Overview publications

The "Neo-Fisherian" claim has been questioned on the ground that the Fisher equation cannot be used mechanically to peg the long-run inflation expectations. In this working paper, authors Lucio Gobbi (EconPol Europe, University of Trento), Ronny Mazzocchi (European Parliament) and Roberto Tamborini (EconPol Europe, University of Trento) study a New Keynesian economy where agents' inflation expectations are based on their correct understanding of the data generations process, and on their probabilistic confidence in the central bank's ability to keep inflation on target. They find that the Neo-Fisherian claim is a theoretical possibility depending on the interplay of a set of parameters and very low levels of agents' confidence. 

The rise of China in the world economy and its growing importance as investor in industrialised and developing countries has raised concerns of policy makers in some countries. Contrary to the trade situation between China and the US, trade between the euro area aggregate and China is almost balanced. On an individual country level, Germany, Ireland and Finland record trade surpluses with China. As trade between the euro area and China is balanced, there is no need for policy action to address any imbalance, however, European markets should only be opened for Chinese companies and investment if this is reciprocated.

Video: Current Account Development Between the Euro Area and China, Klaus Weyerstrass

A variety of reforms have been implemented to improve the institutional set-up of the euro area over the last decade. Nevertheless, the political and academic reform debate remains intense and the future of the euro area is unclear. One striking feature of the ongoing debate is that it is characterized prominently by contributions from larger euro countries from Western Europe. This study was conducted to balance the dominance of Western European politicians and academics in the euro area reform debate. It explored the positions of 1800 economic experts from Central and Eastern European member states on a range of European Monetary Union reform topics, which were compared to benchmarks of surveyed experts in France, Germany and Italy. The results provide the first database to map expert communities in all CEE EU member states relative to the three reference countries.

The uncertainty surrounding Brexit is costing the UK economy £16 billion per year, according to calculations from EconPol researcher Fabien Tripier (Professor of Economics at the Université Paris-Saclay and scientific advisor at the CEPII). The cost is based on the level of political uncertainty, the effect of that uncertainty on the economy, and the comparative trajectory in the absence of uncertainty.

In this working paper, Daniel Klein (University of Mannheim), Christopher A. Ludwig (EconPol Europe, ZEW Mannheim, University of Mannheim) and Christoph Spengel (EconPol Europe, University of Mannheim, ZEW Mannheim) study the effect of digital tax measures on firm value and find that expectations about ring-fencing digital tax measures impact firm values. An analysis of investor reaction to the European Commission’s proposals on the taxation of digital corporations reveals a significant abnormal capital market reaction of -0.692 percentage points. The investor reaction is more pronounced for firms that engage more actively in tax avoidance, have a higher profit shifting potential, and for those with higher exposure to the EU. The market value of digital and innovative corporations decreased by at least 52 billion euro in excess of the regular market movement during the event window. 

European regions which have representatives on the board of directors at the European Investment Bank (EIB), the world’s largest multilateral lending and borrowing institution, are more likely to receive loans than those regions in Europe which aren’t represented. Researchers Zareh Asatryan (EconPol Europe, ZEW Mannheim) and Annika Havlik (EconPol Europe, ZEW Mannheim, University of Mannheim) collected information on the regions of origin of around 500 national representatives at the EIB’s Board of Directors (the decisive body for loan approvals) since its foundation in 1959. They found that a representative's appointment increases the probability of their sub-national region receiving a loan by 17 percentage points. This “home-bias" effect is particularly present in large loans financing infrastructure projects.

This working paper examines resource allocation under private information when the planner cannot prevent bilateral side trading between consumers and firms. Adverse selection and side trading severely restrict feasible trades: each marginal quantity must be fairly priced given the consumer types who purchase it. Authors Andrea Attar, Thomas Mariotti and François Salanié (EconPol Europe and Toulouse School of Economics) discuss the relevance of the results for insurance and financial markets.

In recent years Chinese foreign acquisitions have increased significantly, with Chinese investors are more likely to acquire larger firms, firms with lower levels of profitability and higher debt. This EconPol working paper from Clemens Fuest (EconPol Europe, ifo Institute, LMU), Felix Hugger (LMU), Samina Sultan (LMU) and Jing Xing (Shanghai Jiao Tong University) shows investors don’t seem to pay more for target firms with given characteristics, questioning the view that they are subsidized to outbid other investors. Policy initiatives like the Belt and Road Initiative and Made in China 2025 influence state-owned but not private Chinese investors. After acquisition by a Chinese company, targets exhibit lower growth in capital productivity, but a higher growth of employee compensation.

The EU has mostly been defined as a provider of economic integration amongst participating member states. Its cornerstones have been the removal of obstacles to cross-border flows of goods, services, labour and capital, and the development of common policies that ensure the smooth functioning of an integrated market, be it for trade, competition, infrastructures or consumer protection, to name the main ones only. Even the euro was initially conceived as a natural complement to the internal market and as a trigger for further integration. This policy report from Clemens Fuest (ifo Institute, LMU, EconPol) and Jean Pisani-Ferry (EUI, Bruegel) discusses the case for enhanced provision of European public goods and makes a number of proposals for concrete steps and initiatives.

This paper by Ulrich Hege (Toulouse School of Economics) and Pierre Mella Barral (TBS Business School) examines two prominent approaches to design efficient mechanisms for debt renegotiation with dispersed bondholders: debt exchange offers that promise enhanced liquidation rights to a restricted number of tendering bondholders (favored under U.S. law), and collective action clauses that allow to alter core bond terms after a majority vote (favored under U.K. law). The authors use a dynamic contingent claims model with a debt overhang problem, where both hold-out and hold-in problems are present. They show that the former leads to a more efficient mitigation of the debt overhang problem than the latter. Dispersed debt is desirable, as exchange offers also achieve a larger and more efficient debt reduction relative to debt held by a single creditor.