nep-eec New Economics Papers
on European Economics
Issue of 2022‒06‒13
twelve papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Monetary and macroprudential policy interactions in a model of the European Union By Richard Dennis; Pelin Ilbas
  2. An empirical study of securitisations of non-performing loans By Boudiaf, Ismael Alexander; Miranda, Fernando Gonzalez
  3. Output Divergence in Fixed Exchange Rate Regimes: Is the Euro Area Growing Apart? By Yao Chen; Felix Ward
  4. Central bank digital currency and bank intermediation By Adalid, Ramón; Álvarez-Blázquez, Álvaro; Assenmacher, Katrin; Burlon, Lorenzo; Dimou, Maria; López-Quiles, Carolina; Martín Fuentes, Natalia; Meller, Barbara; Muñoz, Manuel A.; Radulova, Petya; Rodriguez d’Acri, Costanza; Shakir, Tamarah; Šílová, Gabriela; Soons, Oscar; Veghazy, Alexia Ventula
  5. The Chronology of Brexit and UK Monetary Policy By Martin Geiger; Jochen Güntner
  6. Macroeconomic Impacts of the Covid-19 Pandemic in Some European Union Countries: A Counterfactual Analysis By António Portugal Duarte; Fátima Sol Murta
  7. What Drives Credit Risk? Empirical Evidence from Southeast Europe By Nikola Fabris; Nina Vujanović
  8. The Impact of Robots on Labour Market Transitions in Europe By Bachmann, Ronald; Gonschor, Myrielle; Lewandowski, Piotr; Madoń, Karol
  9. The Anatomy of the Global Saving Glut By Luis Bauluz; Filip Novokmet; Moritz Schularick
  10. The GSCPI: A New Barometer of Global Supply Chain Pressures By Gianluca Benigno; Julian di Giovanni; Jan J. J. Groen; Adam I. Noble
  11. Costs of retail payments – an overview of recent national studies in Europe By Junius, Kerstin; Honkkila, Juha; Jonker, Nicole; Rusu, Codruta; Devigne, Lucas; Kajdi, László
  12. The EU electricity market: renewables targets, Tradable Green Certificates and electricity trade By Karakosta, Ourania; Petropoulou, Dimitra

  1. By: Richard Dennis; Pelin Ilbas
    Abstract: We use the two-country euro-area model developed by Quint and Rabanal (2014) to study policymaking in the European Monetary Union (EMU). We focus on strategic interactions: 1) between an EMU-level monetary authority and an EMU-level macro-prudential authority, and; 2) between an EMU-level monetary authority and regional macro-prudential authorities. In the former, price stability and financial stability are pursued at the EMU level, while in the latter each macro-prudential authority adopts region-specific objectives. We compare cooperative and non-cooperative equilibria in simultaneous-move and leadership environments, each obtained assuming discretionary policymaking. Further, we assess the effects on policy performance of assigning shared objectives across policymakers and of altering the relative importance attached to different policy objectives. In the three-policymaker setting, we find that regional macro-prudential policymakers play an important role in achieving regional stability.
    Keywords: Monetary policy, macro-prudential policy, policy coordination
    JEL: E42 E44 E52 E58 E61
    Date: 2022–04
  2. By: Boudiaf, Ismael Alexander; Miranda, Fernando Gonzalez
    Abstract: After addressing the securitisation of non-performing loans (NPLs) within the broader context of the ECB’s efforts to reduce NPL stocks and inflows, we investigate the structural and pricing features of NPL securitisations, issued by large banks in the euro area, by drawing on a unique and comprehensive dataset. In doing so, we provide an overview and typology of NPL securitisations issued in the past five years by large banks in the euro area and propose a concrete framework to compare and assess NPL securitisations across multiple dimensions. Despite methodological constraints resulting from the inherently bespoke nature of securitisations, we are able to identify structural differences between transactions that rely solely on private market participants and transactions that benefit from government guarantee schemes. Indeed, the existing data indicates that transactions involving government guarantee schemes display distinct structural features and higher costs for originating banks when compared with purely private market transactions in our dataset. Our analysis indicates that government guarantee schemes might not solely act as an incentive to new investors who would otherwise not invest in NPLs, but possibly also create conditions, for a new market, distinct in particular from the private NPL securitisations market (in terms of asset quality, capital efficiency, etc.). We believe that further research on the impact of government guarantee schemes on market participants’ behaviour and on the pricing and structuring of NPL transactions, as well as their impact over time would greatly help policymakers and supervisors to strengthen the design of future policy options for dealing with NPL stocks. JEL Classification: G21, G28, G29
    Keywords: asset quality, government policy and regulation., lending conditions, non-performing loans, Securitisations, state guarantees
    Date: 2022–05
  3. By: Yao Chen (Erasmus University Rotterdam); Felix Ward (Erasmus University Rotterdam)
    Abstract: Can fixed exchange rate regimes cause output divergence among member states? We show that such divergence is a long-run equilibrium characteristic of a two-region model with fixed exchange rates, heterogeneous labor markets, and endogenous growth. Under flexible exchange rates, monetary policy closes output gaps and realizes the associated maximum TFP growth in both regions. Upon fixing exchange rates, the region with higher structural wage inflation falls into a low-growth trap. When calibrated to the euro area, the model implies a slowdown in the TFP growth rate of the euro areaÕs periphery relative to its core. An empirical analysis confirms that the peripheryÕs higher structural wage inflation rate contributed to its lower TFP growth in the aftermath of joining the euro.
    Keywords: Exchange rate, growth, monetary policy
    JEL: E50 F31 O40
    Date: 2022–04–28
  4. By: Adalid, Ramón; Álvarez-Blázquez, Álvaro; Assenmacher, Katrin; Burlon, Lorenzo; Dimou, Maria; López-Quiles, Carolina; Martín Fuentes, Natalia; Meller, Barbara; Muñoz, Manuel A.; Radulova, Petya; Rodriguez d’Acri, Costanza; Shakir, Tamarah; Šílová, Gabriela; Soons, Oscar; Veghazy, Alexia Ventula
    Abstract: In July 2021 the Eurosystem decided to launch the investigation phase of the digital euro project, which aims to provide euro area citizens with access to central bank money in an increasingly digitalised world. While a digital euro could offer a wide range of benefits, it could prompt changes in the demand for bank deposits and services from private financial entities (ECB, 2020a), with knock-on consequences for bank lending and resilience. By inducing bank disintermediation, a central bank digital currency, or CBDC, could in principle alter the transmission of monetary policy and impact financial stability. To prevent this risk, options to moderate CBDC take-up are being discussed widely.In view of the significant degree of uncertainty surrounding the design of a potential digital euro, its demand and the prevailing environment in which it would be introduced, this paper explores a set of analytical exercises that can offer insights into the consequences it could have for bank intermediation in the euro area.Based on assumptions about the degree of substitution between different forms of money in normal times, several take-up scenarios are calculated to illustrate how the potential demand for a digital euro might shape up. The paper then analyses the mechanisms through which commercial banks and the central bank could react to the introduction of a digital euro. Overall, effects on bank intermediation are found to vary across credit institutions in normal times and to be potentially larger in stressed times. Further, a potential digital euro’s capacity to alter system-wide bank run dynamics appears to depend on a few crucial factors, such as CBDC remuneration and usage limits. JEL Classification: E42, E51, G21
    Keywords: bank intermediation, bank runs, CBDC, digital euro
    Date: 2022–05
  5. By: Martin Geiger (Liechtenstein Institute); Jochen Güntner
    Abstract: The outcome of the referendum on the UK’s membership of the European Union in June 2016 was largely unanticipated by politicians and pundits alike. Even after the “Leave†vote, the uncertainty surrounding the withdrawal process might have affected the UK economy. We draw on an official list of political events published by the House of Commons Library and daily data on UK stock prices, exchange rates, and economic policy uncertainty to construct a novel instrument for Brexit shocks. Including a monthly aggregate of this time series into a vector-autoregressive model of the UK economy, we find that Brexit shocks were quantitatively important drivers of the business cycle in the aftermath of the referendum that lowered gross domestic product, consumer confidence, and monetary policy rates while raising CPI inflation. A counterfactual experiment, in which we shut down the endogenous response of UK monetary policy to Brexit shocks, reveals that the Bank of England fended off a stronger contraction of output in 2016 and 2018.
    Keywords: Brexit, business cycle, economic policy uncertainty, high-frequency identification, monetary policy
    JEL: E02 E31 E32 E44 E58 F15
    Date: 2022–05
  6. By: António Portugal Duarte (Faculdade de Economia da Universidade de Coimbra); Fátima Sol Murta (Faculdade de Economia da Universidade de Coimbra)
    Abstract: The aim of this paper is to analyze the macroeconomic impacts of the Covid-19 pandemic in the European Union (27 countries) and, particularly, in four of its economies – Germany, Spain, Italy and Portugal. For this purpose, a counterfactual analysis was conducted based on an ARIMA forecasting model through which the behavior of a set of macroeconomic variables (Gross Domestic Product, public debt, inflation rate, public deficit, and unemployment rate) is examined in the context of the Covid-19 pandemic against a hypothetical scenario without pandemic. In general, the results point to a significantly better performance of all variables in the four countries and in the European Union if the Covid-19 pandemic had not existed. In a scenario without the Covid-19 pandemic, all countries would have achieved higher product levels, showing, however, relatively weaker economic growth rates when compared to the pandemic situation, namely in 2021 and 2022. The results also point to budget surpluses in Germany and Portugal, in 2020, 2021 and 2022, as well as a sharp reduction (over 20 percentage points) in Spanish public debt. In 2021 and 2022, there is also a lower inflationary pressure for the European Union, Germany, Spain and Italy, after a very sharp rise in prices in 2020. Regarding the labor market, with the exception of Germany and European Union, where the unemployment rate would be relatively higher, especially in 2022, the remaining countries would register lower unemployment rates.
    Keywords: ARIMA, Counterfactual, Covid-19 pandemic, macroeconomic impacts
    JEL: C15 E63 F47 F62
    Date: 2022–05
  7. By: Nikola Fabris; Nina Vujanović (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Bank stability is an important aspect of financial stability, especially in bank-centric systems such as those in Southeast Europe. The financial crisis has shown that there is a particular need to monitor credit and other similar risks. Hence, it is important to analyse risks affecting the stability of both the banking sector and the financial system as a whole. To that end, central banks have developed macroprudential policies aiming to safeguard financial stability. However, little is known about the drivers of some financial risks. In that context, this study analyses the determinants of credit risk, which is the most prominent risk in the banking sectors of three selected Southeast European economies – Montenegro, Kosovo* and Bosnia and Herzegovina. Dynamic panel data techniques were applied to 48 banks, which represent almost the entire banking sectors in the respective countries. The empirical evidence has shown that both macroeconomic and bank-specific determinants represent influential factors driving credit risk in Southeast Europe. Particularly important macroeconomic factors affecting credit risk are business cycle and sovereign debt. On the other hand, bank size, capital levels, credit activity and profitability are the most prominent factors influencing credit risk in the region.
    Keywords: Credit Risk, Financial Stability, Southeast Europe, Banking
    JEL: G21 E37
    Date: 2022–05
  8. By: Bachmann, Ronald (RWI); Gonschor, Myrielle (RWI); Lewandowski, Piotr (Institute for Structural Research (IBS)); Madoń, Karol (Institute for Structural Research (IBS))
    Abstract: We study the effects of robot exposure on worker flows in 16 European countries between 1998-2017. Overall, we find small negative effects on job separations and small positive effects on job findings. Labour costs are shown to be a major driver of cross-country differences: the effects of robot exposure are generally larger in absolute terms in countries with low or average levels of labour costs than in countries with high levels of labour costs. These effects are particularly pronounced for workers in occupations intensive in routine manual or routine cognitive tasks, but are insignificant in occupations intensive in non-routine cognitive tasks. For young and old workers in countries with low levels of labour costs, robot exposure had a beneficial effect on transitions. Our results imply that robot adoption increased employment and reduced unemployment most in the European countries with low or average levels of labour costs.
    Keywords: robots, technological change, tasks, labour market flows, Europe
    JEL: J24 O33 J23
    Date: 2022–05
  9. By: Luis Bauluz; Filip Novokmet; Moritz Schularick
    Abstract: This paper provides a household-level perspective on the rise of global saving and wealth since the 1980s. We calculate asset-specific saving flows and capital gains across the wealth distribution for the G3 economies – the U.S., Europe, and China. In the past four decades, global saving inequality has risen sharply. The share of household saving flows coming from the richest 10% of household increased by 60% while saving of middle-class households has fallen sharply. The most important source for the surge in top-10% saving was the secular rise of global corporate saving whose ultimate owners the rich households are. Housing capital gains have supported wealth growth for middle-class households despite falling saving and rising debt. Without meaningful capital gains in risky assets, the wealth share of the bottom half of the population declined substantially in most G3 economies.
    Keywords: income and wealth inequality, household portfolios, historical micro data
    JEL: D31 E21 E44 N32
    Date: 2022
  10. By: Gianluca Benigno; Julian di Giovanni; Jan J. J. Groen; Adam I. Noble
    Abstract: We propose a novel indicator to capture pressures that arise at the global supply chain level, the Global Supply Chain Pressure Index (GSCPI). The GSCPI provides a new monitoring tool to gauge global supply chain conditions. We assess the index’s capacity to explain inflation outcomes, using the local projection method. Our analysis shows that recent inflationary pressures are closely related to the behavior of the GSCPI, especially at the level of producer price inflation in the United States and the euro area.
    Keywords: global supply chain; inflation; transportation costs
    JEL: F40 F10 F20
    Date: 2022–05–01
  11. By: Junius, Kerstin; Honkkila, Juha; Jonker, Nicole; Rusu, Codruta; Devigne, Lucas; Kajdi, László
    Abstract: The paper provides an overview of studies on the social and private costs of retail payments conducted since 2013 in nine EU countries and collates the results obtained. Social costs of retail payments are the overall costs resulting from providing payment services to society and deriving from the resource costs incurred by all parties along the payment chain. Private costs, in contrast, are the costs incurred by the individual stakeholder only, such as banks and other payment intermediaries. Understanding the social and private costs of retail payments is crucial for assessing the impact of the rapidly changing retail payment landscape, such as the shift to electronic payments, and for designing strategies for moving towards cost efficient retail payments. JEL Classification: D23, D24, O52, E42
    Keywords: payment instruments, private costs, retail payments, social costs
    Date: 2022–05
  12. By: Karakosta, Ourania; Petropoulou, Dimitra
    Abstract: Several EU member states have introduced national systems of Tradable Green Certificates (TGCs), which stipulate the percentage of total energy consumption to be obtained from renewable sources. The Renewable Energy Directive sets a binding EU-wide target of 32% but without imposing legally binding national targets. To assess incentives for the choice of national percentage requirements we develop a two-country, Cournot duopoly model of the electricity market, with one "green" and one "black" supplier in each country. We show that nationally determined percentage requirements do not align with the EU-welfare maximizing renewable energy target due to cross-country externalities arising from trade in electricity and the market price of TGCs and examine the direction of misalignment. Our results cast doubts on the feasibility of EU renewable energy policy in the absence of binding national targets and inform how national targets should be shaped.
    Keywords: Elsevier deal
    JEL: R14 J01
    Date: 2022–04–27

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