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on European Economics |
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Issue of 2024‒01‒01
23 papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Stempel, Daniel; Zahner, Johannes |
| JEL: | E58 C45 C53 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc23:277627&r=eec |
| By: | Filippo Pallotti; Gonzalo Paz-Pardo; Jiri Slacalek; Oreste Tristani; Giovanni L. Violante |
| Abstract: | We measure the heterogeneous welfare effects of the recent inflation surge across households in the Euro Area. A simple framework illustrating the numerous channels of the transmission mechanism of surprise inflation to household welfare guides our empirical exercise. By combining micro data and aggregate time series, we conclude that: (i) country-level average welfare costs—expressed as a share of 2021–22 income—were larger than a typical recession, and heterogeneous, e.g., 3% in France and 8% in Italy; (ii) this inflation episode resembles an age-dependent tax, with the elderly losing up to 20%, and roughly half of the 25–44 year-old winning; (iii) losses were quite uniform across consumption quantiles because rigid rents served as a hedge for the poor; (iv) nominal net positions are the key driver of heterogeneity across-households; (v) the rise in energy prices generated vast variation in individual-level inflation rates, but unconventional fiscal policies were critical in shielding the most vulnerable households |
| JEL: | E31 E58 G51 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31896&r=eec |
| By: | Juhana Hukkinen (Monetary Policy and Research Department of Bank of Finland); Matti Viren (Monetary Policy and Research Department of Bank of Finland & Economics Department of University of Turku) |
| Abstract: | The failure to predict the surge in inflation in 2021 raises questions about whether we are better equipped to anticipate a future decline in inflation. What tools do we intend to use for predicting the trajectory of inflation? Are we still primarily relying on survey data regarding inflation expectations, and are we still employing a Calvo-type structure to model inflation, in which only the intensive margin (the size of price increases) adjusts in response to changes in demand and supply? We would like to emphasize that our highly disaggregated consumer price data for the Euro area, consisting of 280 commodity categories, strongly suggests that price increases (inflation) are influenced not only by aggregate trends but also by sector-specific developments that result in state-dependent price adjustments. These factors may lead to more volatile fluctuations in the inflation rate. Furthermore, these reactions do not appear to be entirely symmetric when it comes to rising and falling inflation. When the inflation rate is close to zero, the role of state-dependent pricing is diminished, and nonlinearities become less significant. |
| Keywords: | inflation, state-dependent pricing, menu costs |
| JEL: | D22 E31 F41 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:tkk:dpaper:dp163&r=eec |
| By: | Paul Levine (University of Surrey); Maryam Mirfatah (King’s College London); Joseph Pearlman (City University); Stylianos Tsiaras (Ecole Polytechnique Federale de Lausanne) |
| Abstract: | We study central bank liquidity provisions to the banking sector in a DSGE model estimated for the Euro Area with financial frictions on the supply and demand side of credit. We show that liquidity provisions, as in the ECB’s recent Long Term Refinancing Operations, can be welfare-enhancing or welfare-reducing when both these financial frictions exist. They relax the banks’ leverage constraint and induce banks to provide more credit. This reduces the credit spread facing firms and increases investment, but this comes at the cost of implementing the liquidity policy. We compute a welfare optimized liquidity rule for the central bank responding to output, inflation and the interest rate spread that can increase welfare in comparison with the case of no liquidity provision. Crucially, this result is conditional on a high level of central bank monitoring of the its loanable funds to banks. |
| JEL: | C11 E44 E52 E58 E61 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:sur:surrec:1323&r=eec |
| By: | Oscar Claveria (AQR-IREA, University of Barcelona); Petar Soric (University of Zagreb) |
| 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:aqr:wpaper:202306&r=eec |
| By: | Javier Garcia-Bernardo (1Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czechia; Department of Methodology & Statistics, Utrecht University, the Netherlands; Centre for Complex Systems Studies, Utrecht University, the Netherlands); Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic) |
| Abstract: | We exploit the new country-by-country reporting data of multinational corporations, with unparalleled country coverage, to reveal the distributional consequences of profit shifting. We estimate that multinational corporations worldwide shifted over $850 billion in profits in 2017, primarily to countries with effective tax rates below 10%. Countries with lower incomes lose a larger share of their total tax revenue due to profit shifting. We further show that a logarithmic function is better suited for capturing the non-linear relationship between profits and tax rates than linear or quadratic functions. Our findings highlight effective tax rates’ importance for profit shifting and tax reforms. |
| Keywords: | multinational corporation, corporate taxation, profit shifting, effective tax rate, country-by-country reporting, global development |
| JEL: | F23 H25 H26 H32 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2023_33&r=eec |
| By: | Nolan, Brian; Azzollini, Leo; Breen, Richard |
| Abstract: | Changes in household structures and employment patterns alter the balance between households with an above- versus a below-average poverty risk while also affecting relative income poverty thresholds. Examining eleven countries for which suitable microdata is available from LIS back to the mid-1980s shows that patterns of change in household composition and employment exhibited some common features but also very substantial variation. The share of single adult households rose in most countries, couples with no or only one person in paid work fell in most, while couple households with two earners increased in a majority but not in Denmark, Norway and the USA and only modestly in Hungary and the UK. A counterfactual exercise assessed the impact of these changes in composition on relative income poverty rates by reweighting the 2019 samples to impose the composition structure observed in 1986. In the absence of these composition changes the relative poverty rate in 2019 would have been a good deal higher in Germany, Greece, and Italy, and especially in Israel and Spain. Composition changes had only a modest impact in the UK and made very little difference in Denmark, Hungary, and the USA, while working to increase the relative poverty rate in Czechia and Norway. This reflected the varying scale and nature of the composition changes seen across these countries. Their impact included driving up the relative poverty threshold (except in the USA), and if this effect is discounted the composition shift over the period would have had a greater poverty reduction impact in most countries, especially in Israel, Italy and most powerfully in Spain. |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:amz:wpaper:2023-29&r=eec |
| By: | Muellbauer, John; De Bonis, Riccardo; Liberati, Danilo; Rondinelli, Concetta |
| Abstract: | Most econometric policy models at central banks and elsewhere use an aggregate consumption function based on textbook theory. This assumes that the 'representative household' owns only an aggregate form of wealth, proxied by net worth, and never faces borrowing or liquidity constraints or transactions costs. This is inconsistent with the modern view of heterogeneous agent behaviour under uncertainty in incomplete markets. Based on data from 1980 to 2019, the conventional formulation for an aggregate consumption function for Italy is strongly rejected. The results show that the marginal propensities to consume out of household deposits and semi-liquid financial assets such as T-bills and mutual funds are greater than for less liquid assets. A significant positive effect from housing wealth is substantially offset by the negative effect of affordability measured by the house price-to-income ratio. |
| Keywords: | financial wealth, liquid and illiquid assets, permanent income, housing wealth |
| JEL: | E21 E32 E44 E51 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:amz:wpaper:2023-27&r=eec |
| By: | Thomas Chalaux; David Turner |
| Abstract: | This paper describes an algorithm, “DoomBot”, which selects parsimonious models to predict downturns over different quarterly horizons covering the ensuing two years for 20 OECD countries. The models are country- and horizon-specific and are automatically updated as the estimation sample period is extended, so facilitating out-of-sample evaluation of the algorithm. A limited combination of explanatory variables is chosen from a much larger pool of potential variables that include those that have been most useful in predicting downturns in previous OECD work. The most frequently selected variables are financial variables, especially those relating to credit and house prices, but also include equity prices and various measures of interest rates (such as the slope of the yield curve). Business cycle variables -- survey measure of capacity utilisation, industrial production, GDP and unemployment -- are also selected, but more frequently at very short horizons. The variables selected do not just relate to the domestic economy of the country being considered, but also international aggregates, consistent with findings from previous OECD work. The in-sample fit of the models is very good on standard performance metrics, although the out-of-sample performance is less impressive. The models do, however, provide a clear out-of-sample early warning of the Global Financial Crisis (GFC), especially when considered collectively, although they do generate ‘false alarms’ just ahead of the crisis. The models are less good at predicting the euro area crisis out-of-sample, but it is clear from the evolution of the choice of variables that the algorithm learns from this episode, for example through the more frequent selection of a variable measuring euro area sovereign bond spreads. The latest out-of-sample predictions made in mid-2023, suggest the probability of a downturn is at its greatest and most widespread since the GFC, with the largest contributions to such risks coming from house prices, interest rate developments (as measured by the slope of the yield curve and the rapidity of the change in short rates) and oil prices. On the other hand, warning signals from business cycle variables and equity prices, which are often good downturn predictors at short horizons, are conspicuously absent. |
| Keywords: | Downturn, forecast, GDP growth, recession, risk |
| JEL: | E01 E17 E65 E66 E58 |
| Date: | 2023–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1780-en&r=eec |
| By: | Miguel García Duch (Instituto Complutense de Estudios Internacionales (ICEI), Universidad Complutense de Madrid.) |
| Abstract: | This article examines Thirlwall's Law for a sample of 9 eurozone countries from 1992 to 2019. Thirlwall's Law states that a country's long-run growth rate is determined by the ratio of its income elasticities of demand for exports and imports. Using product level data from COMTRADE, this article constructs 5 main sectors based on technological intensity and estimates exports and imports equations for each sector and country in error correction model form. Estimation techniques are seemingly unrelated regressions for exports and three stages least squares for imports. The results reveal significant variations in the income elasticities across sectors and countries, with a strong correlation between higher elasticities for more technological sectors, especially among the so-called central economies. The article concludes that Thirlwall's Law is both a strong predictor of actual growth rates and a useful tool for understanding the role of external imbalances on Eurozone’s economic performance during the last decades. |
| Keywords: | : Balance-of-Payments-Constrained Growth; Thirlwall’s Law; Multi-Sector Analysis; Current Account Imbalances; Error Correction Models. |
| JEL: | C30 E12 F45 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:wpaper:2302&r=eec |
| By: | Nöller, Marvin; Balleer, Almut |
| JEL: | E31 E52 C22 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc23:277638&r=eec |
| By: | Silvia Peracchi (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)) |
| Abstract: | The massive inflows of migrants across the Mediterranean has generated widespread political attention and backlash. This paper explores the impact of migrants’ displacements at the EU’s internal borders, due to militarized border push-backs and arising from the European migrant crisis in the 2010s. It investigates how these displacements affect both the local news market and the local political economy. To do so, it relies on a policy implemented in June 2015, whereby French authorities introduced militarized controls at the Italian frontier to redirect migrants and asylum seekers, originally intending to cross the border irregularly, back to the Italian territory. These dynamics created a quasi-experimental setting, where natives in the Italian region were unevenly exposed to pushed back migrants: those residing close to the French border experienced more directly the evolution of events. Using novel text and count data from local news in the interested areas of Liguria, Italy, between 2012 and 2019, this study finds that, following the border push-backs, media coverage of migration decayed with commuting distance to the border. Conversely, anti-immigrant discourse in the news exhibited a relative increase in areas least directly impacted by the border events. Exploring further this framing dimension, the results turn out to be shaped by readers’ demand and to be closely associated with local news penetration. Finally, this study documents that voting preferences share a similar direction to news slant, while a related broad pattern also appears in hate-crime records. |
| Keywords: | Media slant, EU borders, immigration, diff-in-diff |
| JEL: | F22 L82 F50 |
| Date: | 2023–12–11 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2023021&r=eec |
| By: | COULIBALY, Niénéyéri Mamadou |
| Abstract: | The aim of this study is to analyse trade between the member countries of the West African Economic and Monetary Union (WAEMU) and those of the European Union (EU) pre-Brexit over the period 2014-2019. It estimates a gravity model based on panel data. Three econometric estimation techniques are used : the WITHIN method, the Generalised Least Squares (GLS) method and the Hausman and Taylor (HT) method. These different estimation techniques are then compared to determine which is the most appropriate. The data used are secondary data from several sources : the International Monetary Fund (World Economic Outlook), the World Bank (World Development Indicators), the United Nations (UN Comtrade) and the ephemeride website. The results show that trade between these two groups of countries is positively and significantly influenced by income in WAEMU countries, infrastructure in WAEMU countries and population in EU countries. They also show that when an EU country is landlocked, its trade flows with WAEMU countries are reduced, while at the same time, the landlocked status of a WAEMU country does not affect its trade with EU countries. Variables such as the bilateral real exchange rate, distance, language and colonial links were found to be insignificant. |
| Keywords: | Trade, trade flows, gravity model, EU, WAEMU and Brexit |
| JEL: | C13 C33 F10 F15 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119277&r=eec |
| By: | Enzmann, Johannes; Ringel, Marc |
| Abstract: | The European Union aims at net-zero emissions by 2050. A key sector to achieve this goal is road transport, where emissions show no signs of reducing but continue to grow. A review of policies undertaken by EU member states and the G20 to reduce transport emissions reveals that both present and planned policies focus on binding supply-side measures, but offer only weak demand-side incentives. To address this imbalance, we developed a downstream, demand-side policy prototype through an expert interview design process. We call the prototype “cap-and-surrender” because it caps road emissions, and then allocates tradable emission allowances to individual vehicles that drivers surrender at each fill-up. Allowance pricing, both by the state and in the secondary market, is designed to incentivize decarbonization of the sector. Though the system would require significant investment, its revenue potential to the state should exceed this investment by several multiples. We discuss the potential economic, environmental and social impacts of the policy, as assessed by European transport experts. We find that the approach can deliver significant transport emission reductions in an effective and economically efficient manner. Through the appropriate design of national allocation rules and a gradual phasing in of cap and surrender, potential negative social consequences can be mitigated, and public acceptance of the policy promoted. |
| Date: | 2023–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:dar:wpaper:141745&r=eec |
| By: | Latifi, Albina; Naboka-Krell, Viktoriia; Tillmann, Peter; Winker, Peter |
| JEL: | C89 E60 E62 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc23:277624&r=eec |
| By: | Sanvi Avouyi-Dovi; Lorraine Chouteau; Lucas Devigne; Emmanuelle Politronacci |
| Abstract: | We build a model based on a structural dynamic approach to assess the Non-Observed Economy (NOE) over the period 1990-2019 in France. Our strategy is focused on a systematic scan of the potential causes of shadow economy. We show that the discrepancy between electricity consumption and real GDP growth rates is the main driver of the NOE. However, factors, such as drug offences and net shipments of banknotes also have significant effects on hidden activities even though their effects do not seem to be as strong. The NOE remains non-negligible in France, but its ratio, relative to the GDP, has decreased considerably in the 2000s. Finally, we observe strong links between the NOE index and the cash demand indicators. Thus, concordance tests show a noticeable synchronization between the NOE indexes (global and legal components) and the net issuance of banknotes, especially the total net issuance and the net issuance of the €50 and €200 denominations. Furthermore, the NOE indexes and GDP as well as self-employment are synchronized. We also observe positive correlations between the cyclical components of the total net issuance of banknotes and the estimated shadow economy indexes. Finally, there are some bi-directional causal relationships between the NOE indexes and the aggregate banknote demand. However, there is only a unidirectional causality between these indexes and the demand for Small denominations (€5, €10, €20). |
| Keywords: | Shadow Economy, Non-Observed Economy, Structural Equations, MIMIC Model |
| JEL: | C32 C51 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:930&r=eec |
| By: | Alfred A. Haug; Tomasz Łyziak; Anna Sznajderska |
| Abstract: | We empirically explore monetary and fiscal policy coordination in Poland. In particular, we study whether the empirical effects of a government spending shock on output depend on the stance of monetary policy. We find no such dependency and conclude after various sensitivity checks, including to slack in the economy, that the government spending multiplier is not dependent on monetary policy or the business cycle. The cumulative multiplier reaches a peak value of 1.11 one year after a government spending shock: a 1 złoty increase in government spending, be it government consumption purchases or government investment or any combination of both, increases real GDP by 1.11 złoty. We identify a crowding-out effect of private investment, but it is relatively small and the overall impact of the government investment shock on GDP is above unity |
| Keywords: | government spending multiplier, monetary policy, local projections, Poland |
| JEL: | E62 E63 H50 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:sgh:kaewps:2022080&r=eec |
| By: | Thomas M. Mertens; Tony Zhang |
| Abstract: | This paper solves a standard New Keynesian model in terms of risk-neutral expectations and estimates it using a cross-section of longer-dated financial assets at a single point in time. Inflation risk premia appear in the theory and cause inflation to deviate from its target on average. We re-estimate the model based on each day’s closing prices to capture high-frequency changes in the expected path of the economy. Our estimates show that financial markets reacted to the post-COVID surge in inflation with higher short-run inflation expectations, an increase in the inflation risk premium, and an increase in the long-run neutral real rate, 𝑟∗, while long-term inflation expectations remained well anchored. Our model produces long term inflation forecasts that outperform several standard alternative measures. |
| Keywords: | Keynesian models; financial markets; covid19; inflation forecasts |
| Date: | 2023–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:97341&r=eec |
| By: | Dräger, Lena; Nghiem, Giang |
| JEL: | E52 E31 D84 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc23:277587&r=eec |
| By: | Dirk Krueger; Egor Malkov; Fabrizio Perri |
| Abstract: | We use panel data from the Italian Survey of Household Income and Wealth from 1991 to 2016 to document empirically what components of the household budget constraint change in response to shocks to household labor income, both over shorter and over longer horizons. We show that shocks to labor income are associated with negligible changes in transfers and non-labor income components, modest changes in consumption expenditures, and large changes in wealth. We then split the sample in households which do not own business or real estate wealth, and households who do. For the first group, we find that consumption responses are more substantial (and increasing with the horizon of the income shock) and wealth responses are much smaller. We show that, for this group, a version of the standard PIH framework that allows for partial insurance against even permanent income shocks can explain well the consumption and wealth responses, both at short and long horizons. For the second group the standard framework cannot explain the large changes in wealth associated with income shocks. We conclude that models which include shocks to the value of household wealth are necessary to fully evaluate the sources and the consequences of household resource risk. |
| JEL: | D99 E21 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31894&r=eec |
| By: | Schünemann, Johannes; Grossmann, Volker; Strulik, Holger |
| JEL: | H55 I14 I24 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc23:277593&r=eec |
| By: | Gödl, Maximilian; Gödl-Hanisch, Isabel |
| JEL: | E24 E31 E50 E60 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc23:277641&r=eec |
| By: | Herrmann-Fankhänel, Anja; Lay-Kumar, Jenny |
| Abstract: | In dieser Studie, die für und gemeinsam mit dem Sustainable Finance Beirat der Bundesregierung erstellt wurde, wurden Expertinnen und Experten in Interviews darum gebeten, aktuelle Finanzprodukten und deren Einsatzmöglichkeiten für KMUs im Rahmen nachhaltigen Wirtschaftens einzuschätzen. Insbesondere deren Haltedauer, Renditeerwartungen und Wirkung wird adressiert. Insgesamt wurden 18 Interviews mit Vertreterinnen und Vertretern der Rubriken Investoren (3), Asset Manager (9), Versicherer (2), Asset Owner (2) und öffentliche Institutionen (2) geführt. Es werden Rahmenbedingungen nachhaltiger Finanzprodukten systemisch aufgearbeitet für Kunde- und Finanzierer-Beziehungen, die Realwirtschaft, der Finanzmarkt und die landes-, bundes- und EU-weiten Rahmenbedingungen. Außerdem werden Handlungsempfehlungen ausgewiesen. Es wurde in den Interviews deutlich, dass an Sutainable Finance Instrumente nahezu identische Erwartungen bestehen wie zu klassischen Finanzinstrumenten und eine konsistente Definition zu ESG-Performance gefordert wird, welche für KMUs vereinfacht und vereinheitlich werden sollte. Außerdem wurde die Perspektive für ESG-Finanzierungen als "new normal" eröffnet, wobei Anreize und Regulatorik verknüpft werden sollten, um Marktverzerrung entgegenzuwirken. |
| Abstract: | In this study, which was prepared for and together with the Sustainable Finance Advisory Board of the Federal Government, experts were asked in interviews to assess current financial products and their possible uses for SMEs in the context of sustainable business. In particular, their holding period, expected returns and impact were addressed. A total of 18 interviews were conducted with representatives from the categories of investors (3), asset managers (9), insurers (2), asset owners (2) and public institutions (2). The framework conditions for sustainable financial products are analyzed systemically for customer and financier relationships, the real economy, the financial market and the state, federal and EU-wide framework conditions. Recommendations for action are also identified. It became clear in the interviews that the expectations of sustainable finance instruments are almost identical to those of traditional financial instruments and that a consistent definition of ESG performance is required, which should be simplified and standardized for SMEs. In addition, the prospect of ESG financing as the "new normal" was opened up, whereby incentives and regulation should be linked to counteract market distortion. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tucitm:280406&r=eec |