nep-eec New Economics Papers
on European Economics
Issue of 2021‒11‒15
eleven papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Mixing QE and Interest Rate Policies at the Effective Lower Bound: Micro Evidence from the Euro Area By Christian Bittner; Alexander Rodnyansky; Farzad Saidi; Yannick Timmer
  2. Euro area time-varying cyclicality of fiscal policy By António Afonso; Francisco Tiago Carvalho
  3. The ECB's Policy, the Recovery Fund and the Importance of Trust: The Case of Greece By Vasiliki Dimakopoulou; George Economides; Apostolis Philippopoulos
  4. Chinese supply chain shocks By Khalil, Makram; Weber, Marc-Daniel
  5. Structural change and productivity growth in the European Union: Past, present and future By DUERNECKER Georg; SANCHEZ MARTINEZ Miguel
  6. The Impact of the Covid-19 Pandemic on Persistence in the European Stock Markets By Guglielmo Maria Caporale; Luis A. Gil-Alana; Isabel Arrese Lasaosa
  7. COVID-19 financial aid and productivity- has support been well spent? By Carlo Altomonte; Maria Demertzis; Lionel Fontagné; Steffen Müller
  8. The Existential Trilemma of EMU in a Model of Fiscal Target Zone By Pompeo Della Posta; Roberto Tamborini
  9. EU Exports to the World: Effects on Employment By RUEDA CANTUCHE Jose; PINERO MIRA Pablo; KUTLINA-DIMITROVA Zornitsa
  10. Wealth and History: An Update By Daniel Waldenström
  11. Does money growth tell us anything about inflation? By Leonardo Cadamuro; Francesco Papadia

  1. By: Christian Bittner; Alexander Rodnyansky; Farzad Saidi; Yannick Timmer
    Abstract: In the presence of negative monetary-policy rates and a zero lower bound on deposit rates, banks that are more exposed to central banks’ asset-purchase programs reduce their lending to the real economy by more than their counterparts. When banks face a lower bound on customer deposit rates, an asset swap between securities and reserves reduces banks’ net worth as the cost of holding reserves cannot be matched with a reduction in their cost of funding. Exploiting euro-area syndicated lending data and the German credit registry, we provide evidence that deposit-reliant banks with relatively higher funding costs and greater exposure to large-scale asset purchases reduce corporate lending relatively more, have lower stock returns, and rebalance their interbank lending from safe to risky countries.
    Keywords: negative interest rates, quantitative easing, unconventional monetary policy, bank lending channel
    JEL: E52 E58 G21
    Date: 2021
  2. By: António Afonso; Francisco Tiago Carvalho
    Abstract: We assess the cyclicality of fiscal policy in the 19 Euro area countries, notably during recessions, for the period 1995-2020. We use a time-varying measure of fiscal cyclicality to describe fiscal policy developments. The results suggest that during recessions discretionary fiscal policy becomes more pro-cyclical, but the overall budget balance becomes more counter-cyclical. Hence, pursuing a Ricardian fiscal regime by more indebted countries leads to higher counter-cyclicality of fiscal policy. Government size reduces counter-cyclicality, as well as trade openness, and financial development has a positive impact on counter-cyclicality.
    Keywords: Fiscal Policy; Cyclicality; Time-varying coefficient; Euro area.
    JEL: C23 E62 H30 H62
    Date: 2021–11
  3. By: Vasiliki Dimakopoulou; George Economides; Apostolis Philippopoulos
    Abstract: This paper, using a microfounded macroeconomic model that embeds the key features of the Greek economy, studies the efficacy of the various policy measures taken, at national and EU level, to cushion the economic effects of the pandemic shock. The paper attempts to give quantitative answers to questions like: What are the effects of these policies and, especially, what are the implications of the fiscal transfers and grants from the Recovery Fund and the quantitative policies of the ECB, like the PEPP, for the Greek economy? Do they help the real economy and, if yes, by how much? What would have happened had these measures not taken? How costly will be the re-emergence of the fear of debt default and risk premia?
    Keywords: central banking, fiscal policy, international lending, pandemic
    JEL: E50 E60 F30
    Date: 2021
  4. By: Khalil, Makram; Weber, Marc-Daniel
    Abstract: In structural vector autoregressive models of US and euro area manufacturing, we use sign restrictions to identify shocks that alter the frictions to Chinese supply chain trade. We find a quantitatively significant role of such shocks for the decline of US manufacturing output at the height of the Sino-American trade tensions in 2019. At the beginning of the Covid-19 pandemic in early 2020, the results point towards large spillovers from the shutdown in China to manufacturing in the US and the euro area. Moreover, during the recovery in 2020 and 2021, positive Chinese supply chain shocks related to the shift of preferences towards goods with a large China valued-added content played a role. Interestingly, the impact of China-specific trade shocks is not limited to manufacturing sectors that are highly exposed to China. Furthermore, negative Chinese supply chain shocks cause upward price pressure across the whole manufacturing industry.
    Keywords: Cross-border supply-chain disruptions, China, trade tensions, Covid-19 recession, US and euro area manufacturing.
    JEL: E32 F41 F62
    Date: 2021–10–25
  5. By: DUERNECKER Georg; SANCHEZ MARTINEZ Miguel (European Commission - JRC)
    Abstract: The aim of this paper is to investigate the interplay between structural change, interpreted as the secular process of sectoral transformation, and labour productivity growth in the EU in several new dimensions. First, based on the latest data, we document the size of the negative effect that structural change has exerted onto productivity growth over long time horizons. We provide a comparative analysis of these and present-day trends with respect to the US. Second, we develop a general equilibrium model calibrated to match these empirical observations to analyse the potential impact that projected structural change may have on future productivity growth. This model generates structural change through both price and income effects. Our main results indicate that, other things equal, this phenomenon is bound to have a greater dent on productivity growth in the future than it has had in the past. This is the case for both newer and older EU Member States, albeit with important nuances. Our findings suggest that policies should focus on the promotion of productivity-enhancing technological innovation, as well as on the furtherance of greater levels of competition, especially in the most sluggish service sectors.
    Keywords: Structural change, Productivity growth, Economic growth, Baumol's cost disease, Service sector, European Union
    Date: 2021–11
  6. By: Guglielmo Maria Caporale; Luis A. Gil-Alana; Isabel Arrese Lasaosa
    Abstract: This paper analyses the impact of the Covid-19 pandemic on the degree of persistence of European stock markets. Specifically, it uses fractional integration methods to estimate persistence at the daily, weekly and monthly frequencies in the case of ten major European stock market indices; the effects of the pandemic are assessed by comparing the pre-pandemic estimates (over the period 2005-2019) to those from a sample extended until July 2021 which includes the pandemic period. The approach used is more general than the standard one based on the stationarity versus non-stationarity dichotomy and allows for a wider range of dynamic processes. Three different model specifications are considered, and these are estimated under two alternative assumptions for the disturbances (white noise and autocorrelation). The findings indicate that there has not been any significant impact of the Covid-19 pandemic on the degree of persistence of the European stock market indices, though their volatility persistence has decreased.
    Keywords: Covid-19 pandemic, European stock market indices, persistence, fractional integration
    JEL: C22 G15
    Date: 2021
  7. By: Carlo Altomonte; Maria Demertzis; Lionel Fontagné; Steffen Müller
    Abstract: This Policy Contribution is an output from the MICROPROD project, which received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement no. 822390. The authors thank colleagues at Bruegel for valuable comments and suggestions. Lionel Jeanrenaud and Maddalena Conte provided valuable research assistance. Opinions are those of the authors. Most European Union countries have made good progress with vaccinating their populations against COVID-19 and are...
    Date: 2021–11
  8. 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 that 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
    Date: 2021
  9. By: RUEDA CANTUCHE Jose (European Commission - JRC); PINERO MIRA Pablo (European Commission - JRC); KUTLINA-DIMITROVA Zornitsa
    Abstract: The Trade Policy Review also specifies areas and actions that are critical to achieving the EU’s objectives in the medium term. One of the headline actions is to support an informed discussion on trade policy by inter-alia conducting analytical work on the impact of trade policies on employment. Against this background, DG TRADE and the European Commission’s Joint Research Centre (JRC) have prepared a new updated version of two published studies in 2015 and 2018 based for the first time on reliable and comparable official statistics to understand how global trade flows affect employment in the EU. This report illustrates in detail the relationship between trade and employment for the EU as a whole and for each EU Member State, using the recently released Eurostat’s FIGARO database, jointly compiled by Eurostat and JRC. Furthermore, the analysis will complement this information with detailed data on employment by industry, skill and gender using other complementary employment statistics. All indicators relate to EU exports to the world to reflect the scope of EU external trade policymaking.
    Keywords: Employment, Exports, Trade, European Union
    Date: 2021–11
  10. By: Daniel Waldenström
    Abstract: This paper analyzes new evidence on long-run trends in aggregate wealth accumulation and wealth inequality in Western countries. The new findings suggest that wealth-income ratios were lower before World War I than previously claimed, that wealth concentration fell over the past century and has remained low in Europe but increased in the United States, that wealth has changed from being dominated by elite-owned fortunes to consist mainly of popular wealth, and that capital shares in national income have been relatively stable over time, especially in the postwar era. These findings cast doubt on claims that a low-tax, low-regulation capitalism will generate extreme capital accumulation, and that persistent wealth equalization requires large shocks to capital coming from wars or progressive taxation. Instead, institutions that promote household wealth accumulation from below appear to be key for understanding the long-run evolution of wealth in Western societies.
    Keywords: wealth-income ratios, wealth inequality, capital share, economic history
    JEL: D30 E21 N30
    Date: 2021
  11. By: Leonardo Cadamuro; Francesco Papadia
    Abstract: Economists and central bankers no longer consider monetary aggregates relevant for inflation forecasts. We explain this neglect by advancing and testing the hypothesis that monetary aggregates are only relevant for inflation in unsettled monetary and inflationary conditions. When inflation is basically stable around the central bank target (1.9 percent), as it has been in most of the last two decades, there is no apparent relationship between monetary aggregates and inflation....
    Date: 2021–11

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