nep-eec New Economics Papers
on European Economics
Issue of 2023‒09‒25
eleven papers chosen by
Giuseppe Marotta, Università degli Studi di Modena e Reggio Emilia

  1. Preaching to the agnostic: Inflation reporting can increase trust in the central bank but only among people with weak priors By Bernd Hayo; Pierre-Guillaume Méon
  2. The Road to Paris: stress testing the transition towards a net-zero economy By Emambakhsh, Tina; Fuchs, Maximilian; Kördel, Simon; Kouratzoglou, Charalampos; Lelli, Chiara; Pizzeghello, Riccardo; Salleo, Carmelo; Spaggiari, Martina
  3. Sources of economic policy uncertainty in the euro area: a ready-to-use database By Andrés Azqueta-Gavaldón; Marina Diakonova; Corinna Ghirelli; Javier J. Pérez
  4. Effects of the ECB's communication on government bond spreads By Camarero Garcia, Sebastian; Neugebauer, Frederik; Russnak, Jan; Zimmermann, Lilli
  5. New technologies and jobs in Europe By Stefania Albanesi; António Dias da Silva; Juan F. Jimeno; Ana Lamo; Alena Wabitsch
  6. Measuring the attitude towards a European public budget: A cross-country experiment By Marco Catola; Pietro Guarnieri; Veronica Pizziol; Chiara Rapallini
  7. Fitting spatial stochastic frontier models in Stata By Manuel Llorca; Ana Rodriguez-Alvarez
  8. 'Ask not what your country can do for you': Legacies of the Great Recession and the consequences of the 'trust crisis' By Alia Aghajanian; Rute Martins Caeiro; Eva-Maria Egger; Patricia Justino; Maria C. Lo Bue
  9. Green risk in Europe By Nuno Cassola; Claudio Morana; Elisa Ossola
  10. Climate risk and investment in equities in Europe: a Panel SVAR approach By Andrea Cipollini; Fabio Parla
  11. The Impact of the Pandemic and War on Surplus Redistribution Mechanisms: A Sectoral Analysis of France and Italy By G. Garau; A.K. El Meligi

  1. By: Bernd Hayo; Pierre-Guillaume Méon
    Abstract: Using a randomized controlled trial, we study whether showing German respondents a graph plotting the European Central Bank’s inflation target alongside inflation in the euro area from 1999 to 2017 affects respondents’ trust in the ECB. The treatment has, on average, no significant effect on the level of trust in the ECB respondents report, but trust increases among respondents who report no preference for any political party. Within this group, the information about the actual development of the inflation rate, and not information about the inflation target itself, appears to be the main driving force.
    Keywords: Central bank trust; European Central Bank; Central bank communication; Monetary policy; Germany; Household survey; RCT
    JEL: E52 E58 Z10
    Date: 2023–08–31
  2. By: Emambakhsh, Tina; Fuchs, Maximilian; Kördel, Simon; Kouratzoglou, Charalampos; Lelli, Chiara; Pizzeghello, Riccardo; Salleo, Carmelo; Spaggiari, Martina
    Abstract: Transition to a carbon-neutral economy is necessary to limit the negative impact of climate change and has become one of the world’s most urgent priorities. This paper assesses the impact of three potential transition pathways, differing in the timing and level of ambition of emissions’ reduction, and quantifies the associated investment needs, economic costs and financial risks for corporates, households and financial institutions in the euro area. Building on the first ECB top-down, economy-wide climate stress test, this paper contributes to the field of climate stress testing by introducing three key innovations. First, the design of three short-term transition scenarios that combine the transition paths developed by the Network for Greening the Financial System (NGFS) with macroeconomic projections that allow for the latest energy-related developments. Second, the introduction of granular sectoral dynamics and energy-specific considerations by country relevant to transition risk. Finally, this paper provides a comprehensive analysis of the impact of transition risk on the euro area private sector and on the financial system, using a granular dataset that combines climate, energy-related and financial information for millions of firms with the euro area credit register and securities database and country-level data on households. By comparing different transition scenarios, the results of the exercise show that acting immediately and decisively would provide significant benefits for the euro area economy and financial system, not only by maintaining the optimal net-zero emissions path (and therefore limiting the physical impact of climate change), but also by limiting financial risk. An accelerated transition to a carbon-neutral economy would be helpful to contain risks for financial institutions and would not generate financial stability concerns for the euro area, provided that firms and households could finance their green investments in an orderly manner. However, the heterogeneous results across economic sectors and banks suggest that more careful monitoring of certain entity subsets and of credit exposures will be required during the transition process. JEL Classification: C53, C55, G21, Q47, Q54
    Keywords: climate scenarios, climate stress test, energy, transition risk
    Date: 2023–09
  3. By: Andrés Azqueta-Gavaldón (Banco de España); Marina Diakonova (Banco de España); Corinna Ghirelli (Banco de España); Javier J. Pérez (Banco de España)
    Abstract: In this paper, we build a publicly-available database of economic policy uncertainty (EPU) indicators based on the methodology proposed by Azqueta-Gavaldón, Hirschbühl, Onorante and Saiz (2023), which uses topic modelling techniques to identify distinct components of EPU. This database is regularly updated and can be accessed on the Banco de España’s website. Currently, the dataset covers the four largest countries in the euro area, namely Spain, Italy, France, and Germany. Our data coverage is continually expanding to include more euro area countries. Additionally, we compute the aggregated EPU indexes for the euro area. This comprehensive dataset and the resulting euro area indexes provide valuable tools for researchers, policymakers and analysts to assess and monitor the dynamics of economic policy uncertainty in real time.
    Keywords: economic policy uncertainty, euro area, machine learning, Latent Dirichlet Allocation, word embeddings
    JEL: D80 E20 E66 G18
    Date: 2023–07
  4. By: Camarero Garcia, Sebastian; Neugebauer, Frederik; Russnak, Jan; Zimmermann, Lilli
    Abstract: This paper investigates the financial market effects of the ECB's communication on the Pandemic Emergency Purchase Programme (PEPP). Using data for 10 euro area countries, we first analyse the impact of different communication channels such as press releases, ECB blog contributions, speeches and interviews on changes in government bond spreads. Second, we assess whether spreads react differently to communication by specific ECB Executive Board members. Markets turn out to be sensitive to both the communication channel and the communicating ECB Executive Board member.
    Keywords: Event study, central bank communication, ECB, PEPP, sovereign yields
    JEL: E52 E58 G14
    Date: 2023
  5. By: Stefania Albanesi (University of Pittsburgh, NBER and CEPR); António Dias da Silva (European Central Bank); Juan F. Jimeno (Banco de España, Universidad de Alcalá, CEMFI, CEPR and IZA); Ana Lamo (European Central Bank); Alena Wabitsch (University of Oxford)
    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 is heterogeneity across countries, very few countries show a decline in the employment shares of occupations more exposed to AI-enabled automation. Country heterogeneity for this result appears 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 any correlation between wages and potential exposures to new technologies.
    Keywords: artificial intelligence, employment, skills, occupations
    JEL: J23 O33
    Date: 2023–08
  6. By: Marco Catola; Pietro Guarnieri; Veronica Pizziol; Chiara Rapallini
    Abstract: We use a multilevel public goods game to investigate attitudes towards national public budgets and a European public budget in six Member States of the European Union: Italy, Germany, France, The Netherlands, Poland, and Portugal. We test to what extent propensities to contribute to public goods differ across countries. Using two efficiency treatments, we also test whether each country group adjusts its contribution when the relative efficiency of the public goods changes. We find no differences across countries in the propensity to contribute to either public budget. Moreover, all country groups level up their contribution to the European public good following an increase in its relative efficiency. We also devise a questionnaire to assess the impact of a sense of identity on contribution decisions and to control for the impact of COVID-19 and the current war in Ukraine on country and EU perceptions.
    Keywords: multilevel public goods game, public budget, European Union, online experiment, efficiency; social dilemma
    JEL: C90 H41 H61
    Date: 2023–09–01
  7. By: Manuel Llorca; Ana Rodriguez-Alvarez
    Abstract: The European Union has committed to make Europe the first climate-neutral continent by 2050. Reaching this objective implies massive changes in the economies of the region. The biggest challenge of this green transition is to make sure that it happens without sacrificing economic progress and guaranteeing justice and inclusiveness. This pledge requires that every country be capable of addressing the trade-offs between the targets while remaining committed towards the common decarbonisation goal. This paper analyses the success with which European countries are carrying out the energy transition. We propose an enhanced hyperbolic distance function and a stochastic frontier analysis approach to model the joint attainment of economic development, environmental sustainability, and energy equity. We apply our model to an unbalanced panel dataset of 29 European countries for the period 2005-2018. Our estimates show that the average performance of the European economies has improved throughout the studied period. However, the patterns of progress have been different, showing the non-EU-15 countries a steeper evolution than the EU-15 countries. Our results also highlight the pivotal role of a sustainable economic development with clean energies for both slashing CO2 emissions and fostering energy equity. Moreover, we find sigma convergence, being this slightly higher for the EU-15 countries. Additionally, we obtain absolute and conditional beta convergence for both non-EU-15 and EU-15 countries. Finally, we show that a higher share of renewable energy sources helps countries that are lagging behind to reach their optimal level of performance.
    Date: 2023
  8. By: Alia Aghajanian; Rute Martins Caeiro; Eva-Maria Egger; Patricia Justino; Maria C. Lo Bue
    Abstract: This paper investigates how persistent changes in trust caused by the Great Recession have affected how governments and citizens across Europe responded to the next global crisis: the COVID-19 pandemic. We show that increases in individualism and mistrust towards institutions caused by individual exposure to the 2007-08 global financial crisis across European regions shaped citizens' responses to public health policies to curtail the spread of the COVID-19 pandemic almost 15 years later.
    Keywords: Trust, Social contract, Recession, Public health, COVID-19
    Date: 2023
  9. By: Nuno Cassola (CEMAPRE, University of Lisbon, Portugal; Center for European Studies, University of Milano-Bicocca, Italy); Claudio Morana (Center for European Studies, University of Milano-Bicocca, Italy; Rimini Centre for Economic Analysis; CeRP, Collegio Carlo Alberto, Italy); Elisa Ossola (Center for European Studies, University of Milano-Bicocca, Italy; Rimini Centre for Economic Analysis)
    Abstract: Climate change poses serious economic, financial, and social challenges to humanity, and green transition policies are now actively implemented in many industrialized countries. Whether financial markets price climate risks is critical to ensuring that the necessary funding flows into environmentally sound projects and that stranded assets risk is adequately managed. In this paper, we assess climate risks for the European stock market within the context of Alessi et al. (2023) greenness and transparency factor. We show that measures of returns spreads of green vs. brown investment might reflect climate risks and assets' exposition to systematic macro-financial risk factors. These latter factors should be filtered out to measure climate risks accurately. We show that climate risks are priced in the European stock market by focusing on aggregate, industry, and company-level data. We propose a market-based green rating procedure, which might be of particular interest to evaluate non-transparent and non-disclosing companies for which ESG information is unavailable. We illustrate its implementation using a sample of over 800 non-transparent firms.
    Keywords: Climate risk, environmental disclosure, macro-finance interface, unconditional factor models, asset pricing, European Union
    JEL: G01 G11 G12 Q54
    Date: 2023–09
  10. By: Andrea Cipollini; Fabio Parla
    Abstract: In this study, we use data on European stocks to construct a green-minus-brown portfolio hedging climate risk and to evaluate its performance in terms of cumulative expected and unexpected returns. More specifically, we estimate a Structural Panel VAR fitted to one month return and realized volatility computed for 40 constituents of a green portfolio (i.e., the low carbon emission portfolio monitored by Refinitiv) and for 41 constituents of a brown portfolio (underlying the Oil&Gas and Utilities industry sectors of the STOXX Europe 600). The common shocks underlying the cross-sectional averages, interpreted as portfolio shocks, are retrieved in a first stage of the analysis and they are used to control for cross-sectional dependence. We compute the historical decomposition (for cumulative returns) in a second stage of the analysis and we find, in line with P´astor, L., Stambaugh, R. F., & Taylor, L. A. (2022). Dissecting green returns. Journal of Financial Economics, 146 (2), 403–424, an out-performance of the expected component of the brown portfolio relative to the one for the green portfolio, and an out-performance of the green portfolio when we turn our focus on the unexpected component. We also extend the analysis of P´astor et al. (2022), assessing, for the top 5 constituents of the green portfolio (e.g., those which are found to have the worst performance in terms of expected return), the role played by idiosyncratic shocks in shaping their out-performance in terms of unexpected component. Finally, after exploiting the non-gaussian time series properties of the financial time series considered for the purpose of statistical identification, we are able to interpret ex post the idiosyncratic shocks in terms of financial leverage and risk aversion.
    Keywords: Climate risk, green and brown portfolios, portfolio shocks, Panel VAR
    JEL: C33 C58 Q54
    Date: 2023–09
  11. By: G. Garau; A.K. El Meligi
    Abstract: The past three years have witnessed two rare events, the pandemic and the Ukrainian war, which have had significant impacts on the redistribution of surplus. Although both events were exceptional, they affected the surplus redistribution mechanisms differently. The pandemic has raised concerns about globalization processes, leading to a redefinition of global value chains. Conversely, the war has had devastating effects on populations, non-compliance with international laws, and cost inflation, similar to the oil crises of the 1970s. Interestingly, while production systems have scaled back in response to the pandemic, online sales, and the procurement of vaccines and medicines have grown exponentially on a global scale. In contrast, the war has caused certain goods, such as energy, agriculture, and electronics, to become scarce, causing problems in value chains and our daily lives. This paper aims to investigate the period between 2010 and 2019, corresponding to the interval between the 2008 crisis and the 2019 breakdown, to better understand the relationships between productive sectors and economic agents in France and Italy. Using the Input-Output Tables (IOT) at current and constant prices produced by the respective national statistical systems, we will analyze how the pandemic and the war could affect distributional rules, using Fontela s (1989) and Garau s (1996) methods. Fontela s model establishes the distributional rule of productivity gain in the input-output context, while Garau s proposed model identifies a measure of surplus, called purchasing power transfer (PPT), which accounts for the extra-profit conditions resulting from rental positions held by agents (Market Surplus). By analyzing the Total Factor Productivity Surplus (TFPS) and Market Surplus measures, policymakers can understand the degree of non-competitiveness in different markets and the impact of the pandemic and the war on sectoral redistribution mechanisms. Limiting market surplus situations and eliminating barriers that protect specific sectors can prevent hindrances to the full revival of the economy. Although the pandemic and the war have global effects, this paper emphasizes the importance of studying redistribution mechanisms at the sectoral level. Understanding sectoral relations can help create a more equitable redistribution of the benefits of economic growth and identify the mechanisms and rules necessary to counteract the observed global issues.
    Keywords: input-output;Total Factor Productivity Surplus;relative prices
    Date: 2023

This nep-eec issue is ©2023 by Giuseppe Marotta. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.