nep-eec New Economics Papers
on European Economics
Issue of 2005‒03‒13
twelve papers chosen by
Giuseppe Marotta
Universita di Modena e Reggio Emilia

  1. Is the American Model Miss World? Choosing between the Anglo-Saxon model and a European-style alternative By Henri de Groot; Richard Nahuis; Paul Tang
  2. What Role of Legal Systems in Financial Intermediation? Theory and Evidence By Laura Bottazzi; Marco Da Rin; Thomas Hellmann
  3. A less effective monetary transmission in the wake of EMU? Evidence from lending rates pass-through By Gianluca Di Lorenzo; Giuseppe Marotta
  4. Stocks, Bonds, Money Markets and Exchange Rates: Measuring International Financial Transmission By Michael Ehrmann; Marcel Fratzscher; Roberto Rigobon
  5. How special is the special relationship? Using the impact of US R&D spillovers on UK forms as a test of technology sourcing By Rachel Griffith; Rupert Harrison; ; John Van Reenen
  6. Effectiveness of tax incentives to boost (retirement) saving: theoretical motivation and empirical evidence By Orazio Attanasio; James Banks; Matthew Wakefield
  7. The Employment Effects of Job Creation Schemes in Germany: A Microeconometric Evaluation By Caliendo, Marco; Hujer, Reinhard; Thomsen, Stephan L.
  8. Estimating the Effect of a Retraining Program for Displaced Workers on Their Transition to Permanent Jobs By Cavaco, Sandra; Fougère, Denis; Pouget, Julien
  9. Household Debt and Financial Assets: Evidence from Great Britain, Germany and the United States By Sarah Brown; Karl Taylor
  10. The degree of independence in European goods markets : An I(2) analysis of German and Norwegian trade data By Roger Hammersland
  11. Trade Creation and Diversion Effects of Europe’s Regional Liberalization Agreements By Yener Kandogan
  12. Targeting Relative Inflation Forecast as Monetary Policy Framework for Adopting the Euro By Lucjan T. Orlowski

  1. By: Henri de Groot; Richard Nahuis; Paul Tang
    Abstract: In Lisbon, the European Union has set itself the goal to become the most competitive economy in the world in 2010 without harming social cohesion and the environment. The motivation for introducing this target is the substantially higher GDP per capita of US citizens. The difference in income is mainly a difference in the number of hours worked per employee. In terms of productivity per hour and employment per inhabitant, several European countries score equally well or even better than the United States, while at the same time they outperform the United States with a more equal distribution of income. The European social models are at least as interesting as the US model that is often considered a role model. <P> In an empirical analysis for OECD countries, we aim to unravel 'the secret of success'. <P> Our regression results show that income redistribution (through a social security system) does not necessarily lead to lower participation and higher unemployment, provided that countries supplement it with active labour market policies. Especially, spending on employment services like job-search assistance and vocational guidance, seems effective. Furthermore, the results suggest that generous unemployment benefits of short duration contribute to employment without widening the income distribution.
    Keywords: welfare states; income inequality; employment; unemployment; participation; labour; labour market; labour market policies; labour market policy; labor; labor market; labor market policies; labor market policy; labour productivity; labor productivity; productivity
    JEL: H30 J22 J58
    Date: 2004–10
  2. By: Laura Bottazzi; Marco Da Rin; Thomas Hellmann
    Abstract: How does the relationship between an investor and entrepreneur depend on the legal system? In a double moral hazard framework, we show how optimal contracts, corporate governance, and investor actions depend on the legal system. With better legal protection, investors give more non-contractible support, demand more downside protection, and exercise more governance. Investors in better legal systems develop stronger governance and support competencies. Therefore, when investing in a different legal systems they behave differently than local investors. We test these predictions using a hand-collected dataset of European venture capital deals. The empirical results confirm the predictions of the model.
  3. By: Gianluca Di Lorenzo; Giuseppe Marotta
    Abstract: A new approach to search for structural breaks in the retail lending rates pass-through in the wake of EMU is proposed and implemented for Italy and Portugal. The econometric exercise shows that breakpoints cluster in the second semester 1999 and that the pass-through on short term lending is, in contrast with earlier research, sizeably lower in the post-break period. The recently proposed distinction between monetary policy and cost-of-funds approaches in the passthrough analysis does not yield different breakpoints. These results challenge the widely held view that EMU has in its wake enhanced the effectiveness of monetary transmission via the banking sector and made it more uniform across countries, because of rising and converging PTs. A strengthened relationship lending could at least partly explain the reduced passthrough in the Italian case.
    Keywords: Interest rates; Monetary policy; European Monetary Union; Relationship lending; Cointegration analysis; Structural breaks
    JEL: E43 E52 E58 F36
    Date: 2005–03
  4. By: Michael Ehrmann; Marcel Fratzscher; Roberto Rigobon
    Abstract: The paper presents a framework for analyzing the degree of financial transmission between money, bond and equity markets and exchange rates within and between the United States and the euro area. We find that asset prices react strongest to other domestic asset price shocks, and that there are also substantial international spillovers, both within and across asset classes. The results underline the dominance of US markets as the main driver of global financial markets: US financial markets explain, on average, more than 25% of movements in euro area financial markets, whereas euro area markets account only for about 8% of US asset price changes. The international propagation of shocks is strengthened in times of recession, and has most likely changed in recent years: prior to EMU, the paper finds smaller international spillovers.
    JEL: E44 F3 C5
    Date: 2005–03
  5. By: Rachel Griffith (Institute for Fiscal Studies); Rupert Harrison (Institute for Fiscal Studies); ; John Van Reenen
    Abstract: How much does US-based R&D benefit other countries and through what mechanisms? We test the 'technology sourcing' hypothesis that foreign research labs located on US soil tap into US R&D spillovers and improve home country productivity. Using panels of UK and US firms matched to patent data we show that UK firms who had established a high proportion of US-based inventors by 1990 benefited disproportionately from the growth of the US R&D stock over the next 10 years. We estimate that UK firms’ Total Factor Productivity would have been at least 5% lower in 2000 (about $14bn) in the absence of the US R&D growth in the 1990s. We also find that technology sourcing is more important for countries and industries who have 'most to learn'. Within the UK, the benefits of technology sourcing were larger in industries whose TFP gap with the US was greater. Between countries, the growth of the UK R&D stock did not appear to have a major benefit for US firms who located R&D labs in the UK. The 'special relationship' between the UK and the US appears distinctly asymmetric.
    Keywords: international spillovers; technology sourcing; productivity;
    JEL: O32 O33 F23
    Date: 2004–12
  6. By: Orazio Attanasio (Institute for Fiscal Studies and University College London); James Banks (Institute for Fiscal Studies and University College London); Matthew Wakefield (Institute for Fiscal Studies)
    Abstract: The adequacy of household saving for retirement has become a policy issue all around the world. The UK and US have been in the vanguard of those countries that have tried to encourage retirement saving by providing tax-favoured treatment for particular savings accounts. We consider empirical evidence from these two countries regarding the extent to which funds in some specific tax advantaged accounts (IRAs in the US, TESSAs and ISAs in the UK) represent new savings. Our best interpretation of this evidence is that: only relatively small fractions of these funds can be considered to be "new" saving and so these policies have been an expensive means of encouraging saving; there has been some deadweight loss from the policies associated with "reshuffling" of existing savings. Continuing improvements in data on individual financial behaviour create scope for future empirical analysis of incentives to save, both within the standard economic framework that we explain and exploit, and by considering extensions to and adaptations of it.
    Keywords: Saving, tax incentives to save, lifecycle model, household behaviour
    JEL: D91 H39
    Date: 2004–12
  7. By: Caliendo, Marco (DIW Berlin and IZA Bonn); Hujer, Reinhard (University of Frankfurt, ZEW Mannheim and IZA Bonn); Thomsen, Stephan L. (University of Frankfurt)
    Abstract: In this paper we evaluate the employment effects of job creation schemes on the participating individuals in Germany. Job creation schemes are a major element of active labour market policy in Germany and are targeted at long-term unemployed and other hard-to-place individuals. Access to very informative administrative data of the Federal Employment Agency justifies the application of a matching estimator and allows to account for individual (group-specific) and regional effect heterogeneity. We extend previous studies in four directions. First, we are able to evaluate the effects on regular (unsubsidised) employment. Second, we observe the outcome of participants and non-participants for nearly three years after programme start and can therefore analyse mid- and long-term effects. Third, we test the sensitivity of the results with respect to various decisions which have to be made during implementation of the matching estimator, e.g. choosing the matching algorithm or estimating the propensity score. Finally, we check if a possible occurrence of 'unobserved heterogeneity' distorts our interpretation. The overall results are rather discouraging, since the employment effects are negative or insignificant for most of the analysed groups. One notable exception are long-term unemployed individuals who benefit from participation. Hence, one policy implication is to address programmes to this problem group more tightly.
    Keywords: evaluation, matching, sensitivity analysis, job creation schemes, long-term unemployed
    JEL: J68 H43 C13
    Date: 2005–03
  8. By: Cavaco, Sandra (Aarhus School of Business and GATE, Université Lyon 2); Fougère, Denis (CNRS, CREST-INSEE, CEPR and IZA Bonn); Pouget, Julien (CNRS, CREST-INSEE and IZA Bonn)
    Abstract: In this paper we estimate the short-term effects of a French retraining program that was intended to improve reemployment prospects of displaced workers. Our empirical analysis uses non-experimental data collected by the French Ministry of Labour. Transitions from unemployment to permanent vs. temporary jobs are assumed to be generated by a dependent competing risks duration model. Moreover we assume that program entry but also direct transitions from the program to employment are both affected by a selectivity process depending on observable and unobservable individual heterogeneity. We find mixed evidence regarding relevance of the program. For displaced workers who join the program, program participation increases the average probability to obtain a permanent job by 8 points (passing from 42 to 50%). However, for displaced workers who do not join the program, this average probability would have been increased by 28 points (passing from 43 to 71%) had they participated in the program. We conclude that, although the program has been globally effective, it has been insufficiently proposed to the displaced workers who would have benefited the most from it.
    Keywords: evaluation, re-employment program, displaced workers, unemployment duration, dependent competing risks model
    JEL: C41 J24 J64 J68
    Date: 2005–03
  9. By: Sarah Brown; Karl Taylor
    Abstract: We explore the determinants of debt and financial asset accumulation at the household level using survey data for Great Britain, Germany and the United States (US). Given that debt and assets are both components of a household's financial portfolio, we explore the degree of inter-dependence between households' assets and liabilities by jointly modelling these two aspects of the portfolio. Indeed, our empirical findings for both countries support a high degree of inter-dependence between debt and asset holding. Furthermore, the nature of this inter-dependence varies across income ranges and age groups with the weakest correlation between financial assets and debt being found for the lowest income groups in Great Britain, suggesting that such groups may be particularly vulnerable to adverse financial shocks. Evidence supporting inter-dependence between assets and debt no longer remains, however, once we focus on debtors which suggests that households in debt may potentially face difficulties following adverse changes in their financial situation.
    Keywords: Debt; Financial Assets; Household Financial Portfolio; Random Effects; Tobit Estimator
    JEL: D14 G11 H31
    Date: 2005–03
  10. By: Roger Hammersland (Norges Bank)
    Abstract: It is almost common knowledge that foreign trade in Europe is characterized by an acceptance of prices set by the world market. Coupled with a constant profit share in domestic sectors this makes European exports vulnerable to vagaries of international demand and prices as well as to crowding out in the wake of shocks to supply. These circumstances have been used to legitimate special measures geared towards shielding the sector from adverse shocks and general preferential treatment in the past. In fact econometric evidence is not totally at odds with this view. However, neither exports in a large European economy like Germany nor in a small open one, like Norway, are characterized by price taking behavior. On the contrary, both nations show strong evidence of monopolistic power in the process governing external prices, implying that supply shocks to a large extent can be passed on to prices. On the other hand exports seem to be heavily subject to the vicissitudes of international trade, a feature compatible with exports determined by demand ex post for prices fixed ex ante.
    Keywords: Polynomial Cointegration, Higher Order Non-Stationarity Monopolistic Competition, Exports
    JEL: C32 F12 F14
    Date: 2004–12–30
  11. By: Yener Kandogan
    Abstract: After a short background on recent developments in gravity modelling and liberalization agreements in Europe, this paper measures the trade creation and diversion effects of major European agreements based on the results of a correctly specified triple-indexed gravity model with bilateral fixed effects. For each agreement and partner country, welfare implications are discussed in sectors of different factor intensities with emphasis on the role of similarity in income or relative factor endowments between partners, as well as the date and the reciprocity of the agreement. This is followed by a description of the characteristics of the non-partner countries that are affected by these agreements in each sector.
    Keywords: Gravity Model, Fixed Effects
    JEL: F14 F15
    Date: 2005–01–01
  12. By: Lucjan T. Orlowski
    Abstract: This study proposes relative inflation forecast targeting as an operational framework of monetary policy for adopting the euro by the EU new Member States. This strategy assumes containing differentials between the domestic and the eurozone inflation forecasts as an operational target. A model prescribing the RIFT framework is presented along with a set of appropriate policy indicator variables and instrument rules. The proposed framework advances the strategy based on relatively strict inflation targeting that is currently pursued by some NMS. Several ARCHclass tests in various functional forms are employed for providing preliminary empirical evidence on convergence of inflation differentials relative to the euro area for Poland, Czech Republic and Hungary.
    Keywords: Inflation targeting; Monetary convergence; Euro adoption; EU new Member States.
    JEL: E42 E52 E61 F36 P24
    Date: 2005–02–01

This nep-eec issue is ©2005 by Giuseppe Marotta. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.