nep-eec New Economics Papers
on European Economics
Issue of 2023‒08‒14
fifteen papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Density forecasts of inflation: a quantile regression forest approach By Lenza, Michele; Moutachaker, Inès; Paredes, Joan
  2. European Trade & Growth Imbalances: An Analysis using a Sign-Restriction Bayesian-GVAR with Stochastic Volatility By Peter McAdam; Kostas Mouratidis; Theodore Panagiotidis; Georgios Papapanagiotou
  3. Towards acceptance criteria for a digital euro By Krüger, Nicolai; Busche, Jan
  4. Price adjustment in the euro area in the low-inflation period: evidence from consumer and producer micro price data By Gautier, Erwan; Karadi, Peter; Conflitti, Cristina; Fabo, Brian; Fadejeva, Ludmila; Fuss, Catherine; Kosma, Theodora; Jouvanceau, Valentin; Martins, Fernando; Menz, Jan-Oliver; Messner, Teresa; Petroulas, Pavlos; Roldan-Blanco, Pau; Rumler, Fabio; Santoro, Sergio; Seward, Domingos; De Veirman, Emmanuel; Wieland, Elisabeth; Wintr, Ladislav; Wursten, Jesse; Zimmer, Hélène; Amann, Juergen; Faber, Riemer; Bachiller, Javier Sánchez; Stanga, Irina
  5. Explaining Long-Term Bond Yields Synchronization Dynamics in Europe By Jesus Crespo Cuaresma; Oscar Fernandez
  6. Central bank digital currency and European banks’ balance sheets By Marco Petracco Giudici; Francesca Di Girolamo
  7. Measuring inflation with heterogeneous preferences, taste shifts and product innovation: methodological challenges and evidence from microdata By Osbat, Chiara; Conflitti, Cristina; Eiglsperger, Martin; Goldhammer, Bernhard; Kuik, Friderike; Menz, Jan-Oliver; Rumler, Fabio; Moreno, Marta Saez; Segers, Lina; Wieland, Elisabeth; Bellocca, Gian-Pietro; Siliverstovs, Boriss; Touré, Anaëlle
  8. New technologies and jobs in Europe By Albanesi, Stefania; Da Silva, António Dias; Jimeno, Juan F.; Lamo, Ana; Wabitsch, Alena
  9. Functional specialisation and working conditions in Europe By Stöllinger, Roman; Leitner, Sandra M.; Zavarska, Zuzana
  10. Modelling the effects of Brexit on the British economy By Minford, Patrick; Zhu, Zheyi
  11. Immigration and support for anti-immigrant parties in Europe By Jäger, Julian
  12. Unobserved components model(s): output gaps and financial cycles By Guillochon, Justine; Le Roux, Julien
  13. German Firms in International Trade: Evidence from Recent Microdata By Matthias Fauth; Benjamin Jung; Wilhelm Kohler
  14. Stock price reaction to ECB communication: Introductory Statements vs. Questions & Answers By Pawel Baranowski; Hamza Bennani; Wirginia Doryń
  15. Aging and regional productivity growth in Germany By Bode, Eckhardt; Dohse, Dirk; Stolzenburg, Ulrich

  1. By: Lenza, Michele; Moutachaker, Inès; Paredes, Joan
    Abstract: Density forecasts of euro area inflation are a fundamental input for a medium-term oriented central bank, such as the European Central Bank (ECB). We show that a quantile regression forest, capturing a general non-linear relationship between euro area (headline and core) inflation and a large set of determinants, is competitive with state-of-the-art linear benchmarks and judgemental survey forecasts. The median forecasts of the quantile regression forest are very collinear with the ECB point inflation forecasts, displaying similar deviations from “linearity”. Given that the ECB modelling toolbox is overwhelmingly linear, this finding suggests that the expert judgement embedded in the ECB forecast may be characterized by some mild non-linearity. JEL Classification: C52, C53, E31, E37
    Keywords: Inflation, Non-linearity, Quantile Regression Forest
    Date: 2023–07
  2. By: Peter McAdam (Federal Reserve Bank of Kansas City, USA); Kostas Mouratidis (University of Sheffield, UK); Theodore Panagiotidis (University of Macedonia, Greece); Georgios Papapanagiotou (University of Macedonia, Greece)
    Abstract: The persistent trade and economic imbalances between the south and north euro area countries generated severe strains for the euro following the global financial crisis. We assess alternative scenarios to restore the trade imbalances within the euro area. We use a Bayesian VECM SVAR with stochastic volatility in a Global-VAR, in which theory-consistent, long- and short-run restrictions are imposed.
    Keywords: European North-South Divide, Global VAR, Structural Impulse Response Analysis
    JEL: C33 E27 F14
    Date: 2023–07
  3. By: Krüger, Nicolai; Busche, Jan
    Abstract: Alongside other central banks, the European Central Bank (ECB) is currently exploring the potential of a Central Bank Digital Currency (CBDC). Such a significant payment innovation requires compliance with the ECB's mandate based on the Treaties of the European Union, in addition to socio-technical and socioeconomic considerations. Thus, Information Systems (IS) researchers might witness and actively participate in one of the most important changes associated to currency-related fundamental rights in our time in the euro area. IS research can provide useful insights into technology acceptance criteria of a CBDC, which is a novel and unfamiliar technology for most people, and help identify requirements. Our paper provides an overview of the current state of development. Furthermore, we present a Technology Acceptance Model - based vignette study (N = 207) and derive design principles for a prospective digital euro (PDE). The results of the study show that acceptance by the German population can be assumed. However, there are significant differences depending on the final design choices.
    Keywords: Central Bank Digital Currency, European Central Bank, Digital Euro, Technology Acceptance Model, Intention to use, Cryptocurrencies
    Date: 2023
  4. By: Gautier, Erwan; Karadi, Peter; Conflitti, Cristina; Fabo, Brian; Fadejeva, Ludmila; Fuss, Catherine; Kosma, Theodora; Jouvanceau, Valentin; Martins, Fernando; Menz, Jan-Oliver; Messner, Teresa; Petroulas, Pavlos; Roldan-Blanco, Pau; Rumler, Fabio; Santoro, Sergio; Seward, Domingos; De Veirman, Emmanuel; Wieland, Elisabeth; Wintr, Ladislav; Wursten, Jesse; Zimmer, Hélène; Amann, Juergen; Faber, Riemer; Bachiller, Javier Sánchez; Stanga, Irina
    Abstract: This paper documents five stylised facts relating to price adjustment in the euro area, using various micro price datasets collected in a period with relatively low and stable inflation. First, price changes are infrequent in the core sectors. On average, 12% of consumer prices change each month, falling to 8.5% when sales prices are excluded. The frequency of producer price adjustment is greater (25%), reflecting that the prices of intermediate goods and energy are more flexible. For both consumer and producer prices, cross-sectoral heterogeneity is more pronounced than cross-country heterogeneity. Second, price changes tend to be large and heterogeneous. For consumer prices, the typical absolute price change is about 10%, and the distribution of price changes shows a broad dispersion. For producer prices, the typical absolute price change is smaller, but nevertheless larger than inflation. Third, price setting is mildly state-dependent: the probability of price adjustment rises with the size of price misalignment, mainly reflecting idiosyncratic shocks, but it does not increase very sharply. Fourth, for both consumer and producer prices, the repricing rate showed no trend in the period 2005-19 but was more volatile in the short run. Fifth, small cyclical variations in frequency did not contribute much to fluctuations in aggregate inflation, which instead mainly reflected shifts in the average size of price changes. Consistent with idiosyncratic shocks as the main driver of price changes, aggregate disturbances affected inflation by shifting the relative number of firms increasing or decreasing their prices, rather than the size of price increases and decreases. JEL Classification: E3, E5
    Keywords: consumer prices, price stickiness, producer prices, scanner data.
    Date: 2023–07
  5. By: Jesus Crespo Cuaresma (Department of Economics, Vienna University of Economics and Business); Oscar Fernandez (Department of Economics, Vienna University of Economics and Business)
    Abstract: We examine the empirical determinants of sovereign yield synchronization dynamics in the European Monetary Union. Using a time-varying measure of (long-term) government bond yields synchronization and Bayesian Model Averaging methods, we show that the persistence of synchronization measures differs significantly between GIIPS countries (Portugal, Italy, Ireland, Greece, and Spain) and the rest of the monetary union, as well as across periods characterized by whether the zero lower bound of interest rates was binding or not and the post-Draghi whatever it takes era. The degree of synchronization in inflation rates with the rest of the currency area is a robust predictor of the synchronization of sovereign yields, as opposed to economic fundamentals describing the fiscal positions of individual countries. An out-of-sample forecasting exercise reveals that accounting for the most relevant economic fundamentals within the monetary union can lead to improvements in the directional accuracy of the forecasts of yield synchronization rates only for GIIPS countries.
    Keywords: Long-term government bond yields, European Monetary Union, Synchronization measures, Bayesian Model Averaging
    JEL: C11 C33 C52 F45 H63
    Date: 2023–07
  6. By: Marco Petracco Giudici (European Commission - JRC); Francesca Di Girolamo (European Commission - JRC)
    Abstract: The aim of this paper is to look at possible scenarios of demand for a retail-only euro central bank digital currency and assess their impact on bank’s balance sheets, to explore potential effects on bank’s intermediation capacity and financial stability. The European Central Bank, in the context of the Eurosystem investigative exercise, has tackled this issue by proposing a set of illustrative scenarios for the adoption of a Euro CBDC (see Adalid et al., 2022 and discussion therein). We expand their analysis to include more detailed results at country level by making use of individual banks data. For each demand scenario, we estimate the potential shock on deposits making use of MS-level data. We then apply these shocks at individual bank level and compare them to a set of alternative adjustment channels, including free reserves, wholesale funding and assets (deleveraging) to obtain a distribution of the ratio of shocks to different channels. Results show that per capita demand scenarios around 3 thousand euro do not seem to present risks for financial stability in the aggregate, though they present asymmetric impacts and could give raise to shifts in the structure of balance sheets and interbank markets.
    Keywords: finance, financial stability, central bank digital currency, digital euro, banks, banking, deposits
    Date: 2023–06
  7. By: Osbat, Chiara; Conflitti, Cristina; Eiglsperger, Martin; Goldhammer, Bernhard; Kuik, Friderike; Menz, Jan-Oliver; Rumler, Fabio; Moreno, Marta Saez; Segers, Lina; Wieland, Elisabeth; Bellocca, Gian-Pietro; Siliverstovs, Boriss; Touré, Anaëlle
    Abstract: This paper provides an extensive literature review and analyses some open issues in the measurement of inflation that can only be explored in depth using micro price data. It builds on the analysis done in the context of the ECB’s strategy review, which pointed at directions for improvement of the Harmonised Index of Consumer Prices (HICP), including better quantification of potential biases. Two such biases are the substitution bias and the quality adjustment bias. Most analyses of substitution bias rest on the concept of the cost of living, positing that preferences are stable, homogeneous and homothetic. Consumer behaviour is characterised by preference shifts and heterogeneity, which influence the measurement of the cost of living and substitution bias. Climate change may make the impact of preference shifts particularly relevant as it causes the introduction of new varieties of “green” goods and services (zero-kilometre food, sustainable tourism) and a shift from “brown” to “green” products. Furthermore, PRISMA data show that consumption baskets and thus inflation vary across income classes (e.g. higher-income households tend to buy more expensive goods), pointing to non-homotheticity of preferences. When preferences are heterogeneous and/or non-homothetic, it is important to monitor different experiences of inflation across classes of consumers/citizens. This is particularly important when very large relative price changes affect items that enter the consumption baskets of the rich and the poor, the young and the old, in very different proportions. Another open area of analysis concerns the impact of quality adjustment on measured inflation. Evidence based on web-scraped prices shows that the various implicit quality adjustment methods can produce widely varying inflation trends when product churn is fast. In the euro area specifically, using different quality adjustment methods can be an overlooked source of divergent inflation trends in sub-categories, and, if pervasive, shows up in overall measured inflation divergence across countries. JEL Classification: E31
    Keywords: consumer prices, heterogeneity, inflation, micro data
    Date: 2023–07
  8. By: Albanesi, Stefania; Da Silva, António Dias; Jimeno, Juan F.; Lamo, Ana; Wabitsch, Alena
    Abstract: We examine the link between labour market developments and new technologies such as artificial intelligence (AI) and software in 16 European countries over the period 2011-2019. Using data for occupations at the 3-digit level in Europe, we find that on average employment shares have increased in occupations more exposed to AI. This is particularly the case for occupations with a relatively higher proportion of younger and skilled workers. This evidence is in line with the Skill Biased Technological Change theory. While there exists heterogeneity across countries, only very few countries show a decline in employment shares of occupations more exposed to AI-enabled automation. Country heterogeneity for this result seems to be linked to the pace of technology diffusion and education, but also to the level of product market regulation (competition) and employment protection laws. In contrast to the findings for employment, we find little evidence for a relationship between wages and potential exposures to new technologies. JEL Classification: J23, O33
    Keywords: artificial intelligence, employment, occupations, skills
    Date: 2023–07
  9. By: Stöllinger, Roman; Leitner, Sandra M.; Zavarska, Zuzana
    Abstract: Specialisation in value-chain functions is one of the new phenomena introduced by global value chains and holds great potential for productivity gains. The advantages of global value chain integration, however, could be potentially countered by unfavourable functional specialisation. This study shows that functional specialisation in production activities ('fabrication') tends to hold back wages. For Central and East European EU member states, a specialisation as 'factory economies' could thus become a development trap.
    Keywords: GVC, FDI, social economy, global value chain
    Date: 2023
  10. By: Minford, Patrick (Cardiff Business School); Zhu, Zheyi (Cardiff Business School)
    Abstract: We estimate the short run effects of Brexit border disruption on the UK economy. We estimate a structural VAR for the UK where Brexit effects are identified by the dates of Brexit events, the referendum and the exit from the single market. We find evidence of short run effects of Brexit: temporary effects on GDP, exports and imports (slightly negative), and on inflation and interest rates (slightly positive). These effects are consistent with modest disruption from introducing a border with the EU- a border due to be made barrier-free and seamless by the UK-EU Trade and Cooperation Agreement. Previous work using other countries as comparators is vulnerable to identification difficulties. We also survey earlier modelling work on the long run effects of evolving policies of free trade, UK-sourced regulation and liberalised immigration. Models of long run trade suggest the emergence of substantial gains.
    Date: 2023–07
  11. By: Jäger, Julian
    Abstract: My paper analyzes the link between immigration and support for anti-immigrant parties in Europe. I assemble a unique data set on the share of foreigners for 356 regions in 26 European countries and construct a novel scale for the anti-immigrant position of political parties. I find that Europeans are less supportive of anti-immigrant parties in regions with a higher share of foreigners, consistent with group contact theory. The negative association is driven by Europeans with proredistribution attitudes and is stronger among those with tertiary education, who live in the city, are in the labor force, of younger age, and female. I address several endogeneity concerns, e.g., using a shift-share instrumental variable approach, which provides evidence for a causal channel.
    Keywords: Europe, Immigration, Political preferences
    JEL: D72 J15 Z13
    Date: 2023
  12. By: Guillochon, Justine; Le Roux, Julien
    Abstract: The Global Financial Crisis established that policymakers should consider the stage of the financial cycle to better evaluate the cyclical position of the economy when designing monetary policy decisions. If financial variables are omitted from the estimations of the output gap, a common and unobserved indicator of the business cycle, important financial or external imbalances that may lead to future recessions may not be captured. This paper presents a suite of estimates of output gaps incorporating financial variables. The estimates are based both on small unobserved components models and a large unobserved components model that follows a production function approach. The results show that exploiting the information content of financial variables, which co-move strongly with the output cycle, can sometimes improve output gap estimates. However, these improvements are of a limited magnitude and very sensitive to the choice of the chosen financial variables. JEL Classification: C32, E32, E44, E47, E52
    Keywords: financial cycle, monetary policy, Output gap, potential output, unobserved com-ponents model
    Date: 2023–07
  13. By: Matthias Fauth; Benjamin Jung; Wilhelm Kohler
    Abstract: In this paper, we zoom in on the firm level of German merchandise foreign trade, using a novel data base with information on the export and import value by firm, country, product and year for the period 2011-2019. Problems arising from the consolidated reporting of taxable entities and the reporting thresholds present in intra-EU trade have been largely eliminated through redistributions conducted by DESTATIS. Using the data, we examine how global German firms are by looking at the joint distribution of the number of products they trade and the number of countries they trade with. Moreover, we examine the importance of firms mainly engaged in trade intermediation, as opposed to production. Most importantly, we provide a rich description of heterogeneity among German firms by decomposing their trade relationships into intensive margins (value of trade) and extensive margins (number of firms, products and countries). We describe the distributions for each margin, distinguishing intra-EU and extra-EU trade as well as different firm types (producers, wholesalers, retailers). Finally, we reveal strong positive correlations between and within importing and exporting margins, supporting the presence of firm-level complementarities implied by recent theory.
    Keywords: trade statistics, firm-level data, trade intermediation, Germany
    JEL: F14 F23
    Date: 2023
  14. By: Pawel Baranowski; Hamza Bennani (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - ONIRIS - École nationale vétérinaire, agroalimentaire et de l'alimentation Nantes-Atlantique - IMT Atlantique - IMT Atlantique - IMT - Institut Mines-Télécom [Paris] - Nantes Univ - IAE Nantes - Nantes Université - Institut d'Administration des Entreprises - Nantes - Nantes Université - pôle Sociétés - Nantes Univ - Nantes Université - IUML - FR 3473 Institut universitaire Mer et Littoral - UM - Le Mans Université - UA - Université d'Angers - UBS - Université de Bretagne Sud - IFREMER - Institut Français de Recherche pour l'Exploitation de la Mer - CNRS - Centre National de la Recherche Scientifique - Nantes Université - pôle Sciences et technologie - Nantes Univ - Nantes Université - Nantes Univ - ECN - École Centrale de Nantes - Nantes Univ - Nantes Université); Wirginia Doryń
    Abstract: Using textual analysis and high-frequency financial data, this letter emphasizes the informativeness of the different communication phases of the ECB press conference, the Introductory Statement and the Questions & Answers, for market participants. Our results show that, while the tone of the Introductory Statement brings valuable information to stock market participants, the Questions & Answers were mostly informative after the Global Financial Crisis. Moreover, the announcement of unconventional measures triggers stronger reaction from market participants, particularly during the Questions & Answers.
    Keywords: central bank communication, financial markets, textual analysis
    Date: 2023–03
  15. By: Bode, Eckhardt; Dohse, Dirk; Stolzenburg, Ulrich
    Abstract: We investigate the effects of aging on regional productivity growth, the mechanisms and the strength of which are not well-understood. We focus on two different manifestations of population aging—workforce aging and an increasing share of retirees—and investigate channels through which aging may impact on regional productivity growth for a panel of German counties 2000–2019. We find that workforce aging is more negatively associated with productivity growth in urban than in nonurban regions. A likely reason is that aging is detrimental to innovative and knowledge-intensive activities, which are heavily concentrated in cities. We also find a negative association between the share of the retired population and productivity growth in regions with a small household services sector. A likely reason is that older people’s disproportionate demand for local household services (including health care, recreation) requires a re-allocation of resources from more productive manufacturing or business services to less productive household services. Regions specialized more in highly productive industries have more to lose in this process.
    Keywords: Workforce aging, Population aging, Productivity growth, Regional analysis, Germany
    JEL: E24 J11 J24 J26 R11
    Date: 2023

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