nep-eec New Economics Papers
on European Economics
Issue of 2021‒11‒08
nine 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. The Italian nominal interest rate conundrum: a problem of growth or public finance? By Giovanni Carnazza; Nicola Caravaggio
  3. The economic spillovers of EU Cohesion policy 2007-2013 By Philippe Monfort; Francesca Crucitti; Nicholas Lazarou; Simone Salotti
  4. European Central Bank and Banco de España measures against the effects of COVID-19 on the monetary policy collateral framework, and their impact on Spanish counterparties By Jorge Escolar; José Ramón Yribarren
  5. Do Cohesion Funds foster regional trade integration? A structural gravity analysis for the EU regions By Yevgeniya Shevtsova; Jorge Diaz-Lanchas; Damiaan Persyn; Giovanni Mandras
  6. How do investors value the publication of tax information? Evidence from the European public country-by-country reporting By Müller, Raphael; Spengel, Christoph; Weck, Stefan
  7. Financial flows, macro-prudential policies, capital restrictions and institutions: what do gravity equations tell us? By Jean-Charles Bricongne; Antoine Cosson; Albane Garnier-Sauveplane; Rémy Lecat; Irena Peresa; Yuliya Vanzhulova
  8. Establishing a fiscal dialogue in Europe By Jérôme Creel
  9. Risky Financial Collateral, Firm Heterogeneity, and the Impact of Eligibility Requirements By Matthias Kaldorf; Florian Wicknig

  1. By: Claudio Barbieri; Mattia Guerini; Mauro Napoletano (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po)
    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 monet ary policy in the Eurozone.
    Keywords: synchronization,bond yields,factor models,random matrix theory,monetary policy
    Date: 2021
  2. By: Giovanni Carnazza (Università di Roma Tre); Nicola Caravaggio (Università di Roma Tre)
    Abstract: In the economic literature, there has been a large heterogeneity of results in relation to the impact of fiscal variables on interest rates. Focusing on the Italian economy and considering the nature of our interest rate determinants (public finance variables and nominal GDP growth), we decided to undertake a cointegration analysis relying on the Autoregressive Distributed Lag (ARDL) bound test approach, a particular suitable procedure within this peculiar framework, able to disentangle short-run and long-run dynamics. Our results are quite controversial, shedding new light on the role of gross debt and primary balance as a share of GDP in relation to the long-term Italian nominal interest rate. In this context, the ECB has probably played a crucial role, especially in the most severe phases of the Sovereign debt crisis. The European fiscal framework then shows further critical issues in relation to the new role that fiscal variables play within our econometric analysis.
    Keywords: Italian economy; Sovereign bond yield; European Monetary Union; Public finance
    JEL: E43 E58 E62 G12 C13 C22
    Date: 2021–11
  3. By: Philippe Monfort (European Commission - DG REGIO); Francesca Crucitti (European Commission - JRC); Nicholas Lazarou (European Commission - JRC); Simone Salotti (European Commission - JRC)
    Abstract: We investigate the macroeconomic impact of the 2007-2013 Cohesion Policy investments in the regions of the European Union (EU). We use the dynamic spatial general equilibrium model called RHOMOLO to assess the effects of the policy both in the short run and in the long run, with a focus on the spatial spillovers generated by the investments. The analysis shows that the Cohesion policy investments have a particularly positive economic impact on the least developed regions of the EU, with significant benefits spreading to the more developed regions. Our results bear relevant implications for the debate over the financing of the policy and the divide between its net contributors and net beneficiaries.
    Keywords: rhomolo, region, growth, cohesion policy, general equilibrium, spatial spillovers
    JEL: C68 R13
    Date: 2021–10
  4. By: Jorge Escolar (Banco de España); José Ramón Yribarren (Banco de España)
    Abstract: In March and April 2020, the European Central Bank adopted a series of monetary policy measures aimed at providing liquidity support to the financial system and facilitating access to financing for the real economy to mitigate the adverse economic effects of COVID-19. Some of these measures focused on preserving and expanding the universe of assets that counterparties can use as collateral to participate in Eurosystem financing operations. This paper, after a brief summary of the collateral framework for monetary policy operations, studies the measures adopted in this connection by the European Central Bank and the Banco de España and their impact on Spanish counterparties. This study finds that, in overall terms, two measures stand out over the others in terms of the amount of collateral provided: the acceptance of partially government-guaranteed credit claims and the reduction in haircuts. Although all counterparties have been affected by the measures, the extent of the impact has differed widely, determined by the characteristics of the assets used as collateral and their management. Finally, the interaction between the different measures is analysed, since more than one can affect the eligibility and valuation of the same asset.
    Keywords: European Central Bank, Eurosystem, collateral, monetary policy, counterpartie.
    JEL: E42 E52 E58 G21 G32
    Date: 2021–10
  5. By: Yevgeniya Shevtsova (European Commission - JRC); Jorge Diaz-Lanchas (Universidad Pontifica Comillas); Damiaan Persyn (University of Göttingen); Giovanni Mandras (European Commission - JRC)
    Abstract: This paper uses a structural gravity model to explore the regional trade and welfare impact of the EU Cohesion Policy Transport Infrastructure Investment programme estimated using a novel dataset of the Generalised Transport Costs for the EU regions at the NUTS2 level. The results indicate that on average additional investment in transport infrastructure can increase NUTS2 total regional exports by 0.40% and regional real GDP 1.13%. Central and Eastern European Regions enjoy the highest exports and GDP gains, while few Western European regions experience a negligible decrease in wages, which may occur as a result of factor price convergence.
    Keywords: structural gravity, trade policy, general equilibrium analysis.
    JEL: F13 F14 F15 R13
    Date: 2021–10
  6. By: Müller, Raphael; Spengel, Christoph; Weck, Stefan
    Abstract: We examine the capital market reaction to the announcement of the European Union (EU) to introduce a public tax country-by-country reporting (CbCR) regime. By employing an event study methodology, we find a significant cumulative average abnormal return (CAAR) of -0.699%, which translates into a monetary value drop of approximately EUR 65 billion. We conclude that investors evaluate reputational risks arising from public scrutiny and competitive disadvantages to outweigh potential benefits of an extended information environment or more sustainable corporate tax strategies. In cross-sectional tests, we find that the average investor reaction is more pronounced for firms with low effective book tax rates, indicating that reputational concerns play a significant role in the marginal investor's investment behavior. Furthermore, our cross-sectional results indicate that the market reaction is stronger for firms operating in industries with high growth in market participants, providing an initial indication for the role of the competitive environment as an additional channel. Our inferences are of particular importance in light of the current ongoing debates on similar disclosure rules (particularly in the United States; cf. "Disclosure of Tax Havens and Offshoring Act") as well as for sustainability standard setters.
    Keywords: tax transparency,tax disclosure,tax avoidance,event study,country-by-country reporting
    JEL: F23 G14 G38 H25 H26 M41
    Date: 2021
  7. By: Jean-Charles Bricongne; Antoine Cosson; Albane Garnier-Sauveplane; Rémy Lecat; Irena Peresa; Yuliya Vanzhulova
    Abstract: This paper analyzes the impact on financial flows of institutional factors promoting financial integration such as European integration or trying to tame them such as capital control or macro-prudential policies. We use a detailed database of bilateral financial assets and construct gravity models, for foreign direct investment, portfolio flows and other investments. Capital control policies have limited and disparate effects, being particularly effective through restrictions on inward flows for destination countries. The impacts of macro-prudential measures are complex, with macro-prudential measures in the origin country financial sector having a positive impact on outward capital flows and macroprudential measures in destination countries having a negative impact on inward capital flows. European integration has played a positive role on financial flows. We also emphasize the benefits of cooperation between the origin and destination countries, both for capital control and macro-prudential measures.
    Keywords: Gravity Equation, International Financial Assets and Flows, Macro-Prudential Measures, Restrictions to Financial Flows, European Integration
    JEL: F38 G15
    Date: 2021
  8. By: Jérôme Creel (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po)
    Abstract: In this contribution, I use the Fiscal theory of the price level as a backdrop for a discussion on the risks that expansionary fiscal policies may pose on debt sustainability. I recall that a regime of fiscal dominance does not lead to macroeconomic instability. I also review a few empirical papers on fiscal sustainability and I conclude, also based upon own estimates, that it is not a major concern, at least in the short to mid-run. Finally, I argue that Europeans should continue on the fiscal impetus they contributed to in 2020 by fostering coordination and transparency on EU fiscal policies. To achieve this objective, I revisit the idea of an enhanced dialogue on fiscal matters at the European Parliament and propose to establish a Fiscal Dialogue with the EU Member States.
    Keywords: fiscal policy,public debt,fiscal governance,European Union
    Date: 2021
  9. By: Matthias Kaldorf (University of Cologne, Center for Macroeconomic Research); Florian Wicknig (University of Cologne, Center for Macroeconomic Research)
    Abstract: This paper studies how collateral premia affect the supply and quality of bonds issued by non-financial firms. Banks increase demand for bonds eligible as collateral, to which eligible firms respond by increasing their debt issuance and default risk. We characterize firm responses and aggregate collateral supply in a heterogeneous firm model with collat-eral premia and endogenous default risk. Using a calibration to euro area data, we study the impact of collateral easing, consistent with the ECB’s policy during the 2008 financial crisis and evaluate the quantitative relevance of firm responses. We find that firm responses substantially deteriorate collateral quality and dampen the total increase in collateral sup-ply. Our analysis suggests that an eligibility covenant conditioning eligibility on leverage and current default risk, is a potentially powerful instrument to mitigate the adverse impact of eligibility requirements on collateral quality while maintaining a high level of collateral supply.
    Keywords: Eligibility Premia, Corporate Bonds, Firm Heterogeneity, Collateral Policy
    JEL: E44 E58 G12 G32 G33
    Date: 2021–10

This nep-eec issue is ©2021 by Giuseppe Marotta. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.