nep-eec New Economics Papers
on European Economics
Issue of 2023‒06‒19
twenty papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. The role of financial stability considerations in monetary policy and the interaction with macroprudential policy in the euro area By Policy, Monetary; Stability, Financial; Albertazzi, Ugo; Martin, Alberto; Assouan, Emmanuelle; Tristani, Oreste; Galati, Gabriele; Vlassopoulos, Thomas; Adolf, Petra; Kok, Christoffer; Altavilla, Carlo; Lewis, Vivien; Andreeva, Desislava; Lima, Diana; Brand, Claus; Musso, Alberto; Bussière, Matthieu; Nikolov, Kalin; Fahr, Stephan; Patriček, Matic; Fourel, Valère; Prieto, Esteban; Heider, Florian; Rodriguez-Moreno, Maria; Idier, Julien; Signoretti, Federico; Aban, Jorge; Busch, Ulrike; Ambrocio, Gene; Cassar, Alan; Balfoussia, Hiona; Chalamandaris, Dimitrios; Bonatti, Guido; Cuciniello, Vincenzo; Bonfim, Diana; Eller, Markus; Bouchinha, Miguel; Falagiarda, Matteo; Fernandez, Luis; Maddaloni, Angela; Garabedian, Garo; Mazelis, Falk; Geiger, Felix; Miettinen, Pavo; Grassi, Alberto; Nakov, Anton; Hristov, Nikolay; Obradovic, Goran; Ibas, Pelin; Papageorghiou, Maria; Ioannidis, Michael; Pogulis, Armands; Jan, Jansen David; Redak, Vanessa; Jovanovic, Mario; Velez, Anatoli Segura; Kakes, Jan; Tapking, Jens; Kempf, Alina; Valderrama, Maria; Klein, Melanie; Weigert, Benjamin; Licak, Marek; policy, Work stream on macroprudential
  2. ECB Euro Liquidity Lines By Silvia Albrizio; Iván Kataryniuk; Luis Molina; Jan Schäfer
  3. Identifying financial fragmentation: do sovereign spreads in the EMU reflect differences in fundamentals? By Jan Kakes; Jan Willem van den End
  4. Transmission of recent shocks in a labour-DSGE model with wage rigidity By Obstbaum, Meri; Oinonen, Sami; Pönkä, Harri; Vanhala, Juuso; Vilmi, Lauri
  5. Consumption effects of job loss expectations: new evidence for the euro area By Da Silva, António Dias; Rusinova, Desislava; Weißler, Marco
  6. Has the Phillips Curve Become Steeper? By Mr. Anil Ari; Mr. Daniel Garcia-Macia; Shruti Mishra
  7. Macroeconomic effects of carbon transition policies: an assessment based on the ECB’s New Area-Wide Model with a disaggregated energy sector By Coenen, Günter; Lozej, Matija; Priftis, Romanos
  8. Warming the MATRIX: a Climate Assessment under Uncertainty and Heterogeneity By Davide Bazzana; Massimiliano Rizzati; Emanuele Ciola; Enrico Turco; Sergio Vergalli
  9. Environmental regulation and productivity growth in the euro area: testing the Porter hypothesis By Benatti, Nicola; Groiss, Martin; Kelly, Petra; Lopez-Garcia, Paloma
  10. Unconventional green By Zaghini, Andrea
  11. Effects of Government Interventions on Bank Performance By Sona Siva
  12. Forecasting banknote circulation during the COVID-19 pandemic using structural time series models By Nikolaus Bartzsch; Marco Brandi; Lucas Devigne; Raymond de Pastor; Gianluca Maddaloni; Diana Posada Restrepo; Gabriele Sene
  14. Vertical integration and patterns of divergence in European industries: A long-term input-output analysis By Fabio Ascione; Maria Enrica Virgillito
  15. The Future of EU Cohesion - Effects of the Twin Transition on Disparities across European Regions By Ambre Maucorps; Roman Römisch; Thomas Schwab; Nina Vujanović
  16. Inflation Expectations and Misallocation of Resources: Evidence from Italy By Ropele, Tiziano; Gorodnichenko, Yuriy; Coibion, Olivier
  17. Regional Productivity Network in the EU By Camilla Mastromarco; Laura Serlenga; Yongcheol Shin
  18. How inflation varies across Spanish households By Irene Monasterolo
  19. Carbon pricing and inflation expectations: evidence from France By Jannik Hensel; Giacomo Mangiante; Luca Moretti
  20. Efficiency and Outreach in the European Microfinance Sector By Lucia Dalla Pellegrina; Damla Diriker; Paolo Landoni; Davide Moro; Mahinda Wijesiri

  1. By: Policy, Monetary; Stability, Financial; Albertazzi, Ugo; Martin, Alberto; Assouan, Emmanuelle; Tristani, Oreste; Galati, Gabriele; Vlassopoulos, Thomas; Adolf, Petra; Kok, Christoffer; Altavilla, Carlo; Lewis, Vivien; Andreeva, Desislava; Lima, Diana; Brand, Claus; Musso, Alberto; Bussière, Matthieu; Nikolov, Kalin; Fahr, Stephan; Patriček, Matic; Fourel, Valère; Prieto, Esteban; Heider, Florian; Rodriguez-Moreno, Maria; Idier, Julien; Signoretti, Federico; Aban, Jorge; Busch, Ulrike; Ambrocio, Gene; Cassar, Alan; Balfoussia, Hiona; Chalamandaris, Dimitrios; Bonatti, Guido; Cuciniello, Vincenzo; Bonfim, Diana; Eller, Markus; Bouchinha, Miguel; Falagiarda, Matteo; Fernandez, Luis; Maddaloni, Angela; Garabedian, Garo; Mazelis, Falk; Geiger, Felix; Miettinen, Pavo; Grassi, Alberto; Nakov, Anton; Hristov, Nikolay; Obradovic, Goran; Ibas, Pelin; Papageorghiou, Maria; Ioannidis, Michael; Pogulis, Armands; Jan, Jansen David; Redak, Vanessa; Jovanovic, Mario; Velez, Anatoli Segura; Kakes, Jan; Tapking, Jens; Kempf, Alina; Valderrama, Maria; Klein, Melanie; Weigert, Benjamin; Licak, Marek; policy, Work stream on macroprudential
    Abstract: Since the European Central Bank’s (ECB’s) 2003 strategy review, the importance of macro-financial amplification channels for monetary policy has increasingly gained recognition. This paper takes stock of this evolution and discusses the desirability of further incremental enhancements in the role of financial stability considerations in the ECB’s monetary policy strategy. The paper starts with the premise that macroprudential policy, along with microprudential supervision, is the first line of defence against the build-up of financial imbalances. It also recognises that the pursuit of price stability through monetary policy, and of financial stability through macroprudential policy, are to a large extent complementary. Nevertheless, macroprudential policy may not be able to ensure financial stability independently of monetary policy, because of spillovers originating from the common transmission channels through which the two policies produce their effects. For example, a low interest rate environment can create incentives to engage in more risk-taking, or can adversely impact the profitability of financial intermediaries and hence their capacity to absorb shocks. The paper argues that the existence of such spillovers creates a conceptual case for monetary policy to take financial stability considerations into account. It then goes on to discuss what this conclusion might imply in practice for the ECB. One option would be to exploit the flexible length of the medium-term horizon over which price stability is to be achieved. Longer deviations from price stability could occasionally be tolerated, if they resulted in materially lower risks for financial stability and, ultimately, for future price stability. However, model-based quantitative analysis suggests that this approach may require impractically drawn-out periods of deviation from price stability and potentially result in a de-anchoring of inflation expectations. ... JEL Classification: E3, E44, G01, G21
    Keywords: financial frictions, Monetary policy, systemic risk
    Date: 2023–05
  2. By: Silvia Albrizio; Iván Kataryniuk; Luis Molina; Jan Schäfer
    Abstract: Central bank liquidity lines have gained momentum since the global financial crisis as a crosscurrency liquidity management tool. We provide a complete timeline of the ECB liquidity line announcements and study their signalling and spillback effects. The announcement of an ECB euro liquidity line decreases the premium paid by foreign agents to borrow euros in FX markets relative to currencies not covered by these facilities by 51 basis points. Consistent with a stylized model, bank equity prices increase by around 1.75% in euro area countries highly exposed via banking linkages to countries whose currencies are targeted by liquidity lines.
    Keywords: liquidity facilities; central bank swap and repo lines; spillbacks.
    Date: 2023–05–05
  3. By: Jan Kakes; Jan Willem van den End
    Abstract: We present a metric for financial fragmentation in the Economic and Monetary Union (EMU), based on the higher moments of the distribution of sovereign spreads relative to macro-financial fundamentals. We apply fixed parameter and rolling regressions to allow for time variation in this relationship, while controlling for market sentiment. The metric shows that the observed moments of the spread distribution occasionally overshot the fundamentals-based benchmark until 2018. Since then, the moments of observed spreads have generally not exceeded the fundamentals-based moments, also not in the most recent period, despite the increase in interest rates. The latter may be attributed to backstop facilities of the European Central Bank (ECB), such as the Transmission Protection Instrument (TPI).
    Keywords: Monetary policy; Quantitative Easing; Sovereign risk; Sovereign spreads
    JEL: E52 E58 G12
    Date: 2023–05
  4. By: Obstbaum, Meri; Oinonen, Sami; Pönkä, Harri; Vanhala, Juuso; Vilmi, Lauri
    Abstract: In this paper we analyze features of the recent business cycle with a New Keynesian small open economy DSGE model with labour market frictions and wage rigidity. The model complements the existing analytical tools of the Bank of Finland by enabling detailed analysis of labour markets in a DSGE framework. We illustrate the properties of the model by presenting how recent shocks explain in flation and economic recovery in the euro area and Finland, with a specifi c emphasis on factors that are critical to explaining current labour market tightness.
    Keywords: DGSE model, labour market frictions, wage rigidity
    JEL: E24 E32 E37 F41
    Date: 2023
  5. By: Da Silva, António Dias; Rusinova, Desislava; Weißler, Marco
    Abstract: Probabilistic job loss expectations elicited in the Consumer Expectations Survey have predictive power for future job loss. We find that an unexpected job loss leads to a negative consumption response, while this e˙ect is muted for workers with ex-ante job loss expectations - consistent with the Permanent Income Hypothesis. The negative consumption response to an unexpected job loss is stronger for workers who have worse perceptions of the local labour market, are older or have lower levels of liquid wealth. This supports the notion that the persistence of the unemployment shock is an important factor of the consumption response to a job loss. At the same time, we do not find a positive consumption response of workers who unexpectedly retain their job. These heterogeneous results have important implications for the expected impact on consumption of job protection measures such as job retention schemes. JEL Classification: D12, D84, J63
    Keywords: consumption, ECB Consumer Expectations Survey (CES), job loss expectations, Permanent Income Hypothesis (PIH)
    Date: 2023–05
  6. By: Mr. Anil Ari; Mr. Daniel Garcia-Macia; Shruti Mishra
    Abstract: This paper analyzes whether structural changes in the aftermath of the pandemic have steepened the Phillips curves in advanced economies, reversing the flattening observed in recent decades and reducing the sacrifice ratio associated with disinflation. Particularly, analysis of granular price quote data from the UK indicates that increased digitalization may have raised price flexibility, while de-globalization may have made inflation more responsive to domestic economic conditions again. Using sectoral data from 24 advanced economies in Europe, higher digitalization and lower trade intensity are shown to be associated with steeper Phillips curves. Post-pandemic Phillips curve estimates indicate some steepening in the UK, Spain, Italy and the euro area as a whole, but at magnitudes that are too small to explain the entire surge in inflation in 2021–22, suggesting an important role for outward shifts in the Phillips curve.
    Keywords: Phillips Curve; Inflation; De-globalization; Digitalization; Structural change
    Date: 2023–05–12
  7. By: Coenen, Günter; Lozej, Matija; Priftis, Romanos
    Abstract: We use scenario analysis to assess the macroeconomic effects of carbon transition policies aimed at mitigating climate change. To this end, we employ a version of the ECB’s New Area-Wide Model (NAWM) augmented with a framework of disaggregated energy production and use, which distinguishes between “dirty” and “clean” energy. Our central transition scenario is that of a permanent increase in carbon taxes, which are levied as a surcharge on the price of dirty energy. Our findings suggest that increasing euro area carbon taxes to an interim target level consistent with the transition to a net-zero economy entails a transitory rise in inflation and a lasting, albeit moderate decline in GDP. We show that the short and medium-term effects depend on the monetary policy reaction, on the path of the carbon tax increase and on its credibility, while expanding clean energy supply is key for containing the decline in GDP. Undesirable distributional effects can be addressed by redistributing the fiscal revenues from the carbon tax increase to low-income households. JEL Classification: C54, E52, E62, H23, Q43
    Keywords: carbon taxation, climate change, DSGE model, euro area, monetary policy, fiscal policy
    Date: 2023–05
  8. By: Davide Bazzana (Fondazione Eni Enrico Mattei and Department of Economics and Management, Università degli Studi di Brescia); Massimiliano Rizzati (Fondazione Eni Enrico Mattei and Department of Economics and Management, Università degli Studi di Brescia); Emanuele Ciola (Fondazione Eni Enrico Mattei and Department of Economics and Management, Università degli Studi di Brescia); Enrico Turco (Fondazione Eni Enrico Mattei and The Complexity Lab in Economics, Department of Economics and Finance, Catholic Univeristy of Milan); Sergio Vergalli (Author-Name: Fondazione Eni Enrico Mattei and Department of Economics and Management, Università degli Studi di Brescia)
    Abstract: This paper explores the potential impacts of climate change and mitigation policies on the Euro Area, considering the uncertainty and heterogeneity in both climate and economic systems. Using the MATRIX model, a multi-sector and multi-agent macroeconomic model, we simulate various climate scenarios by employing different carbon cycle models, damage functions, and marginal abatement curves found in the literature. We find that heterogeneous climate damages amplify both the magnitude and the volatility of GDP losses associated with global warming. By the end of the century, we estimate that assuming homogeneous shocks may underestimate the effects of climate change on aggregate output by up to one-third. Moreover, we find that the speed and feasibility of a low-carbon transition crucially depend on (i) the stringency of emission reduction targets, which determine the level of a carbon tax, and (ii) the rate of technological progress, which influences the shape of the abatement cost curve.
    Keywords: Energy Sector, Agent-Based Models, Macroeconomic Dynamics, Climate change, Climate Policy, Emission Abatement
    JEL: C63 Q52 Q58
    Date: 2023–05
  9. By: Benatti, Nicola; Groiss, Martin; Kelly, Petra; Lopez-Garcia, Paloma
    Abstract: This paper analyses the impact of changes in environmental regulations on productivity growth at country- and firm-level. We exploit several data sources and the environmen-tal policy stringency index, to evaluate the Porter hypothesis, according to which firms’ productivity can benefit from more stringent environmental policies. By using panel local projections, we estimate the regulatory impact over a five-year horizon. The identification of causal impacts of regulatory changes is achieved by the estimation of firms’ CO2 emissions via a machine learning algorithm. At country- and firm-level, policy tightening affects high-polluters’ productivity negatively and stronger than their less-polluting peers. However, among high-polluting firms, large ones experience positive total factor productivity growth due to easier access to finance and greater innovativeness. Hence, we do not find support for the Porter hypothesis in general. However for technology support policies and firms with the required resources, policy tightening can enhance productivity. JEL Classification: O44, Q52, Q58
    Keywords: emissions, environmental regulation, euro area, Porter hypothesis, productivity
    Date: 2023–05
  10. By: Zaghini, Andrea
    Abstract: We analyze the effects of the PEPP (Pandemic Emergency Purchase Programme), the temporary quantitative easing implemented by the ECB immediately after the burst of the Covid-19 pandemic. We show that the differences in aim, size and flexibility with respect to the traditional Corporate Sector Purchase Programme (CSPP) were able to significantly involve, in addition to the directly targeted bonds, also the green bond segment. Via a standard difference-in-differences model we estimate that the yield on green bonds declined by more than 20 basis points after the PEPP. In order to take into account also the differences attributable to the eligibility to the programme, we employ a triple difference estimator. Bonds that at the same time were green and eligible benefitted of an additional premium of 39 basis points.
    Keywords: Green bonds, ECB, Corporate quantitative easing, triple difference estimator
    JEL: G15 G32 E52 C21
    Date: 2023
  11. By: Sona Siva (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: This paper evaluates the effects of government bailout policies on bank performance in the EU banking sector. Using a unique dataset of government supports, I identify banks which received state support in years 2008-2014 and corresponding control group of banks. I apply difference-in-differences method and extend it by propensity score matching and inverse probability of weighting methods to account for non-randomness of a treatment. My results suggest that aided banks overtook non-aided ones in terms of lending activity in both, the EU Core and EU Periphery, but it was accompanied by increased non-performing loans ratio (NPL) in the EU Periphery. Finally, I show these results differ from the developments in the US. TARP recipients improved their capital adequacy compared to non-intervened banks and returned to pre-crisis level in terms of NPL and profitability.
    Keywords: bailout, financial crisis, bank performance
    JEL: G21 G28
    Date: 2023–06
  12. By: Nikolaus Bartzsch (Deutsche Bundesbank); Marco Brandi (Banca d'Italia); Lucas Devigne (Banque de France); Raymond de Pastor (Banque de France); Gianluca Maddaloni (Banca d'Italia); Diana Posada Restrepo (Banco de España); Gabriele Sene (Banca d'Italia)
    Abstract: As part of the Eurosystem’s annual banknote production planning, the national central banks draw up forecasts estimating the volumes of national-issued banknotes in circulation for the three years ahead. As at the end of 2021, more than 80 per cent of euro banknotes in circulation (cumulated net issuance) had been issued by the national central banks of France, Germany, Italy and Spain (‘4 NCBs’). To date, the 4 NCBs have been using ARIMAX models to forecast the banknotes issued nationally in circulation by denomination (‘benchmark models’). This paper presents the structural time series models developed by the 4 NCBs as an additional forecasting tool. The forecast accuracy measures used in this study show that the structural time series models outperform the benchmark models currently in use at each of the 4 NCBs for most of the denominations. However, it should be borne in mind that the statistical informative value of this comparison is limited by the fact the projection period is only twelve months.
    Keywords: euro, demand for banknotes, forecast of banknotes in circulation, structural time series models, ARIMA models, intervention variables
    JEL: C22 E41 E47 E51
    Date: 2023–05
  13. By: DE POLI Silvia (European Commission - JRC); GIL-BERMEJO LAZO Celia (European Commission - JRC); LEVENTI Chrysa (European Commission - JRC); MAIER Sofia (European Commission - JRC); PAPINI Andrea (European Commission - JRC); RICCI Mattia (European Commission - JRC); SERRUYS Hannes (European Commission - JRC); ALMEIDA Vanda; CHRISTL Michael; CRUCES Hugo (European Commission - JRC); DE AGOSTINI Paola (European Commission - JRC); GRUNBERGER Klaus (European Commission - JRC); HERNANDEZ Adrian (European Commission - JRC); JEDRYCH VILLA Marta (European Commission - JRC); MANIOS Kostas (European Commission - JRC); MAZZON Alberto (European Commission - JRC); NAVARRO BERDEAL Silvia; PALMA FERNANDEZ Bianey (European Commission - JRC); PICOS Fidel (European Commission - JRC); TUMINO Alberto; VAZQUEZ TORRES Estefanía
    Abstract: This report provides a selection of baseline results and headline indicators from the latest public version (I5.0+) of EUROMOD, the tax-benefit microsimulation model for the EU. We begin by presenting indicators for income inequality and at-risk-of-poverty. We then provide a comparative decomposition of the redistributive effect of the tax-benefit systems across the EU. We study how different Member States achieve various degrees of redistribution through different combinations of progressivity and size of their tax-benefit systems. We then analyse various work incentive indicators both at the intensive and the extensive margin, discussing how effective marginal rates of taxation and replacement rates vary across countries. The report also describes the way EUROMOD can be used to simulate economic shocks leading to labour market transition through the LMA (Labour Market Adjustment) add-on. We illustrate this by simulating the impact of the COVID-19 pandemic and the cushioning effect of policy measures taken by EU Member States. Finally, we present the evolution of the income distribution over the post-financial crisis decade and we compare living standards across EU countries at the top and the bottom of the income distribution.
    Keywords: EUROMOD
    Date: 2023–05
  14. By: Fabio Ascione; Maria Enrica Virgillito
    Abstract: Against a theoretical background which recognizes the gains from trade liberalization, this paper asks whether, and if so to what extent, economic integration as directly measured through vertically integrated value-added has increased or reduced convergence among European industries and related countries. To answer this question, we draw upon new input-output tables and sectoral divergence measures for 14 European countries and 19 sectors since 1970. Our novel database provides consistent long-run measures of international input–output linkages and sectoral dispersion in labor productivity and wages. We use these measures to study the timing and mechanisms that govern the relationship between economic integration and sectoral gaps, taking a European perspective and focusing on the role of international production fragmentation via input-output linkages. According to our findings, higher vertical integration has fostered divergence rather than convergence within industries. Lock-in effects in laggard positions coupled with positive feedback loops and increasing returns for leading positions are potential mechanisms to explain why the fruits of rising vertical integration are shared unequally between poor-performing industries and frontier industries.
    Keywords: input-output analysis; divergence; economic integration; Europe; trade liberalization.
    Date: 2023–06–04
  15. By: Ambre Maucorps (The Vienna Institute for International Economic Studies, wiiw); Roman Römisch (The Vienna Institute for International Economic Studies, wiiw); Thomas Schwab; Nina Vujanović (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Closing the prosperity gap between regions has always been a key political aspiration of the European Union – and cohesion policy is the primary means to achieve that goal. Europe is currently undergoing a digital and green transition that is drastically changing the way its economy works. How well prepared are regions to capitalise on the twin transition? And what impact will it have on regional cohesion in Europe? Our study finds that greening and digitalising the economy will likely widen the gap between rich and poor regions in Europe.
    Keywords: EU, EU regions, regional development, digitalisation, green transition, cohesion
    JEL: R11 O21
    Date: 2023–05
  16. By: Ropele, Tiziano (Bank of Italy); Gorodnichenko, Yuriy (University of California, Berkeley); Coibion, Olivier (University of Texas at Austin)
    Abstract: Using Italian data that includes both inflation forecasts of firms and external information on their balance sheets, we study the causal effect of changes in the dispersion of beliefs about future inflation on the misallocation of resources. We find that as disagreement increases, so does misallocation. In times of low inflation, the aggregate TFP loss of the dispersed expectations-induced misallocation is moderate, but we argue that it likely becomes quite significant in times of high inflation.
    Keywords: misallocation, inflation expectations
    JEL: E31 C83 D84 O47
    Date: 2023–05
  17. By: Camilla Mastromarco; Laura Serlenga; Yongcheol Shin
    Abstract: We develop a unified stochastic frontier model which controls for the local spatial correlation and the global factor dependence as well as parameter heterogeneity, simultaneously. We then propose the regional productivity network analysis to examine the diffusion impacts of the capital intensity on the labour productivity in the EU. We apply the proposed approach to the dataset consisting of 202 regions in the EU15 countries over 1980-2019, and convincingly unveil that the technological shock diffuses from efficient regions operating on or near the frontier to inefficient regions. This suggests that policies to enhance domestic absorption capacity appear better suited to net receivers of technological shocks whilst policies to attract more R&D investments are appropriate to their transmitters. In this regard we stress the importance of investing European funds in peripheral regions to address regional inequality and polarisation.
    Keywords: spatial stochastic frontier model with factors and heterogeneity, CCEX-IV estimator, regional productivity network analysis in the EU, efficiency clusters
    JEL: C13 C33 D24 O47
    Date: 2023
  18. By: Irene Monasterolo (BANCO DE ESPAÑA; URJC; BANCO DE ESPAÑA)
    Abstract: Inflation has distributional effects. Leveraging the data on consumption expenditure on goods across households provided in the Spanish Household Budget Survey we estimate household-specific inflation from 2006 to 2021 in Spain and analyse how it varies according to households’ known characteristics. We show that households with lower income and more members and whose head is less educated, older and male experience higher inflation. Lastly, we also depict the effects of the most recent price increases across households. The differences are substantial: in 2021, inflation for lower-income households (bottom quartile) was 2 percentage points higher than for higher-income households (top quartile), while for households whose head is over the age of 60 it was 1.5 percentage points higher than for younger households.
    Keywords: inflation inequality, household expenditure, household-level inflation
    JEL: E21 E31 D12
    Date: 2023–03
  19. By: Jannik Hensel; Giacomo Mangiante; Luca Moretti
    Abstract: This paper studies the impact of carbon pricing on firms’ inflation expectations and discusses the potential implications for what constitutes the core of most central banks’ mandate: price stability. Carbon policy shocks are identified from high-frequency changes in carbon futures price around regulatory events. The shock series is combined with French firm-level survey data. We document that a change in the price of carbon increases firms’ inflation expectations. We then investigate how firms’ business conditions are affected by carbon policy shocks and we find that firms’ own expected and realized price growth respond similarly to inflation expectations. The effect on price expectations is more persistent than on actual price growth leading to positive forecast errors in the medium- /long-run. We also show that a sizable share of the increase in inflation expectations is due to indirect effects. Firms rely on their own business conditions to form expectations about the aggregate price dynamics. Therefore, the expected positive growth in their own prices significantly contributes to the observed increase in inflation expectations. Finally, we study how firms’ responses are heterogeneously influenced by the shocks based on the share of input costs devoted to energy expenditures. We find that high energy-intensive firms tend to overreact relatively more in terms of their own price expectations compared to the actual price change the shocks induce.
    Keywords: Climate policies, carbon pricing, inflation expectations, monetary policy, survey data
    JEL: E31 E52 E58 Q43 Q54
    Date: 2023–04
  20. By: Lucia Dalla Pellegrina; Damla Diriker; Paolo Landoni; Davide Moro; Mahinda Wijesiri
    Abstract: This paper contributes to a growing body of literature on microfinance institutions, where the equilibrium between social and financial sustainability is one of the hottest topics. However, the evidence regarding this relationship in the European microfinance sector is scarce. In the current study, we intend to fill this knowledge gap. Specifically, using an original dataset obtained from a survey conducted in 2016-2017 on 159 Microfinance institutions (MFIs) operating in 38 European countries, we investigate whether pursuing proactive social sustainability can improve financial sustainability, measured by technical efficiency. Overall, our results show that MFIs that are more likely to comply with their social sustainability objectives (especially on the extensive margin, with a higher number of loans granted and on the intensive margin, by serving a higher share of women) are also doing well financially. The only aspect on which social sustainability does not seem to have a positive effect on financial sustainability is the financing of the poorest through the provision of small-scale loans. These peculiarities are somehow common to other non-European contexts. On the other hand, a phenomenon that seems peculiar to the European context is that larger MFIs, especially those operating in a context not subject to stringent financial regulation tend to show a comparative advantage and better withstand competition from the traditional banking sector. Our results are robust to alternative measures of financial sustainability and to the use of the Generalized Method of Moments (GMM) and Instrumental Variable (IV) estimation techniques to overcome the problem of endogeneity.
    Keywords: Microfinance, European Union, social sustainability, outreach, mission drift, financial sustainability.
    JEL: G21 I32 L26 O16
    Date: 2023–03

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