nep-eec New Economics Papers
on European Economics
Issue of 2013‒02‒08
seven papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. The ECB Unconventional Monetary Policies: Have They Lowered Market Borrowing Costs for Banks and Governments? By Urszula Szczerbowicz
  2. The accuracy of the European Commission's forecasts re-examined By Laura Gonzalez Cabanillas; Alessio Terzi
  3. Spillovers of the Credit Default Swap Market By Mauricio Calani C.
  4. How do OECD donor countries distribute foreign aid among developing countries during their fiscal episodes? By Sèna Kimm GNANGNON
  5. What is a prime bank? A Euribor – OIS spread perspective By Marco Taboga
  6. The fading stock market response to announcements of bank bailouts By Michele Fratianni; Francesco Marchionne
  7. Are South East Europe stock markets integrated with regional and global stock markets? By Guidi, Francesco; Ugur, Mehmet

  1. By: Urszula Szczerbowicz
    Abstract: This paper evaluates the impact of all ECB unconventional monetary policies implemented between 2007 and 2012 on bank and government borrowing costs. We employ event-based regressions to measure the effect of each policy. The borrowing conditions for banks are represented by money market spreads and covered bond spreads while the sovereign bond spreads reflect government borrowing costs. The results show that sovereign bond purchasing programs (SMP, OMT) proved to be the most effective in lowering longer-term borrowing costs for both banks and governments with the largest impact in periphery euroarea countries. The strong impact in the euro-area periphery suggests that the central bank intervention in sovereign market is particularly effective when the sovereign risk is important. Furthermore, both covered bond purchase programs and 3-year loans to banks reduced bank refinancing costs.
    Keywords: unconventional monetary policy;quantitative easing;credit easing;sovereign bond spreads;covered bond spreads;Euribor-OIS spread
    JEL: E43 E44 E52 E58
    Date: 2012–12
  2. By: Laura Gonzalez Cabanillas; Alessio Terzi
    Abstract: This paper analyses the Commission's forecast track record, by building on previous analyses. The extension of the observation period to 2011 allows a first analysis of forecast accuracy during the years of the economic and financial crisis. Over the full timespan, forecasts for the EU and euro area are found to be generally unbiased. The same holds true for the outlook for most Member States, largely confirming earlier results. Moreover, the Commission services track record appears generally in line with that of the OECD, IMF and Consensus Economics, and in some cases better. Finally, while the analysis points to a limited impact of the crisis on the accuracy of the Commission's current-year forecasts, a significant deterioration of the accuracy of year-ahead projections is found. This applies in particular for the forecasts of GDP, investment, inflation and the government budget balance, due mainly to larger forecast errors in the recession year 2009, which by all standards proved exceptional and unanticipated by institutional and market forecasters.
    JEL: E17 E27 E37
    Date: 2012–12
  3. By: Mauricio Calani C.
    Abstract: Credit Default Swap (CDS) prices have soared on the edge of a potential sovereign default of some European countries. Interestingly, not only countries on the verge of receiving bailouts have seen their CDS prices rise, but also those from which most of the bailout financing would come, such as Germany. If in fact default probabilities of countries like Germany have risen, should we still view them as safe-havens? In particular, to what extent should we see bond yields rise (as bond prices decline) vis-a-vis CDS spreads? This paper tackles this question by estimating the dynamic responses of bond yields to changes in the CDS spreads. The second, more fundamental question is to assess if the apparent contagion from troubled countries to otherwise-healthy economies is in fact so. I address this question using the Diebold - Yilmaz spillover index methodology for CDS data. I conclude that sovereign debt from Germany, Chile and Japan are unaffected by contagion from other economies and have served as safe-haven assets during the current financial distress episode.
    Date: 2012–10
  4. By: Sèna Kimm GNANGNON (CERDI)
    Abstract: In this paper, we investigate the effects of fiscal episodes in Organization for Economic Cooperation and Development (OECD) donor countries on the distribution of their aid expenditures towards developing countries. We use descriptive statistics provided by Alesina and Ardagna (2010) on fiscal episodes and regression models to perform this analysis. The results show evidence that the "aid expenditures variables" respond variably to the episodes of large changes in fiscal policy in OECD donor countries. In addition, European Union and Non-European Union countries behave differently in terms of aid expenditures distribution during their fiscal episodes.
    Keywords: foreign aid, Fiscal consolidation, Fiscal stimuli, OECD Countries
    JEL: F35 E62 H62
    Date: 2013
  5. By: Marco Taboga (Bank of Italy)
    Abstract: Since the outbreak of the financial crisis in 2007, the level and volatility of Euribor – OIS differentials have increased significantly. According to the extant literature, this variability is mainly explained by credit and liquidity risk premia. I provide evidence that part of the variability might also be explained by ambiguity in the phrasing of the Euribor survey. Participants in the survey are asked at what rate they believe interbank funds to be exchanged between prime banks; given the lack of a clear definition of the concept of prime bank, this question might leave room for subjective judgment. In particular, I find evidence that some variability of Euribor rates might be explained by changes in the survey participants' perception of what a prime bank is. This adds to the difficulties already encountered by previous studies in exactly identifying and measuring the determinants of Euribor rates. I argue that these difficulties are at odds with the clarity, simplicity and replicability that should be required of a widely utilized financial benchmark.
    Keywords: Euribor rates, Euribor survey, Euribor – OIS spread.
    JEL: G1 G2
    Date: 2013–01
  6. By: Michele Fratianni (Indiana University, Kelly School of Business, Bloomington US, Univ. Plitecnica Marche and MoFiR); Francesco Marchionne (Nottingham Trent University, Division of Economics)
    Abstract: We analyze the effects on bank valuation of government policies aimed at shoring up banks' financial conditions during the 2008-2009 financial crisis. Governments injected into troubled institutions massive amounts of fresh capital and/or guaranteed bank assets and liabilities. We employ event study methodology to estimate the impact of government-intervention announcements on bank valuation. Using traditional approaches, announcements directed at the banking system as a whole were associated with positive cumulative abnormal returns, whereas announcements directed at specific banks with negative ones. Findings are consistent with the hypothesis that individual institutions were reluctant to seek public assistance. However, when we correct standard errors for bank-and-time effects, virtually all announcement impacts vanish in Europe, whereas they weaken in the United States. The policy implication is that the large public commitments were either not credible or deemed inadequate relative to the underlying financial difficulties of banks.
    Keywords: announcement, bank, event study, financial crisis, rescue plan
    JEL: G01 G21 N20
    Date: 2013–01
  7. By: Guidi, Francesco; Ugur, Mehmet
    Abstract: This paper analyses whether stock markets of South East Europe (SEE) have become more integrated with regional and global stock markets during 2000s. Using a variety of co integration methodologies we show that SEE stock markets have no long-run relationship with their mature counterparts. This means that SEE markets might be immunized to external shocks. We also model time varying correlations among these markets by using Multivariate Generalised Autoregressive Conditional Heteroschedastic (MGARCH) models as well as the Exponential Weighted Moving Average (EWMA) methodology. Results show that the correlations of UK and US equity markets with South East Europe market change over time. These changes in correlations between our benchmark markets and individual SEE market pairs are not uniform although evidence of increasing convergence among South East Europe and developed stock market is evident. Also examined in this paper whether the structure of correlations between returns of indices in different markets changed in different phases of the 2007-2009 global financial crisis. Overall our results show that diversification benefits are still possible for investors wishing to diversify their portfolio between developed and emerging SEE stock markets.
    Keywords: South East Europe; Stock markets; Cointegration; Correlation
    JEL: G15 G32
    Date: 2012–10

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