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on European Economics |
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Issue of 2016‒02‒17
24 papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | von Borstel, Julia; Eickmeier, Sandra; Krippner, Leo |
| Abstract: | We investigate the pass-through of monetary policy to bank lending rates in the euro area before and during the sovereign debt crisis. We make the following contributions. First, we use a factor-augmented vector autoregression, which allows us to assess the responses of a large number of country-specific interest rates and spreads. Second, we analyze the effects of monetary policy on the components of the interest rate pass-through, which reflect banks funding risk (including sovereign risk) and markups charged by banks over funding costs. Third, we not only consider conventional but also unconventional monetary policy. We find that while the transmission of conventional monetary policy to bank lending rates has not changed with the crisis, the composition of the IP has changed. Expansionary conventional monetary policy lowered sovereign risk in peripheral countries and longer-term bank funding risk in peripheral and core countries during the crisis, but has been unable to lower banks markups. Unconventional monetary policy helped decreasing lending rates, mainly due to large shocks rather than a strong propagation. |
| JEL: | E52 E43 C32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113035&r=eec |
| By: | Pirschel, Inske |
| Abstract: | In this paper I use the predictive distribution of the back-, now- and forecasts obtained with a mixed-frequency Bayesian VAR (MF-BVAR) to provide a real-time assessment of the probability of a recession in the euro area for the period from 2003 until 2013. Using a dataset that consists of 135 monthly data vintages and covers 11 soft and hard monthly indicators as well as quarterly real GDP, I show that the MF-BVAR is able to capture current economic conditions extremely well. For both recession periods in the sample, the Great Recession of 2008/2009 and the European debt crisis 2011/2013, the MF-BVAR real-time recession probabilities soar right at the onset of the pending slump of GDP growth. By contrast a BVAR estimated on quarterly data detects both recessions with a substantial delay. While typically non-linear discrete-choice or regime switching models have to be used to predict rare events such as recessions, my results indicate that the MF-BVAR can not only compete with other nowcasting approaches in terms of the accuracy of point forecasts, but also reliably detect rare events through the corresponding predictive distribution which is easily available as a by-product of the estimation procedure. |
| JEL: | C53 E32 E37 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113031&r=eec |
| By: | Schnabel, Isabel; Seckinger, Christian |
| Abstract: | Using industry data from Eurostat and applying the Rajan-Zingales methodology, we investigate the real growth effects of banking sector integration in the European Union. Our sample stretches from 2000 until 2012 and includes the phase of rapid financial integration before the crisis as well as the following phase of financial fragmentation and bank deleveraging. We find evidence that banking sector integration had a more than four times stronger growth effect during the crisis than in normal times. Growth effects are also stronger in times of domestic bank deleveraging. We conclude that concerns of European policy makers about fragmentation in the European banking sector are justified and that future reintegration is an important building block of future growth perspectives in the European Union. |
| JEL: | F36 G01 G15 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112864&r=eec |
| By: | Daniela Bragoli (Università Cattolica - Milan); Massimiliano Rigon (Bank of Italy); Francesco Zanetti (Oxford University) |
| Abstract: | This study investigates the appropriate measure of inflation in the euro area that the central bank should adopt in order to minimize social welfare losses stemming from volatility in the output gap, inflation and relative prices. We use a model that accounts for both the heterogeneity observed in the degree of price rigidity across regions and sectors, and the asymmetry of real disturbances in relative prices. Our work shows that the optimal weights to assign to each region or economic sector depend on complex interactions between the degree of price stickiness, a country’s economic size and the distribution of shocks across regions. Moreover, the optimal system of weights is primarily affected by the distribution of real shocks across countries. It follows that there is no simple rule of thumb for establishing the optimal weights for each region or economic sector. |
| Keywords: | optimal monetary policy, euro area regions, asymmetric shocks, asymmetric price stickiness |
| JEL: | E52 F41 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1045_16&r=eec |
| By: | Cycon, Lisa; Koetter, Michael |
| Abstract: | Based on detailed loan portfolio data of a top-20 universal bank in Germany, we investigate the effect of unconventional monetary policy on corporate loan pricing. We can decompose corporate lending rates, thereby shedding light on intra-bank transmission of monetary policy. We identify policy effects on contracted customer rates, refinancing rates charged internally, markups earned by the bank, and loan volumes by exploiting the co-existence of eurozone-wide security purchase programs by the European Central Bank (ECB) and local fiscal policies that are determined autonomously at the district level where bank customers reside between August 2011 until December 2013. The purchase programs of the ECB reduced refinancing costs significantly. Local fiscal stimuli increased loan prices and margins earned. The differential effect of unconventional expansionary monetary policy given local tax environments is significantly negative. Lending volumes do not respond significantly though. |
| JEL: | E43 G18 G21 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112831&r=eec |
| By: | André Sapir; Guntram B. Wolff |
| Abstract: | The issue Access to the single market is one of the core benefits of the United Kingdom’s membership of the European Union. A vote to leave the EU would trigger difficult negotiations on continued access to that market. However, the single market is not static. One of the drivers of change is the necessary reforms to strengthen the euro. Such reforms would not only affect the euro’s fiscal and political governance. They would also have an impact on the single market, in particular in the areas of banking, capital markets and labour markets. This is bound to affect the UK, whether it remains in the EU or not. The policy challenge A defining characteristic of the banking, capital and labour markets is a high degree of public intervention. These markets are all regulated, and have implicit or explicit fiscal arrangements associated with them. Deepening integration in these markets will likely therefore require governance integration, which might involve only the subset of EU countries that use the euro. Since these countries constitute the EU majority, safeguards are needed to protect the legitimate single market interests of the UK and other euro-outs. But the legitimate interest of the euro-area majority in deeper market integration to bolster the euro should also be protected against vetoes from the euro-out minority. Participation of euro and non-euro EU countries in intergovernmental arrangements to strengthen EMU Source - Bruegel. SRM = Single Resolution Mechanism. In the late 1950s, many European countries shared the goal of market integration but those able to choose freely split into two groups. Some, wishing for more than market integration, joined the European Economic Community (EEC) - an ‘ever closer union’ with common institutions and policies. Others, led by the United Kingdom, joined the European Free Trade Association (EFTA) and wished only for market integration. The UK joined the EEC in 1973 (and decided to remain in 1975)1 because it judged that staying outside would hurt its economic interests, not because of a change of view on the broader aims of European Integration. Most other EFTA members eventually joined the EEC. In the 1980s, the UK government was one of the staunchest supporters of the single market that aimed to complete the common market’s objective of free movement of goods, persons, services and capital. But in line with its divided view on integration, the UK rejected the ‘one market, one money’2 logic advocated at the time in support of a single currency, because it considered that the single currency would create common institutions and policies amounting to a huge step towards ‘ever closer union’. Since the decisions were taken to complete the single market and create a monetary union, there have been three major developments in European economic integration. First, the single market has advanced but is unfinished, with significant remaining barriers to free movement inside the EU. Second, the euro was introduced but the original design has proved fragile and additional institutions and policies have been introduced to address the causes of the euro crisis. The euro also remains an unfinished construction. Third, the EU has grown to 28 members, with increased heterogeneity in economic, social and political conditions. These developments lie at the heart of UK prime minister David Cameron’s November 2015 letter to European Council president Donald Tusk asking for “a new settlement for the United Kingdom in a reformed European Union” (Cameron, 2015). His four key demands3 are - In order to improve competitiveness, the EU should “do more to fulfil its commitment to the free flow of capital, goods and services”, ie it should complete the single market. Regarding the other single market area, the free flow of persons, there should be limits to social benefits in order to “reduce the flow of people... coming to Britain from the EU”, a clear reference to the situation created by the EU enlargements to low-income countries from central and eastern Europe. It is legitimate for euro members to take the necessary measures to sustain the monetary union and it matters to Britain that the project succeeds. “But we want to make sure that these changes will respect the integrity of the single market, and the legitimate interests of non-euro members”. There should be a recognition that the UK position in the EU is special by ending “Britain’s obligation to work towards an ‘ever closer union’”. They raise three questions - (1) How can the single market be deepened in line with this vision? (2) How would measures to sustain the monetary union affect the single market? (3) How should the relationship between euro and non-euro countries be managed to ensure the integrity of the single market? Irrespective of whether the UK stays in the EU or leaves, these questions must be tackled. In particular, after an exit from the EU, the UK would want to retain access to the single market. |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polbrf:12037&r=eec |
| By: | Will Bartlett; Ivana Prica |
| Abstract: | European countries are economically dependent upon each other. This paper therefore embeds the analysis of the Western Balkan countries within a wider perspective of the European economy as a whole. It combines a simple Core-Periphery model with an underconsumption model to provide a convincing explanation of the emergence of secular stagnation, the dependency relationships between the European economies, and the spillover effects of Eurozone crisis to the Western Balkans. Due to tendencies to under-consumption, the Core countries have been vulnerable to secular stagnation and in order to overcome this tendency within the Eurozone they are dependent on export revenues from the peripheries to sustain their economic growth. This has led to high trade and current account deficits during the boom and placed the peripheries in a highly vulnerable position during the recession period. Financialisation of the European economy has emerged as a response to the tendency towards secular stagnation, as the provision of consumer credit has stimulated demand and temporarily overcome under-consumption tendencies. The paper argues that continuing austerity as a method to create internal devaluation is unlikely to succeed as a means to extricate the periphery countries from the crisis. Given the dependencies of the European economies upon one another, a possibly better way out of the current period of low growth and stagnation would be a coordinated fiscal expansion to stimulate domestic and Europewide demand. |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:eiq:eileqs:104&r=eec |
| By: | Francesco Farina; Roberto Tamborini |
| Abstract: | It is now widely agreed that an important driver of the European economic crisis has been the faulty original design of the Monetary Union, and that substantial steps are urgently needed towards the creation of truly European fiscal institutions. The notorious stumbling block along this path is political will. By cross-referencing the results of the 2014 elections of the European Parliament with Eurobarometer opinion polls and an indicator of economic pain, we argue that Europe experiences an unresolved tension between "more Europe" and "less Europe" at the level of European peoples. Data analysis at the country level reveals a surge of what we call Europe's Great Divide, a geo-economic-political cleavage across the EU and across the EZ as well. This is more complex, and perhaps worse, than the simplistic divide between "North" and "South" or "Core" and "Periphery", and it seriously undermines support for ‘more Europe’ "from below". |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:eiq:eileqs:101&r=eec |
| By: | Gabriele Galati; Irma Hindrayanto; Siem Jan Koopman; Marente Vlekke |
| Abstract: | The financial cycle captures systematic patterns in the financial system and is closely related to the concept of procyclicality of systemic risk. This paper investigates the characteristics of financial cycles using a multivariate model-based filter. We extract cycles using an unobserved components time series model and applying state space methods. We estimate financial cycles for the United States, Germany, France, Italy, Spain and the Netherlands, using data from 1970 to 2014. For these countries, we find that the individual financial variables we examine have medium-term cycles which share a few common statistical properties. We therefore refer to these cycles as 'similar'. We find that overall financial cycles are longer than business cycles and have a higher amplitude. Moreover, such behaviour varies over time and across countries. Our results suggest that estimates of the financial cycle can be a useful monitoring tool for policymakers as they may provide a broad indication about when risks to financial stability increase, remain stable, or decrease. |
| Keywords: | unobserved component models; state space method; maximum likelihood; bandpass filter; short and medium term cycles |
| JEL: | C22 C32 E30 E50 E51 G01 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:495&r=eec |
| By: | Gadatsch, Niklas; Stähler, Nikolai; Weigert, Benjamin |
| Abstract: | In this paper, we assess the impact of major German structural reforms from 1999 to 2008 on key macroeconomic variables within a two-country monetary union DSGE model. By many, these reforms, especially the Hartz reforms on the labor market, are considered to be the root of thereafter observed imbalances in the Euro Area. We find that, in terms of German GDP, consumption, investment and (un)employment, the reforms were a clear success albeit the impact on the German current account was only minor. Most importantly, the rest of the Euro Area benefited from positive spillover effects. Hence, our analysis suggests that the reforms cannot be held responsible for the currently observed macroeconomic imbalances within the Euro Area. |
| JEL: | E62 E32 H20 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112960&r=eec |
| By: | Trebesch, Christoph; Zettelmeyer, Jeromin |
| Abstract: | We study central bank interventions in times of severe distress (mid-2010), using a unique bond-level dataset of ECB purchases of Greek sovereign debt. ECB bond buying had a large impact on the price of short and medium maturity bonds, resulting in a remarkable twist of the Greek yield curve. However, the effects were limited to those sovereign bonds actually bought. We find little evidence for positive effects on market quality, or spillovers to close substitute bonds, CDS markets, or corporate bonds. The interventions thus had very local effects only, consistent with theories of segmented bond markets. |
| JEL: | E43 E58 F34 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112809&r=eec |
| By: | Marco Hoeberichts; Ad Stokman |
| Abstract: | Persistent price differences across euro area countries are an indication of incomplete economic integration. We analyze long and short run developments of price level dispersion in the euro area and compare the results with the situation in the US. We find that monetary and economic integration in Europe has been successful in establishing a major downward trend in price level differences across countries since 1960. In 2007, price level dispersion in the euro area was at the same level as in the US. After the financial crisis, dispersion first continued its downward trend before diverging economic conditions across euro area countries contributed to a widening of price level differences again. Short-run dynamics show that price dispersion in Europe deviates more from the long-term equilibrium than in the US, although deviations have become smaller since EMU. |
| Keywords: | economic integration; price-level convergence; law of one price; EMU; US |
| JEL: | E31 E37 F15 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:497&r=eec |
| By: | Krause, Thomas; Buch, Claudia M.; Tonzer, Lena |
| Abstract: | Mitigating the negative externalities that systemic risk can create for the financial system is the goal of macroprudential supervision. In Europe, macroprudential supervision is conducted both, at the national and at the European level. In principle, national regulators are responsible for macroprudential policies. Since the establishment of the Banking Union in 2014, the largest banks in the Euro Area are under the direct supervision of the European Central Bank (ECB). In this capacity, the ECB can tighten macroprudential measures implemented at the national level. In this paper, we ask whether the drivers of systemic risk differ when applying a national versus a European perspective. We use market data for about 100 listed European banks to measure each bank's contribution to systemic risk (SRISK) at the national and at the Euro Area level. Our research has three main findings. First, on average, systemic risk has increased during the financial crisis. The difference between systemic risk at the national and the European level is not very large but there is a considerable degree of heterogeneity both across countries and banks. Second, we explore the drivers of systemic risk. A bank s contribution to systemic risk increases in bank size, in bank profitability, and in the share of banks nonperforming loans. It decreases in the share of loans to total assets and in the importance of non-interest income. Third, the qualitative determinants of systemic risk are similar at the national and at the European level while the quantitative importance of some factors differs. |
| JEL: | G01 G21 G28 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113103&r=eec |
| By: | Esteves, Paulo; Bobeica, Eleina; Rua, Antonio; Staehr, Karsten |
| Abstract: | The paper investigates the link between domestic demand pressure and exports by considering an error correction dynamic panel model for eleven euro area countries over the last two decades. The results sug- gest that there is a statistically signi cant substitution e ect between domestic and foreign sales. Furthermore, this relationship appears to be asymmetric, as the link is much stronger when domestic demand falls than when it increases. Weakness in the domestic market trans- lates into increased e orts to serve markets abroad, but, conversely, during times of boom, exports are not negatively a ected by increas- ing domestic sales. This reorientation towards foreign markets was particularly important during the crisis period, and thus could rep- resent a new adjustment channel to strong negative domestic shocks. The results have important policy implications, as this substitution ef- fect between domestic and external markets might allow the euro area countries under stress to improve their trade outcomes with a relatively small downward pressure on domestic prices. |
| JEL: | C22 C50 F10 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113067&r=eec |
| By: | Theobald, Thomas; Grüning, Patrick; van Treeck, Till |
| Abstract: | Germany entered the euro with a current account deficit but over the entire past decade has run large and persistent current account surpluses. Besides joining the common currency, the increase of Germany's current account since the late 1990s has been accompanied by strong shifts in the personal and, in particular, the functional income distribution. In this paper, we argue that income inequality should always be analyzed with respect to both the personal and the functional distribution of income. We then present a dynamic stochastic general equilibrium (DSGE) model in which a current account surplus arises as an endogenous result of a decrease in the share of household income in national income. On the one hand, this result complements existing literature where current account deficits result from rising personal income inequality. On the other hand, we find that current account imbalances will be more pronounced when accompanied by changes in the financial system. Accordingly, if we link Germany's accession to the European monetary union to lower exchange rate costs for German bank lending, the current account surplus becomes larger. |
| JEL: | D31 E17 F32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112846&r=eec |
| By: | Schumacher, Julian; Chamon, Marcos; Trebesch, Christoph |
| Abstract: | The Greek debt restructuring of 2012 showed that the legal terms of sovereign bonds can protect creditors against losses, in particular the type of governing law. This paper studies whether sovereign bonds that are issued in foreign jurisdictions trade at a premium vis-a-vis domestic-law bonds. We use the Eurozone between 2007 and 2014 as a unique testing ground to assess this ``legal safety premium'' and collect secondary market bond yield data for the near-universe of Eurozone government bonds issued in foreign jurisdictions. Controlling for currency risk, liquidity risk, and term structure, we find that foreign-law bonds indeed carry lower yields on average. But a sizable premium only emerges for large values of credit risk (CDS spreads beyond 500bp). At those levels, a 100bp increase in CDS spreads is associated with a 30-80bp larger yield premium on foreign-law bonds. In contrast, we do not find a premium for countries that are perceived as low risk. These results indicate that sovereigns in distress can, at the margin, borrow at lower rates under foreign law. |
| JEL: | G12 G15 F34 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113199&r=eec |
| By: | Vogel, Lukas; Kollmann, Robert; Ratto, Marco; Roeger, Werner; in 't Veld, Jan |
| Abstract: | We estimate a three-country model using 1995 2013 data for Germany, the Rest of the Euro Area (REA) and the Rest of the World (ROW) to analyse the determinants of Germany s current account (CA) surplus after the launch of the euro. Our results suggest that the German surplus reflects a succession of distinct shocks. Mono-causal explanations of the surplus are thus insufficient. The most important factors driving the German surplus were positive shocks to the German saving rate and to ROW demand for German exports, as well as German labour market reforms and other positive German aggregate supply shocks. The key shocks that drove the rise in the German CA tended to worsen the REA trade balance, but had a weak effect on REA real activity. Our analysis suggests these driving factors are likely to be slowly eroded, leading to a very gradual reduction of the German CA surplus. An expansion in German government consumption and investment would raise German GDP and reduce the CA surplus, but the effects on the surplus would be weak. |
| JEL: | E30 F30 F40 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112810&r=eec |
| By: | Siekmann, Helmut |
| Abstract: | [Introduction ...] The following questions which are closely related to each other but deserve a distinctively different treatment have to be answered: I. Is it legally possible for a Member State to leave the eurozone? II. May Member State introduce a new currency parallel to the euro? III. Can a Member State be excluded from the eurozone or the Monetary Un-ion? IV. May permission be granted to introduce a new currency in a Member State of the eurozone? V. What are the consequences of an illegal exit from the eurozone? |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:99&r=eec |
| By: | Belke, Ansgar; Oeking, Anne; Setzer, Ralph |
| Abstract: | We argue that, under certain conditions, firms consider exports as a substitute for domestic demand. Our econometric model for six euro area countries suggests domestic demand and capacity constraints as additional variables for export equations. We apply the exponential and logistic variant of a smooth transition regression model and find that domestic demand developments are relevant for short-run export dynamics particularly during more extreme stages of the business cycle. A substitutive relationship between domestic and foreign sales can most clearly be found for Spain, Portugal and Italy, providing evidence of the importance of sunk costs and hysteresis in international trade. |
| JEL: | F14 C22 F41 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113228&r=eec |
| By: | Streif, Frank |
| Abstract: | Corporate tax levels have fallen substantially in Europe during the last decades. There is a broad literature on tax competition which has been identified as one reason for the decline in corporate tax levels. However, none of these studies explicitly ask the question whether tax competition within regions is di erent from tax competition across regions, e.g. due to "global regionalism" of foreign direct investments. This is a crucial question to answer in order to discuss the desirability of (local) tax harmonization, for example, within the European Union. Therefore, the study aims to give hints on the following questions: Is the decline in corporate tax levels in Europe mainly driven by inner-European tax competition? Or is it (also) due to pressure from other world regions? The results of this study which makes use of tax reaction functions (spatial econometrics) indicate that there is evidence for tax competition within Europe (with respect to effective average tax rates) whereas there is no evidence that European countries compete with countries from other regions. |
| JEL: | H20 H77 H87 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112832&r=eec |
| By: | Quint, Dominic; Tristani, Oreste |
| Abstract: | We study the macroeconomic consequences of the money market tensions associated with the financial crisis of 2008-2009. Our structural model includes the banking model of Gertler and Kyiotaki (2011) in the Smets and Wouters (2003) framework. We highlight two main results. First, a financial shock calibrated to account for the observed increase in spreads on the interbank market can account for one third of the observed, large fall in aggregate investment after the financial crisis of 2008. Second, the liqudity injected on the market by the ECB played an important role in attenuating the macroeconomic impact of the shock. In their absence, aggregate investment would have fallen much more--by between 50 and 70 percent. These effects are somewhat larger than estimated in other available studies. |
| JEL: | E58 E44 E52 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112974&r=eec |
| By: | Lemke, Wolfgang; Vladu, Andreea |
| Abstract: | We model the dynamics of the euro area yield curve using a shadow-rate term structure model (SRTSM), with particular attention to the period since late 2011 when interest rates have been at the lowest level since the inception of EMU. The shadow rate is driven by latent factors with linear Gaussian dynamics, while the actual short rate is the maximum between the shadow rate and a lower bound (estimated at 10 bps) so that interest rates will never fall below that level. The estimated SRTSM performs attractively with respect to cross-sectional fit and forecast performance. The model implies that since mid-2012 the median horizon when future one-month rates would return to 50 bps has been ranging between about 25 and 40 months. Deriving such lift-off timing instead from the simple metric of the forward curve crossing 50 bps would underestimate the SRTSM-implied median timing by between 5 to 15 months. As a novelty in the literature, we analyze the effect of a downward shift in the lower bound on the yield curve: for short maturities, rates decrease one-to-one with a drop in the lower bound, while the effect diminishes for longer maturities. The shift-down in the euro area yield curve between April and June 2014 appears to partially reflect such a drop in the (perceived) lower bound. |
| JEL: | G12 C32 E43 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113159&r=eec |
| By: | Schäfer, Alexander; Schnabel, Isabel; Weder di Mauro, Beatrice |
| Abstract: | The declared intention of policy makers is that future bank restructuring should be conducted through bail-in rather than bail-out. Over the past years there have been a few cases of European bank restructuring where bail-in was implemented. This paper exploits these events to investigate the market reactions of stock prices and credit default swap (CDS) spreads of other European banks in order to gauge the evolving expectation that bail-in will indeed become the new regime. We find evidence of increased CDS spreads and falling stock prices after bail-in most notably after the events in Cyprus. We also find that bail-in expectations seem to depend on the sovereign s strength, i. e., reactions are stronger for banks in countries with little fiscal space for bail-out. Conversely, bail-out expectations seem to have hardly declined in fiscally stronger countries, such as Germany. |
| JEL: | G21 G28 G01 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113206&r=eec |
| By: | Beck, Günther W.; Beyer, Robert C. M.; Kontny, Markus; Wieland, Volker |
| Abstract: | Ever since the European Central Bank presented its monetary policy strategy on the basis of two pillars "economic" and "monetary" analysis with the latter being used as a cross-check of the first it has been criticized for giving too much importance to monetary aggregates. Opponents argue these aggregates are largely unrelated to monetary policy and provide little or no relevant information. Supporters have instead referred to the success of the Bundesbank in controlling inflation by using monetary targets during the 1970s and early 1980s. Furthermore, loose monetary conditions in the 2000s are viewed by many as a driver of excessive growth of credit and asset prices that set the stage for the global financial crisis. We use a formal characterization of monetary cross-checking and go on to study its role in policy practice empirically. Firstly, we derive historical measures of monetary conditions using this definition of cross-checking for Germany from the 1970s to 1998 and for the euro area since then. We investigate when monetary cross-checking would have called for significant adjustments in interest rate policy. Secondly, we test empirically whether interest rate policy responded to significant deviations of money. Such cross-checks induce a nonlinear shift in rates based on a threshold in terms of filtered money growth. Our estimates of threshold autoregressive models indicate that the behavior of the Bundesbank can well be described by a standard Taylor interest-rate rule augmented by a nonlinear component which induces an interest-rate adjustment when a filtered money growth measure exceeds an empirically specified threshold. Concerning the policy making of the ECB, we find supportive evidence for Trichet s(2008) claim of an interest-rate adjustment induced by a signal from monetary cross-checking at the end of 2004. However, our empirical results would have suggested an even larger (and earlier) response. |
| JEL: | C10 E41 E58 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113126&r=eec |