nep-eec New Economics Papers
on European Economics
Issue of 2021‒01‒18
ten papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Should European integration go further? A survey of French, German and Italian members of national parliaments By Pierre Boyer; Elie Gerschel; Anasuya Raj
  2. The Interplay between Monetary and Fiscal Policies in the EU By António Afonso; Alexandre Sousa
  3. The international dimension of a fragile EMU By Ioannou Demosthenes; Pagliari Maria Sole; Stracca Livio
  4. Global value chains, value-added generation and structural change in EU core and periphery economies: An Input-Output approach By Tiago Domingues; João Ferreira do Amaral; João Carlos Lopes
  5. Nowcasting in a pandemic using non-parametric mixed frequency VARs By Huber, Florian; Koop, Gary; Onorante, Luca; Pfarrhofer, Michael; Schreiner, Josef
  6. The Contribution of Human Capital and Its Policies to Per Capita Income in Europe and the OECD By Balazs Egert; Jarmila Botev; David Turner
  7. IZA COVID-19 Crisis Response Monitoring: The Second Phase of the Crisis By Eichhorst, Werner; Marx, Paul; Rinne, Ulf; Böheim, René; Leoni, Thomas; Tobin, Steven; Sweetman, Arthur; Cahuc, Pierre; Colussi, Tommaso; Jongen, Egbert L. W.; Verstraten, Paul; Ferreira, Priscila; Cerejeira, João; Portela, Miguel; Ramos, Raul; Kahanec, Martin; Martiskova, Monika; Hensvik, Lena; Nordström Skans, Oskar; Arni, Patrick; Costa, Rui; Machin, Stephen; Houseman, Susan N.
  8. Semi-Structural VAR and Unobserved Components Models to Estimate Finance-Neutral Output Gap By Kátay Gábor; Kerdelhué Lisa; Lequien Matthieu
  9. Bank credit and market-based finance for corporations: the effects of minibond issuances By Ongena, Steven; Pinoli, Sara; Rossi, Paola; Scopelliti, Alessandro
  10. I do it my way. Understanding policy variation in pandemic response across Europe By Egger, Clara; Magni-Berton, Raul; Roché, Sébastian; Aarts, Kees

  1. By: Pierre Boyer (X - École polytechnique); Elie Gerschel; Anasuya Raj
    Abstract: Summary: The European economic union is incomplete, which makes it vulnerable to macroeconomic shocks. The opportunity to move forward in the integration process was highly debated even before the Covid-19 crisis. Yet the diverging views among countries and political groups are often considered as an obstacle on the path to required agreements for completing the Economic and Monetary Union (EMU). We present the results of a survey conducted in 2018 among members of national parliaments (MPs) in France, Germany and Italy on European integration in policy fields related to risk-sharing and budgetary institutions, asking for their opinion on proposals such as the creation of a European Unemployment Insurance (EUI), Eurobonds, or an EU tax. We find that nationality and political groups are key determinants of support for such proposals, the latter being the strongest. We describe how opinions are divided and try to identify policy proposals which could gather enough political support. The agreement reached on July 21st, 2020 at the last European summit includes financial transfers between States and the creation of Eurobonds, thus representing an important institutional move and an application of some of the reforms suggested by our survey. Yet what has been decided upon is only temporary and leaves open the question of the future of European integration. Key points: At first glance, the answers show diverging opinions on most questions between countries with Italy supporting more integration, and Germany opposing it for most proposals. France has an intermediate position, leaning towards Italy. A breakdown of the results by party affiliation shows a more nuanced picture. For cross-country comparisons, we build a party indicator using the affiliation of national parties to European political groups. National MPs associated with the group of Socialists and Democrats (S&D) at the European level show strong support for the creation of new fiscal institutions and a new EU tax, and for risk sharing institutions (European Unemployment Insurance, Eurobonds). On the contrary, MPs associated with the European People's Party (EPP) are mildly positive or against risk-sharing and fiscal institutions. National MPs affiliated to Renew Europe hold similar views to S&D MPs, but are less supportive of risk-sharing mechanisms. There is a substantial diversity of positions between the German AfD, the Italian Lega and the 5-star movement: the three parties have diverging views on the future of integration. Our econometric analysis shows that party affiliations have more explanatory power than nationality for all questions. This clearly shows that outcomes of national parliamentary elections could change the overall support for any issue.
    Date: 2020–07
  2. By: António Afonso; Alexandre Sousa
    Abstract: We study the interactions between monetary and fiscal policiesin the EU countries, for the period 1995-2019. Our results show notably that: i) the inflation rate has a relevantimpact over the central banks’ decision making; ii) the cyclically adjusted primary balance reacts positively to increases in the level of government debt; iii) monetary policy reaction functions do not seem to take into consideration the cyclically adjusted primary balance; iv) fiscal policy, via the cyclically adjusted primary balance, seem to be affected by the short-term interest rate in a negative way.The global economic and financial crisis impacted negatively both the short-term nominal interest rates and the cyclically adjusted primary balance, however with a higher degree in the euro area.
    Keywords: Monetary Policy, Fiscal Policy; Reaction Functions; Great Recession
    JEL: E52 E62 E63 E65 H62
    Date: 2020–12
  3. By: Ioannou Demosthenes; Pagliari Maria Sole; Stracca Livio
    Abstract: This paper quantifies the economic influence that shocks to EMU cohesion, which in turn reflect the incomplete nature of the monetary union, have on the rest of the world, by disentangling euro area stress shocks and global risk aversion shocks on the basis of a combination of sign, magnitude and narrative restrictions in a daily Structural Vector Autoregression (VAR) model with financial variables. We find that the effects of euro area stress shocks are significant not only for the euro area but also for the rest of the world. Notably, an increase in euro area stress entails a slowdown of economic activity in the rest of the world, as well as a fall in imports/exports of both the euro area and the rest of the world. A decrease in euro area stress has somewhat more widespread beneficial effects on both economic performance and global trade activity.
    Keywords: Economic and Monetary Union, Bayesian SVAR, narrative sign restrictions, panel local projections
    JEL: C23 C32 F02 F33
    Date: 2020
  4. By: Tiago Domingues; João Ferreira do Amaral; João Carlos Lopes
    Abstract: Backward and forward integration are growing in most sectors across the European Union (EU). To benefit from this increasing participation in Global Value Chains (GVC), the increase in imports, namely of intermediate inputs, should be followed by adequate growth in exports. The external dependency of many industries and the corresponding low domestic value-added generated in production,combinedwith relatively weak export potential can cause high trade deficits and growing external debt to GDP ratios. This paper evaluates the inter-industry participation in GVCs considering eightdifferent EU economies and 25 tradable sectors. Based on Input-Output production multipliers and intermediate import coefficients, we propose an empirical method to assess the evolution of vertical specialization, domestic value-added generation and external dependency. After a convenient arrangement of the Leontief inverse matrix, the evolution of backward linkage indicators can be used to detect structural changes, particularly quantifying a "net growth effect" and an "external dependency effect". This method allows the classification of each sector into different areasconsidering their recent structural evolution and it can be useful as a simple, but suggestive, device to compare different economies in a given period or assess their structural development processes in time. Adetailed comparison of one EU periphery country (Portugal) and one EU core country (Germany) is made, based on WIOD data for the period 2000-2014, followed by a brief presentation of sixother cases (Austria, Check Republic, Belgium, Finland, Greece, and Netherlands). Particular attention is given to differences within and between countries before and after the global financial crisis.
    Keywords: Global Value Chains; Input-Output analysis, External dependency, Structural change
    JEL: C67 E01 F14 F62 L60 L70 L96
    Date: 2021–01
  5. By: Huber, Florian; Koop, Gary; Onorante, Luca; Pfarrhofer, Michael; Schreiner, Josef
    Abstract: This paper develops Bayesian econometric methods for posterior inference in non-parametric mixed frequency VARs using additive regression trees. We argue that regression tree models are ideally suited for macroeconomic nowcasting in the face of extreme observations, for instance those produced by the COVID-19 pandemic of 2020. This is due to their flexibility and ability to model outliers. In an application involving four major euro area countries, we find substantial improvements in nowcasting performance relative to a linear mixed frequency VAR. JEL Classification: C11, C32, C53, E37
    Keywords: Bayesian, macroeconomic forecasting, regression tree models, vector autoregressions
    Date: 2021–01
  6. By: Balazs Egert; Jarmila Botev; David Turner
    Abstract: This paper studies empirically the effect of education policies on human capital and per capita income. The results suggest for European and OECD countries that higher attendance at pre-primary education, greater autonomy of schools and universities, a lower student-to-teacher ratio, higher age of first tracking in secondary education and lower barriers to funding to students in tertiary education all tend to boost human capital through amplifying the positive effects of greater public spending on education. Benefits from pre-primary education are particularly high for countries with an above-average share of disadvantaged students. School autonomy yields high benefits especially in countries where schools are subject to external accountability. From a policy perspective, improving the quality of the labour force and value-for-money of education policies are of utmost importance in the future, especially in European countries facing population ageing and ever increasing fiscal constraints. Prompt policy action is needed given the very long delay with which the full effect of reforms in education policy materialises on human capital and per capita income.
    Keywords: human capital, economic growth, per capita income, education policies, OECD
    JEL: E24 I20 I25 I26 I28
    Date: 2020
  7. By: Eichhorst, Werner (IZA); Marx, Paul (University of Duisburg-Essen); Rinne, Ulf (IZA); Böheim, René (University of Linz); Leoni, Thomas (WIFO - Austrian Institute of Economic Research); Tobin, Steven (International Institute for Labour Studies (ILO)); Sweetman, Arthur (McMaster University); Cahuc, Pierre (Sciences Po, Paris); Colussi, Tommaso (Catholic University Milan); Jongen, Egbert L. W. (CPB Netherlands Bureau for Economic Policy Analysis); Verstraten, Paul (CPB Netherlands Bureau for Economic Policy Analysis); Ferreira, Priscila (University of Minho); Cerejeira, João (University of Minho); Portela, Miguel (University of Minho); Ramos, Raul (University of Barcelona); Kahanec, Martin (Central European University); Martiskova, Monika (CELSI); Hensvik, Lena (IFAU); Nordström Skans, Oskar (Uppsala University); Arni, Patrick (University of Bristol); Costa, Rui (London School of Economics); Machin, Stephen (London School of Economics); Houseman, Susan N. (Upjohn Institute for Employment Research)
    Abstract: Country reports for Austria, Canada, France, Germany, Italy, Netherlands, Portugal, Spain, Slovakia, Sweden, Switzerland, United Kingdom, and the United States (174 Seiten)
    Date: 2021–01–08
  8. By: Kátay Gábor; Kerdelhué Lisa; Lequien Matthieu
    Abstract: The paper assesses the impact of adding information on financial cycles on the output gap estimates for eight advanced economies using two unobserved components models: a reduced form extended Hodrick-Prescott filter, and a standard semi-structural unobserved components model. To complement these models, a semi-structural vector autoregression model is proposed in which only supply shocks are identified. The accuracy of the output gap estimates is assessed based on their performance in predicting recessions. The models with financial variables generally produce more accurate output gap estimates at the expense of increased real-time volatility. While the extended Hodrick-Prescott filter is particularly appealing for its real-time stability, it lags behind the two semi-structural models in terms of forecasting performance. The vector autoregression model augmented with financial variables features the best in-sample forecasting performance, and it has similar real-time prediction capabilities to the semi-structural unobserved components model. Overall, financial cycles appear to be relevant in Japan, Spain, the UK, and – to a lesser extent – in the US and in France, while they are relatively muted in Canada, Germany, and Italy.
    Keywords: Unobserved Components model, semi-structural VAR, output gap, financial cycle, sustainable growth, credit, house prices, advanced economies.
    JEL: C32 E32 E44 G01 O11 O1
    Date: 2020
  9. By: Ongena, Steven; Pinoli, Sara; Rossi, Paola; Scopelliti, Alessandro
    Abstract: We study the effects of the diversification of funding sources on the financing conditions for firms. We exploit a regulatory reform which took place in Italy in 2012, i.e., the introduction of “minibonds”, which opened a new market-based funding opportunity for unlisted firms. Using the Italian Credit Register, we investigate the impact of minibond issuance on bank credit conditions for issuer firms, both at the firm-bank and firm level. We compare new loans granted to issuer firms with new loans concurrently granted to similar non-issuer firms. We find that issuer firms obtain lower interest rates on bank loans of the same maturity than non-issuer firms, suggesting an improvement in their bargaining power with banks. In addition, issuer firms reduce the amount of used bank credit but increase the overall amount of available external funds, pointing to a substitution with bank credit and to a diversification of corporate funding sources. Studying their ex-post performance, we find that issuer firms expand their total assets and fixed assets, and also raise their leverage. JEL Classification: G21, G23, G32, G38
    Keywords: bank credit, capital markets, loan pricing, minibonds, SME finance
    Date: 2020–12
  10. By: Egger, Clara; Magni-Berton, Raul; Roché, Sébastian; Aarts, Kees
    Abstract: To contain the spread of the Covid-19, governments have designed and implemented a large range of exceptional measures. Yet, the restrictive nature of the policy options chosen and the severity of their enforcement mechanisms considerably vary across countries. Focusing on the case of the European Union – a group of closely connected nations which develop some forms of supranational policy coordination to manage the pandemic -, we first map the diversity of policy responses taken using two original indicators : the stringency and scope of freedom limitations and the depth of control used in their enforcement. Second, we elaborate a comprehensive set of eight hypotheses to explain cross-national variation in pandemic policy-making. Our exploratory results – based on bivariate statistical associations – reveal that structural determinants – the level of political and interpersonal trust, a country’s overall resources, democratic experience and, to a lesser extent, political check and balances – shape crisis policy-making more than conjectural factors such as the magnitude of the crisis at stake. These results call for further research into the determinants of crisis policy-making that we propose to address with a new research project focusing on the modalities, determinants and impacts of exceptional decision making in times of Covid-19.
    Date: 2020–12–07

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