nep-eec New Economics Papers
on European Economics
Issue of 2023‒07‒10
seventeen papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Where do they care? The ECB in the media and inflation expectations By Vegard Høghaug Larsen; Nicolò Maffei-Faccioli; Laura Pagenhardt
  2. When Fiscal Discipline meets Macroeconomic Stability: the Euro-stability Bond By Luciano Greco; Francesco Jacopo Pintus; Davide Raggi
  3. The Phillips curve in the euro area: New evidence using country-level data By Wellmann, Susanne
  4. MPC heterogeneity and the dynamic response of consumption to monetary policy By Miguel Ampudia; Russell Cooper; Julia Le Blanc; Guozhong Zhu
  5. A Targeted Golden Rule for Public Investments? By Sebastian Blesse; Florian Dorn; Max Lay
  6. The equity-efficiency trade-off of the European cohesion policy By Tryfonas Christou; Francesca Crucitti; Abian Garcia Rodriguez; Nicholas Lazarou; Simone Salotti
  7. The RHOMOLO ex-ante impact assessment of 2021-2027 cohesion policy By Tryfonas Christou; Francesca Crucitti; Abian Garcia Rodriguez; Nicholas Lazarou; Philippe Monfort; Simone Salotti
  8. Monetary policy and financial markets: evidence from Twitter traffic By Donato Masciandaro; Davide Romelli; Gaia Rubera
  9. Changes to Bank Capital Ratios and their Drivers Prior and During COVID-19 Pandemic: Evidence from EU By Pavel Jankulár; Zdeněk Tůma
  10. What People Believe About Monetary Finance and What We Can(’t) Do About It: Evidence from a Large-Scale, Multi-Country Survey Experiment By Cars Hommes; Julien Pinter; Isabelle Salle
  11. Free Movement and European Welfare States: Why Child Benefits for EU Workers Should Not Be Exportable By Martin Ruhs; Joakim Palme
  12. The demand for language skills in the European labour market: Evidence from online job vacancies By Gabriele Marconi; Francesca Borgonovi; Loris Vergolini
  13. Are Immigrants More Left Wing than Natives? By Moriconi, Simone; Peri, Giovanni; Turati, Riccardo
  14. Inequality and Immigration By Christian Dustmann; Yannis Kastis; Ian Preston
  15. Differential Effects of Unconventional Monetary Policy By Eiblmeier, Sebastian
  16. Minimum Wages, Productivity, and Reallocation By Haelbig, Mirja; Mertens, Matthias; Müller, Steffen
  17. Regional impact of climate change on European tourism demand By MATEI Nicoleta-Anca; GARCIA LEON David; DOSIO Alessandro; BATISTA Filipe; RIBEIRO BARRANCO Ricardo; CISCAR MARTINEZ Juan Carlos

  1. By: Vegard Høghaug Larsen; Nicolò Maffei-Faccioli; Laura Pagenhardt
    Abstract: This paper examines how news coverage of the European Central Bank (ECB) affects consumer inflation expectations in the four largest euro area countries. Utilizing a unique dataset of multilingual European news articles, we measure the impact of ECB-related inflation news on inflation expectations. Our results indicate that German and Italian consumers are more attentive to this news, whereas in Spain and France, we observe no significant response. The research underscores the role of national media in disseminating ECB messages and the diverse reactions among consumers in different euro area countries.
    Date: 2023–05
  2. By: Luciano Greco (University of Padova); Francesco Jacopo Pintus (University of Padova); Davide Raggi (University Ca’ Foscari of Venice)
    Abstract: We describe a new Euro-stability bond that implies sovereign debt mutualization in the Eurozone without any significant short-term redistribution across countries or perverse incentives to fiscal profligacy. In a simple structural model of the economy, we theoretically show that the proposed Euro-stability bond is able to reproduce the market fiscal discipline while increasing the social welfare of all countries with respect to real market discipline. Relying on a GVAR model including the Eurozone coun- tries, the U.S., Japan and China, we then analyze the future evolution of public debt (and other key macroeconomic variables) over time by comparing the predicted forecast in the baseline scenario and in a counterfactual scenario with the Euro-stability bond. We find no significant differences in the future path of interest expenditures- and public debt-to-GDP ratios in the two scenarios, but a consistent reduction in the uncertainty of the estimates in the counterfactual scenario (around 68 % on average after 5 years). The reduced uncertainty of forecasts of public debt and other macroeconomic variables highlights the capacity of the Euro-stability bond to immunize the Eurozone from classical macroeconomic instability shocks that derive by the very existence of high sovereign debts and the related significant rollover risk in a framework of decentralized fiscal policies. To this extent, we finally exploit the results of the GVAR model to assess the capacity of the proposed scheme to reduce the probability of adverse macroeconomic events.
    Keywords: Eurobonds, Fiscal stability, GVAR, Macroeconomic forecasts
    Date: 2023–05
  3. By: Wellmann, Susanne
    Abstract: We study whether the trade-off between inflation and unemployment still exists in the euro area (EA). Using country-level data for member states of the EA, we estimate a refined specification of the Phillips curve in the spirit of Hazell et al. (2022) deploying a non-tradable price index to measure inflation. We find that the slope of the Phillips curve is small and hence the Phillips curve is flat in the EA, similarly to the US. Moreover, reference estimates based on aggregate data overstate the steepness of the Phillips curve considerably. Our findings imply that the insensitivity of inflation with respect to unemployment over the last decade is a result of firmly anchored inflation expectations.
    Keywords: Inflation, Phillips curve, Expectations, Euro Area
    JEL: E31 D84 F45
    Date: 2023
  4. By: Miguel Ampudia; Russell Cooper; Julia Le Blanc; Guozhong Zhu
    Abstract: This paper studies how household financial choices affect the impact of monetary policy on consumption. Based on micro data from four major euro area countries, we estimate structural parameters to match moments related to asset market participation rates, portfolio shares and wealth-to-income ratios by education and country. The country specific distributions of the marginal propensity to consume out of income and financial wealth are not degenerate, reflecting, among other factors, costs to both asset market participation and portfolio adjustment. Due to the heterogeneity in consumption responses, monetary policy, operating through its effects on household income and asset market returns, has a differential impact on individuals within and across countries. Generally, poor households respond more to the income variations produced by monetary policy innovations while rich households respond more to policy-induced variations in stock returns. Monetary policy has a larger impact on consumption in Italy and Spain compared to France and Germany. An extension of the model linking mortgage payments to monetary policy strengthens these findings.
    Keywords: heterogeneity, marginal propensity to consume, monetary policy
    JEL: E21 E52
    Date: 2023–05
  5. By: Sebastian Blesse; Florian Dorn; Max Lay
    Abstract: A Comparative Analysis of Possible Accounting Methods in the Context of the Review of Stability and Growth Pact The EU faces the challenge to combine large and sustained investments to promote the transition towards a green, digital, and competitive Europe while maintaining fiscal sustainability. Based on a comprehensive literature review on the effects of fiscal rules and investment clauses on public finances, this in-depth analysis provides some guidance how higher public investments can be achieved by a targeted golden rule without harming fiscal sustainability in the EU fiscal framework. The study also discusses the role of investments in the current proposals of the European Commission on the reform of the EU Economic Governance.
    Date: 2023
  6. By: Tryfonas Christou (European Commission - JRC); Francesca Crucitti (European Commission - JRC); Abian Garcia Rodriguez (European Commission - JRC); Nicholas Lazarou (European Commission - JRC); Simone Salotti (European Commission - JRC)
    Abstract: The European cohesion policy aims to strengthen economic, social and territorial cohesion, and to correct imbalances between countries and regions. The existing evidence on the impact of the policy on the regions of the European Union (EU) suggests that it is capable of positively influencing cohesion, triggering convergence at the country level. Little is known about the effects of the policy on within-country regional inequality, which is an important dimension of economic disparities. The results summarised here focus on the impact of cohesion policy investments on regional disparities within countries targeted by the policy. The investments can target either peripheral regions or core regions within each country. The economic impacts in the two types of regions differ substantially in terms of magnitude and spillovers generated. Investing in core regions may maximise country-wide returns, but it could be harmful to within-country regional disparities.
    Keywords: rhomolo, general equilibrium, economic growth, cohesion policy
    JEL: C68 R13
    Date: 2023–04
  7. By: Tryfonas Christou (European Commission - JRC); Francesca Crucitti (European Commission - JRC); Abian Garcia Rodriguez (European Commission - JRC); Nicholas Lazarou (European Commission - JRC); Philippe Monfort (European Commission – DG REGIO); Simone Salotti (European Commission - JRC)
    Abstract: The European cohesion policy aims to strengthen economic, social and territorial cohesion, and to correct imbalances between countries and regions. The 2021-2027 cohesion policy differs from the previously implemented programmes due to its stronger focus on the green and digital transitions. The RHOMOLO model has been used to assess the expected impact of the 2021-2027 programmes on the European economies at the European Union (EU), Member State, and NUTS-2 region levels. The simulations suggest that the policy interventions would increase the EU GDP by 0.5% by the end of the implementation period compared to a no-cohesion policy scenario, with sizeable increases in employment. The structural effects of the programmes imply that the GDP gains will be persistent over time, and equal to 0.3% in 2050. The policy will help the less developed regions to catch up with the more developed ones, while also promoting growth for the EU as a whole.
    Keywords: rhomolo, region, growth, cohesion policy
    JEL: C68 R13
    Date: 2023–05
  8. By: Donato Masciandaro (Department of Economics, Bocconi University); Davide Romelli (Department of Economics, Trinity College Dublin); Gaia Rubera (Department of Marketing, Bocconi University)
    Abstract: Monetary policy announcements of major central banks trigger substantial discussions about the policy on social media. In this paper, we use machine learning tools to identify Twitter messages related to monetary policy in a short-time window around the release of policy decisions of three major central banks, namely the ECB, the US Fed and the Bank of England. We then build an hourly measure of similarity between the tweets about monetary policy and the text of policy announcements that can be used to evaluate both the ex-ante predictability and the ex-post credibility of the announcement. We show that large differences in similarity are associated with a higher stock market and sovereign yield volatility, particularly around ECB press conferences. Our results also show a strong link between changes in similarity and asset price returns for the ECB, but less so for the Fed or the Bank of England.
    Keywords: monetarypolicy, centralbankcommunication, financialmarkets, socialmedia, Twitter, USFederalReserve, EuropeanCentralBank, BankofEngland.
    JEL: E44 E52 E58 G14 G15 G41
    Date: 2023–06
  9. By: Pavel Jankulár; Zdeněk Tůma
    Abstract: We contribute to literature on banks´ strategies to increasing capital requirements in the period of 2017-2021. We analyze a sample of 85 European banks and differentiate between subgroups according to bank's size, capitalization and riskiness. We examine their responses to higher capital requirements following the issuance of finalized Basel III reforms and increased regulatory and supervisory scrutiny after the COVID-19 outbreak. We found evidence that banks´ adjustments in the direction of higher capital ratio were more pronounced and faster in the COVID-19 period, and that they depended on banks´ specific characteristics and positions. Identified variances between banks and periods resulted mainly from different treatment of risk on banks' books. In particular, higher capitalization and lower risk profile enabled banks to take on the risk regardless of period, while banks with increased risk rather limited their balance sheets to manage their capital ratios.
    Keywords: capital ratio, Basel capital requirements, COVID-19 pandemic, global financial crisis
    JEL: C33 G21 G28
    Date: 2023–05–02
  10. By: Cars Hommes; Julien Pinter; Isabelle Salle
    Abstract: We conduct an experiment within a large-scale household survey on public finance in France, the Netherlands and Italy. We elicit prior beliefs via open-ended questions and introduce a measure of macroeconomic policy literacy. An educational blog post from a central bank (CB) that opposes monetary-financed policies preceded by a short video on public finance can induce less support for monetary-financed proposals and more support for fiscal discipline and CB independence, no matter the respondent’s level of literacy. However, prior beliefs matter, and contradictory information may be polarizing. Information affects the respondents’ views by shifting their inflation and tax expectations associated to these policies.
    Keywords: Central bank research; Fiscal policy; Monetary policy
    JEL: E70 E60 E62 E58 G53 H31 C83
    Date: 2023–06
  11. By: Martin Ruhs; Joakim Palme
    Abstract: The regulation of the free movement of workers in the European Union (EU), and specifically EU (migrant) workers’ access to welfare benefits in the host country, has generated considerable political conflicts within and across EU Member States in recent years. These conflicts have the potential to threaten the future political sustainability of unrestricted intra-EU labour mobility and broader processes of European integration. In this paper, we provide an institutional analysis of one specific issue that has been at the heart of these debates: the exportability of child benefits. Under the current EU rules, ‘EU workers’ (i.e. mobile EU citizens who live and work in a Member State where they do not hold national citizenship) can “export” family benefits to their children and other family members resident in the home country. A number of EU countries have demanded a change to these rules. We argue that the political conflicts about exporting child benefits are, at least in part, due to a fundamental tension between the ‘employment-based’ institutional logic that regulates EU workers’ access to child and family benefits and the ‘residence-based’ institutional logic that underpins family policy in all Member States. To reduce this tension, we make the case for changing the principles for coordinating EU workers’ access to welfare benefits, which would mean, as a consequence, that the exportability of child benefits would no longer apply. It is the country where the child lives, rather than the country where the working parent/spouse (‘breadwinner’) is employed that should bear the responsibility for providing child benefits.
    Date: 2023–11
  12. By: Gabriele Marconi; Francesca Borgonovi; Loris Vergolini
    Abstract: This paper investigates the demand for language skills using data on online job vacancies in 27 European Union member countries and the United Kingdom in 2021. Evidence indicates that although Europe remains a linguistically diverse labour market, knowing English confers unique advantages in certain occupations. Across countries included in the analyses, a knowledge of English was explicitly required in 22% of all vacancies and English was the sixth most required skill overall. A knowledge of German, Spanish, French and Mandarin Chinese was explicitly demanded in between 1% and 2% of all vacancies. One in two positions advertised on line for managers or professionals required some knowledge of English, on average across European Union member countries and across OECD countries in the sample. This compares with only one in ten positions for skilled agricultural, forestry and fishery workers and among elementary occupations.
    JEL: J20 J24 R10
    Date: 2023–06–14
  13. By: Moriconi, Simone (IÉSEG School of Management); Peri, Giovanni (University of California, Davis); Turati, Riccardo (Universitat Autònoma de Barcelona)
    Abstract: We analyze whether second-generation immigrants have different political preferences relative to children of citizens. Using data on individual voting behavior in 22 European countries between 2001 and 2017, we characterize each vote on a left-right scale based on the ideological and policy positions of the party. First, we describe and characterize the size of the "left-wing bias" in the vote of second-generation immigrants after controlling for a large set of individual characteristics and origin and destination country fixed effects. We find a significant left-wing bias of second-generation immigrants, similar in magnitude to the left-wing bias of those with a secondary, relative to a primary, education. We then show that this left-wing bias is associated with stronger preferences for inequality-reducing government intervention, internationalism and multiculturalism. We find only weak evidence that second-generation immigrants are biased away from populist political agendas and no evidence that they have stronger preferences for pro-immigrant policies. Finally, we show that growing up with a father who is struggling to integrate into the labor market is a strong predictor of this left-wing bias.
    Keywords: immigration, elections, Europe
    JEL: D72 J61 P16 Z1
    Date: 2023–05
  14. By: Christian Dustmann; Yannis Kastis; Ian Preston
    Abstract: This paper investigates the relationship between immigration and inequality in the UK over the past forty years. This is a period when the share of foreign-born in the UK population increased from 5.3% in 1975 to 13.4% in 2015. We evaluate the impact immigration had on wage inequality in the UK through two channels: the first is the effect on the earnings distribution of the natives and the second is the effect on the composition of the wage-earning population. We find both effects to be very small. We decompose wage inequality into inequality within the immigrant and native group and inequality between the two groups. We find inequality among immigrants to be consistently higher than inequality among natives. We also examine the impact of immigration on the fiscal budget, and the potentially unequal impact of the ensuing tax implications on natives. In the UK, where immigrants are net fiscal contributors, this is not a factor that aggravates economic inequality. Even though the impact of immigration is found to be small, the way it is perceived across different population groups in the UK varies; a fact mostly attributed to racial and cultural concerns rather than perceived economic competition.
    Date: 2023
  15. By: Eiblmeier, Sebastian
    Abstract: Did the Eurosystem's quantitative easing from 2015 to 2018 have differential effects regarding the bank lending volume to different institutional sectors, industry sectors, or types of loans? To investigate this question, this paper employs linked microdata of the German banking system. These allow for computing the volume of bond redemptions at bank level as a measure of banks' exposure to QE. Because when a bond matures, the bank is faced with the decision of whether to reinvest the proceeds into bonds or whether to rebalance into another asset such as loans. When the central bank squeezes bond yields through large-scale purchases, banks with more redemptions have a stronger incentive to rebalance. However, a fixed effects model reveals no significant difference between banks with a high exposure compared to the control group regarding their overall loan growth. Neither can any of the mentioned differential effects be observed. While these findings are at odds with some of the previous empirical literature, they are in line with theories that argue that lending is purely demand-led and any central bank action geared towards the supply side of the loan market merely constitutes 'pushing the string'.
    Keywords: Unconventional monetary policy; portfolio rebalance; differential effects; panel regression
    JEL: C23 E51 E52 G11 G21
    Date: 2023–06
  16. By: Haelbig, Mirja (IWH Halle); Mertens, Matthias (IWH Halle); Müller, Steffen (IWH Halle)
    Abstract: We study the productivity effect of the German national minimum wage by applying administrative firm data. At the firm level, we confirm positive effects on wages and negative employment effects and document higher productivity even net of output price increases. We find higher wages but no employment effects at the level of aggregate industry×region cells. The minimum wage increased aggregate productivity in manufacturing. We do not find that employment reallocation across firms contributed to these aggregate productivity gains, nor do we find improvements in allocative efficiency. Instead, the productivity gains from the minimum wage result from within-firm productivity improvements only.
    Keywords: minimum wage, firm productivity, output prices, factor reallocation
    JEL: L11 L25 J31 D24
    Date: 2023–05
  17. By: MATEI Nicoleta-Anca (European Commission - JRC); GARCIA LEON David (European Commission – JRC); DOSIO Alessandro (European Commission - JRC); BATISTA Filipe (European Commission - JRC); RIBEIRO BARRANCO Ricardo; CISCAR MARTINEZ Juan Carlos (European Commission - JRC)
    Abstract: The tourism industry, a significant contributor to European GDP, may face considerable stress due to climate change. This study examines the potential impact of climate change on tourism demand in European regions in the 2100 time horizon. Using data from 269 European regions over a 20-year monthly timespan, we estimate the effect of current climatic conditions (rated with a Tourism Climatic Index, TCI), on tourism demand, considering various regional typologies. Our findings reveal that climate conditions significantly affect tourism demand, with coastal regions being the most impacted areas. Next, we simulate the impacts of future climate change on tourism demand for four warming levels (1.5°C, 2°C, 3°C, and 4°C) under two emissions pathways (RCP4.5 and RCP8.5). We find a clear north-south pattern in tourism demand changes, with northern regions benefitting from climate change and southern regions facing significant reductions in tourism demand; that pattern becomes more pronounced for higher warming scenarios. The seasonal distribution of tourism demand would also change, with relative reductions in summer and increases in the shoulder and winter seasons.
    Keywords: tourism, climate change, panel data, TCI, NUTS 2
    JEL: C23 Q54 R11 Z32
    Date: 2023–05

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