nep-eec 2022-05-23 papers

on European Economics

Issue of 2022‒05‒23
nine papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

Causal coupling between European and UK markets triggered by announcements of monetary policy decisions By Volta, Vittoria; Aste, Tomaso
European Sovereign Bond and Stock Market Granger Causality Dynamics By Gomes, Pedro; Kurter, Zeynep O.; Morita, Rubens
Media Capture by Banks By Durante, Ruben; Fabiani, Andrea; Laeven, Luc; Peydró, José-Luis
The case for a loan-based euro area stability fund By Florian Misch; Martin Rey
THE EFFECTS OF THE ECB COMMUNICATIONS ON FINANCIAL MARKETS BEFORE AND DURING COVID-19 PANDEMICAbstract:The paper aims to estimate the effects of the European Central Bank communications on the sectoral returns of STOXX Europe 600 from 2013 to 2021. Previous literature has investigated the effects of communications of central banks and checked their effects on macroeconomics and financial data. New opportunities offered by text mining analysis allow us to find new insights into these aspects. However, studies focusing on how text mining indices derived from central banksâ€™ communications can affect different financial sectors are more limited. In this paper, we use different sentiment and topic indices derived from the European Central Bankâ€™s speeches. The paper shows how these different topics and sentiment indices affect the returns on different financial sectors. Our results indicate that the topic of communications is more influential on returns of sectoral indices than the type of communications. Moreover, we find that monetary policy and financial stability topics are the most relevant. We also find that during the COVID-19 time, the number of negative speeches is relevant for almost all the sectoral index returns. By Luca Alfieri; Mustafa Hakan Eratalay; Darya Lapitskaya; Rajesh Sharma
INTAXMOD - Inheritance and Gift Taxation in the Context of Ageing By KRENEK Alexander; SCHRATZENSTALLER Margit; GRUNBERGER Klaus; THIEMANN Andreas
EUROMOD baseline report By Sofia Maier; Mattia Ricci; Vanda Almeida; Michael Christl; Hugo Cruces; Silvia De Poli; Klaus Grunberger; Adrian Hernandez; Tine Hufkens; Daniela Hupteva; Viginta Ivaskaite-Tamosiune; Marta Jedrych; Alberto Mazzon; Bianey Palma; Andrea Papini; Fidel Picos; Alberto Tumino; Estefanía Vazquez
The Russo-Ukrainian war has triggered a debate about the adequate sanctioning policy options available to Germany and the European Union, respectively: Ideally, sanctions should impose considerable economic costs on Russia and contribute to a reduction of the Russian government’s ability and willingness to continue its military aggression against Ukraine. Two options are discussed, namely an embargo on Russian exports of fossil fuels and an import tariff. If European policymakers want to consider the option of a gas import tariff on Russian exports, the pros and cons of such a policy option clearly have to take the following into consideration: Firstly, the impact on Russia – in particular the effects on Russia’s budget revenue - and Gazprom as the largely state-owned dominant gas exporter. Secondly, the analysis has to focus on the effects on consumers of imported natural gas in the European Union. Proponents of an import tariff allude to optimal tariff theory and argue that such a policy would shift the burden primarily towards the exporters of fossil fuels, because of tariff revenues accruing to EU households. To understand the price and quantity effects of an EU gas import embargo vis-à-vis Russia, an adequate theoretical framework is required: While one might consider a monopoly framework – with Gazprom as the only supplier in the EU – there are good arguments that a duopoly (or oligopoly) market structure analysis is more useful to derive the key effects of an EU import tariff since such an approach allows to take into account windfall gains for competitors, the consideration of cost differentials between suppliers and the possibility of changes in market leadership. We consider the effect of revenue maximizing tariffs for both the case in which Gazprom retains and loses its market leadership position. The tariff maximizing tariff would significantly reduce the market share of Gazprom and Gazprom would only partially increase gas prices, namely by 50% of the tariff if leadership is maintained and by 25% if leadership is lost. However competitors would also increase their price mark ups, with a stronger increase if competitors become market leaders. The increase of price mark ups and the decline of the market share of Gazprom make it more difficult to raise sufficient tariff revenues from Gazprom in order to compensate EU consumers, compared to the monopoly case. By Werner Roeger; Paul J. J. Welfens
Economic policy uncertainty and analyst behaviours: Evidence from the United Kingdom By Min Chen; Zhaobo Zhu; Peiwen Han; Bo Chen; Jia Liu

Causal coupling between European and UK markets triggered by announcements of monetary policy decisions

By:	Volta, Vittoria; Aste, Tomaso
Abstract:	We investigate high-frequency reactions in the Eurozone stock market and the UK stock market during the time period surrounding European Central Bank (ECB) and the Bank of England (BoE)’s interest rate decisions, assessing how these two markets react and co-move influencing each other. The effects are quantified by measuring linear and nonlinear transfer entropy combined with a bivariate empirical mode decomposition from a dataset of 1 min prices for the Euro Stoxx 50 and the FTSE 100 stock indices. We uncover that central banks’ interest rate decisions induce an upsurge in intraday volatility that is more pronounced on ECB announcement days and there is a significant information flow between the markets with prevalent direction going from the market where the announcement is made towards the other.
Keywords:	markets; transfer entropy; risk spillover; causality; ES/K002309/1; (EP/P031730/1); H2020-ICT-2018-2 825215
JEL:	F3 G3
Date:	2022–03–30
URL:	http://d.repec.org/n?u=RePEc:ehl:lserod:114947&r=

European Sovereign Bond and Stock Market Granger Causality Dynamics

By:	Gomes, Pedro (Birkbeck, University of London); Kurter, Zeynep O. (University of Warwick); Morita, Rubens (Birkbeck, University of London)
Abstract:	We investigate the lead-lag relationship between weekly sovereign bond yield changes and stock market returns for eight European countries, and how it changed during the period 2008-2018. We use a Markov-Switching Granger Causality method that determines reversals of causality endogenously. In all countries, there were often changes in the direction of the Granger causality between the two markets that coincided with global and idiosyncratic economic events. Stock returns led changes of sovereign bond yields in all countries, particularly during the financial and the Euro Area crisis. Changes of sovereign bond yields occasionally led stock returns in France, Spain and Portugal. JEL classification: C32 ; C54 ; C61 ; G01 ; G12 ; G15
Keywords:	Sovereign Bond Yields ; Stock Markets ; Vector Autoregression ; Markov-Switching ; Granger Causality
Date:	2022
URL:	http://d.repec.org/n?u=RePEc:wrk:warwec:1405&r=

Media Capture by Banks

By:	Durante, Ruben (Universitat Pompeu Fabra); Fabiani, Andrea (Bank of Italy); Laeven, Luc (CEPR); Peydró, José-Luis (CEPR)
Abstract:	Do media slant news in favor of the banks they borrow from? We study how lending connections affect news coverage of banks earnings reports and of the Eurozone sovereign debt crisis on major newspapers from several European countries. We find that newspapers cover announcements by their lenders - relative to those of other banks - significantly more when they report profits than when they report losses. Such pro-lender bias is stronger for more leveraged outlets and banks, and operates on the extensive margin for general-interest newspapers and on the intensive margin for financial newspapers. Regarding the Eurozone crisis we find that newspapers connected to banks more exposed to stressed sovereign bonds are more likely to promote a narrative of the crisis favorable to banks and to oppose debt-restructuring measures detrimental to creditors. Our findings support the concern that financial distress and increased dependence on creditors may undermine media companies' editorial independence.
Keywords:	media bias, banks, newspapers, earnings reports, Eurozone crisis
JEL:	G21 L82
Date:	2022–04
URL:	http://d.repec.org/n?u=RePEc:iza:izadps:dp15214&r=

The case for a loan-based euro area stability fund

By:	Florian Misch (ESM); Martin Rey (ESM)
Abstract:	A greater likelihood of significant asymmetric shocks, the war in Ukraine, and stretched fiscal space all underscore the importance of establishing a euro area fiscal stabilisation capacity. This paper considers the merits of a fund that provides loans for fiscal stabilisation purposes, referred to as ‘stability fund’. First, we argue that this fund could better address moral hazard and be more easily set up than other proposed schemes. Second, using quarterly data from two decades, we model eligibility and the authorities’ decision to request loans to simulate the loan portfolio of this fund had it existed all along, with the loan parameters calibrated to match what the ESM could provide. The results suggest the ESM’s current lending capacity is sufficient to host this fund, and that the expansion of fiscal space can be macroeconomically significant and larger compared to other fiscal stabilisation capacity types.
Date:	2022–05–05
URL:	http://d.repec.org/n?u=RePEc:stm:dpaper:20&r=

THE EFFECTS OF THE ECB COMMUNICATIONS ON FINANCIAL MARKETS BEFORE AND DURING COVID-19 PANDEMICAbstract:The paper aims to estimate the effects of the European Central Bank communications on the sectoral returns of STOXX Europe 600 from 2013 to 2021. Previous literature has investigated the effects of communications of central banks and checked their effects on macroeconomics and financial data. New opportunities offered by text mining analysis allow us to find new insights into these aspects. However, studies focusing on how text mining indices derived from central banksâ€™ communications can affect different financial sectors are more limited. In this paper, we use different sentiment and topic indices derived from the European Central Bankâ€™s speeches. The paper shows how these different topics and sentiment indices affect the returns on different financial sectors. Our results indicate that the topic of communications is more influential on returns of sectoral indices than the type of communications. Moreover, we find that monetary policy and financial stability topics are the most relevant. We also find that during the COVID-19 time, the number of negative speeches is relevant for almost all the sectoral index returns.

By:	Luca Alfieri; Mustafa Hakan Eratalay; Darya Lapitskaya; Rajesh Sharma
Keywords:	Monetary policy, Central banking, Text mining, COVID-19
Date:	2022
URL:	http://d.repec.org/n?u=RePEc:mtk:febawb:140&r=

INTAXMOD - Inheritance and Gift Taxation in the Context of Ageing

By:	KRENEK Alexander; SCHRATZENSTALLER Margit; GRUNBERGER Klaus (European Commission - JRC); THIEMANN Andreas (European Commission - JRC)
Abstract:	Based on the most recent data from the ECB’s Household Finance and Consumption Survey, the project models the future household-level wealth distribution in five selected EU member countries (Finland, France, Germany, Ireland, and Italy) to derive inheritances based on different demographic and wealth projection scenarios. On this basis, various inheritance tax scenarios are simulated to estimate potential inheritance tax revenues for a projection period of 30 years. Our results indicate that multiple factors coincide in favouring a growing revenue potential for inheritance taxation in the medium-term. Wealth accumulation and appreciation lead to higher average wealth levels. The shift of the baby boomer generation out of the labour force results in an increase of the older population both in absolute and relative terms. Eventually, this will lead to a rise in the number of deaths and the number of inheritances. Additionally, low fertility rates lead to a reduction of the average number of successors and thereby decrease the importance of exemption thresholds, as individual inheritances become larger. Overall, our simulations show that the future revenue potential of inheritance taxes may be substantial. In practice, it can be expected that the theoretical revenue potential demonstrated by our simulations will be reduced by tax avoidance, real responses, and general equilibrium effects on other taxes. A review of the empirical evidence shows that behavioural responses to inheritance taxes are less pronounced compared to a net wealth tax.
Keywords:	inheritance taxation, wealth taxation, ageing, HFCS, behavioural effects
Date:	2022–04
URL:	http://d.repec.org/n?u=RePEc:ipt:taxref:202204&r=

EUROMOD baseline report

By:	Sofia Maier (European Commission - JRC); Mattia Ricci (European Commission - JRC); Vanda Almeida (European Commission - JRC); Michael Christl (European Commission - JRC); Hugo Cruces (European Commission - JRC); Silvia De Poli (European Commission - JRC); Klaus Grunberger (European Commission - JRC); Adrian Hernandez (European Commission - JRC); Tine Hufkens (European Commission - JRC); Daniela Hupteva (European Commission - JRC); Viginta Ivaskaite-Tamosiune (European Commission - JRC); Marta Jedrych (European Commission - JRC); Alberto Mazzon (European Commission - JRC); Bianey Palma (European Commission - JRC); Andrea Papini (European Commission - JRC); Fidel Picos (European Commission - JRC); Alberto Tumino (European Commission - JRC); Estefanía Vazquez (European Commission - JRC)
Abstract:	This paper presents baseline results from the latest public version (I4.0+) of EUROMOD, the tax-benefit microsimulation model for the EU. We begin by briefly discussing the process of updating EUROMOD. We then present indicators for income inequality and at-risk-of-poverty using EUROMOD and discuss the main reasons for the differences between these and their correspondent from the EU Statistics on Incomes and Living Conditions (EU-SILC). We further compare EUROMOD distributional indicators across all EU 27 countries and over time between 2018 and 2021. Finally, we provide estimates of marginal effective tax rates (METR), an indicator which captures the effect of tax-benefit systems on work incentives at the intensive margin. Throughout the paper, we highlight both the potential of EUROMOD as a tool for policy analysis and the caveats that should be borne in mind when using it and interpreting results.
Keywords:	taxes, benefits, inequality, poverty, EUROMOD
JEL:	H24 H53 I32 I38
Date:	2022–04
URL:	http://d.repec.org/n?u=RePEc:ipt:taxref:202201&r=

The Russo-Ukrainian war has triggered a debate about the adequate sanctioning policy options available to Germany and the European Union, respectively: Ideally, sanctions should impose considerable economic costs on Russia and contribute to a reduction of the Russian government’s ability and willingness to continue its military aggression against Ukraine. Two options are discussed, namely an embargo on Russian exports of fossil fuels and an import tariff. If European policymakers want to consider the option of a gas import tariff on Russian exports, the pros and cons of such a policy option clearly have to take the following into consideration: Firstly, the impact on Russia – in particular the effects on Russia’s budget revenue - and Gazprom as the largely state-owned dominant gas exporter. Secondly, the analysis has to focus on the effects on consumers of imported natural gas in the European Union. Proponents of an import tariff allude to optimal tariff theory and argue that such a policy would shift the burden primarily towards the exporters of fossil fuels, because of tariff revenues accruing to EU households. To understand the price and quantity effects of an EU gas import embargo vis-à-vis Russia, an adequate theoretical framework is required: While one might consider a monopoly framework – with Gazprom as the only supplier in the EU – there are good arguments that a duopoly (or oligopoly) market structure analysis is more useful to derive the key effects of an EU import tariff since such an approach allows to take into account windfall gains for competitors, the consideration of cost differentials between suppliers and the possibility of changes in market leadership. We consider the effect of revenue maximizing tariffs for both the case in which Gazprom retains and loses its market leadership position. The tariff maximizing tariff would significantly reduce the market share of Gazprom and Gazprom would only partially increase gas prices, namely by 50% of the tariff if leadership is maintained and by 25% if leadership is lost. However competitors would also increase their price mark ups, with a stronger increase if competitors become market leaders. The increase of price mark ups and the decline of the market share of Gazprom make it more difficult to raise sufficient tariff revenues from Gazprom in order to compensate EU consumers, compared to the monopoly case.

By:	Werner Roeger (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)); Paul J. J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
Keywords:	Energy Import Embargo, EU, Russia, Gas Market, Duopoly
JEL:	F50 F51 N44 Q48
Date:	2022–05
URL:	http://d.repec.org/n?u=RePEc:bwu:eiiwdp:disbei314&r=

Economic policy uncertainty and analyst behaviours: Evidence from the United Kingdom

By:	Min Chen (SFSU - San Francisco State University); Zhaobo Zhu (Audencia Business School); Peiwen Han (Shenzhen University [Shenzhen]); Bo Chen (Shenzhen MSU-BIT University); Jia Liu (University of Portsmouth)
Abstract:	This paper documents that both domestic and crosscountry economic policy uncertainty have significant impacts on the behaviours of domestic analysts in the United Kingdom. Specifically, domestic economic policy uncertainty has significant negative impacts on analyst earnings forecast accuracy, dispersion, and both analyst recommendation upgrades and downgrades, whereas it has no significant impact on analyst coverage in the United Kingdom. An industry analysis shows that the effects of policy uncertainties on analyst behaviours vary across industries. Moreover, European and global economic policy uncertainty have similar crosscountry impacts as U.K. policy uncertainty on analyst behaviours in the United Kingdom, whereas U.S. policy uncertainty exhibits different impacts. This study presents novel and comprehensive evidence of the impacts of policy uncertainty on an important information intermediary that has significant influences on capital market efficiency, providing practical implications for investors, analysts, corporate managers, and policy makers.
Keywords:	Economic policy uncertainty,Analyst earnings forecast accuracy,Forecast dispersion,Analyst coverage,Analyst stock recommendations
Date:	2022
URL:	http://d.repec.org/n?u=RePEc:hal:journl:hal-03628930&r=

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