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on European Economics |
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Issue of 2024‒10‒07
twenty papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Mirza, Harun; Salleo, Carmelo; Trachana, Zoe |
| Abstract: | This study assesses euro area banks’ profitability using granular stress test data from three EU-wide exercises, coordinated by the European Banking Authority, that took place in 2016, 2018, and 2021. We propose a credit portfolio-level risk-adjusted return on assets for the euro area as a whole and for individual countries to assess the profitability of lending activities among euro area banks. Using banks’ own projections under the adverse scenarios of the stress test exercises for a consistent sample of euro area banks, we aim to uncover the effect of severe macroeconomic and financial conditions on the profitability of the various portfolios. We investigate how many country portfolios switch from profitable to loss-making under adverse conditions and show that this number peaks in the 2018 stress test exercise, while the 2021 exercise yields the lowest overall profitability. Overall, around 30% of exposures become unprofitable under stress conditions across the latest two exercises (compared to 20% for the 2016 exercise), mostly concentrated in the non-financial corporations (NFC) segment and, to a lesser extent, in the financial and mortgage portfolios. We also show in a regression analysis that the yield curve is an important determinant of portfolio-level profitability in a stress test setting, while the unemployment rate seems to be relevant in determining portfolio switches and GDP growth seems to influence the change in profitability. The results also point to some portfolio heterogeneity. |
| Keywords: | Bank profitability, cost of risk, net interest income, portfolio analysis, scenario analysis, stress testing |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbops:2024356 |
| By: | Carlos Canizares Martinez (National Bank of Slovakia); Arne Gieseck (European Central Bank) |
| Abstract: | This paper estimates the effects of uncertainty shocks on a large set of economic and financial variables in the euro area. For this purpose, we first build a large monthly macro dataset with euro area-wide data, which we summarize by principal components. Second, we estimate a heteroskedastic factor-augmented vector autoregressive (FAVAR) model using a survey-based measure of macroeconomic uncertainty and a large dataset. Third, we identify five shocks by employing a new identification scheme based on sign restrictions exploiting our large dataset, including uncertainty shocks, financial shocks, standard monetary policy shocks, aggregate demand shocks, and supply shocks. Fourth, we show more than one hundred impulse responses to an uncertainty shock. In this setup, we find that an uncertainty shock has a significantly negative effect on economic activity measures in the euro area, but has no significant effect on savings and inflation. Moreover, uncertainty shocks trigger a contractionary effect on several measures of financial stability. Finally, we discuss the results and possible policy implications |
| JEL: | C55 D80 D81 E32 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:svk:wpaper:1109 |
| By: | Joshua Aizenman; Jamel Saadaoui |
| Abstract: | We investigate the resilience of CESEE countries during ECB monetary cycles after the entrance of ten countries to the EU in 2004. Undeniably, these countries have experienced a ‘miracle’ growth during the 2000s decade. However, several obstacles appeared following the global financial crisis and the euro crisis. In many CESEE countries, the quality of institutions has stalled, or even worse, has known a deterioration. Our investigation examines how fundamental and institutional variables influence cross-country resilience regarding exchange rates, interest rates, stock prices, inflation, and growth during the subsequent monetary cycles. Specifically, we focus on five ECB tightening and easing cycles observed during 2005-2023. Cross-sectional regressions reveal that limiting inflation, active management of precautionary buffers of international reserves, current account surpluses, better financial development, and institution quality are important predictors of resilience in the next cycle. The panel regressions show that the US shadow rate strongly influences resilience during the ECB monetary cycles. Besides, various asymmetries are discovered for current account balances, international reserves, and fuel import shares during tightening cycles. Panel quantile regressions detect asymmetries along the distribution of the dependent variables for financial development, central bank independence, and the inflation rate preceding the cycles. These findings may provide guidelines that are useful for returning to the trajectory observed before the euro crisis by identifying the main fundamental and institutional variables that enhance the resilience of CESEE. |
| JEL: | E50 F32 F36 F42 F65 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32957 |
| By: | Beckmann, Joscha; Czudaj, Robert L.; Murach, Michael |
| Abstract: | The objective of this paper is to analyze the macroeconomic effects of media coverage related to the trade conflict between China and the U.S. for selected countries of the European Union. Our main aim is to evaluate whether media coverage constitutes a relevant transmission channel for macroeconomic effects. We evaluate the response of survey-based macroeconomic expectations, stock prices, and realized industrial production. Our analysis focuses on Germany, France, Italy, and Spain in order to allow for heterogeneous effects across major EU countries. We find significant effects on expectations, stock prices, and industrial production. Especially, a significantly negative effect on current account expectations is observed for three of the four considered EU countries (Germany, Italy, and Spain). |
| Keywords: | China, Current account, EU, Expectations, Trade war |
| JEL: | F32 F41 F43 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121751 |
| By: | Christensen, Jens H. E. (Federal Reserve Bank of San Francisco); Mirkov, Nikola (Belgrade Banking Academy); Zhang, Xin (Research Department, Central Bank of Sweden) |
| Abstract: | Through large-scale asset purchases, widely known as quantitative easing (QE), central banks around the world have affected the supply of safe assets by buying quasi-safe bonds in exchange for truly safe reserves. We examine the pricing effects of the European Central Bank’s bond purchases in the 2015-2021 period on an international panel of bond safety premia from four highly rated countries: Denmark, Germany, Sweden, and Switzerland. We find statistically significant negative effects for all four countries. This points to an important international spillover channel of QE programs to bond safety premia that operates by increasing the amount of truly safe assets. |
| Keywords: | term structure modeling; convenience yields; unconventional monetary policy; European Central Bank |
| JEL: | E43 E47 F42 G12 G13 |
| Date: | 2024–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:rbnkwp:0440 |
| By: | Miguel García-Posada (BANCO DE ESPAÑA); Peter Paz (BANCO DE ESPAÑA) |
| Abstract: | We present empirical evidence on the transmission of monetary policy to banks’ credit standards (i.e. loan approval criteria) in loans granted to non-financial corporations (NFCs) in the euro area. To this end, we use a confidential survey in which banks are asked about developments in their respective credit markets, coupled with banks’ balance sheets and high-frequency monetary policy shocks. First, we find that poorly capitalized banks are more likely to tighten their credit standards in loans to NFCs. Second, these banks have tended to tighten their credit standards more in loans to SMEs than in loans to large firms during the current restrictive monetary phase. Third, the transmission of monetary policy to credit standards in loans to NFCs is stronger in poorly capitalized banks. Fourth, the relationship between monetary policy and credit standards is driven by large contractionary monetary policy shocks, which reveals important asymmetries in the bank lending channel. Finally, a tightening of the monetary policy stance also increases rejection rates in loans to NFCs, to a greater extent in poorly capitalized banks. |
| Keywords: | monetary policy, bank capital, credit supply, bank lending channel |
| JEL: | E51 E52 G21 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2430 |
| By: | Christoph Paetz (Macroeconomic Policy Institute (IMK)); Sebastian Watzka (Macroeconomic Policy Institute (IMK)) |
| Abstract: | This policy brief presents the new EU fiscal rules with a focus on its core element, the so-called debt-sustainability-analysis (DSA). Our results suggest first that the new rules will lead to substantial fiscal consolidation in the next years albeit less severe than the austerity measures during the euro crisis, second that the new rules are far less beneficial for public investment than previously thought, and third that relatively minor changes to the DSA assumptions on ageing costs and interest rates can have important consequences for fiscal adjustment needs. However, even if some of the assumptions underlying the DSA methodology were to be changed, the additional fiscal space would still fall drastically short of the massive public investment needs of the EU's green transition. We conclude by making the case for an EU-wide debt-financed investment fund. |
| Keywords: | EU Fiscal rules, fiscal rules, debt-sustainability analysis, DSA, ageing costs |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:imk:pbrief:176-2024 |
| By: | Soner Baskaya (UNIVERSITY OF GLASGOW); José E. Gutiérrez (BANCO DE ESPAÑA); José María Serena (BANCO DE ESPAÑA); Serafeim Tsoukas (UNIVERSITY OF GLASGOW) |
| Abstract: | This paper studies whether supervisory actions, namely provisioning guidelines on non-performing loans (NPLs), affect banks’ NPL cleansing and lending behaviour, as well as the real economy. Using the supervisory intervention announced by the European Central Bank in the first quarter of 2018 as a quasi-natural experiment, we show that banks disposed of old NPLs at a higher rate after the policy shift. Banks that were more heavily exposed to the policy tightened their lending standards, especially for risky firms. Furthermore, banks with stronger fundamentals were more keen on disposing NPLs and less restrained on lending. We also find that firms borrowing from banks affected by the supervisory actions experienced a decline in the growth rates of their total assets, investment, employment and sales. Our results highlight the importance of supervisory actions on NPL management, and potential beneficial effects on credit allocation. |
| Keywords: | non-performing loans, loan loss provisioning rules, NPL resolution, credit supply, firm outcomes |
| JEL: | E51 E58 G13 G21 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2428 |
| By: | Gagliardi, Nicola (Free University of Brussels); Grinza, Elena (University of Turin); Rycx, François (Free University of Brussels) |
| Abstract: | 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. Our findings, based on control-function techniques and fixed-effects regressions, reveal that global warming significantly and negatively impacts firms' TFP. Labor productivity declines markedly as temperatures rise, while capital productivity remains unaffected – indicating that TFP is primarily affected through the labor input channel. Sensitivity tests show that firms involved in outdoor activities, such as agriculture and construction, are more adversely impacted. Manufacturing, capital-intensive, and blue-collar-intensive firms also experience significant productivity declines. Geographically, the negative impact is most pronounced in temperate and mediterranean climate areas. |
| 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: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17241 |
| By: | Schwab, Thoms |
| Abstract: | The European Cohesion Policy is currently undergoing a profound identity crisis. The ongoing reform debate fundamentally questions the direction and methods of promoting regional development. This debate is further intensified by changing geopolitical conditions, which introduce new, fundamental trade-offs. This paper provides a comprehensive overview of the key discussion threads, analyses their implications, and offers initial recommendations for addressing the trade-offs Cohesion Policy is facing. |
| Keywords: | EU Cohesion Policy, European Integration, Structural Funds, Regional Policy |
| JEL: | F15 O52 R58 |
| Date: | 2024–06–13 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121841 |
| By: | Marco Due\~nas; Antoine Mandel |
| Abstract: | This paper explores the relationship between economic growth and CO$_2$ emissions across European regions from 1990 to 2022, specifically concerning the dynamics of emissions growth rates through different phases of the European Union Emissions Trading System (EU ETS). We find that emissions dynamics exhibit significant volatility influenced by changing policy frameworks. Furthermore, the distribution of emissions growth rates is asymmetric and displays fat tails, suggesting the potential for extreme emissions events. We identify marked disparities across regions: less developed regions experience higher emissions growth rates and greater volatility compared to many developed areas, which show a trend of declining emissions and reduced volatility. Our findings highlight the sensitivity of emissions to policy changes and emphasise the need for clear and effective governance in emissions trading schemes. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.15438 |
| By: | Sara Calligaris; Chiara Criscuolo; Josh De Lyon; Andrea Greppi; Oliviero Pallanch; Miguel Chavez |
| Abstract: | Concentration – the share of an industry’s output accounted for by its largest firms and a frequently used proxy of competition – has increased in European countries. This paper provides evidence about this development by introducing several methodological refinements in the cross-country measurement of concentration: it defines industries at a disaggregated level, mostly 3-digit; it takes into account the geographic level at which competition takes place - domestic, European or global; and it accounts for linkages between firms within the same domestic and multinational business group in the relevant geographic region of competition. It then applies these improvements to representative data for fifteen European countries, showing that average concentration increased by about 5 percentage points over the period 2000-2019, from 26% to more than 31%. Third, the paper investigates how each of the methodological improvements affects the levels and trends of concentration. |
| Keywords: | Competition, Concentration, Market power |
| JEL: | F14 F60 L11 L22 D22 |
| Date: | 2024–09–13 |
| URL: | https://d.repec.org/n?u=RePEc:oec:stiaaa:2024/06-en |
| By: | Martin, Ertl (Institute for Advanced Studies Vienna, Austria); Fortin, Ines (Institute for Advanced Studies Vienna, Austria); Hlouskova, Jaroslava (Institute for Advanced Studies Vienna, Austria); Koch, Sebastian P. (Institute for Advanced Studies Vienna, Austria); Kunst, Robert M. (Institute for Advanced Studies Vienna, Austria); Sögner, Leopold (Institute for Advanced Studies Vienna, Austria and Vienna Graduate School of Finance (VGSF)) |
| Abstract: | Recently, many countries were hit by a series of macroeconomic shocks, most notably as a consequence of the COVID-19 pandemic and Russia’s invasion in Ukraine, raising inflation rates to multi-decade highs and suspending well-documented macroeconomic relationships. To capture these tail events, we propose a mixed-frequency Bayesian vector autoregressive (BVAR) model with t-distributed innovations or with stochastic volatility. While inflation, industrial production, oil and gas prices are available at monthly frequencies, real gross domestic product (GDP) is observed at a quarterly frequency. Thus, we apply a mixed-frequency framework using the forward-filtering-backward-sampling algorithm to generate monthly real GDP growth rates. We forecast inflation in those euro area countries which extensively import energy from Russia and therefore have been heavily exposed to the recent oil and gas price shocks. To measure the forecast performance of our mixed-frequency BVAR model, we compare these inflation forecasts with those generated by a battery of competing inflation forecasting models. The proposed BVAR models dominate the competition for all countries in terms of the log predictive density score. |
| Keywords: | Bayesian VAR, mixed-frequency, forward-filtering-backward-sampling, inflation forecasting |
| JEL: | C5 E3 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:ihs:ihswps:number56 |
| By: | Stefan Jestl (The Vienna Institute for International Economic Studies, wiiw); Branimir Jovanović (The Vienna Institute for International Economic Studies, wiiw); Ambre Maucorps (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Maryna Tverdostup (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | Chart of the Month Economic convergence of EU-CEE and EU candidate countries by Ambre Maucorps Opinion Corner Disinflation does not require positive interest rates by Leon Podkaminer In recent years, there has been no shortage of calls for a radical tightening of monetary policy in response to high inflation. However, both history and recent developments in the euro area countries cast doubt on the uniform wisdom of such a response, suggesting that inflation can moderate just as well if real interest rates are in negative territory. Inflation and the poor The case of North Macedonia by Branimir Jovanović We estimate that the number of people living in extreme poverty in North Macedonia rose by 21-43% between 2021 and 2023. Similarly, the number of people living in moderate poverty increased by between 21% and 28%. This massive rise in poverty levels can be attributed to the fact that price increases outpaced the growth in income for many people. Although this analysis specifically addresses North Macedonia, the findings are likely to hold for other countries where this has been the case. Job loss and labour-market transitions during the COVID-19 pandemic in Austria by Stefan Jestl and Maryna Tverdostup The COVID-19 pandemic had a profound and uneven impact on employment in Austria, with female workers, those born abroad and individuals with a lower level of education proving the most susceptible to the changes. Immigrant women and mothers who lost their job during the pandemic faced prolonged unemployment and a reduced chance of securing full-time work afterwards. Surprisingly, our data suggest that – unlike in other countries – poorly educated and younger workers in Austria do not face a severe disadvantage when re-entering the job market. Forecasts of main economic indicators for Central, East and Southeast Europe for 2024-2026 |
| Keywords: | economic convergence, inflation, real interest rates, absolute poverty, moderate poverty, COVID-19 pandemic, unemployment, labour market transition |
| Date: | 2024–03 |
| URL: | https://d.repec.org/n?u=RePEc:wii:mpaper:mr:2024-03 |
| By: | Cristiano Salvagnin |
| Abstract: | This study aims to map the scientific production on the European Union Emissions Trading System (EU ETS) market from 2004 to 2024. By analyzing research articles collected from the Scopus database, this bibliometric review provides a comprehensive overview of the academic landscape surrounding the EU ETS. Utilizing the Bibliometrix package in R, we conducted an in-depth analysis of publication trends, key research themes, influential authors, and prominent journals in the field. Our findings reveal significant growth in scholarly interest, with notable peaks corresponding to major policy updates and economic events. The analysis highlights the most cited works and collaborative networks, offering insights into the evolution of research topics over the past two decades. This review serves as a valuable resource for researchers and policymakers, providing a detailed understanding of the academic contributions to the EU ETS market and identifying emerging trends and gaps in the literature. Through this bibliometric approach, we offer a nuanced perspective on the development and impact of the EU ETS in the context of global carbon markets and climate policy. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.01739 |
| By: | Alexandra Tsvetkova |
| Abstract: | To mark the 40th anniversary of the OECD Local Employment and Economic Development (LEED) Programme, this paper examines determinants and consequences of employment resilience, or lack of, in European NUTS3/TL3/TL3 regions over the last 40 years. Descriptive evidence shows that the least resilient regions (those with the largest percentage drop in employment during a recession) slip to persistently lower post-recession employment-to-population ratio trajectories. On the other hand, regions with higher productivity pre-recession lost proportionally fewer jobs during a recession and were more likely to recover to the pre-recession employment levels (except for the recession induced by the COVID-19 pandemic). Overall, the findings point to the ability of productivity to serve as a shield against negative employment impacts of economic crises. |
| JEL: | J01 O18 R11 |
| Date: | 2024–09–19 |
| URL: | https://d.repec.org/n?u=RePEc:oec:cfeaaa:2024/08-en |
| By: | Gaelle Lenormand (UR - Université de Rennes); Hoang Nguyen (Huế University); Lionel Touchais (UR - Université de Rennes) |
| Abstract: | The discretionary nature of alternative performance measures raises the question of their information content, particularly in the European Union where, unlike the United States, there is no specific regulation but only a recommendation without coercive power. Based on hand-collected data in press releases of French and UK firms, we show that non-GAAP earnings measures are more informative compared with GAAP counterparts. However, the alternative performance measures may be used opportunistically when firms fall short of certain accounting earnings benchmarks. |
| Abstract: | L'objectif de l'article est d'analyser le contenu informationnel des indicateurs alternatifs de performance publiés dans le contexte européen au travers d'une analyse comparée de la France et du Royaume-Uni. À partir de données collectées manuellement dans les communiqués de presse, nous constatons que les mesures de résultat non-GAAP aboutissent à une information financière de meilleure qualité que les mesures comptables correspondantes. Ce résultat est plus prononcé pour les firmes britanniques que les entreprises françaises. Ces indicateurs alternatifs de performance peuvent toutefois être utilisés de manière opportuniste dans des situations à risque lorsque les groupes n'atteignent pas certains seuils de résultats comptables. |
| Keywords: | informativeness, alternative performance measures, accounting earnings benchmarks, non-GAAP earnings, indicateurs alternatifs de performance, contenu informationnel, seuils de résultats comptables, résultat non-GAAP |
| Date: | 2023–12–14 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04672673 |
| By: | Görg, Holger; Lehr, Jakob |
| Abstract: | This paper, for the first time, investigates the impact of foreign acquisitions on German manufacturing firms using, newly available unique administrative micro data spanning 25 years. Based on an event study design combined with propensity score matching techniques, we find that foreign acquisitions significantly increase labor productivity and average wages in acquired firms. A reduction in employment drives both effects. |
| Keywords: | Foreign direct investment, Foreign acquisitions, Firm behavior, Ex-post evaluation |
| JEL: | F23 F61 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkie:302104 |
| By: | Jose González Mínguez (BANCO DE ESPAÑA) |
| Abstract: | Europa se enfrenta a un conjunto de retos de gran importancia en el futuro próximo, entre los que destaca la gestión de la transición climática, de los efectos de las transformaciones tecnológicas y de los cambios geopolíticos. Las autoridades europeas y nacionales son conscientes de que las herramientas actualmente disponibles no alcanzan para abordar eficientemente estos desafíos y de que es necesario, por tanto, un decidido impulso reformista. Al inicio de un nuevo ciclo institucional europeo, el conjunto de propuestas del informe Letta, orientadas hacia la culminación del mercado único y su adaptación a las nuevas circunstancias, constituyen una aportación de primer orden al debate de política económica europea. Las iniciativas más importantes incluyen la dinamización de la unión de los mercados de capitales, la creación de un esquema de ayudas de Estado paneuropeas basado en contribuciones nacionales, la promulgación de un código de derecho mercantil europeo como alternativa a la armonización de los 27 ordenamientos nacionales existentes, la incorporación al mercado único de sectores que hasta ahora han estado en gran medida al margen de este (como la energía y las telecomunicaciones) o, en el ámbito legislativo, la priorización de la aprobación de reglamentos, directamente aplicables en los Estados miembros, frente a las directivas, que requieren de transposición a los ordenamientos jurídicos de cada país. El diagnóstico del informe es, en gran medida, compartido por las distintas autoridades nacionales, que también han acogido favorablemente los grandes enunciados de las propuestas. No obstante, no es difícil entrever que la puesta en funcionamiento de estas últimas requiere consensos que, en la práctica, puede ser difícil alcanzar. |
| Keywords: | mercado único, integración europea, unión de los mercados de capitales, política industrial, competitividad, cambio climático, geopolítica, innovación |
| JEL: | E61 E62 F13 F15 F36 F45 G28 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:bde:opaper:2430 |
| By: | Caceres Bustamante, Javiera; Delev, Christian |
| Abstract: | The European Union (EU) is renegotiating its trade agreements with Latin American States. The core objective of this process is to modernize the Trade and Sustainable Development (TSD) chapters of these agreements. As such, this article critically examines the prospects of the modernized TSD chapters in the Chile-EU Association Agreement and the EU-Mexico Global Agreement, drawing lessons for the potential amendment of the EU-Andes Agreement. For this purpose, the article addresses the modernization process of the EU-Chile Association Agreement by surveying Chile’s negotiating practice in incorporating environment and climate change-related provisions in trade agreements. It compares the evolution of these provisions within the EU’s practice and discusses the convergence or divergence of views that have shaped the existing agreement. Additionally, it explores the possible future review process of the TSD chapter in the agreement. Furthermore, the article discusses the ongoing renegotiating process of the Global Agreement between the EU and Mexico. It examines the opportunity to enhance the current environmental protection disciplines in this agreement. Finally, the article evaluates how these experiences can inform a future renegotiation of the EU-Andes Agreement, with a focus on prioritising the Parties’ nationally determined contributions (NDCs) under the Paris Agreement. |
| Keywords: | environmental commitments; EU-Andes; EU-Chile; EU-Mexico; Free Trade Agreements; sustainable development; trade; AAM requested |
| JEL: | L81 J1 |
| Date: | 2023–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:123563 |