|
on European Economics |
|
Issue of 2024‒09‒30
eighteen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Michal Marencak; Giang Nghiem |
| Abstract: | This paper estimates the elasticity of intertemporal substitution for the euro area. It leverages the unique design of the Consumer Expectations Survey in Europe to directly infer it from the Euler equation. Our final estimates range between 0.7 and 0.8 for the euro area as a whole, which are higher than those for the US. We also observe economically sizeable heterogeneity across the member states, and over time. Belgium, Germany, and the Netherlands have lower elasticity compared to France, Spain, and Italy. The implications are discussed. |
| Keywords: | inflation, expectations, consumption, intertemporal elasticity of substitution, Euler equation, Consumer Expectations Survey |
| JEL: | D12 D15 D84 E21 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2024-56 |
| By: | Sánchez Serrano, Antonio; Andersen, Isabel |
| Abstract: | We present a methodology based on quarterly sectoral accounts to build a map of the euro area financial system. The map can be used to visualise existing cross-sectoral interconnections and exposures, to analyse how the main bilateral positions have evolved over time, and to understand how past episodes of financial stress affected balance sheet structures and inter-sectoral flows. We find that the euro area financial system was essentially bank-centric when it entered the global financial crisis, and only afterwards has the importance of investment funds, government debt and central banks increased substantially. In particular, investment funds are used by euro area economic agents to gain exposure to the rest of the world and vice versa. We also document weak dynamics since the global financial crisis in lending between euro area banks and non-financial corporations. Next, we look at the financial system during the global financial crisis and the outbreak of the COVID-19 pandemic, a further four episodes of financial stress (sovereign debt crisis, the US taper tantrum, the Brexit referendum, the start of Russia’s invasion of Ukraine) and the monetary policy tightening between 2005 and 2007. While there are differences across them, we unveil interesting common features. The map can be useful in determining which sectors are resilient enough to absorb losses and whether they can serve as transmitters of stress. Finally, turning to liquidity, bank deposits, money market fund shares and securities financing transactions are key to ensure a smooth supply of liquidity and should continuously be on the radar of policymakers. JEL Classification: G01, G20, G10 |
| Keywords: | financial crisis, financial intermediation, flow of funds, Interconnections, liquidity |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:srk:srkops:202426 |
| By: | Heike Joebges; Camille Logeay |
| Abstract: | The strong increase in inflation rates in Europe at the end of 2022 is in stark contrast to more than a decade of very low developments within the euro area. This time, profit hikes are under more scrutiny than wage increases. As changes in profits in relation to those of wages have the potential to change the functional income distribution, we analyse past and current price developments by decomposing the contributions to domestic prices, measured by the GDP deflator, into those stemming from unit labour costs, those from unit profits, and those from net unit taxes on production. In order to judge those developments as stability-oriented or not, we follow the literature that recommends that national wage developments should be in line with the inflation target of the ECB plus the increase in labour productivity. Such a development, if also applied to profits, would not kick-start an inflationary process and would support a stable functional income distribution. Our descriptive analysis covers annual inflation contributions from unit labour costs and unit profits from 1999 to 2023 in 19 countries of the Euro Area. According to our results, developments have been heterogeneous among the studied countries since the introduction of the euro and continue to show differences in price developments. Yet, it is striking that unit profit increases have recently been far above levels observed in the past in all member countries, and are higher than for unit labour cost increases. Even if it is too early to ignore the possibility of only temporary cyclical profit developments, unit profit developments cannot be explained by developments of GDP, interest rates and terms-of-trade according to our out-of-sample forecast. Yet, more detailed data is necessary for explaining the factors behind this increase in unit profits at an aggregate level. |
| Keywords: | Inflation, GDP deflator, functional income distribution, wage rule, profit rule, gross operating surplus, unit labour costs |
| JEL: | E25 E31 E64 F45 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:imk:fmmpap:107-2024 |
| By: | Ruben Nicolas; Vitĕzslav Titl; Fredo Schotanus; Vitezslav Titl |
| Abstract: | The European Commission co-funds public projects through the European Structural and Investment Funds (ESIF) to stimulate the sustainable economic development of EU Member States. The ESIF budget is about 90 billion euros annually and ESIF beneficiaries are explicitly encouraged to increase their use of Green Public Procurement (GPP) since 2014. In this paper, we study to what extent ESIF co-funding affects the uptake of GPP, using a dataset with all public tender notices in the Czech Republic (2006-2019). Our findings suggest that ESIF co-funding instigates selection behaviour by contracting authorities to improve chances of receiving co-funding. After accounting for selection effects, we find that ESIF co-funding has a small but significant effect on the uptake of GPP. Studying exogenous changes in the ESIF policy conditions, we find that GPP uptake responds to changes in the availability of co-funding and not to stronger policy objectives related to sustainability. Finally, we find that the contracting authority’s prior experience with GPP is positively associated with ESIF co-funding and has only a small effect on GPP uptake aside from ESIF. |
| Keywords: | green public procurement, EU, co-funding, climate policy, policy evaluation, sustainable developmen |
| JEL: | H57 D73 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11263 |
| By: | Mavrigiannakis, Konstantinos; Sakkas, Stelios |
| Abstract: | This paper aims at assessing quantitatively the macroeconomic impact of EU sanctions against Russia for the economy of Cyprus. To this end, we use a medium-scale micro-founded DSGE model of a small open economy participating in a currency union like the euro area calibrated to the economy of Cyprus. The model features two sectors of production, namely the tradable and the non-tradable one. In this model, EU sanctions influence the sanctioning economy (i.e. Cyprus) through a mix of foreign shocks that hit in principle the tradable sector. In particular, to mimic the economic environment (namely, how all this started in 2022), we analyze first the effects of an energy-type shock modeled as a standard cost-push shock on imported goods. In turn, we add to this economic environment the impact of policy reactions like EU sanctions against Russia. In this context and given the strong trade ties of Cyprus with Russia we model sanctions as two simultaneous negative exogenous shocks, that is, a temporary decrease in the exported goods reflecting primarily reductions observed in tourism and financial services, and inward foreign direct investment (FDI). Contrary to the mild impacts reported in the literature for the majority of EU countries we find non negligible adverse effects for the economy of Cyprus which range from -1.28% to -3.36% in terms of average output loss in the short run. Given Cyprus’s vulnerable external position we show that the impact of sanctions depend crucially on the degree of tightening financing conditions which are likely to hit particularly more countries with high initial current account deficits and debt stocks. |
| Keywords: | Cyprus; economic sanctions; trade disintegration |
| JEL: | F16 F51 |
| Date: | 2024–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:125336 |
| By: | Tomáš Slačík |
| Abstract: | This report revisits the growth and convergence performance of the 11 EU member states in Central, East and Southeast Europe (EU-CEE11) over the past few decades, examining the underlying drivers, structural changes and the outlook. The review aims to assess the sustainability of the current economic model and identify areas for economic policy to focus on boosting growth. The findings show that convergence has significantly slowed since the global financial crisis, with value added growth declining in virtually all industries. This slowdown is attributed to structural rather than cyclical factors, with total factor productivity (TFP) being the main driver as well as the primary culprit behind the deceleration. Since medium-term growth projections for the region are not optimistic, the EU-CEE11 countries must make substantial efforts to improve their economic models. Key areas to focus on include energy, underutilised labour and improving human capital. While still very competitive, the manufacturing sector needs to move towards higher value added activities. |
| Keywords: | growth, convergence, growth model, EU-CEE11 |
| JEL: | E61 F15 F43 O47 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:wii:rpaper:rr:475 |
| By: | Parisa Pakrooh (Marie Sklodowska-Curie Postdoctoral Research Fellow, Fondazione Eni Enrico Mattei); Matteo Matteo (Department of Economics, Management and Statistics, University of Milano-Bicocca, and Fondazione Eni Enrico Mattei) |
| Abstract: | The EU carbon market serves as an innovative financial instrument with the primary objective of contributing to mitigate the impacts of climate change. This market demonstrates significant interconnectedness with fossil energy, precious metal, and financial markets, although limited research has focused on the causality, dependency, intensity and direction of time-varying spillover effects. This study aims to investigate the causality direction, degree of dependency structure, and volatility transmission from Brent Oil, UK Natural Gas, Rotterdam Coal, Gold, Silver, Copper, and EuroStoxx600 future prices to EU Allowances during different periods of EU market. To achieve these objectives, this paper proposes a novel methodological approach that combines the most recent econometrics methods, such as Directed Acyclic Graph analysis, C-Vine Copula models, and Time-Varying parameter Vector Auto Regressive models with Stochastic Volatility with the use of a comprehensive sample of daily data from 26 April 2005 to 31 December 2022. The major findings of this study demonstrate that causality predominantly runs from energy, metal, and financial markets to the EU carbon market. The dependency structure, although varying across different sub-periods, shows a strong relationship observed between oil, coal, silver, copper, EuroStoxx600, and CO2 market. Additionally, the oil and copper futures prices exhibit the highest dependence on EUA prices. Furthermore, the study establishes that the EU carbon market is a net receiver of shocks from all other markets, with the energy, metal, and financial markets significantly influencing volatility in EUA prices. The time-varying spillover effect is most pronounced with a one-day lag, and the duration of the spillover effects ranges from 2 to 15 days, gradually diminishing over time. These results have the potential to increase the understanding of the EU carbon market and offer practical guidance for policymakers, investors, and companies involved in this domain. |
| Keywords: | Causality direction, Dependency structure, EU-ETS, Time-varying spillover |
| JEL: | O52 Q43 Q54 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:fem:femwpa:2024.22 |
| By: | António Afonso; M. Carmen Blanco-Arana |
| Abstract: | The gender pay gap and the gender gap in employment remains persistent in Europe despite the basic assertion of gender equality under EU law. We assess the factors that influence the gender pay gap and gender employment gap across European countries. Therefore, we use an unbalanced panel of 31 European countries over the period 2000-2022, and estimate a system generalized method of moment model (GMM). The main conclusions confirm that tertiary education significantly reduces gender pay gap and part-time and temporary contracts significantly increase this gap. Moreover, part-time reduces significantly gender employment gap. Gross Domestic Product (GDP) per capita does not affect these gaps and the Global Financial Crisis (GFC) saw a narrowing of the gender pay and employment gaps in European countries. The results are robust when using a fixed effects (FE) model. |
| Keywords: | Gender Pay Gap; Gender Employment Gap; Secondary Education; Tertiary Education; Part-time; Temporary Work; GMM; European countries |
| JEL: | J0 J16 C23 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp03382024 |
| By: | Beatrice Federica Paolella; Tanya Araújo |
| Abstract: | The European Union Emissions Trading Scheme (EU ETS) has been instrumental in mitigating carbon dioxide (CO2) emissions across Europe since its initiation on January 1, 2005. CO2 has emerged as a traded commodity in the EU ETS, governed by market fundamentals similar to those in other global commodity markets. The interplay of supply and demand, driven by the allocation of allowances, plays thus a crucial role. Here, using real data, we developed networks of EU ETS to model exchanges of allowances between EU countries. Our results provide new insights into the topological structure of trading from 2005-2020. Combining the results from centrality measures, clustering and modularity, the EU ETS networks can be seen in the transition from a structure with few clusters to a structure characterized by numerous clusters organized around new nodes with acquired centrality. |
| Keywords: | Emissions Trading Scheme, Network Analysis, CO2 Trading, Allocation of Allowences. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp03372024 |
| By: | Gagliardi, Nicola; Grinza, Elena; Rycx, François |
| Abstract: | In this paper, we investigate the impact of rising temperatures on firm productivity using longitudinal firm-level balance-sheet data from private sector firms in 14 European countries, combined with detailed weather data, including temperature. We begin by estimating firms' total factor productivity (TFP) using control-function techniques. We then apply multiple-way fixed-effects regressions to assess how higher temperature anomalies affect firm productivity - measured via TFP, labor productivity, and capital productivity. Our findings reveal that global warming significantly and negatively impacts firms' TFP, with the most adverse effects occurring at higher anomaly levels. Labor productivity declines markedly as temperatures rise, while capital productivity remains unaffected - indicating that TFP is primarily affected through the labor input channel. Our moderating analyses show that firms involved in outdoor activities, such as agriculture and construction, are more adversely impacted by increased warming. Manufacturing, capital-intensive, and blue-collar-intensive firms, compatible with assembly-line production settings, also experience significant productivity declines. Geographically, the negative impact is most pronounced in temperate and mediterranean climate areas, calling for widespread adaptation solutions to climate change across Europe. |
| Keywords: | Climate change, Global warming, Firm productivity, Total factor productivity (TFP), Semiparametric methods to estimate production functions, Longitudinal firm-level data |
| JEL: | D24 J24 Q54 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:glodps:1485 |
| By: | Federico Fabio Frattini (Fondazione Eni Enrico Mattei); Francesco Vona (University of Milan and Fondazione Eni Enrico Mattei); Filippo Bontadini (Luiss University and SPRU – University of Sussex) |
| Abstract: | What are the consequences of green industrialization on the labour market and industry dynamics? This paper tackles and quantifies this question by employing observable and reliable data on green manufacturing production for an extensive set of EU countries and 4-digit manufacturing industries for over a decade. First, at a descriptive level, this paper documents that potentially green industries outperform the others in terms of employment, average wages, value added and productivity, net of controlling for other drivers of the labour market and industry dynamics. Second, employing a shiftshare instrument to purge the analysis from possible endogeneity within green potential industries, this paper finds that an expansion of green production implies an increase in employment and value added. In contrast, average wages and labour productivity remain unchanged. These results hold in the short and long term, are heterogeneous depending on the countries considered, and are amplified by existing industry specialization and by accounting for input-output linkages. |
| Keywords: | Green transition, Employment, Manufacturing, Shift-share |
| JEL: | J21 J31 L6 O14 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:fem:femwpa:2024.23 |
| By: | Peter Bofinger |
| Abstract: | The paper discusses central digital currencies (CBDCs) with an analytical focus on the European Central Bank's Digital Euro (D€) project, which provides a unique lens for assessing the potential and challenges of CBDCs. The paper differs from the literature on CBDCs and the D€ by adopting a systemic perspective that distinguishes between the role of CBDCs as a new payment object and as a new payment system based on CBDC accounts. In a worst-case scenario, the D€ project could be a total flop, with people not opening accounts and the system failing to compete with existing platforms. This would be in line with the dismal experience of countries that have already introduced CBDCs. In a more positive scenario, many households would open D€ accounts alongside commercial bank accounts, potentially reducing the dominance of US platforms. However, even in this scenario, it is unlikely that there will be significant holdings of D€ deposits as a means of payment, making the D€ payment system an inefficient and costly detour between existing commercial bank accounts. The offline version remains difficult to justify. Our CBDC tracker shows that the ECB's strong commitment to the D€ is unique among central banks in advanced economies. Many of them, including the Federal Reserve, currently rule out the option of a retail CBDC. Thus, the ECB's unconditional commitment to the D€ carries a high risk of failure. It is therefore unclear why the ECB is not considering a scheme based on the existing SEPA infrastructures. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:imk:studie:95-2024 |
| By: | Despina Gavresi (DEM, University of Luxembourg); Anastasia Litina (Department of Economics, University of Macedonia); George Mavropoulos (Department of Economics, University of Macedonia); Sofia Tsitou (Department of Economics, University of Ioannina) |
| Abstract: | This paper explores the interplay between social norms i.e., attitudes on gender equality and strength of family ties, and the spread of COVID-19. To undertake our analysis we combine sub-national (Nuts 1 regions) data for the social norms from the Integrated Values Survey (IVS) from 1981 to 2019 and the spread of COVID-19 measured by the excess mortality rate in Nuts 1 European regions in 2020 and 2021. Exploiting regional variation, we empirically establish that in regions with norms favoring gender equality, the excess mortality associated with the spread of COVID-19 is lower. Our hypothesized underlying mechanism is that women respect social distancing more, thereby in a country where women enjoy more respect, the influence more strongly their families to do the same thus diminishing the virus diffusion. Concerning the strength of family times, we find that regions with stronger family ties are associated with a higher COVID-19 excess mortality rate, hinting to the higher involvement of the elderly in family affairs. |
| Keywords: | COVID-19, Women Equality, Family Ties, Social Norms, Culture |
| JEL: | O4 Z12 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:mcd:mcddps:2024_06 |
| By: | Dirk Krueger (University of Pennsylvania, CEPR and NBER); Egor Malkov (Bates White); Fabrizio Perri (Federal Reserve Bank of Minneapolis and CEPR) |
| Abstract: | We use panel data from the Italian Survey of Household Income and Wealth from 1991 to 2016 to document what components of the household budget constraint change in response to shocks to household labor income, both over shorter and over longer horizons. Consumption and wealth responses are informative about the household consumption (or savings) function and thus about what class of consumption-savings model best describes the data. Empirically, we first 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. To understand the wealth response we then split households into a sample that does not own business or real estate wealth, and a sample that does. 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 (and mildly increasing with the income shock horizon). Turning to theory, we argue that for this group, a simple extension of the standard permanent income hypothesis (PIH) consumption function that allows for partial insurance against even permanent income shocks explains the consumption and wealth responses well, both at short and long horizons. For the second group with business wealth or real estate wealth 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 consequences of household resource risk. |
| Keywords: | Consumption, Liquid Wealth, Income Shocks, Partial Insurance, PIH |
| JEL: | D91 E21 |
| Date: | 2024–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:pen:papers:24-022 |
| By: | Fabio Alessandrini (University of Lausanne; Banque Cantonale Vaudoise); Eric Jondeau (University of Lausanne - Faculty of Business and Economics (HEC Lausanne); Swiss Finance Institute); Lou-Salomé Vallée (University of Lausanne and Center for Risk Management Lausanne) |
| Abstract: | This paper presents a comprehensive comparative analysis of various portfolio construction techniques in the context of decarbonization and the pursuit of net-zero objectives aligned with the 2015 Paris Agreement. Specifically, we examine different strategies that qualify as Article 9 funds under EU regulations, focusing on carbon emissions reduction objectives, such as screening and tracking error minimization techniques. Our findings indicate that all approaches would have achieved the targeted emissions reductions over the 10-year period (2012-2021) analyzed. However, the method of decarbonization significantly affects ex-post tracking errors, with the more ambitious Paris-Aligned Benchmark requiring a substantial departure from the business-as-usual benchmark. Additionally, the tracking error minimization approach involves considerable reallocation of individual securities, potentially leading to, possibly undesirable, idiosyncratic exposures. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2444 |
| By: | Krüger, Jens J. |
| Abstract: | Leading indicators are important variables in business cycle forecasting. We use wavelet analysis to investigate the lead-lag stability of German leading indicators in time-frequency space. This method permits a time-varying relation of the leading indicators to the reference cycle allowing simultaneously to focus on lead-lag stability at the specific business cycle frequencies. In this way we analyze an index of new orders, a survey-based index of business expectations, an index of stock market returns and the interest rate term spread. We confirm that most of these indicators are indeed leading the reference cycle most of the time, but the number of months leading varies considerably over time and is associated with a great deal of estimation uncertainty. |
| Date: | 2024–09–03 |
| URL: | https://d.repec.org/n?u=RePEc:dar:wpaper:149438 |
| By: | Eilfort, Michael; Meyer, Tim |
| Abstract: | Deutschland ist eine stabile Demokratie und ein sicherer Rechtsstaat. Dazu leben wir, auf der Grundlage der Sozialen Marktwirtschaft, in einem der wohlhabendsten Länder der Erde. Diese Prosperität kommt breiten Schichten zugute, sorgt für ein hohes Maß an sozialem Frieden und ermöglicht einen fast beispiellos ausgebauten Sozialstaat. Es lebt sich gut auch dank herausragender, ideenreicher Unternehmer sowie einer dezentralen Wirtschaftsstruktur und Industrielandschaft, aus der international erfolgreiche Großunternehmen sowie mittelständische "Hidden Champions" als Leuchttürme ragen. Doch ist in den letzten Jahren etwas ins Rutschen geraten: Unsere verbreitete Selbstwahrnehmung stimmt immer weniger mit der Fremdwahrnehmung überein: Jenseits der Grenzen schwärmt kaum noch jemand von Tarifautonomie, dualer Ausbildung, dem Föderalismus, Organisationsfähigkeit und anderen "deutschen Tugenden". Energiewende, Infrastruktur, Regulierung, Innovationsfähigkeit und Bildung dienen nicht mehr als Vor-, sondern zusehends als Schreckensbilder. Es ist Zeit, in Deutschland wieder mehr an die Zukunft und nicht nur im "Weiter-so"-Modus an die unbeirrte Fortführung der Gegenwart zu denken oder gar Nostalgie zu pflegen. Es droht der (weitere) Abstieg mit substantiellen Wohlstandsverluste. Schönreden gepaart mit Untätigkeit kann sich das Land nach über 15 Jahren ohne zukunftsweisende Strukturreformen nicht mehr leisten. Deutschland kann so vieles besser und hat ähnliche Herausforderungen Anfang der 1980er und 2000er Jahre erfolgreich bewältigt. Wollen und mehr tun müssen wir aber schon! |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:smwpun:302561 |
| By: | Bettiol, Marco; Capestro, Mauro; Di Maria, Eleonora; Ganau, Roberto |
| Abstract: | Does Industry 4.0 technology adoption push firms’ labor productivity? We contribute to the literature debate—mainly focused on robotics and large firms—by analyzing adopters’ labor productivity returns when micro, small, and medium enterprises (MSME) are concerned. We employ original survey data on Italian MSMEs’ adoption investments related to a multiplicity of technologies and rely on a difference-in-differences estimation strategy. Results highlight that Industry 4.0 technology adoption leads to a 7% increase in labor productivity. However, this effect decreases over time and is highly heterogeneous with respect to the type, the number, and the variety of technologies adopted. We also identify potential channels explaining the labor productivity returns of technology adoption: cost-related efficiency, new knowledge creation, and greater integration/collaboration both within the firm and with suppliers. |
| Keywords: | Industry 4.0; Italy; labor productivity; MSME; technology adoption |
| JEL: | R14 J01 J1 |
| Date: | 2024–04–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:124545 |