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on European Economics |
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Issue of 2017‒07‒09
twelve papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Łyziak, Tomasz; Paloviita, Maritta |
| Abstract: | This paper studies the formation of inflation expectations in the euro area. We first analyse the forecast accuracy of ECB inflation projections relative to private sector forecasts. Then, using the ECB Survey of Professional Forecasters (ECB SPF), we estimate a general model integrating two theoretical concepts: the hybrid model of expectations, including rational and static expectations, and the sticky-information (epidemiological) model. When modelling inflation expectations we consider – except for backward-looking factors – the rational expectations assumption and the effects of ECB communication. More specifically, we examine whether ECB inflation projections are still important in expectations’ formation once the impact of forward-lookingness of economic agents has been taken into account. We also derive implicit (perceived) inflation targets and assess their consistency with the official ECB inflation target. Our analysis indicates that the recent turbulent times have contributed to changes in expectations’ formation in the euro area, as the importance of backward-looking mechanisms has decreased, while the importance of the perceived inflation target has increased. We also find that the perceived inflation target has remained broadly consistent with the official ECB inflation target in the medium-term. However, the downward trend of the perceived target suggests some risks of de-anchoring of inflation expectations. The importance of ECB inflation projections for medium-term private sector inflation expectations has increased over time, but the magnitude of this effect is rather small. However, SPF inflation forecasts remain consistent with ECB communication, being either close to ECB projections or between ECB projections and the inflation target. |
| JEL: | D84 E52 E58 |
| Date: | 2017–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2017_013&r=eec |
| By: | Campbell, Douglas L.; Chentsov, Aleksandr |
| Abstract: | As several European countries debate entering, or exiting, the Euro, a key policy question is how much currency unions (CUs) affect trade. Recently, Glick and Rose (2016) confirmed that currency unions increase trade on average by 100%, and that the Euro has increased trade by a still-large 50%. In this paper, we find that the apparent large impact of CUs on trade is driven by other major geopolitical events correlated with CU switches, including communist takeovers, decolonization, warfare, ethnic cleansing episodes, the fall of the Berlin Wall and the whole history of European integration. We find that moving from robust standard errors to multi-way clustered errors alone reduces the t-score of the Euro impact by 75%. Looking at individual CUs, we find that in no cases does the time series evidence support a large trade effect, and that the effect breaks particularly badly once we find suitable control groups. Overall, we find that intuitive controls and omitting the CU switches coterminous with war and missing data render the trade impact of the Euro and all CUs together statistically insignificant. |
| Keywords: | The Euro, Currency Unions and Trade, Gravity Regressions for Policy Analysis |
| JEL: | F15 F33 F54 |
| Date: | 2017–06–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79973&r=eec |
| By: | Tröger, Tobias |
| Abstract: | The Judgement of the EGC in the Case T-122/15 - Landeskreditbank Baden-Württemberg - Förderbank v European Central Bank is the first statement of the European judiciary on the sub-stantive law of the Banking Union. Beyond its specific holding, the decision is of great importance, because it hints at the methodological approach the EGC will take in interpreting prudential banking regulation in the appeals against supervisory measures that fall in its jurisdiction under TFEU, arts. 256(1) subpara 1 and 263(4). Specifically, the case pertained to the scope of direct ECB oversight of significant banks in the euro area and the reassignment of this competence to national competent authorities (NCAs) in individual circumstances (Single Supervisory Mechanism (SSM) Regulation, art. 6(4) subpara 2; SSM Framework Regulation, arts. 70, 71). |
| Keywords: | Banking Union,ECB,EGC,Landeskreditbank Baden-Württemberg,NCAs,SSM |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safepl:56&r=eec |
| By: | Izquierdo, Mario (Bank of Spain); Jimeno, Juan (Bank of Spain); Kosma, Theodora (Bank of Greece); Lamo, Ana (European Central Bank); Millard, Stephen (Bank of England); Room, Tairi (Eestipank); Viviano, Eliana (Bank of Italy) |
| Abstract: | Against the backdrop of continuing adjustment in EU labour markets in response to the Great Recession and the sovereign debt crisis, the European System of Central Banks (ESCB)conducted the third wave of the Wage Dynamics Network (WDN)survey in 2014–15 as a follow-up to the two previous WDN waves carried out in 2007 and 2009. The WDN survey collected information on wage-setting practices at the firm level. This third wave sampled about 25,000 firms in 25 European countries with the aim of assessing how firms adjusted wages and employment in response to the various shocks and labour market reforms that took place in the European Union (EU) during the period 2010–13. This paper summarises the main results of WDN3 by identifying some patterns in firms’ adjustments and labour market reforms. It seeks to lay out the main lessons learnt from the survey in terms of both the general response of EU labour markets to the crisis and how these responses varied across the countries that took part in the survey. |
| Keywords: | Wage Dynamics Network; survey data; labour market adjustment; labour market reforms |
| JEL: | E24 J30 J52 J68 |
| Date: | 2017–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0661&r=eec |
| By: | Hanousek, Jan; Kocenda, Evzen; Vozarova, Pavla |
| Abstract: | We analyze the impact of multinational enterprises (MNEs), via their foreign direct investment (FDI), on domestic firms in 30 European host economies, from 2001 to 2013. We incorporate international industrial and trade linkages into a standard theoretical framework and test them empirically on a unique dataset compiled from the Amadeus, Eurostat, UN Comtrade and BACI data sources. While controlling for horizontal, vertical, and export channels at the upstream and downstream levels, we show that the presence of MNEs significantly affects domestic firms, in terms of both changing the market structure and improving productivity. The impact is not always positive, as domestic firms are often crowded-out. However, those firms that withstand such double competition receive additional benefits stemming from trade (export) spillovers. In our complex model, we did not find significant (positive) interactions of domestic firms with horizontal MNEs which would suggest desirable productivity spillovers. |
| Keywords: | European firms; foreign direct investment (FDI); International Trade; multinational enterprise (MNE); Spillovers |
| JEL: | C33 F15 F21 F23 O24 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12124&r=eec |
| By: | Lucas, André; Schaumburg, Julia; Schwaab, Bernd |
| Abstract: | We propose a novel observation-driven finite mixture model for the study of banking data. The model accommodates time-varying component means and covariance matrices, normal and Student’s t distributed mixtures, and economic determinants of time-varying parameters. Monte Carlo experiments suggest that units of interest can be classified reliably into distinct components in a variety of settings. In an empirical study of 208 European banks between 2008Q1–2015Q4, we identify six business model components and discuss how their properties evolve over time. Changes in the yield curve predict changes in average business model characteristics. JEL Classification: G21, C33 |
| Keywords: | bank business models, clustering, finite mixture model, low interest rates, score-driven model |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172084&r=eec |
| By: | Economides, George; Moutos, Thomas |
| Abstract: | To many economists the public's support for the minimum wage (MW) institution is puzzling, since the MW is considered a "blunt instrument" for redistribution. To delve deeper in this issue we build models in which workers are heterogeneous in ability. In the first model, the government does not engage in any type of redistributive policies - except for the payment of unemployment benefits; we find that the MW is preferred by the majority of workers (even when the unemployed receive very generous unemployment benefits). In the second model, the government engages in redistribution through the public provision of private goods. We show that (i) the introduction of a MW can be preferred by a majority of workers only if the unemployed receive benefits which are substantially below the after-tax earnings they would have had in the perfectly competitive case, (ii) for a given generosity of the unemployment benefit scheme, the maximum, politically viable, MW is lower than in the absence of in-kind redistribution, and (iii) the MW institution is politically viable only when there is a limited degree of in-kind redistribution. These findings can possibly explain why a well-developed social safety net in Scandinavia tends to co-exist with the absence of a national MW, whereas in Southern Europe the MW institution "complements" the absence of a well-developed social safety net. |
| Keywords: | minimum wage,in-kind redistribution,heterogeneity,unemployment |
| JEL: | E21 E24 H23 J23 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tudcep:0817&r=eec |
| By: | Hadjinikolov, Dimitar |
| Abstract: | Cohesion is a precondition for implementing a number of important EU internal and external policies, such as functioning of the single market, the Eurozone, Common commercial policy,Environmental policy, etc. Therefore, achieving stronger cohesion is one of the main tasks of the European institutions. But in order to assess the development of the EU cohesion process and thereof the effectiveness of the ongoing cohesion policy, it is necessary to introduce and assess the results of certain cohesion indicators. The article includes nine such indicators: GDP per capita; Research and development expenditure as percentage of GDP; High-tech exports as percentage of total exports; People at risk of poverty or social exclusion; the Gini Coefficient; Life expectancy at birth; Density of motorway network; Share of trains in total inland passenger transport; Population connected to wastewater collection and treatment system. By using the Mean Absolute Deviation (MAD), the study establishes that in the decade of 2004-2014 there was enhanced cohesion in the EU in 8 out of the 9 indicators used. Based on comparison between Bulgaria’s individual results and those of the EU as a whole, it concludes that Bulgaria has not yet been able to get fully included in the cohesion process: 7 out of the total 9 cohesion indicators are lower than the average for the EU indicators. |
| Keywords: | cohesion policy, cohesion indicators, European Union, Bulgaria |
| JEL: | D31 E61 F2 H2 O52 |
| Date: | 2017–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79885&r=eec |
| By: | Armelius, Hanna (Ministry of Finance); Hull, Isaiah (Research Department, Central Bank of Sweden); Stenbacka Köhler, Hanna (Monetary Policy Department, Central Bank of Sweden) |
| Abstract: | Foreign measures of uncertainty, such as the US EPU index, are often used as a proxies for domestic uncertainty in small open economies. We construct an EPU index for Sweden and demonstrate that shocks to the domestic index yield di erent impulse response functions for GDP growth than shocks to the US index. In particular, a one standard deviation shock to the Swedish index delivers its maximum impact in the same quarter, lowering GDP growth by 0.2 percentage points. In contrast, a shock to the US index delivers its maximum impact with a one-quarter delay. Other foreign proxies, such as the EU and German indices, also generate e ects that peak with a one-quarter delay. |
| Keywords: | economic uncertainty; policy uncertainty; business cycles; small open economy |
| JEL: | D80 E66 F41 F42 |
| Date: | 2016–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0334&r=eec |
| By: | Götz, Thomas B.; Knetsch, Thomas A. |
| Abstract: | There has been increased interest in the use of "big data" when it comes to forecasting macroeconomic time series such as private consumption or unemployment. However, applications on forecasting GDP are rather rare. In this paper we incorporate Google search data into a Bridge Equation Model, a version of which usually belongs to the suite of forecasting models at central banks. We show how to integrate these big data information, emphasizing the appeal of the underlying model in this respect. As the choice of which Google search terms to add to which equation is crucial - for the forecasting performance itself as well as for the economic consistency of the implied relationships - we compare different (ad-hoc, factor and shrinkage) approaches in terms of their pseudo-real time out-of-sample forecast performance for GDP, various GDP components and monthly activity indicators. We find that there are indeed sizeable gains possible from using Google search data, whereby partial least squares and LASSO appear most promising. Also, the forecast potential of Google search terms vis-avis survey indicators seems th have increased in recent years, suggesting that their scope in this field of application could increase in the future. |
| Keywords: | Big Data,Bridge Equation Models,Forecasting,Principal Components Analysis,Partial Least Squares,LASSO,Boosting |
| JEL: | C22 C32 C53 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:182017&r=eec |
| By: | Tobback, Ellen; Nardelli, Stefano; Martens, David |
| Abstract: | We propose a Hawkish-Dovish (HD) indicator that measures the degree of ‘hawkishness’ or ‘dovishness’ of the media’s perception of the ECB’s tone at each press conference. We compare two methods to calculate the indicator: semantic orientation and Support Vector Machines text classification. We show that the latter method tends to provide more stable and accurate measurements of perception on a labelled test set. Furthermore, we demonstrate the potential use of this indicator with several applications: we perform a correlation analysis with a set of interest rates, use Latent Dirichlet Allocation to detect the dominant topics in the news articles, and estimate a set of Taylor rules. The findings provide decisive evidence in favour of using an advanced text mining classification model to measure the medias perception and the Taylor rule application confirms that communication plays a significant role in enhancing the accuracy when trying to estimate the bank’s reaction function. JEL Classification: C02, C63, E52, E58 |
| Keywords: | communication, data mining, monetary policy, quantitative methods |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172085&r=eec |
| By: | Robert Neil McCauley; Agustín S Bénétrix; Patrick McGuire; Goetz von Peter |
| Abstract: | This paper argues that the decline in cross-border banking since 2007 does not amount to a broad-based retreat in international lending ("financial deglobalisation"). We show that BIS international banking data organised by the nationality of ownership ("consolidated view") provide a clearer picture of international financial integration than the traditional balance-of-payments measure. On the consolidated view, what appears to be a global shrinkage of international banking is confined to European banks, which uniquely responded to credit losses after 2007 by shedding assets abroad - in particular, reducing lending - to restore capital ratios. Other banking systems' global footprint, notably those of Japanese, Canadian and even US banks, has expanded since 2007. Using a global dataset of banks' affiliates (branches and subsidiaries), we demonstrate that the who (nationality) accounts for more of the peak-to-trough shrinkage of foreign claims than does the where (locational factors). These findings suggest that the contraction in global lending can be interpreted as cyclical deleveraging of European banks' large overseas operations, rather than broad-based financial deglobalisation. |
| Keywords: | Financial globalisation, international banking, consolidation, ownership |
| JEL: | F36 F4 G21 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:650&r=eec |