nep-eec New Economics Papers
on European Economics
Issue of 2022‒10‒03
twenty-two papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. “Green†fiscal policy measures and non-standard monetary policy in the euro area By Anna Bartocci; Alessandro Notarpietro; Massimiliano Pisani
  2. New facts on consumer price rigidity in the Euro Area By Erwan Gautier; Cristina Conflitti; Riemer P. Faber; Brian Fabo; Ludmila Fadejeva; Valentin Jouvanceau; Jan-Oliver Menz; Teresa Messner; Pavlos Petroulas; Pau Roldan-Blanco; Fabio Rumler; Sergio Santoro; Elisabeth Wieland; Hélène Zimmer
  3. Energy price shocks and stabilization policies in a multi-agent macroeconomic model for the Euro Area By Turco, Enrico; Bazzana, Davide; Rizzati, Massimiliano; Ciola, Emanuele; Vergalli, Sergio
  4. The ECB?s Financial Stability impact on Credit Default Swaps Market By Georgios Alexopoulos
  5. An analysis of objective inflation expectations and inflation risk premia By Sara Cecchetti; Adriana Grasso; Marcello Pericoli
  6. The Eurosystem’s bond market share at an all-time high: what does it mean for repo markets? By Tomás Carrera de Souza; Tom Hudepohl
  7. How binding is supervisory guidance? Evidence from the European calendar provisioning By Franco Fiordelisi; Gabriele Lattanzio; Davide S. Mare
  8. The impact of Covid-19 on the european short-term rental market By Elisa Guglielminetti; Michele Loberto; Alessandro Mistretta
  9. Wealth Shocks and Portfolio Choice By Dimitris Christelis; Dimitris Georgarakos; Tullio Jappelli; Geoff Kenny
  10. Banks’ Seasoned Equity Offerings Announcements and Central Bank Lending Operations By Massimo Giuliodori; Jan Kakes; Dimitris Mokas
  11. Firm liquidity and the transmission of monetary policy By Margherita Bottero; Stefano schiaffi
  12. On the Empirical Relevance of the Exchange Rate as a Shock Absorber at the Zero Lower Bound By David Finck; Mathias Hoffmann; Patrick Huertgen
  13. The Intertemporal Marginal Propensity to Consume out of Future Persistent Cash-Flows. Evidence from Transaction Data By Jeppe Druedahl; Emil Bjerre Jensen; Søren Leth-Petersen
  14. The Heterogeneous Impact of Inflation on Households’ Balance Sheets By Miguel Cardoso; Clodomiro Ferreira; José Miguel Leiva; Galo Nuño; Álvaro Ortiz; Tomasa Rodrigo
  15. Augmented credit-to-GDP gap as a more reliable indicator for macroprudential policy decision-making By Tihana Škrinjarić
  16. Making Sense of Consumer Inflation Expectations: The Role of Uncertainty By Lovisa Reiche; Aidan Meyler
  17. The Impact of the European Carbon Market on Firm Productivity: Evidence from Italian Manufacturing Firms By D’Arcangelo, Filippo Maria; Pavan, Giulia; Calligaris, Sara
  18. Participation in Global Value Chains and M&A flows By Ciani, Andrea; Gregori, Wildmer Daniel
  19. Accounting for climate transition risk in banks' capital requirements By Alessi, Lucia; Di Girolamo, Francesca Erica; Pagano, Andrea; Petracco Giudici, Marco
  20. Markups, Taxes, and Rising Inequality By Stéphane Auray; Aurélien Eyquem; Bertrand Garbinti; Jonathan Goupille-Lebret
  21. The Impact of New Doctorate Graduates on Innovation Systems in Europe By Leogrande, Angelo; Costantiello, Alberto; Laureti, Lucio
  22. Testing big data in a big crisis: Nowcasting under COVID-19 By Barbaglia, Luca; Frattarolo, Lorenzo; Onorante, Luca; Pericoli, Filippo Maria; Ratto, Marco; Tiozzo Pezzoli, Luca

  1. By: Anna Bartocci (Bank of Italy); Alessandro Notarpietro (Bank of Italy); Massimiliano Pisani (Bank of Italy)
    Abstract: This paper evaluates the macroeconomic effects of increasing taxes on fossil fuels (“carbon tax†) and subsidies for renewable energy and reducing labor income tax in the euro area, and the interaction of these effects with domestic monetary policy. The tax increase is announced, gradually implemented and fully anticipated by agents (thus it is conceptually different from a sudden and unexpected positive shock affecting the international prices of fossil fuels). The analysis makes use of a New Keynesian two-country model with an energy sector, calibrated to the euro area and the rest of the world. The main results are the following. First, an increase in the carbon tax generates recessionary effects. Second, higher subsidies for green energy and a lower labor tax can limit the macroeconomic cost of increasing the carbon tax. Third, if the monetary policy rate is at its effective lower bound, the fiscal policy mix generates short-run recessionary effects, which can be offset if the central bank, for monetary policy purposes, purchases long-term sovereign bonds in the secondary market, thus keeping long-term interest rates low.
    Keywords: environmental policy, energy policies, dynamic general equilibrium model, fiscal policy, monetary policy, euro area
    JEL: D58 E52 E62 Q43
    Date: 2022–07
  2. By: Erwan Gautier (Banque de France); Cristina Conflitti (Banca d’Italia); Riemer P. Faber (National Bank of Belgium); Brian Fabo (National Bank of Slovakia); Ludmila Fadejeva (Latvijas Banka); Valentin Jouvanceau (Lietuvos Bankas); Jan-Oliver Menz (Deutsche Bundesbank); Teresa Messner (Oesterreichische Nationalbank); Pavlos Petroulas (Bank of Greece); Pau Roldan-Blanco (Banco de España); Fabio Rumler (Oesterreichische Nationalbank); Sergio Santoro (European Central Bank); Elisabeth Wieland (Deutsche Bundesbank); Hélène Zimmer (National Bank of Belgium)
    Abstract: Using CPI micro data for 11 euro area countries covering about 60% of the euro area consumption basket over the period 2010-2019, we document new findings on consumer price rigidity in the euro area: (i) each month on average 12.3% of prices change, which compares with 19.3% in the United States; when we exclude price changes due to sales, however, the proportion of prices adjusted each month is 8.5% in the euro area versus 10% in the United States; (ii) differences in price rigidity are rather limited across euro area countries but much larger across sectors; (iii) the median price increase (resp. decrease) is 9.6% (13%) when including sales and 6.7% (8.7%) when excluding sales; cross-country heterogeneity is more pronounced for the size than for the frequency of price changes; (iv) the distribution of price changes is highly dispersed: 14% of price changes in absolute values are lower than 2% whereas 10% are above 20%; (v) the overall frequency of price changes does not change much with inflation and does not react much to aggregate shocks; (vi) changes in inflation are mostly driven by movements in the overall size; when decomposing the overall size, changes in the share of price increases among all changes matter more than movements in the size of price increases or the size of price decreases. These findings are consistent with the predictions of a menu cost model in a low inflation environment where idiosyncratic shocks are a more relevant driver of price adjustment than aggregate shocks.
    Keywords: price rigidity, inflation, consumer prices, micro data
    JEL: D40 E31
    Date: 2022–07
  3. By: Turco, Enrico; Bazzana, Davide; Rizzati, Massimiliano; Ciola, Emanuele; Vergalli, Sergio
    Abstract: Soaring energy prices since fall 2021 have prompted European governments to introduce policy measures to support households and businesses. In this paper, we employ the MATRIX model, a multi-sector and multi-agent macroeconomic model calibrated on the Euro Area, to analyze the economic and distributional effects of different types of macro-stabilization policies in response to energy price shocks. Simulation results show that, in the absence of stabilization policies, an increase in fossil fuel price would lead to a sharp growth in price inflation and a severe contraction in real GDP, followed by a slow but steady recovery. We find no significant effects of generalized tax cuts and household subsidies, while firm subsidies promote a faster recovery but at the expense of greater financial instability in the medium term due to the resulting market distortions. If timely adopted, government-funded energy tariff reduction is the most effective policy in mitigating GDP losses at relatively low public costs, especially if coupled with an extra-profit tax on energy firms. Energy entrepreneurs benefit from rising fuel prices in all policy scenarios, but to a lesser extent under energy tariff cuts and windfall profits tax, favouring, in that case, workers and downstream firms owners.
    Keywords: Demand and Price Analysis, Public Economics, Research Methods/ Statistical Methods, Resource /Energy Economics and Policy
    Date: 2022–09–09
  4. By: Georgios Alexopoulos (University of Peloponnese, Paris)
    Abstract: This paper studies the value of ECB?s announcement and the impact on Stock and Credit Default Swaps Market during 2008?2018.We examine the relationship between ECB announcements, and systematic risk and unsystematic risk of 29 European countries? financial markets through the CAPM regression. Those 29 countries divided into 3 clusters of liquid markets, accordingly the experienced stress during the sovereign debt crisis and their Liquidity Coverage Ratio (LCR). The results indicate that ECB?s announcements tend to show more impact on stock markets than CDS markets especially in 1st cluster of liquid market. Furthermore, these two types of financial markets in 29 European countries exhibit more significant market reaction to Financial Sector news and Money Market news while Financial Stability news and Monetary Policy bring more risk and volatility to 2 and 3 cluster of liquid markets. We found that there is a 3 clusters of liquid markets so that in turn reshapes an unequal distribution of systemic risk and help the spread of a financial crisis. The results also reveal financial markets of Finland, Sweden, Austria, Ireland, Spain and Turkey take on more risk and volatility than other sample countries when ECB announcements published.
    Keywords: European Central Bank, Investment, Monetary Policy, Announcements
    JEL: G21 O11 E17
    Date: 2022–07
  5. By: Sara Cecchetti (Bank of Italy); Adriana Grasso (European Central Bank); Marcello Pericoli (Bank of Italy)
    Abstract: We study euro-area risk-adjusted expected inflation and the inflation risk premium at different maturities, leveraging inflation swaps, inflation options and survey-based forecasts. We introduce a model that features time-varying long-term average inflation and time-varying inflation volatility and we anchor market-based risk-adjusted measures of expected inflation to survey-based inflation forecasts. The results show that medium-term risk-adjusted expected inflation was close to the ECB's aim from 2010 to mid-2014, has since fallen to a low in March 2020 and has risen significantly since the second half of 2021. The medium-term inflation risk premium was positive until 2014 and turned negative since 2015 despite a sharp rise at the end of 2021. The risk-adjusted probabilities of exceeding the ECB's inflation aim and of seeing deflation over the medium term have been low on average.
    Keywords: inflation density, inflation risk premium, objective probability
    JEL: C22 C58 G12 E31 E44
    Date: 2022–07
  6. By: Tomás Carrera de Souza; Tom Hudepohl
    Abstract: In this paper we study the link between central bank asset purchases and the repo market, to examine the impact of the Eurosystem’s increased footprint in financial markets resulting from the response to the Covid-19 crisis. To do so, we exploit different highly granular data on government bond purchases and money market transactions. We find that both marginal purchases (flow effect) and aggregate holdings (stock effect) have a significant downward impact on repo rates. The stock effect is nonlinear, and is amplified when the central bank’s holdings are larger. Finally, we find that the Eurosystem’s Securities Lending Facility alleviates the downward pressure on repo rates for scarce bonds, but it does not fully compensate for the downward pressure created by purchases. This collateral scarcity may hamper a smooth functioning of repo and underlying bond markets.
    Keywords: Asset purchases; Unconventional monetary policy; Money Market; Repo Market; Specialness
    JEL: E52 E58 G10 G15
    Date: 2022–05
  7. By: Franco Fiordelisi (Universita' Roma 3 and University of Essex); Gabriele Lattanzio (Nazarbayev University, Graduate School of Business); Davide S. Mare (The World Bank and Edinburgh Business School)
    Abstract: We examine whether banks respond differently to the adoption of a supervisory guidance as compared to a similar regulatory action. By exploiting the staggered and distinct supervisory and regulatory implementation of the European Calendar Provision, we indeed document that while this reform achieved the intended overall goal of reducing European banks' nonperforming loans ratios, its effect materialized during the initial release of the ECB supervisory guidance, rather than following its adoption as a Pillar 1 regulation. That is, the subsequent formalization of this supervisory initiative within a regulatory framework achieved limited economic results, while eliminating any residual flexibility for the regulatory authority concerning the degree to which the calendar provisioning should be enforced.
    Keywords: Bank regulation, Cross-border financial institutions, Financial stability, non-performing loans
    JEL: G21 G28 G32
    Date: 2022–05
  8. By: Elisa Guglielminetti (Bank of Italy); Michele Loberto (Bank of Italy); Alessandro Mistretta (Bank of Italy)
    Abstract: The spread of Covid-19 and the related containment measures practically halted tourism flows, which in many countries generate a significant share of GDP. By exploiting Airbnb data covering the main tourist destinations in Europe, we investigate the impact of the pandemic on the market for short-term rentals up to early 2021. We find that the epidemic dramatically reduced both the supply of apartments available for rent and customers’ demand, up to 9 months ahead. Accommodation more exposed to foreign tourism was the hardest hit and owners reacted by cutting prices with results that were mainly driven by government-mandated restrictions. All in all, our findings point to a relevant but uneven impact of Covid-19 on the accommodation sector.
    Keywords: Covid-19, Airbnb, tourism, travel activities, lockdown
    JEL: L83 L85 R20 R30 Z30
    Date: 2022–07
  9. By: Dimitris Christelis (University of Glasgow, CSEF, CFS, CEPR and Netspar); Dimitris Georgarakos (European Central Bank and CFS); Tullio Jappelli (Università di Napoli Federico II, CSEF, CFS, CEPR and Netspar); Geoff Kenny (European Central Bank)
    Abstract: We use new euro area representative data from the Consumer Expectations Survey (CES) to elicit household-specific propensities to invest and consume out of positive wealth shocks. Using a randomized assignment of hypothetical lottery gains ranging from 5,000 to 50,000 euros and a realistic menu of consumption, saving and asset choices, we estimate the causal effect of wealth shocks on risky asset ownership and conditional asset shares. Wealth shocks have a positive effect on stockholding (about a 10 percentage points increase for the largest wealth shock). The majority of households in the sample do not participate in the stock market, even after a large increase in wealth. The conditional asset share invested in stocks does not depend on the size of wealth shocks, with the small exception of very high values of the latter, for which the conditional risky asset share slightly increases. This result is consistent with the notion that preferences are characterized by constant relative risk aversion for the vast majority of risky asset investors.
    Keywords: Household finance; Stock market participation; Risk aversion; Consumer Expectations Survey.
    JEL: D14 G11 G51
    Date: 2022–09–13
  10. By: Massimo Giuliodori; Jan Kakes; Dimitris Mokas
    Abstract: This paper studies the influence of central bank lending operations on the announcement effects of European banks’ seasoned equity offerings (SEOs). We find that larger participation in lending operations is associated with more negative cumulative abnormal returns following the announcement. This result supports the hypothesis that SEOs made by banks that rely more on central bank lending facilities show more negative signaling effects. However, these effects are short-lived and fade away after two trading days following the SEO announcement. Further, we find that offerings motivated by capital strengthening are more likely to signal overpriced equity.
    Keywords: Banks; Bank capital; Seasoned equity offerings; Unconventional monetary policy
    JEL: E52 E58 G14 G21
    Date: 2022–07
  11. By: Margherita Bottero (Bank of Italy); Stefano schiaffi (Bank of Italy; Bank of Italy)
    Abstract: We study how firms’ cash balances affect the supply of bank credit and the transmission of monetary policy via the bank-lending channel in Italy using bank- and firm-level data. From a theoretical perspective, there is no agreement on whether, for a given level of credit demand, cash-rich companies enjoy better access to credit, as an abundance of cash may reveal both positive and negative information about the firm. According to our analysis, based on a sample of 430,000 Italian non-financial corporations over the period 2006-2018, banks view firm liquidity favourably since it is associated, on average, with cheaper bank funding and with a credit composition tilted towards term loans, at all maturities and non-collateralized. We also show that firms reallocate their liquidity in and out of their deposits following changes in the slope of the yield curve, which proxies the opportunity cost of cash. For this reason, changes in monetary policy that alter the slope of the term structure impact the cost of credit not only via the traditional channels but also indirectly, as they prompt a reallocation of firm liquidity that banks anticipate and price into the credit contracts they offer.
    Keywords: firm liquidity, bank financing, monetary policy transmission
    JEL: E51 E52
    Date: 2022–07
  12. By: David Finck (University of Giessen); Mathias Hoffmann (Deutsche Bundesbank); Patrick Huertgen (Deutsche Bundesbank)
    Abstract: The open economy New Keynesian model with flexible exchange rates postulates that the real exchange rate appreciates in response to an asymmetric negative demand shock in a zero lower bound (ZLB) scenario and exacerbates the adverse macroeconomic effects. However, when monetary policy is able to accommodate the adverse effects of the negative demand shock via unconventional measures, the model can generate a real depreciation at the ZLB. This paper examines these counteracting exchange rate channels empirically. We estimate the effect of a negative asymmetric demand shock on the real exchange rate and inflation expectations as well as output and prices by employing state-dependent and sign-restricted local projection methods for the euro area vis-Ã -vis the United States, Canada, and Japan. We find that the real exchange rate depreciates when interest rates are not at the ZLB but also when they are. Furthermore, our empirical results show that the real exchange rate can absor considerable variations in output, confirming its shock-absorbing capacity before but also during the ZLB episode. The stabilizing role of the exchange rate is accompanied by a significant expansion of the ECBs balance sheet in the ZLB period, while it remained unaffected in the pre-ZLB period. Overall, our empirical results favor the open economy New Keynesian model with unconventional measures when interest rates are at the ZLB.
    Keywords: Zero Lower Bound, Exchange Rate, Local Projections, State-dependent Effects
    JEL: F31 E31 E37 C54
    Date: 2022
  13. By: Jeppe Druedahl (Department of Economics, University of Copenhagen and CEBI); Emil Bjerre Jensen (Department of Economics, University of Copenhagen, CEBI and Nykredit); Søren Leth-Petersen (Department of Economics, University of Copenhagen, CEBI and CEPR)
    Abstract: To analyze the effectiveness of stabilization policies which includes effects on households future income it is central to account for anticipation effects on consumption. We investigate this using high-frequency spending and balance sheet data from a major Danish bank. We examine the behavior of borrowers with adjustable rate mortgages, and exploit that the bank sends a letter before the annual reset containing advance information on the expected change in mortgage payments. We find that unconstrained households respond immediately, while liquidity constrained households instead wait and respond around the time the cash-flow-arrives. The cumulative response is similar across the liquidity distribution. This is in line with a standard buffer-stock consumption model, and implies that it is less effective to target stimulus to low liquidity households when the effect on household income is partly in the future.
    Keywords: Consumption, anticipation effects, intertemporal MPC, persistent shocks, mortgages, monetary policy, heterogeneous agent models
    JEL: D12 D14 D91 E21 E44 E52 G21
    Date: 2022–09–11
  14. By: Miguel Cardoso (BBVA Research); Clodomiro Ferreira (Banco de España); José Miguel Leiva (BBVA Research); Galo Nuño (Banco de España); Álvaro Ortiz (BBVA Research); Tomasa Rodrigo (BBVA Research)
    Abstract: We identify and study three key channels that shape how inflation affects wealth inequality: (i) the traditional Fisher channel through which inflation redistributes from lenders to borrowers; (ii) a nominal labour income channel through which inflation reduces the real value of sticky wages and benefits; and (iii) a relative consumption channel through which heterogeneous increases in the price of different goods affect people differently depending on their consumption baskets. We then quantify these channels for Spain in 2021 using public surveys on households’ wealth, income, and consumption, as well as a novel proprietary bank dataset that includes detailed information on clients’ assets and liabilities, credit and debit card payments, bills and labour related income. Results show that the Fisher and labour income channels are one order of magnitude larger than the relative consumption channel. Middle-aged individuals were roughly unaffected by inflation while older ones suffered the most its consequences.
    Keywords: inflation inequality, net nominal positions, nominal wage rigidities.
    JEL: E31 E21 D31
    Date: 2022–09
  15. By: Tihana Škrinjarić (Hrvatska narodna banka, Hrvatska)
    Abstract: This paper aims to evaluate the possibilities of augmenting the credit-to-GDP gap series with out-of-sample forecasts to obtain a more stable indicator of excessive credit growth. The credit-to-GDP gap is a standardized and harmonized indicator of the Basel III regulatory framework used to calibrate the Countercyclical Capital Buffer (CCyB). Thus, a good indicator should be valid, stable, and represent future financial cycle movements. This research focuses on reducing the end-point bias problem of the Hodrick-Prescott (HP) filter approach to estimating this indicator. This is appropriate for those authorities whose analysis shows that the HP approach best predicts the financial crisis. Several popular models of out-of-sample forecasting are tested on Croatian data to extend the filtered original series, and the results are compared based on multiple criteria. These include the stability of the indicator, not just the usual model forecasting capabilities. The autoregressive approach, alongside the random walk model, was the best-performing one. The results of this study can be used in real-time decision-making, as they are relatively simple to estimate and communicate. Such augmented gaps reduce the bias in the series after the financial cycle turns. Moreover, the paper suggests possible corrections to the credit-to-GDP gap so that the resulting indicators are less volatile over time with stable signals for the policy decision-maker.
    Keywords: credit-to-GDP gap, out of sample forecasts, augmented credit gap, countercyclical capital buffer, estimation uncertainty.
    JEL: E32 G01 G21 C22
    Date: 2022–09–13
  16. By: Lovisa Reiche; Aidan Meyler
    Abstract: Consumers’ inflation expectations play a key role in the monetary transmission mechanism. As such, it is crucial for monetary policymakers to understand what they are and how they are formed. In this paper we introduce the (un)certainty channel as means to shed light on some of the more puzzling aspects of reported quantitative inflation perceptions and expectations. These include the apparent overestimation of inflation by consumers as well as the negative correlation observed between the economic outlook and inflation expectations. We also show that the uncertainty framework fits with some of the stylised facts of consumers’ inflation expectations, such as their correlation with socio-demographic characteristics and economic sentiment.
    JEL: D11 D12 D84 E31 E52
    Date: 2022–02
  17. By: D’Arcangelo, Filippo Maria; Pavan, Giulia; Calligaris, Sara
    Abstract: The European Union Emissions Trading System has raised concerns about possible detrimental effects on firms production through an increase in polluting costs, unless firms change inputs or increase the efficiency in the way they produce. We provide evidence of the causal impact of this policy on firms' input choices and on total factor productivity on Italian manufacturing firms. Our empirical strategy combines structural estimation of firms' production function and techniques for policy valuation. Moreover, we argue that a commonly used strategy in this literature, consisting in using propensity score matching on the productivity obtained from estimating the production function, does not provide valid inference. We rely instead on an innovative structural approach. We find that the policy has a small negative effect on productivity that is heterogeneous across industries. We show that these findings are consistent with firms switching fuels in production, rather than undergoing a substantial process change.
    Keywords: Financial Economics, Production Economics, Productivity Analysis, Resource /Energy Economics and Policy
    Date: 2022–09–08
  18. By: Ciani, Andrea (European Commission); Gregori, Wildmer Daniel (European Commission)
    Abstract: This study investigates to which extent firms operating in sectors more integrated into Global Value Chains (GVC) are more likely to be involved in cross-border Mergers and Acquisitions (M&A) flows. We focus on firms acquired in the EU27 during the period 2008-2020 employing a gravity model. Results show that cross-border investments are indeed associated with sectoral GVC participation, in particular the dependence on intermediate products supplied by other countries (i.e. backward GVC participation) of the target country-sector is positively correlated with M&A flows. This evidence is confirmed when the acquired firm operates in manufacturing or high-tech sectors, and when the investor originates from OECD countries. In addition, results show that companies from countries suppling inputs to other countries are more likely to pursue a cross-border acquisition.
    Keywords: Global Value Chains, Mergers and Acquisitions, Global Economy, Gravity model, EU firms
    JEL: F21 F23 G34
    Date: 2022–08
  19. By: Alessi, Lucia (European Commission); Di Girolamo, Francesca Erica (European Commission); Pagano, Andrea (European Commission); Petracco Giudici, Marco (European Commission)
    Abstract: This paper uses a stylized simulation model to assess the potential impact of transition risk on banks' balance sheets and establishes a basis for calibrating relevant macro-prudential instruments. We show that even in the short run, a fire-sale mechanism could amplify an initially contained shock on high-carbon assets into a systemic crisis with significant losses for the EU banking sector. We calculate that an additional capital buffer of 0.5% RWA on average would be sufficient to protect the system. Moreover, under an orderly transition, the decrease in banks’ transition risk exposure due to the greening of the economy would reduce the effect of a fire-sale by a factor of 10.
    Keywords: Green transition risk, dynamic balance sheet, banking crisis
    JEL: C15 G2 Q54
    Date: 2022–06
  20. By: Stéphane Auray (CREST-ENSAI, Bruz, France); Aurélien Eyquem (University of Lausanne, Switzerland); Bertrand Garbinti (CREST-ENSAE-Institut Polytechnique Paris, France); Jonathan Goupille-Lebret (Univ Lyon, CNRS Ecully and ENS de Lyon, France)
    Abstract: How to explain rising income and wealth inequality? We build an original heterogeneousagent model with three key features: (i) an explicit link between firm’s market power and top income shares, (ii) a granular representation of the tax and transfer system, and (iii) three assets with endogenous portfolio decisions. Using France as an illustration, we look at how changes in markups, taxes, factor productivity, and asset prices affect inequality dynamics over the 1984-2018 period. Rising markups account for the bulk of rising income inequality. Wealth inequality dynamics result mostly from changes in saving rate inequality but only in response to the exogenous changes in taxation and markups. Our results point to the critical importance of endogenous saving decisions in response to exogenous shocks as a key driver of wealth inequality.
    Keywords: Heterogeneous Agents, Taxes, Market Power, Income Inequality, Wealth Inequality.
    JEL: D4 E2 H2 O4 O52
    Date: 2022–09–19
  21. By: Leogrande, Angelo; Costantiello, Alberto; Laureti, Lucio
    Abstract: In this article we investigate the determinants of “New Doctorate Graduates” in Europe. We use data from the EIS-European Innovation Scoreboard of the European Commission for 36 countries in the period 2010-2019 with Pooled OLS, Dynamic Panel, WLS, Panel Data with Fixed Effects and Panel Data with Random Effects. We found that “New Doctorate Graduates” is positively associated, among others, with “Human Resources” and “Government Procurement of Advanced Technology Products” and negatively, associated among others, with “Total Entrepreneurial Activity” and “Innovation Index”. We apply a clusterization with k-Means algorithm either with the Silhouette Coefficient either with the Elbow Method and we found that in both cases the optimal number of clusters is three. Furthermore, we use the Network Analysis with the Distance of Manhattan, and we find the presence of seven network structures. Finally, we propose a confrontation among ten machine learning algorithms to predict the value of “New Doctorate Graduates” either with Original Data-OD either with Augmented Data-AD. Results show that SGD-Stochastic Gradient Descendent is the best predictor for OD while Linear Regression performs better for AD.
    Keywords: Innovation, and Invention: Processes and Incentives; Management of Technological Innovation and R&D; Diffusion Processes; Open Innovation.
    JEL: O3 O30 O32
    Date: 2022–09–06
  22. By: Barbaglia, Luca (European Commission); Frattarolo, Lorenzo (European Commission); Onorante, Luca (European Commission); Pericoli, Filippo Maria (European Monitoring Centre for Drugs and Drug Addiction); Ratto, Marco (European Commission); Tiozzo Pezzoli, Luca (European Commission)
    Abstract: During the COVID-19 pandemic, economists have struggled to obtain reliable economic predictions, with standard models becoming outdated and their forecasting performance deteriorating rapidly. This paper presents two novelties that could be adopted by forecasting institutions in unconventional times. The first innovation is the construction of an extensive data set for macroeconomic forecasting in Europe. We collect more than a thousand time series from conventional and unconventional sources, complementing traditional macroeconomic variables with timely big data indicators and assessing their added value at nowcasting. The second novelty consists of a methodology to merge an enormous amount of non-encompassing data with a large battery of classical and more sophisticated forecasting methods in a seamlessly dynamic Bayesian framework. Specifically, we introduce an innovative “selection prior†that is used not as a way to influence model outcomes, but as a selecting device among competing models. By applying this methodology to the COVID-19 crisis, we show which variables are good predictors for nowcasting Gross Domestic Product and draw lessons for dealing with possible future crises
    Keywords: Bayesian Model Averaging, Big Data, COVID-19 Pandemic, Nowcasting
    JEL: C11 C30 E3 E37
    Date: 2022–08

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