|
on European Economics |
|
Issue of 2024‒02‒19
fifteen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Coenen, Günter (European Central Bank); Lozej, Matija (Central Bank of Ireland); Priftis, Romanos (European Central Bank) |
| Abstract: | In this paper, we use scenario analysis to assess the macroeconomic effects of carbon transition policies aimed at mitigating climate change. To this end, we employ a version of the ECB’s New Area-Wide Model (NAWM) augmented with a framework of disaggregated energy production and use, which distinguishes between “dirty” and “clean” energy. Our central transition scenario is that of a permanent increase in carbon taxes, which are levied as a surcharge on the price of dirty energy. Our findings suggest that increasing euro area carbon taxes to an interim target level consistent with the transition to a net-zero economy entails a transitory rise in inflation and a lasting, albeit moderate decline in GDP. We show that the short and medium-term effects depend on the monetary policy reaction, the path of the carbon tax increase and its credibility, while expanding clean energy supply is key for containing the decline in GDP. Undesirable distributional effects can be addressed by redistributing the fiscal revenues from the carbon tax increase across households. |
| Keywords: | Climate change, carbon taxation, DSGE model, monetary policy, fiscal policy, euro area. |
| JEL: | C54 E52 E62 H23 Q43 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:8/rt/23&r=eec |
| By: | Robert C. M. Beyer; Ms. Ruo Chen; Florian Misch; Claire Li; Ezgi O. Ozturk; Mr. Lev Ratnovski |
| Abstract: | The extent to which changes in monetary policy rates lead to changes in loan and deposit rates for households and firms, referred to as ‘pass-through’, is an important ingredient of monetary policy transmission to output and prices. Using data on seven different bank interest rates in 30 European countries, different approaches, and the full sample as well as a subsample of euro area countries, we show that a) the pass-through in the post-pandemic hiking cycle has been heterogenous across countries and types of interest rates; b) the pass-through has generally been weaker and slower, except for rates of non-financial corporation loans and time deposits in euro area countries; c) differences in pass-through over time and across countries for most deposit rates are correlated with financial sector concentration, liquidity, and loan opportunities, and d) the effects of pass-through to outstanding mortgage rates on monetary transmission on prices and output are heterogenous across countries. |
| Keywords: | Monetary Policy Transmission; Monetary Policy Pass-Through |
| Date: | 2024–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2024/009&r=eec |
| By: | Galstyan, Vahagn (Central Bank of Ireland) |
| Abstract: | This paper presents an empirical framework and analysis of the interactions among inflation, wages, employment, and output in the euro area. Results identify price shocks and demand shocks as the primary exogenous factors explaining historical variance. The wage gap emerges as a key determinant of wage dynamics in the aftermath of a price shock. In contrast, the output gap becomes dominant following demand shocks. The real wage gap acts as a corrective mechanism, ensuring that prices and wages in particular align with the broader economic landscape. Forecasts for the period starting 2023Q3 emphasise the enduring significance of the real wage gap, projecting its ongoing impact on nominal wages in tight labour markets. As for inflation expectations, the estimates emphasise their stickiness. In this context, the significant and persistent price shock that has occurred suggests a gradual decline in expectations, potentially leading to an extended period of elevated inflation. |
| Keywords: | Inflation, Wages, Central Banking. |
| JEL: | E00 E12 E30 E31 E32 E37 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:11/rt/23&r=eec |
| By: | Thibaut Gentil; Sébastien Ray; Oana Toader |
| Abstract: | In a context of volatile interest rates, the impact of monetary policy decisions on banks’ net interest income is a key question for financial stability, since changes in profitability may affect their capacity to absorb losses and to accumulate capital through retained earnings. This paper presents an ALM-like model developed to project the evolution of the aggregate balance sheet and the interest income and expense of a banking sector under various scenarios. Based on balance sheet structure data, the model simulates the expiration of maturing instruments and the progressive accumulation of new issuances. Using conservation laws valid at the aggregate level, the model provides a consistent accounting-based framework, where bank reserve holdings depend on central bank actions, and the volume of customer deposits results from net payments between the banking sector and the rest of the economy. A combination of financial data sources makes it possible to build a simplified balance sheet of the aggregate euro area banking sector, on which the model can be run. Its total net interest income turns out to be, on the whole, positively sensitive to changes in interest rates. The model can also quantify sensitivities to other factors, such as central bank operations on securities or changes in the cost structure of customer deposits. Back-testing results on 2016–23 confirm the model’s ability to account for observed interest margins. |
| Keywords: | Interest Rates, Banking Sector, Net Interest Income, Monetary Policies, Asset-liability, Projection Model |
| JEL: | G21 E43 E44 E47 E58 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:931&r=eec |
| By: | Arigoni, Filippo (Central Bank of Ireland); Lenarcic, Crt (Banka Slovenije) |
| Abstract: | This paper estimates a Bayesian VAR model on Euro area data and quantifies the reaction of real activity to economic policy uncertainty shocks that originate abroad. Our findings show that US and Chinese uncertainty explains larger shares of fluctuations than European uncertainty. In an extended set-up, we perform a counterfactual simulation and verify the presence of a foreign economic policy uncertainty spillovers channel that magnifies the real effects of US and Chinese uncertainty shocks. The simulation also documents a non-negligible role played by bilateral trading activities in the transmission mechanism of Chinese shocks. In an application with Dutch data, we highlight that structural domestic factors shape region and country-specific uncertainty in the propagation of foreign economic policy uncertainty shocks onto the economy. |
| Keywords: | Uncertainty shocks, Euro area spillovers, real activity, US, China, Bayesian VAR. |
| JEL: | C32 E30 Q54 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:7/rt/23&r=eec |
| By: | Brausewetter, Lars; Ludolph, Melina |
| Abstract: | We study the impact of stricter and more harmonized banking regulation along the income distribution using household survey data for 25 EU countries. Exploiting country-level heterogeneity in the implementation of European Banking Union directives allows us to control for confounders and identify effects. Our results show that these regulatory reforms aimed at increasing financial system resilience affected households heterogeneously. More stringent regulation reduces income growth for low-income households due to employment exits. Yet it tends to increase growth rates at the top of the distribution both for employee and self-employed income. |
| Keywords: | distributional effects, EU-SILC microdata, financial regulation, income inequality |
| JEL: | D31 G21 G28 G50 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:281193&r=eec |
| By: | Moloney, Niamh |
| Keywords: | Springer deal |
| JEL: | G10 |
| Date: | 2024–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:120806&r=eec |
| By: | Joachim Wagner (Leuphana Universität Lüneburg, Institut für Volkswirtschaftslehre and Kiel Centre for Globalization) |
| Abstract: | The use of robots by firms can be expected to go hand in hand with higher productivity, higher product quality and more product innovation, which should be positively related to export activities. This paper uses firm level data from the Flash Eurobarometer 486 survey conducted in February – May 2020 to investigate the link between the use of robots and export activities in manufacturing enterprises from the 27 member countries of the European Union. Applying standard parametric econometric models and a new machine-learning estimator, Kernel-Regularized Least Squares (KRLS), we find that firms which use robots do more often export, do more often export to various destinations all over the world, and do export to more different destinations. The estimated robots premium for extensive margins of exports is statistically highly significant after controlling for firm size, firm age, patents, and country. Furthermore, the size of this premium can be considered to be large. Extensive margins of exports and the use of robots are positively related. |
| Keywords: | Robots, exports, firm level data, Flash Eurobarometer 486, kernel-regularized least squares (KRLS) |
| JEL: | D22 F14 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:426&r=eec |
| By: | Hanzl-Weiss, Doris; Stehrer, Robert |
| Abstract: | This report offers a detailed documentation and assessment of the differences in real productive investment between the United States and EU countries, focusing especially on the period 2013-2019. The analysis is based on capital stock and gross fixed capital formation (GFCF) data taken from Eurostat and the recent EU KLEMS releases, which provide comparable data for the US. The study considers various measures: investment gaps (defined as the difference in investment rates); the growth of real GFCF; and the accumulation of stocks. It documents differences in trends and in asset-type composition, as well as variations across the different EU countries. The study thus brings the existing literature up to date and adds investment dynamics to the discussion. The findings indicate the existence of a gap in productive investment in the period since the onset of the global financial crisis (caused largely by lower rates of investment, specifically in tangible information and communication technology and intangible assets) and gaps for larger EU member states. When we consider investment dynamics, we find more robust growth rates in productive investment in the EU than in the US over this period; however, again investment was lower in telecommunications equipment and software and databases. Since growth rates in the EU27 and the US have been similar since 2013, the EU27 has been unable to catch the US up in terms of capital accumulation. However, these results are sensitive to the application of asset price deflators: when US deflators are applied to the EU27, the differences are much less significant. |
| Keywords: | Productive investment, investment gap, investment dynamics, European Union, US |
| JEL: | E22 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eibwps:281769&r=eec |
| By: | Dorothée Charlier (IREGE - Institut de Recherche en Gestion et en Economie - USMB [Université de Savoie] [Université de Chambéry] - Université Savoie Mont Blanc); Mouez Fodha (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Djamel Kirat (LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne) |
| Abstract: | This paper examines the determinants of residential CO 2 emissions, which are not covered by the European Union Emissions Trading System (EU ETS), in 19 European countries between 2000-2017. Using both static and dynamic panel models, we found strong relationships between CO 2 emissions per capita, GDP per capita, energy prices and heating needs. We then assessed the impact of European carbon taxation and show that a e20/tonne CO 2 tax lowers emissions by 1% on average. We found that this tax affects countries differently in terms of tax revenue-to-GDP ratio. Poland and the Czech Republic would have to pay the highest contribution, and Portugal and Denmark the lowest. Finally, we propose a scenario that equalizes countries' tax burdens. We show that, were Europe to redistribute all tax revenues, the main beneficiaries would be Poland and Belgium, while Denmark and Luxembourg would have to pay a surtax. |
| Keywords: | CO2 emissions, Residential Sector, Panel data, Energy prices, Carbon tax |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03901487&r=eec |
| By: | Diva Astinova; Mr. Romain A Duval; Mr. Niels-Jakob H Hansen; Ben Park; Mr. Ippei Shibata; Mr. Frederik G Toscani |
| Abstract: | Three years after the COVID-19 crisis, employment and total hours worked in Europe fully recovered, but average hours per worker did not. We analyze the decline in average hours worked across European countries and find that (i) it is not cyclical but predominantly structural, extending a long-term trend that predates COVID-19, (ii) it mainly reflects reduced hours within worker groups, not a compositional shift towards lower-hours jobs and workers, (iii) men—particularly those with young children—and youth drive this drop, (iv) declines in actual hours match declines in desired hours. Policy reforms could help involuntary parttimers and women with young children raise their actual hours towards desired levels, but the aggregate impact on average hours would be limited to 0.5 to 1.5 percent. Overall, there is scant evidence of slack at the intensive margin in European labor markets, and the trend fall in average hours worked seems unlikely to reverse. |
| Keywords: | hours worked; working hours; labor market; Europe |
| Date: | 2024–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2024/002&r=eec |
| By: | Limosani, Michele; Millemaci, Emanuele; Mustica, Paolo |
| Abstract: | This paper proposes the Prior Adaptive Bayes (PAB) classifier, a new algorithm to assign words appearing in a text to their respective topics. It is an adaption of the Bayes classifier where, as the prior probabilities of classes, their posterior probabilities associated with the adjacent words are used. Simulations show an improvement of more than 20% over the standard Bayes classifier. The PAB classifier is applied to the Recovery and Resilience Plans (RRPs) of the 27 European Union member states to evaluate their alignment with the environmental dimension of the Sustainable Development Goals (SDGs) as compared to the socioeconomic one. Results show that the attention paid by the countries to the pro-environment SDGs increases with the funds per capita assigned, the gap in the environmental endowment and the touristic attractiveness. Finally, the environmental dimension appears associated positively with available GDP growth projections for the next few years. |
| Keywords: | textual analysis; Prior Adaptive Bayes classifier; Recovery and Resilience Plans; Sustainable Development Goals; pro-environment policy |
| JEL: | C82 H22 O44 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119875&r=eec |
| By: | Colonnello, Stefano; Koetter, Michael; Sclip, Alex; Wagner, Konstantin |
| Abstract: | We show that around one third of executive directors on the boards of national supervisory authorities (NSA) in European banking have an employment history in the financial industry. The appointment of executives without a finance background associates with negative valuation effects. Appointments of former bankers, in turn, spark positive stock market reactions. This 'proximity premium' of supervised banks is a more likely driver of positive valuation effects than superior financial expertise or intrinsic skills of former executives from the financial industry. Prior to the inception of the European Single Supervisory Mechanism, the presence of former financial industry executives on the board of NSA associates with lower regulatory capital and faster growth of banks, pointing to a more lenient supervisory style. |
| Keywords: | banking supervision, conflicts of interest, revolving door |
| JEL: | G14 G21 G28 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:281191&r=eec |
| By: | Becker, Annette (European Commission); Di Girolamo, Francesca (European Commission); Rho, Caterina (European Commission) |
| Abstract: | Biodiversity loss can have direct economic impacts, as it limits the availability of natural resources and increases costs across various industries. When firms face significant risks due to biodiversity loss, their creditworthiness may be compromised. This raises concerns for lending institutions that have provided credit to these companies, potentially leading to stricter lending conditions for borrowers. This paper analyzes how these risks spread from the real economy to the syndicated loans market in the European Union and United Kingdom. Firstly, we construct a country-level indicator of biodiversity exposure for EU lenders. Our findings show that the exposure of EU banks to biodiversity varies across countries, depending on the level of exposure of borrowing firms and the loan volumes. Secondly, using data on syndicated loans from 2017 to 2022, we observe a positive and significant correlation between loan pricing and the level of biodiversity exposure of the borrower. These findings suggest that creditors are increasingly incorporating nature-related investor information into their financing decisions, allowing them to diversify and pool risks. On the other hand, debtors cannot fully detach themselves from their dependence on natural capital and can only shift their business models in the long run. |
| Keywords: | Nature-related risk, Natural capital, Biodiversity, Financial sector, Banks, Debt financing, Syndi- cated loans, Loan pricing, Premium, International spillovers, Risk transmission, Borrower diversification, EU |
| JEL: | C55 G21 Q51 Q57 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:jrs:wpaper:202311&r=eec |
| By: | Adolfo Cristobal Campoamor; Osiris Jorge Parcero |
| Abstract: | This paper proposes a two blocks and three regions economic geography model that can account for the most salient stylized facts experienced by Eastern European transition economies during the period 1990 2005. In contrast to the existing literature, which has favored technological explanations, trade liberalization is the only driving force. The model correctly predicts that in the first half of the period, trade liberalization led to divergence in GDP per capita, both between the West and the East and within the East. Consistent with the data, in the second half of the period, this process was reversed and convergence became the dominant force. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.05107&r=eec |