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The effect of public investment in Europe: a model-based assessment

de Jong, Jasper, Ferdinandusse, Marien, Funda, Josip, Vetlov, Igor, (2017), ” The effect of public investment in Europe: a model-based assessment”, ECB Working Paper Series No 2021, February Public investment in Europe has significantly declined since the crisis, although developments are heterogeneous across countries. This has led to calls for stimulating public investment in an environment of low borrowing costs for governments, weak economic growth and monetary policy at the lower bound. Against …Read More

Don’t give up on Europe as an investment destination

Gallo, Alberto, (2017), “Don’t give up on Europe as an investment destination”, LSE, 21 February Politically, the year 2017 looks like a minefield for Europe. Economically, however, the situation is much more promising: growth and inflation continue to accelerate and in the latest indices of economic surprises Europe has been faring better than the US. ECB stimulus is starting to work, unemployment is slowly falling and consumer confidence is rising. Relevant …Read More

In search of a European solution for banks’ non-performing loans

Onado, Marco, (2017), “In search of a European solution for banks’ non-performing loans”, VoxEu, 21 February After ten years of crisis, European banks are far from seeing the end of the tunnel. While US banks have recovered fairly quickly and have reached in 2012-15 a return on equity of 9.3%, European banks are still stuck at a meagre 3.7%, well below their cost of capital (IMF 2016). This gap is explained …Read More

Youth unemployment produces multiple scarring effects

McQuaid, Ronald, (2017), “Youth unemployment produces multiple scarring effects”, EUROPP, 18 February There are lots of problems with analysing the causes and effects of such long-term scarring and the reasons for it appear inter-connected. For instance wellbeing and mental health may affect subsequent income and chances of getting and keeping a job, but are themselves influenced by unemployment. Some broad overlapping reasons for scarring include: (1) employer responses, (2) the person’s human …Read More

Banks, Firms, and Jobs

Presbitero, Andrea, Berton, Fabio, Richiardi, Matteo, Mocetti, Sauro, (2017), “Banks, Firms, and Jobs”, IMF Working Paper No. 17/38, 14 February We analyze the employment effects of financial shocks using a rich data set of job contracts, matched with the universe of firms and their lending banks in one Italian region. To isolate the effect of the financial shock we construct a firm-specific time-varying measure of credit supply. The contraction in credit supply …Read More

Only Germans Love the Euro These Days

Paul, Jean-Michel, (2017), “Only Germans Love the Euro These Days”, BloombergView, 17 February Political support for the single currency has been waning — especially in Germany’s two largest euro-zone trading partners. In both France and Italy, there is now a plurality of support for candidates who advocate a withdrawal from the euro, with pro-euro candidates gathering less than 30 percent in polls. Relevant Posts Merler, Sylvia, (2017), “Is Germany a currency …Read More

Portugal needs stronger investment to maintain growth and improve living standards

Arnold, Jens, (2017),“Portugal needs stronger investment to maintain growth and improve living standards”, Portugal Desk, OECD Economics Department, 6 February Since 2012, investment has hardly exceeded the depreciation of the existing capital stock, meaning that growth of the productive capital stock has almost stalled. This is one reason behind the low potential growth of the Portuguese economy, which the OECD currently puts below 0.5%. Without stronger investment, growth performance is bound to …Read More

The Financial Education of the Eurozone

Smart, Christopher ,(2017), “The Financial Education of the Eurozone”, Project- Syndicate, 14 February Europe’s banks have long been central to the continent’s economy. In France and Germany, bank assets amount to 350-400% of GDP, whereas in the United States, they are equal to just over 100% of GDP. After the 2008 financial crisis, the eurozone’s weakest banks quickly buckled under the weight of their bad loans, and then threatened to …Read More

High frequency trading and fragility

Cespa, Giovanni, Vives, Xavier, (2017), “High frequency trading and fragility”, ECB Working Paper Series No 2020, February We show that limited dealer participation in the market, coupled with an informational friction resulting from high frequency trading, can induce demand for liquidity to be upward sloping and strategic complementarities in traders’ liquidity consumption decisions: traders demand more liquidity when the market becomes less liquid, which in turn makes the market more illiquid, fostering …Read More

The impact of constrained monetary policy on the fiscal multipliers on output and inflation

Bletzinger, Tilman, Lalik, Magdlena, (2017), “The impact of constrained monetary policy on the fiscal multipliers on output and inflation”, ECB Working Paper Series No 2019, February As a consequence of rising debt-to-GDP ratios in several euro area member states, the euro area as a whole is going through a period of significant fiscal consolidation. At the same time it observes a prolonged period of low inflation combined with a binding zero lower …Read More