nep-eec New Economics Papers
on European Economics
Issue of 2022‒12‒05
fourteen papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. The Risk of Inflation Dispersion in the Euro Area By Lhuissier, Stéphane; Ortmans, Aymeric; Tripier, Fabien
  2. The augmented bank balance-sheet channel of monetary policy By Bittner, Christian; Bonfim, Diana; Heider, Florian; Saidi, Farzad; Schepens, Glenn; Soares, Carla
  3. The Eurozone as an Inflation Target Zone By Pompeo Della Posta; Roberto Tamborini
  4. European firms, Panic Borrowing and Credit Lines Drawdowns: What did we learn from the COVID-19 shock? By Mario Cerrato; Hormoz Ramian; Shengfeng Mei
  5. MEDSEA-FIN: an estimated DSGE model with housing and financial frictions for Malta By William Gatt
  6. Industrial robots and fertility in European countries By Anna Matysiak; Daniela Bellani; Honorata Bogusz
  7. Tourism Persistence in the Southeastern European Countries: The Impact of Covid-19 By Guglielmo Maria Caporale; Amir Imeri; Luis A. Gil-Alana
  8. Endogenous Product Adjustment and Exchange Rate Pass-Through By Freitag, Andreas; Lein, Sarah
  9. Do Integration Courses Promote Refugees’ Social and Political Integration? Evidence from Norway By Ferwerda, Jeremy; Finseraas, Henning
  10. Can Value Chain Integration Explain the Diverging Economic Performance within the EU? By Agnes Kügler; Andreas Reinstaller; Klaus Friesenbichler
  11. Who creates and who bears flow externalities in mutual funds? By Fricke, Daniel; Jank, Stephan; Wilke, Hannes
  12. Nowcasting GDP using machine learning methods By Dennis Kant; Andreas Pick; Jasper de Winter
  13. Dominant Currency Shocks and Foreign Exchange Pressure in the Periphery By Aleksandr V. Gevorkyan; Tarron Khemraj
  14. Gender patterns of EU exports: jobs and wage differentials By Kutlina-Dimitrova, Zornitsa; Piñero, Pablo; Rueda-Cantuche, Jose Manuel

  1. By: Lhuissier, Stéphane; Ortmans, Aymeric; Tripier, Fabien
    Abstract: We document the time-varying divergence of predictive inflation distributions across euro area countries and explore their macroeconomic origins. While the dispersion of inflation rates mainly concerns upside inflation risks during the first decade of the euro area, it shifted to downside inflation risks during the second decade. The dispersion of downside and upside risks to inflation reaches record levels in the wake of the COVID crisis. The main determinant of the dispersion at the bottom of the distribution is the development of financial stress. In the wake of the COVID crisis, value chain pressures drove the dispersion of upside inflation risks. Overall, the dispersion of inflation rates is largely caused by heterogeneous Phillips curves between countries rather than by different national economic contexts.
    Keywords: Inflation; Inflation-at-Risk; Inflation dispersion; Monetary Union; Euro area
    Date: 2022–11
  2. By: Bittner, Christian; Bonfim, Diana; Heider, Florian; Saidi, Farzad; Schepens, Glenn; Soares, Carla
    Abstract: This paper studies how banks’ balance sheets and funding costs interact in the transmission of monetary-policy rates to banks’ credit supply to firms. To do so, we use credit registry data from Germany and Portugal together with the European Central Bank’s policy-rate cuts in mid-2014. The pass-through of the rate cuts to banks’ funding costs differs across the euro-area currency union because deposit rates vary in their distance to the zero lower bound (ZLB). When the distance is shorter, banks’ financing constraints matter less for the supply of credit and there is more risk taking. To rationalize these findings, we provide a simple model of an augmented bank balance-sheet channel where in addition to costly external financing, there is screening of borrowers and a ZLB on retail deposit rates. An impaired pass-through of monetary policy to banks’ funding costs reduces their ability to lever up and weakens their lending standards. JEL Classification: E44, E52, E58, E63, F45, G20, G21
    Keywords: bank balance sheets, bank lending, bank risk taking, euro-area heterogeneity, transmission of monetary policy
    Date: 2022–11
  3. By: Pompeo Della Posta; Roberto Tamborini
    Abstract: In the revised monetary policy strategy of the European Central Bank (ECB), “price stability is best maintained by aiming for two per cent inflation over the medium term”, with “symmetric commitment” to this target. “Symmetry means that the Governing Council considers negative and positive deviations from this target as equally undesirable”. In this article, we therefore analyse this policy strategy through a model of inflation target zone, with a central value and symmetric upper and lower bounds on inflation, within which the central bank may decide not to intervene, provided inflation is expected to fluctuate around the central value. We show that the policy benefits guaranteed by a target zone can be dissipated if market agents are uncertain about its width.
    Keywords: European Central Bank, monetary policy strategy, inflation target zones
    JEL: E31 E42
    Date: 2022
  4. By: Mario Cerrato; Hormoz Ramian; Shengfeng Mei
    Abstract: “Riskier European companies draw €32bn from bank credit lines” (FT, May, 2020). The Financial Times in May 2020 highlighted a large group of European firms, took out of their credit lines an impressive €32bn to stay afloat during the pandemic shock. This was an impressive flight to liquidity as no one ever thought the whole market would draw their credit lines at once and so quickly. The Financial Times reported that the majority of firms withdrawing their credit lines were in the consumer, material and industrial sectors. In this paper we investigate why European firms drew down credit lines. We show that these firms were facing a fall in the expected revenue and a worsening of credit risk and therefore they used credit lines to top-up their liquidity position.
    Keywords: Corporate credit lines, cash holding, investment, default risk
    JEL: G21 G32 G33
    Date: 2022–05
  5. By: William Gatt (Central Bank of Malta)
    Abstract: This paper uses Bayesian techniques and Maltese data over the period 2001–2019 to estimate the parameters of MEDSEA-FIN, one of the Central Bank of Malta’s DSGE models. The model captures linkages between the housing sector, banks and the rest of the economy via a borrowing collateral constraint. The paper shows that the data is informative on a subset of the parameters, and documents that the dynamic properties of the estimated model are in line with similar DSGE models estimated for other countries. The results corroborate recent empirical findings for Malta documented in other studies. The model is used to decompose recent macroeconomic data and shows that housing demand shocks were important drivers of house prices and credit. Shocks from the euro area also drove a significant share of macroeconomic fluctuations. The paper also shows that the model survives external validation tests. Although the model remains somewhat stylized along some dimensions, estimation makes it suitable for policy analysis related to housing and credit markets and associated macroprudential policies.
    JEL: C11 C32 C51 E21 E32
    Date: 2022
  6. By: Anna Matysiak (University of Warsaw, Faculty of Economic Sciences); Daniela Bellani (Scuola Normale Superiore, Florence); Honorata Bogusz (University of Warsaw, Faculty of Economic Sciences)
    Abstract: In this study we examine whether the long-term structural changes in the labour market, driven by automation, affect fertility. Adoption of industrial robots in the EU has tripled since the mid-1990s, tremendously changing the conditions of participating in the labour market. On the one hand, new jobs are created, benefitting largely the highly skilled workers. On the other hand, the growing turnover in the labour market and changing content of jobs induce fears of job displacement and make workers continuously adjust to new requirements (reskill, upskill, increase work efforts). The consequences of these changes are particularly strong for the employment and earning prospects of the low and middle educated workers. Our focus is on six European countries: Czechia, France, Germany, Italy, Poland and the United Kingdom. We link regional data on fertility and employment structures by industry from Eurostat (NUTS-2) with data on robot adoption from the International Federation of Robotics. We estimate fixed effects linear models with instrumental variables in order to account for the external shocks which may affect fertility and robot adoption in parallel. Our findings suggest robots tend to exert a negative impact on fertility in highly industrialised regions, regions with relatively low educated populations and those which are technologically less advanced. At the same time, better educated and prospering regions may even experience fertility improvements as a result of the technological change. The family and labour market institutions of the country may further moderate these effects.
    Keywords: fertility, employment, industrial robots, technological change, Europe
    JEL: J11 J13
    Date: 2022
  7. By: Guglielmo Maria Caporale; Amir Imeri; Luis A. Gil-Alana
    Abstract: This paper examines tourism persistence in a group of Southeastern European (SEE) countries (Albania, Bosnia, Bulgaria, Croatia, Montenegro, North Macedonia, Serbia and Slovenia) by applying fractional integration methods to monthly data on foreign tourist arrivals and overnight stays. The results indicate that the COVID-19 pandemic has increased the degree of persistence of the series examined and also reduced the importance of their seasonal component.
    Keywords: SEE, Covid-19, fractional integration, persistence, shocks, tourism
    JEL: C13 C22 L83 N74 Z32
    Date: 2022
  8. By: Freitag, Andreas (University of Basel); Lein, Sarah
    Abstract: We document how product quality responds to exchange rate movements and quantify the extent to which these quality changes affect the aggregate pass-through into export prices. We analyze the substantial sudden appreciation of the Swiss franc post removal of the 1.20-CHF-per-euro lower bound in 2015 using export data representing a large share of the universe of goods exports from Switzerland. We find that firms upgrade the quality of their products after the appreciation. Furthermore, they disproportionately remove lower-quality products from their product ranges. This quality upgrading and quality sorting effect accounts for a substantial share of the total pass-through one year after the appreciation. We cross-check our results with the microdata underlying the Swiss export price index, which includes an adjustment factor for quality based on firms' reported product replacements, and obtain similar results.
    Keywords: large exchange rate shocks, exchange rate pass-through, quality adjustment
    JEL: E3 E31 E50 F14 F41
    Date: 2022–11–18
  9. By: Ferwerda, Jeremy; Finseraas, Henning
    Abstract: Many European countries have implemented mandatory integration courses for refugees and asylum seekers. While evaluations suggest that these programs can improve short-term economic outcomes, little is known about their effectiveness in promoting social and political integration over the long run. In this paper, we focus on the Norwegian Introductory Program, an intensive policy intervention which requires two years of full-time coursework. To identify the causal effect of the program, we leverage quasi-random variation in refugees' arrival dates during the roll-out period. Although we find positive effects on economic integration, we find that the program did not meaningfully influence social or political integration over the long run, as measured via annual administrative data on residential patterns, union membership, intermarriage, citizenship, and validated turnout in local and national elections. This conclusion is further supported by an analysis of the effect of the program on political and social attitudes. Our findings suggest that while introductory programs may improve refugees' economic situation, mandatory coursework is nevertheless ineffective at promoting integration across other domains.
    Date: 2022–10–18
  10. By: Agnes Kügler; Andreas Reinstaller; Klaus Friesenbichler
    Abstract: This paper studies the interplay of integration into EU value chains and industrial development measured by labour productivity. Our integration indicator measures value chain trade within the Single Market relative to global value chain networks. Using a simultaneous equation model, we find an overall positive effect of integration on labour productivity, which is driven by upstream integration. Highly productive industries rather seek global value chain trade than regional integration, though. Better domestic institutions facilitate EU integration, although they favour industries with less complex product portfolios and lower levels of knowledge cumulativeness.
    Keywords: EU integration, Value chains, Productivity, Institutions, Industrial development, Product complexity
    Date: 2022–11–16
  11. By: Fricke, Daniel; Jank, Stephan; Wilke, Hannes
    Abstract: Using a unique dataset on the sectoral ownership structure of euro area equity mutual funds, we study how different investor groups contribute to the negative performance externality from large outflows. Investment funds, as holders of mutual funds, are the main contributors to the flow externality. Insurers and households, in particular less financially-sophisticated ones, are the main receivers. These differences are due to investment funds reacting more strongly on past performance and displaying a more procyclical investment behavior compared to households and insurers. Our results raise consumer protection and financial stability concerns due to the trading activity of short-term oriented investors.
    Keywords: asset management,mutual funds,externalities,contagion,performance
    JEL: G10 G11 G23
    Date: 2022
  12. By: Dennis Kant; Andreas Pick; Jasper de Winter
    Abstract: This paper compares the ability of several econometric and machine learning methods to nowcast GDP in (pseudo) real-time. The analysis takes the example of Dutch GDP over the years 1992-2018 using a broad data set of monthly indicators. It discusses the forecast accuracy but also analyzes the use of information from the large data set of regressors. We find that the random forest forecast provides the most accurate nowcasts while using the different variables in a relative stable and equal manner.
    Keywords: factor models; forecasting competition; machine learning methods; nowcasting.
    JEL: C32 C53 E37
    Date: 2022–11
  13. By: Aleksandr V. Gevorkyan; Tarron Khemraj (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: The paper assesses the effects of dominant currency shocks (strong US dollar) on emerging markets by studying exchange market pressure (EMP) or foreign exchange (FX) liquidity, GDP growth, external debt, and inflation. The literature emphasizes inflation passthrough, trade volume and GDP growth contraction in the periphery following a strong dollar. Comparing the dollar shock with euro and commodity price shocks and employing pooled mean group estimates and panel VAR across regimes of trade invoicing, this paper shows that bilateral depreciation can decrease FX liquidity and GDP growth in the periphery, failing to achieve the conventional macroeconomic adjustments of a competitive depreciation. A strong dollar reduces external debt, but strong euro has the opposite effect, implying circumvention of the ‘original sin.’ An EMP, FX liquidity, shock from the periphery appreciates the US dollar, affirming dollar’s safehaven status. These findings have implications for balance of payments and exchange rate policy management.
    Keywords: dominant currency pricing, exchange market pressure, international monetary system, nominal spillovers
    JEL: E24 I14 J62 J38 E21 J83 J32
    Date: 2022–04
  14. By: Kutlina-Dimitrova, Zornitsa (DG Trade); Piñero, Pablo (DG Trade); Rueda-Cantuche, Jose Manuel (DG Trade)
    Abstract: Our paper provides new insights into the gender specific dimension of extra-EU exports. In 2019, the employment of more than 14 million women depended on EU exports to the world. The female share of exports related jobs however stood at only 38%, almost unchanged from its previous level in 2010. While exploring the drivers behind this gender specific employment gap, we find out that women are predominantly employed in the provision of services that are less tradable. In fact, the share of female workers in least-tradable sectors (defined as a sectoral openness of less than 15%) is close to 80%. Furthermore, while exploring the gender specific wage premium gap at EU level, our results show that although women benefit from a wage premium of 8%, their male co-workers enjoy a markedly higher wage premium of 11% at EU level.
    Keywords: international trade; employment; multi-regional input-output tables; EU; gender; wages
    JEL: F16 F17 J16
    Date: 2022–07–08

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