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on European Economics |
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Issue of 2023‒04‒17
fifteen papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Dautović, Ernest; Gambacorta, Leonardo; Reghezza, Alessio |
| Abstract: | At the onset of the Covid-19 outbreak, central banks and supervisors introduced dividend restrictions as a new policy instrument aimed at supporting lending to the real economy and strengthening banks’ capacity to absorb losses. In this paper we estimate the impact of the ECB’s dividend recommendation on bank lending and risk-taking. To address identification issues, we rely on credit registry data and a direct measure that captures variation in compliance with the recommendation across banks in the euro area. The analysis disentangles the confounding effects stemming from the wide range of monetary and fiscal policies that supported credit during the Covid-19 downturn and investigates their interaction with the dividend recommendation. We find that dividend restrictions have been an effective policy in supporting financially constrained firms, adding capital space to banks, and limiting procyclical behaviour. The effects on lending are larger for small and medium enterprises and for firms operating in Covid-19 vulnerable sectors. At the same time, we do not find evidence of a significant increase in lending to riskier borrowers and ”zombie” firms. JEL Classification: E5, E51, G18, G21 |
| Keywords: | Covid-19, credit supply, dividend restrictions, European Central Bank, supervisory policy |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232796&r=eec |
| By: | Ciccarelli, Matteo; Kuik, Friderike; Hernández, Catalina Martínez |
| Abstract: | This paper assesses the impact of weather shocks on inflation components in the four largest euro area economies. We combine high-frequency weather data with monthly data on inflation and output growth within a set of Bayesian Vector Autore-gressions which explicitly considers the seasonal dependence of the shock. Results suggest the presence of significant country asymmetries and seasonal responses of inflation to temperature shocks, mainly via food, energy, and service prices. An increase in monthly mean temperatures has inflationary effects in summer and au-tumn, with a stronger response in warmer euro area countries. An increase in temperature variability has significant upward impacts on inflation rates over and above the impacts of changes in means. JEL Classification: Q54, E31, C32 |
| Keywords: | climate change, inflation, temperature shocks, vector autoregression |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232798&r=eec |
| By: | Adler, Martin; Camba-Méndez, Gonzalo; Džaja, Tomislav; Manzanares, Andrés; Metra, Matteo; Vocalelli, Giorgio |
| Abstract: | In implementing its monetary policy, the ECB conducts collateralised credit operations with banks. The bulk of the financial risks involved in these collateralised credit operations are mitigated primarily by the valuation haircuts imposed on the mobilised collateral. Since the establishment of the euro in January 1999, valuation haircuts have been formulated mainly on the basis of risk management considerations and have been systematically calibrated with a very low level of risk tolerance. However, their implied risk tolerance may sometimes be used as a monetary policy stance lever, as clearly illustrated when the ECB decided to reduce haircuts to improve funding conditions for the real economy during the outset of the coronavirus (COVID-19) pandemic. In addition, the ECB ensures that financial market developments warranting general methodological changes are incorporated into the calibration of valuation haircuts adequately and in good time. In a particularly challenging economic environment, the ECB has also recently committed to ensuring that climate change risks are considered when calibrating the valuation haircuts applied to corporate bonds. Against this background, the purpose of this paper is to provide an overview and explanation of the main guiding rules, as well as explaining some of the statistical methods currently employed by the ECB when formulating valuation haircuts. Keywords: monetary policy implementation, risk control framework of credit operations, valuation haircuts JEL Classification: D02, E58, G32, Q54 |
| Keywords: | monetary policy implementation, risk control framework of credit operations, valuation haircuts |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2023312&r=eec |
| By: | Laine, Olli-Matti; Pihlajamaa, Matias |
| Abstract: | We study asymmetric inflation effects of both conventional and unconventional monetary policy in the euro area during the period of low nominal interest rates. We find that rate cuts are inflationary also during low interest rates. Positive quantitative easing surprises have a deflationary effect, but negative quantitative easing surprises have no inflationary effects. This result may be explained by information effects. The effect of monetary policy depends on the size of policy surprise and is lower during recessions than during booms. We also provide evidence that interest rate policy, forward guidance and quantitative easing are complementary to one another. |
| Keywords: | Monetary policy, asymmetric effects, inflation |
| JEL: | E50 E31 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofrdp:32023&r=eec |
| By: | Andreeva, Desislava (European Central Bank); Coman, Andra (European Central Bank); Everett, Mary (Central Bank of Ireland); Froemel, Maren (Bank of England); Ho, Kelvin (Hong Kong Monetary Authority); Lloyd, Simon (Bank of England); Meunier, Baptiste (Banque de France and European Central Bank); Pedrono, Justine (Banque de France); Reinhardt, Dennis (Bank of England); Wong, Andrew (Hong Kong Monetary Authority); Wong, Eric (Hong Kong Monetary Authority); Żochowski, Dawid (European Central Bank) |
| Abstract: | We study the effects of negative interest rate policies (NIRP) on the transmission of monetary policy through cross-border lending. Using bank-level data from international financial centres (IFCs) – the United Kingdom, Hong Kong and Ireland – we examine how NIRP in the economies where banks have their headquarters influences cross-border lending from financial-centre affiliates. We find that NIRP impairs the bank-lending channel for cross‑border lending to non-bank sectors, especially for those banks that have only a weak deposit base in IFCs – and are thus relatively more exposed to NIRP in their headquarters. Using euro-area data, including bank-level data from France, we find that NIRP does not influence overall cross-border lending from banks’ headquarters’ economies, but NIRP does impair lending to financial sectors based in IFCs. This impairment is stronger for banks with a large deposit base in headquarter economies exposed to NIRP. |
| Keywords: | Bank lending; cross-border lending; international financial centres; monetary policy; negative interest rates; risk-taking. |
| JEL: | E52 F34 F36 F42 G21 |
| Date: | 2023–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:1010&r=eec |
| By: | Németh, András Olivér; Németh, Petra; Tőkés, László |
| Abstract: | The aim of our research is to understand and reveal the key economic, demographic, labour market, and other factors behind the common fertility trends of CEE countries in the past decades. Our main research question is what driving forces played a role in the development of the total fertility rate in the CEE countries compared to the rest of Europe, if any. We measure the effect of potential influential factors on fertility with a multiple regression using the ordinary least squares method. We use macro-level data from 27 countries of the European Union with special attention to the 11 CEE countries (namely Bulgaria, Croatia, Czechia, Estonia, Latvia, Lithuania, Hungary, Poland, Romania, Slovakia, and Slovenia). Based on the availability of data, our examination period lasts from 1995 to 2020. Our results suggest that fertility in the CEE countries is much more sensitive to the state of the economy than in other European countries. Moreover, some of the demographic variables that are closely related to childbirth, also have a more recognisable effect on the TFR than in other parts of Europe. On the other hand, labour market and policy variables seem to be less important in Central and Eastern Europe. |
| Keywords: | fertility, Central and Eastern European countries, demographic economics, economic uncertainty, panel data methods |
| JEL: | C33 J11 J13 J18 |
| Date: | 2023–03–24 |
| URL: | http://d.repec.org/n?u=RePEc:cvh:coecwp:2023/02&r=eec |
| By: | Mazelis, Falk; Motto, Roberto; Ristiniemi, Annukka |
| Abstract: | We study alternative monetary policy strategies in the presence of the lower bound on nominal interest rates and a low equilibrium real rate using an estimated DSGE model for the euro area. We find that simple feedback rules that implement inflation targeting result in a binding lower bound one-fourth of the time as well as inflation and output exhibiting large downward biases and heightened volatility. Rule-based asset purchases that are activated once the policy rate reaches the lower bound are not able to fully offset the destabilizing effects of the lower bound if we assume plausible limits on the size of purchases. Makeup strategies, especially average inflation targeting with a long averaging window, perform better than inflation targeting. However, differences in performance across strategies become small if the response coefficients of the feedback rules are optimized. In addition, we find that the benefits of makeup strategies tend to vanish if agents exhibit a degree of inattention to central bank policies as estimated in the data. JEL Classification: E31, E32, E37, E52, E58, E61, E71 |
| Keywords: | asset purchases, effective lower bound, forward guidance, makeup strategies, monetary policy, optimal policy |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232797&r=eec |
| By: | Denisa Sologon; Cathal O’Donoghue; Jules Linden; Iryna Kyzyma; Jason Loughrey |
| Abstract: | This paper disentangles the distributional and welfare impact of price changes since the start of the cost of living crisis for a subset of European countries with different welfare regimes and price changes. It decomposes the impact of inflation and measures welfare changes using the compensating variation and equivalent incomes in a cross-national comparative perspective. The impact of inflation depends on good-specific price increases and budget shares. Budget shares for necessities (e.g. food, domestic fuel, electricity) are higher in poorer countries and for poorer people. Higher price growth in these necessities has resulted in higher inflation in poorer countries. Counter to the media narrative, the distributional impact is less substantial than expected. A significant cross-country variability exists, however, in inflation levels, composition and relative rates across the distribution. Similar levels of inflation regressivity result from different interplays between the level and disproportionality of inflation along the income distribution. We quantify the compensating variation of inflation with a relatively small behavioural component due to the preponderance of necessities among the goods with high price changes. An important factor concerning the potential impact on households is the savings rate. Households with already low savings are disproportionally feeling the impact on their expenditure. |
| Keywords: | Inflation; distributional effect; welfare effect |
| JEL: | D12 D31 D60 E31 I30 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:irs:cepswp:2023-04&r=eec |
| By: | Mathur, Aakriti (Bank of England); Naylor, Matthew (Bank of England and University of Oxford); Rajan, Aniruddha (Bank of England) |
| Abstract: | Macroprudential policies have been shown to be beneficial during booms but there is limited evidence on how well they operate during periods of stress. Using a difference‑in‑differences empirical strategy we test whether regulatory capital buffers, a key component of the Basel III reforms, helped to support lending provision by UK banks through Covid‑19. To identify credit supply effects, we exploit data on the universe of UK mortgages, which were outside the scope of government guaranteed lending schemes. We find that more constrained banks defended their capital surpluses to a greater extent during the pandemic, and did so by maintaining higher loan rates, lower loan values, and tighter terms on riskier lending. In contrast, banks receiving greater capital relief from the cut to the UK countercyclical capital buffer during the pandemic maintained more stable capital ratios, lending provision and risk‑taking capacity. Our results suggest regulatory buffers may be less usable than intended, but buffer releases can dampen these unintended consequences. |
| Keywords: | Banks; capital regulation; lending; macroprudential policy; Covid-19 |
| JEL: | E58 G21 G28 G51 |
| Date: | 2023–01–13 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:1011&r=eec |
| By: | Ioannou, Demosthenes; Pérez, Javier J.; Balteanu, Irina; Kataryniuk, Ivan; Geeroms, Hans; Vansteenkiste, Isabel; Weber, Pierre-François; Attinasi, Maria Grazia; Buysse, Kristel; Campos, Rodolfo; Clancy, Daragh; Essers, Dennis; Faccia, Donata; Freier, Maximilian; Gerinovics, Rinalds; Khalil, Makram; Kosterink, Patrick; Mancini, Michele; Manrique, Marta; McQuade, Peter; Molitor, Philippe; Pulst, Daniela; Timini, Jacopo; Van Schaik, Ilona; Valenta, Vilém; Vergara Caffarelli, Filippo; Viani, Francesca; Viilmann, Natalja; Almeida, Ana M.; Alonso, Daniel; Bencivelli, Lorenzo; Borgogno, Oscar; Borrallo, Fructuoso; Cuadro-Sáez, Lucía; Di Stefano, Enrica; Esser, Andreas; García-Lecuona, María; Habib, Maurizio; Jeudy, Bruno-Philippe; Lájer, Andrés; Le Gallo, Florian; Martonosi, Ádám; Millaruelo, Antonio; Miola, Andrea; Négrin, Pauline; Zangrandi, Michele Savini; Strobel, Felix; Tylko-Tylczynska, Kalina Paula |
| Abstract: | Over the past decade, geopolitical developments - and the policy responses to these by major economies around the world - have challenged economic openness and the process of globalisation, with implications for the economic environment in which central banks operate. The return of war to Europe and the energy shock triggered by the Russian invasion of Ukraine in 2022 are the latest in a series of episodes that have led the European Union (EU) to develop its Open Strategic Autonomy (OSA) agenda. This Report is a broad attempt to take stock of these developments from a central banking perspective. It analyses the EU's economic interdependencies and their implications for trade and finance, with a focus on strategically important dimensions such as energy, critical raw materials, food, foreign direct investment and financial market infrastructures. Against this background, the Report discusses relevant aspects of the EU's OSA policy agenda which extend to trade, industrial and state aid measures, as well as EU initiatives to strengthen and protect the internal market and further develop Economic and Monetary Union (EMU). The paper highlights some of the policy choices and trade-offs that emerge in this context and possible implications for the ECB's monetary policy and other policies. JEL Classification: F0, F10, F30, F4, F5, F45, E42, L5, Q43 |
| Keywords: | capital flows, European Central Bank, European Economic and Monetary Union, financial market infrastructures, financial stability, geoeconomics, geopolitics, globalisation, global value chains, industrial policy, international trade, monetary policy, multilateralism, Open Strategic Autonomy |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2023311&r=eec |
| By: | Jesús Peiró-Palomino (Universiy of Valencia and INTECO); Lisa Gianmoena (University of Pisa); Andrés J. Picazo-Tadeo (Universiy of Valencia and INTECO); Vicente Ríos (Universiy of Pisa) |
| Abstract: | Social trust is a heavily rooted element whose positive impact on economic performance has been widely corroborated for many contexts. However, the understanding of social progress disparities in aspects other than income is attracting increasing attention and is a key goal for the European Commission. European regions present notable disparities in many non-economic aspects that characterize advanced societies such as personal rights, freedom, tolerance and inclusion and access to advanced education. This paper provides fresh evidence on the impact of social trust on a wide array of aspects categorized as advanced features of social progress in the framework of the European Social Progress Index 2020 (EU-SPI). The results show a positive impact of social trust on most of the indicators, which is robust to endogeneity issues. These insights help to understand the enormous differences in terms of social progress across European regions and provide useful information for the design of future policies that pursue a more equal Europe. |
| Keywords: | European regions; European Social Progress Index; Social trust |
| JEL: | R11 Z10 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:eec:wpaper:2305&r=eec |
| By: | Maria Mansanet-Bataller (Université de Franche-Comté, CRESE, F-25000 Besançon, France); Àngel Pardo (Department of Financial Economics, Faculty of Economics, University of Valencia, Avenida de los Naranjos s/n, 46022 Valencia, Spain) |
| Abstract: | Several papers by academics and various reports by financial analysts suggest that non-compliance traders, mostly investment funds and firms, are manipulating the EU ETS and causing EUA prices to rise. In response, the European Commission has mandated the European Securities and Markets Authority (ESMA) to investigate whether “certain trading behaviours would require further regulatory actions” (ESMA, 2021). The objective of this paper is (i) to analyse the participation of non-compliance traders in the EU ETS and their role in the financialisation of the scheme, and (ii) to contribute to the debate on price manipulation by the non-compliance sector in the EU ETS. Both our analysis of the EUA Commitments of Traders reports and our review of the main findings of the empirical papers on portfolio management with EUAs suggest that non-compliance traders mainly take short positions in the European carbon futures market in order to arbitrage the spot market. Only a small portion of the long positions are used by financial investors to diversify or hedge risks coming from financial markets. Therefore, in both situations, non-compliance traders would be acting as long-term liquidity providers rather than speculators. |
| Keywords: | arbitrage, diversify, EUA, financialisation, hedge, speculate |
| JEL: | G15 G20 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:crb:wpaper:2023-01&r=eec |
| By: | MARISCAL-DE-GANTE Álvaro; PALENCIA ESTEBAN Amaia (European Commission - JRC); GRUBANOV-BOSKOVIC Sara; FERNANDEZ MACIAS Enrique (European Commission - JRC) |
| Abstract: | This paper presents new evidence on the interaction between demographic and occupational change in Europe over the last 25 years. We use data from the European Union Labour Force Survey covering six European countries to make the results representative of the different EU institutional families. The analysis is based on a cross-sectional comparison between the population and employment distributions in 1995 and 2019. This strategy allows us to study the changing demographic dynamics, which have brought a more feminised, aged and educated working population, in a context of structural employment change, where higher job polarisation or occupational upgrading are the main patterns. The results indicate that the increasing female participation has been accompanied by job polarisation, driven especially by the expansion of low-paid jobs among women. Although educational upgrading was particularly relevant for females, a multinomial logistic regression shows that occupational returns to education have declined more for women than men. Finally, despite the fact that the share of young (old) workers has decreased (increased), the occupational profile has changed similarly for both groups and the gender-based differences remain regardless of their age. |
| Keywords: | demographic change, labour markets, European Union, gender gap |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:laedte:202304&r=eec |
| By: | Riccardo Leoncini; Mariele Macaluso; Annalivia Polselli |
| Abstract: | Although the degree of gender segregation in the UK has decreased over time, women's participation in traditionally "female-dominated" sectors is disproportionately high. This paper aims to evaluate how changing patterns of sectoral gender segregation affected women's employment contracts and wages in the UK between 2005 and 2020. We then study wage differentials in gender-specific dominated sectors. We found that the differences in wages and contractual opportunities result mainly from the propensity of women to be distributed differently across sectors. Hence, the disproportion of women in female-dominated sectors implies contractual features and lower wages typical of that sector, on average, for all workers. This difference is primarily explained by persistent discriminatory constraints, while human capital-related characteristics play a minor role. However, wage differentials would shrink if workers had the same potential wages as men in male-dominated sectors. Moreover, this does not happen at the top of the wage distribution, where wage differentials among women in female-dominated sectors are always more pronounced than men. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.04539&r=eec |
| By: | Sandro Ambuehl; Sebastian Blesse; Philipp Doerrenberg; Christoph Feldhaus; Axel Ockenfels |
| Abstract: | Much economic analysis derives policy recommendations based on social welfare criteria intended to model the preferences of a policy maker. Yet, little is known about policy maker's normative views in a way amenable to this use. In a behavioral experiment, we elicit German legislators' social welfare criteria unconfounded by political economy constraints. When resolving preference conflicts across individuals, politicians place substantially more importance on least-favored than on most-favored alternatives, contrasting with both common aggregation mechanisms and the equal weighting inherent in utilitarianism and the Kaldor-Hicks criterion. When resolving preference conflicts within individuals, we find no support for the commonly used "long-run criterion" which insists that choices merit intervention only if the lure of immediacy may bias intertemporal choice. Politicians' and the public's social welfare criteria largely coincide. |
| Keywords: | Positive welfare economics, politicians, preference aggregation, paternalism |
| JEL: | C90 D60 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ifowps:_391&r=eec |