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on European Economics |
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Issue of 2019‒05‒06
twelve papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Alexander Mihailov (Department of Economics, University of Reading); Giovanni Razzu (Department of Economics, University of Reading); Zhe Wang (Department of Economics, University of Reading) |
| Abstract: | This paper studies the effects of monetary policy on the national rates of unemployment in Germany, France, Italy and Spain, the four largest economies of the European Monetary Union (EMU), since the introduction of the euro in 1999 and before and after the Global Financial Crisis (GFC) of 2007-09. Estimating and simulating a version of a canonical medium-scale New Keynesian dynamic stochastic general equilibrium (DSGE) model with indivisible labor that incorporates unemployment developed by Galí, Smets and Wouters (2012), the paper compares the relative importance of monetary policy shocks, risk premium shocks, wage markup shocks and labor supply shocks and studies their effects on other labor market variables, such as labor force participation and real wages. We find that the same monetary policy of the European Central Bank (ECB) has had heterogeneous effects on unemployment rates and other labor market variables in these four major EMU economies. Moreover, in all of them monetary policy shocks are the second largest source of unemployment rate variability in the short, medium and long run, only preceded by risk premium shocks. Our results also confirm that the post-GFC zero lower bound environment has rendered ECB's interest rate policy much less powerful in affecting EMU unemployment rates. In addition to the heterogeneity documented in the effects of monetary policy along various labor market dimensions across the countries in our sample, we also reveal that the EMU economies are, further, characterized by important differences along these dimensions with respect to the United States (US). |
| Keywords: | single monetary policy, European Monetary Union, unemployment rate fluctuations, labor market heterogeneity, New Keynesian DSGE models, Bayesian estimation |
| JEL: | D58 E24 E31 E32 E52 |
| Date: | 2019–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:rdg:emxxdp:em-dp2019-07&r=all |
| By: | Giannone, Domenico (Federal Reserve Bank of New York and CEPR); Lenza, Michele (European Central Bank and ECARES-ULB); Reichlin, Lucrezia (London Business School and CEPR) |
| Abstract: | This paper studies the relationship between the business cycle and financial intermediation in the euro area. We establish stylized facts and study their stability during the global financial crisis and the European sovereign debt crisis. Long-term interest rates have been exceptionally high and long-term loans and deposits exceptionally low since the Lehman collapse. Instead, short-term interest rates and short-term loans and deposits did not show abnormal dynamics in the course of the financial and sovereign debt crisis. |
| Keywords: | money; loans; nonfinancial corporations; monetary policy; euro area |
| JEL: | C32 C51 E32 E51 E52 |
| Date: | 2019–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:885&r=all |
| By: | Antonio Alvarez; Alejandro Fernandez; Joaquin Garcia-Cabo; Diana Posada |
| Abstract: | This study attempts to evaluate the impact of an increase in banks' funding stress and its transmission to the real economy, taking into account different funding sources banks can rely on. Using aggregate data from eight Euro area financial systems, we find that following a liquidity funding shock, both credit and GDP decline in different amounts and lengths. GDP reverts faster than credit. Furthermore, periphery countries experience a more pronounced fall in deposits and credit growth and the negative effects from the shock last longer than in core countries. Banks' funding seems to play a relevant role as periphery countries rely more on wholesale funding during normal times. |
| Keywords: | Liquidity funding shocks ; ECB policy ; Euro Area |
| JEL: | E50 E58 |
| Date: | 2019–04–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1245&r=all |
| By: | Guida Nogueira (Gabinete de Estratégia e Estudos, Ministério da Economia); Paulo Inácio (Gabinete de Estratégia e Estudos, Ministério da Economia) |
| Abstract: | On June, 2016 the UK decided to leave the EU. The departure date was originally scheduled for March 29, 2019 but the process reached an impasse as the withdrawal agreement, that was negotiated with the European Union, failed to get parliamentary approval. The EU agreed to offer the UK a flexible extension of the Brexit deadline until October 31, but the risk of a no-deal scenario still exists. Since there is no precedent of a Member State withdrawing from the European Union, the implications of Brexit for the EU countries are still highly uncertain. However, countries and industries that have deep economic ties, in terms of international integration, to the UK are the most vulnerable to this departure. In this work we will use trade in value added statistics from OECD-WTO TiVA database and related indicators to depict how exposed and thus vulnerable is Portugal and its sectors to the UK market, delivering a useful contribute for assessing potential impacts of Brexit on the Portuguese Economy. |
| Keywords: | Portugal, Trade in Value Added, Brexit |
| JEL: | F12 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:mde:wpaper:0120&r=all |
| By: | Hoffmann, Mathias; Maslov, Egor; Sørensen, Bent E |
| Abstract: | Abstract Small businesses (SMEs) depend on banks for credit. We show that the severity of the Eurozone crisis was worse in countries that borrowed more from domestic banks (``domestic bank dependence'') compared with countries that borrowed more from international banks. Eurozone banking integration in the years 2000-2008 involved cross-border lending between banks while foreign banks' lending to the real sector stayed flat. Hence, SMEs remained dependent on domestic banks and were vulnerable to global banking sector shocks. We confirm, using a calibrated quantitative model, that domestic bank dependence makes sectors and countries with many SMEs vulnerable to global banking shocks. |
| Keywords: | Banking integration; domestic bank dependence; International Transmission; Small and medium enterprises; sme access to finance |
| JEL: | F30 F36 F40 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13691&r=all |
| By: | Konstantinos Efstathiou; Guntram B. Wolff |
| Abstract: | We use a newly-compiled dataset to investigate whether and why European Union countries implement the economic policy recommendations they receive from the EU. We find that implementation rates are modest and have worsened at a time when the economic environment has improved and market pressure on sovereigns has subsided. Implementation has deteriorated in particular among countries designated as having ‘excessive’ macroeconomic imbalances. We then empirically test three factors that could influence implementation rates - (i) the macroeconomic environment; (ii) pressure from financial markets; and (iii) the strength of EU-level macroeconomic surveillance. The econometric estimates indicate that larger fiscal and current account deficits and a higher probability of sovereign default increase the likelihood of implementation. However, stronger surveillance under the Macroeconomic Imbalances Procedure (MIP) does not seem to drive implementation rates. The quality of governance, the fragmentation of government coalitions and fewer recommendations received are connected to increased implementation, whereas for countries under the MIP, implementation slowed during election years. Finally, recommendations on financial services have a much greater chance of being implemented, whereas those on broadening the tax base, the long-term sustainability of public finance and pension systems, and competition in services are much less likely to be implemented. Overall, economic fundamentals and political economy factors provide only a small part of the answer to the question of why countries reform - ultimately, reform decisions are down to factors outside of the models. |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:bre:wpaper:30346&r=all |
| By: | Hüser, Anne-Caroline; Kok, Christoffer |
| Abstract: | We present new evidence on the structure of euro area securities markets using a multilayer network approach. Layers are broken down by key instruments and maturities as well as the secured nature of the transaction. This paper utilizes a unique dataset of banking sector crossholdings of securities to map these exposures among banks and economic and financial sectors. We can compare and contrast funding and exposure networks among banks themselves and of banks, non-banks and the wider economy. The analytical approach presented here is highly relevant for the design of appropriate prudential measures, since it supports the identification of counterparty risk, concentration risk and funding risk within the interbank network and the wider macro-financial network. JEL Classification: D85, E44, G21, L14 |
| Keywords: | Interbank networks, macro-financial networks, macroprudential analysis., market microstructure, multilayer networks |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192273&r=all |
| By: | Eichhorst, Werner (IZA); Marx, Paul (University of Duisburg-Essen) |
| Abstract: | Labour market segmentation currently is at the forefront of national and European policy debates. While the European Commission and the OECD try to promote what they see as more inclusive policies, academic observers remain skeptical. Particularly the dualisation literature points to stable political economy equilibria that stack the cards against overcoming divisions between labour market insiders and outsiders. Other contributions point to a more dynamic political setting, in which negative feedback effects tend to challenge any 'dualisation consensus'. Against this background, this paper traces recent reform trajectories in a diverse group of European countries that are characterised by a high share of temporary employment: France, Germany, Italy, Netherlands, Poland, Portugal, Slovenia, Spain, and Sweden. Our case studies show that recent reforms of employment regulation are characterised by much more dynamism than one would expect based on the experiences of the two preceding decades - or based on dualisation or insider-outsider theory. The reform trajectories are characterised by rather contradictory approaches, sometimes in close succession. This even includes, in several cases, substantive deregulation of dismissal protection for open-ended contracts. |
| Keywords: | fixed-term contracts, labour market dualism, segmentation, employment protection, labour market reforms |
| JEL: | J41 J42 J65 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12309&r=all |
| By: | Önundur Páll Ragnarsson; Jón Magnús Hannesson; Loftur Hreinsson |
| Abstract: | Frameworks to handle cyclical systemic risk usually contain a wide selection of early warning indicators. Different indicators sometimes send diverging signals which can be hard to interpret. However, measures of aggregate financial cycles can serve as a way to synthesize information from many indicators. There are however many ways to construct a measure of such cycles. Many methods exist for cycle extraction, variable choice represents another dimension, and cycle aggregation the third. We tackle each step of the way by selecting the best out of six cycle extraction methods, then comparing variables from three groups: credit, house prices and bank funding, and lastly arguing for a simple method of cycle aggregation based on cycle correlation and frequency domain analysis. We then construct a trivariate financial cycle measure which outperforms the ’Basel gap’, all univariate cycles and all other multivariate combinations for the Nordic countries in terms of a noise-to-signal ratio. In addition, it peaks much closer to crisis onset and does relatively well at real-time turning point identification. The trivariate band-pass filtered measure contains the best variable from each group, and outperforms them all. This indicates that aggregate cycles can be more than the sum of their parts, as early warning indicators. Furthermore, we examine potential weaknesses of our analysis in terms of small-sample problems, spurious cycles and the timing of crisis onset. We conclude with 15 lessons from the Nordic countries. |
| JEL: | G01 G32 G38 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:ice:wpaper:wp80&r=all |
| By: | Hüser, Anne-Caroline (Bank of England); Kok, Christoffer (European Central Bank) |
| Abstract: | We present new evidence on the structure of euro area securities markets using a multilayer network approach. Layers are broken down by key instruments and maturities as well as the secured nature of the transaction. This paper utilizes a unique dataset of banking sector cross-holdings of securities to map these exposures among banks and economic and financial sectors. We can compare and contrast funding and exposure networks among banks themselves and of banks, non-banks and the wider economy. The analytical approach presented here is highly relevant for the design of appropriate prudential measures, since it supports the identification of counterparty risk, concentration risk and funding risk within the interbank network and the wider macro-financial network. |
| Keywords: | Interbank networks; macro-financial networks; multilayer networks; market microstructure; macroprudential analysis |
| JEL: | D85 E44 G21 L14 |
| Date: | 2019–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0795&r=all |
| By: | Jonathan Kearns (Reserve Bank of Australia); Andreas Schrimpf (Bank for International Settlements); Fan Dora Xia (Bank for International Settlements) |
| Abstract: | Using monetary policy shocks for 7 advanced economy central banks, measured at high frequency, we document the strength and characteristics of interest rate spillovers to 47 advanced and emerging market economies. Our main goal is to assess different channels through which spillovers occur and why some economies' interest rates respond more than others. We find that there is no evidence that spillovers relate to real linkages, such as trade flows. There is some indication that exchange rate regimes influence the extent of spillovers. By far the strongest determinant of interest rate spillovers is financial openness. Economies that have stronger bilateral (and aggregate) financial links with the United States or euro area are susceptible to stronger interest rate spillovers. These effects are much more pronounced at the longer end of the yield curve, indicating that while economies retain policy rate independence, financial conditions are influenced by global yields. |
| Keywords: | monetary policy spillovers; high-frequency data; financial integration |
| JEL: | E44 F36 F42 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2019-03&r=all |
| By: | Ayres, Joao Luiz (Inter-American Development Bank); Navarro, Gaston (Federal Reserve Board); Nicolini, Juan Pablo (Federal Reserve Bank of Minneapolis); Teles, Pedro (Banco de Portugal) |
| Abstract: | We explore quantitatively the possibility of multiple equilibria in a model of sovereign debt crises. The source of multiplicity is the one identified by Calvo (1988). This type of multiplicity has been at the heart of the policy debate through the recent European sovereign debt crisis. Key for multiplicity in the model is a stochastic process for output featuring long periods of either high or low growth. We calibrate the output process in the model using data for the southern European countries that were exposed to the debt crisis. We find that expectations-driven sovereign debt crises are empirically plausible, but only in periods of stagnation. Multiplicity is state dependent: in periods of stagnation and for intermediate levels of debt, interest rates may be high for reasons unrelated to fundamentals. |
| Keywords: | Self-fulfilling debt crises; Sovereign default; Multiplicity; Good and bad times; Stagnation |
| JEL: | E44 F34 |
| Date: | 2019–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmwp:757&r=all |