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on European Economics |
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Issue of 2026–07–20
fourteen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Albertazzi, Ugo; Faber, Finn; Georgescu, Oana-Maria; Gavazza, Alessandro; Lecomte, Ernest |
| Abstract: | We investigate the supply and demand drivers of bank deposit pricing in the Euro area during the period 2007–2024. We document that the pass-through of policy rates to sight deposit rates is low, asymmetric, varies across the monetary policy regimes, and decreases over time. We build and estimate an equilibrium model of bank deposit markets, and find that the price sensitivity of depositors exhibits large heterogeneity between households and firms, across countries, and over time. Our estimates suggest that rate-sensitive depositors increasingly switched to alternative, higher-yielding savings products over time, thereby decreasing the average rate-sensitivity of the remaining pool of sight deposits. In turn, banks’ market power over sight deposits increased, thereby accounting for the sluggish increase in overnight deposit rates following the 2022 European Central Bank’s policy rate hikes. JEL Classification: G21, G28, E52, E43 |
| Keywords: | bank market power, deposit pricing, price elasticity |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263255 |
| By: | Consolo, Agostino; Foroni, Claudia; Hjelm, Linnéa |
| Abstract: | Unlike past high-inflation episodes, the euro area labour market remained surprisingly resilient during the inflation surge of the early 2020s. This paper investigates the drivers of this resilience by combining long-span euro area macroeconomic data (1970–2025) with a structural VAR analysis that disentangles the roles of aggregate demand and supply, monetary policy, and factor-substitution shocks. Our findings show that, in contrast to the 1970s and 1980s, the decline in real wages has supported labour demand and, more broadly, the labour market, thereby helping to explain the decoupling between output and employment. We also find that monetary policy shocks have had a stronger impact on output than on employment, further amplifying the pro-cyclicality of labour productivity. |
| Keywords: | Labour markets; Bayesian vars |
| JEL: | E24 E32 C32 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21306 |
| By: | Brian Fabo (National Bank of Slovakia); Juraj Falath (National Bank of Slovakia) |
| Abstract: | We examine how renewed United States (US) protectionism under the second Trump administration affects the euro area (EA) economy. Using evidence from structural and empirical studies, we synthesise the main transmission channels through which tariffs influence output and inflation. We show that tariffs operate simultaneously as supply and demand shocks, with the balance depending on trade structure, exchange-rate adjustments, and policy responses. A 10% US universal import tariff is estimated to lower euro area GDP by around 0.1–0.5% in the scenario without global retaliation to US actions. There is minimal inflationary impact on Europe across all types of models. The results suggest that euro area policymakers should treat such shocks primarily as external demand disturbances rather than inflationary threats. |
| JEL: | F13 F41 E52 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:svk:wpaper:1143 |
| By: | Aldasoro, Inaki; Gambacorta, Leonardo; Pál, Rozália; Revoltella, Debora; Weiss, Christoph; Wolski, Marcin |
| Abstract: | This paper provides new evidence on how the adoption of artificial intelligence (AI) affects productivity and employment in Europe. Using matched EIBIS-ORBIS data on more than 12, 000 non-financial firms in the European Union (EU) and United States (US), we instrument the adoption of AI by EU firms by assigning the adoption rates of US peers to isolate exogenous technological exposure. Our results show that AI adoption increases the level of labor productivity by 4%. Productivity gains are due to capital deepening, as we find no adverse effects on firm-level employment. This suggests that AI increases worker output rather than replacing labor in the short run, though longer-term effects remain uncertain. However, productivity benefits of AI adoption are unevenly distributed and concentrate in medium and large firms. Moreover, AI-adopting firms are more innovative and their workers earn higher wages. Our analysis also highlights the critical role of complementary investments in software and data or workforce training to fully unlock the productivity gains of AI adoption. |
| Keywords: | Artificial intelligence; Firm productivity; Europe; Digital transformation |
| JEL: | D22 J24 L25 O33 O47 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21082 |
| By: | Duso, Tomaso; Peitz, Martin |
| Abstract: | Trade conflicts, geopolitical tensions, digital disruption, and the climate crisis pose major challenges for the European Union (EU) and its member states. As called for in the Draghi Report, industrial policy measures can increase competitiveness, strengthen resilience, and facilitate the twin transformation. This article explores ways in which competition policy can be realigned to better accommodate industrial policy objectives. Using German competition law as a reference point, it presents options with which legislatures and competition authorities can respond to current challenges, reconcile conflicting objectives, and adapt the decision-making framework. It then considers elements of a competition-oriented industrial policy, understood as an evidence-based, targeted approach in which competition serves both as a guiding principle and as a control variable. |
| Keywords: | Industrial policy; Competition; Regulation; Competition policy; Competitiveness; Internal market |
| JEL: | L40 L50 L52 K21 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20807 |
| By: | Ã lvarez, Inmaculada C.; Barbero, Javier; Orea, Luis; Rodríguez-Pose, Andrés |
| Abstract: | Most studies of institutional quality and regional growth assume uniform effects across territories. However, this may mask crucial regional heterogeneity, with direct policy implications. We use a latent class framework applied to 230 EU regions over 2009-2017 to identify institution-driven regional parameter groups, and to examine both average effects and catching-up effects associated with changes in the institutional environment. We demonstrate that institutional quality generates highly variable returns to investment in physical capital and innovation. Nordic and Central European regions show highest returns to physical capital and R&D investment, whereas less-developed regions benefit most from education spending. Crucially, we find that improving government quality not only raises average returns but also promotes territorial cohesion. By contrast, regional autonomy shows limited impact on returns. Our findings challenge the one-size-fits-all approach to cohesion policy and indicate that cohesion policy should explicitly promote institutional improvements in addition to capital deployment. |
| Keywords: | Institutional quality; European funds; investment |
| JEL: | O43 E61 H54 R11 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20969 |
| By: | Tudorache, Maria-Daniela; Jianu, Ionut |
| Abstract: | Over the last two decades, technological progress has significantly transformed economic and social structures, making innovation and digitalization essential drivers of competitiveness and sustainable growth. However, EU still lags behind the US in terms of innovation, research and development expenditure. This paper examines the relationship between technological factors and economic development in European Union Member States. The analysis is based on panel data covering 2010-2024, with an effective estimation sample of 2012-2024 due to lag structure and first difference transformations to improve the model accuracy. The analysis applies the Panel Estimated Generalized Least Squares (EGLS) method, using Period SUR as GLS weights option and as a coefficient covariance method. The results identify positive and significant associations between the research and development expenditure / employment in technology and knowledge intensive sectors and GDP per capita. In contrast, unemployment shows a negative relationship with economic performance. These findings highlight the important role of innovation and knowledge-based sectors in supporting economic growth and competitiveness within the European Union. The results suggest that research and development activities are associated with higher levels of economic development across the European Union. This finding is particularly relevant in the current context, given that the European Union has consistently failed to meet its R&D expenditure targets throughout the 2010-2024 period, with the share of R&D expenditure in GDP increasing by only 0.25 percentage points over the last 15 years. We also calculated the impact of greenhouse gas emissions per capita on GDP per capita, which was found to be positive, indicating the short-run cost of the green transition, as well as the negative effect of the major COVID-19 restriction on GDP per capita. |
| Keywords: | technology, economic development, Panel, research and development |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esconf:341696 |
| By: | Gautier, Erwan; Conflitti, Cristina; Enderle, Daniel; Fadejeva, Ludmila; Grimaud, Alex; Gutiérrez, Eduardo; Jouvanceau, Valentin; Menz, Jan-Oliver; Paulus, Alari; Petroulas, Pavlos; Roldan-Blanco, Pau; Wieland, Elisabeth |
| Abstract: | We use CPI micro data for nine euro area countries to document new evidence on consumer price stickiness in the euro area during the 2021-2024 inflation cycle. In 2022, the monthly frequency of price changes reached 12%, compared with an average of 8% over 2010-2019, roughly a four percentage-point increase; it then fell quickly in 2023 and more slowly in 2024, ending close to its pre-pandemic level. The decline in the frequency of price changes was faster for food and nonenergy industrial goods (NEIG) than for services, where frequencies remained elevated in 2024. The overall frequency rose mainly because there were more price increases, while the magnitude of the average size of the price increases or decreases changed only marginally during the surge. Products with a larger imported-energy cost share responded more strongly, and hazard-rate evidence shows that the probability of price adjustments increases with the gap between actual and optimal prices, consistent with state-dependent pricing and a steepening of the Phillips curve. To illustrate the implications of this state dependence, a macro model suggests that peak inflation would have been almost 1 percentage point lower if the frequency had not responded to the inflation surge. |
| Keywords: | Price rigidity |
| JEL: | E31 E52 F33 L11 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21149 |
| By: | De Jonghe, Olivier; Benkovskis, Konstantins; Bielskis, Karolis; Bonfim, Diana; Bottero, Margherita; Briglevics, Tamás; Cesnak, Martin; Dirma, Mantas; Emiris, Marina; Filep-Mostberger, Palma; Jouvanceau, Valentin; Kaiser, Nicholas; Khametshin, Dmitry; Lalinsky, Tibor; Grolmusz, Viola; Moretti, Laura; Nikitins, Arturs; Nunnari, Angelo; Rodriguez Moreno, Maria; Stefanova, Elitsa; Szabo, Lajos Tamas; Vilerts, KÄ rlis; Zhao, Sujiao (Emma) |
| Abstract: | We study heterogeneity in households' credit across nine European countries (Belgium, Spain, Hungary, Ireland, Italy, Latvia, Lithuania, Portugal, and Slovakia) during 2022-2024 using granular credit register data. We first document substantial between- and within-country variation in mortgage and consumer lending by borrower age, loan maturity, and interest rate fixation. We then quantify the pass-through of the ECB’s recent tightening cycle to household borrowing costs, and assess its heterogeneous impact across households. Pass-through is nearly complete for mortgages (around 0.9) but considerably weaker for consumer credit (around 0.4). While mortgage pass-through is relatively homogeneous across countries, consumer credit shows pronounced cross-country differences that cannot be explained by borrower or loan characteristics. Younger households face stronger mortgage pass-through but weaker consumer credit pass-through relative to older borrowers, and longer maturities are associated with stronger pass-through in both credit markets. |
| Keywords: | Monetary policy transmission; Household borrowing; Credit registers; Interest rate pass-through; Cross-country heterogeneity |
| JEL: | E52 G21 D14 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20928 |
| By: | María Cadaval-Sampedro; Santiago Lago-Peñas; Xoaquín Fernández-Leiceaga; Alejandro Domínguez-Lamela |
| Abstract: | The paper analyses the impact of demographic ageing on age-related public expenditure in the EU-27 over the period 1992-2024. The analysis covers healthcare, long-term care (LTC), and pensions. The results reveal three patterns. First, demographic effects are heterogeneous across countries, driven by short-run responses that vary by spending category—limited in healthcare, absent in LTC. Second, advanced ageing (80+) tends to be more important for long-run dynamics, especially in healthcare. Third, Central and Eastern European economies show weaker or delayed responses, while Western and Nordic countries exhibit stronger adjustments, more evident in healthcare and LTC than in pensions, reflecting the decisive role of institutional design. |
| Keywords: | Ageing, public expenditure, demographic change, European Union |
| JEL: | E60 E62 H20 H51 H55 J11 J14 |
| Date: | 2026–07–08 |
| URL: | https://d.repec.org/n?u=RePEc:ida:wpaper:wp2614 |
| By: | Georg Kirchsteiger; Martin Larch |
| Abstract: | The EU’s fiscal governance framework was built to contribute to overall macroeconomic stability through compliance with fiscal rules and the commitment not to bail-out countries in trouble. Yet successive crises have revealed vulnerabilities under systemic stress: countries with a propensity to run deficits push frugal ones into ex-post bail-out arrangements to avert collapse, thus undermining the ex-ante credibility of the framework. The absence of a permanent, preventive instrument forces the Union to oscillate between leniency and emergency intervention. A permanent RRF-like mechanism - linking EU funds to reform and investment projects - offers an incentive compatible solution and a possible bridge to a larger EU budget. |
| Keywords: | European Union; Stability Growth Pact; EU budget; systemic crisis, ; Conditional budgeting |
| JEL: | D72 H62 H60 H77 |
| Date: | 2026–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:eca:wpaper:2013/409827 |
| By: | Borsekova, Kamila; Korony, Samuel; Rodríguez-Pose, Andrés; Styk, Michal; Westlund, Hans |
| Abstract: | The importance of institutions and innovation for regional development is well established. How these two factors interact under different historical legacies and urban-regional contexts remains, however, insufficiently understood. This paper identifies which combinations of institutional and innovation indicators most effectively classify regions into distinct developmental archetypes, revealing critical thresholds that redirect regional trajectories. Employing decision-tree analysis on 233 EU NUTS-2 regions, we analyse 15 indicators spanning institutional quality, technological readiness, business sophistication, and innovation. This methodology uncovers non-linear relationships that traditional approaches cannot capture. The findings demonstrate that institutional quality acts as a necessary condition for innovation-led growth. High-performing regions, predominantly in Western and Northern Europe, benefit from robust institutions and strong innovation outputs. Many lower-performing regions, particularly in Central and Eastern Europe, exhibit innovation potential but are constrained by governance deficits. By integrating institutional and innovation indicators within a single analytical framework, we underscore how addressing governance and innovation in tandem can result in balanced and sustainable growth across Europe. |
| JEL: | O18 O43 R11 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20988 |
| By: | Mr. Gee Hee Hong; Naowar Mohiuddin; Rasmané Ouedraogo; Danila Smirnov; Maryam Vaziri |
| Abstract: | High-debt euro area economies face fiscal consolidation in a low-growth environment. We use a Heterogeneous Agent New Keynesian model to assess how consolidation composition shapes aggregate and distributional outcomes in a representative high-debt economy. The status quo is not neutral: delay generates its own costs through lower investment, higher debt service, and damage to constrained households. For a given fiscal effort, expenditure-based consolidation achieves faster debt reduction with lower growth and distributional costs than revenue-based consolidation. As a complementary exercise, pairing the expenditurebased path with growth-enhancing structural reforms further improves outcomes by lifting real wages, a channel that disproportionately benefits hand-to-mouth households. Across both strategies, modest well targeted transfers to low-income households can substantially mitigate distributional costs at minimal fiscal expense while supporting aggregate demand. |
| Keywords: | HANK model; fiscal policy; public debt; distributional effects; MPC; transfers; consolidation composition; IMF working papers; area economy; expenditure-based consolidation; aggregate demand; Income; Consumption; Fiscal consolidation |
| Date: | 2026–06–12 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/121 |
| By: | Darvas, Zsolt; Huertas, Gonzalo; Welslau, Lennard; Zettelmeyer, Jeromin |
| Abstract: | This paper analyses the prospects for debt stabilisation in European Union countries, the United Kingdom, and the United States using stochastic debt sustainability analysis and estimated fiscal reaction functions. We find that (1) debt-stabilising primary balances are generally within historical precedent – well below 3 percent of GDP; (2) fiscal adjustment required to reach such balances is very high in several countries, including France, the United Kingdom and the United States; (3) the feedback coefficient from debt to the primary balance remains positive but has declined since the global financial crisis and lost statistical significance in most countries, implying that debt stabilisation is uncertain. |
| Keywords: | Sovereign debt |
| JEL: | F34 H63 H68 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20929 |