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on European Economics |
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Issue of 2018‒01‒15
eleven papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Pedro Bação (Grupo de Estudos Monetários e Financeiros (GEMF); Centre for Business and Economics Research (CeBER)); António Portugal Duarte (Grupo de Estudos Monetários e Financeiros (GEMF); Centre for Business and Economics Research (CeBER)) |
| Abstract: | Two main issues, closely related to each other, have occupied the European Central Bank in recent years: the sovereign debt crisis and the possibility of deflation in the Euro Zone. In this paper we discuss the causes, the consequences and the policy options regarding deflation. In addition, we assess the magnitude of the risk of deflation in the Euro Zone. For this purpose, we will employ the methodology of Kilian and Manganelli (2007). Our results suggest that the threat of deflation in the Euro Zone is related to the international financial crisis and to the sovereign debt crisis in Europe. Thus, the probability of deflation in the Euro zone increased in recent years. Nevertheless, it appears to have subsided in 2017, justifying the view taken by the ECB’s Governing Council, according to which deflation is no longer a problem for the Euro zone. |
| Keywords: | deflation, debt crisis, Eurozone, GARCH model. |
| JEL: | E31 F47 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:papers:2017-12&r=eec |
| By: | Corsetti, Giancarlo; Erce, Aitor; Uy, Timothy |
| Abstract: | In response to the euro area crisis, European policymakers took a gradual, incremental approach to official lending, at first relying on the approach followed by the International Monetary Fund, then developing their own crisis resolution framework. We review this development, marked by a substantial divergence in the terms of official loans offered to the crisis countries by the IMF and the euro area official lenders. Based on a unique dataset, we use event analysis to assess the impact of changing maturity and spreads of official loans on bond yields, liquidity and market access. In light of the euro area experience, we discuss arguments for rebalancing Debt Sustainability Analysis and programme design towards cashflow management. While the official assistance granted to crisis countries in the euro area may not be replicable elsewhere, key lessons from it could foster a reconsideration of the modalities by which official lending institutions handle crises. |
| Keywords: | crisis management; debt sustainability; loans maturity; market access; private sector involvement; seniority; yield curve |
| JEL: | F33 F34 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:86155&r=eec |
| By: | Katharina Glass (Universität Hamburg (University of Hamburg)) |
| Abstract: | This study investigates the predictability of revisions to Euro- area major macroeconomic variables using real-time data from the European Central Bank. The application of nonparametric and semiparametric tests enables robust conclusions about the predictability of revisions. Though there is wide evidence of the nonnormality of the distribution function of revision errors, this is the first application of the nonparametric approach to examine revisions. Moreover, to gain robustness, this study performs tests for parameter instability, and includes structural breaks explicitly in the predictability evaluation. The results underline the predictability of Euro area key macroeconomic revisions. Revisions are inefficient and biased, and revision errors are not optimal forecast errors. |
| Keywords: | revision, revision errors, predictability, real-time data, Euro area, unbiasedness, efficiency, news, noise |
| JEL: | C8 D80 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:hep:macppr:201801&r=eec |
| By: | Friesenbichler, Klaus; Glocker, Christian |
| Abstract: | This study examines the lack of convergence among EU Member States from a structural perspective. We apply the tradable-nontradable framework (T-NT) to evaluate the heterogeneity in labour productivity before and after the great recession. We find that, across all countries, nontradables were less relevant for aggregate productivity. The low productivity growth in peripheral EU countries was accompanied by a specific structural change pattern: There was a sharp production increase of nontradables before the crisis relative to other EU countries. For most peripheral countries concerns about unfavourable sector structures remain, implying a continuation of unsustainable growth patterns. This has implications for the European Commission’s macroeconomic imbalance procedures, since it allows identifying patterns of real divergence on a disaggregated level. Finally, we identify a link between sectoral growth asymmetries and the quality of domestic governance institutions. Especially differences in the legal system help to explain the observed productivity growth differentials. |
| Keywords: | Tradability; Labour productivity; Growth; Institutions; EU; Imbalances |
| JEL: | E1 E2 E60 O43 O47 |
| Date: | 2017–12–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:83382&r=eec |
| By: | Marco Causi; Andrea Baldini |
| Abstract: | In this paper we describe the dynamics of Loans and Bad Loans in the Italian Non-Financial Sector during the period 1998:4 to 2014:4. We use a Factor Model approach to take into account all of the macroeconomic fac- tors that could a ect the cyclical dynamics of the credit market, and we try to capture the causal e ect of di erent variables at quarterly frequency, tak- ing into account the structural break of the Great Recession. We reach two main conclusions: rst, our evidence con rms the well-known negative rela- tion between GDP variation and Bad Loan ows, and moreover shows a strong infra-annual Bad Loan reaction triggered by a GDP shock within a period of six months. Second, if we correctly remove structural economic factors we nd that New Bad Loan Entry rate cause Loan variations. These facts are useful in formulating some policy conclusions. |
| Keywords: | empirical nance, non-performing loans, credit, factor models, favar. |
| JEL: | C22 C58 E51 G00 H81 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:rtr:wpaper:o232&r=eec |
| By: | Panagiotis Avramidis (ALBA Graduate Business School); Ioannis Asimakopoulos (Bank of Greece); Dimitris Malliaropulos (Bank of Greece and University of Piraeus); Nickolaos G. Travlos (Bank of Greece) |
| Abstract: | Using a data set of bank loans to Greek firms during the period of the Greek sovereign crisis, we provide empirical evidence that firms affiliated with groups are less likely to default on their bank loan during a credit crunch, compared to stand-alone firms. We show that the lower default risk of affiliated firms is due to access to the internal capital market in the form of intra-group loans and to enhanced access to the restricted external financing. Furthermore, we provide empirical evidence that banks evaluate positively the group membership and that they collect private information about the delinquent affiliated firms from other firms that belong to the group. Finally, we find that banks are more likely to show forbearance against affiliated firms with non-performing loans, in order to delay additional loan charge-offs and to preserve their relationship with the rest of the group. |
| Keywords: | group affiliation; co-insurance; non-performing loans; forbearance |
| JEL: | G01 G21 G32 C23 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:237&r=eec |
| By: | P. Pessarossi; J.-L. Thevenon; L. Weill |
| Abstract: | We investigate how high profitability influences the occurrence of bank distress in Europe. We utilize four indicators for ‘too high’ profitability, defined as the top quantiles of earnings, in logit models to explain bank distress with a hand-collected dataset of European bank distresses over the 2001-2014 period. We test the hypothesis that profitability can be beneficial for stability until a certain level but can turn detrimental at high level. We find that ‘too high’ profitability does not reduce the occurrence of bank distress. We obtain limited evidence that the top quantiles of the profitability distribution can lead to enhance such occurrence through a time horizon of about 3 years. With the hindsight of the Great Financial Crisis, our findings therefore qualify the view that bank profitability only should be promoted to favor bank stability. |
| Keywords: | Bank profitability, financial distress, financial stability. |
| JEL: | G21 G33 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:decfin:31&r=eec |
| By: | J. Hombert; V. Lyonnet |
| Abstract: | We study intergenerational risk sharing in Euro-denominated life insurance contracts. These savings products represent 80% of the life insurance market in Europe. Using regulatory and survey data for the French market, which is €1.3 trillion large, we analyze the patterns of intergenerational redistribution implemented by these products. We show that contract returns are an order of magnitude less volatile than the return of assets underlying these contracts. Contract return smoothing is achieved using reserves that absorb fluctuations in asset returns and that generate intertemporal transfers across generations of investors. We estimate the average annual amount of intergenerational transfer at 1.4% of contract value, i.e., €17 billion or 0.8% of GDP. Finally, we provide evidence that smoothing makes contract returns predictable, but inflows react only weakly to these predictable returns. |
| Keywords: | Life insurance, intergenerational risk-sharing, euro contracts. |
| JEL: | G20 G22 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:decfin:30&r=eec |
| By: | Algan, Yann; Guriev, Sergei; Papaioannou, Elias; Passari, Evgenia |
| Abstract: | We study the implications of the Great Recession for voting for anti-establishment parties, as well as for general trust and political attitudes, using regional data across Europe. We find a strong relationship between increases in unemployment and voting for non-mainstream, especially populist parties. Moreover, increases in unemployment go in tandem with a decline in trust in national and European political institutions, while we find much attenuated effects of unemployment on interpersonal trust. The correlation between unemployment and attitudes towards immigrants is muted, especially for their cultural impact. To advance on causality, we extract the component of increases in unemployment explained by the pre-crisis structure of the economy, in particular the share of construction in regional value added, which is strongly related both to build-up and the burst of the crisis. Our results imply that crisis-driven economic insecurity is a substantial driver of populism and political distrust. |
| Keywords: | crisis; Europe; Immigration; industrial structure; populism; Trust; voting |
| JEL: | A13 E02 F02 F22 F33 J15 O43 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12444&r=eec |
| By: | T. Libert |
| Abstract: | This paper assesses resource misallocation dynamics and its impact on aggregate TFP in the French manufacturing sector between 1990 and 2015. I provide an exact decomposition of allocational inefficiency into three components: labor misallocation, capital misallocation, and a third term representing the interplay between both. Misallocation increased substantially between 1997 and 2007, generating a loss in annual TFP growth of roughly 0.8 percentage points. This increase is mainly related to labor misallocation, except at the beginning of the 2000s, when capital misallocation played the leading role. The impact of allocational efficiency during the Great Recession is sizeable: misallocation accounts for roughly 25% of the 2007-2009 decline in TFP and 20% of the improvement observed in the immediate aftermath of the crisis. The main feature behind the rise in misallocation during the crisis is the predominance of the interplay component, which is stable the rest of the time. It suggests that one should pay special attention to mechanisms disrupting both labor and capital markets in the wake of financial crises. Finally, allocational efficiency remains rather constant after 2010: the post-crisis slowdown in productivity growth is therefore even more pronounced for efficient TFP than for observed TFP. |
| Keywords: | Misallocation; Aggregate Productivity; Great Recession. |
| JEL: | D24 O11 O47 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:658&r=eec |
| By: | Benjamin Born; Gernot Müller; Moritz Schularick; Petr SedláÄ ek |
| Abstract: | This paper introduces a data-driven, transparent and unbiased method to calculate the economic costs of the Brexit vote in June 2016. We let a matching algorithm determine a combination of comparison economies that best resembles the growth path of the UK economy before the Brexit referendum. The economic cost of the Brexit vote is the difference in output between the UK economy and and its synthetic doppelganger. We show that, contrary to public perception, by the third quarter of 2017 the economic costs of the Brexit vote are already 1.3% of GDP. The cumulative costs amount to almost 20 billion pounds and are expected to grow to more than 60 billion pounds by end-2018. We provide evidence that heightened policy uncertainty has already taken a toll on investment and consumption. |
| Keywords: | Brexit, European Union, policy uncertainty, synthetic control method |
| JEL: | E65 F13 F42 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6780&r=eec |