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on European Economics |
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Issue of 2021‒04‒05
eight papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Capraru, Bogdan (Romania Fiscal Council); Georgescu, George (Romania Fiscal Council); Sprincean, Nicu (Romania Fiscal Council) |
| Abstract: | This paper explores the impact of the independent fiscal institutions on public budget deficit in the European Union. We employ a dynamic panel model for the period 2000-2019 and find that these fiscal watchdogs have a positive and significant influence on general government balance for European Union Member States, resulting in smaller public budget deficits. The findings maintain their significance regardless of the year of accession to the European Union (old vs. new members) or euro area status (euro area vs. non-euro area members). However, we find that the independent fiscal institutions play a much important role for countries that established their fiscal institutions before 2013. Moreover, we document that during systemic and banking crises these independent fiscal councils can help reducing public budget deficits. Our results are robust to a variety of specifications and models, including alternative definitions of government balance and after controlling for a set of institutional characteristics. |
| Keywords: | : Fiscal Balance; Independent Fiscal Institutions; Public Budget Deficit |
| JEL: | E62 H60 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:ane:wpcfro:201101&r=all |
| By: | Goodhead, Robert (Central Bank of Ireland) |
| Abstract: | This paper studies the effects of forward guidance and unconventional monetary policy on financial and macro-economic variables using euro area data. I decompose intra-daily variation in response to communication by the ECB Governing Council using sign-restrictions, with the key identifying assumption being whether expansionary communication shocks steepen the yield curve (a forward guidance shock) or flatten it (a spread compression shock). Central bank “information shocks” are extracted via an additional restriction on equities. I employ recently developed non-parametric estimation methods to estimate a medium-scale time-varying parameter SVAR model with high-frequency identification, allowing consideration of multiple transmission channels simultaneously. Expansionary spread compression shocks markedly reduce volatility and persistently lower spreads, and affect activity and prices in line with theory. Spread compression surprises affect macro-economic variables in a manner comparable to forward guidance surprises. The effects of both forward guidance and yield curve compression surprises on inflation increased in the post-European sovereign debt crisis period, as did their effect on unemployment. |
| JEL: | E52 C32 C11 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:1/rt/21&r=all |
| By: | Zeno Enders; David A. Vespermann |
| Abstract: | We assess to which degree an international transfer mechanism can enhance consumption risk sharing as well as allocative efficiency and apply our results to the implicit transfers generated by a potential European unemployment benefit scheme (EUBS). Specifically, we first develop a simple model with nominal rigidities to build intuition by deriving analytical results. We then use a rich DSGE model, calibrated to the Core and the Periphery of the euro area, to quantitatively analyze the changing dynamics that a EUBS brings about. We find that a EUBS can provide risk sharing by stabilizing relative consumption as well as unemployment differentials. Following supply shocks, however, the cross-country transfer embodied in the unemployment benefits is spent to a large degree on relatively inefficiently produced goods in the receiving countries. This renders the allocation even more inefficient by opening country-specific labor wedges further, also after government-spending shocks. Yet, since this trade-off between allocative efficiency and consumption risk sharing does not exist after certain demand shocks, the welfare effects of a EUBS depend on the cause for international unemployment differentials. A EUBS that is only active after specific shocks would therefore maximize overall welfare. Even without this feature, a EUBS would raise Core’s welfare in the quantitative model, leaving Periphery’s welfare almost unchanged. |
| Keywords: | cross-country transfers, international unemployment insurance, EMU European business cycles, optimum currency area, structural reforms |
| JEL: | F45 F44 E32 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8965&r=all |
| By: | Jin Cao; Ragnar E. Juelsrud |
| Abstract: | This paper investigates how balance sheet opacity affects banks' risk-taking behavior. We measure bank balance sheet opacity according to two metrics: the ratio of available-for-sale (AFS) securities and the ratio of off-balance sheet items. We show that balance sheet opacity is positively correlated with realized bank risk. Specifically, banks with more AFS securities have lower realized risk, while banks with more off-balance sheet items have higher realized risk. The correlation between opacity and risk depends on both macroeconomic variables and bank characteristics. The positive relationship between bank opacity and bank risk is weaker for better capitalized banks and banks that are subject to more market discipline. The relationship is also weaker during periods of favorable market conditions. Motivated by this analysis, we then investigate how regulation affects bank opacity. We show that higher capital requirements reduce bank opacity and bank risk through a portfolio rebalancing channel. |
| Keywords: | opacity, transparency, available-for-sale securities, off-balance sheet items, risktaking |
| JEL: | G21 G23 G28 |
| Date: | 2020–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2020_12&r=all |
| By: | Jin Cao; Valeriya Dinger; Anna Grodecka-Messi; Ragnar Juelsrud; Xin Zhang |
| Abstract: | To shed light on the interaction between macroprudential and monetary policies, we study the inward transmission of foreign monetary policy in conjunction with domestic macroprudential and monetary policies in Norway and Sweden. Using detailed bank-level data we show how Norwegian and Swedish banks' lending reacts to monetary policy surprises arising abroad, controlling for the domestic macroprudential stance and the interaction between monetary and macroprudential policies. In both countries, the domestic macroprudential policy helps mitigate the effects arising after foreign monetary surprises. |
| Keywords: | monetary policy, macroprudential policy, policy interactions, bank lending, inward transmission, international bank lending channel |
| JEL: | E43 E52 E58 F34 F42 G21 G28 |
| Date: | 2020–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2020_08&r=all |
| By: | Christina Anderl; Guglielmo Maria Caporale |
| Abstract: | This paper investigates the PPP and UIP conditions by taking into account possible nonlinearities as well as the role of Taylor rule deviations under alternative monetary policy frameworks. The analysis is conducted using monthly data from January 1993 to December 2020 for five inflation-targeting countries (the UK, Canada, Australia, New Zealand and Sweden) and three non-targeting ones (the US, the Euro-Area and Switzerland). Both a benchmark linear VECM and a nonlinear Threshold VECM are estimated; the latter includes Taylor rule deviations as the threshold variable. The results can be summarised as follows. First, the nonlinear specification provides much stronger evidence for the PPP and UIP conditions, the estimated adjustment speed towards equilibrium being twice as fast. Second, Taylor rule deviations play an important role: the adjustment speed is twice as fast when deviations are small and the credibility of the central bank is higher. Third, inflation targeting tends to generate a higher degree of credibility for the monetary authorities thereby reducing deviations of the exchange rate from the PPP- and UIP-implied equilibrium. |
| Keywords: | PPP, UIP, nonlinearities, Taylor rules deviations, inflation targeting |
| JEL: | C32 F31 G15 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8961&r=all |
| By: | Francesco Furlanetto; Kåre Hagelund; Frank Hansen; Ørjan Robstad |
| Abstract: | This paper documents the suite of models used by Norges Bank to estimate the output gap. The models are estimated using data on GDP, unemployment, inflation, wages, investment, house prices and credit. We evaluate the estimated output gap series in terms of its forecasting properties, its reliability and its cyclical sensitivity to various measures of demand and supply shocks. A simple un-weighted average of the models features a better forecasting performance than each individual model. In addition, it helps predicting inflation in pseudo real-time and exhibits limited variations when new data become available. The summary measure of potential output responds strongly and rapidly to permanent shocks and to narrative measures of technology shocks but, although to a more limited extent, also to transitory shocks. |
| Keywords: | Output Gap, Forecasting Inflation, Cyclical Sensitivity, Output Gap Revisions |
| JEL: | C38 E17 E32 |
| Date: | 2020–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2020_07&r=all |
| By: | Ben McWilliams; Georg Zachmann |
| Abstract: | Hydrogen is seen as a means to decarbonise sectors with greenhouse gas emissions that are hard to reduce, as a medium for energy storage, and as a fallback in case halted fossil-fuel imports lead to energy shortages. Hydrogen is likely to play at least some role in the European Union's achievement by 2050 of a net-zero greenhouse gas emissions target. However, production of hydrogen in the EU is currently emissions... |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:41782&r=all |