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on European Economics |
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Issue of 2019‒12‒16
thirteen papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Mary Everett; Jakob de Haan; David-Jan Jansen; Peter McQuade; Anna Samarina |
| Abstract: | This paper examines whether the increased use of macroprudential policies since the global financial crisis has affected the impact of (euro area and foreign) monetary policy on mortgage lending in Ireland and the Netherlands, which are both small open economies in the euro area. Using bank-level data on domestic lending in both countries during the period 2003-2018, we find that restrictive euro area monetary policy shocks reduce the growth of mortgage lending. We find evidence that stricter domestic prudential regulation mitigates this effect in Ireland, but not so in the Netherlands. There is weak evidence for an international bank lending channel. |
| Keywords: | monetary policy; prudential policy; mortgage lending; European monetary union |
| JEL: | G21 E42 F36 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:659&r=all |
| By: | Hintermaier, Thomas; Koeniger, Winfried |
| Abstract: | This paper quantifies the extent of heterogeneity in consumption responses to changes in real interest rates and house prices in the four largest economies in the euro area: France, Germany, Italy, and Spain. We first calibrate a life-cycle incomplete-markets model with a financial asset and housing to match the large heterogeneity of households asset portfolios, observed in the Household Finance and Consumption Survey (HFCS) for these countries. We then show that the heterogeneity in household finances implies that responses of consumption to changes in the real interest rate and in house prices differ substantially across countries, and within countries by household characteristics such as age, housing tenure, and asset positions. The different consumption responses quantified in this paper point towards important heterogeneity in monetary-policy transmission in the euro area. |
| Keywords: | European household portfolios,consumption,monetary policy transmission,international comparative finance,housing |
| JEL: | D14 D31 E21 E43 G11 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:637&r=all |
| By: | Ran Zhuo; Bradley Huffaker; kc claffy; Shane Greenstein |
| Abstract: | The Internet comprises thousands of independently operated networks, where bilaterally negotiated interconnection agreements determine the flow of data between networks. The European Union’s General Data Protection Regulation (GDPR) imposes strict restrictions on processing and sharing of personal data of EU residents. Both contemporary news reports and simple bilateral bargaining theory predict reduction in data usage at the application layer would negatively impact incentives for negotiating interconnection agreements at the internet layer due to reduced bargaining power of European networks and increased bargaining frictions. Considerable empirical evidence at the application layer confirms this prediction. Using a large sample of interconnection agreements between networks around the world in 2015–2019, we empirically investigate the impact of the GDPR on interconnection behavior of network operators in the European Economic Area (EEA) compared to network operators in non-EEA OECD countries. All evidence estimates precisely zero effects across multiple measures: the number of observed agreements per network, the inferred agreement types, and the number of observed IP-address-level interconnection points per agreement. We also find economically small effects of the GDPR on the entry and the observed number of customers of networks. We conclude that the short-run costs for GDPR are concentrated at the application layer. |
| JEL: | L00 L51 L86 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26481&r=all |
| By: | Günter Coenen; Carlos Montes-Galdón; Frank Smets (-) |
| Abstract: | We study the incidence and severity of lower-bound episodes and the efficacy of three types of state-dependent policies—forward guidance about the future path of interest rates, large-scale asset purchases and spending-based fiscal stimulus—in ameliorating the adverse consequences stemming from the effective lower bond on nominal interest rates. In particular, we focus on the euro area economy and examine, using the ECB’s New Area- Wide Model, the consequences of the lower bound both for the near-term economic outlook, characterised by persistently low nominal interest rates and inflation, and in a lasting low-real-interest-rate world. Our findings suggest that, if unaddressed, the lower bound can have very substantial costs in terms of worsened macroeconomic performance. Forward guidance, if fully credible, is most powerful and can largely undo the distortionary effects due to the lower bound. A combination of imperfectly credible forward guidance, asset purchases and fiscal stimulus is almost equally effective, in particular when asset purchases enhance the credibility of the forward guidance policy via a signalling effect. |
| Keywords: | Effective lower bound, monetary policy, forward guidance, asset purchases, fiscal policy, euro area |
| JEL: | E31 E32 E37 E52 E62 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:19/983&r=all |
| By: | Setzer, Ralph; Stieglitz, Moritz |
| Abstract: | We explore the interaction between labour market reforms and financial frictions. Our study combines a new cross-country reform database on labour market reforms with matched firm-bank data for nine euro area countries over the period 1999 to 2013. While we find that labour market reforms are overall effective in increasing employment, restricted access to bank credit can undo up to half of long-term employment gains at the firm-level. Entrepreneurs without sufficient access to credit cannot reap the full benefits of more flexible employment regulation. JEL Classification: G21, J21, J60, K31 |
| Keywords: | bank stress, employment protection, structural reforms, unemployment insurance |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192334&r=all |
| By: | Viral V. Acharya; Björn Imbierowicz; Sascha Steffen; Daniel Teichmann |
| Abstract: | We investigate the transmission of central bank liquidity to bank deposits and loan spreads in Europe over the period from January 2006 to June 2010. We find evidence consistent with an impaired transmission channel due to bank risk. Central bank liquidity does not translate into lower loan spreads for high-risk banks for maturities beyond one year, even as it lowers deposit spreads for both high-risk and low-risk banks. This adversely affects the balance sheets of high-risk bank borrowers, leading to lower payouts, capital expenditures and employment. Overall, our results suggest that banks’ capital constraints at the time of an easing of monetary policy pose a challenge to the effectiveness of the bank-lending channel and the central bank's lender-of-last-resort function. |
| JEL: | E43 E58 G01 G21 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26479&r=all |
| By: | Elton Beqiraj, Valeria Patella and Massimiliano Tancioni; Valeria Patella; Massimiliano Tancioni |
| Abstract: | This paper presents a unified analysis of the run-up of sovereign and credit risk in an environment where latent factors, along with fundamentals, feed financial crises. A Markov-switching VAR in four variables (debt, GDP, sovereign and corporate spreads) is estimated on Italian 1990-2018 data. The model displays both stochastic and systematic switches in the determination of spreads, and historically identifies: i) a high sovereign stress state of high and volatile spreads, which lines up mostly with crisis times; ii) a high credit stress state of tight connections between spreads, prevailing on the pre-euro and global crisis periods. We find that high spreads in high stress states are mainly explained by latent factors, orthogonal to fundamentals and possibly linked to agents' expectations. In normal times, instead, fiscal shocks are expansionary and trigger drops in spreads. |
| Keywords: | Fundamentals; Latent factors; Sovereign spreads; Credit spreads; Financial crisis |
| JEL: | E4 E6 G01 H63 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:sap:wpaper:wp191&r=all |
| By: | Michael Pfarrhofer; Anna Stelzer |
| Abstract: | We explore the international transmission of monetary policy and central bank information shocks by the Federal Reserve and the European Central Bank. Identification of these shocks is achieved by using a combination of high-frequency market surprises around announcement dates of policy decisions and sign restrictions. We propose a high-dimensional macroeconometric framework for modeling aggregate quantities alongside country-specific variables to study international shock propagation and spillover effects. Our results are in line with the established literature focusing on individual economies, and moreover suggest substantial international spillover effects in both directions for monetary policy and central bank information shocks. In addition, we detect heterogeneities in the transmission of ECB policy actions to individual member states. |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1912.03158&r=all |
| By: | Nicholas Coleman; Viktors Stebunovs |
| Abstract: | In this note, we examine the effects of low and negative sovereign yields on net interest margins and the general profitability of European banks. |
| Date: | 2019–11–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2019-11-29&r=all |
| By: | Joseph E. Gagnon (Peterson Institute for International Economics); Christopher G. Collins (Peterson Institute for International Economics) |
| Abstract: | Central banks in the three largest advanced economies (the United States, Japan, and the eurozone) have only limited ammunition to fight a recession based on the tools used to date. The Federal Reserve has the most amount of tried and tested ammunition in this group. If a recession were to hit the US economy now, the Fed would be able to deliver monetary stimulus equivalent to a cut in the short-term policy interest rate of about 5 percentage points, which is sufficient to fight a mild but not severe recession. The European Central Bank and the Bank of Japan have little ability to ease policy with tools used to date, about the equivalent of a 1 percentage point cut in the policy rate. But they can engage in more exotic forms of monetary policy, such as large-scale purchases of equity and real estate and direct transfers to households, which the Fed cannot do. These tools, however, are largely untested and face political resistance. An important implication of this analysis is that raising expected inflation before a recession hits has a much larger benefit than has been widely recognized. A higher long-run inflation rate gives central banks more room to not only cut their policy rates but also use forward guidance and quantitative easing to reduce longer-term rates. |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:iie:pbrief:pb19-18&r=all |
| By: | Mattia Guerini (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS - Centre National de la Recherche Scientifique - UNS - Université Nice Sophia Antipolis - UCA - Université Côte d'Azur , UCA - Université Côte d'Azur , OFCE - OFCE - Sciences Po - Sciences Po, Scuela Superiore Sant'Anna di Pisa); Duc Thi Luu (Christian-Albrechts University of Kiel); Mauro Napoletano (OFCE - OFCE - Sciences Po - Sciences Po, SKEMA Business School, Scuela Superiore Sant'Anna di Pisa) |
| Date: | 2019–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-02375416&r=all |
| By: | Jamal Bouoiyour (IRMAPE - Institut de Recherche en Management et Pays Emergents - ESC Pau, CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour); Amal Miftah (LEDA-DIAL - Développement, Institutions et Modialisation - LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique, IRMAPE - Institut de Recherche en Management et Pays Emergents - ESC Pau); Refk Selmi (IRMAPE - Institut de Recherche en Management et Pays Emergents - ESC Pau, CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour) |
| Date: | 2019–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02346700&r=all |
| By: | Leventi, Chrysa; Picos, Fidel |
| Abstract: | The 2010 Economic Adjustment Programme initiated a period of strict international supervision with respect to tax policy in Greece. The country implemented a large-scale fiscal consolidation package, aiming to reduce its public deficit below 3% of GDP by 2016. Since the beginning of the crisis, the provisions of the ‘Greek Programme’ have been revised several times, and personal income tax reform has figured prominently on almost each of the revision agendas. This paper aims to provide an assessment of the effects of the four major structural reforms that took place in Greece during and in the aftermath of the economic crisis; using microsimulation techniques, we simulate the (ceteris paribus) first-order impact of these reforms on the distribution of incomes, the state budget and work incentives, while also trying to identify the main gainers and losers of these policy changes. Our results suggest that all reforms had a revenue-increasing rationale, with the one of 2011 being designed to have the largest fiscal gains. The latter also strengthened redistribution and achieved the highest decrease in income inequality. The 2013 reform went to the opposite direction by reducing both the redistributive strength and the progressive nature of the Greek tax system. The striking discrepancies in the ways in which different household categories have been affected by the four reforms call for a deeper investigation of the possibility of moving towards more uniform personal income tax rules. |
| Date: | 2019–12–05 |
| URL: | http://d.repec.org/n?u=RePEc:ese:emodwp:em21-19&r=all |