|
on European Economics |
|
Issue of 2023‒06‒26
nineteen papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Tatar, Balint |
| Abstract: | I have assessed changes in the monetary policy stance in the euro area since its inception by applying a Bayesian time-varying parameter framework in conjunction with the Hamiltonian Monte Carlo algorithm. I find that the estimated policy response has varied considerably over time. Most of the results suggest that the response weakened after the onset of the financial crisis and while quantitative measures were still in place, although there are also indications that the weakening of the response to the expected inflation gap may have been less pronounced. I also find that the policy response has become more forceful over the course of the recent sharp rise in inflation. Furthermore, it is essential to model the stochastic volatility relating to deviations from the policy rule as it materially influences the results. |
| Keywords: | Monetary policy rules, Bayesian time-varying parameter estimation, unconventional monetary policy, Hamiltonian Monte Carlo |
| JEL: | E52 C11 C22 C51 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:183&r=eec |
| By: | Mochhoury, Sarah |
| Abstract: | While it has become clear that communication is a monetary policy tool for central banks, and extensive research has been conducted on central bank communication with financial markets, little is known so far on central bank communication with the general public. My research provides new insights into this field, confirming that the efforts of central banks to connect with a wider public are not in vain. In a randomised controlled trial, I focus on the determinants of trust in the European Central Bank (ECB) and on understanding of its communication about the Pandemic Emergency Purchase Programme, which was set up as part of the ECB’s response to the COVID-19 crisis. I find that the ECB’s simplified and relatable communication leads to greater trust in the central bank among the general public, as it has a positive impact on perceptions of the ECB among laypeople. The simplified content also proves to contribute to increased understanding of the central bank’s messages among the wider public. JEL Classification: C83, C93, D83, E52, E58 |
| Keywords: | Behavioural economics, Central bank communication, European Central Bank, Experimental economics, Trust |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232824&r=eec |
| By: | Julien Pinter; Evžen Kocenda |
| Abstract: | Do firms’ and consumers’ expectations react to central bank announcements? Past literature has come to divergent conclusions, but it has systematically ignored how media treat the announcements. This paper investigates the link between monetary policy announcements and expectations by taking into account their media treatment. We initially rely on the standard monetary policy surprise measures in the euro area to identify exogenous changes in monetary policy stances. We then analyze how the main general newspapers in France report on announcements. 85 % of the monetary policy surprises are either not associated with the newspapers reporting a change in the monetary policy stance or have a sign that is inconsistent with the media report. Only when we consider media-consistent monetary policy surprises do we find that consumers and firms respond to monetary policy announcements. We then build our own measure of media monetary policy surprises and confirm that these matter. Further analysis reveals that the tonality of the media reports on the economy drives the sign of consumers’ response. |
| Keywords: | firm expectations, consumer expectations, monetary policy surprises, European Central Bank, information effect |
| JEL: | D84 E02 E52 E31 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10413&r=eec |
| By: | Dekker, Lennart; Molestina Vivar, Luis; Wedow, Michael; Weistroffer, Christian |
| Abstract: | Using a sample of open-end corporate bond funds domiciled in the euro area, we exploit the COVID-19 market turmoil in March 2020 to examine two channels through which liquidity buffers can reduce procyclicality in the investment fund sector. First, we find that liquidity buffers reduced outflows during March 2020 only to a limited extent. Second, we find that funds entering the crisis with higher liquidity buffers were less likely to involve in cash hoarding and more likely to use cash buffers to meet outflows. Our results suggest that higher liquidity buffers can reduce procyclicality primarily through supporting the liquidity management strategies employed by fund managers. JEL Classification: G01, G11, G23 |
| Keywords: | corporate bond funds, COVID-19 pandemic, investor redemptions, liquidity management |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232825&r=eec |
| By: | Giordano, Matteo; Goghie, Alexandru-Stefan |
| Abstract: | The evolution of the European Central Bank (ECB) and of the forms of monetary policy implemented in the Eurozone since its inception outline a more radical shift in the posture of the ECB rather than the simple recourse to new instruments of monetary policy. This paper explores the concept of monetary regime to understand under a systemic lens the changes occurred in the conventional and unconventional monetary policy operations, and how they have shaped the position of the ECB within the increasingly market-based financial system. We argue that the features of a monetary regime affect the processes of de- and re-politicization of the ECB. To do so, we explore three key but under-studied changes in the operations of the ECB: the shift from a corridor to a floor system with the fixed-rate full allotment (FRFA) procedure for its refinancing operations in 2008, the implementation of Securities Lending in the second half of the 2010s, and the introduction of the Transmission Protection Mechanism in 2022. These events, in turn, hinge on the evolving dynamics between liquidity and collateral, which not only define the frame of the monetary regime, but also allow for the central bank’s operations to have significant, though involuntary and indirect, fiscal consequences. Ultimately, this paper highlights the shift from monetary and fiscal concerns to financial ones, thus arguing that macroeconomic policies have become subordinated to financial logics that imply an increasing blurring of the separations between monetary and fiscal spheres. |
| Date: | 2023–05–26 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:rw3ms&r=eec |
| By: | Taniya Ghosh (Indira Gandhi Institute of Development Research); Abhishek Gorsi (Indira Gandhi Institute of Development Research) |
| Abstract: | The study reexamines the relationship between money and output for the US, UK, and the Euro Area using quarterly data up to 2022. Modern central banks are focused on controlling inflation, and adjust their monetary policy and liquidity accordingly. However, it is common practise to overlook the precise effects of those actions on other variables. Unlike prior research, which has mainly focused on the linear relationship, this paper examines the asymmetric impact of money on output. The results show that a decrease in the amount of money has a much more adverse impact on output than an increase. Globally, during COVID-19, there was an infusion of liquidity that might have been useful in the short term, but the withdrawal of that excess liquidity, as been done currently by some major economies, may have long-term effects on those economies' output. |
| Keywords: | Monetarism, Monetary Aggregates, Monetary Policy, Money, Money-Income-Output, NARDL, Non-Linear Granger Causality |
| JEL: | E42 E52 E58 E64 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2023-07&r=eec |
| By: | Horan, Aoife; Jarmulska, Barbara; Ryan, Ellen |
| Abstract: | Our paper uses credit registry data for the euro area to examine how the banking system transmits asset price shocks to credit via revaluation of collateral and subsequent lending decisions. Specifically we examine banks’ treatment of real estate collateral during the Covid-19 crisis. First we find evidence of significant frictions in the trans-mission of asset price dynamics to collateral values. Despite this we find that lending relationships reliant on real estate collateral received one third less credit following the outbreak of the pandemic and that firms experiencing downward revaluations of their collateral were significantly less likely to be given new loans. Our findings confirm that the collateral channel does create an economically significant link between real estate values and credit but suggest that the banking system’s role in transmission may be more complex than traditional economic theory would imply. JEL Classification: G21, R3, C55 |
| Keywords: | banking, collateral channel, financial accelerator, microdata, real estate |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232823&r=eec |
| By: | Victoria Baudisch; Matthias Neuenkirch |
| Abstract: | We evaluate Germany’s temporary value-added tax (VAT) rate reduction as a tool to stimulate consumer spending during the Covid-19 pandemic using a comparative case study approach. We construct a credible counterfactual for Germany in a two-step procedure. First, we carry out a careful pre-selection of the donor pool countries to obtain a control group that is highly similar to Germany regarding important post-treatment characteristics. Second, we apply a reweighting scheme on the pre-selected donor countries. The synthetic control group only differs from Germany in the way that it did not implement the temporary VAT rate reduction. Our results indicate that the German VAT cut policy and partial VAT reductions in other countries were relatively ineffective in stimulating consumption with regards to their costs when compared to other measures such as (targeted) direct cash transfers. We attribute this to the fact that direct cash transfers are more comprehensible, salient, and actionable, in particular, in a dynamic environment with high uncertainty induced by unclear future economic prospects. |
| Keywords: | consumption, Covid-19, synthetic control, temporary VAT cut, unconventional fiscal policy |
| JEL: | E21 E62 E65 H31 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10417&r=eec |
| By: | Crozet, Matthieu; Hinz, Julian; Trionfetti, Federico |
| Abstract: | In January 2015, The Swiss Franc (CHF) appreciated unexpectedly against the Euro by approximately 15%. We document a new fact: French firms that exported to both the Swiss market and the Eurozone also exhibited a sudden change in their export prices to the Eurozone. We coin this the 'exchange rate pass-around' effect. We rationalise this fact with a simple model based on the endogenous decision of some firms to give up pricing-to-market and opt for single-pricing to all markets. An important implication of this finding is that single-pricing may be one of the causes of the incomplete pass-through. This mechanism has so far remained unexplored in the literature, which may have led to overestimating the importance of other factors. Based on monthly French export data, our empirical analysis confirms the existence of the pass-around. Firms directly affected by the CHF exchange rate shock increased their prices in neighboring markets by 0.8% compared to other exporters. The effect was stronger for firms with lower ex-ante price heterogeneity across markets and for firms with smaller trade costs to Switzerland. However, the effect was short-lived. As time passed, exporters tended to decouple the prices they set on the Swiss market from those for the Eurozone, and the pass-around effect faded. |
| Keywords: | Exchange rate pass-through, International trade, Pricing-to-market |
| JEL: | F14 F31 D61 D62 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2247&r=eec |
| By: | Sergio Destefanis (University of Salerno); Valter Di Giacinto (Bank of Italy) |
| Abstract: | This paper focuses on the impact of EU structural funds (SFs) on the GDP per capita of 183 European NUTS2 regions from 1990 to 2016. To allow for the endogeneity of funds allocation to regions, we estimate a bivariate structural panel VAR model, controlling for unobserved heterogeneity through a broad array of deterministic variables. Our main identifying restriction is rooted in the widely documented long lags affecting the implementation of the EU’s Cohesion Policy. Through a spatial VAR specification, we also estimate spillovers from local SF expenditure on other areas. We find significant multipliers measuring the local response of GDP to an exogenous shock in local SF expenditure, with a long-run value settling at 2.6. Spillovers for GDP from an exogenous shock to SFs are also positive and significant, but much smaller (about one fifth of within-region responses). When partitioning our sample according to features suggested by the literature (stage of development, EU funding regimes, size), we find that within-region multipliers are higher in lagging regions, especially in recipient countries of the Cohesion Fund, and in regions with a larger population. Spillovers are also heterogeneous across different groups of regions, turning out to be negative in regions in countries that are not recipients of the Cohesion Fund. All this evidence is validated in qualitative terms by robustness checks on model specification and the choice of spatial weights. |
| Keywords: | cohesion policy, spatial structural VAR model, fiscal multipliers, spillovers, EU NUTS-2 regions |
| JEL: | C33 E62 H50 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1409_23&r=eec |
| By: | Bilan, Andrada; Ongena, Steven; Pancaro, Cosimo |
| Abstract: | Can banks trade credit default swaps (CDSs) referenced on their current corporate clients at competitive prices, or are banks penalized for potentially holding private information? To answer this question we merge CDS trades reported under the European Market Infrastructure Regulation (EMIR) with syndicated loans from DealScan, and compare the prices on similar CDSs that the same dealer offers to banks and to other investors. We find that banks lending to a corporation purchase CDSs on this corporation at lower prices, and that, after trading with banks, dealers can earn higher margins on these CDSs when trading with other investors. Our findings suggest that banks hold valuable private information which is shared in their trades with dealers. Dealers then disseminate this information to financial markets. JEL Classification: G14, G21, G23 |
| Keywords: | banks, credit derivatives, EMIR, price discovery, syndicated loans |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232818&r=eec |
| By: | Vozian, Katia; Costola, Michele |
| Abstract: | The European low-carbon transition began in the last few decades and is accelerating to achieve net-zero emissions by 2050. This paper examines how climate-related transition indicators of a large European corporate firm relate to its CDS-implied credit risk across various time horizons. Findings show that firms with higher GHG emissions have higher CDS spreads at all tenors, including the 30-year horizon, particularly after the 2015 Paris Agreement, and in prominent industries such as Electricity, Gas, and Mining. Results suggest that the European CDS market is currently pricing, to some extent, albeit small, the exposure to transition risk for a firm across different time horizons. However, it fails to account for a company's efforts to manage transition risks and its exposure to the EU Emissions Trading Scheme. CDS market participants seem to find challenging to risk-differentiate ETS-participating firms from other firms. |
| Keywords: | climate change, transition risk, credit risk, credit default swap, emissionstrading system (ETS), financial markets |
| JEL: | G1 E58 G32 Q51 D53 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:387&r=eec |
| By: | Lenka Dražanová; Jérôme Gonnot |
| Abstract: | This article investigates how European public opinion has responded to short-term variations inregional foreign-born immigration over the past decade (2010-2019). Combining data from theEuropean Social Survey and the European Union Labour Force Survey, we test how natives’opinions over migration policy and the contribution of immigrants to society have changed with thenet rate of international migrants in 183 EU regions from 21 countries. We find that while EuropeanUnion natives living in regions with a higher share of foreign-born populations are generally less antiimmigrant, a short-term increase in the number of immigrants within a given region is associated withmore negative attitudes in Western Europe only. Moreover, our gender and origin decompositionindicate that male immigrants and those born outside of the European Union are driving most ofthe negative association between public opinion and changes in the level of immigration in WesternEuropean countries, while the educational attainment of migrants makes little difference. The scopeof our analysis for Central and Eastern Europe is more limited due to the smaller share of foreignbornimmigrants living in those regions. Despite this caveat, our analysis suggests that inflows ofEuropean migrants in Central and Eastern Europe are generally associated with more positiveviews towards immigration, regardless of their skill level. Our findings demonstrate the importanceof temporal dynamics for attitudes to immigration. They also point to the need to analyse not onlycross-country differences but also regional differences in those attitudes. |
| Keywords: | Attitudes to immigration, migration flows, public opinion, regions |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2023/18&r=eec |
| By: | Görg, Holger; Jacobs, Anna; Meuchelböck, Saskia |
| Abstract: | In this paper, we use a novel firm level dataset for Germany to investigate the effect of sanctions on export behaviour and performance of German firms. More specifically, we study the sanctions imposed by the EU against Russia in 2014 in response to the annexation of Crimea and Russia's countermeasures. We find a substantial negative effect on both the extensive and intensive margin of German exports. While the negative effects are strongest for firms exporting products subject to trade restrictions, we provide further evidence on the indirect effects of sanctions. Analysing the impact on broader measures of firm performance, we document that the cost of sanctions is heterogeneous across firms but overall modest. Our results reveal that the negative impact of the shock was concentrated primarily among a small number of firms that were highly dependent on Russia as an export market and those directly affected by the sanctions. |
| Keywords: | sanctions, foreign policy, trade, firm behaviour, Germany |
| JEL: | F1 F14 F51 L25 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2248&r=eec |
| By: | Thorsten Beck; Natalie Kessler |
| Abstract: | This paper presents SME financing gaps across European countries over the period 2013 to 2020, using two different methodologies, one reliant on firm balance sheets and one on firm-level surveys. We show significant variation in financing gaps across countries and sectors. Variation over time, on the other hand, is not as strong or intuitive. The account- and survey-based measures are only weakly correlated with each other, reflecting their different nature, and both are only weakly correlated with a survey-based measure of self-reported firm financing constraints. |
| Keywords: | SME Finance, financing gap, firm-level surveys, access to banking |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2023/07&r=eec |
| By: | Angeloni, Ignazio |
| Abstract: | There is much discussion today about a possible digital euro (PDE). Is this attention exaggerated? Are "central bank digital currencies" (CBDCs) "a solution in search of a problem", as some have argued? This article summarizes the main facts about the PDE and concludes that, if the decision on adoption had to be taken today, the arguments against would outweigh those in favor. However, there may be future circumstances in which having a CBDC ready for use can indeed be useful. Therefore, preparing is a good thing, even if the odds of its usefulness in normal conditions are slim. |
| Keywords: | Digital, Euro, Financial Stability, Monetary Policy, Central Bank, CBDC, Banks |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safepl:99&r=eec |
| By: | Kwan, Simon H.; Ulate, Mauricio; Voutilainen, Ville |
| Abstract: | Despite the implementation of negative nominal interest rates by several advanced economies in the last decade and the many papers that have been written about this novel policy tool, there is still much we do not know about the effectiveness of this instrument. The pass-through of negative policy rates to loan rates is one of the main points of contention. In this paper, we analyze the pass-through of the ECB's changes in the deposit facility rate to mortgage rates in Finland between 2005 and 2020. We use monthly data and three different empirical methodologies: correlational event studies, high-frequency identification, and exposure-measure regressions. We provide robust evidence that there continues to be pass-through of a cut in the policy rate to mortgage rates even when the policy rate is in negative territory, but that this pass-through is smaller than when the policy rate is in positive territory. The evidence in this paper contrasts with some previous studies and provides moments that can be useful to discipline theoretical negative-rates models. |
| Keywords: | nominal interest rate, monetary policy transmission, Finland |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofrdp:62023&r=eec |
| By: | de Haan Montes, Gabrielle; Gvetadze, Salome; Lottner, Felina; Milander, Henry; Pan, Xianxing; Tian, Chloe; Torfs, Wouter |
| Abstract: | This working paper contributes to the understanding of how Greentech ecosystems develop by considering the impact of EU countries' local financial market environment on the prevalence of Greentech investment deal activity. The empirical analysis demonstrates that the occurrence of IPOs in a country incentivises Greentech investors and entrepreneurs, and stimulates deal activity in earlier stages of the market. This suggests an important role for policy intervention at EU-level, as EU policymakers are best positioned to bridge the scale-up gap through the use of innovative financing instruments and thereby support the development of a European Greentech ecosystem. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eifwps:202286&r=eec |
| By: | Kämpf, Vanessa; Stadtmann, Georg; Zimmermann, Lilli |
| Abstract: | The Swiss National Bank (SNB) announced to refrain from profit distribution in 2022 owing to the accumulation of a huge financial loss. In this note we examine the key determinants of the SNB's loss and shed light on its implications to conduct monetary policy. In particular, we show that different accounting principles yield different results concerning the equity position of a central bank's balance sheet, yet not affecting the ability to run monetary policy. |
| Keywords: | Swiss National Bank, central bank, monetary policy |
| JEL: | E5 G15 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:euvwdp:429&r=eec |