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on European Economics |
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Issue of 2025–01–20
23 papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Alessandra Cepparulo; Clíona McDonnell; Vito Ernesto Reitano |
| Abstract: | This Economic Brief analyses the euro area fiscal stance since 2020, i.e. the impulse that national budgets and the EU budget have been providing to the euro area economy since the pandemic. Overall, the euro area fiscal stance was highly supportive in 2020-2023, during the COVID-19 and the energy crises, while it is forecast to turn contractionary in 2024 and, under unchanged policies, neutral in 2025. The fiscal stance estimates are based on the Commission 2024 spring forecast. For 2025, in an alternative to the no-policy-change forecast, illustrative results are also presented, assuming that Member States will follow a fiscal adjustment needed to keep their public debt on a sustainable path and bring or keep deficit below the reference value, as defined in the context of the new EU fiscal framework. Under this ‘normative approach’, the euro area fiscal stance would be contractionary in 2025, ranging from around ¼ % to around ½ % of GDP. Such a contractionary fiscal stance is considered to be broadly appropriate, from a debt sustainability standpoint but also with a view to supporting monetary policy in lowering inflation. The fiscal stance factors in the impulse from the EU budget, which currently includes the Recovery and Resilience Facility, created in the wake of the pandemic to support the recovery of the EU economy through high quality spending and reforms. |
| Keywords: | Fiscal policy coordination, fiscal rules, fiscal stance, inflation, business cycles, automatic stabilisers, fiscal forecast, sovereign debt sustainability, euro area. |
| JEL: | E61 E62 H50 |
| URL: | https://d.repec.org/n?u=RePEc:euf:ecobri:080 |
| By: | Elias Hasler |
| Abstract: | This paper explores the global economic and climate spillovers of the European Union Emissions Trading System (EU ETS), leveraging exogenous variations in carbon prices identified through a carbon policy surprise series. Findings reveal that higher EU carbon prices lead to significant and sustained reductions in greenhouse gas (GHG) emissions, both within the Euro Area (EA) and globally, with no evidence of carbon leakage. Structural Scenario Analysis confirms that these reductions are driven by energy efficiency improvements rather than solely by declines in industrial production. The results highlight the transmission of the shock trough the Brussels Effect, where EU carbon policies influence global standards, evidenced by stricter carbon policies abroad and shifts in investor behavior favoring green industries. Furthermore no region benefits economically from EU carbon pricing. Overall, the EU ETS proves effective in reducing emissions without being undermined by carbon leakage. |
| Keywords: | Carbon Leakage, Spillovers, Carbon Pricing, Brussels Effect |
| JEL: | E32 F42 F64 Q54 Q58 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:inn:wpaper:2025-01 |
| By: | António Afonso; José Alves; Lucas Menescal; Sofia Monteiro |
| Abstract: | After computing the Gini and Herfindahl-Hirschman indexes for exports and imports partner concentration for a set of 31 European countries between 1995 and 2023, we analyse the role of macroeconomic, institutional and uncertainty effects on the partner concentration (diversification) of exports and imports. From our analysis, we disentangle different effects, namely that while global GDP leads to an increase in concentration in both exports and imports, internal rates of return increase exports diversification, reducing it for imports. Additionally, European uncertainty reduces the concentration of the product countries’ origin/destination for imports and exports, respectively. Our results provide a comprehensive set of results that enable public authorities and firms to minimize their risks when trading with the exterior. |
| Keywords: | exports, imports, Gini index, Herfindahl-Hirschman index, determinants of concentration |
| JEL: | C33 E02 F14 F32 F41 G15 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11481 |
| By: | DE QUINTO NOTARIO Alicia (European Commission - JRC) |
| Abstract: | The study performs an ex-post evaluation of the Fund for European Aid to the Most Deprived (FEAD) during the 2014-2022 implementation period, assessing its impact on poverty across EU regions. The study examines six key poverty measures, including population at risk of poverty or social exclusion (AROPE), poverty incidence and intensity, income inequality, concurrence, and persistence of poverty. The analysis reveals significant regional disparities, with Mediterranean and Eastern European countries experiencing higher rates of poverty and income inequality, partly exacerbated by the 2008 economic crisis. While notable reductions in AROPE were observed, particularly in less developed regions, improvements in poverty intensity and income inequality remain uneven, with some areas showing worsening conditions. A Fixed Effects regression model shows a positive correlation between increased FEAD funding and reduced poverty and inequality, although challenges in establishing causality persist due to the non-random allocation of FEAD. To address this, a Dose-Response model was applied, demonstrating significant positive effects of FEAD on all six poverty measures, indicating that increased FEAD funding effectively reduces poverty and social exclusion across the EU. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:termod:202404 |
| By: | Casas, Pablo; Christou, Tryfonas; García Rodríguez, Abián; Heidelk, Tillmann; Lazarou, Nicholas Joseph; Monfort, Philippe; Salotti, Simone |
| Abstract: | We analyse the macroeconomic impact of the European cohesion policy investments deployed during the 2014-2020 programming period on the basis of simulations carried out with the spatial dynamic general equilibrium model called RHOMOLO. We use the latest data on actual expenditures including the €50 billion falling under the REACT-EU programme extending the response to the COVID-19 crisis. We quantify the direct and indirect effects of the policy in the NUTS 2 regions of the European Union within a 20-year time frame. The results suggest that the impact of the policy is sizeable, especially in the less developed regions. Accordingly, regional disparities are shown to decrease due to the policy intervention. The investments have a positive impact on the European GDP, which is almost 0.6% higher in 2023 compared to a scenario without cohesion policy. |
| Keywords: | Cohesion policy, REACT-EU, regional growth, regional development, general equilibrium modelling. |
| JEL: | C68 R13 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122873 |
| By: | Michael D. Bauer; Eric A. Offner; Glenn D. Rudebusch |
| Abstract: | Policymakers and researchers worry that the low-carbon transition may be inadvertently delayed by higher global interest rates. To examine whether green investment is especially sensitive to interest rate increases, we consider the effect of unanticipated monetary policy changes on the equity prices of green and brown European firms. We find that brown firms, measured in terms of carbon emission levels or intensities, are more negatively affected than green firms by tighter monetary policy. This heterogeneity is robust to different monetary policy surprises, emission measures, econometric methods, and sample periods, and it is not explained by other firm characteristics. This evidence suggests that higher interest rates may not skew investment away from a sustainable transition. |
| Keywords: | monetary transmission, carbon premium, ESG, climate finance |
| JEL: | E52 G14 Q54 Q58 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11552 |
| By: | Lorenzo Cresti; Dario Mazzilli; Aurelio Patelli; Angelica Sbardella; Andrea Tacchella |
| Abstract: | This paper investigates the structural vulnerabilities and competitive dynamics of the EU27 automotive sector, with a focus on the complexity and the fragmentation of production processes across global value chains. Employing a mixed-methods approach, our analysis integrates input-output tables to quantify the sector's reliance on non-EU economic branches, alongside an economic complexity framework to assess the underlying productive capabilities of European countries in automotive-related industries. The findings indicate an increasing dependency on extra-EU suppliers, particularly China, for critical components such as lithium-ion batteries, which heightens supply chain risks. Currently, Eastern European countries-most notably Poland, Czechia, and Hungary-have enhanced their competitiveness in the production of automotive components, surpassing traditional leaders such as Germany. The paper advances the literature by providing a novel, granular list of 6-digit products within the automotive supply chain and offers new insights into the challenges posed by the ongoing electric mobility transition in the European Union, particularly in relation to electric accumulators. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.01781 |
| By: | BOSTAN, Ionel |
| Abstract: | The work "The European Union Budget: Financing Options for Member States" (by: Brenda-Andreea Piuaru, Bucharest: Universitara, 2024) examines the European Union’s financial mechanism, starting from the theoretical foundations of public finance. The author provides a clear perspective on the integrated functioning of national and EU budgets, placing particular emphasis on modern methods of budget planning and execution. Importantly, the book analyzes the main financial components of the 2014–2020 and 2021–2027 periods, as well as the NextGenerationEU program, structured as follows: (i) The major funds of the 2014–2020 Multiannual Financial Framework (including the ERDF, ESF, Cohesion Fund, and others); (ii) Initiatives from the 2021–2027 Multiannual Financial Framework (such as the Just Transition Fund and ESF+); (iii) Recovery instruments under the NextGenerationEU framework. We consider this work a valuable resource for understanding the core instruments involved in the post-pandemic economic recovery process. It offers a comprehensive perspective on investment opportunities that contribute to strengthening the shared future of the European Union and its member states. |
| Keywords: | EU Budget; contributions/benefits of Member States; methods for budget formation; financing options; NextGenerationEU |
| JEL: | G2 G28 H3 H53 O1 O11 |
| Date: | 2024–11–30 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122842 |
| By: | Hülsewig, Oliver (Munich University of Applied Sciences); Steinbach, Armin (HEC Paris) |
| Abstract: | Banking regulation invites banks to gamble when buying government bonds that regulators consider to be risk-free. The adverse effects on financial stability are known. In turn, this study shows that governments have an incentive to use banking regulation in order to enhance their fiscal leeway. We examine an unintended side-effect of banking regulation, namely the zero-risk weighting of sovereign bonds, which leads to lower costs of borrowing, encourages over-borrowing, and undermines constitutional fiscal rules. Our empirical analysis, by estimating local projections, examines the reaction of the fiscal balance in euro area periphery countries to a restrictive macroprudential capital regulation shock. We find that, unlike in the US, euro area banks’ share of domestic government bond holdings increases after the shock. This feeds into cheaper and more government borrowing laying bare the undesired interaction between banking regulation and constitutional rules. By comparing the US with the European Union, there is plausibility that the US implemented regulatory treatment and fiscal constitutional rules in a fashion that is better able to minimize the negative spillovers from banking regulation on sovereign borrowing. By contrast, the EU would benefit from more risk-based macroprudential regulation and a more credible constitutional no-bailout regime for sub-federal entities. |
| Keywords: | banking regulation; constitutional fiscal rules; sovereign-bank nexus |
| JEL: | C33 G28 H63 K33 |
| Date: | 2024–07–09 |
| URL: | https://d.repec.org/n?u=RePEc:ebg:heccah:1526 |
| By: | António Afonso; José Alves; Najat Bazah |
| Abstract: | We examine the relationship between public sector efficiency and government spending, to assess public resource management across the 27 European Union countries. Specifically, we analyze the growth of public expenditure in relation to outcomes across various public sector performance (PSP) indicators. We compute government spending efficiency using Data Envelopment Analysis (DEA) to subsequently assess the relationship between efficiency and the growth rate of public expenditure. Our findings suggest that higher efficiency can be achieved without proportionally increasing public spending, both in total expenditure and in specific areas such as social protection, economic affairs, education, healthcare, and public services. Indeed, with overall output efficiency scores between 0.77 and 0.87, with the same level of inputs, output could increase around 13%-23%. Additionally, public spending tends to rise during recessions, while it decreases with higher levels of human capital and redistribution indicators. Finally, more efficient countries tend to coalesce around Austria, Croatia, Denmark, France, Greece, Hungary, Poland, and Sweden. |
| Keywords: | public sector performance indicators, efficiency, public expenditure, functions of the government, data envelopment analysis |
| JEL: | C33 C61 E62 H11 H50 O47 P43 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11487 |
| By: | Muringani, Jonathan; Dahl Fitjar, Rune; Rodríguez-Pose, Andrés |
| Abstract: | This paper examines the complex relationship between political and social trust, government quality, and economic development across 208 regions in the European Union (EU). We use a pooled data generalized structural equation model (GSEM) to show that political trust serves as a fundamental driver of regional economic development in the EU. Political trust is, in turn, influenced by both social trust and government quality. Social trust and government quality have quadratic effects on political trust, showing diminishing returns, while the effect of political trust on economic development is linear. Political trust mediates the relationship between social trust and economic development entirely, while government quality retains a direct relationship with economic development. These findings underscore the fundamental role that political trust plays as a mechanism through which both formal and informal institutions shape regional development. |
| Keywords: | political trust; social trust; quality of government; regional economic development; EU |
| JEL: | R11 H11 D73 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:125630 |
| By: | Lewandowski, Piotr (Institute for Structural Research (IBS)); Szymczak, Wojciech (Institute for Structural Research (IBS)) |
| Abstract: | We study the effect of the adoption of automation technologies – industrial robots, and software and databases – on the incidence of atypical employment in 13 EU countries between 2006 and 2018. We find that industrial robots significantly increase atypical employment share, mostly through involuntary part-time and involuntary fixed-term work. We find no robust effect of software and databases. We also show that the higher trade union density mitigates the robots' impact on atypical employment, while employment protection legislation appears to play no role. Using historical decompositions, we attribute about 1-2 percentage points of atypical employment shares to rising robot exposure. |
| Keywords: | robots, automation, atypical employment, trade unions |
| JEL: | J23 J51 O33 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17544 |
| By: | Hoepner, Martin; Di Carlo, Donato; Hassel, Anke |
| Abstract: | We analyse wage developments in Germany during the inflation shock years of 2021–2023 from three perspectives: cost of living, supply-side cost pressure, and relational. With an export-led growth model, Germany is dependent on a favourable real effective exchange rate. Because of its above-average exposure to the energy crisis and low unemployment, Germany was particularly vulnerable to strong wage demands, putting at risk its cost competitiveness. In response to the inflation crisis, moderate collective bargaining outcomes have resulted from widespread use of one-off payments, longer duration of collective agreements, and ‘zero-month’ clauses, which have delayed wage increases. As in all other eurozone countries, employees have suffered real wage losses, but nominal wage increases at the lower end of the labour market fared better than average. Major competitiveness shifts have occurred in the eurozone, particularly to the detriment of Eastern European countries and the Baltics, but not Germany. |
| Keywords: | Germany; collective bargaining; competitiveness; energy crisis; growth models |
| JEL: | N0 |
| Date: | 2024–12–06 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:126485 |
| By: | Nerlich, Carolin; Köhler-Ulbrich, Petra; Andersson, Malin; Pasqua, Carlo; Abraham, Laurent; Bańkowski, Krzysztof; Emambakhsh, Tina; Ferrando, Annalisa; Grynberg, Charlotte; Groß, Johannes; Hoendervangers, Lucia; Kostakis, Vasileios; Momferatou, Daphne; Rau-Goehring, Matthias; Rariga, Erzsebet-Judit; Rusinova, Desislava; Setzer, Ralph; Spaggiari, Martina; Tamburrini, Fabio; Simon, Josep Maria Vendrell; Vinci, Francesca |
| Abstract: | The green transition of the EU economy will require substantial investment to 2030 and beyond. Estimates of green investment needs vary between institutions and are surrounded by high uncertainty, but they all point to a requirement for faster and more ambitious action. Green investment will need to be financed primarily by the private sector. While banks are expected to make a key contribution to funding the green transition, capital markets need to deepen further, especially to support innovation financing. Progress on the capital markets union would support the green transition. Public funds will be vital to complement and de-risk private green investment. Structural reforms and enhanced business conditions should be tailored to encourage firms, households and investors to step up their green investment activities. JEL Classification: E22, E44, G21, Q41, Q50, Q58 |
| Keywords: | financing, fiscal policy, green transition, investment, structural policy |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbops:2025367 |
| By: | Vasiliki Dimakopoulou; George Economides; Apostolis Philippopoulos |
| Abstract: | This paper quanti.es the future implications of repayment of bailout loans received by Greece from the EU in the previous decade. These debt obligations amount today to 240 billion euros or 70% of the country’s total public debt and have to be repaid by 2070. This is investigated in a dynamic general equilibrium model calibrated to the Greek economy, in which fiscal policy is conducted under the rules of the new fiscal governance framework and quantitative monetary policy is subject to the rules of the Eurosystem. Our simulations show that, other things equal, repayment will have recessionary implications in the years to come, although the magnitude of these unpleasant implications will depend on how much privately-held public debt rises as the EU-held public debt falls. We then search for ways to mitigate these recessionary effects. While NGEU/RRF funds as they take place at the moment, as well as a new hypothetical support from the ES in the form of more quantitative easing are found to have small and/or temporary ben-eficial effects only, our simulations show that what can really help is an improvement in total factor productivity. |
| Keywords: | international loans, fiscal policy, monetary regimes |
| JEL: | F34 E62 E42 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11519 |
| By: | Moloney, Niamh |
| Abstract: | This article reflects on the effectiveness of EU financial market regulation, a decade or so after the closure of the EU’s massive financial-crisis-era reform programme. To do so, it considers the first significant test of the financial-crisis-era reforms: the March 2020 period of acutely-elevated financial stability risk as the Covid-19 pandemic intensified, global markets roiled, and the investment fund sector experienced large-scale disruption. It relates the EU’s broadly successful management of this period to, first, the resilience of the legislative choices made and refined over the financial-crisis era as regards investment fund regulation; and, second, to technocratic action, by ESMA and the ESRB, that facilitated rule amplification, risk monitoring, supervisory coordination, and supervisory convergence and thereby supported the earlier legislative choices. Drawing on the March 2020 experience, the article goes on to consider the capacity of EU financial market regulation more generally to manage what are increasingly dynamic risks to financial market stability. It identifies a strengthening of the EU’s capacity in this regard, but also persistent and intractable risks to this capacity, including as regards legitimation. |
| Keywords: | EU financial market regulation; COVID-19; investment funds; financial stability; ESMA; liquidity; UCITS; AIFMD; soft law |
| JEL: | G18 |
| Date: | 2023–11–21 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:120362 |
| By: | Baraldi, Anna Laura; Cantabene, Claudia; De Iudicibus, Alessandro; Fosco, Giovanni |
| Abstract: | The allocation of funds to finance cohesion policies has been a significant European and national level activity. We focus on the 2007-2013 and 2014-2020 programming periods within a 23-year (2000 to 2022) time frame to assess whether and how cohesion funds have affected per-capita income growth rates in the municipalities in the Objective 1 Italian regions of Calabria, Campania, Apulia, and Sicily. We use static and dynamic difference-in-differences methodologies. Municipal level examination allows us to filter out the distorting effects generated by characteristics typical of those countries whose regions have benefited from the allocation of structural funding. The literature shows that structural funding causes contrasting effects on various economic variables. We found significant increases in municipal per-capita income growth rates in the treated compared to the control group of municipalities, with increased effects starting from the 10th year after the first payment. We interpret our results in terms of income inequality; we show that funding causes a rise in both the Gini and Atkinson inequality indexes. This suggests that while EU cohesion funds have been effective for promoting income growth, they have not improved equity. |
| Keywords: | Cohesion Policies, Diff-in-Diff, Objective 1 Regions, Income growth, Inequalities |
| JEL: | C21 C22 R11 R15 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123048 |
| By: | Federica Cappelli (Università degli studi di Ferrara) |
| Abstract: | The European Union's energy security is increasingly challenged by its heavy dependence on imported oil, which exposes the region to geopolitical risks and market vulnerabilities. This study explores the role of trade dynamics in exacerbating this dependency, leading to what we term trade lock-in. Additionally, we assess the effectiveness of environmental policies in reducing oil import dependence, investigating whether these policies foster a shift toward greener investments (divestment effect) or inadvertently drive increased oil extraction (green paradox effect). We use network analysis to represent the international oil trade network and use this information in an econometric framework covering the period from 1999 to 2019, accounting for the presence of cross-sectional dependence. We identify two main factors that lock energy systems into an oil-based path: technological (represented by the level of energy intensity) and trade (represented by the existence of privileged trade relations with major oil-exporting countries) lock-ins. Furthermore, we find evidence of the divestment effect for some specific environmental policy instruments, but the effect is not uniform across instruments characterised as either demand-pull or technology-push. Finally, we find that an efficient eco-innovation system can effectively reduce oil import dependence only in countries with a comparative advantage in exporting clean technologies. |
| Keywords: | oil dependence; network analysis; environmental policy; technological change; European Union |
| JEL: | F18 O32 Q32 Q37 Q48 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:srt:wpaper:0125 |
| By: | Kostarakos, Ilias; Marques Santos, Anabela |
| Abstract: | This paper introduces the new module of the European Commission’s Territorial Economic Data viewer (TEDv) namely, the Industrial Module. The aim is to present the data sources and the methodological approach employed to generate the various dashboards included in this new module. Its usefulness is exhibited via an extensive analysis of the current states of the economic sectors and industrial ecosystems identified as the most prominent ones. |
| Keywords: | European Union; Industrial Ecosystems; Policy Monitoring; Territorial data |
| JEL: | C40 C80 C81 C82 O18 |
| Date: | 2024–12–05 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122885 |
| By: | Roberto Tamborini |
| Abstract: | The public debt overhang spread across advanced countries, and the reform of the Stability and Growth Pact in the Euro Zone, have revived the polarization between those who think that debt is always good and those who think that debt is always bad. This paper presents a normative model of endogenous growth with debt-financed public capital. It is shown that no meaningful assessment of debt and its effect on growth and sustainability at any point in time is possible without reference to the whole debt trajectory and the specific state of the economy along the trajectory. An orderly and consistent analysis may be developed along two coordinates of debt: sustainability/unsustainability, and efficiency/inefficiency. "High" and "low" debt/GDP ratios may equally be efficient and sustainable. On the other hand, debt may be sustainable but inefficient (sub-optimal growth), or sustainable and efficient ex-ante but unsustainable ex-post, or inefficient and unsustainable. |
| Keywords: | public debt, debt burden, debt sustainability, economic growth, endogenous growth models |
| JEL: | E62 H63 O40 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11503 |
| By: | Marcelle Chauvet; Claudio Morana; Murilo Silva |
| Abstract: | This paper investigates the linkage between deteriorating extreme weather conditions and anthropogenic GHG emissions and their economic impact on 40 European countries. The analysis employs the European Extreme Events Climate Index (E3CI) and its seven subcomponents, i.e., extreme maximum and minimum temperatures, wind speed, precipitation, droughts, wildÂ…res, and hail. Using an innovative panel regression-based trend-cycle decomposition approach, we Â…nd support for the contribution of human-made GHG emissions to the deterioration of underlying extreme weather conditions and their highly nonlinear pattern. We then conduct a Growth-at-Risk analysis within a quantile panel regression framework to assess the economic implications of our Â…ndings. We show that deteriorating extreme weather conditions, as measured by the E3CI index, negatively impact the entire GDP growth rate distribution. Yet the impact on the downside risk to growth is much more substantial than the upside risk. This result holds for various E3CI components, such as rising extreme maximum temperature, wind speed, drought, and wildÂ…res. |
| Keywords: | climate change, extreme weather events, global warming, GHG emissions, trend-cycle decomposition, Growth-at-Risk, panel quantile regressions, Europe |
| JEL: | C21 C23 Q51 Q54 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:mib:wpaper:547 |
| By: | Arnone, Massimo; Costantiello, Alberto; Leogrande, Angelo |
| Abstract: | The paper deals only with the identification of the determinants of total risk exposure amount within the European banking system, while the importance of TREA within Basel III regulatory regimes is focused. The research provides the integration of an econometric investigation with high-end machine learning techniques for the identification of the influential financial variables of TREA. The most relevant financial determinants of TREA were identified as LCR, CRWEA, LA, and OREA. These also reflect complex interdependencies-for instance, the negative value of TREA and LCR would suggest that there were trade-offs made between risk-taking and liquidity management. Thus, the positive relationship with CRWEA, and even more so with derivatives over assets, underlines intrinsic risks from credit exposures and related to financial instruments' complexity. The report further iterates that there should be mechanisms for appropriate risk-weighting, adequate liquidity buffers, and proper operational controls so that the financial system can become significantly more stable and resilient. This work will put forward actionable recommendations to policy makers, regulators, and financial institutions on mitigating systemic vulnerabilities and further optimizing their strategies for compliance in view of an increasingly volatile financial landscape, leveraging from traditional econometric modeling insights with machine learning. |
| Keywords: | Total Risk Exposure Amount, European Banking System, Liquidity Coverage Ratio, Risk Management, Basel III Compliance. |
| JEL: | E58 G21 G28 G32 |
| Date: | 2025–01–05 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123190 |
| By: | Meunier, Sophie; Danzman, Sarah Bauerle |
| Abstract: | The European Union is considering implementing regulations and possible prohibitions on outbound FDI in some high-technology sectors. These deliberations are part of a substantial re-evaluation of the security implications of economic interdependence. This Perspective contextualizes the EU's recent interest in outbound controls and explores potential challenges of such actions. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:colfdi:308151 |