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on European Economics |
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Issue of 2020‒04‒13
eight papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Krustev, Georgi; Casalis, André |
| Abstract: | We study the cyclical dynamics of consumption in the euro area (EA) and the large EA countries by distinguishing durable from nondurable expenditures. We adopt a theoretical partial equilibrium framework to justify the identification strategy of our empirical model, a time-varying parameter structural vector autoregression (TVP-SVAR). Following the main insight from the theoretical model, that liquidity constraints induce important interactions between durables and nondurables, we distinguish durable-specific demand and supply shocks, while taking into account monetary and credit conditions. Our main findings are: (i) durables react faster and more strongly than nondurables after monetary shocks in the euro area and in the largest EA countries, a confirmation of an outcome commonly reported for the US; (ii) there is a large degree of cross-country heterogeneity in how different factors (including durable-specific ones) explain consumption; (iii) the strength of spillovers from durable to nondurable consumption, as predicted by theory, is empirically correlated with how much households across countries are likely to be liquidity constrained. JEL Classification: C11, C32, D11, E21, E32 |
| Keywords: | consumption, durable goods, sign restrictions, SVARs |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202386&r=all |
| By: | Bardaka, Ioanna; Bournakis, Ioannis; Kaplanoglou, Georgia |
| Abstract: | Departing from the expansionary austerity literature, this study assesses empirically whether fiscal consolidation propagates changes in the supply side of the economy that can potentially influence total factor productivity (TFP). Using a panel dataset of 26 OECD countries over the period 1980–2016 and employing panel vector autoregressive and panel cointegration techniques, we present evidence of both short-run and long-run negative effects of fiscal consolidation on TFP. The short-run impact is disproportionately more damaging for the TFP of low debt countries, while, contrary to the expansionary austerity thesis, our empirical results would advise against spending-driven fiscal consolidation, since such consolidation undermines capacity, due to the importance of government spending in shaping productive capital. Our results have serious policy implications for the implementation and design of fiscal adjustment programmes. |
| Keywords: | Total factor productivity, Fiscal consolidation, OECD countries, Austerity, Growth |
| JEL: | C23 E62 H68 |
| Date: | 2020–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98880&r=all |
| By: | Craig, Ben; Giuzio, Margherita; Paterlini, Sandra |
| 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 analyse 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. Under our assumptions about how banks rebalance their portfolio to respond to the new requirements, demanding that banks modify their holdings to increase their portfolio diversification may be ineffective in reducing portfolio risk, including tail risk. JEL Classification: G01, G11, G21, G28 |
| Keywords: | bank regulation, diversification, home bias, sovereign-bank nexus, sovereign risk |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202384&r=all |
| By: | Christopher Busch (Universitat Aut`onoma de Barcelona, MOVE, and Barcelona GSE); Dirk Krueger (University of Pennsylvania); Alexander Ludwig (Goethe University Frankfurt and CEPR); Irina Popova (Goethe University Frankfurt); Zainab Iftikhar (Goethe University Frankfurt) |
| Abstract: | In 2015-2016 Germany experienced a wave of predominantly low-skilled refugee immigration. We evaluate its macroeconomic and distributional e?ects using a quan-titative overlapping generations model calibrated using German micro data to repli-cate education and productivity di?erentials between foreign born and native workers. Workers are modelled as imperfect substitutes in aggregate production leading to en-dogenous wage di?erentials. We simulate the dynamic e?ects of this refugee wave, with speci?c focus on the welfare impact on low skilled natives. Our results indicate that the small losses this group su?ers can be compensated by welfare gains of other parts of the native population. |
| Keywords: | Immigration, Refugees, Overlapping Generations, Demographic Change |
| JEL: | F22 E20 H55 |
| Date: | 2020–04–02 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:20-013&r=all |
| By: | Jan Hanousek (CERGE-EI, Charles University); Evzen Kocenda; Pavla Vozarova (Faculty of Information Technology, Czech Technical University) |
| Abstract: | We analyze the impact of multinational enterprises (MNEs), via their foreign direct investment, on domestic firms in 30 European host economies, from 2001 to 2013. We incorporate international industrial and trade linkages into a standard theoretical framework and test them empirically on a unique dataset compiled from the Amadeus, Eurostat, UNComtrade and BACI data sources and aggregated at industry level. While controlling for horizontal, vertical, and export channels at the upstream and downstream levels, we show that the presence of MNEs significantly affects domestic firms by changing the degree of competition and improving productivity. The impact is not always positive, as domestic firms are often crowded-out, but the negative effect for an average firm is mostly small. |
| Keywords: | multinational enterprise (MNE), foreign direct investment (FDI), European firms, spillovers, international trade |
| JEL: | C33 F15 F21 F23 O24 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:1028&r=all |
| By: | Kugler, Peter (University of Basel) |
| Abstract: | This paper provides an econometric analysis of the short-run impact of SNB sight deposits mainly created by intervention on the Swiss franc exchange rate covering the period January 2015 to June 2018 using weekly data. Our model includes both the exchange rate of the Swiss franc against euro and dollar and uses the plausible assumption that foreign interest rates and the euro-dollar exchange rate are exogenous. Besides sight, deposits we include interest rate differentials for 2- and 10-year government bonds, and some exogenous exchange rate determinants. GMM estimation indicates that a one percent increase in the sight deposits leads leads to a 0.41 percent appreciation of the Swiss franc against euro and dollar. |
| Date: | 2020–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:bsl:wpaper:2020/04&r=all |
| By: | Federico Bassi (Dipartimento di Scienze Sociali ed Economiche - Università degli Studi di Roma "La Sapienza" [Rome]) |
| Abstract: | Despite empirical evidence of permanent damages to GDP after the 2008 global financial crisis, there is little theoretical consensus about the impact of the crisis on the unobservable rate of capacity utilization. In this paper, we investigate how the rate of capacity utilization reacts to shocks by testing the hypothesis that the normal rate of capacity utilization is exogenous and constant, against the alternative hypothesis that it is endogenous to demand and can vary with time. We find that the normal rate is more likely to be a shifting attractor or a time-varying trend instead of a fixed center of gravity. Hence, temporary shocks do not necessarily translate into permanent losses of productive capacity but they can also translate into lower degrees of utilization of the capacity in place. We show indeed that the effects of the 2008 financial crisis on EU countries were highly heterogeneous, and we find three different trajectories. A first cluster of countries recovered the pre-crisis rate of capacity utilization and accumulation, despite a permanent destruction of productive capacity. A second cluster of countries absorbed the shock through a lower rate of capacity utilization and accumulation with no permanent destruction of productive capacity; a third cluster of countries absorbed the shock through a massive destruction of productive capacity and a negative rate of growth, despite an increasing rate of utilization. |
| Keywords: | Normal rate of capacity utilization,Hysteresis,Secular stagnation |
| Date: | 2020–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02524546&r=all |
| By: | Bertoli, Simone (CERDI, University of Auvergne); Brücker, Herbert (Institute for Employment Research (IAB), Nuremberg); Fernández-Huertas Moraga, Jesús (Universidad Carlos III de Madrid) |
| Abstract: | More than 3 million asylum seekers arrived into Europe between 2014 and 2016, and we analyze the role of destination-specific policy measures in shaping their location choices. We bring to the data a gravity equation that reflects the uncertainty that asylum seekers face, concerning the chances of obtaining refugee protection, the processing time and the risk of repatriation. These factors shaped the distribution of asylum seekers, and produced heterogeneous effects across different origin countries. German efforts to expand their processing capacity produced a significant increase in applications from origins with high recognition rates, which were mostly diverted away from Sweden. |
| Keywords: | refugees, recognition rate, processing time, gravity equations, migration |
| JEL: | F22 K37 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13018&r=all |