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on European Economics |
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Issue of 2026–09–14
sixteen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Jiri Podpiera |
| Abstract: | This paper analyzes the credit-growth nexus by shifting the focus from aggregate leverage and credit stocks to new credit flows. Using quarterly data for 12 euro area countries over 2007–24, covering 96 percent of euro area GDP, the analysis shows a robust empirical association between newly granted bank credit and private final domestic demand (PFDD), a close proxy for GDP. A 10 percent increase in new private credit is associated with about 0.5–0.7 percentage points growth in PFDD. In contrast, specifications based on credit stocks or leverage produce unstable or counterintuitive estimates, reflecting measurement biases related to debt repayments and denominator effects. Nothwithstanding the importance of debt levels and leverage for financial stability and through debt service for the economy, the findings suggest that new credit flows appear to provide a more empirically reliable proxy for the macroeconomic role of bank lending. |
| Keywords: | Bank lending; Economic growth; Macrofinance |
| Date: | 2026–08–28 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/184 |
| By: | Koundouros, Andreas; Nautz, Dieter |
| Abstract: | Inflation misperceptions of consumers complicate the conduct and communication of monetary policy and can undermine the credibility of the central bank's inflation target. This paper empirically investigates the determinants of inflation misperceptions by extending a rational inattention model to incorporate distorted signals from salient prices. We estimate the model using rich micro-level panel data for the euro area drawn from the ECB Consumer Expectations Survey. We find that consumers misperceive inflation both because they are inattentive to inflation and because they overweight food price inflation relative to headline inflation. In contrast, distortions stemming from energy prices are not significant. Financially literate consumers exhibit lower inflation misperceptions and greater attention to inflation, while women have more pronounced inflation misperceptions and place larger weights on salient prices. Finally, we show that attention to inflation is higher and misperceptions are lower in response to inflationary than to disinflationary news. |
| Keywords: | Inflation misperceptions, rational inattention, salient prices, inflationary news, financial literacy, gender differences, ECB Consumer Expectations Survey |
| JEL: | E31 E58 E71 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:fubsbe:343039 |
| By: | Erin P. Gibson; Christopher L. House; Christian Proebsting; Linda L. Tesar |
| Abstract: | Unemployment rates are substantially higher and more volatile in the euro area relative to the United States. We ask to what extent the lack of cross-country labor mobility can account for unemployment dynamics in Europe. Our analytical model incorporates downward nominal wage rigidity and an endogenous migration decision. Firms are unable to freely adjust wages during economic contractions, generating an asymmetric distribution of unemployment over the business cycle. The model is calibrated to the dynamics of unemployment and net migration in a typical euro area country. An increase in labor mobility to that observed in the United States and holding all other parameters fixed would reduce the volatility of euro area unemployment by 28% and return over 1, 000, 000 unemployed to the workforce. The welfare cost to a typical euro area country of the currency union is 4.1 percent of permanent consumption; increasing labor mobility reduces this cost to about 3.55 percent. |
| JEL: | F22 F41 F45 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35668 |
| By: | Suarez-vergne Alvaro; Hemmert Guillaume; De Kruyf Molina Kilian; Gonzalez Vazquez Ignacio (European Commission - JRC) |
| Abstract: | The use of digital tools at work is pervasive in the EU. It enables data-driven management practices such as digital monitoring and algorithmic management, complex and emerging phenomena in the EU. Their prevalence and impacts differ significantly across Member States, making it urgent and essential to clearly map their geography in the EU. Based on data from the recent AIM-WORK survey, this report presents a set of 27 country fiches representing the country specificities of these relevant phenomena. To operationalise measurement of the extent and use of both digital monitoring and algorithmic management, the paper uses the concept of platformisation of work, which conveys the combination of digital tool usage, digital monitoring and algorithmic management in European workplaces. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:laedte:202608 |
| By: | Francesco Bianchi; Qingyuan Fang; Leonardo Melosi; Anna Rogantini Picco |
| Abstract: | The current euro area policy framework conflates short-run stabilization with long-run fiscal sustainability, exposing members to deflationary and inflationary tail risks. We employ an estimated euro area model to analyze an alternative framework that separates these objectives. A centralized Treasury issues Eurobonds to finance countercyclical stabilization, while national governments retain responsibility for long-term fiscal sustainability. The Treasury can coordinate with the monetary authority in case of a large recession, with no need to suspend fiscal rules at the national level. The arrangement functions as an automatic stabilizer, eliminating the tail risks of deflation and fiscal stagflation. |
| JEL: | E30 E50 E62 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35510 |
| By: | Kapanadze, Ketevani (European Research University (ERUNI)); Pytlikova, Mariola (CERGE-EI; MUNI Brno) |
| Abstract: | In response to COVID-19, Schengen countries temporarily reintroduced internal border controls, disrupting cross-border integration. Using this policy change as a natural experiment and monthly nighttime lights data, we estimate the short-run effects on European municipalities. Municipalities along internal Schengen borders experienced a 3–4% decline in economic activity relative to interior municipalities, with larger estimated effects when external-border municipalities form the comparison group. Losses were greater in smaller and less densely populated municipalities and along economically asymmetric East–West borders, whereas municipalities along more economically similar borders generally experienced smaller declines. The effects also depended on the pre-pandemic purpose of cross-border mobility: higher shares of work- and business-related travel, services, and shopping were associated with larger losses, while the results for leisure and social mobility are consistent with greater scope for domestic reallocation of activity. Overall, the findings show that the local consequences of internal border closures depend on municipality characteristics, cross-border economic asymmetries, and the purpose of mobility. |
| Keywords: | border closures, cross-border mobility, Schengen area, nighttime lights, local economic activity, border regions, COVID-19, European integration |
| JEL: | R11 R12 R23 F15 F22 C21 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18878 |
| By: | Bendiek, Annegret; Holste, Svenja |
| Abstract: | To date, the Arctic has played only a minor role in European efforts to achieve digital sovereignty. Yet digital infrastructure in the High North is a key component of this endeavour. The European Union's (EU) Arctic Strategy, which is due to be updated this year, should therefore not be limited to traditional security issues. This is particularly true in light of hybrid threats in the Baltic Sea region. Of particular importance are European projects to expand Arctic submarine cable infrastructure, which constitute critical infrastructure. However, these initiatives require an ambitious EU that recognises its capacity to deliver innovation and sustainability in the development of green technologies. |
| Keywords: | European Union (EU), Arctic Strategy, digital sovereignty, submarine cable infrastructure, critical infrastructure, Arctic Council, West Arctic Passage, Polar Passage, Polar Connect, Far North Fiber |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:swpcom:343141 |
| By: | Pardy, Martina; Hernández-Rodríguez, Eduardo |
| Abstract: | This paper analyses the link between global value chain participation and intra-regional income inequality across European regions from 2003 to 2010. It combines regional input–output data to construct different indicators of global value chain participation and income data for regions at NUTS-2 level. Using fixed effects and instrumental variable estimations, we show that it matters how regions participate in global value chains: forward participation is on average linked to higher inequality at the top of the income distribution, while backward participation, in contrast, is not significantly associated with inequality. This relationship varies across industries: sectors such as manufacturing, transport and communication, and business activities are among the main drivers of this relationship. Moreover, the effect of forward participation on top income inequality varies by development level and institutional quality, showing that it is more pronounced for less developed regions and regions with lower institutional quality. These findings offer a new perspective on the link between regional global value chain integration and increased top income inequality. |
| JEL: | F14 F16 D31 R12 |
| Date: | 2026–09–30 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:140359 |
| By: | d'Artis Kancs |
| Abstract: | Europe is raising defence commitments under conditions of geoeconomic fragmentation, but fiscal commitments do not automatically become usable capability. This paper asks how non-kinetic geoeconomic shocks affect the capacity of European countries to convert defence resources into readiness-enabling capability. It develops a readiness-enabling index for European countries that combines four components: macroeconomic capacity, sectoral resilience, defence-industrial capability, and logistics and sustainment. The index is calculated at country level and reported through disclosure-controlled regional aggregates. It is a diagnostic measurement framework, not an estimate of classified operational readiness, combat effectiveness, military power, or causal battlefield outcomes. The results show that readiness-enabling capacity is uneven across Europe. Stronger aggregate profiles remain constrained by certified surge conversion, while countries on the eastern and south-eastern flank face more binding logistics, replenishment, air-defence, ammunition, infrastructure, and production-depth constraints. Across scenarios, losses are largest when geoeconomic fragmentation, supply-chain disruption, and reduced external support occur simultaneously. The paper contributes to defence economics by modelling readiness as an economic-industrial conversion problem under stress and by showing that binding constraints differ across countries, making uniform spending targets insufficient guides to preparedness. |
| Keywords: | defence economics, defence readiness, geoeconomic fragmentation, defence-industrial base, military logistics, supply-chain resilience, NATO burden sharing, Europe. |
| JEL: | F51 F52 H56 L64 O25 R11 |
| Date: | 2026–01–05 |
| URL: | https://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2026_05 |
| By: | Jimenez Martinez Maribel (European Commission - JRC); Villani Davide (European Commission - JRC); Fana Marta; Fernandez Macias Enrique (European Commission - JRC) |
| Abstract: | The tasks approach has become central to the analysis of labour markets, technological change and job quality, yet comprehensive data sources offering detailed, country-level task profiles remain scarce, leaving open the question of how far tasks actually vary across national contexts. This paper addresses that gap using the novel 2022 ad hoc module of the European Labour Force Survey, which provides rich individual-level information on tasks performed by workers across 22 European countries. We pursue three objectives. First, to identify the underlying dimensional structure of tasks in Europe and assess whether it is stable across countries. Second, to quantify the relative contribution of occupation, industry, worker and job characteristics, and most importantly national context to variation in task content. Third, to distinguish whether cross-country differences reflect differences in occupational composition or different ways of performing the same job across national settings, challenging the common assumption of occupation-task similarity across countries. We find that task indicators cluster into four broad dimensions (information processing, autonomy, social tasks, and physical and routine work) a structure that is remarkably stable across countries. Occupation is the dominant structured source of task variation, while industry plays only a marginal role; country-specific factors are substantial and consistently exceed workers' sociodemographic characteristics, workplace factors and industry in determining the distribution of tasks. These results carry important policy implications, offering new evidence on how work is organised across Europe and on the task content underlying occupations. Since tasks constitute the activities through which skills are deployed and developed at work, understanding their distribution is essential for anticipating changing skill needs, strengthening skills intelligence, and designing effective training and labour market policies. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:laedte:202609 |
| By: | Robert C. M. Beyer; Nina Biljanovska; Alexandra Fotiou; Morgan Maneely; Mr. Frederik G Toscani |
| Abstract: | Amid sharp house price increases in some parts of Europe, housing affordability has again become one of the main concern of households. This paper conducts three complementary sets of analyses to shed light on the drivers and economic implications of declining housing affordability. First, using a structural VAR, we show that supply-side factors have become increasingly prominent drivers of house prices—a notable shift from the credit-driven price increases that preceded the Global Financial Crisis. Second, drawing on household-level EU-SILC data, we argue that the burden has fallen disproportionately on lower-income urban renters, who face both rising rents and diminishing prospects of transitioning to homeownership. This is especially true for financially more vulnerable renters who have seen their probability of becoming home owners fall by more than half since the pre-GFC period. Third, we provide new empirical evidence that the resulting widening of income and wealth gaps between owners and renters is compounded by the efficiency cost of reduced labor mobility, as high housing costs make it harder for workers to move to more productive locations – quantitively, housing affordability constraints might have led to around one million foregone moves within the EU over the past decade. The analyses underpin the policy recommendations to alleviate housing affordability challenges set out in the IMF’s 2026 Euro Area consultation, including the need to focus on national measures to boost housing supply, with a complementary role for EU-level action. |
| Keywords: | Housing affordability; house prices; income distribution; labor mobility |
| Date: | 2026–08–28 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/177 |
| By: | Langer, Maximilian; Hassib, Joshua; Feld, Lars P.; Nientiedt, Daniel |
| Abstract: | This paper assesses the effectiveness and fiscal implications of the German debt brake, a constitutional fiscal rule introduced in 2009 to ensure debt sustainability. To estimate its causal effects, we employ a synthetic control design that combines canonical, augmented, and multiple-outcome synthetic control methods alongside comparative interrupted time-series analysis. We compare the observed trajectories of six fiscal and macro-financial outcome variables in Germany with their counterfactual trajectories of a synthetic Germany without the rule. The results indicate that the debt brake was a key driver of the consolidation of German public finances during the 2010s. It substantially reduced debt accumulation and improved the primary balance. By strengthening fiscal discipline, the rule likely also contributed to lower financing costs, although this effect cannot be attributed to the debt brake exclusively. We find no robust evidence that the rule reduced public investment at the federal level. At the general government level, investment effects are less conclusive and may reflect vertical fiscal interactions across different levels of government. The results are supported by a range of inference procedures and robustness checks. |
| Keywords: | Fiscal rules, Fiscal federalism, German debt brake, Policy evaluation, Synthetic control method |
| JEL: | C13 C53 D78 H60 H63 H77 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:aluord:343049 |
| By: | Laura Deen; Daniel Dimitrov |
| Abstract: | We quantify the implicit too-big-to-fail (TBTF) funding advantage of large Eu-ropean banks using CDS market data. Applying a reduced-form asset pricing frame-work, we decompose spreads into a fundamental credit-risk component and a resid-ual wedge attributable to implicit government support. We do not find evidence that G-SIB designation is associated with lower funding costs once bank funda-mentals and sovereign factors are taken into account. By contrast, banks whose assets exceed half of home-country GDP enjoy at least 30% lower credit spreads than those of otherwise comparable peers. A time-varying specification reveals that the TBTF wedge persists through 2024, and while average spreads are significantly lower across the board compared to the period around the Great Financial Crisis, the implicit bailout guarantee as a proportion of total spreads has not diminished in recent years. Moreover, the results suggest that the TBTF premium depends on sovereign fiscal strength: the funding advantage of systemic banks declines when home-sovereign CDS spreads rise. This points to Europe’s TBTF problem being primarily domestic in nature and relates to the strength of the home sovereign. |
| Keywords: | too-big-to-fail; CDS spreads; implicit subsidies; systemic risk; Euro-pean banking; sovereign-bank nexus |
| JEL: | G21 G28 G12 H81 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:dnb:dnbwpp:868 |
| By: | Reis, Ricardo |
| Abstract: | This article uses inflation expectations to investigate the mechanisms that linked supply and demand shocks to inflation outcomes during 2021–2024. It describes several theoretical mechanisms through which shocks led to inflation, highlighting the role of expectations in this process. It uses multiple sources of expectations data for the United States, Euro area, and United Kingdom to evaluate each of these channels. Finally, it surveys the literature that has used expectations data to make sense of the 2021–2024 inflation surge. The article applies the results from this investigation to assess how well-anchored inflation expectations were during the surge and at the end of it. |
| Keywords: | inflation disaster;market expectations;surveys;Phillips curve;fiscal theory;doves |
| JEL: | E31 E52 D84 |
| Date: | 2026–08–31 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:138478 |
| By: | Schack, Trine (Department of Economics and Business Economics, Aarhus University); Meekes, Jordy (Leiden University); Barreto, César (OECD, Paris); Carcillo, Stéphane (Sciences Po, Paris); Fluchtmann, Jonas (OECD); Hijzen, Alexander (OECD); Lochner, Benjamin (FAU Erlangen-Nuremberg); Nibloe, Matthew (UCL); Vejlin, Rune (Aarhus University) |
| Abstract: | We study the incidence, sources, and dynamics of low-wage employment using harmonised linked employer-employee administrative data from Denmark, France, Germany, the Netherlands, Portugal, and the United Kingdom. We examine how worker characteristics, firm-specific wage premia, wage progression, and labour market institutions shape outcomes at different parts of the lower wage distribution. Three main findings emerge. First, worker characteristics account for most of the wage gap facing low-wage workers, though firm-specific wage premia matter too, especially at the very bottom. Firm premia reflect both sorting across industries and pay differences across firms within industries. Second, low-wage employment is at least partly transitory, as workers at the bottom see faster subsequent wage growth and change firms more often. Third, minimum wages and marginal effective tax rates show limited systematic association with wage growth or job-to-job mobility, though higher minimum wages are linked to a smaller share of workers below 70 % of the median. These patterns are broadly similar across countries and point to the joint importance of worker skills and access to higher-paying firms for improving low-wage workers' prospects. |
| Keywords: | low-wage employment, cross-country, matched employer-employee data, wage premia, taxes |
| JEL: | J24 J31 J38 J62 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18891 |
| By: | Coleman, Winnie |
| Abstract: | A persistent gender gap in inflation expectations, i.e., women systematically reporting higher expected inflation than men on average, has been documented across countries and over time, yet its underlying causes remain under debate. Using more than half a million responses from the ECB Consumer Expectations Survey and a double machine learning framework that provides valid inference on many dimensions of heterogeneity at once, I show that there is no single gender gap: individualized gaps range from roughly -1 to +5 percentage points. This heterogeneity is shaped primarily by subjective belief-formation variables, such as forecast uncertainty and the rounding of inflation beliefs, and only to a much lesser extent by objective ones, such as financial literacy. When inflation is high enough to attract consumers' attention, the average gap narrows, but the distribution of individual gaps fans out, widening precisely for economically vulnerable women. Since the women who diverge most from men hold the most imprecise beliefs, communication that reduces ambiguity, rather than solely providing information, is a promising policy lever. |
| Keywords: | Consumer Inflation Expectations, Expectation Formation, Gender, Double Machine Learning, Big Data |
| JEL: | C55 D84 E31 E58 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:fubsbe:343048 |