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on European Economics |
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Issue of 2022‒03‒21
nine papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Hauptmeier, Sebastian; Leiner-Killinger, Nadine; Muggenthaler, Philip; Haroutunian, Stephan |
| Abstract: | Regarding a prospective reform of the European Stability and Growth Pact (SGP) it seems rather consensual that a simplified framework should take account of the prevailing macroeconomic context and enhance the balancing of sustainability and stabilisation considerations. This paper provides simulation analysis for the euro area and individual countries with a view to assessing the short- and longer-term budgetary and macroeconomic implications of a move to a two-tier system with an expenditure growth rule as single operational indicator linked to a debt anchor. Compared to the status quo, our analysis suggests that expenditure growth targets which take account of the ECB’s symmetric 2% inflation target can improve the cyclical properties of the framework. Fiscal policy would be tighter when inflation is above the target but looser when inflation is below target, resulting in a better synchronisation of fiscal and monetary policies. Providing additional fiscal accommodation in a low inflation environment would enable monetary policy to operate more effectively especially in the vicinity of the effective lower bound. The link to a longer-term debt anchor at the same time ensures a transition towards the Treaty’s debt reference level. JEL Classification: E63, H50, H60 |
| Keywords: | debt sustainability, European fiscal rules, monetary and fiscal policy interactions |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222656&r= |
| By: | Aumond, Romain; Di Tommaso, Valerio; Rünstler, Gerhard |
| Abstract: | We present a quarterly narrative database of important labour market reforms in selected euro area economies in between 1995 and 2018 covering 60 events. We provide legal adoption and implementation dates of major reforms to employment protection legislation and unemployment benefits. Estimates based on local projections find negative short-run effects of liberalising reforms on wages, while the employment effects of reforms differ markedly across age groups and partly depend on the state of the economy. JEL Classification: J08, O43 |
| Keywords: | Employment Protection, Quarterly Indicators, Unemployment Benefits |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222657&r= |
| By: | Fraccaroli, Nicolò; Giovannini, Alessandro; Jamet, Jean-Francois; Persson, Eric |
| Abstract: | We investigate whether ideology drives the sentiments of parliamentarians when they speak to the central bank they hold accountable. To this end, we collect textual data on the quarterly hearings of the ECB President before the European Parliament from 1999 to 2019. We apply sentiment analysis to more than 1,900 speeches of individual Members of the European Parliament (MEPs) from 128 parties. We find robust evidence that MEPs’ sentiments toward the ECB are correlated with the ideological stance predominantly on a pro-/anti-European dimension rather than on a left-right dimension. JEL Classification: E02, E52, E58 |
| Keywords: | Central Bank Accountability, Central Bank Independence, Party Ideology, Sentiment Analysis |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222655&r= |
| By: | Javier Barbero; Martin Christensen; Andrea Conte; Patrizio Lecca; Andres Rodriguez-Pose; Simone Salotti |
| Abstract: | We quantify the general equilibrium effects on economic growth of improving the quality of institutions at the regional level in the context of the implementation of the European Cohesion Policy for the European Union and the UK. The direct impact of changes in the quality of government is integrated in a general equilibrium model to analyse the system-wide economic effects resulting from additional endogenous mechanisms and feedback effects. The results reveal a significant direct effect as well as considerable system-wide benefits from improved government quality on economic growth. A small 5% increase in government quality across European Union regions increases the impact of Cohesion investment by up to 7% in the short run and 3% in the long run. The exact magnitude of the gains depends on various local factors, including the initial endowments of public capital, the level of government quality, and the degree of persistence over time. inked to higher mortality. Accounting for a host of potential confounders, we find robust support that regions with lower levels of both social and political trust are associated with higher excess mortality, along with citizen polarization in institutional trust in some models. On the ideological make-up regional parliaments, we find that, ceteris paribus, those that lean more ‘tan’ on the ‘gal-tan’ spectrum yielded higher excess mortality. Moreover, although we find limited evidence of elite polarization driving excess deaths on the left-right or gal-tan spectrums, partisan differences on the attitudes towards the EU demonstrated significantly higher deaths, which we argue proxies for (anti)populism. Overall, we find that both lower citizen-level trust and populist elite-level ideological characteristics of regional parliaments are associated with higher excess mortality in European regions during the first wave of the pandemic. |
| Keywords: | government quality, cohesion, economic growth, public investment, regions, EU |
| JEL: | C68 O17 R13 R15 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:egu:wpaper:2203&r= |
| By: | Giuliana, Raffaele |
| Abstract: | Through the compulsory participation of junior investors in bearing losses of their failing bank, the bail-in attempts to limit bail-outs’ side-effects in terms of market discipline, too-big-to-fail, bank-sovereign nexus and risk-taking. This paper assesses the consequences of bail-in expectations along these dimensions ensuring – through a bond pricing study – that bail-in expectations are not confounded by other factors. Using hand-collected details of EU bail-in events, I study both positive and negative exogenous shocks to bail-in expectations, offering three sets of findings. First, bail-in events can reinforce (or weaken) bail-in expectations, as shown by Khwaja-Mian tests (validated by placebo analyses). Second, bail-in expectations promote market discipline, and mitigate too-big-to-fail and bank-sovereign nexus. Third, bail-in effects on bank resilience appear mixed. While it incentivises banks to reduce risk-taking (e.g., increasing risk-weighted equity by a third of Basel III requirement), it also remarkably exacerbates total funding costs through an increase in equity cost (partially off-set by a debt cost reduction). JEL Classification: G21, G28, H81, C23 |
| Keywords: | Bail-in, Cost of Capital, Expectations, Financial Stability, Fixed-income Claims, Market Discipline, Rating, Risk-taking |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:2022133&r= |
| By: | Nicholas Charron; Victor Lapuente; Andres Rodriguez-Pose |
| Abstract: | Why have some territories performed better than others in the fight against COVID-19? This paper uses a novel dataset on excess mortality, trust and political polarization for 165 European regions to explore the role of social and political divisions in the remarkable regional differences in excess mortality during the first wave of the COVID-19 pandemic. First, we investigate whether regions characterized by a low social and political trust witnessed a higher excess mortality. Second, we argue that it is not only levels, but also polarisation in trust among citizens – in particular, between government supporters and non-supporters – what matters for understanding why people in some regions have adopted more pro-healthy behaviour. Third, we explore the partisan make-up of regional parliaments and the relationship between political division – or what we refer to as ‘uncooperative politics’. We hypothesize that the ideological positioning – in particular those that lean more populist – and ideological polarization among political parties is also linked to higher mortality. Accounting for a host of potential confounders, we find robust support that regions with lower levels of both social and political trust are associated with higher excess mortality, along with citizen polarization in institutional trust in some models. On the ideological make-up regional parliaments, we find that, ceteris paribus, those that lean more ‘tan’ on the ‘gal-tan’ spectrum yielded higher excess mortality. Moreover, although we find limited evidence of elite polarization driving excess deaths on the left-right or gal-tan spectrums, partisan differences on the attitudes towards the EU demonstrated significantly higher deaths, which we argue proxies for (anti)populism. Overall, we find that both lower citizen-level trust and populist elite-level ideological characteristics of regional parliaments are associated with higher excess mortality in European regions during the first wave of the pandemic. |
| Keywords: | COVID-19; trust, polarization, populism, regions |
| JEL: | E02 H75 R58 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:egu:wpaper:2204&r= |
| By: | Giuseppe Cascarino (Banca d'Italia); Raffaele Gallo (Banca d'Italia); Francesco Palazzo (Banca d'Italia); Enrico Sette (Banca d'Italia) |
| Abstract: | We study the public loan guarantee programs implemented in Italy in the aftermath of the Covid-19 pandemic. Guided by a theoretical model and relying on a unique loan-level dataset covering the period between December 2019 and March 2021, we quantify to what extent public guarantees created additional credit across programs with different coverage ratios and over time. We also document that bank capitalization affected additionality for loans with lower coverage, in which banks have more skin in the game. In contrast, the additionality of the public guarantees varied very little across firms with different levels of risk, liquidity, and size. |
| Keywords: | public loan guarantees, credit additionality, bank capital, pandemic. |
| JEL: | G21 G24 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:172&r= |
| By: | Raphael Auer; Ariel Burstein; Sarah M. Lein; Jonathan Vogel |
| Abstract: | What are the unequal effects of changes in consumer prices on the cost of living? In the context of changes in import prices, most analyses focus on variation across households in initial expenditure shares on imported goods. However, the unequal welfare effects of non-marginal foreign price changes also depend on differences in how consumers substitute between imported and domestic goods, on which there is scant evidence. Using data from Switzerland surrounding the 2015 appreciation of the Swiss franc, we provide evidence that lower income households have higher price elasticities. These differences in elasticities contribute significantly to the unequal welfare effects of large import price changes. |
| JEL: | E3 F1 F41 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29757&r= |
| By: | Ozili, Peterson K |
| Abstract: | This paper investigates the determinants of bank income smoothing using loan loss provisions in the United Kingdom from 1999 to 2017. The findings show that UK banks use loan loss provisions for income smoothing purposes. Income smoothing is greater in times of high economic policy uncertainty. The extent of bank income smoothing is reduced by foreign bank presence, UK GAAP adoption, IFRS9 adoption, and high levels of voice and accountability. Also, there is reduced income smoothing using loan loss provisions during a financial crisis and in periods of economic prosperity. The implication is that economic conditions, institutional governance and accounting disclosure rules influence the extent of bank income smoothing in the United Kingdom. The findings of the study contribute to several studies that explore the determinants of bank income smoothing in a single country context. |
| Keywords: | banks, earnings management, United Kingdom, loan loss provisions, income smoothing, economic policy uncertainty, Great Britain, accounting disclosure, financial crisis. |
| JEL: | G21 G28 M0 M41 M42 M48 M49 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:112047&r= |