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on European Economics |
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Issue of 2022‒05‒02
eight papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Bańkowski, Krzysztof; Bouabdallah, Othman; Domingues Semeano, João; Dorrucci, Ettore; Freier, Maximilian; Jacquinot, Pascal; Modery, Wolfgang; Rodríguez-Vives, Marta; Valenta, Vilém; Zorell, Nico |
| Abstract: | This paper assesses the potential economic impact of Next Generation EU (NGEU), focusing on the euro area. Its findings suggest that the envisaged national investment and reform plans present a coherent package to support both recovery from the pandemic-induced crisis and longer-term modernisation of the euro area economy through their digital and green transitions. NGEU, however, can only unfold its full potential if all plans are implemented in a timely and effective way. We estimate the impact of the national plans on output, inflation and public debt using ECB staff economic models under the assumption of successful implementation. Specifically, NGEU is expected to take effect through three channels: structural reform, fiscal stimulus and risk premium. Overall, NGEU may increase gross domestic product (GDP) in the euro area by up to 1.5% by 2026, with the impact expected to be significantly larger in the main beneficiary countries. In Italy and Spain, two of the main beneficiaries, the public debt-to-GDP ratio may be more than 10 percentage points lower by 2031. At the same time, all euro area countries are expected to benefit from NGEU through positive spillovers, greater economic resilience and convergence across countries. Finally, the effect of NGEU on euro area inflation over the medium term is deemed to be contained to the extent that the inflationary effect of additional public expenditure is offset, at least to some degree, by the disinflationary effect of greater productive capacity resulting from the planned structural reform and investment measures. JEL Classification: C54, E02, E22, E62, F45, H87, O52 |
| Keywords: | Next Generation EU (NGEU), public investment, Recovery and Resilience Facility (RRF), structural reform |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2022291&r= |
| By: | Pietrovito, Filomena; Pozzolo, Alberto Franco |
| Abstract: | At the beginning of the decade, many banks in euro-area periphery countries shifted their portfolios from corporate lending towards sovereign debt holdings. According to some scholars, this was the result of the moral suasion exerted by domestic authorities; others suggest instead that it was the outcome of a free choice of weak banks that bet-for-resurrection increasing the holdings of risky, high yielding government bonds. Our analysis shows that a contemporaneous increase in banks’ total assets and a portfolio readjustment from loans to government bonds is consistent with a surge in the risk-premium required by banks on corporate lending. After briefly describing our hypothesis within a simple model of a bank’s portfolio choice, we test its empirical implications on a large sample of individual loan data granted by over 100 Italian small banks during the post sovereign debt crisis period (2012-2014). Our results provide convincing evidence in support of our hypothesis. |
| Keywords: | Credit Supply, Government bond purchases, Sovereign debt crisis, Small banks, Bank-firm relationship |
| JEL: | E51 G21 |
| Date: | 2022–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:mol:ecsdps:esdp22083&r= |
| By: | António Afonso; Francisco Gomes Pereira |
| Abstract: | Using a difference-in-differences identification strategy on a micro panel at the bank and firm level, we study the transmission effectiveness of ECB’s large-scale asset purchasing programs programs (i.e. APP and PEPP) in the Euro area. Our findings show: first, balance sheet composition of banks is an important determinant of monetary policy transmission. We tested this hypothesis by showing that banks more exposed to government debt securities had higher loan growth than less exposed banks after the APP announcement. By extension, this could lead to heterogeneous economic impacts depending on the geographical location of exposed banks. For the PEPP, contrary to the APP, we did not find a portfolio-rebalancing channel for banks that were more exposed to government debt securities. Second, using balance sheet data on corporates, we verify that firms that borrowed more increased employment and fixed capital investment, albeit to a lesser degree than before the APP announcement. Furthermore, our sample shows that corporations in countries with banks more exposed to government debt securities had higher borrowing growth and fixed capital growth versus countries with less exposed banks. |
| Keywords: | unconventional monetary policy, difference-in-differences, euro area, employment, investment |
| JEL: | C23 D22 E52 E58 G11 G20 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9610&r= |
| By: | Knez, Klemen |
| Abstract: | The article extends existing sectoral analyses of the internationalisation process in the EU by complementing qualitative studies of supplier linkages with a novel aggregate input-output approach to measuring the structure of supplier linkages. Examining changes in the structure of domestic and global supplier linkages over the period 2000 to 2014, we find that the new Central and Eastern European EU Member States exhibit a specific pattern that differs from that of the old EU countries. Above-average decreases in purely domestic value chains and a decrease in the share of global integration with complex domestic supplier linkages combined with an above-average increase in global integration with no domestic supplier linkages show the uneven pattern of the internationalisation process in the European Union and reveal the structural position of the European Eastern integrated peripheries. |
| Keywords: | European integration, integrated periphery, supplier linkages, input-output analysis, middle income trap |
| JEL: | F1 F4 F6 R1 |
| Date: | 2022–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:112391&r= |
| By: | Klüh, Ulrich; Urban, Janina |
| Abstract: | What should be the role of the ECB in tackling the socio-ecological challenges related to planetary boundaries, such as climate change and loss of biodiversity? A clear answer to this question is still lacking, in spite of the strategy review of 2021. Regretfully, this review has not received the scrutiny it deserves, as the pandemic and the war in Ukraine have taken center stage. Taking these recent developments into account, we provide a critique of the new strategy. We argue that it lacks transformativity, as it subsumes climate change under the policy objective of price stability, assumes that transformations can be mastered within the structures of the past, and refrains from questioning the current institutional set up. In its main part, the paper discusses the historical relevance of what we believe is the main reason for these deficits: The fear that taking up the real issues (such as independence and accountability) would make the ECB a political football in times of rising inflation. Taking these fears seriously, we show that the institutionalization of central banking has always reflected the transformative dynamics of their time. Consequently, if planetary boundaries represent a transformative challenge, they will radically change the ECB, too. Moreover, we provide evidence that central banks' historical transformations have always reflected their peculiar position as mediators between the financial and the political realm. We argue that, at the current juncture, transforming central banking implies moving away from finance and towards politics. This involves risks. However, we argue that the historical experience offers few reasons to fear a closer integration of central banking into the public sphere, as long as the latter is dominated by democratic politics. Consequently, if one comes to the conclusion that the ECB's current corset is too narrow, it can and should be augmented. While we do not offer a blueprint for such augmentation, we conclude our analysis by sketching elements of a sustainable strategy for a transformative ECB. |
| Keywords: | Monetary Policy,Sustainability,Green Deal,Climate Policy,Central Bank Independence,Central Bank Accountability |
| JEL: | B15 B25 B26 B52 E02 E58 N2 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:znwudp:9&r= |
| By: | Kaitila, Ville; Kuusela, Olli-Pekka; Kuusi, Tero; Pohjola, Johanna; Soimakallio, Sampo |
| Abstract: | Abstract We assess the potential impact of the EU carbon border adjustment mechanism (CBAM) based on the European Commission’s proposal presented in 2021. The CBAM products are divided into four categories: cement, fertilizers, iron and steel products, and aluminium products. In terms of production and the value of foreign trade, iron and steel products are by far the largest category, followed by aluminum products. Based on econometric gravity modelling of trade, the impact on EU imports of products covered by the CBAM would be significant. In normal economic conditions, Finland’s extra-EU imports of the products would decrease by a total of around a quarter with the proposed CBAM specifications and current carbon pricing. Based on general equilibrium modelling, the effects of the CBAM would be very small for the Finnish aggregate economy. In Finland and other EU countries, the CBAM would benefit directly or indirectly sectors that manufacture products subject to the mechanism. Other industrial sectors, on the other hand, would suffer slightly from the CBAM. The report assesses implications of different ways to implement the CBAM. |
| Keywords: | Carbon leakage, Carbon border adjustment mechanism, Gravity model, Computable general equilibrium |
| JEL: | Q38 |
| Date: | 2022–04–25 |
| URL: | http://d.repec.org/n?u=RePEc:rif:report:128&r= |
| By: | Andrea Bassanini; Giulia Bovini; Eve Caroli; Jorge Casanova Ferrando; Federico Cingano; Paolo Falco; Florentino Felgueroso; Marcel Jansen; Pedro S. Martins; António Melo; Michael Oberfichtner; Martin Popp |
| Abstract: | We investigate the impact of labour market concentration on two dimensions of job quality, namely wages and job security. We leverage rich administrative linked employer-employee data from Denmark, France, Germany, Italy, Portugal and Spain in the 2010s to provide the first comparable cross-country evidence in the literature. Controlling for productivity and local product market concentration, we show that the elasticities of wages with respect to labour market concentration are strikingly similar across countries: increasing labour market concentration by 10% reduces wages by 0.19% in Germany, 0.22% in France, 0.25% in Portugal and 0.29% in Denmark. Regarding job security, we find that an increase in labour market concentration by 10% reduces the probability of being hired on a permanent contract by 0.46% in France, 0.51% in Germany and 2.34% in Portugal. While not affecting this probability in Italy and Spain, labour market concentration significantly reduces the probability of being converted to a permanent contract once hired on a temporary one. Our results suggest that considering only the effect of labour market concentration on wages underestimates its overall impact on job quality and hence the resulting welfare loss for workers. |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdaddt:2022-04&r= |
| By: | António Afonso; José Alves |
| Abstract: | We evaluate the impact of government spending efficiency on fiscal sustainability for a panel of 35 OECD countries during the period of 2007-2020. To answer our research question we first compute the magnitude of the responses of government revenues to changes in government spending. Next, we make use of so-called government spending efficiency scores, which efficiently indicate how governments can maintain their level of performance whilst using fewer inputs. Our results show that for the input efficiency scores obtained, countries’ fiscal balance and fiscal sustainability is directly improved by the use of less public resources, whilst maintaining the same level of output. In the cases of the output efficiency scores, the commitment of increased government outputs can lead to higher economic growth and the generation of additional government revenues, which also improves fiscal sustainability. Specifically, rationalising public expenditures without jeopardising the actual level of public goods and provision of services is a stronger determinant of fiscal sustainability, as well as for the improvement of the primary budget balance. |
| Keywords: | fiscal sustainability; spending efficiency; panel data. |
| JEL: | C23 E21 E62 H5 H62 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp02262022&r= |