nep-eec New Economics Papers
on European Economics
Issue of 2021‒08‒23
eleven papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Do Central and Eastern Countries benefit from ECB’s unconventional monetary policies? By Nicolae-Bogdan IANC; Adrian-Marius IONESCU
  2. Should the ECB Adjust its Strategy in the Face of a Lower r*? By Andrade Philippe,; Galí Jordi,; Le Bihan Hervé,; Matheron Julien.
  3. Job Polarization and the Flattening of the Price Phillips Curve By Siena Daniele,; Zago Riccardo.
  4. The Brexit Referendum and Three Types of Regret By Drinkwater, Stephen; Jennings, Colin
  5. The UK Productivity Shortfall in an Era of Rising Labour Supply By Benito, Andrew; Young, Garry
  6. The Productivity Puzzle in Business Services By Alexander S. Kritikos; Alexander Schiersch; Caroline Stiel
  7. Inflation tolerance ranges in the New Keynesian model By Le Bihan Hervé,; Marx Magali,; Matheron Julien.
  8. No country is an island. International cooperation and climate change. By Ferrari Massimo,; Pagliari Maria Sole,
  9. The contribution of business dynamics to productivity growth in the Netherlands By Daan Freeman; Leon Bettendorf; Harro van Heuvelen; Gerdien Meijerink
  10. Bankruptcy Costs and the Design of Preventive Restructuring Procedures By Epaulard Anne,; Zapha Chloé.
  11. Public Services and Liveability in European Cities in Comparison By Mario Holzner; Roman Römisch

  1. By: Nicolae-Bogdan IANC; Adrian-Marius IONESCU
    Keywords: , CEECs, ECB, GVAR, unconventional monetary policy, balance sheet, LTRO, liquidity spread, yield spread
    Date: 2021
  2. By: Andrade Philippe,; Galí Jordi,; Le Bihan Hervé,; Matheron Julien.
    Abstract: We address this question using an estimated New Keynesian DSGE model of the Euro Area with trend inflation, imperfect indexation, and a lower bound on the nominal interest rate. In this setup, a decrease in the steady-state real interest rate, r*, increases the probability of hitting the lower bound constraint, which entails significant welfare costs and warrants an adjustment of the monetary policy strategy. Under an unchanged monetary policy rule, an increase in the inflation target of eight tenth the size of the drop in the real natural rate of interest is warranted. Absent an increase in the inflation target, and assuming the effective lower bound prevents the ECB from implementing more aggressive negative interest rate policies, adjusting the monetary strategy requires considering alternative instruments or policy rules, such as committing to make-up for recent, below-target inflation realizations.
    Keywords: Inflation Target; Effective Lower Bound; Monetary Policy Strategy; Euro Area.
    JEL: E31 E52 E58
    Date: 2021
  3. By: Siena Daniele,; Zago Riccardo.
    Abstract: This paper shows that the change in the occupational composition of the labor market in favour of non-routine jobs -i.e. job polarization- flattens the price Phillips Curve (PC). Using data from the European Monetary Union and exploiting the fact that job polarization accelerates during recessions, we obtain two results. First, countries experiencing a bigger shift in the occupational structure during a downturn exhibit a flatter PC afterward. Second, the occupational shifts experienced during the Great Recession and the Sovereign Debt Crisis explain up to a forth of the flattening of the curve in the 2002-2018 period. We reconcile this evidence through a New Keynesian model with unemployment and search and matching frictions. Heterogeneity in the fluidity across segments of the labor market -i.e. differences in the separation and hiring rate across jobs- is the source of PC flattening.
    Keywords: Phillips Curve, Job Polarization, Occupational Composition, Monetary Policy,Labor Market Fluidity.
    JEL: E31 E32 J21
    Date: 2021
  4. By: Drinkwater, Stephen (University of Roehampton); Jennings, Colin (King's College London)
    Abstract: In this paper we examine three forms of regret in relation to the UK’s hugely significant referendum on EU membership that was held in June 2016. These are, (i) whether leave voters at the referendum subsequently regretted their choice (in the light of the result), (ii) whether non-voters regretted their decisions not to vote (remain) and (iii) whether individuals were more likely to indicate that it is everyone’s duty to vote following the referendum. We find evidence in favour of all three types of regret. In particular, leave voters and non-voters were significantly more likely to indicate that they would vote remain given their chance to do so again and there was a significant increase in the probability of an individual stating that it was everyone’s duty to vote in a general election in 2017 compared to 2015.
    Keywords: EU referendum, Brexit, voting, regret, non-voters
    JEL: D70 D72 F60
    Date: 2021–07
  5. By: Benito, Andrew (University of Warwick); Young, Garry (National Institute of Economic and Social Research (NIESR))
    Abstract: Labour productivity stagnated in the UK in the years between the financial crisis and the emergence of Covid-19. At the same time labour supply and employment grew strongly, driven primarily by net inward migration. While labour productivity should be independent of labour supplied in the long run, this need not be the case in the medium-run. Our evidence suggests that around one-fifth, or 4pp, of the 25 log point fall in productivity from its previous trend can be explained by increased labour supply, with idiosyncratic factors and a slowdown in TFP growth accounting for most of the shortfall.
    Keywords: productivity, labour supply, capital deepening
    JEL: J11 J21 D24
    Date: 2021–07
  6. By: Alexander S. Kritikos; Alexander Schiersch; Caroline Stiel
    Abstract: In Germany, the productivity of professional services, a sector dominated by micro and small firms, declined by 40 percent between 1995 and 2014. This productivity decline also holds true for professional services in other European countries. Using a German firm-level dataset of 700,000 observations between 2003 and 2017, we analyze this largely uncovered phenomenon among professional services, the 4th largest sector in the EU15 business economy, which provide important intermediate services for the rest of the economy. We show that changes in the value chain explain about half of the decline and the increase in part-time employment is a further minor part of the decline. In contrast to expectations, the entry of micro and small firms, despite their lower productivity levels, is not responsible for the decline. We also cannot confirm the conjecture that weakening competition allows unproductive firms to remain in the market.
    Keywords: business services, labor productivity, productivity slowdown
    JEL: L84 O47 D24 L11
    Date: 2021
  7. By: Le Bihan Hervé,; Marx Magali,; Matheron Julien.
    Abstract: A number of central banks in advanced countries use ranges, or bands, around their inflation target to formulate their monetary policy strategy. The adoption of such ranges has been proposed by some policymakers in the context of the Fed and the ECB reviews of their strategies. Using a standard New Keynesian macroeconomic model, we analyze the consequences of tolerance range policies, characterized by a stronger reaction of the central bank to inflation when inflation lies outside the range than when it is close to the target, ie the central value of the band. We show that a tolerance band should not be a zone of inaction: the lack of reaction within the band endangers macroeconomic stability and leads to the possibility of multiple equilibria; the trade-off between the reaction needed outside the range versus inside seems unfavorable: a very strong reaction, when inflation is far from the target, is required to compensate a moderately lower reaction within tolerance band; these results, obtained within the framework of a stylized model, are robust to many alterations, in particular allowing for the zero lower bound.
    Keywords: Monetary policy; inflation ranges; inflation bands; ZLB; endogenous regime switching.
    JEL: E31 E52 E58
    Date: 2021
  8. By: Ferrari Massimo,; Pagliari Maria Sole,
    Abstract: In this paper we explore the cross-country implications of climate-related mitigation policies. Specifically, we set up a two-country, two-sector (brown vs green) DSGE model with negative production externalities stemming from carbon-dioxide emissions. We estimate the model using US and euro area data and we characterize welfare-enhancing equilibria under alternative containment policies. Three main policy implications emerge: i) fiscal policy should focus on reducing emissions by levying taxes on polluting production activities; ii) monetary policy should look through environmental objectives while standing ready to support the economy when the costs of the environmental transition materialize; iii) international cooperation is crucial to obtain a Pareto improvement under the proposed policies. We finally find that the objective of reducing emissions by 50%, which is compatible with the Paris agreement's goal of limiting global warming to below 2 degrees Celsius with respect to pre-industrial levels, would not be attainable in absence of international cooperation even with the support of monetary policy.
    Keywords: DSGE model, open-economy macroeconomics, optimal policies, climate modelling.
    JEL: F42 E50 E60 F30
    Date: 2021
  9. By: Daan Freeman (CPB Netherlands Bureau for Economic Policy Analysis); Leon Bettendorf (CPB Netherlands Bureau for Economic Policy Analysis); Harro van Heuvelen (CPB Netherlands Bureau for Economic Policy Analysis); Gerdien Meijerink (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: This paper analyses the declining firm dynamism in the Netherlands, which may explain part of the slowdown in productivity growth. We use a rich microdata set including nearly all corporations in the Netherlands during 2006-2016, which enables us to evaluate the TFP growth contributions of exiting firms, start-ups and new firms resulting from mergers & acquisitions in different industries. We use a Melitz and Polanec (2015) decomposition to assess TFP growth contributions. We find that in service industries, start-ups, new firms created by M&As and exiting firms all contribute to overall TFP growth, in line with the creative destruction hypothesis. In manufacturing industries, TFP growth is driven mostly by incumbent firms. Here, entry and exit dynamics contribute relatively little or even negatively to TFP growth. In addition, young firms in the manufacturing industries tend to have higher TFP growth than older firms, while in service industries this is not the case. Finally, in general, relatively low productivity entrants are more likely to exit in the first five years after entry, which is in line with an `up-or-out' dynamic.
    JEL: F16 J31 R11
    Date: 2021–08
  10. By: Epaulard Anne,; Zapha Chloé.
    Abstract: A European directive requires Member States to give firms access to preventive restructuring procedures. This paper assesses the interest of a procedure distinct from that for insolvent firms. It is based on the French experience, where a preventive procedure has coexisted with the more common restructuring procedure since 2006. The spatial and temporal heterogeneity of the Commercial Courts' decisions allows the identification of the causal impact of the conversion from the preventive procedure to the common one on the firm's survival chances. Using an (almost) exhaustive sample of preventive bankruptcy fillings over 2010-2016, we show that conversion reduces the probability of firm survival by 50 p.p., which corresponds to indirect bankruptcy costs of around 20% of the firm assets. Our interpretation is that the low restructuring rate under the common bankruptcy procedure may alarm some of the firm's stakeholders, especially its customers. This in turn aggravates the firm's difficulties and reduces its chances of restructuring under the common procedure. We provide some empirical evidence to support this interpretation. A distinct preventive procedure helps prevent this spiral.
    Keywords: Corporate Bankruptcy; Costs of Bankruptcy; Law and Economics; Preventive Restructuring.
    JEL: G33 K22
    Date: 2021
  11. By: Mario Holzner (The Vienna Institute for International Economic Studies, wiiw); Roman Römisch (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: A high level of public services in housing, transport, education and health care is essential for liveability in urban centres, as shown in this report, with the help of European data for large cities. Inhabitants of larger cities, where the housing market is heavily commercialised in terms of the share of homeownership, and where little social housing exists, have to save on consumption items that offer a higher quality of life, such as in Italy. On the opposite side, for instance, cities in Austria, the Netherlands, Sweden and France have housing markets that are much less commercialised and where a lot of social housing exists. These are exactly the urban centres that achieve the top rankings in our new Urban Public Services and Liveability Index (UPSLIde), with Austria in first place. Over time, UPSLIde trends downward, with the ratio of expenditure on the finer things in life relative to obligatory consumption items influenced by public services provision sliding from around 70% in the late 1980s to less than 50% in the 2010s. In order for this negative trend to be reversed, public services provision needs to be stepped up and, in particular, rising housing rental costs need to be countered by more social housing construction.
    Keywords: Housing policy, transport policy, education policy, health policy, public services, urban well-being, index ranking, household expenditure, cities, Europe
    JEL: C43 D12 E21 R38 R48 H44 H51 H52 H53 H54 H75 H76 I18 I28 I38
    Date: 2021–08

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