European Economic Review最新文献

We quantify the importance of emission disclosure for climate policies in a DSGE model for the euro area. A low-carbon energy and a fossil energy sector contribute to production and are financed by balance-sheet constrained intermediaries. We show that imperfect information on emissions by households (savers) is sufficient to create a palpable role for disclosure improvements. The underestimation of emissions from fossil energy firms (imperfect disclosure) provides these firms with too much funding. While improving disclosure in isolation has limited effects, it provides clear benefits in connection with higher carbon taxes: For a carbon tax increase by 50 euro/ton CO${}_2$, improving disclosure by 20 percentage points reduces the GDP costs by up to 14%. Over six years, this implies GDP benefits of 47 bn euro.

We assess the macroeconomic effects of carbon transition policies aimed at mitigating climate change in the euro area. To this end, we augment the ECB’s New Area-Wide Model (NAWM) with a framework of disaggregated energy production and use, which distinguishes between “dirty” and “clean” energy. Our central transition policy is that of a permanent increase in carbon taxes, which are levied as a surcharge on the price of dirty energy, combined with a price-preserving fall in fossil resource supply. Our findings suggest that increasing carbon taxes to an interim target level consistent with the transition to a net-zero economy entails a transitory rise in inflation and a lasting, albeit moderate decline in GDP. We show that the short and medium-term effects depend on the monetary policy reaction, the path of the carbon tax increase and its credibility, while expanding clean energy supply is key for containing the decline in GDP. Undesirable distributional effects can be addressed by appropriately redistributing the fiscal revenues from the carbon tax increase across households.

This paper investigates how domestic policy uncertainty stemming from discretionary fiscal policy disrupts efficient capital allocation across firms. While fiscal policy represents the government’s reaction to economic conditions, its volatility presents firms with considerable uncertainty about conditions affecting their future profitability and consequently disrupts decisions about investment in the presence of capital adjustment costs. Using firm-level data from Chinese manufacturing industries spanning from 1998 to 2007, we find that reducing fiscal policy volatility leads to a decrease in the dispersion of the marginal revenue product of capital, accounting for 8.3 percent of the observed improvement in capital allocation during the sample period. In addition to various fiscal reforms to curb fiscal policy volatility directly, policies contributing to lower capital adjustment costs and lower reliance of firms on government expenditure can alleviate the adverse effects of fiscal policy volatility.

Existing climate-economy models assume climate change has equal impacts on the productivity of firms that produce consumption and investment goods and services. We develop a model of structural change to show that the split between damage to consumption and investment productivity matters for the aggregate consequences of climate change. When investment is more vulnerable to climate, we find smaller short-run consumption losses than leading models suggest, but larger long-run consumption losses. We provide a quantitative illustration of these effects for one type of climate damage in the US economy: labor productivity losses from heat stress. We find that accounting for heterogeneous damages increases the welfare cost of the climate damage from heat stress by approximately 4 to 23%, depending on the discount factor.

Episodes of low natural interest rates, even transitory, pose a challenge to monetary policy, by possibly causing the effective lower bound (ELB) on the policy rate to bind. Those episodes are more likely to occur not only when the natural rate is low on average but also when fluctuations around its average level are large. We study the responsiveness of the natural interest rate to structural aggregate shocks affecting the aggregate supply of and demand for savings. Using a quantitative overlapping-generations model, we trace back this responsiveness to the slopes of aggregate savings supply and demand curves and argue that both curves have likely flattened over the past four decades in the US This implies a greater sensitivity of the natural interest rate to structural shocks affecting the supply of and demand for aggregate savings — making it more likely, all else equal, that it fall into negative territory.

This paper explores the link between default risk and fiscal procyclicality. We show that countries with higher sovereign risk have a more procyclical fiscal expenditure policy, which is driven mostly by transfers. We build a small open economy model with income inequality, social transfers, and default risk to rationalize this fact. Without default risk transfers are countercyclical, inequality is procyclical, and external debt is used to smooth distortionary taxation. With default risk, transfers account for most of fiscal adjustment because taxation becomes costly for the government. Transfers become procyclical and inequality worsens during times when risk premia are high. We confirm the predictions of the model in the data: in recessions in economies with default risk, transfers take the bigger burden relative to government consumption, whereas the opposite is true in economies with low default risk.

Soft default, defined as a delinquency of 90 days or more, is a relatively common event in the credit market, in 2010 such episodes affected about 3 million individuals. Yet we lack a detailed understanding of what happens afterward. We use credit report data, on approximately 2 million individuals from 2004 to 2020, to shed light on individual trajectories after such event, and document enduring negative impacts. These effects persist for up to ten years post-event and manifest in lower credit scores, reduced total credit limits, lower homeownership rates, lower income, and relocation to less economically active zip codes. It appears that those who are overextended in their mortgage lines, and with larger delinquent amounts, suffer the harshest consequences.

This paper develops and estimates a quantitative model to analyze the aggregate productivity consequences of informality in Mexico. While informality is typically viewed as prevailing solely among small firms, we use rich census data to document a high and rising share of large informal firms between 1998 and 2013. The model is quantified using the observed size and productivity distributions of both informal and formal firms. We use the model to assess the role of changes in labor market regulations, entry costs and enforcement in contributing to the rise in informality and decline in TFP in Mexico from 1998 to 2013. We find that the factors most important for the decline in aggregate productivity were not important drivers of the increase in informality, and conversely, the factors most important for the increase in informality had little impact on aggregate productivity. Regulatory changes during the 2000s contributed to over a third of the observed rise in the informal employment share, but with small aggregate productivity consequences. In contrast, rising entry costs account for a third of the decline in TFP from 1998 to 2013, but had little impact on informality.

This paper considers voluntary transmissive contacts between partially altruistic individuals in the presence of asymptomatic infection. Two different types of externalities from contacts are considered, infection externalities and socioeconomic externalities. When contacts are incidental, then externalities work through disease propagation. When contacts are essential, both infection and socioeconomic externalities are present. It is shown that for incidental contacts, equilibrium involves suboptimally high exposure whereas for essential contacts, equilibrium exposure is suboptimally low. An increase in altruism may thus increase or decrease disease transmission, depending on the type of contact under consideration. The analysis implies that policy to manage an epidemic should differentiate between different types of transmissive activities.

Monetary policy expansions significantly reduce macroeconomic downside risk, measured as the difference between the median and the 5th percentile of the industrial production growth forecast distribution. However, the effects are smaller in magnitude than those of credit spread shocks, which we find to be a major driver of fluctuations in downside risk. As a consequence, large policy interventions are required to stabilize risk originating from the financial sector, with undesirable consequences in terms of both price and output stability. These findings are obtained using US data and a novel econometric approach which combines quantile regressions and Structural VAR analysis.