nep-eec New Economics Papers
on European Economics
Issue of 2016‒03‒17
nine papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Measuring Financial Fragmentation in the Euro Area Corporate Bond Market. By G. Horny; M. Manganelli; B. Mojon
  2. Euro Area Sovereign Debt Crisis and Debt Mutualisation By António Afonso,; Marcelo Alcântara
  3. In search of the Euro Area Fiscal Stance By Alice, Albonico; Alessia, Paccagnini; Patrizio, Tirelli
  4. Fragmentation and heterogeneity in the euro-area corporate bond market: Back to normal? By Zaghini, Andrea
  5. Risks of Stagnation in the Euro Area By Huidan Lin
  6. The post-crisis slump in the Euro Area and the US: evidence from an estimated three-region DSGE model By Kollmann, Robert; Pataracchia, Beatrice; Raciborski, Rafal; Ratto, Marco; Roeger, Werner; Vogel, Lukas
  7. Housing Price and Household Debt Interactions in Sweden By Rima Turk
  8. Effectiveness and Channels of Macroprudential Instruments; Lessons from the Euro Area By Thierry Tressel; Yuanyan Sophia Zhang
  9. The Nordic Labor Market and Migration By Giang Ho; Kazuko Shirono

  1. By: G. Horny; M. Manganelli; B. Mojon
    Abstract: This paper analyses the determinants of euro area non-financial corporate bonds over the last decade. We decompose the spread between the yield of German, French, Italian and Spanish corporate bonds vis-à-vis the German Bund of similar maturity into country, credit and duration risk premia components via dummy regressions. We highlight three main findings. First, the initial phase of the financial crisis (2008-2009) caused an overall increase in credit risk premia. Since the beginning of 2013 credit risk premia are back to levels comparable to those preceding the financial crisis. Second, at the height of the euro area sovereign crisis (2011-2012), high credit risk premia were accompanied by strong and persistent signs of market fragmentation in Italy and Spain (but not in France). This fragmentation has reached its peak in the second half of 2012 and has started to recede only after the announcement of the OMT. Third, we provide a simple measure of financial integration across the big 4 member states of the euro area.
    Keywords: financial integration, credit risk, country premia, fragmentation index.
    JEL: E43 G12 G24 C23
    Date: 2016
  2. By: António Afonso,; Marcelo Alcântara
    Abstract: We study debt mutualisation in the Euro area. Bearing in mind other existing proposals we provide an alternative Blue, Yellow and Red Bonds proposal: blue, would cover debt up to 60% of GDP, yellow would include debt from 60% up to 90% of GDP, and red would cover debt above 90% of GDP. Although not with joint liability, the rationale behind the Yellow Bonds with a joint issuance is the attraction of liquidity, which would be beneficial, especially for the countries with high yields. This could give more room to public authorities. Key Words : EMU, Euro area crisis, sovereign yields, government debt, debt mutualisation. Classification-JEL : JEL: F45, H12, H20, H63
    Date: 2016–02
  3. By: Alice, Albonico; Alessia, Paccagnini; Patrizio, Tirelli
    Abstract: This paper investigates the role of fiscal and monetary policies over the aggregate EMU business cycle, with a specific focus on fiscal policies. We estimate large multipliers for public consumption and transfers. In spite of this, fiscal policies were substantantially muted. This result is confirmed even for the post 2007 period. In fact fiscal policies did not complement the monetary policy stimulus in response to the financial crisis. Further, we cannot detect any substantial aggregate e¤ect of austerity measures implemented in peripheral countries. Finally, the post-2007 surge in expenditure-to-GDP ratios was apparently determined by non-policy shocks that reduced output growth.
    Keywords: DSGE, Limited Asset Market Participation, Bayesian Estimation, Euro Area, Business Cycle, Monetary Policy, Fiscal Policy
    JEL: C11 C13 C32 E21 E32 E37
    Date: 2016–01–28
  4. By: Zaghini, Andrea
    Abstract: We assess the degree of market fragmentation in the euro-area corporate bond market by disentangling the determinants of the risk premium paid on bonds at origination. By looking at over 2,400 bonds we are able to isolate the country-specific effects which are a suitable indicator of the market fragmentation. We find that, after peaking during the sovereign debt crisis, fragmentation shrank in 2013 and receded to pre-crisis levels only in 2014. However, the low level of estimated market fragmentation is coupled with a still high heterogeneity in actual bond yields, challenging the consistency of the new equilibrium.
    Keywords: corporate bond market,Sovereign debt crisis,financial fragmentation
    JEL: G32 G38
    Date: 2016
  5. By: Huidan Lin
    Abstract: This paper discusses the risks of stagnation over the medium term in the euro area. It examines the consequences of longer-term growth trends that predate the crisis and the progress made in addressing the crisis legacies of high unemployment and debt. The paper illustrates in a downside scenario, how low potential growth and crisis legacies leave the euro area vulnerable to a negative shock that tips the economy into a prolonged slowdown.
    Keywords: Europe;Euro Area;Productivity;Potential growth, Deleveraging, Downside scenario, debt, investment, unemployment, inflation, Forecasting and Other Model Applications,
    Date: 2016–01–22
  6. By: Kollmann, Robert (ECARES, Université Libre de Bruxelles and CEPR); Pataracchia, Beatrice (European Commission, Joint Research Centre); Raciborski, Rafal (European Commission, DG ECFIN); Ratto, Marco (European Commission, Joint Research Centre); Roeger, Werner (European Commission, DG ECFIN); Vogel, Lukas (European Commission, DG ECFIN)
    Abstract: The global financial crisis (2008-09) led to a sharp contraction in both Euro Area (EA) and US real activity, and was followed by a long-lasting slump. However, the post-crisis adjustment in the EA and the US shows striking differences—in particular, the EA slump has been markedly more protracted. We estimate a three-region (EA, US and Rest of World) New Keynesian DSGE model (using quarterly data for 1999-2014) to quantify the drivers of the divergent EA and US adjustment paths. Our results suggest that financial shocks were key drivers of the 2008-09 Great Recession, for both the EA and the US. The post-2009 slump in the EA mainly reflects a combination of adverse aggregate demand and supply shocks, in particular lower productivity growth, and persistent adverse shocks to capital investment, linked to the continuing poor health of the EA financial system. Adverse financial shocks were less persistent for the US. The financial shocks identified by the model are consistent with observed performance indicators of the EA and US banking systems.
    JEL: C5 E2 E3 E5 E6 F3 F4
    Date: 2016–02–29
  7. By: Rima Turk
    Abstract: Sweden is experiencing double-digit housing price gains alongside rising household debt. A common interpretation is that mortgage lending boosted by expansionary monetary policy is driving up house prices. But theory suggests the value of housing collateral is also important for household’s capacity to borrow. This paper examines the interactions between housing prices and household debt using a three-equation model, finding that household borrowing impacts housing prices in the short-run, but the price of housing is the main driver of the secular trend in household debt over the long-run. Both housing prices and household debt are estimated to be moderately above their long-run equilibrium levels, but the adjustment toward equilibrium is not found to be rapid. Whereas low interest rates have contributed to the recent surge in housing prices, growth in incomes and financial assets play a larger role. Policy experiments suggest that a gradual phasing out of mortgage interest deductibility is likely to have a manageable effect on housing prices and household debt.
    Keywords: Demand for money;Europe;Sweden;Housing market, Household debt, Collateral, prices, debt, supply, variables, income, Housing Demand, Sweden.,
    Date: 2015–12–28
  8. By: Thierry Tressel; Yuanyan Sophia Zhang
    Abstract: The crisis has highlighted the importance of setting up macro-prudential oversight frameworks, having effective macro-prudential instruments in place to be called upon to mitigate growing financial imbalances as needed. We develop a new approach using the euro area Bank Lending Survey to assess the effectiveness of macro-prudential policies in containing credit growth and house price appreciation in mortgage markets. We find instruments targeting the cost of bank capital most effective in slowing down mortgage credit growth, and that the impact is transmitted mainly through price margins, the same banking channel as monetary policy. Limits on loan-to-value ratios are also effective, especially when monetary policy is excessively loose.
    Keywords: Financial crises;Macroprudential Policy;Euro Area;LTV ratios, capital requirement, mortage, bank lending, lending, monetary policy, instruments, mortgage, credit growth, General,
    Date: 2016–01–12
  9. By: Giang Ho; Kazuko Shirono
    Abstract: The large influx of migrants to Nordic countries in recent years is challenging the adoptability of Nordic labor market institutions while also adding to potential growth. This paper examines the trends, economic drivers, and labor market implications of migration to Nordic countries with a particular focus on economic migration as distinct from the recent large flows of asylum seekers. Our analysis finds that migration inflows to the Nordics are influenced by both cyclical and structural factors. Although migration helpfully dampens overheating pressures during periods of strong demand, and over the longer term will cushion the decline in labor supply from population aging, in the near-term unemployment can rise, especially among the young and lower-skilled. The analysis highlights the need to adapt Nordic labor market institutions in a manner that better facilitates the integration of migrants into employment. In particular, greater wage flexibility at the firm level and continued strong active labor market measures will help improve labor market outcomes among immigrants.
    Keywords: Denmark;Europe;Finland;Norway;Sweden;Nordic countries, migration, labor market, unemployment, Nordic model, labor, labor supply, drivers, Institutions and the Macroeconomy, Labor Force and Employment, Size, and Structure, Economics of Minorities, Labor Economics Policies, Demographic Trends and Forecasts,
    Date: 2015–12–04

This nep-eec issue is ©2016 by Giuseppe Marotta. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.