ABSTRACT. Earlier meta-analyses of the economic impact of climate change are updated with more data, with three new results: (1) The central estimate of the economic impact of global warming is always negative. (2) The confidence interval about the estimates is much wider. (3) Elicitation methods are most pessimistic, econometric studies most optimistic. Two previous results remain: (4) The uncertainty about the impact is skewed towards negative surprises. (5) Poorer countries are much more vulnerable than richer ones. A meta-analysis of the impact of weather shocks reveals that studies, which relate economic growth to temperature levels, cannot agree on the sign of the impact whereas studies, which make economic growth a function of temperature change do agree on the sign but differ an order of magnitude in effect size. The former studies posit that climate change has a permanent effect on economic growth, the latter that the effect is transient. The impact on economic growth implied by studies of the impact of climate change is close to the growth impact estimated as a function of weather shocks. The social cost of carbon shows a similar pattern to the total impact estimates, but with more emphasis on the impacts of moderate warming in the near and medium term.

ABSTRACT. The concept of the circular economy is studied widely. Many governments have, or plan to create, circular economy policies. Citizens and schoolchildren alike recognise the logic of circularity as superior. Many companies also have circularity targets and public statements, with multiple reports explaining how circularity is profitable. Yet the circular economy is not happening at the speed and scale that the planet needs. It is reasonable to ask why.

This presentation will explore some of the well known and published challenges to circularity, and add in some novel causes of this under-performance by drawing upon direct observations of many circular economy projects across automotive, clothing, electrical equipment, furniture, etc. This will include challenges of measurement, of motivation, of co-ordination, of externalities, and of catalysis, among others.

ABSTRACT. We examine the propagation of consumer and business confidence in the euro area with a particular focus on the global financial crisis (GFC), the European sovereign debt crisis (ESDC), and the COVID-19-induced Great Lockdown. To that end, Diebold and Yilmaz’s connectedness framework and the improved method based on the Time-Varying Parameter Vector Autoregressive model are used. Our findings suggest that although the evolution of business confidence marked the GFC and the ESDC, the role of consumer confidence (mainly in those countries with stricter containment and closure measures) increased in the COVID-19-induced crisis. These results might be related to the different origins of the examined crisis periods, and the analysis of their interrelationship is a very relevant topic for future research.

ABSTRACT. Scheduled macroeconomic news announcements are known to be of interest to equity market participants, yet their role in out-of-sample predictions of price fluctuations is not documented for several reasons: i) macroeconomic news announcements are not frequent, ii) the exact timing of the announcement might change, iii) the market expectations about the announcement vary over-time, iv) news might be priced with prolonged time-period, and v) the importance of a given news announcement might change over-time due to turning-points or unexpected changes or under different market conditions. We assume that investors' interest towards a given macroeconomic news is time-varying, potentially peaking around the news announcement. However, instead of timing the news, we estimate attention and sentiment of the general public with regard to ten scheduled macroeconomic news announcements that we retrieve from multiple data sources. The resulting attention and sentiment series does not suffer from the limitations listed above. We extract attention and/or sentiment from social media, news articles, information consumption, and search engine. Working within the penalized regression framework, complete sub-set regression framework, and random forest, we show that we are able to improve volatility forecasts of over 400 major U.S. stocks. Specifically, we find that measures of general attention retrieved from Google Trends, indicators of positive macro-event-specific sentiment, and negative emotions extracted from newspaper articles lead future price fluctuations. One of our key results is that models that use sentiment related to macroeconomic news announcements consistently improve volatility forecasts across all economic sectors, with the most remarkable improvements in days of extreme price variation.

ABSTRACT. For decades, a narrative dominating public discourse in many Western countries suggested that trade with countries with a lower level of institutional quality could induce democratic change and good governance. One potential explanation for a change in the institutions in exporting countries is the so-called “California effect”. However, developments in countries like Russia or China have led to disappointment regarding this hypothesis. Whether this disappointment is justified or only based on anecdotal evidence remains an open question. In this article, we examine human rights spillovers through trade. We focus on the California effect of human rights in developed importing countries on the standards in developing exporting countries. Our sample includes 173 countries and covers the time period from 2000 to 2019. For a panel and four 5-year cross-sections, we estimate a spatial lag model by applying the generalized spatial two-stage least squares estimator using trade flows to construct the relevant weighting matrices. The results indicate positive human rights spillovers through trade and seem to be driven by spillovers from OECD to non-OECD countries, especially through trade in non-resource sectors. Our findings suggest the existence of the California effect and thus provide evidence contrasting the public opinion.

ABSTRACT. To date, goods market inefficiency in terms of mismatch has not played a role in economic growth analyses. The idea of ongoing market mismatch has so far gained little attention, even in the discussion of sluggish growth in recent decades. In this paper we thus suggest a stylized endogenous growth model that includes aggregate goods market mismatch. Mismatch and efficiency losses are the result of the stochastic interaction between supply and demand side elements. As a result, growth is not purely supply side driven: the demand side also matters. Thus, this approach can bridge the gap between endogenous growth modeling and Keynesian demand side approaches. Further, based on this growth model with mismatch we suggest that aggregate market mismatch can be identified in TFP estimations. Departing from a standard TFP estimation containing major key drivers, the match efficiency rate -- an output gap-based indicator -- is introduced to indicate mismatch. With an instrumental variable panel regression and using a yearly panel data set for 19 developed countries between 1985 and 2019 and 1996 and 2019, respectively, we indeed identify a significant effect of market mismatch on TFP and, therefore, the growth path.

ABSTRACT. This paper introduces a comprehensive model of self-preferencing across markets, where a monopoly platform leverages its dominance in a primary market to promote the sale of its ancillary products in an adjacent market. Examples include Amazon favoring its logistics services or Google favoring its advertising technology. Through the model, I study the impact and welfare implications of self-preferencing. I find that the platform is motivated to practice self-preferencing only when it is beneficial to sellers. Thus, the harmful impact on welfare only emerges on buyers under specific conditions. I also discuss several high-profile cases, offering policy insights and empirical evidence.

ABSTRACT. This study investigates the interplay between electoral dynamics, security concerns, and sustainable development investments in Colombian municipalities. Using a panel dataset spanning from 2003 to 2019, I analyze the factors influencing the reelection probabilities of incumbent parties among other key factors of electoral dynamics. The analysis reveals that episodes of violence in municipalities negatively impact reelection likelihood. However, strategic investment in projects aimed at sustainable development goals (SDGs) does not appear to influence reelections. An examination of investment allocations indicates that voters react to investments in specific chapters, with significant effects observed in areas such as agriculture, justice/security, and transportation, contributing to higher turnout on election day. Moreover, we find evidence of strategic expenditure adjustments by incumbents during election years, with a prioritization of projects with tangible outputs. My findings suggest that voters prioritize solutions to conflict over SDGs, while politicians tend to favor tangible projects that yield immediate benefits, highlighting the complex relationship between electoral dynamics and sustainable development objectives in Colombia. Addressing these challenges requires navigating the delicate balance between security concerns, electoral strategies, and long-term development priorities.

ABSTRACT. This paper investigates how various factors affect pollution levels in Europe's manufacturing industry. The paper explores how productivity, expenditure share, trade cost, and environmental regulations affect pollution levels in Europe's manufacturing industry. The World Input-Output Database provides data on global and local pollution for each industrial sector solely for the period ranging from 1995 to 2009. We use a general equilibrium model and quantitative trade model that considers pollution as a byproduct of production. The study aims to examine the effectiveness of regulations and control for the primary causes of environmental pollution (the main causes). Our empirical results reveal that air pollution emissions from EU manufacturing decreased by 33.21 percent despite an 85.44 percent increase in real manufacturing output. This outcome could provide evidence for the role of reducing the pollution contamination of manufacturing. The study finds that most of the decrease in emissions can be ascribed to changes in environmental regulations, rather than changes in expenditure share, trade cost, and productivity. Increasing environmental regulations by 20 percent can eliminate emissions intensity. After increasing environmental regulations by 20%, the emission of global pollutants such as methane decreased by 17.27% in 2009.

ABSTRACT. Existing studies reveal mixed results regarding the economic growth and CO2 nexus, which emanates from the differences in scale, timing and stage of development. In this paper, we explore the relationship between CO2 and real GDP, over the period 1870–2020 in US, Italy and Japan. Employing a GARCH-DCC model, as well as Wavelet Coherence analysis, which provides further evidence on short and long run relationships. The length of the crises/volatile regimes is identified based on statistical approach (i.e., Markov Switching Dynamic Regression). Our results indicate that only the US economy show a decreasing pattern between CO2 and GDP growth. Thus, through an innovative approach, we can confirm previous results in literature regarding the US case, solely.

ABSTRACT. This paper studies the presence of gender disparities in the relationship between health, economics, and environmental degradation across a sample of 25 OECD countries spanning the years 1990 to 2019. By employing recent panel data techniques to detect structural changes, we uncover the existence of two structural breaks, occurring at the beginning of the 20th century and after the Great Recession. Accounting for these breaks reveals pronounced gender distinctions. Specifically, our analysis finds that males exhibit higher GDP elasticities compared to females. Moreover, environmental degradation appears to exert a more pronounced effect on males, particularly when assessed through fine particulate matter levels. These gender differentials highlight the imperative for tailored public health policies capable of mitigating pollution and premature mortality.

ABSTRACT. This paper identifies the determinants of OECD Environmental Policy Stringency (EPS) index using a panel of 21 European countries for the period 2009-2019. If there is a large literature on the macroeconomic, political, and social determinants of EPS, the people's attitudes or preferences toward environmental policies is still burgeoning. Thus, the main goal of this paper is to estimate the effects of people's awareness regarding environmental issues on the EPS indicator. Due to the endogeneity of preferences, we have applied an instrumental variable framework to estimate our empirical model. Our most important result is to show that individual environmental preferences have a positive and significant effect on the level of EPS indicator : on average, a rise in individual preferences of 10% in a country will increase its EPS indicator by at least 1.85%. Our results have important policy implications.

ABSTRACT. The imperatives of sustainable development have increasingly shaped the landscape of entrepreneurship and finance. The criticality of sustainable entrepreneurship lies in its potential to foster innovation, mitigate environmental degradation, and drive inclusive economic growth. By embedding sustainability principles into business strategies, entrepreneurs can create value not only for shareholders but also for society and the environment. Further, green finance has gained traction as a means to mobilize capital towards environmentally sustainable and socially responsible projects. Many entrepreneurs and investors remain sceptical about the financial viability of sustainable business models, fearing that prioritizing environmental and social goals may compromise profitability. Hence, this work proposes an Analytic Hierarchy Process (AHP) and Decision-making trial and evaluation laboratory (DEMATEL) (AHP-DEMATEL) driven model highlighting the critical barriers among entrepreneurs, investors, and financial intermediaries regarding sustainable entrepreneurship and green finance.

ABSTRACT. We assess the impact of geopolitical risk and world uncertainty on the sovereign debt risk of 26 European Economies during the period 1984-2022, through the implementation of OLS-Fixed Effects regressions and the Generalized Method of Moments (GMM). We find that geopolitical tensions and global uncertainty in border countries contribute to the rise of European country’s sovereign risk as measured by 5- and 10-year Credit Default Swaps (CDS) and bond returns. Moreover, this interconnection is more pronounced during turbulent times such as the subprime crisis. Lastly, we found that geopolitical tensions in other country’ groups such as South America and Asia have a significant impact on the government risks of European countries.

ABSTRACT. This paper searches in the euro area bond markets for past episodes analogous to the turmoil experienced in the UK’s sovereign bonds market during September-October 2022. To that end, using daily data of 10-year government bond yields covering the period January 3, 2000 to June 30, 2023 we apply univariate and multivariate nearest neighbours analysis, proposing a novel k-Referenced Simultaneous Nearest Neighbours technique. Our results suggest that the markets initially identified the episode of tension recorded from October 17 to 31, 2022, with the losses of credibility suffered by Spain and Italy during the European debt crisis and, after the selective intervention carried out by the Bank of England, restored to the UK the credibility enjoyed by the central euro-area countries. Finally, between January 16, 2023, and June 30, 2023, we find analogies in the intense nexus between banking and sovereign risks recorded in Spain and Italy during the EA sovereign debt crisis.

ABSTRACT. We employ a two-step approach to examine the relationship between inflation and fiscal sustainability. In the first step, we estimate a country-specific time-varying measure of fiscal sustainability using the fiscal reaction function. This function captures the response of the primary balance to changes in the public debt ratio. In the second step, we examine the impact of various inflation measures (such as headline inflation, core inflation, energy inflation, and food inflation) on the previously established estimate of fiscal sustainability. Our findings indicate that higher inflation rates contribute positively to the measure of fiscal sustainability. Specifically, we observe an improvement in fiscal sustainability for core inflation. Conversely, the effect of energy inflation is found to be negligible or even negative. These results imply that the initial bout of inflation due to the energy price shock in 2021 likely did not contribute to improving fiscal sustainability, whereas the subsequent elevated core inflation has a positive effect.

ABSTRACT. The paper theoretically examines the relationship between tax evasion and bribery, extending the model of Robinson and Acemolgu (2006) related to a democratic society with redistributive politics. The tax penalty, court penalty, two forms of government transfers and income inequality are considered. The main finding shows that the bribe rate constraint is driven by the tax rate, being larger at higher individual incomes, under non-lump-sum transfers, when dislocated costs of taxation because of tax evasion tend to increase more than the evaded-tax rate. Tightened tax and court punishments have the propensity to mitigate the bribe rate. The bribe rate minimizes when tax efficiency is maximum. At this point, the bribery demand collapses because taxpayers might be less willing to break the law if the potential punishment is very severe. Moreover, a high tax efficiency increases the trust in authorities, improving tax compliance. All of those elements drastically reduce the demand for bribes, lowering its rate.

ABSTRACT. Acknowledging the potential detrimental impact that twin-deficits may have on sovereign risk, this study uses a two-step approach to assess the impact of fiscal and external sustainability on sovereign risk dynamics for a panel of 27 European Economies between 2001Q4 and 2022Q3. To do so, we first estimate a country-specific time-varying measure of fiscal sustainability, through the cointegration between government revenues and expenditures, and of external sustainability, derived from the exports-imports cointegration. We then resort to those time-varying coefficients to assess their impact on sovereign risk, proxied by 10-year CDS and CDS spreads (against the US) making use of Weighted Least Squares (WLS) analysis. Noticeably, we show that an improvement of both fiscal and external sustainability lead to a reduction in sovereign risk. This phenomenon becomes notably pronounced, particularly when examining countries experiencing an upward trajectory in their public debt levels.

ABSTRACT. We explore the effects of effective taxation and institutional quality on sectoral FDI. Our analysis comprises European countries and we use data from 2002 to 2020. We employ a GMM approach and show that a rise in both apparent taxation and tax differential reduces sectoral FDI flow while soaring tax differential increases FDI stock. Among the institutional variables, tertiary enrollment attracts FDI and secondary attainment has opposite results depending on the sectoral FDI. Our findings indicate that the government should lower taxation for more FDI flows and strengthen tertiary and secondary enrollment.

ABSTRACT. The real estate market has been reported to be particularly vulnerable to money laundering schemes as land and house purchases require large sums of money while being subject to fewer regulatory and reporting requirements. This study aims to shed some light on the empirical link between illicit financial flows and real estate rents using unique city-level data in Europe collected through the web portal Numbeo.com. Given the richness of the data, we use a triple interaction term that declares a supposedly more luxurious dwelling as the treated subset among the all dwellings. In addition, we add a set of conditioning variables that characterise cities that are hypothesised to attract higher volumes of illicit financial inflows. Our measure of illicit financial flows is based on the concept of 'abnormal FDI' by Delatte et al. (2022) which largely reflects the volume of unexplained capital channeled through tax havens.

ABSTRACT. The financing needs are substantial in developing countries as they have been facing a series of crises in recent years. In this global context, policymakers seek financial assistance from the International Monetary Fund to address balance of payments issues, despite developing countries' growing reluctance towards IMF loans tied to conditions and fear of adverse market reactions post-IMF agreement. This paper aims to explore whether IMF financial support can attract additional private investments to these countries, thus identifying a catalytic effect of IMF programs between 1985 and 2021. Employing an instrumental variable approach to correct for selection bias, we find that IMF programs have a catalytic effect on foreign direct investment, especially programs involving longer-term IMF engagement conditioned on structural reforms. Furthermore, we show that IMF programs foster the attraction of greenfield FDI. However, the catalytic effect depends on the economic sector, particularly characterized by low external financial dependence and high sunk costs. Medium-term IMF commitments contribute to reassuring investors regarding macroeconomic stability.

ABSTRACT. Newton's Law of gravitation, when applied to international trade, implies that just as particles attract each other in proportion to their size and mutual distance, trade flow between two bilateral pairs is proportional to their respective economic size and bilateral distance. The introduction of gravity models in economics has revealed the impact of physical distance on bilateral trade. However, distance might not be only physical. Considering the significant geopolitical changes affecting the world, this article examines whether geopolitical distance has an impact on bilateral trade. Using bilateral trade data for 141 countries between 1980 and 2021, the current study used a Pseudo-Poisson Maximum Likelihood and an Instrumental Variable approach to assess the impact of geopolitical distance between bilateral pairs on their bilateral trade flows. It provides evidence of the negative impact of geopolitical distance on bilateral trade. The study shows that in international relations, friendship between countries is as important as neighborhood. Furthermore, the results demonstrate that geopolitical distance exacerbates the negative impact of physical distance on bilateral trade. The results also show that the negative impact of geopolitical distance on bilateral trade is valid for trading partners from different income groups.

ABSTRACT. This research investigates the synchronization of credit cycles among 38 countries over the period 1995-2020. It provides insights into the dynamics of financial integration and its implications for credit markets. Through an analysis of disparities and similarities between the European Union (EU), high-income nations, and the entire sample, distinctive trends emerge. While greater synchronization in GDP growth, shared financial crises, and disparities in bank credit are associated with decreased credit synchronization overall, the EU displays contrasting trends. Capital inflows and fluctuations in exchange rates impact synchronization differently for pairs of high-income countries, irrespective of EU membership. These findings suggest varied dynamics influenced by economic development and EU integration, where common economic regulations and policies contribute to heightened credit synchronization. This study enhances our understanding of credit synchronization mechanisms, offering valuable insights for policymakers and financial practitioners.

ABSTRACT. This paper investigates the inflation effects of oil price expectations shocks constructed as functional shocks, i.e. as shifts in the entire oil futures term structure (both standard and risk-adjusted). The latter are then included in a vector autoregressive model with exogenous variables (VARX) to examine the US case. Counterfactual analysis is also carried out to investigate second-round effects on inflation through the inflation expectations channel. These are found to be significant, in contrast to earlier studies based on standard oil price shocks. Additional nonlinear local projections including a shock decomposition exercise show that inflation and inflation expectations are primarily driven by changes in the curvature (level and slope) factor when the latter are anchored (unanchored). These findings provide useful information to policymakers concerning the impact of oil price expectations on inflation and inflation expectations.

ABSTRACT. This paper re-evaluates the US external deficit which has considerably widened over the 1990s. US safe asset provision to the rest of the world is the dominant explanation for the persistent nature of the US external deficit. We suggest that apart from the safe asset hypothesis, there is an important role for technology shocks originating in US multinational companies that have a strong foreign direct investment presence. It is shown that technology shocks that increase the market value of FDI assets are loosening the sustainability constraint on the trade balance and therefore generate persistent trade balance deficits. Our analysis suggests that this channel can explain why the US tech-boom in the 1990s has contributed significantly to the increase of the US current account deficit and its duration. Technology shocks have been neglected as a reason for longer lasting current account deficits since for these shocks, standard open economy DSGE models can only generate temporary external deficits. We show that our enhanced DSGE-model – covering both trade and FDI – not only matches well the dynamics of the US external balance but can also account for the observed evolution of FDI related components of the external balance. In particular, US technology shocks can match the increase in net FDI income and a rising FDI capital balance. Our analysis suggests that FDI flows and their determinants should play a more important role in monitoring external imbalances by international organizations.

ABSTRACT. Countries around the world strive to sustain their economic, social and environmental resources/status. Governments aim at utilizing all resources and opportunities available for that. In the last three decades, most countries initiated many digital transformation projects to improve their operations, services, and even their governance. Nonetheless, such efforts implicitly influenced their spending on technology (infrastructure and applications), and even required more effort for raising the level of their human resources competency. Such investment is expected to improve life convenience of people and their happiness. Still, in addition to its cost, technology investment has its negative influence like heating, pollution, human health issues (ergonomics and signals), and green earth issues. This study tried to link one of the ICT (Information and Communication Technology) initiatives to sustainability. In the last 30 years and since the advent of the Internet, nearly all countries of the World attempted to utilize ICT to enhance their service provision. One of the prominent public sector’s initiatives related to using ICT for service provision is electronic government. Electronic government (e-government) is a public initiative that aims at transforming public services to be available to citizens and businesses, and facilitate activities like e-voting, e-democracy, e-citizenship, and bridging the digital divide. This study is an attempt to see if any type of relationship exists between e-government and sustainability. It aims at answering the following research question: Will digital transformation of public sector (represented by e-government initiatives) support sustainability (environmental and social)? The study utilized three measures to represent sustainability: environmental performance index (EPI), happy planet index (HPI), and human development index (HDI). On the other hand, the United Nations e-government development index (issued by the UNDP) will represent digital transformation initiative. This study tried to see if efforts related to developing e-government will influence measures of sustainability by calling on available secondary data. The research unit of analysis adopted is overall and sub-measures for countries. The study tried to see if any association exists between EPI, HPI, and HDI on one hand and UN-EGDI dimension. The study implemented two major tests: correlations and regression analysis. Results showed a significant association between the overall e-government readiness index and the three sustainability measures used. When digging deep to see which sub-measures are influencing sustainability more, results showed that human capital index and ICT infrastructure (within EGDI) were both significant predictors of EPI (Beta = 0.405 & 0.426 respectively). On the other hand, only human capital index showed significant association with HPI (Beta = 0.423). Finally, human capital index and ICT infrastructure (within EGDI) were both significant predictors of HDI (Beta = 0.547 & 0.456 respectively). Discussion of results, conclusions, limitations and future work are reported in the last section.

JEL Classification: Q. Agricultural and Natural Resource Economics • Environmental and Ecological Economics Environmental Economics, Sustainability

ABSTRACT. Over the past three decades, natural disasters have become increasingly frequent andintense, posing significant risks to economic activity, particularly in developing countries.This paper investigates the impact of natural disasters on economic growth, focusingon the 10th percentile of GDP growth to capture the worst recessions experienced bycountries. Using the Quantile Local Projections (QLP) method on a panel of developingcountries, we explore whether these disaster shocks worsen economic downturns anddelay recoveries. Our findings reveal that natural disasters tend to exacerbate severeeconomic contractions in developing countries, causing a lasting decrease in the lowertail of GDP growth distribution. This effect is especially pronounced in the agriculturaland industrial sectors, with the services sector showing a less persistent response. Moreover,high-income developing countries and those with better political institutions bettercounteract the adverse effects of natural disasters and exhibit greater resilience whenoutput is extremely low.

ABSTRACT. Cyclical systemic risk arises when macro-financial imbalances accumulate over time. Past financial crises which occurred in several countries around the world have shown that heightened cyclical risk can lead to exorbitant economic and financial costs if the appropriate macroprudential policies are not enacted at the correct time. Although many indicators are monitored in the conduct of macroprudential oversight and analysis, there is to date no in-house country-specific composite indicator for cyclical risk for Malta developed by the Central Bank of Malta. This paper addresses this gap by building a cyclical systemic risk indicator (cSRI). The cSRI is driven by the 2-year growth rate in real bank credit, the 1-year change in the debt service to income ratio, the house price to income ratio and the 2-year growth rate in real total debt. These sub-indicators are believed to have early warning characteristics on financial distress. This indicator forms part of a cyclical risk analysis framework of the Central Bank of Malta, complementing other tools that support the formulation of macroprudential policy recommendations.

ABSTRACT. We assess the impact of China’s bilateral political relations with three main trading partners—the US, Germany, and the UK—on current account balances and exchange rates, over the 1960Q1-2022Q4 period. Relying on the lag-augmented VAR approach with time-varying Granger causality tests, we find that political relationships with China strongly matter in explaining the dynamics of current accounts and exchange rates. Such relationships cause the evolution of the exchange rate (except in the UK) and the current account; these causal links being time-varying for the US and the UK and robust over the entire period for Germany. These findings suggest that policymakers should account for bilateral political relationships to understand the global macroeconomic consequences of political tensions.

ABSTRACT. This paper assesses the ability of economic globalization to explain and predict the probability of export growth across a set of small open Asian-Oceanic economies for the period of 2001-2020. Employing the dynamic random effects probit model with unobserved heterogeneity, results suggest significant relationship between economic globalization and the probability of export expansion. While economic globalization indices reflecting volume sizes of international economic flows and activities affect the probability positively, the globalization index that manifests network sizes of these flows and activities has negative effect. Moreover, both in-sample and out-of-sample analyses demonstrate the power of economic globalization in anticipating export expansion. Findings suggest heterogenous informational content of the economic globalization indices on the probability of export growth, and recommend combined use of them coupled with other export-related factors in practice.

ABSTRACT. This paper examines the determinants of portfolio equity and bond investment in the European Union. We estimate the impact of different drivers typical of the gravity model developed by Okawa and van Wincoop (2012). A salient feature of our study is that it accounts for the effects of tax havens through the recent database of Coppola et al. (2021). Another distinctive trait of our paper is that we model bilateral and multilateral resistance measured as financial restrictions between the country pair (bilateral) and relative to the rest of the world (multilateral). Our findings suggest that gravity variables (distance, economic size, and resistance), as well as historical links and global risk, explain portfolio holdings allocation. Our extended gravity model also captures the positive effect of government quality and financial development on portfolio equity and bonds. Given the differences in nature and risk between assets, we also compare the results for portfolio equity and bonds; we find that while portfolio equity is more mobile, portfolio debt tends to be invested in neighboring countries; more specifically, EU debt tends to remain in the EU. Our results also suggest that portfolio equity is more affected by global risk and multilateral financial restrictions. Finally, our comparison analysis using the IMF CPIS database (constructed under the residence principle) shows that not accounting for tax havens underestimates the gravity and fundamental factors explaining portfolio equity and bonds holdings investment.

ABSTRACT. We study the effect of monetary surprise shocks on real output and the price level, conditioned on different fiscal sustainability regimes in the period 2001Q4-2021Q4. First, we estimate time-varying fiscal sustainability coefficients based on Bohn’s (1998) approach through Schlicht’s (2003) method. Then, by taking these sustainability coefficients in a nonlinear local projection model for the Euro Area (aggregate data), Germany, Italy, and Portugal, we analyze the interaction between both policies under (un)sustainable fiscal regimes. Our results show that in a Ricardian regime, output and prices respond to monetary tightening by contracting, while in a non-Ricardian regime the effect on output and price levels is negligible (or even positive). The dependence of the effectiveness of monetary policy on fiscal solvency is valid for Euro-Area and all the countries assessed, and does not depend on whether a country is “core” or “periphery”, but on the policy conduct over time.

ABSTRACT. We build an index of market disappointment with central bank announcements for both the FeD and the ECB. To measure disappointment, we use the content of key financial newspapers and use advanced text-mining methods to detect sentences conveying disappointment. We employ a new NLP model that is found to outperform GPT 3.5 in our context of paraphrase detection. Our index allows us to unveil new facts about the market response to central bank announcements. First, we document important asymmetries between the market's preferred policy and the central bank actual policy. About 20\% of central bank announcements are disappointing to market participants, predominantly stemming from the absence of easing measures. Second, we find that market disappointment lead to changes in monetary policy rule perceptions quicker than previously documented using monetary policy surprises. Third, we find that market disappointments lead to drop in next day stock returns and increases in volatility. The effect is economically important and is present for both the FeD and the ECB, controlling for standard monetary policy surprise measures. The reversal pattern and further analysis suggest that this effect goes through investor sentiment.

ABSTRACT. This paper examines the impact of Environmental, Social, and Governance (ESG) factors on the performance of both Islamic Banks (IBs) and Conventional Banks (CBs) over the period 2009-2019. To address potential endogeneity concerns related to bank capitalization, we employ the two-step system Generalized Method of Moments (GMM) estimator developed by Blundell and Bond (1998). Using a panel dataset and controlling for bank-specific and macroeconomic determinants influencing bank performance, our findings reveal a significant positive influence of ESG on overall bank performance. This positive effect is particularly pronounced in the context of the governance component of ESG (g). Furthermore, our analysis indicates that the governance component of ESG exerts a positive impact on the performance of Islamic Banks, while no discernible change is observed in the performance of Conventional Banks. This nuanced distinction underscores the differential effects of ESG components on the performance of distinct banking models.

ABSTRACT. Using a panel vector error correction (VECM) model, we assess foreign exchange rate changes in the Central-East European countries. Literature defines closeness centrality as an indicator which highlights the relative importance of an asset within a network, estimated by a monthly minimum spanning tree graph. We show that currency changes are driven not only by the monetary policy but also by inflation and closeness indicator which signs a network-bias. We also find evidence that the balance sheet structure difference better describes the monetary policy shocks than the uncovered interest parity (UIP). Such balance sheet shocks had a stabilizing impact while UIP had a controversial effect. Thus, this paper makes a new contribution to the debate of central bank instruments’ indirect impact on exchange rates, while highlighting the importance of network-biases.