nep-eec New Economics Papers
on European Economics
Issue of 2023‒11‒06
sixteen papers chosen by
Giuseppe Marotta, Università degli Studi di Modena e Reggio Emilia

  1. BEAST: A model for the assessment of system-wide risks and macroprudential policies By Budnik, Katarzyna; Groß, Johannes; Vagliano, Gianluca; Dimitrov, Ivan; Lampe, Max; Panos, Jiri; Velasco, Sofia; Boucherie, Louis; Jančoková, Martina
  2. Price setting on the two sides of the Atlantic: evidence from supermarket-scanner data By Karadi, Peter; Amann, Juergen; Bachiller, Javier Sánchez; Seiler, Pascal; Wursten, Jesse
  3. Artificial Intelligence and Central Bank Communication: The Case of the ECB By Nicolas Fanta; Roman Horvath
  4. One question at a time! A text mining analysis of the ECB Q&A session By Angino, Siria; Robitu, Robert
  5. Changing patterns of risk-sharing channels in the United States and the euro area By Cimadomo, Jacopo; Giuliodori, Massimo; Lengyel, Andras; Mumtaz, Haroon
  6. Inflation, fiscal policy and inequality By Basso, Henrique S.; Flevotomou, Maria; Freier, Maximilian; Pidkuyko, Myroslav; Amores, Antonio F.; Bischl, Simeon; De Agostini, Paola; De Poli, Silvia; Dicarlo, Emanuele; Maier, Sofia; García-Miralles, Esteban; Ricci, Mattia; Riscado, Sara
  7. Do Interest-growth Differentials Affect Fiscal Policy? Evidence for Advanced Economies By Philipp Heimberger
  8. The Impact of Immigration on the Employment Dynamics of European Regions By Edo, Anthony; Özgüzel, Cem
  9. Estimating systemic risk for non-listed euro-area banks By Engle, Robert F.; Emambakhsh, Tina; Manganelli, Simone; Parisi, Laura; Pizzeghello, Riccardo
  10. Monetary policy spillovers and the role of prudential policies in the European Union By Coman, Andra
  11. Do Search Engines Increase Concentration in Media Markets? By Joan Calzada; Nestor Duch-Brown; Ricard Gil
  12. Automation and Income Inequality in Europe By Doorley, Karina; Gromadzki, Jan; Lewandowski, Piotr; Tuda, Dora; Van Kerm, Philippe
  13. Who gets jobs matters: monetary policy and the labour market in HANK and SAM By Herman, Uroš; Lozej, Matija
  14. Living Up to Expectations: Central Bank Credibility, the Effectiveness of Forward Guidance, and Inflation Dynamics Post-Global Financial Crisis By Stephen Cole; Enrique Martinez-Garcia; Eric R. Sims
  15. The Consequences of Export Demand Shocks in Swedish and Finnish Exporters By Maczulskij, Terhi; Nilsson Hakkala, Katariina
  16. Learning from experts: Energy efficiency in residential buildings By Billio, Monica; Casarin, Roberto; Costola, Michele; Veggente, Veronica

  1. By: Budnik, Katarzyna; Groß, Johannes; Vagliano, Gianluca; Dimitrov, Ivan; Lampe, Max; Panos, Jiri; Velasco, Sofia; Boucherie, Louis; Jančoková, Martina
    Abstract: The Banking Euro Area Stress Test (BEAST) is a large-scale semi-structural model developed to analyse the euro area banking system from a macroprudential perspective. The model combines the dynamics of approximately 90 of the largest euro area banks with those of individual euro area economies. It reflects the heterogeneity of banks by replicat-ing the structure of their balance sheets and profit and loss accounts. Additionally, it allows banks to adjust their assets, funding mix, pricing decisions, management buffers, and profit distribution along with individual bank conditions, including their capital and liquidity re-quirements, and other supervisory limits. The responses of banks impact credit supply con-ditions and have feedback effects on the macroeconomic environment. Stochastic solutions of the model provide a solid foundation for investigating multiple scenarios, deriving at-risk measures, and estimating model uncertainty. The model is regularly utilised to assess the resilience of the euro area banking sector, including in the biennial ECB macroprudential stress tests, as well as to analyse the effects of regulatory, macroprudential, and monetary policy changes. JEL Classification: E37, E58, G21, G28
    Keywords: banking sector deleveraging, macroprudential policy, macro stress test, real economy-financial sector feedback loop
    Date: 2023–10
  2. By: Karadi, Peter; Amann, Juergen; Bachiller, Javier Sánchez; Seiler, Pascal; Wursten, Jesse
    Abstract: We compare supermarket price setting in the US and the euro area and assess its impact on food inflation. We introduce a novel scanner dataset of Germany, the Netherlands, France, and Italy (EA4) and contrast it with an equivalent dataset from the US. We find that both higher frequency and stronger state dependence of price changes contribute to higher flexibility of supermarket inflation in the US relative to the euro area. We argue that the driving force behind both factors is higher cross-sectional volatility in the US. Larger product-level fluctuations both force retailers to adjust prices more frequently and increase price misalignments, which increase the selection of large price changes. [...] JEL Classification: E31, E32, E52, F44
    Keywords: COVID-19, duration hazard, food inflation, generalized hazard, state-dependent price setting, US and euro-area comparison
    Date: 2023–10
  3. By: Nicolas Fanta (Institute of Economic Studies, Charles University, Prague); Roman Horvath (Institute of Economic Studies, Charles University, Prague)
    Abstract: We examine whether artificial intelligence (AI) can decipher European Central Bank´s communication. Employing 1769 inter-meeting verbal communication events of the European Central Bank´s Governing Council members, we construct an AI-based indicator evaluating whether communication is leaning towards easing, tightening or maintaining the monetary policy stance. We find that our AI-based indicator replicates well similar indicators based on human expert judgment but at much higher speed and at much lower costs. Using our AI-based indicator and a number of robustness checks, our regression results show that ECB communication matters for the future monetary policy even after controlling for financial market expectations and lagged monetary policy decisions.
    Keywords: Artificial intelligence, central bank communication, monetary policy
    JEL: E52 E58
    Date: 2023–09
  4. By: Angino, Siria; Robitu, Robert
    Abstract: News media play a fundamental role in the communication between central banks and the public. Besides stimulating institutional transparency, the reporting of the news media on a central bank’s activities is also the main source of information about the institution for most citizens. To better understand how this intermediation process works, this paper explores the Q&A session of the European Central Bank (ECB)’s press conferences, where journalists have an opportunity to set the discussion and inquire into the central bank’s thinking. Using a structural topic model on a novel dataset consisting of all questions asked at ECB press conferences since May 2012, we conduct a systematic examination of the topics the ECB is questioned about and uncover differences in the focus of outlets from different geographical areas and with different types of audiences. We find that international outlets devote more attention to technical topics, relevant for market participants, while domestic media in the European Union (EU) dedicate greater focus to national affairs and the more political dimensions of the ECB’s activities. JEL Classification: E52, E58, E59
    Keywords: Central bank communication, European Central Bank, media, Structural Topic Modelling
    Date: 2023–10
  5. By: Cimadomo, Jacopo; Giuliodori, Massimo; Lengyel, Andras; Mumtaz, Haroon
    Abstract: In this paper, we assess how risk-sharing channels have evolved over time in the United States and the Euro Area, and whether they have operated as ‘complements’ or ‘substitutes’. In particular, we focus on the capital channel (income from cross-border ownership of productive assets), the credit channel (interstate or cross-country bank lending), and the fiscal channel (federal or international fiscal transfers). We offer three main contributions. First, we propose a time-varying parameter panel VAR model, with stochastic volatility, which allows us to formally quantify time variation in risk-sharing channels. Second, we develop a new test of the complementarity vs. substitutability hypothesis of the three risk-sharing channels, based on the correlation between the impulse responses of these channels to idiosyncratic output shocks. Third, for the United States, we explain time variation in the risk-sharing channels based on some key macroeconomic and financial variables. JEL Classification: C11, C33, E21, E32
    Keywords: complementarity, risk-sharing channels, substitutability, time variation
    Date: 2023–10
  6. By: Basso, Henrique S.; Flevotomou, Maria; Freier, Maximilian; Pidkuyko, Myroslav; Amores, Antonio F.; Bischl, Simeon; De Agostini, Paola; De Poli, Silvia; Dicarlo, Emanuele; Maier, Sofia; García-Miralles, Esteban; Ricci, Mattia; Riscado, Sara
    Abstract: This paper analyses the distributional impact of high consumer inflation in the euro area and government measures to compensate households in 2022. The study uses the tax-benefit microsimulation model for the European Union (EUROMOD) with microdata as the input – EU statistics on income and living conditions (EU-SILC) and household budget surveys (HBS) – to quantify the distributional impact of inflation, income support measures and measures aimed at containing prices. The analysis confirms that purchasing power and welfare were more severely affected by the 2022 inflation surge in lower-income households than in higher-income households. Fiscal measures compensated households for about a third of their welfare loss, though with significant differences between countries. At the same time, fiscal measures closed around 60% of the inequality gap between lower and higher-income households. Most fiscal measures were not particularly well targeted at low-income households, resulting in a higher than necessary fiscal burden to cushion the distributional impact of the inflationary shock. JEL Classification: D12, D31, D60, E31, H20, I30
    Keywords: distributional effect, EUROMOD, fiscal policy, inflation, welfare effect
    Date: 2023–10
  7. By: Philipp Heimberger (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This paper analyses the link between discretionary fiscal policy and interest-growth differentials (r-g). Panel regressions based on a dataset for 20 advanced countries over the years 1990-2019 reveal no evidence of a systematic linear relationship between fiscal policy and r-g. However, more unfavourable r-g differentials are linked more strongly to a tighter fiscal stance when public-debt-to-GDP ratios are higher – but only in the euro area, not in advanced stand-alone countries issuing government debt in their own currency.
    Keywords: Public debt, fiscal deficits, interest-growth differentials, fiscal policy
    JEL: E43 E62 F33
    Date: 2023–10
  8. By: Edo, Anthony (CEPII, Paris); Özgüzel, Cem (OECD)
    Abstract: This paper provides the first evidence on the regional impact of immigration on native employment in a cross-country framework. By exploiting the richness of the European Labour Force Surveys and past censuses, we show that the rise in the share of immigrants across European regions over the 2010-2019 period had a modest impact on the employment-to-population rate of natives. However, the effects are highly uneven across regions and workers, and over time. First, the short-run estimates show adverse employment effects in response to immigration, while these effects disappear in the longer run. Second, low-educated native workers experience employment losses due to immigration, whereas high-educated ones are more likely to experience employment gains. Third, the presence of institutions that provide employment protection and high coverage of collective wage agreements exert a protective effect on native employment. Finally, economically dynamic regions can better absorb immigrant workers, resulting in little or no effect on the native workforce.
    Keywords: immigration, employment, labour supply, employment dynamics
    JEL: F22 J21 J61
    Date: 2023–09
  9. By: Engle, Robert F.; Emambakhsh, Tina; Manganelli, Simone; Parisi, Laura; Pizzeghello, Riccardo
    Abstract: The systemic risk measure (SRISK) by V-Lab provides a market view of the vulnerability of financial institutions to a sudden downturn in the economy. To overcome the shortcoming that it cannot be applied to non-listed banks, SRISK characteristics of listed banks are mapped on balance sheet information. Systemic risk tends to be higher for banks that are larger, less profitable and have lower equity funding. Balance sheet information provides a surprisingly good approximation of SRISK for non-listed banks, when compared with banks’ capital depletion from the EU-wide stress testing exercises in 2018 and 2021. The proposed methodology can usefully complement the more thorough overview provided by traditional stress tests, providing supervisors the option to evaluate the systemic risks of the banking system at a higher frequency and at a fraction of the costs. JEL Classification: G21, G28, G1
    Keywords: banks’ balance sheet information content, stress testing, systemic risk
    Date: 2023–10
  10. By: Coman, Andra
    Abstract: This paper empirically examines the extent to which prudential policies can help to reduce the macro-financial spillover effects of foreign monetary policy for all 28 EU countries. Using local projection methods, I show that EU countries with tighter prudential policies face significantly smaller, and less negative spillovers to bank credit and house prices from US, UK and EA monetary policy tightening shocks. Measures of a macroprudential policy nature such as capital buffers, lending standards restrictions and limits to credit growth appear to be particularly effective at mitigating the spillover effects of US monetary policy, while measures of a microprudential nature as minimum capital requirements, risk weights and limits on large exposures prove effective in mitigating spillovers effects of UK monetary policy. Results indicate that domestic prudential policies can dampen EU countries’ exposure to foreign monetary policy and may be a useful tool in the face of spillovers coming from centre countries and within the EU. JEL Classification: E52, E58, E61, F42, F45
    Keywords: international spillovers, local projections, monetary policy, policy interactions, prudential policy
    Date: 2023–10
  11. By: Joan Calzada; Nestor Duch-Brown; Ricard Gil
    Abstract: Search engines are important access channels to news content of traditional newspapers with Google alone responsible for 35% of online visits to news outlets in the European Union. Yet, the effects of Google Search on market competition and information diversity have received scant attention. Using daily traffic data for 606 news outlets from 15 European countries, we analyze Google’s capacity to influence organic search visits by exploiting exogenous variation in news outlets’ indexation caused by nine core algorithm updates rolled out by Google between 2018 and 2020. We find Google core updates overall reduced the number of keywords (queries) for which news outlets occupy one of the top 10 organic search results positions. Therefore, given the positive impact that the number of top keywords have on traffic this led to the decrease in the overall number of news outlets’ visits. Finally, when studying the impact of Google core updates on media market concentration, we find the three “big” core updates identified in this period reduced market concentration by 1%, but this effect was offset by the rest of the updates. Similarly, in the context of Spain, we find the three “big” core updates reduced monthly keyword concentration by 4%.
    Keywords: search engines, market concentration Google, news sites, Europe
    JEL: D43 L50 L82 M31
    Date: 2023
  12. By: Doorley, Karina (Economic and Social Research Institute, Dublin); Gromadzki, Jan (Vienna University of Economics and Business); Lewandowski, Piotr (Institute for Structural Research (IBS)); Tuda, Dora (Trinity College Dublin); Van Kerm, Philippe (LISER (CEPS/INSTEAD))
    Abstract: We study the effects of robot penetration on household income inequality in 14 European countries between 2006–2018, a period marked by the rapid adoption of industrial robots. Automation reduced relative hourly wages and employment of more exposed demographic groups, similarly to the results for the United States. Using robot-driven wage and employment shocks as input to the EUROMOD microsimulation model, we find that automation had minor effects on income inequality. Household labour income diversification and tax and welfare policies largely absorbed labour market shocks caused by automation. Transfers played a key role in cushioning the transmission of these shocks to household incomes.
    Keywords: robots, automation, tasks, income inequality, wage inequality, microsimulation
    JEL: J24 O33 J23
    Date: 2023–10
  13. By: Herman, Uroš; Lozej, Matija
    Abstract: This paper first provides empirical evidence that labour market outcomes for the less educated, who also tend to be poorer, are substantially more volatile than labour market outcomes for the well-educated, who tend to be richer. We estimate job finding rates and separation rates by educational attainment for several European countries and find that job finding rates are smaller and separation rates larger at lower educational attainment levels. At cyclical frequencies, fluctuations of the job finding rate explain up to 80% of the unemployment fluctuations for the less educated. We then construct a stylised HANK model augmented with search and matching and ex-ante heterogeneity in terms of educational attainment. We show that monetary policy has stronger effects when the job market for the less educated and hence poorer is more volatile. The reason is that these workers have the most procyclical income coupled with the highest marginal propensity to consume. An expansionary monetary policy shock that increases labour demand disproportionally affects the labour market segment for the less educated, causing a strong increase in their consumption. This further amplifies labour demand and increases labour income of the poor even more, amplifying the initial effect. The same mechanism carries over to forward guidance. JEL Classification: E40, E52, J64
    Keywords: business cycles, employment, heterogeneous agents, monetary policy, search and matching
    Date: 2023–10
  14. By: Stephen Cole; Enrique Martinez-Garcia; Eric R. Sims
    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 overall 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.
    JEL: E0 E32 E5
    Date: 2023–10
  15. By: Maczulskij, Terhi; Nilsson Hakkala, Katariina
    Abstract: Abstract After the financial crisis, Finland’s exports have lagged behind Sweden’s exports. This study analyzes how firms with different financial strength respond to demand shocks in their export markets. We utilize unique administrative datasets of Swedish and Finnish firms matched with national customs data over a period of 15 years, which allows us to analyze the effects of several macroeconomic shocks affecting export product demand and performance of exporting firms. We find that financially stronger export firms are better positioned during both positive and negative demand shocks, suffering less from the negative shocks, benefiting more from the positive shocks. While our results suggest that Swedish and Finnish firms tend to respond similarly to different export demand shocks, there are some salient differences in their survival strategies. While the financially stronger Swedish firms expanded their product lines and market areas, the Finnish firms did not make such adjustments during the 2007–2014 period of negative export demand shocks. The differences in the survival strategies could provide one explanation why the growth of Finnish exports has diverged from the Swedish exports since the financial crisis.
    Keywords: Export competition, Financial strength, Firm-level, Trade flows
    JEL: F14 F61 L11 L25 D22
    Date: 2023–10–16
  16. By: Billio, Monica; Casarin, Roberto; Costola, Michele; Veggente, Veronica
    Abstract: Measuring and reducing energy consumption constitutes a crucial concern in public policies aimed at mitigating global warming. The real estate sector faces the challenge of enhancing building efficiency, where insights from experts play a pivotal role in the evaluation process. This research employs a machine learning approach to analyze expert opinions, seeking to extract the key determinants influencing potential residential building efficiency and establishing an efficient prediction framework. The study leverages open Energy Performance Certificate databases from two countries with distinct latitudes, namely the UK and Italy, to investigate whether enhancing energy efficiency necessitates different intervention approaches. The findings reveal the existence of non-linear relationships between efficiency and building characteristics, which cannot be captured by conventional linear modeling frameworks. By offering insights into the determinants of residential building efficiency, this study provides guidance to policymakers and stakeholders in formulating effective and sustainable strategies for energy efficiency improvement.
    Keywords: Energy efficiency, Energy Performance Certificate, Machine learning, Tree-based models, big data
    JEL: C10 C53 C50
    Date: 2023

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