{"title":"Do firms react to monetary policy in developing countries?","authors":"Djeneba Dramé , Florian Léon","doi":"10.1016/j.euroecorev.2025.105102","DOIUrl":"10.1016/j.euroecorev.2025.105102","url":null,"abstract":"<div><div>This paper examines how firms in developing countries respond to monetary policy changes, focusing on both their perceptions of credit constraints and their borrowing behavior. Using firm-level data from the World Bank Enterprise Surveys (WBES) and a newly constructed database of monetary policy changes, we employ an event study approach to analyze how managers adjust their expectations of credit access in the days following a policy intervention. We complement this with a broader analysis of how annual policy rate changes affect firms’ credit applications. Our results show that firms perceive credit access as more restrictive after a policy rate hike, but do not significantly reduce their credit applications. Instead, credit demand increases after a rate cut, highlighting an asymmetric response to monetary policy. We also find substantial heterogeneity, with firms’ sensitivity depending not only on their proximity to banks, but also on the degree of liquidity of the banking market and the degree of independence of the central bank. These results provide new insights into the transmission of monetary policy in developing countries.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":"178 ","pages":"Article 105102"},"PeriodicalIF":2.8,"publicationDate":"2025-07-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144654048","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Aleksander Berentsen , Hugo van Buggenum , Romina Ruprecht
{"title":"On the negatives of negative interest rates","authors":"Aleksander Berentsen , Hugo van Buggenum , Romina Ruprecht","doi":"10.1016/j.euroecorev.2025.105100","DOIUrl":"10.1016/j.euroecorev.2025.105100","url":null,"abstract":"<div><div>Major European central banks and the Bank of Japan have remunerated reserves at negative rates (NIR) for almost a decade, justifying a theoretical study on the long-run effects of NIR. We do so through the lens of a dynamic general equilibrium model with commercial banks that fund investments by creating retail deposits, which must be backed by reserves. Because depositors can use zero-interest cash as an alternative store of value, the effect of permanent rate cuts qualitatively changes once in NIR territory. Particularly, rate cuts reduce welfare, investment, output, and bank profit, and increase the nominal price level. These effects are attenuated once in NIR territory due to a lack of transmission to depositors. NIR does, however, give rise to an overinvestment distortion.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":"178 ","pages":"Article 105100"},"PeriodicalIF":2.8,"publicationDate":"2025-07-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144702324","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Victor Klockmann , Alicia von Schenk , Marie Claire Villeval
{"title":"Artificial intelligence, distributional fairness, and pivotality","authors":"Victor Klockmann , Alicia von Schenk , Marie Claire Villeval","doi":"10.1016/j.euroecorev.2025.105098","DOIUrl":"10.1016/j.euroecorev.2025.105098","url":null,"abstract":"<div><div>In the field of machine learning, the decisions of algorithms depend on extensive training data contributed by numerous, often human, sources. How does this property affect the social nature of human decisions that serve to train these algorithms? By experimentally manipulating the pivotality of individual decisions for a supervised machine learning algorithm, we show that the diffusion of responsibility weakened revealed social preferences, leading to algorithmic models favoring selfish decisions. Importantly, this phenomenon cannot be attributed to shifts in incentive structures or the presence of externalities. Rather, our results suggest that the expansive nature of Big Data fosters a sense of diminished responsibility and serves as an excuse for selfish behavior that impacts individuals and the whole society.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":"178 ","pages":"Article 105098"},"PeriodicalIF":2.8,"publicationDate":"2025-07-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144632647","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Dynamic interaction and the ineffectiveness of incentives","authors":"Tom Rauber , Philipp Weinschenk","doi":"10.1016/j.euroecorev.2025.105094","DOIUrl":"10.1016/j.euroecorev.2025.105094","url":null,"abstract":"<div><div>This article studies the effectiveness of financial incentives in a simple model in which a set of rational agents works on a joint project. We show that project success may become less likely and agents can be worse off if they face higher rewards. These success and payoff reversals arise naturally in dynamic interaction. Incentives can thus be ineffective in generating more favorable outcomes even though agents are perfectly rational. Our findings contribute to a better theoretical understanding of the prevailing empirical patterns of project delays and failures.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":"178 ","pages":"Article 105094"},"PeriodicalIF":2.8,"publicationDate":"2025-07-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144654047","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Diffusing knowledge: Reoptimizing redistribution for growth and inequality","authors":"Debasis Bandyopadhyay , Yan Liang , Xueli Tang","doi":"10.1016/j.euroecorev.2025.105096","DOIUrl":"10.1016/j.euroecorev.2025.105096","url":null,"abstract":"<div><div>We examine the effects of income redistribution on output and welfare by generalizing Bénabou’s (2022) economy to incorporate two new elements: physical capital and social knowledge externalities. Income inequality, sustained by unequal privileges to private education and parental networking in the absence of a credit market, interacts with these added features. These interactions theoretically link four seemingly unrelated global trends: increased capital share in production due to automation, rising income inequality, slower knowledge diffusion, and declining productivity growth, offering new insights into growth- and welfare-enhancing redistributive policies. Automation, reflected in the growing importance of physical capital in production, and capital-ownership concentration worsen unequal educational opportunities and, in turn, income inequality, which slows productivity growth through two underexplored channels. First, we provide empirical support for the idea that higher inequality hampers knowledge diffusion to lower the economy’s social knowledge stock, thereby hindering children’s learning from the existing know-how through the knowledge externality channel. Second, greater heterogeneity in knowledge absorption due to more unequal access to education reduces average human capital accumulation because of diminishing returns to investment. Progressive redistribution helps counteract these adverse effects, pushing the economy’s productivity frontier outward, especially for countries with lower social cohesion, going beyond Bénabou’s (2022) finding of reduced resource misallocation. Optimal redistribution balances these benefits against potential distortions to labor supply and savings. Simulations using OECD data show sizable gains in output, aggregate efficiency (as defined in Bénabou, 2022), and welfare from moving towards optimal redistributive rates, though with varying effects across countries.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":"178 ","pages":"Article 105096"},"PeriodicalIF":2.8,"publicationDate":"2025-07-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144633510","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Measuring top wealth shares in the UK","authors":"Arun Advani , Andy Summers , Hannah Tarrant","doi":"10.1016/j.euroecorev.2025.105076","DOIUrl":"10.1016/j.euroecorev.2025.105076","url":null,"abstract":"<div><div>We examine how the measurement of <em>aggregate</em> wealth affects our understanding of wealth distribution. We explain why choices over wealth aggregates can affect the measured level and composition of wealth concentration. Applying this to the UK, we find estimates of the top 1% wealth share vary by 2.1pp – between 14.4% and 16.5% – in 2016–18, depending on the choices we make regarding aggregates and the source of distributional information. Alternative definitions for aggregates lead to a reranking of who is at the top, replacing 40% of individuals in the top 1%, and changing the share of women and older individuals. We discuss conceptual and measurement issues with the National Accounts as a source of wealth aggregates, and argue that in many cases they are poorly aligned in both regards with the measure of personal wealth one would like to target, and in practice are less comparable internationally than they initially seem. In the UK, where the wealth survey has reasonably good coverage across the distribution, we therefore prefer survey aggregates.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":"178 ","pages":"Article 105076"},"PeriodicalIF":2.8,"publicationDate":"2025-07-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144687243","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Markus Dertwinkel-Kalt , Christoph Feldhaus , Axel Ockenfels , Matthias Sutter
{"title":"The illusion of moral superiority: Evidence from the energy crisis","authors":"Markus Dertwinkel-Kalt , Christoph Feldhaus , Axel Ockenfels , Matthias Sutter","doi":"10.1016/j.euroecorev.2025.105093","DOIUrl":"10.1016/j.euroecorev.2025.105093","url":null,"abstract":"<div><div>We provide evidence in line with the illusion of moral superiority, a phenomenon that individuals perceive themselves to be more morally motivated than others. We analyze survey data collected during the 2022/23 energy crisis in Germany to investigate individuals’ and others’ motivations to reduce gas consumption, including both financial and non-financial (or ‘moral’) motives. Across two studies, we find evidence for the illusion of moral superiority: participants, on average, attribute strongUniversity of Cologneer moral motives to their own savings compared to those of others.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":"178 ","pages":"Article 105093"},"PeriodicalIF":2.8,"publicationDate":"2025-07-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144679554","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Sehrish Usman , Guzmán González-Torres Fernández , Miles Parker
{"title":"Going NUTS: The regional impact of extreme climate events over the medium term","authors":"Sehrish Usman , Guzmán González-Torres Fernández , Miles Parker","doi":"10.1016/j.euroecorev.2025.105081","DOIUrl":"10.1016/j.euroecorev.2025.105081","url":null,"abstract":"<div><div>The projected increase in extreme climate events in the coming decades is likely to exacerbate the existing productivity and demographic challenges facing Europe. We study the dynamic, medium-run macroeconomic effects of heatwaves, droughts and floods in 1160 EU regions through the lens of a local projections, difference in difference framework. These events reduce output not only on impact but also into the medium term. Output is 1.5 percentage points lower two years after a summer heatwave, 3 percentage points lower four years after a drought and 2.8 percentage points lower four years after a flood. Both lower regional population and lower labour productivity per hour worked contribute to the medium-term decline.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":"178 ","pages":"Article 105081"},"PeriodicalIF":2.8,"publicationDate":"2025-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144549394","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Angus C. Chu , Chih-Hsing Liao , Pietro F. Peretto
{"title":"Dynamic effects of labor income taxation in an unequal Schumpeterian economy","authors":"Angus C. Chu , Chih-Hsing Liao , Pietro F. Peretto","doi":"10.1016/j.euroecorev.2025.105071","DOIUrl":"10.1016/j.euroecorev.2025.105071","url":null,"abstract":"<div><div>How does taxation affect growth and inequality? To study this question, we develop a Schumpeterian model in which wealth heterogeneity influences the effects of tax policy. The key mechanism is that a change in consumption dispersion across heterogeneous households due to a change in labor income taxation can cause a novel positive effect on the employment of poor households in addition to the usual negative effect on the employment of rich households. Together, these effects yield an overall ambiguous response of employment to labor income taxation. A negative (positive) change of employment causes a negative (positive) change of innovation-driven growth in the short run and also a negative (positive) change of the real interest rate. Consequently, labor income taxation has an ambiguous effect on income inequality (e.g., asset income falls while labor income may rise) but unambiguously increases consumption inequality by reducing disposable wage income even for households that work more. Therefore, the effects on income inequality and consumption inequality are drastically different. We calibrate the model to examine its quantitative implications.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":"178 ","pages":"Article 105071"},"PeriodicalIF":2.8,"publicationDate":"2025-06-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144535016","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Export competition and innovation","authors":"Manho Kang","doi":"10.1016/j.euroecorev.2025.105059","DOIUrl":"10.1016/j.euroecorev.2025.105059","url":null,"abstract":"<div><div>How does the rise of China affect innovation in other countries? I emphasize the importance of <em>export competition</em>, which means competition in third countries, in answering this question for two reasons. First, since Chinese exports have grown worldwide, firms in other countries compete against China not only in their domestic market but also in their export markets. Second, since innovation is skewed toward exporters, competition in export markets could have innovation consequences. Exploiting South Korean patent data using a novel firm-level measure of export competition, I find that (i) export competition with China increases Korean firms’ innovation, (ii) this response is driven particularly by high-productivity firms, and (iii) increased innovation is associated with product quality improvement. These findings are rationalized by a multi-country model of endogenous innovation incorporating consumers with quality preferences and firms with heterogeneous productivity.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":"178 ","pages":"Article 105059"},"PeriodicalIF":2.8,"publicationDate":"2025-06-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144522941","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}