nep-eec New Economics Papers
on European Economics
Issue of 2023‒01‒23
six papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Energy shocks in the Euro area: disentangling the pass-through from oil and gas prices to inflation By Chiara Casoli; Matteo Manera; Daniele Valenti
  2. The macroeconomic effects of global supply chain disruptions By Finck, David; Tillmann, Peter
  3. On the determinants of corporate default in the EU-27: Evidence from a large sample of companies By FATICA Serena; OLIVIERO Tommaso; RANCAN Michela
  4. Estimation of the Medium-Term Macroeconomic Impact of the Cyprus Recovery and Resilience Plan By Chrystalleni Aristidou; Aris Avgousti; Niki Papadopoulou
  5. Capital regulation, market-making, and liquidity By Haselmann, Rainer; Kick, Thomas; Singla, Shikhar; Vig, Vikrant
  6. How the short run effects of Brexit on trade, investment and GDP have been miscalculated in some recent work By Minford, Patrick; Zhu, Zheyi

  1. By: Chiara Casoli (Fondazione Eni Enrico Mattei); Matteo Manera (Fondazione Eni Enrico Mattei and Department of Economics, Management and Statistics – DEMS, University of Milano-Bicocca); Daniele Valenti (Fondazione Eni Enrico Mattei and Department of Environmental Science and Policy – DESP, University of Milano)
    Abstract: We develop a Bayesian Structural VAR (SVAR) model to study the relationship between different kinds of energy shocks and inflation dynamics in Europe. Specifically, we include in our specification two separate energy markets (oil and natural gas) and two target macroeconomic variables, measuring inflation expectations and the realized headline inflation. Our results demonstrate that, during the last year, inflation in the Euro area is more affected from energy price shocks, particularly those coming from the natural gas sector. The high peaks of the Eurozone inflation are mainly associated with gas consumption demand shocks and, to a lesser extent, to oil and gas supply shocks.
    Keywords: Energy shocks, Oil and gas markets, Inflation, Bayesian Structural VARs
    JEL: C11 E31 Q41 Q43
    Date: 2022–12
  2. By: Finck, David; Tillmann, Peter
    Abstract: Highly interconnected global supply chains make countries vulnerable to sup ply chain disruptions. This paper estimates the macroeconomic effects of global supply chain shocks for the euro area. Our empirical model combines busi ness cycle variables with data from international container trade. Using a novel identification scheme, we augment conventional sign restrictions on the impulse responses by narrative information about three episodes: the Tohoku earthquake ¯ in 2011, the Suez Canal obstruction in 2021, and the Shanghai backlog in 2022. We show that a global supply chain shock causes a drop in euro area real economic activity and a strong increase in consumer prices. Over a horizon of one year, the global supply chain shock explains about 30% of inflation dynamics. We also use regional data on supply chain pressure to isolate shocks originating in China. Our results show that supply chain disruptions originating in China are an important driver for unexpected movements in industrial production, while disruptions originating outside China are an especially important driver for the dynamics of consumer prices.
    Keywords: Container Trade, Supply Chain, Inflation, Narrative Identification, Sign Restrictions
    JEL: E32 F14 F62
    Date: 2022
  3. By: FATICA Serena (European Commission - JRC); OLIVIERO Tommaso; RANCAN Michela
    Abstract: We analyze a large sample of companies operating in the EU-27 in the period 2007-2018 to gain new insights on the determinants of corporate defaults. The sample includes micro, small, medium and large enterprises, both active and defaulting. We document significant differences in the drivers of insolvency across firm size categories. Micro and small firms are significantly more vulnerable to sectoral shocks and to disruptions along the supply chain than larger companies. Instead, the default probability for all firms is significantly larger when companies experience in the previous year negative end-of-the year equity, that is a measure of prolonged financial distress. By exploiting institutional differences in judicial efficiency among EU-27 countries, we find financial distress is more likely to predict default in jurisdictions with more efficient insolvency procedures. Finally, we derive potential implications of our findings, especially with regard to the recent crises hitting European firms and the harmonisation of national insolvency regimes in the EU-27 towards most efficient legal practices, as foreseen under the Capital Markets Union Action Plan.
    Keywords: bankruptcy, financial distress, SMEs, EU-27, judicial efficiency
    Date: 2022–12
  4. By: Chrystalleni Aristidou (Central Bank of Cyprus); Aris Avgousti (Central Bank of Cyprus); Niki Papadopoulou (Central Bank of Cyprus)
    Abstract: This paper estimates the medium-term macroeconomic impact of the fscal stimulus of the Cyprus Recovery and Resilience Plan (RRP) under various scenarios, by using the CYMCM, a semi-structural macroeconometric model of the Cyprus economy developed by CBC sta?. Scenarios di?er in their assumptions about the extent to which the expenditure measures included in the RRP are additional to the ones planned or expected prior to the agreement for a recovery plan for Europe. The analysis takes into account the data of the published Cyprus RRP and makes prudent assumptions on the additivity of RRP expenditure measures. In the scenario in which all RRP-related spending is used for additional measures to the ones planned (“full additivity” scenario), the simulations show that the expected impact on real GDP level is around 0.71 percent and for HICP in?ation 0.08 percentage points. The expected impact on employment is 0.22 percent, while public debt-to-GDP is expected to decrease by 0.75 percentage points. In the scenario in which spending under the RRP is partially used for additional measures (“partial additivity” scenario), which is considered a more realistic scenario in this paper, the simulations show that the expected impact on real GDP level is around 0.58 percent and for in?ation 0.06 percentage points. The impact on employment is 0.18 percent and the reduction in public debt-to-GDP ratio is expected to be around 1.25 percentage points. The results are based only on the fscal stimulus of the Cyprus RRP, as the analysis does not incorporate spillover e?ects of NGEU measures in other EU countries or additional productivity gains due to reforms. Nevertheless, the analysis indicates that implementation of the RRP will have a meaningful impact on the Cyprus economy in the medium-term. Overall, the results of this paper are comparable to the results of other studies.
    Keywords: Next Generation EU (NGEU), Recovery and Resilience Facility (RRF), National Recovery and Resilience Plan (NRRP), Macroeconomic impact, Fiscal policies
    JEL: C54 E17 E62 F45
    Date: 2022–12
  5. By: Haselmann, Rainer; Kick, Thomas; Singla, Shikhar; Vig, Vikrant
    Abstract: We employ a proprietary transaction-level dataset in Germany to examine how capital requirements affect the liquidity of corporate bonds. Using the 2011 European Banking Authority capital exercise that mandated certain banks to increase regulatory capital, we find that affected banks reduce their inventory holdings, pre-arrange more trades, and have smaller average trade size. While non-bank affiliated dealers increase their market-making activity, they are unable to bridge this gap - aggregate liquidity declines. Our results are stronger for banks with a higher capital shortfall, for noninvestment grade bonds, and for bonds where the affected banks were the dominant market-maker.
    Keywords: market-making, capital regulation, bond market liquidity
    JEL: G01 G21 G28
    Date: 2022
  6. By: Minford, Patrick (Cardiff Business School); Zhu, Zheyi (Cardiff Business School)
    Abstract: We look for statistically significant effects of Brexit events in UK data relationships. We find evidence of trade disruption by Brexit departure from the single EU market, much as we would expect. However, with investment, we find no statistically significant effects of Brexit. With GDP, inflation and interest rates we find some positive effects due to the fall in the pound. Previous work using weighted averages of selected other countries to mimic UK behaviour is inconsistent with economic theory stressing the key role of idiosyncratic country structure and shocks; it is also vulnerable to selection bias and does not test for the statistical significance of Brexit events, which have occurred in the context of enormous turbulence in the past few years in all economies due to Covid and the Ukraine war, besides accompanying large fiscal and monetary policy fluctuations.
    Date: 2023–01

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