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on European Economics |
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Issue of 2023‒10‒30
fourteen papers chosen by Giuseppe Marotta, Università degli Studi di Modena e Reggio Emilia |
| By: | Ehrmann, Michael; Gnan, Phillipp; Rieder, Kilian |
| Abstract: | Leaks of confidential information emanating from public institutions have been the focus of a long-standing line of research. Yet, their determinants as well as their potential impact on public views and on policy effectiveness remain elusive. To address this gap, we study leaks from central banks because their effects are instantaneously reflected in financial markets. Based on a novel database of anonymous monetary policy leaks in the euro area as reported by newswires, we provide evidence that many of these leaks are likely placed by individual insiders with minority opinions. While we find that leaks have large effects on markets and weaken official policy announcements, our results also suggest that leaks do not lock in decision-makers, and that attributed communication can mitigate some of their effects. JEL Classification: D83, E52, E58, G14, H83 |
| Keywords: | central bank communication, European Central Bank, leaks, media, monetary policy |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232846&r=eec |
| By: | Schuster, Florian |
| Abstract: | This paper studies the emergence of sovereign bond yield spreads in the Eurozone prior to the financial crisis. While spreads were close to zero in European government debt markets until the mid-2000s, they have persistently widened since then in many member states. We employ a difference-in-differences approach to analyze this phenomenon. We find that the Eurosystem's move from unconditional to conditional collateral eligibility of sovereign bonds, as part of the 2005 Single List reform, was the institutional change triggering the emergence of sovereign spreads in the Euro Area. Conditional eligibility becomes effective predominantly through a periphery premium: higher yields have been demanded from countries whose business cycles deviate most from the average Eurozone cycle. In contrast, spreads did not arise in response to adverse macroeconomic and fiscal fundamentals. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dzimps:277915&r=eec |
| By: | Le Bihan, Hervé; Leiva-Leon, Danilo; Pacce, Matías |
| Abstract: | We propose a new measure of underlying inflation that informs, in real time, about asymmetric risks on the outlook of inflationary pressures. The asymmetries are generated through nonlinearities induced by economic activity. The new indicator is based on a multivariate regime-switching framework jointly estimated on disaggregated sub-components of the euro area HICP and has several additional advantages. First, it is able to swiftly infer abrupt changes in underlying inflation. Second, it helps to timely track turning points in underlying inflation. Third, the proposed indicator also has a satisfactory performance with respect to various criteria relevant for inflation monitoring. JEL Classification: E17, E31, C11, C22, C24 |
| Keywords: | asymmetric risks, Bayesian methods, regime-switching, underlying inflation |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232848&r=eec |
| By: | Wang, Chendi (Vrije Universiteit Amsterdam); Ferrara, Federico Maria; Sattler, Thomas (University of Geneva) |
| Abstract: | In the wake of the Great Recession, European governments implemented harsh fiscal austerity measures to restore economic confidence. Yet, the economic success of these policies varied significantly. This raises the question of whether and under what conditions austerity is an effective policy strategy to restore economic stability. This study shows that the impact of austerity on economic confidence is conditioned by an important political factor, namely the electoral strength of the government. Our macro-level time series analysis tracks the impact of austerity announcements on economic confidence over time in 15 European countries during the Great Recession, showing that austerity leads to a decrease in economic confidence. However, the negative impact is substantially smaller when austerity is announced by an electorally strong government vis-à-vis a fragile one. Our individual-level survey experiment with a total of 7, 500 respondents in France, Germany, Italy, the Netherlands and Spain indicates that the negative effects of spending cuts on both pocketbook and sociotropic concerns are particularly pronounced when austerity policies are announced by governments that are losing electoral support. Austerity, therefore, is perceived as more credible and effective when carried out by electorally strong governments compared to weak ones. |
| Date: | 2023–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:93ceq&r=eec |
| By: | Clifton-Sprigg, Joanna (University of Bath); Homburg, Ines (University of Antwerp); James, Jonathan (University of Bath); Vujic, Suncica (University of Antwerp) |
| Abstract: | By voting to leave the European Union (EU) in 2016, the United Kingdom (UK) set off a long period of uncertainty and signalled its support for the Leave campaigns, which centred around restricting migration. This paper researches how this decision affected EU-UK migration patterns. We exploit the Brexit referendum as a natural experiment and employ a (synthetic) difference-in-differences estimator to compare EU migration (treated) to non-EU migration (untreated) in the UK. We find a significant decrease in the inflow of EU migrants, although the reduction seems too small to have any impact on the migrant stock. We further find a significant persistent rise in British citizenship applications and grants. Our results reveal that the referendum made the UK a less attractive destination and that the EU migrants already in the UK were encouraged to obtain British citizenship. The Brexit-induced policy uncertainty was the key driver affecting migrants' decision-making. |
| Keywords: | Brexit referendum, international migration, European Union, uncertainty, anti-immigration |
| JEL: | F22 J61 J48 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16468&r=eec |
| By: | Wagner, Joachim |
| Abstract: | The use of big data analytics (including data mining and predictive analytics) by firms can be expected to increase productivity and reduce trade costs, which should be positively related to export activities. This paper uses firm level data from the Flash Eurobarometer 486 survey conducted in February - May 2020 to investigate the link between the use of big data analytics and export activities in manufacturing enterprises from the 27 member countries of the European Union. We find that firms which use big data analytics do more often export, do more often export to various destinations all over the world, and do export to more different destinations. The estimated big data analytics premia for exports are statistically highly significant after controlling for firm size, firm age, patents, and country. Furthermore, the size of these premia can be considered to be large. Successful exporters tend to use big data analytics. |
| Keywords: | Big data analytics, exports, firm level data, Flash Eurobarometer 486 |
| JEL: | D22 F14 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:kcgwps:28&r=eec |
| By: | Benmir, Ghassane; Jaccard, Ivan; Vermandel, Gauthier |
| Abstract: | This paper studies the design of Ramsey optimal monetary policy in a Health New Keynesian (HeNK) model with Susceptible, Infected and Recovered (SIR) agents. The nonlinear model is estimated with maximum likelihood techniques on Euro Area data. Our objective is to deconstruct the mechanism by which contagion risk affects the conduct of monetary policy. If monetary policy is the only game in town, we find that the optimal policy features significant deviations from price stability to mitigate the effect of the pandemic. The best outcome is obtained when the optimal Ramsey policy is combined with a lockdown strategy of medium intensity. In this case, monetary policy can concentrate on its price stabilization objective. JEL Classification: E52, E32 |
| Keywords: | Covid-19, HeNK, macroeconomic trade-offs, nonlinear inference, Tin-bergen principle |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232847&r=eec |
| By: | Dario Guarascio; Jelena Reljic; Roman Stoellinger |
| Abstract: | This study provides evidence of the employment impact of AI exposure in European regions, addressing one of the many gaps in the emerging literature on AI's effects on employment in Europe. Building upon the occupation-based AI-exposure indicators proposed by Felten et al. (2018, 2019, 2021), which are mapped to the European occupational classification (ISCO), following Albanesi et al. (2023), we analyse the regional employment dynamics between 2011 and 2018. After controlling for a wide range of supply and demand factors, our findings indicate that, on average, AI exposure has a positive impact on regional employment. Put differently, European regions characterised by a relatively larger share of AI-exposed occupations display, all else being equal and once potential endogeneity concerns are mitigated, a more favourable employment tendency over the period 2011-2018. We also find evidence of a moderating effect of robot density on the AI-employment nexus, which however lacks a causal underpinning. |
| Keywords: | Artificial intelligence; industrial robots; labour; regional employment; occupations |
| JEL: | J21 J23 O33 R1 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:sap:wpaper:wp243&r=eec |
| By: | Petar Sorić (Faculty of Economics and Business, University of Zagreb.); Oscar Claveira (AQR-IREA Research Group. Departament d’Econometria, Estadística i Economia Aplicada. Universitat de Barcelona. Av. Diagonal, 690. 08034 Barcelona. Spain.) |
| Abstract: | This paper investigates the adjustment of government redistributive policies in Scandinavian countries following changes in income inequality over the period 1980-2021. We use two complementary measures of inequality: the share of total income accruing to top percentile income holders, as well as the ratio of the share of total income accruing to top decile income holders divided by that accumulated by the bottom 50%. We find that the sign of the relationship between inequality and redistribution is mostly positive and time-varying. We also find significant evidence that redistributive measures in the form of taxes and government transfers adjust more rapidly in an upward than a downward direction, with the exception of Norway. We obtain a significant long-run relationship between both variables in Iceland and Sweden, while in Norway it just holds for the short run. |
| Keywords: | Income inequality, Redistributive policy, Taxes, Government transfers. JEL classification: C50, D30, E62, H50. |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:202310&r=eec |
| By: | Despina Gavresi (DEM, Université du Luxembourg); Andreas Irmen (DEM, Université du Luxembourg); Anastasia Litina (University of Macedonia, Thessaloniki, GR) |
| Abstract: | In the light of the rise in populism in Europe, this paper empirically explores the interplay between population aging and populist attitudes. We test this hypothesis by conducting a multilevel analysis of individuals living in European countries over the period 2002-2019. Our measure of population aging is the country’s old-age dependency ratio, thus we focus on population or societal aging as opposed to individual aging. Populist attitudes are derived from individual-level data that provide information about voting for populist parties, political trust and attitudes towards immigration available in nine consecutive rounds of the European Social Survey. Our findings suggest that societal aging is associated with a fall in trust in national and European institutions and a rise in attitudes against immigrants. There are two potential mechanisms driving our results. First, a shift in the median voter age. Older people tend to be more conservative, voting more for right-wing populist parties and this is reflected on the median vote and attitude as well. The second mechanism appeals to the impact that the presence of the “old” group in the society has on the society and the economy as a whole, it is thus more of an “externality” effect. Living in an aging society, young people are aware of the fact that they have to cater for a large share of old people and this gives rise to different incentives and attitudes compared to individuals living in “young” societies |
| Keywords: | Population Aging, Populist Vote, Immigrant Attitudes, Trust. |
| JEL: | D72 J10 P16 Z13 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:23-10&r=eec |
| By: | Natascha Hinterlang (Deutsche Bundesbank and Banco de España) |
| Abstract: | Using the dynamic, three-region environmental multi-sector general equilibrium model EMuSe, we find that pricing carbon in Germany or Spain only leads to a permanent negative effect on output in these economies. The induced emissions reduction is not large enough to overcompensate for the increase in marginal production costs. If the rest of Europe joins the carbon pricing scheme, long-run output effects are positive. However, in this case, transition costs are even larger due to close trade relations within Europe. We find evidence for carbon leakage, which can be reduced slightly by a border adjustment mechanism. Still, it is no game changer as it mainly protects dirty domestic sectors. While Germany benefits from border adjustment, Spain actually loses throughout the transition. In the long run, the Spanish energy sector benefits most because of its relatively low emission intensity. Finally, Europe has a strong incentive to get the rest of the world on board as then the downturn is shorter and long-run benefits are larger. |
| Keywords: | carbon pricing, border adjustment, climate clubs, international dynamic general equilibrium model, sectoral heterogeneity, input-output matrix |
| JEL: | E32 E62 F42 H32 Q58 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2328&r=eec |
| By: | Cole, Stephen J.; Martinez-Garcia, Enrique; Sims, Eric (Department of Economics Marquette University; Department of Economics Marquette University) |
| Abstract: | This paper studies the effectiveness of forward guidance when central banks have imperfect credibility. Exploiting unique survey-based measures of expected inflation, output growth, and interest rates, we estimate a small-scale New Keynesian model for the United States and other G7 countries plus Spain allowing for deviations from full information rational expectations. In our model, the key parameter that aggregates heterogeneous expectations captures the central bank's credibility and affects the over-all effectiveness of forward guidance. We find that the central banks of the U.S., the U.K., Germany, and other major advanced economies have similar levels of credibility (albeit far from full credibility); however, Japan's central bank credibility is much lower. For each country, our measure of credibility has declined over time, making forward guidance less effective. In a counterfactual analysis, we document that inflation would have been significantly higher, and the zero lower bound on short-term interest rates much less of an issue, in the wake of the Global Financial Crisis had the public perceived central bank forward guidance statements to be perfectly credible. Moreover, inflation would have declined more, and somewhat faster, with perfect credibility in the wake of the inflation surge post-COVID-19. |
| Keywords: | Forward guidance, central bank credibility, heterogeneous expectations |
| JEL: | D84 E30 E52 E58 E60 P52 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:mrq:wpaper:2023-04&r=eec |
| By: | Mathias Silva (ENS Lyon, France and Aix Marseille Univ, CNRS, AMSE, Marseille, France); Michel Lubrano (Aix Marseille Univ, CNRS, AMSE, Marseille, France) |
| Abstract: | Survey data are known for under-reporting rich households while providing large information on contextual variables. Tax data provide a better representation of top incomes at the expense of lacking any contextual variables. So the literature has developed several methods to combine the two sources of information. For Pareto imputation, the question is how to chose the Pareto model for the right tail of the income distribution. The Pareto I model has the advantage of simplicity. But Jenkins (2017) promoted the use of the Pareto II for its nicer properties, reviewing three different approaches to correct for missing top incomes. In this paper, we propose a Bayesian approach to combine tax and survey data, using a Pareto II tail. We build on the extreme value literature to develop a compound model where the lower part of the income distribution is approximated with a Bernstein polynomial truncated density estimate while the upper part is represented by a Pareto II. This provides a way to estimate the threshold where to start the Pareto II. Then WID tax data are used to build up a prior information for the Pareto coefficient in the form of a gamma prior density to be combined with the likelihood function. We apply the methodology to the EU-SILC data set to decompose the Gini index. We finally analyse the impact of top income correction on the Growth Incidence Curve between 2008 and 2018 for a group of 23 European countries. |
| Keywords: | Bayesian inference, Pareto II, profile likelihood, Bernstein density estimation, top income correction, EU-SILC |
| JEL: | C11 D31 D63 I31 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:2320&r=eec |
| By: | Agar Brugiavini (Department of Economics, University Of Venice CÃ Foscari; Institute for Fiscal Studies); Petru Crudu (Department of Economics, University Of Venice CÃ Foscari) |
| Abstract: | This work documents the role played by disability insurance, typically part of a wider public pension provision package, on the labour market trajectories and retirement decisions. We will first employ a machine learning approach to estimate a Transition Probability Model able to uncover the most likely labour market histories and then evaluate the effects of policy reforms, including reforms to the eligibility for disability insurance benefits. The main contribution is the introduction of disability insurance programs within a framework, which models the entire life course of older Europeans. This requires the detailed administrative eligibility criteria prevailing in each of the 11 countries from 1970 to 2017. Results show that the disability route and early retirement are substitutes. In addition, tightening eligibility rules of disability programs crowd out disabled workers, whose reductions in working capacities are correctly assessed, towards other compensatory schemes (e.g., unemployment benefits or early pension) in which working is not expected. On the contrary, individuals with over-assessed reductions in working capacities are the most reactive to disability policy restrictions. In conclusion, efficient disability assessment procedures are crucial for incentivising labour market participation without hurting individuals most in need. |
| Keywords: | Retirement, Disability, Path Dependence, Simulation |
| JEL: | J14 J26 I38 H55 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2023:20&r=eec |