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on European Economics |
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Issue of 2020‒08‒17
nine papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Andrea Conte (European Commission - JRC); Patrizio Lecca (European Commission - JRC); Stylianos Sakkas (European Commission - JRC); Simone Salotti (European Commission - JRC) |
| Abstract: | The European Commission's Joint Research Centre (JRC) is supporting the ongoing effort by the European Commission in coordinating a common European response to the COVID-19 outbreak. Epidemiological research as well as socio-economic analyses focus on the multi-dimensional consequences of this pandemic in Europe and beyond. The European Commission presented on May 27th a proposal for a rescue and recovery plan at the European Parliament. The analysis reported here is based on the Rhomolo economic model, and has been used to support the Commission proposal and to inform the policy discussion between EU institutions and Member States’ governments. |
| Keywords: | rhomolo, region, growth, COvid-19, impact assessment |
| JEL: | C63 E61 E62 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc121261&r=all |
| By: | Cappelletti, Giuseppe; Reghezza, Alessio; d’Acri, Costanza Rodriguez; Spaggiari, Martina |
| Abstract: | We investigate the impact of macroprudential capital requirements on bank lending behaviour across economic sectors, focusing on their potentially heterogenous effects and transmission channel. By employing confidential loan-level data for the euro area over 2015-18, we find that the reaction of banks to structural capital surcharges depends on the level of the required capital buffer and the economic sector of the borrowing counterpart. Although tighter buffer requirements correspond to stronger lending contractions, targeted banks curtail their lending towards credit institutions the most, while leaving loan supply to non-financial corporations almost unchanged. We find that this lending is mitigated when banks resort to central bank funding. These results have important policy implications as they provide evidence on the impact of macroprudential policy frameworks and their interaction with unconventional monetary policies. JEL Classification: E51, E58, E60, G21, G28 |
| Keywords: | credit supply, large exposure, loan-level data, macroprudential policy, unconventional monetary policy |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202440&r=all |
| By: | Yothin Jinjarak; Rashad Ahmed; Sameer Nair-Desai; Weining Xin; Joshua Aizenman |
| Abstract: | This case study compares the importance of prevailing market factors against that of COVID-19 dynamics and policy responses in explaining the evolution of Eurozone (EZ) sovereign spreads during the first half of 2020. Focusing on daily Eurozone CDS spreads, we adopt a multi-stage econometric approach. First, we estimate a multi-factor model for changes in EZ CDS spreads over the pre-COVID-19 period of January 2014 through June 2019. Then, we apply a synthetic control-type procedure to extrapolate model-implied changes in the CDS from July 2019 through June 2020. We find that the factor model does very well in tracing the realized sovereign spreads over the rest of 2019, but breaks down during the pandemic – diverging substantially in March 2020. In the second stage, focusing specifically on the 2020 period, we find that the March 2020 divergence is well accounted for by COVID-specific risks and associated policies. In particular, mortality outcomes and policy announcements, rather than traditional determinants like fiscal space and systematic risk, drove CDS adjustment over this period. Daily CDS spread widening ceased almost immediately after the ECB announced the PEPP, but the divergence between actual and model-implied changes persisted. This divergence can be traced back to the fact that fiscally secure EZ Core countries saw spreads widen further than implied – comparable to the widening of more fragile countries - as several of the Core countries were hit hard by COVID-19. Taken all together, this points to COVID-19 Dominance: The widening spreads during the pandemic induced by COVID-specific risks and fiscal responses has led to unconventional monetary policies that primarily aim to mitigate the short-run fear of the worst economic outcomes, temporarily pushing away concerns over fiscal risk. |
| JEL: | F3 F34 F41 F45 H12 H5 H51 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27451&r=all |
| By: | Jacquinot, Pascal; Lozej, Matija; Pisani, Massimiliano |
| Abstract: | We simulate a version of the EAGLE, a New Keynesian multi-country model of the world economy, to assess the macroeconomic effects of US tariffs imposed on one country member of the euro area (EA), and the rest of the world (RW). The model is augmented with an endogenous effective lower bound (ELB) on the monetary policy rate of the EA and country-specific labour markets with search-and-matching frictions. Our main results are as follows. First, tariffs produce recessionary effects in each country. Second, if the ELB holds, then the tariff has recessionary effects on the whole EA, even if it is imposed on one EA country and the RW. Third, if the ELB holds and the real wage is flexible in the EA country subject to the tariff, or if there are segmented labour markets with directed search within each country, then the recessionary effects on the whole EA are amplified in the short run. Fourth, if the elasticity of substitution among tradables is low, then the tariff has recessionary effects on the whole EA also when the ELB does not hold. JEL Classification: F16, F41, F42, F45, F47 |
| Keywords: | DSGE models, monetary policy, protectionism, unemployment |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202434&r=all |
| By: | Nicolae-Bogdan IANC; Camélia TURCU |
| Keywords: | , European Union candidates, Eurozone, fiscal multipliers, (Interacted) Panel VAR |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:leo:wpaper:2792&r=all |
| By: | Fraccaroli, Nicolò; Giovannini, Alessandro; Jamet, Jean-Francois |
| Abstract: | As the role of central banks expanded, demand for public scrutiny of their actions increased. This paper investigates whether parliamentary hearings, the main tool to hold central banks accountable, are fit for this purpose. Using text analysis, it detects the topics and sentiments in parliamentary hearings of the Bank of England, the European Central Bank and the Federal Reserve from 1999 to 2019. It shows that, while central bank objectives play the most relevant role in determining the topic, unemployment is negatively associated with the focus of hearings on price stability. Sentiments are more negative when uncertainty is higher and when inflation is more distant from the central bank’s inflation aim. These findings suggest that parliamentarians use hearings to scrutinise the performance of central banks in line with their objectives and economic developments, but also that uncertainty is associated with a higher perceived risk of under-performance of central banks. JEL Classification: E02, E52, E58 |
| Keywords: | central bank accountability, monetary policy, text analysis, uncertainty |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202442&r=all |
| By: | Azam, Jean-Paul |
| Abstract: | This paper shows that the two oil shocks that occurred in 1974-85 and 2003-15 inflicted sizable damage to total factor productivity (TFP) in France and Germany. These are resource-poor economies whose firms are importing most of their inputs of extractive commodities. The real prices they pay for them impact directly on their value added and hence on GDP in aggregate. We single out the price of crude oil as the most important and volatile of this set of highly correlated prices. This real price depends both on the world commodity market and on the exchange rates between the US dollar and the relevant European currencies, themselves determined by monetary policy in the US and in Europe. The significance of this mechanism is confirmed econometrically, and its quantitative implications are assessed. On average, these countries have lost more than 1% of potential TFP during these oil shocks, Germany being affected more severely than France. Historical analysis shows that episodes of US dollar appreciation have significant impacts on French and German TFP via this channel. |
| Keywords: | Oil Shocks, Total Factor Productivity, France, Germany |
| JEL: | N10 N70 O47 |
| Date: | 2020–07–22 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:124474&r=all |
| By: | Deniz Sevinc (University of Birmingham); Edgar Mata Flores (University of Leicester); Simon Collinson (University of Birmingham) |
| Abstract: | This paper's distinctive feature is a shift towards a novel definfinition of a measure of income inequality that provides a holistic understanding of income distribution supplemented with a specification through the reflection of governments' redistributive roleplayed by the means of provision of social transfers. Modified inequality indicator is constructed to gain more meaningful quantitative assessments in terms of inequality rankings and subsequently used to measure income inequality spillovers within the European spacein order to achieve a better understanding of the variety of factors that influence developments in inequality. Another aspect is a novel multidimensional interdependency approach that matches physical, economic and social distances between European economies, aiming to model multifaceted interdependencies and account for their joint contribution to the changes in income inequality across the continent. We observe changes in inequalityrankings of several European countries as there is a differentiated degree of response to social transfers within the sample. Our findings provide further evidence on the heterogeneous magnitude of responses to inequality and growth developments across European economies. Evidence has been provided that intra-EU inequalities have a pro-cyclicalcharacter, where the transmission of a change in Eurozone economic performances into the extent of income inequality is statistically significant. In terms of the dynamics between monetary policy and income distribution, our results suggest that the effects ofmonetary shocks on inequality are transmitted relatively rapidly, and often get ampli fied as they travel within the European region. |
| Keywords: | Inequality, Global modelling, international interdependencies, income inequality, Europe. |
| JEL: | C32 E52 I30 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2020-545&r=all |
| By: | Toni Beutler; Matthias Gubler; Simona Hauri; Sylvia Kaufmann |
| Abstract: | We study the bank lending channel in Switzerland over three decades using unbalanced quarterly bank-individual data spanning 1987 to 2016. In contrast to the usual empirical approach, we take an agnostic stance on which bank characteristic drives the heterogenous lending response to interest rate changes. In addition, our empirical model allows for a changing lending reaction occurring over time in a state-dependent manner. Our results are consistent with the existence of a bank lending channel, which is however muted in specific periods. Such episodes are characterized by increased economic uncertainty, which negatively impacts loan growth. |
| Keywords: | Bank lending channel, economic uncertainty, Markov switching model, Bayesian econometrics, unbalanced panels |
| JEL: | C11 C34 E44 E52 G21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2020-12&r=all |