nep-eec New Economics Papers
on European Economics
Issue of 2016‒08‒14
five papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. A clash of generations? Increase in Retirement Age and Labor Demand for Youth By Boeri, Tito; Garibaldi, Pietro; Moen, Espen R
  2. The Political Origin of Home Bias: The Case of Europe By De Marco, Filippo; Macchiavelli, Marco
  3. Business Cycle Synchronization in EU Economies after the Recession of the Years 2007-2009 By Osińska, Magdalena; Kufel, Tadeusz; Błażejowski, Marcin; Kufel, Paweł
  4. QE in the future: the central bank’s balance sheet in a fiscal crisis By Ricardo Reis
  5. Housing equity, saving and debt dynamics over the Great Recession By William Elming; Andreas Ermler

  1. By: Boeri, Tito; Garibaldi, Pietro; Moen, Espen R
    Abstract: Most European countries experienced a dramatic increase in youth unemployment since the Great Recession of 2007-2009. For the Euro area as a whole, employment in the 15-24 age group declined by almost 17% over a 6 years span, in Southern Europe declines ranged between 34% (Italy) and 57% (Spain). Demographic and institutional developments cannot, by themselves, account for these dramatic changes in the structure of employment by age groups. This paper evaluates whether and to which extent the increase in the retirement age introduced in several countries in the middle of the recession could have contributed to divergent dynamics of employment rates at the two extremes of the age distribution. We take Italy as a case study as a major reform took place in December 2011 increasing the retirement by up to five years for some categories of workers. We have access to a unique dataset from the Italian social security administration (INPS) identifying in each private firm the fraction of workers hit by the increase in the retirement age. We look at the dynamics of youth hirings in the same firms as well as in firms where no workers were locked-in. Our results clearly indicate that before and after the reform, firms that were more exposed to the increase in employment duration of senior workers significantly reduced youth hirings. The results are also quantitatively sizeable. We estimate that a lock-in of five workers for one year reduces youth hiring of approximately one full time equivalent worker. Overall, out of a total loss of 150 thousand youth jobs, 36 thousand losses can be attributed to the reform. A variety of robustness tests confirm our findings.
    Keywords: labor demand; lump-of-labor; Pension Reforms; youth unemployment
    JEL: H55 J0
    Date: 2016–08
  2. By: De Marco, Filippo; Macchiavelli, Marco
    Abstract: We show that politics is at the root of the banks-sovereign nexus that exacerbated the Eurozone crisis. First, government-owned banks or banks with politicians in the board of directors display higher home bias in sovereign debt compared to privately-owned banks throughout the 2010-2013 period. Second, only government-owned banks increased the home bias during the sovereign crisis (moral suasion). We exploit the fact that equity injections (bail-outs) by domestic governments were not directly targeted to politically connected banks to show that, upon receiving such assistance, only government-owned banks purchase domestic debt. Moral suasion is stronger in countries under stress.
    Keywords: Banks-sovereign nexus ; Home bias ; Government-owned banks ; Banks' recapitalization ; Board of directors
    JEL: G01 G11 D72
    Date: 2016–07–08
  3. By: Osińska, Magdalena; Kufel, Tadeusz; Błażejowski, Marcin; Kufel, Paweł
    Abstract: The aim of the study is to evaluate business cycle synchronization in the EU economies including determination of the impact of the global financial and economic recession of the years 2007-2009. In general, the economic recession can be understood as one of the phase of the global business cycle because all countries had suffered somehow from this enormous collapse. It is commonly assumed that GDP series in constant prices measure both: business activity and business cycle. In the presented research seasonally adjusted quarterly GDP series from the years 1995-2012 were analyzed. We proposed to apply the tools of cross-spectral analysis such as coherence, phase and amplitude of the specified frequencies taking into account the time window of 48 quarters. Such a procedure allows indicating a rapid change in business cycle synchronization conditionally on the period of the analysis that includes the years 2007-2009. The empirical findings show that the assumption of business cycle synchronization within the EU was confirmed for the strongest economies of the European Union like Germany, Great Britain or France. Moreover, Poland and Spain can also be included to the club of synchronized economies. Other EU economies, like Hungarian, Italian and Portugal were less synchronized with the EU business cycle, although in the period of crisis they were closer to the whole economic area. For the non-EU countries, significantly weaker synchronization with the EU was observed. The hypothesis that the financial crisis caused similarities in the business cycle paths of the EU countries and the USA was confirmed, while for Japan and Switzerland it could not be confirmed in the light of the obtained results.
    Keywords: business cycle, synchronization, cross-spectrum, moving window, European Union
    JEL: C22 E32 F44
    Date: 2015
  4. By: Ricardo Reis
    Abstract: Analysis of quantitative easing (QE) typically focus on the recent past studying the policy’s effectiveness during a financial crisis when nominal interest rates are zero. This paper examines instead the usefulness of QE in a future fiscal crisis, modeled as a situation where the fiscal outlook is inconsistent with both stable inflation and no sovereign default. The crisis can lower welfare through two channels, the first via aggregate demand and nominal rigidities, and the second via contractions in credit and disruption in financial markets. Managing the size and composition of the central bank’s balance sheet can interfere with each of these channels, stabilizing inflation and economic activity. The power of QE comes from interest-paying reserves being a special public asset, neither substitutable by currency nor by government debt.
    JEL: E44 E58 E63
    Date: 2016–07
  5. By: William Elming (Institute for Fiscal Studies and Institute for Fiscal Studies); Andreas Ermler (Institute for Fiscal Studies)
    Abstract: This paper uses the large and heterogeneous house price shocks in Denmark from 2006-2009 to provide new evidence on the contested determinants of the correlation between house prices and saving. Crucially, to compare the savings behaviour of home-owners who experienced di fferent house price shocks but similar shocks to income expectations, we exploit the structure of the wage setting process in the Danish public sector. We fi nd strong evidence of a causal link between changes in house prices and saving for young and old home-owners, both through a direct wealth eff ect and through housing equity serving as collateral or precautionary wealth.
    Keywords: Housing, Saving, Wealth e ect, Collateral, Debt dynamics
    JEL: D14 D91 E21 R20
    Date: 2016–08–02

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