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on European Economics |
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Issue of 2025–11–03
sixteen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Joseph Kopecky (Department of Economics, Trinity College Dublin) |
| Abstract: | Has the euro improved trade evenly across member states? This paper revisits the impact of the euro on trade, focusing on systematic heterogeneity between core and peripheral members. I develop a stylized conceptual framework showing that while the elimination of exchange-rate volatility should raise trade for all European Monetary Union (EMU) members, other forms of price convergence may generate asymmetric effects. Using bilateral trade data from 1960–2018, I estimate a gravity model with Poisson pseudo maximum likelihood (PPML) and apply a doubly robust inverse-propensity score weighting estimator. The results show that the average EMU effect masks substantial heterogeneity across member states. On average, euro membership increases trade by about 6%, with stronger gains, around 12%-for core country exports (to both core and periphery destinations) and within periphery exports. However, trade flows from the periphery to core members decline by an estimated 7%. |
| Keywords: | Euro; Currency unions; Trade; Gravity |
| JEL: | F10 F13 F45 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:tcd:tcduee:tep1625 |
| By: | Diana Barro (Ca’ Foscari University of Venice); Antonella Basso (Ca’ Foscari University of Venice); Marco Corazza (Ca’ Foscari University of Venice); Guglielmo Alessandro Visentin (Henley Business School, University of Reading) |
| Abstract: | We propose a hybrid approach that combines Neural Networks with a Vector Autoregression (VAR) model to generate long-term forecasts of time series. We apply this methodology to forecast the impact of shifts in monetary policies within the Euro area on a comprehensive set of macroeconomic variables. Our analysis begins with a standard (linear) VAR model, which is then enhanced by incorporating Neural Networks to generate long-term forecasts for key variables such as the interest rate, inflation, real output, narrow money, exchange rate, and corporate bond spread. The results suggest that a Neural Network-VAR model offers improvements over the traditional linear VAR for forecasting certain macroeconomic variables in the long run. However, due to the limited sample size, the nonlinear model does not consistently outperform the linear VAR. |
| Keywords: | Forecasting; VAR; Neural Networks; Monetary policies; Euro area |
| JEL: | C32 C45 C53 E52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ven:wpaper:2025:24 |
| By: | Pablo CASAS (European Commission); Tryfonas CHRISTOU (European Commission); Valeria FERREIRA (European Commission); Abián GARCIA RODRIGUEZ (European Commission); Nicholas LAZAROU (European Commission); Luis PEDAUGA (European Commission); José Manuel RUEDA-CANTUCHE (European Commission); Hannah BERNARD (European Commission); Roberto VOLPE (European Commission); Daniel NEICU (European Commission); Simone SALOTTI (European Commission) |
| Abstract: | This paper presents a macroeconomic evaluation of the impact of the Horizon Europe Framework Programme for Research and Innovation, for which projects have been signed between 2021 and 1 July 2024, using the general equilibrium models RHOMOLO (Regional Holistic Model) and FIDELIO (Fully Interregional Dynamic Econometric Long-term Input-Output). The RHOMOLO model simulations suggest that the GDP gains in 2024 for the European Union would be up to 0.10% compared to GDP in 2020. The GDP gains are also expected to be significant in the medium term, with a cumulative GDP multiplier of more than 4, ten years after the end of the injection. The impact then gradually diminishes due to the obsolescence of the new knowledge and innovations generated by the policy intervention. The model results also show significant interregional spillovers in some, but not all, countries of the European Union. The FIDELIO model is used to disaggregate the impact of Horizon Europe funds on EU R&D expenditure and by sector, complementing the analysis of the RHOMOLO model. The results indicate that the positive effects on innovation gains, with business investment contributing to substantial GDP gains after the four-year intervention period, are mainly directed towards business R&D in manufacturing. Within manufacturing, the most important sub-sectors are the manufacture of machinery and equipment; computer, electronic and optical products; motor vehicles, trailers and semi-trailers; and fabricated metal products. |
| Keywords: | Research and Innovation funding, impact assessment, econometric methods, spillover effects, mediation analysis, policy evaluation |
| JEL: | O32 O38 C18 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:eug:wpaper:ki-01-25-112-en-n |
| By: | Gallegos, José-Elías; García-Miralles, Esteban; Kataryniuk, Ivan; Parraga Rodriguez, Susana |
| Abstract: | This paper studies the effects of fiscal policy announcements on household expectations. We document announcements of price-related expansionary fiscal measures in response to the cost-of-living crisis in the four largest euro area economies and exploit the exogenous timing of fiscal actions relative to household survey participation to estimate their causal effects. Following fiscal announcements, households revise their beliefs: inflation perceptions rise, and unemployment perceptions fall. The latter effect persists into short-run unemployment expectations, while inflation expectations remain unchanged and suggest households perceived inflationary pressures as temporary. These results suggest a significant signaling channel of fiscal policy, as fiscal announcements reveal information about the underlying economic conditions and the government’s commitment to stabilization. We rationalize these findings through a general equilibrium New Keynesian model extended with information frictions and an inflation-stabilizing role for fiscal policy. The model isolates the informational content of fiscal policy and shows that belief revisions are consistent with demand-driven dynamics. JEL Classification: D12, D83, D84, E3, E62 |
| Keywords: | euro area, fiscal stabilization policies, household expectations, inflation expectations, macroeconomic uncertainty |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253139 |
| By: | Alessio MITRA (European Commission, Directorate-General for Research and Innovation); Erik CANTON (European Commission, Directorate-General for Research and Innovation); Julien RAVET (European Commission, Directorate-General for Research and Innovation); Jan-Tjibbe STEEMAN (European Commission, Directorate-General for Research and Innovation) |
| Abstract: | Since 1984, the European Union (EU) invests in research and innovation (R&I) through the EU Framework Programmes (FP). This study sheds light on the added value of these long-term investments. To do so, the paper reviews the historical evolution of the FPs, presents the economic rationales for public financing of R&I, and explains the advantages of performing such efforts at the EU level beyond the actions of individual Member States. The study supports its claims with empirical evidence showing how EU R&I funding has boosted economic growth, created jobs, and advanced research and innovation in the EU. Furthermore, a set of case studies on FP success stories are showcased. |
| Keywords: | European Framework Programme, R&I funding, EU added value, public investment, research policy, innovation, economic impact |
| JEL: | O32 O38 C18 |
| Date: | 2024–02 |
| URL: | https://d.repec.org/n?u=RePEc:eug:wpaper:ki-bd-24-003-en-n |
| By: | Bredl, Sebastian |
| Abstract: | The present paper utilizes AnaCredit loan-level data to examine the impact of regional loan market structure on lending rates. The analysis focuses on newly issued loans to small non-financial corporations in the euro area during the monetary policy tightening phase of 2022 and 2023. The findings suggest that banks tend to charge higher lending rates when they possess larger regional market shares. This outcome is driven by differences between banks rather than by individual banks adjusting their lending rates to regional market conditions. Overall, there is no strong evidence that market power conveyed by higher regional market concentration impeded the transmission of the monetary policy tightening to lending rates. If anything, there are indications that this type of market power may hinder the short-term pass-through of the unexpected component of monetary policy. |
| Keywords: | Lending rates, pass-through, loan market concentration |
| JEL: | D40 E43 G21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:330309 |
| By: | Benoit, Florence (European Commission, Directorate-General for Research and Innovation); Karvounaraki, Athina (European Commission, Directorate-General for Research and Innovation); Stevenson, Alexis (European Commission, Directorate-General for Research and Innovation); Ravet, Julien (European Commission, Directorate-General for Research and Innovation) |
| Abstract: | Research and Development (R&D) investment is essential for maintaining the European Union (EU)’s economic growth, enhancing global competitiveness, and securing long-term prosperity. This policy brief aims to offer a deeper understanding of how R&D investments are structured, financed, and leveraged to enhance Europe’s long-term prosperity. It provides a comprehensive overview of the current R&D investment landscape in the EU, highlighting key trends and challenges, as well as the role of both public and private R&D funding in driving innovation. Additionally, the brief explores the EU’s progress toward its 3% R&D investment target, alongside key recommendations from the Draghi and Heitor reports on the future EU budget for Research and Innovation. |
| Keywords: | R&D investment, EU economic growth, global competitiveness, long-term prosperity, innovation, public R&D funding, private R&D funding, 3% R&D target |
| JEL: | O32 O52 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:eug:wpaper:ki-01-25-091-en-n |
| By: | Jan-Tjibbe STEEMAN (European Commission, Directorate-General for Research and Innovation); Océane PEIFFER-SMADJA (European Commission, Directorate-General for Research and Innovation); Julien RAVET (European Commission, Directorate-General for Research and Innovation) |
| Abstract: | Research and innovation (R&I) are essential for countries’ competitiveness, prosperity, and societal resilience. Therefore, governments around the globe have established extensive R&I programmes to enhance R&I funding. This paper compares public R&I funding across the EU, US, and China - the world's largest R&I spenders – over recent years and identifies five key findings and their policy implications for the EU. First, all three economies have implemented strong R&I policies to boost investments in strategic areas, maintaining global leadership and safeguarding national interests, urging the EU to keep pursuing a strategic and balanced approach in line with 'promoting, protecting and partnering’. Second, China and the US have surpassed the EU in leveraging public R&D investments into private sector funding, suggesting the EU should reflect on its economic structure and focus more on disruptive innovations and advanced technologies. Third, EU public R&D funding is fragmented, indicating a need for better coordination, simplification, and potential consolidation. Fourth, despite relying more on public funding, the EU allocates less in absolute amounts to public R&D compared to the US, and EU’s Framework Programme (EU FP) budgets lag behind those of the US and Chinese counterparts, emphasising the need for EU R&D budget prioritisation. Fifth, R&D funding distribution varies: the EU emphasises research efforts, while the US and China invest more on later R&D stages, prompting policy reflections on aligning means with objectives. |
| Keywords: | Research and Innovation funding, impact assessment, econometric methods, spillover effects, mediation analysis, policy evaluation |
| JEL: | O32 O38 C18 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:eug:wpaper:ki-01-25-090-en-n |
| By: | Colombo, Massimo G.; Füner, Lena; Guerini, Massimiliano; Hottenrott, Hanna; Souza, Daniel |
| Abstract: | This paper replicates and extends the framework of Guzman and Stern (2020) to examine the evolution of entrepreneurial activity in Europe, focusing on France, Germany, and the United Kingdom between 2009 and 2023. Using harmonized national business registry data, we construct measures of both the quantity and quality of entrepreneurship across regions. In particular, we adapt the Entrepreneurial Quality Index (EQI), the Regional Entrepreneurship Cohort Potential Index (RECPI), and the Regional Entrepreneurial Acceleration Index (REAI) to capture the number of new ventures, their ex-ante growth potential, and the extent to which ecosystems translate this potential into realized outcomes. Our findings support the generalizability of this framework in the European context while revealing substantial heterogeneity across countries and regions. Major metropolitan centers such as Paris, London, and Munich combine high rates of entry with high entrepreneurial quality, but smaller knowledge- and research-intensive regions - including Cambridge, Oxford, Bonn, and Heidelberg - also emerge as important hubs. With respect to ecosystem performance, France and the UK initially exceeded expectations but later experienced steady declines, whereas Germany maintained relatively stable performance, with notable overperformance between 2012 and 2016. Moreover, we find a stronger positive correlation between entrepreneurial quantity and quality in Europe, suggesting that ecosystems capable of generating more start-ups are also more likely to produce high-quality firms. This study provides important insights for the comparative analysis of entrepreneurial ecosystems and builds a foundation for designing policies aimed at fostering high-quality, innovation-driven entrepreneurship in Europe. |
| Keywords: | Entrepreneurial Quality, Entrepreneurial Ecosystem, High-Growth Firms, Regional Innovation |
| JEL: | G24 G32 L25 L26 M13 R12 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:330316 |
| By: | Esteban García-Mirallas (Banco de España); Maximilian Freier (European Central Bank); Sara Riscao (Organisation for Economic Co-operation and Development (OECD)); Chrysa Leventi (European Commission, Joint Research Centre); Alberto Mazzon (European Commission, Joint Research Centre); Glenn Abela (Central Bank of Malta); Laura Boyd (Central Bank of Ireland); Baiba Brusbārde (Latvijas Banka); Marion Cochard (Banque de France); David Cornille (National Bank of Belgium); Emanuele Dicarlo (Banca d’Italia); Ian Debattista (Central Bank of Malta); Mar Delgado-Téllez (Banco de España); 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 Jászberényi-Király (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 (OeNB)); Martin Nevicky (National Bank of Slovakia); Andreas Peichl (ifo Institute); Myroslav Pidkuyko (Banco de España); Mojca Roter (Banka Slovenije); Frédérique 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 microsimu-lation 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 elastici-ties 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 |
| URL: | https://d.repec.org/n?u=RePEc:nbb:reswpp:202510-483 |
| By: | Kaaresvirta, Juuso; Nuutilainen, Riikka; Pitkäranta, Juho |
| Abstract: | This policy brief considers the economic dependencies of Finland and the European Union on the United States. We seek to provide an overview of dependencies related to foreign trade, direct investment and finance, excluding closely related topics such as technological dependencies. The US is a long-standing European ally, and economic exchange between the two blocs remains vibrant and broad-based. All lines of analysis in this brief suggest that Finland and the EU as a whole are economically dependent on the US, with the US playing a particularly pronounced role in services trade and financing. |
| Keywords: | United States, Finland, EU, foreign trade, direct investment, foreign affiliates, financial sector, dependence |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofitb:330333 |
| By: | Pierre-Alexandre BALLAND (European Commission); Valentina DI GIROLAMO (European Commission); Florence BENOIT (European Commission); Julien RAVET (European Commission); Alexandr HOBZA (European Commission) |
| Abstract: | We might be experiencing the most rapid and transformative technological revolution in human history. In this era of global competition, the strength of research and innovation systems (RISs) is the cornerstone of economic success and global influence. Despite its considerable collective resources and talent, Europe faces a unique fragmentation challenge. The Draghi report (2024) highlighted significant internal barriers within the EU, which was reiterated in a recent Financial Times column, noting that they effectively impose a 45% trade tariff on manufacturing goods and 110% on services. In this regard, the Letta report (2024) proposed a "fifth freedom" centred on research, innovation, and education. Meanwhile the European Commission’s new Competitiveness Compass calls for the removal of cross-border barriers to enhance competitiveness and strengthen the Single Market. It is clear that this lack of integration hinders the efficient flow of knowledge and innovation, creating major inefficiencies and missed opportunities for collaboration. It weakens Europe’s ability to compete with innovation leaders like the United States (US), and to address global challenges such as climate change and health crises, where cross-border cooperation is essential. Although European leaders have highlighted fragmentation as a key obstacle, the literature has largely failed to provide robust theoretical frameworks or empirical evidence to explain, measure and monitor R&I fragmentation. |
| Keywords: | Research and Innovation funding, impact assessment, econometric methods, spillover effects, mediation analysis, policy evaluation |
| JEL: | O32 O38 C18 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:eug:wpaper:ki-01-25-083-en-n |
| By: | Dro, César (Directorate-General for Research and Innovation, European Commission); Schwaag Serger, Sylvia (Directorate-General for Research and Innovation, European Commission); Mazak-Huemer, Alexandra (Directorate-General for Research and Innovation, European Commission) |
| Abstract: | This policy brief discusses the state of play in technology monitoring and assessment (TMA) in the US, China, and the EU, and how the EU could tailor such monitoring to its needs and interests. It first outlines the role of TMA in R&I and economic policy, then compares features of the EU, US, and Chinese TMA systems, and concludes by outlining methodologies and features of a coherent TMA system in the European Union. TMA plays a central role in enabling governments to respond swiftly to crises and rapid shifts in the global technological landscape. |
| Keywords: | Technology Monitoring, Assessment, EU, US, China, Innovation Policy, Strategic Autonomy, Technology Sovereignty |
| JEL: | O32 O33 Q55 Q56 I28 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:eug:wpaper:ki-01-25-004-en-n |
| By: | Jan-Tjibbe Steeman (Directorate-General for Research and Innovation, European Commission); Alexandr Hobza (Directorate-General for Research and Innovation, European Commission); Erik Canton (Directorate-General for Research and Innovation, European Commission); Valentina Di Girolamo (Directorate-General for Research and Innovation, European Commission); Alessio Mitra (Directorate-General for Research and Innovation, European Commission); Océane Peiffer-Smadja (Directorate-General for Research and Innovation, European Commission); Julien Ravet (Directorate-General for Research and Innovation, European Commission) |
| Abstract: | This paper provides a rationale on why investing in research and innovation (R&I) matters for Europe. It describes the potential of R&I to strengthen EU's competitiveness, support a green and sustainable future, and build a fair European society. EU's R&I performance is presented, including R&I investments compared to global peers, EU's main strengths and weaknesses, and EU’s added value. The paper also highlights the importance of well-designed R&I policies, integral to the overall policy design, and provides pathways to strengthen current public and private efforts to reap the full potential of R&I. |
| Keywords: | Research and innovation, competitiveness, green economy, fair society, EU policy, public investment, private investment |
| JEL: | O32 O33 Q55 Q56 I28 |
| Date: | 2024–03 |
| URL: | https://d.repec.org/n?u=RePEc:eug:wpaper:ki-bd-24-002-en-n |
| By: | Tatsuru Kikuchi |
| Abstract: | This paper develops a continuous functional framework for analyzing contagion dynamics in financial networks, extending the Navier-Stokes-based approach to network-structured spatial processes. We model financial distress propagation as a diffusion process on weighted networks, deriving a network diffusion equation from first principles that predicts contagion decay depends on the network's algebraic connectivity through the relation $\kappa = \sqrt{\lambda_2/D}$, where $\lambda_2$ is the second-smallest eigenvalue of the graph Laplacian and $D$ is the diffusion coefficient. Applying this framework to European banking data from the EBA stress tests (2018, 2021, 2023), we estimate interbank exposure networks using maximum entropy methods and track the evolution of systemic risk through the COVID-19 crisis. Our key finding is that network connectivity declined by 45\% from 2018 to 2023, implying a 26\% reduction in the contagion decay parameter. Difference-in-differences analysis reveals this structural change was driven by regulatory-induced deleveraging of systemically important banks, which experienced differential asset reductions of 17\% relative to smaller institutions. The networks exhibit lognormal rather than scale-free degree distributions, suggesting greater resilience than previously assumed in the literature. Extensive robustness checks across parametric and non-parametric estimation methods confirm declining systemic risk, with cross-method correlations exceeding 0.95. These findings demonstrate that post-COVID-19 regulatory reforms effectively reduced network interconnectedness and systemic vulnerability in the European banking system. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.19630 |
| By: | Benoit, Florence (European Commission, Directorate-General for Research and Innovation); Di Girolamo, Valentina (European Commission, Directorate-General for Research and Innovation); Diodato, Dario (European Commission, Directorate-General for Research and Innovation); Canton, Erik (European Commission, Directorate-General for Research and Innovation); Ravet, Julien (European Commission, Directorate-General for Research and Innovation) |
| Abstract: | In today’s economy, knowledge represents a critical resource for long-term economic growth (Romer, 1990). Knowledge tends to accumulate in densely populated areas, where geographical proximity facilitates spillovers, rapid idea diffusion, and the recombination of capabilities. This localised concentration can further be enriched by global knowledge flows through collaborations and networks. Through this process, economies can obtain a set of capabilities that form the basis for the development of unique technological assets (Storper & Venables, 2004). These unique assets, which are difficult to replicate, become the cornerstone of a sustainable competitive advantage and contribute significantly to long-term economic development and resilience. |
| JEL: | O32 O52 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:eug:wpaper:ki-01-25-015-en-n |