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In 2021 and 2022, inflation expectations of households in the euro area rose dramatically. Based on a time-series investigation from 1995 to 2022, I find that inflation expectations are driven by current price developments of three consumption product categories and house prices (which are not included in the consumer price index). About half of the recent rise was fuelled by energy prices, 20% by food prices, over 10% by transportation costs and almost 20% by house prices. On a macro-level, controlling for a standard set of spending determinants, a regression analysis suggests that accelerating inflation expectations in general will slow down growth of area wide real private consumption, but under circumstances of low nominal interest rates helped to cushion the negative shock of the covid pandemic and the energy crisis. [ABSTRACT FROM AUTHOR]

After the euro crisis, politicization patterns led the institutions of the European Union to gradually redirect the bloc's socioeconomic governance away from austerity. It is less clear whether the erosion of austerity was mirrored in national economic discourses. To fill this gap, this article provides a quantitative and qualitative analysis of parliamentary budget debates in four country cases: France, Germany, the Netherlands, and Portugal, from 2014 to 2020. The results show contrasting patterns of "fiscal discipline" frame resilience in national economic discourse in ways consistent with intergovernmental bargaining around the pandemic recovery agenda. Moreover, shared preoccupations relating to investment in the economy, social inequality, and climate change emerge as major threads shaping budget making. These findings suggest an increasingly integrated multi‐level system of economic governance and call for further investigation into the links between ideas shaping EU economic governance and economic discourses in member states. Related Articles: Pi Ferrer, Laia, and Pertti Alasuutari. 2019. "The Spread and Domestication of the Term 'Austerity:' Evidence from the Portuguese and Spanish Parliaments." Politics & Policy 47(6): 1039–65. https://doi.org/10.1111/polp.12331. Zamponi, Lorenzo, and Lorenzo Bosi. 2016. "Which Crisis? European Crisis and National Contexts in Public Discourse." Politics & Policy 44(3): 400–26. https://doi.org/10.1111/polp.12156. [ABSTRACT FROM AUTHOR]

The aftermath of the pandemic crisis and the war in Ukraine have revived the debate on the causes and consequences of inflation, as well as the policies needed to combat its effects. Despite the obvious absence of a role for monetary policy in triggering price rises, the response of monetary authorities, especially in the Eurozone, has been conventional: raising interest rates, with negative consequences for activity levels. In this paper we argue that the inflation episode we are witnessing is a consequence of the attempt by profit-makers to maintain the same (if not higher) levels of profitability as before. It is, therefore, a case of conflict inflation. The policies needed to avoid severe consequences for the weakest sections of the population should be aimed at compensating workers against the loss of purchasing power. In this context, Italy is a case study. It is one of the few advanced countries where there is no statutory minimum wage. Considering data from the main studies on the conditions of Italian workers and building our argument on the most recent economic theory, we stress the need for the introduction of a legal minimum wage in Italy and, in general, for upstream redistribution policies. [ABSTRACT FROM AUTHOR]

Boom‐and‐bust cycles in the housing market pose a threat to macroeconomic and financial stability, thus calling for a timely assessment of imbalances. This work sheds light on the drivers of house price dynamics in some euro area economies, investigating the risks of overheating. We show that an Error‐Correction‐Model (ECM) featuring a long‐run relationship between house prices and income and short‐run effects of interest rates and housing supply fits the data well in most cases. We then propose a novel model‐based misalignment indicator and find that extrapolative house price expectations play an important role in the build‐up of speculative bubbles. [ABSTRACT FROM AUTHOR]

This paper analyses the impact of sustainability through ESG factors on the default risk. The sample consists of 990 non-financial firms in the Eurozone over the period 2004–2020. The results show that ESG factors influence default risk, although this relationship could be influenced by the economic cycle. Also, the results highlight a significant interaction effect between firm size and ESG which affects default risk. Considering firm size by terciles, the evidence obtained shows that smaller and medium-sized firms have a positive net effect of a high ESG score on their default risk, while the opposite effect was found among larger firms. [ABSTRACT FROM AUTHOR]

We use cointegration-based techniques to investigate the relationship between oil prices and the euro effective exchange rate taking also into account the influence of interest rates and stock prices. We find that higher oil prices cause a depreciation in the euro exchange rate (either nominal or real) in the short run. This suggests that during episodes of higher energy prices, the euro area consumer is faced with additional price pressures, as a depreciated euro causes import prices to further rise. Our study also indicates that as stock prices rise in the short and long term, the euro appreciates, while higher oil prices will likely result in overall higher policy rates and lower stock prices. [ABSTRACT FROM AUTHOR]

We argue that economic and political integration leads voters' political preferences toward cross‐national convergence. Analyzing data on voter preferences across 30 European democracies from 1976 to 2022, we measure the similarity of preference distributions across state dyads over time, documenting an average increase in similarity over this period. We then model these associations statistically and find that greater similarity and complementarity in economic production and co‐participation in the European Union and the Eurozone are associated with increasingly similar voter preferences. The argument and analyses broaden our understanding of the political implications of globalization and also provide a theoretical and empirical foundation for two growing literatures: one on the cross‐national diffusion of parties' strategies and one on the political implications of macroeconomic stimuli such as trade shocks or banking crises. [ABSTRACT FROM AUTHOR]

• We find that financial development reduces growth variability across various horizons, with some signs of heterogeneity and nonlinearity. • Since Burns (1960) many authors drew attention to a trend that macroeconomic volatility has been declining at least from the WW2 and mid-eighties both in US and other countries. • Like some authors, we found evidence of a non-linear relationship (decreasing marginal effect) , although not in every specification and horizon. • Fluctuations in world economic growth have been the most consistent factor amplifying growth fluctuations in individual countries, while institutional development has had a significant dampening effect. • Although there is no single identifiable date for any individual or collective moderation, data from our sample suggest that both average volatility in each period and volatility in most individual economies have been decreasing for at least 40 years. • Estimates of the main equation using five-year data with various specifications show that financial development is significantly associated with decreasing volatility at the relevant p values (Table 3, regression 1 (R1) to regression 8 (R8). • From this level, the financial development index begins to increase growth volatility instead of decreasing it. • On the contrary, the relationship is stronger with a larger coefficient and linearity in reducing volatility. • We find that there is a strong theoretical literature that suggests alternative causes and channels to explain how financial development can help reduce volatility. • As expected from nonlinearity, marginal effects were stronger when we excluded high-income (eurozone) economies. Growth is liked, but volatility is not. Volatility implies uncertainty, as up and down are often large unpredictable fluctuations. In fact, according to the financial literature, people pay a price to reduce it. Some studies found a trend that macroeconomic volatility has been changing and proposed some structural changes that are responsible for its decline. Many studies have found that financial development helps growth. And relatively few studies have shown that financial development also explains structurally varying macroeconomic volatility. In this panel study, we investigated the relationship between financial development and growth volatility using the Financial Development Index with recent data from eighty-six countries. We also looked at its relationship with consumption and investment fluctuations using its sub-indices. The index is the result of many dimensions of financial development such as access and efficiency, not just the size of credit. We find that financial development reduces growth variability across various horizons, with some signs of heterogeneity and nonlinearity. Institutional development (polity index) and volatility in global economic growth are other important consistent variables. [ABSTRACT FROM AUTHOR]

After a decade of reforming and stabilising the Economic and Monetary Union (EMU), it has been put to a triple test: the COVID-19 pandemic, the war in Ukraine, and the return of inflation have posed serious challenges to the eurozone that call for policy responses. Against the background of recent advances in European integration theory, we assess whether and how these challenges have led to a change in the EMU policy of the eurozone's most powerful member, Germany. We conceptualise three ideal-typical policy options for Germany to deal with EMU's challenges and we search for traces of policy learning from past eurozone crisis management. On the basis of semi-structured interviews with German political elites, we cannot identify any significant change in Germany's EMU policy. We conclude that the unwavering continuity of Germany's euro policy makes further substantial integration in EMU unlikely. [ABSTRACT FROM AUTHOR]

When can crises overcome the fragmentation of a core executive and facilitate a centralised management response? Here, we identify the latter by reference to the concept of a 'crisis response network' (CRN). We draw on several literatures that refer to crisis centralisation and develop hypotheses that comprise likely contributing factors. We explore these hypotheses in the setting of a core executive normally identified as being 'segmentary', but which has exhibited centralised management of past crises, and in the context of an acute economic crisis: that is, Greece in its debt crisis in two seminal periods. Based on extensive interviews with all the senior personnel involved, including both Prime Ministers, as well as documentary evidence, we find that the strength of the CRN in leading the crisis response varied and that this was consistent with our hypotheses. We consider the conceptual and empirical implications of our findings. [ABSTRACT FROM AUTHOR]

This paper uses dynamic panel data estimations based on annual data from 26 European Union countries to evaluate the driving factors of household savings dynamics. Alongside conventional determinants, such as household income and age dependency, the study also includes a less traditional variable, consumer con- fidence, which is often neglected in existing findings. This research extends previous empirical studies in three dimensions. First, it conducts sensitivity analysis using several estimation techniques to support the robustness of baseline results. Second, the investigation is expanded by including an extended set of potential savings drivers. Lastly, it explores variations in saving behaviour among different country groups (Euro Area, Central and Eastern European countries, and Croatia) as well as the crisis periods (Global Financial Crisis and Covid-19 pandemic). The findings highlight the importance of overlooked determinants, shed light on the ambiguous effect of classic variables, and partially confirm earlier research. [ABSTRACT FROM AUTHOR]

This paper introduces a dynamic dependence framework to calculate various indicators of systemic sovereign default risk. Our analysis reveals a notable increase in systemic fragility among euro-area sovereigns since the onset of the Subprime Crisis, particularly during the First Greek Bailout in May 2010. Furthermore, our measures successfully capture key events within the euro area, including Mario Draghi's impactful "whatever-it-takes" speech in mid-2012 and the Cypriot Banking Crisis of 2012-2013. The incorporation of dynamic dependence into our measures provides a more comprehensive depiction of systemic risk within the euro area sovereign system, often demonstrating distinct dynamics when compared to their static counterparts. These findings carry significant policy implications and contribute to enhancing our understanding of systemic risk among euro-area sovereigns. [ABSTRACT FROM AUTHOR]

How do the individual pillars of environmental, social, and governance (ESG) factors perform in times of war? Focusing on euro area stocks around the Russian invasion of Ukraine in 2022, we investigate this question using an event study methodology. Our findings suggest that firms with higher governance scores experienced stronger abnormal positive stock returns, implying that investors particularly valued well-governed firms amidst the uncertainty and adversity. However, the importance of good governance was lower for countries with higher dependency on oil imports from Russia. In contrast, social and environmental considerations appeared to receive less attention from investors during this crisis period. Our study highlights the heterogeneous nature of ESG factors and underscores how their relevance can be context-dependent, especially in uncertain times marked by geopolitical conflicts. [ABSTRACT FROM AUTHOR]

In January 2015, Greece witnessed a political earthquake with the election of the populist anti-austerity/EU bailout coalition of the left-wing party SYRIZA and the far-right party ANEL. It is argued that during January--July 2015, the SYRIZA--ANEL coalition engaged in a protracted process of renegotiation of Greece's bailout terms that were agreed between previous Greek governments and the so-called Troika (European Commission, European Central Bank, and International Monetary Fund) adopting a behaviour ruled by "unpolitics." First, the SYRIZA--ANEL government immediately rejected formal and informal rules of EU decision-making. Second, the SYRIZA--ANEL government rejected traditional means of compromise, such as package deals and side payments. Third, when Greece's creditors presented their last-minute bailout offer in June 2015 to avoid Greece leaving the eurozone (Grexit), the SYRIZA--ANEL government rejected the suggested solution and tried to exploit the ensuing deadlock by calling a rashly organised referendum asking Greeks to vote against the suggested deal. This period of "unpolitics" ended almost immediately after the referendum when, in a sudden and unexpected volte-face, Tsipras interpreted the referendum result as a call for compromise with the Troika and accepted the previously intolerable bailout deal. [ABSTRACT FROM AUTHOR]

In the framework of law and finance literature, this study investigates the link between judicial efficiency and financial debt cost in 1487 non‐financial firms across the euro zone from 2010 to 2021. Utilizing qualitative (rule of law) and quantitative (judicial proceeding length) indicators from the Worldwide Governance Indicators and Doing Business databases, our findings support the hypothesis that efficient justice lowers financial debt cost. Additionally, we observe a moderating effect of debt structure, specifically that private non‐bank debt enhances the reduction impact of judicial efficiency on debt cost, unlike bank and corporate bonds debt. [ABSTRACT FROM AUTHOR]

This paper uses information at the daily, monthly, and quarterly frequencies to construct a daily World Economic Gauge (WEG). We postulate a mixed‐frequency dynamic factor model to extract data observable at different frequencies in order to track the health of the global economy. We show that the WEG offers a reliable basis for tracking economic activity during key events such as COVID‐19 and the Global Financial Crisis. Moreover, the WEG is shown to contain leading information about the output growth of the OECD, G7, NAFTA, European Union, and euro areas, in addition to the output growth of 42 individual countries. [ABSTRACT FROM AUTHOR]

We assess the relationship between model size and complexity in the time‐varying parameter vector autoregression (VAR) framework via thorough predictive exercises for the euro area, the United Kingdom, and the United States. It turns out that sophisticated dynamics through drifting coefficients are important in small data sets, while simpler models tend to perform better in sizeable data sets. To combine the best of both worlds, novel shrinkage priors help to mitigate the curse of dimensionality, resulting in competitive forecasts for all scenarios considered. Furthermore, we discuss dynamic model selection to improve upon the best performing individual model for each point in time. [ABSTRACT FROM AUTHOR]

Research on small and medium-sized enterprises (SMEs) access to bank finance is vital for the euro area economy. SMEs heavily represent the European business sector, employing around 100 million people and accounting for more than half of the Gross Domestic Product. Research studies in the field often rely on the ECB/EC Survey on the Access to Finance of Enterprises (SAFE). Many studies employ probit or logit models with categorical dependent variables derived from SAFE. The research findings show that hardly any study employs the simpler linear probability model (LPM), with a dominant lack of research providing evidence that justifies the model selection process and suitability. However, it is well known that different econometrics models can lack consistency and frequently yield different results. Yet, the literature has no consensus on the best econometric approach. In addition, there is a lack of robustness tests in the literature to ensure model validity, underlining the need for a comprehensive review of the methodological framework that dominates SAFE data use. This paper addresses the identified research gap by introducing a robust methodological framework that helps researchers identify and choose an appropriate categorical model when using SAFE data. The study adds significant value to the extant literature by identifying four criteria that need to be considered when selecting the appropriate model among three common binary dependent models: LPM, probit and logit models. The findings show that the probit model was appropriate is all cases but that the LPM should not be disregarded, as it can be used in two cases: when considering the interaction between monetary policy and debt to assets and monetary policy and innovation. The use of the LPM is justified as a less complex econometric model, allowing for clearer communication of the results. This innovative, robust approach to choosing the appropriate econometric categorical dependent model when employing SAFE data contributes to support policy effectively. [ABSTRACT FROM AUTHOR]

The present study explores the impact of energy natural resource productivity and environmental tax on environmental sustainability in six major CO2‐emitting economies: the Euro Area, China, South Korea, Japan, the United Kingdom and the United States, from 1997 to 2019. This analysis aims to reveal novel findings and implications for different energy natural resource productivity types and environmental regulations. We employed data regarding leading national and regional CO2 emitters from 1997 to 2020 to conduct an empirical analysis using the panel non‐linear auto‐regressive distributed lag (NARDL) and panel quantile ARDL (QARDL) methods. The results show that energy natural resource productivity and environmental tax are crucial components in reducing CO2 emissions by controlling for innovation technology and renewable energy consumption. The main findings demonstrate that the impact is stronger in the presence of increased energy natural resource productivity and vice versa. These findings have novel implications for sustainable development and carbon neutrality. [ABSTRACT FROM AUTHOR]

This study contributes to the ongoing reform of the EU's economic governance, particularly about fiscal performance. We opt for a fiscal reaction function of the cyclically adjusted primary balance. Given concerns over underlying endogeneity and heterogeneity across countries we employ a threshold dynamic analysis. The findings confirm that the fiscal policy in the EU has been procyclical overall. However, we identify two regimes of output gap. Fiscal policy has been countercyclical for EU member states in the higher output gap regime while EU member states follow a procyclical fiscal policy in the lower regime. We reveal also that the endogenous debt‐to‐GDP ratio threshold is at 75.6% for the EU and 78.7% for the Euro area, which notably exceeds the EU Treaty's reference value of 60%. Fiscal rules and fiscal councils mitigate procyclical fiscal policies, being more effective for low debt countries. In terms of policy implications, the identified fiscal thresholds and variability across countries warrant a higher degree of fiscal coordination in the EU, particularly in the Euro area. [ABSTRACT FROM AUTHOR]

Purpose: This study investigates the reasons behind the very high net interest margins in the Greek banking industry compared to the euro-area, focussing on the association between bank competition and recapitalisations. Design/methodology/approach: The author conducts a dynamic panel analysis covering the period from the early 2000s to 2021, that controls for possible endogeneity and treats for heterogeneity. The author also employs local projections impulse response functions that control for structural changes in Greek banking. Findings: The author finds that low bank competition has contributed to high net interest margins in Greece. Interestingly, the impact of recapitalisations conditional to low bank competition has had a significant further impact on increasing net interest margins, which is a noteworthy case due to several Greek bank recapitalisations in the last ten years. The author's findings are supported by local projections impulse response functions. Originality/value: To mitigate distortions in bank competition, the author argues to accelerate steps toward the direction of the banking union and a common bank regulation framework in the euro-area. [ABSTRACT FROM AUTHOR]

This paper uses fractional integration and cointegration methods to analyze the long-run relationship between loans to non-financial corporations, real gross domestic product, real gross fixed capital formation, the cost of borrowing differential between long- and short-term rates, and a proxy for the cost of debt, securities, and equity issuance. The analysis includes four Eurozone countries, namely Germany, France, Italy, and Spain, and spans the most recent decades. More precisely, fractional integration and cointegration models are estimated to investigate the persistence of the series as well as their long-run relationships and short-run dynamics using both unrestricted and restricted specifications. The univariate results are heterogeneous, the highest degrees of integration being found in the case of loans to non-financial corporations, whilst the multivariate ones provide evidence of a single fractional cointegration vector as well as of a lower adjustment speed to the long-run equilibrium compared to previous studies in all four countries. Moreover, both the short- and long-run response of loans to exogenous shocks to real gross domestic product and the cost of borrowing differentials differs across countries because of country-specific factors. [ABSTRACT FROM AUTHOR]

The article presents world economic forecasts from Oxford Economics, as of August 2024. Topics discussed include the growing concerns that the U.S. might be slipping wards a recession, gross domestic product (GDP) growth forecasts for China for 2025, and aggregate 2024 GDP growth forecast for emerging markets.

Climate change has become relevant for central banks worldwide, but they are adopting their instruments at different speeds. This article compares the reactions of the Eurosystem with those of the other EU central banks. Do these central banks differ in their efforts to make their own policies "greener"? The article argues that the options and constraints to react to climate change diverge between central banks. [ABSTRACT FROM AUTHOR]

Summary: This paper shows that newspaper articles contain signals that can materially improve real‐time nowcasts of real GDP growth for the Euro area. Using articles from 15 popular European newspapers, which are machine translated into English, we create sentiment metrics that update daily and assess their value for nowcasting, comparing with competitive and rigorous benchmarks. We find that newspaper text is especially helpful early in the quarter before other indicators are available. We also find that general‐purpose sentiment measures perform better than more economics‐focused ones in response to unanticipated events and nonlinear supervised models can help capture extreme movements in growth but require sufficient training data to be effective. [ABSTRACT FROM AUTHOR]

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Euro area real‐time density forecasts from three dynamic stochastic general equilibrium (DSGE) and three Bayesian vector autoregression (BVAR) models are compared with six combination methods over the sample 2001Q1–2019Q4. The terms information and observation lag are introduced to distinguish time shifts between data vintages and actuals used to compute model weights and compare the forecast, respectively. Bounds for finite mixture combinations are presented, allowing for benchmarking them given the models. Empirically, combinations with limited weight variation often improve upon the individual models for the output and the joint forecasts with inflation. This reflects overconfident BVAR forecasts before the Great Recession. For inflation, a BVAR model typically performs best. [ABSTRACT FROM AUTHOR]

Purpose: Motivated by concerns and the ongoing debate regarding auditors' independence and impartiality, this paper aims to examine the impact of the financial crisis on non-audit services (NAS) provision and audit quality (main and robust variables) in the four largest Eurozone countries together during the global financial crisis (GFC). Design/methodology/approach: The authors used a time trend OLS model with a dummy variable as well as a baseline model with a dummy and control variables accounting for multicollinearity, considering the characteristics of the GFC. Findings: It documented a positive (negative) relationship between NAS provision (audit quality) and crisis in four Eurozone countries, Germany, France, Italy and Spain, in the context of a baseline approach, supporting the hypotheses that there are higher non-audit fees and a lower audit quality. Moreover, it is revealed that NAS provision and audit quality behave similarly, using a time trend approach, during the GFC. Considering the role of the auditor specialization or not (Big4 vs non-Big4) in companies, a significant effect from crisis on non-audit fees and audit quality for the four countries under the baseline approach is found. In general, the findings persist for NAS provision and audit quality using the robust methods of the time trend and panel OLS approaches. Multicollinearity was not found to affect the findings of the regressions. Practical implications: The study provides important implications for firm managers, auditors and regulatory authorities. Originality/value: To the best of the author's knowledge, it is the first time that the impact of the crisis on non-audit fees and audit quality is investigated during the GFC with two sets of OLS models (a time trend OLS with a dummy and a panel OLS with a dummy and control variables) in four largest Eurozone countries together. [ABSTRACT FROM AUTHOR]

The institutional developments in Economic and Monetary Union (EMU) during the sovereign debt crisis were mostly studied with reference to intergovernmentalist theories. However, they can hardly explain the dominant role of the Eurogroup and Eurogroup working group (EWG) compared to the EU-27 formats in the Council, the ECOFIN and the Economic and Financial Committee. This article seeks to address this puzzle. Based on sociological-institutionalist theories, I argue that the distinction between euro area member states (EAMS) and non-EAMS structured how member state representatives organised EMU governance processes during the sovereign debt crisis. The reinforcement of the Eurogroup and EWG is interpreted as an explicit manifestation of this institutionalisation of differentiated integration (DI) in EMU. The empirical findings suggest that the two informal formats were transformed into viable euro area bodies providing the EAMS with the political authority, normative environment and administrative resources to design and implement policies independently. In this reinforced shape, the Eurogroup and EWG enabled a distinction between EU and euro area matters and provided EAMS with suitable instruments to manage their issues. The institutionalisation of DI has long-term implications for EMU reform processes and governance practices. [ABSTRACT FROM AUTHOR]

Three small Baltic economies of Estonia, Latvia and Lithuania have undergone extreme economical system change from the planned economy to the market one. The institutional infrastructure have been reorganized and all three countries joined the EU and Euro area. We aim to answer which channels of economic integration are of the largest importance for the small open European economies. We showed that all three countries could be treated as one region due to development, institutional and economic similarities. Secondly, we explore whether the trade or common currency is the main channel for the business cycle synchronization across the region of three small Baltic economies. The business cycle synchronization and trade intensity (TI) between the Baltic States and their main trading partners before and after joining the EU have been investigated as an example of an ex-post case for the small economies. We have observed a large increase in TI with the trading partners from EMU and EU countries, irrespective of the TI calculation method. The analysis of business cycle synchronization of the Baltic States with their main trading partners is captured by the correlations of the cyclical component of GDP series, using the quarterly real and de-trended GDP growth data from 1995 Q1 to 2019 Q4. The panel model has indicated an important empirical feature that the common currency strongly and significantly impacted the business cycle synchronization whilst the bilateral trade intensity between the Baltic States and their main trading partners have a significant negative effect on the business cycle synchronization when controlling for time effects. The Granger causality test confirmed that the most robust impulses to the Baltic States are coming from EU trading partners. [ABSTRACT FROM AUTHOR]

This study examines the impact of corporate taxation on the external balances of 27 European Union member countries from the late 1990s to 2021. Using an ARDL process and a 2-stage least squares estimation procedure, we find that, in the short term, higher corporate taxation is positively and significantly related to the current account balance and the trade balance for the whole sample. There are considerable differences in the effects in the euro area and non-euro countries, with the latter experiencing a much stronger short-term impact. In the long term, there are no critical differences in the results between the two groups, and the impact of corporate taxation is positive but statistically significant only for the trade balance. The size of the impact of corporate taxation on net exports and current account balances is of similar magnitude, which likely implies that the international profit shifting via manipulating intrafirm prices in international trade does not strongly affect the external balances in our sample. Our results imply that initiatives to increase global tax rates could be justified from an international trade perspective. [ABSTRACT FROM AUTHOR]

This paper investigates the drivers of international fiscal spillovers across 62 countries for the period covering 1970–2021. Using the local projections method at the country‐pair level, fiscal spillovers are estimated as the cumulative response of the real gross domestic product (GDP) growth in spillover destination countries to a unit shock in the real government spending growth in spillover source countries. Pairwise estimation results (for 3782 country pairs) suggest that there are statistically significant fiscal spillovers for 36% of country pairs, whereas this ratio is 49% for country pairs within the euro area. For the median country pair, a unit shock of real government spending growth in the spillover source country results in about 0.09% of the increase in the real GDP growth of the spillover destination country, whereas this fiscal‐spillover estimate goes up to 0.42% when the spillover source is in the euro area, and the spillover destination is an oil producing country. A secondary investigation based on the Heckman selection model is used to identify the drivers of fiscal spillovers across country pairs, where the existence of statistically significant fiscal spillovers is shown to be connected to the proximity between countries. The size of fiscal spillovers is further shown to increase with the initial (as of 1970) country size, trade openness, and government size of the spillover source country, whereas it decreases with the initial country size and trade openness of the spillover destination country. Important policy suggestions follow. [ABSTRACT FROM AUTHOR]

Most studies have found that the Covid‐19 pandemic did not negatively impact the euro area banking industry's performance at an aggregate level. This study explores whether this finding still holds using the return on assets of 16 banking groups operating in the euro area and considering bank‐specific factors, idiosyncrasies related to different exposures of their portfolios to the business cycle and weaknesses stemming from underlying structural vulnerabilities. The banking groups are classified into clusters using unsupervised learning techniques. This research contributes to the empirical literature on the determinants of banks' performance by highlighting the importance of banks' heterogeneity, notably controlling for differential performance due to asset quality, solvency and business model. In addition, this paper shows that the magnitude of return on assets' exposure to the business cycle varies across banks and that inflation in the euro area matters only for a subset of them. Importantly, the study sheds some light on the possible reasons for the mixed results in the literature regarding the role of non‐interest income, the T1 capital ratio and inflation. Finally, no significant effects of the Covid‐19 variables on banks' return on assets are found during the first seven quarters of the pandemic. [ABSTRACT FROM AUTHOR]

Motivated by the successful usage of machine learning around computer science and its wide acceptance from the finance literature, we utilize monthly data spanning the period 2008–2018 for the Euro area peripheral countries, in order to embark on a two-fold mission. First, to construct short-term prediction models for bank deposit flows in the Euro area peripheral countries, employing machine learning techniques. Second, to examine whether textual features enhance the predictive ability of our models. From the variety of models tested, we find that Random Forest models including both textual features and macroeconomic variables outperform models including only macro factors or textual features. Monetary policy authorities or macroprudential regulators could adopt our approach to timely predict potential excessive bank deposit outflows and assess the resilience of the whole banking sector in the Euro area peripheral countries. [ABSTRACT FROM AUTHOR]

In the 21st century, with the rapid development of technology and the increase in globalization, the effects of these advancements have begun to be observed in commercial activities as well. With the advancement of information and communication technologies, internet usage has also increased. As the internet has developed, the impact of digitalization on trade has started to become evident, leading to the growth of e-commerce. Through e-commerce, companies have begun to reach customers all over the world and conduct their commercial activities via the internet. E-commerce, which operates independent of time and place, also contributes to the development of international trade. This study was conducted to determine the impact of e-commerce on international trade in the Eurozone countries, which include both developed and developing country groups. Additionally, the effects of per capita gross domestic product and the internet on international trade were also investigated. The study analyzed the data from Eurozone countries for the years 2010-2021 using the panel ARDL model. The results obtained from the analysis indicate a negative and significant relationship between exports and e-commerce in the long term, and a positive and significant relationship between exports and both per capita gross domestic product and the internet in the long term. [ABSTRACT FROM AUTHOR]

At the heart of the Eurozone crisis was a dramatic divergence in interest rates between member states and a reversal of previously booming cross-border credit expansion from 'core' to 'periphery' by European banks. The resulting crisis and retreat behind national borders across the Eurozone challenged European elites' decade-long project of producing European scale as a space for financial accumulation. The Eurozone crisis has been well-described but post-crisis geographies of financial integration have received limited attention. We chart the financial positionality of member states and the relations between them in the period 2012–2019 using a variety of metrics including intra-Eurozone cross-border bank lending. The post-crisis period is dominated by the European Central Bank's determination to do 'whatever it takes' to save the Euro and its financial system. The resulting asset purchases give it a qualitatively different place in the Eurozone financial system and end the crisis period's retreat behind national borders. But they do not restore pre-crisis dynamics, and, in addition, unevenness along national lines remains. The crisis era core and peripheral labels still hold but the data also reveal important nuances: not least that the distribution of giant banks matters and offshore financial centres cut across core/periphery boundaries. Yet, even as there is no return to booming core-to-periphery credit, German lending into the Eurozone and its counterpart, Italian borrowing, symbolizes the continuing fragility of the Eurozone banking system. European Central Bank efforts ended the crisis, but more than asset purchases will be required if we are not to remain stuck in 2012. [ABSTRACT FROM AUTHOR]

Reflecting on twenty years of Cyprus's EU membership, this paper aims to provide an account of the rationale for its accession to the EU and the euro area, and an assessment of their benefits. The argument made in the paper is that although it was security rather than economic considerations that accounted for Cyprus's EU accession, the latter also came with certain financial benefits. Moreover, while Cyprus's accession to the single currency was motivated by its desire to be part of the hard core of the European unification project, its euro area participation was to stand Cyprus in good stead in its hour of need, during the Cypriot sovereign debt crisis of 2012-2013. The paper also explores whether the unprecedented accession of a divided country to the EU may provide a source of inspiration for future enlargements, where sui generis circumstances prevail. [ABSTRACT FROM AUTHOR]

This paper explores the relationship between working capital management (WCM) strategies and business performance during the COVID-19 crisis. Data from 1,067 non-financial European firms from 33 countries distributed across 6 economic sectors in the period from 2015 to 2021, feed Ordinary Least Squares model (OLS), robust and quantile pooled regression. COVID-19 crisis seems to have negatively influenced only median-low-range performance firms in Europe, showing that crisis coming from productive capacity hibernation do not impact nor impose tough slow recovery, transversal to all firms, as occurred on other financial crises. As for WCM, only median-top-range performance firms had significant statistical evidence for negative impact, that become positive for median-range performance firms during COVID-19. For Eurozone firms, there was an additional positive influence of the WCM on performance during COVID-19. Median-range performance firms seems to benefit from conservative WCM strategies mitigating firms' performance negative effect raised by COVID-19 crisis. Relation between COVID-19 and WCM seems to be sensitive to different levels of firms' performance and to different business' economic sector. Contrary to knowledge on WCM, performance and financial crises in Europe, for COVID-19 alike crises, performance benefits from higher cash conversion cycles and thus encourage conservative WCM strategies. Liquidity should not be pushed by adopting aggressive WCM strategies. [ABSTRACT FROM AUTHOR]

The fractional generalized cumulative residual entropy, a broader version of the cumulative residual entropy, holds significance in assessing the uncertainty model of random variables and maintains straightforward connections with reliability models and crucial information. This article represents and modifies some novel features of the fractional generalized cumulative residual entropy and discusses the weak convergence. Additionally, the measure is utilized to assess uniformity, involving the derivation of the limit distribution and an approximation of the test statistic’s distribution. Furthermore, the concept of stability is addressed. Moreover, the presentation includes the critical points and power analysis against alternative distributions of this test statistic. Furthermore, a simulation study is carried out to compare the power value of the proposed test with that of other tests of uniformity. Moreover, the uniformity test utilizes real data on daily smokers in the countries of the Euro Area. Finally, our model’s exponential distribution is applied to our model’s empirical form. [ABSTRACT FROM AUTHOR]

Despite the common Euro Area (EA) requirements, we find notable differences in the quality of fiscal governance among the 19 member states. Moreover, characteristics of the delegation approach, which have been largely ignored in the EA fiscal governance framework, remain important in various member states. Using a two‐way fixed effects panel data model for the EA countries during 2006–2018, we find that the delegation approach can be effective to improve the fiscal position. On the other hand, the imposition of centrally mandated common rules‐based reforms has not taken into account the national political, social and institutional setting, and this may have also affected their effectiveness to achieve fiscal discipline. Our findings thus suggest a reconsideration of the one‐size‐fits‐all, rules‐based approach to fiscal governance in the EA. [ABSTRACT FROM AUTHOR]

This paper focuses on a neglected yet crucial feature of public investment policies in the European Union (EU): the politics of statistical harmonization and off-balance-sheet policymaking. Drawing upon the instrument-centred approach and the sociology of quantification and accounting, it refines the concept of 'fiscal ecosystem' by highlighting the controversial and evolving nature of the boundary between on- and off-balance-sheet recording. It is argued that the accounting aggregates giving effect to EU fiscal rules favour marketized and privatized modes of public service delivery, including 'market-based but state-led' off-balance-sheet investment tools such as public–private partnerships. However, the effectiveness of this policy has decisively hinged upon the work of harmonizing public finance statistics carried out by Eurostat, the Statistical Office of the EU. This contested process has led to acute power struggles between statistical agencies and governments, and a substantial increase of Eurostat's power in the wake of the Eurozone crisis. The comparison of the two main Belgian regions highlights contrasting responses to this European strategy of governing (sub)national investment policies through fiscal rules and statistical harmonization: while Flanders has consolidated the financialization of its investment policy, Wallonia has so far opposed this trend. This demonstrates that although financialization of public investment is promoted by EU fiscal integration, it is not inevitable; governments do have some leeway to follow an alternative path. As Wallonia also benefited from extraordinary economic and political circumstances, it remains to be seen whether its distinctive investment policy will withstand rising interest rates and tighter fiscal rules. [ABSTRACT FROM AUTHOR]

In the early 2000s, several countries in the euro area (EA), mostly in the South, experienced an increase in current account deficits, while Northern countries saw an increase in current account surpluses. During the euro crisis, the South transitioned from a current account deficit to a surplus, while the North's surplus widened, thereby increasing the EA's overall current account surplus. To analyze the causes of the current account adjustment in the EA during the 2010s and to identify economic policies that reduce external imbalances, we employ a New Keynesian DSGE model with three regions (the North of the EA, the South of the EA, and the rest of the world). Our analysis reveals that the EA's expansionary monetary policy, fiscal consolidation, and lackluster productivity performance explain a significant portion of the current account adjustment. Furthermore, we find that the fiscal revaluation and expansion of the North would have limited effects on external imbalances. [ABSTRACT FROM AUTHOR]

In recent years, the global economy has been hit by a sequence of severe shocks that affected the two largest economies, the USA and the Euro Area, severely. Uncertainties about the future abound. While the challenges are similar for both economies and the policy tools resemble each other, they apply to different economic landscapes. What can they learn from each other? This paper looks at the basic structural facts, the nature of uncertainty shocks, and the efficiency of policy tools in the two economies. The key to understanding recent developments is uncertainty. This paper argues that the channel through which uncertainty influences inflation, wage cost, and unemployment is the markup firms charge to cover their cost of capital. While the measurements of uncertainty are uncertain, adding a proxy for uncertainty can improve the estimates of the basic New Keynesian model. The Federal Reserve Bank has been more successful because it operates in a more integrated capital market. In the Euro Area, uncertainty is higher than in the US and this could make disinflation in Europe more painful in terms of unemployment. [ABSTRACT FROM AUTHOR]

Since the beginning of this century, the global economy has been hit by a series of unforeseen shocks, including the Global Financial Crisis, the euro area's sovereign debt crisis, and most recently, the global inflation surge. To motivate this special issue, we provide a brief overview of recent methods that have been proposed to improve the ability of forecast models to predict shocks and to capture their effects once they have occurred. We also propose a method that may allow central banks to respond more quickly to the kind of inflationary surge that occurred from 2020 to 2022 so that those banks would not have misdiagnosed the surge as a temporary phenomenon. [ABSTRACT FROM AUTHOR]

The rising degree of integration among different countries around the world calls for the examination of cross‐country connectedness across equity markets. Moreover, the interconnection among some countries – bound by their common economic policies, treaties and agreements, such as Eurozone countries – is stronger than among others. Strong inter‐country ties may cause an intense connectedness among their financial systems. This study examines the returns and volatility connectedness among the equity markets of the Eurozone countries. Using the TVP‐VAR model, we document strong connectedness among their stock markets. The net transmitters of shocks are the most developed Eurozone stock markets, while Lithuania, Slovenia and Slovakia are among the most vulnerable to risks from the more developed Eurozone economies. Thus, for any event that triggers risk transmission across the Eurozone equity markets, equity investors in less developed countries will be more vulnerable to risks from the nine more developed economies. [ABSTRACT FROM AUTHOR]

The literature on fifteen years of European crises leaves the reader with a puzzle. Prominent accounts of the longest crisis – that of the euro area (EA) – assert that the EA is deeply divided between North and South, with Central Eastern European (CEE) member states being ignored. This makes it hard to explain how the union has managed to reform since 2008 and especially during the Covid-19 pandemic. Scholars have started to talk of transnational coalitions, but they equate coalition-formation with bringing together the like-minded, typically over solidarity versus sovereignty and more or less integration. However, coalitions of the like-minded are typically too small to sustain reforms and compromise has to be sought with others who have different preferences. To establish empirically how stable or fluid transnational coalitions are, we exploit the EMU|Choices database (Wasserfallen, Leuffen, Kudrna, and Degner 2019) [Analysing European Union decision-making during the Eurozone crisis with new data. European Union Politics, 20 (1), 3–23] on EA reforms and our own original data on Covid-19 reforms. Our findings show a stable pattern but no geopolitical divide – coalitions have varying CEE members. These findings can provide a basis for developing a more plausible conceptualisation of transnational coalitions. [ABSTRACT FROM AUTHOR]

This study investigates the institutional factors influencing foreign direct investment within the Eurozone of the European Union (EU) and explores their correlation with economic integration. Attracting foreign direct capital investments is closely related to countries' efforts to make their institutional structures more competitive. Because economic integrations can contribute to economic growth by allowing these investments to increase. For his reason, the study focused on the course of foreign direct capital investments in the Eurozone in the 2002-2022 period and the institutional determinants of these investments were analyzed using the panel data method. The empirical analysis revealed that variables such as foreign direct investment, government effectiveness, political stability, and accountability did not experience any significant shocks. In the short term, a direct causal relationship between foreign direct capital investments and corruption has been found. Nevertheless, in the long term, it has been established that variables such as control of corruption, government effectiveness, political stability, rule of law, accountability, and regulatory quality collectively exhibit a causal relationship with foreign direct capital investments. These findings emphasize the importance of institutional structure for increasing foreign direct capital investments. Enhancements in governmental efforts to combat corruption, enhance governance effectiveness, promote political stability, uphold the rule of law, enhance accountability, and improve regulatory quality can significantly contribute to fostering foreign direct investment. In conclusion, this study provides valuable insights into the determinants of foreign direct investment in the euro area and offers guidance for future policy actions. [ABSTRACT FROM AUTHOR]

This article offers a monetary perspective on capital flows and the Eurozone's north-south divide. It argues that finance-centric narratives in comparative political economy rightly emphasize financial instability in the periphery, but that the role of capital flows therein requires clarification. The article draws on post-Keynesian monetary theory, coherent accounting, and balance-of-payments data to make three points. First, the focus on the financial account as a driver of current accounts should be abandoned in favor of an analysis of gross capital flows. Gross flows need not stem from excess savings in core countries and can be independent from trade flows. Second, explanations of financial instability in the periphery should go beyond bank flows and consider speculative portfolio flows into bond markets and foreign direct investment into real estate. Third, rising spreads in the periphery during the Eurozone crisis and the outbreak of the pandemic were not triggered by balance-of-payments problems but by a reversal of speculative bond flows. Comparative political economy should thus dedicate more attention to institutions that render peripheral countries susceptible to speculative flows into asset markets. [ABSTRACT FROM AUTHOR]

The goal of this paper is to test the mean reversion process of the inflation rate in the Eurozone during the COVID‐19 pandemic crisis. The study uses weekly data on consumer prices (measured through the Harmonized Consumer Price Index), spanning the period from 2020 to the mid of 2022. The findings document that euro area inflation follows a mean non‐reverting process, with most of its components following a similar pattern. Moreover, sub‐period analysis illustrates that the vaccination process against the pandemic gives a transitory character to euro area inflation, which, however, is dominated by the lockdown and the Omicron mutation periods. Finally, comparative analysis illustrated the differences of inflation persistence during the Global Financial Crisis of 2007–2009. [ABSTRACT FROM AUTHOR]