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on European Economics |
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Issue of 2024‒06‒10
sixteen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Alice Albonico; Guido Ascari; Qazi Haque |
| Abstract: | We estimate a medium-scale DSGE model for the Euro Area allowing and testing for indeterminacy since the introduction of the euro until mid-2023. Our estimates suggest that monetary policy in the euro area was passive, leading to indeterminacy and self-fulfilling dynamics. Indeterminacy dramatically alters the transmission of fundamental shocks, particularly for inflation whose responses are inconsistent with standard economic theory. Inflation increases following a positive supply or a negative demand shock. Consequently, demand shocks look like supply shocks and vice versa, making the dynamics of the model under indeterminacy challenging to interpret. However, this finding is not robust across different assumptions on the way the sunspot shock is specified in the estimation. Both under determinacy and indeterminacy, the model estimates a natural rate of interest that turned positive after the recent inflation episode. |
| Keywords: | monetary policy, indeterminacy, euro area, business cycle fluctuations, inflation |
| JEL: | E32 E52 C11 C13 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:535&r= |
| By: | Sascha Keil; Walter Paternesi Meloni |
| Abstract: | Over the past decades, models of circular and cumulative causation, based on the endogenous relations between prices, exports, and labour productivity, have lost prominence in explaining economic dynamics. We argue that, in the absence of counterbalancing mechanisms, the combination of price-sensitive exports and the triggering effect of exports on productivity can enable feedback loops and can significantly shape macroeconomic reality in the short-to-medium run. We apply an adapted export-led model of cumulative causation to 10 major countries belonging the Euro area, a region characterized by divergent wage growth trajectories reflected in divergent export competitiveness and lack of equilibrating mechanisms. Specifically, the model is tested for the period 1995–2020 employing a country-level system of equations (3SLS-ARDL). Our findings indicate that for the majority of the countries examined, this feedback mechanism – comprising price-sensitive exports and export demand affecting productivity growth – exacerbates macroeconomic disparities in terms of labour productivity. While nominal wages act as a potential trigger through their impact on price competitiveness, they also serve as a central factor that retards the feedback mechanism due to the Verdoorn effect of wage-induced demand. Overall, our results affirm the significance of price-induced and export-led theories of cumulative causation while also delineating its limitations, particularly regarding price competitiveness-oriented export-led growth strategies. |
| Keywords: | international trade, export, competitiveness, unit labour cost, wages, productivity, european imbalances |
| JEL: | F16 F41 J30 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:103-2024&r= |
| By: | Paduano, Stephen |
| Abstract: | Eurozone countries are financially and politically pivotal to the Special Drawing Rights (SDRs) rechannelling agenda.1 Collectively, they hold $200bn in SDRs (just over 20% of all SDRs), and the Eurozone countries which are G-20 members hold $120bn in SDRs (just under 20% of the G-20’s SDRs). These countries are also the most ambitious and proactive members of the SDR system, with France being the first advocate of SDR rechanneling and Spain being the first to rechannel (to the IMF Resilience and Sustainability Trust - RST). However, the Eurozone’s capacity to lead on and participate in SDR rechanneling has been complicated by the European Central Bank (ECB). President Lagarde has expressed that SDR rechanneling to Multilateral Development Banks (MDBs) may not preserve the reserve asset characteristic of the SDR and may violate the prohibition on monetary financing. Building on Paduano and Maret (2023), this paper demonstrates that certain forms of SDR rechanneling can clearly satisfy the ECB’s concerns — and, more importantly, that the rechanneling of reserve assets to multilateral development banks already occurs. |
| Keywords: | European Central Bank, eurosystem, national central banks, Special Drawing Rights, International Monetary Fund, World Bank, global development, international financial architecture |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpm:notfdl:2305&r= |
| By: | Budnik, Katarzyna; Ponte Marques, Aurea; Giglio, Carla; Grassi, Alberto; Durrani, Agha; Figueres, Juan Manuel; Konietschke, Paul; Le Grand, Catherine; Metzler, Julian; Población García, Francisco Javier; Shaw, Frances; Groß, Johannes; Sydow, Matthias; Franch, Fabio; Georgescu, Oana-Maria; Ortl, Aljosa; Trachana, Zoe; Chalf, Yasmine |
| Abstract: | This paper provides an overview of stress-testing methodologies in Europe, with a focus on the advancements made by the European Central Bank’s Financial Stability Committee Working Group on Stress Testing (WGST). Over a four-year period, the WGST played a pivotal role in refining stress-testing practices, promoting collaboration among central banks and supervisory authorities and addressing challenges in the evolving financial landscape. The paper discusses the development and application of various stress-testing models, including top-down models, macro-micro models and system-wide models. It highlights the integration of new datasets and model validation efforts as well as the expanded use of stress-testing methodologies in risk and policy evaluation and in communication. The collaborative efforts of the WGST have demystified stress-testing methodologies and fostered trust among stakeholders. The paper concludes by outlining the future agenda for continued improvements in stress-testing practices. JEL Classification: G21, G28, C58, G01, G18 |
| Keywords: | Basel III, communication, COVID-19 mitigation, economic activity, financial system model, impact assessment, lending, macro-financial scenarios, prudential policies, stress testing, uncertainty, Working Group on Stress Testing |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2024348&r= |
| By: | TEMURSHO Umed (European Commission - JRC); WEITZEL Matthias (European Commission - JRC) |
| Abstract: | By combining econometric estimations with the calibration of consumer expenditure data, this study estimates a linear expenditure system (LES) for the 27 EU countries. We use the EU Household Budget Survey (HBS) data for the reference years of 2010 and 2015, which provide data for about 275, 000 and 276, 100 EU households, respectively. In addressing the challenge of insufcient price variability in cross-sectional data, we first construct household-specific pseudo unit values, which enable us to derive the estimates of countryspecific Frisch parameters by expenditure decile for all EU countries. The obtained variability of the Frisch parameters across countries and household income groups underscores the importance of properly accounting for and incorporating this heterogeneity in modelling exercises that are based on the parameter in question. Subsequent estimations of the LES model differentiate households by three urbanization degrees of household residence and ten income groups. To take full advantage of consumer microdata, the resulting income elasticities for 23 commodity groups are calibrated within a relative entropy optimization framework to obtain consistent estimates of household-specific income and price elasticities. Finally, the study illustrates the richness of this combined approach in accounting for heterogeneity and nonlinearities in household consumption behavior. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc136876&r= |
| By: | Jan Behringer; Lena Draeger; Sebastian Dullien; Sebastian Gechert |
| Abstract: | We use novel German survey data to investigate how perceptions and information about public finances influence attitudes towards public debt and fiscal rules. On average, people strongly underestimate the debt-to-GDP ratio, overestimate the interest-to-tax-revenue ratio and favor a tighter German debt brake. In an information treatment experiment, people consider public debt to be a more (less) severe problem once they learn the actual debt-to-GDP or interest-to-tax-revenue ratio is higher (lower) than their estimate. However, the treatment effects partly vanish when anchoring respondents' beliefs with historical public debt figures. We find no treatment effects on attitudes towards the debt brake. |
| Keywords: | public debt, fiscal rules, information treatment, expectations |
| JEL: | D83 E60 H31 H60 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:97-2024&r= |
| By: | NES Kjersti (European Commission - JRC); ANTONIOLI Federico (European Commission - JRC); CIAIAN Pavel (European Commission - JRC) |
| Abstract: | The objective of the report is to analyse purchasing patterns of organic food products and plant-based alternatives and examine how sensitive the consumption of these products is to changes in prices. The report analyses are based on consumer purchasing panel data from five EU countries – Germany, Spain, France, Italy and Finland – for 2018–2022. The report finds that consumption patterns of organic food products and plant-based alternatives are heterogeneous across countries, products and socioeconomic household groups. The econometric estimates show that (i) the magnitudes of the own-price elasticities of organic products, plant-based alternatives and conventional products vary across products and countries, ranging between – 0.13 and – 1.30, (ii) the price sensitivity of the sustainable products is more heterogeneous than that of their conventional counterparts and (iii) changes in the prices of organic products minimally affect the purchasing quantities of their conventional counterparts (i.e. the corresponding cross-price elasticities mostly range between – 0.05 and 0.05), while changes in the prices of the conventional products tend to affect the purchases of organic products (i.e. the corresponding cross-price elasticities mostly range between – 0.50 and 0.50). |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc134549&r= |
| By: | Alicia García-Herrero; Robin Schindowski |
| Abstract: | This paper assess how beneficial industrial policy has been for China and how exportable to the European Union its model might be |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:bre:wpaper:node_9975&r= |
| By: | Schüssler, Julian; Hinz, Thomas; Leuffen, Dirk; Selb, Peter |
| Abstract: | Previous research emphasizes that individual economic status does not significantly influence support for redistribution within the European Union (EU). Instead, identity factors are often posited as the main causes. We study the interaction of these variables and synthesize various theories that all predict that heightened European identification leads to a weaker influence of economic status. In a large original survey fielded in 12 countries, we find that respondents' income and perceived relative position correlate negatively with their redistribution preferences, both on the national and the EU level, as predicted by economic accounts. We also replicate findings on the positive effect of identity variables and find some evidence for the predicted interaction. However, randomized information treatments aimed at altering perceptions of an individual's or their member state's relative economic position fail to impact on preferences and do not interact with identity variables. Overall, our findings point toward a possible but quantitatively very limited role of economic status and its interaction with identity in understanding EU redistribution preferences. |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cexwps:294824&r= |
| By: | Nazare da Costa Cabral |
| Abstract: | In this paper I discuss whether the replacement of a ‘rule-based system’ relying on common quantitative benchmarks, as is the case with the current Stability and Growth Pact framework, by a ‘standard-based model’, the model underlying the proposal for a revised Fiscal Framework presented by the Commission, has managed, on the one hand, to overcome the previous criticisms made of SGP’s main legal elements (its ‘preventive’ and ‘corrective’ arms) and, on the other, to verify whether this proposal risks ‘ruling out’ Member State fiscal policies with its intended ‘national ownership’ goal and new flexibility devices. Using insights from political economy, I address this latter point in the light of four contraposing perspectives: firstly, fiscal rules versus fiscal standards (or rules versus discretion); secondly, centralization versus decentralization of budgetary restraints; thirdly, accepting or not accepting Independent Fiscal Institutions; finally, procyclicality versus anti-cyclicality of fiscal policies in the presence of budgetary restraints. |
| Keywords: | Fiscal Framework; Fiscal Rules; Independent Fiscal Institutions; Fiscal Policy; Macroeconomic Stabilization |
| JEL: | E6 F02 H50 H6 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:alf:opaper:2023-01&r= |
| By: | Simone Borghesi (Florence School of Regulation, European University Institute); Michael Pahle (Potsdam Institute for Climate Impact Research); Grischa Perino (Department of Socioeconomics, Universität Hamburg); Simon Quemin (EDF R&D SYSTEME - EDF R&D - EDF R&D - EDF - EDF); Maximilian Willner (Department of Socioeconomics, Universität Hamburg) |
| Abstract: | Having experienced low prices for about a decade, the European Union Emissions Trading System has been supplemented with the market stability reserve (MSR) that adjusts the supply of allowances to market outcomes. We critically review the literature assessing the performance of the MSR against several policy objectives. In doing so, we cover both conceptual aspects and quantitative assessments. We conclude by pointing out important policy implications and open issues for further research. |
| Keywords: | climate policy, emissions trading, EU ETS, stability mechanism, overlapping policies |
| Date: | 2023–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04551558&r= |
| By: | Adelia Fatikhova; Fabrizio Fusillo; Sandro Montresor; |
| Abstract: | This work investigates the role of external exchanges of green knowledge on the regional development of new green technological specializations. We extend the recombinant knowledge framework to commodity-embodied knowledge and posit that inter-industry inter-regional flows of commodities, in which new green knowledge gets incorporated, are a channel through which regions can increase their opportunities of specializing in new green technologies and diversify in a more exploratory manner. We further expect these dynamics to be stronger when foreign rather than domestic embodied flows are concerned. By combining the EUREGIO input-output database with patent data, we test our hypotheses on a sample of 237 EU (NUTS2) regions over the period 2000-2019. We measure the regions’ centrality in the network of inter-regional flows of embodied green knowledge (GreenFlowNet) and exploit regional network centrality in a model of related diversification for green technologies. Results show that the centrality of regions in the network is positively associated with green diversification, making this process more exploratory. We also find that the regional ability to acquire new green-techs is mainly associated with the centrality in outward flows of green knowledge towards other regions rather than inward ones. Lastly, we find that regions’ green-tech diversification seems to be enabled (at the extensive margin) primarily by their centrality in the foreign network and accelerated (at the intensive margin) by their centrality in the domestic one. Policy implications are drawn accordingly. |
| Keywords: | green technologies, diversification, relatedness, knowledge networks |
| JEL: | R11 R15 O52 O33 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:egu:wpaper:2413&r= |
| By: | Hubert Drazkowski (Group for Research in Applied Economics (GRAPE)); Joanna Tyrowicz (Group for Research in Applied Economics (GRAPE); University of Warsaw; Institute of Labor Economics (IZA)); Sebastian Zalas (Group for Research in Applied Economics (GRAPE)) |
| Abstract: | We present a Gender Board Diversity Dataset (GBDD), which provides a cross-country perspective on women in management and supervisory boards that spans between 1985 and 2020. The data covers 43 European countries and accounts for private companies in addition to the stock-listed ones. GBBD was created using firm-level Orbis data. Our measures are based on a sample of more than 28 million unique firms observed for nearly seven years on average and reporting data about nearly 59 million individuals on management and supervisory boards. We provide the measures at the level of industry, country and year (the firm-level data is proprietary). We provide three measures. The first is the share of women among all board members in a given industry, country, and year. The second one is the average of the shares of women across firms in a given industry, country and year. We also provide a new measure: the share of firms in a given industry, country and year which report no single woman on their board(s). |
| Keywords: | gender, board, diversity |
| JEL: | C81 J16 M12 M51 J24 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:fme:wpaper:87&r= |
| By: | Tselios, Vassilis; Rodriguez-Pose, Andres |
| Abstract: | Poverty reduction and the tackling of social exclusion are overarching goals of development and welfare policies. This paper explores the extent to which decentralization contributes to poverty and social exclusion alleviation in European countries and regions. We find evidence that increases in central government transfers of political, administrative and fiscal authority to subnational tiers of government reduce poverty and address social exclusion at the national level. This, however, mainly happens in countries with a high degree of governance quality and, fundamentally, in urban areas. The link between decentralization and poverty and social exclusion alleviation is more uniform at the regional level, as greater regional autonomy is connected to lower poverty and social exclusion, regardless of the quality of regional government. Hence, when regional governments have the capacity to design their own independent policies, a reduction of poverty and social exclusion and improvements in well-being generally ensue. |
| Keywords: | decentralisation; poverty; social exclusion; quality of governance; urban areas; Europe; decentralization; Membership Research Grant (MeRSA) |
| JEL: | H11 H53 I32 R11 |
| Date: | 2022–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:115545&r= |
| By: | Richiardi, Matteo; Leonie, Westhoff; Caterina, Astarita; Ekkehard, Ernst; Clare, Fenwick; Neysan, Khabirpour; Lorenzo, Pelizzari |
| Abstract: | We study the effects of digital transformation in the EU on individual employment outcomes, wage growth, and income inequality, during the decade 2010-2019. Our results allow us to formulate a “conveyor-belt†hypothesis, whereas digital skills are important for finding a job, but less so for retaining it. The ability of out-of-work individuals with higher digital skills to jump back on the labour market is reduced for those with higher education, suggesting a faster depreciation of their digital skills. A similar effect, although of limited size, is found for earning growth: out-of-work individuals with higher digital skills are not only more likely to find a job, but experience higher earning growth, compared to their peers with lower digital skills. Our results point to a vulnerability of workers “left behind†from the digital transformation and the labour market. The overall effects on inequality are, however, limited. |
| Date: | 2024–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:ese:cempwp:cempa5-24&r= |
| By: | Puzikova, Valentyna |
| Abstract: | The new EU Financial Facility for Ukraine presents both opportunities and controversial issues in the context of international assistance. This paper examines the multifaceted dynamics surrounding the Facility and highlights its potential benefits and challenges. Opportunities include substantial financial assistance that can stabilize Ukraine's economy, promote reforms, and foster development in various sectors. The Facility also provides incentives for reform efforts, particularly in the areas of governance, rule of law, and economic policy. Infrastructure development, support to civil society and the political signal of EU solidarity further enhance its potential benefits. To achieve these benefits and before using the received funds, it is important for Ukraine to make a conscious commitment to prioritize the areas of the economy for which these funds are intended, to calculate the growth rate of the external debt, the ability to meet its obligations, and to examine the assumed requirements. To minimize the risks of ineffective distribution of financial assistance and corruption schemes, bureaucratic simplicity of these processes is very important, especially when it comes to Ukraine, its reconstruction, and urgent needs. The implementation mechanism should be as simple as possible and easily verifiable and controllable, while ensuring the necessary transparency. |
| Keywords: | EU Financial Facility for Ukraine; financial support; prioritization the areas of the economy; loans; non-repayable assistance; grants; provisioning of guarantees |
| JEL: | F21 F50 F60 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-720&r= |