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on European Economics |
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Issue of 2018‒09‒24
twelve papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Uros Duric (Technical University Darmstadt) |
| Abstract: | Despite being at the core of central bankers? and investors? interest, the question of the European Central Bank?s influence on global stock markets has not yet been fully answered. This paper aims to fill this gap by examining the influence of ECB monetary policy on 46 small open economies? stock markets around the world. Using the data from the Swiss Economic Institute?s Monetary Policy Communicator (MPC), a differentiation is made between ECB actions and future policy communication effects. Contractionary ECB monetary policy proves to exert a negative impact on stock markets worldwide, with the results being statistically significant for 41 out of 46 countries. A positive 50 b.p. shock to the ECB interest rate leads to a 2.9% fall in stock markets on average when looking at the two-months window after the shock. A corresponding shock to the MPC index results in a 4.2% fall. Results imply that the inclusion of communication variable is crucial for estimating the full effects of ECB monetary policy. |
| Keywords: | Monetary policy, stock markets, international spillovers, central bank communication,interest rates. |
| JEL: | E52 F42 G15 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:6408453&r=eec |
| By: | Holger Breinlichy (University of Surrey, CEP and CEPR); Elsa Leromain (London School of Economics); Dennis Novy (University of Warwick, CEP and CEPR); Thomas Sampson (London School of Economics, CEP and CEPR); Ahmed Usman (University of Nottingham) |
| Abstract: | We study stock market reactions to the Brexit referendum on 23 June 2016 in order to assess investors’ expectations about the effects of leaving the European Union on the UK economy. Our results suggest that initial stock price movements were driven by fears of a cyclical downturn and by the sterling depreciation following the referendum. We also find tentative evidence that market reactions to two subsequent speeches by Theresa May (her Conservative Party conference and Lancaster House speeches) were more closely correlated with potential changes to tariffs and non-tariff barriers on UK-EU trade, indicating that investors may have updated their expectations in light of the possibility of a ‘hard Brexit’. We do not find a correlation between the share of EU migrants in different industries and stock market returns. |
| JEL: | F15 F23 G14 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:sur:surrec:0918&r=eec |
| By: | Nikoleta Anesti (Bank of England); Ana Beatriz Galvao (University of Warwick); Silvia Miranda-Agrippino (Centre for Macroeconomics (CFM); Bank of England) |
| Abstract: | We design a new econometric framework to nowcast macroeconomic data subject to revisions, and use it to predict UK GDP growth in real-time. To this aim, we assemble a novel dataset of monthly and quarterly indicators featuring over ten years of real-time data vintages. Successive monthly estimates of GDP growth for the same quarter are treated as correlated observables in a Dynamic Factor Model (DFM) that also includes a large number of mixed-frequency predictors, leading to the release-augmented DFM (RA-DFM). The framework allows for a simple characterisation of the stochastic process for the revisions as a function of the observables, and permits a detailed assessment of the contribution of the data flow in informing (i) forecasts of quarterly GDP growth; (ii) the evolution of forecast uncertainty; and (iii) forecasts of revisions to early released GDP data. By evaluating the real-time performance of the RA-DFM, we find that the model’s predictions have information about the latest GDP releases above and beyond that contained in the statistical office earlier estimates; predictive intervals are well-calibrated; and UK GDP growth real-time estimates are commensurate with professional nowcasters. We also provide evidence that statistical office data on production and labour markets, subject to large publication delays, account for most of the forecastability of the revisions. |
| Keywords: | Nowcasting, Data revisions, Dynamic factor model |
| JEL: | C51 C53 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1824&r=eec |
| By: | Finseraas, Henning (Institute for Social Research, Oslo); Roed, Marianne (Institute for Social Research, Oslo); Schone, Pal (Institute for Social Research, Oslo) |
| Abstract: | To what extent is labour mobility in the European Union a threat to the strength of unions? We argue that the combination of cheap labour, workforce heterogeneity, and low unionization among labour immigrants' is a potential challenge for unions. The challenge will be particularly severe if immigrant competition affects natives' propensity to unionize. We examine this claim using Norwegian administrative data in a natural experiment framework. The 2004 EU expansion led to a rapid increase in labour migration to the construction sector. Licensing demands, however, protected some workers from immigrant competition. Comparisons of protected and exposed workers reveal negative labour market effects of the EU expansion for exposed workers, but no effect on union membership. Our results question important theories of unionization and are relevant for research on immigration, political behaviour and collective action. |
| Keywords: | immigration, union, wages, employment |
| JEL: | J21 J31 J51 J61 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11723&r=eec |
| By: | Donato Masciandaro; Davide Romelli |
| Abstract: | The aim of this paper is to use a behavioural political economy approach to revise the standard approach of optimal currency areas, and applying it to the Eurozone case. We discuss the pros and cons of the Euro membership if behavioural biases - prospect theory - influence the citizens and consequently the political actors. The theoretical framework is used to analyse in general under which conditions the Euro irreversibility assumption is likely to hold and specifically the support in favour of the Euro membership in a country case. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp1883&r=eec |
| By: | Fatás, Antonio |
| Abstract: | This paper studies the negative loop created by the interaction between pessimistic estimates of potential output and the effects of fiscal policy during the 2008-2014 period in Europe. The crisis of 2008 created an overly pessimistic view on potential output among policy makers that led to a large adjustment in fiscal policy. Contractionary fiscal policy, via hysteresis effects, caused a reduction in potential output that not only validated the original pessimistic forecasts, but also led to a second round of fiscal consolidation. This succession of contractionary fiscal policies was likely self-defeating for many European countries. The negative effects on GDP caused more damage to the sustainability of debt than the benefits of the budgetary adjustments. The paper concludes by discussing alternative frameworks for fiscal policy that could potentially avoid this negative loop in future crises. |
| Keywords: | Fiscal policy; hysteresis; Potential Output |
| JEL: | E32 E62 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13149&r=eec |
| By: | Dario Buono; George Kapetanios; Massimiliano Marcellino; Gianluigi Mazzi; Fotis Papailias |
| Abstract: | This paper aims at providing a primer on the use of big data in macroeconomic nowcasting and early estimation. We discuss: (i) a typology of big data characteristics relevant for macroeconomic nowcasting and early estimates, (ii) methods for features extraction from unstructured big data to usable time series, (iii) econometric methods that could be used for nowcasting with big data, (iv) some empirical nowcasting results for key target variables for four EU countries, and (v) ways to evaluate nowcasts and ash estimates. We conclude by providing a set of recommendations to assess the pros and cons of the use of big data in a specific empirical nowcasting context. |
| Keywords: | Big Data, Nowcasting, Early Estimates, Econometric Methods |
| JEL: | C32 C53 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp1882&r=eec |
| By: | Christian H.M. Ketels (Harvard Business School); Michael E. Porter (Harvard Business School, Strategy Unit) |
| Abstract: | On June 23rd, 2016 52% of UK voters opted to put their country on the path to leave the European Union by March 29, 2019. This result was a surprise to many, and went against the advice of the vast majority of economic experts and business leaders. Two years later, and after a remarkable period in UK politics, key questions about the future relationship between the UK and the EU remain unresolved. Various models have been proposed; the latest one by Prime Minister May triggered the resignation of a number of key ministers. All of them struggle to deal with a fundamental tension: how to square barrier-free trade between the UK and the EU, especially across the border between Ireland and Northern Ireland, with both full policy sovereignty for the UK and adherence to the 'four freedoms' at the heart of the EUs Single Market. A 'no deal' Brexit by default remains an option, despite the costs to UK businesses and the wider UK economy. |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:19-029&r=eec |
| By: | Pelizzon, Loriana; Subrahmanyam, Marti G.; Tomio, Davide; Uno, Jun |
| Abstract: | We show that bond purchases undertaken in the context of quantitative easing efforts by the European Central Bank created a large mispricing between the market for German and Italian government bonds and their respective futures contracts. On top of the direct effect the buying pressure exerted on bond prices, we show three indirect effects through which the scarcity of bonds, resulting from the asset purchases, drove a wedge between the futures contracts and the underlying bonds: the deterioration of bond market liquidity, the increased bond specialness on the repurchase agreement market, and the greater uncertainty about bond availability as collateral. |
| Keywords: | Central Bank Interventions,Liquidity,Sovereign Bonds,Futures Contracts,Arbitrage |
| JEL: | G01 G12 G14 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:226&r=eec |
| By: | Giorgio Barba Navaretti (Università degli Studi di Milano and Centro Studi Luca d'Agliano); Giulia Felice (Politecnico di Milano and Centro Studi Luca d'Agliano); Emanuele Forlani (Università degli Studi di Bologna and Centro Studi Luca d'Agliano); Paolo Garella (Università degli Studi di Milano and Centro Studi Luca d'Agliano) |
| Abstract: | In this paper, we explore how tariff and standard-like Non-Tariff Measures (NTMs) introduced by the EU are related with market conditions in domestic EU markets. While Tariffs work as a pure tax on import, standard-like NTMs potentially affct costs of both domestic firms and foreign exporters. NTMs may not necessarily work as protectionist measures and even induce pro-competitive effects in the domestic market in the longer term, especially if we allow for firms mobility. The impact could be different for large and small firms. We extend the model by Melitz and Ottaviano (2008) to include Non-Tariff barriers. We derive some testable implications relating Non-Tariff barriers to the number of firms selling in the domestic market and average efficiency. The link between NTMs and domestic market conditions depends on whether they involve new standards and technical specifications imposed on both domestic and foreign firms or, rather, the extension to foreign firms of standards and technical specifications already adopted by domestic firms. In the first case, there is a decline in the number of firms and in average productivity; in the second case, NTMs induce pro-competitive effects: an increase in the number of firms and of average productivity. We then take the model to the data for a group of European countries and manufacturing industries. We combine Compnet data for 15 EU countries in 2001-2012, providing information on firms performance at the industry level and by size class, with the STC WTO-I-TIP database, with information on Specific Trade Concerns raised at the WTO on NTMs and with the Trains database with information on Tariffs. The NTMs that we consider have similar effects as in the second NTMs case in the theoretical model; the results for Tariff are in the same direction, albeit of a larger magnitude. These results are consistent with a theoretical framework allowing for firm mobility in the longer term. |
| Keywords: | Tariffs, Non-tariff Measures, Heterogeneous Firms, International Trade, EU |
| JEL: | F13 F14 |
| Date: | 2018–09–12 |
| URL: | http://d.repec.org/n?u=RePEc:csl:devewp:438&r=eec |
| By: | Giovannini, Massimo (European Commission Joint Research Centre); Hohberger, Stefan (European Commission Joint Research Centre); Kollmann, Robert (Université Libre de Bruxelles); Ratto, Marco (European Commission Joint Research Centre); Roeger, Werner (European Commission, DG ECFIN); Vogel, Lukas (European Commission, DG ECFIN) |
| Abstract: | The trade balances of the Euro Area (EA) and of the U.S. have improved markedly after the Global Financial Crisis. This paper quantifies the drivers of EA and U.S. economic fluctuations and external adjustment, using an estimated (1999-2017) three-region (U.S., EA, rest of world) DSGE model with trade in manufactured goods and in commodities. In the model, commodity prices reflect global demand and supply conditions. The paper highlights the key contribution of the post-crisis collapse in commodity prices for the EA and U.S. trade balance reversal. Aggregate demand shocks originating in Emerging Markets too had a significant impact on EA and U.S. trade balances. The broader lesson of this paper is that Emerging Markets and commodity shocks are major drivers of advanced countries’ trade balances and terms of trade. |
| Keywords: | EA and U.S. external adjustment; commodity markets; emerging markets |
| JEL: | F2 F3 F4 |
| Date: | 2018–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:344&r=eec |
| By: | Giovannini, Massimo; Hohberger, Stefan; Kollmann, Robert; Ratto, Marco; Roeger, Werner; Vogel, Lukas |
| Abstract: | The trade balances of the Euro Area (EA) and of the US have improved markedly after the Global Financial Crisis. This paper quantifies the drivers of EA and US economic fluctuations and external adjustment, using an estimated (1999-2017) three-region (US, EA, rest of world) DSGE model with trade in manufactured goods and in commodities. In the model, commodity prices reflect global demand and supply conditions. The paper highlights the key contribution of the post-crisis collapse in commodity prices for the EA and US trade balance reversal. Aggregate demand shocks originating in Emerging Markets too had a significant impact on EA and US trade balances. The broader lesson of this paper is that Emerging Markets and commodity shocks are major drivers of advanced countries' trade balances and terms of trade. |
| Keywords: | commodity markets; EA and US external adjustment; emerging markets |
| JEL: | F2 F3 F4 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13141&r=eec |