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on European Economics |
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Issue of 2019‒01‒21
seventeen papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Jesus Ferreiro; Carmen Gómez |
| Abstract: | For mainstream economics, rigidities in the labour market are the primary determinants of high and persistent long-term unemployment rates, leading to the need to reform labour market institutions and make them more flexible. Flexible labour markets would not only help to smooth normal business cycle fluctuations (implying a small impact of these fluctuations on employment and unemployment) but also to reduce the negative impacts on labour market of structural shocks. If we focus on the labour market performances in the European Union during the Great Recession, we can easily detect the existence of significant differences in the impact of this common structural shock on the domestic labour markets. For mainstream economics, the countries with the best results in terms of unemployment and employment would have been those that had a more flexible labour market at the beginning of the crisis and/or those having implemented reforms to increase this flexibility. The aim of this paper is to determine the validity of this argument, that is, whether labour reforms making the labour market more flexible effectively ensure macroeconomic stability by reducing the impact on the labour market of economic shocks. Using panel data techniques, we investigate whether, as mainstream studies argue, the evolution of employment and unemployment in the EU labour markets is explained, and to what extent, by the levels and changes registered in the indicators of employment protection legislation. Conversely, we examine whether, as heterodox and post-Keynesian studies suggest, this evolution is explained by the changes registered in economic activity (i.e., GDP growth). |
| Keywords: | employment, unemployment, Great Recession, employment protecti on |
| JEL: | C23 E24 J21 J64 J88 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:ast:wpaper:0037&r=all |
| By: | Arnoud Stevens (National Bank of Belgium); Joris Wauters (National Bank of Belgium and Ghent University) |
| Abstract: | Inflation has been persistently weak in the euro area despite the economic recovery since 2013. We investigate the sources behind this protracted low inflation by building a time-varying parameter model that jointly explains the dynamics of inflation and inflation expectations from the ECB’s Survey of Professional Forecasters. We find that the inclusion of survey data strengthens the view that low inflation was mainly due to cyclical drivers. In particular, the model with survey expectations finds a more muted decline of trend inflation in recent years and a larger degree of economic slack. The impact of economic slack and import prices on inflation is found to have increased in recent years. We also find that survey expectations have become less persistent over the financial crisis period, and that including survey data improves the model’s out-of-sample forecasting performance. |
| Keywords: | in?ation dynamics, trend in?ation, survey-based in?ation expectations, ECB Survey of Pro- fessional Forecasters, nonlinear state space model, Bayesian estimation, euro area |
| JEL: | E31 C11 C32 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:201810-355&r=all |
| By: | Ashoka Mody; Milan Nedeljkovic |
| Abstract: | The European Central Bank (ECB) took many measures to combat the eurozone’s rolling financial crisis. For providing desperately scarce dollars to eurozone banks, the ECB relied on the U.S. Federal Reserve. Using a novel econometric framework, we identify financial markets’ response to the ECB’s liquidity injections and its more pro-active monetary stimulus between October 2009 and September 2012, the most intense phase of the eurozone crisis. Dollar liquidity clearly reduced stress in bond markets and improved economic sentiment, as reflected in higher equity prices. In contrast, passive euro liquidity provision and even active measures (policy rate reductions and bond market interventions) delivered modest results. Although government bond spreads did typically decline, markets remained worried that spreads could rise quickly; moreover, broad economic sentiment remained unchanged. Only the Outright Monetary Transactions (OMT) “bazooka” had a substantial beneficial effect. Overall, the results point to the ECB’s limits in helping improve financial market’s sentiment. |
| Keywords: | monetary policy, euro crises, uncertainty, conditional quantiles, MCMC, FAVAR |
| JEL: | E44 E58 C32 C38 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7400&r=all |
| By: | De Santis, Roberto A.; Zimic, Srečko |
| Abstract: | We show that medium-term interest rates in the euro area, Japan, UK and US are affected by domestic and foreign shocks. We find that US rates are the main source of spillovers globally and are less exposed to foreign shocks. Foreign spillovers to European rates were negligible only during the sovereign debt crisis and the introduction of more aggressive monetary policies by the ECB. We identify causal relations among asset prices through structural vector autoregressions (SVAR) and magnitude restrictions. We use preliminary regressions on event days to estimate key parameters employed to constrain the structural parameter space of the SVAR. JEL Classification: C3, G2 |
| Keywords: | event-study, magnitude restrictions, money market rates, spillovers, SVAR |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192221&r=all |
| By: | Hans Dewachter (National Bank of Belgium; Center for Economic Studies, University of Leuven and CESifo); Leonardo Iania (Louvain School of Management); Wolfgang Lemke (European Central Bank); Marco Lyrio (Insper Institute of Education and Research) |
| Abstract: | We assess the contribution of economic and financial factors in the determination of euro area corporate bond spreads over the period 2001-2015. The proposed multi-market, no-arbitrage affine term structure model is based on the methodology proposed by Dewachter, Iania, Lyrio, and Perea (2015). We model jointly the ‘risk-free curve’, measured by overnight index swap (OIS) rates, and the corporate yield curves for two rating classes (A and BBB). The model includes four spanned and six unspanned factors. We find that, in general, both economic (real activity and inflation) and financial factors (proxying risk aversion, flight to liquidity and general financial market stress) play a significant role in the determination of the spanned factors and hence in the dynamics of the risk-free yield curve and corporate bond spreads. Across the risk-free OIS curve, macroeconomic and financial factors are each responsible on average for explaining 30 and 65 percent of yield variation, respectively. For A-and BBB-rated corporate debt, the selected financial variables explain on average 50 percent of the variation in corporate spreads during the last decade. |
| Keywords: | Euro area corporate bonds; yield spread decomposition; unspanned macro factors |
| JEL: | E43 E44 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:201810-360&r=all |
| By: | Lior Cohen (Department of Economics. Universidad de Barcelona.); Marta Gómez-Puig (Department of Economics and Riskcenter, Universidad de Barcelona.); Simón Sosvilla-Rivero (Complutense Institute for Economic Analysis, Universidad Complutense de Madrid.) |
| Abstract: | This paper focuses on how the European Central Bank’s (ECB) monetary policies influenced non-financial firms. The paper’s two main contributions are, first, to shed light on non-financial firms’ decisions on leverage, and how the ECB’s conventional and unconventional policies may have affected them. Second, the paper also examines how these policies influenced non-financial firms’ decisions on capital allocation – primarily capital spending and shareholder distribution (for example, dividends and shares repurchases). Towards this end, we use an exhaustive and unique dataset comprised of income statements and balance sheets of leading non-financial firms that operate in the European Economic and Monetary Union (EMU). The main results suggest that ECB’s monetary policies have encouraged firms to raise their debt burden especially after the global recession of 2008. Finally, the ECB’s policies, mainly after 2011, seem to have also stimulated non-financial firms to allocate more resources towards not only capital spending but also shareholder distribution |
| Keywords: | ECB’s monetary policy, capital structure, leverage, quantitative easing, capital expenditure, dividend’s policy, shareholder yield. JEL classification:E52, E58, G31, G32. |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:201901&r=all |
| By: | Wael Bousselmi (CREST - Centre de Recherche en Economie et Statistique [Bruz] - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz]); Patrick Sentis (MRM - Montpellier Research in Management - UM1 - Université Montpellier 1 - UM3 - Université Paul-Valéry - Montpellier 3 - UM2 - Université Montpellier 2 - Sciences et Techniques - UPVD - Université de Perpignan Via Domitia - Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School - UM - Université de Montpellier); Marc Willinger (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier) |
| Abstract: | We examine how the Brexit announcement influenced the long-run market performance of British and European listed firms. Using daily data and a sample composed of 3,015 European listed firms (805 UK and 2,210 non-UK), we find that, over a 12-month horizon, the Brexit announcement negatively affected the long-run market performance of UK firms (regardless of their business activities) and European non-British (non-UK hereafter) firms that conduct most of their business activities within the British area. We also provide evidence that, after the Brexit announcement, analysts' earnings forecasts and the realized accounting decreased and the return volatility increased for UK firms |
| Keywords: | Brexit,buy-and-hold,event study,financial market,macroeconomic news |
| Date: | 2018–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01954920&r=all |
| By: | Guntram B. Wolff |
| Abstract: | This Policy Contribution, based on a note written for the Bundestag EU Committee, explores the possible consequences of a no-deal Brexit for the European Union and assesses preparations on the EU side. It also provides guidance on the optimal strategy for the EU, depending on the choices made by the United Kingdom. Overall, a no-deal Brexit would be disruptive in the short-term - There would be immediate very significant administrative and logistical challenges in trade. Preparations to reduce those disruptions are underway but are unlikely to be sufficient. But while Most-Favoured Nation tariffs will affect some sectors significantly, the macroeconomic effect on the German economy might not be huge. If the UK fails to honour its financial commitments to the EU, about €16.5 billion would be missing for the remainder of the current EU budgetary period. The gap could be filled thanks to the existing ‘own resources’ ceiling. The overall missing ‘Brexit bill’ would amount to about €45-50 billion. Not honouring financial commitments would be considered by the EU as akin to default and would likely lead to an uncooperative no-deal Brexit. It would be more disruptive than a cooperative no-deal Brexit, in which the EU and the UK cooperate on a number of pressing emergency files. The European Commission has issued a number of draft regulations to mitigate the effects of a no-deal Brexit, including on issues such as aviation and visas. These are comprehensive but would not offset the effects of a no-deal Brexit, which would be highly disruptive in some sectors. The effects of a no-deal Brexit in the medium to long term are difficult to assess. A no-deal Brexit would lead to deterioration in long-term political relationships, which would make a new trade arrangement and other cooperation in the future less likely. A specific concern is the situation in Ireland, which is also the most contentious part of the Brexit negotiation. If the EU wants to protect the integrity of its single market, a no-deal Brexit will mean the imposition of customs controls on the Irish border. The European Commission’s draft legislation aims to preserve the peace process, but a hard border could provoke renewed violence. The overall strategic direction the EU should take would be to increase the cost to the UK of a no-deal Brexit as much as possible (respecting ethical limits), while showing more flexibility over the political declaration and possibly the withdrawal deal itself. |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:29074&r=all |
| By: | Görg, Holger (Kiel Institute for the World Economy); Hornok, Cecília (Kiel Institute for the World Economy); Montagna, Catia (University of Aberdeen); Onwordi, George E. (University of Aberdeen) |
| Abstract: | How do labour market policies influence employment's responsiveness to output fluctuations (employment-output elasticity)? We revisit this question on a panel of OECD countries, which also incorporates the period of the Great Recession. We distinguish between passive and active labour market policies and allow for their interactions, i.e. the policy mix, to play a role. We find that the effects of any single policy change are shaped by the broader existing policy-mix within which it takes place. Finally, we evaluate the effect of a move to 'flexicurity' on the employment-output elasticity in each country. |
| Keywords: | employment-output elasticity, labour market policy, welfare state, flexicurity |
| JEL: | E24 E32 J21 J65 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12004&r=all |
| By: | Tiago Domingues (GEE) |
| Abstract: | This paper evaluates the growing participation of the Portuguese economy, and especially of the textiles, leather, and shoes industry, in the so-called Global Value Chains (GVCs).We use the 2016 edition of the World Input-Output Database (WIOD) to empirical assess the changes in the geography of imports and exports of the Portuguese textiles, leather and shoes industry as well as quantify the growing vertical specialization in this sector. We also measure value added, import and employment coefficients for the Portuguese economy and the Portuguese textiles, leather, and shoes sector. The results show that Portuguese textiles, leather, and shoes trade have been more concentrated in Spain, Italy, India and China and less concentrated in Germany, France, and the United Kingdom. This sector is more relevant in the Portuguese economy than in any other Eurozone economy in terms of output, employment and value-added, and it has been recovering its relevance in the Portuguese economy since 2009.Textiles, leather, and shoes is the manufacturing industry with the higher potential to generate new jobs in Portugal. Despite the negative contribution of the financial crisis, vertical specialization of Portuguese textiles, leather, and shoes exports have been increasing ever since. |
| Keywords: | Global value chains; Textile, leather, and shoes; Input-Output models |
| JEL: | C67 D57 E01 F14 L67 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:mde:wpaper:00117&r=all |
| By: | Katharina Candel-Haug; Alexander Cuntz; Oliver Falck |
| Abstract: | The economic consequences of migration are hotly debated and a main topic of recent populist movements across Europe. We analyze Polish immigration in the context of the 2004 enlargement of the European Union and find a positive and significant spillover effect of the immigrants on the number of local inventors in German counties in 2001-2010. For causal identification, we exploit a historical episode in the Polish migration history to Germany before the fall of the Iron Curtain and construct a shift-share instrument. Our results differ from findings for high-skilled migration to the United States, which is particularly interesting as Polish immigration to Germany was not based on selection by qualification in our period of analysis. |
| Keywords: | migration, innovation |
| JEL: | J61 O31 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7409&r=all |
| By: | Gert Peersman (Ghent University) |
| Abstract: | This paper examines the causal effects of shifts in international food commodity prices on euro area inflation dynamics using a structural VAR model that is identified with an external instrument (i.e. a series of global harvest shocks). The results reveal that exogenous food commodity price shocks have a strong impact on consumer prices, explaining on average 25%-30% of inflation volatility. In addition, large autonomous swings in international food prices contributed significantly to the twin puzzle of missing disinflation and missing inflation in the era after the Great Recession. Specifically, without disrup- tions in global food markets, inflation in the euro area would have been 0.2%-0.8% lower in the period 2009-2012 and 0.5%-1.0% higher in 2014-2015. An analysis of the transmission mechanism shows that international food price shocks have an impact on food retail prices through the food production chain, but also trigger indirect effects via rising inflation expectations and a depreciation of the euro. |
| Keywords: | Food commodity prices, inflation, twin puzzle, euro area, SVAR-IV |
| JEL: | E31 E52 Q17 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:201810-350&r=all |
| By: | Werner Kirsch; Wojciech S{\l}omczy\'nski; Dariusz Stolicki; Karol \.Zyczkowski |
| Abstract: | A mathematical analysis of the distribution of voting power in the Council of the European Union operating according to the Treaty of Lisbon is presented. We study the effects of Brexit on the voting power of the remaining members, measured by the Penrose--Banzhaf Index. We note that the effects in question are non-monotonic with respect to voting weights, and that some member states will lose power after Brexit. We use the normal approximation of the Penrose--Banzhaf Index in double-majority games to show that such non-monotonicity is in most cases inherent in the double-majority system, but is strongly exacerbated by the peculiarities of the EU population vector. Furthermore, we investigate consequences of a hypothetical "generalized Brexit", i.e., NN-exit of another member state (from a 28-member Union), noting that the effects on voting power are non-monotonic in most cases, but strongly depend on the size of the country leaving the Union. |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1812.07048&r=all |
| By: | Anthony Heath (Centre for Social Investigation, Nuffield College, Oxford); Lindsay Richards (Centre for Social Investigation, Nuffield College, Oxford) |
| Abstract: | Nordic countries such as Sweden, Norway and Finland have been consistently the most favourable to immigration while eastern European countries such as the Czech Republic and Hungary have been the least favourable. Despite their relatively high average levels of support for immigration, however, many countries of western and northern Europe are quite strongly polarized internally along educational and age lines. This can perhaps explain why political divisions over immigration can be so salient in these countries. Comparing results from 2002/03 and 2016/07, one finds that European attitudes were on average quite stable. However, a number of countries became more generous while several others became more negative. On the issue of government policy towards refugees, there was a marked shift in a negative direction after the 2015/16 refugee crisis. Countries such as Austria, Germany, and Sweden which had experienced large inflows of refugees showed particularly large declines in public support for generous government policy towards asylum requests. |
| Keywords: | European Social Survey, Immigration, Public opinion, Refugees, Symbolic boundaries |
| JEL: | F22 J16 J61 |
| Date: | 2019–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:oec:elsaab:222-en&r=all |
| By: | Jorge Salas |
| Abstract: | Spain’s export performance strengthened after the global financial crisis, and exports now represent more than a third of GDP. This paper argues that several factors contributed to that achievement: external demand, supported by greater diversification of destination markets; enhanced export orientation of Spanish firms, partly as a response to lower domestic demand after the crisis; and competitiveness gains, reflecting in part changes in the labor market following structural reforms adopted in 2010 and 2012. Based on cross-country panel regressions linking real export growth to employment protection indicators, those labor market reforms are estimated to account for nearly one-tenth to above one-quarter of Spain’s total export growth rate from 2010 to 2013. |
| Keywords: | Export growth;Export competitiveness;Labor market reforms;Employment;Developed countries;Cross-country analysis;Export Growth, Competitiveness, Labor Market Reforms, Employment Protection, Spain, Advanced Economies |
| Date: | 2018–12–13 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:18/283&r=all |
| By: | Silvia Calò (Central Bank of Ireland); Mariarosaria Comunale (Bank of Lithuania and European Central Bank) |
| Abstract: | In this paper we analyse the price competitiveness of the Italian regions by computing the Real Effective Exchange Rate (REER) for each region, deflated by CPI and vis-à-vis the main partner countries. We use them to look for the medium-term determinants, finding significant heterogeneities in the role of government consumption and investment expenditure. Government consumption has an extremely negative effect on competitiveness in North-Eastern Italy, Southern Italy and Lazio. Investment plays a negative role especially in the North-West, while it can be positive for competitiveness in Lazio and Southern Italy. We also find that the transfer theory does not necessarily hold and it even behaves in the opposite direction in case of North-Eastern Italy and Lazio. Lastly, we show that an increase in the regional price competitiveness influences regional growth positively only in the long run and spillovers may play a role. |
| Keywords: | Italian regions, government consumption, government investment, Real Effective Exchange Rate, growth |
| JEL: | E62 F31 F41 R11 |
| Date: | 2019–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:lie:dpaper:10&r=all |
| By: | Berthold, Kristin; Stadtmann, Georg |
| Abstract: | We theoretically examine under which assumptions the impossible trinity holds. We also focus on the most recent Swiss experience and ask, if the SNB gained monetary independence by switching from a fixed to a floating exchange rate system in January 2015. The theoretical examination shows that the impossible trinity holds under the following assumptions: Equality of domestic and foreign real interest rates, the quantity theory of money holds, and that the relative PPP is fulfilled. The empirical analysis reveals that relative PPP does not hold for the Swiss case and it was necessary for the SNB to adopt its monetary policy in accordance with the ECB's expansive monetary policy. The paper shows that for a small open economy, such as Switzerland, it does not play a role for its monetary policy independence whether the central bank implements a fixed or a floating exchange rate system. |
| Keywords: | foreign exchange market,Swiss crisis,impossible trinity,monetary policy independence |
| JEL: | E52 E58 E42 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:euvwdp:404&r=all |