nep-eec New Economics Papers
on European Economics
Issue of 2017‒09‒24
nine papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. European spreads at the interest rate lower bound By Laura Coroneo; Sergio Pastorello
  2. Who gains more power in the EU after Brexit? By Szczypinska, Agnieszka
  3. A Hawkes model of the transmission of European sovereign default risk By Dumitru, Ana-Maria; Holden, Tom
  4. Social harmonization and labor market performance in Europe By Katarzyna Mirecka; Izabela Styczyñska
  5. Market Reactions to ECB Policy Innovations: A Cross-Country Analysis By Fausto Pacicco; Luigi Vena; Andrea Venegoni
  6. Monitoring the Spanish Economy through the Lenses of Structural Bayesian VARs By Danilo Leiva-Leon
  7. Business cycle phases in Spain By Maximo Camacho; Matias Pacce; Camilo Ulloa
  8. Inequality and poverty in Greece: Changes in times of crisis By Andriopoulou, Eirini; Karakitsios, Alexandros; Tsakloglou, Panos
  9. How to normalize monetary policy in the Euro area By Beck, Guenter W.; Wieland, Volker

  1. By: Laura Coroneo; Sergio Pastorello
    Abstract: This paper analyzes the effect of the interest rate lower bound on long term sovereign bond spreads in the Euro area. We specify a joint shadow rate term structure model for the risk-free, the German and the Italian sovereign yield curves. In our model, the behavior of long term spreads becomes strongly nonlinear in the underlying factors when interest rates are close to the lower bound, which in the data occurs since the beginning of 2012. We fit the model by Quasi-Maximum Likelihood and highlight three important consequences of sovereign spreads’ nonlinear behavior: i) their distribution is skewed, ii) they are affected by (possibly exogenous) changes in the lower bound, and iii) they become less informative about the countries’ sovereign risk. Shadow spreads, however, still provide reliable information.
    Keywords: lower bound; sovereign risk; shadow rate term structure model.
    JEL: E43 E44 E52 G12
    Date: 2017–09
  2. By: Szczypinska, Agnieszka (Ministry of Finance)
    Abstract: Brexit implications are analysed in most cases from the macroeconomic, financial or legal point of view while these areas are not the only ones the economists or governments should pay attention to. In this article we focus on how Brexit influences application of the European procedures, i.e. the results of various voting scenarios in the Council of the European Union. Based on power indices we examine changes of power distribution within the European Union (EU) from the perspective of each EU Member State separately as well as potential coalitions. This analysis covers also projection of power distribution in 2030 and 2060 that takes into account population forecast prepared by the Ageing Working Group. We find that larger countries benefit from the new possible power distribution while the smaller ones lose their power. Moreover, power of coalitions built by the EU Member States, representing different groups of interests in particular voting, e.g. EU budget or enforcement of the EU rules, seems to be vulnerable to the implications of the decision of the United Kingdom to leave the EU. Brexit may influence the quality of institutional and macroeconomic policy, especially in terms of decisions on the strictness of the EU rules.
    Keywords: Brexit; power index; voting power; Council of the European Union; demographics
    JEL: C71 F15
    Date: 2017–03–21
  3. By: Dumitru, Ana-Maria; Holden, Tom
    Abstract: The run-up to the Greek default featured marked increases in the cost of insuring sovereign debt from almost all European countries. One explanation is that market participants believed a default in one country might increase the risk of a future default in another, and so news about one country could impact all others. To test for such dynamic contagion between credit related events in different countries, we develop a procedure for tractably estimating high-dimensional Hawkes models using credit default swap prices. Unlike the prior literature, we are able to perform this estimation via maximum likelihood, even without observing events. We escape the curse of dimensionality by modelling a market portfolio of risk across countries. We find significant spillovers in credit risk between countries, with Spain, Portugal and Greece driving events in the other countries considered.
    Keywords: sovereign CDS spreads,credit risk,multivariate self-exciting point process,systemic risk
    JEL: C58 G12
    Date: 2017
  4. By: Katarzyna Mirecka; Izabela Styczyñska
    Abstract: The paper aims to assess the impact of selected elements of social harmonization on labor market performance in the European Union among two groups of workers—the total working population and the elderly. The aim is to examine whether upward changes in labor taxes affect employment, unemployment, and inactivity rates in the European Union.
    Keywords: employment of the elderly, minimum wage, social security contributions, labor tax, Social Europe
    JEL: J31 J32 C23 J38 J41 J61 H53 H55
    Date: 2017–04
  5. By: Fausto Pacicco; Luigi Vena; Andrea Venegoni
    Abstract: Financial markets vest an important role both in conveying monetary policy innovations to the real economy and in shaping business cycle’s fluctuations. Hence, it becomes crucial to assess whether the ECB is able to wield homogeneous reactions in the main Eurozone stock markets and to quell their turbulences. The empirical analysis shows that conventional policy rate shifts affect unevenly the equity indices of the countries analysed, generating asymmetries between their business cycles. Moreover, the ECB stance proved unable to weather the storm and trigger an economic recovery. This calls for a refinement of ECB conduct and justifies the extensive employment of unconventional measures to revive the economy.
    Date: 2017–07
  6. By: Danilo Leiva-Leon (Banco de España)
    Abstract: This paper proposes a suite of Structural Bayesian Vector Autoregression (SBVAR) models used (i) to disentangle the main shocks driving the Spanish economy over time and (ii) to provide short and medium term forecasts of output and infl ation. The suite consists of a benchmark model, that includes output, prices and interest rate, along with four extensions that gather information from the labor, financial, and international markets, and from the fiscal sector. The identification of the structural shocks is achieved by relying on sign and exclusion restrictions. The models provide a narrative of the contribution of fundamental economic shocks that agrees with main historic events of the Spanish economy. Moreover, the proposed SBVAR models are used to provide forecasts of output and inflation conditional on different scenarios about the development of key macroeconomic variables. Therefore, the suite could be incorporated to the toolkit of quantitative models that the Banco de España uses to perform forecasts.
    Keywords: structural analysis, vector autoregressions, bayesian estimation, sign restrictions
    JEL: E32 C22 E27
    Date: 2017–09
  7. By: Maximo Camacho; Matias Pacce; Camilo Ulloa
    Abstract: We characterize regional business cycles for Spain using monthly Social Security affiliations. Based on a set of Markov-switching models, we find substantial synchronization of regional business cycles, which has increased since the Great Recession. We do however evidence a regional leading and lagging performance that repeats itself across the different recessions.
    Keywords: Working Paper , Economic Analysis , Spain
    JEL: E32 C22 E27
    Date: 2017–09
  8. By: Andriopoulou, Eirini; Karakitsios, Alexandros; Tsakloglou, Panos
    Abstract: The Greek crisis was the deepest and longest ever recorded in an OECD country in the postwar period. Output declined by over a quarter and disposable income by more than 40%, while the unemployment rate exceeded 27%. The paper explores the effects of the crisis on the level and the structure of aggregate inequality and poverty using the data of EU-SILC for the period 2007-2014. The results show that inequality rose but the magnitude of the change varies across indices. The recorded increases are larger when the indices used are relatively more sensitive to changes close to the bottom of the income distribution. Unlike claims often made in the public discourse, the elderly improved their relative position in the income distribution while there was substantial deterioration in the relative position of the enlarged group of the unemployed. The contribution of disparities between educational groups to aggregate inequality declined while that of disparities between socio-economic groups rose. All poverty indicators suggest that poverty increased substantially, especially when “anchored” poverty lines are used. Substantial changes are observed regarding the structure of poverty. Despite an increase in the population share of households headed by pensioners, their contribution to aggregate poverty declined considerably, with a corresponding increase in the contribution of households headed by unemployed persons. The changes are starker when distribution-sensitive poverty indices are utilized.
    Keywords: Greece,inequality,poverty,decomposition analysis
    JEL: D31 I31 I32
    Date: 2017
  9. By: Beck, Guenter W.; Wieland, Volker
    Abstract: Since 2014 the ECB has implemented a massive expansion of monetary policy including large-scale asset purchases and negative policy rates. As the euro area economy has improved and inflation has risen, questions concerning the future normalization of monetary policy are starting to dominate the public debate. The study argues that the ECB should develop a strategy for policy normalization and communicate it very soon to prepare the ground for subsequent steps towards tightening. It provides analysis and makes proposals concerning key aspects of this strategy. The aim is to facilitate the emergence of expectations among market participants that are consistent with a smooth process of policy normalization.
    Date: 2017

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