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on European Economics |
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Issue of 2019‒06‒10
fourteen papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Stann, Carsten M.; Grigoriadis, Theocharis |
| Abstract: | In this paper, we argue that the ECB's unconventional monetary policy announcements have generated significant spillover effects in Russia and Eastern Europe. The hypothesis is tested using OLS estimations of event-based regressions on monetary policy event dummies and seven financial variables in eleven East European countries including Russia. Overall, the empirical results associate the ECB's unconventional policy announcements with the appreciation of East European currencies, rising stock market indices as well as falling long-term government bond yields and lower sovereign CDS spreads in Eastern Europe and Russia. Notably, bilateral integration with the eurozone is a key determinant of the strength of spillovers, with spillovers strongest in non-euro EU countries and weakest in non-EU East European countries. Interestingly, we find differentiated strength of spillovers to Russia compared to other non-EU East European countries, which we attribute to its fixed exchange rate regime. Lastly, we test for the presence of the portfolio rebalancing and confidence transmission channels. |
| Keywords: | monetary policy transmission,spillovers,European Central Bank,transmission channels,Eastern Europe,Russia |
| JEL: | E52 E58 F34 F37 F42 P51 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:20196&r=all |
| By: | Enrico Sergio Levrero; Matteo Deleidi; Francesca Iafrate |
| Abstract: | This paper aims to estimate fiscal multipliers in eleven Eurozone countries. To do this, we make use of yearly data provided by the OECD for the 1970–2016 period. By using the Local Projections approach on a panel dataset and considering different model specifications, we estimate the magnitude assumed by fiscal multipliers in order to assess whether an increase in government investment generates a ‘Keynesian effect’ on the level of the GDP. Our findings suggest that fiscal multipliers tend to be larger than one and an increase in public investment engenders a permanent and persistent effect on the level of output. Additional model specifications suggest that government investment fiscal multipliers are lower when the post-crisis period is excluded by our sample and are larger in Southern countries than Northern ones. |
| Keywords: | Fiscal Multipliers; Government Investment; Local Projections; Euro area |
| JEL: | E12 H54 E62 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:rtr:wpaper:0247&r=all |
| By: | Anindya Banerjee (University of Birmingham); Victor Bystrov (University of Lodz); Paul Mizen (University of Nottingham) |
| Abstract: | In this paper we examine the influence of monetary policy at the ECB on mortgage and business lending rates offered by banks in the major euro area countries (Germany, France, Italy and Spain). Since there are many different policy measures that have been undertaken, we utilise a dynamic factor model, which allows examination of impulse responses to policy shocks conditioned by structurally identified latent factors. The distinct feature of this paper is that it explores the effects of three channels of policy transmission - short-term rates, long-term rates and perceived risk - ultimately directed towards bank lending rates. The analysis of the pass through is carried out in pre-crisis and post-crisis sub-samples after the financial crisis to demonstrate the changing influence of different policy measures on lending rates. |
| Keywords: | monetary policy, dynamic factor models, interest rates, pass through |
| JEL: | C32 C53 E43 E4 |
| Date: | 2019–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:ann:wpaper:1/2019&r=all |
| By: | Piton, Sophie (Bank of England) |
| Abstract: | From the introduction of the euro up to the 2008 global financial crisis, macroeconomic imbalances widened among Member States. This divergence took the form of strong differences in the dynamics of unit labour costs. This paper asks why this happened. Is it the result of distortionary public spending, or the consequence of economic integration? To answer this question, this paper builds a theoretical framework that provides a decomposition of the growth in unit labour costs into various effects of economic integration and policy intervention. Using a novel dataset, it then measures the contribution of each effect in 12 countries of the euro area from 1995 to 2015. Results show that the process of economic integration was an important driver of increasing unit labour costs in peripheral economies before the global financial crisis. |
| Keywords: | Economic integration; productivity; structural change; non-tradable sector; macroeconomic imbalances; capital flows; growth accounting; euro area |
| JEL: | E65 F41 O33 O41 O47 O52 |
| Date: | 2019–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0799&r=all |
| By: | Maddaloni, Angela; Scopelliti, Alessandro |
| Abstract: | Prior to the financial crisis, prudential regulation in the EU was implemented non-uniformly across countries, as options and discretions allowed national authorities to apply a more favorable regulatory treatment. We exploit the national implementation of the CRD and derive a country measure of regulatory flexibility (for all banks in a country) and of supervisory discretion (on a case-by-case basis). Overall, we find that banks established in countries with a less stringent prudential framework were more likely to require public support during the crisis. We instrument some characteristics of bank balance sheets with these prudential indicators to investigate how they affect bank resilience. The share of non-interest income explained by the prudential environment is always associated with an increase in the likelihood of financial distress during the crisis. Prudential frameworks also explain banks’ liquidity buffers even in absence of a specific liquidity regulation, which points to possible spillovers across regulatory instruments. JEL Classification: G01, G21, G28 |
| Keywords: | banking union, cross-country heterogeneities, European banking, prudential regulation and supervision, rules versus discretion |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192284&r=all |
| By: | Carlo Altavilla; Miguel Boucinha; José-Luis Peydró |
| Abstract: | We analyse the impact of standard and non-standard monetary policy on bank profitability. We use both proprietary and commercial data on individual euro area bank balance-sheets and market prices. Our results show that a monetary policy easing – a decrease in short-term interest rates and/or a flattening of the yield curve – is not associated with lower bank profits once we control for the endogeneity of the policy measures to expected macroeconomic and financial conditions. Accommodative monetary conditions asymmetrically affect the main components of bank profitability, with a positive impact on loan loss provisions and non-interest income offsetting the negative one on net interest income. A protracted period of low monetary rates has a negative effect on profits that, however, only materialises after a long time period and is counterbalanced by improved macroeconomic conditions. Monetary policy easing surprises during the low interest rate period improve bank stock prices and CDS. |
| Keywords: | E52, E43, G01, G21, G28 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1101&r=all |
| By: | Żochowski, Dawid; Franch, Fabio; Nocciola, Luca |
| Abstract: | We analyse the cross-border propagation of prudential regulation in the euro area. Using the Prudential Instruments Database (Cerutti et al., 2017b) and a unique confidential database on balance sheets items of euro-area financial institutions we estimate panel models for 248 banks from 16 euro-area countries. We find that domestic banks reduce lending after the tightening of capital requirements in other countries, while they increase lending when loan-to-value (LTV) limits or reserve requirements are tightened abroad. We also find that foreign affiliates increase lending following the tightening of sector-specific capital buffers in the countries where their parent banks reside and that bank size and liquidity play a role in determining the magnitude of cross-border spillovers. JEL Classification: G21, F34, F36 |
| Keywords: | cross-border spillovers, international banking, prudential policy |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192285&r=all |
| By: | Makram El-Shagi (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan); Gregor von Schweinitz (Halle Institute for Economic Research, Germany and Leipzig University, Germany) |
| Abstract: | In this paper, we use local projections to investigate the impact of consolidation shocks on GDP growh, conditional on the fragility of government finances. Based on the database of fiscal plans in OECD countries, we show that spending shocks are less detrimental than tax-based consolidation. In times of fiscal fragility, our results indicate strongly that governments should consolidate through surprise policy changes rather than announcements of consolidation at a later horizon. |
| Keywords: | Fiscal multipliers; fiscal consolidation; local projections |
| JEL: | E62 H63 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:fds:dpaper:201905&r=all |
| By: | Alves, Pana; Dejuan, Daniel; Maurin, Laurent |
| Abstract: | This study illustrates how information from micro-level and survey-based databases can be used, along with macroeconomic indicators, to provide a better understanding of corporates' investment obstacles. We investigate impediments to corporate investment across the EU. We use a novel dataset merging firm level data from the European Investment Bank Investment Survey (EIBIS) and hard data from corporations' balance sheet and P&L information. We show that the indicators that can be derived from aggregating qualitative answers on impediments to investment at the country level correlate relatively well with macro-based hard data, commonly used as determinants of investments in macro-based models. Notwithstanding this, the perceptions reported by the corporations tend to be related to firms' specific characteristics: "weaker" firms defined as firms that are smaller, and/or more indebted, and/or less profitable and/or with lower liquidity positions, tend to report more impediments. After controlling for firm specific characteristics, the perceived investment gap remains correlated with the reported impediments. While access to finance is not the most reported obstacle, reporting it has the highest information content. Moreover, the signal intensifies when it is given by "weaker" firms. From a policy point of view, our findings suggest that survey-based information can be a useful input to complement hard data, both macro and micro, and better inform the design of targeted policies to support investment. |
| Keywords: | Investment obstacles,Investment gap,Corporate investment,Investment determinants,Granular data,Probit model,Access to finance,Demand,Regulation,Corporates' balance sheet |
| JEL: | D22 G30 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eibwps:201904&r=all |
| By: | Craig, Ben R. (Federal Reserve Bank of Cleveland); Giuzio, Margherita (European Central Bank); Paterlini, Sandra (University of Trento) |
| Abstract: | Recent policy discussion includes the introduction of diversification requirements for sovereign bond portfolios of European banks. In this paper, we evaluate the possible effects of these constraints on risk and diversification in the sovereign bond portfolios of the major European banks. First, we capture the dependence structure of European countries’ sovereign risks and identify the common factors driving European sovereign CDS spreads by means of an independent component analysis. We then analyze the risk and diversification in the sovereign bond portfolios of the largest European banks and discuss the role of “home bias,” i.e., the tendency of banks to concentrate their sovereign bond holdings in their domicile country. Finally, we evaluate the effect of diversification requirements on the tail risk of sovereign bond portfolios and quantify the system-wide losses in the presence of fire-sales. Under our assumptions about how banks respond to the new requirements, demanding that banks modify their holdings to increase their portfolio diversification may mitigate fire-sale externalities, but it may be ineffective in reducing portfolio risk, including tail risk. |
| Keywords: | Bank regulation; sovereign-bank nexus; sovereign risk; home bias; diversification; |
| JEL: | G01 G11 G21 G28 |
| Date: | 2019–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:191200&r=all |
| By: | Ampudia, Miguel; Beck, Thorsten; Beyer, Andreas; Colliard, Jean-Edouard; Leonello, Agnese; Maddaloni, Angela; Marqués-Ibáñez, David |
| Abstract: | The architecture of supervision – how we define the allocation of supervisory powers to different policy institutions – can have implications for policy conduct and for the economic and financial environment in which these policies are implemented. Theoretically, an integrated structure for monetary policy and supervision brings important benefits arising from better information flow and policy coordination. Aggregate supervisory information may significantly improve the conduct of monetary policy and the effectiveness of the lender of last resort function. As long as the process towards an integrated structure does not shrink the set of available tools, monetary policy and supervision are no less effective in pursuing their objectives than a separated structure. Additionally, an integrated structure does not seem to be correlated with more price and/or financial instability, as suggested by analysing a large global set of countries with different supervisory set-ups. A centralised structure for supervision entails significant benefits in terms of fewer opportunities for supervisory arbitrage by banks and less informational asymmetry. A large central supervisor can take advantage of economies of scale and scope in supervision and gain a broader perspective on the stability of the entire banking sector, which should result in improved financial stability. Potential drawbacks of a centralised supervisory structure are the possible lack of specialisation relative to local supervisors and the increased distance between the supervisor and the supervised institutions. We discuss the implications of our findings in the euro area context and in relation to the design of the Single Supervisory Mechanism (SSM). JEL Classification: E5, G21, G38 |
| Keywords: | central banks, lender of last resort, policy coordination, supervisory structure |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192287&r=all |
| By: | Linas Jurksas (Vilnius University & Bank of Lithuania); Hector Carcel (Bank of Lithuania) |
| Abstract: | In this paper, we analyze the relationship between various risk factors and euro area government bond yield spreads, focusing particularly on the monetary policy stance. Our results show that credit and common risk factors are consistently priced in government bond yield spreads, while liquidity differentials are relevant especially during periods of stressed market conditions. We demonstrate that the liquidity component has been more prominent during periods of declining interest rates and increasing reserves, while it has diminished on announcement days of monetary policy decisions related to PSPP. Overall, the liquidity component has been statistically insignificant since the announcement of accommodative non-standard monetary policy measures. |
| Keywords: | monetary policy, liquidity, government bonds, yield spreads, panel analysis |
| JEL: | C23 E62 H50 |
| Date: | 2019–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:lie:wpaper:60&r=all |
| By: | Margit Schratzenstaller (WIFO); Alexander Krenek |
| Abstract: | The existing EU system of own resources financing EU expenditures does not make any positive contribution to the various EU strategies and policies implemented to cope with the manifold long-term challenges confronting the EU. It is against this background that the European Commission as well as the High Level Group on Own Resources, but also the European Parliament have (repeatedly) called for the introduction of tax-based own resources to partially substitute national contributions to the EU budget. Our specific contribution to this debate consists in the exploration of sustainability-oriented options for tax-based own resources which are able to support sustainable growth and development in the EU. Based on a concept of sustainability-oriented taxation in the context of own resources for the EU, we develop sustainability-oriented evaluation criteria to assess the suitability of specific candidates for tax-based own resources. We then present various options for tax-based own resources and estimations of their revenue potential. Moreover, a summary evaluation of these options based on our evaluation criteria is undertaken. Finally, we address implementation aspects. In particular, we briefly present and discuss potential models to implement tax-based own resources in the EU within the existing legal framework. |
| Keywords: | EU system of own resources, tax-based own resources, EU budget, sustainability-oriented taxation |
| Date: | 2019–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2019:i:581&r=all |
| By: | Brunello, Giorgio (University of Padova); Wruuck, Patricia (European Investment Bank) |
| Abstract: | Labour markets are currently in a phase of cyclical recovery and undergoing structural transformation due to globalisation, demographic trends, advancing digital technologies and automation and changes in labour market institutions. Against this background, businesses increasingly report that the limited availability of skills poses an impediment to corporate investment. Genuine skill constraints can negatively affect labour productivity and hamper the ability to innovate and adopt technological developments. For individual Europeans, not having "the right skills" limits employability prospects and access to quality jobs. For Europe at large, persistent skill gaps and mismatches come at economic and social costs. This paper reviews the recent economic literature on skill mismatch and skill shortages with a focus on Europe a focus on Europe. |
| Keywords: | skill, shortages, mismatch, Europe |
| JEL: | J24 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12346&r=all |