nep-eec New Economics Papers
on European Economics
Issue of 2017‒02‒19
sixteen papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Unconventional Monetary Policy Effects on Bank Lending in the Euro Area By Stefan Behrendt
  2. Funding Hungary: Exposing Normal and Dysfunctional Crisis Management By Piroska, Dóra
  3. Determinants of the wage share: a cross-country comparison using sectoral data By Guschanski, Alexander; Onaran, Özlem
  4. The (Unintended?) Consequences of the Largest Liquidity Injection Ever By Matteo Crosignani; Miguel Faria-e-Castro; Luis Fonseca
  5. Brexit and new perspectives of an unconventional way of Eurozone revival By Nikolaos, Kyriazis; Economou, Emmanouel/Marios/Lazaros
  6. Migration, Unemployment and the Business Cycle - A Euro Area Perspective By Clemens, Marius
  7. Public Insurance and Wealth Inequality - A Euro Area Analysis By Pham-Dao, Lien
  8. Quantitative easing and the price-liquidity trade-off By Ferdinandusse, Marien; Freier, Maximilian; Ristiniemi, Annukka
  9. The effect of income distribution and fiscal policy on growth, investment, and budget balance: the case of Europe By Obst, Thomas; Onaran, Özlem; Nikolaidi, Maria
  10. Forced structural convergence in the eurozone: Or a differentiated European monetary community By Scharpf, Fritz W.
  11. The effects of financialisation and financial development on investment: evidence from firm-level data in Europe By Tori, Daniele; Onaran, Özlem
  12. Europe and European studies in crisis: Inter-disciplinary and intra-disciplinary schisms in legal and political science By Joerges, Christian; Kreuder-Sonnen, Christian
  13. Global Inequality Dynamics: New Findings from By Facundo Alvaredo; Lucas Chancel; Thomas Piketty; Emmanuel Saez; Gabriel Zucman
  14. Intangible investment in the EU and US before and since the Great Recession and its contribution to productivity growth By Corrado, Carol; Haskel, Jonathan; Jona-Lasinio, Cecilia; Iommi, Massimiliano
  15. Racing With or Against the Machine? Evidence from Europe By Gregory, Terry; Salomons, Anna; Zierahn, Ulrich
  16. The Post-Crisis Slump in the Euro Area and the US: Evidence from an Estimated Three-Region DSGE Model By Vogel, Lukas; Kollmann, Robert; Pataracchia, Beatrice; Ratto, Marco; Roeger, Werner

  1. By: Stefan Behrendt (Friedrich Schiller University Jena, School of Economics and Business Administration)
    Abstract: This paper employs a structural VAR framework with sign restrictions to estimate the effects of unconventional monetary policies of the European Central Bank since the Global Financial Crisis, mainly in their effectiveness towards bank lending. Using a variable for newly issued credit instead of the outstanding stock of credit, the effects on bank lending are smaller than found in previous similar studies for the Euro area.
    Keywords: unconventional monetary policy, zero lower bound, bank lending, SVAR
    JEL: C32 E30 E44 E51 E52 E58
    Date: 2017–02–08
  2. By: Piroska, Dóra
    Abstract: This paper contrasts the approaches of the International Monetary Fund, the European Commission and the European Central Bank to the management of the Hungarian financial crisis of 2008. It exposes normal behaviour of the IMF and the EU Commission and dysfunction on the part of the ECB, during the first liquidity trap phase of the global financial crisis. The methodology applied contrasts the IOs’ mandate with their framing of the Hungarian crisis as well as with their actual policy recommendations. It uncovers that the IMF negotiating team had a market focus, stressed the European and regional dimensions of the Hungarian crisis, and recommended large financial assistance. The Commission’s Directorate-General for Economic and Financial Affairs representatives focused on the budgetary imbalances and treated the crisis primarily as a Hungarian crisis, which has the potential of contaminating the whole EU. They provided moderate financial assistance. Finally, the ECB thought to combat contagion to the Eurozone by ignoring the European dimension of the Hungarian case. It was reluctant to provide significant assistance to an EU member state, whose banking sector is dominated by Eurozone banks. It concludes with a note on the possible negative consequences of the ECB’s action on the European Union’s integration.
    Keywords: Hungary, International Monetary Fund, European Union, European Central Bank, international organisation, global financial crisis, institutional dysfunction
    JEL: E58 F34 F53 G01 H63
    Date: 2017–02–07
  3. By: Guschanski, Alexander; Onaran, Özlem
    Abstract: There has been a significant decline in the share of wages in GDP in both developed and developing countries since the 1980s. This paper analyses the determinants of the wage share (labour compensation as a ratio to value added) using sectoral data with country specific estimations for selected OECD countries. We compile a comprehensive sector-level dataset of eight OECD countries (Denmark, France, Germany, Italy, Spain, Sweden, the UK, the US) for the period of 1970 to 2011, which allows us to trace the developments in the wage share across high and low skilled sectors and within manufacturing and service industries. Our findings provide new insights with regard to the drivers of falling wage share. By conducting country specific estimations, we analyse how institutional differences in industrial relations, as well as social security and welfare regimes affect the wage share. Our findings lend strong support to the political economy approach to functional income distribution. Technological change had an impact, especially in Italy, the US and for the total country sample, but the effects are not robust with respect to the use of different specifications and the wage share in most countries in our sample appears to be driven by variables reflecting the bargaining power of labour such as union density, adjusted bargaining coverage and government spending. The relevance of these variables differs considerably across countries, lending support to our approach of country specific estimations. We find that globalisation had a strong impact on the wage share in all countries. The effect of globalisation on the wage share was least strong in Denmark. In Germany, and to a lesser extent in the UK, the effect is due to outward FDI and intermediate import penetration which reflects the impact of international outsourcing practices. Intermediate imports penetrations had no significant impact in Spain while FDI played a smaller role in France and the US. Different institutional variables appear to be relevant for each country. Germany exhibits the most robust positive effect of union density on the wage share. Conversely, collective bargaining coverage, together with social government spending, plays a more important role in France, the UK and the US. Financialisation had the most pronounced effect in the UK and the US, while it appears to be also relevant in Germany. We find mixed results for the effect of personal income inequality on the wage share. However, there is indicative confirmation for a negative effect in Germany, the UK and the US.
    Keywords: Wage share; income distribution; labour unions; bargaining
    Date: 2016–10–01
  4. By: Matteo Crosignani; Miguel Faria-e-Castro; Luis Fonseca
    Abstract: We study the design of lender of last resort interventions and show that the provision of long-term liquidity incentivizes purchases of high-yield short-term securities by banks. Using a unique security-level data set, we find that the European Central Bank’s three-year Long-Term Refinancing Operation incentivized Portuguese banks to purchase short-term domestic government bonds that could be pledged to obtain central bank liquidity. This "collateral trade" effect is large, as banks purchased short-term bonds equivalent to 8.4% of amount outstanding. The resumption of public debt issuance is consistent with a strategic reaction of the debt agency to the observed yield curve steepening.
    Keywords: Lender of Last Resort ; Sovereign Debt ; Unconventional Monetary Policy
    JEL: E58 G21 G28 H63
    Date: 2017–01
  5. By: Nikolaos, Kyriazis; Economou, Emmanouel/Marios/Lazaros
    Abstract: In the aftermath of the UK referendum on 23 June, 2016 that resulted in a sonorous negative decision regarding the willingness of the British people to remain in the EU, a significant number of alarming questions have emerged. Although Europe should have forged in crises, nowadays, many compromises have to be made in order to maintain the European construction as intact as possible. The question we attempt to answer is whether a new phase of unconventional monetary policy in the form of QE would be appropriate to lessen the threat of an upcoming crisis. This is why we examine Eurozone QE perspectives through the prism of the new without the UK era of the EU in order to highlight the pros and cons of the historical Brexit decision. As new rounds of unconventional monetary policy are believed to be essential for supporting the weaker countries in the European south, perspectives of non-conventional success could alter and optimal policies be substantially reformulated subject to the newly-arising constraints.
    Keywords: Brexit, European Union, Quantitative Easing, Eurozone
    JEL: E52 E58 G18 G28 H7
    Date: 2017–01–05
  6. By: Clemens, Marius
    Abstract: In the recent European debt crisis, internal migration flows in the euro area reacted strongly to diverging labor market conditions. This experience points towards the prominent role of short-term business-cycle migration in the euro area and the consequent need to understand the motives behind it. Investigating the business cycle in 55 bilateral migration corridors in the euro area over the period 1980-2010, we find evidence for business cycle related fluctuations in net migration flows and the crucial role of unemployment in shaping migration patterns. While on average wage and unemployment differentials are negatively correlated with net migration, across migration corridors we document a considerable heterogeneity in both dimensions that is more pronounced for wages. In line with these findings, we built a two-country dynamic stochastic general equilibrium (DSGE) model of internal business cycle migration in the euro area and allow for unemployment that occurs as a consequence of labor market frictions and rigidities in both countries. Our model is able to replicate the empirical observations and explains the heterogeneity of migration corridors by differences in the type of shock that hits an economy and the relative price/wage rigidity. We contribute to the literature on the causes and consequences of temporary migration and bridge it to DSGE models with unemployment.
    JEL: E24 F22 F41
    Date: 2016
  7. By: Pham-Dao, Lien
    Abstract: Since the release of the first wave of the Household Finance and Consumption Survey, the causes of the large euro area differences in private net wealth inequality have been at the forefront of the political debate. This paper assesses the quantitative importance of cross-country differences in labor market risks and social security institutions for euro area differences in private net wealth inequality. I document the empirical puzzle that euro area countries with the largest reduction in the income Gini coefficient through public transfers and with most generous welfare states, robustly show a higher inequality in private net wealth. Going back to the argument by Hubbard et al. (1995) that public insurance crowds out private savings especially of the poor, I construct a life cycle model with heterogeneous households and incomplete markets that features exogenous labor market risks, social transfers and public and occupational pensions. Calibrating the model to the actual euro area differences in the gross earnings process, unemployment dynamics and social security systems, it can account for 61.2% of the cross-country differences in the net wealth Gini coefficients for the bottom 95% of the wealth distribution. The model results suggest that welfare policies contribute with 47.3% to the wealth inequality differences across the euro area, while gross earnings inequality and unemployment can rationalize 13.9%.
    JEL: D31 D91 E21
    Date: 2016
  8. By: Ferdinandusse, Marien (European Central Bank); Freier, Maximilian (European Central Bank); Ristiniemi, Annukka (Monetary Policy Department, Central Bank of Sweden)
    Abstract: We present a search theoretic model of over-the-counter debt with quantitative easing (QE). The impact of central bank asset purchases on yields depend on market tightness, which is determined by shares of preferred habitat investors. The model predicts that the impact of government bond purchases is higher in countries with a higher share of preferred habitat investors. Furthermore, there is a trade-off with liquidity, which is not present in other models of QE. We present a new index for the share of preferred habitat investors holding government bonds in Eurozone countries, based on the ECB's securities and holdings statistics, which we use to match the impact of QE on the observed yield changes in data and to test our model.
    Keywords: Quantitative easing; liquidity; search and matching
    JEL: E52 E58 G12
    Date: 2017–02–01
  9. By: Obst, Thomas; Onaran, Özlem; Nikolaidi, Maria
    Abstract: This paper develops a multi-country Post-Kaleckian model augmented by a government sector with public spending and taxes on consumption, labour and capital and estimates it for the EU15 countries. We estimate country specific equations to find the effect of income distribution, public spending and taxes on growth, on each component of private aggregate demand (i.e., consumption, investment, and net exports) and on budget balance for the EU15 countries. Next, we calculate a Europe-wide multiplier based on the responses of each country to changes not only in domestic income distribution, taxation and government expenditure but also to changes in the other European countries’ wage share, taxes and public spending. One novelty of this paper is that it goes beyond an isolated country-by-country analysis and integrates cross-country effects of a simultaneous change in the wage share on demand in Europe in a government augmented Post-Kaleckian model.Extending the model by taxes on labour and capital increases the likelihood of a wage-led economic regime. The fiscal multiplier effects are much stronger when policies are implemented simultaneously, and wage, tax and public spending policies are integrated into the policy mix. The impact of egalitarian wage policies are positive but small; the overall stimulus becomes much stronger when mixed with fiscal expansion. Expansionary fiscal policy is sustainable when wage, public spending and progressive tax policies are combined. The analysis of the paper can guide the development of a fiscal and wage policy mix conducive to equitable development.
    Keywords: Wage share; growth; European multiplier; demand regime; government sector; public spending; tax policy;
    JEL: E12 E22 E25 E62
    Date: 2017–01–01
  10. By: Scharpf, Fritz W.
    Abstract: Eight years after the onset of the "Great Recession," the eurozone is deeply split between "Northern" EMU economies that seem to be doing reasonably well and "Southern" countries that continue to struggle with socioeconomic catastrophe. This paper argues that the continuing malaise is a consequence of the structural diversity among Northern and Southern economies and of an asymmetrical euro regime that must try to enforce the structural convergence of their political economies. The present regime is vulnerable, however. It may fail economically should its rules have to be relaxed, and it may fail politically should it no longer be possible to suppress North-South conflicts. In light of these risks, the paper concludes by presenting the outline of a differentiated European Currency Community that would accommodate structurally diverse but highly interdependent economies in a flexible two-level regime.
    Keywords: Europe,monetary union,structural convergence,democracy,Europa,Währungsunion,strukturelle Konvergenz,Demokratie
    Date: 2016
  11. By: Tori, Daniele; Onaran, Özlem
    Abstract: In this paper we estimate the effects of financialization on physical investment in selected western European countries using panel data based on the balance-sheets of publicly listed non-financial companies (NFCs) supplied by Worldscope for the period 1995-2015. We find robust evidence of an adverse effect of both financial payments (interests and dividends) and financial incomes on investment in fixed assets by the NFCs. This finding is robust for both the pool of all Western European firms and single country estimations. The negative impacts of financial incomes are non-linear with respect to the companies’ size: financial incomes crowd-out investment in large companies, and have a positive effect on the investment of only small, relatively more credit-constrained companies. Moreover, we find that a higher degree of financial development is associated with a stronger negative effect of financial incomes on companies’ investment. This finding challenges the common wisdom on ‘finance-growth nexus’. Our findings support the ‘financialization thesis’ that the increasing orientation of the non-financial sector towards financial activities is ultimately leading to lower physical investment, hence to stagnant or fragile growth, as well as long term stagnation in productivity.
    Keywords: Financialization; investment; non-financial sector; firm data; Europe; financial development;
    Date: 2017–01–01
  12. By: Joerges, Christian; Kreuder-Sonnen, Christian
    Abstract: European Studies used to be dominated by legal and political science approaches which hailed the progress of European integration and its reliance on law. The recent set of crises which struck the EU have highlighted fundamental problems in the ways and means by which European integration unfolds. The quasi-authoritarian emergency politics deployed in the euro crisis is a radical expression of the fading prevalence of democratic processes to accommodate economic and social diversity in the Union. As we argue in this paper, however, the mainstreams in both disciplines retain a largely affirmative and apologetic stance on the EU's post-democratic and extra-constitutional development. While political science contributions mostly contend themselves with a revival of conventional integration theories and thus turn a blind eye to normatively critical aspects of European crisis governance, legal scholarship is in short supply of normatively convincing theoretical paradigms and thus aligns itself with the functionalist reasoning of the EU's Court of Justice. Yet we also identify critical peripheries in both disciplines which intersect in their critical appraisal of the authoritarian tendencies that inhere the crisis-ridden state of European integration. Their results curb the prevailing optimism and underline that the need for fundamental reorientations in both the theory and practice of European integration has become irrefutable.
    Keywords: European crisis,authoritarian tendencies,European Studies,European integration,europäische Krise,autoritäre Tendenzen,Europastudien,europäische Integration
    Date: 2016
  13. By: Facundo Alvaredo; Lucas Chancel; Thomas Piketty; Emmanuel Saez; Gabriel Zucman
    Abstract: This paper presents new findings on global inequality dynamics from the World Wealth and Income Database (, with particular emphasis on the contrast between the trends observed in the United States, China, France, and the United Kingdom. We observe rising top income and wealth shares in nearly all countries in recent decades. But the magnitude of the increase varies substantially, thereby suggesting that different country-specific policies and institutions matter considerably. Long-run wealth inequality dynamics appear to be highly unstable. We stress the need for more democratic transparency on income and wealth dynamics and better access to administrative and financial data.
    JEL: E01 H2 H5 J3
    Date: 2017–02
  14. By: Corrado, Carol; Haskel, Jonathan; Jona-Lasinio, Cecilia; Iommi, Massimiliano
    Abstract: This paper uses a new cross-country cross-industry dataset on investment in tangible and intangible assets for 18 European countries and the US. We set out a framework for measuring intangible investment and capital stocks and their effect on output, inputs and total factor productivity. The analysis provides evidence on the diffusion of intangible investment across Europe and the US over the years 2000-2013 and offers growth accounting evidence before and after the Great Recession in 2008-2009. Our major findings are the following. First, tangible investment fell massively during the Great Recession and has hardly recovered, whereas intangible investment has been relatively resilient and recovered fast in the US but lagged behind in the EU. Second, the sources of growth analysis including only national account intangibles (software, R&D, mineral exploration and artistic originals), suggest that capital deepening is the main driver of growth, with tangibles and intangibles accounting for 80% and 20% in the EU while both account for 50% in the US, over 2000-2013. Extending the asset boundary to the intangible assets not included in the national accounts (Corrado, Hulten and Sichel (2005)) makes capital deepening increases. The contribution of tangibles is reduced both in the EU and the US (60% and 40% respectively) while intangibles account for a larger share (40% in EU and 60% in the US). Then, our analysis shows that since the Great Recession, the slowdown in labour productivity growth has been driven by a decline in TFP growth with relatively a minor role for tangible and intangible capital. Finally, we document a significant correlation between stricter employment protection rules and less government investment in R&D, and a lower ratio of intangible to tangible investment.
    Keywords: productivity growth,intangible capital,sources of growth,national accounts
    JEL: O47 E22 E01
    Date: 2016
  15. By: Gregory, Terry; Salomons, Anna; Zierahn, Ulrich
    Abstract: A fast-growing literature shows that technological change is biased towards routine tasks, changing the structures of employment and wages in developed economies. This paper is the first to estimate the absolute rather than relative employment effects of routine-biased technological change (RBTC) for Europe as a whole and at the level of 238 European regions. We develop and estimate a task model of regional labor demand in tradable and non-tradable industries, building on Goos et al. (2014), and distinguish the main channels through which technological change affects labor demand. These channels include the direct substitution of capital for labor in task production, but also the compensating effects operating through product demand and local demand spillovers. We empirically estimate the contributions of the channels in our model to analyze how RBTC affects both aggregate and regional employment. Our results indicate that RBTC has on net created more than 11 million jobs across 27 European countries over 1999-2010, comprising half of total employment growth, and can account for some 40 percent of the observed European regional variation in employment growth over this period.
    JEL: E24 J23 R23
    Date: 2016
  16. By: Vogel, Lukas; Kollmann, Robert; Pataracchia, Beatrice; Ratto, Marco; Roeger, Werner
    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 dynamics of financial shocks identified by the model is consistent with observed performance indicators of the EA and US banking systems.
    JEL: E32 F41 C11
    Date: 2016

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