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on European Economics |
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Issue of 2023‒07‒24
sixteen papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Tommaso Tornese |
| Abstract: | Using monthly data for Belgium, France, Germany, Italy and Spain for the period 2002-2019, we build a Hierarchical Euro Area Dynamic Nelson-Siegel model that allows for time varying exposures of national factors on the common components, and for stochastic volatility both at the regional and country specific level. Despite the share of national variance explained by the Euro Area factors is generally dominant, our results point out a dramatic decrease of the relative importance of common forces during the 2008 and 2012 crises, which created a neat separation between “core” and “peripheral” countries. This gap is particularly visible in the term premia demanded by investors on long term sovereign bonds. Furthermore, in line with Byrne et al. (2019), we find that both the level of interest rates and the associated term premia are closely related to confidence and uncertainty measures. In the aftermath of the crises these relationships appear weakened, presumably due to unconventional interventions of the ECB. |
| Keywords: | Term structure, Factor Model, Euro Area, Time-varying loadings, Stochastic volatility. |
| JEL: | C11 C32 E43 F36 G15 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp23199&r=eec |
| By: | Havemeister, Lea Katharina; Horn, Kristian |
| Abstract: | Zombie firms may adversely impact healthy firms through several transmission channels. Besides real spillover effects on productivity or investment, zombies may also cause negative financial spillover effects, where zombies receive credit at more favourable conditions than healthy firms. We investigate characteristics of zombie firms in the euro area and whether they cause spillovers on healthy firms’ credit conditions, focusing on two variables: new credit and interest rates. Contrary to existing findings, our results indicate that zombie firms pay higher interest rates and receive less new credit than healthy firms. The spillover effect of zombie firms on healthy firms’ new credit is not significant. For interest rates, the spillover effect is even reversed: Zombie existence significantly lowers healthy firms’ interest rates. Zombie firms across the euro area are smaller, less profitable, and more leveraged with lower credit quality than healthy firms. Yet, they do not seem to pose significant negative externalities on the credit conditions of healthy firms. Novel loan-by-loan data from the European credit registry (AnaCredit) allows our analysis to be over a broad set of countries and firms, on a new level of granularity. This may explain the divergence of our findings from the existing literature. JEL Classification: E43, E44, E51, G21, G32 |
| Keywords: | financial spillovers, financial stability, interest rates, new credit, zombie firms |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:2023143&r=eec |
| By: | Olegs Tkacevs (Latvijas Banka); Karsten Staehr (Eesti Pank); Katri Urke (Eesti Pank) |
| Abstract: | This paper estimates fiscal reaction functions to examine the importance of inflation and inflation sur- prises for fiscal outcomes in the euro area countries, covering the first 12 countries to join the euro area. The effect of HICP inflation on the primary fiscal balance in per cent of GDP is positive, and statistically and economically significant. The positive effect stems from both the revenue side, particularly direct taxes and indirect taxes, and the expenditure side, particularly primary current expenditures. The effects of HICP inflation on the primary balance and other fiscal outcomes appear in large part to stem from inflation surprises, which are errors in the inflation forecasts available for preparing budgets. The positive effect on the primary fiscal balance does not exhibit noticeable non-linearities. |
| Keywords: | public finances, fiscal outcome, inflation, inflation surprises |
| JEL: | H6 H62 H68 E31 |
| Date: | 2023–06–02 |
| URL: | http://d.repec.org/n?u=RePEc:ltv:wpaper:202304&r=eec |
| By: | Harald Fadinger; Philipp Herkenhoff; Jan Schymik |
| Abstract: | We examine the effects of unilateral structural reforms within a currency union. Focusing on the surge of German competitiveness following the introduction of the Euro, we first provide reduced-form causal evidence supporting the notion that German structural labor market reforms in the early 2000s led to a crowding-out of manufacturing employment in other Eurozone economies. To assess the impact of this German competitiveness shock, we build a quantitative multi-sector trade model that features downward nominal wage rigidities, endogenous labor supply, unemployment-insurance benefits and international savings. The fixed nominal exchange rate can create binding nominal rigidities in response to a foreign real supply shock – like the one prompted by the German reforms – resulting in significant contraction of manufacturing sectors and increased involuntary unemployment across other Eurozone countries. We consider a number of counterfactual scenarios, such as the impact of German labor-market reforms in the absence of a fixed exchange-rate regime, the role of coordinated reforms within the Eurozone and a higher average inflation rate. of view. |
| Keywords: | Euro, monetary union, nominal rigidities, labor markets, structural reforms, import competition, spillovers, quantitative trade model |
| JEL: | F16 F41 F45 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_435&r=eec |
| By: | Fien van Solinge (CPB Netherlands Bureau for Economic Policy Analysis); Beau Soederhuizen (CPB Netherlands Bureau for Economic Policy Analysis) |
| Abstract: | In our new study we find that strengthening insolvency law increases the amount of long-term debt, as a percentage of total assets, on firms’ balance sheets in Europe. Since we also find a negative effect on short-term leverage, it seems that improving insolvency law causes a shift from short-term to long-term debt. Longer debt maturities can protect firms from rising interest rates and credit crunches. Furthermore, we find that these effects are stronger for large firms with a lot of tangible assets and in countries with short insolvency procedures. These findings are relevant for policy makers because there are proposals to further harmonize insolvency law in the European Union (EU). The first steps have already been taken. In 2019 the EU adopted a directive to harmonize preventative restructuring. Currently, a Commission proposal on further harmonization of in-court insolvency procedures is being discussed in the European Parliament. The goal is to strengthen European capital markets and to enhance financing possibilities for firm. Therefore, our study adds to the policy debate and gives insight into the possible effects changing insolvency law could have. |
| JEL: | G15 G32 G33 K22 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:448&r=eec |
| By: | Stefania Albanesi; António Dias da Silva; Juan F. Jimeno; Ana Lamo; Alena Wabitsch |
| Abstract: | We examine the link between labour market developments and new technologies such as artificial intelligence (AI) and software in 16 European countries over the period 2011- 2019. Using data for occupations at the 3-digit level in Europe, we find that on average employment shares have increased in occupations more exposed to AI. This is particularly the case for occupations with a relatively higher proportion of younger and skilled workers. This evidence is in line with the Skill Biased Technological Change theory. While there exists heterogeneity across countries, only very few countries show a decline in employment shares of occupations more exposed to AI-enabled automation. Country heterogeneity for this result seems to be linked to the pace of technology diffusion and education, but also to the level of product market regulation (competition) and employment protection laws. In contrast to the findings for employment, we find little evidence for a relationship between wages and potential exposures to new technologies. |
| JEL: | E24 J2 J21 J31 O30 O33 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31357&r=eec |
| By: | Demetrio Guzzardi; Elisa Palagi; Tommaso Faccio; Andrea Roventini |
| Abstract: | The European Union needs to raise significant resources to finance a just green transition. At the same time, there is a widespread fiscal regressivity in many EU countries. Indeed, recent empirical evidence shows that the tax systems of many EU members are characterized by low degrees of progressivity, with high-income groups paying lower effective tax rates vis-a-vis middle- and low-income classes. In order to jointly tackle such issues, we propose an ensemble of tax policies at the EU level grounded on the recent proposals advanced in the literature. This fiscal reform includes a wealth tax targeting the top 1% of wealth holders, a tax on unrealized capital gains, and an increase of the minimum corporate tax. Our first estimates suggest that these measures can generate substantial yearly revenues in the order of 1.9%-2.9% of EU GDP. Such resources can contribute to the funding of the additional climate mitigation and adaptation policies required to tackle the climate emergency, while reducing inequality, thus contributing to put EU economies on sustainable and inclusive growth pathways. |
| Keywords: | Taxation; Inequality; Wealth tax; Capital gains tax; Corporate tax; Climate change. |
| Date: | 2023–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2023/28&r=eec |
| By: | Sander Lammers (CPB Netherlands Bureau for Economic Policy Analysis); Massimo Giuliodori (UVA); Robert Schmitz; Adam Elbourne (CPB Netherlands Bureau for Economic Policy Analysis) |
| Abstract: | European companies heavily rely on bank credit to finance their operations and investments. Therefore, it is crucial for banks to take risks on corporate loans, although excessive risk-taking can have negative consequences for banks. There are indications in the literature that the financing structure used by banks plays a role in determining the risks they take. However, the economic literature does not provide clear consensus on how different elements of a bank's financing structure are related to risk. In this exploratory study, we investigated this relationship specifically focusing on corporate loans. This contributes to a better understanding of which companies receive funding and how a bank's financing structure itself can become a risk, particularly when riskier companies face bankruptcy. The financing structure of banks primarily consists of equity (capital buffer), deposits (savings from households and businesses), market financing (funds raised from international investors), and interbank loans (loans between banks, including central bank loans). We analyzed the extent to which these individual financing elements contribute to the risks banks take on loans to companies. |
| JEL: | G21 G32 E52 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:447&r=eec |
| By: | Fernández-Gallardo, Álvaro (Universidad Alicante); Lloyd, Simon (Bank of England); Manuel, Ed (Bank of England) |
| Abstract: | We estimate the causal effects of macroprudential policies on the entire distribution of GDP growth by incorporating a narrative-identification strategy within a quantile-regression framework. Exploiting a data set covering a range of macroprudential policy actions across advanced European economies, we identify unanticipated and exogenous macroprudential policy ‘shocks’ and employ them within a quantile-regression setup. While macroprudential policy has near-zero effects on the centre of the GDP-growth distribution, we find that tighter macroprudential policy brings benefits by reducing the variance of future GDP growth, significantly and robustly boosting the left tail while simultaneously reducing the right. Assessing a range of potential channels through which these effects could materialise, we find that macroprudential policy operates through opposing tails of GDP and credit. Tighter macroprudential policy reduces the right tail of the future credit-growth distribution (both household and corporate) which, in turn, is particularly important for mitigating the left tail of GDP growth (ie, GDP-at-risk). |
| Keywords: | Growth-at-risk; macroprudential policy; narrative identification; quantile local projections |
| JEL: | E32 E58 G28 |
| Date: | 2023–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:1027&r=eec |
| By: | Davide Luparello |
| Abstract: | This paper reevaluates the conventional approach to quantifying within-industry resource misallocation, typically measured by the dispersion of an input marginal product. My findings suggest that this statistic incorporates inherent productivity heterogeneity and idiosyncratic productivity shocks, irrespective of the input under scrutiny. Using balance sheet data from American and European manufacturing firms, I show that total factor productivity (TFP) volatility accounts for 7% of the variance in the marginal product of capital, 9% for labor, and 10% for material inputs. Consequently, this index, taken at face value, fails to identify policy-induced misallocation for any production input. To overcome this limitation, I propose a comparative analysis strategy driven by an identified policy variation. This approach allows the researcher to assess induced misallocation in relative terms whilst controlling for differences in TFP volatility. I show that the financial crisis had an uneven impact on the within-industry dispersion of the marginal product of capital across European nations, reflecting their differing financial sector maturity and suggesting the existence of financial misallocative frictions. The crisis did not affect the dispersion of the marginal product for other inputs. |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2306.08760&r=eec |
| By: | Brunella Bruno; Immacolata Marino; Giacomo Nocera |
| Abstract: | We use a panel data set of large listed European banks to evaluate the effect of the usage of internal ratings-based (IRB) models on bank opacity. We find that a more intensive implementation of these models is associated with lower absolute forecast error and disagreement among analysts about bank earnings per share. The results are stronger in banks adopting the advanced version of IRB models. In these banks the negative effect of non-performing loans on bank transparency is mitigated. We deal with concerns regarding omitted variables and reverse causality using an instrumental variables approach. Our results are driven by the more in-depth disclosure of the credit risk exposures that follows the adoption of IRB models. |
| Keywords: | Bank regulation, Basel II, risk-weighted assets, transparency |
| JEL: | G20 G21 G28 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp23195&r=eec |
| By: | Ahlander, Edvin (Research Department, Central Bank of Sweden); Carlsson, Mikael (Uppsala University, UCLS and Sveriges Riksbank, Research Division); Klein, Mathias (Research Department, Central Bank of Sweden) |
| Abstract: | We examine the pass-through from producer to consumer prices, using product-group data derived from the microdata underlying the official Swedish PPI and CPI indices. We find a robust pass-through, in line with theoretical models emphasizing production inter-linkages between sectors. The results also display important heterogeneity in pricing behavior both along the supply chain, as well as across product groups. That is, upstream pricing seems much more rigid than downstream pricing in the supply chain and the pass-through across CPI products varies substantially with price-change frequencies. The recent COVID- and high-inflation periods do not change the main results. |
| Keywords: | Price pass-through; consumer and producer prices; microdata |
| JEL: | E30 E31 E32 |
| Date: | 2023–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0426&r=eec |
| By: | Lionel Fontagné (Banque de France, CEPII and Paris School of Economics); Philippe Martin (Sciences Po and CEPR); Gianluca Orefice (University Paris-Dauphine, PSL, CESifo and IUF) |
| Abstract: | Based on firm level data in the French manufacturing sector, we find that firms adapt quickly, strongly and through multiple channels to energy shocks, even though electricity and gas bills represent a very small share of their total costs. Over the period 1996-2019, faced with an idiosyncratic energy price increase, firms reduce their energy demand, improve their energy efficiency, increase intermediate inputs imports and optimize energy use across plants. Firms are also able to pass-through the cost shock fully on their export prices. Their production, exports and employment fall. A consequence of these multiple adjustment mechanisms is that the fall in profits is either non-significant, small or specific to only the most energy intensive firms. We also find that the impact of electricity shocks has weakened over time, suggesting that only firms able to adapt their production process to energy cost shocks have survived. Importantly, when faced with large electricity and gas price increases, firms are less able to reduce their consumption. These results shed light on the mechanisms of resilience of the European manufacturing sector in the context of the present energy crisis. |
| Keywords: | Energy crisis, Employment, Production, Competitiveness, Electricity, Gas. |
| JEL: | L6 Q41 Q43 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:dia:wpaper:dt202305&r=eec |
| By: | Simone Arrigoni (Department of Economics, Trinity College Dublin); Laura Boyd (Central Bank of Ireland); Tara McIndoe-Calder (Central Bank of Ireland) |
| Abstract: | Inheritances matter for wealth accumulation and are often central to policy debates on wealth taxes. Using household level survey data, this paper shows that up to 2020 over one-third of households in Ireland had inherited wealth, the cumulative value of which (€97 billion) accounts for approximately one sixth of current net wealth for these households. However, the impact of inheritance extends beyond its direct value as inheritors tend to be wealthier, with a greater ownership of property. Our analysis shows that inheritances in Ireland contribute little to wealth inequality, and may even have reduced it over time, in line with existing findings for Britain and the United States. Tentative evidence suggests that mechanisms behind this wealth equalising effect may be (i) the importance of inheritances for the acquisition of property assets for middle-wealth households, (ii) the rise of asset prices, especially house prices, and (iii) substitution from employee income to rental income among inheritors. |
| Keywords: | intergenerational transfers, inheritances, wealth inequality, HFCS, Gini |
| JEL: | D14 D31 D64 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:tcd:tcduee:tep1223&r=eec |
| By: | Francesco Campo; Sara Giunti; Mariapia Mendola; Giulia Tura |
| Abstract: | The 2015 refugee crisis in Europe fueled anti-immigration sentiment in receiving areas, with potential unintended consequences for refugee integration. We investigate the heterogeneity of political backlash across Italian municipalities in the aftermath of the crisis and assess the role played by local conditions at the time of refugees’ settlement, distinguishing between baseline economic and cultural factors. By leveraging the quasirandom dispersal policy and using causal forests, we find that the impact of refugee exposure on anti-immigration backlash is significantly higher in more affluent areas, with more bonding social capital. The opposite holds in contexts where there is meaningful intergroup contact with former immigrants (e.g mixed marriages). We exploit this pattern of heterogeneity to evaluate a matching model to optimally assign refugees to locations and deliver policy implications for novel refugee resettlement schemes that minimize anti-immigration backlash. |
| Keywords: | Refugee Social Integration, Dispersal Policy, Political Preferences. |
| JEL: | J15 H53 I38 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:522&r=eec |
| By: | Périvier, Hélène; Verdugo, Gregory (University of Evry) |
| Abstract: | Does providing nontransferable months of parental leave earmarked to fathers, as mandated by the European Union to its member countries since 2019, increase their participation? To answer that question, the authors investigate the consequences of a 2015 French reform that earmarked up to 12 months of paid leave for fathers while simultaneously reducing the maximum paid leave for mothers by the same number of months. While the benefits were low, parental leave could be taken part-time, which can be more attractive for fathers. Using administrative data and comparing parents of children born before and after the reform, the authors find that in response to a 25 p.p. decline in mothers' participation rate triggered by the reform, fathers' participation increased by less than 1 p.p., mostly through part-time leave. The reform increased mothers' labor earnings, but it had no significant impact on fathers' earnings. |
| Keywords: | gender inequality, labor supply, parental leave |
| JEL: | J16 D13 J18 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16244&r=eec |