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Europe’s Struggles: From Cohabitation to Consolidation… or the Other Way Around

Paper Session

Friday, Jan. 6, 2017 2:30 PM – 4:30 PM

Sheraton Grand Chicago, Arkansas
Hosted By: International Trade and Finance Association
  • Chair: Thierry Warin, HEC Montreal

The Refugee Crisis in Europe on Twitter: A Sentiment Analysis

Jeffry Frieden
,
Harvard University
Thierry Warin
,
HEC Montreal

Abstract

Social networks have started to be the subject of a lot of studies from social scientists. The fact that millions of people write, share and comment is interesting already in itself. Indeed, writing, sharing and commenting are the three essential elements of a conversation.
As such, a conversation provides some interesting information about people's feelings, attitudes and behavior. The main rationale behind analyses based on Twitter relies on "the wisdom of the crowds" effect. The assumption is that the aggregated judgment of several people is often better than the judgement of experts or the smartest forecaster (Hogarth 1978). In this case study, we attempt to map the conversations on Twitter about the European refugee crisis. Not only the data (content of the tweets), but also the metadata are interesting. Indeed, the content allows us to do some sentiment analysis. We can thus map positive and negative comments about the refugees. With the metadata, we can for instance map where the tweets originate based on their latitude and
longitude. We can thus add a spatial dimension to the conversations. We also join a set of different attributes to the data and metadata of the tweets, such as the number of refugees in a country and the routes from their origin country to Europe.

Austerity in the Aftermath of the Great Recession

Christopher L. House
,
University of Michigan and NBER
Christian Proebsting
,
University of Michigan
Linda Tesar
,
University of Michigan

Abstract

This paper examines the effects of austerity on economic performance since the Great Recession. The analysis proceeds in two steps. The first step is to construct measures of ”austerity” shocks in the 2010-2013 period in a sample of 29 countries including the U.S., the UK, Switzerland, countries in the Euro area and central and Eastern Europe. In our data set, austerity - a reduction in government spending that is larger than that implied by reduced-form forecasting regressions - is statistically associated with lower real per capita GDP, lower GDP growth, lower inflation and higher net exports. The second stage develops a multi-country DSGE model to make direct comparisons between the observed empirical relationships and the model predictions. The model is calibrated to reflect relative country size, trade and financial linkages, and the country’s exchange rate regime. The model incorporates austerity shocks, shocks to the cost of credit and monetary policy shocks. Preliminary findings suggest that the benchmark model generates predictions that are qualitatively in line with those seen in the data.

Is Europe’s Banking Union Delivering on Its Promise?

Nicolas Veron
,
Bruegel Institute and Peterson Institute for International Economics

Abstract

European banking supervision, also known as the Single Supervisory Mechanism, is the first and arguably the main component of European banking union. In late 2014, the European Central Bank became the supervisor for the region’s largest banking groups; the ECB also oversees the supervision by national authorities of smaller banks. Despite teething troubles and occasional misjudgements, this assessment finds that overall European banking supervision has been effective, demanding and broadly fair, at least for the banks under the ECB’s direct watch. Even so, achieving a truly single market in banking services will require more time, further supervisory initiatives and new Europe-wide regulatory and legislative steps.

Banks’ Foreign Claims Across Europe: An Assessment of the Eurozone Credibility

Thierry Warin
,
HEC Montreal

Abstract

Since 2008, central banks, governments and international organizations have been working on the lessons learned as well as designing options for a new financial framework. From the Dodd-Frank Act in the United States to Basel III, the international financial world has seen relevant changes. In Europe, the 'Banking Union' was passed. In itself, it is already an interesting reform. But beyond the primary objective of the Banking Union, which is to ensure financial stability, there is also a second feature, more theoretical: it should deepen the European integration providing a response to the critics of the European project. In this article, we propose an empirical framework to assess the potential new credibility provided by the Banking Union. We use foreign claims across Europe, and in particular the eurozone to see how banks react to positive and negative macroeconomic signals they receive from the markets. Foreign claims are particularly interesting due to their sensitivity. One of main conclusions is that the eurozone has seen a reallocation of capital in the aftermath of the 2008 crisis. The financial picture of Europe is indeed different. However, there is no real re-concentration of capital from the periphery to the core countries. This result may be a sign of a recovered credibility of the euro.

Central Bankers as Supervisors: Do Crises Matter?

Donato Masciandaro
,
Bocconni University and SUERF
Davide Romelli
,
Trinity College

Abstract

Following the 2007-09 Global Financial Crisis many countries have changed their financial supervisory architec- ture by increasing the involvement of central banks in financial supervision. This has led many scholars to argue that financial crises are an important driver in explaining the evolution of the role of central banks as supervisors. We formally test this hypothesis employing a new database that captures the full set of supervisory reforms implemented during the period 1996-2013 in a large sample of countries. Our findings support the view that systemic banking crises are important drivers of reforms in supervisory structure. However, we also highlight an equally important “bandwagon” effect, namely a tendency of countries to reform their financial supervisory architecture when others do so as well. We construct several measures of spatial spillover effects and show that they can explain institutional similarities among countries and impact the probability of reforming the role of the central bank in financial sector supervision. Our findings highlight the political drivers in reforming the supervisory architecture, notwithstanding the lack of consensus of economic theory on the optimal institutional setting.
JEL Classifications
  • F2 - International Factor Movements and International Business
  • G1 - General Financial Markets