nep-eec New Economics Papers
on European Economics
Issue of 2020‒06‒29
thirteen papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Sovereign Default Risk and Credit Supply: Evidence from the Euro Area By Olli Palm\'en
  2. Wealth effect on consumption during the sovereign debt crisis: Households heterogeneity in the Euro area By Bertrand Garbinti; Pierre Lamarche; Charlélie Lecanu; Frédérique Savignac
  3. The north-south divide, the Euro and the world By Chisiridis, Konstantinos; Mouratidis, Kostas; Panagiotidis, Theodore
  4. Does Value Chain Integration Dampen Producer Price Developments? Evidence from the European Union By Klaus S. Friesenbichler; Agnes Kügler; Andreas Reinstaller
  5. Automation, Globalization and Vanishing Jobs: A Labor Market Sorting View By Faia, Ester; Laffitte, Sébastien; Mayer, Maximilian; Ottaviano, Gianmarco
  6. How Do Firms Respond to Demand Shocks? Evidence from the European Sovereign Debt Crisis By Adelino, Manuel; Fagandini, Paulo; Ferreira, Miguel; Queiro, Francisco
  7. How to Spend it: A Proposal for a European Covid-19 Recovery Programme By Jérôme Creel; Mario Holzner; Francesco Saraceno; Andrew Watt; Jérôme Wittwer
  8. Trade Credit and the Transmission of Unconventional Monetary Policy By Adelino, Manuel; Ferreira, Miguel; Giannetti, Mariassunta; Pires, Pedro
  9. Firm-Level Expectations and Behavior in Response to the COVID-19 Crisis By Lukas Buchheim; Jonas Dovern; Carla Krolage; Sebastian Link
  10. Fiscal effects of migrants in Europe: a quantile regression Approach By Majlinda Joxhe; Pasquale Scaramozzino; Skerdilajda Zanaj
  11. The credibility of the ECB's inflation target in times of Corona: New evidence from an online survey By Coleman, Winnie; Nautz, Dieter
  12. The Bond Lending Channel of Monetary Policy By Darmouni, Olivier; Giesecke, Oliver; Rodnyansky, Alexander
  13. Capital Dynamics, Global Value Chains, Competitiveness and Barriers to FDI and Capital Accumulation in the EU By Amat Adarov; Robert Stehrer

  1. By: Olli Palm\'en
    Abstract: Did sovereign default risk affect macroeconomic activity through firms' access to credit during the European sovereign debt crisis? We investigate this question by a estimating a structural panel vector autoregressive model for Italy, Spain, Portugal, and Ireland, where the sovereign risk shock is identified using sign restrictions. The results suggest that decline in the creditworthiness of the sovereign contributed to a fall in private lending and economic activity in several euro-area countries by reducing the value of banks' assets and crowding out private lending.
    Date: 2020–06
  2. By: Bertrand Garbinti; Pierre Lamarche; Charlélie Lecanu; Frédérique Savignac
    Abstract: This paper studies the heterogeneity of the marginal propensity to consume out of wealth (MPC) both across and within countries. We estimate the MPC based on a cross-country harmonized household level dataset which combines surveys on wealth, income and consumption. We use panel regressions and an instrumental variable approach. First, our panel-based MPC estimates are very similar to those obtained on aggregate data and show substantial heterogeneity across countries. The wealth effect is coming both from housing and financial assets, while the main asset channel varies between countries. Second, the MPC is higher for low-wealth households, whatever the country. Third, we find some asymmetries across countries regarding the reaction to losses versus gains. Fourth, higher MPC is obtained for the two main consumption expenditure categories. Fifth, we find evidences that housing prices shock decreases consumption inequality while financial wealth shocks have a limited effect on consumption inequality. Classification-JEL: D12, E21, C21
    Keywords: : Consumption, Marginal Propensity to Consume out of Wealth, Policy Distributive Effects, Household Surveys.
    Date: 2020
  3. By: Chisiridis, Konstantinos; Mouratidis, Kostas; Panagiotidis, Theodore
    Abstract: The European north-south divide has been an issue of a long-standing debate. We employ a Global VAR model for 28 developed and developing countries to examine the interaction between the global trade imbalances and their impact within the euro-area framework. The aim is to assess the propagation mechanisms of real shocks, focusing on the interconnections among the north euro area and the south euro area. We incorporate theory-based long-run over-identifying restrictions and examine the effects of (i) nonexport real output shocks, (ii) expansionary shocks and (iii) real exchange rate shocks. An expansionary policy of the north euro area and increased competitiveness in the south euro area could alleviate trade imbalances of the debtor euro area economies. From the south euro area perspective, internal devaluation decreases output but at the same time, it also reduces current account deficits. North euro area origin shocks to domestic output exert a dominant influence in the rest of the Europe and Asia
    JEL: J1 N0
    Date: 2020–04–01
  4. By: Klaus S. Friesenbichler; Agnes Kügler; Andreas Reinstaller
    Abstract: We draw on trade theory to empirically explore the effects of value chain integration on producer price dynamics. Using the EU as an example of an integrated area, we construct measures of backward and forward linkages with intra- and extra-EU trading partners at the country-sector level. We find that especially upstream integration and EU-accession dampen inflation. The results for downstream integration indicate a price-increasing relationship. We propose novel EU integration indicators and offer insights to both theory and applied research. We also add to the policy debate on the price effects of (dis-)integration of EU countries.
    Keywords: inflation, EU integration, Single Market, producer prices, value chains
    Date: 2020–06–12
  5. By: Faia, Ester (Goethe University Frankfurt); Laffitte, Sébastien (ENS Paris-Saclay); Mayer, Maximilian (Goethe University Frankfurt); Ottaviano, Gianmarco (Bocconi University)
    Abstract: We show, theoretically and empirically, that the effects of technological change associated with automation and offshoring on the labor market can substantially deviate from standard neoclassical conclusions when search frictions hinder efficient assortative matching between firms with heterogeneous tasks and workers with heterogeneous skills. Our key hypothesis is that better matches enjoy a comparative advantage in exploiting automation and a comparative disadvantage in exploiting offshoring. It implies that automation (offshoring) may reduce (raise) employment by lengthening (shortening) unemployment duration due to higher (lower) match selectivity. We find empirical support for this implication in a dataset covering 92 occupations and 16 sectors in 13 European countries from 1995 to 2010.
    Keywords: automation, offshoring, two-sided heterogeneity, positive assortativity, wage inequality, horizontal specialization, core-task-biased technological change
    JEL: O33 O47 F16 F66 J64
    Date: 2020–05
  6. By: Adelino, Manuel; Fagandini, Paulo; Ferreira, Miguel; Queiro, Francisco
    Abstract: We examine how firms respond to domestic demand shocks using the large and unanticipated shock to government spending in European periphery countries during the 2010-2011 sovereign debt crisis. We find that firms with higher ex-ante exposure to government procurement contracts significantly increase their exports after the shock or exit. Older and larger firms are better able to substitute domestic sales with entry into export markets than younger and smaller firms. Firms with high-skill workers, high productivity and more educated managers are also more likely to start exporting. Our results suggest that mature and high-quality firms drive the response of tradable industries to domestic demand shocks.
    Keywords: exports; financial crises; Fiscal austerity; Investment opportunities
    JEL: F10 G01 G30 H57 H60
    Date: 2020–04
  7. By: Jérôme Creel; Mario Holzner (The Vienna Institute for International Economic Studies, wiiw); Francesco Saraceno; Andrew Watt; Jérôme Wittwer
    Abstract: The Recovery Fund recently proposed by the EU Commission marks a sea-change in European integration. Yet it will not be enough to meet the challenges Europe faces. There has been much public debate about financing, but little about the sort of concrete projects that the EU should be putting public money into. Here we propose a 10-year, €2tn investment programme focusing on public health, transport infrastructure and energy/decarbonisation. It consists of two pillars. In a national pillar Member States – broadly as in the Commission proposal – would be allocated €500bn. Resources should be focused on the hardest-hit countries and front-loaded we suggest over a three-year horizon. The bulk of the money – €1.5tn – would be devoted to finance genuinely European projects, where there is an EU value added. We describe a series of flagship initiatives that the EU could launch in the fields of public health, transport infrastructure and energy/decarbonisation. We call for a strengthened EU public health agency that invests in health-staff skills and then facilitates their flexible deployment in emergencies, and is tasked with ensuring supplies of vital medicines (Health4EU). We present costed proposals for two ambitious transport initiatives a dedicated European high-speed rail network, the Ultra-Rapid-Train, with four-routes cutting travel times between EU capitals and regions, and, alternatively, an integrated European Silk Road initiative that combines transport modes on the Chinese model. In the area of energy/decarbonisation we seek to “electrify” the Green Deal. We call for funding to accelerate the realisation of a smart and integrated electricity grid for 100%-renewable energy transmission (e-highway), support for complementary battery and green-hydrogen projects, and a programme, modelled on the SURE initiative, to co-finance member-state decarbonisation and Just Transition policies. The crisis induced by the pandemic, coming as it does on top of the financial and euro crises, poses a huge challenge. The response needs to take account of the longer-run structural challenges, and above all that of climate change. The European Union should rise to these challenges in the reform of an ambitious medium-run recovery programme, appropriately financed. An outline of such a programme is set out here by way of illustration, but many permutations and options are available to policymakers.
    Keywords: Recovery Fund, European Green Deal, Just Transition, transport infrastructure, electricity transmission, public health, Covid-19, EU, investment
    JEL: H51 H54 I18 Q21 Q28 Q41 Q42 Q43 Q48 R41 R42 R48
    Date: 2020–06
  8. By: Adelino, Manuel; Ferreira, Miguel; Giannetti, Mariassunta; Pires, Pedro
    Abstract: We show that trade credit in production networks is important for the transmission of unconventional monetary policy. We find that firms with bonds eligible for purchase under the European Central Bank's Corporate Sector Purchase Program act as financial intermediaries and extend more trade credit to their customers. The increase in trade credit flows is more pronounced from core countries to periphery countries and towards financially constrained customers. Customers increase investment and employment in response to the additional financing, while suppliers with eligible bonds increase their customer base, potentially favoring upstream industry concentration. Our findings suggest that the trade credit channel of monetary policy produces heterogeneous effects on regions, industries, and firms.
    Keywords: corporate bonds; employment; investment; monetary policy; trade credit
    JEL: E50 G30
    Date: 2020–04
  9. By: Lukas Buchheim; Jonas Dovern; Carla Krolage; Sebastian Link
    Abstract: This paper studies the determinants of firms’ business outlook and managerial mitigation strategies in the wake of the COVID-19 crisis using a representative panel of German firms. We first demonstrate that the crisis amplifies pre-crisis weaknesses: Firms that appear relatively weak before the crisis are harder hit initially, and, on top of the initial impact, expect more difficulties for their businesses going forward. Consequently, such firms are first to cut employment and investment. Second, our results highlight that expectations regarding the duration of the shutdown—which, at this point of the crisis, exhibit plausibly random variation—are an important determinant of the chosen mitigation strategies: Firms that expect the shutdown to last longer are more likely to lay off workers and to cancel or postpone investment projects.
    Keywords: expectations, firm behaviour, COVID-19, shutdown, employment, investment
    JEL: D22 D84 E23
    Date: 2020
  10. By: Majlinda Joxhe (Department of Economics and Management, Université du Luxembourg); Pasquale Scaramozzino (University of Rome Tor Vergata & SOAS University of London); Skerdilajda Zanaj (Department of Economics and Management, Université du Luxembourg)
    Abstract: In this paper, we explore the fiscal impact of immigrants in Europe applying a quantile regression approach to data from the European Survey on Living Conditions (EU-SILC) for the period 2007-2015. Our estimations show that not only on average but also in almost all income quantiles, the fiscal position of both European and non-European migrants is not significantly different from that of native citizens. Furthermore, non-EU migrants are net contributors as compared to the corresponding native citizens in the Netherlands and Belgium for various quantiles. Lastly, we examine the link between migrants’ fiscal position and the fiscal perception of native European citizens measured using ESS data. We find a conflicting relationship: countries where migrants are perceived negatively are instead countries where they are net fiscal contributors and vice versa
    Keywords: fiscal impact, immigration, quantile regression, European countries.
    JEL: H53 I30 F22
    Date: 2020
  11. By: Coleman, Winnie; Nautz, Dieter
    Abstract: Evidence on the credibility of a central bank's inflation target typically refers to the anchoring of survey-based measures of inflation expectations. However, both the survey question and the anchoring criteria are only loosely connected to the actual inflation target used in monetary policy practice. By using the exact wording of the ECB's definition of price-stability, we started a representative online survey of German citizens in January 2019 that is designed to measure the time-varying credibility of the inflation target. Our results indicate that credibility has significantly decreased in our sample period, particularly in the course of the coronavirus pandemic. Interestingly, even though inflation rates in Germany have been clearly below 2% for several years, credibility has declined mainly because Germans increasingly expect that inflation will be much higher than 2% over the medium term.
    Keywords: Credibility of Inflation Targets,Household Inflation Expectations,Online Surveys,Coronavirus pandemic
    JEL: E31 E52 E58
    Date: 2020
  12. By: Darmouni, Olivier; Giesecke, Oliver; Rodnyansky, Alexander
    Abstract: The share of firms' borrowing from bond markets has been rising globally, and notably in the Eurozone. How does debt structure affect the transmission of monetary policy? We present a high-frequency framework that combines identified monetary shocks with a cross-sectional firm-level stock price reaction. Firms with more bonds are disproportionately affected by surprise monetary actions relative to other firms in the Eurozone. This finding stands in contrast to the predictions of a standard bank lending channel and points toward bond financing not being a frictionless "spare tire."
    Keywords: Banking relationships; corporate bonds; Corporate Finance; financial distress; monetary policy
    JEL: E44 E52 G21 G23
    Date: 2020–04
  13. By: Amat Adarov (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The study analyses the relationships between capital dynamics, productivity, global value chains and foreign direct investment using panel data techniques. Among other results, we confirm the high importance of tangible and intangible ICT capital for productivity and GVC integration. We examine the extent of underinvestment in ICT in the EU relative to other major economies and identify bottlenecks for efficient capital allocation. The sluggish economic performance of the EU in the post-crisis period has been further challenged by the COVID-19 outbreak. Consolidating policy efforts to facilitate ICT investment, tackling the barriers to ICT adoption and broad-based digitalisation are critical for the EU in order to maintain a competitive edge and unlock new growth opportunities in the new normal.
    Keywords: Productivity, digitalisation, ICT capital, FDI, global value chains, barriers to ICT investments, intangible capital
    JEL: F14 F15 F21 E22 O47
    Date: 2020–06

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