|
on European Economics |
|
Issue of 2026–10–05
fifteen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Carlo Alcaraz; Stijn Claessens; Gabriel Cuadra; David Marques-Ibanez; Horacio Sapriza |
| Abstract: | How does the credible announcement of an unconventional monetary policy intervention affect bank lending standards during crises? We use a major central bank announcement, the "whatever it takes" speech of the European Central Bank President that boosted the capital of banks, as a natural experiment. We compare changes in lending standards of subsidiaries of euro area versus other banks in a third country, Mexico. The speech reversed a prior trend of euro area banks augmenting their risk-taking via loan growth, lending rates, and credit risk. Our findings show that policies that amount to capitalization can reduce risk-taking in times of stress, adding a new dimension to the bank capital channel. |
| Keywords: | Monetary Economics |
| JEL: | E51 G21 F34 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bdm:wpaper:2026-01 |
| By: | Guido Bulligan (Bank of Italy); Paolo Farroni (Bank of Italy) |
| Abstract: | We examine the post-COVID relationship between household-level income uncertainty and consumption-saving behaviour, using granular data from the ECB Consumer Expectations Survey (CES). We find that higher uncertainty is associated with higher saving rates and lower nominal consumption, with stronger responses among lower-income and liquidity-constrained households. By decomposing uncertainty into downside and upside components, we show that most of the effect is driven by downside risk. At country level, aggregated income uncertainty provides some information beyond the traditional determinants of national saving rates, although its contribution to improving macro-model point forecast accuracy is limited. |
| Keywords: | uncertainty, income risk, saving rate, household expectations, liquidity constraints, macroeconomic forecasting |
| JEL: | D12 D84 E21 D91 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bdi:opques:qef_1046_26 |
| By: | Wagner, Joachim (Leuphana University Lüneburg) |
| Abstract: | The use of artificial intelligence (AI) goes hand in hand with higher productivity, higher product quality, and lower trade costs. Therefore, it can be expected to be positively related to export activities. This paper uses firm-level data from 12 member countries of the Euro Area collected in 2025 to shed further light on this issue by investigating the link between the intensity of use of AI and the intensive margins of exports measured as the percentage share of exports in total sales. Applying a new machine-learning estimator, Kernel-Regularized Least Squares (KRLS), which does not impose any restrictive assumptions for the functional form of the relation between margin of exports, the intensity of use of AI and any control variables, we find that firms which use AI more intensively do export a higher share of total sales. AI intensity and export intensity are positively related. |
| Keywords: | artificial intelligence, exports, firm level data, SAFE Data, kernel-regularized least squares (KRLS) |
| JEL: | D22 F14 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18939 |
| By: | Ampudia, Miguel; Beck, Thorsten; Popov, Alexander |
| Abstract: | Using exogenous variation generated by the creation of the Single Supervisory Mechanism (SSM) in the euro area, we find that relative to firms borrowing from banks subject to national supervision, firms borrowing from banks subject to supranational supervision reduce their share of intangible assets. This effect does not pre-date the supervisory reform and it does not obtain in non-SSM jurisdictions. The reallocation of investment away from intangible assets is stronger for small and young firms and appears to be driven by a short-term reduction in lending and a persistent increase in collateral standards. JEL Classification: D25, F30, G21, G28 |
| Keywords: | intangibles, international banking, investment, lending, supervision |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263286 |
| By: | Linas Jurkšas; Julien Idier |
| Abstract: | This paper examines the evolving relationship between corporate bond and stock returns in the euro area from 2007 to 2025. While theory predicts negative (or at least lower) correlations during periods of market stress and negative demand shocks, empirical evidence shows substantial instability over time. We construct equity and corporate bond indices using a strictly matched issuer universe, such that the constituent firms are identical across the two indices. We then analyse their correlation dynamics across major euro area markets using Dynamic Conditional Correlation models. Results indicate that correlations, historically negative, have since 2009 gradually trended toward neutrality, but can shift in either direction rapidly. We show that the discount-rate channel emerges as the dominant driver of co-movement in both low- and high-inflation environments. By contrast, financial stress reduces correlations – consistent with flight-to-quality dynamics –only in low-inflation regimes but not in high inflation regimes. This indicates that investors cannot rely on policy-induced compression in discount rates to generate cross-asset arbitrage opportunities in favour of bonds when inflation is high. |
| Keywords: | DCC Correlation, Corporate Bonds, Asset Allocation, Equity Returns, Monetary Policy |
| JEL: | G12 G14 E43 E52 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:1065 |
| By: | Gustaf Dillner; Rebecca Freeman; Kalina B. Manova; Thomas Sampson |
| Abstract: | How successful is European integration in removing non-tariff trade barriers? We study how Brexit affected UK firms' input sourcing and sales. The post-Brexit Trade and Cooperation Agreement (TCA) reduced sales and input expenditure at firms with higher pre-Brexit EU trade exposure. It also caused firms to switch towards domestic and non-EU inputs. Through the lens of a trade model, the switch in input sourcing implies the TCA increased trade costs on EU imports by 21% and raised unit production costs by 3.1% for the average UK importer. Our results indicate EU membership secures large reductions in trade costs. |
| Keywords: | trade policy, non-tariff barriers, Brexit |
| JEL: | F13 F14 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_13007 |
| By: | Benedikt Heid (Universitat Jaume I); Kumuthini Sivathas (The University of Adelaide) |
| Abstract: | In the coming decades, Europe’s and China’s population will shrink, whereas other world regions will experience continuing population growth. Similarly, productivity growth will differ across developing and developed economies, leading to changes in future market sizes across countries. These changes will reshape countries’ attractiveness as partners in free trade agreements (FTAs), impacting the geopolitical influence of economies like the European Union (EU) and China. Standard methods for evaluating FTAs abstract from these changes in market sizes. We use population and productivity projections to evaluate the welfare effects of future trade agreements as a function of market size. We apply our method to a potential EU-China FTA. For the EU, we find that as the EU’s market size grows by 7.46% between 2025 and 2050, the welfare effect of a potential EU-China FTA increases by 23.8%. For China, a projected market size increase of 32.53% leads to a 13.3% decrease in the welfare effects of the FTA. We show that total factor productivity growth is a more relevant driver of welfare changes than population dynamics, suggesting that policy makers should prioritize future productivity growth when evaluating future trade agreements. |
| Keywords: | quantitative trade theory, trade predictions, population growth, productivity growth, EU-China trade. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:adl:wpaper:2024-04 |
| By: | Renzullo, Elena; Scotti, Francesco |
| Abstract: | We examine whether incentive-based policies reduce 2 emissions among beneficiary Italian firms, using project-level data from European cohesion policy. Exploiting quasi-random variation in the timing of EU-funded projects, we apply a staggered difference-in-differences design. We find robust evidence that EU climate-related incentives lower firm emissions. Recipient firms reduce 2 emissions per unit of assets by 4.6% relative to non-recipient firms, while a 1% increase in EU funds per unit of assets leads to a 1.1% reduction in emissions. The effects are larger in less developed and transition regions, where policy resources are more concentrated, and among energy-sector firms. We further show that emission reductions are mainly driven by increased R&D activity: firms receiving green EU funds raise patenting by 3.0%–3.6%, with no significant effects on employment or tangible assets. These findings highlight the potential of incentive-based climate policy. |
| Keywords: | carbon abatement;CO2 emissions;EU cohesion policy;green transition;incentive-based policies |
| JEL: | Q58 Q56 |
| Date: | 2026–09–24 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:141132 |
| By: | Andreas Baur; Lisandra Flach |
| Abstract: | Key MessagesEU tariffs on China are no silver bullet. They carry economic costs and unintended side effectsTariffs might raise the cost of imported inputs, weakening export-oriented manufacturers compared to foreign rivalsThe reach of countervailing duties is limited: they do not apply in third markets, where European manufacturing sells around a quarter of its output and still faces Chinese competitionRather than shaping its China policy on its own, the EU should actively seek allies; it should therefore avoid measures that hit the very partners it needs |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:econpb:_87 |
| By: | Paul Hubert; Rose Portier |
| Abstract: | Are individuals who are most confident in their forecasts the most accurate? This is what household surveys reveal, unlike professional forecasters. Drawing on four surveys from the euro area and the United States, we show that the uncertainty reported by households regarding their inflation forecasts contains information about the quality of those forecasts, particularly when households overestimate inflation. <p> Les individus les plus confiants dans leurs prévisions sont-ils les plus précis ? C’est ce que révèlent les enquêtes auprès des ménages, contrairement aux prévisionnistes professionnels. À partir de quatre enquêtes en zone euro et aux États-Unis, nous montrons que l'incertitude déclarée par les ménages sur leurs prévisions d’inflation contient une information réelle sur la qualité de ces prévisions, et ce d’autant plus lorsque les ménages surestiment l’inflation. |
| Date: | 2026–10–02 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:econot:461 |
| By: | Mr. Lev Ratnovski |
| Abstract: | The paper examines opportunities for deeper economic integration between the EU and the Western Balkans and assesses their potential economic impact. It documents key non-tariff barriers to Western Balkan–EU industrial goods trade—covering regulatory, customs, and border-logistics frictions—amounting to around 8–14 percent ad valorem equivalent. Reducing these barriers, alongside deeper agri-food and services integration, could generate substantial gains, allowing the Western Balkans to capture roughly one-quarter to one-half of the economic benefits of full EU membership while supporting EU objectives related to nearshoring, supply-chain resilience, regional integration, and connectivity. |
| Keywords: | European Union; Western Balkans; Economic Integration; Non-Tariff Barriers; Single Market; EU Enlargement; Trade Facilitation; Global Value Chains |
| Date: | 2026–09–18 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/196 |
| By: | Concetta Rondinelli (Bank of Italy); Federico Tullio (Bank of Italy); Francesca Zanichelli (Bank of Italy) |
| Abstract: | This paper analyses the extent to which demographic changes have affected household consumption behaviour over the period 1997-2023. Using microdata from the Italian Household Budget Survey (HBS), we show that average household expenditure in real terms declined significantly over the last twenty-five years. Changes in population structure contributed to this trend: population ageing had only a limited impact, whereas the decline in average household size and in the share of couples with children played an important role. These changes, on the other hand, mitigated the decline in per-capita consumption and had only a negligible effect on equivalised consumption. The composition of household expenditure remained broadly stable over time for most expenditure categories. By contrast, the share allocated to housing and utilities increased substantially, mainly reflecting relative price dynamics and, to a lesser extent, the rising prevalence of single-person households. |
| Keywords: | consumption pattern, demographics, Covid-19 |
| JEL: | D12 C52 J11 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bdi:opques:qef_1033_26 |
| By: | Josip Tica (Faculty of Economics & Business, University of Zagreb); Vladimir Arčabić (Faculty of Economics & Business, University of Zagreb); Viktor Viljevac (Faculty of Economics & Business, University of Zagreb) |
| Abstract: | Output gap estimates play a key role in macroeconomic policy, but different estimation methods often give conflicting readings of the cyclical position. This paper explores the quasi-real-time dynamics of model uncertainty, defined as the cross-method dispersion of output gap estimates. To estimate output gaps and quantify model uncertainty, we use thirteen univariate, multivariate, and institutional output gap measures for 25 EU member states and the United Kingdom over 2002:Q1 to 2024:Q4. The results show an asymmetric pattern: model uncertainty rises sharply in contractions but shows no clear relationship with growth in expansions, where it is also more persistent. A nonlinear dynamic panel model estimates the threshold separating the two regimes at a quarterly GDP growth rate near minus one percent, which matches the recession threshold implied by Friedman’s plucking model of business cycles. Out-ofsample panel probit forecasts that use model uncertainty as the only predictor track recessions reasonably well at horizons up to one year, with the best performance at short horizons. A systematic increase in model uncertainty in recessions complicates the decision-making in real time, especially around the business cycle turning points. |
| Keywords: | model uncertainty, economic policy, output gap estimates |
| JEL: | E32 E37 E52 F44 C22 |
| Date: | 2026–09–30 |
| URL: | https://d.repec.org/n?u=RePEc:zag:wpaper:2606 |
| By: | Catherine Mathieu (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po) |
| Abstract: | Le référendum sur la sortie du Royaume-Uni de l'Union européenne a eu lieu le 23 juin 2016, soit il y a 10 ans. Le Brexit l'a emporté. Le Royaume-Uni a quitté l'Union européenne le 31 janvier 2020, mais est resté membre du marché unique jusqu'au 31 décembre 2020. Avant, et depuis le référendum, de nombreuses études ont analysé l'impact du Brexit sur l'économie britannique. Aujourd'hui, que peut-on en dire ? L'analyse est délicate puisque la période est courte (cinq ans et demi) et a été marquée par de nombreux événements : certains chocs, négatifs, qui ont touché toutes les économies : la crise Covid, l'invasion russe de l'Ukraine et la crise énergétique, la hausse des droits de douane américains, mais aussi certains événements favorables à la croissance : la reprise des pays du Sud de la zone euro après la crise des dettes souveraines, le développement des hautes technologies et la politique budgétaire expansionniste aux États-Unis. Cet article propose un état des lieux de l'économie britannique dix ans après le référendum. La première partie présente l'évolution des grandes variables macroéconomiques au cours des 27 dernières années, en distinguant deux sous-périodes : 1998-2015 (du lancement de l'euro au référendum britannique) ; 2016-2025 (depuis le référendum). La deuxième partie propose une revue de littérature des études parues depuis le Brexit. Les parties suivantes analysent la situation de l'investissement, du commerce extérieur, du secteur financier, de la productivité et de l'immigration : cinq domaines pour lesquels les études réalisées avant le référendum annonçaient un impact important du Brexit. Enfin, nous présentons quelques grands traits de l'évolution de la politique économique britannique depuis 2016. |
| Keywords: | immigration, services financiers, commerce extérieur, économie britannique, Brexit |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05753660 |
| By: | Alice Albonico (University of Milano-Bicocca); Guido Ascari (University of Pavia, De Nederlandsche Bank, CEPR); Qazi Haque (Adelaide University); Kostas Mavromatis (De Nederlandsche Bank, University of Amsterdam); Andra Smadu (De Nederlandsche Bank) |
| Abstract: | We develop and estimate an open economy DSGE model for the euro area where global energy prices and the exchange rate jointly determine domestic inflation, because imported energy, priced in foreign currency, enters both consumption and production. Energy and exchange-rate disturbances account for the bulk of short-run volatility in headline euro area inflation, with energy price shocks driving most of the post-pandemic surge. Because energy and non-energy goods are poor substitutes, an adverse energy price shock raises import values, deteriorating the trade balance and depreciating the real exchange rate through the net-foreign-asset and UIP channels. The exchange-rate channel strengthens monetary transmission and improves the short-run inflation-output trade-off relative to a non-energy economy. Optimal policy can exploit this channel rather than looking through energy price shocks. The case for looking through such shocks becomes stronger when the central bank assigns a greater weight to output gap stabilization and prices become stickier. |
| Keywords: | Monetary policy; Inflation; Energy; Bayesian estimation |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:adl:wpaper:2026-07 |