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on European Economics |
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Issue of 2021‒09‒06
nine papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Martien Lamers; Thomas Present; Rudi Vander Vennet; Nicolas Soenen (-) |
| Abstract: | We investigate the effectiveness of the Bank Recovery and Resolution Directive (BRRD) in mitigating the bank-sovereign nexus in the Euro Area. Using CDS spreads to measure bank and sovereign credit risk and a DCC-MIDAS model capturing the long-term component of bank-sovereign interconnectedness, we document that the dynamic correlation between banks and sovereigns has decreased in Euro Area countries since the introduction of the BRRD. Panel data analysis reveals that the decline in interconnectedness is not driven by the banks’ capital adequacy, size or holdings of domestic sovereign securities. |
| Keywords: | BRRD; Bank-sovereign nexus, CDS spread, Dynamic correlation, DCC-MIDAS |
| JEL: | C58 G28 G32 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:21/1024&r= |
| By: | Klug, Thorsten; Mayer, Eric; Schuler, Tobias |
| Abstract: | We investigate, in the case of Germany, the positive correlation between the cyclical components of the corporate saving glut in the non-financial corporate sector and the current account surplus from a capital account perspective. Employing sign restrictions, our findings suggest that mostly labor supply, world demand and financial friction shocks account for the joint dynamics of excess corporate saving and the current account surplus. Household saving shocks, by contrast, cannot explain the correlation. We conclude that, explained through these factors, the corporate saving glut is an important driver of the cyclical component of the current account. JEL Classification: E32, F32, F45 |
| Keywords: | corporate saving, current account, macro shocks |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212586&r= |
| By: | Valerie Vandermeulen; Werner Roeger |
| Abstract: | In the aftermath of the financial crisis, it had become clear the Euro Area was suffering from insufficient investment. Actual capital stock was below benchmark capital, the amount of capital you need to support trend labour and total factor productivity (TFP) growth rates. The current COVID-19 pandemic might enlarge the gap between benchmark and actual capital, since both the private and public sector are facing limitations to invest. In the current paper, benchmark capital is estimated based on trend supply side conditions and trend in capital and goods market frictions, to investigate whether such a gap exists in the Euro Area and the US and how it has evolved over time. The paper is based on the European Commission’s production function method and uses trend labour supply and TFP as basis for trend supply side conditions. The first order condition of the Cobb-Douglas production function are used to calculate goods market and capital market frictions. Capital costs are estimated using world interest rate as a rental price of capital, adjusted for depreciation, taxes and relative investment prices. In the past, benchmark capital was driven by strong growth in supply side factors, but since trend labour and TFP growth rates have declined, capital and goods market frictions are becoming more important in explaining benchmark capital growth. The paper shows that after the 2008 crisis, a gap occurred between benchmark capital and actual capital. As of 2012, the gap started to close, but benchmark capital growth was very low in the Euro Area, much below that of the US. Just before the current 2020 crisis, the capital gap was closed in the Euro Area and was positive in the US, but it is expected that actual capital growth might stop again due to the limitations to private and public investment. |
| JEL: | D1 D2 D3 E6 H2 H21 J08 J2 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:145&r= |
| By: | Matthias Burgert; Philipp Pfeiffer; Werner Roeger |
| Abstract: | We estimate an open economy DSGE model to study the fiscal policy implications of downward nominal wage rigidity (DNWR) in a monetary union. DNWR has significantly exacerbated the recession in the southern euro area countries and is important for the design of fiscal policy. We show that a cut in social security contributions paid by employers (equivalent to wage subsidies) is particularly effective in a deep recession with limited wage adjustment. Such cuts strengthen domestic demand and international competitiveness. Compared to government expenditure increases, the reduction in social security contributions provides more persistent growth effects and enhances the fiscal position. Non-linear estimation methods establish a strong state-dependence of policy. |
| Keywords: | Downward nominal wage rigidity, currency union, fiscal policy, nonlinear estimation |
| JEL: | E3 F41 F45 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2021-16&r= |
| By: | Marcin Bielecki; Michał Brzoza-Brzezina; Marcin Kolasa |
| Abstract: | This paper investigates the distributional consequences of monetary policy across generations. We use a life-cycle model with a rich asset structure as well as nominal and real rigidities calibrated to the euro area using both macroeconomic aggregates and microeconomic evidence from the Household Finance and Consumption Survey. We show that the life-cycle profi les of income and asset accumulation decisions are important determinants of redistributive effects of monetary shocks and ignoring them can lead to highly misleading conclusions. The redistribution is mainly driven by nominal assets and labor income, less by real and housing assets. Overall, we find that a typical monetary policy easing redistributes welfare from older to younger generations. |
| Keywords: | monetary policy, life-cycle models, wealth redistribution |
| JEL: | E31 E52 J11 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:sgh:kaewps:2021064&r= |
| By: | Christopher Findlay (Australian National University, Australia); Hein Roelfsema (Utrecht University, the Netherlands); Niall Van De Wouw (CLIVE Data Services, the Netherlands) |
| Abstract: | This paper focuses on air cargo market development, with special attention to the connections between countries in Asia, the European Union, and the United States. Before the coronavirus disease (COVID-19) crisis, we show that participation in global value chains played a crucial role in how countries in Asia increased their exposure to the European Union market, which was hit hardest by the COVID-19 crisis. Analysing the effects of the crisis in 2020- using a fuzzy set complexity approach and recent high-frequency data on air cargo transport - we show that such demand effects, together with domestic contraction conditions, explain a large share of variation in air cargo dynamics across countries in Asia. However, we also show that implementing best practices in pandemic control positively impacts air cargo recovery for countries that cannot rely on export market rebounds. After reviewing the convergence in air cargo business models since 2010, the paper continues to assess recovery options. The main conclusion is that business models will converge on long haul point-to-point models that combine passengers and cargo, moving away from the current hub and spoke system. |
| Keywords: | Air cargo, ASEAN, COVID-19 |
| JEL: | F15 F53 R41 |
| Date: | 2021–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:era:wpaper:dp-2021-23&r= |
| By: | Philipp Pfeiffer; Janos Varga; Jan in 't Veld |
| Abstract: | Next Generation EU (NGEU) is an unprecedented tool that provides significant financial support for reforms and investment, resulting in a coordinated fiscal expansion across the EU in response to the COVID-19 pandemic. Thus, fiscal spillovers are relevant for the assessment of its overall macroeconomic effects. We quantify the effects of the additional investment expenditure for each Member State by extending a standard macro model with a rich trade structure. Our model suggests that the EU-wide GDP effects are around one third larger when explicitly accounting for the spillover effects from individualcountry measures. A simple aggregation of the national effects of individual investment plans would thus substantially underestimate the growth effects of NGEU. For small open economies with smaller NGEU allocations, spillover effects account for the bulk of the GDP impact. We also quantify the role of key transmission channels, such as the zero lower bound, productivity effects and different assumptions on the disbursement speed. However, the paper does not quantify the impact of structural reforms, which can further enhance the growth impact of NGEU. |
| JEL: | E61 E62 F17 F41 F42 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:144&r= |
| By: | Pompeo Della Posta,; Roberto Tamborini |
| Abstract: | The lesson of the sovereign debt crises of the 2010s, and of the outbreak of the COVID- 19 pandemic is that EMU irreversibility, if not to remain a wishful statement in the founding treaties, necessitates to be completed by carefully designed ramparts for extraordinary times beside regulations for ordinary times. In this paper we wish to contribute to this line of thought in two points. First, we highlight that when exposed to large, systemic shocks the EMU faces a trilemma: its integrity can only be saved by relaxing either monetary orthodoxy, or fiscal orthodoxy, or both. We elaborate this concept by means of a fiscal target-zone model, where EMU member governments are willing to abide with the commitment to debt stability under the no-bailout clause only up to an upper bound of their feasible fiscal effort. Second, we show that EMU completion means providing a monetary and/or fiscal emergency backstop to the irreversibility principle. Drawing on the target-zone literature, we show how these devices can be designed in a consistent manner hat minimises their extension and mitigates the moral hazard concerns. The alternative to these devices is not retaining both the EMU irreversibility and the twin orthodoxies, but reformulating the treaties with explicit and regulated exit procedures. |
| Keywords: | COVID-19 pandemic, Fiscal Target Zone, Public Debt, Speculative Attacks, Fiscal Orthodoxy, Monetary Orthodoxy |
| JEL: | E65 F34 F36 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwprg:2021/10&r= |
| By: | Marc Blatter; Andreas Fuster |
| Abstract: | This paper analyzes efficiency and profitability in the Swiss banking sector over the period 1997-2019. We find strong evidence for scale economies: for most banks in the sample, efficiency and profitability increase with bank size. Using an instrumental variables strategy for a subset of geographically restrained banks, we find that the effect of size on efficiency and profitability is likely causal. Scale economies have been more pronounced since 2010 than in the years prior to the global financial crisis. There is little evidence for scale economies for the largest (systemically important) banks; their relatively lower efficiency and lower profitability appear driven by certain aspects of their business model. Our results further indicate that good capitalization and high efficiency and profitability are compatible. |
| Keywords: | Bank efficiency, profitability, economies of scale, financial regulation |
| JEL: | G21 G28 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2021-15&r= |