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on European Economics |
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Issue of 2023‒01‒30
fourteen papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Emmanuelle Faure; Carl Grekou; Valérie Mignon |
| Abstract: | This paper revisits the crucial issue of current account imbalances and focuses on the determinants of their gaps between eurozone Member States. We conduct robust estimations of the current account balances for a panel of ten founding euro area economies and construct a measure that allows us to diagnose why some countries have started to diverge from the eurozone mean in the last two decades. Our findings show evidence of remaining differences in countries’ economic development, meaning that real macroeconomic convergence has failed in the zone. Price and cost competitiveness, as well as fiscal balances, have also participated in this growing macroeconomic divergence. Overall, while the European authorities cannot influence the part of the current account gaps due to demographic factors, the role of fiscal redistribution and investment at the euro area level could help achieve macroeconomic convergence and thus reduce current accounts’ divergence in the zone. |
| Keywords: | Current Account;Global Imbalances;Eurozone |
| JEL: | F32 O52 C33 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2022-12&r=eec |
| By: | Matthieu Darracq Paries (European Central Bank); Georg Muller (European Central Bank); Niki Papadopoulou (Central Bank of Cyprus) |
| Abstract: | We quantify the size of fiscal multipliers in an economy with sovereign and bank default risk. We build a DSGE model with financial frictions for the euro area in which the interplay of corporate, bank and sovereign solvency risk a?ects the transmission of government spending. Sovereign bonds carry a credit risk premium that depends on government indebtedness. The banking system is fragile through its direct and indirect exposure to sovereign risk and limited loss absorption capacity. Calibrating the model on sovereign and bank riskiness reminiscent of the euro area sovereign debt crisis period, we show that adverse financial channels may signifcantly depress the fiscal multiplier. The trade-o? for the fiscal authority, between the macroeconomic stabilization objective and solvency risks, continues to be relevant in the euro area. We also evaluate the scope for monetary and macro-prudential policy to mitigate the financial setbacks and help restore the e?ectiveness of fiscal stimulus. |
| Keywords: | DSGE models, fiscal stabilization, sovereign risk, sovereign-bank nexus |
| JEL: | E44 E52 E62 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:cyb:wpaper:2022-5&r=eec |
| By: | Sangyup Choi (Yonsei University); Kimoon Jeong (Yonsei University); Jiseob Kim (Yonsei University) |
| Abstract: | What accounts for contrasting economic paths between core and periphery countries in the euro area? Unlike many studies focusing on fiscal problems, we highlight the interplay of bank mortgage lending standards and imbalances created by the common monetary policy framework. To illustrate the mechanism, we derive a country-specific monetary policy stance gap and estimate the panel VAR model of core and periphery countries, respectively. While the widening monetary policy stance gap—the accommodative stance of the ECB given individual economic conditions—induces a similar increase in the demand for mortgage credit in both regions, it is followed by sharply different responses of the supply side of mortgage credit: bank mortgage lending standards are relaxed (tightened) in periphery (core) countries, which can rationalize vastly different paths in mortgage credit, residential investment, and housing prices between the two Europes. In searching for the source of different bank lending behaviors, we find that banks in core countries, where macroprudential policies on mortgage credit are tightened and bank lending margin decreases, increase their cross-border lending to periphery countries, which could fuel excessive risk-taking in periphery countries. |
| Keywords: | Euro area; Mortgage credit; Monetary policy stance gap; Bank lending survey; Macroprudential policy; Cross-border banking flows; Panel VARs. |
| JEL: | E21 E32 E44 F52 G21 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:yon:wpaper:2023rwp-209&r=eec |
| By: | Andrea Bassanini; Giulia Bovini; Eve Caroli; Jorge Casanova Ferrando; Federico Cingano; Paolo Falco; Florentino Felgueroso; Marcel Jansen; Pedro S. Martins; António Melo; Michael Oberfichtner; Martin Popp |
| Abstract: | We investigate the impact of labour market concentration on two dimensions of job quality, namely wages and job security. We leverage rich administrative linked employer-employee data from Denmark, France, Germany, Italy, Portugal and Spain in the 2010s to provide the first comparable cross-country evidence in the literature. We show that the elasticities of wages with respect to labour market concentration are strikingly similar across countries. Increasing labour market concentration by 10% reduces wages by 0.19% in Germany, 0.22% in France, 0.25% in Portugal and 0.29% in Denmark. We find greater elasticities for job security. An increase in labour market concentration by 10% reduces the probability of being hired on a permanent contract by 0.46% in France, 0.51% in Germany and 2.34% in Portugal. In Italy and Spain, while not affecting this probability, labour market concentration has a strong negative effect on conversions to a permanent contract once hired on a temporary one. Using German and Portuguese data, we provide suggestive evidence that the similarity of our wage elasticities across countries and the greater sensitivity of job security to labour market concentration may be explained by the fact that sector-level collective bargaining is dominant in the countries we study and that it sets wages but usually not contract type. |
| Keywords: | Labour market concentration, Monopsony, Wages, Job security, Collective bargaining |
| JEL: | J31 J42 J52 L41 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:unl:unlfep:wp654&r=eec |
| By: | António Afons; José Alves; José Carlos Coelho |
| Abstract: | We assess the link between fiscal sustainability coefficients, namely the responses of the primary government balance and the global government balance to the debt-to-GDP ratio, and the response of government revenues to government expenditures. For 22 OECD developed countries we use annual data between 1950 and 2019. Other determinants of fiscal responses are also studied in the context of quantile regressions. We find that the output gap contributes to increasing fiscal sustainability by positively influencing the responsiveness of the primary and global government balances; the responses of the primary and global government balances to the debt ratio and the response of government revenues to government expenditures depend on the level of the debt ratio. In addition, from the quantile analysis, the influence of the response of government revenues to government expenditures is negative and increasing over the deciles, confirming the existence of a negative cross-relationship between the fiscal sustainability coefficients. |
| Keywords: | fiscal reaction function; fiscal determinants; panel data; quantile regressions |
| JEL: | C23 H61 H63 E62 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp02552023&r=eec |
| By: | Laurence Francis Lacey |
| Abstract: | An information entropy statistical methodology was used to evaluate the growth of the UK economy over the period 2000 to 2019, with an emphasis on the impact of labour productivity on gross domestic product (GDP) per capita and the average growth in real wages, during this time period. The growth of the UK economy over the period 2000 to 2019 can be described in terms of three distinct phases: 1) 2000 to 2007 - strong sustained economic growth 2) 2008 to 2013 - the impact of the international financial crisis, its immediate aftermath, and period of recovery 3) 2014 to 2019 - weak sustained economic growth The key determinant of the UK economic performance over this period would appear to the annual rate of growth in labour productivity. It was closely related to the annual rate of growth in GDP per capita, and it was significantly weaker in the period 2014 to 2019 compared to the period 2000 to 2007. This also corresponded with a weaker rate of growth in annual average real wages over the period 2014 to 2019 compared to the period 2000 to 2007. Throughout the period 2000 to 2019, UK CPI was maintained, on average, at approximately 2.1% per annum. More rapid UK economic growth would be expected to be achieved by sustained investment in measures that enhance labour productivity, with the further expectation that a sustained improvement in labour productivity would increase the annual rate of growth of UK GDP per capita and average real wages. While the results given in this paper are specific to the UK over the time period 2000 to 2019, the expectation is that the methodology and approach adopted can be applied to quantifying the dynamics of any developed economy over any time period. |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2212.03947&r=eec |
| By: | Joaquin Garcia-Cabo; Anna Lipinska; Gaston Navarro |
| Abstract: | Unemployment insurance and wage subsidies are key tools to support labor markets in recessions. We develop a multi-sector search and matching model with on-the-job human capital accumulation to study labor market policy responses to sector-specific shocks. Our calibration accounts for structural differences in labor markets between the United States and the euro area, including a lower job-finding rate in the latter. We use the model to evaluate unemployment insurance and wage subsidy policies in recessions of different duration. We find that, after a temporary sector-specific shock, unemployment insurance improves both productivity and reallocation toward productive sectors at the cost of initially higher unemployment and, thus, human capital destruction. In the United States, unemployment insurance is preferred to wage subsidies when it does not distort job creation for too long. By contrast, wage subsidies reduce unemployment and preserve human capital, at the cost of limiting reallocation. In the euro area, where the job-finding rate is lower, subsidies are preferred. |
| Keywords: | labor market policies; reallocation; search and matching |
| JEL: | E24 J68 J64 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1361&r=eec |
| By: | Ilka van de Werve (Vrije Universiteit Amsterdam); Siem Jan Koopman (Vrije Universiteit Amsterdam) |
| Abstract: | We develop a panel data model with stochastic dynamic processes to empirically verify the possible existence of the European crime drop. This time-varying effect can be captured by the stochastic trend and can be interpreted as the “potential” European crime drop. Due to the flexibility of our modeling framework, it is not needed to make the existence of the crime drop explicit beforehand. We consider three variants of the model, from pooling all parameters over the countries to the possibility of estimating country-specific loadings for the cross-national crime drop. To have an equivocal measure of crime over the countries for the considerable period of interest, we create homicide rates based on the World Health Organization Mortality Database. Our proposed model is able to extract the European crime drop as the underlying time-varying factor of the data. The partially pooled variant of the model is most similar to a two-way fixed effects model. The empirical results from both of these models are aligned. The none pooled variant of the model shows the usefulness of allowing for country-specific crime drop loadings. It is also beneficial to allow for a second stochastic trend for East-European countries. The findings are robust against the inclusion of macroeconomic variables in the model. In an additional explorative analysis, univariate results for the US show that the timing of the European and US crime drops coincide. |
| Keywords: | Crime Drop, Europe, Macroeconomy, Time Series Econometrics |
| Date: | 2022–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20220089&r=eec |
| By: | Hamid Raza; Thibault Laurentjoye; Mikael Randrup Byrialsen; Sebastian Valdecantos |
| Abstract: | After decades of relative consumer price stability, inflation is now making a come-back as a central topic in economic and political discussions, against a backdrop of various policy challenges. The aim of this paper is to provide a nuanced assessment of the different channels through which monetary, fiscal and income policies can affect prices and output in a small open economy, as well as discuss which policy measures are desirable and practically feasible when such an economy experiences inflationary shocks. To do so, we adopt a comprehensive modelling approach and build an empirical stock-flow-consistent model using sectoral national account data for Denmark over the period 2005Q1-2020Q1. We then replicate the inflationary environment in which Denmark and several other countries are currently operating and introduce a monetary policy reaction which leads to a modest reduction in inflation at the cost of further contracting the economy. Taking monetary tightening as a forced policy response in the case of a small open economy with fixed exchange rate, we explore a number of policies that, within the current institutional and legal framework, can potentially mitigate the adverse effects of inflation. Specifically, we introduce fiscal interventions - in the form of tax cuts on income and production - along with wage- and price-based income policies. Our main conclusion is that a close coordination of fiscal and income policies can help reduce the effects of adverse shocks to income without increasing inflation. Finally, we address a question of political relevance by exploring the effects of different policies on public budget and debt. Overall, we find that of all the policies implemented, monetary policy has the most dramatic effects on public debt sustainability. |
| Keywords: | Inflation, Fiscal policy, Monetary policy, Income policy, Stock-flow consistent model |
| JEL: | E12 E52 E61 E64 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2301&r=eec |
| By: | Kamila Kuziemska-Pawlak (Narodowy Bank Polski; University of Lodz); Jakub Mućk (Narodowy Bank Polski; SGH Warsaw School of Economics) |
| Abstract: | This paper proposes an extension of the fundamental equilibrium exchange rate (FEER) model that accounts for the trade linkages within the Global Value Chains (GVCs). In the modified FEER framework, both backward and forward linkages are taken into consideration. To demonstrate the empirical relevance of the complex nature of existing trade linkages, the proposed FEER model is applied to analyze exchange rate fluctuations of the selected Central and Eastern European countries against the euro. It is documented that in Czechia, Hungary, and Poland the standard FEER framework predicts rapid appreciation of the equilibrium exchange rate after 2010, which implies deepening undervaluation of the actual real exchange rate towards the end of the analysed period. Instead, when the GVCs’ linkages are taken into account in the framework, actual real exchange rates are broadly in line with the fundamental equilibrium exchange rates, and hence the missing real appreciation of the Czech krone, the Hungarian forint and the Polish zloty is to a large extent an equilibrium phenomenon. |
| Keywords: | exchange rate, current account, foreign trade, Global Value Chains |
| JEL: | C32 C33 F12 F31 F32 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:354&r=eec |
| By: | Iwasaki, Ichiro; Satogami, Mihoko |
| Abstract: | In this paper, we report the results of a meta-analysis of 670 estimates extracted from 53 previous research works to estimate the gender wage gap in European emerging markets. A meta-synthesis of collected estimates exhibits that the gender differences have a statistically significant and economically meaningful impact on wage levels. Synthesis results also reveal that the gender wage gap in countries with EU membership is lower than that in non-EU member states and, nevertheless, the wage gap between men and women has a tendency to diminish over time in the region as a whole. The meta-regression analysis of literature heterogeneity and test for publication selection bias back up the findings obtained from the meta-synthesis. |
| Keywords: | gender wage gap, research synthesis, meta-regression analysis, publication selection bias, European emerging markets |
| JEL: | D31 I26 J31 P23 P36 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hitcei:2022-07&r=eec |
| By: | José Alves; José Carlos Coelho; Alexandre Roxo |
| Abstract: | Performing a panel data analysis for OECD countries, during the period between 1990 and 2019, this article investigates the relationship between economic growth and income inequalities. The main objective is to understand how the GDP and GNI per capita affect income inequality and how they differ. The results suggest a U-shaped relationship of both measures of economic growth with the market and disposable Gini indexes, the Palma and S80S20 ratios, and the income of the wealthier 10% of population, which contradicts the Kuznets hypothesis. Regarding the thresholds’ analysis, there is evidence that when GDP per capita is used, inequality is higher, leading to the conclusion that countries with policies that inflate GDP rather than GNI are the main contributors to the rise in inequalities in the last years. Furthermore, the results also show a behavioral similarity between the income of the richest 10% of population and income inequality. Lastly, there is also a possibility to promote GNI per capita increasing policies, which could lead to higher economic growth while minimizing income inequalities. |
| Keywords: | inequality, economic growth, Kuznets hypothesis, panel data |
| JEL: | D63 O47 C23 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10154&r=eec |
| By: | Szabolcs Nagy; Sergey U. Chernikov; Ekaterina Degtereva |
| Abstract: | There are significant differences in innovation performance between countries. Additionally, the pharmaceutical sector is stronger in some countries than in others. This suggests that the development of the pharmaceutical industry can influence a country's innovation performance. Using the Global Innovation Index and selected performance measures of the pharmaceutical sector, this study examines how the pharmaceutical sector influences the innovation performance of countries from the European context. The dataset of 27 European countries was analysed using simple, and multiple linear regressions and Pearson correlation. Our findings show that only three indicators of the pharmaceutical industry, more precisely pharmaceutical Research and Development, pharmaceutical exports, and pharmaceutical employment explain the innovation performance of a country largely. Pharmaceutical Research and Development and exports have a significant positive impact on a country's innovation performance, whereas employment in the pharmaceutical industry has a slightly negative impact. Additionally, global innovation performance has been found to positively influence life expectancy. We further outline the implications and possible policy directions based on these findings. |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2212.13839&r=eec |
| By: | Andrea F.M. Martinangeli; Lisa Windsteiger |
| Abstract: | We explore cheating in a die roll task in response to information about tax evasion in a large-scale experiment on a representative sample of the Italian population. We thus generalise laboratory findings on conditional behaviours (cooperation, cheating) to uncover their real-world bearing in the context of tax compliance. Cheating is conditioned on information about tax evasion, as is the perceived tax compliance norm. We uncover asymmetries along the income gradient: Conditional cheating responses are driven by information about tax evasion on behalf of top income earners, while perceived tax compliance norms are driven by information about tax evasion among low income earners. Instrumental variable investigations of posterior beliefs about tax evasion strengthen these results, and reveal moreover that information about top income tax evasion erodes social trust, reinforces beliefs that wealth accumulation only occurs at others’ expense, and increases beliefs that a fundamental role of the State is that of ensuring an equitable distribution of income. |
| Keywords: | tax evasion, tax avoidance, conditional cooperation, cheating, survey experiment |
| JEL: | D01 D31 D63 H23 H26 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10144&r=eec |