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on European Economics |
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Issue of 2018‒06‒11
23 papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Svatopluk Kapounek (Department of Finance, Faculty of Business and Economics, Mendel University in Brno); Zuzana Kucerova (Department of Finance, Faculty of Business and Economics, Mendel University in Brno) |
| Abstract: | We investigate economic cycle comovements across the European Union after twenty years from euro adoption. We demonstrate the cycle comovement between France and the EU and the decoupling of Germany, the United Kingdom and countries in Southern Europe. We find that the Baltic countries represent a single economic area with common shocks. Using wavelet coherence analysis with phase shift, we identify directions of causal relationships and discuss the spread of asymmetric shocks across the European Union. Our results do not fully support the idea that monetary integration increases the synchronisation of economic cycles of monetary union members. |
| Keywords: | OCA Theory, Economic Cycles, Time†series co†movements, Wavelet Analysis, Phase Shift |
| JEL: | E32 F15 C14 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:men:wpaper:75_2018&r=eec |
| By: | Fache Rousová, Linda; Caloca, Antonio Rodríguez |
| Abstract: | This paper presents a detailed set of new, quantity-based indicators of financial integration in the euro area. The indicators are based on granular data from securities holdings statistics and help us disentangle the main drivers of the portfolio changes observed since the financial crisis. Three key developments since the crisis stand out. First, we find that financial integration in equity is less than that in the debt market, although the equity market was the main contributor to the partial recovery in financial integration observed since mid-2012. Second, we observe a gradual shift in cross-border investment activity from the banking sector towards other non-bank financial entities. In particular, our results show that euro area banks significantly decreased their investment in debt securities issued by banks in other euro area countries and that this decrease explains around 55% of the decline in financial integration in the debt market observed since the crisis. Finally, we find that the sharp decrease in financial integration between 2009 and 2012 was mainly driven by foreign investor flight from government debt securities, a trend that has since reversed. JEL Classification: F36, G1, G10, G15 |
| Keywords: | financial integration, international financial markets, micro-data, quantity-based indicators, securities, securities holdings statistics, security-by-security data |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbsps:201828&r=eec |
| By: | Ralf Fendel; Frederik Neugebauer |
| Abstract: | This paper employs event study methods to evaluate the effects of ECB’s non-standard monetary policy program announcements on 10-year government bond yields of euro area member states. It covers data from 11 euro area countries from January 1, 2007 to August 31, 2017 and distinguishes between the more solvent countries (Austria, Belgium, Finland, France, Germany, the Netherlands) and the less solvent ones (Greece, Ireland, Italy, Portugal, Spain). The paper makes three contributions to the literature. First, it is the first paper to reveal that measurable effects of announcements arise with a one-day delay meaning that government bond markets take some time to react to ECB announcements. Second, it quantifies the country-specific extent of yield reduction which seems inversely related to the solvency rating of the corresponding countries. The reduction of the spread between both groups in response to an event is due to a stronger decrease in the less solvent group. Third, this result is confirmed by letting the announcement variable interact with the spread level, which is an innovation in this strand of literature. By employing different data as control variables, it turns out that the results are robust for a given event set. |
| Keywords: | ECB, non-standard monetary policy, government bond yields, event study |
| JEL: | E44 E52 E58 G14 |
| Date: | 2018–06–06 |
| URL: | http://d.repec.org/n?u=RePEc:whu:wpaper:18-02&r=eec |
| By: | Ray Barrell (Centre for Macroeconomics (CFM); Brunel University London; London School of Economics and Political Science (LSE)); Abdulkader Nahhas (Brunel University London; Derby University) |
| Abstract: | This paper examines the factors affecting bilateral Foreign Direct Investment (FDI) stocks from 14 high income countries to 31 OECD countries over the period 1995-2015. We specifically emphasise the effect of regional trade agreements such as the European Union (EU) and the North American Free Trade Area (NAFTA) along with membership of the Currency Union. Our empirical analysis applies the generalised method of moments (GMM) estimator to a gravity model of bilateral FDI stocks. The findings imply that EU membership is a significant determinant of FDI even when we condition on the variables that follow from the application of the gravity model. We look at the effects of the North American Free Trade Area on within block FDI and find no similar effect. Our results suggest that European Integration has a large effect on FDI stocks, raising intra Single Market FDI noticeably. We note that the UK’s departure from the Single Market may reduce the stock of intra EU FDI by up to 30 per cent in the long run. In addition, the findings point that the UK has no labour market or competitive environment advantage above the rest of the EU in attracting FDI. |
| Keywords: | Regional trade agreements, Multinational firms, Foreign direct investment, Generalised method of moments, Gravity equation, Dynamic panel data model |
| JEL: | F14 F15 F21 C23 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1814&r=eec |
| By: | Anouk Levels; René de Sousa van Stralen; Sînziana Kroon Petrescu; Iman van Lelyveld |
| Abstract: | Using new regulatory data, this paper contributes to the growing literature on derivatives markets and (systemic) risk, by providing a first account of the Dutch CDS market, investigating the factors that drive buying and selling of credit protection ('flow-of risk'), and analysing the impact of Brexit. We find that the CDS market has a 'core-periphery' structure in which Dutch banks are CDS sellers while insurance firms and pension funds (ICPF's) and 'other financial institutions' (OFIs) are buyers. When the volatility of a reference entity increases, the propensity to sell CDS decreases for banks and increases for ICPFs and OFIs. This hints at procyclical behaviour by banks and countercyclical behaviour by ICPFs and OFIs. The 'core-periphery' structure of the CDS market became more pronounced around Brexit events, making the CDS market more vulnerable to shocks emanating from 'systemic' players. Banks reduced net buying and selling of CDS protection on UK reference entities, while OFIs and investment funds became more dominant. This underpins the importance of adequate buyers for systemic institutions and extending the regulatory perimeter beyond banking. |
| Keywords: | EMIR; trade repositories; CDS markets; Brexit |
| JEL: | G15 G18 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:592&r=eec |
| By: | Gόrnicka, Lucyna; Kamps, Christophe; Koester, Gerrit; Leiner-Killinger, Nadine |
| Abstract: | Identifying fiscal multipliers is usually constrained by the absence of a counterfactual scenario. Our new data set allows overcoming this problem by making use of the fact that recommendations under the EU’s excessive deficit procedure (EDP) provide both a baseline no-policy-change scenario and a fiscal-adjustment EDP scenario that entails a forecast of the macroeconomic impact of fiscal consolidation over the EDP horizon. For a sample of 24 EU countries to which 48 EDP recommendations were applied between 2009 and 2015, we derive country-specific fiscal multipliers as actually applied by forecasters during the crisis. Our results confirm Blanchard and Leigh’s (2013, 2014) presumption that forecasters learned during the crisis. According to our findings, fiscal multipliers as applied by the European Commission increased over time – from about 1/4 in the early years of the crisis to about 2/3 in the later years. However, different from Blanchard and Leigh (2013, 2014), we do not find evidence for the hypothesis that ex-post fiscal multipliers have been substantially above 1 during the crisis. JEL Classification: E32, E62, H20, H5 |
| Keywords: | business cycle, fiscal consolidation, fiscal multipliers |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20182154&r=eec |
| By: | Roch, Francisco; Uhlig, Harald |
| Abstract: | Motivated by the recent European debt crisis, this paper investigates the scope for a bailout guarantee in a sovereign debt crisis. Defaults may arise from negative income shocks, government impatience or a "sunspot"-coordinated buyers strike. We introduce a bailout agency, and characterize the strategy with the minimal actuarially fair intervention which guarantees the no-buyers-strike fundamental equilibrium, relying on the market for residual financing. The intervention makes it cheaper for governments to borrow, inducing them borrow more, leaving default probabilities possibly rather unchanged. The maximal backstop will be pulled precisely when fundamentals worsen. |
| Keywords: | Bailouts; default; Endogenous Borrowing Constraints; Eurozone Debt Crisis; long-term debt; OMT; Self-fulfilling Crises |
| JEL: | F34 F41 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12921&r=eec |
| By: | Signe Krogstrup; Cédric Tille |
| Abstract: | The literature on the drivers of capital flows stresses the prominent role of global financial factors. Recent empirical work, however, highlights how this role varies across countries and time, and this heterogeneity is not well understood. We revisit this question by focusing on financial intermediaries’ funding flows in different currencies. A concise portfolio model shows that the sign and magnitude of the response of foreign currency funding flows to global risk factors depend on the financial intermediary’s pre-existing currency exposure. An analysis of a rich dataset of European banks’ aggregate balance sheets lends support to the model predictions, especially in countries outside the euro area. |
| Date: | 2018–05–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:18/97&r=eec |
| By: | Eidam, Frederik |
| Abstract: | Do governments strategically choose debt maturity to fill supply gaps across maturities? Building on a new panel data set of more than 9,000 individual Eurozone government debt issues between 1999 and 2015, I find that governments increase long-term debt issues following periods of low aggregate Eurozone long-term debt issuance, and vice versa. This gap-filling behavior is more pronounced for (1) less financially constrained and (2) higher rated governments. Using the ECB's three-year LTRO in 2011-2012 as an event study, I find that core governments filled the supply gap of longer maturity debt, which resulted from peripheral governments accommodating banks' short-term debt demand for "carry trades". This gap-filling implies that governments act as macro-liquidity providers across maturities, thereby adding significant risk absorption capacity to government bond markets. |
| Keywords: | Sovereign Debt,Maturity Structure,Market Segmentation,Central Bank Liquidity Provision,Long-Term Refinancing Operations |
| JEL: | E58 E62 G11 H63 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:18025&r=eec |
| By: | Enrica Detragiache; Thierry Tressel; Rima Turk-Ariss |
| Abstract: | The paper investigates EU banks’ profitability through the recent financial cycle using banklevel balance sheet and income statement data. We find that banks that were more successful at protecting their profits had a less pronounced deterioration in loan quality and a larger improvement in cost efficiency. They also downsized their assets more aggressively during the crisis, and reduced reliance on wholesale funding more markedly post-crisis. Net interest margins remained broadly stable over the financial cycle, including post-crisis, and there is no clear evidence that aspects of bank business model, such as higher reliance on fees and commission income, were associated with better profitability post-crisis. |
| Date: | 2018–05–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:18/99&r=eec |
| By: | J. E. Boscá; R. Doménech; J. Ferri; R. Méndez; J. F. Rubio-Ramírez |
| Abstract: | In this paper we develop and estimate a new Bayesian DSGE model for the Spanish economy that has been designed to evaluate different structural reforms. The small open economy model incorporates a banking sector, consumers and entrepreneurs who accumulate debt, and a rich fiscal structure and monopolistic competition in products and labor markets, for a country in a currency union, with no independent monetary policy. The model can be used to evaluate ex-ante and ex-post policies and structural reforms and to decompose the evolution of macroeconomic aggregates according to different shocks. In particular, we estimate the contribution of financial and fiscal shocks to both the crisis of the Great Recession and the recovery of the Spanish economy. |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdaddt:2018-05&r=eec |
| By: | Stephanie E. Curcuru; Michiel De Pooter; George Eckerd |
| Abstract: | In this paper we estimate the magnitude of spillovers between bond markets in the U.S. and Germany following monetary policy communications by the FOMC and the ECB. The identification of policy-related co-movements following FOMC announcements, in particular, can be difficult because many foreign bond markets, including those in Germany, are closed at the time of the announcement. To address this issue we use intraday futures market data to estimate spillovers during a narrow and overlapping event window. We find that about half of the reaction in German domestic yields spills over to U.S. yields following ECB announcements, which is nearly identical to the spillover from U.S. yields to German Bund yields following FOMC announcements. This result contrasts with the conventional wisdom that FOMC announcements spill over to other countries but that there is not much effect in the other direction. We also find that spillover estimates are slightly higher in the post-crisis period, but that there is little difference in the spillover impact of conventional versus unconventional monetary policy. Our results based on futures prices differ noticeably from those using daily prices, which suggests that spillover estimates based on cash market data can be misleading. |
| Keywords: | Monetary policy ; Quantitative easing ; Interest rate differentials |
| JEL: | E5 F3 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1226&r=eec |
| By: | Sona Benecka; Ludmila Fadejeva; Martin Feldkircher |
| Abstract: | This paper investigates the international effects of a euro area monetary policy shock, focusing on countries from Central, Eastern, and Southeastern Europe (CESEE). To that end, we use a global vector autoregressive (GVAR) model and employ shadow rates as a proxy for the monetary policy stance during normal and zero-lower-bound periods. We propose a new way of modeling euro area countries in a multi-country framework, accounting for joint monetary policy, and a novel approach to simultaneously identifying shocks. Our results show that in most euro area and CESEE countries, prices adjust and output falls in response to a euro area monetary tightening, but with a substantial degree of heterogeneity. |
| Keywords: | Euro area monetary policy, global vector autoregression, spillovers |
| JEL: | C32 E32 F44 O54 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2018/2&r=eec |
| By: | Oliver Reiter (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | Based on a newly constructed multi-country input-output table including all European countries, we estimate the economic effects of the EU accession countries entering the ‘Stabilisation and Association Agreement’ (SAA) with the EU and the potential effects of joining the European Single Market applying a structural gravity framework. The results point towards strong positive effects on trade for the SAA countries, but only small effects for the EU Member States. Conducting a counterfactual analysis, the paper gives an indication of the magnitude of the positive impacts on GDP for these countries. In addition, a detailed industry breakdown of these effects is provided. |
| Keywords: | structural gravity, modelling, EU accession, Western Balkans, multi-country input-output table |
| JEL: | C54 C67 F13 F14 F15 F17 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:wii:wpaper:148&r=eec |
| By: | Ryan, John; Loughlin, John |
| Abstract: | This article examines three historical monetary unions: the Latin Monetary Union (LMU), the Scandinavian Monetary Union (SMU), and the Austro-Hungarian Monetary Union (AHMU) in an attempt to derive possible lessons for the European Monetary Union (EMU). The term ‘monetary union’ can be defined either narrowly or broadly depending on how closely it conforms to Mundell’s notion of ‘Optimal Currency Area’. After examining each of the historical monetary unions from this perspective, the article concludes that none of them ever truly conformed to Mundell’s concept, nor does the EMU. Nevertheless, the article argues that some lessons may be learned from these historical experiences. First, it is necessary that there exist robust institutions such as a common central bank and a unified fiscal policy in order to withstand external shocks. The three early unions could not withstand the shock of WWI. Another important lesson is that continuing national rivalries can undermine any monetary union. |
| Keywords: | Latin monetary union; Scandinavian monetary union; Austro-Hungarian monetary union; European monetary union; Eurozone crisis; European Central Bank |
| JEL: | E42 E50 E52 F02 F50 |
| Date: | 2018–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:87955&r=eec |
| By: | Lucas Marc Fuhrer; Basil Guggenheim; Matthias Jüttner |
| Abstract: | This paper sheds light on Swiss franc Libor futures, which are often used to measure interest rate expectations. We show that the differences between Libor futures and realized rates (excess returns) are, on average, positive over the last 25 years. Using interest rate surveys, we decompose excess returns into a (forward) term premium and forecast errors. The decomposition reveals that the bulk of excess returns arises from forecast errors, while the term premium is time varying but on average zero. We find that the term premium positively correlates with the business cycle, interest rate developments, and in absolute values increases with interest rate uncertainty. Our findings suggest that Libor futures should be adjusted by the term premium to extract risk-neutral interest rate expectations. |
| Keywords: | Term premium, Libor futures, Swiss franc |
| JEL: | E43 E44 E52 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2018-06&r=eec |
| By: | Jan Babecky; Clémence Berson; Ludmila Fadejeva; Ana Lamo; Petra Marotzke; Fernando Martins; Pawel Strzelecki |
| Abstract: | This paper provides evidence on the role of non-base wage components as a channel for firms to adjust labour costs in the event of adverse shocks. It uses data from a firm-level survey for 25 European countries that covers the period 2010–2013. We find that firms subject to nominal wage rigidities, which prevent them from adjusting base wages, are more likely to cut non-base wage components in order to adjust labour costs when needed. Firms thus use non-base wage components as a buffer to overcome base wage rigidity. We further show that while non-base wage components exhibit some degree of downward rigidity, they do so to a lesser extent than base wages. |
| Keywords: | downward nominal wage rigidity, bonuses, firm survey, European Union |
| JEL: | J30 J32 C81 P5 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp0392018&r=eec |
| By: | Elias Steinmüller; Georg U. Thunecke; Georg Wamser |
| Abstract: | This study provides a survey on corporate taxes around the world. Our analysis has three main objectives. First, we collect tax data and calculate (forward-looking) effective tax measures for a large sample of countries and recent years. We particularly describe how these measures vary over time and across countries. Second, we augment the country-level information with firm- and industry-level data (providing weights for financial structure and asset composition) to contrast statutory measures at the level of countries with measures accounting for firm- and industry-specific weights. Third, we utilize our new data to (i) estimate Laffer-Curves, i.e., the relationship between statutory tax rate and tax revenue, based on non-parametric as well as parametric specifications; (ii) examine how taxes affect investment in fixed assets at the level of firms. As for the latter, our preferred specification, in which we use a firm-specific effective marginal tax rate to capture tax incentives, suggests an elasticity of -0.33. |
| Keywords: | corporate taxes, depreciation allowances, effective marginal (average) tax rates, Laffer-Curve, investment responses |
| JEL: | H25 H21 F23 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7050&r=eec |
| By: | Tamas Szigetvari (Institute of World Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences) |
| Abstract: | The European Investment Bank (EIB) is the European Union’s development bank, which carries out an ever-growing development lending activity in the regions outside the EU. This activity is closely related to the EU’s external (neighbourhood and development aid) policies. The Southern Mediterranean covered by the EU neighbourhood policy is a priority among these outer regions. Support for the economic development of the region has been on the top agenda of the European Union for more than two decades, the consequences of the Arab Spring and the growing migratory pressure, however, have increased the importance of the development needs of the Mediterranean countries in recent years. This study analyses the data and reports from the EIB and seeks to demonstrate the priorities and the means by which the EIB supports the economic development of the region. |
| Keywords: | European Investment Bank, Mediterranean countries, development, financial operations |
| JEL: | F21 F33 G24 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:iwe:workpr:241&r=eec |
| By: | Dmitri Kirpichev (CEMFI); Enrique Moral-Benito (Banco de España) |
| Abstract: | The rise in non-tariff protectionist measures has been associated to the weakness in global trade over the last few years. We investigate the effect of non-tariff barriers (NTBs) on exports growth over the period 2009-2013 using administrative data at the firm-product-destination level in Spain. According to our findings, non-tariff protectionist measures significantly reduce exports growth at the product-destination level. Moreover, NTBs also hinder exports growth at the firm level and negatively affect other firm outcomes such as productivity growth. In contrast, the impact of liberalizing non-tariff measures is not statistically significant. |
| Keywords: | protectionism, non-tariff measures, firm level data |
| JEL: | F10 F30 F40 G15 G21 G32 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1814&r=eec |
| By: | Durazzi, Niccolo; Fleckenstein, Timo; Lee, Soohyun Christine |
| Abstract: | Political-economic analyses of trade unions in post-industrial societies have shifted away from traditional class-analytic approaches to embrace insider/outsider and producer coalition arguments based on the assumption that unions hold on to the defence of their core constituencies in the face of labour market deregulation and dualisation. Challenging this conventional wisdom, we provide an analysis of union strategies in Italy and South Korea, two most-different union movements perceived as unlikely cases for the pursuit of broader social solidarity, and we argue that in both countries unions have successively moved away from insider-focussed strategies. We show a movement towards “solidarity for all” in the industrial relations arena as well as in their social policy preferences. Furthermore, unions also explored new avenues of political agency, often in alliance with civil society organisations. We ascribe this convergent trend towards a social model of unionism to a response of unions to a “double crisis”; that is a socio-economic crisis, which takes the form of a growing periphery of the labour market associated with growing social exclusion, and a socio-political crisis, which takes the form of a increasing marginalisation of the unions from the political process pursued by right- and left-wing parties alike. |
| JEL: | J50 |
| Date: | 2018–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:87940&r=eec |
| By: | Andrea Colciago; Anna Samarina; Jakob de Haan |
| Abstract: | This paper takes stock of the literature on the relationship between central bank policies and inequality. A new paradigm which integrates sticky-prices, incomplete markets and heterogeneity among households is emerging, which allows to jointly study how inequality shapes macroeconomic aggregates and how macroeconomic shocks and policies affect inequality. While the new paradigm features multiple distributional channels of monetary policy, most empirical analyses analyse each potential channel of redistribution in isolation. Our review suggests that empirical research on the effect of conventional monetary policy on income and wealth inequality yields very mixed findings, although there seems to be a consensus that higher inflation, at least above some threshold, increases inequality. In contrast to common wisdom, the conclusions concerning the impact of unconventional monetary policies on income inequality are also not clear cut. This is so since these policies may reduce income inequality by stimulating economic activity, but may also increase inequality by boosting asset prices. Similarly, results concerning the impact of unconventional monetary policies on wealth inequality are rather mixed. The scant literature on the impact of macro-prudential policies on inequality finds evidence for redistributive effects, but in view of its limitations it may be too early to come to conclusions. |
| Keywords: | income inequality; wealth inequality; monetary policy; macro-prudential policy |
| JEL: | D63 E52 E58 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:594&r=eec |
| By: | Ristolainen, Kim |
| Abstract: | The recent financial crises have brought into focus questions regarding the quality of banks' assets. We study the patterns in banks reserving for and reporting of loan losses in the EU before and after implementation of the Single Supervisory Mechanism (SSM). We find that banks that 1) have less tier 1 capital, 2) are smaller, 3) are less liquid and 4) have smaller net interest margins either report relatively smaller loan loss reserves or less loan losses, even after including various controls. This supports the hypothesis that financially weaker banks may have a larger incentive to engage in balance sheet window dressing. We further find that the SSM has reduced but not eliminated the under-reserving and under-reporting bias. In addition, there has been a separate positive effect on the overall proportion of nonperforming loans (NPLs) that are realised as losses among the banks that have been under direct supervision by the SSM since implementation of the SSM. |
| JEL: | G18 G21 G28 |
| Date: | 2018–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2018_011&r=eec |