nep-eec New Economics Papers
on European Economics
Issue of 2021‒06‒28
eight papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Do macroprudential measures increase inequality? Evidence from the euro area household survey By Georgescu, Oana-Maria; Martín, Diego Vila
  2. Effects of Covid-19 on Euro Area GDP and Inflation: Demand vs. Supply Disturbances By Robert Kollmann
  3. Exits and bailouts in a monetary union By Michal Kobielarz
  4. Regional convergence in CEE before and after the Global Financial Crisis By Smirnykh, Larisa; Woergoetter, Andreas
  5. Getting closer or falling apart? Euro countries after the Euro crisis. By Massimo Bordignon; Nicolò Gatti; Massimiliano Gaetano Onorato
  6. Assessment of the effectiveness of the macroprudential measures implemented in the context of the Covid-19 pandemic By Lucas Avezum; Vítor Oliveira; Diogo Serra
  7. The income protection role of an EMU-wide unemployment insurance system: the case of atypical workers. By H. Xavier Jara; Agathe Simon
  8. Can European businesses achieve productivity gains from investments in energy efficiency? By Kalantzis, Fotios; Niczyporuk, Hanna

  1. By: Georgescu, Oana-Maria; Martín, Diego Vila
    Abstract: Borrower-based macroprudential (MP) policies - such as caps on loan-to-value (LTV) ratios and debt-service-to-income (DSTI) limits - contain the build-up of systemic risk by reducing the probability and conditional impact of a crisis. While LTV/DSTI limits can increase inequality at introduction, they can dampen the increase in inequality under adverse macroeconomic conditions. The relative size of these opposing effects is an empirical question. We conduct counterfactual simulations under different macroeconomic and macroprudential policy scenarios using granular income and wealth data from the Households Finance and Consumption Survey (HFCS) for Ireland, Italy, Netherlands and Portugal. Simulation results show that borrower-based measures have a moderate negative welfare impact in terms of wealth inequality and a negligible impact on income inequality. JEL Classification: G21, G28, G51
    Keywords: household debt, inequality, macroprudential policy
    Date: 2021–06
  2. By: Robert Kollmann
    Abstract: This paper analyzes the macroeconomic effects of the Covid-19 epidemic on Euro Area (EA) GDP and inflation, using a stylized New Keynesian model. Covid is interpreted as a combination of aggregate demand and aggregate supply disturbances. Offsetting aggregate demand and supply changes are shown to account for the stability of EA inflation, in the face of Covid. The evidence presented here indicates that Covid-induced aggregate demand and supply shifts were persistent. An aggregate supply contraction is identified as the dominant force driving the sharp fall of EA GDP in 2020.
    Keywords: Covid, real activity, inflation, aggregate demand, aggregate supply
    Date: 2021–06
  3. By: Michal Kobielarz
    Abstract: This paper analyzes country bailouts in a monetary union within a framework where sovereign default and exit from the union are two separate decisions. The lack of exit precedent creates uncertainty about the exit cost, which might prevent countries from exiting. The first exit can resolve the uncertainty, which is why the union might bail out a troubled country. As the bailout is meant to prevent an exit from the union, it does not exclude subsequent defaults. The model motivates the occurrence of large fiscal transfers within the Eurozone, and explains why they were insufficient to resolve the debt crisis.
    Keywords: monetary union, bailouts, fiscal transfers, exit, sovereign debt
    Date: 2021
  4. By: Smirnykh, Larisa (HSE University, Moscow); Woergoetter, Andreas (TU Wien)
    Abstract: In this study we analyze the convergence of GDP per capita from 2000 to 2013 (current prices and euro exchange rates) for eight countries (Czech Republic, Slovakia, Slovenia, Hungary, Poland, Estonia, Latvia and Lithuania) of the European Union (CEE8). Some convergence indicators are also calculated for the CEE8 as a whole. The main purpose of this study is to shed some light on the impact of the Global Financial Crisis (GFC) on regional convergence in advanced emerging countries, like the CEE8. The main result of random effects panel regressions for unconditional beta-convergence is that significant convergence is found for the whole period from 2000-2013, but not for sub-periods on either end of the sample, except for Hungary and Poland. This means that convergence in most CEECs is only significant if the GFC is included in the estimation period. The role of capital regions for the convergence process is an item for future research.
    Date: 2021–05
  5. By: Massimo Bordignon (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Nicolò Gatti; Massimiliano Gaetano Onorato
    Abstract: We study convergence and divergence dynamics in a sample of EMU countries by assembling an extensive dataset that contains information on public spending and policy outcomes in a variety of areas of government intervention including education, health, and civil justice from the early 1990s. We also focus on other important determinants of a country’s economic performance such as the level of regulation of product and labor markets, as well as the trust in political institutions, quality of governance and inequality. Results show that despite divergent economic growth in the Euro periphery countries after the 2011-13 Euro crisis, the quality of services and level of regulation did not deteriorate or indeed improved, increasing convergence with the core Euro countries. However, the debt crisis dramatically worsened citizens’ perceptions of quality of governance as well as the level of social trust. The very different approach followed with the Covid crisis might have mitigated the problem, but the EurEuro project has still shaky foundations. This calls in question its future political viability and asks for reform.
    Keywords: Euro, debt, crisis, convergence, reforms, governance, trust.
    JEL: H5 G01 P48 P51
    Date: 2021–05
  6. By: Lucas Avezum; Vítor Oliveira; Diogo Serra
    Abstract: In this paper we assess the effectiveness of the macroprudential capital buffers’ release on loans granted to households, implemented in the context of the Covid-19 pandemic. We obtain causal estimates by exploring differences in the availability of regulatory buffers prior to the pandemic shock among European countries and accounting for the time-varying effect of unobservable confounding variables with the synthetic control method. We find evidence that the buffers releases contributed, on average, to mitigate the procyclicality of credit to households, specifically for house purchase and for small businesses purposes. For the aggregate household lending, we find that the average treatment effect for both the release of the CCyB and that of the SyRB were positive. However, the results suggest that, for credit associated to small businesses purposes, only the release of the CCyB had an effect.
    JEL: E51 G28 H12
    Date: 2021
  7. By: H. Xavier Jara; Agathe Simon
    Abstract: This paper evaluates the potential of a common unemployment insurance system for the Economic and Monetary Union (EMU-UI) to improve income protection of atypical workers, namely those in part-time and temporary contracts. We use EUROMOD, the European tax-benefit microsimulation model, to simulate entitlements to national and EMU-UI and assess their effects on the household disposable income of atypical workers in the event of unemployment. Our results show that there are sizable gaps in the coverage of national UI schemes between countries, with atypical workers having particularly low coverage rates. The introduction of an EMU-UI would reduce coverage gaps and increase net replacement rates, especially for atypical workers, and would protect a large share of the workforce against the risk of poverty. Extending eligibility for the EMU-UI to the self-employed would further improve income protection, reducing their risk of falling into poverty in the event of unemployment.
    Keywords: Unemployment insurance, European Monetary Union, microsimulation, income protection, atypical work.
    JEL: C81 H55 I38
    Date: 2021
  8. By: Kalantzis, Fotios; Niczyporuk, Hanna
    Abstract: Energy efficiency investments are essential for transitioning to a carbon-neutral economy. Nevertheless, despite being financially viable, many energy efficiency investment opportunities do not materialise. The existing literature attributes this situation to financial and non-financial factors. Research suggests that many firms focus only on direct energy savings and neglect non-energy benefits that include increased labour productivity. Up to date, due to lack of high-quality data, few studies attempted to quantify the effects of the energy efficiency investments on firm-level outcomes other than the reductions in energy consumption. This paper overcomes this barrier by using novel data from a firm-level survey conducted by the European Investment Bank that covers more than 15,000 firms in 27 European Union member states and the UK during 2018-2019. It studies the relationship between the energy efficiency investment and the labour productivity of the European firms, utilising instrumental variables methodology to account for potential endogeneity. The results show a positive and causal relationship between energy efficiency investment and labour productivity. The findings of the paper suggest that firms can benefit much more from the energy efficiency investment than what is often assumed, and highlight a need for government policies that would increase firms' awareness of the non-energy benefits.
    Keywords: Energy Efficiency,Climate Investment,Productivity
    Date: 2021

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