nep-eec New Economics Papers
on European Economics
Issue of 2022‒08‒08
eighteen papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. The impact of credit supply shocks in the euro area: market-based financing versus loans By Barauskaitė, Kristina; Nguyen, Anh D.M.; Rousová, Linda; Cappiello, Lorenzo
  2. Navigating the well-being eects of monetary policy: Evidence from the European Central Bank By Mehdi EL HERRADI; Aurélien LEROY
  3. Real Effects of Financial Market Integration: Evidence from an ECB Collateral Framework Change By Pia Hüttl; Matthias Kaldorf
  4. How well-behaved are revisions to quarterly fiscal data in the euro area? By Bańkowski, Krzysztof; Faria, Thomas; Schall, Robert
  5. Excess demand for banknotes in Malta By Brian Micallef; Tiziana Gauci
  6. How macroeconomic conditions affect systemic risk in the short and long-run? By Kurter, Zeynep O.
  7. Quantifying the Extensive Margin(s) of Trade: The Case of Uneven European Integration By James E. Anderson; Yoto V. Yotov
  8. On the road to regional ‘Competitive Environmental Sustainability’: the role of the European structural funds By MARQUES SANTOS Anabela; BARBERO JIMENEZ Javier; SALOTTI Simone; DIUKANOVA Olga; PONTIKAKIS Dimitrios
  9. Global Supply Chain Pressures, International Trade, and Inflation By Julian di Giovanni; Sebnem Kalemli-Ozcan; Alvaro Silva; Muhammed A. Yildirim
  10. Corporate Training and Skill Gaps: Did COVID-19 Stem EU Convergence in Training Investments? By Pouliakas, Konstantinos; Wruuck, Patricia
  11. The economic returns of circular economy practices By Davide Antonioli; Claudia Ghisetti; Massimiliano Mazzanti; Francesco Nicolli
  12. Transition versus physical climate risk pricing in European financial markets: a text-based approach By Bua, Giovanna; Kapp, Daniel; Ramella, Federico; Rognone, Lavinia
  13. A qualified treatment for green and social investments within a revised EU fiscal framework By Corti, Francesco; Alcidi, Cinzia; Gros, Daniel; Liscai, Alessandro; Shamsfakhr, Farzaneh
  14. Optimal tariff versus optimal sanction: The case of European gas imports from Russia By Gros, Daniel
  15. Business Cycle Synchronization in the EU: A Regional-Sectoral Look through Soft-Clustering and Wavelet Decomposition By Saulius Jokubaitis; Dmitrij Celov
  16. News-driven housing booms: Spain vs. Germany By Guinea Voinea, Laurentiu; Puch González, Luis Antonio; Ruiz, Jesús
  17. The over-education wage penalty among PhD holders: a European perspective By François Rycx; Giulia Santosuosso; Guillaume Vermeylen
  18. Accounting for the slowdown in UK innovation and productivity By Peter Goodridge; Jonathan Haskel

  1. By: Barauskaitė, Kristina; Nguyen, Anh D.M.; Rousová, Linda; Cappiello, Lorenzo
    Abstract: Using a novel quarterly dataset on debt financing of non-financial corporations, this paper provides the first empirical evaluation of the relative importance of loan and market-based finance (MBF) supply shocks on business cycles in the euro area as a whole and in its five largest countries. In a Bayesian VAR framework, the two credit supply shocks are identified via sign and inequality restrictions. The results suggest that both loan supply and MBF supply play an important role for business cycles. For the euro area, the explanatory power of the two credit supply shocks for GDP growth variations is comparable. However, there is heterogeneity across countries. In particular, in Germany and France, the explanatory power of MBF supply shocks exceeds that of loan supply shocks. Since MBF is mostly provided by non-bank financial intermediaries, the findings suggest that strengthening their resilience — such as through an enhanced macroprudential framework — would support GDP growth. JEL Classification: C32, E32, E44, E51, G2
    Keywords: business cycles, credit supply, debt securities, loan, non-bank financial intermediation, VAR
    Date: 2022–06
  2. By: Mehdi EL HERRADI; Aurélien LEROY
    Abstract: This paper assesses whether monetary policy announcements have an impact on households’ (subjective) well-being by analysing life satisfaction on the days before and after monetary surprises in Germany. To do so, we use individual-level information on life satisfaction from the German Socio-Economic Panel (SOEP) survey and identify the day on which each answer is submitted to the survey. We also exploit the Euro Area Monetary Policy event study Database (EA-MPD) to obtain daily-level information on European Central Bank (ECB) monetary surprises. Our results show that life satisfaction is significantly affected by monetary policy surprises: tightening surprises decrease life satisfaction, while easing surprises increase it.
    Keywords: Monetary policy, Subjective Well-Being, Survey data, European Central Bank
    JEL: E52 E58 I31
    Date: 2022
  3. By: Pia Hüttl (Humboldt University Berlin, DIW Berlin); Matthias Kaldorf (University of Cologne)
    Abstract: This paper studies the effects of harmonizing collateral policy in a monetary union. In 2007, the European Central Bank replaced national collateral lists with a single list specifying which assets euro area banks can pledge as collateral. Banks holding newly eligible assets experience a reduction in their cost of funding and increase loan supply compared to banks without such assets. The effect is driven by core banks increasing credit supply to riskier and less productive firms located in periphery countries. These firms in turn experience growth in employment and investment. Our results suggest that a harmonized collateral framework facilitates cross-border lending to borrowing-constrained firms and, thereby, increases financial market integration in a monetary union.
    Keywords: E44, E52, E58, G20, G21
    Date: 2022–06
  4. By: Bańkowski, Krzysztof; Faria, Thomas; Schall, Robert
    Abstract: Since most macroeconomic data are revised after the initial release both researchers andpolicy-makers have no choice rather than recognising and understanding the revisions. Thispaper analyses revisions to the fiscal data in the euro area, also by contrasting them with the’better-understood’ macro revisions. Concretely, the study verifies whether fiscal revisionsfulfil requirements to treat them as well-behaved. To this end, we construct a fiscal quarterlyreal-time dataset, which contains quarterly releases of Government Finance Statistics andwhich is supplemented by macro variables from Main National Accounts. Fiscal revisionsdo not satisfy desirable properties expected from well-behaved revisions. In particular, theytend to have a positive bias, they exhibit a big dispersion and they are largely predictable.Also, they are similar to macro revisions, in particular since 2014, which contradicts theoften heard view about fiscal data being subject to particularly large revisions. JEL Classification: C80, E62
    Keywords: data revisions, Fiscal policy, real-time data
    Date: 2022–07
  5. By: Brian Micallef; Tiziana Gauci
    Abstract: The amount of banknotes issued by the Central Bank of Malta has persistently exceeded the allocation to the Bank from the ECB’s banknote allocation key, resulting in a corresponding net liability within the Eurosystem, a trend that has exacerbated since the outbreak of the COVID-19 pandemic. High demand for banknotes has also been experienced in the euro area in recent years even though the use of cash for retail transactions has decreased. This is referred to as “paradox of banknotes†and occurs because currency is not only used for daily transactions but also as a store of value while it is also influenced by demand from citizens outside the euro area. Part of the excess demand for banknotes in Malta can be attributed to the fact that the ECB banknote key is based on estimates that do not accurately reflect the strong population and economic growth registered in Malta since 2016. Structural factors also play a part in explaining the demand for banknotes with population growth emerging as a common factor for all countries experiencing an excess demand for banknotes. On the other hand, the evidence for demand arising from tourism is relatively weak.
    JEL: E20 E41 E58
  6. By: Kurter, Zeynep O. (University of Warwick)
    Abstract: This study quantifies the effects of macroeconomic variables on various market-based systemic-risk measures in 24 European banks over the 2008-2019 period. In a first step, I measure daily systemic risk for banks based on ∆CoVaR, MES, and SRISK frameworks, and examine the contributions of individual banks to aggregate systemic risk during specific stress events. Systemic risk in European banks has risen in the wake of the global financial crisis and the Brexit referendum result. In a second step, I investigate how macroeconomic conditions affect systemic risk in the short and long-run. I find that three systemic risk measures have a long-run stable relationship with EU industrial production, EU inflation, Euribor, and US equity market volatility, but some variables have opposite effects in the short and long-run.
    Keywords: Systemic Risk ; Value at Risk ; Quantile Regression ; DCC-GJRGARCH ; ARDL ; Banking Sector JEL classification: C22 ; G01 ; G18 ; G21 ; G32
    Date: 2022
  7. By: James E. Anderson; Yoto V. Yotov
    Abstract: We propose a short-run theory of the extensive margins of trade, comprising the standard international extensive margin and a novel domestic extensive margin. The domestic extensive margin allows identification of globalization and specific policy effects not properly identified in previous literature. To apply our methods, we build a new dataset covering both the cross-border and domestic extensive margins for 35 countries, 1995-2014. We deploy it to quantify the extensive margins effects of globalization and European integration. We find strong positive effects of globalization and also significant but highly asymmetric effects of European integration in favor of more developed EU members.
    Keywords: extensive margin, domestic extensive margin, globalization, EU, gravity
    JEL: F13 F14 F16
    Date: 2022
  8. By: MARQUES SANTOS Anabela (European Commission - JRC); BARBERO JIMENEZ Javier (European Commission - JRC); SALOTTI Simone (European Commission - JRC); DIUKANOVA Olga (European Commission - JRC); PONTIKAKIS Dimitrios (European Commission - JRC)
    Abstract: We construct a novel indicator of regional competitive sustainability based on the changes over time of employment sectoral shares across all the regions of the European Union. The indicator accounts for shifts in employment towards greener and more productive sectors over the 2008-2018 period. The mapping of the indicators shows considerable regional heterogeneity in terms of both competitiveness and environmental sustainability, as well as interesting dynamics over time. We present an econometric analysis of the determinants of these sectoral shifts. It appears that the European Structural Funds are positively associated with the transition towards a more competitive and sustainable economy at the regional level. This is particularly true for the competitive dimension of the transition, with the Funds being positively associated with regional employment restructuring towards more productive sectors within each country.
    Keywords: Green transition, public support, sectoral employment, European regions
    Date: 2022–07
  9. By: Julian di Giovanni; Sebnem Kalemli-Ozcan; Alvaro Silva; Muhammed A. Yildirim
    Abstract: We study the impact of the COVID-19 pandemic on euro area inflation and how it compares to the experiences of other countries, such as the United States, over the two-year period 2020-21. Our model-based calibration exercises deliver four key results: (1) compositional effects, or the switch from services to goods consumption, are amplified through global input-output linkages, affecting both trade and inflation; (2) inflation can be higher under sector-specific labor shortages relative to a scenario with no such supply shocks; (3) foreign shocks and global supply chain bottlenecks played an outsized role relative to domestic aggregate demand shocks in explaining euro area inflation over 2020–21; and (4) international trade did not respond to changes in GDP as strongly as it did during the 2008–09 crisis despite strong demand for goods. These lower trade elasticities in part reflect supply chain bottlenecks. These four results imply that policies aimed at stimulating aggregate demand would not have produced as high an inflation as the one observed in the data without the negative sectoral supply shocks.
    Keywords: inflation; international trade; supply chains; spillovers
    JEL: E2 E3 E6 F1 F4
    Date: 2022–07–01
  10. By: Pouliakas, Konstantinos (European Centre for the Development of Vocational Training (Cedefop)); Wruuck, Patricia (European Investment Bank)
    Abstract: European firms have increasingly invested in training of employees but differences across countries and types of firms remain – and the Covid-19 shock may have exacerbated them. This report analyses European firms' investment in training over the last six years examining trends, factors supporting training investment as well as the impact of the Covid-19 shock. We base the empirical analysis on a unique dataset, the European Investment Bank's Investment Survey (EIBIS), which allows tracking corporate training investment on a yearly basis. To understand dynamics underpinning firms' decision to invest in their workforce, we examine transition patterns and employ dynamic panel data estimation. Finally, we analyze the impact of the Covid-19 pandemic on firms' investment in workforce training and transitions in and out of training. We find that despite a slow upward trend in training investment observed in recent years, supported by labour market recovery, differences across firms and countries have persisted. The pandemic risks aggravating these, through its asymmetric impact on labour markets and differences in corporate innovation, firm structure and resilience. While firm training can be an important element for firms and their workforce to adjust to the post-pandemic environment, asymmetries in training investment could make it harder for those already lagging. The paper concludes with a discussion of policy implications.
    Keywords: training, skill gaps, investment, COVID-19, panel data, EIB Investment survey
    JEL: J24 M53 C23 D22 E22
    Date: 2022–06
  11. By: Davide Antonioli (Department of Economics and Management, University of Ferrara and SEEDS – Centre for Sustainability, Environmental Economics and Dynamics Studies); Claudia Ghisetti (Università degli studi di Milano Bicocca); Massimiliano Mazzanti (Department of Economics and Management, University of Ferrara and SEEDS – Centre for Sustainability, Environmental Economics and Dynamics Studies); Francesco Nicolli (Department of Economics and Management, University of Ferrara and SEEDS – Centre for Sustainability, Environmental Economics and Dynamics Studies)
    Abstract: Assessing the economic consequences of sustainable production choices aimed at reducing environmental negative externalities is crucial for policy making, in light of the increasing interest and awareness experienced in the recent EU policy packages (Circular Economy package; European Green Deal and Recovery Fund to support sustainable transition). This assessment is one of the goal of the current work, which tries to provide new empirical evidence on the economic returns of such choices, drawing on previous literature on the underlying determinants of greener production choices, which are stated to differ from standard technological innovations as they are subject to a knowledge and an environmental externality. Using an original dataset on about 3000 Italian manufacturing firms we provide evidence on the relations among innovations related to the Circular Economy concept and economic outcome in the short run. The evidence shows that in the short run it is difficult to obtain economic gains, especially for the SMEs.
    Keywords: Circular Economy, Sustainable Production, Environmental Innovation, Economic Effect
    JEL: O30 O44 O55
    Date: 2022–02
  12. By: Bua, Giovanna; Kapp, Daniel; Ramella, Federico; Rognone, Lavinia
    Abstract: We examine the existence of physical and transition climate risk premia in euro areaequity markets. To do so, we develop two novel physical and transition risk indicators, basedon text analysis, which are then used to gauge the presence of climate risk premia. Resultssuggest that climate risk premia for both, transition and physical climate risk, have increasedsince the time of the Paris Agreement. In addition, we investigate which metrics may be usedby investors to proxy a firm’s exposure to either physical or transition risk. To this end, weconstruct portfolios according to the most common firm-specific climate metrics and estimatethe sensitivity of these portfolios to our risk indicators. We compare results from these firmlevelproxies to much simpler sectoral classifications to see if investors may simply pigeonholefirms into the industry they operate in. We find that firm level information appears to beused as a gauge for transition risk, in particular since 2015, whereas sectoral classificationsappear insufficient. However, sectoral classification may be employed to broadly gauge firms’exposures to physical risk. JEL Classification: C58, G12, G14, G28, Q51
    Keywords: Climate risk premia, Physical risk, Text analysis, Transition risk
    Date: 2022–07
  13. By: Corti, Francesco; Alcidi, Cinzia; Gros, Daniel; Liscai, Alessandro; Shamsfakhr, Farzaneh
    Abstract: The call for a European fiscal framework overhaul, already outlined by the EU’s Economic Governance review, has been strengthened by the economic and social impact of the pandemic. Building on the EU objective to achieve a green and just transition, we operationalise and compare two options for a qualified treatment of green and social public investment: exemption (the ‘Golden Rule’) and amortisation. As a first step, we provide a detailed classification of the eligible expenditures based on desired (green and social) outcomes, disentangle between capital and current government spending, and assess the existing green and proposed social taxonomy. As a second step, we provide quantitative estimates, according to a set of alternative scenarios, of the two types of qualified treatment (exemption and amortisation) for social spending and determine their legal feasibility with and without amendments to the Treaties. We conclude that a proper effort to categorise green and social public investment is still lacking, as well as the capacity to quantify the budgetary impact of these investments. Moreover, we raise concerns about the technical possibility of including human capital expenditures within the label of public investment and the need for a case-by-case identification of investments. Finally, we state that an amortisation rule on the entire capital stock would be more restrictive for social investment, whereas a golden rule applied to net investments would possibly have a broader scope.
    Date: 2022–05
  14. By: Gros, Daniel
    Abstract: Europe has set itself the aim of reducing its dependency on Russian gas imports. This paper provides an economic analysis of a tariff on imports of natural gas into the EU which would help achieve this goal. The starting point is Gazprom’s monopoly on exports of gas from Russia and pricing power on the European market. Standard trade theory implies that a tariff on Russian gas imports would be beneficial for Europe even on purely economic grounds because it would lower the demand curve Gazprom faces and induce it to lower prices. The standard linear model used here takes into account the availability of Liquified natural gas (LNG) supplies and confirms the general rule that it pays to levy a tariff on imports from a foreign monopoly. It yields the following numerical results: - Only one half of the tariff would result in higher prices for European consumers and the tariff revenue would be more than sufficient to compensate them for this loss. - The tariff, which maximises Europe’s welfare, would be close to one third of the price at which Europe would stop importing from Russia. This would cut Gazprom’s net revenues by approximately half. - If the tariff is used as a sanctions weapon to reduce revenues for Russia, the tariff should be higher (around 60 %) and would cut Gazprom’s revenues to one fourth of the free trade level. The overall conclusion is thus that an EU import tariff on Russian gas would have a major impact on Russia’s earning from gas exports and would certainly improve the European terms of trade.
    Date: 2022–05
  15. By: Saulius Jokubaitis; Dmitrij Celov
    Abstract: This paper elaborates on the sectoral-regional view of the business cycle synchronization in the EU -- a necessary condition for the optimal currency area. We argue that complete and tidy clustering of the data improves the decision maker's understanding of the business cycle and, by extension, the quality of economic decisions. We define the business cycles by applying a wavelet approach to drift-adjusted gross value added data spanning over 2000Q1 to 2021Q2. For the application of the synchronization analysis, we propose the novel soft-clustering approach, which adjusts hierarchical clustering in several aspects. First, the method relies on synchronicity dissimilarity measures, noting that, for time series data, the feature space is the set of all points in time. Then, the ``soft'' part of the approach strengthens the synchronization signal by using silhouette measures. Finally, we add a probabilistic sparsity algorithm to drop out the most asynchronous ``noisy'' data improving the silhouette scores of the most and less synchronous groups. The method, hence, splits the sectoral-regional data into three groups: the synchronous group that shapes the EU business cycle; the less synchronous group that may hint at cycle forecasting relevant information; the asynchronous group that may help investors to diversify through-the-cycle risks of the investment portfolios. The results support the core-periphery hypothesis.
    Date: 2022–06
  16. By: Guinea Voinea, Laurentiu; Puch González, Luis Antonio; Ruiz, Jesús
    Abstract: We investigate how the economy responds to anticipated (news) shocks to future investment decisions. Using structural vector autoregressions (SVARs), we show that news about the future relative price of residential investment explains a high fraction of the variance of output, aggregate investment and residential investment for Spain. In contrast, for Germany it is the news shocks on business structures and equipment that explain a higher fraction of the variance of output, consumption and non-residential investment. We confront the identified shock with other shocks to provide evidence that our structural interpretation is valid. Then, to interpret our empirical findings, we propose a stylized two-sector model of the willingness to substitute current consumption for future investment in housing, structures or equipment. The model combines a wealth effect driven by the expectation of rising house prices, with a reduced-form friction in labor reallocation. We find that the model calibrated for Spain displays a response to anticipated house price shocks that stimulate residential investment, whereas for Germany those shocks enhance investment in equipment and structures. The results highlight the propagation mechanism of anticipated shocks to future investment, which is consistent with the housing booms in Spain and their absence in Germany. Such a mechanism complements a view relying on a combination of monetary, financial or housing supply and demand, surprise shocks.
    Keywords: Investment-specific technical change; News shocks; Housing booms; Wealth effects
    JEL: C32 D84 E22 E32
    Date: 2022–07–08
  17. By: François Rycx; Giulia Santosuosso; Guillaume Vermeylen
    Abstract: While the literature on the incidence and wage effects of over-education is substantial, specific results for doctoral graduates are surprisingly scarce. This article aims to fill this gap, not only by measuring the prevalence of over-educated PhD holders in Europe (i.e. in EU Member States and the UK), but also by estimating their wage penalty relative to what they could have earned in a job corresponding to their level of education. Using a unique pan-European dataset, we rely on two alternative measures of over-education and control stepwise for four groups of covariates (i.e. socio-demographic characteristics, skills needed for the job, other job-specific characteristics and motivations for employment) in order to interpret the over-education wage penalty in light of theoretical models. Depending on the specification adopted, we find that over-educated PhD holders face a wage penalty ranging from 25 to 13.5% with respect to their well-matched counterparts. Our results also show that the over-education wage penalty is significantly higher for PhD holders who are both over-educated and over-skilled and especially for those who are both over-educated and dissatisfied with their jobs. Finally, unconditional quantile regressions highlight that the over-education wage penalty among PhD holders increases greatly along the wage distribution.
    Keywords: PhD Graduates; Over-Education; Over-Skilling; Job Satisfaction; Wages; Europe
    JEL: J21 J24
    Date: 2022–07–13
  18. By: Peter Goodridge (x The Productivity Institute, Alliance Manchester Business School); Jonathan Haskel (Bank of England; Imperial College Business School; CEPR and IZA)
    Keywords: productivity, growth, slowdown, innovation, knowledge, intangibles, investment, capital, TFP
    Date: 2022–06

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