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on European Economics |
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Issue of 2026–10–26
seventeen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Aris Avgousti (Central Bank of Cyprus); Stephanie Michael (Central Bank of Cyprus) |
| Abstract: | The Working Paper is available in Greek only. |
| Keywords: | Banking competition; Market power; Interest rate pass-through; Monetary policy transmission; Euro area banking sector; Cyprus banking sector |
| JEL: | G21 L11 D43 E52 E43 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cyb:wpaper:2026-1 |
| By: | Stefan Hohberger |
| Abstract: | This paper analyses the structural drivers of bilateral real exchange rate dynamics within the euro area and between the euro area and the United States over 1999-2025, using an estimated seven-country New Keynesian DSGE model of the world economy. The model features an ex ante identical structure across the country blocs and is estimated on a unified information set. International financial market shocks dominate the EA-US bilateral real exchange rate dynamics, with productivity differentials generating persistent euro appreciation pressure. Rising world demand and a secular decline in EA home bias exert partially offsetting euro depreciation pressure. Within the monetary union, the pre-crisis appreciation of France, Italy, and Spain relative to Germany reflects country-specific combinations of demand, supply, and trade disturbances that broadly unwind after 2008. Trend productivity differentials emerge as the dominant low-frequency driver, most starkly for Italy, where persistently slower trend productivity growth drives the bilateral real exchange rate through the sample. Model validation against empirical moments, exchange rate pass-through benchmarks, and off-model indicators confirms the empirical plausibility of the structural identification. |
| Keywords: | real exchange rates, euro area competitiveness, multi-country DSGE, Bayesian estimation |
| JEL: | C51 E32 F41 F45 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-85 |
| By: | Silva Lopes, Artur |
| Abstract: | This paper reconsiders the case of the rivalry between the HP and the Hamilton detrending methods, assessing it from a new angle, that of estimation of the trend itself. An extensive Monte Carlo study based on Euro area GDP is performed which, besides confirming and even reinforcing the superiority of the HP filter in terms of goodness of fit, demonstrates that, when the assessment criteria are designed to measure the success in terms of replicating long-run properties, the positions are switched, Hamilton's method dominating the HP filter. Since, however, both methods exhibit implausible features, a combination of them is employed to derive some empirical evidence concerning the Euro Area economy. |
| Keywords: | trends, trend-cycle decomposition, detrending, Euro Area |
| JEL: | C18 C22 E01 O47 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:344078 |
| By: | Maria Karantali (Department of Economics, University of Macedonia, Greece.); Theologos Pantelidis (Department of Economics, University of Macedonia, Greece.); Theodore Panagiotidis (Department of Economics, University of Macedonia, Greece.) |
| Abstract: | This study examines the evolution of overqualification across 28 European countries and investigates the macroeconomic and labour market factors shaping its persistence and cross-country differences. Using the Phillips–Sul club convergence methodology, we show that young workers in Europe exhibit multiple convergence paths, while experienced workers tend to converge towards a common equilibrium. We then identify the characteristics associated with convergence club membership using an ordered probit model and examine the short-run determinants of overqualification through a System GMM dynamic panel framework with regional interactions. The results highlight substantial heterogeneity across European labour markets: overqualification is persistent over time, and the effects of unemployment and unemployment benefits on skill mismatch vary between northern and peripheral European economies. These findings suggest that overqualification is shaped not only by individual characteristics but also by labour market institutions and macroeconomic conditions, with important implications for education, employment, and skills-matching policies in Europe. |
| Keywords: | overqualification, European labour markets, unemployment, club convergence, system GMM estimation |
| JEL: | J24 J21 I28 C23 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:mcd:mcddps:2026_13 |
| By: | Faïk, Emmanuel; Vergote, Olivier |
| Abstract: | This paper quantifies the regulatory cost of short-term money market transactions and analyses how post-global financial crisis prudential reforms shape the structure of euro area money markets and the redistribution of central bank reserves. As the stock of reserves declines with the normalisation of the European Central Bank’s balance sheet, trading in money markets is becoming increasingly important to banks’ liquidity management. As the related money market volumes rise, regulatory constraints may become a more visible determinant of trading activity and short-term rate formation. Focusing on key Basel III requirements – the liquidity coverage ratio, net stable funding ratio and leverage ratio – the paper derives stylised estimates of the marginal regulatory cost associated with unsecured and secured interbank transactions. The results indicate that unsecured interbank lending entails material regulatory costs, estimated at around 35 basis points for lenders and around 15 basis points for borrowers in the second half of 2025, reflecting capital and stable funding requirements. By contrast, secured transactions such as repurchase agreements benefit from substantially lower costs, typically well below 10 basis points when backed by high-quality collateral. These differences create structural incentives favouring secured over unsecured intermediation, suggesting that repo markets are likely to remain the main channel for reserve redistribution as the stock of reserves declines. The findings imply that post-crisis regulation has contributed to a persistent shift in the structure of euro area money markets, with implications for liquidity distribution and monetary policy implementation. JEL Classification: E43, E52, E58, G21, G28 |
| Keywords: | bank regulation, liquidity regulation, monetary policy implementation, money markets, repo markets |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbops:2026401 |
| By: | Jonas Hennrich; Klaus Wohlrabe |
| Abstract: | Do major football tournaments move economic sentiment, and does it matter whether a country's national team takes part? We combine the European Commission's harmonized business and consumer surveys for the 27 EU member states from 1991 to 2025 with 17 World Cups and European Championships. The Economic Sentiment Indicator is about 2.3 points higher in tournament months than in other months of the same calendar year, but it is similarly elevated in the two months before; consumer confidence shows no robust pattern. Because the tournament calendar is common to all countries and almost all tournaments fall in even years, this association rests on 17 events and cannot be separated from a broader two-year rhythm in sentiment; relative to randomly drawn years, it is unusual before 2020 and marginal in the full sample (p = 0.08 to 0.14). Participation varies across countries and can be tested with full time fixed effects, under weaker assumptions. We find no statistically significant participation premium in the baseline specification and no participation-specific jump at kick-off in any specification; large premia are hard to reconcile with the data, smaller ones remain possible. |
| Keywords: | economic sentiment, expectations, FIFA World Cup, UEFA European Championship, consumer confidence, business surveys, randomization inference |
| JEL: | D84 E32 L83 Z20 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_13070 |
| By: | Hanzhe Xing; Michael G Pollitt |
| Keywords: | Carbon border adjustment mechanism, EU ETS, CN ETS, UK ETS |
| JEL: | Q51 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:enp:wpaper:eprg2622 |
| By: | Becker, Peter |
| Abstract: | Im Juli 2025 hat die Europäische Kommission ihren Vorschlag für einen mehrjährigen Finanzrahmen (MFR) der EU für die Jahre 2028 bis 2034 unterbreitet. Seither verhandeln die Mitgliedstaaten im Rat der EU darüber und bereiten eine Konsenslösung vor, die im besten Falle noch im Jahr 2026 zu einer Einigung der Staats- und Regierungschefs führen soll. Mit dem neuen MFR soll der Haushalt umfassend modernisiert und die EU auf neue Aufgaben und Herausforderungen vorbereitet werden. Dabei spielt die Flexibilisierung des nächsten MFR eine herausgehobene Rolle. Sowohl die Mitgliedstaaten als auch die europäischen Institutionen unterstützen das Anliegen, die Ausgabenpolitiken der EU flexibler zu gestalten, um die EU besonders in Krisensituationen und bei unvorhergesehenen neuen Problemen handlungsfähiger zu machen. Dieses Vorhaben steht jedoch in Konflikt zum besonderen Wert des siebenjährigen Budgets, nämlich seiner Vorhersehbarkeit und der Planbarkeit seiner Förderprogramme. Neben der Beilegung der traditionellen Verteilungskonflikte zwischen Nettozahlern und Nettoempfängern wird dann auch eine Verständigung über die Flexibilisierung des MFR und die damit vebundenen institutionellen Fragen gefunden werden müssen. |
| Keywords: | Europäische Union, EU, Europäische Kommission, Mehrjähriger Finanzrahmen, MFR, 2028-2034, EU-Haushalt, NGEU-Rückzahlung, NRPP, GAP, ECF, EU-Fazilität, Flexibilität, Berechenbarkeit, Catalyst Europe, Krisenmechanismus |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:swpakt:344119 |
| By: | Ebener, Luca; McGregor, Thomas |
| Abstract: | We introduce a novel measure of how European Central Bank (ECB) monetary policy is interpreted by analysts at major investment banks. We construct a “policy interpretation shock” based on the language used in analysts’ reports covering monetary policy decisions by the ECB’s Governing Council (GovC). The main identifying assumption is that changes in the way analysts report on policy communication by the GovC—that is, the change in the policy tone from the preview report to the recap report—reflect unexpected information revealed by the policy event. Using GPT-based sentiment extraction, we show that the tone in these reports closely tracks that of the GovC, often even anticipating shifts in tone. Changes in the policy tone before and after meetings capture how market intermediaries interpret and adjust their assessment of policy decisions. These interpretation shocks are followed by contractionary macroeconomic responses and systematic movements in financial-market prices. These findings underscore the important role of communication in shaping expectations and influencing economic outcomes. JEL Classification: E52, E58, E44 |
| Keywords: | analyst reports, large language models, monetary policy communication |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263298 |
| By: | Antonio Minniti (Department of Economics, University of Bologna); Klaus Prettner (Department of Economics, Vienna University of Economics and Business); Francesco Venturini (Department of Economics, University of Urbino) |
| Abstract: | We study whether AI innovation changes labor-market polarization by weakening the relative position of high-skilled workers. We develop a CES production framework showing how AI affects the wage-cost ratio between high- and low skilled workers through wage and employment margins. We test the model's predictions using European regional labor-market data and find that AI reduces the relative wage-cost ratio by nearly 7 percent on average, with effects broadly split between wage and employment adjustments. These results are primarily driven by regions in countries highly specialized in AI technologies. Overall, our evidence suggests that AI may counteract the polarization effects associated with over two centuries of technological change. |
| Keywords: | AI, Wage-cost ratio, Employment, CES, DiD |
| JEL: | O3 R1 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp400 |
| By: | Diana Lima; Duarte Maia; Paul Levine; Jonathan Swarbrick; Stylianos Tsiaras |
| Abstract: | The recent period of rising inflationary pressures and monetary policy tightening posed new challenges for macroprudential authorities in the euro area. In a monetary union, national authorities are unable to set independent monetary policy and rely on macroprudential tools to deal with domestic financial imbalances. This paper examines how inflation and interest rate tightening originating in the broader euro area spill over to a small open economy within the union, and assesses the role of national macroprudential policy in mitigating these effects. Using a structural model with banking frictions, housing, and both borrower-based and capital-based instruments, we show that pre-emptive and countercyclical macroprudential policy can strengthen banking sector resilience and dampen the impact of external shocks. In contrast, procyclical tightening may worsen outcomes, particularly when resilience is initially low. |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ptu:wpaper:w202609 |
| By: | Ethan Barnaby Kapstein; Javier Ospital; Guntram Wolff |
| Date: | 2026–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:ulb:ulbeco:2013/414180 |
| By: | Nicolas Châtelais; Yannick Kalantzis; Youssef Ulgazi |
| Abstract: | Using an accounting approach, we estimate that a EUR 10 increase in the price of a barrel of oil would now raise consumer prices by 0.3% to 0.4% in France and by 0.4% to 0.5% in the euro area, compared with 0.6% and 0.7% respectively in 2016. This lower sensitivity is due to a reduction in both the direct effects on fuel prices and the indirect effects passed on via production costs. <p> Sur la base d’une approche comptable, nous estimons qu’une hausse de 10 euros du prix du baril accroîtrait aujourd’hui les prix à la consommation de 0, 3 à 0, 4 % en France et de 0, 4 à 0, 5 % dans la zone euro, contre respectivement 0, 6 % et 0, 7 % en 2016. Cette moindre sensibilité tient à la baisse tant des effets directs sur les carburants que des effets indirects transmis par les coûts de production. |
| Date: | 2026–10–15 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:econot:465 |
| By: | Kılınç, Ayşegül; Elkerbout, Milan (Resources for the Future) |
| Abstract: | On July 17, 2026, the European Commission published a proposal to revise the EU emissions trading system (ETS). ETS revisions tend to happen roughly every five years to account for changes in the European Union’s overall climate policy and the global economy. Earlier this year, the European Union confirmed its climate target for 2040 of reducing greenhouse gas (GHG) emissions by 90 percent relative to 1990. In this issue brief, we review some of the key proposed changes to the ETS design, especially as related to allowance allocation and other design elements that are relevant to industrial product regulation. |
| Date: | 2026–10–13 |
| URL: | https://d.repec.org/n?u=RePEc:rff:ibrief:ib-26-08 |
| By: | Wildmer Daniel Gregori; Fabio Di Dio; Lorenzo Frattarolo; Maria Martinez-Cillero |
| Abstract: | We study how carbon pricing affects firms’ investment and capital productivity relative to comparable firms not exposed to environmental regulation. Using matched EUTL–Orbis data for European firms over 2005–2020, we estimate the effects of Phase 3 of the EU Emissions Trading System (EU ETS) on investment, productivity, and profitability through propensity-score matching and two-way fixed-effects difference-in-differences regressions. We find that ETS firms invest more than comparable non-ETS firms along both the intensive and extensive margins, while displaying lower measured capital productivity and no significant changes in total factor productivity, profitability, or fixed assets. To interpret this evidence, we develop a two-sector RBC model with abatement capital. In the regulated sector, firms accumulate a durable capital stock that reduces emissions intensity and future permit requirements but does not enter the production function. The model shows how carbon pricing can generate stronger investment in regulated firms while lowering measured capital productivity, highlighting the importance of distinguishing productive from compliance-related capital when evaluating the effects of environmental policy. |
| JEL: | E22 E32 Q52 Q58 C23 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ptu:wpaper:w202608 |
| By: | Pajarinen, Mika |
| Abstract: | Abstract We compare the structure of intangible investment in Finland and Sweden in 2015–2021 using two data sources: the EU KLEMS & INTANProd database, which builds on national accounts and complementary sources, and the European Investment Bank’s EIBIS enterprise survey. Intangible investment items that have a market transaction and an accounting counterpart – software and data, and in Finland also R&D – are fairly consistent across the two sources. By contrast, items that INTANProd derives from firms’ own labor input using the sum-of-costs method diverge strongly: the share of organizational capital in INTANProd is almost four times that in the survey, while for training the gap runs in the opposite direction. The shares of intangible investment, and the results of cross-country comparisons, thus depend materially on the measurement approach. These findings are supported by evidence on France and Germany (Nonnis, Roth & Bounfour, 2025a), where the largest discrepancies between sources are located in the same sum-of-costs items and where cross-country differences in organizational capital largely trace back to national practices in classifying managerial occupations. Our own calculations show that the share of employees classified as managers is roughly twice as high in Sweden as in Finland, so the same classification sensitivity also applies to the Finland–Sweden comparison. |
| Keywords: | Intangible investment, Measurement, National accounts, Firm surveys |
| JEL: | E01 E22 O34 |
| Date: | 2026–10–12 |
| URL: | https://d.repec.org/n?u=RePEc:rif:wpaper:150 |
| By: | Harald Oberhofer (Department of Economics, Vienna University of Economics and Business); Zhenyi Wang (Department of Economics, Vienna University of Economics and Business) |
| Abstract: | This paper quantifies how the construction of trade data shapes trade policy estimates in structural gravity models. Using 14 widely employed trade datasets and alternative sample restrictions, we generate 643 estimates of the EU membership trade effect from a standard structural gravity specification. We then use these estimates in a meta-regression framework to identify how data and sample choices contribute to variation in the estimates. In a Shapley decomposition, the choices explain 69.1% of the variation, with the selection of a trade dataset alone accounting for 39.4% of the explained variation. We further distinguish between decisions that affect the measurement of a common estimand and those that alter the underlying economic margin. Including domestic trade flows increases the estimated EU membership effect by 21.2 percentage points on average and nearly doubles the implied expenditure-weighted welfare gain in a four-sector general equilibrium model. Finally, we relate differences in data generating processes across datasets to estimated trade effects, showing that trade data construction is a first-order determinant of structural gravity results. This implies that conclusions from gravity based policy evaluations are sensitive to data choices and require explicit consideration of data construction as part of the empirical identification. |
| Keywords: | Trade policy estimates, Data construction, EU membership trade effect, Welfare implication |
| JEL: | F13 F14 F15 C81 C83 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp398 |