|
on European Economics |
|
Issue of 2016‒07‒23
twenty-two papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | European Commission |
| Abstract: | The focus section of the report looks at euro area services sectors. It finds evidence that service sectors in the euro area are underperforming, meaning that reforms to address structural bottlenecks and support greater competition could contribute to boosting exports, growth and competitiveness. The two special features of the report deal with the economic impact of oil prices and business cycle synchronisation. The former finds that the recent fall in oil prices is likely to have had a substantial effect on economic growth and inflation. The latter shows that, due in particular to differences in deleveraging needs, the sovereign crisis has propagated heterogeneously across Member States, causing significant cross-country differences in domestic demand and persistent business cycle divergence. |
| Keywords: | Services sectors,productivity,structural reforms,oil prices,inflation,economic growth,employment,economic convergence,business cycles |
| JEL: | A10 C10 C11 C15 C20 C32 C33 E20 E30 E32 E61 F15 F40 F45 L80 L84 L89 Q41 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:euf:qreuro:0142&r=eec |
| By: | Katia Berti; Eugeniu Colesnic; Cyril Desponts; Stephanie Pamies; Etienne Sail |
| Abstract: | This paper estimates country-specific fiscal reaction functions (FRFs) for selected European countries and tests for a change in fiscal behaviour since the beginning of the economic and financial crisis. The estimated country-specific FRFs, as well as a panel FRF for Central and Eastern European countries, are used in medium-term projections of the public debt-to-GDP ratio. Additional results in terms of fiscal risk assessment based on this FRF debt projection scenario and on the degree of realism of fiscal projections underlying public debt projections are also derived. Most EU countries are found to positively adjust their fiscal policy to rising levels of public debt, although to a weak extent in some cases. Since 2009, fiscal responsiveness to public debt appears to have generally increased over the sub-sample of EU countries considered. When using FRFs to project public debt ratios, results are on average less favourable than under the standard baseline no-fiscal policy change scenario used by the Commission services. However, for most countries, results generally corroborate the summary medium-term sustainability risk assessment made by the European Commission services (2016) based on more traditional debt projection scenarios and sensitivity tests. The paper also identifies a set of countries that are potentially at risk of fiscal fatigue. |
| JEL: | C22 C23 E62 H68 |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:028&r=eec |
| By: | Cycon, Lisa; Koetter, Michael |
| Abstract: | With a unique loan portfolio maintained by a top-20 universal bank in Germany, this study tests whether unconventional monetary policy by the European Central Bank (ECB) reduced corporate borrowing costs. We decompose corporate lending rates into refinancing costs, as determined by money markets, and markups that the bank is able to charge its customers in regional markets. This decomposition reveals how banks transmit monetary policy within their organizations. To identify policy effects on loan rate components, we exploit the co-existence of eurozone-wide security purchase programs and regional fiscal policies at the district level. ECB purchase programs reduced refinancing costs significantly, even in an economy not specifically targeted for sovereign debt stress relief, but not loan rates themselves. However, asset purchases mitigated those loan price hikes due to additional credit demand stimulated by regional tax policy and enabled the bank to realize larger economic margins. |
| Keywords: | unconventional monetary policy,asset purchase programs,ECB,interest rate channel,internal capital markets |
| JEL: | G01 G21 E42 E43 E52 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:iwh-9-15&r=eec |
| By: | Kjell G. NYBORG (University of Zurich, Swiss Finance Institute, and CEPR) |
| Abstract: | This paper seeks to inform about a feature of monetary policy that is largely overlooked, yet occupies a central role in modern monetary and financial systems, namely central bank collateral frameworks. Their importance can be understood by the observation that the money at the core of these systems, central bank money, is injected into the economy on terms, not defined in a market, but by the collateral frameworks and interest rate policies of central banks. Using the collateral framework of the Eurosystem as a basis of illustration and case study, the paper brings to light the functioning, reach, and impact of collateral frameworks. A theme that emerges is that collateral frameworks may have distortive effects on financial markets and the wider economy. They can, for example, bias the private provision of real liquidity and thereby also the allocation of resources in the economy as well as contribute to financial instability. Evidence is presented that the collateral framework in the euro area promotes risky and illiquid collateral and, more generally, impairs market forces and discipline. The paper also emphasizes the important role of ratings and government guarantees in the Eurosystem’s collateral framework. |
| Keywords: | central bank, banks, collateral, money, liquidity, monetary system, financial system, monetary policy, ratings, guarantees, haircuts, Eurosystem, ECB |
| JEL: | E58 E42 E52 E44 G10 G01 G21 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1510&r=eec |
| By: | Narcissa Balta; Francesca D’Auria; Plamen Nikolov; Borek Vasicek |
| Abstract: | Volume 15 N. 2 (2016) of the QREA looks at the role of cross-border risk sharing, both through financial and labour market incomes generated across borders and through cross-border fiscal transfers, in mitigating asymmetric shocks, and compares the situation in the euro area to that of the United States. Other sections examine the mechanisms through which financial markets effect the real economy and confidence spillovers in the euro area. |
| Keywords: | Cross-border risk sharing,convergence,macro-financial linkages,consumer confidence,spillovers |
| JEL: | A10 C10 C11 C23 C54 D12 E00 E21 E32 E61 F15 F45 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:euf:qreuro:0152&r=eec |
| By: | Foremny, Dirk; Solé-Ollé, Albert |
| Abstract: | This paper analyzes the distribution of discretionary transfers from higher tiers of government in the process of fiscal adjustment in local jurisdictions which were hit by a negative revenue shock in formula transfers. Spanish local governments experienced a 30% fall in their revenue-sharing revenues at the beginning of the Great Recession. We use a 'difference-in-discontinuities' design to identify the causal effect of that shock on the amount of discretionary grants provided by three higher tiers of government (i.e., central, regional, and provincial) and on other budget items (i.e., spending and taxation). We identify these effects using an exogenous variation in formula transfers, as the losses during the crisis of municipalities above the 5,000 population threshold were greater than the losses of those below this threshold. We find that, on average, municipalities above and below the 5,000 inhabitant threshold did not differentially adjust their budgets during the crisis. Rather, we find that for themost indebted municipalities, a substantial share of the shock was absorbed by discretionary grants provided by regional and provincial governments. |
| Keywords: | intergovernmental transfers,bailouts,fiscal consolidation |
| JEL: | E62 H72 R5 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:16049&r=eec |
| By: | João Ferreira do Amaral; João Carlos Lopes |
| Abstract: | The great recession of 2008/2009 has had a huge impact on unemployment and public finances in most advanced countries, and these impacts were magnified in the southern Euro area countries by the sovereign debt crisis of 2010/2011. The fiscal consolidation imposed by the European Union on highly indebted countries was based on the assumptions of the so-called expansionary austerity. However, the reality so far shows proof to the contrary, and the results of this paper support the opposing view of a selfdefeating austerity. Based on the input-output relations of the productive system, an unemployment rate/budget balance trade-off equation is derived, as well as the impact of a strong fiscal consolidation based on social transfers and the notion of neutral budget balance. An application to the Portuguese case confirms the huge costs of a strong fiscal consolidation, both in terms of unemployment and social policy regress, and it allows one to conclude that too much consolidation in one year makes consolidation more difficult in the following year. Key Words : Self-defeating austerity; Fiscal consolidation; Unemployment; Input-output analysis; Portugal |
| JEL: | E23 E62 C67 D57 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp132016&r=eec |
| By: | Alexis Loublier; Philipp Mohl; Eric Ruscher; Borek Vasicek; Thomas Walsh |
| Abstract: | This edition of the QREA reviews the issue of shocks and adjustment in the light of recent crises. It analyses the functioning of a key internal adjustment process in EMU, the "relative price mechanism", as well as the "real interest rate mechanism". It also reviews the different implications of high levels of indebtedness. |
| Keywords: | Economic adjustment,economic shocks,macroeconomic convergence |
| JEL: | A10 C10 E00 E61 F15 F45 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:euf:qreuro:0144&r=eec |
| By: | Mihaela Simionescu (Institute for Economic Forecasting of the Romanian Academy) |
| Abstract: | The main objective of this study is to measure the impact of the British exist from the European Union on foreign direct investment (FDI) projects. Unlike previous studies, the research does not take into account the bilateral FDI flows. Instead, the analysis focus on FDI projects and new jobs and safeguarded jobs related to FDI projects. Using Poisson models on panel data over 2012 to 2015 and for regions from the entire world, the results indicate that the Brexit significantly and negatively affects the new jobs created in FDI projects. This expectation generates problems on labour markets. England policies should create a more flexible labour market and a stronger orientation towards other countries outside the Europe. |
| Keywords: | foreign direct investment, FDI, Brexit, labour market |
| JEL: | C51 C53 F21 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:sko:wpaper:bep-2016-07&r=eec |
| By: | Gropp, Reint; Holtemöller, Oliver |
| Abstract: | In a recent IWH online note, the IWH suggested that due to “flight to safety” effects, Germany was able to issue government debt at lower rates than otherwise would have been possible. The total savings was calculated to be around Euro 100 billion or about 3 percent of German GDP. This note provides further evidence on the interest savings to the German budget that extend the calculations in two dimensions. Using this refined methodology, we obtain interest savings to the German budget of just under Euro 90 billion. |
| Keywords: | European Union,Greek crisis,government bonds,German public budget,Greece,Germany |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhonl:82015&r=eec |
| By: | Erik Canton; Jan In't Veld; Romanos Priftis |
| Abstract: | Structural reform measures underway in Italy, France, Spain and Portugal could have significant economic benefits and raise GDP, model simulations presented in this edition of the QREA show. Other chapters in this edition look at the effects of population ageing and slowing total factor productivity growth on GDP, inflation and interest rates; and the drivers of total factor productivity growth. |
| JEL: | A10 C10 C23 C54 D24 E00 E61 F15 F45 J21 |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:euf:qreuro:0151&r=eec |
| By: | Lorenzo Burlon (Bank of Italy); Andrea Gerali (Bank of Italy); Alessandro Notarpietro (Bank of Italy); Massimiliano Pisani (Bank of Italy) |
| Abstract: | This paper evaluates the macroeconomic effects of the Eurosystem’s expanded Asset Purchase Programme (APP) under alternative strategies as regards (i) the unwinding of asset positions accumulated under the APP and (ii) communication of current and future paths of the policy rate (forward guidance). To this purpose, we simulate a New Keynesian model of the euro area. Our results are as follows. First, as the monetary authority brings forward the selling of long-term sovereign bonds, the stimulus from the APP on inflation and economic activity is correspondingly reduced. In particular, if the bonds are sold immediately after purchases end, the impact on inflation is negligible. Second, if the monetary authority communicates that it will hold the policy rate constant for one year instead of two, the APP is less effective, and the inflation increase is halved. Third, the subdued impact of the APP associated with an early exit from the programme delays the return to a standard monetary policy regime. |
| Keywords: | DSGE models, open-economy macroeconomics, non-standard monetary policy, zero lower bound |
| JEL: | E43 E52 E58 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1074_16&r=eec |
| By: | Bojan Basrak (Faculty of Science, Department of Mathematics, University of Zagreb, Croatia); Petra Posedel (Zagreb School of Economics and Management, Croatia); Marina Tkalec (The Institute of Economics, Zagreb); Maruska Vizek (The Institute of Economics, Zagreb) |
| Abstract: | This paper examines the degree of interdependence among sovereign bond markets in 24 developed and developing countries during times of stress or crisis using extreme value theory. We discuss the tail behavior of individual sovereign bond spreads and compare the shape of that tail to exponential and power-law distributions. We proceed by estimating bivariate tail dependence index ? and search for evidence of asymptotic tail dependence in sovereign bond spreads series. In order to establish the statistical significance of estimated bivariate tail dependence indices, we construct a bootstrap-based approach to searching for the presence of asymptotic tail dependence derived on the basis of Davis et al. (2012). Our empirical findings suggest that the US bond market does not exhibit extreme right-tail co-movements with European sovereign bond market turbulence. Even though the UK did not adopt the euro, its sovereign bond market exhibits statistically significant right-tail dependencies with a number of euro zone bond markets, possibly indicating that it is not immune to financial distress originating from the EMU. New EU member states exhibit more frequent right-tail dependencies with other new EU member states when compared to old EU members. |
| Keywords: | sovereign bond spreads, extreme value theory, tail dependence |
| JEL: | C40 C50 G12 G15 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:iez:wpaper:1604&r=eec |
| By: | Neligan, Adriana |
| Abstract: | The European Commission is taking serious steps towards realising the concepts of 'recycle, repair and re-use' and avoiding waste at all stages of the value chain with its EU circular economy package (December 2015). Besides setting new recycling and landfilling targets to enforce member states to climb up the waste hierarchy, the EU Commission also intends to harmonise the measuring of recycling and re-use rates in the European Union to make more transparent, how much is effectively recycled. Recycling of municipal waste has a long tradition in Germany, which is currently leading the EU recycling hierarchy. Only a few other countries are also on track for the new 2030 recycling targets. The United Kingdom, for instance, has undertaken huge efforts to intensify its recycling over the past decade, but many countries still need to improve further despite some positive developments in the past decade. For many member states, e.g. Romania, Slovakia and Latvia, recycling is still a foreign word. As a result, the majority of countries needs to push their recycling efforts significantly by increasing their recycling rate at higher speed until 2030 compared to the past decade. An EU-wide move towards more recycling is only realistic, if low-level recycling countries change their national waste treatment system and install a new waste management infrastructure. [...] |
| JEL: | Q53 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkpps:92016&r=eec |
| By: | Belke, Ansgar; Klose, Jens |
| Abstract: | Is secular stagnation a valid concern for Euro Area countries? We tackle this question using the well-established Laubach-Williams model to estimate the unobservable equilibrium real interest rate and compare it to the actual real rate. We apply our approach to twelve Euro Area countries, since heterogeneity among member countries has become considerably extensive since the beginning of the financial crisis. Hence, the question of secular stagnation has to be answered at the country level. Our results indicate that secular stagnation does not appear to be a significant threat to most Euro Area countries. But there is one exception: Greece. |
| Abstract: | Ist säkulare Stagnation ein Problem in den Ländern des Euro Raums? Wir widmen uns dieser Frage, indem wir das etablierte Modell von Laubach und Williams (2003) anwenden, um den unbeobachtbaren gleichgewichtigen Realzins zu schätzen und mit dem tatsächlichen Realzins zu vergleichen. Der Ansatz wird für zwölf Länder des Euro Raums angewendet, weil die Heterogenität zwischen den Mitgliedstaaten seit Ausbruch der Finanzkrise erheblich zugenommen hat. Deshalb muss die Frage der säkularen Stagnation auf Länderebene beantwortet werden. Die Ergebnisse zeigen, dass säkulare Stagnation für die meisten Staaten der Währungsunion keine signifikante Bedrohung darstellt. Aber es gibt eine Ausnahme: Griechenland. |
| Keywords: | equilibrium real interest rate,secular stagnation,Euro Area countries,heterogeneity |
| JEL: | E43 F45 C32 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:621&r=eec |
| By: | Krause, Thomas; Sondershaus, Talina; Tonzer, Lena |
| Abstract: | We construct a novel dataset to measure banks' complexity and relate it to banks' riskiness. The sample covers stock listed Euro area banks from 2007 to 2014. Bank stability is significantly affected by complexity, whereas the direction of the effect differs across complexity measures. This heterogeneity advises against the use of a single complexity measure when evaluating the implications of bank complexity. |
| Keywords: | bank risk,complexity,globalization |
| JEL: | G01 G20 G33 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:iwh-17-16&r=eec |
| By: | Mirkov, Nikola; Pozdeev, Igor; Soderlind, Paul |
| Abstract: | We ask whether the markets expected the Swiss National Bank (SNB) to discontinue the 1.20 cap on the Swiss franc against the euro in January 2015. In the run-up to the SNB announcement, neither options on the euro/Swiss franc nor FX liquidity indicated a significant shift in market expectations. Furthermore, we find that the SNB's verbal interventions during the period of cap enforcement increased the credibility of the cap by reducing the uncertainty of future euro/Swiss franc rate. Therefore, we conclude that the markets did not anticipate the discontinuation of the policy. |
| Keywords: | Swiss franc, implied volatilities, market expectations |
| JEL: | E58 E44 G12 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:usg:sfwpfi:2016:14&r=eec |
| By: | Hennecke, Peter; Murro, Pierluigi; Neuberger, Doris; Palmisano, Flaviana |
| Abstract: | This paper examines the available data on market conditions for equity release schemes (ERS) in all EU member states to cluster Member States for subsequent extrapolation of the findings from six EU Member States (DE, IT, NL, IE, HU, and the UK) to the EU as a whole. It aggregates various indicators to an overall index for ERS need and feasibility, using equal weights for all indicators. A comparison of overall need and feasibility shows a very diverse situation in the six member states and the EU as a whole. Among the six member states, Netherlands and UK have favourable ERS conditions, Hungary, Ireland and Italy have (lower) medium ERS conditions, while Germany has unfavourable conditions. An extrapolation to the EU as a whole is feasible as the six countries are good proxies for EU wide diversity. |
| Keywords: | ageing,equity release,pensions,homeownership,housing,reverse mortgage |
| JEL: | D1 G1 J1 R2 R3 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:roswps:146&r=eec |
| By: | Orphanides, Athanasios |
| Abstract: | Under ordinary circumstances, the fiscal implications of central bank policies tend to be seen as relatively minor and escape close scrutiny. The global financial crisis of 2008, however, demanded an extraordinary response by central banks which brought to light the immense power of central bank balance sheet policies as well as their major fiscal implications. Once the zero lower bound on interest rates is reached, expanding a central bank's balance sheet becomes the central instrument for providing additional monetary policy accommodation. However, with interest rates near zero, the line separating fiscal and monetary policy is blurred. Furthermore, discretionary decisions associated with asset purchases and liquidity provision, as well as with lender-of-last-resort operations benefiting private entities, can have major distributional effects that are ordinarily associated with fiscal policy. In the euro area, discretionary central bank decisions can have immense distributional effects across member states. However, decisions of this nature are incompatible with the role of unelected officials in democratic societies. Drawing on the response to the crisis by the Federal Reserve and the ECB, this paper explores the tensions arising from central bank balance sheet policies and addresses pertinent questions about the governance and accountability of independent central banks in a democratic society. |
| Keywords: | quantitative easing,lender of last resort,monetary financing,loss sharing,central bank independence,central bank accountability,central bank governance,rules vs discretion |
| JEL: | E52 E58 E61 G01 H12 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:105&r=eec |
| By: | Siem Jan Koopman (VU University Amsterdam, the Netherlands); Rutger Lit (VU University Amsterdam, the Netherlands); Andre Lucas (VU University Amsterdam, the Netherlands) |
| Abstract: | We develop a multivariate unobserved components model to extract business cycle and financial cycle indicators from a panel of economic and financial time series of four large developed economies. Our model is flexible and allows for the inclusion of cycle components in different selections of economic variables with different scales and with possible phase shifts. We find clear evidence of the presence of a financial cycle with a length that is approximately twice the length of a regular business cycle. Moreover, cyclical movements in credit related variables largely depend on the financial cycle, and only marginally on the business cycle. Property prices appear to have their own idiosyncratic dynamics and do not substantially load on business or financial cycle components. Systemic surveillance policies should therefore account for the different dynamic components in typical macro financial variables. |
| Keywords: | financial cycle; business cycle; phase shift; multivariate state space model; Kalman filtering; panel time series |
| JEL: | E32 C22 |
| Date: | 2016–07–11 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20160051&r=eec |
| By: | Marco Fioramanti, ISTAT; Laura González Cabanillas; Bjorn Roelstraete; Salvador Adrian Ferrandis Vallterra |
| Abstract: | This paper updates a previous assessment of the European Commission's track record for forecasting key economic variables (González Cabanillas and Terzi 2012) by extending the observation period to 2014. It also examines the accuracy of the Commission's forecasts over a shorter and more recent period (2000-2014) so that a comparison can be made between the performance of forecasts made before and after the Great Recession of 2008-2009. Going beyond the 2012 approach, this paper also examines the extent to which forecast errors can be explained by external or technical assumptions that prove incorrect ex post. It also updates the comparison of the Commission’s performance vis à vis the OECD, the IMF, a consensus forecast of market economists, and the ECB. Inclusion of the 2012-2014 period lowers the forecasting error for some key variables or leads to no change in others. Focussing on the years since the turn of the century, current-year and year-ahead forecasting errors for the three main variables examined (GDP growth, inflation and general government balances) have been larger in the crisis and post-crisis period (2008-2014) than in the precrisis period (2000-2007) for a large majority of Member States. This appears mainly to be the result of an anomalously large error in 2009, a year which confounded many forecasters. The country-bycountry analysis confirms the finding of earlier studies which show that the Commission's forecasts are largely unbiased. The newly-introduced panel data approach also confirms the absence of bias in current-year GDP forecasts across EU Member States but shows that year-ahead forecasts for GDP growth tend to be slightly over optimistic across the whole sample. The analysis also shows that autocorrelation of forecast errors is not a major issue in the Commission's forecasts. Other advanced tests shed more light on the performance of the Commission’s forecasts, demonstrating that they are directionally accurate and generally beat a naïve forecast but that they are not always efficient in terms of their use of all available data. The decomposition of forecast errors shows that unexpected changes in external assumptions seem to have only a limited impact on current-year GDP growth forecasts. However, more than half of the variance in year-ahead forecast errors appears to come from external assumptions that prove to be incorrect ex post. Finally, the Commission’s economic forecasts come out as being more accurate than those of the market and comparable to those of the other international institutions considered. |
| JEL: | C1 E60 E66 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:027&r=eec |
| By: | Guglielmo Barone (Bank of Italy); Francesco David (Bank of Italy); Guido de Blasio (Bank of Italy) |
| Abstract: | EU regional policies aim to push regions into self-sustaining growth. Successful interventions would imply a higher growth rate, not only during the treatment (when the region benefits from the transfers), but also after the expiry of the program (when the financing terminates). We investigate to what extent this happened in the case of Italy’s Abruzzi region, which entered into the Objective 1 (Convergence) program in 1989 and exited it in 1996 (without a transitional regime). More specifically we focus upon the post expiry period by implementing a synthetic control approach. Our results indicate that exiting the program had a negative effect on regional per-capita GDP growth. This result is a confirmation of the widespread evidence that during their implementation EU regional policies help boost the economic performance of the treated regions. However, additional evidence suggests that the permanent effect of the treatment is negligible: the policies fail to transfer the treated regions to a permanently higher GDP growth path. |
| Keywords: | EU cohesion policy, Regional growth, Synthetic control method |
| JEL: | R11 O47 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1071_16&r=eec |