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on European Economics |
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Issue of 2024–12–16
nine papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Ruslana Datsenko; Johannes Fleck |
| Abstract: | Economic growth in some euro area countries has been lackluster since the COVID-19 pandemic. Concurrently, the ECB hiked its policy rate to fight inflation. In this note, we show that high interest rates have depressed economic activity more in those euro-area countries with large manufacturing sectors. |
| Date: | 2024–11–12 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2024-11-12-2 |
| By: | Moritz Pfeifer; Gunther Schnabl |
| Abstract: | This paper investigates the relationship between economic divergence and expansionary monetary policies within the eurozone based on a new divergence indicator. We study the dynamics between the economic divergence of member states and unconventional monetary policy in a Bayesian SVAR and find a strong positive response of the expansion of the ECB’s balance sheet to rising divergence. We find weaker evidence for unconventional monetary policies lowering divergence. We interpret these findings as evidence that expansionary monetary policy aims to absorb shocks leading to divergence. However, it may exacerbate divergence and inflationary pressures in the long-run. This research contributes to the literature on Optimum Currency Areas (OCAs) by highlighting the dynamics between economic disparities and unconventional monetary policy. |
| Keywords: | optimum currency areas, unconventional monetary policy shocks, statistical identification |
| JEL: | E52 E58 F15 F45 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11442 |
| By: | Winfried Koeniger; Peter Kress |
| Abstract: | We use novel transaction-level card expenditure data to estimate the effect of the temporary value-added tax (VAT) cut in Germany 2020. We find that the annualized growth rate of expenditures for durables increased by 6 percentage points (pp) during the tax cut, with a particularly strong increase of up to 11 pp for consumer electronics. The expenditure growth rate for semidurables and non-durables did not change by and large. The estimates imply a consumption multiplier of 0.2 and an elasticity of fiscal revenues to a VAT rate reduction of two thirds. |
| Keywords: | consumption expenditure, transactional data, temporary VAT cut, unconventional fiscal policy |
| JEL: | D12 E21 E62 E65 H31 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11440 |
| By: | Stefania Albanesi; Wabitsch Alena; António Dias da Silva; Juan F. Jimeno; Ana Lamo |
| Abstract: | We examine the link between labour market developments and new technologies such as artificial intelligence (AI) and software in 16 European countries over the period 2011-2019. Using data for occupations at the 3-digit level, we find that on average employment shares have increased in occupations more exposed to AI. This is particularly the case for occupations with a relatively higher proportion of younger and skilled workers. While there exists heterogeneity across countries, only very few countries show a decline in employment shares of occupations more exposed to AI-enabled automation. Country heterogeneity for this result seems to be linked to the pace of technology diffusion and education, but also to the level of product market regulation (competition) and employment protection laws. In contrast to the findings for employment, we find little evidence for a relationship between relative wages across occupations and potential exposures to new technologies |
| Keywords: | Artificial intelligence; Employment; Occupations; Skills |
| JEL: | J23 O33 |
| Date: | 2024–11–18 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedmoi:99164 |
| By: | Sydow, Matthias; Fukker, Gábor; Dubiel-Teleszynski, Tomasz; Franch, Fabio; Gründl, Helmut; Miccio, Debora; Pellegrino, Michela; Gallet, Sébastien; Kotronis, Stelios; Schlütter, Sebastian; Sottocornola, Matteo |
| Abstract: | This paper documents the extension of the system-wide stress testing framework of the ECB with the insurance sector for a more thorough assessment of risks to financial stability. The special nature of insurers is captured by the modelling of the liability side and its loss absorbing capacity of technical provisions as the main novel feature of the model. Leveraging on highly granular data and information on bilateral exposures, we assess the impact of liquidity and solvency shocks and demonstrate how a combined endogenous reactions of banks, investment funds and insurance companies can further amplify losses in the financial system. The chosen hypothetical scenario and subsequent simulation results show that insurers’ ability to transfer losses to policyholders reduces losses for the entire financial sector. Furthermore, beyond a certain threshold, insurance companies play a crucial role in mitigating both direct and indirect contagion. JEL Classification: D85, G01, G21, G23, L14 |
| Keywords: | contagion, financial stability, fire sales, insurance companies, interconnectedness, stress test |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20243000 |
| By: | Schroeder, Christofer; Hviid, Simon Juul |
| Abstract: | Contractions in credit supply can lead firms to reduce their level of employment, yet little is known about how these shocks affect the composition of firms’ employees and outcomes at the worker level. This paper investigates how bank distress affects credit provision and its effects on employment beyond firm-level aggregates. To do so, we use a novel dataset built from administrative and tax records linking all banks, firms, and workers in Denmark. We show that banks that were particularly exposed to the 2008-09 financial crisis cut lending to firms, and firms were unable to fully compensate with financing from alternate sources. The decrease in credit supply led to a drop in firm-level employment, with effects concentrated among firms with low pre-crisis liquidity, and on employment of low-educated and nonmanagerial workers. At the worker level, we find that positive effects on unemployment were driven by effects on low-educated, non-managerial and short-tenured workers. Our estimates suggest that cuts in bank lending can account for at least 5% of the fall in employment of low-educated workers in our sample, and are an important factor behind heterogeneous employment dynamics in times of contractionary credit. JEL Classification: E24, E44, G01, G21, J23 |
| Keywords: | bank lending, financial crisis, firm borrowing, labour demand |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20243001 |
| By: | Pierre Coster; Julian di Giovanni; Isabelle Mejean |
| Abstract: | This paper investigates how firms adapt their sourcing of clean and dirty inputs in response to changes in climate policy. We use information from the European Union’s Emissions Trading System (EU ETS) and the Carbon Border Adjustment Mechanism (CBAM) to create a new classification of clean and dirty products based on whether they are subject to a domestic or a border carbon tax. We then combine this dataset with French firms’ product-level import data over 2000–2019 and estimate that firms’ propensity to import dirty inputs from non-EU countries increased in the 2010s, reflecting carbon leakage. A heterogeneous firm model is then used to quantify the impact of changes in firms’ sourcing of clean and dirty inputs given the implementation of a carbon tax and a carbon tariff. The simulated ETS carbon tax scenario is able to match leakage observed in the data and leads to a higher price level and a modest decline in emissions. The scenario that further includes the CBAM carbon tariff reverses carbon leakage at the cost of an additional rise in prices. Overall, household welfare declines because the higher costs associated with the carbon policies outweigh the benefits of reduced emissions. |
| Keywords: | firm sourcing; supply chain adaptation; carbon tax; carbon tariffs; carbon leakage; environment |
| JEL: | F14 F18 F64 H23 Q56 |
| Date: | 2024–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:99085 |
| By: | Velthuis, Sanne; Le Petit-Guerin, Mehdi; Royer, Jeroen; Leibert, Tim; Cauchi-Duval, Nicolas; Franklin, Rachel S. (Newcastle University); MacKinnon, Danny |
| Abstract: | Over the past ten years or so, concern has mounted about places in the Global North that have been ‘left behind’ by the growth and prosperity experienced in superstar cities and other wealthy regions. This briefing paper summarises the findings from the one of the strands of the ‘Beyond Left Behind Places’ project, which involved quantitative analysis of residential migration patterns in economically ‘left behind’ regions in the UK, France, and Germany during the immediate pre-COVID period. In addition, we conducted qualitative research with residents of economically ‘left behind’ regions in the three countries to get their perceptions. We use national administrative and census data for the three countries to examine whether economically lagging regions tend to lose or gain population through migration, and what age groups are moving in or out. Economic theories often assume that individuals migrate from economically lagging regions to areas offering better economic conditions. But actually, economically lagging regions in the UK, France and Germany generally tend to experience net population inflows. In other words, more people are moving to these regions than are moving out. In fact, when it comes to internal migration (i.e. people moving within the same country), these lagging regions tend to attract more new residents, on average, than more economically successful regions do. |
| Date: | 2024–11–11 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:t4vbd |
| By: | Thomas Licht; Klaus Wohlrabe |
| Abstract: | This paper examines the adoption of Artificial Intelligence (AI) among German firms, leveraging firm-level data from the ifo Business Survey. We analyze the diffusion of AI across sectors and firm sizes, showing a significant increase in AI usage from 2023 to 2024, particularly in manufacturing and services. The survey data allows us to explore not only sectoral patterns of adoption but also the drivers and barriers that firms face, including firm-specific characteristics and industry dynamics. Additionally, we investigate the role of managerial traits, such as risk tolerance and patience, in shaping AI adoption decisions. Finally, we assess the potential pro-ductivity impacts of AI at the firm level, with a focus on the expected long-term benefits of AI for different sectors of the German economy. Our findings contribute to the growing body of research on AI adoption by providing new evidence from a non-US context, offering valuable insights for both academia and politics. |
| Keywords: | artificial intelligence, AI, ifo business survey, productivity |
| JEL: | M15 O30 C83 L20 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11459 |