nep-eec New Economics Papers
on European Economics
Issue of 2019‒12‒23
eleven papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Portugal in the Eurozone: Evolution and Expectations By Pedro Miguel Avelino Bação; Sara Cerdeira; António Manuel Portugal Duarte
  2. SVARs, the central bank balance sheet and the effects of unconventional monetary policy in the euro area By Adam Elbourne
  3. Firms’ expectations on the availability of credit since the financial crisis By Ferrando, Annalisa; Ganoulis, Ioannis; Preuss, Carsten
  4. Breaking the Bank? A Probabilistic Assessment of Euro Area Bank Profitability By Selim Elekdag; Sheheryar Malik; Srobona Mitra
  5. Does stock market capitalization cause GDP? A causality study for Central and Eastern European countries By Prats Albentosa, María Asuncíon; Sandoval, Beatriz
  6. Convergence and growth decomposition: an analysis on Lithuania By Mariarosaria Comunale; Anh Dinh Minh Nguyen; Soroosh Soofi-Siavash
  7. The effectiveness of cyclically adjusted budget rules in the European Union By Sebastiaan Wijsman
  8. Brexit : Eurosceptic Victory In British Referendum In Term Of Britain Membership Of European Union By ARISTO, Jurnal
  9. Demographic Obstacles to European Growth By Thomas F. Cooley; Espen Henriksen; Charlie Nusbaum
  10. Exchange Rates and Consumer Prices : Evidence from Brexit By Breinlich, Holger; Leromain, Elsa; Novy, Dennis; Sampson, Thomas
  11. Not all inequality measures were created equal - The measurement of wealth inequality, its decompositions, and an application to European household wealth By Costa, Rita Neves; Pérez-Duarte, Sébastien

  1. By: Pedro Miguel Avelino Bação (Centre for Business and Economics CeBER and Faculty of Economics, University of Coimbra); Sara Cerdeira (Statistics Portugal); António Manuel Portugal Duarte (Centre for Business and Economics CeBER and Faculty of Economics, University of Coimbra)
    Abstract: At the time of joining the European Economic Community (precursor to the European Union) and the Eurozone, Portuguese agents were very optimistic about the level of development that the country would be able to achieve as a result of being a member of those economic areas. In this paper we describe the changes occurred in the Portuguese economy since joining the European Union and later the Eurozone. In addition, we provide estimates of the evolution of the expectations of Portuguese agents with respect to long-term real per capita GDP, based on a simple intertemporal macroeconomic model. Over the period under analysis, there was an impressive progress in standards of living. Before joining the euro, Portuguese agents were optimistic about long-term income. Expectations remained high until the onset of the debt crisis, at which time expectations collapsed. A slow recovery is visible in our estimates for the most recent years.
    Keywords: Development, Euro, European Union, Macroeconomic expectations, Portugal.
    JEL: E64 F43 F45 O19
    Date: 2019–11
  2. By: Adam Elbourne (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: This discussion paper presents further evidence that the most important published estimates of the effects of unconventional monetary policy are not reliable. It is a further elaboration of the ideas in the CPB discussion paper "Do zero and sign restricted SVARs identify unconventional monetary policy shocks in the euro area?". Previous empirical studies seem to show that the unconventional monetary policy of the ECB, also known as balance sheet policy, has a positive effect on growth and inflation. However, this conclusion is unfounded, because institutional features of monetary policy in the euro area make it impossible to identify unexpectedly exogenous variation in monetary policy. Read CPB Discussion Paper 391 "Do zero and sign restricted SVARs identify unconventional monetary policy shocks in the euro area?" . VAR modeling shows the effects of unexpected exogenous variation in monetary policy, also known as policy shocks. This discussion paper presents a number of reasons why the existing literature is unable to isolate unexpected variation in monetary policy.
    JEL: C32 E52
    Date: 2019–12
  3. By: Ferrando, Annalisa; Ganoulis, Ioannis; Preuss, Carsten
    Abstract: Using a large set of firm-level survey data from the euro area since 2009, we analyse how firms use their information to form expectations on the availability of bank finance. Our results suggest that firms update what otherwise look like adaptive expectations on the basis of the latest information in their information set. As in the previous literature, the hypothesis that expectations fulfil the (orthogonality) conditions of the rational expectations hypothesis is rejected by the data. We find evidence that this is not only due to information imperfections but also to some type of misspecification of the expectations’ model that firms are using. In addition, we find some evidence that companies that have not used bank finance recently tend to do worse at forecasting its availability next period. To test how policy announcements may affect expectations, we concentrate on the possible effects of the ECB policy announcements of summer 2012, which included among other things the announcement of the European Central Bank’s Outright Monetary Transactions Program (OMT). Using a difference-in-differences approach, we find evidence of forward-looking expectations. In particular, shortly after the OMT announcement the forecast of “informed” firms were more upbeat compared to the control group of firms. This moreover was true in both vulnerable and non-vulnerable countries, suggesting that it was the relevance of the information about the future of the banking system that most mattered for expectations at the time, more than the immediate impact of the announced policy measures. JEL Classification: C83, D22, D84
    Keywords: expectation formation, policy announcements and survey data
    Date: 2019–12
  4. By: Selim Elekdag; Sheheryar Malik; Srobona Mitra
    Abstract: This paper explores the determinants of profitability across large euro area banks using a novel approach based on conditional profitability distributions. Real GDP growth and the NPL ratio are shown to be the most reliable determinants of bank profitability. However, the estimated conditional distributions reveal that, while higher growth would raise profits on average, a large swath of banks would most likely continue to struggle even amid a strong economic recovery. Therefore, for some banks, a determined reduction in NPLs combined with cost efficiency improvements and customized changes to their business models appears to be the most promising strategy for durably raising profitability.
    Date: 2019–11–22
  5. By: Prats Albentosa, María Asuncíon; Sandoval, Beatriz
    Abstract: This paper analyses the relationship between stock market capitalization and real GDP in ten Central and Eastern European countries (CEECs) that joined the European Union in 2004 and 2007, with the objective of determining if the financial markets have played a role as a driver of the economic development in these countries or vice versa. The methodology is based on the application of three different measures of causality between the relevant variables, in order to determine the existence and the direction of causality. Using a cointegrated Vector Autoregressive model (VAR), the authors study the relationship between the relevant variables through the following tests: Granger causality test, Toda-Yamamoto approach and Frequency Domain approach. The results obtained suggest evidence of the existence of this relationship, in both directions, in a significant number of this group of countries, and especially in those there is a long-term relationship.
    Keywords: stock market development,economic growth,Granger causality,Toda-Yamamoto,Frequency Domain
    JEL: C32 F43 G15
    Date: 2019
  6. By: Mariarosaria Comunale (Bank of Lithuania); Anh Dinh Minh Nguyen (Bank of Lithuania, ECB); Soroosh Soofi-Siavash (Bank of Lithuania)
    Abstract: We study the behaviour of Lithuania relative to other 25 EU countries, looking specifically at convergence in terms of GDP per capita and its growth accounting components: capital accumulation, labour and its subcomponents, i.e. participation and employment, and the Total Factor Productivity (TFP). We find that Lithuanian Real GDP per capita shows indeed a convergence path similar to the other Baltic States and they all belong to the second club (includes part of the periphery and the other new member states). The convergence paths of labour or capital accumulation do not seem significantly different compared to the ones of other EU members. The Lithuanian transition path in TFP has become plateau after the crisis but this is seemingly not a divergence factor. Two components show noticeable changes in behaviour after 2010: the growth in total factor productivity (TFP) considerably slows down, and the employment-population ratio appears to increase accounting for around one third of the annual GDP growth in Lithuania. In addition, we explore several transition scenarios for Lithuania to the EU-25 average.
    Keywords: Lithuania, convergence, economic integration, GDP per capita, TFP, capital, labour
    JEL: O47 F15 F45
    Date: 2019–12–13
  7. By: Sebastiaan Wijsman
    Abstract: This paper presents a game-theoretical model on how revisions of the structural balance affect the implementation of the fiscal rules in the European Union (EU). The structural balance filters the nominal budget balance for influences of the economic cycle and is therefore expected to be a better indicator for fiscal discipline. However, its derivation requires assumptions and estimates on the cyclical influences and the structural balance is as a consequence revised frequently outside the governments’ control. This paper assesses how this affects the effectiveness of fiscal rules. We find that the lack of control over their compliance discourages governments to set compliant budgets. Furthermore, we find that enforcers ignore the structural balance’s value in their assessment of governments’ fiscal discipline. They are uncertain whether noncompliance is due to governments’ decisions or bad luck. As a result, undisciplined governments might be left unsanctioned, while sanctions might be imposed on disciplined governments. We assess our theoretical findings empirically using the European Commission’s national fiscal rules database. However, we do not find evidence that cyclically adjusted budget rules are less effective.
    Keywords: Structural balance, Stability and Growth Pact, Fiscal rules
    Date: 2019–02–28
  8. By: ARISTO, Jurnal
    Abstract: On June 23, 2016, eurosceptic group won a British referendum on Britain's motion of leaving the European Union. This paper will explore the factors related to the victory of eurosceptic group in the historic referendum. This paper uses theory of voting behaviour and strategy of campaign to answer the research of this paper. Eurosceptic group victory in this referendum couldn’t be separated from eurosceptic's success in influencing the mindset of Britishsociety as the voter in this referendum. By using the concept of the campaign strategy, the writer will examine various forms of brexit campaign strategy that used to influence voters behaviour.
    Date: 2018–01–12
  9. By: Thomas F. Cooley; Espen Henriksen; Charlie Nusbaum
    Abstract: Since the early 1990’s the growth rates of the four largest European economies—France, Germany, Italy, and the United Kingdom—have slowed. This persistent slowdown suggests a low-frequency structural change is at work. A combination of longer individual life expectancies and declining fertility have led to gradually ageing populations. Demographic change affects economic growth directly through households savings and labor supply decisions and also growth indirectly through the pension systems and the need to fund them. Tax increases to balance budgets will impose additional distortions to individual factor-supply choices. We quantify the growth effects from aging and from the financing of public pensions, and we estimate the welfare gains from pension reforms.
    JEL: E6 O4 O52
    Date: 2019–11
  10. By: Breinlich, Holger (University of Surrey); Leromain, Elsa (UC Louvain); Novy, Dennis (University of Warwick and CAGE, Department of Economics); Sampson, Thomas (London School of Economics)
    Abstract: This paper studies how the depreciation of sterling following the Brexit referendum affected consumer prices in the United Kingdom. Our identification strategy uses input-output linkages to account for heterogeneity in exposure to import costs across product groups. We show that, after there ferendum, inflation increased by more for product groups with higher import shares in consumer expenditure. This effect is driven by both direct consumption of imported goods and the use of imported inputs in domestic production. Our results are consistent with complete pass-through of import costs to consumer prices and imply an aggregate exchange rate pass-through of 0.29. We estimate the Brexit vote increased consumer prices by 2.9 percent, costing the average household £870 per year. The increase in the cost of living is evenly shared across the income distribution, but differs substantially across regions.
    Keywords: Brexirt ; Exchange Rate Pass-through ; Import Costs ; Inflation
    JEL: E31 F15 F31
  11. By: Costa, Rita Neves; Pérez-Duarte, Sébastien
    Abstract: Much of the literature on inequality, both that on the theoretical features of inequality measurement and that on the discussion of the results of empirical analysis, has preferred to focus on income inequality. This paper looks into the analysis of wealth inequality, which can be performed by carefully adapting the techniques used in the case of income distributions. The paper focuses on the measurement of inequality itself and includes an application to European data on wealth. We summarise the main inequality measures used in the economic literature, expanding the focus to lesser known but relevant ones, grounding their use in socio-economic theory and highlighting the connections between them. In particular, we investigate how each measure captures the same movement in the wealth distribution and why different measures can lead to differences in the observed change in inequality over time or across countries. In the main theoretical contribution of the paper we obtain a novel decomposition of changes in inequality measures as a set of equalising and disequalising factors, which sheds some light on the different results across indicators. We complement the analysis by focusing on the decomposition of wealth inequality measures, gaining an understanding of the contributions of inequality by wealth component and socio-demographic characteristics. The distribution of wealth of European households obtained by the Household Finance and Consumption Survey (HFCS) in 2010 and 2014 is used for empirical analysis and application of our methods. JEL Classification: D31, D63
    Keywords: Atkinson, decomposition, Gini coefficient, inequality, Lorenz curve, Pietra index, wealth
    Date: 2019–12

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