Four new studies in the 55th issue of the Economic Bulletin of the Bank of Greece

The 55th issue of the Economic Bulletin of the Bank of Greece was released with four new studies.

These are the following studies:
-Sofia Anifantaki, Yiannis Kalogirou, Konstantinos Dellis, Aikaterini Karadimitropoulou and Filippos Petroulakis: “Skills, management practices and adoption of new technologies in Greek manufacturing companies”

-Christos Katiforis: “Inflation after the pandemic: Phillips curve, trends, causes and lessons”

-Nikos Ventouris and George Paleodimos: “Proposals for the revision of the EU’s fiscal rules”

-Sofia Anifantaki, Petros Miiakis and Katerina Paisiou: “Green finance in Europe: development and challenges”

The 55th issue also includes summaries of the “Working Papers”, which were published (in English) by the Special Studies Department of the Bank’s Economic Analysis and Studies Directorate in the period January-July 2022.

Sofia Anifantaki, Yiannis Kalogirou, Konstantinos Dellis, Aikaterini Karadimitropoulou and Filippos Petroulakis: “Skills, management practices and adoption of new technologies in Greek manufacturing companies”

The study examines employee skills, management practices and the degree of adoption of new technologies in Greek manufacturing companies. These factors are important for the transformation of the structure of the Greek economy towards a sustainable production model of goods and services with high added value and knowledge intensity, and therefore for achieving a strong increase in productivity. The authors first provide a thorough overview of skills indicators in order to identify possibilities for designing targeted policy measures, particularly to address the skills mismatch. A notable result of the study is that, based on microdata from the recent Program for the International Assessment of Adult Competencies (PIAAC) of the OECD for the scientific recording and analysis of information on skills and abilities of the adult population, Greece has the highest employment rate of overskilled workers in highly skilled jobs. It also confirms previous findings on the negative correlation between skill mismatch and firm productivity. Second, using firm-level data from the World Management Survey, the authors provide an overview of management practices in Greek industry and investigate the quality of these practices, as well as their association with productivity. Finally, they use results from a new survey on entrepreneurship, technological developments and regulatory changes to examine the structural characteristics of firms that innovate and tend to adopt new technologies, emphasizing the role of firm size, form its ownership, its participation in global value chains and its human resource management practices. The empirical findings of the study are a basis for formulating policy proposals aimed at increasing productivity in Greek industry.

Christos Katiforis: “Inflation after the pandemic: Phillips curve, trends, causes and lessons”

After several years of fairly low inflation, the global economy in 2021 and 2022 faces a sharp and persistent rise in inflation to levels not seen in decades. The study explores the main factors that caused this rise in consumer price inflation in advanced economies, as well as possible differences between individual economies. It assesses the relative role of excess demand, which has arisen as economies restart after pandemic lockdowns, disruptions in international value chains and on the aggregate supply side, higher energy prices, base effect effects and pressures on the labor market. The author finds that prices were pushed up initially by a rapid recovery in global demand combined with problems in international supply chains. However, in the end, especially after the start of the war in Ukraine, the main cause of the rise in inflation was the cost of energy. Differences between economies in the contribution of core inflation to headline inflation, and in particular those between the US and other advanced economies, reflect differences in the output gap and labor market tightness, although overall cost inflationary pressures were not observed of labor per unit of product. As inflation is projected to remain high for longer than initially forecast, monetary authorities are expected to become more “conservative” again, with the aim of preserving their credibility. Historical experience shows that as the economic slowdown becomes now, to some degree, inevitably, the short-run cost of a gradual normalization of monetary policy on output and employment may be lower than the potential long-run cost of a potentially more popular prolonged accommodative monetary policy.Tethering and stabilization of inflationary expectations is not achieved without any cost.

Nikos Ventouris and Georgios Paleodimos: “Proposals for the revision of the EU fiscal rules”

The study contributes to the current public debate on the reform of the EU fiscal framework, with a particular focus on Greece’s fiscal sustainability. The policy proposals made for the EU’s fiscal rules are based on lessons from past experience, the conclusions of relevant studies and the risks to fiscal sustainability faced by Greece and other highly indebted countries in the euro area. For their analysis, the authors make use of the Compliance Tracker Dataset of the European Fiscal Council, in order to assess the degree of compliance of selected countries with the existing framework of the Stability and Growth Pact. In addition, they use the Bank of Greece’s public debt sustainability model to identify potential fiscal risks for Greece in the medium to long term, taking into account alternative economic policy scenarios, including a debt rule application scenario.

The main findings of the study suggest that the revised fiscal framework should focus on the need to strengthen public debt sustainability as a key priority, setting debt reduction as a medium-term fiscal objective, with an operational spending rule that promotes fiscal policy countercyclicality . The existing reference levels could be maintained, as long as they are supplemented with the required degree of flexibility in the rate of debt reduction to address cross-country heterogeneity and avoid self-cancelling effects of fiscal policy.

In the case of Greece, despite the favorable characteristics of the public debt, fiscal policy in the short and medium term should focus on accelerating its reduction. The exposure of Greece’s public debt dynamics to market and interest rate risks is expected to gradually increase as official sector debt is replaced by market-financed debt, thereby changing the structure of public debt and intensifying the need to create fiscal reserves in order to increase its resilience to future adverse macroeconomic shocks.

Sofia Anifantaki, Petros Miiakis and Katerina Paisiou: “Green finance in Europe: development and challenges”

The study explores the role of financial markets in the process of reducing greenhouse gas emissions and promoting climate change mitigation and adaptation actions, focusing particularly on the case of Europe. The structural and technological changes required to address climate change require appropriate financial solutions in order to increase the financial flows that support sustainable development.

The study shows that global green bond markets have grown rapidly in recent times. Specifically, based on bond issue and issuer data, the authors find that global market activity for green bond issuance has accelerated in recent years, with total bond amounts issued in the period 2019- 21 almost tripling compared to the 2014-18 period. Furthermore, they show that European markets and European issuers are leading this development, with the private sector increasingly using green bond markets as a source of funding. However, financing from green bond markets is directed towards only a few sectors of the economy, which highlights the need for relevant policy initiatives. In addition, the aforementioned increase in green bond issuance occurred during a period of favorable financial conditions, which further reinforces the need for policy initiatives aimed at incentivizing investors for green finance in the current volatile financial environment.

Investment strategies now also focus on environmental, social and governance (ESG) criteria, so that companies seek to highlight their better management of climate risk, their improved environmental footprint, but also their wider contribution to society. Increasing the reliability, comparability and transparency of ESG assessments of credit rating agencies is important for sound investment decisions and risk management on the part of businesses, but also on the part of central banks, which are increasingly incorporating climate parameters change in their activities. In addition, the development of common sustainability standards and labels will help reduce the risk of greenwashing. Finally, the application of digital technologies in green finance can further support sustainable development by increasing financing resources and reducing green transition costs.

The studies published in the Economic Bulletin reflect, as always, the opinions of the authors and not necessarily those of the Bank of Greece.

The issue of the Financial Bulletin is available in English and in electronic format at the following link: Fifty-fifth issue of the Financial Bulletin of the Bank of Greece