|
on European Economics |
|
Issue of 2025–09–08
ten papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Giovanni Carnazza; Francesco Tomasone |
| Abstract: | This paper offers new empirical insights into the relationship between the European fiscal framework and the cyclical stance of fiscal policy in EMU countries. By employing a Time-Varying Coefficient (TVC) model, we generate country- and year-specific measures of fiscal cyclicality from 1995 to 2019. We then quantify the evolving intensity of fiscal rules through a country- and year-specific composite index and assess its impact on fiscal cyclicality via panel regressions with multiple estimators, including a robust IV-GMM specification that addresses endogeneity concerns. This dual-framework strategy enables us to capture the distortion introduced by real-time revisions and identify a significant pro-cyclical bias in peripheral countries, which is largely masked when expost data are used. In other words, our findings reveal a marked asymmetry: while the effect of fiscal rules on cyclicality is neutral or mildly counter-cyclical in core countries, it is significantly pro-cyclical in peripheral ones when real-time data are considered. These results have important implications for the revised European fiscal framework, as the new indicator – net expenditure – continues to rely on cycle-sensitive variables and therefore risk perpetuating the same structural biases. Our analysis calls for a deeper reconsideration of the methodology used to estimate potential output in the EU. By demonstrating how the interaction between fiscal rules and real-time macroeconomic estimates can generate unintended policy outcomes, this study contributes to a more informed debate on the future of fiscal governance in the euro area. |
| Keywords: | Fiscal cyclicality, European fiscal framework, Output gap, NAWRU, Expost and real-time data, Time-Varying Coefficient models |
| JEL: | C33 E32 E62 F45 H62 |
| Date: | 2025–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:pie:dsedps:2025/324 |
| By: | Cima, Simone (Central Bank of Ireland and Department of Economics, Trinity College Dublin.); Moreno, Marco (Central Bank of Ireland and Department of Economics, Trinity College Dublin.) |
| Abstract: | We use new data on the distribution of wealth in the euro area and employ panel local projections to estimate the different impact of ECB monetary policy shocks on households across the wealth distribution. We look at how policy affects the value of their assets, the composition of their balance sheets, their investment decisions, and overall wealth inequality. We find that in response to a contractionary shock, poorer households display a substantial decline in their assets and in their overall net wealth. Conversely, the total wealth of the very richest is not significantly affected. This different response leads to a moderate increase in overall wealth inequality. We further perform a decomposition of asset movements caused by the shock, isolating the effect of revaluations and of household investment. We observe that the response of household wealth due to a monetary policy shock occurs primarily through revaluation effects. |
| Keywords: | Wealth Inequality, Monetary Policy, Distributional Wealth Accounts, Local Projections. |
| JEL: | D31 E44 E52 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:cbi:wpaper:6/rt/25 |
| By: | Greppmair, Stefan; Paludkiewicz, Karol; Steffen, Sascha |
| Abstract: | We show that central bank lending against lower quality collateral can improve conditions in the repo market. For identification we take advantage of a pandemic- related temporary extension of the collateral framework of the European Central Bank (ECB), which allows banks to pledge previously ineligible credit claims as collateral for refinancing operations. We use a difference-in-differences approach and exploit banks that do not mobilize credit claims ex ante as a control group. We find that banks affected by the temporary extension pledge newly eligible credit claims in order to reduce the encumbrance of high-quality marketable assets. Treated banks lend out these marketable assets as collateral in the repo market, which helps to alleviate asset scarcity. |
| Keywords: | asset scarcity, money markets, monetary policy, collateral framework |
| JEL: | E43 E44 E58 G21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:324664 |
| By: | Despina Gavresi; Anastasia Litina |
| Abstract: | In an era marked by repeated crises and the growing traction of populist movements, understanding the deep-rooted factors shaping EU cohesion has become increasingly urgent. This paper investigates how lifetime exposure to economic recessions influences individual attitudes toward the European Union (EU). Resorting to rich micro-data from the European Social Survey (ESS) and the Eurobarometer, we construct a detailed measure of economic hardship experienced during lifetime, capturing not just isolated downturns but the accumulated burden of multiple recessions over time. Importantly, we distinguish between various types of shocks-including output contractions, unemployment surges, consumption drops, participation in IMF adjustment programs, and the asymmetry or symmetry of crises across EU member states. We show that individuals with greater lifetime exposure to these economic shocks are more likely to distrust EU institutions, oppose further integration, vote for Eurosceptic parties, and support exiting the EU. These patterns are especially pronounced for asymmetric shocks, which disproportionately affect specific regions or countries, in contrast to symmetric shocks, which appear to foster a sense of shared fate and solidarity. A series of robustness tests-including placebo checks, heterogeneity analyses, diverse shock types and designs exploiting EU institutional structure -confirms the persistent impact of economic trauma on EU attitudes, underscoring the need to address historical recessions to safeguard cohesion and democratic legitimacy in the context of the EU. |
| Keywords: | recessions, european integration, EU cohesion, trust, EU institutions, euroscepticism |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12082 |
| By: | Bellifemine, Marco; Couturier, Adrien; Jamilov, Rustam |
| Abstract: | This paper develops a multi-country Heterogeneous-Agent New Keynesian (HANK) model of a monetary union with ex-ante heterogeneity in legacy public debt across member states. We calibrate the model to the euro area and show that, following symmetric aggregate shocks, the systematic monetary policy reaction induces heterogeneous national outcomes, driven by differences in fiscal space. This generates a trade-off between union-wide macroeconomic stabilization and cross-country synchronization of economic activity for the central bank. We characterize a possibility frontier between union-wide inflation stability and cross-country synchronization, which is traced out by varying the degree of the central bank's hawkishness towards inflation. We study the role of deficit caps, fiscal and political unions, and augmented Taylor rules as instruments to navigate the stabilization–synchronization trade-off. |
| Keywords: | fiscal space; fiscal union; heterogeneous agents; monetary union |
| JEL: | E52 F41 F42 |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128186 |
| By: | Vilerts, Kārlis; Anyfantaki, Sofia; Beᶇkovskis, Konstantīns; Bredl, Sebastian; Giovannini, Massimo; Horky, Florian Matthias; Kunzmann, Vanessa; Lalinský, Tibor; Lampousis, Athanasios; Lukmanova, Elizaveta; Petroulakis, Filippos; Zutis, Klāvs |
| Abstract: | Does the maturity of the relevant risk-free rate influence the strength of monetary policy pass-through to interest rates on new loans? To address this question, we present novel empirical evidence on lending practices across all euro area countries, using AnaCredit data covering nearly seven million new loans issued to non-financial corporations in 2022-2023. We document substantial variation in (a) the prevalence of fixed- vs floating-rate loans, (b) rate fixation periods, and (c) reference rates. This variation results in lending rates being exposed to different segments of the risk-free rate yield curve which, in turn, influence their sensitivity to monetary policy changes. We show that loans linked to shorter-maturity risk- free rates experience more pronounced monetary pass-through. Importantly, this effect is not purely mechanical, as part of the effect is offset by adjustments in the premium, revealing previously less-explored heterogeneity in the pass-through to lending rates. |
| Keywords: | Lending Rates, Interest Rate Pass-Through, Fixed-Rate Loans, Floating-RateLoans |
| JEL: | E52 E43 G21 E58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:324665 |
| By: | Maximiliano San Millán |
| Abstract: | We examine the cross-border effects of bank capital requirements using a two-country DSGE model with financial frictions, calibrated to match Euro Area banking flows. Regulation follows a host country principle, applying uniformly to all bank exposures within a country, regardless of the banks' nationality. We find that increasing capital requirements in one country leads to a short run credit contraction in interconnected countries. However, long run credit spillovers are negligible. Instead, we find positive long run welfare spillovers, primarily due to higher bank dividend payouts to foreign bank owners, rather than increased financial stability in the foreign country. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:chb:bcchwp:1046 |
| By: | Schmöller, Michaela; Goldfayn-Frank, Olga; Schmidt, Tobias |
| Abstract: | This paper provides novel empirical evidence on the impact of monetary policy on innovation investment using unique firm-level data. First, we document the ef- fect of a large, systematic monetary tightening (ECB rate increases from 0% to 4.5% during 2022-23), with average firm-level innovation cuts of 20%. These cuts persist over the medium term, indicating a sustained innovation slowdown. Second, we use the survey to identify elasticities of innovation expenditure to exogenous policy rate changes. Responses to hikes and cuts are significant and largely symmetric at the baseline rate (4.5%), though we detect potential state-dependent asymmetry due to the extensive margin. The financing channel emerges as one of the trans- mission channels, with more pronounced effects in firms with higher shares of bank loans and variable-rate loans. Crucially, we show that monetary policy transmits via aggregate demand, with stronger responses in firms with pessimistic demand expectations. Forward guidance provides substantial additional stimulus by re- ducing uncertainty about future rates, suggesting long-term, supply-side effects of announcements. These results challenge monetary long-run neutrality and are sug- gestive of policy endogeneity of R∗ operating through innovation-driven technology growth. |
| Keywords: | Monetary Policy Transmission, R&D, Endogenous Growth, ForwardGuidance, R∗ |
| JEL: | E52 E22 E24 O30 D22 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:324662 |
| By: | Andres Rodriguez-Pose; Lewis Dijkstra; Chiara Dorat |
| Abstract: | Over the past two decades, support for Eurosceptic parties has climbed from fringe to nearly one-third of voters. Promising renewed prosperity through less European integration, these partiesimplyEuroscepticismisa‘freelunch.’Drawingonanoriginalpanelof1, 166European NUTS-3 regions (2004-2023) and using fixed-, random-eNects, and diNerence-in-diNerences designs, we test how rising Euroscepticism connects with regional economic and demographic outcomes. We track GDP per capita, productivity, employment, and population growth. We find that a region 10 points more Eurosceptic than another could have ended up with GDP per capita roughly 5% lower than the less Eurosceptic region, as the negative economic influence of Euroscepticism compounds across cycles and intensified after the financial and austerity crises. The same applies for productivity and employment. Demographic impacts are smaller but point in the same direction. Even without governing, Eurosceptic support appears to deter investment and raise uncertainty, deepening the very stagnation that fuels discontent. There is no free lunch: political backlash against European integration carries a measurable costs for the regions that embrace it. |
| Keywords: | Euroscepticism; Economic development; Population growth; European integration; Political discontent; Regions; EU |
| JEL: | F15 D72 R11 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:egu:wpaper:2527 |
| By: | Caravaggio, Nicola; Resce, Giuliano; Santangelo, Agapito Emanuele |
| Abstract: | This paper investigates the impact of European Cohesion Funds on the digitalization of local governments in Italy, using the quality of municipal websites as a proxy for e-government capacity. Using web scraping techniques and a generalized Difference-in-Differences approach, the study examines whether municipalities that received targeted EU funding for digital networks and services experienced improvements in website technological sophistication. The results show that cohesion funds have contributed to the adoption of modern web standards, particularly HTML5, and to the simplification of website structure, indicating progress in the core aspects of digital infrastructure. These effects are especially pronounced in smaller municipalities and those located in the South and Inner Areas, suggesting that the cohesion policy can support digital convergence in structurally disadvantaged contexts. However, the absence of systematic improvements in broader dimensions of web interactivity points to the selective nature of these advancements. |
| Keywords: | Cohesion policy, Digitalization, Italian municipalities. |
| JEL: | H77 L86 O18 |
| Date: | 2025–09–02 |
| URL: | https://d.repec.org/n?u=RePEc:mol:ecsdps:esdp25100 |