nep-eec New Economics Papers
on European Economics
Issue of 2022‒11‒21
sixteen papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Cacophony in Central Banking? Evidence from euro area speeches on monetary policy By Martin Feldkircher; Paul Hofmarcher; Pierre L. Siklos
  2. Impacts of ECB Unconventional Monetary Policy onEurozone sovereign risk: A Cross-Country Analysis By Dobson, Anya
  3. Determinants of TARGET2 transactions of European banks based on micro-data By Drott, Constantin; Goldbach, Stefan; Jochem, Axel
  4. New facts on consumer price rigidity in the euro area By Gautier, Erwan; Conflitti, Cristina; Faber, Riemer P.; Fabo, Brian; Fadejeva, Ludmila; Jouvanceau, Valentin; Menz, Jan-Oliver; Messner, Teresa; Petroulas, Pavlos; Roldan-Blanco, Pau; Rumler, Fabio; Santoro, Sergio; Wieland, Elisabeth; Zimmer, Hélène
  5. Monetary-Fiscal Crosswinds in the European Monetary Union By Reichlin, Lucrezia; Ricco, Giovanni; Matthieu Tarbe
  6. Robust real-time estimates of the German output gap based on a multivariate trend-cycle decomposition By Berger, Tino; Ochsner, Christian
  7. Effectiveness of Central Bank Swap Lines in Alleviating the Mispricing of FX Swaps at the Start of the COVID-19 Pandemic By Kai Schellekens; Patty Duijm
  8. Going below zero - How do banks react? By Michaelis, Henrike
  9. Endogenous Money, Excess Reserves and Unconventional Monetary Policy By Böhl, Gregor
  10. Greeniums in sovereign bond markets By Monika Grzegorczyk; Guntram B. Wolff
  11. The Eurosystem's asset purchase programmes, securities lending and Bund specialness By Baltzer, Markus; Schlepper, Kathi; Speck, Christian
  12. Stayin’ alive? Government support measures in Portugal during the Covid-19 pandemic By Márcio Mateus; Katja Neugebauer
  13. The Zombification of the Economy? Assessing the Effectiveness of French Government Support During COVID-19 Lockdown By Mattia Guerini; Lionel Nesta; Xavier Ragot; Stefano Shiavo
  14. Basel III and SME bank finance in Germany By Marek, Philipp; Stein, Ingrid
  15. Rallying around the EU flag : Russia’s invasion of Ukraine and attitudes toward European integration By Steiner, Nils; Berlinschi, Ruxanda; Farvaque, Etienne; Fidrmuc, Jan; Harms, Philipp; Mihailov, Alexander; Neugart, Michael; Stane, Piotr
  16. Labor Share Decline and Productivity Slowdown: A Micro-Macro Analysis By Francesca Crucitti; Lorenza Rossi

  1. By: Martin Feldkircher; Paul Hofmarcher; Pierre L. Siklos
    Abstract: Transparent communication is a prerequisite for delivering an effective monetary policy. In this paper, we examine over 3000 speeches from central bankers to investigate the topics euro area national banks and the ECB most frequently talk about. Text-based ideal point analysis enables us to estimate for each central bank a measure of its ideological position, which is based on differences in the tone they use to talk about the identified topics. As far as we are aware this methodology has not been applied in the present context. Our results are fourth-fold: Firstly, price stability and financial stability communication lie at the core of central bank communication in the euro area. Second, the ECB’s ideal points tend to lie systematically above that of other euro area national banks, which suggests differing outstanding, ideological position. This implies that we cannot think of the ECB’s ideal point as being formed by the ideological positions of its member states. Third, we observe variability in member states’ ideal points over time, whereas the ECB’s ideal point is rather stable. The latter finding suggests remarkable consistency in the ECB’s communication strategy through both normal and crisis times. Finally, in a VAR setting, we find that changes in ideological positions impact longer-run macroeconomic expectations.
    Keywords: Monetary policy; text-based ideal point model; central bankers’ speeches
    JEL: E58 E61 E31 E32
    Date: 2022–08
  2. By: Dobson, Anya (University of Warwick)
    Abstract: This paper investigates the impact of ECB Unconventional Monetary Policy an-nouncements on the 10-year sovereign bond yields of eleven Euro area countries. Thispaper uses event study methodology to examine expansionary UMP announcements between 1st January 2007 and 31st December 2021. Consistent with the literature, I findsignificant negative announcement effects on sovereign yields collectively examining all programmes. Differences in the magnitude and significance of individual countryreactions are closely related to their solvency status. This is persistent for the most recent programmes in response to the Covid-19 pandemic which extends the scope of current literature. This paper also incorporates intraday analysis to more closely examine the determinants of announcement effects on their respective dates.
    Keywords: Monetary Policy ; ECB ; government bond yields ; Covid-19 JEL Classification: G21 ; G28 ; E58 ; F45
    Date: 2022
  3. By: Drott, Constantin; Goldbach, Stefan; Jochem, Axel
    Abstract: This paper examines German and foreign bank factors that can explain cross-border central bank liquidity flows between Germany and the rest of the euro area. Using data from the German component of Eurosystem's real-time gross settlement system TARGET2 and BankFocus for the period between 2009 and 2021, we provide empirical evidence that only few balance sheet items and profit and loss accounts affect flows with Germany. We control for bilateral bank-specific relationships and time-varying macroeconomic country effects in our regressions. In general, German bank factors seem to be more important than characteristics of foreign banks. A German bank that exhibits relatively high claims against a central bank seems to attract less additional central bank liquidity from abroad than a German bank with fewer existing central bank claims. However, higher overall liquidity of a German credit institution corresponds to additional net inflows. Foreign bank factors only matter for central bank payments and intragroup payments. We also document heterogeneities across different types of transactions which influence the German TARGET2 balance. While customer payments, interbank payments and central bank payments have increased net flows to Germany in sum, intragroup payments and ancillary systems' transactions have led to net outflows.
    Keywords: Capital flows,TARGET2 transactions,central bank liquidity
    JEL: F3 F32 G15
    Date: 2022
  4. By: Gautier, Erwan; Conflitti, Cristina; Faber, Riemer P.; Fabo, Brian; Fadejeva, Ludmila; Jouvanceau, Valentin; Menz, Jan-Oliver; Messner, Teresa; Petroulas, Pavlos; Roldan-Blanco, Pau; Rumler, Fabio; Santoro, Sergio; Wieland, Elisabeth; Zimmer, Hélène
    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
  5. By: Reichlin, Lucrezia (London Business School & CEPR); Ricco, Giovanni (University of Warwick, OFCE SciencesPo & CEPR); Matthieu Tarbe (London Business School)
    Abstract: We study the monetary- fiscal mix in the European Monetary Union. The medium and long-run effects of conventional and unconventional monetary policy are analysed by combining monetary policy shocks identified in a Structural VAR, and the general government budget constraint featuring a single central bank and multiple fiscal authorities. In response to a conventional easing of the policy rate, the cumulated response of the fiscal deficit is positive. Conversely, in response to an unconventional easing affecting the long end of the yield curve, the primary fiscal position barely moves. This is consistent with the long-run effect of unconventional monetary easing on the price index, which is about half that of conventional easing. The aggregate long-run cumulated surplus is mainly driven by Germany's fiscal policy during the period in which unconventional monetary policy was adopted.
    Keywords: monetary- fiscal interaction ; fiscal policy ; monetary policy ; intertemporal government budget constraint JEL Codes: E31 ; E63 ; E52
    Date: 2022
  6. By: Berger, Tino; Ochsner, Christian
    Abstract: The German economy is an important economic driver in the Euro-area in terms of gross domestic product, labour force and international integration. We provide a state of the art estimate of the German output gap between 1995 and 2022 and present a nowcasting scheme that accurately predicts the German output gap up to three months prior to a gross domestic product data release. To this end, we elicit a mixed-frequency vector-autoregressive model in the spirit of Berger, Morley, and Wong (forthcoming) who propose to use monthly information to form an expectation about the current-quarter output gap. The mean absolute error of our nowcast compared to the final estimate is very small (0.28 percentage points) after only one month of observed data. Moreover, we show that business and consumer expectations, international trade and labour market aggregates consistently explain large shares of variation in the German output gap. Finally, our procedure is very reliable, as it implies an output gap that is hardly revised ex post. This is particularly important for policymakers.
    Keywords: output gap,Germany,nowcast,mixed frequency,vector-autoregression
    JEL: E32 E37 C53
    Date: 2022
  7. By: Kai Schellekens; Patty Duijm
    Abstract: At the start of the COVID-19 pandemic the increased market volatility and risk aversion led to a deterioration of U.S. Dollar funding conditions in the Euro Area. The swap line interventions by the ECB and Federal Reserve on March 15, 2020 aimed to alleviate the mispricing of EUR/USD FX swaps. We find that these swap line interventions were effective since they alleviated part of the mispricing. The announcement effect of the interventions is however limited; the impact of the swap line interventions is larger and more significant closer to the implementation date. This study provides insight into the effectiveness of central bank interventions in the FX swap market during turbulent periods.
    Keywords: Central Bank Policy: FX Swaps: Financial Markets: Covid-19
    JEL: E58 G2 G15 H12
    Date: 2022–10
  8. By: Michaelis, Henrike
    Abstract: Exploiting confidential data on individual German bank balance-sheets, I analyse what characterises a bank that opts to apply negative interest rates to corporate deposits. The results suggest that banks that are highly exposed to the negative interest rate policy (NIRP), i.e. funded by a larger share of household deposits, are more likely to apply negative corporate deposit rates. Furthermore, I examine whether banks adjusted their fee and commission strategy during the NIRP period and if they do what characterises those banks. My results show that banks adjusted their strategy in deposit business with households during the NIRP period. Compared with before, they generated higher net commission income on their outstanding household deposit holdings.
    Keywords: Monetary policy transmissions,negative rates,deposits,excess liquidity,interest rate pass-through,fees and commissions
    JEL: E52 E43 E44 E58 G20 G21
    Date: 2022
  9. By: Böhl, Gregor
    JEL: E63 C63 E58 E32
    Date: 2022
  10. By: Monika Grzegorczyk; Guntram B. Wolff
    Abstract: In this paper, we analyse whether green sovereign bonds are systematically priced differently to conventional sovereign bonds in the secondary markets
    Date: 2022–09
  11. By: Baltzer, Markus; Schlepper, Kathi; Speck, Christian
    Abstract: The Eurosystem's asset purchase programmes reduced the free float of German Bunds. Market participants feared impaired market functioning in the Bund market and monetary policymakers unintended consequences for monetary policy transmission. We study the intended and unintended consequences of asset purchases in the repo market with Bund collateral. Bunds that are eligible for APP purchases carry a repo specialness premium even when they are not purchased. This "eligibility premium" is larger than the actual flow effect of purchases identified in previous research. Securities lending (SecL) operations have a flow effect, but its magnitude is even smaller than the flow effect of APP purchases. Therefore, the impact of SecL in the repo market is only of a quite limited extent. Furthermore, the effects of APP and SecL on repo specialness are relatively small compared to those caused by banks' balance sheets window dressing at quarter ends and by the hedging pressure for Bund Futures.
    Keywords: Repos,Quantitative Easing,Securities Lending,Eurosystem,PSPP
    JEL: E43 E58 G12 G28
    Date: 2022
  12. By: Márcio Mateus; Katja Neugebauer
    Abstract: During the Covid-19 crisis, the Portuguese government has provided a plethora of different support measures for firms. These included state-guaranteed loans and a public moratorium for existing loans. This paper examines the access to and uptake of these measures. What were the characteristics of firms being granted state-guaranteed loans? Were they different for firms accessing the moratorium? Did state-guaranteed loans potentially lead to an increase in zombie lending? We try to answer these questions using highly granular bank-, firm- and loan-level data for Portugal. We find that guaranteed loans went mostly to firms operating in the sectors most severely hit by the pandemic and to firms that previously had a credit relation and/or benefitted from a state guarantee. Furthermore, the Portuguese public guarantee scheme seems to mainly have supported lower-credit-risk firms. In addition to that, riskier firms also paid higher interest rates and obtained smaller guaranteed loans than more viable firms. However, in contrast to our results for the state guarantees, we find that riskier firms were more likely to benefit from the public moratorium.
    JEL: G21 G30 G38
    Date: 2022
  13. By: Mattia Guerini (University of Trento [Trento]); Lionel Nesta (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Xavier Ragot (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Stefano Shiavo (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)
    Abstract: This paper evaluates the risk of zombification of the French economy during the sanitary crisis, as a result of the unconditional financial support provided to firms by public authorities. We develop a simple theoretical framework based on a partialequilibrium model to simulate the liquidity and solvency stress faced by a large panel of French firms and assess the impact of government support measures. Simulation results suggest that those policies helped healthy but illiquid firms to withstand the shock caused by the pandemic. Moreover, the analysis finds no evidence of a "zombification effect", as government support has not disproportionately benefited less productive companies.
    Keywords: Covid-19,zombie firms,job-retention schemes,microsimulation,policy evaluation
    Date: 2022–07–15
  14. By: Marek, Philipp; Stein, Ingrid
    Abstract: This paper examines how Basel III capital reforms affected bank lending in Ger- many. We focus on the increase of minimum risk-based capital requirements and the introduction of the leverage ratio. The announcement of stricter risk-based capital regulation significantly affected low capitalized banks. The impact depends on a bank's credit risk model, i.e. whether a bank applies the standardized approach (SA) or an internal ratings-based approach (IRBA) to determine risk weights. Low capitalized SA banks significantly cut lending whereas IRBA banks did not ad- just lending volumes. By contrast, low capitalized IRBA banks significantly in- creased collateralization while low capitalized SA banks adjusted collateralization only marginally. Moreover, the impact on SMEs and large companies also differs. In terms of lending, SMEs were affected more strongly, whilst in terms of collateralization the impact on large companies was bigger. The announcement of the leverage ratio had, however, a rather limited impact. We find some evidence that low capitalized banks reduced lending. Furthermore, low capitalized banks somewhat tightened collateral requirements, especially for large companies.
    Keywords: Basel III,bank lending,nancial regulation,small and medium-sizedenterprises (SMEs)
    JEL: D22 E58 G21
    Date: 2022
  15. By: Steiner, Nils; Berlinschi, Ruxanda; Farvaque, Etienne; Fidrmuc, Jan; Harms, Philipp; Mihailov, Alexander; Neugart, Michael; Stane, Piotr
    Abstract: This paper uses a survey among students at European universities to explore whether Russia’s invasion of Ukraine has affected attitudes toward European integration. Some respondents completed the survey just before Russia’s assault on February 24, 2022, and some did so just afterwards, thus delivering a quasi-experimental design situation, which we exploit. Our results suggest that the ominous news about the Russian attack increased the participants’ interest in EU politics, consolidated their attachment to the EU, and made them more mindful and appreciative of the benefits of deeper European integration. In effect, the war so close to the EU Eastern border provoked a rally around the supranational EU flag, with convergence of public opinion toward shared European values.
    JEL: F02 F5 H77 N44 Z18
    Date: 2022–10–24
  16. By: Francesca Crucitti; Lorenza Rossi
    Abstract: This paper uses firm-level data to empirically investigate the relative contribution of the declining relative price of investments, the increasing automation, and the rising price markups on the labor share decline and productivity slowdown witnessed in the last 20 years in the Spain manufacturing sector. The results point to automation and markups as important drivers of both phenomena, while the relative price of investments has the opposite sign, coherent with the evidence of capital-labor complementarity. A theoretical model characterized by rm heterogeneity, endogenous markups distribution, and financial market frictions, parsimoniously accounts for the empirical findings, and it is used to draw aggregate implications. Last, the model accounts for the observed changes in the distribution of rm markup and size and for the decline in business dynamism that occurred in the last decades.
    Keywords: Labor share, TFP Losses, Firm dynamics, Capital Misallocation
    JEL: E22 E25 O16 O33 O40
    Date: 2022

This nep-eec issue is ©2022 by Giuseppe Marotta. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.