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on European Economics |
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Issue of 2024‒11‒11
nineteen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Valentin Burban; Bruno De Backer; Andreea Liliana Vladu |
| Abstract: | This article measures the degree of potential de-anchoring of inflation expectations in the euro area vis-à-vis the inflation objective of the European Central Bank (ECB). A no-arbitrage term structure model that allows for a time-varying long-term mean of inflation expectations, pt*, is applied to inflation-linked swap (ILS) rates, while taking into account survey-based inflation forecasts. Estimates of pt* have been close to 2% since the mid-2000s, indicating that long-term inflation expectations have overall remained well anchored to the ECB’s inflation objective. As this objective is however related to the "medium term", expectations components of various forward ILS rates are extracted: they appear to have been broadly anchored, with tentative signs of de-anchoring up to the two-year horizon. Using backcasted ILS rates, estimates of pt* are much above 2% in the early 1990s, but they converge to levels below 2% by the end of the decade when the ECB was established. |
| Keywords: | Inflation-Linked Swap Rates, Surveys, No-Arbitrage, Shifting Endpoint, Inflation Expectations |
| JEL: | G10 G32 Q54 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:965 |
| By: | Bertrand Garbinti; Pierre Lamarche; Frédérique Savignac |
| Abstract: | We provide detailed estimates of how the marginal propensity to consume out of wealth (MPC) varies along the distribution of household wealth and by asset composition, and analyse the sources of MPC heterogeneity across euro area countries. To do this, we i) build a household-level panel dataset combining wealth and consumption surveys for five European countries, and ii) use instrumented household-level panel regressions. First, we find heterogeneity across the wealth distribution with lower MPCs for high-wealth households. Second, we account for asset composition and show the significant role of housing wealth in all countries. We show that our results are indicative of a collateral channel. Third, cross-country differences in MPCs are mostly explained by country-specific institutional and socio-economic characteristics in Germany (compared to Spain) and by differences in consumption behaviours for Belgium, Cyprus and Italy. We show that MPC heterogeneity is related to homeownership rates, mortgage markets, demographics, and wealth inequality. Finally, we investigate to what extent heterogeneous MPC and wealth inequality affect consumption inequality. |
| Keywords: | Marginal Propensity to Consume out of Wealth, Collateral Channel, Household Surveys |
| JEL: | D12 E21 C21 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:962 |
| By: | Sergio Destefanis (University of Salerno); Valter Di Giacinto (Bank of Italy) |
| Abstract: | This paper focuses on the impact of EU structural funds (SFs) on the GDP per capita of 183 European NUTS2 regions throughout the 1990-2015 period. To allow for the endogeneity of funds allocation to regions, we estimate a bivariate structural panel VAR model, allowing for unobserved heterogeneity through a rich menu of deterministic controls. Our main identifying restriction is rooted on the widely documented long lags affecting the implementation of EU’s Cohesion Policy. Through a spatial VAR specification, we also estimate spillovers from local SF expenditure on other areas. We find positive and highly significant multipliers measuring the local response of GDP to an exogenous shock in local SF expenditure, with a long-run value settling at 2.6. The spillover effects on GDP from an exogenous shock to SFs are also positive and significant, but much smaller (about one fifth of the within-region responses). When partitioning our sample according to features suggested by the literature (size, stage of development and EU funding regimes), we find that within-region multipliers are higher in regions with a larger population, located in countries supported by the Cohesion Fund, and interested by the Convergence objective. Spillovers are also heterogenous across different groups of regions, turning out to be negative in regions belonging to countries not supported by the Cohesion Fund. All this evidence is validated in qualitative terms by a robustness check concerned with the choice of spatial weights |
| Keywords: | Cohesion Policy, Spatial structural VAR, Fiscal multipliers, Spillovers, EU NUTS2 regions |
| JEL: | C33 E62 H50 |
| Date: | 2022–12 |
| URL: | https://d.repec.org/n?u=RePEc:ahy:wpaper:wp35 |
| By: | Ludovic Panon (BANK OF ITALY); Laura Lebastard (EUROPEAN CENTRAL BANK); Michele Mancini (BANK OF ITALY); Alessandro Borin (BANK OF ITALY); Peonare Caka (BANK OF SLOVENIA); Gianmarco Cariola (BANK OF ITALY); Dennis Essers (NATIONAL BANK OF BELGIUM); Elena Gentili (BANK OF ITALY); Andrea Linarello (BANK OF ITALY); Tullia Padellini (BANK OF ITALY); Francisco Requena (UNIVERSITY OF VALENCIA); Jacopo Timini (BANCO DE ESPAÑA) |
| Abstract: | We study how disruptions to the supply of foreign critical inputs (FCIs)—inputs primarily sourced from extra-EU countries with highly concentrated supply, advanced technology products or inputs which are key to the green transition —may affect value-added at different levels of aggregation. Using firm-level customs and balance sheet data for Belgium, France, Italy, Slovenia and Spain, our framework allows us to assess how geoeconomic fragmentation may affect European economies differently. Our baseline calibration suggests that a 50% reduction in imports of FCIs from China and other countries with a similar geopolitical orientation would result in sizable value-added losses with significant heterogeneity across firms, sectors, regions and countries, driven by the heterogeneous exposure of firms. Our findings show that the short-term costs of supply disruptions of FCIs can be substantial, especially if firms cannot easily switch away from these inputs. |
| Keywords: | geoeconomic fragmentation, global value chains, global sourcing, international trade, imported inputs |
| JEL: | F10 F14 F50 F60 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2436 |
| By: | Gagliardi Nicola (CEBRIG and DULBEA, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles); Elena Grinza (Department of Economics, Social Studies, Applied Mathematics and Statistics, University of Turin, Torino, CEBRIG (Université Libre de Bruxelles), LABORatorio Riccardo Revelli); Rycx François (CEBRIG and DULBEA, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles) |
| 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: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:tur:wpapnw:094 |
| By: | Tomas Sestorad (Institute of Economic Studies of the Faculty of Social Sciences, Charles University & The Czech National Bank, Monetary Department, Prague, Czech Republic); Natalie Dvorakova (Institute of Economic Studies of the Faculty of Social Sciences, Charles University; Prague, Czech Republic) |
| Abstract: | This paper examines the drivers of the post-pandemic surge in inflation in four small open economies: Czechia, Hungary, Poland, and Slovakia. For this purpose, a Bayesian structural vector autoregressive model with sign-zero restrictions and block exogeneity is employed. The results show that both foreign demand and foreign supply shocks have contributed significantly to inflation in the post-2020 period across countries, alongside notable contributions from domestic factors explaining differences among economies. Specifically, supply-side shocks are identified as the primary domestic factor across all countries, whereas domestic demand shocks were much less influential. Exchange rate shocks were pronounced in Hungary only, while monetary policy shocks have had a minimal impact on inflation since 2022 in all the countries considered. Additionally, we provide decompositions of core inflation, highlighting the predominance of domestic factors. |
| Keywords: | Bayesian VAR, extraordinary events, inflation, sign-zero restrictions, small open economies |
| JEL: | C32 E31 E32 E52 F41 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:fau:wpaper:wp2024_36 |
| By: | Angeloni, Ignazio; Haselmann, Rainer; Heider, Florian; Pelizzon, Loriana; Schlegel, Jonas; Tröger, Tobias |
| Abstract: | Over the past decade, the Single Supervisory Mechanism focused on making banks safer, resulting in stronger banks but limited euro area cross-border integration. We argue that overbanking hinders both cross-border integration for the EU and the development and integration of capital markets. In addition to a common supervisory authority and to attain the strong and integrated financial system Europe needs going forward, the Banking Union and Capital Markets Union need to coexist and complement each other. This document was provided/prepared by the Economic Governance and EMU Scrutiny Unit at the request of the ECON Committee. |
| Keywords: | Banking Union, Capital Markets Union, Market Integration, Overbanking |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewh:304307 |
| By: | Francesca Caselli; Ms. Huidan Huidan Lin; Mr. Frederik G Toscani; Jiaxiong Yao |
| Abstract: | Against the backdrop of the war in Ukraine, immigration into the European Union (EU) reached a historical high in 2022 and stayed significantly above pre-pandemic levels in 2023. The recent migration has helped accommodate strong labor demand, with around two-thirds of jobs created between 2019 and 2023 filled by non-EU citizens, while unemployment of EU citizens remained at historical lows. Ukrainian refugees also appear to have been absorbed into the labor market faster than previous waves of refugees in many countries. The stronger-than-expected net migration over 2020-23 into the euro area (of around 2 million workers) is estimated to push up potential output by around 0.5 percent by 2030—slightly less than half the euro area’s annual potential GDP growth at that time—even if immigrants are assumed to be 20 percent less productive than natives. This highlights the important role immigration can play in attenuating the effects of the Europe’s challenging demographic outlook. On the flipside, the large inflow had initial fiscal costs and likely led to some congestion of local public services such as schooling. Policy efforts should thus seek to continue to integrate migrants into the labor force while making sure that the supply of public services and amenities (including at the local level) keeps up with the population increase. |
| Keywords: | Migration; Labor Markets; European Union |
| Date: | 2024–09–27 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/211 |
| By: | Cimini, Francesco; Kalantzis, Fotios |
| Abstract: | This study examines the impact of green and digital investments on the investment inefficiency level of European firms. We define investment inefficiency as the deviation from the optimal investment level, which depends on both the net present value (NPV) of the projects and the marginal benefit and cost of investment. Leveraging matched data from the European Investment Survey (EIBIS) and ORBIS, which results in a sample of 4, 892 firmyear observations from 27 European countries surveyed over the period 2021-2023, we employed a panel data regression model to estimate the effect of green and digital investments on investment inefficiency. Our analysis shows that both types of investments reduce investment inefficiency, particularly for under-investing firms. We also find evidence of a statistically significant interaction effect between green and digital investments for over-investing firms, suggesting that digital technologies can enhance the efficiency gains from green investments. Our results have important implications for policy makers and business managers who aim to foster the twin digital and green transition in Europe and improve their investment efficiency and competitiveness. |
| Keywords: | European Investment Bank Investment Survey, Investment Inefficiency, Green investment, Digital investment, Twin transition |
| JEL: | M41 G31 Q53 O33 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:eibwps:304395 |
| By: | Bitter, Lea; Brand, Claus; Fonseca, Luís; Akkaya, Yıldız |
| Abstract: | We construct monetary policy indicators from high-frequency asset price changes following policy announcements, emphasising the concentration of asset price responses along specific dimensions and their leptokurtic distribution. Traditionally, these dimensions are identified by rotating principal components based on economic assumptions that overlook information in excess kurtosis. We employ Varimax rotation, leveraging excess kurtosis without using economic restrictions. Within a set of euro-area risk-free assets Varimax validates policy news along dimensions previously derived from structural identification approaches and rejects evidence of macroinformation shocks. Yet, once adding risky assets Varimax identifies only one risk-free factor in medium- to long-term yields and instead points to additional risk-shift factors. JEL Classification: E43, E52, E58, C46, G14 |
| Keywords: | event study, fat tails, high-frequency identification, monetary policy instruments, Varimax |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20242994 |
| By: | Bernardo Caldarola; Dario Mazzilli; Aurelio Patelli; Angelica Sbardella |
| Abstract: | Structural change consists of industrial diversification towards more productive, knowledge intensive activities. However, changes in the productive structure bear inherent links with job creation and income distribution. In this paper, we investigate the consequences of structural change, defined in terms of labour shifts towards more complex industries, on employment growth, wage inequality, and functional distribution of income. The analysis is conducted for European countries using data on disaggregated industrial employment shares over the period 2010-2018. First, we identify patterns of industrial specialisation by validating a country-industry industrial employment matrix using a bipartite weighted configuration model (BiWCM). Secondly, we introduce a country-level measure of labour-weighted Fitness, which can be decomposed in such a way as to isolate a component that identifies the movement of labour towards more complex industries, which we define as structural change. Thirdly, we link structural change to i) employment growth, ii) wage inequality, and iii) labour share of the economy. The results indicate that our structural change measure is associated negatively with employment growth. However, it is also associated with lower income inequality. As countries move to more complex industries, they drop the least complex ones, so the (low-paid) jobs in the least complex sectors disappear. Finally, structural change predicts a higher labour ratio of the economy; however, this is likely to be due to the increase in salaries rather than by job creation. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.07906 |
| By: | Dragan Crnogorac (School of Economics and Business, University of Ljubljana) |
| Abstract: | This paper investigates the determinants of carbon intensity across various economic sectors in the European Union, focusing on the period that already considers transition policies under the Paris Agreement and the Fit-for-55 initiative. As sectors exhibit diverging emission levels and transition policy implications, understanding the factors influencing carbon intensity has become increasingly relevant. We employ a panel regression analysis using data from 2014 to 2022, examining variables such as brown energy consumption share, total factor productivity, gross value added, employment metrics, energy prices, and environmental taxes. Our findings reveal that carbon intensity is influenced by a complex interplay of factors, with significant variations across sectors. Notably, sectors with high reliance on brown energy show a stronger correlation with carbon intensity levels. The results underscore the necessity for tailored transition policies that consider sector-specific characteristics to effectively reduce carbon emissions within the EU. Furthermore, the study highlights the importance of integrating economic and environmental policies to foster a sustainable transition, providing valuable insights for policymakers aiming to achieve climate targets. |
| Keywords: | Carbon Intensity, Economic Sectors, Panel Regression Analysis, GMM, EU Climate Policies, Fit-for-55 Initiative, Brown Energy Consumption, Total Factor Productivity, Sector-Specific Transition Policies |
| JEL: | Q50 C23 Q54 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:sek:iefpro:14516478 |
| By: | Blaga Madzhurova (Department of Economic Science, University of Plovdiv Paisii Hilendarski); Dobrinka Stoyanova (Department of Economic Science, University of Plovdiv Paisii Hilendarski); Stefan Raychev (Department of Economic Science, University of Plovdiv Paisii Hilendarski) |
| Abstract: | This study investigates the relationship between environmental health impacts, particularly premature deaths due to fine particulate matter (PM2.5) exposure, and labour market outcomes across European Union (EU) member states from 2012 to 2021, with a special focus on Bulgaria. Utilizing a mixed-method approach that combines graphical analysis and PanelOLS regression modelling, the research examines how air pollution influences long-term unemployment and employment rates within the EU. The findings reveal a statistically significant negative correlation between PM2.5-related premature deaths and employment rates, suggesting that poor air quality contributes to lower labour market performance. Bulgaria exhibits a notable intersection of high long-term unemployment and environmental health challenges, highlighting the compounded effects of economic and environmental factors on labour market outcomes. This study underscores the importance of integrating environmental considerations into economic and labour market policies, especially for countries like Bulgaria that face significant challenges in both areas. By addressing these dual challenges, Bulgaria and other EU member states can enhance public health, improve labour market outcomes, and support a more sustainable and resilient economic future. The research contributes to the discourse on sustainable development, emphasizing the need for policies that simultaneously promote environmental health and economic productivity within the European Union. |
| Keywords: | Green transition, Labour market, Unemployment, Growth, Environmental health, PM2.5 Exposure, Air Pollution, Long-term Unemployment |
| JEL: | Q53 J64 I15 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:sek:iefpro:14516475 |
| By: | Carlos J. Gil-Hern ndez; Pedro Salas-Rojo; Guillem Vidal-Lorda; Davide Villani |
| Abstract: | Wealth is a central determinant of life chances and intergenerational status persistence in modern societies. Yet, sociologists traditionally overlooked its role in class measurement and inequality, while most economists focused on the elites. This article reconciles sociological and economic perspectives on class analysis by examining the relationship between classes and wealth inequality versus income. Drawing from the Luxembourg Wealth Study (2002-2018) in five European countries, we test whether occupational classes, based on the entire division of labour, keep up with rising economic inequality trends. In contrast to bold claims on class death or decomposition, inequality of outcomes in wealth accumulation is firmly rooted across occupational classes in contemporary capitalism, potentially harming future equal opportunity and social mobility. Still, occupational classes better capture between-group income inequality and stratification than wealth, emphasising the importance of economic resources beyond labour market attachment that spark advances in social class theory and measurement. |
| Date: | 2024–03 |
| URL: | https://d.repec.org/n?u=RePEc:lis:lwswps:43 |
| By: | Francesco Molica (Joint Research Centre); Alessandra De Renzis (Gran Sasso Science Institute); Sebastien Bourdin (EM Normandie Business School) |
| Abstract: | The article discusses whether the sequence of global shocks in the period 2020-2022 has influenced the shape and orientation of EU Cohesion Policy. It argues that these crises have revived two trends posited by scholars, i.e. the re-nationalisation and Lisbonisation of the policy, in ways that hint at the emergence of a new paradigm. This shift is conceptualised as ‘hyper-Lisbonisation’ and ‘re-renationalisation’, whereby the governance of Cohesion Policy is increasingly state-centric and its objectives more contingent upon the short-term and fast-evolving priorities of the EU agenda. |
| Keywords: | European economic governance, Next Generation EU, European Union Cohesion Policy, Regional disparities |
| JEL: | R11 R58 H70 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:ahy:wpaper:wp54 |
| By: | Mr. Philippe Wingender; Jiaxiong Yao; Robert Zymek; Benjamin Carton; Mr. Diego A. Cerdeiro; Miss Anke Weber |
| Abstract: | European countries have set ambitious goals to reduce their carbon emissions. These goals include a transition to electric vehicles (EVs)—a sector that China increasingly dominates globally—which could reduce the demand for Europe’s large and interconnected auto sector. This paper aims to size up the tradeoffs between Europe’s shift towards EVs and key macroeconomic outcomes, and analyze which policies may sharpen or ease them. Using state-of-the-art macroeconomic and trade models we analyze a scenario in which the share of Chinese cars in EU purchases rises by 15 percent over 5 years as a result of both a positive productivity shock for car production in China and a demand shock that shifts consumer preferences towards Chinese cars (given China’s dominance in the EV sector). We find that for the EU as a whole, the GDP cost of this shift is small in the short term, in the range of 0.2-0.3 percent of GDP, and close to zero over the long term. Adverse short-run effects are more significant for smaller economies heavily reliant on the car sector, mainly in Central Europe. Protectionist policies, such as tariffs on Chinese EVs, would raise the GDP cost of the EV transition. A further increase in Chinese FDI inflows that results in a significant share of Chinese EVs being produced in Central European economies, on the other hand, would offset losses in these economies by supporting their shift from supplying the internal combustion engine (ICE) production chain to that of EVs. |
| Keywords: | Electric vehicles; green transition; trade; tariffs; global value chains. |
| Date: | 2024–10–11 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/218 |
| By: | Claudiu Tiberiu Albulescu (Politehnica University of Timisoara) |
| Abstract: | This paper investigates the asymmetric relationship between corporate tax avoidance and total factor productivity (TFP) using firm-level data for 141 European oil and gas companies, covering the period 2007 to 2015. Firstly, we rely on the novel mechanism advanced by Rovigatti and Mollisi (2018) to compute firms’ TFP. Secondly, we resort to Canay’s (2011) panel data fixed-effect quantile approach to assess the nonlinear, asymmetric effect that tax avoidance has on a firm’s productivity. As novelty, we use two proxy variables to estimate tax avoidance, namely companies’ holding structures and tax haven location. We discover that the impact of tax avoidance on TFP is not straightforward. On the one hand, we report mixed empirical findings regarding the impact of firms’ organization in holding structures on TFP. On the other hand, tax haven location enhances the productivity of oil and gas companies from the extractive industry. Finally, we show that the impact of tax avoidance on TFP is stronger at higher quantiles, that is, for higher levels of productivity. Our findings show that offshore profit transfers represent a quite common practice for European oil and gas firms, in particular for the large companies, which helps them to increase their productivity level. In our analysis we control for the role of ownership structure, firm size, intangibles, indebtedness and energy price dynamics. To check the robustness we use different approaches to compute the TFP. |
| Keywords: | TFP, tax avoidance, oil and gas companies, tax haven, quantile regression |
| JEL: | O |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:inf:wpaper:2024.15 |
| By: | Andreas Baur |
| Abstract: | The global economic environment has changed fundamentally over the past decade. Growing protectionism and geoeconomic tensions pose a major challenge, especially for the EU, whose foundations are based on openness, multilateralism, and cooperation. This policy brief presents four basic propositions on the future direction of the EU's foreign economic policy. In addition to the security implications of economic interdependence, it discusses the role of firms in shaping resilient supply chains, the case for industrial policy in strengthening economic security, and the importance of European unity for geoeconomic competition. Key Messages Growing protectionism and geoeconomic tensions in the global economic environment pose major challenges, especially for the EU. International trade with countries outside Europe is a key factor for European prosperity. In the EU alone, 32 percent of manufacturing jobs and 36 percent of value-added in manufacturing depend on exports to non-member countries. In terms of economic security, the approach of targeted de-risking is generally pointing in the right direction. The focus should be on reducing dependencies in critical areas, not on cutting trade relations per se. Intensifying international trade, rather than protecting domestic production, is often the key to strengthening economic security. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:econpb:_63 |
| By: | Iustina Alina Boitan (Faculty of Finance and Banking, Bucharest University of Economic Studies); Wafaa Shabban (Doctoral School of Finance, Bucharest University of Economic Studies) |
| Abstract: | The study investigates the presence of unilateral or bilateral causality relationship between country-level environmental indicators (as a component of the ESG) and main banking system indicators represented by profitability, solvency, liquidity, efficiency, credit quality and savings ratio, as well as bank concentration. Five indicators belonging to the environmental dimension of the ESG are considered, related to food security, carbon emissions and pollution, and respectively energy sources and energy security. In line with the warnings issued by European authorities regarding the potential of environmental risks to be exacerbated by the physical adverse effects of climate change, we conducted the statistical analysis with an exclusive focus on European Union countries that exhibit a temperate climate profile. Granger causality test is employed in a country-by-country approach to assess the relationship between banking system and environmental indicators, in terms of a cause ? effect framework. Findings outline a significant relationship in terms of causality between country-level environmental indicators and banking system indicators. Interestingly, two out of the five environmental indicators (agriculture, forestry, and fishing value added, and respectively CO2 emissions) are always included in at least one causal relationship with banking system indicators, for every country in the sample. The influence of environmental indicators on banking activity (unidirectional) is most pronounced and precedes banking changes especially in Spain and Portugal, with Italy positioning at the bottom of the ranking. Another result points that banking indicators in most countries considered are particularly sensitive to previous changes in the carbon emissions level, in the production of electricity and energy consumption from polluting sources such as coal or fossil fuels. In terms of bilateral causality occurrence, Greece, Portugal and Spain witness most of them. The variables most often included in the causal interplay are related on one hand to CO2 emissions and agriculture, forestry, and fishing value added, and on the other hand to bank credit to bank deposits (a proxy for bank liquidity) and bank cost to income ratio (a proxy of the operational efficiency). |
| Keywords: | Environment; CO2 emissions; Renewable energy; Fossil fuel energy, Electricity production from coal; Agriculture, Forestry, and fishing; Banking system; Granger causality |
| JEL: | G21 Q20 Q59 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:sek:iefpro:14516428 |