nep-eec New Economics Papers
on European Economics
Issue of 2018‒03‒19
thirteen papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Financial markets effects of ECB unconventional monetary policy announcements By Guido Bulligan; Davide Delle Monache
  2. The negative interest rate policy and the yield curve By Dora Xia; Jing Cynthia Wu
  3. How Will Brexit Affect Tax Competition and Tax Harmonization? The Role of Discriminatory Taxation By Clemens Fuest; Samina Sultan
  4. One Money, Many Markets By Giancarlo Corsetti; Joao B. Duarte; Samuel Mann
  5. The effects of fiscal policy in an estimated DSGE model: The case of the German stimulus packages during the great recession By Drygalla, Andrej; Holtemöller, Oliver; Kiesel, Konstantin
  6. Religion and the European Union By Benito Arruñada; Matthias Krapf
  7. A Multi-country Approach to Analysing the Euro Area Output Gap By Florian Huber; Philipp Piribauer
  8. Exploring the relationship between money stock and GDP in the Euro Area via a bootstrap test for Granger-causality in the frequency domain By Matteo Farn\'e; Angela Montanari
  9. Comparing Central Europe and the Baltic macro-economies: A Bayesian approach By Beqiraj, Elton; Di Bartolomeo, Giovanni; Di Pietro, Marco; Serpieri, Carolina
  10. The Government Spending Multiplier at the Zero Lower Bound: Evidence from the Euro Area By AMENDOLA, Adalgiso; DI SERIO, Mario; FRAGETTA, Matteo
  11. Forecasting European Economic Policy Uncertainty By Stavros Degiannakis; George Filis
  12. Financial Globalization and Bank Lending: The Limits of Domestic Monetary Policy? By Jin Cao; Valeriya Dinger
  13. International Investment Patterns: The Case of German Sectors By Vahagn Galstyan; Adnan Velic

  1. By: Guido Bulligan (Banca d’Italia); Davide Delle Monache (Banca d’Italia)
    Abstract: This paper provides empirical evidence about the announcement effects of the ECB unconventional monetary policies carried out during the period September 2014 - July 2017. The variables considered are selected looking at the various transmission channels through which unconventional measures operate. We find that monetary policy news had significant effects on the exchange rate and sovereign long term yields, especially in those countries that were most severely hit by the crisis. Unlike previous studies, we look at the impact of announcements over different sub-periods in order to identify time-varying effects possibly due to different market conditions, policy instruments and communication strategies. We find that the strongest effects on the exchange rates and on sovereign bonds occurred in the initial phase of the Asset Purchase Programme; over the more recent period a statistically significant rise of inflation expectations was instead detected.
    Keywords: monetary policy announcements, event study, financial markets, unconventional monetary policy
    JEL: E44 E52 E58 E65 G14
    Date: 2018–02
  2. By: Dora Xia; Jing Cynthia Wu
    Abstract: We extract the market's expectations about the ECB's negative interest rate policy from the euro area's yield curve and study its impact on the yield curve. To capture the rich dynamics taking place at the short end of the yield curve, we introduce two policy indicators that summarise the immediate and longer-horizon future monetary policy stances. The ECB has cut interest rates four times under zero. We find that the June 2014 and December 2015 cuts were expected one month ahead but that the September 2014 cut was unanticipated. Most interestingly, the March 2016 cut was expected four months ahead of the actual cut.
    Keywords: negative interest rate policy, effective lower bound, term structure of interest rates, shadow rate term structure model, regime-switching model
    JEL: E43 E52 E58
    Date: 2018–02
  3. By: Clemens Fuest; Samina Sultan
    Abstract: This paper develops a model of tax competition with three countries, which initially form a union where countries refrain from using different tax rates in different sectors of the economy. We study the impact of one country leaving the union. We show that the introduction of discriminatory taxation in one country increases tax policy heterogeneity within the remaining union. Moreover, the incentives for the two remaining countries to harmonize their tax rates decline. We discuss these results in the context of the debate about the tax policy implications of Brexit.
    Keywords: international taxation, tax competition, preferential tax regimes
    JEL: H20 H73
    Date: 2017
  4. By: Giancarlo Corsetti (Centre for Macroeconomics (CFM); University of Cambridge); Joao B. Duarte (University of Cambridge; Nova School of Business and Economics); Samuel Mann (Centre for Macroeconomics (CFM); University of Cambridge)
    Abstract: We reconsider the effects of common monetary policy shocks across countries in the euro area, using a data-rich factor model and identifying shocks with high-frequency surprises around policy announcements. We show that the degree of heterogeneity in the response to shocks, while being low in financial variables and output, is significant in consumption, consumer prices and macro variables related to the labour and housing markets. Mirroring country-specific institutional and market differences, we find that home ownership rates are significantly correlated with the strength of the housing channel in monetary policy transmission. We document a high dispersion in the response to shocks of house prices and rents and show that, similar to responses in the US, these variables tend to move in different directions.
    Keywords: Monetary policy, High-frequency identification, Monetary union, Labour market, Housing market
    JEL: E21 E31 E44 E52 E44
    Date: 2018–02
  5. By: Drygalla, Andrej; Holtemöller, Oliver; Kiesel, Konstantin
    Abstract: In this paper, we analyse the effects of the stimulus packages adopted by the German government during the Great Recession. We employ a standard mediumscale dynamic stochastic general equilibrium (DSGE) model extended by nonoptimising households and a detailed fiscal sector. In particular, the dynamics of spending and revenue variables are modeled as feedback rules with respect to the cyclical component of output. Based on the estimated rules, fiscal shocks are identified. According to the results, fiscal policy, in particular public consumption, investment, transfers and changes in labour tax rates including social security contributions prevented a sharper and prolonged decline of German output at the beginning of the Great Recession, suggesting a timely response of fiscal policy. The overall effects, however, are small when compared to other domestic and international shocks that contributed to the economic downturn. Our overall findings are not sensitive to the allowance of fiscal foresight.
    Keywords: fiscal policy shocks,DSGE model,Bayesian inference,stimulus packages
    JEL: C32 E32 E62
    Date: 2017
  6. By: Benito Arruñada; Matthias Krapf
    Abstract: We review a recent literature on cultural differences across euro member states.We point out that this literature fails to address cultural differences between Protestants and Catholics, which are likely a major underlying reason for cross-country differences. We argue that confessional culture explains why Catholic countries tend to have weaker institutions but are more open to economic and political integration. EU policies after the economic crisis looked clumsy and failed to address all concerns, but were viable, caused only a manageable amount of serious backlash and tied in well with Europe’s cultural diversity, also providing scope for learning and adaption.
    Keywords: European Union, religion, values, culture.
    JEL: Z12 F15
    Date: 2018–03
  7. By: Florian Huber; Philipp Piribauer (WIFO)
    Abstract: We develop a multivariate dynamic factor model that exploits euro area country-specific information on output and inflation for estimating an area-wide measure of the output gap. In the proposed multi-country framework we moreover allow for flexible stochastic volatility specifications for both the error variances and the innovations to the latent quantities in order to deal with potential changes in the commonalities of business cycle movements. By tracing the relative importance of the common euro area output gap component as a means to explaining movements in both output and inflation over time, the paper provides valuable insights in the evolution of the degree of synchronicity of the country-specific business cycles. In an out-of-sample forecasting exercise, the paper shows that the proposed approach performs well as compared to other well-known benchmark specifications.
    Keywords: European Business Cycles, Dynamic factor model, Forecasting
    Date: 2018–03–13
  8. By: Matteo Farn\'e; Angela Montanari
    Abstract: The question regarding the relationship between money stock and GDP in the Euro Area is still under debate. In this paper we address the theme by resorting to Granger-causality spectral estimation and inference in the frequency domain. We propose a new bootstrap test on unconditional and conditional Granger-causality, as well as on their difference, to catch particularly prominent causality cycles. The null hypothesis is that each causality or causality difference is equal to the median across frequencies. In a dedicated simulation study, we prove that our tool is able to disambiguate causalities significantly larger than the median even in presence of a rich causality structure. Our results hold until the stationary bootstrap of Politis & Romano (1994) is consistent on the underlying stochastic process. By this method, we point out that in the Euro Area money and output co-implied before the financial crisis of 2008, while after the crisis the only significant direction is from money to output with a shortened period.
    Date: 2018–03
  9. By: Beqiraj, Elton; Di Bartolomeo, Giovanni; Di Pietro, Marco; Serpieri, Carolina
    Abstract: Applying the Bayesian approach, a small open economy DSGE model was estimated using a sample of quarterly data for a macro-region formed by six Central Europe and Baltic economies: Czech Republic, Estonia, Hungary, Lithuania, Poland, and Slovakia. Estimates have been employed to investigate the effects of a financial crisis, exploring the role played by country differences in the relative performances. We also use our Bayesian estimations to compute two measures of resilience in the considered region.
    Keywords: resilience,Bayesian estimations,financial crisis,macroeconomic performance,emerging markets
    JEL: E02 E32 E58
    Date: 2018
  10. By: AMENDOLA, Adalgiso (CELPE - Centre of Labour Economics and Economic Policy, University of Salerno - Italy); DI SERIO, Mario (CELPE - Centre of Labour Economics and Economic Policy, University of Salerno - Italy); FRAGETTA, Matteo (CELPE - Centre of Labour Economics and Economic Policy, University of Salerno - Italy)
    Abstract: We use an Interacted Panel Vector Autoregressive (IPVAR) model, to investigate the effects of a government spending shock when the interest rate is at zero lower bound (ZLB). We also compare the responses of variables of interest at the ZLB with what we get when a government spending shock occurs in normal times (i.e. when the interest rate is larger than 0.25). We identify the government spending shock by sign restrictions and use the European Commission forecasts of government expenditure to account for fiscal foresight. For the baseline specification we find lower multipliers in times in which the ZLB is binding. However, fiscal foresight is not the only problem in fiscal VARs related to limited information problems. Usually, VAR models can only consider a limited number of variables due to degree of freedom problems. Several authors have shown (see Stock and Watson(2005) for a survey) how principal components extracted from a larger number of variables, can approximate unobserved factors driving most (if not all) of the macroeconomic variables. Therefore, we develop a Factor-Augmented IPVAR model (FAIPVAR) and find that the multipliers are very similar among states, ranging between 1.08 and 1.41 at the ZLB and between 1.26 and 1.39 away from it. We also divide our sample, considering two groups of countries in terms of high and low debt-to-GDP ratios. We find that countries with high levels of debt-to-GDP ratio show relatively lower multipliers. Considering the FAIPVAR model, the government spending multiplier ranges between 2.69 and 3.54 for core countries and between 0.82 and 1.37 for peripheral countries. Therefore, our findings support some recent studies, which suggest that the government spending multiplier is even larger if the debt-to-GDP ratio is low.
    Keywords: Interacted VAR; Fiscal Policy; Public Debt; Government Spending: Zero Lower Bound
    JEL: C32 E32 E40 E52 E62 H50
    Date: 2018–02–20
  11. By: Stavros Degiannakis (Department of Economics and Regional Development, Panteion University of Social and Political Sciences); George Filis (Department of Accounting, Finance and Economics, Bournemouth University)
    Abstract: Forecasting the economic policy uncertainty in Europe is of paramount importance given the on-going debt crisis and the Brexit vote. This paper evaluates monthly out-of-sample economic policy uncertainty index forecasts and examines whether ultra-high frequency information from asset market volatilities and global economic policy uncertainty can improve the forecasts relatively to the no-change forecast. The results show that the global economic policy uncertainty provides the highest predictive gains, followed by the European and US stock market volatilities. The results hold true even when we consider the directional accuracy.
    Keywords: Economic policy uncertainty; forecasting; financial markets; commodities markets; HAR; ultra-high frequency information
    JEL: C22 C53 E60 E66 G10
    Date: 2018–03
  12. By: Jin Cao (Norges Bank (Central Bank of Norway)); Valeriya Dinger (Universität Osnabrück)
    Abstract: We empirically analyze how bank lending reacts to monetary policy in the presence of global financial flows. Employing a unique and novel dataset of the funding modes and currency composition of the full population of Norwegian banks in structurally identified regressions, we show that the efficiency of the bank lending channel is affected when banks can shift to international funding and thus insulate their costs of funding from domestic monetary policy. We isolate the effect of global factors from domestic monetary policy by focusing on the deviation of exchange rates from the prediction of (uncovered and covered) interest rate parity. The Norwegian banking sector represents an ideal laboratory since the exogenous exchange rate dynamics allows for a convincing identification of the relation between lending and global factors.
    Keywords: monetary policy, foreign funding channel, bank lending channel, exchange rate dynamics
    JEL: E52 F36 G21
    Date: 2018–02–23
  13. By: Vahagn Galstyan (Trinity College Dublin); Adnan Velic (Dublin Institute of Technology)
    Abstract: In this paper we exploit the newly augmented Coordinated Portfolio Investment Survey data of the IMF to study the cross-border inter-sectoral portfolio asset holdings of Germany. Our analysis reveals a significant degree of heterogeneity in the international asset positions of various German holding entities. The findings of our study also suggest differential relations between portfolio holdings and a set of gravity-style factors across holder-issuer pairings of various sectors. We conclude that aggregate-level patterns in international portfolio holdings may not persist in inter-sectoral data.
    Keywords: international portfolios, sectoral holdings, gravity
    JEL: F30 F41 G15
    Date: 2018–03

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