Search Results (53)

In its response to the economic and financial crises of 2008, the sovereign debt and euro crisis of 2010–2015, and the COVID-19 pandemic of 2020–2023, the European Central Bank (ECB) implemented an unconventional monetary policy aimed at providing liquidity for more than a decade, through a complex set of tools and operations that make up the so-called quantitative easing. The results of all of them are being analyzed from different perspectives. This paper studies the relationship between a large base money, characterized by a voluminous concentration of liquidity in the form of excess reserves, and broad money (the broad M3 aggregate). Our econometric work shows a low elasticity of broad money with respect to base money, concluding the existence of a weak relationship between both monetary magnitudes, with a sharp decline in the money multiplier. The demand for money has remained stable relative to its determining variables, interest rates and income. At the same time, some practices related to the handling of excess liquidity by European banks through deposit facilities deserve consideration. We propose strict control by the monetary authority over the nature and origin of the funds that constitute the excess liquidity derived from the ECB’s unconventional operations, and over its management. Full article

Under the threat of the climate crisis, renewables are an alternative that are aligned to European principles for clean energy and green transition strategies. Past studies have shown that the Eastern Mediterranean will present notable short- and long-term wind speed variability due to climate change. In this context, this study investigates the mean changes in wind energy potential (WEP) of a typical height of offshore turbines (80 m) over the climate sensitive area of the Aegean Sea during early, middle and late periods of the 21st century with reference to a base period (the historical period from 1970 to 2005). Data, available from EURO-CORDEX project under the moderate and extreme future scenarios (rcp4.5 and rcp8.5) as well as the recent past (historical) period (from 1970 to 2005), are analyzed here. In both future scenarios, the majority of model simulations indicates an increase in the WEP over the Aegean area as compared to the base period. In particular, the maximum increase in WEP is higher in the rcp8.5 scenario as compared to the rcp4.5 scenario. The most significant changes are shown over the southeastern (the straights between Crete and Rhodes Island) and the central-eastern Aegean area. Full article

We use a theoretical model to set up the conditions for a country to attain monetary stability by allowing for two freely tradable currencies to circulate in parallel. For this parallel system to function properly, confidence in the good behavior of the monetary authorities in charge of the two currencies is key. Our model shows how a floating exchange rate between the two can keep the issuers of the local currency in check. The results from our model show the conditions under which a parallel currency system disciplines the issuers of the currencies and thus maintains their purchasing power. In non-volatile economies, it also discourages governments (or private issuers) from inflating one of the currencies as a means to raise seigniorage, as this policy results in the displacement of the currency from the market. When foreign payments shortfall—such as in Greece and Cyprus during the ‘euro crisis’ in the mid-2010s, or intractable hyperinflation—leave the country without a medium of exchange, our model shows how currency choice can restore monetary circulation and offer a path to achieving and maintaining monetary stability. Full article

Artificial intelligence (AI) has made remarkable progress in recent years in remote sensing applications, including environmental monitoring, crisis management, city planning, and agriculture. However, the critical challenge in utilizing AI models in real-world remote sensing applications is maintaining their robustness and reliability, particularly against adversarial attacks. In adversarial attacks, attackers manipulate benign data to create a perturbation to mislead AI models into predicting incorrect decisions, posing a catastrophic threat to the security of their applications, particularly in crucial decision-making contexts. These attacks pose a significant threat to the integrity and comprehensiveness of AI models in remote sensing applications, as they can lead to inaccurate decisions with substantial consequences. In this paper, we propose to develop an adversarial robustness technique that will ensure the AI model’s accurate prediction in the presence of adversarial perturbation. In this work, we address these challenges by developing a better adversarial training approach using explainable AI method-guided features and data augmentation techniques to strengthen the AI model prediction in remote sensing data against adversarial attacks. The proposed approach achieved the best adversarial robustness against Project Gradient Descent (PGD) attacks in EuroSAT and AID datasets and showed transferability of robustness against unseen attacks. Full article

This paper examines the time-varying spillover effects and connectedness between the euro and other EU and non-EU currencies after the end of the sovereign-debt crisis. We employ the Quantile Vector Autoregression connectedness approach using intraday data for seven currencies (the euro, the British pound, the Swiss franc, the Polish zloty, the Hungarian forint, the Czech koruna, and the Norwegian krone) spanning from 1 January 2016 to 30 November 2022. The results indicate that, almost in all quantiles, the currencies of Eastern European Group countries (i.e., Czech Republic, Hungary, and Poland) are net contributors of information spillovers to other currencies, while currencies of non-EU countries (Switzerland, UK, and Norway) are net takers. Further, we find that the euro is the highest transmitter of net information spillovers to all other currencies until 2021. Interestingly, after 2021, the euro changes to net information spillover taker from all other currencies; highlighting that external shocks (e.g., COVID-19, the energy crisis) have significant risk spillover effects on the European currency market. Policymakers and market participants could benefit from knowing which currency drives developments to avoid unexpected consequences. Full article

This paper investigates the dynamic stability of public debt and its solvency condition in the face of crisis periods (1980–2021) in a sample of 11 euro-area countries. The focus is on the feedback loop between the dynamic stability of public debt and interest rates, discounted by economic growth, in conjunction with budget deficits during tranquil and turbulent periods. Using the GMM panel dynamic model, the results show that dynamic stability was the case before the global financial crisis (GFC), while from GFC to the pandemic, dynamic instability prevailed and persisted in the evolution of public debt. Furthermore, panel threshold estimates show that dynamic instability of debt starts to violate the solvency condition when the borrowing cost is above 3.29%, becomes even stronger when it is above 4.39%, and exerts even more pressure when the level of debt is greater than 91%. However, the debt sustainability condition reverses course when economic growth is higher than 3.4%. The main policy implication drawn from the results is that low interest rates can create a self-reinforcing loop of high debt, which itself is a serious matter for public authorities when designing economic policies. Full article

Euro Area banks have been confronted with unprecedented monetary policy actions by the ECB. Monetary policy may affect bank risk profiles, but the consequences may differ for short-term risk versus long-term or structural bank risk. We empirically investigated the association between the ECB’s monetary policy stance and market-perceived short-term and long-term bank risk, using the term structure of default risk captured by bank CDS spreads. The results demonstrated that, during the period 2009–2020, ECB expansionary monetary policy diminished bank default risk in the short term. However, we did not observe a similar decline in long-term bank default risk, since we documented that monetary stimulus is associated with a steepening of the bank default risk curve. The reduction of bank default risk was most pronounced during the sovereign debt crisis and for periphery Euro Area banks. From 2018 onwards, monetary policy accommodation is associated with increased bank default risk, both short-term and structurally, which is consistent with the risk-taking hypothesis under which banks engage in excessive risk-taking behavior in their loan and securities portfolios to compensate profitability pressure caused by persistently low rates. The increase in perceived default risk is especially visible for banks with a high reliance on deposit funding. Full article

The configurative comparative method, Dynamic Pattern Synthesis (DPS) is used to replicate previous research into the impact of the euro on economic convergence. The DPS method ensures a forensic examination of the diverse variable patterns that influence cluster memberships. As with previous research conclusions, there are multiple patterns of convergence and divergence. Consistent clusters across the time periods compared are Germany, the Netherlands, Luxembourg, and Ireland; Slovakia and Estonia; Italy, Spain, and Slovenia; and Portugal and Greece. The variable patterns most likely to influence cluster definitions are differences in GDP per capita, productivity, and investment, although there are other differing variable patterns that influence specific smaller cluster memberships and the consistency of memberships over time. Externalities undermine nominal convergence. An example is the divergence of the experience of consumer inflation between 2016 and 2022. Nevertheless, some convergence in long-term interest rates is achieved. There is also divergence in the real convergence target of GDP per capita. As regards structural changes, productivity differences widen, and investment as a percentage of GDP converges during COVID-19. The theoretical implications are that the complex dynamics between collaboration, competitive markets, and global instabilities makes convergence unlikely. Real convergence, such as reducing the distribution differences of GDP per capita, is only likely to be possible over many decades, and needs considerable government interventions. Complex systems theory informs us that limits to convergence are inevitable in dynamic systems where events bring unplanned divergences. Full article

Identifying macroeconomic events that are responsible for dramatic changes of economy is of particular relevance to understanding the overall economic dynamics. We introduce an open-source available efficient Python implementation of a Bayesian multi-trend change point analysis, which solves significant memory and computing time limitations to extract crisis information from a correlation metric. Therefore, we focus on the recently investigated S&P500 mean market correlation in a period of roughly 20 years that includes the dot-com bubble, the global financial crisis, and the Euro crisis. The analysis is performed two-fold: first, in retrospect on the whole dataset and second, in an online adaptive manner in pre-crisis segments. The online sensitivity horizon is roughly determined to be 80 up to 100 trading days after a crisis onset. A detailed comparison to global economic events supports the interpretation of the mean market correlation as an informative macroeconomic measure by a rather good agreement of change point distributions and major crisis events. Furthermore, the results hint at the importance of the U.S. housing bubble as a trigger of the global financial crisis, provide new evidence for the general reasoning of locally (meta)stable economic states, and could work as a comparative impact rating of specific economic events. Full article

This paper considers a time-varying parameter vector autoregression model to analyze the varying impact of three types of structural oil shocks (the supply-side shock, the aggregate demand shock, and the oil-specific demand shock) on the European stock market since the 1990s. Our findings show that the three types of oil shocks heterogeneously influence stock market returns in the euro area, and that this influence considerably changes over time during the period considered. First, an unexpected increase in oil supply appears to exert a positive but generally declining effect in the period before the Global Financial Crisis (GFC) of 2007–2009, which descends into negative values after the GFC. Second, an unanticipated increase in aggregate demand triggers a generally positive effect on stock market returns in the euro area. However, in the period from 2003 to 2005, stock market returns responded negatively, which could be attributed to the so-called growth-retarding effect. Third, an unexpected increase in oil-specific demand instigates a negative response in the pre-GFC period (considering the response 4–5 months after the shock), although this changes to a positive effect thereafter. Interestingly, irrespective of the origin of oil price fluctuations, oil price increases are associated with positive European stock market returns after the GFC. This signals a greater degree of oil market financialization. Full article

The purpose of this paper is to investigate how well contemporary exchange rate theories explain fluctuations in exchange rates of emerging economies, before and after the Global Financial Crisis (GFC). As an example, the EUR/PLN exchange rate in 1999–2015 was selected as the currency pair that was the most liquid in the region; it had a stable exchange rate regime in the given period. The whole analysis was performed within the selected linear vector error correction (VEC) model framework. VEC models incorporate such well-known theories as purchasing power parity (PPP), the uncovered interest rate parity (UIP), the Harrod–Balassa–Samuelson (HBS) effect, the terms of trade (TOT), the net financial asset (NFA) theory and risk premium. The results indicate the greater importance of external factors—in particular, the Euro Area (EA) short-term interest rates and EA price shocks after the GFC. The main sources of EUR/PLN variability were found to be exchange rate shocks, terms of trade shocks and foreign and domestic short-term interest rate shocks, as well as foreign price shocks. These results are of particularly high importance for our own exchange rate shocks and indicate that a large part of exchange rate fluctuations in EUR/PLN still remains unexplained. Full article

The paper analyses the productivity change of a balanced panel of 1915 European banks during the 2013–2018 post-crisis period. To study productivity changes, the paper applies the non-parametric output-oriented Data Envelopment Analysis (DEA) approach and the Malmquist productivity index (MPI). The total productivity change estimated by the MPI is further decomposed into technical efficiency change and technological change. The overall MPI estimates show a modest increase in the productivity of banks in half of the EU countries. Further decomposition of the MPI indicates that the productivity growth was mainly a result of technological improvement, which was particularly high among the new EU member states, whereas there was a significant drop in technical efficiency. The productivity growth was higher among banks in the non-euro area and among savings banks. The practical implications drawn from the paper are that European banks should further develop their business models to rationalize the costs and increase their operational efficiency and stimulate the adoption of fintech solutions and technological development so as to enhance their productivity. Full article

In the present paper, we investigate the financial homogeneity of the euro area economies by contrasting eurozone countries’ responses to monetary policy steps to the theoretical assumptions of the liquidity trap phenomenon. Our assumption is that the euro area economies are not completely homogeneous. Hence, in a zero-interest rate environment, the asset holding decisions of economic agents exhibit detectable differences across countries. We verify our assumptions using Eurostat data. We use the financial asset stocks of the euro area countries to cluster the countries concerned. Previous literature has not examined changes in the ratio of financial assets to GDP, nor differences in structural changes in the total stock of financial assets under the zero lower bound. The paper uses k-centers cluster analysis based on Euclidean distance for detecting changes in the portfolio holdings of eurozone economic actors owing to economic crises and monetary policy responses. The results confirm that euro area financial markets are fragmented. There are significant differences across asset markets of different Eurozone countries, both during and after the crisis. Despite some similarities in the portfolio rearrangement across countries, the ECB’s monetary policy does not have a uniform impact on euro area financial markets, and notable differences prevail in the financial asset structures of the economies concerned. Full article

Reacting to extreme uncertainty conditions caused by the global financial crisis, the European Central Bank implemented countercyclical strategy, combining conventional and non-traditional monetary policy tools to stabilize financial markets and euro area economies. We study the impact of the euro area monetary authority policy interventions on equity returns of four systemic Greek banks for the period January 2007 to August 2018. In the first step, we collect and classify interventions to several categories. Then, an event study analysis is carried out to evaluate cumulative abnormal returns. In the second step, a panel regression analysis is performed to identify Cumulative Abnormal Return (CAR) determinants. Our results suggest that expansionary conventional monetary policy interventions significantly affect equity returns of Greek banking institutions, assisting the regional banking equity stability. On the other hand, the harmful consequences of Greek debt crisis limited the effectiveness of non-standard measures. Full article

The pandemic caused by the coronavirus continues to test barriers around the world. In this sense, the tourism industry has become the sector most affected by the crisis with more than 900 million euros in losses. Recovery will require a great effort, especially in countries where the sector accounts for a large share of the economy and employment. This study analyzes the perceptions and proposals of the residents of the autonomous community of Andalusia. A total of 658 surveys were conducted during the closure. A quantitative and qualitative thematic analysis was carried out using SPSS and NVivo Pro programs. The findings provide significant insights into the economic recovery of society after the pandemic. The Andalusians have opted for local tourism so that the residents become the consumers of the tourist products of their territory. The deployment of new technologies and marketing campaigns should provide the basic strategies for structural changes and innovations. The residents demand a united Europe and disagree with the statements of some political leaders. The conclusions have practical and theoretical implications for tourist destinations. Full article