nep-eec New Economics Papers
on European Economics
Issue of 2020‒11‒02
eleven papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Growth factors in developed countries: A 1960-2019 growth accounting decomposition By Gilbert Cette; Aurélien Devillard; Vincenzo Spiezia
  2. Real-time tracking of COVID-19 impacts across Europe reveals that seeking ''herd immunity'' provides no economic benefits By Carlo Fezzi; Valeria Fanghella
  3. COVID-19 and the Future of Quantitative Easing in the Euro Area: Three Scenarios with a Trilemma By Luigi Bonatti; Andrea Fracasso; Roberto Tamborini
  4. EU27 and the UK: Product Dependencies and the Implications of Brexit By Lisandra Flach; Feodora Teti; Lena Wiest; Margherita Atzei; Lena Wiest
  5. Exports and Invoicing: Evidence from the 2015 Swiss Franc Appreciation By Auer, Raphael; Burstein, Ariel; Erhardt, Katharina; Lein, Sarah
  6. Assessing the Scoreboard of the EU Macroeconomic Imbalances Procedure: (Machine) Learning from Decisions By João Amador; Tiago Alves; Francisco Gonçalves
  7. A Welfare Based Estimate of “Real Feel GDP” for Europe and the USA By J.-M. GERMAIN
  8. Break-even inflation rates: the Italian case By Alberto Di Iorio; Marco Fanari
  9. Okun's Law: Copula-based Evidence from G7 Countries By Benos, Nikos; Stavrakoudis, Athanassios
  10. Measuring the Effect of Unconventional Policies on Stock Market Volatility By Demetrio Lacava; Giampiero M. Gallo; Edoardo Otranto
  11. The Life-Cycle Effects of Pension Reforms: A Structural Approach By Claudio Daminato; Mario Padula

  1. By: Gilbert Cette (BDF - banque de france - Banque de France, AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Aurélien Devillard (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Vincenzo Spiezia (OECD - The Organisation for Economic Coopération and Development)
    Abstract: Using a new and original database, our paper contributes to the growth accounting literature with three original aspects: first, it covers a long period from the early 60's to 2019, just before the COVID-19 crisis; second, it analyses at the country level a large set of economies (30); finally, it singles out the growth contribution of ICTs but also of robots. The original database used in our analysis covers 30 developed countries and the Euro Area over a long period allowing to develop a growth accounting approach from 1960 to 2019. This database is built at the country level. Our growth accounting approach shows that the main drivers of labor productivity growth over the whole 1960-2019 period appear to be TFP, non-ICT and non-robot capital deepening, and education. The overall contribution of ICT capital is found to be small, although we do not estimate its effect on TFP. The contribution of robots to productivity growth through the two channels (capital deepening and TFP) appears to be significant in Germany and Japan in the sub-period 1975-1995, in France and Italy in 1995-2005, and in several Eastern European countries in 2005-2019. Our findings confirm also the slowdown in TFP in most countries from at least 1995 onwards. This slowdown is mainly explained by a decrease of the contributions of the components 'others' in the capital deepening and the TFP productivity channels.
    Keywords: Growth,Productivity,ICTs,Robots
    Date: 2020–10
  2. By: Carlo Fezzi; Valeria Fanghella
    Abstract: This paper develops a methodology for tracking in real time the impact of the COVID-19 pandemic on economic activity by analyzing high-frequency electricity market data. The approach is validated by several robustness tests and by contrasting our estimates with the official statistics on the recession caused by COVID-19 in different European countries during the first two quarters of 2020. Compared with the standard indicators, our results are much more chronologically disaggregated and up-to-date and, therefore, can inform the current debate on the appropriate policy response to the pandemic. Unsurprisingly, we find that nations that experienced the most severe initial outbreaks also grappled with the hardest economic recessions. However, we detect diffused signs of recovery, with economic activity in most European countries returning to its pre- pandemic level by August 2020. Furthermore, we show how delaying intervention or pursuing “herd immunity†are not successful strategies, since they increase both economic disruption and mortality. The most effective short-run strategy to minimize the impact of the pandemic appears to be the introduction of early and relatively less stringent non-pharmaceutical interventions.
    Keywords: COVID-19, lockdown, economic impact, mortality, GDP, electricity demand, high frequency data, real time indicators
    Date: 2020
  3. By: Luigi Bonatti; Andrea Fracasso; Roberto Tamborini
    Abstract: We present the set of measures that the ECB has undertaken to fight the pandemic crisis by outlining the deep impact that COVID-19 is having on economic structures, and by highlighting the differences between the current policy package and previous ECB’s programmes. Moreover, we discuss what are the challenges that await the ECB in the medium to long run, contingent on different post-COVID scenarios concerning economic growth and inflation, considering its peculiar multinational jurisdiction.
    Date: 2020
  4. By: Lisandra Flach; Feodora Teti; Lena Wiest; Margherita Atzei; Lena Wiest
    Abstract: The decision of the UK to leave the EU imposes a key challenge for trade relations and, depending on the outcome of the ongoing Brexit negotiations, will cause severe increases in bilateral trade costs. The experience from former crises has shown that disruptions caused by negative shocks are more severe in case of highly dependent goods, which are sourced from few suppliers. This report provides an overview on product dependencies between EU27 and the UK and uncovers several stylized facts. It shows that, whereas for most of the EU27 countries less than 10% of the highly dependent goods are sourced from the UK, the majority of UK’s imports of highly dependent goods are sourced from countries in the EU27. However, for both, the UK and the EU27, Brexit imposes challenges for supply chains, as in both cases most of these goods are classified as intermediate goods, which are used as input for final production in the destination country. For those goods, uncertainty and rising costs due to Brexit may cause an additional distress on supply chains.
    Date: 2020
  5. By: Auer, Raphael (University of Basel); Burstein, Ariel (University of Basel); Erhardt, Katharina; Lein, Sarah
    Abstract: The Swiss National Bank's (SNB) elimination of the lower bound on the EUR/CHF exchange rate on January 15 2015 provides a unique setting to study how prices and quantities respond to changes in nominal exchange rates. In this paper, we complement the study of imports in Auer et al. (2020) by looking at how the response of Swiss export prices and export values varies across products according to the currency of invoicing at the border. The rate of pass through (measured in CHF) into export prices was much lower in industries with a higher share of CHF-invoiced export border prices. We show that industries with higher CHF-invoicing shares experienced substantially weaker export growth in the two-year period after January 2015. At short horizons, however, export quantities did not respond across industries as much as prices to the exchange rate shock.
    Keywords: Large exchange rate shocks, exchange rate pass-through, invoicing currency, expenditure switching, price-setting, nominal and real rigidities
    JEL: F11 F31 F41 L11
    Date: 2020–10–20
  6. By: João Amador; Tiago Alves; Francisco Gonçalves
    Abstract: This paper uses machine learning methods to identify the macroeconomic variables that are most relevant for the classification of countries along the categories of the EU Macroeconomic Imbalances Procedure (MIP). The random forest algorithm considers the 14 headline indicators of the MIP scoreboard and the set of past decisions taken by the European Commission when classifying countries along the macroeconomic imbalances categories. The algorithm identifies the current account balance, the net international investment position and the unemployment rate as key variables, mostly to classify countries that need corrective action, notably through economic adjustment programmes.
    JEL: C40 F15
    Date: 2020
  7. By: J.-M. GERMAIN (Insee)
    Abstract: This paper attempts to define and compute a “Real Feel GDP”, by analogy with meteorologist’s Real Feel Temperature. It is in such terms that we interpret a standard Kolm-Atkinson social welfare function, estimated with life-satisfaction micro data reported in Euro-SILC surveys. Using long run World Inequality Lab distributional data, we find that USA haven’t seen any improvement of our Real Feel GDP for the past 40 years, meaning that economic growth did not result in a better aggregate monetary well-being. In the meantime, in most European countries, except over the recent years, Real Feel GDP and GDP evolved similarly. We also find that economic downturns have lasted much longer than measured by GDP. Indeed, US Real Feel GDP took 10 years to recover its pre- crisis level after the second petrol shock; almost 10 years after the 2008 downturn, European Real Feel GDP had not yet recovered its pre-crisis level.
    Keywords: economic indicator, welfare economics, inequality, distribution, beyond GDP
    JEL: D63 E01 O57
    Date: 2020
  8. By: Alberto Di Iorio (Bank of Italy); Marco Fanari (Bank of Italy)
    Abstract: This paper focuses on break-even inflation rates (BEIRs), a widely used market-based measure of expected inflation, computed from government bonds. In the first part of the paper, we regress the Italian BEIR on several financial variables to assess the contribution of inflation, credit and liquidity components. In the second, in order to disentangle market participants’ inflation expectations from risk premia, we estimate a term structure model for the joint pricing of the Italian nominal and real yield curves, considering also credit and liquidity factors. The results show that BEIRs could be a misleading measure of the expected inflation due to the importance of inflation risk premium and credit risk effect. According to our estimates, the decrease in market-based measures of inflation observed in the last part of the sample period seems to reflect a lowering of both inflation expectations and risk premia. Inflation premia co-move with a measure of tail risk of the long-term inflation distribution signalling that investors become more concerned with downside risks.
    Keywords: inflation-linked bonds, government yields, break-even inflation rate, expected inflation, inflation risk premium, term structure model
    JEL: C32 E43 G12 H63
    Date: 2020–09
  9. By: Benos, Nikos; Stavrakoudis, Athanassios
    Abstract: In this paper we present evidence on the association between unemployment and output in the G7 economies, which has direct implications for the validity of Okun's Law. Specifically, we investigate dependence and asymmetry between the residuals of the output and unemployment first difference equations using the copula methodology. We find that dependence between GDP and unemployment disturbances is strong only in USA and France followed by Canada, the UK and Germany. There is no dependence in Italy and Japan. This enhances the validity of Okun's Law in the former countries without invalidating it in Italy and Japan, since there is still a negative relationship given by the systematic part of the output-unemployment difference equations estimates. Also, there is asymmetry in the former five countries. Output disturbances are associated with unemployment ones only during recessions, while they are completely disentangled throughout contractions in the US, France, Canada, the UK and Germany. These findings imply that USA and France, and less so Canada, Great Britain and Germany provide the most favorable environment for counter-cyclical economic policies. In these economies, policy makers should react more than output-unemployment dynamic equations dictate in case of output slumps. However, during recoveries in these countries and in Italy as well as Japan during the whole business cycle, authorities ought to base stabilization policies solely on the systematic part of the relation between output and unemployment changes. Our results provide guidance to policy makers in addition to what is suggested by traditional empirical approaches, which focus on the estimation of the deterministic part of the output-unemployment relationship.
    Keywords: Okun's Law; Dependence; Copula; Asymmetry
    JEL: C14 E10 E32
    Date: 2020
  10. By: Demetrio Lacava; Giampiero M. Gallo; Edoardo Otranto
    Abstract: As a response to the Great Recession, many central banks resorted to unconventional monetary policies, in the form of a balance sheet expansion. Our research aims at analyzing the impact of the ECB policies on stock market volatility in four Eurozone countries (France, Germany, Italy, and Spain) within the Multiplicative Error Model framework. We propose a model that allows us to quantify the part of market volatility depending directly on unconventional policies by distinguishing between the announcement effect and the implementation effect. While we observe an increase in volatility on announcement days, we find a negative implementation effect, which causes a remarkable reduction in volatility in the long term. A Model Confidence Set approach finds how the forecasting power of the proxy improves significantly after the policy announcement; a multi-step ahead forecasting exercise estimates the duration of the effect, and, by shocking the policy variable, we are able to quantify the reduction in volatility which is more marked for debt-troubled countries.
    Date: 2020–10
  11. By: Claudio Daminato (Department of Management, Technology and Economics, ETH Zurich); Mario Padula (Università "Ca' Foscari" Venezia and CSEF)
    Abstract: To assess the life-cycle welfare effects of pension reforms, we provide a dynamic stochastic model of saving, portfolio choice and retirement with a pension system that operates according to the notional defined contribution principle. Relying on the exogenous variation from a sequence of Italian pension reforms, we identify and estimate the model, which is then used to draw implications of alternative pension policies. Our results also shed further light on the mechanisms behind the offset between social security and private wealth and show the importance of labor supply at retirement as an insurance mechanism against shocks to pension wealth.
    Keywords: Pension reforms, Life-Cycle, Savings, Portfolio Choice, Retirement.
    JEL: E21 H31 H55 J26
    Date: 2020–10–23

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