lending resources available to the IMF on behalf of Denmark.

The memo summarizes the design and use of the IMF's precautionary facilities since their introduction and discusses lessons and potential reform options. In particular, the framework for these facilities should be adjusted to address prolonged use at high access levels.

We show that the transmission of news to prices goes through a combination of changing earnings expectations and risk premia. Price changes for especially the financial sector are mainly driven by changes in equity risk premia, while changes in earnings expectations play a comparatively larger role for other sectors.

Danmarks Nationalbank, in collaboration with a large Danish bank and other institutional actors, has shown that an innovative risk-based approach based on multiple data sources, among which granular transaction data, can support the fight against economic crime. Realising the full potential of such an approach requires combining data across banks and public institutions.

The reaction of Danish pension companies to ECB’s asset purchase programme is analysed using a novel, in-house data set. The pension companies sold euro bonds and bought Danish bonds in the first months following the introduction of the ECB purchase programme in 2015. After a short while, the pension companies returned as buyers of euro bonds.

In early 2015, when the European Central Bank (ECB) began purchasing government bonds issued by euro area countries, Danish pension funds sold off the bonds purchased by the ECB to buy Danish bonds. Changes to the ECB's monetary policy stance are important to Danmarks Nationalbank and Danish monetary policy.

The target for sales of domestic government bonds is kr. 125 billion. Issuance will be focused in the 2-year and 10-year nominal bonds. On 20 January, a new 10-year bond with maturity in 2031 will be opened. A new 2-year bond with maturity in 2024 will also be opened in the 1st half of the year. The target for sales of domestic T-bills is kr. 60 billion, and the outstanding amount of commercial papers will be reduced as the temporary Covid-19 measures are phased out.

We estimate the pass-through of a wage shock to producer prices of firms in Denmark. Our results suggest that the pass-through elasticity of wage increases to prices amounts to about one third. Our results are in line with studies of earlier time periods and confirm an important causal relationship between wages and prices.

Nine months after the outbreak for the corona pandemic, employment on the Faroe Islands is high, unemployment very low, and parts of the economy experience labour shortages. However, exports have lost speed this year on the back of extraordinary growth, and the economic boom now seems to have peaked. In the future, more elderly and less working-aged challenges the sustainability of public finances. It is important to prioritize reforms early on that bring a balance to income and expenses in the future.

Parts of the Danish economy are dominated by high activity, while other parts are limited by restrictions that delay recovery. Economic growth has slowed down, but is expected to pick up in 2021 as the population is vaccinated and restrictions are eased. Fiscal policy is currently stimulating demand in industries not affected by restrictions and in which activity is already high. Fiscal policy should not be eased further, but temporary relief measures may be extended to industries affected by restrictions.

So far, the credit institutions have come through the crisis relatively unscathed. With a number of relief packages, the central government has provided a cushion under large parts of the Danish corporate sector. However, credit institutions must prepare for the end of the schemes. In line with the government relief packages being phased out, the credit institutions will have to expect higher losses and a deterioration in the credit quality of their lending. The situation remains highly uncertain, and the credit institutions should be cautious when planning dividend payments.

A stress test of the banking sector shows that a few banks fall short of the capital buffer requirements in a severe recession scenario. However, due to the suspension of dividend payments and share buybacks, most banks are more resilient to stress than previously. For the first time, Danmarks Nationalbank uses the credit register data to allocate impairment charges more accurately among banks' corporate customers.

This memo discusses effects of COVID-19 on interest rates through the lens of global movements in the natural real interest rate. While government spending and public debt issuance are likely to cause a rise in r*, r* may decline due to precautionary behaviour. The net effect is uncertain.

Banks' capital buffers should function as a cushion and be able to absorb losses during an economic downturn, so that banks can continue lending to the economy. The usability of buffers might however be limited, if other requirements, such as the leverage ratio requirement and MREL, exceed the capital requirements. This is the case for several of the largest Danish banks. Future amendments to regulation should therefore take into account the interaction between requirements, so that all requirements can serve their purpose.

Uncertainty about the future has caused Danish corporations to hold back on investment during the covid-19 outbreak. These are among the conclusions of a new Working Paper in which economists Mikkel Bess, Erik Grenestam, Alessandro Martinello and Jesper Pedersen, Danmarks Nationalbank, have analysed whether uncertainty has an impact on economic activity in Denmark.

The language in news articles can be used to measure the perceived level of economic uncertainty. In a model of the Danish economy, increased uncertainty contributed significantly to the drop in investments during the Sovereign Debt Crisis. So far, uncertainty has had a smaller impact on investments during the COVID-19 pandemic.

Denmark was the first country in the world to move its key monetary policy rate below zero. Using rich microdata and an event study framework, we find that firms exposed to negative deposit rates to a higher degree than other firms increase their fixed investments and employment.

Many corporations are now being charged negative interest rates on their bank deposits. These corporations change banks and deleverage to a greater extent than other corporations. They also increase their investment in new capital equipment and create more new jobs.

The coronavirus pandemic has ended years of solid growth. Travel restrictions have left their mark on tourism and other sectors heavily reliant on foreign visitors. The important fisheries industry is less affected by the global economic downturn, and fisheries risks are particularly associated with lower fish and shellfish prices in the world market. Additional expenditure related to emergency flights, relief packages, etc. is putting a strain on central government finances. Therefore, the outlook is for an increase in government debt, albeit from a low level. For a number of years, growth in public consumption has exceeded budgeted levels. To ensure a sustainable balance between government revenue and expenditure, public sector efficiency measures will be needed going forward.

We model a COVID recession resulting from a negative demand shock and the need for social distancing, considering the US economy as an example. Low-productivity workers suffer a protracted surge in unemployment and inefficient separations from firms. Unemployment is amplified when nominal interest rates are close to the effective lower bound.

In mid-March, there was great uncertainty on the financial markets, resulting in increasing credit and liquidity costs. The Danish mortgage bond market was also affected, and mortgage rates rose sharply in the course of a few days. This analysis describes the development in the market liquidity on the Danish mortgage bond market in mid-March 2020 with specific focus on the primary issuance market. The analysis shows that mortgage credit institutions were still able to issue and sell bonds on the market, but that market liquidity was significantly reduced during the days with greatest uncertainty

Danmarks Nationalbank has performed a climate stress test to highlight transition risks in the banking sector. The analysis shows that the banks are generally well equipped to handle transition risks. However, a drastic transition in which the banks need to make large impairment charges over a short time frame may result in a capital shortfall. The banks should take climate risks into account in their risk management and capital planning.

Corporate borrowing has been virtually unchanged in Denmark during the first wave of the pandemic, whereas corporations in a number of European countries have increased their borrowing heavily. The national differences especially reflect varying corporate liquidity needs. Corporate borrowing has been higher in countries that have seen a heavy economic downturn. The capital reserves accumulated by corporations prior to the first coronavirus outbreak have also had an impact on their borrowing needs. Another explanation of the varying borrowing needs and loan supply may be the extensive policy measures implemented by several countries to support corporate liquidity.

A statistical model for euro area macroeconomic aggregates shows that an increase in uncertainty and disagreement about the economic outlook impacts the economy three times as much if the outlook is pessimistic. This result implies that the uncertainty generated by COVID-19 can lead to a 15.1% fall in industrial production.

The real interest rate is important for the economic development and is affected by the nominal interest rate and inflation expectations. This analysis illuminates what the real interest rate is, why it is important for real economy development, and the challenges that may be involved in measuring its size and impact on the economy.