|
on European Economics |
|
Issue of 2025–02–24
twenty papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Martin Iseringhausen; Konstantinos Theodoridis |
| Date: | 2025–02–11 |
| URL: | https://d.repec.org/n?u=RePEc:stm:wpaper:68 |
| By: | Misina Cato; Olga Francová |
| Date: | 2025–01–10 |
| URL: | https://d.repec.org/n?u=RePEc:stm:wpaper:67 |
| By: | Carolina Lopez-Quiles; Mr. Adil Mohommad |
| Abstract: | We examine spillovers from ECB’s TLTROs on European countries outside the euro area. Using individual banks’ balance sheet data, we find that TLTROs lowered funding and lending rates for foreign-owned subsidiaries, especially in emerging market economies. We also find an increase in profitability among foreign subsidiaries and no effects on solvency risk. The effects are sizable--every €1 billion in exposure to TLTROs via parent banks is associated with 0.2 bps reduction in deposit rates and 0.4 bps reduction in lending rates of foreign subsidiaries. This underscores the need to factor euro area monetary policies into policy settings outside the euro area. |
| Keywords: | Monetary policy; spillovers; TLTRO; CESEE |
| Date: | 2025–01–31 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/034 |
| By: | António Afonso; José Alves; José Carlos Coelho; Jamel Saadaoui |
| Abstract: | We implement a two-step analysis of fiscal and external causality patterns using a data set covering the 27 EU countries in the period 2002Q1-2023Q4. In the 1st step, we compute fiscal and external sustainability time-varying coefficients, modelling the cointegration relationship between government revenues and government spending, and between exports and imports. In the 2nd step, we use three recursive strategies, combined with Granger causality tests: forward expanding, rolling, and recursive window methods to capture causal relationships. Our results show that: (i) peripheral countries have lower sustainability coefficients, while non-Eurozone countries have higher sustainability coefficients, (ii) after the 2008 global financial crisis, there was an improvement in fiscal and external sustainability for most countries, (iii) during the Eurozone crisis in 2010-2012, in Austria, France, Greece, Ireland, Netherlands, Slovakia and Spain, there was causality between fiscal and external sustainability, (iv) during that period, causality was observed between the external and fiscal sustainability in EMU countries (Austria, Germany, Malta, Netherlands, Slovakia, Slovenia, Spain) and in non-EMU countries. |
| Keywords: | fiscal sustainability; external sustainability; European Union; time-varying causality; lag-augmented vector autoregression. |
| JEL: | C22 C23 F32 F41 H30 H62 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp03692025 |
| By: | Lucía López (BANCO DE ESPAÑA); Florens Odendahl (BANCO DE ESPAÑA); Susana Párraga (EUROPEAN CENTRAL BANK); Edgar Silgado-Gómez (BANCO DE ESPAÑA) |
| Abstract: | This paper uses a Bayesian Structural Vector Autoregressive (BSVAR) framework to estimate the pass-through of unexpected gas price supply shocks to HICP inflation in the euro area and its four largest economies. Compared with oil price shocks, gas price shocks have an approximately one-third smaller pass-through to headline inflation. Country-specific results indicate that gas price increases matter more for German, Spanish and Italian inflation than for French inflation, hinging on the reliance on energy commodities in consumption, production and different electricity price regulations. Consistent with gas becoming a prominent energy commodity in the euro area, including time-variation through a time-varying parameter BVAR demonstrates a substantially larger impact of gas price shocks on HICP inflation in recent years. The empirical estimates are then rationalised using a New Keynesian Dynamic Stochastic General Equilibrium (NK-DSGE) model augmented with energy. In the model, the elasticity of substitution between gas and non-energy inputs plays a critical role in explaining the inflationary effects of gas shocks. A decomposition of the recent inflation dynamics into the model’s structural shocks reveals a larger contribution of gas shocks compared with oil shocks. |
| Keywords: | natural gas and oil shocks, inflation, Bayesian VARs, New Keynesian DSGE |
| JEL: | C11 C32 E31 Q41 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2512 |
| By: | Ahoniemi, Katja; Kerola, Eeva; Koskinen, Kimmo |
| Abstract: | This paper examines the current dependencies and exposures of the euro area's financial sector in a context of rising geopolitical tensions. Focusing on Russia, China, and the Middle East, we analyze direct exposures through lending and securities holdings of banks and large investors. Our findings suggest that the already modest exposures of the euro area have decreased in recent years. Notably, euro area banks and investors have significantly reduced their exposure to Russia in the wake of the Ukraine invasion, and China in response to regulatory uncertainty. Euro area banks reacted quickly to heightened geopolitical risk in the Middle East by reducing their exposure to countries affected by recent turmoil. A new set of potential risks have emerged, however, as a result of strengthened financial ties with the United States. |
| Keywords: | Geopolitical tensions, financial exposure, banking sector, China, Russia, Middle East |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofitb:311211 |
| By: | Dominy, Jonas; Gräbner-Radkowitsch, Claudius; Heimberger, Philipp; Kapeller, Jakob |
| Abstract: | This paper analyzes developmental trajectories in the EU. In doing so, it diagnoses economic polarization on two different levels: for one, we observe a divergence of average incomes across EU countries as a persistent empirical feature associated with European integration. For another, European economic integration in general and the introduction of the Euro in particular are associated with the emergence of heterogeneous developmental trajectories, which build on, and intensify differences in technological capabilities, institutional and legal setups, as well as labor market characteristics. When clustering countries with reference to similarities in terms of macroeconomic and institutional characteristics across countries, we find evidence for the existence of four distinct development models: core, periphery, and workbench economies, as well as financial hubs. Each of these groups is defined by distinct technological, institutional, and macroeconomic characteristics. Our findings point to suitable ways for extending and refining existing typological approaches, such as the Varieties of Capitalism or the growth model approach, thereby allowing us to better account for the heterogeneity of developmental pathways emerging in the course of an intensifying European race for the best location. |
| Keywords: | Economic polarization, European integration, Development models, growth models, European Union |
| JEL: | B5 F6 F45 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifsowp:311852 |
| By: | Supriya Kapoor (Trinity Business School, Trinity College Dublin); Michael Mahony (Macro-Finance Division, Central Bank of Ireland); Anuj Pratap Singh (Macro-Finance Division, Central Bank of Ireland) |
| Abstract: | Since July 2022, European Central Bank (ECB) increased its interest rates for the first time in eleven years to bring inflation back to target. This has huge implication on the credit decision for firms, especially the small and medium enterprises (SME), instrumental in supporting employment, innovation and income. Using ECB's `Survey on Access to Finance of Enterprises' (SAFE) from 2015 to 2023, this paper assesses if the ECB's monetary policy tightening bears any relationship with SME's substituting away from bank credit towards alternative sources of finance. Our results show that contractionary monetary policy shocks were positively associated with the likelihood of SME's substituting away from bank credit. We find this behaviour across SMEs with larger turnover, employee size, age, as well as credit-quality; indicating a much stronger reliance and stickiness to bank credit for relatively smaller, younger, and riskier firms despite increases in the cost of credit following contractionary monetary policy shocks. |
| Keywords: | European Central Bank (ECB), monetary policy tightening, SME credit demand, firm bank credit substitution, firm financing behaviour and adaptability |
| JEL: | D22 E50 E51 E52 E58 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:tcd:tcduee:tep0125 |
| By: | Bandoni, Emil; De Nora, Giorgia; Giuzio, Margherita; Ryan, Ellen; Storz, Manuela |
| Abstract: | Institutional investors, such as investment funds, are playing an increasingly important role in residential real estate markets. This raises the possibility that their actions might drive aggregate market outcomes and may change how and which macrofinancial shocks transmit to house prices. In a Bayesian vector autoregression setting, we show that a demand shock from institutional investors has a positive and persistent effect on aggregate euro area house price growth and mortgage lending volumes. Institutional investors also increase their purchase activity following a loosening of monetary policy. Exploiting regional heterogeneity in eight euro area countries, we show in a panel regression setting that institutional investors weaken the link between house price growth and local economic fundamentals, but strengthen the sensitivity to monetary policy and financial market developments. JEL Classification: R31, E52, G23 |
| Keywords: | financial stability, investment funds, monetary policy, non-bank financial intermediation, real estate |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253026 |
| By: | Ciara Reynolds (Geary Institute for Public Policy, University College Dublin, Ireland); Micheál L. Collins (School of Social Policy, Social Work and Social Justice, University College Dublin and Geary Institute for Public Policy, University College Dublin, Ireland) |
| Abstract: | The Global Financial Crisis (GFC) significantly affected a majority of European Union (EU) countries with three-quarters of member states experiencing a systemic economic crisis between late 2007 and 2011, and all others experiencing instances of financial market stress. The crisis triggered many countries to rapidly undertake large scale market interventions to ‘save’ their banking systems and stabilise their economies. Consequently, close to half a trillion euro of taxpayer’s money was expended by EU countries in banking sector ‘bail-outs’ since the start of the crisis in 2008. This paper focuses on estimating the economic impacts of one of these rescue mechanisms, impaired asset measures via the creation of Asset Management Companies (AMCs). Applying Leontief’s Input Output (IO) and multiplier analysis, this research estimates the broader direct and indirect impact of two of the most significant AMCs implemented in the EU after the GFC, Ireland’s NAMA and Spain’s Sareb. The results demonstrate that beyond the initial banking system stabilisation objectives, AMCs had notable effects on economic activity, value added, income and employment in both countries. Looking to the future, policy makers may wish to view these direct and indirect economic impacts as a discrete contribution that these entities make to the economy. This may therefore frame considerations of the impact of future AMCs as not just associated with economic stabilisation, but also with wider measurable effects. |
| Keywords: | Banking Crisis; Asset Management Companies; Input-Output; Ireland; Spain |
| JEL: | C67 G23 H12 |
| Date: | 2025–02–17 |
| URL: | https://d.repec.org/n?u=RePEc:ucd:wpaper:202502 |
| By: | Rebeca Anguren (BANCO DE ESPAÑA); Gabriel Jiménez (BANCO DE ESPAÑA); José-Luis Peydró (BANCO DE ESPAÑA) |
| Abstract: | We study the short-term effects of both tighter and looser bank capital requirements on bank risk-taking in a crisis period. We exploit credit register data matched with firm and bank level data in conjunction with changes in capital requirements stemming from Basel III, including the introduction of a SME supporting bank capital factor in the European Union. We find that tighter capital requirements reduce the supply of bank credit to firms, while looser capital requirements mitigate the credit supply effects of increasing capital. Importantly, at the loan level (credit supply), banks more affected by capital requirements temporarily change less the supply of credit to riskier than to safer firms, and these asymmetric effects occur for both the tightening and the loosening of bank capital requirements. Finally, these effects are also important at the firm-level for total credit availability and for firm survival. Interestingly, our results suggest that those banks most impacted by the tighter Basel III capital requirements prioritize credit among ex-ante riskier firms to avoid their closure, consistent with loan evergreening. |
| Keywords: | bank capital requirements, credit supply, bank risk-taking, Basel III, loan evergreening |
| JEL: | G21 G28 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2508 |
| By: | Biancardi, Daniele (European Commission Joint Research Centre (JRC)); Lucifora, Claudio (Università Cattolica del Sacro Cuore); Origo, Federica (University of Bergamo) |
| Abstract: | Short-time work (STW) has been widely used, both during the Great Recession and the COVID crisis, to preserve jobs. In most European countries, the implementation of STW schemes is often the result of bargaining between trade unions and employers, yet very little is known about the role of unions. In this paper, we investigate the effects of STW schemes on a number of firms' economic outcomes, considering the role of unions and collective bargaining. We use firm-level panel data, for the metal--engineering industry (from 2009 to 2015), with information on firms characteristics, STW use, industrial relations attributes, merged with accounting data. We estimate the elasticity of employment, working hours, wages and labour productivity to STW hours using an IV-FE estimator. We find that STW is an effective policy to preserve jobs in all firms. The positive effect on employment is supported by quite different mechanisms, which depend on unions presence and power in the firm. In low unionized firms wage cuts are the prevailing adjustment mechanisms, while in highly unionized firms, per-capita wages are insensitive to STW and adjustment mainly occurs through a reduction in working hours. These results are coherent with the use of STW as a work sharing device to protect incumbent workers who are mainly union members. |
| Keywords: | short-time work, employment, wages, labour productivity, unions |
| JEL: | J08 J38 J58 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17657 |
| By: | Eckhard Hein; Moritz Marpe; Karolina Schütt |
| Abstract: | Ederer/Rehm (2020b) empirically calibrated long-run equilibrium wealth distribution for ten European countries, mainly using 2010 Household Finance and Consumption Survey (HFCS) data. Measuring wealth inequality through the capitalists’ share of wealth, they find that seven out of ten countries deviate from Piketty’s (2014) prediction that under the condition of r > g wealth distribution will become ever more unequal. With the actual capitalists’ share in 2010 below the calibrated equilibrium, however, they forecast increasing wealth inequality. Our research extends this analysis in two ways. Firstly, using the 2010, 2014, 2017, and 2021 HFCS data, we recalibrate the equilibrium based on 2010 data and track the capitalists’ share of wealth over the decade. We observe convergence tendencies towards the stable long-run equilibrium in some but not in all countries. Secondly, we expand the Ederer/Rehm (2020b) model to include real estate assets and mortgage debt. Recalibrating the long-run equilibrium for this extended model using 2010 values produces a similar pattern: For three countries, Piketty’s prediction holds, while for the remaining seven the equilibrium capitalists’ wealth share is lower than 100 per cent. The extended model shows a much lower actual capitalists’ share of wealth, supporting the idea that real estate assets, adjusted for mortgage debt, are more equally distributed than other types of wealth. Wealth inequality for the extended model is also predicted to rise. Based on 2014, 2017 and 2021 HFCS data, we indeed find a convergence of actual wealth distribution towards the stable long-run equilibrium for some, but not for all countries. In several countries, the stable long-run equilibrium distribution itself varies over time, partly in line with actual distribution which points to potential endogeneity of the former towards the latter. The channels remain to be explored. |
| Keywords: | Wealth distribution, post-Kaleckian model, model calibration |
| JEL: | D31 E12 E21 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2506 |
| By: | Steininger, Lea; Matzner, Anna |
| Abstract: | We study the heterogeneous pass-through of monetary policy across firms with different labor shares. The goal is to obtain evidence on a labor-intensity transmission channel that should in fact be operating for other kinds of demand shocks as well. Our basic idea is that labor is special: unlike capital, it cannot be pledged against loans as collateral due to property rights. Based on a sample of over one million European firms, we document substantial heterogeneity in terms of firms’ investment response: when conditions tighten, fixed capital stock of labor-intensive firms decreases relative to capital-intensive production. These findings cannot be explained by other proxies for financial constraints such as age, size or financial leverage. Our results suggest that the impact of monetary policy is driven by borrowing constraints of high labor share firms, and that monetary policy is more potent in an economy characterized by a high labor share. JEL Classification: D22, E52, D31, E23, E32 |
| Keywords: | factor input costs, financial constraints, firm heterogeneity, labor share, monetary policy |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253024 |
| By: | Merlo, Stefano |
| Abstract: | The Economic and Monetary Union has fundamentally changed how fiscal and monetary powers are exercised over democratic publics which raise the question of whether a normative vision of macroeconomic sovereignty is compatible with membership within the Eurozone. After conceptualising sovereignty in republican terms as the balance between four ‘power-countering strategies’, this article conducts a normative analysis of the evolution of Economic and Monetary Union governance. This exercise shows how – by neglecting one of the four republican strategies, namely to increase citizens’ democratic participation at the European Union level – successive institutional innovations as well as recent proposals fail to make the exercise of public powers compatible with citizens’ status equality. In contrast, the argument suggests that if citizens’ influence is channelled through a ‘system of dual partisanship’, in which national and European parliamentarians coordinate their activities, national and Economic and Monetary Union’ executives’ discretion can be democratically controlled. |
| Keywords: | macroeconomic sovereignty; republicanism; Eurozone; domination; AAM and DoA requested |
| JEL: | N0 J1 |
| Date: | 2024–10–23 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:127160 |
| By: | Oliver De Jonghe; Daniel Lewis |
| Abstract: | We propose a new model in which relationship-specific supply and demand shocks are non-parametrically identified in bipartite data under mild assumptions. For example, separate heterogeneous supply shocks are identified for each firm to which a bank lends. We show that a simple estimator is consistent, derive its limiting distribution, and illustrate its performance in simulations. Using these methods, we identify the heterogeneous distributions of supply and demand shocks for thousands of banks and firms in 11 European countries using the Anacredit dataset. Our estimates characterize how both quantity and price elasticities, and thus supply and demand curves, have changed in those 11 markets in recent years. The shock distributions exhibit within-firm/bank heterogeneity that is not well-explained by conventional fixed effects approaches, which only capture between-firm/bank heterogeneity. This unexplained heterogeneity correlates strongly with economically meaningful relationship-level characteristics and macroeconomic policy measures. These results have important implications for policy, identification assumptions in empirical work, and modeling exercises. |
| Date: | 2025–02–20 |
| URL: | https://d.repec.org/n?u=RePEc:azt:cemmap:08/25 |
| By: | Boschma, Ron; Hernández-Rodríguez, Eduardo; Morrison, Andrea; Pietrobelli, Carlo (RS: GSBE other - not theme-related research, Mt Economic Research Inst on Innov/Techn) |
| Abstract: | This paper combines insights from the literatures on Global Value Chains (GVC), Economic Complexity and Evolutionary Economic Geography to assess the role of GVC participation and regional capabilities in fostering economic complexity in EU NUTS-2 regions. Our results suggest there is no such thing as a common path towards economic complexity across EU regions. Low-income regions manage to benefit from both regional capabilities and GVC participation. In contrast, high-income regions rely more on their existing local capabilities rather than on GVC participation. |
| JEL: | B52 F23 O19 O33 R10 |
| Date: | 2025–01–29 |
| URL: | https://d.repec.org/n?u=RePEc:unm:unumer:2025002 |
| By: | Honorata Bogusz (University of Warsaw, Faculty of Economic Sciences); Daniela Bellani (Università Cattolica, Milano) |
| Abstract: | In the 21st century, advancements in technologies such as industrial robots have raised concerns about their impact on employment and wages, prompting extensive research. However, their effects on workers’ subjective well-being remain underexplored. This study addresses this gap ¬by examining whether workers experience a decline in well-being due to a loss of agency or maintain it by leveraging human skills to adapt to automation. Using data from the International Federation of Robotics, Eurostat, and the European Social Survey (2002–2018), we link robot density at the country-industry-year level to workers’ life satisfaction, happiness, job influence, and health. Employing an instrumental variables approach, we find that robot adoption negatively affects medium-educated workers’ well-being, particularly its eudaimonic dimension, supporting the decreasing agency thesis. In contrast, low- and highly educated workers experience positive effects. These impacts are more pronounced among women and weaker in countries with robust compensatory social policies. |
| Keywords: | industrial robots, well-being, life satisfaction, Europe, education |
| JEL: | I31 O33 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:war:wpaper:2025-01 |
| By: | Bruno Merlevede; Pablo Muylle (-) |
| Abstract: | Since the late 2000s, shocks and crises of various types have led to a revival of state intervention around the world. This paper builds a large firm-level dataset to analyze state ownership of firms in Europe for the period 2002-18. We confirm the underperformance of state-owned enterprises (SOEs) relative to privately-owned enterprises (POEs) found in earlier literature for this recent period for a range of firm-level performance indicators. We also examine the impact of SOEs on private firms. We find that larger SOE presence in an industry is associated with lower productivity growth and lower productivity levels among private firms in that industry, but does not affect industry dynamics in terms of entry and exit. This suggests potential aggregate productivity gains from reallocating resources from SOEs to POEs. Further, we show that employment is more stable and crisis-resistant at SOEs, and that SOEs are a more stable source of downstream input demand for other firms. Leveraging our dataset's cross-country nature, we find that SOEs are complements to, rather than substitutes for, lower quality institutions. |
| Keywords: | State ownership, Firm performance, Productivity, Spillover e ects, Privatization, Business dynamism |
| JEL: | H11 L25 L32 O47 P31 P52 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:rug:rugwps:25/1105 |
| By: | Lionel Fontagné (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Francesca Micocci (IMT - School for Advanced Studies Lucca); Armando Rungi (IMT - School for Advanced Studies Lucca) |
| Abstract: | This paper introduces a causal machine learning approach to investigate the impact of the EU-Canada Comprehensive Economic Trade Agreement (CETA). We propose a matrix completion algorithm on French customs data to obtain multidimensional counterfactuals at the firm, product and destination levels. We find a small but significant positive impact on average at the product-level intensive margin. On the other hand, the extensive margin shows product churning due to the treaty beyond regular entry-exit dynamics: one product in eight that was not previously exported substitutes almost as many that are no longer exported. When we delve into the heterogeneity, we find that the effects of the treaty are higher for products at a comparative advantage. Focusing on multiproduct firms, we find that they adjust their portfolio in Canada by reallocating towards their first and most exported product due to increasing local market competition after trade liberalization. Finally, multidimensional counterfactuals allow us to evaluate the general equilibrium effect of the CETA. Specifically, we observe trade diversion, as exports to other destinations are re-directed to Canada. |
| Keywords: | Free Trade Agreements, International Trade, Causal Inference, Machine Learning, Matrix Completion |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:hal:cesptp:halshs-04913313 |