|
on European Economics |
|
Issue of 2020‒01‒06
fifteen papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Mariarosaria Comunale (Bank of Lithuania); Francesco Paolo Mongelli (European Central Bank) |
| Abstract: | During the past thirty years, euro area countries have undergone significant changes and experienced diverse shocks. We aim to investigate which variables have consistently supported growth in this tumultuous period. The paper unfolds in three parts. First, we assemble a set of 35 real, financial, monetary and institutional variables for all euro area countries covering the period between 1990Q1 and 2016Q4. Second, using the Weighted-Average Least Squares (WALS) method, as well as other techniques, we gather clues about which variables to select. Third, we quantify the impact of various determinants of growth in the short and long runs. Our main finding is the positive and robust role of institutional reforms on long-term growth for all countries in the sample. An improvement in competitiveness matters for growth in the overall euro area in the long run as well as a decline in sovereign and systemic stress. The debt over GDP negatively influences growth for the periphery, but only in the short run. Property and equity prices have a significant impact only in the short run, whereas the loans to NFCs positively affect the core euro area. An increase in global GDP also supports growth. |
| Keywords: | euro area, GDP growth, monetary policy, fiscal policy, institutional integration, financial crisis, systemic stress, synchronization |
| JEL: | C23 E40 F33 F43 |
| Date: | 2019–12–27 |
| URL: | http://d.repec.org/n?u=RePEc:lie:wpaper:70&r=all |
| By: | António Afonso; Nuno Verdial |
| Abstract: | The 2007-2008 financial crisis and the European sovereign debt crisis effects rippled through the financial system, banks and sovereign states. We analyze these events, focusing on the Portuguese and Spanish case after providing an insight into the Eurozone. We assessed the pricing of sovereign risk by performing an OLS/2SLS fixed effects panel analysis on a pool of Eurozone countries and a SUR regression with Portugal and Spain covering the period 1999:11 until 2019:6. Our results show that the pricing of sovereign risk changed with the crisis and the “whatever it takes” speech of Mario Draghi. Specifically, market pricing of the Eurozone credit risk, liquidity risk and the risk appetite increased after the crisis and it relaxed afterwards. We did not find evidence of specific pricing regime changes after the speech in the Portuguese and Spanish case. |
| Keywords: | Sovereign debt, Yield spreads, Crises, Unconventional Monetary Policy, Portugal, Spain |
| JEL: | C23 E44 E52 G01 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp01122019&r=all |
| By: | Clancy, Daragh (European Stability Mechanism); Dunne, Peter G. (Central Bank of Ireland); Filiani, Pasquale (Central Bank of Ireland) |
| Abstract: | The likelihood of severe contractions in an asset’s liquidity can feed back to the ex-ante risks faced by the individual providers of such liquidity. These self-reinforcing effects can spread to other assets through informational externalities and hedging relations. We explore whether such interdependencies play a role in amplifying tensions in European sovereign bond markets and are a source of cross-market spillovers. Using highfrequency data from the inter-dealer market, we find significant own- and cross-market effects that amplify liquidity contractions in the Italian and Spanish bond markets during times of heightened risk. The German Bund’s safe-haven status exacerbates these amplification effects. We provide evidence of a post-crisis dampening of cross-market effects following crisisera changes to euro area policies and institutional architecture. We identify a structural break in Italy’s cross-market conditional correlation during rising political tensions in 2018, which significantly reduced liquidity. Overall, our findings demonstrate potential for the provision of liquidity across sovereign markets to be vulnerable to sudden fractures, with possible implications for euro area economic and financial stability. |
| Keywords: | Liquidity; Tail risks; Feedback loops; Spillovers |
| JEL: | G01 G15 F36 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:11/rt/19&r=all |
| By: | Altavilla, Carlo; Boucinha, Miguel; Peydró, José-Luis; Smets, Frank |
| Abstract: | We analyse the effects of supranational versus national banking supervision on credit supply, and its interactions with monetary policy. For identification, we exploit: (i) a new, proprietary dataset based on 15 European credit registers; (ii) the institutional change leading to the centralisation of European banking supervision; (iii) high-frequency monetary policy surprises; (iv) differences across euro area countries, also vis-à-vis non-euro area countries. We show that supranational supervision reduces credit supply to firms with very high ex-ante and ex-post credit risk, while stimulating credit supply to firms without loan delinquencies. Moreover, the increased risk-sensitivity of credit supply driven by centralised supervision is stronger for banks operating in stressed countries. Exploiting heterogeneity across banks, we find that the mechanism driving the results is higher quantity and quality of human resources available to the supranational supervisor rather than changes in incentives due to the reallocation of supervisory responsibility to the new institution. Finally, there are crucial complementarities between supervision and monetary policy: centralised supervision offsets excessive bank risk-taking induced by a more accommodative monetary policy stance, but does not offset more productive risk-taking. Overall, we show that using multiple credit registers – first time in the literature – is crucial for external validity. JEL Classification: E51, E52, E58, G01, G21, G28 |
| Keywords: | AnaCredit, banking, euro area crisis, monetary policy, supervision |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202349&r=all |
| By: | Goodhead, Robert (Central Bank of Ireland) |
| Abstract: | This Economic Letter studies the eects of conventional and unconventional monetary policy on nancial and macroeconomic variables using euro area data. I use market movements during meeting days of the ECB Governing Council as measures of policy surprises and then distinguish between conventional and unconventional surprises in a general way. Surprises that reduce rates and steepen the yield curve are understood to represent conventional policy, and surprises that reduce rates and atten the yield curve as unconventional policy. I study the eects of these surprises in an empirical model of the euro area macroeconomy. I provide conditional and unconditional forecasts of key euro area aggregates under dierent policy actions by the ECB Governing Council. Unconventional monetary policy surprises are found to have strong eects on macroeconomic variables, though they have a somewhat delayed eect relative to conventional policy. |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:ecolet:13/el/19&r=all |
| By: | Boh, Samo; Borgioli, Stefano; Coman, Andra; Chiriacescu, Bogdan; Koban, Anne; Kusmierczyk, Piotr; Pirovano, Mara; Schepens, Thomas; Veiga, Joao |
| Abstract: | This paper describes the Macroprudential Database (MPDB) of the European CentralBank (ECB), which is an important component of the ECB’s Statistical DataWarehouse. After explaining the rationale for creating the MPDB, the paper illustrateshow it supports the macroprudential analysis conducted by the European System ofCentral Banks (ESCB), the European Systemic Risk Board (ESRB) and the nationalauthorities of the Single Supervisory Mechanism (SSM) and the European Union. Thestructure of the database and a broad overview of available indicators are thenpresented, with a description of the relevant confidentiality issues. Examples illustratehow the MPDB is used for monitoring purposes and econometric modelling. Finally,the paper discusses remaining data gaps and expected future enhancements of thedatabase. JEL Classification: C82, E60 |
| Keywords: | macroprudential, statistics |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbsps:201932&r=all |
| By: | Dennis Bonam; Gabriele Galati; Irma Hindrayanto; Marco Hoeberichts; Anna Samarina; Irina Stanga |
| Abstract: | This study analyzes the behavior of inflation observed in the euro area over the past decade from a broad perspective. We first document changes in the inflation process, i.e. the dynamics of inflation and its response to shocks. We then discuss whether the Phillips curve is still a useful analytical paradigm. Next, we present evidence based on an Unobserved Components Model that the Phillips curve is "alive and well", in the sense that estimates show a positive and significant relationship between slack in the economy and inflation. At the same time, there is evidence of a downward trend in inflation in a sample that covers the past decades (1985-2017). While this past trend can be associated with a decline over time in inflation expectations, other deeper factors may be also at work, including the ongoing globalization trend, the declining bargaining power of labor, technological progress and the rise of e-commerce, demographic changes and financial factors. The complex nature of these forces and their interaction underscores the uncertainty that characterizes the current macroeconomic environment, and future research is needed to analyze to what extent these forces are likely to persist. Finally, we discuss possible implications of our analysis for monetary policy. |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbocs:1703&r=all |
| By: | Byrne, David (Central Bank of Ireland); Zekaite, Zivile (Central Bank of Ireland) |
| Abstract: | This Letter examines recent dynamics in ination expectations, which are an important determinant of actual ination, as they impact economic decisions, such as households’ spending decisions and rms’ pricing plans. It is therefore important that expectations are well-anchored and that longer-term expectations are at levels consistent with the Eurosystem’s ination objective and insensitive to shocks to the economy or prices. We show some evidence for weaker anchoring since 2013 through increased sensitivity to shocks. As both the ination risk premium and the expected level of ination have declined more recently, monetary policymakers should continue monitoring developments in ination expectations closely. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:ecolet:12/el/19&r=all |
| By: | Caballero, Diego (European Central Bank); Lucas, Andr e (Vrije Universiteit Amsterdam and Tinbergen Institute); Schwaab, Bernd (European Central Bank); Zhang, Xin (Research Department, Central Bank of Sweden) |
| Abstract: | To what extent can a central bank influence its own balance sheet credit risks during a financial crisis through unconventional monetary policy operations? To study this question we develop a risk measurement framework to infer the time-variation in portfolio credit risks at a high (weekly) frequency. Focusing on the Eurosystem's experience during the euro area sovereign debt crisis between 2010 and 2012, we find that the announcement and implementation of unconventional monetary policy operations generated beneficial risk spill-overs across policy portfolios. This caused overall risk to be nonlinear in exposures. In some instances the Eurosystem reduced its overall balance sheet credit risk by doing more, in line with Bagehot's well-known assertion that occasionally "only the brave plan is the safe plan." |
| Keywords: | lender-of-last-resort; unconventional monetary policy; portfolio credit risk; longer-term operational framework; central bank communication. |
| JEL: | C33 G21 |
| Date: | 2019–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0382&r=all |
| By: | Philemon Kwame Opoku |
| Abstract: | This paper examines the relationship between interest rates and household saving rates for an uneven panel of 19 OECD countries during the period 1995 to 2018. Unlike earlier studies, it uses the pooled mean group (PMG) methodology to investigate which of the interest rate effects, income or substitution, dominates in the short run, long run, or both periods. With the baseline estimations, I find that the income effect outweighs the substitution effect in the short run, and vice versa in the long run. I also finf that inflation (both expected and actual) household wealth through housing prices, unemployment rate, current taxes on income and wealth, and general government debt have significant negative impact on household saving in the long run. Current taxes on income and wealth has a strong negative impact on household saving in the short run. |
| Keywords: | household saving,interest rates,ination,taxation,unemployment rate,dynamic heterogeneous panel data model |
| JEL: | E21 E24 E43 C23 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp01102019&r=all |
| By: | Lewis, Vivien; Villa, Stefania; Wolters, Maik H. |
| Abstract: | The Euro Area is characterized by little variation in unemployment and strongly procyclical labor productivity. We capture both characteristics in a New Keynesian business cycle model with labor search frictions, where labor can vary along three margins: employment, hours, and effort. We estimate the model with Bayesian methods and find evidence for a significant use of the effort margin in generating procyclical productivity. We show that a model with labor effort is more successful at matching the business cycle facts than is one with variable capital utilization or dominant technology shocks. Finally, we demonstrate that effort dampens the response of inflation to exogenous shocks. |
| Keywords: | effort,labor utilization,labor productivity,inflation |
| JEL: | E30 E50 E60 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:442019&r=all |
| By: | Cândida Ferreira |
| Abstract: | This paper seeks to contribute to the analysis of the bank efficiency in the European Union in the aftermath of the recent crisis, using Data Envelopment Analysis (DEA) and considering a sample of 485 banks from all current EU member-states between 2011 and 2017. The results obtained confirm the existence of bank inefficiency,and that this inefficiency is mostly due to inefficient managerial performance and bad combinations of the considered bank inputs and outputs. The results also provide enough evidence of appropriate scale production and dynamic technological changes during the considered interval. Moreover, the results obtained using panel estimates to explain the bank total factor productivity changes allow us to conclude that the choices of the banks in terms of the fixed assets,the profit before tax to the average assets, as well as the ratio of the off-balance sheet items to total assets contribute positively to the productivity changes. On the other side, the ratio of the impaired loans to equity, and the bank interest margins are not in line with the total factor productivity changes of the EU banking sector. |
| Keywords: | EU banking sector; bank efficiency; Data Envelopment Analysis; Malmquist Index |
| JEL: | C33 D24 F36 G21 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp01092019&r=all |
| By: | Conefrey, Thomas (Central Bank of Ireland); Hickey, Rónán (Central Bank of Ireland); Walsh, Graeme (Central Bank of Ireland) |
| Abstract: | The Irish public finances have improved significantly in recent years and favourable financing conditions have reduced debt servicing costs. In the absence of severe adverse shocks, government debt as a proportion of national income should continue to fall. At the same time, the crisis has left a legacy of high government debt that, in 2018, was larger than the level of national income (GNI*). Starting from this high stock of debt, there is a risk that a negative economic shock could cause the deficit and debt to start rising again, undoing the hard-won improvements of recent years. In this Letter, we analyse the exposure of the public finances to potential adverse shocks. Our analysis shows that a disorderly Brexit or a permanent loss of corporation tax revenue could result in the level of debt remaining above 90 per cent of national income well into the middle of the next decade. In an environment of elevated risks, reducing the level of public debt can help to improve the capacity of the public finances to withstand negative shocks. |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:ecolet:11/el/19&r=all |
| By: | Olga Ivanova; d'Artis Kancs; Mark Thissen |
| Abstract: | The Regional Trade Flows and Input output Data for Europe are constructed at the regional NUTS2 level with sectoral NACE2 detail and developed for spatial macroeconomic modelling and social-economic analysis for answering a wide-range of policy questions, including policies related to investments in innovation, human capital, green infrastructure and Sustainable Development Goals. The Regional Trade Flows and Input output Data for Europe are particularly well suited for structural modelling such as spatial computable general equilibrium models, as all data are fully internally consistent. In the Regional Trade Flows and Input output Data all European regions are connected with each other via inter-regional trade flows, input use and output supply in form of regional trade matrices, input output tables and supply-use tables. This data base is result of a joint collaborative effort over a decade of several research institutes across Europe, including the Netherlands Environmental Assessment Agency (PBL), the European Commission (DG JRC) and the University of Groningen (Ivanova, Kancs and Stelder 2009, Thissen et al. 2014, Thissen et al. 2018, Ivanova, Kancs and Thissen 2019). Among others, the new EU Economic Modelling System (EU-EMS) developed within the EU Framework Programme for Research and Innovation makes use of the Regional Trade Flows and Input output Data for Europe. |
| Keywords: | Inter-Regional Trade Flows, Input output Tables, data, Europe, spatial spillovers, SCGE, modelling. |
| JEL: | C68 D58 F12 R13 R30 |
| Date: | 2019–10–06 |
| URL: | http://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2019_06&r=all |
| By: | Engert, Walter (Bank of Canada); Fung, Ben (Bank of Canada); Segendorf, Björn (Financial Stability Department, Central Bank of Sweden) |
| Abstract: | Cash is being used less and less for making payments in many countries, including Canada and Sweden, which might suggest that cash will eventually disappear. However, cash in circulation in most countries, including Canada, has been stable for decades, and even rising in recent years. In contrast, aggregate cash demand in Sweden has been falling steadily. This paper explains these differences between Canada and Sweden by focusing separately on the transactions demand for cash and on the store-of-value demand. We find a long-term downward trend in small-denomination bank notes relative to gross domestic product in both Canada and Sweden. This reflects similar experiences in decreasing cash use for transactions over time due to the adoption of payment innovations. This means that payment innovations and diffusion are not sufficient to explain why aggregate cash demand has been declining rapidly in Sweden but not in Canada. Instead, the difference in the trends of cash demand between these two countries is due more to the behaviour of larger-denomination, store-of-value bank notes. Finally, we identify influences and frictions that help explain the persistent decline in the demand for larger bank notes in Sweden relative to Canada. |
| Keywords: | Bank notes; Digital currencies and fi ntech; Financial services; Payment clearing and settlement systems. |
| JEL: | E40 E41 E42 E50 |
| Date: | 2019–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0376&r=all |