nep-eec New Economics Papers
on European Economics
Issue of 2005‒01‒23
twelve papers chosen by
Giuseppe Marotta
Universitá di Modena e Reggio Emilia

  1. How Do Monetary and Fiscal Policy Interact in the European Monetary Union? By Matthew B. Canzoneri; Robert E. Cumby; Behzad T. Diba
  2. Science-Technology-Industry Links and the ”European Paradox”: Some Notes on the Dynamics of Scientific and Technological Research in Europe By Giovanni Dosi, Patrick Llerena, Mauro Sylos Labini
  3. The Stock-Flow Approach to the Real Exchange Rate of CEE Transition Economies By Balazs Egert; Amina Lahreche-Revil; Kirsten Lommatzsch
  4. Is Poland the Next Spain? By Francesco Caselli; Silvana Tenreyro
  5. Pricing behavior and the introduction of the euro: evidence from a panel of restaurants By Eugenio Gaiotti; Francesco Lippi
  6. Does Work Pay in France? Monetary Incentives and the Guaranteed Minimum Income By Gurgand, Marc; Margolis, David N.
  7. The Part-Time Wage Penalty: A Career Perspective By Russo, Giovanni; Hassink, Wolter
  8. UK in or UK Out? A Common Cycle Analysis Between the UK and the Euro Zone By Julien Garnier
  9. The Impact of Multilateral Liberalisation on European Regions: a CGE Assessment By Sebastien Jean; David Laborde
  10. Determinants of Union Membership in 18 EU Countries: Evidence from Micro Data, 2002/03 By Schnabel, Claus; Wagner, Joachim
  11. The Clash of Liberalizations: Preferential versus Multilateral Trade Liberalization in the European Union By Baybars Karacaoval1; Nuno Limao
  12. The organization of European football and the competitive balance within and between nations By Késenne S.

  1. By: Matthew B. Canzoneri; Robert E. Cumby; Behzad T. Diba
    Abstract: Formation of the Euro area raises new questions about the coordination of monetary and fiscal policy. Using a New Neoclassical Synthesis (NNS) model, we show that a common monetary policy, responding to area-wide aggregates, has asymmetric effects on countries within the union, depending on whether they are large or small, or whether they have high or low debts. We analyze the implications of these asymmetries for the various countries welfare and for their fiscal policies. We also study rules for setting national tax and spending rates, rules that constrain movements in the deficit to GDP ratio. We ask whether these rules are necessary for the common monetary policy to be able to harmonize national inflation rates, and we analyze their effects on national welfare. We also discuss some potential failings of our model (and perhaps NNS models generally); in particular, our model%u2019s variance decompositions suggest that productivity shocks may play an inordinately large role, while fiscal shocks (or demand shocks generally) may play too small a role (even when 'rule of thumb' spenders are added).
    JEL: E63 F33
    Date: 2005–01
  2. By: Giovanni Dosi, Patrick Llerena, Mauro Sylos Labini
    Abstract: This paper discusses, first, the properties of scientific and technological knowledge and the institutions supporting its generation and its economic applications. The evidence continues to support the broad interpretation which we call the "Stanford-Yale-Sussex" synthesis. Second, such patterns bear important implications with respect to the so-called "European Paradox", i.e. the conjecture that EU countries play a leading global role in terms of top-level scientific output, but lag behind in the ability of converting this strength into wealth-generating innovations. The bottom line is that European weaknesses reside both in its system of scientific research and in a relatively weak industry. The final part of the work suggests a few normative implications: much less emphasis should be put on various types of "networking" and much more on policy measures aimed to both strengthen "frontier" research and strengthen European corporate actors.
    Keywords: Open Science, European Paradox, Science and Technology Policy.
  3. By: Balazs Egert; Amina Lahreche-Revil; Kirsten Lommatzsch
    Abstract: This paper investigates the determinants of equilibrium real exchange rates for the new EU member states and candidate countries, relying on an asset model inspired by Aglietta et al. (1998) and Alberola et al. (1999, 2002). The impact of productivity gains on both the Balassa-Samuelson effect and the behaviour of the tradable real exchange rate is especially assessed. Subdividing the panel into sub-panels, we show that the B-S effect is a common feature to all economies, but that the tradable price-based real appreciation is a distinct feature of transition and emerging economies. We also show that in transition countries, a decrease in net foreign assets leads to an appreciation of the real exchange rate, instead of the depreciation predicted by theory. Comparing in-sample and out-of-sample estimates (in terms of the country coverage) of equilibrium exchange rates shows that these measures can yield different results, and could therefore be considered as complementary tools in judging misalignments.
    Keywords: real equilibrium exchange rate; EU enlargement; Balassa-Samuelson effect; productivity; net foreign assets; out-of sample panel
    JEL: C15 E31 F31 O11 P17
    Date: 2004–11
  4. By: Francesco Caselli; Silvana Tenreyro
    Abstract: We revisit Western Europe's record with labor-productivity convergence, and tentatively extrapolate its implications for the future path of Eastern Europe. The poorer Western European countries caught up with the richer ones through both higher rates of physical capital accumulation and greater total factor productivity gains. These (relatively) high rates of capital accumulation and TFP growth reflect convergence along two margins. One margin (between industry) is a massive reallocation of labor from agriculture to manufacturing and services, which have higher capital intensity and use resources more efficiently. The other margin (within industry) reflects capital deepening and technology catch-up at the industry level. In Eastern Europe the employment share of agriculture is typically quite large, and agriculture is particularly unproductive. Hence, there are potential gains from sectoral reallocation. However, quantitatively the between-industry component of the East's income gap is quite small. Hence, the East seems to have only one real margin to exploit: the within-industry one. Coupled with the fact that within-industry productivity gaps are enormous, this suggests that convergence will take a long time. On the positive side, however, Eastern Europe already has levels of human capital similar to those of Western Europe. This is good news because human capital gaps have proved very persistent in Western Europe's experience. Hence, Eastern Europe does start out without the handicap that is harder to overcome.
    JEL: F15 F43 N10 O11
    Date: 2005–01
  5. By: Eugenio Gaiotti (Banca d'Italia); Francesco Lippi (Banca d'Italia)
    Abstract: This paper assembles an original panel of data from 2,500 restaurants in Italy over the 1998-2004 period. The main objective is to study whether the euro cash changeover had an impact on individual pricing behavior, as it seems to be perceived by consumers. Although the sample is not representative of the whole sector, our interest stems from the possibility of gaining deeper insights from individual data, as well as from the fact that restaurant prices were at the center of the public discussion. First, the paper analyzes the distribution of price changes in several years, to identify what features may contribute to explain the widespread perception of a large effect of the introduction of the euro on prices. Second, the paper discusses the economic mechanisms which may help explaining the impact of the cash changeover on prices. The data show that restaurant prices recorded sizeable increases in both 2001 and 2002 (around 10 and 9 per cent, respectively). The cumulated increase in the price of a meal between 1998 and 2003 is substantial (the index rises by 40 per cent). The changeover might have focussed the public attention over this medium-run trend, prompting the attribution of the whole increase to the introduction of the euro. The analysis suggests that such increases reflect in part unfavorable developments on the costs side (strong increases in unit labor costs and fresh food inputs in both years) and strong increases in demand (especially in 2001). Part of the restaurant price increase recorded in 2002, however, does seem ascribable to the effect of the changeover. We find evidence consistent with a “menu-cost” hypothesis for pricing behavior: the rise in the average meal price is mainly due to a greater fraction of agents who revise their price, rather than to greater individual price revisions. Moreover, more market power (as proxied by a local concentration index) is associated with greater than average price increases during the changeover. A simple interpretation is proposed for this finding, which may also explain why the effects of the cash changeover may have been especially pronounced in this industry as opposed to more competitive ones.
    Keywords: euro cash changeover; menu cost
    JEL: E
    Date: 2005–01–20
  6. By: Gurgand, Marc (Paris-Jourdan Sciences Economiques, CREST and IRES); Margolis, David N. (TEAM, University of Paris 1, CNRS, CREST and IZA Bonn)
    Abstract: Most welfare programs generate high marginal tax rates on labor income. This paper uses a representative sample of individua ls on France's main welfare program (the Revenu Minimum d'Insertion, or RMI) to estimate monetary gains to employment for welfare recipients. This is based on the distribution of potential monthly earnings faced by each individual, as in ferred from the distribution of observed wages and working time. Taking account of the welfare earnings top-up program (intéressement), we find that gains are almost always positive, but that their amount is very low, especially for single mothers. Intéressement is found to have a small impact, because of its provisional nature. Gains are positively related to the probability that a welfare recipient in 1996 will be observed in employment in 1998. Using a simple structural model, we interpret this as a labor supply effect.
    Keywords: welfare, labor earnings, transfers, tax-system
    JEL: I38 J31 C34
    Date: 2005–01
  7. By: Russo, Giovanni (Utrecht University); Hassink, Wolter (Utrecht University and IZA Bonn)
    Abstract: Part-time employment has become an extremely popular work arrangement in the Netherlands because it renders employment compatible with non-work activities. We posit that there may be a downside to part-time employment, which is related to its negative effects on workers’ career. This may be the case when firms use promotions to stimulate skill acquisition and human capital accumulation or when they base their work incentive schemes on performance measures that are affected by the number of hours worked or when they screen workers on the basis of the number of hours worked. Because promotions are an important source of wage growth, the low incidence of promotion among part-time workers may contribute to the emergence of the part-time wage penalty (i.e., the wage difference between a part-time worker and an otherwise equal full-time worker) in due time. Consistent with this view, we find that (male and female) workers in part-time jobs are characterized by a lower incidence of promotion relative to workers in full-time jobs and that promotions account for a wage growth of eight log points. Moreover, we find that the part-time wage penalty does not arise at the onset of a career as young workers join the labor market but that it tends to develop over time as labor market experience and the effect of missed promotions cumulate.
    Keywords: wages, wage gap, part-time employment, promotions
    JEL: J31 J24 J22
    Date: 2005–01
  8. By: Julien Garnier
    Abstract: We use a structural model estimated by the Kalman filter in order to extract the common cycle for different groups of OECD countries. We try to evaluate to what extent the Euro zone common cycle is affected by the inclusion of the UK into the group. An important result of this work is that adding the UK to the Euro group does not lead to a greater heterogeneity of the group as a whole. Besides, the UK business cycle is not much different from Euro zone cycles. Another point is that the influence of the UK on the `Euro plus UK' common cycle is less obvious for output than for consumption, public expenditures or investment series. This suggests the importance of taking into account the components of output when analysing business cycles.
    Keywords: common business cycles; UK/Euro zone; optimal currency areas; Kalman filter
    JEL: E32 F02 F4
    Date: 2004–11
  9. By: Sebastien Jean; David Laborde
    Abstract: This study proposes a full-fledged, bottom-up CGE model (nicknamed DREAM) intended to analyse the regional impact of trade policies in the EU. The two-tiered approach followed includes first an EU-wide CGE assessment, taking exhaustively account of preferential agreements. The information produced about the impact on international trade is then used as an input for an original CGE model built on purpose, where each of the 119 NUTS-1 EU regions is considered separately. This approach is used to simulate the impact of several far-reaching liberalisation scenarios, and to highlight the sources of differences in regional impacts.
    Keywords: Computable General Equilibrium (CGE) model; regional economics; trade policy
    JEL: R13 D58 F13
    Date: 2004–11
  10. By: Schnabel, Claus (University of Erlangen-Nuremberg); Wagner, Joachim (University of Lueneburg and IZA Bonn)
    Abstract: Using representative individual-level data from the first round of the European Social Survey fielded in 2002/03, this paper provides an empirical analysis of unionization in 18 countries of the European Union. We show that union density varies considerably in Europe, ranging from 84 per cent in Denmark to 11 per cent in Portugal. Estimating identical models for each country, we find that individuals’ probability of union membership is significantly affected by their personal characteristics, their attitudes and the characteristics of their workplace, whereas social factors seem to play a minor role. The presence of a union at the workplace and employees’ attitudes concerning strong unions are the two variables with the most widespread effects on unionization.
    Keywords: union membership, union density, Europe
    JEL: J51
    Date: 2005–01
  11. By: Baybars Karacaoval1; Nuno Limao
    Abstract: There has been an explosion in the number of preferential trade agreements in the past decade. Preferential trade agreements are characterized by liberalization with respect to only a few partners and thus they can potentially clash with and retard multilateral trade liberalization. Despite this important concern with preferential trade agreements, there is almost no systematic evidence on whether they actually affect multilateral trade liberalization. Karacaoval1 and Limão model the effect of preferential trade agreements on multilateral trade liberalization and show that preferential trade agreements slow down multilateral trade liberalization unless they have a common external tariff and allow for internal transfers. Next, they use detailed data on product-level tariffs negotiated by the European Union in the past two multilateral trade rounds to structurally estimate their model. The authors confirm the main prediction—the European Union’s preferential trade agreements have clashed with its multilateral trade liberalization–-and find that the effect is quantitatively significant. Moreover, they also confirm several auxiliary predictions of the model and provide new evidence on the political economy determinants of multilateral liberalization in the European Union. This paper—a product of the Trade Team, Development Research Group—is part of a larger effort in the group to understand the interaction between preferential and multilateral liberalization.
    Keywords: International Economics
    Date: 2005–01–14
  12. By: Késenne S.
    Abstract: In this paper, we try to show that, apart from the negative impact of the Champions League, the growing gap between the Big 5 football countries in Europe and the smaller countries is caused by the deregulation of the European player labour market without deregulating the European football product market. Both the growing competitive balance between and within the national leagues can be restored by opening the European football market. A simple 2 country / 4 club model with quadratic revenue functions is specified to prove this argument.
    Date: 2005–01

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