nep-eec New Economics Papers
on European Economics
Issue of 2016‒10‒30
24 papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. The response of euro area sovereign spreads to the ECB unconventional monetary policies By Hans Dawachter; Leonardo Iania; jean-charles wijnandts
  2. Did Fiscal Consolidation Cause the Double-Dip Recession in the Euro Area? By Philipp Heimberger
  3. Real Income Convergence between Central Eastern and Western Europe: Past, Present, and Prospects By Matkowski, Zbigniew; Prochniak, Mariusz; Rapacki, Ryszard
  4. The effect of unconventional fiscal policy on consumption expenditure By D'Acunto, Francesco; Hoang, Daniel; Weber, Michael
  5. The trade-off between monetary policy and bank stability By Martien Lamers; Frederik Mergaerts; Elien Meuleman; Rudi Vander Vennet
  6. Does slack influence public and private labour market interactions? By Ana Lamo; Enrique Moral-Benito; Javier J. Pérez
  7. Balance sheets after the EMU : an assessment of the redenomination risk By Cedric Durand; Sébastien Villemot
  8. Monetary and Macroprudential Policy Games in a Monetary By Richard Dennis; Pelin Ilbas
  9. Determinants of lending activity in the Euro area By Stefan Behrendt
  10. Optimal Fiscal Substitutes for the Exchange Rate in a Monetary Union By Christoph Kaufmann
  11. The Determinants of Economic Fluctuations in Greece: An Empirical Investigation (1995-2014) By Konstantakis, Konstantinos; Michaelides, Panayotis G.; Tsionas, Efthymios
  12. Apple’s Tax Dispute With Europe and the Need for Reform By Gary Clyde Hufbauer; Zhiyao Lu
  13. The transmission mechanism of credit support policies in the Euro Area By Jef Boeckx; Maite de Sola Perea; Gert Peersman
  14. 30 Years of the Single European Market By Stefano Micossi
  15. Global value chains: new evidence and implications By Rita Cappariello; Alberto Felettigh; João Amador; Robert Stehre; Giacomo Oddo; Stefano Federico; Alessandro Borin; Michele Mancini; Sara Formai; Filippo Vergara Caffarelli; Luca Cherubini; Bart Los; Antonio Accetturo; Anna Giunta; Andrea Linarello; Andrea Petrella
  16. Prudential measures in dealing with capital flows – case of Poland By Milena Kabza; Konrad Kostrzewa
  17. Foreign Direct Investment and the Relationship Between the United Kingdom and the European Union By Randolph Bruno; Nauro Campos; Saul Estrin; Meng Tian
  18. In Search of Lost Market Shares By Maria Bas; Lionel Fontagné; Philippe Martin; Thierry Mayer
  19. Mending the broken link: heterogeneous bank lending and monetary policy pass-through By Altavilla, Carlo; Canova, Fabio; Ciccarelli, Matteo
  20. Core and Periphery in the European Monetary Union: Bayoumi and Eichengreen 25 Years Later By Nauro F. Campos; Corrado Macchiarelli
  21. Are industries resilient in dealing with uncertainty? The case of Brexit By Jamal BOUOIYOUR; Refk SELMI
  22. Thoughts on a fiscal union in EMU By Gadatsch, Niklas; Hollmayr, Josef; Stähler, Nikolai
  23. The role of bank balance sheets in monetary policy transmission. Evidence from Poland By Mariusz Kapuściński
  24. The effect of ECB foreward guidance on policy expectations By Paul Hubert; Fabien Labondance

  1. By: Hans Dawachter (Economics and Research Department, NBB, University of Leuven, Center for Economic Studies and CESifo.); Leonardo Iania (University of Louvain, Louvain School of Management.); jean-charles wijnandts (University of Louvain, Louvain School of Management.)
    Abstract: We analyse variations in sovereign bond yields and spreads following unconventional monetary policy announcements by the European Central Bank. Using a two-country, arbitrage-free, shadow-rate dynamic term structure model (SR-DTSM), we decompose countries'yields into expectation and risk premium components. By means of an event study analysis, we show that the ECB's announcements reduced both the average expected instantaneous spread and risk repricing components of Italian and Spanish spreads. For countries such as Belgium and France, the ECB announcements impacted primarily the risk repricing component of the spread.
    Keywords: Triffin, European Payments Union (EPU), international monetary system (IMS)
    JEL: A11 B31 F02 F33 F36 N24
    Date: 2016–10
  2. By: Philipp Heimberger (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Abstract This paper analyses the short-run effects of fiscal consolidation measures on economic activity in the euro area during the euro crisis. It presents new econometric estimates on the link between cumulative GDP growth and fiscal austerity measures during 2011-2013. The main empirical finding is that the depth of the economic crisis in the euro area's economies is closely related to the harshness of fiscal austerity. Cumulative multiplier estimates are found to vary in a range from 1.4 to 2.1, depending on the data source used to identify the intensity of fiscal consolidation. Given these multiplier values, a reasonable approximation of the size of the output losses due to fiscal austerity in the euro area during 2011-2013 is in the range of 5.5% to 8.4% of GDP. Against the background of the prevailing macroeconomic and institutional circumstances, fiscal consolidation is argued to be the cause of the double-dip recession.
    Keywords: fiscal policy, fiscal multiplier, fiscal consolidation, austerity, growth, eurozone
    JEL: E61 E62 E63
    Date: 2016–10
  3. By: Matkowski, Zbigniew; Prochniak, Mariusz; Rapacki, Ryszard
    Abstract: The paper presents an analysis of real income convergence between the 11 countries of Central Eastern Europe which have joined the European Union (EU11) and 15 countries of Western Europe (EU15) in the period 1993-2015. The evolution of the income gap between the two groups of countries in terms of GDP per capita at PPP reveals a clear-cut tendency towards income convergence over the analyzed period, confirmed also by the results of beta and sigma convergence tests. However, the catching-up process was not continuous, showing some breaks and divergence episodes. The most intensive convergence appeared in the years 2000-2007, just before and after the EU's major enlargement. This suggests that the increasing economic integration stimulated the convergence process. But the global economic crisis, along with financial perturbations in the euro area, have slowed down the convergence in most CEE countries, as reflected by changes in the income gap observed in the years 2007-2015. The paper also presents some projections of the convergence prospects, with three scenarios as to the future economic growth. The first two scenarios assume the continuation of past or current growth trends and the maintenance of positive growth rate differentials, indicating the probable length of the period needed by the individual CEE countries to attain the average GDP per capita level seen in Western Europe. The third scenario, based on a long-term economic forecast for the EU economies, warns that economic growth in the region may slow down due mainly to unfavorable demographic trends, with the resulting deceleration of the convergence process, up to its total halt or reversal into divergence. Proper social and economic policies are needed, both on the country level and in the framework of the common European policy, in order to assure a healthy economic growth in the CEE area and to maintain the convergence process within the EU.
    Keywords: economic growth,income convergence,European Union,forecasting,simulation
    JEL: C21 F15 F17 F43 F47 O52
    Date: 2016
  4. By: D'Acunto, Francesco; Hoang, Daniel; Weber, Michael
    Abstract: Unconventional fiscal policy uses announcements of future increases in consumption taxes to generate inflation expectations and accelerate consumption expenditure. It is budget neutral and time consistent. We exploit a unique natural experiment for an empirical test of the effectiveness of unconventional fiscal policy. To comply with European Union law, the German government announced in November 2005 an unexpected 3-percentage-point increase in value-added tax (VAT), effective in 2007. The shock increased households' inflation expectations during 2006 and actual inflation in 2007. Germans' willingness to purchase durables increased by 34% after the shock, compared to before and to matched households in other European countries not exposed to the VAT shock. Income, wealth effects, or intratemporal substitution cannot explain these results.
    Keywords: Zero-Lower Bound,Fiscal and Monetary Policy,Durable Consumption,Survey Data,Household Consumption
    JEL: D12 D84 D91 E21 E31 E32 E52 E65
    Date: 2016
  5. By: Martien Lamers (University of Groningen, Netherlands); Frederik Mergaerts (Ghent University, Belgium); Elien Meuleman (Ghent University, Belgium); Rudi Vander Vennet (Ghent University, Belgium)
    Abstract: This paper investigates how monetary policy interventions by the European Central Bank and the Federal Reserve affect the stock market perception of bank systemic risk. In a first step, we identify monetary policy shocks using a structural VAR approach by exploiting the changes of the volatility of these shocks on days on which there are monetary policy announcements. The second step consists of a panel regression analysis, in which we relate monetary policy shocks to market-based measures of bank systemic risk. Our sample includes information on both Euro Area and U.S. listed banks, covering a sample period from October 2008 to December 2015. We condition the impact of the monetary policy shocks on a set of bank-specific variables, thereby allowing for a heterogeneous transmission of monetary policy. We furthermore use the differences between Euro Area core and periphery countries and the additional granularity of U.S. accounting data to assess which channels determine the transmission of monetary policy. Our results indicate that by supporting weaker banks and allowing banks to delay recognizing bad loans, accommodative monetary policy may contribute to the buildup of vulnerabilities in the banking sector and may make an eventual policy tightening more difficult. On the other hand, a continuation of expansionary monetary policy may increase risk-taking incentives by further compressing banks’ net interest margins.
    Keywords: Triffin, European Payments Union (EPU), international monetary system (IMS)
    JEL: G21 G32 E52
    Date: 2016–09
  6. By: Ana Lamo (EUROPEAN CENTRAL BANK); Enrique Moral-Benito (Banco de España); Javier J. Pérez (Banco de España)
    Abstract: We empirically analyse the impact of public employment and public wages shocks on private labour market outcomes by examining whether policies operate differently in periods of economic slack than in normal times. We use local projection methods and focus on the Spanish and euro area aggregate cases. We find that the degree of unemployment slack is key for determining: (i) whether public employment crowds out private employment, and (ii) the degree and extent of the influence of public wages on the private sector. In addition, we find that at times of economic distress, public wage adjustment has lower output costs than public employment cuts for the Spanish case, while the opposite occurs at the euro area level. We conjecture that differences in the degree of wage rigidities and the size of the unemployment pool may rationalise our findings
    Keywords: public employment, wages, unemployment, fiscal policies.
    JEL: E62 E65 H6 C3 C82
    Date: 2016–03
  7. By: Cedric Durand (Université Paris 13); Sébastien Villemot (OFCE-Sciences Po)
    Abstract: The probability of a partial or complete break-up of the euro has risen over the last years. Such an event could create a balance sheet problem for economic agents, since the redenomination process could introduce significant currency mismatches between the asset and liability sides. We propose a new assessment of this redenomination risk, by country and by main institutional sector, for two scenarios: a single country exit and a complete break-up. Our main conclusion is that, even though the problem has to be taken seriously, its order of magnitude should not be exaggerated. Only a few sectors are at significant risk: public debts of Greece and Portugal, financial sectors of Greece, Ireland and Luxembourg. In particular, the consequences for the nonfinancial private sector should be manageable. We provide policy recommendations aiming at limiting the risk ex ante, and mitigating the consequences ex post.
    Keywords: Euro, balance sheet, risk, public debts
    Date: 2016–10
  8. By: Richard Dennis (University of Glasgow); Pelin Ilbas (National Bank of Belgium)
    Abstract: We use the two-country model of the euro area developed by Quint and Rabanal (2014)to study policymaking in the European Monetary Union (EMU). In particular, we focus on strategic interactions: 1) between monetary policy and a common macroprudential authority, and; 2) between an EMU-level monetary authority and regional macroprudential authorities. In the .rst case, price stability and .nancial stability are pursued at the EMU level, while in the second case each macroprudential authority adopts region-speci.c objectives. We compare cooperative equilibria in the simultaneous-move and leadership solutions, each obtained assuming policy iscretion. Further, we assess the e¤ects on policy performance of assigning shared objectives across policymakers and of altering the level of importance attached to various policy objectives.
    Keywords: Monetary policy, macroprudential policy, policy coordination
    JEL: E42 E44 E52 E58
    Date: 2016–10
  9. By: Stefan Behrendt (School of Economics and Business Administration, Friedrich Schiller University Jena)
    Abstract: Empirical estimations of the drivers for loan extension mainly apply the outstanding stock of bank credit as the dependent variable. This paper picks up the critique of Behrendt (2016), namely that such estimations may lead to misleading results, as the change of the stock is not only driven by extended loans, but also by repayments, write-downs, revaluations and securitisation activity. This paper specifically applies a variable of new credit extensions for eight Euro area countries in a simultaneous equation panel model to evaluate potential determinants for credit extension, and compares the findings with a conventional specification using the outstanding stock. It is found that the new lending variable performs exceedingly better in respect to the underlying theory than the stock variable. This result has vast implications for the conduct of monetary policy while looking at credit trends. As most determinants have different coefficients, not only by magnitude, but also by significance and sign, central banks might react in a different way to changing trends in lending when looking at the stock variable rather than the underlying credit extension.
    Keywords: credit channel, monetary transmission, bank lending
    JEL: C18 C82 E51 E52
    Date: 2016–10–18
  10. By: Christoph Kaufmann
    Abstract: This paper studies Ramsey-optimal monetary and fiscal policy in a New Keynesian 2-country open economy framework, which is used to assess how far fiscal policy can substitute for the role of nominal exchange rates within a monetary union. Giving up exchange rate exibility leads to welfare costs that depend significantly on whether the law of one price holds internationally or whether firms can engage in pricing-to-market. Calibrated to the euro area, the welfare costs can be reduced by 86% in the former and by 69% in the latter case by using only one tax instrument per country. Fiscal devaluations can be observed as an optimal policy in a monetary union: if a nominal devaluation of the domestic currency were optimal under exible exchange rates, optimal fiscal policy in a monetary union is an increase of the domestic relative to the foreign value added tax.
    Keywords: Monetary union, Optimal monetary and fiscal policy, Exchange rate
    JEL: F41 F45 E63
    Date: 2016–09–21
  11. By: Konstantakis, Konstantinos; Michaelides, Panayotis G.; Tsionas, Efthymios
    Abstract: In this work, we investigate the determinants of the Greek Business Cycle in the time period 1995-2014. To this end, we make use of a wide dataset in a quarterly format, which contains all the major macroeconomic and financial variables that have had a certain impact on the Greek economy. We apply a number of relevant econometric techniques such as filtering, Fourier analysis, white noise tests, unit root tests, structural breaks tests, backward regression and rolling windows analysis. Our findings show that the Greek business cycle exhibits two structural breaks, one in 2004 (Q3) and one in 2011(Q4). In the sub- period 1995-2004, the 10-year bond-yields and the elections were found to have a pro-cyclical character on the Greek Business Cycle, while the formation of EMU was found to have a counter-cyclical effect. In the time period 2005-2012, Greek credit and imports were found have a strong pro-cyclical impact, while the overall EU-17 Business Cycle and the Troika had a countercyclical impact on the Greek economy. Further research on the implications of the Greek crisis for other countries would be important.
    Keywords: Business Cycles, Greece
    JEL: C2 C51 E3
    Date: 2015
  12. By: Gary Clyde Hufbauer (Peterson Institute for International Economics); Zhiyao Lu (Peterson Institute for International Economics)
    Abstract: On August 30, 2016, European Competition Commissioner Margrethe Vestager demanded that Ireland reclaim €13 billion ($14.5 billion) from Apple Inc. to redress improper “state aids” conferred on the company through Irish tax rulings in 1991 and 2007. The European Commission’s demands triggered a huge uproar—from Ireland, Apple, other multinational corporations, and the US Treasury Department. According to the Commission, Apple paid an effective corporate tax rate of less than 1 percent between 2003 and 2014, through a sweetheart tax deal with Irish tax authorities. The Commission alleged this to be a breach of EU state aid rules and instructed Ireland to claim unpaid taxes from Apple. Both Apple and Ireland announced they would appeal. Apple denied the extremely low effective tax rate claimed by the Commission and insisted that it had paid all taxes in accordance with existing treaties, laws, regulations, and rulings. Ireland appealed in light of its position as a favored site for multinational corporations doing business in Europe. The US Treasury Department, aligning with Apple and Ireland, criticized the Commission’s new approach as applied in the Apple case, as well as the retroactive component of the decision and its detrimental impact on the ability of member states to honor bilateral tax treaties.
    Date: 2016–10
  13. By: Jef Boeckx (National Bank of Belgium, Research Department); Maite de Sola Perea (National Bank of Belgium, Research Department); Gert Peersman (Ghent University)
    Abstract: We use an original monthly dataset of 131 individual euro area banks to examine the effectiveness and transmission mechanism of the Eurosystem?s credit support policies since the start of the crisis. First, we show that these policies have indeed been succesful in stimulating the credit ?ow of banks to the private sector. Second, we ?nd support for the "bank lending view" of monetary transmission. Speci?cally, the policies have had a greater impact on loan supply of banks that are more constrained to obtain unsecured external funding, i.e. small banks (size effect), banks with less liquid balance sheets (liquidity effect), banks that depend more on wholesale funding (retail effect) and low-capitalized banks (capital effect). The role of bank capital is, however, ambiguous. Besides the above favorable direct e¤ect on loan supply, lower levels of bank capitalization at the same time mitigate the size, retail and liquidity effects of the policies. The drag on the other channels has even been dominant during tthe sample period, i.e. better capitalized banks have on average responded more to the credit support policies of the Eurosystem as a result of more favourable size, retail and liquidity effects.
    Keywords: unconventional monetary policy, bank lending, monetary transmission mechanism
    JEL: E51 E52 E58 G01 G21
    Date: 2016–10
  14. By: Stefano Micossi (ASSONIME, Rome)
    Abstract: Over the past thirty years, the Single European Market (SEM) has been the core business of the European Union, and enormous progress has been achieved in both ‘widening’ the economic activities covered by EU legislation and ‘deepening’ the acquis to overcome emerging gaps in integration in areas already covered by legislation. And yet, empirical evidence indicates that market integration has stalled on many fronts and, more importantly, that the expected economic benefits from integration in terms of higher growth of incomes, jobs, and productivity have fallen short of expectations, notably in the long-established EU-15 member states. The situation has not improved after the introduction of the euro. The purpose of this paper is to review the main developments in SEM legislation and regulatory activities over the past three decades; summarize the results of the SEM programme in market integration, highlighting the areas where gaps appear more important; and discuss the impact of economic integration within the SEM, including aspects that play an important role in feeding popular resistance to integration.
    Keywords: Single European Market, Regulatory models, Free movements, goods, person, capital, services.
    JEL: F15 L51 O52
    Date: 2016–10
  15. By: Rita Cappariello (Bank of Italy); Alberto Felettigh; João Amador (Banco do Portugal); Robert Stehre; Giacomo Oddo (Bank of Italy); Stefano Federico (Bank of Italy); Alessandro Borin (Bank of Italy); Michele Mancini (Bank of Italy); Sara Formai (Bank of Italy); Filippo Vergara Caffarelli (Bank of Italy); Luca Cherubini (Bank of Italy); Bart Los; Antonio Accetturo (Bank of Italy); Anna Giunta; Andrea Linarello (Bank of Italy); Andrea Petrella (Bank of Italy)
    Abstract: The workshop entitled 'Global Value Chains: new evidence and implications' was held in Rome on the 22nd of June 2015. The workshop presented the results of a research project carried out by a group of economists from the Bank's Directorate General for Economics, Statistics and Research. The first session focuses on the structure of global value chains and how they function in the euro area economies. The second and third sessions examine the implications of global value chains on competitiveness and economic performance, respectively. The last session concentrates on specific countries, regions and firms.
    Keywords: China, competitiveness, demand for skills, domestic value added activation, Euro Area, final demand, firm organization, foreign direct investment, Germany, global value chains, industrial firms, input-output tables, International trade, intra-regional differentiation, Italy, market shares, multinational companies, ownership-based competitiveness, trade elasticity, trade in value added, world trade
    JEL: C67 D23 E16 E21 E22 E27 F1 F10 F12 F14 F15 F21 F23 F23 F66 L14 L22 L60 R11 R15
    Date: 2016–03
  16. By: Milena Kabza; Konrad Kostrzewa
    Abstract: In the run up to the financial crisis of 2007-2009 many emerging market economies, including Poland, were affected by considerable inflows of capital – capital that their financial systems found difficult to absorb. One of a number of policy options to respond to such inflows are currency-based measures (CBMs) directed at banks that are, in principle, motivated by (macro-)prudential concerns. These measures are bank regulations that apply a discrimination on the basis of the currency of an operation, typically foreign currencies. This paper presents and analyses a dataset of CBMs directed at banks in Poland between 2005 and 2013. We denote the motivations for imposing CBMs and assess their effectiveness by measuring their impact on capital flows. We find that there is evidence of negative impact of CBMs on capital inflows in the first quarter after the measure starts to be in effect. It means that actions have targeted capital inflows – despite the declared (macro-)prudential purpose of the measures. However, we also find that the model implies a stronger effect when the variable of unweighted CBMs is used. Moreover, the model implies a strong relationship between capital inflows and the exchange rate. However, we do not find the impact of CBMs on the exchange rate.
    Keywords: foreign currency-related measures, currency-based measures, currency risk, macro-prudential policy, capital flows, banking regulation, financial stability
    JEL: F3 F65 G21 G28 G32
    Date: 2016
  17. By: Randolph Bruno; Nauro Campos; Saul Estrin; Meng Tian
    Abstract: This paper investigates whether and to what extent foreign direct investment inflows into the United Kingdom are caused by its membership in the European Union (EU). It reports two main sets of econometric estimates: (a) synthetic counterfactual method with annual data for large sample of developing and developed countries over 1970-2014 and (b) gravity estimates using 34 OECD countries bilateral data for 1985-2013. The two sets of estimates strongly concur: EU membership increases FDI inflows by about 30%. This result is robust to changes in specification, country samples, time windows, and the use of different estimators (panel, PPML and Heckman).
    Keywords: foreign direct investment, gravity, SMC, European Union
    Date: 2016–10
  18. By: Maria Bas (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Lionel Fontagné (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique); Philippe Martin (Sciences Po); Thierry Mayer (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, Sciences Po)
    Abstract: The arrival of powerful new players on world markets –the foremost of these being China– automatically decreases market share for advanced economies. But France's export market share has decreased more than that of other European countries. This is not a result of poor geographic or sectoral specialisation, insuf-fi cient exporter support, under-representation of SMEs in exports or credit constraints, but, more fundamentally, is caused by an inadequate " quality/price ratio " for French products on average. When products are of quality, results are exceptional, as demonstrated by the luxury, aeronautical and electrical distribution goods sectors –sectors, with a flagship– and/or by brands, which appear to play a key role. A country's competitiveness comprises a price dimension and a non-price dimension. Regarding price competitiveness , direct labour costs represent just 23%, on average, of the total value of French exports and 44% when including the cost of labour for domestic intermediate consumption. Price competitiveness is therefore not solely a matter of labour costs for exporting companies. We also need to look at the input side, whether it be at intermediate goods (possibly imported), energy or even services produced in France for exporting companies. The central message here is that competitiveness is everybody's concern, and not just that of industrial companies. Greater effi ciency in non-tradable sectors (business services, construction, public services) also contributes to the creation of price competitiveness.
    Keywords: market shares,competitiveness
    Date: 2015–05
  19. By: Altavilla, Carlo; Canova, Fabio; Ciccarelli, Matteo
    Abstract: We analyse the pass-through of monetary policy measures to lending rates to firms and households in the euro area using a unique bank-level dataset. Banks' characteristics such as the capital ratio and the exposure to sovereign debt are responsible for the heterogeneity of pass-through of conventional monetary policy changes. The location of a bank is instead irrelevant. Non-standard measures normalized the capacity of banks to grant loans resulting in a significant compression in lending rates. Banks with a high level of non-performing loans and a low capital ratio were the most responsive to the measures. Finally, we quantify the effects of non-standard policies on the real economic activity using a standard macroeconomic model and find that in absence of these measures both inflation and output gap would have been significantly lower.
    Keywords: European Banks; Heterogeneity; Monetary pass-through; VARs
    JEL: C23 E44 E52 G21
    Date: 2016–10
  20. By: Nauro F. Campos; Corrado Macchiarelli
    Abstract: Bayoumi-Eichengreen (1993) establish a EMU core-periphery pattern using 1963-1988 data. We use same methodology, sample, window length (1989-2015), and a novel over-identifying restriction test to ask whether the EMU strengthened or weakened the core-periphery pattern. Our results suggest the latter.
    Keywords: Business cycle synchronization, Structural VAR, European Monetary Union, Core-periphery
    JEL: E32 E63 F02
    Date: 2016–09
  21. By: Jamal BOUOIYOUR; Refk SELMI
    Abstract: Given the European Union (EU)’s central role in regulating various sectors, the decision to leave poses profound questions for UK industries in upheaval. This paper examines –at sectoral level– the dynamics of stock prices surrounding the announcement of the UK’s EU membership referendum on 24 June 2016. Assessing seven sectors of British stock index, we show that the Brexit had a significant impact on the valuation of UK companies. While all industries face increasing uncertainty, the referendum outcome had varying sectoral effects. Specifically, the responses of banks and financial services, defense and airlines, real estate and technology to the Brexit event were even more severe than the reactions of oil and gas, pharmaceuticals and consumer goods. The lack of opportunity to benefit from the European passporting rules to establish businesses, to access to EU’s Research and Development funds and to hire the skilled workers have been offered to explain the harmful impact of Brexit uncertainty on UK share sectors.
    Keywords: Brexit; uncertainty; UK stock market; sectoral-level analysis
    JEL: G10 G15
    Date: 2016–10
  22. By: Gadatsch, Niklas; Hollmayr, Josef; Stähler, Nikolai
    Abstract: Using an estimated large-scale New-Keynesian model, we assess welfare and business cycle consequences of a fiscal union within EMU. We differentiate between three different scenarios: public revenue equalisation, tax harmonisation and a centralised fiscal authority. Relative to the status quo, long term consequences generate winners and losers depending on the degree of integration and on how key macroeconomic variables adjust. Short term differences between the regimes are minor, both in terms of business cycle statistics as well as in terms of risk sharing of asymmetric shocks. This also explains why welfare differences are negligibly small across the fiscal union scenarios. Even when introducing risk premia on government bonds, this general finding is not changed - although risk premia per se decrease welfare notably. We further perform a counterfactual exercise analysing the effects of what would have happened had a fiscal union regime been installed at the start of EMU already. While key macroeconomic variables would have reacted very similarly, debt dynamics could have changed notably over the estimation period.
    Keywords: Fiscal Policy,Fiscal Union,DSGE-Modelling,Macroeconomics
    JEL: H2 J6 E32 E62
    Date: 2016
  23. By: Mariusz Kapuściński
    Abstract: This study investigates whether the effects of monetary policy are amplified through its impact on bank balance sheet strength. Or, in other words, it tests whether the bank lending channel of the monetary transmission mechanism (as reformulated by Disyatat, 2011) works. To this end, panel vector autoregressions with high frequency identification and univariate panel regressions are applied to data for Poland. Counterfactual exercises show that the analysed channel accounts for about 23% of a decrease in lending following a monetary policy impulse. This is another piece of evidence showing that the financial accelerator works in both non-financial and financial sector. In some cases it can make the interplay between monetary and macroprudential policy non-trivial.
    Keywords: monetary transmission mechanism, bank capital, panel vector autoregressions, high frequency identification
    JEL: E52 E51 C33 C23 E43
    Date: 2016
  24. By: Paul Hubert (OFCE-Sciences Po); Fabien Labondance (OFCE-Sciences Po - Université de Bourgogne Franche-Comté- CRESE)
    Abstract: This paper investigates the instantaneous and dynamic effects of ECB forward guidance announcements on the term structure of private short-term interest rate expectations. We estimate the static and dynamic impact of forward guidance on private agents’ expectations about future short-term interest rates using a high-frequency methodology and an ARCH model, complemented with local projections. We find that ECB forward guidance announcements decrease most of the term structure of private short-term interest rate expectations, this being robust to several specifications. The effect is stronger on longer maturities and persistent.
    Keywords: Central Bank communication, Interest-rate expectations, OIS
    JEL: E43 E52 E58
    Date: 2016–10

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