Job creation and job destruction in EU agriculture

This is the first paper to study job creation and destruction in EU agriculture. We disaggregate gross employment patterns and net job flows into detailed intra-sectoral labour adjustment dynamics based on a unique EU-wide farm level panel dataset for 1990–2005. We find that: (1) job creation and destruction rates in EU agriculture are comparable to other sectors; (2) there is some evidence of ongoing substitution of family labour for hired labour; (3) there are important differences in job creation and destruction rates between different Member States; (4) these differences can be attributed to structural differences across countries, sectors and farm types; (5) time variation of job reallocation fluctuates countercyclically; and (6) idiosyncratic effects are the main driver of time variance in job reallocation.     

A Top-down Approach to Stress-testing Banks

We propose a simple, parsimonious, and easily implementable method for stress-testing banks using a top-down approach that captures the heterogeneous impact of shocks to macroeconomic variables on banks’ capitalization. Our approach relies on a variable selection method to identify the macroeconomic drivers of banking variables as well as the balance sheet and income statement factors that are key in explaining bank heterogeneity in response to macroeconomic shocks. We perform a principal component analysis on the selected variables and show how the principal component factors can be used to make projections, conditional on exogenous paths of macroeconomic variables. We apply our approach, using alternative estimation strategies and assumptions, to the 2013 and 2014 stress tests of medium- and large-size U.S. banks mandated by the Dodd-Frank Act, and obtain stress projections for capitalization measures at the bank-by-bank and industry-wide levels. Our results suggest that accounting for bank heterogeneity yields expected capital shortfalls that can be over 30 percent larger than in the case where heterogeneity is ignored. Furthermore, we find that while capitalization of the U.S. banking industry has improved in recent years, under reasonable assumptions regarding growth in assets and loans, the stress scenarios continue to imply sizable deterioration in banks’ capital positions.     

Land Market Imperfections and Agricultural Policy Impacts in the New EU Member States: A Partial Equilibrium Analysis

This article analyses how transaction costs and imperfect competition in the land market affect the welfare effects of agricultural subsidies in the new Eastern Member States of the European Union. Benefits of land subsidies end up with landowners in new Eastern Member States also with imperfections in the new Eastern Member States land markets. With unequal access to subsidies, small tenant farmers may even lose out from the subsidies. Decoupling of payments shifts policy rents to farmers, but constrains productivity-enhancing restructuring. Using reserve entitlements to mitigate this effect reduces the intended benefits on distortions and target efficiency.     

Myopia,Discretion, and Commitment in a Two‐Period AS/AD Model

A large body of pedagogical literature has recently emerged to place the New Keynesian framework for analyzing business cycle fluctuations and the conduct of monetary policy into undergraduate economics curricula. This article develops the graphical apparatus for the analysis of optimal monetary policy in the context of a two‐period model under alternative assumptions about the formation of inflationary expectations. It demonstrates that differences in assumptions about the formation of inflationary expectations translate into quite different conclusions regarding the optimal conduct of monetary policy.     

EU‐wide Economic and Environmental Impacts of CAP Greening with High Spatial and Farm‐type Detail

In this paper we analyse the economic and environmental impacts of CAP greening introduced by the 2013 CAP reform using the CAPRI model. CAPRI captures the farm heterogeneity across the EU and it allows to depict the implementation of the greening measures in high detail while integrating the environmental effects and the market feedback of the simulated policy changes. The simulated results reveal that the economic impacts (land use, production, price and income) of CAP greening are rather small, although some farm types, crops (fallow land and pulses) and Member States may be affected more significantly. The CAP greening will lead simultaneously to a small increase in prices and a small decrease in production. Farm income slightly increases because the price effects offset the production decline. Similarly to economic effects, the environmental impacts (GHG emissions, N surplus, ammonia emissions, soil erosion, and biodiversity‐friendly farming practices) of CAP greening are small, although some regions may see greater effects than others. In general, the environmental effects at EU level are positive on a per hectare basis, but the increase in UAA can reverse the sign for total impacts. Overall, simulated GHG and ammonia emissions decrease in the EU, while the total N surplus, soil erosion and biodiversity‐friendly farming practices indicator slightly increase due to the CAP greening.