nep-eec New Economics Papers
on European Economics
Issue of 2015‒10‒17
fourteen papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. "The Euro's Savior? Assessing the ECB's Crisis Management Performance and Potential for Crisis Resolution" By Jorg Bibow
  2. Price level changes and the redistribution of nominal wealth across the euro area By Adam, Klaus; Zhu, Junyi
  3. Big Players Out of Synch: Spillovers Implications of US and Euro Area Shocks By Carolina Osorio Buitron; Esteban Vesperoni
  4. Public support for the economic governance of the euro zone: empirical evidence from the debt crisis By Kristel Jacquier
  5. Domestic and international macroeconomic effects of the Eurosystem expanded asset purchase programme By Pietro Cova; Patrizio Pagano; Massimiliano Pisani
  6. The time varying effect of oil price shocks on euro-area exports By Marianna Riggi; Fabrizio Venditti
  7. Clamoring for Greenbacks: Explaining the resurgence of the U.S. dollar in international debt By ITO Hiroyuki; Cesar RODRIGUEZ
  8. Factors of price convergence and its estimated level in Hungary By Péter Bauer
  10. Recent Estimates of Exchange Rate Pass-Through to Import Prices in the Euro Area By Nidhaleddine BEN CHEIKH; Christophe RAULT
  11. The impact of the ECB's conventional and unconventional monetary policies on stock markets By Reinder Haitsma; Deren Unalmis; Jakob de Haan
  12. Determinants of long-term versus short-term bank credit in EU countries By Park,Haelim; Ruiz Ortega,Claudia; Tressel,Thierry
  13. Monetary Policy, Fiscal Policy, and Secular Stagnation at the Zero Lower Bound. A View on the Eurozone By Kleczka, Mitja
  14. A Strategy for Resolving Europe's Problem Loans By Shekhar Aiyar; Wolfgang Bergthaler; Jose M Garrido; Anna Ilyina; Andreas Jobst; Kenneth Kang; Dmitriy Kovtun; Yan Liu; Dermot Monaghan; Marina Moretti

  1. By: Jorg Bibow
    Abstract: This study assesses the European Central Bank's (ECB) crisis management performance and potential for crisis resolution. The study investigates the institutional and functional constraints that delineate the ECB's scope for policy action under crisis conditions, and how the bank has actually used its leeway since 2007--or might do so in the future. The study finds that the ECB may well stand out positively when compared to other important euro-area or national authorities involved in managing the euro crisis, but that in general the bank did "too little, too late" to prevent the euro area from slipping into recession and protracted stagnation. The study also finds that expectations regarding the ECB's latest policy initiatives may be excessively optimistic, and that proposals featuring the central bank as the euro's savior through even more radical employment of its balance sheet are misplaced hopes. Ultimately, the euro's travails can only be ended and the euro crisis resolved by shifting the emphasis toward fiscal policy; specifically, by partnering the ECB with a "Euro Treasury" that would serve as a vehicle for the central funding of public investment through the issuance of common Euro Treasury debt securities.
    Keywords: Monetary Policy, Currency Union, ECB, Lender of Last Resort, Euro Crisis, Banking Union
    JEL: E42 E44 E52 E58 E61
    Date: 2015–09
  2. By: Adam, Klaus; Zhu, Junyi
    Abstract: We show that unexpected price level movements generate sizable wealth redistribution in the Euro Area (EA), using sectoral accounts and newly available data from the Household Finance and Consumption Survey. The EA as a whole is a net loser of unexpected price level decreases, with Italy, Greece, Portugal and Spain losing most in per capita terms, and Belgium and Malta being net winners. Governments are net losers of deflation, while the household (HH) sector is a net winner in the EA as a whole. HHs in Belgium, Ireland, Malta and Germany experience the biggest per capita gains, while HHs in Finland and Spain turn out to be net losers. Considerable heterogeneity exists also within the HH sector: relatively young middle class HHs are net losers of deflation, while older and richer HHs are winners. As a result, wealth inequality in the EA increases with unexpected deflation, although in some countries (Austria, Germany and Malta) inequality decreases due to the presence of relatively few young borrowing HHs. We document that HHs inflation exposure varies systematically across countries, with HHs in high inflation EA countries holding systematically lower nominal exposures. JEL Classification: E31,D31,D14
    Keywords: euro area, household survey, price level, redistribution
    Date: 2015–09
  3. By: Carolina Osorio Buitron; Esteban Vesperoni
    Abstract: Given the prospects of asynchronous monetary conditions in the United States and the euro area, this paper analyzes spillovers among these two economies, as well as the implications of asynchronicity for spillovers to other advanced economies and emerging markets. Through a structural vector autoregression analysis, country-specific shocks to economic activity and monetary conditions since the early 1990s are identified, and are used to draw implications about spillovers. The empirical findings suggest that real and monetary conditions in the United States and the euro area have oftentimes been asynchronous. The results also point to significant spillovers among them, in particular since early 2014—with spillovers from the euro area to the United States being particularly large. Against the backdrop of asynchronous conditions in these two economies, spillovers from real and money shocks to emerging markets and non-systemic advanced economies could be dampened.
    Keywords: Spillovers;United States;Euro Area;Monetary policy;External shocks;Exchange rates;Economic conditions;Developed countries;Emerging markets;Vector autoregression;Panel analysis;Spillovers, Monetary Policy, Economic News, Emerging Economies
    Date: 2015–09–30
  4. By: Kristel Jacquier (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: Using a unique database combining Eurobarometer surveys from 2004 to 2014 trust is used as a proxy for the value people give to the EU response to the crisis. The focus is on the euro zone and the sovereign debt crisis which started in November 2009. Our empirical analysis supports the theory that citizens blame the EU for the poor macroeconomic performances in the euro area. We rely on a bivariate probit model to document the relationship between national government trust and EU trust. We find that domestic macroeconomic conditions influence both level of government. However, a deeper analysis suggests that the proximity with the average Euro Zone economic performances increases trust in the European Union
    Keywords: European integration; survey research; debt crisis
    JEL: F55 C25 F34
    Date: 2015–09
  5. By: Pietro Cova (Bank of Italy); Patrizio Pagano (The World Bank); Massimiliano Pisani (Bank of Italy)
    Abstract: This paper evaluates the domestic and international macroeconomic effects of purchases of domestic long-term sovereign bonds by the Eurosystem. To this end, we calibrate a five-country dynamic general equilibrium model of the world economy. According to our results, the sovereign bond purchases would generate an increase in economic activity and in inflation in the euro area of about one percentage point in the first two years by inducing a fall in the long-term interest rates and an increase in liquidity. International spillovers may be nontrivial and expansionary, depending on the monetary policy stance of the partner countries and on the response of international relative prices.
    Keywords: DSGE models, open-economy macroeconomics, non-standard monetary policy, zero lower bound
    JEL: E43 E44 E52 E58
    Date: 2015–09
  6. By: Marianna Riggi (Bank of Italy); Fabrizio Venditti (Bank of Italy)
    Abstract: In this paper we provide novel evidence on changes in the relationship between the real price of oil and real exports in the euro area. By combining robust predictions on the sign of the impulse responses obtained from a theoretical model with restrictions on the slope of the oil demand and oil supply curves, we identify oil supply and foreign productivity shocks in a time varying VAR with stochastic volatility. We find that from the 1980s onwards the relationship between oil prices and euro area exports has become less negative conditional on oil supply shortfalls and more positive conditional on foreign productivity shocks. Using the theoretical model we show that our empirical findings can be accounted for by (i) stronger trade relationship between the euro area and emerging economies (ii) a decrease in the share of oil in production and (iii) increased competitive pressures in the product market.
    Keywords: oil prices, VAR, time-varying parameters, exports
    JEL: C32 E3 F14
    Date: 2015–09
  7. By: ITO Hiroyuki; Cesar RODRIGUEZ
    Abstract: This paper investigates the determinants of currency denomination in international debt. Using data on currency shares for international debt securities for 82 countries from 1995 through 2013, we find that while the extent of foreign currency issuance has not changed much since the 1990s, especially for developing countries, the currency composition has shifted, especially between the U.S. dollar and the euro. Before the Global Financial Crisis (GFC) of 2008, the share of the U.S. dollar has been on a downward trend while that of the euro had been on a steady rising trend, but since the crisis, the U.S. dollar share rebounded. With these findings, we estimate the determinants for the shares of the U.S. dollar, the euro, and the total of foreign currencies in international debt denomination. Our empirical analysis yields the following findings. First, not only does economic size matter, but also a country's monetary, financial and fiscal stance. Second, countries seem to increase their reliance on the euro first before increasing their issuance of debt in domestic currency. Third, financial opening has a persistent, effective influence on both the extent of foreign currency denomination and the shares of individual major currencies. Lastly, by applying the baseline estimation model only to the data before 2007, we conduct a counterfactual analysis to examine what would have happened to the shares of the major currencies had it not been for the GFC. Our results show that without the occurrence of the GFC, the share of the euro in international debt in 2013 would have been 9 percentage points higher at 24%, while the share of the dollar would have been 13 percentage points lower at 54%. Considering a conservative scenario for the near future, the dollar will likely continue dominating the denomination of international debt. In 2020 the share of the dollar in international debt could be at 63% while the share of the euro could be 18%.
    Date: 2015–10
  8. By: Péter Bauer (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: The study analyses the relationship between real economy convergence and the convergence of relative prices. Similar to its peers in the CEE region, a significant part of Hungary’s price convergence with developed Western European countries can be attributed to the convergence of the real economy. The crisis, however, impeded catching-up in the entire region, leaving relative prices largely unchanged in the subsequent periods. In addition to decelerating real convergence, this may also have resulted from depreciating nominal exchange rates. The relationship between relative price levels and economic development is often explained by the Balassa-Samuelson effect; according to the findings, however, this effect accounts for only a part of the real appreciation observed in the region over the past one-and-a-half decades. This may have resulted primarily from problems concerning the data required for the estimation of the Balassa-Samuelson effect. Thus, in interpreting the findings, the main focus is a direct estimation of the relationship between relative price levels and economic development. The rate of expected price convergence in Hungary can be calculated from assumptions about future economic growth, relying on estimates pertaining to the relationship between relative price levels and economic development. According to our estimates, real convergence may be accompanied by price convergence of 0.5–1 per cent per annum. This calculation, however, involves significant uncertainty. The lower growth rate of regulated prices may lead to lower convergence rates, while higher economic growth compared to the euro area may drive faster price convergence.
    Keywords: price convergence, Balassa-Samuelson effect, real appreciation
    JEL: E31
    Date: 2015
  9. By: Annabelle Mourougane
    Abstract: This paper seeks to estimate the effects of financial crises on potential output accounting for hysteresis on a panel of 34 OECD economies. Hysteresis amplifies the effect of financial crises on potential output. The difference is marginal in the first years (below 0.5 percentage point) but grows over time to reach some 1.5 percentage points after four years, almost doubling the crisis impact on potential output at this horizon. These results are robust to a range of specifications. On average across crisis and country the maximum crisis effect on potential output is about 3 %. The effect appears to be more severe for the 2008 crisis though, with a maximum impact above 4 % on average for G7 countries. Small euro area countries and the United Kingdom appear to have suffered from bigger losses than the United States and Canada. Large euro area countries and Japan are estimated to be in an intermediary situation. Lastly, the empirical work undertaken in this paper suggests that financial crises have had on average an effect on potential growth in the first years following the crisis but not after.
    Date: 2015–10–07
  10. By: Nidhaleddine BEN CHEIKH; Christophe RAULT
    Date: 2015
  11. By: Reinder Haitsma; Deren Unalmis; Jakob de Haan
    Abstract: Using an event study method, we examine how stock markets respond to the policies of the European Central Bank during 1999-2015. We use market prices of futures (government bonds) to identify surprises in (un)conventional monetary policy. Our results suggest that especially unconventional monetary policy surprises affect the EURO STOXX 50 index. We also find evidence for the credit channel, notably for unconventional monetary policy surprises. Our results also suggest that value and past loser stocks show a larger reaction to monetary policy surprises. These results are confirmed if identification of monetary policy surprises is based on the Rigobon-Sack heteroscedasticity approach.
    Keywords: monetary policy surprises; stock prices; event studies approach; identification through heteroscedasticity
    JEL: E43 E44 E52
    Date: 2015–09
  12. By: Park,Haelim; Ruiz Ortega,Claudia; Tressel,Thierry
    Abstract: This paper empirically examines the determinants of credit at different maturities across European Union countries during the last decade. The paper documents the lengthening of maturities since the early 2000s, and whether these patterns were driven by similar factors in advanced countries and in emerging market countries. Before the 2008 crisis, long-term credit expanded faster than short-term credit in most countries in the sample, and contracted less than short-term credit after 2008. The paper finds that domestic deposits and foreign liabilities were more important sources of funding in emerging market countries than in advanced countries. Moreover, trade openness and initial banking sector depth matter more for emerging market countries than for advanced countries.
    Keywords: Access to Finance,Economic Theory&Research,Bankruptcy and Resolution of Financial Distress,Debt Markets,Banks&Banking Reform
    Date: 2015–10–08
  13. By: Kleczka, Mitja
    Abstract: This paper delivers a contemporary estimate of the Eurozone’s natural real rate of interest. While it is found that the natural real rate has declined substantially between 1997 and 2015, it has not become negative. Thus, even in the presence of low inflation and nominal interest rates at the zero lower bound, the Eurozone does not face an acute threat of secular stagnation as defined by Lawrence Summers. Similarly, it is deemed unlikely that a number of ‘headwinds’ or a demise of technological growth will lead to a secular decline of the Eurozone’s economic growth. At the same time, it is found that the Eurozone faces a rather profound threat of ‘diversity stagnation’, as large inter-state differences impair the efficiency of its single monetary policy. Combined with the insufficient enforcement of fiscal rules, this erodes the Eurozone’s economic potential as well as its stability. Far-reaching reforms of the monetary and fiscal framework could overcome the detrimental status quo. However, conflicting economic and political incentives among the different member states and governments render the implementation of a necessary reform unlikely.
    Keywords: Secular stagnation; natural rate of interest; zero lower bound; land; headwinds; innovation stagnation; Taylor rule; public debt; tragedy of the commons.
    JEL: E42 E5 H6
    Date: 2015–09–30
  14. By: Shekhar Aiyar; Wolfgang Bergthaler; Jose M Garrido; Anna Ilyina; Andreas Jobst; Kenneth Kang; Dmitriy Kovtun; Yan Liu; Dermot Monaghan; Marina Moretti
    Abstract: Europe’s banking system is weighed down by high levels of non-performing loans (NPLs), which are holding down credit growth and economic activity. This discussion note uses a new survey of European country authorities and banks to examine the structural obstacles that discourage banks from addressing their problem loans. A three pillared strategy is advocated to remedy the situation, comprising: (i) tightened supervisory policies, (ii) insolvency reforms, and (iii) the development of distressed debt markets.
    Keywords: Non-performing loans;Europe;Banks;Corporate debt;Debt restructuring;Bank resolution;Non-performing loans, debt restructuring, NPL resolution, credit growth
    Date: 2015–09–24

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