nep-eec New Economics Papers
on European Economics
Issue of 2005‒02‒13
fifteen papers chosen by
Giuseppe Marotta
Universita di Modena e Reggio Emilia

  1. Interest Rate Determination in the Interbank Market By Gaspar, Vítor; Pérez-Quirós, Gabriel; Rodriguez, Hugo
  2. The Real Effects of the Euro: Evidence from Corporate Investments By Bris, Arturo; Koskinen, Yrjö; Nilsson, Mattias
  3. Exchange Rates and Inflation Under EMU: An Update By Honohan, Patrick; Lane, Philip R.
  4. Fiscal and Monetary Interaction: The Role of Asymmetries of the Stability and Growth Pact in EMU By Eijffinger, Sylvester C W; Governatori, Matteo
  5. The Brain Drain: Some Evidence from European Expatriates in the US By Saint-Paul, Gilles
  6. EU Enlargement and Beyond: A Simulation Study on EU and Russia Integration By Sulamaa, Pekka; Widgrén, Mika
  7. Economic Theories of Bundling and their Policy Implications in Abuse Cases: An Assessment in Light of the Microsoft Case By Caffarra, Cristina; Kühn, Kai-Uwe; Stillman, Robert
  8. What Do Deficits Tell us About Debts? Empirical Evidence on Creative Accounting with Fiscal Rules in the EU By von Hagen, Jürgen; Wolff, Guntram
  9. Turbulence and Unemployment in a Job Matching Model By Den Haan, Wouter; Haefke, Christian; Ramey, Gary
  10. Harmonization of Food Regulations and Trade in the Single Market : Evidence from Disaggregated Data By Mark, VANCAUTEREN; Bruno, HENRY DE FRAHAN
  11. Regulating Between National Fears and Global Disciplines: Agricultural Biotechnology in the EU By Gregory Shaffer; Mark Pollack
  12. Domestic support to agriculture in the European Union and the United States By Gopinath, Munisamy; Mullen, Kathleen; Gulati, Ashok
  13. Valutation, Liquidity and Risk in Government Bond Markets By Carlo Favero; Marco Pagano; Ernst-Ludwig von Thadden
  14. Technology Shocks and Robust Sign Restrictions in a Euro Area SVAR By G. PEERSMAN; R. STRAUB
  15. Financial analysts’concerns, media exposure and corporate environmental communication. Accounting for simultaneous relationships in an international perspective By Aerts W.; Cormier D.; Magnan M.

  1. By: Gaspar, Vítor; Pérez-Quirós, Gabriel; Rodriguez, Hugo
    Abstract: The purpose of this Paper is to study the determinants of equilibrium in the market for daily funds. We use the EONIA panel database which includes daily information on the lending rates applied by contributing commercial banks. The data clearly shows an increase in both the time series volatility and the cross-section dispersion of rates towards the end of the reserve maintenance period. These increases are highly correlated. With respect to quantities, we find that the volume of trade as well as the use of the standing facilities is also larger at the end of the maintenance period. Our theoretical model shows how the operational framework of monetary policy causes a reduction in the elasticity of the supply of funds by banks throughout the reserve maintenance period. This reduction in the elasticity together with market segmentation and heterogeneity are able to generate distributions for the interest rates and quantities traded with the same properties as in the data.
    Keywords: Eonia panel; monetary policy instruments; overnight interest rate
    JEL: E52 E58
    Date: 2004–08
  2. By: Bris, Arturo; Koskinen, Yrjö; Nilsson, Mattias
    Abstract: Existing evidence shows that the Economic and Monetary Union (EMU) has reduced the cost of capital for firms in the euro area. We study the impact of the adoption of the euro in January 1999 by 11 countries in Europe on the firms’ investment rates, and show that the investment results are consistent with reduction in cost of capital. Using corporate data from the 11 EMU countries, as well as from a control sample of 5 non-EMU, European countries, our paper shows that: (i) investments for EMU-firms have grown 2.5% more than for non-EMU firms, after 1999; and (ii) the benefits of the euro accrue especially to small, domestic firms from countries with previously weak currencies.
    Keywords: cost of capital; currency union; Economic and Monetary Union (EMU); investments; the euro
    JEL: F33 F36 G32
    Date: 2004–08
  3. By: Honohan, Patrick; Lane, Philip R.
    Abstract: In our recent Economic Policy article (Honohan and Lane, 2003), we argued that the strength of the US dollar 1999-2001 had an important impact on inflation divergence within the EMU and in particular the surge in Ireland’s inflation to over 7%. This hypothesis has been subjected to a grueling out-of-sample test: would the dollar’s subsequent weakness contribute to inflation convergence and in particular to a fall in Irish inflation? Fortunately for us, the theory has passed the test with flying colours. Irish inflation stopped dead in its tracks: consumer prices were unchanged between May and November of 2003. Regression analysis on quarterly inflation data across EMU members 1999.1-2004.1 confirms the importance of the exchange rate channel, although pinning down the exact dynamic specification will require a further span of data.
    Keywords: EMU; exchange rates; inflation
    JEL: E31 E42 F41
    Date: 2004–08
  4. By: Eijffinger, Sylvester C W; Governatori, Matteo
    Abstract: The Paper builds a simplified model describing the economy of a currency union with decentralized national fiscal policy, where the main features characterizing the policy-making are similar to those in EMU. National governments choose the size of deficit taking into account the two main rules of the Stability and Growth Pact on public finance. Unlike previous literature the asymmetric working of those rules is explicitly modeled in order to identify its impact on the Nash equilibrium of deficits arising from a game of strategic interaction between fiscal authorities in the union.
    Keywords: asymmetric fiscal rules; decentralized fiscal policy; EMU; stability and growth pact
    JEL: E61 H30 H60 H70
    Date: 2004–09
  5. By: Saint-Paul, Gilles
    Abstract: This Paper uses US Census data from 1990 and 2000 to provide evidence on the labour market characteristics of European-born workers living in the US. It is found that there is a positive wage premium associated with these workers, and that the highly skilled are over-represented compared with the source country, more so, when one moves up the skill ladder.
    Keywords: brain drain; europe; migration
    JEL: J31 J61
    Date: 2004–10
  6. By: Sulamaa, Pekka; Widgrén, Mika
    Abstract: This Paper examines the economic effects of the opening of the former Soviet Union. The analysis carried out in the Paper is two-fold. First we simulate the impact of the eastern enlargement of the EU and, second, we analyse how deeper integration between the EU and Russia contributes to this. The analysis is carried out with GTAP computable general equilibrium model. We find that there is a trade-off between the two roads of European integration arrangements. Eastern enlargement seems, even in its very deep form, to be beneficial for all EU regions without causing substantial welfare losses outside the Union. EU-Russia integration, on the other hand, has a different impact. To be beneficial for Russia, free trade between the EU and Russia requires improved productivity in the latter, which may be due to better institutions or increased FDI. This might make the negotiations of the agreement cumbersome and, if agreed, its implementation difficult.
    Keywords: european integration; GTAP model; trade
    JEL: F14 F15 F17
    Date: 2004–10
  7. By: Caffarra, Cristina; Kühn, Kai-Uwe; Stillman, Robert
    Abstract: Theories of bundling have had great importance in European competition policy in recent merger control and abuse of dominance cases. Prominent examples include GE/Honeywell, Tetra Laval/Sidel and the recent Microsoft decision. The European Commission has been heavily criticized in all of those cases. In this Paper we attempt to sketch how a systematic approach to bundling cases can be structured. We first provide an overview of existing bundling theories, concentrating on robust economic mechanisms and their empirical implications. This allows us to develop a number of clear criteria to identify potentially anticompetitive bundling. We show that a careful reading undermines recently proposed arguments for a (modified) per se legality rule for bundling.
    Keywords: bundling; efficiency defenses; foreclosure; policy rules
    JEL: K21 L41
    Date: 2004–11
  8. By: von Hagen, Jürgen; Wolff, Guntram
    Abstract: Fiscal rules, such as the excessive deficit procedure and the stability and growth pact (SGP), aim at constraining government behaviour. Milesi-Ferretti (2003) develops a model in which governments circumvent such rules by reverting to creative accounting. The amount of this creative accounting depends on the reputation cost for the government and the economic cost of sticking to the rule. In this Paper, we provide empirical evidence of creative accounting in the European Union. We find that the SGP rules have induced governments to use stock-flow adjustments, a form of creative accounting, to hide deficits. This tendency to substitute stock-flow adjustments for budget deficits is especially strong for the cyclical component of the deficit, as in times of recession the cost of reducing the deficit is particularly large.
    Keywords: debt-deficit adjustments; ESA 95; excessive deficit procedures; fiscal rules; stability and growth pact; stock-flow adjustments
    JEL: E62 H61 H62 H63 H70
    Date: 2004–11
  9. By: Den Haan, Wouter; Haefke, Christian; Ramey, Gary
    Abstract: According to Ljungqvist and Sargent (1998), high European unemployment since the 1980s can be explained by a rise in economic turbulence, leading to greater numbers of unemployed workers with obsolete skills. These workers refuse new jobs due to high unemployment benefits. In this Paper we reassess the turbulence unemployment relationship using a matching model with endogenous job destruction. In our model, higher turbulence reduces the incentives of employed workers to leave their jobs. If turbulence has only a tiny effect on the skills of workers experiencing endogenous separation, then the results of Ljungqvist and Sargent (1998, 2004) are reversed, and higher turbulence leads to a reduction in unemployment. Thus, changes in turbulence cannot provide an explanation for European unemployment that reconciles the incentives of both unemployed and employed workers.
    Keywords: european unemployment puzzle; skill loss
    JEL: E24 J64
    Date: 2004–11
    Abstract: This paper uses a structural gravity model based on Anderson and van Wincoop (2003) to quantify and test the hypothesis that EU harmonization of food regulations increases EU bilateral trade. Using a self-constructed database that identifies processed food products at a detailed level covered by harmonization, our results suggest that bilateral exports subject to harmonized food regulations are 253 % greater than bilateral exports not covered by harmonized food regulations for 1998. The paper also estimates a tariff equivalent of trade costs that arises from non-harmonized food regulations which ranges between 73 % and 97 %. Both of these effects vary across food sub-sectors.
    Keywords: Food Regulation; Harmonization; European Integration; Gravity Model
    JEL: C31 F15 Q17 Q18
    Date: 2004–10–31
  11. By: Gregory Shaffer; Mark Pollack
    Abstract: In this paper, we develop three interrelated arguments about the nature of GMO regulation and the challenges that it poses to the European Union (EU). First, we highlight the inherently multi-sectoral nature of GMO regulation, which links together the internal market with industrial policy, research and technological development, environmental policy, food safety, agriculture, and international trade. As a multi-sectoral issue, the regulation of GMOs raises the challenge of coordinating policymaking horizontally among a large number of public and private actors with diverse perspectives about the aims and the content of EU regulation. Second, we emphasize the multi-level nature of the process, which involves overlapping and sometimes conflicting regulations promulgated at the national, supranational/EU, and international levels. As such, EU policy has faced sharp political and legal challenges both from below (in the form of national revolts against the licensing of individual GM foods and crops) and from above (in the form of challenges from other countries within the World Trade Organization, or WTO). Third, the regulation of GM foods and crops is an instance of a broader category of “risk regulation,” in which government actors are called upon to adopt regulations about the acceptable degree of risk posed to society by products or industrial processes. Such decisions about risk regulation – including the regulation of GMOs – not only mobilize diverse interest groups, they also raise fundamental normative questions about the degree of risk judged to be acceptable to society, as well as about the roles of science and politics in the regulation of risk under uncertainty. As such, risk regulation raises fundamental questions of the legitimacy of decision-making at different levels of government, and, in particular, for our case, at the supranational level of EU institutions.
    Date: 2004–12–12
  12. By: Gopinath, Munisamy; Mullen, Kathleen; Gulati, Ashok
    Abstract: In this study, we outline the farm policy changes in the European Union, EU, and the United States, US, since 1996 and compare their levels of support under various policies. The producer support estimates for the EU are more than twice that of the US, although the value of EU agricultural production is only 30% more than the US production value. In the EU, reductions in the intervention (support) prices for cereals, oilseeds and beef sector have been compensated by increased direct payments, i.e., payments based on historical acreage and yield or animal head counts. In 1996, the US eliminated target prices and deficiency payments for major crops, and acreage set-sides for supply control. They have been replaced with fixed and emergency payments. However price floors (loan rate with deficiency payments) have been retained for major crops. The sugar and dairy sector policies of the EU and the US have undergone few changes since 1996....The initial EU and US agricultural proposals for the Doha round focused on reducing market access barriers and export subsidies, but refrained from limiting domestic support measures. Developing countries' effective opposition to these proposals led to the collapse of the 2003 WTO Ministerial Meeting at Cancun, Mexico. The recently announced Doha Work Program proposes complete elimination of export subsidies and significant reductions in market access barriers. In the case of domestic support, developing countries' views such as the reductions in product and non-product specific de minimis provisions, and the criteria for blue box payments are reflected in the proposal. At the same time, developed countries' views on the continued placement of direct payments in either blue or green box have been included in the proposal. However, agreement on the extent of reductions and the specific modalities is expected in the next 16 months. The final agreement, scheduled for presentation to members at the Hong Kong WTO Ministerial Conference in December 2005, likely depends on whether or not the new proposals and their modalities would result in meaningful limits on domestic support.
    Keywords: Agricultural price supports ,
    Date: 2004
  13. By: Carlo Favero; Marco Pagano; Ernst-Ludwig von Thadden
    Abstract: We explore the determinants of yield differentials between sovereign bonds in the Euro area. There is a common trend in yield differentials, which is correlated with a measure of the international risk factor. In contrast, liquidity differentials display sizeable heterogeneity and no common factor. We present a model that predicts that yield differentials should increase in both liquidity and risk, with an interaction term whose magnitude and sign depends on the size of the liquidity differential with respect to the reference country. Testing these predictions on daily data, we find that the international risk factor is consistently priced, while liquidity differentials are priced only for a subset of countries and their interaction with the risk factor is crucial to detect their effect.
    Abstract: We use a model-based identification strategy to estimate the impact of technology, labor supply, monetary policy and aggregate demand shocks on hours worked and employment in the euro area. The restrictions applied in the SVAR analysis are consistent with a large class of DSGE models and are robust given a sensible range of parametrization. In contrast to most of the existing literature for the United States, our results are in line with the conventional real business cycle interpretation that hours worked rise as a result of a positive technology shock. In addition, we also find an important role for technology shocks in explaining business cycle fluctuations.
    Keywords: Technology shocks; Real business cycle models; Sticky price models; Vector autoregressions, DSGE priors
    JEL: E32 E24
    Date: 2005–01
  15. By: Aerts W.; Cormier D.; Magnan M.
    Abstract: The purpose of this study is to provide an integrated analysis of corporate environmental communication strategies using stakeholder theory. More precisely, we argue that there is a symbiotic relationship between managerial decisions with respect to environmental disclosure and stakeholders. On the one hand, stakeholders’ claims determine managerial decisions with respect to corporate environmental disclosure. On the other hand, managerial decisions may affect key stakeholders’ actions and decisions, more specifically financial analysts’ forecasts. We investigate three research questions: (1) What are the determinants for voluntary environmental disclosure? (2) Does voluntary environmental disclosure allow analysts to make better forecasts? (3) Is there a difference in the determination and implications from environmental disclosure between continental European and North American firms? The sample comprises continental European firms (Belgium, France, Germany, and the Netherlands) and North American firms (Canada and the United States). Our measure of environmental disclosure reflects web disclosure, which encompasses print-based documents (e.g., environmental reporting in pdf) as well as web only disclosures (e.g., html documents or videos). Through distinct determinant regressions using simultaneous equations, we find a significant relationship between business stakeholders’ concerns and environmental disclosure for North American firms, while conversely, we find a weak statistical effect for continental European firms. Environmental news exposure is a significant determinant of environmental disclosure in both continents. Findings also suggest that financial markets’ concerns are relevant as a determinant of environmental disclosure. Concerning the relevance of environmental disclosure for financial analysts’ earnings forecasts, results show that print environmental disclosure is associated with a decrease in analysts' forecast dispersion both in continental Europe and in North America. Furthermore, environmental disclosure is less important a factor in explaining forecast dispersion for those firms that are followed by many analysts. However, in North America, it appears that analysts use environmental disclosure differently depending on the diffusion media (i.e., web or paper). It seems that in North America, the more discretionary is the information disclosed, the less it is relevant for market participants. Moreover, in continental Europe, environmental disclosure increases dispersion of analysts' forecasts for firms operating in more environmentally sensitive industries. Findings also suggest that for assessing information relevance for market participants, it is important to control for the endogenous effect of a firm’s decision to disclose information as well as its exposition to media.
    Date: 2004–12

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