nep-eec New Economics Papers
on European Economics
Issue of 2023‒02‒20
ten papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. COVID-19 and Public Support for the Euro By Roth, Felix; Jonung, Lars; Most, Aisada
  2. U.S. and Euro Area Monetary and Fiscal Interactions During the Pandemic: A Structural Analysis By Jesper Lindé; Zoltan Jakab; Andrew Hodge; Vina Nguyen
  3. Information Acquisition ahead of Monetary Policy Announcements By Michael Ehrmann; Paul Hubert
  4. Slack and Tightness: Making Sense of Post COVID-19 Labour Market Developments in the EU By Áron Kiss; Maria Chiara Morandini; Alessandro Turrini; Anneleen Vandeplas
  5. GVC exporter performance during the COVID-19 pandemic: the role of supply bottlenecks By Lebastard, Laura; Matani, Marco; Serafini, Roberta
  6. Labor Supply Shocks and Capital Accumulation: The Short and Long Run Effects of the Refugee Crisis in Europe By Lorenzo Caliendo; Luca David Opromolla; Fernando Parro; Alessandro Sforza
  7. Did Insurers Become Risk-Loving During “Low-for-Long”? The Role of Returns, Ratings, and Regulation By Mr. Juan Sole; Jeroen Brinkhoff
  8. Households' probabilistic inflation expectations in high-inflation regimes By Becker, Christoph; Dürsch, Peter; Eife, Thomas A.; Glas, Alexander
  9. Minimum Income Support Systems as Elements of Crisis Resilience in Europe By Eichhorst, Werner; Bonin, Holger; Krause-Pilatus, Annabelle; Marx, Paul; Dolls, Mathias; Lay, Max
  10. Exploring European Regional Trade By Santamaria, Marta; Ventura, Jaume; Yesilbayraktar, Ugur

  1. By: Roth, Felix (University of Hamburg); Jonung, Lars (Department of Economics, Lund University); Most, Aisada (University of Hamburg)
    Abstract: The COVID-19 pandemic had disastrous effects on health and economic activity worldwide, including in the Euro Area. The application of mandatory lockdowns contributed to a sharp fall in production and a rise in unemployment, inducing an expansionary fiscal and monetary response. Using a uniquely large macro database, this paper examines the effects of the pandemic and the ensuing economic policies on public support for the common currency, the euro, as measured by the Eurobarometer survey. It finds that public support for the euro reached historically high levels in a majority of the 19 Euro Area member states in the midst of the pandemic. This finding suggests that the expansionary fiscal policies initiated at the EU level significantly contributed to this outcome, while the monetary measures taken by the European Central Bank did not have a similar effect.
    Keywords: COVID-19; lockdowns; support for the euro; unemployment; inflation; monetary policies; fiscal policies; EU
    JEL: C23 E24 E42 E52 E62 I18
    Date: 2023–02–06
  2. By: Jesper Lindé; Zoltan Jakab; Andrew Hodge; Vina Nguyen
    Abstract: This paper employs a two-country New Keynesian DSGE model to assess the macroeconomic impact of the changes in monetary policy frameworks and the fiscal support in the U.S. and euro area during the pandemic. Moving from a previous target of “below, but close to 2 percent” to a formal symmetric inflation targeting regime in the euro area or from flexible to average inflation targeting in the U.S. is shown to boost output and inflation in both regions. Meanwhile, the fiscal packages approved in the U.S. and the euro area, and a slower withdrawal of fiscal support in the euro area, have a similar impact on output and inflation as changing the monetary policy frameworks . Simultaneously implementing these policies is mutually reinforcing, but insufficient to fully explain the unexpected increase in core inflation during 2021.
    Keywords: Fiscal Policy; Monetary Policy; DSGE Model; inflation targeting in the U.S.; IMF working paper 22/222; changes in the U.S.; Phillips curve; AIT gap; Inflation; Fiscal stimulus; Interest rate floor; Public investment spending; Central bank policy rate; Global; Western Hemisphere
    Date: 2022–11–11
  3. By: Michael Ehrmann; Paul Hubert
    Abstract: How do financial markets acquire information about upcoming monetary policy decisions, beyond their reaction to central bank signals? This paper hypothesises that sharing information among investors can improve expectations, especially in the presence of disagreement or uncertainty about the economy. To test this hypothesis, the paper studies monetary policy-related content on Twitter during the “quiet period” before European Central Bank announcements, when policymakers refrain from public statements related to monetary policy. Conditional on large disagreement about the economic outlook, higher Twitter traffic is associated with smaller monetary policy surprises, suggesting that exchanging private signals among investors can help improve expectations.
    Keywords: Central Bank Communication, Quiet Period, Twitter, Market Expectations, Information Processing
    JEL: D83 E52 E58 G14
    Date: 2022
  4. By: Áron Kiss; Maria Chiara Morandini; Alessandro Turrini; Anneleen Vandeplas
    Abstract: This paper attempts to shed light on post-COVID-19 labour market developments across the EU, notably on the simultaneous presence of elements of slack and indications of tightness over the course of 2021. It presents available data on labour market mismatch and discusses possible dynamics going forward. In light of the strong sectoral dimension of the COVID-19 shock, the paper explores differences in the impact of the COVID-19 crisis across countries, relevant sectoral aggregates, and workers’ characteristics. The paper also conducts econometric estimations with a view to gauge whether Beveridge curves have shifted upward after the COVID-19 outbreak. The results indicate a modest upward shift in the EU Beveridge curves in 2020, partly reversed in the course of 2021. Despite the fact that skill mismatch somewhat worsened in the wake of the COVID-19 pandemic, this deterioration appears to have had a very minor impact on the efficiency of labour market matching. Overall, a number of considerations suggest the simultaneous presence of labour market slack and shortages is likely to have been a temporary phenomenon. Labour shortages appear to be driven mainly by the labour market recovery and not by hampered labour market reallocation.
    JEL: E24 E32 J08 J21 J63
    Date: 2022–12
  5. By: Lebastard, Laura; Matani, Marco; Serafini, Roberta
    Abstract: This paper provides an analysis of the impact of the COVID-19 pandemic on exporting firms, fo-cusing on the role of supply bottlenecks. Based on monthly transaction-level data for the universe of French exporters over the period January 2020-December 2021, we find that participation in global value chains increased firms’ vulnerability to the COVID-19 shock, in terms of both export perfor-mance and probability of survival in the export market, the negative impact of supply disruptions being higher for relatively more downstream firms. At the same time, the results suggest that export-ing firms benefited from sourcing of core inputs from different countries, supporting the hypothesis that diversification in global value chains fosters supply-chain resilience. JEL Classification: D22, F14, F61
    Keywords: Diversification, Global Value Chains, Pandemic, Shock Transmission, Upstreamness
    Date: 2023–01
  6. By: Lorenzo Caliendo; Luca David Opromolla; Fernando Parro; Alessandro Sforza
    Abstract: European countries experienced a large increase in labor supply due to the influx of Ukrainian refugees after the 2022 Russia invasion. We study its dynamic effects in a spatial model with forward-looking households of different skills, trade, and endogenous capital accumulation. We find that real GDP increases in Europe in the long term, with large distributional effects across countries and skill groups. In the short run, an increase in the supply of labor strains the use of capital structures that takes time to build. Over time, countries that build capital structures increase output, resulting in potential long run benefits.
    JEL: F1 F16
    Date: 2023–01
  7. By: Mr. Juan Sole; Jeroen Brinkhoff
    Abstract: European life insurance companies are important bond investors and had traditionally played a stabilizing role in financial markets by pursuing “buy-and-hold” investment strategies. However, since the onset of the ultra-low interest rates era in 2008, observers noted a decline in the credit quality of insurers’ bond portfolios. The commonly-held explanation for this deterioration is that low returns pushed insurers to become more risk-taking. We argue that other factors—such as surging rating downgrades, bond revaluations, and regulatory changes—also played a key role. We estimate that rating changes, revaluations, and search for yield each account for about one-third each of the total deterioration in credit quality. This result has important policy implications as it reestablishes the view that insurers’ investment behavior tends to be passive through the cycle—rather than risk-seeking.
    Keywords: Life Insurance sector; financial stability; credit ratings; bond revaluation; life insurance insurance company; bond portfolio; investment behavior; bond investor; Bonds; Insurance companies; Corporate bonds; Sovereign bonds; Bond ratings; Global
    Date: 2022–09–30
  8. By: Becker, Christoph; Dürsch, Peter; Eife, Thomas A.; Glas, Alexander
    Abstract: Central bank surveys frequently elicit households' probabilistic beliefs about future inflation. The responses provide only a coarse picture of inflation beliefs further away from zero. Using data from the Bundesbank household panel, we show that the current high-inflation environment induces respondents to allocate considerable probability to the rightmost open interval. This pile-up of probabilities negatively affects estimates of histogram moments and leads to a divergence between average expected inflation measured by probabilistic and point forecasts. The consistency of predictions can be improved by using an alternative design of the response scale that allows respondents to state more detailed beliefs for higher inflation ranges.
    Keywords: Probabilistic expectations, inflation, survey data
    JEL: D84 E31 E58
    Date: 2023
  9. By: Eichhorst, Werner (IZA); Bonin, Holger (IZA); Krause-Pilatus, Annabelle (IZA); Marx, Paul (University of Duisburg-Essen); Dolls, Mathias (Ifo Institute for Economic Research); Lay, Max (Ifo Institute for Economic Research)
    Abstract: Final Report (206 pages)
    Date: 2023–01–20
  10. By: Santamaria, Marta (University of Warwick.); Ventura, Jaume (CREI, Universitat Pompeu Fabra and Barcelona School of Economics.); Yesilbayraktar, Ugur (Universitat Pompeu Fabra and Barcelona School of Economics)
    Abstract: We use the new dataset of trade flows across 269 European regions in 24 countries constructed in Santamaría et al. (2020) to systematically explore for the first time trade patterns within and across country borders. We focus on the differences between home trade, country trade and foreign trade. We document the following facts : (i) European regional trade has a strong home and country bias, (ii) geographic distance and national borders are important determinants of regional trade, but cannot explain the strong regional home bias and (iii) the home bias is heterogeneous across regions and seems to be driven by political regional borders.
    Date: 2023

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