nep-eec New Economics Papers
on European Economics
Issue of 2021‒02‒15
six papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Who did it? A European Detective Story Was it Real, Financial, Monetary and/or Institutional: Tracking Growth in the Euro Area with an Atheoretical Tool By Mariarosaria Comunale; Francesco Paolo Mongelli
  2. European Wage Dynamics and Spillovers By Yuanyan Sophia Zhang
  3. Microdata for Macro Models: the Distributional Effects of Monetary Policy By Luisa Corrado; Daniela Fantozzi
  4. Mitigating Long-term Unemployment in Europe By Nujin Suphaphiphat; Hiroaki Miyamoto
  5. Nowcasting GDP and its Components in a Data-rich Environment: the Merits of the Indirect Approach By Alessandro Giovannelli; Tommaso Proietti; Ambra Citton; Ottavio Ricchi; Cristian Tegami; Cristina Tinti
  6. Investor Information and Bank Instability During the Euro Crisis By Silvia Iorgova; Chase P. Ross

  1. By: Mariarosaria Comunale (Bank of Lithuania & the Australian National University); Francesco Paolo Mongelli (European Central Bank)
    Abstract: During the past thirty years, euro area countries have undergone significant changes and experienced diverse shocks. We aim to investigate which variables have consistently supported growth in this tumultuous period. The paper unfolds in three parts. First, we assemble a set of 35 real, financial, monetary and institutional variables for all euro area countries covering the period between 1990Q1 and 2016Q4. Second, using the Weighted-Average Least Squares (WALS) method, as well as other techniques, we gather clues about which variables to select. Third, we quantify the impact of various determinants of growth in the short and long runs. Our main finding is the positive and robust role of institutional reforms on long-term growth for all countries in the sample. An improvement in competitiveness matters for growth in the overall euro area in the long run as well as a decline in sovereign and systemic stress. The debt over GDP negatively influences growth for the periphery, but only in the short run. Property and equity prices have a significant impact only in the short run, whereas the loans to NFCs positively affect the core euro area. An increase in global GDP also supports growth.
    Keywords: euro area, GDP growth, monetary policy, fiscal policy, institutional integration, financial crisis, systemic stress, and synchronization
    JEL: C23 E40 F33 F43
    Date: 2020–05–11
  2. By: Yuanyan Sophia Zhang
    Abstract: Wage rises have remained stubbornly low in advanced Europe in recent years, but, at the same time, newer EU members are experiencing rapid wage acceleration. This paper investigates the drivers of this wage divergence. Econometric analysis using error correction models suggests that wage growth responds more quickly to changes in unemployment in the newer EU members than in advanced Europe, where wages are more closely related to inflation and inflation expectations in the short run, implying greater inertia in nominal wage rises in advanced Europe. In the years after the global crisis, this inertia contributed to the build up of a real wage overhang relative to sharply slowing labor productivity, which subsequently dragged on nominal wage rises even as unemployment began to decline. Spillovers of subdued wage growth between euro area countries also weighed on wage rises in advanced Europe.
    Keywords: Wages;Real wages;Labor markets;Unemployment;Unemployment rate;WP,pay,wage growth
    Date: 2019–07–19
  3. By: Luisa Corrado (DEF and CEIS, Università di Roma "Tor Vergata"); Daniela Fantozzi (National Statistical Institute (Istat))
    Abstract: In this paper we investigate the effect of standard and non-standard monetary policy implemented by the ECB on income inequality in Italy. We use for the first time the survey microdata on Income and Living Conditions (EU-SILC, Istat) in a repeated cross-section experiment to build measures of inequality and the distribution over time for incomes and subgroups of individuals. The identification strategy is based on surprises estimated in the EA-MPD database for the Euro Area. Using a battery of Local Projections, we evaluate the impact of monetary policy by comparing the performance of the impulse response functions of our inequality measures in different policy scenarios (pre and post-QE). The main findings show that an expansionary unconventional monetary policy shock compressed inequality of disposable and labor income more persistently than a conventional monetary shock. The financial channel has an equalizing effect favoring the less wealthy households mainly in the long-run. Overall, our evidence suggests that QE is associated with a decrease in Italian households inequality.
    Keywords: Income Inequality, Monetary Policy, Local Projections, Survey Data, High Frequency Data.
    JEL: C81 D31 E52 E58
    Date: 2020–06–03
  4. By: Nujin Suphaphiphat; Hiroaki Miyamoto
    Abstract: While unemployment rates in Europe declined after the global financial crisis until 2018/19, the incidence of long-term unemployment, the share of people who have been unemployed for more than one year to the total unemployed, remained high. Moreover, the COVID-19 pandemic could aggravate the long-term unemployment. This paper explores factors associated with long-term unemployment in European countries, using panel of 25 European countries over the period 2000–18. We find that skill mismatches, labor market matching efficiency, and labor market policies are associated with the incidence of long-term unemployment. Among different types of active labor market policies, training and start-up incentives are found to be effective in reducing long-term unemployment.
    Keywords: Labor markets;Labor market policy;Active labor market policies;Unemployment;Employment;WP,incidence of LTU,LTU,incidence
    Date: 2020–08–21
  5. By: Alessandro Giovannelli (University of L'Aquila); Tommaso Proietti (DEF & CEIS, Università di Roma "Tor Vergata"); Ambra Citton (Ministero dell'Economia e delle Finanze); Ottavio Ricchi (Ministero dell'Economia e delle Finanze); Cristian Tegami (Sogei SpA); Cristina Tinti (Ministero dell'Economia e delle Finanze)
    Abstract: The national accounts provide a coherent and exaustive description of the current state of the economy, but are available at the quarterly frequency and are released with a nonignorable publication lag. The paper proposes and illustrates a method for nowcasting and forecasting the sixteen main components of Gross Domestic Product (GDP) by output and expenditure type at the monthly frequency, using a high-dimensional set of monthly economic indicators spanning the space of the common macroeconomic and financial factors. The projection on the common space is carried out by combining the individual nowcasts and forecasts arising from all possible bivariate models of the unobserved monthly GDP component and the observed monthly indicator. We discuss several pooling strategies and we select the one showing the best predictive performance according to a pseudo real time forecasting experiment. Monthly GDP can be indirectly estimated by the contemporaneous aggregation of the value added of the different industries and of the expenditure components. This enables the comparative assessment of the indirect nowcasts and forecasts vis-à-vis the direct approach and a growth accounting exercise. Our approach meets the challenges posed by the dimensionality, since it can handle a large number of time series with a complexity that increases linearly with the cross-sectional dimension, while retaining the essential heterogeneity of the information about the macroeconomy. The application to the Italian case leads to several interesting discoveries concerning the time-varying predictive content of the information carried by the monthly indicators.
    Keywords: Mixed-Frequency Data, Dynamic Factor Models, Growth Accounting, Model Averaging, Ledoit-Wolf Shrinkage.
    JEL: C32 C52 C53 E37
    Date: 2020–05–30
  6. By: Silvia Iorgova; Chase P. Ross
    Abstract: Outside of financial crises, investors have little incentive to produce private information on banks’ short-term liabilities held as information-insensitive safe assets. The same does not hold true during crises. We measure daily information production using data from credit default swap spreads during the global financial crisis and the subsequent European debt crisis. We study abnormal information production around major events and interventions during these crises and find that, on average, capital injections reduced abnormal information production while early European stress tests increased it. We also link information production to outcomes: high levels of information production predict bank balance sheet contraction and higher government expenditures to support financial institutions. In an addendum, we show information production on nonfinancials dramatically increased relative to financials at the height of the COVID-19 crisis, reflecting the nonfinancial nature of the initial shock.
    Date: 2021–01–08

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