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on European Economics |
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Issue of 2025–02–03
fifteen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Martijn Boermans; Tomás Carrera de Souza; Robert Vermeulen |
| Abstract: | In this study, we analyze the impact of the European Central Bank’s (ECB) sovereign bond purchases on bond demand among euro area investors from 2015 to 2022. By employing a novel demand setup, using ownership shares of individual bonds, we separately estimate investor reactions to (i) ECB bond purchases and (ii) new bond issuances. Utilizing bond level data on securities holdings of euro area investors and the ECB, we show that insurance companies and pension funds act as preferred habitat investors and are reluctant to sell the bonds the ECB is buying. Conversely, non-euro area investors from the private sector primarily serve as counterparties for ECB purchases. Our findings indicate significant differences across bond maturities and credit ratings, but minimal differences across the different stages of the quantitative easing (QE) implementation periods and between domestic and non-domestic euro area bonds. |
| Keywords: | quantitative easing; sovereign bonds; European Central Bank; PSPP; securities holdings statistics; bond demand |
| JEL: | E58 F42 G11 G15 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:dnb:dnbwpp:826 |
| By: | Alexander Rom |
| Abstract: | This paper investigates the impact of banking competition on interest rates for household consumption loans in the Euro Area from 2014 to 2020. Utilizing a panel data regression approach, we analyze how various factors, including local banking competition, influence the interest rates set by banks across 13 Euro-area countries. Our key independent variable, local banking competition, is measured by the number of commercial bank branches per 100, 000 adults. Control variables include the ECB interest rate, euro exchange rate, real GDP growth rate, inflation rate, unemployment rate, bank business volumes, and country risk. We address potential endogeneity and heterogeneity biases and employ both Fixed Effects and Hausman-Taylor models to ensure robust results. Our findings indicate that higher local banking competition is associated with a slight increase in interest rates for household loans. Additionally, factors such as ECB interest rate, country risk, and euro appreciation significantly affect interest rates. The results offer insights into how competitive dynamics in the banking sector influence borrowing costs for households, providing valuable implications for policymakers and financial institutions in the Euro Area. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.17723 |
| By: | Brühl, Volker |
| Abstract: | The introduction of central bank digital currencies (CBDCs) in general, and of a digital euro in particular, has attracted growing interest from academic research, central banks and political decision-makers. Most of the existing literature is focused on the impact of a digital euro on monetary policy issues, financial stability - especially the potentially enhanced risk of bank runs - and related questions concerning the design options of a digital euro. However, a digital euro could negatively affect the profitability of the European banking sector. Fees from payment transaction services could decline and refinancing costs could increase, as comparatively cheap financing from retail deposits would have to be replaced in part by more expensive financing instruments such as bonds or open market operations with the ECB. This paper deals with these aspects by estimating the potential impact of a digital euro in a simulation model based on current market data. The analysis demonstrates that the annual fee losses could be in the range of €2.1 billion to €4.2 billion. The associated refinancing need due to replacements of deposits by digital euro holdings could be in the range of €324 billion to €650 billion, translating into additional refinancing costs of around €6.5 billion to €19.5 billion p.a.. Therefore, a fair compensation model for banks and payment service providers is needed to avoid adverse consequences for the profitability and resilience of the European financial sector. The paper also discusses the general need for a retail digital euro in light of the expected benefits and risks as well as implications for design options to mitigate inherent risks. |
| JEL: | E42 E51 G21 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cfswop:308806 |
| By: | Andrea Salustri; Maria Alessandra Antonelli (Università Sapienza di Roma - Dipartimento di Studi Giuridici ed Economici) |
| Abstract: | We illustrate an empirical analysis carried out for 22 European countries over the period 2008-2019 of the relationships between a set of socio-economic indicators and social protection expenditure functions. The empirical evidence suggests that expenditure targeting is relevant in the implementation of social policy objectives. Furthermore, non-linear relationships emerge between expenditure functions and performance indicators. Finally, results might suggest the relevance of the socio-cultural dimension as a determinant of the effectiveness of social policies. |
| Keywords: | social protection systems, compensation policies, social investments, social expenditure functions, socioeconomic indicators |
| JEL: | I31 I38 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:gfe:pfrp00:00066 |
| By: | Fuinhas, José Alberto; Javed, Asif; Sciulli, Dario; Valentini, Edilio |
| Abstract: | Governments across the globe are implementing stricter environmental policies to combat climate change and promote sustainability. This study contributes to the growing literature exploring the influence of environmental policy on skill-biased employment across various occupations. Specifically, we examine the causal effect of the revised version of Environmental Policy Stringency Index (EPS) and its components on skill-biased employment, focusing on occupations such as managers, professionals, technicians, and manual workers across 21 European economies from 2008 to 2020. Using the Method of Moments Quantile Regression (MMQR), the findings reveal that stringent environmental policies affect employment shares across different occupational categories. Skilled workers tend to benefit more from such policies, with a notable increase in the employment of professionals across all policy measures and a more differentiated impact among technicians and managers. In contrast, manual workers are generally adversely affected by environmental policies. These asymmetric effects on occupations exacerbate labour market inequalities, including disparities in employment levels and potential earnings. This research highlights the importance of designing tailored policies to mitigate adverse labour market outcomes while facilitating a transition to sustainable economic practices. |
| Keywords: | Climate Change, Environmental Economics and Policy, Labor and Human Capital, Sustainability |
| Date: | 2025–01–17 |
| URL: | https://d.repec.org/n?u=RePEc:ags:feemwp:349167 |
| By: | Winnie Coleman; Dieter Nautz |
| Abstract: | This paper investigates the determinants of inflation target credibility (ITC) using a unique survey we designed to measure the credibility of the ECB’s inflation target. Containing over 200, 000 responses from German consumers collected between January 2019 and November 2024, our dataset enables us to estimate the effect of both positive and negative deviations of inflation from the 2% target on ITC. In contrast to the symmetry of the ECB’s inflation target, we find that ITC is asymmetric, i.e. consumers respond significantly and plausibly signed to target deviations only when inflation is above target. When inflation is below target, however, the credibility of the inflation target cannot be improved by raising the inflation rate to close the gap. |
| Keywords: | Credibility of Inflation Targets, Consumer Inflation Expectations, Expectation Formation |
| JEL: | D84 E31 E52 E58 |
| Date: | 2025–01–20 |
| URL: | https://d.repec.org/n?u=RePEc:bdp:dpaper:0060 |
| By: | Peter Levell (Institute for Fiscal Studies); Martin O'Connell (Institute for Fiscal Studies); Kate Smith (Institute for Fiscal Studies) |
| Date: | 2025–01–31 |
| URL: | https://d.repec.org/n?u=RePEc:ifs:ifsewp:25/03 |
| By: | Emile Esmaili; Michael J. Puma; Francis Ludlow; Poul Holm; Eva Jobbova |
| Abstract: | Economic historians have long studied market integration and contagion dynamics during periods of warfare and global stress, but there is a lack of model-based evidence on these phenomena. This paper uses an econometric contagion model, the Diebold-Yilmaz framework, to examine the dynamics of economic shocks across European markets in the early modern period. Our findings suggest that key periods of violent conflicts significantly increased food price spillover across cities, causing widespread disruptions across Europe. We also demonstrate the ability of this framework to capture relevant historical dynamics between the main trade centers of the period. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.18978 |
| By: | Michal Kobielarz |
| Abstract: | The Eurozone bailouts consisted of credit lines with favorable lending conditions, equivalent to countries receiving implicit fiscal transfers. They are often interpreted as meant to prevent a default in the Eurozone or resolve the crisis. Contrary to this nar rative, Greece defaulted on its debt and went through a deep and prolonged recession, despite receiving fiscal assistance. This paper analyzes country bailouts in a monetary union within a framework where sovereign default and exit from the union are two separate decisions. The studied bailouts prevent an exit and, thus, do not exclude subsequent defaults. The model replicates the experience of Greece and captures the coexistence of bailouts, defaults, and recession. It also sheds new light on the moral hazard discussion of bailouts by showing no significant effects from exit-driven bailouts. |
| Date: | 2023–03 |
| URL: | https://d.repec.org/n?u=RePEc:ete:ceswps:746842 |
| By: | Tulun, Teoman Ertuğrul (Center For Eurasian Studies (AVİM)) |
| Abstract: | The article provides a comprehensive examination of the complex security environment in Europe, emphasizing the strategic significance of the Black Sea region. It addresses the European Union's Strategic Compass, NATO's evolving role, the militarization of inland waterways, and the introduction of alternative financial systems. Through an integrated analysis, the article highlights the interconnectedness of security challenges within Europe and the specific implications for the Black Sea region. Tulun's analysis contributes to the academic discourse by offering a nuanced perspective on Turkey's strategic role, the impact of Russian-Chinese financial systems, and the broader geopolitical shifts affecting regional and European security. This timely analysis enriches our understanding of the dynamics at play in an increasingly multipolar and contested geopolitical landscape, offering valuable insights for both policymakers and scholars in the field of international security. |
| Date: | 2025–01–10 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:eb5rx |
| By: | Radu Rusu; Camelia Oprean-Stan |
| Abstract: | Inclusiveness and economic development have been slowed by the pandemics and military conflicts. This study investigates the main determinants of inclusiveness at the European level. A multi-method approach is used, with Principal Component Analysis (PCA) applied to create the Inclusiveness Index and Generalised Method of Moments (GMM) analysis used to investigate the determinants of inclusiveness. The data comprises a range of 22 years, from 2000 to 2021, for 32 European countries. The determinants of inclusiveness and their effects were identified. First, economic growth, industrial upgrading, electricity consumption, digitalisation, and the quantitative aspect of governance, all have a positive impact on inclusive growth in Europe. Second, the level of CO2 emissions and inflation have a negative impact on inclusiveness. Tomorrow's inclusive and sustainable growth must include investments in renewable energy, digital infrastructure, inequality policies, sustainable governance, human capital, and inflation management. These findings can help decision makers design inclusive growth policies. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.07880 |
| By: | Arnone, Massimo; Costantiello, Alberto; Leogrande, Angelo |
| Abstract: | The paper deals only with the identification of the determinants of total risk exposure amount within the European banking system, while the importance of TREA within Basel III regulatory regimes is focused. The research provides the integration of an econometric investigation with high-end machine learning techniques for the identification of the influential financial variables of TREA. The most relevant financial determinants of TREA were identified as LCR, CRWEA, LA, and OREA. These also reflect complex interdependencies-for instance, the negative value of TREA and LCR would suggest that there were trade-offs made between risk-taking and liquidity management. Thus, the positive relationship with CRWEA, and even more so with derivatives over assets, underlines intrinsic risks from credit exposures and related to financial instruments' complexity. The report further iterates that there should be mechanisms for appropriate risk-weighting, adequate liquidity buffers, and proper operational controls so that the financial system can become significantly more stable and resilient. This work will put forward actionable recommendations to policy makers, regulators, and financial institutions on mitigating systemic vulnerabilities and further optimizing their strategies for compliance in view of an increasingly volatile financial landscape, leveraging from traditional econometric modeling insights with machine learning. |
| Date: | 2025–01–06 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:2u4jb |
| By: | Becka Brolinson (Federal Housing Finance Agency); William M. Doerner (Federal Housing Finance Agency); Arne Johan Pollestad (Federal Housing Finance Agency); Michael J. Seiler (Federal Housing Finance Agency) |
| Abstract: | This paper investigates the impact of the 2021–2022 European energy crisis, a significant macro-financial shock, on homebuyer willingness-to-pay for energy-efficient homes in Norway. Leveraging the country’s electricity market---characterized by five distinct regions with varying exposure to European power prices---as a quasi-experiment, we analyze how energy price shocks influence housing market dynamics. Applying a triple differences regression framework to real estate transactions, we find that home prices in regions affected by the shock fell significantly relative to unaffected regions, with single-family dwellings outside major cities experiencing the largest declines. While energy-efficient homes appeared less vulnerable, this effect was only marginally significant. Moreover, the negative price effects persisted despite the introduction of electricity price subsidies. These findings highlight the complex relationship between energy costs, housing market valuations, and buyer preferences, offering generalizable insights into the resilience of housing markets to macro-financial shocks and the role of policy interventions in mitigating their effects. |
| Keywords: | energy price shock, housing market, energy efficiency, energy performance certificate, government subsidy, macro-financial shocks |
| JEL: | D12 G14 H23 L94 P18 Q4 R2 R3 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:hfa:wpaper:24-10 |
| By: | Mehling, M. A.; Dolphin, G.; Ritz, R. A. |
| Abstract: | Adopted in 2023, the Carbon Border Adjustment Mechanism (CBAM) is a significant component of the European Union's ambitious decarbonization strategy under the European Green Deal. This working paper questions the CBAM's effectiveness in achieving its stated objective, prevention of carbon leakage, but proceeds to document its impactful role in accelerating the global diffusion of carbon pricing. Empirical evidence for carbon leakage remains sparse, and implementation challenges would limit the capacity of the CBAM to counteract leakage even where it occurs. Nonetheless, the CBAM has already demonstrated a powerful spillover effect by incentivizing the acceleration of carbon pricing roadmaps across EU trading partners, suggesting that trade-related climate measures can effectively encourage global climate action. As the EU navigates the complexities of operationalizing the CBAM, it must balance several tradeoffs to maintain this important spillover effect. If successful, the CBAM could catalyze a virtuous cycle of carbon pricing adoption, reinforcing its pivotal role in the EU's toolbox to manage the environment-trade nexus. |
| Keywords: | CBAM, Carbon Pricing, Carbon Leakage, Environment-Trade Nexus, European Union |
| JEL: | F42 H23 Q58 |
| Date: | 2024–10–07 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2459 |
| By: | Saioa Armendariz; Carlos de Resende; Alice Fan; Gianluigi Ferrucci; Bingjie Hu; Sadhna Naik; Can Ugur |
| Abstract: | This paper examines competitiveness and productivity in the Baltics. Focusing on recent developments, it asks why Russia’s war in Ukraine led to a prolonged recession and strong decline in competitiveness in Estonia, while Latvia and Lithuania shielded their economies more effectively. The paper starts by documenting a deterioration in export performance across the region. Using a constant share decomposition, it finds that, unlike in Latvia and Lithuania, Estonia’s declining export share has been mainly linked to a reduction in the ‘intensive margin’—a sign of weakening external competitiveness and declining relative productivity. Multivariate filtering techniques and estimates of the real effective exchange rates based on historical productivity trends, consistent with Balassa-Samuelson, confirm that differences in long-term total factor productivity growth have affected external competitiveness. While Estonia’s post-GFC slowdown in productivity growth and real exchange rate appreciation have eroded its competitive edge, Latvia and Lithuania have shown greater resilience, aided by more balanced real effective exchange rates and, for Lithuania, stronger corporate balance sheets. A micro-econometric analysis further reveals that resource misallocation, particularly in the services sector, has been a key driver of declining productivity in the region. These findings underscore the need for targeted reforms to improve allocative efficiency, boost productivity, and restore competitiveness in the Baltic region. |
| Keywords: | Export shares; Competitiveness; Productivity; Baltics |
| Date: | 2025–01–17 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/018 |