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on European Economics |
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Issue of 2026–08–10
sixteen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Karlo Kotarac (Valcon); Davor Kunovac (Croatian National Bank, University of Rijeka, Faculty of Economics and Business); Ozana Nadoveza (University of Zagreb, Faculty of Economics and Business) |
| Abstract: | We estimate a Structural Dynamic Factor Model for 165 NUTS 2 regions across 11 euro area countries over 2000–2023, decomposing regional GDP growth into common euro area, countryspecific, and regional components. This is the first structural shock decomposition at the regional level for the euro area, suitable to evaluate optimum currency area (OCA) properties along both shock-similarity and monetary policy transmission dimensions. Four findings emerge. First, the relative importance of common euro area shocks has increased steadily at both the country and union levels, indicating improving OCA properties, while country-specific components - most pronounced in peripheral economies - have declined, pointing to a gradual erosion of the border effect. Second, aggregate business cycle synchronization conceals substantial within-country heterogeneity, implying that the costs of relinquishing monetary policy autonomy are distributed unevenly across regions and countries. Third, euro area regional dynamics are driven predominantly by endogenous OCA convergence rather than specialization-induced divergence; regions with atypical sectoral compositions do face greater exposure to idiosyncratic shocks, but this reflects structural or geographic distinctiveness rather than integration-driven specialization. Fourth, monetary policy shocks generate smaller and more homogeneous regional output responses than demand or supply shocks, and transmission heterogeneity - while modestly increasing over the sample - reflects within-country regional divergence rather than cross-country fragmentation. Taken together, OCA properties at the regional and country levels are broadly comparable, and heterogeneous monetary transmission does not constitute a major threat to policy effectiveness. |
| Keywords: | Regional divergence, Regional heterogeneity, Monetary policy, SDFM |
| JEL: | E32 E52 F45 |
| Date: | 2026–07–23 |
| URL: | https://d.repec.org/n?u=RePEc:hnb:wpaper:76 |
| By: | Ferrando, Annalisa; Lamboglia, Sara; Rariga, Judit; Schmidt, Maurice |
| Abstract: | This paper explores the adoption of artificial intelligence (AI) technologies among euro area firms, using harmonised firm-level data from two dedicated modules of the Survey on the Access to Finance of Enterprises (SAFE) conducted in June and December 2025. Based on responses from around 6, 000 firms across 12 euro area countries, the study examines AI adoption rates, drivers, barriers and economic implications. The findings suggest that AI diffusion among euro area firms is progressing rapidly but unevenly, with significant variation across countries and firm characteristics. Approximately 70% of firms report some level of AI use, but only 7% classify their adoption as significant. Adoption is highest in the Netherlands, Finland and Austria, and lowest in Italy and Ireland. Larger and younger firms, particularly in technology-intensive sectors, are leading adopters. Firms identify expected improvements in business processes as the main driver of adoption, while key barriers include skill shortages, data privacy concerns and system incompatibilities. Current AI use and investment are primarily financed through internal funds, complemented by grants and subsidised bank loans. AI adoption is positively associated with firm productivity, turnover growth, fixed investment and own selling price expectations, particularly among intensive users. Survey data show no evidence yet of aggregate labour shedding; instead, AI adoption is positively associated with employment growth. However, firms’ inflation expectations appear largely unaffected by current AI use. JEL Classification: C93, D22, E31, L25, O33 |
| Keywords: | artificial intelligence, firm-level survey data, inflation expectations, productivity |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbops:2026395 |
| By: | Pardy, Martina; Rodríguez-Pose, Andrés |
| Abstract: | This paper analyses how trade influences intra-regional income inequality across Europe’s NUTS-2 regions. Drawing on newly compiled datasets capturing both inter-regional trade and local-level inequality for all EU member states plus the UK, we employ an econometric framework —complete with Instrumental Variable estimations and robust sensitivity analyses— to gauge the impact of trade on regional interpersonal inequality. In addition to examining aggregate trade, we distinguish between various trade channels, including exchanges within the EU versus those with the rest of the world, links to neighbouring regions versus non-neighbours, and domestic versus international flows. Our findings reveal that higher levels of trade are positively associated with changes in regional income inequality, as measured by the Gini coefficient. Crucially, this link depends on trading partners: trade within a single country, within the EU, and with non-neighbouring regions correlates with rising inequality, whereas international trade, trade with non-EU partners, or trade with neighbouring regions shows no statistically significant effect. These conclusions withstand a battery of robustness checks, including new control variables and a population-weighted approach, further underscoring the role that particular types of trade play in shaping regional income disparities. |
| Keywords: | Trade; Europe |
| JEL: | D63 F14 R13 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20255 |
| By: | Ä°pek, Mahmut Sefa; Kısacıkoğlu, Burçin |
| Abstract: | We estimate the output gap for the euro area and 20 member countries using a variety of statistical models, based on 55 years of data. We also update the Area-Wide Model Database (AWMD) through 2025Q2, ensuring it remains publicly accessible. Our key findings are: (1) while statistical models broadly agree on the timing of the peaks and troughs, uncertainty persists about the business cycle's exact state due to differing estimates of the potential output, (2) statistical and institutional estimates generally align but diverge on the size of the output gap, (3) the output gaps of the five largest euro area countries are strongly correlated with each other and the overall euro area. Our work provides an important tool for understanding the business cycle dynamics of Europe's economy and offers a reliable, official output gap measure for policymakers and economists. |
| Keywords: | Output gap; Filtering; Business cycles |
| JEL: | E17 E23 E32 E37 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19913 |
| By: | Bick, Alexander; Dias Da Silva, António; Weißler, Marco |
| Abstract: | While employer-to-employer (E2E) transitions are by now well-documented, these data alone cannot reveal what drives mobility: who searches, why, and how search translates into transitions. Using novel panel data from the ECB and NY Fed consumer expectations surveys, we provide the first systematic cross-country analysis of on-the job search (OJS) and E2E transitions across eleven euro area countries and the U.S. Our data uniquely include direct measures of OJS and its motives (job loss expectations for precautionary, pay satisfaction for job ladder) for all workers, not just searchers. We find that OJS is widespread, making employed workers the majority of searchers, and it strongly predicts E2E transitions. Motives differ dramatically: precautionary search dominates in Europe, while the job ladder motive dominates in the U.S. OJS is highly persistent, with 40% continuing to search even after starting a new job. JEL Classification: J64, D84 |
| Keywords: | expectations, job search, labor market transitions |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263267 |
| By: | Ascari, Guido; Colciago, Andrea; Haber, Timo; Wöhrmüller, Stefan |
| Abstract: | The EU aims for 42.5% green energy consumption by 2030. What are the effects of the European green transition on inequality? We answer this question using a heterogeneous-agent model with non-homothetic preferences for energy and non-energy goods, calibrated to European data. We study the impact of an increase in carbon taxes designed to meet the EU target under different revenue-recycling strategies. Redistributing tax revenues via uniform transfers reduces consumption inequality, shifts the welfare burden to high-income households, but leads to significant output losses. Subsidizing green energy producers boosts energy production, reduces output losses, and requires a smaller carbon tax to meet the EU target. However, it increases consumption and income inequality, with the highest welfare costs borne by low income and asset-poor households. Our findings highlight key trade-offs between equity and efficiency in green transition policies. |
| Keywords: | Inequality |
| JEL: | Q43 Q52 E6 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20006 |
| By: | Boni Sara (Free University of Bolzano-Bozen); Iseringhausen Martin (European Stability Mechanism); Petrella Ivan (Collegio Carlo Alberto and University of Turin, CEPR); Theodoridis Konstantinos (European Stability Mechanism and Cardiff Business School) |
| Abstract: | We compute a common factor summarising asymmetries in the expected distributions of a large set of survey-based economic data series for the euro area. This expected skewness factor is distinct from lower-moment factors and can help improve forecasts of risks to economic activity and inflation. In addition, within a monthly vector autoregression (VAR), we show that revisions to survey-based expected skewness have macroeconomic and financial implications, even when the average assessment and expected volatility reflected in the surveys remain unchanged. The skewness measure could benefit economic policy institutions by supporting timely quantitative assessments of the balance of risks. |
| Keywords: | Economic sentiment, principal components, quantile regression, skewness |
| JEL: | C22 C38 E66 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:tur:wpapnw:107 |
| By: | Duygu Buyukyazici (LSE - Department of Geography & Environment - London School of Economics and Political Science - LSE - London School of Economics and Political Science); Olivier Brossard (LEREPS - Laboratoire d'Etude et de Recherche sur l'Economie, les Politiques et les Systèmes Sociaux - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - UT2J - Université Toulouse - Jean Jaurès - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - Institut d'Études Politiques [IEP] - Toulouse - ENSFEA - École Nationale Supérieure de Formation de l'Enseignement Agricole de Toulouse-Auzeville); Ron Boschma (Department of Human Geography and Spatial Planning, Utrecht University) |
| Abstract: | The transition towards a circular economy (CE) represents not only an economic shift but also a profound social and institutional transformation that redefines production, consumption, and policy. This study provides the first macro-level empirical assessment of the CE transition across European regions over the last two decades. It then examines how regional regulative, normative, and cultural–cognitive institutions shape regional CE performance, while also accounting for key confounding factors, including EU cohesion funds, regional autonomy, and the EU Circular Economy Action Plan (CEAP). The results reveal strong spatial and temporal heterogeneity, as well as distinct effects across institutional dimensions. Regulative institutions exhibit the most consistent positive association across and within countries. Normative institutions matter most within major regions, while cultural–cognitive institutions provide more modest support for CE efforts. Importantly, the combination of all institutional pillars is associated with the largest gains in circularity. EU cohesion funds significantly support CE progress, while the post-2015 results suggest that the CEAP reshaped the relative importance of institutional pillars. Overall, the findings highlight the importance of coordinated institutional frameworks and targeted policy support in advancing the regional CE transition. |
| Keywords: | Circular economy, Circular transition, Institutions, Sustainability, Regions |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05664661 |
| By: | Mariam Camarero (Universitat Jaume I, Economics Department, INTECO.); Cecilio Tamarit (University of Valencia, INTECO, Department of Applied Economics II. Avenida dels Tarongers s/n, 46022 Valencia, Spain.); Iryna Viazmikina (University Jaume I, Economics Department, INTECO.) |
| Abstract: | This paper investigates the determinants of international migration to the European Union using bilateral migration stocks from 99 origin countries to 19 EU destinations over the period 2000–2017. We apply Bayesian Model Averaging within a high-dimensional gravity framework, jointly evaluating economic, demographic, institutional, trade, policy, and proximity-based determinants under model uncertainty. We account for the multilateral nature of migration decisions by combining high-dimensional fixed effects with common correlated effects while preserving identification. Our results identify a stable core of migration drivers, together with systematic heterogeneity across origin countries by income level. These findings offer new evidence-based guidance for EU migration and integration policies. |
| Keywords: | migrations, variable selection, high-dimensional panels, gravity |
| JEL: | F22 C55 F17 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:eec:wpaper:2611 |
| By: | Huber, Johannes; Kindermann, Fabian; Kohls, Sebastian |
| Abstract: | Wealth inequality and aggregate homeownership are negatively correlated across the Euro area. We explain this within a quantitative overlapping generations model, where households consume food and shelter and make portfolio decisions. Households purchase real estate for consumption purposes or rent it out to other households on the private rental market. A reduced form wedge - correlated with empirical measures of rent control - governs rental market efficiency. Rental market efficiency is crucial in explaining cross-country variation in aggregate homeownership. Wealth inequality, however, is mainly driven by mortgage market characteristics, most importantly an interest rate spread between deposits and mortgages. |
| JEL: | C68 D15 E21 R21 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20111 |
| By: | Inderst, Roman; Valletti, Tommaso M.; Wentzien, Christoph |
| Abstract: | A decade after the EU Interchange Fee Regulation, the central competition problem in European card payments has not disappeared. Fee caps regulate one important price component, but they do not by themselves create a credible merchant-side outside option at the point of sale. Merchants remain exposed to payment methods that are, in practice, difficult to refuse and difficult to steer away from. This Policy Letter argues that the next step in European payments policy should therefore be structural rather than merely pricebased. Building on the German experience with electronic direct debit and its migration into the SEPA direct debit framework, we propose a European right for merchants to initiate direct debit transactions from debit-card credentials. Such a right would discipline card-scheme fees, reduce dependence on non-European payment infrastructures, and strengthen contestability in European retail payments. |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safepl:341990 |
| By: | International Monetary Fund |
| Abstract: | The Greek economy has experienced a strong post-COVID recovery and much improved sovereign sustainability. Growth rebounded, outperforming most Euro Area peers, and the unemployment rate steadily declined to single digits. Substantial fiscal consolidation on the back of strong growth has reduced public debt-to-GDP and the medium-term risk of sovereign stress is assessed as moderate. The country regained an investment grade rating from all major rating agencies by early 2025 with the sovereign spread currently in line with euro area peers. |
| Date: | 2026–06–17 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfscr:2026/143 |
| By: | Canzian, Giulia; Crivellaro, Elena; Duso, Tomaso; Ferrara, Antonella Rita; Sasso, Alessandro; Verzillo, Stefano |
| Abstract: | The Covid-19 pandemic caused a global economic crisis, leading governments to provide substantial State Aid to support firms. This paper examines the effectiveness of Covid-related financial support in Spain and Italy, focusing on its impact on firm recovery. Using a difference-in-differences (DiD) approach combined with propensity score weighting, it compares outcomes of similar firms receiving aid to those without. The results show significant benefits for micro-firms, including mitigated turnover declines and increased investments in both tangible and intangible assets. The findings highlight the critical role of government support in business survival and recovery, especially for SMEs, during the pandemic. |
| Keywords: | State aid; Aid effectiveness; Temporary Framework; Covid; Firm growth; investment; Difference-in-differences |
| JEL: | D04 D22 L25 L52 P43 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20172 |
| By: | Adele Bergin; Luke Doyle; Stephen Millard |
| Abstract: | In this paper, we use a model simulation‐based approach to assess the macroeconomic impact of US tariffs on the Northern Ireland (NI) economy. More specifically, we use AMNIE, a newly developed structural macroeconomic model for NI, designed for medium‐term economic projections and policy analysis to examine quantitatively the effects of tariffs of different sizes set by the United States on EU and UK exports. We find that Northern Ireland experiences persistent output losses across all tariff scenarios, with trade acting as the primary transmission channel. Further, targeted tariffs on major trading partners generate substantially larger effects than uniform global tariffs, reflecting Northern Ireland's strong integration with UK and EU markets. Finally, while Northern Ireland is significantly affected, cross‐country comparisons show that its exposure lies between that of the United Kingdom, which experiences larger declines, and the European Union, where impacts are somewhat more moderate. While these effects may be partially mitigated by trade deflection under Northern Ireland’s dual‐market access, the magnitude is uncertain and likely to depend on the scale of tariff differentials, with evidence suggesting that sizeable rerouting effects typically arise only in response to larger tariff shocks. |
| Keywords: | Macroeconomic simulation, US tariffs, Northern Ireland, trade deflection |
| JEL: | C53 E17 F13 F15 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nsr:niesrd:581 |
| By: | Di Girolamo Francesca (European Commission - JRC); Kotsev Alexander (European Commission - JRC) |
| Abstract: | The brief summarises JRC scientific contributions that informed the Technological Sovereignty Package and underscores the broader challenge of reducing dependence on third‑country technologies across the digital ecosystem. It highlights the EU reliance on non‑EU semiconductor suppliers, the economic impact of recent chip shortages, and the need for an industrial strategy (embodied in the Package) to strengthen domestic supply chains, cloud infrastructure, open‑source solutions and overall digital resilience. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc147104 |
| By: | Christos Antonios Statheas; Iacovos Sterghides; Marios Zachariadis |
| Abstract: | We use inflation expectations survey data for households across the euro-area from 2004:1 to 2025:2 to construct two direct measures of inattention: one based on individual perception errors about current inflation, and a second based on individuals who do not know the current inflation rate. We find that the heterogeneity of the impact of aggregate noise across education levels is significantly more evident for perception errors as compared to the second measure. Importantly, perception-errors-based inattention declines with individuals’ early lifetime inflation experience and rises with recent experience. By contrast, the measure based on those who don’t know the current inflation rate does not respond systematically to households’ lifetime inflation experiences across these countries. We also find that inattention as measured by current inflation perception errors is lower in most of these euro-area economies after the arrival of extreme adverse shocks and for individuals with ‘greater skin in the game’, but not according to the second measure which does not exhibit as clear a pattern across countries. Relating these measures to forecast errors, we show that while higher perception errors relate to over-prediction of the future inflation rate and higher inflation forecast inaccuracy, the opposite is true for the measure based on those who don’t know the current inflation rate due to compositional effects unrelated to inattention. Unlike the latter, perception errors systematically produce results in line with economic theory. |
| Keywords: | inflation expectations; lifetime experience; forecast errors; behavioral; belief heterogeneity; Central Bank communication. |
| JEL: | D84 E31 E70 |
| Date: | 2026–07–30 |
| URL: | https://d.repec.org/n?u=RePEc:ucy:cypeua:06-2025 |