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on European Economics |
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Issue of 2021‒05‒24
thirteen papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Plessen-Mátyás, Katharina; Kaufmann, Christoph; von Landesberger, Julian |
| Abstract: | This paper investigates whether the funding behaviour of euro area debt management offices (DMOs) changed with the start of the ECB’s Public Sector Purchase Programme (PSPP). Our results show that (i) lower yield levels and (ii) PSPP purchases supported higher maturities at issuance. The former indicates a behaviour of “locking in low rates for longer”, while the latter suggests the existence of an additional “demand effect” of the PSPP on DMO strategies beyond the PSPP’s effect via yields. The combined impact of the PSPP via these channels amounts to maturity extensions at issuance of about one year in our estimation, which compares to the average issuance maturity for Germany, France, Italy and Spain before the PSPP of four years. Our finding that DMOs extend maturities when funding conditions ease invites further work on the economic implications of public debt management during the PSPP and its relevance for monetary policy transmission. JEL Classification: E52, E58, E63, H63 |
| Keywords: | central bank asset purchases, public debt management, sovereign debt maturity structure, unconventional monetary policy |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212552&r= |
| By: | Bertrand Candelon (Université catholique de Louvain); Angelo Luisi (Université catholique de Louvain); Francesco Roccazzella (Université catholique de Louvain) |
| Abstract: | Sovereign bond market fragmentation represents one of the major challenges European authorities have had to tackle since the outburst of the euro area debt crisis in 2010. By investigating the inter-country shock transmission through a new methodology that reconciles Factor and Global Vector Autoregressive models, we first show that fragmentation risk well preceded the sovereign debt crisis outburst. Most importantly, by analyzing the recent period, we document a rise in fragmentation risk in the euro area during the COVID pandemic. This rise, connected to the pressure on public debts and deficits due to the pandemic period, questions the European integration process and calls for early measures to avoid a new sovereign debt crisis. |
| Keywords: | Euro Area, Sovereign bond, Fragmentation, COVID |
| JEL: | F36 F37 G12 H63 |
| Date: | 2021–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:cth:wpaper:gru_2021_016&r= |
| By: | Durante, Ruben; Fabiani, Andrea; Peydró, José Luis |
| Abstract: | Do banks exploit lending relationships with media companies to promote favorable news coverage? To test this hypothesis we map the connections between banks and the top newspapers in several European countries and study how they affect news coverage of two important financial issues. First we look at bank earnings announcements and find that newspapers are significantly more likely to cover announcements by their lenders, relative to other banks, when they report profits than when they report losses. Such pro-lender bias applies to both general-interest and financial newspapers, and is stronger for newspapers and banks that are more financially vulnerable. Second, we look at a broader public interest issue: the Eurozone Sovereign Debt Crisis. We find that newspapers connected to banks more exposed to stressed sovereign bonds are more likely to promote a narrative of the crisis favorable to banks and to oppose debt-restructuring measures detrimental to creditors. |
| Keywords: | banks; Earnings reports; Eurobond crisis; media bias; newspapers |
| JEL: | G21 L82 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15260&r= |
| By: | Budnik, Katarzyna; Dimitrov, Ivan; Groß, Johannes; Jančoková, Martina; Lampe, Max; Sorvillo, Bianca; Stular, Anze; Volk, Matjaz |
| Abstract: | This paper looks at the impact of mitigation policies implemented by supervisory and macroprudential authorities as well as national governments in the euro area during the coronavirus (COVID-19) pandemic to support lending to the real economy. The impact assessment concerns joint, and individual, effect of supervisory measures introduced by the ECB Banking Supervision, a reduction in macroprudential buffers put forward by national macroprudential authorities, and public moratoria and guarantee schemes. The analysis has been conducted in the first half of 2020, in a situation of high uncertainty about how the crisis will develop in the future. Against this backdrop, it proposes a method of addressing such uncertainty by assessing the impact of policies across a full range of scenarios. We find that the supervisory, macroprudential and government policies should have helped to maintain higher lending to the non-financial private sector (around 5% higher than lending in the absence of policy measures) and, in particular, to non-financial corporations (12% higher than lending in the absence of policy measures), preventing further amplification of the recession via the banking sector. The national and supervisory and macroprudential actions have reinforced each other, and have been jointly able to affect a broader share of the banking sector. JEL Classification: E37, E58, G21, G28 |
| Keywords: | banking sector, COVID-19, impact assessment, real-financial feedback mechanism |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021257&r= |
| By: | Eller, Markus; Hauzenberger, Niko; Huber, Florian; Schuberth, Helene; Vashold, Lukas |
| Abstract: | In line with the recent policy discussion on the use of macroprudential measures to respond to cross-border risks arising from capital flows, this paper tries to quantify to what extent macroprudential policies (MPPs) have been able to stabilize capital flows in Central, Eastern and Southeastern Europe (CESEE) – a region that experienced a substantial boom-bust cycle in capital flows amid the global financial crisis and where policymakers had been quite active in adopting MPPs already before that crisis. To study the dynamic responses of capital flows to MPP shocks, we propose a novel regime-switching factor-augmented vector autoregressive (FAVAR) model. It allows to capture potential structural breaks in the policy regime and to control – besides domestic macroeconomic quantities – for the impact of global factors such as the global financial cycle. Feeding into this model a novel intensity-adjusted macroprudential policy index, we find that tighter MPPs may be effective in containing domestic private sector credit growth and the volumes of gross capital inflows in a majority of the countries analyzed. However, they do not seem to generally shield CESEE countries from capital flow volatility. JEL Classification: C38, E61, F44, G28 |
| Keywords: | capital flows, CESEE, global factors, macroprudential policy, regime-switching FAVAR |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:2021118&r= |
| By: | Razin, Assaf |
| Abstract: | The paper compares migration policy and welfare state generosity between America and Europe. There is more selective skill-based migration policy in the US compared to the European Union. Policy coordination among states within the federal system on migration, taxes, and social benefits among states within the US federal system is stronger than among countries within the European Union. Fiscal externality, triggered by migration and tax competition among members of the federal system may explain in part these US-Europe differences in policies. |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15455&r= |
| By: | Petar Soric (University of Zagreb); Oscar Claveria (AQR-IREA, University of Barcelona) |
| Abstract: | This paper examines the evolution of consumer uncertainty about unemployment one year after the irruption of the covid-19 pandemic in European countries. Since uncertainty is not directly observable, we use two alternative methods to directly approximate it. Both approaches are based on qualitative expectations elicited form the consumer survey conducted by the European Commission. On the one hand, following Dibiasi and Iselin (2019), we use the share of consumers unable to formalize expectations about unemployment (Knightian-type uncertainty). On the other hand, we use the geometric discrepancy indicator proposed by Claveria et al. (2019) to quantify the proportion of disagreement in business and consumer expectations. We have used information from 22 European countries. We find that both uncertainty measures covary. Although we observe marked differences across countries, in most cases the perception of employment uncertainty peaked before the outbreak of the crisis, plummeted during the first months of the lockdown, and started rising again since the past few months. When testing for cointegration with the unemployment rate, we find that the discrepancy indicator exhibits a long- term relationship with unemployment in most countries, while the Knightian uncertainty indicator shows a purely short-run relationship. The impact of both indicators on unemployment is characterised by considerable asymmetries, showing a more intense reaction to decreases in the level of uncertainty. While this finding may seem counterintuitive at first sight, it somehow reflects the fact that during recessive periods, the level of disagreement in the employment expectations of consumers drops considerably |
| Keywords: | COVID-19, Employment uncertainty, Unemployment expectations, Disagreement, Consumers, Cointegration. JEL classification: C14, C32, C82, C83, J01. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:aqr:wpaper:202104&r= |
| By: | Lucrezia Reichlin; Giovanni Ricco; Matthieu Tarbé |
| Abstract: | We study the monetary-fiscal mix in the European Monetary Union. The medium and long-run effects of conventional and unconventional monetary policy can be analysed by combining monetary policy shocks identified in a Structural VAR, and the general government budget constraint featuring a single central bank and multiple fiscal authorities. In response to a conventional easing of the policy rate, the real discount rate declines, absorbing the increase in deficit due to the fiscal policy leaning towards the easing. Conversely, in response to an unconventional easing of the long end of the yield curve, the discount rate declines strongly, while the primary fiscal surplus barely moves. The long-run effect of unconventional monetary easing on inflation is about half than that of conventional, a result which is also consistent with the muted response of fiscal policy. Results do not point to large differences across countries. |
| Keywords: | monetary-fiscal interaction, fiscal policy, monetary policy, intertemporal government budget constraint |
| JEL: | E31 E63 E52 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:940&r= |
| By: | Jean-Louis Combes (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); Pierre Lesuisse (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne) |
| Abstract: | In the process of EU integration, toward the EA accession, we try to understand, how changes in exchange rate regime, attributed to the switch through the ERM-II and to the EA accession, influence the dynamic between inflation and unemployment, i.e., shock on the Phillips curve coefficient. We look at a panel of countries, in the CEECs over the last twenty years, using a recent work from McLeay and Tenreyro (2020), to clarify the impact of loosing the monetary autonomy. Being under a pegged regime is not associated with a flattened Phillips curve. However, after the EA accession, the Phillips curve coefficient becomes not significant. This result is confirmed, looking at other small EA countries; while "economic leaders" tend to maintain a significant trade-off between inflation and unemployment. Using recent work from |
| Keywords: | Phillips curve,European Monetary Union,Panel |
| Date: | 2021–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03216478&r= |
| By: | Guglielmo Maria Caporale; Anamaria Sova; Robert Sova |
| Abstract: | This paper analyses the short- and long-run effects of trade openness on financial development in a panel including data on 35 European countries over the period 2001-2019. For this purpose, it uses the PMG (pooled mean group) estimator for dynamic panels developed by Pesaran et al. (1999). The results differ depending on the income, governance and financial development level of the countries considered. In particular, it appears that in the middle-income countries trade openness tends to strengthen financial development in the long run but to have an adverse effect in the short run. By contrast, in the case of high-income countries with better institutions and a higher level of financial development, there is a positive and significant impact in the short run. Some policy implications of these findings are drawn. |
| Keywords: | trade openness, financial development, panel data, PMG estimator, Europe |
| JEL: | E61 F13 F15 C25 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9082&r= |
| By: | Kok, Christoffer; Müller, Carola; Ongena, Steven; Pancaro, Cosimo |
| Abstract: | Using a difference-in-differences approach and relying on confidential supervisory data and an unique proprietary data set available at the European Central Bank related to the 2016 EU-wide stress test, this paper presents novel empirical evidence that supervisory scrutiny associated to stress testing has a disciplining effect on bank risk. We find that banks that participated in the 2016 EU-wide stress test subsequently reduced their credit risk relative to banks that were not part of this exercise. Relying on new metrics for supervisory scrutiny that measure the quantity, potential impact, and duration of interactions between banks and supervisors during the stress test, we find that the disciplining effect is stronger for banks subject to more intrusive supervisory scrutiny during the exercise. JEL Classification: G11, G21, G28 |
| Keywords: | banking regulation, banking supervision, credit risk, internal models, stress testing |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212551&r= |
| By: | Coibion, Olivier; Georgarakos, Dimitris; Gorodnichenko, Yuriy; Kenny, Geoff; Weber, Michael |
| Abstract: | Using a new survey of European households, we study how exogenous variation in the macroeconomic uncertainty perceived by households affects their spending decisions. We use randomized information treatments that provide different types of information about the first and/or second moments of future economic growth to generate exogenous changes in the perceived macroeconomic uncertainty of some households. The effects on their spending decisions relative to an untreated control group are measured in follow-up surveys. Higher macroeconomic uncertainty induces households to reduce their spending on non-durable goods and services in subsequent months as well as to engage in fewer purchases of larger items such as package holidays or luxury goods. Moreover, uncertainty reduces household propensity to invest in mutual funds. These results support the notion that macroeconomic uncertainty can impact household decisions and have large negative effects on economic outcomes. JEL Classification: E3, E4, E5 |
| Keywords: | household finance, household spending, randomized control trial, surveys, uncertainty |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212557&r= |
| By: | Fukker, Gábor; Kok, Christoffer |
| Abstract: | In this paper we present a methodology of model-based calibration of additional capital needed in an interconnected financial system to minimize potential contagion losses. Building on ideas from combinatorial optimization tailored to controlling contagion in case of complete information about an interbank network, we augment the model with three plausible types of fire sale mechanisms. We then demonstrate the power of the methodology on the euro area banking system based on a network of 373 banks. On the basis of an exogenous shock leading to defaults of some banks in the network, we find that the contagion losses and the policy authority's ability to control them depend on the assumed fire sale mechanism and the fiscal budget constraint that may or may not restrain the policy authorities from infusing money to halt the contagion. The modelling framework could be used both as a crisis management tool to help inform decisions on capital/liquidity infusions in the context of resolutions and precautionary recapitalisations or as a crisis prevention tool to help calibrate capital buffer requirements to address systemic risks due to interconnectedness. JEL Classification: C61, D85, G01, G18, G21, G28, L14 |
| Keywords: | contagion, fire sales, interbank networks, macroprudential policy, optimal control, stress testing |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212554&r= |