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on European Economics |
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Issue of 2024‒02‒05
seventeen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Gergely Hudecz; Elisabetta Vangelista; Robert Blotevogel |
| Abstract: | We analyse the impact of ECB asset purchases on sovereign risk premia during the Covid-19 pandemic. Using an enhanced event study design, we trace the impact of asset purchases over time, distinguishing between announcements, expectations, and implementation effects. The analysis draws on a new granular cross-country dataset of the ECB’s asset purchases and market expectations. We find large announcement effects, particularly in countries with lower sovereign credit ratings. Expectations about the final size of ECB asset purchases (‘the stock’) and actually implemented net purchases (‘the flows’) affected risk premia at the time of severe market stress with large cross-country variations. Overall, the ECB’s asset purchases were highly effective in warding off risks of financial fragmentation in the euro area during the pandemic. |
| Keywords: | Event study, sovereign risk premia, ECB asset purchases, stock and flow effects |
| JEL: | E44 E58 E62 G14 |
| Date: | 2022–09–12 |
| URL: | http://d.repec.org/n?u=RePEc:stm:wpaper:55&r=eec |
| By: | De Santis, Roberto A. |
| Abstract: | We identify jointly supply chain disruptions shocks and energy supply shocks together with demand shocks using a structural BVAR with narrative restrictions. The impact of adverse supply chain disruption shocks on inflation expectations and core HICP is strong and rather persistent, while the impact is small and transitory after energy supply shocks. Supply chain disruption shocks and favourable demand shocks explain the large faction of output fluctuations in the 2020-2022 period. The dynamics of core prices and inflation expectations are instead mostly explained by supply chain disruption shocks and to a lesser extent by adverse energy supply shocks. JEL Classification: C32, E32 |
| Keywords: | energy supply shocks, inflation expectations, narrative identification, supply chain disruption shocks, SVAR |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20242884&r=eec |
| By: | Pollitt, M G. |
| Abstract: | This paper examines the 2021-2023 energy crisis in Europe exacerbated by the energy consequences of the full-scale Russia – Ukraine war which began in February 2022. We show that this is an historically unprecedented price shock to both gas and electricity prices. We then draw on lessons from UK energy policy in World War Two to inform European energy policy during this crisis. In light of this, we examine actual policy responses by the European Union (EU). The EU has responsibility for the European single market in electricity and gas (which also formally includes Norway and effectively includes the UK) and has attempted to co-ordinate EU-27 responses to the crisis. We highlight four good and three bad policy responses observed across Europe. We conclude with longer-run lessons for energy and climate policy arising from this gas and electricity price shock. |
| Keywords: | energy crisis, single market in energy, wartime |
| JEL: | L94 L95 |
| Date: | 2023–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2350&r=eec |
| By: | Thiago Fauvrelle; Mathias Skrutkowski |
| Abstract: | This paper studies whether Eurosystem collateral eligibility played a role in the portfolio choices of euro area asset managers during the “dash-for-cash” episode of 2020. We find that asset managers reduced their allocation to ECB-eligible corporate bonds, selling them in order to finance redemptions, while simultaneously increasing their cash holdings. These findings add nuance to previous studies of liquidity strains and price dislocations in the corporate bond market during the onset of the Covid-19 pandemic, indicating a greater willingness of dealers to increase their inventories of corporate bonds pledgeable with the ECB. Analysing the price impact of these portfolio choices, we also find evidence pointing to price pressure for both ECB-eligible and ineligible corporate bonds. Bonds that were held to a larger extent by investment funds in our sample experienced higher price pressure, although the impact was lower for ECB-eligible bonds. We also discuss broader implications for the related policy debate about how central banks could mitigate similar types of liquidity shocks. |
| Keywords: | Investment funds, dash-for-cash, corporate bonds, Eurosystem collateral eligibility |
| JEL: | G11 G23 |
| Date: | 2023–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:stm:wpaper:58&r=eec |
| By: | Dirk Broeders; Marleen de Jonge; David Rijsbergen |
| Abstract: | We document a positive and statistically significant carbon premium that investors demand for investing in bonds issued by high carbon-emitting firms in the euro area. Over the entire sample period, we estimate that doubling a firm’s Scope 1 and 2 emissions results in an average increase of 6.6 basis points in the spread on the firm’s issued bonds. In addition, we find that the carbon premium has increased since 2020 and the effect reached 13.9 basis points by early 2022. These results suggest that European companies with high levels of carbon emissions are experiencing progressively higher financing costs. Our research also reveals a distinctive carbon premium term structure, rising with longer maturities. Interestingly, over time the term structure flat tens, suggesting investors’ confident anticipation of ongoing carbon pricing in the European Union at a stable pace. |
| Keywords: | Carbon Premium; Carbon Premium Term Structure; Climate Change; Climate Transition Risk |
| JEL: | G12 G15 G23 Q51 Q54 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:798&r=eec |
| By: | Jaromir Baxa (Institute of Economic Studies of the Faculty of Social Sciences, Charles University, Prague, Czech Republic & The Czech Academy of Sciences, Institute of Information Theory and Automation, Prague, Czech Republic); Tomas Sestorad (Institute of Economic Studies of the Faculty of Social Sciences, Charles University, Prague, Czech Republic & The Czech Academy of Sciences, Institute of Information Theory and Automation, Prague, Czech Republic & The Czech National Bank, Prague, Czech Republic) |
| Abstract: | Several alternative news-based Economic Policy Uncertainty indices have been developer for Spain and a few other European countries. These alternative indices differ in the selection of keywords, newspaper coverage, and a scaling factor that is used to calculate the EPU index from the raw news data. Using the generalized forecast error variance decompositions of the time-varying parameter VAR model and the analysis of dynamic connectedness, we show that the restriction to include only domestic news affects estimated spillovers substantially, leading to different qualitative and quantitative assessments of uncertainty spillovers in Europe. Therefore, not all EPU indices are the same. |
| Keywords: | Uncertainty, Forecast error variance decomposition, Spillovers |
| JEL: | C32 F42 F45 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2024_03&r=eec |
| By: | Rubén Domínguez-Díaz (Banco de España); Samuel Hurtado (Banco de España); Carolina Menéndez (Banco de España) |
| Abstract: | This paper presents an endogenous growth general equilibrium model (EGGEM) of firm dynamics and innovative investment for the Spanish economy that allows the medium-term effects of economic policies and shocks to be better understood. The model is calibrated using both aggregate and firm-level data. It is then used to assess the medium-term macroeconomic consequences of the different components of the Next Generation EU (NGEU) programme, including public investment, private capital transfers and innovative investment transfers. According to our baseline simulation, the NGEU funds significantly foster economic activity by raising aggregate productivity, private investment and employment. As a result, annual GDP growth is increased by 0.17 percentage points on average over the period of NGEU disbursement. Among the different policy instruments considered, we find that innovation transfers have the largest impact on aggregate output, only matched by increases in the stock of public capital if it is highly efficient. |
| Keywords: | productivity, public investment, endogenous growth, Next Generation EU |
| JEL: | O38 O52 O40 H54 E65 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2402&r=eec |
| By: | Nino Buliskeria (Institute of Economic Studies of the Faculty of Social Sciences, Charles University, Prague, Czech Republic & The Czech Academy of Sciences, Institute of Information Theory and Automation, Prague, Czech Republic); Jaromir Baxa (Institute of Economic Studies of the Faculty of Social Sciences, Charles University, Prague, Czech Republic & The Czech Academy of Sciences, Institute of Information Theory and Automation, Prague, Czech Republic); Tomas Sestorad (Institute of Economic Studies of the Faculty of Social Sciences, Charles University, Prague, Czech Republic & The Czech Academy of Sciences, Institute of Information Theory and Automation, Prague, Czech Republic & The Czech National Bank, Prague, Czech Republic) |
| Abstract: | The news-based Economic Policy Uncertainty indices (EPU) of Germany, France, and the United Kingdom display discernible trends that can be found neither in other European countries nor in other uncertainty indicators. Therefore, we replicate the EPU index of European countries and show that these trends are sensitive to the rather arbitrary choice of normalizing the raw counts of news related to economic policy uncertainty by the count of all newspaper articles. We show that an alternative normalization by news on economic policy leads to different long-term dynamics with less pronounced trends and markedly lower uncertainty during recent periods of uncertainty such as Brexit or the COVID-19 pandemic. Consequently, our results suggest that the effects of uncertainty related to these events on economic activity may have been overestimated. |
| Keywords: | economic policy uncertainty, trend-cycle decomposition, reproducibility, reliability |
| JEL: | D80 E66 E32 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2024_01&r=eec |
| By: | Kinnl, Klara; Wohak, Ulrich |
| Abstract: | We study price and volume effects of VAT reductions for period products. We exploit varying treatment intensities and timing in several European countries and find that in response to a one percentage point reduction in the VAT, prices decrease by 0.55% in the following 12 months. Pass- through rates range from full pass-through to over-shifting 12 months post policy change, with low- income households benefiting the most. While the average effect on aggregate purchase volumes is statistically zero, low income households’ demand is stimulated. We find evidence that households purchase higher quality products as a result of the tax reform. |
| Keywords: | tax pass-through; VAT reduction; tampon tax; scanner data; tax incidence |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wus005:59343848&r=eec |
| By: | Klara Kinnl (Department of Economics, Vienna University of Economics and Business); Urlich Wohak (Department of Economics, Vienna University of Economics and Business) |
| Abstract: | We study price and volume effects of VAT reductions for period products. We exploit varying treatment intensities and timing in several European countries and find that in response to a one percentage point reduction in the VAT, prices decrease by 0.55% in the following 12 months. Pass-through rates range from full pass-through to over-shifting 12 months post policy change, with low-income households benefiting the most. While the average effect on aggregate purchase volumes is statistically zero, low income households’ demand is stimulated. We find evidence that households purchase higher quality products as a result of the tax reform. |
| Keywords: | tax pass-through, VAT reduction, tampon tax, scanner data, tax incidence |
| JEL: | H2 H31 H22 D12 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp356&r=eec |
| By: | Többen, Johannes; Banning, Maximilian; Hembach-Stunden, Katharina; Stöver, Britta; Ulrich, Philip; Schwab, Thomas |
| Abstract: | The European Green Deal mandates a substantial transformation of the energy sector, responsible for more than 80 % of total greenhouse gas emissions. This study investigates the economic implica-tions of achieving climate neutrality in the European energy sector in light of the EU's core goal of economic cohesion, i.e. harmonious economic development across European regions. Employing a novel multi-regional input-output model, our analysis reveals how the renewable energy transition affects European regions. Under complete decarbonisation, changes in value added per capita range from -2, 450 Euro to +1, 570 Euro, and employment levels fluctuate between -2.1 % and +4.9 %. On average, most regions experience positive effects, characterised by an average increase in value added per capita of 10 Euro and a 0.3 % rise in employment in 2050. Overall, rural regions with sub-stantial renewable energy potential derive the greatest benefits, while urban regions heavily reliant on carbon-intensive industries are more likely to experience adverse effects. This dynamic fosters economic cohesion by providing opportunities for lagging regions to catch up, yet also poses fresh challenges to achieving this goal. Therefore, cohesion policy must expand its scope to counter the adverse effects as well as leveraging opportunities created by the renewable energy transition in all European regions. |
| Keywords: | energy, transition, cohesion, inequality, regions |
| JEL: | C67 O11 Q43 |
| Date: | 2023–12–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119374&r=eec |
| By: | Busch, Berthold; Sultan, Samina |
| Abstract: | Nach der Empfehlung der Europäischen Kommission, Beitrittsverhandlungen mit der Ukraine aufzunehmen, wird der Europäische Rat darüber auf seinem Gipfel im Dezember entscheiden. Dies ist ein historischer Schritt, der, besonders vor dem Hintergrund des andauernden russischen Angriffskriegs, eine große geostrategische Bedeutung hat. Sollte die Ukraine in den nächsten Jahren der Europäischen Union (EU) beitreten, wird dies eine Vielzahl an Folgen haben. Nicht zuletzt wird sich ein solcher Beitritt auf den EU-Haushalt auswirken. Als bevölkerungsreiches, wenig wohlhabendes und landwirtschaftlich geprägtes Land ist abzusehen, dass der Ukraine umfangreiche Finanzmittel aus dem EU-Haushalt zustehen würden. Trotz der großen Unsicherheiten, die derzeit noch bezüglich eines Beitritts der Ukraine bestehen, etwa hinsichtlich der genauen formalen Ausgestaltung oder der zeitlichen Dimension, ist eine quantitative Abschätzung der Kosten wichtig für die weitere Debatte. In einer Abschätzung beziffert dieser Report die finanziellen Folgen einer Vollmitgliedschaft der Ukraine auf den derzeitigen Mehrjährigen Finanzrahmen (MFR) 2021 bis 2027 mit rund 130 bis 190 Milliarden Euro, je nachdem welche Annahmen über die Ackerlandfläche und die Bevölkerungszahl für die Ukraine getroffen werden. Davon würden demnach zwischen 70 und 90 Milliarden Euro auf Agrarsubventionen entfallen, auf die Kohäsionspolitik zwischen 50 bis 90 Milliarden Euro. Angesichts dieses Volumens müsste die EU bereit sein, sich zu reformieren. Nur so kann die politische Entscheidung, vor allem die Ukraine mit einer Beitrittsperspektive enger an sich zu binden, glaubwürdig sein. Dies gilt zum einen auf der institutionellen Ebene, aber es gilt auch auf fiskalischer Ebene. Eine Umschichtung im EU-Haushalt könnte bei der Bereitstellung der notwendigen Finanzmittel helfen. Ein möglicher Ansatzpunkt dafür wäre die Kohäsionspolitik. Da ein primäres Ziel der europäischen Kohäsionspolitik darin liegt, weniger entwickelte Regionen zu unterstützen, wäre hier eine Umschichtung bei einer Erweiterung um die Ukraine folgerichtig. Bei einer Umstellung der europäischen Kohäsionspolitik auf ein Konzentrationsmodell, bei der die Kohäsionsausgaben auf die ärmeren Mitgliedstaaten beschränkt sind, würden Finanzmittel in Höhe von rund 140 Milliarden Euro über den Siebenjahreszeitraum des aktuellen MFR zur Verfügung stehen. Somit würde eine Umschichtung bei der Kohäsionspolitik einen erheblichen Beitrag zur Deckung der Kosten eines EU-Beitritts der Ukraine leisten können. Bei aller berechtigten Kritik einer Konzentration der europäischen Kohäsionsmittel, gilt es, dieses Potenzial, etwa bei der Aufstellung des nächsten MFR 2028 bis 2034, in dessen Zeitraum eine Erweiterung der EU fallen könnte, zu beachten. |
| Abstract: | Following the European Commission's recommendation to open accession negotiations with Ukraine, the European Council will decide on this at its summit in December. This is a historic step that is of great geostrategic importance, particularly in light of the ongoing Russian war of aggression. If Ukraine joins the European Union (EU) in the next few years, this will have several consequences. Not least, such an accession will have an impact on the EU budget. As a highly populated, less prosperous and agriculturally dominated country, it is foreseeable that Ukraine would be entitled to extensive financial resources from the EU budget. Despite the great uncertainties that still exist regarding Ukraine's accession, for example regarding the exact formal structure or the time frame, a quantitative estimate of the costs is important for the further debate. In an estimate, this report puts the financial consequences of Ukraine's full membership on the current Multiannual Financial Framework (MFF) 2021 to 2027 at between around 130 and 190 billion euros, depending on the assumptions made about Ukraine's arable land area and population. Of this, between around 70 and 90 billion euros would be allocated to agricultural subsidies. Cohesion policy would account for between 50 and 90 billion euros. In view of this volume, the EU must be prepared to reform itself. Only then can the political decision to bind Ukraine in particular more closely to the EU with the prospect of accession be credible. This applies not only to the institutional level, but it also applies to the fiscal level. The necessary financial resources could be made available through a reallocation in the EU budget, for example. One possible starting point for this would be the cohesion policy. As one of the primary objectives of the European cohesion policy is to support less developed regions, a reallocation in this field would be logical in case Ukraine joins the EU. If European cohesion policy were to switch to a concentration model, in which cohesion spending is limited to the poorer member states, it is estimated that financial resources of around 140 billion euros would be available over the sevenyear period of the MFF. A reallocation of cohesion policy would therefore be able to make a significant contribution to covering the costs of Ukraine's EU accession. Despite all justified criticism of a concentration of European cohesion funds, this potential must be taken into account, for example when drawing up the next MFF from 2028 to 2034, during which time an enlargement of the EU could take place. |
| Keywords: | EU-Mitgliedschaft, Ukraine, Wirkungsanalyse, EU-Haushalt, EU-Finanzbeziehungen, EU-Strukturfonds, EU-Staaten |
| JEL: | H50 H61 O52 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkrep:280922&r=eec |
| By: | Gabriel Felbermayr (WIFO); Klaus Friesenbichler; Markus Gerschberger; Peter Klimek; Birgit Meyer (Austrian Institute of Economic Research) |
| Abstract: | The EU Directive on Corporate Sustainable Due Diligence has sparked fierce debate about the regulations of supply chains. The Directive's objectives are aligned with European values. Assuming that enforcements of social and environmental rules are absent in certain third countries, it privatises compliance costs in complex supply networks. This paper suggests options to make the Directive more effective and efficient. It should exclude countries with a sufficient regulatory system and focus not on the entire network but on supplier-buyer relationships only. Public agencies should set harmonised regulatory standards, interpret the regulations and organise a private certification scheme in which liabilities are assumed by certification companies. The proposed system resembles the market for financial auditors. |
| Keywords: | EU, Supply Chain, Due Dilligence, Regulation, Firm, International Trade |
| Date: | 2024–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2024:i:669&r=eec |
| By: | Lidia Smitkova |
| Abstract: | In this paper, I study financial liberalization between economies with differing aggregate profit shares. I show that if firms compete oligopolistically, then economies which generate more very large — ‘superstar’ — firms enjoy higher aggregate profit shares. Embedding this setup in a two-country model with heterogeneous agents and non-homothetic saving behavior, I show that more profitable economies feature lower autarkic interest rate and experience capital outflows during financial liberalization. Calibrating the model to eight European economies, I show that the profit share gap can explain 29% of variation in the current account imbalances incurred between 1998 and 2019. |
| Date: | 2023–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:1030&r=eec |
| By: | D\'ora Gr\'eta Petr\'oczy; L\'aszl\'o Csat\'o |
| Abstract: | The Council of the European Union (EU) is one of the main decision-making bodies of the EU. Many decisions require a qualified majority: the support of 55% of the member states (currently 15) that represent at least 65% of the total population. We investigate how the power distribution, based on the Shapley-Shubik index, and the proportion of winning coalitions change if these criteria are modified within reasonable bounds. The influence of the two countries with about 4% of the total population each is found to be almost flat. The level of decisiveness decreases if the population criterion is above 68% or the states criterion is at least 17. The proportion of winning coalitions can be increased from 13.2% to 20.8% (30.1%) such that the maximal relative change in the Shapley--Shubik indices remains below 3.5% (5.5%). Our results are indispensable to evaluate any proposal for reforming the qualified majority voting system. |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2312.16878&r=eec |
| By: | Chaves, J. P.; Cossent, R.; Gómez San Román, T.; Linares, P.; Rivier, M. |
| Abstract: | The current European energy crisis, caused to a large extent by the unlawful invasion of Ukraine by Russia, has renewed calls for a deep reform of the European electricity market. In this paper, we look at the alternatives proposed for the reform of the European electricity market, analysing their advantages and disadvantages, and we put forward a specific proposal for the reform. We focus mostly on measures directed at the wholesale generation market, although we also propose some changes that we believe will also be needed at the retail level. Emergency measures to tackle the current energy crisis, which are not necessarily consistent with the long-term reform and should definitely not determine the long-term design of the European electricity market, are very briefly assessed in an annex, including their compatibility with this long-term reform. |
| Keywords: | Electricity market, energy transition, renewables |
| JEL: | Q41 L51 L94 |
| Date: | 2023–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2325&r=eec |
| By: | Marco Di Cataldo (Department of Economics, Ca’ Foscari University of Venice; Department of Geography and Environment, London School of Economics); Elena Renzullo (Department of Economics, Ca’ Foscari University of Venice; Department of Geography and Environment, London School of Economics) |
| Abstract: | The EU Cohesion Policy, with its ability to influence the socio-economic trajectories of European regions and cities, also has the potential to shape the political preferences of citizens. While some evidence exists regarding the impact of EU funds on national electoral outcomes, their role for local elections remains largely unexplored, overlooking the inherently territorial nature of Cohesion Policy and the pivotal role played by local policymakers in its activation and implementation. This study leverages detailed administrative data on European development projects to investigate the impact of EU funds on the political support for local incumbent politicians in Italy. It studies the relationship between the inflow of European funds and the probability of re-election for Italian mayors, considering different project types that reflect the mayors’ ability to attract European funds. The results reveal that Cohesion Policy plays a critical role in shaping local voting behaviours. Larger and more visible projects significantly increase the chances of mayoral re election. Moreover, local contexts characterised by faster growth, where EU projects effectively improve municipal public services, witness the greatest electoral gains for incumbents. These results underscore the importance of the design, visibility, and effectiveness of local development projects in determining the political impact of EU redistributive policies. |
| Keywords: | EU Cohesion Policy, incumbent re-election, political preferences, redistribution, local voting behaviour |
| JEL: | D72 I38 H7 R58 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2024:02&r=eec |