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on European Economics |
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Issue of 2025–11–24
nineteen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Mariam Camarero (Universitat Jaume I, Economics department & INTECO Joint Research Unit); Juan Sapena (Catholic University of Valencia, Economics department & INTECO-Joint Research Unit); Cecilio Tamarit (University of Valencia, INTECO Joint Research Unit. Department of Applied Economics II) |
| Abstract: | This paper estimates time-varying tax-tilting parameters for eleven EMU member states from 1970 to 2024 using a panel time-varying parameter state-space model that extends the traditional tax-smoothing framework to capture both common and country-specific dynamics. Core countries such as Austria, Belgium, Germany, the Netherlands, France, Ireland, and Finland display a more prudent fiscal stance, while peripheral countries, including Greece, Italy, Portugal, and Spain, shift tax- ation toward the future, generating current deficits. These patterns are driven by differences between government discounting of future revenues and market rates, and are further influenced by structural factors such as aging populations and un- employment. Periods of negative real interest rates relax fiscal constraints, encour- aging governments to delay tax adjustments. The results underscore the need to reduce cross-country fiscal heterogeneity to strengthen long-term sustainability and advance fiscal integration in the Euro Area. |
| Keywords: | Tax-smoothing, time-varying cointegration, multiple structural breaks, Kalman Filter, Time-varying parameters, EU fiscal policy |
| JEL: | H62 E62 C22 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:eec:wpaper:2514 |
| By: | Giuliana, Raffaele; Panfilo, Matteo; Peltonen, Tuomas |
| Abstract: | This study sheds light on the impact of digitalisation and social media on deposit flows and rates of euro area banks during the recent period of monetary tightening. Drawing on difference-in-differences analysis of confidential monthly data (12/2019 –10/2023) of deposit flows and rates as well as measures of bank digitalisation and social media exposure through Twitter sentiment, the study offers two novel sets of findings. First, banks with a higher degree of digitalisation exhibit larger fluctuations in deposits, with higher inflows from mid-2020 to early 2022 but greater outflows in response to the tightening. Digitalisation is also correlated with higher sensitivity of banks’ NFC deposit rates to policy rates. Second, a negative Twitter sentiment reduces deposit inflows, even after accounting for traditional news’ sentiment and a comprehensive set of bank-specific factors, including asset prices and performance indicators. JEL Classification: G21 |
| Keywords: | deposit franchise, deposits, digitalisation, monetary tightening, social media |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:srk:srkwps:2025153 |
| By: | Committee, International Relations; Vergara Caffarelli, Filippo; de Almeida, Ana M.; Lovin, Horatiu |
| Abstract: | This paper looks at how Brexit has affected trade and foreign direct investment (FDI) between the United Kingdom and the EU. In 2020 the United Kingdom and the EU signed the Trade and Cooperation Agreement (TCA) , establishing the post-Brexit relationship and, in particular, a tariff-free area for goods produced in either of the two economies. However, non-tariff barriers to the trading of goods and services have emerged. Moreover, the United Kingdom’s departure from the EU has affected its attractiveness as an investment target. We analyse recent developments in UK imports and exports with the EU and the rest of the world, in both goods and services, including financial services and tourism. Our estimates suggest that, after the Brexit transition period, UK exports to the EU contracted by almost 40%, due to the emergence of non-tariff barriers with the EU, and the fact that no significant UK trade flows were redirected to other partners. Finally, the analysis of product-level data on German, French, Italian and Spanish exports to the United Kingdom has confirmed the significant negative impact of Brexit, especially for goods highly exposed or highly sensitive to increases in trade costs. The FDI analysis begins with a conjunctural assessment that includes recent trends in EU-UK FDI at a broad level (including sectoral and geographical details), a breakdown of foreign affiliates and an investigation of new FDI projects and jobs in the United Kingdom. The analysis continues with developments in the UK financial sector in terms of the real economy, FDI flows, banks, insurance companies and pension funds, and the evolving status of the United Kingdom as a leading global financial centre. Finally, our analysis also provides an econometric investigation into the potential impact of Brexit on EU-UK FDI, using a gravity model approach. […] JEL Classification: F14, F15, F21 |
| Keywords: | Brexit, FDI, global value chains, trade |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbops:2025379 |
| By: | Walk, Marten |
| Abstract: | How do asset prices shape the wealth distribution? Motivated by the different trajectories of European housing markets after the financial crisis, this thesis examines how capital gains, particularly in housing, influence wealth inequality in Europe. Drawing on the ECB’s new Distributional Wealth Accounts, the analysis uses panel regressions that exploit cross-country variation in housing markets. The results show that asset prices have first-order consequences on the wealth distribution, driven by differences in portfolio composition across population groups. Rising house prices benefit the middle 40% and especially the bottom 50%, while a booming stock market concentrates gains in the top 10%. These effects are robust across specifications but vary substantially across countries, reflecting institutional and portfolio differences. Simulations of alternative price scenarios show that housing booms can slow concentration. However, no country saw house prices grow fast enough to reverse the upward trend in top wealth shares in Europe. Together, the results provide detailed insights into the distributional effects of asset prices in Europe, with implications for both monetary and housing policy. |
| Keywords: | Wealth Inequality, Asset Prices, Distributional Wealth Accounts, Europe, House Prices |
| JEL: | D14 D63 E21 O18 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126040 |
| By: | Bonam, Dennis; Checherita-Westphal, Cristina; Pacheco, Mariana Montserrat Cerra |
| Abstract: | We estimate the contribution of discretionary fiscal policy measures to euro area inflation in the post-pandemic era using an extension of Bernanke and Blanchard (2024b)’s semi-structural model. Since the pandemic, aggregate discretionary fiscal measures had a modest yet progressively increasing positive contribution to inflation that partly worked through an indirect effect on wage growth and inflation expectations. However, net indirect taxes helped to contain inflationary pressures, both during the pandemic and energy crises. Fiscal policy, therefore, can be a powerful tool to smooth the inflationary effects of adverse supply shocks, yet may also increase inflation persistence if fiscal stimulus is not timely withdrawn. JEL Classification: C5, E32, E47, E62 |
| Keywords: | fiscal policy, inflation, semi-structural model |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253153 |
| By: | Stefano Finesi |
| Date: | 2025–06–09 |
| URL: | https://d.repec.org/n?u=RePEc:stm:wpaper:71 |
| By: | Bareith, Tibor |
| Abstract: | This study investigates the dynamics of food price inflation convergence among the EU27 Member States over the period 2005–2024, with a focus on the effects of structural breaks, external shocks, and regional heterogeneity. Using panel unit root tests, structural break analysis, and the Phillips and Sul club convergence methodology, the research identifies distinct patterns of convergence and divergence in food price inflation across the region. The findings reveal a lack of overall convergence, driven by persistent economic and institutional disparities among Member States. Instead, the analysis uncovers multiple convergence ‘clubs, ’ highlighting clusters of countries with similar inflationary trajectories shaped by shared market structures, policy frameworks, and levels of integration. The study further identifies structural breaks corresponding to major global disruptions, such as the financial crisis, the European debt crisis, and the COVID-19 pandemic, which have exacerbated inflation disparities among Member States. While temporary alignment in inflation rates is observed during periods of acute shock, long-term convergence remains constrained by structural differences and divergent national responses. The results have significant policy implications, underscoring the need for tailored interventions to address the specific vulnerabilities of divergent groups while enhancing the coordination of fiscal and agricultural policies at the EU level. This research contributes to the literature on food price dynamics and regional integration, offering insights for policymakers who aim to foster greater market cohesion and price stability in the face of ongoing and future challenges. |
| Keywords: | Agribusiness, Agricultural Finance, Demand and Price Analysis |
| URL: | https://d.repec.org/n?u=RePEc:ags:aes025:356730 |
| By: | Kikuchi, Tatsuru |
| 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. |
| Keywords: | Financial networks, systemic risk, contagion dynamics, network diffusion, algebraic connectivity, Navier-Stokes equations, maximum entropy estimation, European banking |
| JEL: | C45 D85 G21 G28 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126729 |
| By: | Omokolade Akinsomi; Emmanuel Abakah |
| Abstract: | This paper examines the time-varying effect of global economic factors on office yields in Europe. Specifically, the study uses office yields of 16 European cities across 8 European countries from Q1 2007 to Q2 2024. Using Quantile Granger Causality Tests and Rolling Window Wavelet Correlation (RWWC) as estimation techniques, this paper specifically investigates the impact of Economic Policy Uncertainty (EPU), Financial Stress Index (FSI), Global Risk Aversion Index (GRAI), and Geopolitical Risk Index (GPR) on office yields in Europe. The findings reveal that financial hubs like Central London, Frankfurt, and Central Paris are particularly sensitive to global risks, especially during periods of heightened uncertainty, while cities like Lyon and Dublin are influenced more by local market dynamics. The analysis shows that these relationships are not uniform, with stronger impacts observed during times of economic stress and in the upper ranges of yield distributions. Short-term changes often reflect immediate reactions to financial shocks, while long-term trends highlight deeper, systemic risks. These insights emphasize the importance of understanding how global conditions and local market characteristics interact, providing valuable guidance for investors and policymakers navigating the complexities of European real estate markets. |
| Keywords: | geopolitical risk; global risk aversion; Policy uncertainty, ; prime office yields |
| JEL: | R3 |
| Date: | 2025–01–01 |
| URL: | https://d.repec.org/n?u=RePEc:arz:wpaper:eres2025_225 |
| By: | VEUGELERS, Reinhilde (Directorate-General for Research and Innovation) |
| Abstract: | This report proposes a framework on how to collect evidence on the use of directionality in national R&I systems in the EU. It adopts a dual approach: a macro perspective using publicly available datasets, and a micro-level approach focusing on specific programs, with Flanders as an example. It finds that most of GBARD is still undirected, but there is a modest shift towards a larger share for directed GBARD. The most important areas for targeting in public R&D budgets in the EU-27 are industrial, health and space, and these are quite stable. The report also highlights the importance of combining a macro (cross country) approach with a deeper dive harmonized micro approach per country, to better identify trends in approaches to directionality and similarities and differences between countries’ approaches to directionality. |
| Keywords: | directionality, transformative research and innovation policy, R&I policy, GBARD, EU Member States |
| JEL: | O31 O32 O38 |
| Date: | 2024–02 |
| URL: | https://d.repec.org/n?u=RePEc:eug:wpaper:ki-bd-24-001-en-n |
| By: | Oscar Claveria (AQR-IREA, University of Barcelona); Petar Soric (University of Zagreb) |
| Abstract: | Recent energy tensions caused by conflicts in Ukraine and the Middle East have added to the pressure that global warming exerts for an energy transition towards low-carbon energy sources. This study combines two time series approaches with the aim of delving deeper into the relationship between environmental degradation and economic growth and to test the environmental Kuznets curve (EKC) hypothesis, using information from 20 European countries between 2007 and 2021. Overall, the obtained results suggest the existence of a N-shaped nexus between emissions and income per capita. Additionally, we evaluated stability of this nexus and the potential existence of an asymmetric adjustment. In most countries we find asymmetries in the adjustment of emissions to positive and negative changes in income, but not so much in economic complexity. However, notable differences are observed between countries, which could be indicating their differentiated phase in the EKC curve |
| Keywords: | economic growth; economic complexity; environmental degradation; greenhouse gas emissions; Europe JEL classification: C38; C55; O44; Q20; Q50 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:aqr:wpaper:202509 |
| By: | Christian Gréus; Philipp Heil; Niklas Potrafke; Ramona Schmid; Tuuli Tähtinen |
| Abstract: | Key MessagesIn the short term, a 10 percent import tariff is expected to reduce trade volumes and investment, while raising inflation and unemploymentEconomists across the EU expect tariffs to lower economic growth by 0.59 percentage points over the next five yearsMost experts report a high level of perceived trade policy uncertainty in both the EU and the USThe uncertainty is expected to cause further slowdowns in growth (-0.6 percentage points) and firm investment (-4.7%) in the medium term |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:econpb:_79 |
| By: | Richard Grieveson (The Vienna Institute for International Economic Studies, wiiw); Ioannis Gutzianas (The Vienna Institute for International Economic Studies, wiiw); Branimir Jovanović (The Vienna Institute for International Economic Studies, wiiw); Michael Landesmann (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | This study identifies the minimum economic and institutional conditions that candidate countries must meet to ensure macroeconomic stability, sustainable growth, and effective integration into the EU, under a politically accelerated enlargement process. In the area of external accounts, successful past accessions managed current account deficits through FDI into tradable sectors, while real effective exchange rate misalignments and FDI into non-tradables led to post-accession instability. Key reforms include building export capacity, targeting FDI to tradables, aligning wages with productivity, and reducing debt-financed imbalances. On fiscal policy, while fiscal discipline is essential, overly conservative approaches can hinder growth. Countries with high debt-to-GDP ratios at accession faced prolonged austerity. Reforms should focus on fiscal sustainability, growth-oriented spending, tax base expansion, and procurement transparency. Labour market challenges include depopulation, low productivity, and high poverty. Effective employment policies, migration strategies, regional equity, and education-labour market alignment are essential. Institutional quality remains a critical barrier. Weak rule of law, corruption, and governance backsliding threaten accession prospects and must be addressed before accession. The study concludes that a focused set of pre-accession ‘must haves’ can guide enlargement, supported by adapted EU tools to mitigate risks and foster convergence. |
| Keywords: | EU Enlargement, EU Accession, Candidate Countries, Ukraine, Western Balkans |
| JEL: | F02 F15 F55 P52 O52 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:wii:pnotes:pn:102 |
| By: | Georgarakos, Dimitris; Jappelli, Tullio; Kenny, Geoff; Pistaferri, Luigi |
| Abstract: | Using a large survey of euro area consumers, we conduct an experiment in which respondents report how they would adjust their labor market participation, hours worked, and job search effort (if not employed) in response to randomly assigned windfall gain scenarios. Windfall gains reduce labor supply, but only when the gains are substantial. At the extensive margin, gains of €25, 000 or less have no effects, while gains between €50, 000 and €100, 000 reduce the probability of working by 1.5 to 3.5 percentage points. At the intensive margin, small gains produce no impact, while gains above €50, 000 lead to a reduction of approximately one hour of work per week. The effects among women and workers near retirement are stronger. The share of non-employed respondents who stop or reduce job search intensity declines by 1 percentage point for each €10, 000 in windfall gain, with the strongest effects observed among older individuals receiving €100, 000. JEL Classification: E24, D10, J22, J68 |
| Keywords: | consumer expectations survey, job search, labor supply, survey experiment, wealth shocks |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253154 |
| By: | Mahony, Michael (Central Bank of Ireland); O'Neill, Cian (Central Bank of Ireland) |
| Abstract: | While many Irish SMEs report making investments, the euro value of these investments is small. This pattern is explained by firms being satisfied with their current size and investment rates, rather than by a lack of external finance. When Irish SMEs do expand, their preference is to fund with internal cash resources rather than to borrow. Around a quarter of SMEs state that external finance constraints are a barrier to investment, but factors like recent growth and attitudes to risk are statistically more important in explaining investment patterns across firms. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:cbi:stafin:3/si/25 |
| By: | Diessner, Sebastian; Petit, Christy A. |
| Abstract: | This article asks “who controls the controllers” now that the European Commission—long responsible for controlling the conduct of industrial policy in the EU's internal market—increasingly pursues its own industrial policy objectives. We draw on delegation theory to establish why the Commission should be held accountable for its industrial policy‐making and, based on a distinction between procedural and substantive accountability, develop a simple typology of accountability outcomes that helps us distinguish between full accountability, partial accountability, and unaccountability in the realm of industrial policy. To assess empirically whether and how the Commission has been held accountable in its pursuit of industrial policy, we leverage a new dataset that tracks Commission follow‐ups—both in writing and in terms of policy actions—to 432 points raised in own‐initiative reports by the European Parliament's Committee on Industry, Research and Energy between 2019 and 2024. Our analysis suggests that the Commission has been far more responsive in “words” than in “actions”, which carries implications for our understanding of executive‐legislative relations and democratic accountability not only in industrial policy but also in other EU policy domains. |
| Keywords: | european union; european parliament; parliamentary oversight; industrial policy; accountability; european commission |
| JEL: | R14 J01 |
| Date: | 2026–01–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:130258 |
| By: | Kikuchi, Tatsuru |
| Abstract: | This paper develops and empirically implements a continuous functional framework for analyzing systemic risk in financial networks, building on the dynamic spatial treatment effect methodology established in \citet{kikuchi2024dynamical}. We extend the Navier-Stokes-based approach from \citet{kikuchi2024navier} to characterize contagion dynamics in the European banking system through the spectral properties of network evolution operators. Using high-quality bilateral exposure data from the European Banking Authority Transparency Exercise (2014-2023), we estimate the causal impact of the COVID-19 pandemic on network fragility using spatial difference-in-differences methods adapted from \citet{kikuchi2024dynamical}. Our empirical analysis reveals that COVID-19 elevated network fragility, measured by the algebraic connectivity $\lambda_2$ of the system Laplacian, by 26.9\% above pre-pandemic levels (95\% CI: [7.4\%, 46.5\%], p$ |
| Keywords: | inancial networks, Systemic risk, Navier-Stokes dynamics, Spatial treatment effects, Network contagion, Banking regulation, COVID-19 |
| JEL: | C31 C63 E44 G01 G21 G28 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126721 |
| By: | Maria Chondrokouki; Andrianos Tsekrekos |
| Abstract: | The neoclassical investment model predicts that only systematic risk affects the rate of investment through developed asset price, whereas the option-based investment model predicts that total investment risk directly affects investment behaviour. This study empirically tests the total uncertainty-investment relationship using aggregate construction data on residential real estate from fifteen European countries. We specify and empirically estimate a structural model of asset-market equilibrium and, after controlling for built-asset price, construction cost, expected rent, interest rate levels, expected growth of real rents and systematic risk, we find evidence of an independent role for total uncertainty in the supply of residential real estate. In particular, panel estimation shows that total uncertainty is significantly negatively related to the rate of investment across all sample countries included in our study. This finding appears robust to two alternative measures that we use to proxy aggregate investment. Supplementary analysis suggests that our main finding is unaffected by the global recession of 2008-2009 and the recent Covid pandemic. We conclude that our empirical results provide support for the option-based model and, thus, for the notion that the ability to delay decisions in the face of uncertainty and irreversibility are important aspects of investment in real estate. |
| Keywords: | Investment; Residential Real Estate; Uncertainty |
| JEL: | R3 |
| Date: | 2025–01–01 |
| URL: | https://d.repec.org/n?u=RePEc:arz:wpaper:eres2025_46 |
| By: | Jonas Dovern; Klaus Wohlrabe |
| Abstract: | This paper studies the causal effects of the 2024 US presidential election on business expectations of German manufacturing firms. It exploits the variation in the timing of survey responses to identify shifts in expectations around the election. The probability of reporting negative expectations increases by 12 percentage points. The effect is driven by exporters, especially those exposed to the US economy. It is concentrated among firms that had not anticipated Trump’s re-election, indicating rational expectation updating. Firms reduce planned investment expenditures. The results provide novel evidence that firms are attentive and quickly revise expectations in response to salient policy events. |
| Keywords: | election, survey expectation, export exposure, US president, rational inattention |
| JEL: | D72 E32 E65 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12266 |