nep-eec New Economics Papers
on European Economics
Issue of 2021‒03‒15
sixteen papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. The Anatomy of Government Bond Yields Synchronization in the Eurozone By Claudio Barbieri; Mattia Guerini; Mauro Napoletano
  2. Interrelationships between Human Capital, Migration and Labour Markets in the Western Balkans: An Econometric Investigation By Michael Landesmann; Isilda Mara
  3. The narrative about the economy as a shadow forecast: an analysis using Banco de España quarterly reports By Nélida Díaz Sobrino; Corinna Ghirelli; Samuel Hurtado; Javier J. Pérez; Alberto Urtasun
  4. Forecasting the Stability and Growth Pact compliance using Machine Learning. By Kéa Baret; Amélie Barbier-Gauchard; Théophilos Papadimitriou
  5. The transmission of productivity through global value chains: formal concept and application to recent developments in the EU27 By David Martinez Turegano
  6. Prudential Policies in the Eurozone: A Propensity Score Matching Approach By Lucas Hafemann
  7. "Whatever it takes!": How tonality of TV-news affects government bond yield spreads during crises By Hirsch, Patrick; Köhler, Ekkehard A.; Feld, Lars P.; Thomas, Tobias
  8. The Transmission Channels of Government Spending Uncertainty By Anna Belianska; Aurélien Eyquem; Céline Poilly
  9. Missing growth measurement in Germany By Schreiber, Sven; Schmidt, Vanessa
  10. Labour Market Effects of Trade in a Small Open Economy By Agnes Kügler; Klaus S. Friesenbichler; Cornelius Hirsch
  11. The dynamics of bank rates in a negative-rate environment - the Swiss case By Romain Baeriswyl; Lucas Marc Fuhrer; Petra Gerlach-Kristen; Jörn Tenhofen
  12. Suspension of Insurers´ Dividends as a Response to the Covid-19 Crisis: Evidence from Equity Market By Petr Jakubik; Saida Teleu
  13. Recession and Recovery: The Distribution of EU Firm Growth 2005-2014 By FLACHENECKER Florian; KORNEJEW Martin; JANIRI Mario
  14. EIF venture capital, private equity mid-market & business angels surveys 2020: Market sentiment - COVID-19 impact - Policy measures By Krämer-Eis, Helmut; Botsari, Antonia; Kiefer, Kilian; Lang, Frank
  15. Market power and productivity trends in the European economies. A macroeconomic perspective. By Claudio Battiati; Cecilia Jona-Lasinio; Enrico Marvasi; Silvia Sopranzetti
  16. Asymmetric information and the securitization of SME loans By Ugo Albertazzi; Margherita Bottero; Leonardo Gambacorta; Steven Ongena

  1. By: Claudio Barbieri; Mattia Guerini; Mauro Napoletano
    Abstract: We investigate the synchronization of Eurozone's government bond yields at different maturities. For this purpose, we combine principal component analysis with random matrix theory. We find that synchronization depends upon yields maturity. Short-term yields are not synchronized. Medium- and long-term yields, instead, were highly synchronized early after the introduction of the Euro. Synchronization then decreased significantly during the Great Recession and the European Debt Crisis, to partially recover after 2015. We show the existence of a duality between our empirical results and portfolio theory and we point to divergence trades and flight-to-quality effects as a source of the self-sustained yield asynchronous dynamics. Our results envisage synchronization as a requirement for the smooth transmission of conventional monetary policy in the Eurozone.
    Keywords: Synchronization; Bond Yields; Factor Models; Random Matrix Theory; Monetary policy.
    Date: 2021–03–03
  2. By: Michael Landesmann (The Vienna Institute for International Economic Studies, wiiw); Isilda Mara (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The high outward mobility that has characterised the countries in the Western Balkan (WB) region over the past three decades is often seen as tightly linked to severe labour market imbalances and persistently low utilisation of human capital over time. To shed light on these issues, we estimate a system of equations that accounts for the effects of labour market determinants and human capital on migration and vice versa. The period under analysis is 2005-2019 and considers mobility from five of the WB countries to the EU15. The empirical results confirm the importance of wage gaps and their changes as an important pull factor for driving outward mobility from the WB region that can be persistent over time. Also, gaps in human capital emerge as a powerful determinant for explaining mobility into countries where returns on human capital are higher.
    Keywords: Migration, Labour Markets, Southeast Europe, Balkans, pVAR modelling, European integration
    JEL: F22 J60 J61 O15 C32 C13 P20 P27
    Date: 2021–03
  3. By: Nélida Díaz Sobrino (Universidad Nebrija); Corinna Ghirelli (Banco de España); Samuel Hurtado (Banco de España); Javier J. Pérez (Banco de España); Alberto Urtasun (Banco de España)
    Abstract: The aim of this paper is to construct a text-based indicator that reflects the sentiment of the Banco de España economic outlook reports. Our sentiment indicator mimics very closely the first release of the GDP growth rate, which is published after the publication of the reports, and the Banco de España quarterly forecasts of the GDP growth rate. This means that the qualitative narrative contained in the reports contains similar information to the one conveyed by the quantitative forecasts. In addition, the narrative complements the quantitative projections by discussing information which is not directly reflected in the point forecasts.
    Keywords: textual analysis, sentiment analysis, GDP growth rate, forecasting, central bank reports
    JEL: C53 C55 E37 E66 E58
    Date: 2020–12
  4. By: Kéa Baret; Amélie Barbier-Gauchard; Théophilos Papadimitriou
    Abstract: Since the reinforcement of the Stability and Growth Pact (1996), the European Commission closely monitors public finance in the EU members. A failure to comply with the 3% limit rule on the public deficit by a country triggers an audit. In this paper, we present a Machine Learning based forecasting model for the compliance with the 3% limit rule. To do so, we use data spanning the period from 2006 to 2018 (a turbulent period including the Global Financial Crisis and the Sovereign Debt Crisis) for the 28 EU Member States. A set of eight features are identified as predictors from 141 variables through a feature selection procedure. The forecasting is performed using the Support Vector Machines (SVM). The proposed model reached 91.7% forecasting accuracy and outperformed the Logit model that we used as benchmark.
    Keywords: Fiscal Rules; Fiscal Compliance; Stability and Growth Pact; Machine learning.
    JEL: E62 H11 H60 H68
    Date: 2021
  5. By: David Martinez Turegano (European Commission - JRC)
    Abstract: Inspired by the ideas developed in Timmer (2017), this paper proposes a measure of Global Value Chain – Total Factor Productivity (GVC-TFP) and a decomposition of its changes into three informative factors: changes in factor requirements associated with efficiency gains/losses in the use of capital and labour, shifts in the distribution of value added due to changes in factor shares, and shifts in the composition of the value chain, which are mainly due to geographical relocation of production stages. Based on the World Input-Output Database (WIOD), we use this methodology to analyse the evolution of GVC-TFP in different sectors across EU27 Member States between 2000 and 2014. Comparing the periods before and after the Great Recession, we find a sharp contrast between the intensity, the sectoral composition, geographical contributions and the nature of the driving forces of GVC-TFP developments. In the context of the economic crisis following the COVID-19 pandemic, in which import dependency and supply security mark the debate on the future of the EU Single Market, we find that our methodology could contribute to a comprehensive assessment of strategic restructuring of value chains.
    Keywords: Productivity, value chain, sectoral heterogeneity, convergence, European Union
    JEL: E24 F14 F23 L16
    Date: 2021–03
  6. By: Lucas Hafemann (University of Giessen)
    Abstract: This paper studies the effectiveness of micro- and macroprudential policy tools in the euro area. The established empirical literature on macroprudential policy generally considers panel estimations that suffer from two estimation biases, i.e., a selection bias and a time bias. We control for the former by a propensity score matching approach. Based on a logit model, we estimate the probability of a policy tightening for every country at each point in time. Matching procedures then find one or more matching partners for every tightening event with a similar likelihood of a tightening but no shift in the prudential policy stance. An iterative approach ensures that we offset the time bias, which exists if the estimation does not control for effects of preceding and subsequent prudential policy changes. We find that the announcement of a prudential policy tightening reduces credit growth significantly by about 1% on average. We further differentiate between effects along three dimensions. First, we observe that lending is more affected when policymakers have not communicated the implementation of measures before. Second, the effects are more substantial when EU/EA institutions are behind changes in the prudential policy stance. Third, microprudential policy measures have a bigger impact than macroprudential policies.
    Keywords: Macroprudential policies, Financial cycles, Credit Growth, Propensity score matching
    JEL: E44 E58 G18 G28
    Date: 2021
  7. By: Hirsch, Patrick; Köhler, Ekkehard A.; Feld, Lars P.; Thomas, Tobias
    Abstract: Are government bond risk premia affected by TV news in addition to the effect of the original event reported? We analyze 1,209,566 human-coded news items from newscasts aired by leading TV stations in Europe and the US between January 2007 and November 2016. We establish causality using instrumental variables that attract media attention and crowd out media coverage on Eurozone related news. We find FIFA and UEFA tournaments as well as major natural disasters and airplane crashes as valid instruments for the empirical analysis. The results show that an exogenous variation in the share of Eurozone related news affects bond spreads. A one percentage point increase in the share of Eurozone related news leads to -7.6 basis points lower bond spreads. Taking the tonality of the news into account paints a more differentiated picture: A one percent higher share of positive Eurozone related news leads to -69.7 basis points lower bond spreads, whereas a one percentage point higher share of negative country-specific news is related to 2.5 basis points higher bond spreads.
    Keywords: Media bias,TV Newscasts,Tonality,Eurozone crisis,GIIPS bond yield spreads
    JEL: E58 G12 L82
    Date: 2020
  8. By: Anna Belianska (Aix Marseille Univ, CNRS, AMSE, Marseille, France.); Aurélien Eyquem (Univ Lyon, Université Lumière Lyon 2, GATE L-SE UMR 5824 and IUF.); Céline Poilly (Aix Marseille Univ, CNRS, AMSE, Marseille, France. CEPR and DIW Berlin.)
    Abstract: Higher uncertainty about government spending generates a persistent decline in the economic activity in the Euro Area. This paper emphasizes the transmission channels explaining this empirical fact. First, a Stochastic Volatility model is estimated on European government consumption to build a measure of government spending uncertainty. Plugging this measure into a SVAR model, we stress that government spending uncertainty shocks have recessionary, persistent and humped-shaped effects. Second, we develop a New Keynesian model with financial frictions applying to a portfolio of equity and long-term government bonds. We argue that a portfolio effect-resulting from the imperfect substitutability among both assets-acts as a critical amplifier of the usual transmission channels.
    Keywords: government spending uncertainty, stochastic volatility, portfolio adjustment cost
    JEL: E62 E52
    Date: 2021–03
  9. By: Schreiber, Sven; Schmidt, Vanessa
    Abstract: Using detailed establishment-level micro data, this paper analyzes for the German case the hypothesis by Aghion, Bergeaud, Boppart, Klenow, and Li (2019), stating that officially published figures for real output growth would be systematically understated. The effect rests on overstated inflation estimates due to imputed prices for disappearing goods and services varieties, where measurable plant entry and exit dynamics play a crucial rule. Our main results regarding understated real output growth lie in the range of 0:39 to 0:54 average annual percentage points for 1998-2016, which is quite closely in line with existing findings for France, the USA, and Japan (in different periods). We also find that services sectors appear most affected, and that the effect in East Germany is somewhat larger. We investigate different market share proxies, provide additional robustness analysis and also discuss limitations of the approach.
    Keywords: creative destruction,price imputation,inflation measurement
    JEL: E31 O47
    Date: 2021
  10. By: Agnes Kügler; Klaus S. Friesenbichler; Cornelius Hirsch
    Abstract: Austria is a small open economy that in the last decades underwent two different waves of increasing trade integration: one with Eastern Europe and one with China. This paper studies the effects of increases in trade with China and Eastern Europe on labour market dynamics in Austrian NUTS-4 regions for two ten-year periods between 1995 and 2015. Given the limited data available, the current analysis could not identify significant effects on aggregate labour dynamics neither for rising imports from Eastern Europe or China, nor for rising exports to Eastern Europe. However, there is weak evidence that exports to China have facilitated employment growth, especially in high quality segments. Overall, these results add a cautious perspective to the discussion of import competition.
    Keywords: Trade, Employment, China, Eastern Europe, Austria
    Date: 2021–02–12
  11. By: Romain Baeriswyl; Lucas Marc Fuhrer; Petra Gerlach-Kristen; Jörn Tenhofen
    Abstract: This paper documents the change in banks' interest rate setting behaviour in a negative-rate environment. In a positive-rate environment, the pricing of mortgages and deposits follows the dynamics of capital market rates for comparable maturities. When capital market rates fall below zero, the dynamic of mortgage and deposit rates changes. Because deposit rates tend to be sticky at zero and do not fall with short-term capital market rates into negative territory, banks' liability margin shrinks. In an attempt to preserve their overall interest margin, banks raise long-term mortgage rates in response to a decline in short-term capital market rates, while they continue to decrease long-term mortgage rates when long-term market rates fall. Overall, our results imply that a policy rate cut reduces bank rates less in a negative-rate environment than in a positive-rate environment.
    Keywords: Interest rate pass-through, mortgages, monetary policy
    JEL: E43 E52 G21
    Date: 2021
  12. By: Petr Jakubik (European Insurance and Occupational Pensions Authority (EIOPA), Germany; Charles University in Prague, Faculty of Social Sciences, Institute of Economic Studies, Czech Republic); Saida Teleu (Maltese Financial Services Authority, Malta; Charles University in Prague, Faculty of Social Sciences, Institute of Economic Studies, Czech Republic)
    Abstract: The recent Covid-19 outbreak with significant increase of global uncertainties poses many challenges for financial sectors. Many supervisors took the measures aiming to safeguard resilience of financial institutions by requesting postponements any dividend distributions until uncertainties about further development will be reduced. In this respect, the European Insurance and Occupational Pensions Authority issued on Thursday 2nd April 2020 a statement requesting (re)insurers to suspend all discretionary dividend distributions and share buy backs aimed at remunerating shareholders. Although this should have a positive impact on the overall financial stability of the sector, it could also negatively influence insurers’ equity prices. Hence, this paper empirically investigates this potential effect using an event study methodology. Despite negative drops were observed in some cases, the obtained empirical results suggest that they were not statistically significant for the overall European insurers’ equity market when considering the event windows covering a few days after the statement was published.
    Keywords: European insurance sector; suspension of dividend distributions, event study, EIOPA statement, equity market
    JEL: G22 G28 G35 G01
    Date: 2021–03
  13. By: FLACHENECKER Florian (European Commission - JRC); KORNEJEW Martin; JANIRI Mario (European Commission - JRC)
    Abstract: This report investigates firm growth before, during and after the Great Recession 2007-2009. We use a representative sample of firms from the business economy in 16 Member States of the European Union (EU) between 2005 and 2014. Empirical analysis of firm distributions across time reveal the following facts. (i) The Great Recession of 2007-2009 reduced growth across the board.(ii) The recovery process though was disproportionately driven by a few large firms. (iii) During the first phase of the recovery, the firm growth distribution shifted upwards as a whole. (iv) During the second phase, only the left tail of negative growth got shorter. (iii) The recession reduced the share of HGEs in all size classes, but especially among large firms. (iv) Yet, even during the Great Recession HGEs played an important role for aggregate sales growth. (v) Although HGEs tend to be smaller than the average firm, their outstanding contribution to aggregate sales growth is predominantly driven by large HGEs. This holds true throughout the recession. We conclude with insights from the recovery of the Great Recession that might be relevant also in the current COVID-19 context.
    Keywords: high growth enterprises, Great Recession, COVID-19, European Union
    Date: 2021–02
  14. By: Krämer-Eis, Helmut; Botsari, Antonia; Kiefer, Kilian; Lang, Frank
    Abstract: 2020 was an unprecedented and remarkable year, and also a year with high uncertainty and increased information needs. The EIF VC Survey, the EIF Private Equity Mid-Market Survey, and the EIF Business Angels Survey (the largest regular survey exercises among GPs and Business Angels on a pan-European level) provide an opportunity to retrieve unique market insights. On an exceptional basis, two waves for each of the three surveys were performed in 2020. This publication summarises and compares the main results, providing a detailed picture of the recent developments. The paper focuses on the market sentiment and the impact of COVID-19 on investors, their portfolio, fundraising and investments (including ESG considerations), and finally, it shows respondents' opinion with regard to crisis-related policy measures.
    Date: 2021
  15. By: Claudio Battiati; Cecilia Jona-Lasinio; Enrico Marvasi; Silvia Sopranzetti
    Abstract: Recent empirical investigations have documented an upward trend in profit rates, markups, and concentration over the last decades, bringing a renewed interest in market power and its causes and consequences. While most studies have focused on the US, recent works identify similar patterns in other advanced economies as well. In light of such results, a growing concern is emerging about the negative effects of declining competition. Do we observe a similar pattern in the EU countries? This paper relies on national accounting data to investigate these issues for four major EU countries: France, Germany, Italy and Spain. We find that, despite some common trends, EU countries are differentiated and followed different trends relative to the US. The upward markup trend is less pronounced than in the US and markups are positively correlated with productivity and investments, including on innovation; while imported inputs and Global Value Chains have pro-competitive effects. In the EU, despite country and sector specificities, increased concentration and market power are generally of less concern than in the US, while a larger role for the most efficient firms might increase efficiency.
    Keywords: productivity growth, markups, market power, global value chains.
    JEL: F40 F10 F60
    Date: 2021
  16. By: Ugo Albertazzi (ECB -DG Monetary Policy); Margherita Bottero (Bank of Italy); Leonardo Gambacorta (Bank for International Settlements (BIS); Centre for Economic Policy Research (CEPR)); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR))
    Abstract: Using all loans granted to firms recorded in the Italian credit register, we estimate correlations between risk-transfer and default probabilities to gauge the severity of informational asymmetries in the loan securitization market. First, the analysis confirms the presence of information frictions in the SME loan securitisation market. Second, the unconditional quality of securitized loans remains significantly better than that of non-securitized ones, in line with the notion that markets anticipate the presence of information frictions and lead to a selection of loans which offsets the detrimental effects of asymmetric information. Third, using data for firms that maintain multiple bank relationships, we obtain indications of the relative importance played by two forms of information friction, adverse selection and moral hazard. While the former is widespread, the latter is present in weak relationships only, in line with the notion that such loans are characterised by a limited commitment to exert costly monitoring by the bank.
    Keywords: securitization, SME loans, moral hazard, adverse selection
    JEL: D82 G21
    Date: 2021–02

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