nep-eec New Economics Papers
on European Economics
Issue of 2020‒04‒20
thirteen papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Adopting the Euro: a synthetic control approach By Gabriel, Ricardo Duque; Pessoa, Ana Sofia
  2. Trade models in the European Union By Gräbner, Claudius; Tamesberger, Dennis; Heimberger, Philipp; Kapelari, Timo; Kapeller, Jakob
  3. The micro-foundations of an open economy money demand: An application to the Central and Eastern European countries By Claudiu Tiberiu Albulescu; Dominique Pépin; Stephen Miller
  4. Rebalancing the euro area: Is wage adjustment in Germany the answer? By Hoffmann, Mathias; Kliem, Martin; Krause, Michael; Moyen, Stephane; Sauer, Radek
  5. Monetary policy, financial regulation and financial stability: A comparison between the Fed and the ECB By Schnabl, Gunther; Sonnenberg, Nils
  6. The trade effects of the economic partnership agreements between the European Union and the African, Caribbean and Pacific group of states: Early empirical insights from panel data By Stender, Frederik; Berger, Axel; Brandi, Clara; Schwab, Jakob
  7. The case for Corona bonds By Avbelj, Matej; Baraggia, Antonia; Bast, Jürgen; Bugaric, Bojan; Castellarin, Emanuel; Costamagna, Francesco; Farahat, Anuscheh; Goldmann, Matthias; Mangold, Anna Katharina; Savino, Mario; Thiele, Alexander; Viterbo, Annamaria
  8. Carbon taxes and trade spillovers within Europe By Saptorshee Kanto Chakraborty; Massimiliano Mazzanti
  9. Forecasts with Bayesian vector autoregressions under real time conditions By Michael Pfarrhofer
  10. Persistence in the Realized Betas: Some Evidence for the Spanish Stock Market By Guglielmo Maria Caporale; Luis A. Gil-Alana; Miguel Martin-Valmayor
  11. Resisting deglobalisation- the case of Europe By Zsolt Darvas
  12. Compliance with COVID-19 Social-Distancing Measures in Italy: The Role of Expectations and Duration By Guglielmo Briscese; Nicola Lacetera; Mario Macis; Mirco Tonin
  13. The Impact of Monetary Policy on Leading Variables for Financial Stability in Norway By Helene Olsen; Harald Wieslander

  1. By: Gabriel, Ricardo Duque; Pessoa, Ana Sofia
    Abstract: We investigate whether joining the European Monetary Union and losing the ability to set monetary policy affected the economic growth of 12 Eurozone countries. We use the synthetic control approach to create a counterfactual scenario for how each Eurozone country would have evolved without adopting the Euro. We let this matching algorithm determine which combination of other developed economies best resembles the pre-Euro path of twelve Eurozone economies. Our estimates suggest that there were some mild losers (France, Germany, Italy, and Portugal) and a clear winner (Ireland). Nevertheless, a GDP decomposition analysis suggests that the drivers of the economic gains and losses are heterogeneous.
    Keywords: Monetary union, Eurozone, Macroeconomic performance, Synthetic control method, GDP decomposition
    JEL: C32 E02 E30 E60 E65
    Date: 2020–03
  2. By: Gräbner, Claudius; Tamesberger, Dennis; Heimberger, Philipp; Kapelari, Timo; Kapeller, Jakob
    Abstract: By studying the factors underlying differences in trade performance across European economies, this paper derives six different "trade models" for 22 EU-countries and explores their developmental and distributional implications. We first introduce a typology of trade models by clustering countries based on four key dimensions of trade performance: endowments, technological specialization, labour market characteristics and regulatory requirements. The resulting clusters comprise countries that base their export success on similar trade models. Our results indicate the existence of six different trade models: the "primary goods model" (Latvia, Estonia), the "finance model" (Luxembourg), the "flexible labour market model" (UK), the "periphery model" (Greece, Portugal, Spain, Italy, France), the "industrial workbench model" (Slovenia, Slovakia, Poland, Hungary, Czech Republic), and the "high-tech model" (Sweden, Denmark, Netherlands, Belgium, Ireland, Finland, Germany and Austria). Subsequently, we comparatively analyse the economic development and trends in inequality across these trade models. We observe a shrinking wage share and increasing personal income inequality in most of the trade models. The "high-tech model" is an exceptional case, being characterised by a relatively stable economic development and an institutional setting that managed to counteract rising inequality.
    Keywords: Trade policy,cluster analysis,European Union,trade models
    Date: 2019
  3. By: Claudiu Tiberiu Albulescu (UPT - Politehnica University of Timisoara - Politehnica University of Timisoara); Dominique Pépin (CRIEF - Centre de Recherche sur l'Intégration Economique et Financière - Université de Poitiers); Stephen Miller (WGU Nevada - University of Nevada [Las Vegas])
    Abstract: This paper investigates and compares currency substitution between the currencies of Central and Eastern European (CEE) countries and the euro. In addition, we develop a model with microeconomic foundations, which identifies difference between currency substitution and money demand sensitivity to exchange rate variations. More precisely, we posit that currency substitution relates to money demand sensitivity to the interest rate spread between the CEE countries and the euro area. Moreover, we show how the exchange rate affects money demand, even absent a currency substitution effect. This model applies to any country where an international currency offers liquidity services to domestic agents. The model generates empirical tests of long-run money demand using two complementary cointegrating equations. The opportunity cost of holding the money and the scale variable, either household consumption or output, explain the long-run money demand in CEE countries.
    Keywords: currency substitution,cointegration,money demand,open economy model,CEE countries
    Date: 2019–06
  4. By: Hoffmann, Mathias; Kliem, Martin; Krause, Michael; Moyen, Stephane; Sauer, Radek
    Abstract: We assess to what extent wage inflation policies in Germany could contribute to an economic rebalancing in the euro area and the rest of the world. We find that a rise in nominal wage inflation has positive short-run effects on inflation and output in Germany and the rest of the euro area. The duration of constant interest rates and expectations about the monetary policy stance matter to the magnitude of the results obtained. We establish that the modelling of the trade relationships with the rest of the world is of particular importance, as it allows to capture the induced relative price movements and hence changes in competitiveness within the three regions. Our results are obtained from an estimated DSGE model which consists of Germany, the rest of the euro area, and the rest of the world.
    Keywords: DSGE model,Bayesian estimation,Monetary policy,Trade balance
    Date: 2020
  5. By: Schnabl, Gunther; Sonnenberg, Nils
    Abstract: The paper analyses in light of Austrian and Keynesian economic theory the impact of conventional and unconventional monetary policies as therapies for financial crises. It compares the financial market stabilization measures of the Federal Reserve System and the European System of Central Banks in response to the US subprime crisis and the European financial and debt crisis. It is shown that the Federal Reserve System's crisis measures were more directed towards stabilizing the banking system, whereas the European Central Bank had a stronger focus on the stabilization of the debt affordability of euro area crisis countries. In both cases, household credit growth remained under control despite renewed monetary expansion, while new imbalances emerged in the corporate sector. In the euro area, loose monetary policy had a destabilizing impact on the financial sector.
    Keywords: Financial cycles,financial crisis,financial stability,Hayek,Keynes,monetarypolicy
    JEL: B53 E12 E14 E30 E44 E58 G10 G20 H30 H50
    Date: 2020
  6. By: Stender, Frederik; Berger, Axel; Brandi, Clara; Schwab, Jakob
    Abstract: This study provides early ex-post empirical evidence on the effects of provisionally applied Economic Partnership Agreements (EPAs) on two-way trade flows between the European Union (EU) and the African, Caribbean and Pacific Group of States (ACP). Employing the gravity model of trade, we do not find a general EPA effect on total exports from ACP countries to the EU nor on total exports from the EU to ACP countries. We do, however, find heterogeneous effects when focusing on specific agreements and economic sectors. While the agreement between the EU and the Caribbean Forum (CARIFORUM), which concluded several years ahead of the other EPAs in 2008, if anything, reduced imports from the EU overall, the provisional application of the other EPAs seems to have at least partly led to increased imports from the EU to some partner countries. More specifically, the estimation results suggest an increase in the total imports from the EU only in the Southern Africa Development Community (SADC) EPA partner countries. On the sectoral level, by comparison, we find increases in the EU's agricultural exports to SADC, Eastern and Southern Africa (ESA) and the Pacific. Lastly, in the area of manufactures trade, we find decreases of exports of the ESA and SADC countries to the EU, but increases in imports from the EU into SADC countries. While this early assessment of the EPA effects merits attention given the importance of monitoring future implications of these agreements, it is still too early for a final verdict on the EPAs' effects and future research is needed to investigate the mid- and long-term consequences of these agreements.
    Date: 2020
  7. By: Avbelj, Matej; Baraggia, Antonia; Bast, Jürgen; Bugaric, Bojan; Castellarin, Emanuel; Costamagna, Francesco; Farahat, Anuscheh; Goldmann, Matthias; Mangold, Anna Katharina; Savino, Mario; Thiele, Alexander; Viterbo, Annamaria
    Abstract: Corona bonds are feasible and important to preserve the European project. We set out a number of principles that might serve as a blueprint for the European institutions. Importantly, Corona bonds could be issued through a new public law entity and include all the safeguards required for the protection of the fundamental values of the EU. This proposal is pragmatic in the sense that it facilitates the choice European leaders have to make now; necessary to secure the resilience of the European Union. The political risks are significantly higher now than in 2010. The gargantuan challenge of tackling the combined impact of climate change, migration, digitalization, geopolitical shifts, and the spread of autocracy, requires leadership and joint action by the Council and the Eurogroup.
    Keywords: Corona Bonds,Coronavirus
    Date: 2020
  8. By: Saptorshee Kanto Chakraborty (University of Ferrara, Italy); Massimiliano Mazzanti (University of Ferrara; SEEDS, Italy)
    Abstract: Carbon taxation has been suggested among the market based policies to tackle climate change since the early 90’s, often associated to ecological tax reforms rationales. Before the advent of emission trading in the EU, some countries introduced forms of carbon taxation, which is still used to deal with non EU ETS sectors. Due to this historical evolution of environmental policies over the last decades, in presence of a ‘federal system’ that assigns to EU countries the governance of energy and fiscal issues, an heterogeneous set of country driven carbon/energy policy settings is present, which can determine effects on growth and trade. We investigate the possible existence of asymmetries among the European Carbon area countries reaction to the policy adoption responsible to combat climate change via carbon usage reduction.
    Keywords: carbon taxation, spillovers, trade
    Date: 2020–04
  9. By: Michael Pfarrhofer
    Abstract: This paper investigates the sensitivity of forecast performance measures to taking a real time versus pseudo out-of-sample perspective. We use monthly vintages for the United States (US) and the Euro Area (EA) and estimate a set of vector autoregressive (VAR) models of different sizes with constant and time-varying parameters (TVPs) and stochastic volatility (SV). Our results suggest differences in the relative ordering of model performance for point and density forecasts depending on whether real time data or truncated final vintages in pseudo out-of-sample simulations are used for evaluating forecasts. No clearly superior specification for the US or the EA across variable types and forecast horizons can be identified, although larger models featuring TVPs appear to be affected the least by missing values and data revisions. We identify substantial differences in performance metrics with respect to whether forecasts are produced for the US or the EA.
    Date: 2020–04
  10. By: Guglielmo Maria Caporale; Luis A. Gil-Alana; Miguel Martin-Valmayor
    Abstract: This paper examines the stochastic behaviour of the realized betas within the one-factor CAPM for the six companies with the highest market capitalization included in the Spanish IBEX stock market index. Fractional integration methods are applied to estimate their degree of persistence at the daily, weekly and monthly frequency over the period 1 January 2000 – 15 November 2018 using 1, 3 and 5-year samples. On the whole, the results indicate that the realized betas are highly persistent and do not exhibit mean-reverting behaviour. However, the findings are rather sensitive to the choice of frequency and time span (number of observations).
    Keywords: realized beta, CAPM, persistence, mean reversion, long memory
    JEL: C22 G11
    Date: 2020
  11. By: Zsolt Darvas
    Abstract: Our analysis of public opinion in EU countries shows that support for globalisation, free trade and immigration, is on the rise. EU public opinion on these issues does not differ greatly from the rest of the world. Our panel-model estimates for EU countries from 2009 to 2019 find a strong association between the unemployment rate and the prevailing view on whether globalisation is an opportunity for economic growth. A regression...
    Date: 2020–02
  12. By: Guglielmo Briscese; Nicola Lacetera; Mario Macis; Mirco Tonin
    Abstract: We study how intentions to comply with the self-isolation restrictions introduced in Italy to mitigate the COVID-19 epidemic respond to the length of their possible extension. Based on a survey of a representative sample of Italian residents (N=894), we find that respondents who are positively surprised by a given hypothetical extension (i.e., the extension is shorter than what they expected) are more willing to increase their self-isolation. In contrast, negative surprises (extensions longer than expected) are associated with a lower willingness to comply. In a context where individual compliance has collective benefits, but full enforcement is costly and controversial, communication and persuasion have a fundamental role. Our findings provide insights to public authorities on how to announce lockdown measures and manage people’s expectations.
    JEL: C42 D91 H12 H41 I12
    Date: 2020–03
  13. By: Helene Olsen; Harald Wieslander
    Abstract: We search for leading determinants of financial instability in Norway using a signaling approach, and examine how these respond to a monetary policy shock with the use of structural VAR models. We find that the wholesale funding ratio and gap, credit-to-GDP gap, house price-to-income ratio and gap, and credit growth provide good signals of future financial instability. Following a contractionary monetary policy shock, the credit-to-GDP gap and house price-to-income ratio decrease significantly. The implication of our findings is that the central bank can respond to an increase in these indicators by increasing the interest rate, which in turn will decrease the indicators and thereby the probability of financial distress.
    Keywords: Financial stability, Monetary policy, Structural VAR, Signaling Approach
    Date: 2020–03

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