|
on European Economics |
|
Issue of 2025–10–27
thirteen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Ugo Albertazzi; Lorenzo Burlon; Tomas Jankauskas; Nicola Pavanini |
| Abstract: | After the Great Financial Crisis, the European Central Bank (ECB) extended its monetary policy toolbox to include the use of long-term loans to banks at interest rates close to zero or even negative. These central bank interventions were aimed at supporting the transmission of expansionary monetary policy and likely played a crucial role in bolstering the financial stability of the euro area, namely by reducing the chance of bank runs. However, quantitative evidence on the effects of these interventions on financial stability remains scant. In this post, we quantify the effectiveness of central bank lending programs in supporting financial stability through the lens of a novel structural model discussed in this paper. |
| Keywords: | central bank policies; bank runs; Imperfect Competition; structural estimation |
| JEL: | E44 E52 E58 G01 G21 L13 |
| Date: | 2025–10–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:101970 |
| By: | Pelizzon, Loriana; Mattiello, Riccardo; Schlegel, Jonas |
| Abstract: | This paper examines the rise of non-bank financial intermediaries (NBFIs) and its implications for financial stability and monetary policy transmission in the Euro Area and the United States. While the U.S. financial system has long been market-based, the Euro Area has experienced a striking expansion of NBFIs, which now account for a larger share of GDP than in the U.S. While the sector has grown significantly, much of its capital is intermediated and allocated outside the EU, reflecting missed opportunities for domestic capital market development. We argue that this pattern is a consequence of limited growth opportunities within Europe, weak financial market infrastructure, and the absence of key institutional enablers such as a sizable capital market and securitization frameworks. We further examine how NBFIs pose supervisory challenges due to geographic concentration, influence money market dynamics, and interact with monetary policy transmission. The paper concludes with policy recommendations to unlock the sector's potential - including reforms to deepen European capital markets, a unified supervisory mechanism and consideration of extending some central bank facilities to NBFIs. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewp:330175 |
| By: | Becker, Peter; Kempin, Ronja |
| Abstract: | The member states of the European Union are once again arguing about money. More specifically, they are arguing about how much they want to spend on defence, where this money should come from and whether they should spend it jointly. That Europe needs to defend itself better is not in dispute in Brussels or the national capitals. However, despite many discussions, summit decisions, documents and initiatives, it is still unclear what goals the EU should pursue or how it should spend money to improve European defence capabilities. In addition to fresh funding, what is needed above all is agreement on shared European objectives. This would enable the continuation and strengthening of military support for Ukraine, the creation of a single market for armaments and services and the financing of these from the EU budget. |
| Keywords: | European Defence Industry Programme (EDIP), Europe's defence capabilities, military support for Ukraine, single market for armaments, US President Donald Trump, NATO, US Secretary of Defence Pete Hegseth |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:swpcom:329906 |
| By: | Olegs Tkacevs (Latvijas Banka); Karsten Staehr (Eesti Pank) |
| Abstract: | This paper examines the effects of macroeconomic and budget balance shocks on public debt trajectories in the euro area. Country-specific SVAR models are used to identify various shocks, which are subsequently incorporated into local projection models that use panel data to estimate the impulse responses. The analysis indicates that a positive GDP shock leads to a persistent decline in the debt-to-GDP ratio, while a positive GDP deflator shock reduces the debt ratio only temporarily. A positive interest rate shock results in a substantial and lasting increase in the debt ratio. A positive primary balance shock, reflecting discretionary austerity, lowers the debt ratio considerably, albeit with a lag of around one year. We find evidence of statedependent and non-linear effects. Fiscal austerity is more effective in reducing debt after periods of economic expansion than after recessions, and more effective when the initial public debt is low than when it is high. Moreover, a positive GDP shock reduces the debt stock to a larger extent when the debt stock is large than when it is low. Finally, the response of debt to a positive budget balance shock is more persistent and statistically significant when the shock is large. |
| Keywords: | public debt; fiscal policy; macroeconomic shocks; euro area |
| JEL: | H6 H63 E62 |
| Date: | 2025–10–14 |
| URL: | https://d.repec.org/n?u=RePEc:ltv:wpaper:202508 |
| By: | Tanweer Akram; Khawaja Mamun |
| Abstract: | This paper examines the dynamics of euro-denominated (EUR) long-term interest rate swap yields. It shows that the short-term interest rate has an economically and statistically significant effect on EUR swap yields of different maturity tenors, after controlling for various key macroeconomic variables. It presents several autoregressive distributive lag (ARDL) models of the dynamics of EUR swap yields. The estimated econometric models of EUR swap yields of different maturity tenors imply that the European Central Bank (ECB) exerts substantial influence on interest rate swap yields, primarily through the effect of its actions on the current short-term interest rate. Examining the case of EUR interest rate swaps, the findings of the paper lend additional credence to John Maynard Keynes's hypothesis concerning the ability of a central bank to influence long-term market interest rates. |
| Keywords: | Euro Swaps; Interest Rate Swaps; Short-Term Interest Rate; Monetary Policy; European Central Bank (ECB); Autoregressive Distributed Lag (ARDL) |
| JEL: | E43 E50 E60 G10 G12 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1051 |
| By: | Tanweer Akram; Khawaja Mamun |
| Abstract: | This paper models the month-over-month change in euro-denominated (EUR) long-term interest rate swap yields. It shows that the change in the short-term interest rate has an economically and statistically significant effect on the change in EUR swap yields of different maturity tenors, after controlling for various macroeconomic and financial variables, such as the month-over-month change in inflation or core inflation and the growth of industrial production, and the percentage change in the equity price index, the exchange rate, and the size of the European Central Bank's (ECB) balance sheet. It uses a generalized autoregressive conditional heteroskedasticity (GARCH) approach to model the dynamics of the monthly change in EUR swap yields and their volatility. The results of the estimated models of EUR swap yields of different maturity tenors extend the Keynesian view that the central bank's monetary policy actions have a decisive influence on long-term government bond yields and long-term market interest rates, primarily through their effects on the current short-term interest rate. |
| Keywords: | Euro Swaps; Interest Rate Swaps; Short-Term Interest Rate; Monetary Policy; European Central Bank (ECB); Generalized Autoregressive Conditional Heteroskedasticity (GARCH) |
| JEL: | E43 E50 E60 G10 G12 |
| Date: | 2023–12 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1034 |
| By: | Rodríguez-Pose, Andrés |
| Abstract: | This paper outlines a renewed vision for the EU’s Cohesion Policy amid the growing political uncertainty threatening its very viability. Drawing on the High-Level Group on the Future of Cohesion Policy’s findings, it advocates for a more dynamic, systemic approach emphasising institutional capacity, territorial sensitivity, global links, and performance-based delivery. These are areas where past reforms have underdelivered. It warns against marginalising cohesion in favour of top-down, centralised strategies, arguing it is more than a funding tool. Cohesion Policy is the EU’s most democratic mechanism, fostering trust, participation, and unity. Revitalising it is essential for competitiveness, resilience, and the very future of Europe. |
| Keywords: | EU Cohesion Policy; regional development; policy reform; EU enlargement |
| JEL: | R58 R11 O18 D72 |
| Date: | 2025–10–02 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:129229 |
| By: | Jochen Hartwig (Department of Economics and Business Administration, Chemnitz University of Technology, Germany, KOF Swiss Economic Institute, ETH Zurich, Zurich, Switzerland, Hans Böckler Stiftung, Forum for Macroeconomics and Macroeconomic Policies, Düsseldorf, Germany); Sascha Keil (Department of Economics and Business Administration, Chemnitz University of Technology, Germany) |
| Abstract: | This paper examines the role of inventories in macroeconomic fluctuations across 29 European countries from 1999 to 2023, covering three major recessions. Using a novel panel dataset and dynamic panel-econometric methods, we analyse short- and long-run inventory behaviour. Results confirm the broadly pro-cyclical nature of inventories but reveal a more complex dynamic: inventories are initially depleted in response to demand shocks, followed by restocking and, in some cases, systematic correction after four quarters. During the Great Recession and Eurozone crisis, inventory depletion accounted for up to 80% of GDP losses, underscoring their amplifying role. In contrast, the COVID-19 recession featured limited de-stocking and earlier restocking, suggesting a structural shift in inventory strategies. These findings highlight inventories' dual role - as amplifiers or stabilizers - depending on the timing and nature of shocks, and call for greater attention to inventory dynamics in forecasting and policy design. |
| Keywords: | Inventory investment, Production, Business cycles, Recessions in Europe |
| JEL: | E22 E32 O52 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:tch:wpaper:cep066 |
| By: | Busch, Berthold; Kauder, Björn; Sultan, Samina |
| Abstract: | Die Europäische Kommission hat für den nächsten Mehrjährigen Finanzrahmen (MFR), der den Zeitraum von 2028 bis 2034 umfasst, ein Ausgabenvolumen von 1.985 Milliarden Euro vorgeschlagen. Damit sollen im Wesentlichen drei Ausgabekategorien finanziert werden: Ein europäischer Fonds, der für jeden Mitgliedstaat einen nationalen und regionalen Partnerschaftsplan vorsieht, in dem unter anderem die Ausgaben für die Agrar- und Kohäsionsmittel geplant werden. Dieser Fonds soll außerdem den Schuldendienst für die Kredite im Rahmen von Next Generation EU (NGEU) leisten. Mit den Mitteln eines zweiten Fonds soll die Wettbewerbsfähigkeit Europas gefördert werden. Ein dritter Fonds bündelt das externe finanzielle Engagement der Europäischen Union (EU) in allen Teilen der Welt. Zur Finanzierung des Haushalts schlägt die Kommission neben den bestehenden vier Eigenmitteln fünf neue Einnahmearten vor: Einnahmen aus dem Emissionshandel, aus dem CO2-Grenzausgleichsmechanismus und aus einem Anteil am nationalen Tabaksteueraufkommen. Des Weiteren soll eine Abgabe erhoben werden, die sich an der Menge des nicht eingesammelten Elektroschrotts orientiert sowie eine Abgabe von Unternehmen, deren Umsatz 100 Millionen Euro überschreitet. Eine Prüfung der neuen Eigenmittelquellen zeigt, dass sie nur sehr bedingt für die Finanzierung der EU geeignet sind. Sinnvoller wäre es, die Einnahmen im EU-Haushalt auf zwei Quellen zu stützen. Das sind zum einen die sogenannten traditionellen Eigenmittel, also die Zolleinahmen der EU, und zum anderen Eigenmittel, die sich am jeweiligen Bruttonationaleinkommen (BNE) der Mitgliedstaaten bemessen. Die Kommissionsvorschläge sehen zudem vor, einen außerordentlichen Krisenmechanismus sowie ein weiteres Verschuldungsinstrument namens Catalyst Europe einzurichten. Eine weitere umfangreiche Schuldenaufnahme durch die EU würde jedoch der Glaubwürdigkeit schaden, weil das Versprechen gebrochen würde, dass die Kreditaufnahme zur Finanzierung der Programme im Rahmen von NGEU eine einmalige Ausnahme ist. |
| Keywords: | EU-Haushalt, EU-Staaten |
| JEL: | H20 H50 H60 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iwkrep:329628 |
| By: | Oscar Claveria (AQR-IREA, University of Barcelona); Mihály Tamas Borsi (Universitat Ramon Llull) |
| Abstract: | This paper examines trade relations between China and the European Union from 2000 to 2022, focusing on the role of trade policy uncertainty alongside key economic and institutional factors. Using an extended gravity model, the results show that China’s economic growth is a dominant driver of trade flows. The study introduces a novel proxy for China’s trade policy uncertainty, finding that it significantly influences bilateral trade. Results are robust to different specifications. Additionally, the results indicate that while non-eurozone EU countries demonstrate higher trade flows with China, the immediate impact of China’s Belt and Road Initiative on EU trade remains limited. Given the anticipatory nature of trade policy uncertainty and its relationship with economic growth, the findings highlight the usefulness of trade uncertainty indicators as tools for the early detection of shifts in trade patterns, offering valuable insights for policymakers to design strategies that promote greater stability and economic integration |
| Keywords: | international trade; economic growth; uncertainty; China; European Union; gravity model JEL classification:C33; F13; F14; O24 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:aqr:wpaper:202506 |
| By: | Paglialunga, Elena; Resce, Giuliano; Zanoni, Angela |
| Abstract: | This paper predicts regional unemployment in the European Union by applying machine learning techniques to a dataset covering 198 NUTS-2 regions, 2000 to 2019. Tree-based models substantially outperform traditional regression approaches for this task, while accommodating reinforcement effects and spatial spillovers as determinants of regional labor market outcomes. Inflation—particularly energy-related—emerges as a critical predictor, highlighting vulnerabilities to energy shocks and green transition policies. Environmental policy stringency and eco-innovation capacity also prove significant. Our findings demonstrate the potential of machine learning to support proactive, place-sensitive interventions, aiming to predict and mitigate the uneven socioeconomic impacts of structural change across regions. |
| Keywords: | Regional unemployment; Inflation; Environmental policy; Spatial spillovers; Machine learning. |
| JEL: | E24 J64 Q52 R23 |
| Date: | 2025–10–15 |
| URL: | https://d.repec.org/n?u=RePEc:mol:ecsdps:esdp25101 |
| By: | Petrakis, Nikolaos |
| Abstract: | In early 2010, Greece's financial condition was unsustainable, necessitating the implementation of ambitious economic adjustment programs. The fiscal austerity measures launched by the Greek government in agreement with its official creditors ( IMF, ECB and European member states) led to a rather deep recession as GDP dropped by 25% and unemployment peaked at 25%. Households' income, corporations’ profit, as well as their debt-paying ability decreased significantly leading to a huge amount of non-performing loans (NPLs). This paper provides a complete analysis of the measures introduced by the Greek government to stabilize Greek banks and reduce NPLs ratio at single digits. |
| Keywords: | non-performing loans, securitizations, Hellenic Asset Protection Scheme |
| JEL: | G21 |
| Date: | 2025–08–28 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126290 |
| By: | Esteban Garcia-Miralles (Banco de Espana); Maximilian Freier (European Central Bank); Sara Riscado (OECD); Chrysa Leventi (European Commission); Alberto Mazzon (European Commission); Glenn Abela (Central Bank of Malta); Laura Boyd (Central Bank of Ireland); Baiba Brusbarde (Latvijas Banka); Marion Cochard (Banque de France); David Cornille (National Bank of Belgium); Emanuele Dicarlo (Banca d’Italia); Ian Debattista (5Central Bank of Malta); Mar Delgado-Tellez (Banco de Espana); Mathias Dolls (ifo Institute); Ludmila Fadejeva (Latvijas Banka); Maria Flevotomou (Bank of Greece); Florian Henne (Banque centrale du Luxembourg); Alena Harrer-Bachleitner (Office of the Austrian Fiscal Council); Viktor Jaszberenyi-Kiraly (Magyar Nemzeti Bank); Max Lay (ifo Institute); Laura Lehtonen (De Nederlandsche Bank); Mauro Mastrogiacomo (De Nederlandsche Bank); Tara McIndoe-Calder (Central Bank of Ireland); Mathias Moser (Oesterreichische Nationalbank); Martin Nevicky (National Bank of Slovakia); Andreas Peichl (ifo Institute); Myroslav Pidkuyko (Banco de Espana); Mojca Roter (Banka Slovenije); Frederique Savignac (Banque de France); Andreja Strojan Kastelec (Banka Slovenije); Vaidotas Tuzikas (Lietuvos bankas); Nikos Ventouris (Bank of Greece); Lara Wemans (Banco de Portugal) |
| Abstract: | This paper presents a comprehensive characterization of "fiscal drag" - the increase in tax revenue that occurs when nominal tax bases grow but nominal parameters of progressive tax legislation are not updated accordingly - across 21 European countries using a microsimulation approach. First, we estimate tax-to-base elasticities, showing that the progressivity built in each country's personal income tax system induces elasticities around 1.7-2 for many countries, indicating a potential for large fiscal drag effects. We unpack these elasticities to show stark heterogeneity in their underlying mechanisms (tax brackets or tax deductions and credits), across income sources (labor, capital, self-employment, public benefits), and across the individual income distribution. Second, we extend the analysis beyond these elasticities to study fiscal drag in practice between 2019 and 2023, incorporating observed income growth and legislative changes. We quantify the actual impact of fiscal drag and the extent to which government policies have offset it, either through indexation or other reforms. Our results provide new insights into the fiscal and distributional effects of fiscal drag in Europe, as well as useful statistics for modeling public finances. |
| Keywords: | personal income tax, inflation, indexation, bracket creep |
| JEL: | D31 H24 E62 |
| Date: | 2025–10–14 |
| URL: | https://d.repec.org/n?u=RePEc:ltv:wpaper:202507 |