Elevated Uncertainty during the Financial Crisis: Do Effects on Subjective Well-being Differ across European Countries?
B.E. Journal of Economic Analysis & Policy,
This paper focuses on the effect of uncertainty as reflected by financial market variables on subjective well-being. The analysis is based on Eurobarometer surveys, covering 18 countries over the period 2000–2013. Individuals report lower levels of life satisfaction in times of higher uncertainty approximated by stock market volatility. This effect is heterogeneous across respondents: the probability of being unsatisfied is higher for respondents who are older, unemployed, less educated, and live in one of the GIIPS countries of the Euro area. Furthermore, higher uncertainty in combination with a financial crisis increases the probability of reporting low values of life satisfaction.
The Effect of the Single Currency on Exports: Comparative Firm-level Evidence
IWH-CompNet Discussion Papers,
We investigate how adopting the euro affects exports using firm-level data from Slovakia and Estonia. In contrast to previous studies, we focus on countries that adopted the euro individually and had different exchange rate regimes prior to doing so. Following the New Trade Theory we consider three types of adjustment: firm selection, changes in product varieties and changes in the average value of the exports that compose the exports of individual firms. The euro effect is identified by a difference in differences analysis comparing exports by firms to the euro area countries with exports to the EU countries that are not members of the euro area. The results highlight the importance of the transaction costs channel related to exchange rate volatility. We find the euro has a strong pro-trade effect in Slovakia, which switched to the euro from a floating exchange rate, while it has almost no effect in Estonia, which had a fixed exchange rate to the euro prior to the euro changeover. Our findings indicate that the euro effect manifested itself mainly through the intensive margin and that the gains from trade were heterogeneous across firm characteristics.
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Sovereign Stress, Banking Stress, and the Monetary Transmission Mechanism in the Euro Area
IWH Discussion Papers,
In this paper, we investigate to what extent sovereign stress and banking stress have contributed to the increase in the level and in the heterogeneity of non-financial firms’ financing costs in the Euro area during the European debt crisis and how both have affected the monetary transmission mechanism. Employing a large firm-level data set containing two million observations, we are able to identify the effect of government bond yield spreads (sovereign stress) and the share of non-performing loans (banking stress) on firms‘ financing costs in a panel model by assuming that idiosyncratic shocks to individual firms are uncorrelated with country-specific variables. We find that the two sources of stress have increased firms’ financing costs controlling for country and firm-specific factors. Moreover, we estimate both to have significantly impaired the monetary transmission mechanism.