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on European Economics |
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Issue of 2025–06–23
nineteen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | De Nora, Giorgia; Pereira, Ana; Pirovano, Mara; Stammwitz, Florian |
| Abstract: | We study the impact of cyclical systemic risks on banks’ profitability in the euro area within a panel quantile regression model, with the ultimate goal to inform the calibration of the Countercyclical Capital buffer (CCyB). Compared to previous studies, we augment our model to control for unobserved bank-specific characteristics and year-fixed effects and find a lower degree of heterogeneity in the estimated effects across the conditional distribution of bank returns on assets. We propose a simple yet intuitive framework to calibrate the CCyB through the cycle, including the socalled "positive neutral" rate. The model suggests a target positive neutral rate for the euro area ranging from 1.1% to 1.8%. Furthermore, the calibrated CCyB rates are consistent with the evolution of domestic cyclical systemic risks in the countries considered. The results further show that the adoption of a positive neutral CCyB approach allows for an earlier and more gradual build-up of the buffer, but does not lead to higher CCyB requirements at the peak of the cycle. Importantly, a positive neutral CCyB strategy would have implied that most euro area countries would have had a positive CCyB in place at the onset of the COVID-19 pandemic. JEL Classification: E52, G11, G23 |
| Keywords: | bank capital, local projection, macropudential policy, quantile regression, systemic risk |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253061 |
| By: | Adrián Fernandez-Perez (Michael Smurfit Graduate Business School, University College Dublin, Ireland.); Marta Gómez-Puig (Department of Economics and Riskcenter, Universitat de Barcelona, Spain.); Simón Sosvilla-Rivero (Complutense Institute for Economic Analysis, Universidad Complutense de Madrid, Spain.) |
| Abstract: | The sovereign debt crisis in the euro area revealed that European Monetary Union (EMU) government bond markets interact in a highly synchronised network and that risk particular to a country or sovereign bond yield component cannot be appropriately evaluated in isolation without taking potential risk transmission effects from other countries or sovereign bond yield components into consideration. Therefore, in clear contrast with the empirical evidence based on Granger-causality tests, the main contribution of the paper comes from the analysis of the transmission of credit and liquidity risk by examining a broad network of relations between the two risks in nine EMU sovereign debt markets from 2008 to 2018, explicitly examining the net pairwise connectedness among all the possible pairs formed from the 18 sovereign risk indicators. The results of this analysis indicate that, on average, risk transmission goes mostly from credit to liquidity risk (both within and across countries). This finding is crucial for policymakers because it indicates that rising credit risk is the primary driver of yield spread increases, and actions to strengthen the budgetary position of euro-area economies are essential. Finally, our results indicate that sovereign risk transmission is time-varying. Although both liquidity and credit risk were transmitted across countries during the Global Financial Crisis, we mainly observed the transmission of liquidity risk across them during the European sovereign debt crisis, suggesting that investors prefer sovereign debt that is easier to trade when market liquidity dries up. |
| Keywords: | Liquidity; Credit risk; EMU sovereign bonds; MTS bond market; Dynamic connectedness; Time-varying parameters. JEL classification: C22, C53, G12, G14, G15. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:ira:wpaper:202504 |
| By: | Bańbura, Marta; Bobeica, Elena; Giammaria, Alessandro; Porqueddu, Mario; van Spronsen, Josha |
| Abstract: | Energy inflation is a major source of headline inflation volatility and forecast errors, therefore it is critical to model it accurately. This paper introduces a novel suite of Bayesian VAR models for euro area HICP energy inflation, which adopts a granular, bottom-up approach – disaggregating energy into subcomponents, such as fuels, gas, and electricity. The suite incorporates key features for energy prices: stochastic volatility, outlier correction, high-frequency indicators, and pre-tax price modelling. These characteristics enhance both in-sample explanatory power and forecast accuracy. Compared to standard benchmarks and official projections, our BVARs achieve better forecasting performance, particularly beyond the very short term. The suite also captures a sizable variation in the impact of commodity price shocks, pointing to higher elasticities at higher levels of commodity prices. Beyond forecasting, our framework is also useful for scenario and sensitivity analysis as an effective tool to gauge risks, which is especially relevant amid ongoing energy market transformations. JEL Classification: C32, C53, E31, E37 |
| Keywords: | Bayesian VAR, gas prices, HICP, oil prices |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253062 |
| By: | Caldarola Bernardo (European Commission - JRC); Cresti Lorenzo; Mazzilli Dario; Napolitano Lorenzo (European Commission - JRC); Patelli Aurelio; Sbardella Angelica; Tacchella Andrea |
| Abstract: | This policy brief investigates the structural vulnerabilities and competitive dynamics of the EU27 automotive sector, with a focus on the complexity and the fragmentation of production processes across global value chains. The analysis integrates input-output tables to quantify the automotive sector's reliance on non-EU economic branches, alongside an economic complexity framework to assess the underlying productive capabilities of European countries in automotive-related industries. The findings indicate an increasing dependency on extra-EU suppliers, particularly China, for critical components such as lithium-ion batteries, which heightens supply chain risks. Currently, Eastern European countries-most notably Poland, Czechia, and Hungary-have enhanced their competitiveness in the production of automotive components, surpassing traditional leaders such as Germany. The policy brief offers new insights into the challenges posed by the ongoing electric mobility transition in the European Union, particularly in relation to electric accumulators. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc142111 |
| By: | Fabio C. Bagliano; Claudio Morana |
| Abstract: | The paper yields a structural account of economic integration in the Eurozone from its inception to post-pandemic developments by considering a broad range of convergence measures. We introduce a novel FAVAR framework, extracting the structural shocks driving the Eurozone business and financial cycles directly from the cyclical components they generate. Productivity advancements have been the critical trend convergence factor, shaping long swings in real, labor market, and financial dispersion. Subdued cost-push shocks were the key driver of Eurozone nominal and competitiveness convergence throughout 2015 but have become an all-rounded divergence force since then. Fiscal discipline imposed by the Stability and Growth Pact (SGP) increased real and financial divergence during all recessionary episodes, while the ECB expansionary monetary policy was a convergence factor. The SGP suspension during the recent pandemic recession and recovery has partially counteracted divergence pressures. Looking forward, convergence will crucially depend on how productivity dynamics and economic growth will fend off further unfavorable cost-push developments, which might become pervasive in a deglobalization-driven new macroeconomic regime. |
| Keywords: | real, nominal and financial convergence and divergence; Eurozone; economic integration; recessions; financial crises; subprime financial crisis; sovereign debt crisis; pandemic recession; FAVAR models. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:cca:wpaper:729 |
| By: | Konstantin Boss; Luigi Longo; Luca Onorante |
| Abstract: | Using a state-of-the-art large language model, we extract forward-looking and context-sensitive signals related to inflation and unemployment in the euro area from millions of Reddit submissions and comments. We develop daily indicators that incorporate, in addition to posts, the social interaction among users. Our empirical results show consistent gains in out-of-sample nowcasting accuracy relative to daily newspaper sentiment and financial variables, especially in unusual times such as the (post-)COVID-19 period. We conclude that the application of AI tools to the analysis of social media, specifically Reddit, provides useful signals about inflation and unemployment in Europe at daily frequency and constitutes a useful addition to the toolkit available to economic forecasters and nowcasters. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.10546 |
| By: | Rice, Jonathan; Guerrini, Giulia Maria |
| Abstract: | This paper examines how the ECB’s 2022–2023 interest-rate hikes affected euro-area banks’ economic net worth and vulnerability to deposit runs. Drawing on granular, confidential data for 139 banks, we estimate each bank’s economic net worth and find that unrealised losses on loans and bonds averaged around 30 per cent of equity. By September 2023, however, roughly half of these losses had been offset by gains from the deposit franchise and interest-rate swaps. We develop a theoretical framework linking banks’ economic net worth and deposit-rate setting to depositor behaviour and run incentives. Further results indicate that banks with larger unrealised losses raised their deposit rates by less - a pattern we interpret as banks leveraging a more valuable deposit franchise to fund longer-duration assets. Although euro-area banks as a whole avoided widespread runs, several institutions nonetheless carried substantial mark-to-market losses, suggesting latent fragilities. JEL Classification: G21, E43, E58, G28 |
| Keywords: | asset valuations, banking system, bank runs, euro area, interest rate risk, monetary policy |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:srk:srkwps:2025151 |
| By: | Pia Stoczek (Paderborn University); Alexander Liss (KU Leuven); Boaz Noiman (The Hebrew University of Jerusalem) |
| Abstract: | We examine risk-taking by lending syndicates as a response to central banks’ corporate quantitative easing (QE) targeting non-financial firms, specifically within the European Central Bank’s Corporate Sector Purchase Programme (CSPP). This setting allows us to investigate how syndicates adjust to decreased credit demand from CSPP-eligible borrowers in environments characterized by higher risk and lower returns. Our analysis reveals that these syndicates engage in “controlled” risk-taking by directing capital towards first-time and non-relationship borrowers, especially in the leveraged loan sector, while implementing mechanisms to manage increased risk. Our study explores controlled risk-taking across four dimensions. Firstly, we observe adjustments in loan contracting terms, such as stricter collateral requirements and cross-default clauses, coupled with reductions in loan sizes and maturities. Secondly, our findings indicate that syndicate size and the intensity of relationships within syndicates increase. Thirdly, we highlight the influence of the borrower country’s debt enforcement regime on lending decisions. Lastly, we report no significant changes in loan spreads. These results suggest that following corporate QE, syndicates actively utilize risk mitigation mechanisms, demonstrating a cautious approach to managing elevated risks rather than excessive risk-taking. |
| Keywords: | Loan contracting, Relationship lending, Unconventional monetary policy, Quantitative easing |
| JEL: | E52 E60 G12 G21 G28 G30 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:pdn:dispap:142 |
| By: | Casas, Pablo; Christou, Tryfonas; García Rodríguez, Abián; Lazarou, Nicholas Joseph; Salotti, Simone |
| Abstract: | This paper presents a macroeconomic impact assessment of the European Defence Fund (EDF) expenditure planned for the programming period 2021-2027. The analysis is carried out with the spatial dynamic computable general equilibrium model called RHOMOLO. According to this analysis, EDF investments can generate significant economic returns in terms of Gross Domestic Product (GDP) and employment. These economic benefits are long-lasting and are still significant ten years after the end of the programme, thanks to the productivity gains resulting from the R&D activities financed by the policy. Impact assessments such as the one presented here allow for continuous policy adjustment and ensure informed decision-making by evaluating potential economic outcomes, thereby increasing transparency and accountability to EU citizens and Member States. |
| Keywords: | European Defence Fund, Macroeconomic impact assessment, Research and development, innovation, General equilibrium modelling. |
| JEL: | C68 O30 R12 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125039 |
| By: | Mateusz Jankiewicz |
| Abstract: | The paper aims to show the analysis of dependencies between the three pillars of Sustainable Development (SD) across the European Union in terms of economy transformation. The provision of simultaneous development in environmental, social and economic dimensions is the crucial task for economies nowadays. Particularly, the highly pointed out negative relation between ecological and environmental development should be neutralised. The study is based on data characterising the European Union countries from 2015 to 2022. Firstly, the level of sustainability achievement in each individual dimension is assessed. For environmental and social sustainability the composite indicator measures are defined and calculated. Economic sustainability is assessed with the Gross Domestic Product per capita level. To detect the occurring connections between SD pillars, the spatial Vector Autoregressive (spVAR) model is estimated and verified. The spatial dependence is included in the system due to the occurrence of spatial autocorrelation in sustainability achievement across the EU. Moreover, to investigate potential effects of the economy modifications in the sustainability achievement, the variables characterising the servitisation and industrialisation levels are additionally employed. The main results show that there is still a negative link between environmental and economic development. Moreover, the supporting role of the progressing servitisation process in sustainability achievement in the environmental and economic dimensions is concluded. |
| Keywords: | economic transformation, spatial dependence, sustainable development, Vector Autoregressive model |
| JEL: | C51 O14 Q56 |
| Date: | 2025–06–01 |
| URL: | https://d.repec.org/n?u=RePEc:pie:dsedps:2025/323 |
| By: | Elisa Castagno; Mariacristina Rossi; Arthur van Soest |
| Abstract: | We investigate stated household preferences for socially responsible investments (SRI), focusing on the effect of saving regret and personality traits. We rely on data collected in a special ad hoc module of the SHARE dataset in 2019, covering the 50+ population in Belgium, Italy and Spain. We find that the latent interest in SR assets is substantial and much larger than actual ownership would suggest. Our results confirm earlier findings in the literature that highly-educated people and those living in urban areas are more interested in investing in SR assets than their counterparts. The interest in SR assets falls with risk aversion and is higher for those who regret that they did not save less in the past. It increases with opennessto new experiences and agreeableness, while it falls significantly with conscientiousness. |
| Keywords: | Personal Finance, ESG Investing, Saving Regret, Big Five |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:cca:wpaper:737 |
| By: | Rocchi Paola; Reynes Frederic; Hu Jinxue; Pedauga Luis (European Commission - JRC); Cai Mattia; Boonman Hettie; Rueda Jose Manuel (European Commission - JRC) |
| Abstract: | The FIDELIO (Fully Interregional Dynamic Econometric Long-term Input-Output) model is a flexible, multi-region, multi-sector, input-output model developed by the Joint Research Centre to assess socio-economic and environmental impacts of EU trade and industrial policies. It covers 45 countries, one rest-of-the-world region, 64 economic sectors and 64 products. Its modular structure allows integration of various economic behaviours and policy assumptions, bridging input-output, econometric, and general equilibrium approaches together. This report first provides an overview of FIDELIO and its key features (Section 2), then presents all model equations (Section 3) and the data used for calibration (Section 4). Finally, it details the econometric analysis carried out to estimate the coefficients of the consumption block (Section 5). |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc141957 |
| By: | Hei Kan Lou; Michael G Pollitt; David Robinson; Angel Vargas Arcos |
| Keywords: | Iberian Exception, energy crisis, gas price cap, electricity market |
| JEL: | L94 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:enp:wpaper:eprg2513 |
| By: | Tommaso Pardi (IDHES - Institutions et Dynamiques Historiques de l'Économie et de la Société - UP1 - Université Paris 1 Panthéon-Sorbonne - UP8 - Université Paris 8 Vincennes-Saint-Denis - UPN - Université Paris Nanterre - UEVE - Université d'Évry-Val-d'Essonne - CNRS - Centre National de la Recherche Scientifique - ENS Paris Saclay - Ecole Normale Supérieure Paris-Saclay, MSH Paris-Saclay - Maison des Sciences de l'Homme - Paris Saclay - UVSQ - Université de Versailles Saint-Quentin-en-Yvelines - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique - ENS Paris Saclay - Ecole Normale Supérieure Paris-Saclay, ENS Paris Saclay - Ecole Normale Supérieure Paris-Saclay); Marc Alochet (X - École polytechnique - IP Paris - Institut Polytechnique de Paris); Bernard Jullien (UB - Université de Bordeaux); Alexandra Kuyo (ENS Paris Saclay - Ecole Normale Supérieure Paris-Saclay) |
| Abstract: | A letter addressed ahead of the Strategic Dialogue on the Future of the European Automotive Industry by a consortium of French and Italian equipment manufacturers and their professional associations has demanded the introduction of local content requirements and incentives to fulfil this regulatory void and preserve the resilience of the European automotive supply chain against unfair Chinese competition.The Industrial Action Plan for the European automotive sector announced on the 5 th of March highlights the need to strengthen the "trade defence" toolbox and "to investigate unfair practices further up the supply chain, including in the batteries and parts segment when necessary" 5 . However, there are no references to local content requirements or incentives, at least for the auto parts' sector.Against this background, the present reports focuses on two questions:-Why is it necessary to implement now a comprehensive local content policy (LCP) for the automotive sector? -What type of policy mix should Europe implement to introduce rapidly and efficiently local content requirements for automotive production? Kratz, Piper, and Bouchaud, 'China and the Future of Global Supply Chains'. |
| Keywords: | China, automotive industry, European Union, protectionism, local content, competition |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05076860 |
| By: | Sultan, Samina; Förster, Henrik |
| Abstract: | Im Zollstreit mit den USA erwägt die EU Gegenmaßnahmen auch im Dienstleistungshandel - etwa Digitalsteuern auf US-Unternehmen. Der handelspolitische Nutzen von Digitalsteuern muss allerdings genau abgewogen werden. Denn soweit es keine adäquaten europäischen Alternativen gibt, dürften dadurch auch die Kosten für europäische Nutzer steigen. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iwkkur:318327 |
| By: | Burstedde, Alexander; Orange, Fritz |
| Abstract: | Im Zollstreit mit den USA erwägt die EU Gegenmaßnahmen auch im Dienstleistungshandel - etwa Digitalsteuern auf US-Unternehmen. Der handelspolitische Nutzen von Digitalsteuern muss allerdings genau abgewogen werden. Denn soweit es keine adäquaten europäischen Alternativen gibt, dürften dadurch auch die Kosten für europäische Nutzer steigen. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iwkkur:318328 |
| By: | Compano Ramon (European Commission - JRC) |
| Abstract: | This report provides an analysis of the current financial and techno-economic landscape in Europe, with a specific focus on the role of public organizations investing in innovative companies. While theprimary focus is on equity-based instruments, the report addresses the interplay between equityfinancing and complementary financial instruments, as well as factual challenges to put them intopractice. It contributes to the understanding of Europeâs complex funding landscape, particularlyfrom the angle of public funding bodies. It examines the mandate and activities of governmentalventure capital organizations within the broader venture capital ecosystem. Drawing on empiricalevidence, the report highlights key challenges faced by Governmental Venture Capital (GovVC)initiatives and explores potential avenues for improvement. The report is sustained by the outcomesof a workshop held in Seville that brought together experts and practitioners who share experiencesand best practices on government-backed initiatives. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc140763 |
| By: | Heckenhahn, Jonas |
| Abstract: | As climate change intensifies, societies face more frequent and severe heatwaves, while cold episodes also continue to occur. This study investigates how heat and cold anomalies and extremes influence EU citizens' support for national climate adaptation policies-both relative to mitigation measures and in absolute terms. To address these questions, this study links large-scale cross-sectional preference data from the 2024 European Investment Bank Climate Survey with high-resolution ERA5 climate data. The analyses reveal that experiencing extreme heat and positive temperature anomalies significantly increases adaptation support, especially in relative terms, aligning with the construal matching premise rooted in the psychological distance framework. In contrast, cold exposure reduces absolute adaptation support and increases people's relative mitigation focus. Overall, these findings underscore the role of temperature experiences in shaping climate policy preferences and, as extreme weather worsens globally, highlight the need for targeted climate communication that balances immediate adaptation needs with essential long-term mitigation targets. |
| Abstract: | Mit der Zunahme des Klimawandels sehen sich Gesellschaften immer häufigeren und intensiveren Hitzewellen ausgesetzt, während auch Kälteperioden weiterhin auftreten. Diese Studie untersucht, wie Temperaturanomalien sowie extreme Hitze- und Kälteereignisse die Unterstützung von EU-Bürgerinnen und -Bürgern für nationale Klimaanpassungspolitiken beeinflussen - sowohl im Vergleich zu Maßnahmen zur Emissionsminderung als auch in absoluter Hinsicht. Zur Beantwortung dieser Fragen verknüpft die Studie umfangreiche Querschnittsdaten aus der Klimaumfrage 2024 der Europäischen Investitionsbank mit hochaufgelösten ERA5-Klimadaten. Die Analysen zeigen, dass das Erleben extremer Hitze und positiver Temperaturabweichungen die Unterstützung für Anpassungsmaßnahmen signifikant erhöht, insbesondere relativ zur Emissionsminderung, was mit dem "Construal-Matching"-Ansatz, der auf der Theorie der psychologischen Distanz basiert, übereinstimmt. Im Gegensatz dazu verringern Kälteerfahrungen die absolute Unterstützung für Anpassung und erhöhen den relativen Fokus auf Emissionsminderung. Insgesamt unterstreichen diese Ergebnisse die Bedeutung von Temperaturerfahrungen bei der Ausprägung klimapolitischer Präferenzen und - angesichts der zunehmenden Extremwetterereignisse weltweit - die Notwendigkeit gezielter Klimakommunikation, die kurzfristige Anpassungserfordernisse mit langfristigen Minderungszielen in Einklang bringt. |
| Keywords: | Climate change, heatwaves, cold extremes, climate adaptation, climate change mitigation, climate policy preferences |
| JEL: | Q54 Q58 D72 D91 R11 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:rwirep:319074 |
| By: | Brizuela Agustina; Combetto Marco; Kotoglou Stefanos; Galasso Giovanna; Martin Jaume; Polli Giovanni; Tangi Luca (European Commission - JRC) |
| Abstract: | This report provides a broad description of the adoption of generative AI (or GenAI) within the European public sector. It focuses on (i) guidelines and policies adopted within administrations to regulate the use of this emerging technology; and (ii) the multiple applications and use cases found in the Public Sector Tech Watch observatory. The public sector is quickly adopting GenAI solutions, but administrations are facing daily challenges related to implementation processes and effective public-private collaborations. Administrations are also facing other challenges in their regulatory efforts , primarily centred around human oversight; accountability; the importance of data protection; and governance, safety, fairness and transparency. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc142033 |