nep-eec New Economics Papers
on European Economics
Issue of 2023‒12‒04
nine papers chosen by
Giuseppe Marotta, Università degli Studi di Modena e Reggio Emilia

  1. Monetary Policy in the COVID Era and Beyond: the Fed vs the ECB By Carlo A. Favero; Ruben Fernandez-Fuertes
  2. The transmission of macroprudential policy in the tails: evidence from a narrative approach By Lloyd, Simon; Fernández-Gallardo, Álvaro; Manuel, Ed
  3. Fiscal Influences on Inflation in OECD Countries, 2020-2022 By Robert J. Barro; Francesco Bianchi
  4. Stress-testing inflation exposure: Systemically significant prices and asymmetric shock propagation in the EU28 By Ipsen, Leonhard; Aminian, Armin; Schulz-Gebhard, Jan
  5. Forceful or persistent: Wow the ECB's new inflation target affects households' inflation expectations By Hoffmann, Mathias; Mönch, Emanuel; Pavlova, Lora; Schultefrankenfeld, Guido
  6. Effects of bank capital requirements on lending by banks and non-bank financial institutions By Bednarek, Peter; Briukhova, Olga; Ongena, Steven; von Westernhagen, Natalja
  7. Big Telcos Aren’t Necessarily Better: A Case Study of EU versus US Market Concentration By Bryson, Joanna J.; Malikova, Helena; Garbe, Lisa; Backovsky, David
  8. Trends in cognitive impairment among older adults in the USA and Europe, 1996-2018 By Mikko Myrskylä; Jo M. Hale; Daniel C. Schneider; Neil K. Mehta
  9. Regional productivity differences in the UK and France: From the micro to the macro By Bridget Kauma; Giordano Mion

  1. By: Carlo A. Favero; Ruben Fernandez-Fuertes
    Abstract: This study examines monetary policy during and post-COVID by analysing innovative specifications for monetary policy rules based on data from before the pandemic. It models trends in short-term rates using a stochastic trend, driven by potential output growth, demographic age distribution, and inflation expectations both the US and the Eurozone. The cyclical variations in shortterm rates are associated with monetary policy through the conventional Taylor rule indicators. Whilst the standard model is robust for the US both in and outof- sample, the Eurozone displays less consistent in-sample results and marked deviations in out-of-sample tests. Addressing the ECB’s concerns about bond market fragmentation doesn’t yield better results. Instead, a model in which the ECB follows the US example with caution and delay proves more effective.
    Keywords: Monetary Policy Rules, Trends and Cycles, Fed, ECB.
    JEL: E43 E52 G12
    Date: 2023
  2. By: Lloyd, Simon; Fernández-Gallardo, Álvaro; Manuel, Ed
    Abstract: We estimate the causal effects of macroprudential policies on the entire distribution of GDP growth for advanced European economies using a narrative-identification strategy in a quantile-regression framework. While macroprudential policy has near-zero effects on the centre of the GDP-growth distribution, tighter policy brings benefits by reducing the variance of future growth, significantly boosting the left tail while simultaneously reducing the right. Assessing a range of channels through which these effects materialise, we find that macroprudential policy particularly operates through ‘credit-at-risk’: it reduces the right tail of future credit growth, dampening booms, in turn reducing the likelihood of extreme GDP-growth outturns. JEL Classification: E32, E58, G28
    Keywords: growth-at-risk, macroprudential policy, narrative identification, quantile local projections
    Date: 2023–11
  3. By: Robert J. Barro; Francesco Bianchi
    Abstract: The fiscal theory of the price level (FTPL) has been active for 30 years, and the interest in this theory grew with the recent global surges in inflation and government spending. This study applies the FTPL to 37 OECD countries for 2020-2022. The theory’s centerpiece is the government’s intertemporal budget constraint, which relates a country’s inflation rate in 2020 2022 (relative to a baseline rate) to a composite government-spending variable. This variable equals the cumulative increase in the ratio of government expenditure to GDP from 2020 to 2022, divided by the ratio of public debt to GDP in 2019 and the duration of the debt in 2019. This specification has substantial explanatory power for recent inflation rates across 20 non-Euro-zone countries and an aggregate of 17 Euro-zone countries. The estimated coefficients of the composite spending variable are significantly positive, implying that 40-50% of effective government financing came from the inverse effect of unexpected inflation on the real value of public debt, whereas 50 60% reflected conventional public finance (increases in current or future taxes or cuts in future spending). Within the Euro area, inflation reacts mostly to the area-wide government-spending variable, not to individual values.
    JEL: E3 H20 H5 H60
    Date: 2023–11
  4. By: Ipsen, Leonhard; Aminian, Armin; Schulz-Gebhard, Jan
    Abstract: Building on the seminal paper of Weber et al. (2022), we provide a stress-test framework of inflation exposure and apply it to the EU28. This adds a yet unrecognised dimension to the latest calls for supply chain stress-tests. We address both the ex- and internal dimensions of inflation exposure for the former EU28 countries within global production networks via a Leontief price model. Using data from the World Input Output Database, we confirm the existence of systemically significant sectors for the overall price level in the EU28, EU periphery and core, respectively. We show that while the direct price effects of various sectors on the respective consumption shares are significant, about two-thirds of the overall effects are indirect and thus a result of higher-order propagation within the production network. It crystallizes that two properties (size and centrality) may render a sector systemically significant. Breaking down the geographical component, we show that the indirect effect is even larger for peripheral countries, which points to a higher exposure to world market prices. By tracing individual shock trajectories, we confirm this hypothesis: price volatility originating from the core countries impacts the peripheral countries more than vice versa. In addition to this, our method to recover consumption substitution effects shows that substitution is much more limited in the European periphery. Overall, we show consumers in peripheral countries are relatively more exposed to price volatility.
    Keywords: inflation, stress-test, input-output analysis, Europe
    Date: 2023
  5. By: Hoffmann, Mathias; Mönch, Emanuel; Pavlova, Lora; Schultefrankenfeld, Guido
    Abstract: We study how households adjust their medium-term inflation expectations under the new ECB strategy. We find that survey respondents make little difference between the previous strategy of targeting inflation rates close to but below 2% and the new strategy with a symmetric 2% target. Yet, participants informed that the ECB might tolerate rates exceeding the target for some time, expect somewhat higher medium-term inflation. Respondents asked to assume inflation currently running below target place a significantly higher probability on outcomes above 2% in the medium term. Participants do not expect an undershooting when inflation is currently running above target.
    Keywords: Monetary Policy Strategy, Household Inflation Expectations, Randomized Control Trial, Survey Data
    JEL: F33 E31 E32
    Date: 2023
  6. By: Bednarek, Peter; Briukhova, Olga; Ongena, Steven; von Westernhagen, Natalja
    Abstract: What is the impact of a sudden and sizeable increase in bank capital requirements on the lending activity by directly affected banks and by non-affected non-bank financial institutions (NBFIs)? To answer this question, we apply a difference-in-differences methodology around the capital exercise by the European Banking Authority (EBA) in 2011 with German credit register data. We find that insurance companies, financial enterprises, and factoring companies - but not leasing companies - and Non-EBA banks expand their corporate lending relative to EBA banks. In particular, NBFIs use the opportunity to expand their credit activities, in riskier and more competitive borrower segments, but NBFIs do not seem to rely on increased bank funding to finance this expansion.
    Keywords: non-bank financial intermediation, bank capital requirements, EBA capital exercise
    JEL: E50 G21 G23 G28 C33
    Date: 2023
  7. By: Bryson, Joanna J. (Hertie School); Malikova, Helena; Garbe, Lisa; Backovsky, David
    Abstract: Telecommunications companies (telcos) provide infrastructure essential to the delivery of digital content. The competitiveness of European Union businesses is presently seen as critically dependent on expansion of next-generation communication technologies. Yet, EU telcos are displaying returns on capital that disappoint private investors, leading in some cases to depressed share prices, and potentially making them vulnerable to takeovers bids by financial investors. Given their essential role, the prospect of EU telcos falling into mostly foreign-owned, fiercely profit-maximizing, and/or cost-cutting investors is unappealing for policy makers, at both the national and the European level. One solution suggested by the telcos themselves is that they be allowed to consolidate. Economic theory does not provide a clear answer to how such concentration might affect investment in infrastructure. In this paper, we provide a comparative empirical analysis of the relationship between market concentration and investment in infrastructure in the telco sector. First, we compare investment rates in infrastructure by major telco companies in both the EU and the more concentrated US market. We find more value being returned to customers in the form of infrastructure investment in the less-concentrated EU market. Second, we compare telcos' profitability with that of other corporations involved in the information or ``eye-ball'' value chain. We find operating profits of telcos on both sides of the Atlantic are broadly in line with other companies of the value chain, with the notable exception of the highly concentrated digital ad exchange business. This evidence suggests that lack of incentives rather than lack of ability explains the larger portion of profits invested into infrastructure in the EU compared to the US. Rather than allowing market concentration, which could raise consumer prices and lower infrastructure investment incentives, EU regulators might consider other fund-raising mechanisms, such as redistributing profits from digital ad exchanges.
    Date: 2023–01–14
  8. By: Mikko Myrskylä (Max Planck Institute for Demographic Research, Rostock, Germany); Jo M. Hale (Max Planck Institute for Demographic Research, Rostock, Germany); Daniel C. Schneider (Max Planck Institute for Demographic Research, Rostock, Germany); Neil K. Mehta
    Abstract: Background Single-country studies document varying time trends in cognitive impairment. Comparative analyses across several countries are limited. Methods We use data for a total of 13 countries from three large representative surveys (USA: HRS; England: ELSA; 11 European countries: SHARE), across years 1996-2018, and ages 50 and above. Cognitive function is based on the modified Telephone Interview for Cognitive Status. We use linear regression to study trends in average test scores and logistic regression for cognitive impairment. We analyze trend heterogeneity by gender, age, and education and explore mechanisms by adjusting for migration background, education, health and health behaviors, and partnership status. Results The age-adjusted 10-year change in average score is 0.23 standard deviations (SD) (95% confidence interval (CI) 0.21, 0.24) for SHARE countries; 0.08 (95% CI 0.05, 0.10) in England; and -0.02 (95% CI -0.03, -0.01) in the USA The 10-year change in odds ratio for cognitive impairment is 0.63 (95% CI 0.61, 0.66) for SHARE; 0.93 (95% CI 0.85, 1.02) in England; and 1.05 (95% CI 1.02, 1.09) in the USA. The trends are largely similar across gender, education, and age subgroups. Regional differences in trends remain after adjustment for potential mechanisms. Conclusions Time trends in cognitive function and impairment vary across countries. European countries have experienced improvement over the last twenty years, whereas the USA time trend is worsening or stagnating both in mean scores and in indicators for impairment. Uncovering the causes for this “American exceptionalism” should be both a research and public health priority. Keywords: Cognitive impairment, dementia, trends, comparative analysis
    JEL: J1 Z0
    Date: 2023
  9. By: Bridget Kauma; Giordano Mion
    Abstract: We propose a new data resource that attempts to overcome limitations of standard firm-level datasets for the UK (like the ARD/ABS) by building on administrative data covering the population of UK firms with at least one employee. We also construct a similar dataset for France and use both datasets to: 1) Provide some highlights of the data and an overall picture of the evolution of aggregate UK and French productivity and markups: 2) Analyse the spatial distribution of productivity in both countries at a fine level of detail - 228 Travel to Work Areas (TTWAs) for the UK and 297 Zones da'emploi (ZEs) for France - while focusing on the role of economic density. Our findings suggest that differences in firm productivity across regions are magnified in the aggregate by an increasing productivity return of density along the productivity distribution.
    Keywords: firm-level dataset, merging, BSD, FAME, VAT, FICUS, FARE, productivity, markups, UK, France, regional disparities, density
    Date: 2023–11–01

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