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on European Economics |
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Issue of 2022‒02‒07
eleven papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Mr. Marc C Dobler; Mr. Atilla Arda |
| Abstract: | This paper argues that in the European Union (EU) deposit insurance funds are too difficult to use in bank resolution and too easy to use outside resolution. The paper proposes reforms in three areas for the effective management of bank failures of small and medium-sized banks in the European Union: making resolution the norm for dealing with failing banks; establishing a common DIS for the European Union; and increasing funding and backstops for deposit insurance while removing constraints on their use for resolution measures. Without these changes, the European Union will continue to be challenged by banks that are too small for resolution and too large for liquidation. |
| Keywords: | Deposit Insurance, Bank Resolution, Banking Union, Crisis Preparedness, Crisis Management, Euro Area, European Union, Financial Crisis, Financial Stability |
| Date: | 2022–01–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2022/002&r= |
| By: | Bańbura, Marta; Leiva-León, Danilo; Menz, Jan-Oliver |
| Abstract: | Those of professional forecasters do. For a wide range of time series models for the euro area and its member states we find a higher average forecast accuracy of models that incorporate information on inflation expectations from the ECB's SPF and Consensus Economics compared to their counterparts that do not. The gains in forecast accuracy from incorporating inflation expectations are typically not large but significant in some periods. Both short- and long-term expectations provide useful information. By contrast, incorporating expectations derived from financial market prices or those of firms and households does not lead to systematic improvements in forecast performance. Individual models we consider are typically better than univariate benchmarks but for the euro area the professional forecasters are more accurate, especially in recent years (not always for the countries). The analysis is undertaken for headline inflation and inflation excluding energy and food and both point and density forecast are evaluated using real-time data vintages over 2001-2019. |
| Keywords: | Forecasting,Inflation,Inflation expectations,Phillips curve,BayesianVAR |
| JEL: | C53 E31 E37 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:482021&r= |
| By: | Luísa Farinha; Laura Blattner; Gil Nogueira |
| Abstract: | We provide evidence that the strength of the bank lending channel varies considerably across three major positive events in the European sovereign debt crisis – the Greek debt restructuring (PSI), outright monetary transactions (OMT), and quantitative easing (QE). We study how lending responds to each event combining credit registry data with security-level bank balance sheet data from Portugal, a country that was directly exposed to all three events. Even though the price of sovereign debt increased by substantially more after the PSI and OMT announcements, only QE had statistically and economically significant effects on lending to firms and households. We find that banks only realized trading gains after QE but not the other two events. These results suggest that banks’ incentives to sell bonds are an important determinant of the transmission of sovereign debt interventions to the real economy. |
| JEL: | E52 E58 G18 G21 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w202120&r= |
| By: | Ion LAPTEACRU |
| Abstract: | Based on an extensive dataset of 1,156 European banks over the 1995-2015 period, we aim to provide new insights on the determinants of European banks’ risk-taking during crisis events, employing a novel asymmetric Z-score. Our results suggest that more capital, lower ratios of loans to deposits and of liquid assets to total assets and lower share of non-deposit and short-term funding in total funding are associated with lower bank risk and this relationship is stronger during the crises. Moreover, having low costs compared to their revenues reduces the risk of European banks in normal times and has the same impact during the crises. Being involved in non-interest-generating activities makes banks riskier. Finally, being large and having higher net interest margin make banks more stable, but this positive effect is diminished for the size and vanished for the profitability during crisis times. And some differences are observed between Western and Eastern European countries. countries exhibit less regulatory intensity than developed countries. This result suggests that it will require more technical and financial resources for developing countries to comply with measures imposed by developed countries that adopt more stringent technical measures than they do. |
| Keywords: | European banking; bank risk; financial crisis; Z-score |
| JEL: | G21 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:grt:bdxewp:2022-02&r= |
| By: | Beck, Thorsten; Bednarek, Peter; te Kaat, Daniel Marcel; von Westernhagen, Natalja |
| Abstract: | This paper uses matched bank-firm-level data and the 2014 depreciation of the euro to show that exchange rate depreciations lead to increased bank loan supply of large banks with significant net foreign asset exposure. This increase in lending can be explained by a shift in credit towards both export-intensive firms and small banks without foreign asset exposure that have a higher share of exporting firms in their credit portfolio. We also find that German regions where these reallocation effects are stronger experience higher output growth. In economic terms, we show that such regions grow by 1.2 percentage points more than less exposed regions, cumulatively, in the two years after the depreciation relative to the two pre-depreciation years. |
| Keywords: | Exchange Rates,Bank Lending,Interbank Markets,Real Effects,Regional Business Cycles,Germany |
| JEL: | E44 E52 G21 O40 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:522021&r= |
| By: | William Barnett (Department of Economics, University of Kansas and Center for Financial Stability, New York City); Taniya Ghosh (Indira Gandhi Institute of Development Research (IGIDR), Gen. A. K. Vaidya Marg, Filmcity Road, Mumbai, 400065, India); Masudul Hasan Adil (Institute Postdoctoral Fellow, Humanities and Social Sciences-Economics, Indian Institute of Technology Bombay (IITB), Mumbai 400076, India) |
| Abstract: | We revisit the issue of stable demand for money, using quarterly data for the European Monetary Union, India, Israel, Poland, the UK, and the US. We use a modern version of the same linear time-series macro-econometric modeling and specification approach that had previously cast doubt on money demand stability. Autoregressive distributed lag (ARDL) cointegration models are used in the study to establish a long-term relationship among real money balances, real output, interest rate, and real effective exchange rate. For all the countries analyzed, evidence of stable demand for money is found. Broad money in general is better at capturing a stable demand for money than narrow money. The The stability results are especially strong, when broad Divisia money is used instead of its simple sum counterpart. Our results are consistent with the large literature on the Barnett critique, which is based on a different methodological tradition that employs micro-econometric modeling of integrable consumer demand systems. That literature has never found the demand for monetary services, measured using reputable index number and aggregation theory, to be any more difficult to model or less stable than the demand for any other good or service in the economy. |
| Keywords: | Narrow money demand, broad money demand, simple-sum monetary aggregates, Divisia monetary aggregates, ARDL cointegration approach |
| JEL: | C23 E41 E52 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:202204&r= |
| By: | Jonathan Eaton (Pennsylvania State University); Samuel Kortum (Yale University); Francis Kramarz (CREST(ENSAE), Institut Polytechnique de Paris) |
| Abstract: | Customs data reveal heterogeneity and granularity of relationships among buyers and sellers. A key insight is how more exports to a destination break down into more firms selling there and more buyers per exporter. We develop a quantitative general equilibrium model of firm-to-firm matching that builds on this insight to separate the roles of iceberg costs and matching frictions in gravity. In the cross section, we find matching frictions as important as iceberg costs in impeding trade, and more sensitive to distance. Because domestic and imported intermediates compete directly with labor in performing production tasks, our model also fits the heterogeneity of labor shares across French producers. Applying the framework to the 2004 expansion of the European Union, reduced iceberg costs and reduced matching frictions contributed equally to the increase in French exports to the new members. While workers benefited overall, those competing most directly with imports gained less, even losing in some countries entering the EU. |
| Date: | 2022–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpaper:2022-01&r= |
| By: | Petia Topalova; Ara Stepanyan; Raju Huidrom; Ezgi O. Ozturk; Vizhdan Boranova; Shihangyin (Frank) Zhang |
| Abstract: | The auto sector is macro-critical in many European countries and constitutes one of the main supply chains in the region. Using a multi-sector and multi-country general equilibrium model, this paper presents a quantitative assessment of the impact of global pandemic-induced labor supply shocks—both directly and via supply chains—during the initial phase of the COVID-19 pandemic on the auto sector and aggregate activity in Europe. Our results suggest that these labor supply shocks would have a significant adverse impact on the major auto producers in Europe, with one-third of the decline in the value added of the car sector attributable to spillovers via supply chains within and across borders. Within borders, the pandemic-induced labor supply shocks in the services sector have a bigger adverse impact, reflecting their larger size and associated demand effects. Across borders, spillovers from the pandemic-induced labor supply shocks that originate in other European countries are larger than those that originate outside the region, though the latter are still sizable. |
| Keywords: | Auto sector, supply chains, spillovers, Europe |
| Date: | 2022–01–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2022/006&r= |
| By: | Andrew Clark (Paris School of Economics); Conchita D'Ambrosio (University of Luxembourg); Anthony Lepinteur (University of Luxembourg); Giorgia Menta (Luxembourg Institute of Socio-Economic Research) |
| Abstract: | We use data from the COME-HERE panel survey collected by the University of Luxembourg to assess the effects of COVID-19 policy responses on disposable incomes in France, Germany, Italy, Spain and Sweden between January 2020 and October 2021. Policy responses are measured by the Stringency and Economic Support Indices from the Oxford COVID-19 Government-Response Tracker. Controlling for the evolution of the pandemic itself, we find that the income cost of greater stringency measures is borne only by the most economically-vulnerable, while government economic-support measures have a positive effect across the income distribution. |
| Keywords: | COVID-19, Income losses, Lockdown policies, Economic support policies |
| JEL: | I18 I32 H24 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2022-600&r= |
| By: | Davoine, Thomas (University of Applied Sciences Western Switzerland and Institute for Advanced Studies (IHS), Vienna, Austria) |
| Abstract: | Higher fertility slowly increases the workers-to-retirees ratio over the long run, which can ease the pension financing challenge brought about by population aging. It may or may not increase production per capita. Existing simulation studies all find a positive impact on public finances over the long run. They however differ on the impact on output per capita. Whether differences are due to model designs or country characteristics is unknown. Using the same macroeconomic model for a sample of 14 European countries, I find that the long-run pension deficits are reduced 27% on average, if one woman out of five had one more child in her lifetime. Variations across countries are small. On the other hand, I find that output per capita increases in all countries from my sample, with one exception. Differences in population structures, age-productivity profiles and pension systems can explain the exception. Fertility-promoting policies will always ease the public finance challenge due to population aging, but may worsen output per capita if pension payments are too loosely connected to earnings histories or if age-productivity profiles are very steep. |
| Keywords: | ertility, population aging, pensions, productivity profiles, computable general equilibrium |
| JEL: | C68 H55 J11 J13 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:ihs:ihswps:38&r= |
| By: | Mario Holzner (The Vienna Institute for International Economic Studies, wiiw); Katharina Weber; Muhammad Usman Zahid; Maximilian Zangl |
| Abstract: | In a study published in 2018 the Vienna Institute for International Economic Studies (wiiw) proposed the construction of a ‘European Silk Road’ encompassing a high-speed railway (HSR) network for Europe. To compliment the economic feasibility analysis by wiiw, this report aims to determine the environmental impact of the suggested northern core route – from Lyon to Moscow – by focussing on the net greenhouse-gas emissions, in CO2-eq.. The study uses a life cycle assessment (LCA) for the analysis of construction, maintenance, operation, and disposal of the HSR, to provide an estimate of how many tons of CO2-eq. can be saved over the span of 60 years. In generating a modal shift from road and air transport, the construction of an HSR line provides the potential for saving up to 10% of net CO2-eq. emissions in the EU27 for one year. Thus, the proposed high-speed line contributes to the current targets and goals of the European Union to reduce emissions and present smart, sustainable and inclusive economic solutions. |
| Keywords: | Infrastructure, Transport, High Speed Rail, Environmental Effects |
| JEL: | H54 R42 L92 Q51 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:wii:rpaper:rr:459&r= |