nep-eec New Economics Papers
on European Economics
Issue of 2021‒06‒21
ten papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. ECB Communication: What Is It Telling Us? By Rokas Kaminskas; Modestas Stukas; Linas Jurksas
  2. Understanding the Transmission of COVID-19 News to French Financial Markets By Willem THORBECKE
  3. Calamities, Common Interests, Shared Identity: What Shapes Altruism and Reciprocity? By Cevat Giray Aksoy; Antonio Cabrales; Mathias Dolls; Ruben Durante; Lisa Windsteiger
  4. Determinants of non-performing loans in Greece: the intricate role of fiscal expansion By Karadima, Maria; Louri, Helen
  5. Back to the Present: Learning about the Euro Area through a Now-casting Model By Danilo Cascaldi-Garcia; Thiago Revil T. Ferreira; Domenico Giannone; Michele Modugno
  6. The decline in euro area inflation and the choice of policy strategy By Wieland, Volker
  7. Aggregate productivity slowdown in Europe: New evidence from corporate balance sheets By Maurin, Laurent; Wolski, Marcin
  8. Measuring the impact of a bank failure on the real economy: an EU-wide analytical framework By Vacca, Valerio Paolo; Bichlmeier, Fabian; Biraschi, Paolo; Boschi, Natalie; Álvarez, Antonio J. Bravo; Di Primio, Luciano; Ebner, André; Hoeretzeder, Silvia; Ballesteros, Elisa Llorente; Miani, Claudia; Ricci, Giacomo; Santioni, Raffaele; Schellerer, Stefan; Westman, Hanna
  9. Regional Convergence in the European Union: What are the Factors of Growth? By Jan Pintera
  10. The impact of bank loan terms on intangible investment in Europe By Segol, Matthieu; Kolev, Atanas; Maurin, Laurent

  1. By: Rokas Kaminskas (Bank of Lithuania, ISM University of Management and Economics); Modestas Stukas (Bank of Lithuania); Linas Jurksas (Bank of Lithuania, Vilnius University)
    Abstract: This paper examines changing ECB communication and how it has impacted euro area financial markets over the past two decades. We applied a combination of topic modelling and sentiment analysis for over 2000 public ECB Executive Board member speeches, as well as over 200 ECB press conferences. Topic analysis revealed that the ECB’s main focus has shifted from strategy and objectives, at the inception of the euro area, to various policy actions during the global financial crisis and, more recently, to instruments and economic developments. Sentiment analysis showed an expected trend of a more negative communication tone during periods of turmoil and a gradual shift to a more dovish monetary policy tone over time. Regression analysis revealed that sentiment indices had the expected impact on financial market indicators, while press conferences showed substantially stronger effects than speeches.
    Keywords: ECB, speeches, press conferences, text analysis, sentiments, financial markets
    JEL: C80 E43 E44 E58 G12
    Date: 2021–05–11
  2. By: Willem THORBECKE
    Abstract: Ortmans and Tripier (2020) found that news of coronavirus cases in Eurozone countries increased 10-year sovereign bond spreads over German sovereign yields and decreased Eurozone stock returns between January and March 2020. This paper employs returns on 174 French assets to investigate why Covid-19 news roiled financial markets in early 2020. The crisis initially led to a crash in oil prices and an appreciation of the euro. The results indicate that increases in Covid cases especially decreased returns on assets exposed to oil price decreases and euro appreciations. The banking sector was not harmed by increases in cases, indicating that fears of a sovereign-bank nexus was not driving the response. Luxury firms benefited from increases in cases in early 2020 and afterwards weathered the crisis well.
    Date: 2021–05
  3. By: Cevat Giray Aksoy; Antonio Cabrales; Mathias Dolls; Ruben Durante; Lisa Windsteiger
    Abstract: We conduct a large-scale survey experiment in nine European countries to study how priming a major crisis (COVID-19), common economic interests, and a shared identity influences altruism, reciprocity and trust of EU citizens. We find that priming the COVID-19 pandemic increases altruism and reciprocity towards compatriots, citizens of other EU countries, and non-EU citizens. Priming common European values also boosts altruism and reciprocity but only towards compatriots and fellow Europeans. Priming common economic interests has no tangible impact on behaviour. Trust in others is not affected by any treatment. Our results are consistent with the parochial altruism hypothesis, which asserts that because altruism arises out of inter-group conflict, humans show a tendency to favor members of their own groups.
    Keywords: Covid-19, Europe, altruism, reciprocity, survey experiment
    JEL: D72 H51 H53 H55 O52 P52
    Date: 2021
  4. By: Karadima, Maria; Louri, Helen
    Abstract: Following the financial and debt crises in the euro area and the delays in formulating a cohesive policy response, Greek banks faced serious problems with the increase in nonperforming loans (NPLs) being the most threatening. In this study, we attempt to empirically investigate the determinants of NPLs in the Greek banking sector, using quarterly aggregate data for the period 2003Q1-2020Q2 and the autoregressive distributed lag (ARDL) bounds testing approach. We find that NPLs are determined mostly by factors related to macroeconomic conditions in Greece during the period under investigation, rather than by bank-related factors. Of particular interest is the case of government debt, which is found to exert a significant and positive long-term impact on NPLs irrespective of some short-term dynamics that appear to provide a temporary relief. The fiscal balance is also found to exert a negative long-term effect, justifying the quest for surpluses post-crisis. As debt accumulation is a policy followed by most countries in order to stabilize economies hit by the COVID-19 crisis, its long-term effects on the financial system should be taken into account and institutional measures introduced to face the new risk.
    Keywords: Greece; non-performing loans; fiscal expansion; ARDL; bounds testing
    JEL: C22 G21
    Date: 2021–06–01
  5. By: Danilo Cascaldi-Garcia; Thiago Revil T. Ferreira; Domenico Giannone; Michele Modugno
    Abstract: We build a model for simultaneously now-casting economic conditions in the euro area and its three largest member countries--Germany, France, and Italy. The model formalizes how market participants and policymakers monitor the euro area by incorporating all market moving indicators in real time. We find that area wide and country-specific data provide informative signals to now-cast the economic conditions in the euro area and member countries. The model provides accurate predictions of economic conditions in real time over a period that covers the past three recessions.
    Keywords: Now-casting; Euro area; Dynamic factor models
    JEL: C33 C53 E37
    Date: 2021–03–30
  6. By: Wieland, Volker
    Abstract: This note argues that the European Central Bank should adjust its strategy in order to consider broader measures of inflation in its policy deliberations and communications. In particular, it points out that a broad measure of domestic goods and services price inflation such as the GDP deflator has increased along with the euro area recovery and the expansion of monetary policy since 2013, while HICP inflation has become more variable and, on average, has declined. Similarly, the cost of owner-occupied housing, which is excluded from the HICP, has risen during this period. Furthermore, it shows that optimal monetary policy at the effective lower bound on nominal interest rates aims to return inflation more slowly to the inflation target from below than in normal times because of uncertainty about the effects and potential side effects of quantitative easing.
    Date: 2021
  7. By: Maurin, Laurent; Wolski, Marcin
    Abstract: Capitalising on the productivity decomposition proposed by Olley and Pakes (1996), we analyse the role of financial factors behind the relatively muted post-crisis rebound in productivity compared to previous upturns in Europe. Firstly, we provide an OLS-consistent framework to decompose sector-level productivity into trend and allocative efficiency components. We then extend our approach to estimate the contribution of firm-level confounders to the sector-level allocative component. Secondly, we find that financial leverage played an important role in explaining the change in aggregate productivity growth in Europe between 2004 and 2017. Thirdly, focusing on Northern and Western Europe, we show that the productivity potential could not be fully exploited due to access to credit conditions. Specifically, reducing collateral bottlenecks could more than double the effectiveness of financial leverage in spurring productivity growth in this region between 2014-17.
    Date: 2021
  8. By: Vacca, Valerio Paolo; Bichlmeier, Fabian; Biraschi, Paolo; Boschi, Natalie; Álvarez, Antonio J. Bravo; Di Primio, Luciano; Ebner, André; Hoeretzeder, Silvia; Ballesteros, Elisa Llorente; Miani, Claudia; Ricci, Giacomo; Santioni, Raffaele; Schellerer, Stefan; Westman, Hanna
    Abstract: The crisis management framework for banks in the European Union (EU) requires the resolution authorities to identify the existence of a public interest to resolve an ailing bank, rather than to open normal insolvency proceedings (NIPs). The Public Interest Assessment (PIA) determines whether resolution objectives, including the safeguard of financial stability, can be better preserved using resolution tools than NIPs .This paper provides a contribution to the ongoing discussion on the implementation of the PIA, by presenting an analytical framework to quantify the potential impact on the real economy stemming from a bank’s failure under NIPs through the interruption of the lending activity (“credit channel”). The framework is harmonized across the jurisdictions belonging to the Banking Union and aims to improve the quantitative leg of the PIA, to be coupled with qualitative elements. In a first step, we quantify the potential credit shortfall faced by firms and households due to the abrupt closure of a bank. In a second step, the impact of the credit shortfall on real outcomes is estimated via a FAVAR model and via a micro-econometric model. Reference values are provided to assess the relevance of the estimated outcomes. The illustrative results show that such a harmonized approach can be applied across the Banking Union and to banks of heterogeneous size. In case of mid-sized banks, this common analytical framework could reduce the uncertainty regarding the extent to which the failure of the institution could have a negative impact to the real economy if the lending activity is interrupted as possibly the case under NIPs. JEL Classification: E58, G01, G21, G28
    Keywords: bank insolvency, bank lending, bank resolution, EU crisis management framework, public interest assessment
    Date: 2021–06
  9. By: Jan Pintera (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic)
    Abstract: Despite years of deepening economic integration among the states and regions of the European Union, empirical research remains inconclusive about speed of convergence across regions, if not its existence. This paper provides a new look on convergence in the EU while focusing on development at regional level after the Great Recession. It uses the log t convergence test by Phillips and Sul (2007) to analyze the convergence in level of income among the European regions. Rather than supporting the convergence hypothesis, we identify five convergence clubs in which the regions converge in income growth rates. Investigating further the geographical distribution of the convergence clubs, we confirm high inequality within the member states and find large continuous area of high convergence clubs in the urbanized part of Western Europe. Furthermore, we investigated the determinants of convergence club membership using Logistic Regression. We found a low impact of any of the estimated variables on membership in the highest club but confirmed positive association of membership in the higher clubs with research and patent activities.
    Keywords: Club Convergence, European Regions, log t test, Logistic regression
    JEL: C23 C40 R11
    Date: 2021–06
  10. By: Segol, Matthieu; Kolev, Atanas; Maurin, Laurent
    Abstract: Firm investment, Intangible assets, Loan terms, Credit constraint, Survey data, Instrumental variable approachUsing European firm-level data from a new survey, the EIBIS, we document the effect of bank loan terms on investment in intangible assets of non-financial corporations. We show that quantity rationing is a primary determinant borrowers' propensity to invest in intangible assets. Provided that firms are satisfied with their loan size; unfavorable rate, maturity and collateral requirements have no significant effects on the probability to invest in intangible assets. These terms however, do have a negative impact on the probability to invest in multiple intangible assets, undermining the ability of firms to benefit from the complementarities of these assets. We document the effect of loan conditions on investment intensity, as well. The effect of quantity rationing on the amount invested in intagible assets is found to be limited. Other loan conditions however, like cost, maturity and collateral requirements, have significant effect on investment intensity.
    Keywords: Firm investment,Intangible assets,Loan terms,Credit constraint,Survey data,Instrumental variable approach
    JEL: G21 D82 O30 H81 C35
    Date: 2021

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