|
on European Economics |
|
Issue of 2025–05–12
eighteen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Dimitrios Kanelis; Pierre L. Siklos |
| Abstract: | We combine modern methods from Speech Emotion Recognition and Natural Language Processing with high-frequency financial data to precisely analyze how the vocal emotions and language of ECB President Mario Draghi affect the yields and yield spreads of major euro area economies. This novel approach to central bank communication reveals that vocal and verbal emotions significantly impact the yield curve, with effects varying in magnitude and direction. Our results reveal an important asymmetry in yield changes with positive signals raising German, French, and Spanish yields, while negative cues increase Italian yields. Our analysis of bond spreads and equity markets indicates that positive communication influences the risk-free yield component, whereas negative communication affects the risk premium. Additionally, our study contributes by constructing a synchronized dataset for voice and language analysis. |
| Keywords: | artificial intelligence, asset prices, communication, ECB, high-frequency data, speech emotion recognition |
| JEL: | E50 E58 G12 G14 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2025-25 |
| By: | Palligkinis, Spyros |
| Abstract: | I assess the impact of the recent hike in bank lending rates on euro area retail borrowers using a novel microsimulation framework that updates household-level data of a recent representative survey with up-to-date macro-financial information. The key novelty is that existing mortgages are gradually repaid, and new ones are extended, a feature necessary for medium-term simulations in a period of sizable credit growth. Since lending rates have increased, debt servicing has become more demanding, and the simulated share of distressed loans has increased. Effects are stronger for adjustable-rate mortgages, and especially for the most recent among them, but are present in all portfolios. JEL Classification: C1, G2, G51, E52 |
| Keywords: | financial stability, household finance, microsimulations, monetary policy |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253053 |
| By: | Carlo Altavilla (European Central Bank (ECB)); Cecilia Melo Fernandes (International Monetary Fund (IMF)); Steven Ongena (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)); Alessandro Scopelliti (KU Leuven, Department Accounting, Finance and Insurance; University of Zurich - Department Finance) |
| Abstract: | We assess how regulatory changes in bail-inable liability requirements, aimed at ensuring orderly resolution processes and minimizing taxpayer-funded bailouts, affect bank bond holdings. Using confidential data on banks' securities portfolios, we find that the introduction of the Minimum Requirements for Eligible Liabilities prompts banks to increase their holdings of eligible bank bonds issued by other banks, compared to non-eligible bonds. Similarly, the Total Loss-Absorbency Capacity requirements encourage banks to invest in eligible subordinated debt issued by global systemically important banks. Our findings also reveal a within-country concentration of bank bond holdings, which may pose challenges to effective bail-in implementation. |
| Keywords: | bank bonds, regulatory changes, bail-inable debt, MREL, TLAC |
| JEL: | G01 G21 G28 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2538 |
| By: | Toshkov, Dimiter |
| Abstract: | How does public support for European integration relate to the broader political views of European citizens? This article maps in a comprehensive way the relationships between support for European integration, left-right ideological positions and policy attitudes towards redistribution, immigration and gay rights. We introduce the use of flexible non-parametric methods (generalized additive models) and more appropriate measures of dependence (the distance correlation coefficient) to explore and measure the strength and forms of these relationships across time (2004-2020), countries and indicators of European integration support. We find that the link between public support for European integration and left-right ideology is weak. The exact form of the relationship depends on the operationalization of European integration support, the country and the time period, but it rarely resembles the classic inverted-U curve suggested by existing literature and studies of party positions. In fact, average EU support is typically highest at the moderate left rather than at the center. The relationship of support for further European integration with immigration attitudes is much stronger, stable, consistent and almost linear; with support for gay rights it is also linear but considerably weaker; with support for redistribution there is practically no relationship at all. While public opinion is much less structured and less extreme than party positions, there is some evidence that – across countries – the strength of the links between EU support, left-right and policy positions at the party level is associated with the strength of these links at the level of the public. Furthermore, over time the strength of the link of public EU support with different policy attitudes covaries systematically with the salience (media presence) of the issue at the EU level. [Nota bene: this version has a typo in Table 2, last column, penultimate row: entry should read 0.18 instead of 0.37] |
| Date: | 2025–03–14 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:bg7xh_v2 |
| By: | Bobeica, Elena; Holton, Sarah; Huber, Florian; Martínez Hernández, Catalina |
| Abstract: | We propose a novel empirical structural inflation model that captures non-linear shock transmission using a Bayesian machine learning framework that combines VARs with non-linear structural factor models. Unlike traditional linear models, our approach allows for non-linear effects at all impulse response horizons. Identification is achieved via sign, zero, and magnitude restrictions within the factor model. Applying our method to euro area energy shocks, we find that inflation reacts disproportionately to large shocks, while small shocks trigger no significant response. These non-linearities are present along the pricing chain, more pronounced upstream and gradually attenuating downstream. JEL Classification: E31, C32, C38, Q43 |
| Keywords: | energy, euro area, inflation, machine learning, non-linear model |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253052 |
| By: | Jules Ducept; Sarah Godar |
| Abstract: | This paper documents the rise of corporate tax-base narrowing measures in the EU using a novel dataset covering both tax rate and tax base reforms implemented between 2014 and 2022. Our findings indicate a shift away from the ’cut rate – broaden base’ approach, as governments increasingly align corporate taxation with industrial policy objectives. We show that EU tax competition exerts downward pressure on high-tax countries, while the likelihood of tax cuts also varies with the political orientation of governments. Using financial accounts from more than 40, 000 affiliates, we find that the average effective tax rate of multinational enterprises in the EU has declined more rapidly than the statutory rate and estimate that tax base reforms account for 24% of this decline. The estimated revenue cost of all reforms combined amounts to 3.5% of total corporate tax revenue collected from the sample firms. These revenue losses should be carefully weighed against the anticipated benefits of tax reforms. |
| Keywords: | Effective Tax Rates, Multinationals, Tax Competition, Corporate Income Tax, Tax Reform, Political Orientation, European Union |
| JEL: | F23 H25 H26 P11 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:diw:diwwpp:dp2117 |
| By: | Harald Oberhofer; Zhenyi Wang |
| Abstract: | This paper studies the role of dataset choices for trade policy estimates in structural gravity models. Using twelve publicly available data sources and applying alternative and commonly used dataset restrictions, we obtain 586 estimates for the EU membership trade effects from a standard structural gravity model specification. These estimates are used in a meta-regression analysis to shed light on potential sources for heterogeneity in the obtained EU membership trade effects. The meta study reveals a crucial role of domestic trade flows for the effect size of the EU membership trade effect estimate. The estimated EU trade effect is on average 20 percentage points larger in datasets that include domestic trade flows. The effect size of the EU membership trade effect estimates also vary with the time- and country coverage, across time interval and consecutive year panel data, alternative product classifications, the level of sectoral disaggregation in the data and the use of imports as alternative measure for trade flow. Alternative estimation packages do not significantly alter the effect size of our estimates for the EU membership trade effects. The paper concludes with some recommendations on data source selection and dataset restrictions. |
| Keywords: | trade policy, EU membership trade effects, gravity models, meta study, meta-regression analysis. |
| JEL: | F13 F14 F15 C80 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11823 |
| By: | Angelos Alexopoulos; Ilias Kostarakos; Christos Mylonakis; Petros Varthalitis |
| Abstract: | This paper quantifies the causal effect of cohesion policy on EU regional output and investment focusing on one of its least studied instruments, i.e., the Cohesion Fund (CF). We employ modern causal inference methods to estimate not only the local average treatment effect but also its time-varying and heterogeneous effects across regions. Utilizing this method, we propose a novel framework for evaluating the effectiveness of CF as an EU cohesion policy tool. Specifically, we estimate the time varying distribution of the CF's causal effects across EU regions and derive key distribution metrics useful for policy evaluation. Our analysis shows that relying solely on average treatment effects masks significant heterogeneity and can lead to misleading conclusions about the effectiveness of the EU's cohesion policy. We find that the impact of the CF is frontloaded, peaking within the first seven years after a region's initial inclusion in the program. The distribution of the effects during this first seven-year cycle of funding is right skewed with relatively thick tails. This indicates positive effects but unevenly distributed across regions. Moreover, the magnitude of the CF effect is inversely related to a region's relative position in the initial distribution of output, i.e., relatively poorer recipient regions experience higher effects compared to relatively richer regions. Finally, we find a non-linear relationship with diminishing returns, whereby the impact of CF declines as the ratio of CF funds received to a region's gross value added (GVA) increases. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.13223 |
| By: | Becker, Max; Bendiek, Annegret; Kempin, Ronja |
| Abstract: | Seit der russischen Vollinvasion der Ukraine am 24. Februar 2022 lässt sich eine Versicherheitlichung des auswärtigen Handelns der Europäischen Union (EU) beobachten. Institutionell betrachtet wird die Gemeinsame Außen- und Sicherheitspolitik (GASP) zunehmend von der Gemeinsamen Sicherheits- und Verteidigungspolitik (GSVP) überlagert. Damit wird aber nicht das Problem der defizitären außen- und sicherheitspolitischen Handlungsfähigkeit gelöst. Im Gegenteil: Der Trend zur Versicherheitlichung der EU-Außenpolitik lenkt von der längst überfälligen Reform zur Stärkung ebendieser außen- und sicherheitspolitischen Handlungsfähigkeit Europas ab. Um diese endlich zu verbessern, bieten sich zwei Optionen an: a) eine Europäisierung des europäischen Pfeilers in der Nato und b) eine Vergemeinschaftung der GASP und der GSVP. |
| Keywords: | European Peace Facility (EPF), Gemeinsame Außen- und Sicherheitspolitik, GASP, Gemeinsame Sicherheits- und Verteidigungspolitik, GSVP, Green Deal Industrial Plan, ReArm Europe, qualifizierte Mehrheitsentscheidung, Versicherheitlichung, securitization, Europäische Friedensfazilität, EFF, Migrationsabkommen, Drittstaatsabkommen, De-Risking, Friend-Shoring, Global Gateway, GGS, European Defence Agency, EDA, European Defence Fund, EDF, Preparatory Action on Defence Research, PADR, European Defence Industrial Development Programme, EDIDP, Act in Support of Ammunition Production, ASAP, European Defence Industry Reinforcement through common Procurement Act, EDIRPA, EUMAM |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:swpakt:315515 |
| By: | O'Donoghue, Cathal (National University of Ireland, Galway); Can, Zeynep Gizem (University of Galway); Montes-Viñas, Ana (Luxembourg Institute of Socio-Economic Research (LISER)); Sologon, Denisa Maria (LISER (CEPS/INSTEAD)) |
| Abstract: | This paper examines trends in household financial strain across Europe from 2006 to 2022, a period marked by three major economic shocks: the 2008 financial crisis, the COVID-19 pandemic, and the ongoing cost-of-living crisis. Using a subjective measure of welfare, financial strain, we analyse household responses to these shocks, which affected countries differently over time. Our theoretical framework centres on discretionary disposable income, accounting for non-discretionary expenses such as housing, commuting, and childcare costs, alongside household-specific inflation rates to assess purchasing power. Overall, we find many instances of increased financial strain during the financial and the cost-of-living crisis. While aggregate relationships between the drivers seem logical in many countries, there are many instances where the aggregate relationship is either unexpected in sign or strength, indicating that the relationship is due to distribution-specific changes than to aggregate changes. Our microanalysis corroborates this hypothesis, showing that most of the characteristics incorporated in our theoretical framework are significant and of the right sign, even if aggregate relationships were weak. Housing costs consistently emerged as a key determinant of financial strain; while commuting and childcare costs had a more complex, less predictable impact due to their endogeneity with employment, which is associated with lower financial strain. |
| Keywords: | household financial strain, economic shocks, distributional effects, microsimulation |
| JEL: | C63 I31 D31 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17739 |
| By: | Adolphsen, Ole; Könneke, Jule; Schenuit, Felix |
| Abstract: | Mit dem Green Deal hat die EU in den vergangenen Jahren nicht nur eine deutliche Ambitionssteigerung ihrer Klimapolitik vollzogen, sondern die europäische Klimainnenpolitik um eine internationale Dimension erweitert. Tatsächlich betreffen zahlreiche Rechtsakte der EU direkt oder indirekt auch internationale Partner. Dennoch werden interne und externe Dimension der Klimapolitik in der neuen EU-Kommission nicht systematisch zusammengeführt, eine strategische diplomatische Flankierung der Maßnahmen ist nicht gegeben. Gerade mit Blick auf die erhöhte Bedeutung von Wettbewerbsfähigkeit und geopolitischen Konstellationen eröffnet sich die Chance für einen neuen Strategieprozess. Dieser könnte dazu beitragen, dass EU-Institutionen und Mitgliedstaaten die externe Dimension koordinieren und eine sinnvolle Weiterentwicklung der europäischen Klimapolitik erreichen. |
| Keywords: | EU-Klimapolitik, European Green Deal, Klimainnen- und -außenpolitik, EU-Rechtsakte, EU-Kommission, Kommissionspräsidentin Ursula von der Leyen, Wettbewerbsfähigkeit |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:swpakt:315501 |
| By: | McGuinness, Seamus (Economic and Social Research Institute, Dublin); Redmond, Paul (ESRI, Dublin); Pouliakas, Konstantinos (European Centre for the Development of Vocational Training (Cedefop)); Kelly, Lorcan (Economic and Social Research Institute, Dublin); Brosnan, Luke (Economic and Social Research Institute, Dublin) |
| Abstract: | Using the second wave of the European Skills and Jobs survey, this paper measures the relationship between technological change that automates or augments workers’ job tasks and their participation in work-related training. We find that 58 per cent of European employees experienced no change in the need to learn new technologies in their jobs during the 2020-21 period. Of those exposed to new digital technology, 14 per cent did not experience any change in job tasks, 10 per cent reported that new tasks had been created while 5 per cent only saw some of their tasks being displaced by new technology. The remaining 13 per cent simultaneously experienced both task displacement and task creation. Our analysis shows that employees in jobs impacted by new digital technologies are more likely to have to react to unpredictable situations, thus demonstrating a positive link between technologically driven task disruption and job complexity. We show a strong linear relationship between technologically driven job task disruption and the need for job-related training, with training requirements increasing the greater the impact of new technologies on task content. |
| Keywords: | upskilling, technological change, digitalisation, tasks, automation, training, complexity |
| JEL: | J24 O31 O33 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17753 |
| By: | Geiger, Felix; Kanelis, Dimitrios; Lieberknecht, Philipp; Sola, Diana |
| Abstract: | Central bank communication has become a crucial tool for steering the monetary policy stance and shaping the outlook of market participants. Traditionally, analyzing central bank communication required substantial human effort, expertise, and resources, making the process time-consuming. The recent introduction of artificial intelligence (AI) methods has streamlined and enhanced this analysis. While fine-tuned language models show promise, their reliance on large annotated datasets is a limitation that the use of large language models (LLMs) combined with prompt engineering overcomes. This paper introduces the Monetary-Intelligent Language Agent (MILA), a novel framework that leverages advanced prompt engineering techniques and LLMs to analyze and measure different semantic dimensions of monetary policy communication. MILA performs granular classifications of central bank statements conditional on the macroeconomic context. This approach enhances transparency, integrates expert knowledge, and ensures rigorous statistical calculations. For illustration, we apply MILA to the European Central Bank's (ECB) monetary policy statements to derive sentiment and hawkometer indicators. Our findings reveal changes in the ECB's communication tone over time, reflecting economic conditions and policy adaptions, and demonstrate MILA's effectiveness in providing nuanced insights into central bank communication. A model evaluation of MILA shows high accuracy, flexibility, and strong consistency of the results despite the stochastic nature of language models. |
| Keywords: | Central bank communication, monetary policy, sentiment analysis, artificial intelligence, large language models |
| JEL: | C45 E31 E44 E52 E58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubtps:316448 |
| By: | Mahnaz, Susama (Monash University) |
| Abstract: | Most countries have experienced a substantial narrowing of the gender employment and wage gaps in recent decades. However, the determinants of the convergence in gender productivity, an important factor underpinning the gender wage gap, remain largely unexplained. This paper addresses this gap by exploring how technological advancements, from physical (brawn) to intellectual (brain) skills demand, and evolving social norms about women’s roles in societies have contributed to women’s changing work choices and productivity. Using panel data from 26 European countries over the period 2008 to 2020, I estimate the impact of technological factors and social norms on the productivity of women relative to men with a fixed effects specification. I find that changing skill requirements and skill-biased technical change have a significant and robust relationship with female labour productivity across countries. Moreover, in countries with higher levels of gender inequality, women’s productivity gains are also strongly related to reduced gender inequality. |
| Keywords: | gender productivity ; occupations ; skill requirement ; social norms ; technical change. JEL classifications: I20 ; J16 ; J21 ; J24 ; J31 ; O52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:wrkesp:82 |
| By: | Gianluca Cafiso; Giulia Rivolta |
| Abstract: | This study examines the relationship between sovereign spreads and banks in terms of risk transmission, using the seven largest Italian banks as a sample over the period from 2003 to 2023. Our objective is to quantify and compare volatility spillovers, and to investigate whether bank-specific characteristics explain them. We perform a dynamic connectedness analysis based on the estimation of a vector autoregression with time-varying parameters. Our results suggest that, with the exception of severe crisis periods, banks tend to transmit more spillovers than they absorb. Moreover, the magnitude of these spillovers is influenced by factors such as capital adequacy and the structure of banks' portfolios. |
| Keywords: | sovereign spread, banks, volatility, connectedness measures, spillovers, time-varying parameters, VAR. |
| JEL: | G01 G21 E60 H12 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11816 |
| By: | Naudé, Wim (RWTH Aachen University); Cameron, Martin (Trade Advisory Research (Pty) Ltd) |
| Abstract: | In retaliating against Trump’s March 2025 imposition of import tariffs on EU aluminum and steel, the EU’s response should be twofold: one, at the EU level, to apply retaliatory tariffs and negotiations, and two, to support country-level efforts to minimize the impact of tariffs, including external substitution. We point out that the EU does not, however, at present seem to explicitly consider external substitution, i.e. finding alternative export markets. We show why this is an omission, and use the case of the Netherlands to illustrate how to find alternative export markets and how this can bolster the EU’s retaliation effort. Our empirical modelling finds that while most of the Netherlands’ exports to the USA are at low-to-medium risk, a smaller portion is at high risk. For aluminum and steel products, the high-risk products face exports-at-risk of US$ 245 million, much lower than some current estimates. For these, we identify alternative export opportunities outside the USA and EU. The USA’s trade policies could push the Netherlands and the wider EU towards closer economic ties with other global players, potentially weakening the USA’s geopolitical standing. |
| Keywords: | EU, Trump tariffs, USA tariffs, trade wars, export diversification |
| JEL: | F10 F13 F1 F17 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17773 |
| By: | Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Alexandra Bykova (The Vienna Institute for International Economic Studies, wiiw); Selena Duraković (The Vienna Institute for International Economic Studies, wiiw); Mahdi Ghodsi (The Vienna Institute for International Economic Studies, wiiw); Meryem Gökten (The Vienna Institute for International Economic Studies, wiiw); Richard Grieveson (The Vienna Institute for International Economic Studies, wiiw); Maciej Grodzicki; Ioannis Gutzianas (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Marcus How; Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Branimir Jovanović (The Vienna Institute for International Economic Studies, wiiw); Niko Korpar (The Vienna Institute for International Economic Studies, wiiw); Dzmitry Kruk; Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Benedetta Locatelli; Isilda Mara (The Vienna Institute for International Economic Studies, wiiw); Emilia Penkova-Pearson; Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Oliver Reiter (The Vienna Institute for International Economic Studies, wiiw); Sandor Richter (The Vienna Institute for International Economic Studies, wiiw); Marko Sošić; Bernd Christoph Ströhm (The Vienna Institute for International Economic Studies, wiiw); Maryna Tverdostup (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | The global economy is set to suffer from new US tariffs, which will remain above pre-2025 levels and drive trade disruptions, financial volatility, and a downgrade in euro area GDP this year. In CESEE, the tariffs and their spillover effects from the EU, especially Germany, will slow regional growth to 2.6% in 2025. Private consumption and investment continue to support growth, but exports will struggle amid the US-led trade war. Political instability, unresolved conflicts, and ongoing risks from the war in Ukraine—compounded by the potential for an unfavourable settlement or Ukrainian collapse—pose additional threats to CESEE’s economic outlook and regional security. |
| Keywords: | CESEE Central and Eastern Europe, economic forecast, Western Balkans, CIS, Ukraine, Russia, Turkey, EU, business cycle, economic sentiment, euro area, convergence, labour markets, unemployment, Russia-Ukraine war, commodity prices, inflation, price controls, trade disruptions, renewable energy, gas, electricity, monetary policy, fiscal policy, impact on Austria |
| JEL: | E20 E21 E22 E24 E32 E5 E62 F21 F31 H60 I18 J20 J30 O47 O52 O57 P24 P27 P33 P52 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:wii:fpaper:fc:spring2025 |
| By: | Angie Andrikogiannopoulou (King’s College London); Philipp Krueger (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; European Corporate Governance Institute (ECGI); University of Geneva - Geneva School of Economics and Management); Shema Frédéric Mitali (SKEMA Business School); Filippos Papakonstantinou (King’s College London) |
| Abstract: | We construct novel measures of mutual funds’ environmental, social, and governance (ESG) commitment by analyzing the discretionary investment-strategy descriptions of their prospectuses. We find that fund flows respond strongly to such text-based ESG measures. Using discrepancies between text- and fundamentals-based ESG measures, we identify greenwashing. We find that greenwashing is more prevalent since ESG issues have started attracting mainstream attention and among funds with lower past flows and weaker oversight. Furthermore, greenwashers attract similar flows but have worse performance than genuinely-green funds, suggesting that investors cannot distinguish them and suffer welfare losses. Our methodology could help regulators combat ESG-related misconduct. |
| Keywords: | ESG, Prospectus, Greenwashing, Text Analysis, Mutual Funds, Fund Flows, Fund Performance |
| JEL: | G11 G23 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2543 |