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on European Economics |
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Issue of 2023‒05‒15
ten papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Pierre-Olivier Gourinchas; Mr. Francisco Roch; Mr. Sakai Ando; Adrian Peralta; Guido Lorenzoni; Mr. Giovanni Dell'Ariccia |
| Abstract: | This paper explores the feasibility of an idea proposed first by the German Council of Economic Experts in 2011 and revisited by Italian and French authorities in 2021: the one-off mutualization of some European legacy debt through the creation of a European Debt Management Agency (EDMA). The paper does not argue in favor or against these proposals or make a proposal of its own. Rather it outlines a conceptual framework that can be used to quantify the contours of mutualization proposals and draws lessons from the debt assumption in the United States in 1790. The framework suggests that by capitalizing the convenience yield on European-wide safe assets, the EDMA could issue up to 15 percent of euro area GDP, helping to put national debts on a sounder trajectory. The analysis suggests that, without mutualization, some euro area countries are likely to experience decreasing debt-to-GDP ratios over the forecast period. This is not the case for Belgium, Finland, France, Italy, and Spain, where further fiscal consolidation would be needed. For these countries, we consider the effects of a debt mutualization equivalent to 26 percent of their GDP. For Italy, this operation alone is enough to ensure a decreasing debt-to-GDP path. For the others, the news is more mixed: while the additional fiscal consolidation is smaller, 1.3 to 2.3 percent of GDP are still required to reduce debt with 95 percent probability. |
| Keywords: | Sovereign Debt; Debt Mutualization; Debt Assumption; Convenience Yield; Safe Assets.; debt mutualization equivalent; mutualization proposal; EDMA debt; Debt reduction; Fiscal consolidation; Debt sustainability analysis; Fiscal stance; Europe |
| Date: | 2023–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/059&r=eec |
| By: | Federica Ciocchetta (Bank of Italy); Elisa Guglielminetti (Bank of Italy); Alessandro Mistretta (Bank of Italy) |
| Abstract: | Boom-and-bust cycles in the housing market pose a threat to macroeconomic and financial stability, thus calling for a timely assessment of imbalances. This work sheds light on the drivers of house price dynamics in some euro area economies, investigating whether the increases in house prices underway since 2015 signal a risk of overheating. We show that an Error-Correction-Model (ECM) featuring a long-run relationship between house prices and income and short-run effects of interest rates and housing supply fits the data well in most cases. We then propose a novel model-based misalignment indicator that consists in the difference between actual and predicted house prices once we have removed the component relating to extrapolative house price expectations (bubble-builder component). We find that, in 2021 (the last year in our analysis), prices were slightly undervalued in Italy and Ireland, moderately overvalued in France and Belgium, and significantly overvalued in Spain and Germany. Despite some quantitative differences, our results are broadly in line with the assessment of the European Central Bank. |
| Keywords: | house prices, Error Correction Model (ECM), over-valuation, housing bubbles |
| JEL: | C22 C51 C52 R21 R31 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_764_23&r=eec |
| By: | Mario A. Maggioni; Emanuela Marrocu; Teodora Erika Uberti; Stefano Usai |
| Abstract: | How do regions develop and evolve along their productive and technological path is a central question. Within an evolutionary perspective, a given region is likely to develop new technologies closer to its pre-existing specialization. We adopt the approach of Hidalgo et al. (2007) to map the regional European technology/knowledge space to investigate the pattern and the evolution of regional specialisation in the most innovative EU countries. These dynamics depend on the interaction of three factors: (i) localised technological change, (ii) endogenous processes of knowledge recombination, and (iii) exogenous technological paradigm shifts while accounting for spatial and technological spillovers. Our paper maps the technological trajectories of 198 EU regions over the period 1986-2010 by using data on 121 patent sectors at the NUTS2 level for the 11 most innovative European countries, plus Switzerland and Norway. The results show that regional technological specialization is mainly shaped by localised technological change and exogenous technological paradigm shifts, whereas recombinant innovation contributes to a lower extent and that these effects largely depends on the increasing, decreasing or stable regional dynamics. |
| JEL: | C23 O14 O31 O33 O52 R11 R12 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:dis:wpaper:dis2301&r=eec |
| By: | Eichhorst, Werner (IZA); Krause-Pilatus, Annabelle (IZA); Marx, Paul (University of Bonn); Dolls, Mathias (Ifo Institute for Economic Research); Lay, Max (Ifo Institute for Economic Research) |
| Abstract: | This paper studies the role of social policies in different European welfare states regarding minimum income protection and active inclusion. The core focus lies on crisis resilience, i.e. the capacity of social policy arrangements to contain poverty and inequality and avoid exclusion before, during and after periods of economic shocks. To achieve this goal, the papier expands its analytical focus to include other tiers of social protection, in particular upstream systems such as unemployment insurance, job retention and employment protection, as they play an additional and potentially prominent role in providing income and job protection in situations of crisis. A mixed-method approach is used that combines quantitative and qualitative research, such as descriptive and multivariate quantitative analyses, microsimulation methods and in-depth case studies. We find consistent differences in terms of crisis resilience across countries and welfare state types. In general, Nordic and Continental European welfare states with strong upstream systems and minimum income support (MIS) show better outcomes in core socio-economic outcomes such as poverty and exclusion risks. However, labour market integration shows some dualisms in Continental Europe. The study shows that MIS holds particular importance if there are gaps in upstream systems or cases of severe and lasting crises. |
| Keywords: | minimum income support, crisis resilience, unemployment insurance, job retention, welfare states |
| JEL: | J64 J65 J68 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16066&r=eec |
| By: | Di Iasio, Valentina (University of Southampton); Wahba, Jackline (University of Southampton) |
| Abstract: | The recent so called Mediterranean refugee crisis has ignited concerns about the magnitude of the flows of asylum seekers to Europe. This paper examines the determinants of the destination choice of first time non-EU asylum applicants to the EU, between 2008-2020. It investigates the role played by policies related to employment rights, processing of asylum applications, attractiveness of the welfare system, economic factors and networks on the destination of asylum seekers within the EU. We find that the strongest pull factor for asylum seekers to a destination is social networks both in terms of previous asylum applicants as well as stock of previous migrants. Our findings also suggest that employment bans are not a strong deterrence for asylum seekers given their modest association to asylum flows. |
| Keywords: | asylum seekers, refugees, EU migration, employment ban |
| JEL: | F22 J61 J15 O52 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16085&r=eec |
| By: | Yao, Fang (Central Bank of Ireland) |
| Abstract: | Distinguishing trends and cycles in house prices is important for macroprudential policy. This paper estimates the unobserved trend and cycles of the house-price-to income ratio (HPI) using a multivariate unobserved components model, with auxiliary variables introduced for identifying both the trend and cycles. Under this approach, the HPI trend is driven by slow-moving fundamental forces, while the cyclical component of HPI is identified by using separate cyclical indicators in a VAR. I find that the estimated trend of the HPI ratio is rising over time, driven primarily by the declining natural interest rate, and to a lesser extent by credit conditions and housing imbalances. Of relevance for macroprudential policy setting, the underlying trend in HPI has risen by 8% since the introduction of borrower-based measures in 2015. |
| Keywords: | real estate markets, macroprudential policy, systemic risk, financial crises, bubbles, financial regulation, financial stability indicators. |
| JEL: | E5 G01 G17 G28 R39 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:8/rt/22&r=eec |
| By: | Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czechia); Miroslav Palansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czechia); Jiri Skuhrovec (Datlab) |
| Abstract: | To understand public procurement suppliers linked to tax havens, we analyse datasets of tender-level public procurement and firm-level suppliers a provide a series of stylized facts. We estimate that around 5% of tenders by value (145 billion EUR yearly) are supplied by firms with ownership links to tax havens that are black- or grey-listed by the EU. For example, firms linked to the British Virgin Islands and Bermuda supply tenders worth over 900 per cent of their GDP. To address the question of which tenders are more likely to be supplied by firms linked to tax havens, we draw on a theoretical model and a tender-level empirical analysis. We find that tenders co-financed from EU funds and those attracting a larger number of bidders are less likely to be supplied by firms linked to tax havens. Any policy intervention might therefore rely on both an increased government oversight associated with EU funds or an increased firm competition. |
| Keywords: | public procurement; government expenditures; offshore finance; secrecy jurisdictions; tax havens |
| JEL: | F36 F65 G28 H87 H57 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2023_12&r=eec |
| By: | McCann, Fergal (Central Bank of Ireland); Durante, Elena (Central Bank of Ireland) |
| Abstract: | Macroprudential policy implementation in the mortgage market has generally involved a policy tightening, as policies have been introduced in settings where no such policies previously existed. In this paper we produce rare evidence on an episode of loosening under the macroprudential regime for mortgages. We exploit a reform of the Irish borrower-based measures in 2017 that increased LTV limits for a cohort of First Time Buyers. We show in response to the reform that borrowers bunched at the new maximum LTV of 90, increasing LTVs relative to the counterfactual. We highlight an adjustment mechanism that has important policy implications: we find no evidence that treated borrowers purchased more expensive properties; rather, we find that treated borrowers post lower downpayments after the reform, displaying a preference for cash retention once the opportunity arises. While economic intuition leads one to expect house price amplification after a policy-induced credit loosening, we show that borrowers’ choices to rebalance towards greater cash retention dampened this channel in the Irish case in 2017. |
| Keywords: | Macroprudential policy; credit loosening; household finance |
| JEL: | G21 G28 G51 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:9/rt/22&r=eec |
| By: | Philippe Aghion; Celine Antonin; Simon Bunel; Xavier Jaravel |
| Abstract: | We use comprehensive micro data in the French manufacturing sector between 1995 and 2017 to document the effects of a fall in the cost of investments in modern manufacturing capital, including modern automation technologies, on employment, wages, sales, prices, and business stealing. Causal effects are estimated with event studies and a shift-share IV design leveraging pre-determined supply linkages and productivity shocks across foreign suppliers of manufacturing capital. At all levels of analysis - plant, firm, and industry - the estimated impact of capital investments on employment is positive, even for unskilled industrial workers. Further-more, we find that capital investments lead to higher sales and exports, higher profits, and lower consumer prices, while wages and wage inequality remain unchanged. We estimate a positive industry-level employment response to manufacturing capital investments only in industries that are exposed to import competition, due to business-stealing across countries. Thus, typical investments in modern manufacturing capital lead to an increase in domestic labor demand and promote competitiveness in international markets. |
| Keywords: | modern manufacturing capital, investments, productivity, France |
| Date: | 2023–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1910&r=eec |
| By: | Jonathan P. Cohen; Andrew C. Johnston; Attila S. Lindner |
| Abstract: | We use a panel of survey responses linked to administrative data in Germany to measure the depreciation of skills while workers are unemployed. Both the reemployment hazard rate and reemployment earnings steadily fall with unemployment duration, and indicators of depression and loneliness rise substantially. Despite this, we find no decline in a wide range of cognitive and noncognitive skills while workers remain unemployed. We find the same pattern in a panel of American workers. The results imply that skill depreciation in general human capital is unlikely to be a major explanation for duration dependence. |
| JEL: | I32 J24 J6 J60 J64 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31120&r=eec |