nep-eec New Economics Papers
on European Economics
Issue of 2015‒10‒25
twelve papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Price Level Changes and the Redistribution of Nominal Wealth Across the Euro Area By Klaus Adam; Junyi Zhu
  2. The Impact of a Low Interest Rate Environment: Empirical Evidence from the Euro Area Bank Lending Survey By Khosravi, Taha
  3. Challenges for European Welfare States By Börsch-Supan, Axel
  4. Distributional Consequences of Asset Price Inflation in the Euro Area By Adam, Klaus; Tzamourani, Panagiota
  5. "Integration, Spurious Convergence, and Financial Fragility: A Post-Keynesian Interpretation of the Spanish Crisis" By Esteban Pérez Caldentey; Matías Vernengo
  6. In the absence of fiscal union, the Eurozone needs a more flexible monetary policy By Pietro Alessandrini; Michele Fratianni
  7. Divers Twins: The Impact of China on Italian and German Manufacturing Exports By Giorgia Giovannetti; Marco Sanfilippo,; Margherita Velucchi
  8. QE and the Bank Lending Channel in the United Kingdom By Nick Butt; Rohan Churm; Michael McMahon; Arpad Morotz; Jochen Schanz
  9. Demographics and the Secular Stagnation Hypothesis in Europe By Favero, Carlo A.; Galasso, Vincenzo
  10. Financial incentives and labor market duality. By C. Berson; N. Ferrari
  11. Rational pension policies By Börsch-Supan, Axel
  12. European integration as an underestimated success programme By Gunther Tichy

  1. By: Klaus Adam (University of Mannheim; Deutsche Bundesbank); Junyi Zhu (Deutsche Bundesbank)
    Abstract: We document the presence of sizable nominal wealth redistribution effects from unexpected price level movements 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 unexpected 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 unanticipated 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 EA countries that experienced high inflation holding systematically lower nominal exposures.
    Date: 2015–09
  2. By: Khosravi, Taha
    Abstract: This paper investigates the effect of a protracted period of low monetary policy rates on loosening of banks’ credit standards concerning enterprises, households and consumer loans. Using a balanced panel dataset of 9 countries that have taken part ever since the initiation of the Euro area Bank Lending Survey, this study focuses on three different time frames of pre- (2002Q4-2008Q3), mid- (2008Q4-2010Q4) and post- (2011Q1-2014:Q4) financial crisis. The results indicate that low short term interest rates prior to the crisis produce a disproportionate loosening of credit standards in all three types of loans. In spite of the scope of expansionary monetary policy documented primarily in the post-crisis sample, the data analysed indicates that negative Taylor-rule residuals lead only to a softening of total lending standards for enterprises loans. Additionally, the outcomes of this study indicate that the European Central Bank 3 year long-term refinancing operations brought a fall in the progress of banks’ credit tightening. However, the benefits of this have yet to be experienced in the EA9 real economy. While regrouping the original sample in stressed nations, the results suggest that excessive risk-taking in bank lending behaviour took place, especially during periods of low monetary policy rates both pre- and post-crisis.
    Keywords: Monetary policy, Bank lending Survey, Euro area, LTROs announcement, Panel data.
    JEL: E44 E50 E52 E58 G01
    Date: 2015–10–20
  3. By: Börsch-Supan, Axel (Munich Center for the Economics of Aging (MEA))
    Abstract: In the absence of social security reform, current pension entitlements of an aging population exceed future fiscal capacity. However, structural labor market reforms facilitate the transition to sustainable schemes in which a sizeable part of the current generosity of European welfare states can be maintained. In fact, many European states have already taken important steps in this direction. In the end insufficient productive capacities to support the welfare state pose smaller challenges to reform than do time inconsistencies built into the political process of redesigning pension plans.
    Date: 2015–08–01
  4. By: Adam, Klaus; Tzamourani, Panagiota
    Abstract: We study the distributional consequences of housing price, bond price and equity price increases for Euro Area households using data from the Household Finance and Consumption Survey (HFCS). The capital gains from bond price and equity price increases turn out to be concentrated among relatively few households, while the median household strongly benefits from housing price increases. The capital gains from bond price increases (relative to household net wealth) do not correlate with household net wealth (or income). Bond price increases thus leave net wealth inequality largely unchanged. In contrast, equity price increases largely benefit the top end of the net wealth (and income) distribution, thus amplify net wealth inequality. Housing price increases display a hump shaped pattern over the net wealth distribution, with the poorest and richest households benefitting least. With regard to the latter finding there exists considerable heterogeneity across Euro Area countries.
    Keywords: asset price inflation , wealth redistribution
    JEL: D31 E21 E52 E58
    Date: 2015
  5. By: Esteban Pérez Caldentey; Matías Vernengo
    Abstract: The Spanish crisis is generally portrayed as resulting from excessive spending by households, associated with a housing bubble and/or excessive welfare spending beyond the economic possibilities of the country. We put forward a different hypothesis. We argue that the Spanish crisis resulted, in the main, from a widening deficit position in the nonfinancial corporate sector--the most important explanatory factor behind the country's rising external imbalance--and a declining trend in profitability under a regime of financial liberalization and loose and unregulated lending practices. This paper argues that the central cause of the crisis is related to the nonfinancial corporate sector's increasingly fragile financial position, which originated from the financial convergence that followed adoption of the euro.
    Keywords: Euro; Macroeconomic Crisis; Spain
    JEL: F33 O52
    Date: 2015–10
  6. By: Pietro Alessandrini (Universit… Politecnica delle Marche, MoFiR); Michele Fratianni (Indiana University, Kelly School of Business, Bloomington US, Univ. Plitecnica Marche and MoFiR)
    Abstract: This paper makes three points. The first is that inter-member external imbalances are a relevant objective for the performance of a monetary union. The second is that policy should aim at reducing inter-member external disequilibria, by setting targets on current-account imbalances applied symmetrically to both deficit and surplus countries. The correction of external imbalances needs to be taken as seriously as that of fiscal imbalances and debt-to-GDP ratios. The third is that, while the principle of the unified supranational monetary policy should remain the core of the monetary union, the heterogeneity in economic performances and current-account imbalances of member states calls for a more flexible common monetary policy. Our specific proposal is that National Central Banks should add a risk premium cost to official interest rates on banks that accumulate "excessive" borrowings or deposits to compensate, respectively, for outflows and inflows of the monetary base due to the effect of external imbalances.
    Keywords: Eurozone, adjustment mechanism, external imbalances, sterilisation
    JEL: E42 E52 E58
    Date: 2015–10
  7. By: Giorgia Giovannetti (Dipartimento di Scienze per l'Economia e l'Impresa); Marco Sanfilippo,; Margherita Velucchi
    Abstract: Germany and Italy are two major manufacturing producers and export a substantial part of their products – over 70 per cent- to OECD countries. While they share many characteristics, in term of specialization and destination markets, they are also “diverse twins”. Italy has a productive structure still largely based on so-called “traditional” sectors, while Germany specialized mainly in high tech goods. Italy is therefore more likely to be more vulnerable to the competitive pressure by emerging economies, and especially China, which experienced a strong increase in its export market share during the last decades. This paper addresses the issue of the impact of China on the export performance of Italy and Germany to their main trading partners to assess how well they withstood competition. Using data for the period 1995-2009, we implement a longitudinal multilevel model on quantiles to take into account two very important data characteristics: their hierarchical hidden structure (captured by a multilevel model) and the heterogeneity of the export shares (captured by a quantile approach). This innovative estimation method, together with the introduction of Chinese export shares as explanatory variable to account for the potential Chinese competition, allows us to estimate the impact of China on Italy and Germany’s market shares. Results show that China has affected Italy’s and Germany’s market shares in different ways, in different sectors, characterized by different market shares. However, Italy does not seem to have been “more at risk”. These results are relevant also for their policy implications and for an ex post analysis of the “response” to the Chinese competition.
    Keywords: China; Longitudinal multilevel, Quantile analysis, Market Shares, export competition
    JEL: F10 F14
    Date: 2015
  8. By: Nick Butt; Rohan Churm; Michael McMahon; Arpad Morotz; Jochen Schanz
    Abstract: We test whether quantitative easing (QE), in addition to boosting aggregate demand and inflation via portfolio rebalancing channels, operated through a bank lending channel (BLC) in the UK. Using Bank of England data together with an instrumental variables approach, we find no evidence of a traditional BLC associated with QE. We show, in a simple framework, that the traditional BLC is diminished if the bank receives `flighty’ deposits (deposits that are likely to quickly leave the bank). We show that QE gave rise to such flighty deposits which may explain why we find no evidence of a BLC.
    Keywords: Monetary policy, Bank lending channel, Quantitative Easing
    JEL: E51 E52 G20
    Date: 2015–10
  9. By: Favero, Carlo A.; Galasso, Vincenzo
    Abstract: Demographic trends in Europe do not support empirically the secular stagnation hypothesis. Our evidence shows that the age structure of population generates less long-term growth but positive real rates. Policies for growth become very important. We assess the relevance of the demographic structure for the choice between macro adjustements and structural reforms. We show that middle aged and elderly individuals have a more negative view of reforms, competitiveness and globalization than young. Our results suggest that older countries -- in terms of share of elderly people -- should lean more towards macroeconomic adjustments, whereas younger nations will be more supportive of structural reforms.
    Keywords: Europe; growth; real interest rates; stochastic mortality
    JEL: J11 J14
    Date: 2015–10
  10. By: C. Berson; N. Ferrari
    Abstract: In coordination with the ECB and 24 other national central banks of the European Union, the Banque de France interrogated 1150 French firms to understand how the crisis affected their economic environment and their human resources practices during the 2010-2013 period. A majority of workers were employed by firms which indicate that their activity was mostly affected by a decrease in demand considered as long-lasting by more than 40% of them, especially in the construction sector and among small firms. In contrast, less than 20% of firms (weighted by their employment) report that the unavailability of credit had an effect on their activity. Over the period, despite the economic downturn, the amount of total costs increased for 70% of firms (weighted by their employment) mainly through an increase in labour costs and secondly in the cost of supplies. In particular, base wages continued to increase for a large share of firms, suggesting strong downward wage rigidities. Many firms indicate substantial difficulties in adjusting the labour force: throughout the crisis it became more difficult to hire qualified employees, to adjust working hours or to move workers to different job positions. The joint presence of difficulties in finding employees and unemployment growth suggest that structural unemployment increased in France in recent years. Other factors considered as significantly constraining for employment growth by a large majority of firms are uncertainty about economic conditions, risks that labour laws are changed, high payroll taxes and firing costs.
    Keywords: Duality, public policies.
    JEL: J41 J42 J48
    Date: 2015
  11. By: Börsch-Supan, Axel (Munich Center for the Economics of Aging (MEA))
    Abstract: Aim of this keynote is to develop a framework how to approach the design of pension policies as rationally as possible. The first step is to realize and accommodate endogenous adjustments. The second step is to align the root causes of demographic change with corresponding reform steps which include but are not confined by pension reform. The third step is to separate the issues as best as possible to strengthen the political feasibility of reform. The paper shows that relatively few and moderate reform steps suffice to solve the demographic problem in countries such as Germany and Switzerland. This is in striking contrast to the widespread resistance to reform. We falsify some of the myths, prejudices and misperceptions which make reforms politically so hard to put into place.
    Date: 2015–09–08
  12. By: Gunther Tichy
    Abstract: European integration was and is a success programme. It was possible to successfully cope with the challenges of globalisation, to perform better than the United States in international competition, defending the European model of social security and inclusion while keeping pace in terms of per capita growth, and the supranational concentration of bargaining power proved helpful with respect to multinationals as well as in international diplomacy. However, the inevitable lack of vision for the final state of the integration process disturbs the safety-oriented European public and impairs EU’s image. There is a search for final, patent solutions based on traditional institutions and models. In this, one overlooks the fact that European integration is a systemic process and an experiment at the end of which something new will presumably have been created. The adaptation and the advancement of the specific European model, based on inalienable human rights (not the least for women), rule of law, separation of powers, freedom of religion, popular sovereignty and representative democracy is indispensable. It is not easy, given differences of assessment of values even with the United States, and the rejection of 'Western' values outside the Western World, in many cases even with considerable aggressiveness.
    Date: 2015–10

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