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on European Economics |
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Issue of 2024‒06‒24
thirteen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Patrick Honohan (Peterson Institute for International Economics) |
| Abstract: | For most of the decade before the COVID-19 pandemic, undershooting rather than overshooting had been the main inflation problem of the European Central Bank (ECB). During 2020, consumer prices in the euro area were falling; by the end of that year, average inflation since the introduction of the euro two decades earlier stood at only 1.6 percent per year. Things began to snowball in 2021. The 12-month inflation rate steadily accelerated. It reached double digits in the final quarter of 2022--more than twice the level it had ever reached since the euro's introduction in 1999. Four striking features emerge from a review of the unexpected surge in European inflation since 2021: (1) The ECB's monetary policy response lagged behind that of the US Federal Reserve, reflecting the more gradual evolution of inflation in the euro area and its distinct pattern of causes; (2) the range of inflation rates across different euro area countries has been unprecedented. This largely reflects the differential impact of war-related energy shocks (especially for natural gas piped from Russia) as well as the differential fiscal response by national governments partially insulating consumers from these shocks; (3) not all households were net losers from the inflation, with some benefiting from the fact that inflation reduced the real value of their indebtedness; and (4) the speed with which inflation was returning toward target during 2023 prompted concerns that the ECB's monetary tightening might have been pushed too far, prolonging the output slowdown. |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:iie:pbrief:pb24-2&r= |
| By: | Andersson, Malin; Byrne, Stephen; Emter, Lorenz; Pardo, Belén González; Jarvis, Valerie; Schmitz, Martin; Zorell, Nico; Blatnik, Nina; Zwick, Christoph |
| Abstract: | The activities of multinational enterprises (MNEs) have become an increasingly important feature of the euro area economy, affecting output, trade and financial linkages. MNEs contribute to domestic output by maintaining large production facilities, offering high-paid jobs, bringing in new technologies and generating tax revenues. Following statistical changes implemented in 2015 to better capture the increasing importance of intangible investment, the economic impact of MNE activities has become much more evident in measures of intellectual property product (IPP) investment and external IPP trade flows. MNE activities, which often entail large and instantaneous transfers of IPP, are frequently highly volatile and can blur real-time assessment – and forecasting – of the business cycle, the current account and the capital stock in the euro area. Focusing on Ireland, given the strong prevalence of MNE activities in that economy and their importance for the euro area aggregate, this paper assesses the usefulness of the “modified” series for Irish non-construction investment and services imports. Using the modified series would provide a more accurate picture of the domestic dynamics of the Irish economy and enhance real-time assessment of the euro area business cycle, current account and capital stock. This paper brings insights into the unwinding of IPP shocks, which is a more straightforward exercise than seeking to anticipate the shocks themselves. The conclusions of this work underline the urgent need for more granular and internationally harmonised data on MNE activities to gain a clearer understanding of the dynamics of IPP operations and the implications for both short and long-term macroeconomic developments. JEL Classification: E22, F23, F62 |
| Keywords: | intangible capital, macroeconomic impact of globalisation, multinational firms |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbops:2024350&r= |
| By: | António Afonso; Jorge Braga Ferreira |
| Abstract: | Using a panel data approach with bank-fixed effects, we study the impact of Targeted Longer-Term Refinancing Operations (TLTRO) on banks’ risk, given by their distance to default (DtD). The study aims to determine if the liquidity from TLTROs influences banks’ risk-taking behaviour. For the period from 2012:Q1 to 2018:Q4, covering 90 listed banks from 16 Eurozone countries, our findings show that TLTRO is associated with an increase in banks’ default risk. However, banks that participated in TLTRO experienced a positive effect on their default risk, indicating that they may have used liquidity to strengthen their financial position. Furthermore, we found no evidence that TLTRO liquidity encouraged banks to significantly increase lending or invest in riskier assets. Finally, our results also suggest that TLTRO’s impact is consistent across banks of different sizes and that the competition within the banking sector does not influence how banks utilize TLTRO liquidity. |
| Keywords: | ECB, TLTRO, unconventional monetary policy, bank risk, moral hazard, risk-taking channel |
| JEL: | C23 E52 E58 G21 G32 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11116&r= |
| By: | Kolev, Atanas; Randall, Timothy |
| Abstract: | Using firm-level survey data combined with firm-level financial information, we investigate the effect of a subjective, firm-specific measure of uncertainty on firm investment and employment growth in the European Union. We find that uncertainty has an economically significant negative effect on investment. Uncertainty is found to have an economically significant negative effect on employment growth, as well. Firms perceiving uncertainty as a major investment impediment experience 1 p.p. lower employment growth compared to those that do not. Using our estimates, we find that non-financial corporate investment in the European Union in 2022 would have been higher by 1 p.p. of fixed assets, while employment growth would have been by 0.7 p.p. higher had uncertainty remained at its 2021 levels. |
| JEL: | D22 D84 G31 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:eibwps:296480&r= |
| By: | Gérard Pogorel (IP Paris - Institut Polytechnique de Paris, SES - Département Sciences Economiques et Sociales - Télécom ParisTech); Francesco Cappelletti (ELF - European Liberal Forum) |
| Abstract: | In addressing the EU's contemporary chal- lenges, this analysis acknowledges a critical intersection between the imperatives of se- curity, sustainability, and industrial auton- omy. The EU undertakes substantial efforts in these domains. The rapidly shifting glob- al context, its considerable volatility, and emerging trends render any immediate as- sessment of recent policy initiatives prema- ture. However, this dynamic and uncertain landscape underscores the limitations of conventional forecasting and necessitates an ongoing reassessment of the EU's strate- gic priorities. Central to this discourse is the policy ‘trilemma' confronting the Union: the need to simultaneously uphold security, fos-ter sustainability, and maintain the focus on competitiveness. In this sense, industrial au- tonomy refers to the EU's strategic capacity to reinforce its industrial base and supply chains in key sectors, adapting swiftly to global eco- nomic and geopolitical shifts. This chapter explores these issues and proposes coherent changes in approach, all within the frame- work of an EU policy trilemma focusing on security, sustainability, and competitiveness. |
| Keywords: | Europe, industrial policy, sustainability, security, competitively |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04571370&r= |
| By: | Maideu-Morera, Gerard |
| Abstract: | The European Sovereign debt crises (2010-2012) showcased how excessive private leverage can threaten sovereign debt sustainability, making the existing fiscal rules targeting only public debt insufficient. In this paper, I study the optimal joint design of fiscal rules and macroprudential policies with sovereign default risk. I first consider a stylized two-period model of a small open economy where both the local government and a representative household borrow internationally. A central authority internal-izes externalities from sovereign default by the local government and designs fiscal rules and macroprudential policies. The model yields two insights: (i) it provides a novel rationale for macroprudential policies, and (ii) sovereign debt limits that are a function of the quantity of private debt (private-debt-dependent fiscal rules) can im-plement the optimal allocation. Then, I generalize these results to a multiperiod model with heterogeneous households, aggregate risk, and a rich asset structure. Finally, I calibrate a quantitative version of the model to compute the private-debt-dependent fiscal rules and the size of the macroprudential wedges. |
| Keywords: | Fiscal rules; macroprudential policy; sovereign default; endogenous borrowing constraints; economic unions |
| JEL: | F34 F41 F45 E44 G28 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:129336&r= |
| By: | Grégory Claeys; Armin Steinbach |
| Abstract: | How to find institutional arrangements for public-good provision, to maximise the benefits of public goods for EU members? |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:bre:wpaper:node_10043&r= |
| By: | Stefano Filauro; Flaviana Palmisano; FVito Peragine |
| Abstract: | Individual circumstances like gender, family background, foreign origin, and health limitations significantly shape individual economic opportunities. This paper delves into inequality of opportunity by examining to what extent labor market outcomes in the European Union, such as employment access and earnings distribution, are influenced by these attributes. By using EU Statistics on Income and Living Conditions (2005, 2011, 2019), our country-specific analysis reveals that, on average, 40 per cent of earnings inequality stems from these circumstances, with variations among countries. A pan-European analysis, conducted for the first time, shows even higher opportunity inequality compared to national levels, magnified by the country-of-residence effect. Despite a 15-year downward trend, nearly 60 per cent of pan-European earnings inequality in 2019 was attributed to these predetermined circumstances, underscoring the need for targeted public policies to tackle an unethical form of inequality. |
| Keywords: | Inequality; Equality of opportunity; Labour market; Access to employment; Earnings; European Union; EU-SILC |
| JEL: | D31 D63 J31 O15 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:sap:wpaper:wp247&r= |
| By: | Rogers, Ben; da Cruz, Nuno F.; Ripa, Francesco; Hamilton-Jones, Imogen |
| Abstract: | In recent years, post-growth ideas and policies have been catching the attention of policymakers, activists, and academics across the globe. Our research finds that European cities in particular are at the leading edge of the recent surge in interest. From Amsterdam to Glasgow, Barcelona to Vienna, European city governments and urban residents are seeking ways to realign their priorities away from Gross Domestic Product (GDP) growth and towards the pursuit of social and ecological well-being. Despite this trend, most of the existing thought on post-growth has focused on the national or global levels; much less attention has been paid to what a distinctly urban post-growth political agenda might look like. This article begins to fill that gap, focusing on the European case and the cities currently at the forefront of post-growth experimentation. We explore the emergence of post-growth thinking both globally and at the city level by analyzing related terms (such as circular economy or degrowth) in academic and policy publications, and in Google search trends. While post-growth-related terms have only recently begun to be linked to cities, our analysis shows that interest in urban post-growth is rising steeply, especially in Europe where even the most growth-critical terms are beginning to permeate mainstream political debates. To conclude, we step back to consider the relevance of post-growth ideas to European cities and to ask what an urban post-growth agenda might look like. |
| Keywords: | circular economy; Doughnut Economics; European cities; beyond GDP; urban post-growth; LSE Cities' European Cities Programme at the London School of Economics and Political Science is supported by Bloomberg Philanthropies |
| JEL: | O40 R00 |
| Date: | 2023–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:119483&r= |
| By: | Suzana Hardy; Tom Shraepen |
| Abstract: | Despite European Union efforts to fight discrimination as part of its Union of Equality strategies, it is difficult to analyse discrimination in EU Member States given the scarcity of official data sources. This paper uses new survey data to examine discrimination against people from racialised communities, LGBTIQ+ people, persons with disability and religious minorities. It explores the role discrimination plays in driving well-being gaps between at-risk groups and the majority of the population. Discrimination, particularly when it occurs frequently, is associated with severe effects across many aspects of people’s lives – constraining income-earning opportunities, exacerbating housing and financial stress, subjecting people to violence, fear and low self-esteem, and contributing to mental ill health. These consequences come at a huge personal cost to the individuals directly affected and to society as a whole. |
| Keywords: | discrimination, inclusion, social cohesion, well-being |
| JEL: | D63 I31 J14 J15 J71 |
| Date: | 2024–06–12 |
| URL: | https://d.repec.org/n?u=RePEc:oec:wiseaa:26-en&r= |
| By: | Hartog, Joop (University of Amsterdam) |
| Abstract: | In the postwar period, when fertility dropped substantially, immigration more than made up for the drop in population growth, and from 1950 to 2020, population increased by 73%, double the European rate, in a country with population density already among the highest in Europe. Yet, there never has been a serious population policy, and in fact, central spatial planning has been abandoned. In regard to effects on population size, it seems like immigration policies were set by a sorcerer's apprentice who only half mastered his art: he could set forces in motion, but controlling them afterwards was beyond his skills. As a result, Dutch policy making touching on alternative uses of land, has now reached a stalemate. We discuss some options for a way out. |
| Keywords: | population size, population density, immigration, immigration policies, spatial planning |
| JEL: | J10 J11 J18 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16987&r= |
| By: | Carmen Díaz-Mora (University of Castilla-La Mancha.); Silviano Esteve-Pérez (University of Valencia and INTECO Joint Research Unit UJI-UV); Salvador Gil-Pareja (Salvador Gil-Pareja, Facultad de Economía, Departamento de Estructura Económica, Av. de los Naranjos s/n, C.P. 46022, Valencia, Spain.); Fernando Ríos-Avila (Levy Economics Institute of Bard College.) |
| Abstract: | This paper estimates the EMU effect on trade accounting for heterogeneous effects across space and time. To that end, we use an extended two-way fixed effect estimator for staggered difference-in-differences within the structural gravity model. The average EMU impact on trade between members taking into account the heterogeneity of the treatment effect at the cohort-year level is positive (close to 20%) but very similar to that found using the standard two-way fixed effects estimator. However, the new approach allows us to analyze the EMU impact by cohorts and by periods from treatment, which reveals heterogeneity in the results and provides new insights into the study of the impact of EMU. |
| Keywords: | Keywords: EMU, gravity equation, staggered difference-in-differences, heterogeneity |
| JEL: | F13 F14 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:eec:wpaper:2407&r= |
| By: | MATSUOKA, Hideaki; 松岡, 秀明 |
| Keywords: | Real-time data, Fiscal Reaction Function, Heterogeneous Panel Regression Kink with an unknown threshold |
| JEL: | E43 H63 |
| Date: | 2024–06–03 |
| URL: | https://d.repec.org/n?u=RePEc:hit:econdp:2024-02&r= |