nep-eec New Economics Papers
on European Economics
Issue of 2021‒01‒25
fourteen papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Spillover effects of sovereign bond purchases in the euro area By Yvo Mudde; Anna Samarina; Robert Vermeulen
  2. The ECB and the Cost of Independence. Unearthing a New Doom-Loop in the European Monetary Union By Armando Marozzi
  3. Qualitative survey data and the perceived ‘normal’ growth: evidence for Portugal and the Euro-area By Nuno Goncalves; Tiago Martins
  4. It is Only Natural: Europe’s Low Interest Rates By Marco Arena; Gabriel Di Bella; Alfredo Cuevas; Borja Gracia; Vina Nguyen; Alex Pienkowski
  5. Mind the wealth gap: a new allocation method to match micro and macro statistics for household wealth By Michele Cantarella; Andrea Neri; Maria Giovanna Ranalli
  6. The Policy Drivers of Self-Employment: New Evidence from Europe By Annabelle Mourougane; Balazs Egert; Mark Baker; Gábor Fülöp
  7. Foreign demand for euro banknotes JEL Classification: E41, E47, E49, E59, F24 By Lalouette, Laure; Zamora-Pérez, Alejandro; Rusu, Codruta; Bartzsch, Nikolaus; Politronacci, Emmanuelle; Delmas, Martial; Rua, António; Brandi, Marco; Naksi, Martti
  8. The Impact of Climate on Economic and Financial Cycles: A Markov-switching Panel Approach By Monica Billio; Roberto Casarin; Enrica De Cian; Malcolm Mistry; Anthony Osuntuyi
  9. Pound for Pound Export Diversification By James E. Anderson; Yoto V. Yotov
  10. A Framework for Assessing the Costs of Pension Reform Reversals By Daniel Baksa; Zsuzsa Munkacsi; Carolin Nerlich
  11. Will Germany's Temporary VAT Tax Rates Cut as Part of the Covid-19 Fiscal Stimulus Package Boost Consumption and Growth? By Michael Funke; Raphael Terasa
  12. Determinants of the (non-Housing) Labour Income Share in the EU By Kostarakos, Ilias
  13. The Political Cost of Lockdown's Enforcement By Fazio, Andrea; Reggiani, Tommaso G.; Sabatini, Fabio
  14. Are official forecasts of output growth in the EU still biased? Evidence from stability and convergence programmes and the European Commission’s Spring forecasts By Cronin, David; McQuinn, Kieran

  1. By: Yvo Mudde; Anna Samarina; Robert Vermeulen
    Abstract: This paper investigates cross-border spillover effects from the Eurosystem's Public Sector Purchase Programme (PSPP) on euro area government bond yields. We distinguish between the direct effects of domestic bond purchases by national central banks and the indirect effects from bond purchases by national central banks in other euro area countries over the period March 2015 - December 2018. The results reveal substantial spillover effects across the euro area, providing evidence for strong arbitrage within the euro area. These spillover effects are particularly large for long-term bonds and for bonds issued by non-core countries. The larger impact of spillovers in these cases can be explained by investors rebalancing towards higher yielding government bonds. In addition, purchases under PSPP had their largest impact on bond yields in 2015.
    Keywords: Public Sector Purchase Programme; euro area; spillovers; government bonds
    JEL: E52 E58 G12
    Date: 2021–01
  2. By: Armando Marozzi
    Abstract: Central Bank Independence has often been praised as a "free lunch" as it lowers inflation with no costs to output. This paper, instead, claims that in a peculiar monetary union such as the European Monetary Union (EMU) defending the independence during a financial crisis can be macroeconomically costly: unconventional monetary policies may expose the European Central Bank (ECB) to the threat of fiscal dominance which, in turn, might endogenously shift the ECB’s fiscal stance toward fiscal conservatism. Fiscally hawkish signals can then depress GDP and inflation, thereby forcing the ECB to prolong the unconventional stimuli to achieve its target. This paper finds evidence of this new "doom-loop" at the core of the EMU.
    Keywords: ECB, monetary-fiscal interaction, CBI, unconventional monetary policy, EMU, fiscal communication
    JEL: E52 E58 E61 E63
    Date: 2021
  3. By: Nuno Goncalves; Tiago Martins
    Abstract: There is an increasing concern among analysts and policymakers that the economic growth that can be inferred from survey data has been changing over time, particularly after recessions, which may harm the effectiveness of soft indicators for short-term forecasting and standard business cycle analysis. This paper tries to contribute to the existing literature, investigating the relationship among economic sentiment, GDP growth, consumer confidence and private consumption growth for Portugal and the Euro-area. It also assesses the perceived ‘normal’ GDP growth as a complementary measure of potential growth. Overall, results show the existence of a linear relationship between soft-data and real variables growth that differs from one country to another and over time. In particular, recessions are found to play a key role, as the post-crisis ‘normal’ growth is, on average, lower than the pre-crisis. Moreover, there is some evidence that the estimated ‘normal’ GDP growth seems to fit fairly well in potential growth estimates, as both measures present identical trends and patterns in most periods of the sample and share identical behaviour in recessions.
    Keywords: survey data, business cycle, potential output, Portugal, Euro-area
    JEL: C32 E32 O42
    Date: 2020–12
  4. By: Marco Arena; Gabriel Di Bella; Alfredo Cuevas; Borja Gracia; Vina Nguyen; Alex Pienkowski
    Abstract: Estimates of the natural interest rate are often useful in the analysis of monetary and other macroeconomic policies. The topic gathered much attention following the great financial crisis and the Euro Area debt crisis due to the uncertainty regarding the timing of monetary policy normalization and the future path of interest rates. Using a sample of European countries (including several members of the Euro Area), this paper provides estimates of country-specific natural interest rates and some of their drivers between 2000 and 2019. In line with the literature, our findings suggest that natural interest rates declined during this period, and despite a rebound in the last few years of it, they have not recovered to their pre-crisis levels. The paper also discusses the implications of the decline in natural interest rates for monetary conditions and debt sustainability.
    Keywords: Real interest rates;Output gap;Global financial crisis of 2008-2009;Financial crises;Central bank policy rate;WP,monetary policy,math display,fiscal policy
    Date: 2020–07–03
  5. By: Michele Cantarella; Andrea Neri; Maria Giovanna Ranalli
    Abstract: The financial and economic crisis recently experienced by many European countries has increased demand for timely, coherent and consistent distributional information for the household sector. In the Euro area, most of the NCBs collect such information through income and wealth surveys, which are often used to inform their decisions. These surveys, however, can often suffer from biases, usually caused by non-response and under-reporting behaviours, leading to a mismatch with macroeconomic aggregates. In this paper, we develop a novel allocation method which combines information from a power law (Pareto) model and imputation procedures so to address these issues simultaneously, when only limited external information is available. We provide two important contributions: first, we adjust the weights of observed survey households for non-response bias, then, we correct for measurement error. Finally, we produce distributional indicators for four Euro-Area countries.
    Date: 2021–01
  6. By: Annabelle Mourougane; Balazs Egert; Mark Baker; Gábor Fülöp
    Abstract: Using cross-country time series panel regressions for the last two decades, this paper seeks to identify the main policy and institutional factors that explain the share of self-employment across European countries. It looks at the aggregate share of self-employed as well as its breakdown by age, skill and gender. The generosity of unemployment benefits, and to a lesser extent, spending on active labour market policies appear to be robust determinants of the long-term share of self-employed in European countries. No significant relation could be identified between the stringency of employment protection and aggregate self-employment. However, there are significant, and oppositely signed, impacts on high- and low-skilled self-employed separately. Both the tax wedge and the minimum wage appear to be related positively to the share of self-employed in the long term, but the relation holds for some categories of workers only.
    Keywords: self-employment, labour market, labour market regulations, labour market institutions, Europe
    JEL: J01 J21 J41 J48
    Date: 2020
  7. By: Lalouette, Laure; Zamora-Pérez, Alejandro; Rusu, Codruta; Bartzsch, Nikolaus; Politronacci, Emmanuelle; Delmas, Martial; Rua, António; Brandi, Marco; Naksi, Martti
    Keywords: banknotes, currency substitution, euro, euroisation, foreign demand for money, hoarding, remittances
    Date: 2021–01
  8. By: Monica Billio (Department of Economics, University Of Venice Cà Foscari); Roberto Casarin (Department of Economics, University Of Venice Cà Foscari); Enrica De Cian (Centro Euro-Mediterraneo sui Cambiamenti Climatici (CMCC), Venice, Italy); Malcolm Mistry (Centro Euro-Mediterraneo sui Cambiamenti Climatici (CMCC), Venice, Italy); Anthony Osuntuyi (Department of Mathematics, Obafemi Awolowo University Nigeria)
    Abstract: This paper examines the impact of climate shocks on 13 European economies analysing jointly business and financial cycles, in different phases and disentangling the effects for different sector channels. A Bayesian Panel Markov-switching framework is proposed to jointly estimate the impact of extreme weather events on the economies as well as the interaction between business and financial cycles. Results from the empirical analysis suggest that extreme weather events impact asymmetrically across the different phases of the economy and heterogeneously across the EU countries. Moreover, we highlight how the manufacturing output, a component of the industrial production index, constitutes the main channel through which climate shocks impact the EU economies.
    Keywords: Bayesian inference, climate shocks, financial cycle, business cycle, Markov-switching, Multi-country Panel
    JEL: C11 C15 C33 C53 E37
    Date: 2021
  9. By: James E. Anderson (Boston College); Yoto V. Yotov (Drexel University)
    Abstract: We propose a short-run model of the extensive margin of trade and deploy it to dis- tinguish and quantify domestic and cross-border margins. Our empirical focus is on the domestic extensive margin of trade (domestic distribution of a product) and its importance for quantifying policy and globalization effects on the international extensive margin of trade. We build a dataset that combines data on the domestic extensive margin and the standard international extensive margin. It reveals significant and intuitive variation in the domestic extensive margin across countries and over time. We quantify the extensive margin effects of European Union (EU) integration, 2008-2018, and demonstrate that these effects cannot be identified without the domestic extensive margin. We find strong and highly heterogeneous effects, both across countries and directionally.
    Keywords: Extensive Margin, Domestic Extensive Margin, Globalization, Gravity
    JEL: F13 F14 F16
    Date: 2020–12–20
  10. By: Daniel Baksa; Zsuzsa Munkacsi; Carolin Nerlich
    Abstract: Several European countries are currently considering reversing parts of their pension reforms that were adopted previously to improve sustainability. In this paper we present a framework that allows us to quantify the macroeconomic and fiscal costs of such reversals. We thereby integrate the country-specific information from the latest Ageing Report into a dynamic general equilibrium model with overlapping generations. Focusing on Germany and Slovakia as country cases, our model replicates the Ageing Report’s pension expenditure projections very well. We calculate the macroeconomic impact of first the additional pension reforms needed to contain the public debt pressures arising from population ageing and second the costs of reform reversals. Our model results show that undoing past pension reforms would generate substantial adverse macroeconomic costs and could pose challenges for fiscal sustainability.
    Keywords: Aging;Pension reform;Pension spending;Retirement;Public debt;WP,benefit ratio,public debt-to-GDP ratio,old-age dependency ratio,contribution rate,labour force
    Date: 2020–07–17
  11. By: Michael Funke; Raphael Terasa
    Abstract: On 3 June 2020, the German government announced a EUR 130 billion fiscal stimulus package to stimulate market demand and jumpstart the economy in the wake of the COVID-19 pandemic lockdown in the spring of 2020. The most prominent measure of this package is an unconventional fiscal policy in the form of a temporary VAT rates cut for six months, from 1 July to 31 December 2020. Employing a dynamic stochastic general equilibrium (DSGE) framework, we study the efficiency of the VAT tax rates cut for ameliorating the consequences of the pandemic recession. The simulation of the calibrated DSGE model yields a tax policy-induced real GDP increase of about 0.3 percentage points for 2020.
    Keywords: fiscal policy, value-added tax, DSGE model, Covid-19, Germany
    JEL: E30 E60 H25 I15
    Date: 2020
  12. By: Kostarakos, Ilias
    Date: 2020
  13. By: Fazio, Andrea (Sapienza University of Rome); Reggiani, Tommaso G. (Cardiff University); Sabatini, Fabio (Sapienza University of Rome)
    Abstract: We study how the political cost of enforcing a lockdown in response to the COVID- 19 outbreak relates to citizens' propensity for altruistic punishment in Italy, the early epicenter of the pandemic. Approval for the government's management of the crisis decreases with the amount of the penalties that individuals would like to see enforced for lockdown violations. People supporting stronger punishment are more likely to consider the government's reaction to the pandemic as insufficient. However, after the establishment of tougher sanctions for risky behaviors, we observe a sudden flip in support for government. Higher amounts of the desired fines become associated with a higher probability of considering the government's policy response as too extreme, lower trust in government, and lower confidence in the truthfulness of the officially provided information. Lock-downs entail a political cost that helps explain why democracies may adopt epidemiologically suboptimal policies.
    Keywords: COVID-19, lockdown, law enforcement, altruistic punishment, incumbent support, trust in institutions, Italy
    JEL: D12 D83 I12 K40
    Date: 2021–01
  14. By: Cronin, David; McQuinn, Kieran
    Date: 2020

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