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on European Economics |
| By: | Thomas Y. Mathä; Patrick Lünnemann |
| Abstract: | This paper analyses the degree of price rigidity and of inflation persistence across different product categories with particular focus on regulated prices and services for the individual EU15 countries, as well as for the EU15 and the euro area aggregates. We show that services and those HICP sub-indices considered being subject to price regulation exhibit larger degrees of nominal price rigidities, with less frequent but larger price index changes as well as stronger asymmetries between price index increases and decreases. With regard to what extent services and regulated prices contribute to the degree of overall inflation persistence, we find that, for most of the EU15 countries as well as for the EU15 and the euro area aggregates, excluding services from the full HICP results in a reduction in the measured degree of inflation persistence; for regulated indices such an effect is also discernible, albeit to a lesser extent. |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:cahier_etude_14&r=eec |
| By: | Philippe GAUD (HEC - University of Geneva); Martin HOESLI (HEC - University of Geneva, FAME and University of Aberdeen (School of Business)); André BENDER (HEC - University of Geneva & FAME) |
| Abstract: | Using a large sample of 5,365 European firms,we document the driving factors of debt-equity choices. Adjustments to a target debt level play a modest role except when debt exceeds an upper barrier, a result that underlines the importance of debt capacity. Preference for internal financing, leverage deficit prior to equity issues, as well as a high level of slack of firms seeking to reduce equity constitute further evidence in favor of pecking order models. It is also found that managers try to time the market by issuing shares when returns are high, but that there is a link between financing and investment activities as predicted by agency models. |
| Keywords: | Dynamic capital structure; Debt-equity choice; Tradeoff models; Pecking order models |
| JEL: | G32 |
| Date: | 2004–05 |
| URL: | http://d.repec.org/n?u=RePEc:fam:rpseri:rp114&r=eec |
| By: | Kpate ADJAOUTE Author-Workplace-Name: HSBC Private Bank (Suisse) SA and FAME; Jean-Pierre DANTHINE (HEC-University of Lausanne, CEPR and FAME) |
| Abstract: | This paper analyses the consequences of the process of financial and economic integration on European equity markets. It documents significant changes in fundamentals, notably an increased synchronisation of macroeconomic activities, and a non-negligible evolution in pricing, with a decrease in the cost of capital and converging equity premia. As to equity returns themselves, in the face of what could turn out to be long run upward trends in the correlations among both country and sector returns and a narrowing of the superiority of country factors, the stakes of searching for diversification opportunities at a higher level of disaggregation appear to be higher than ever. |
| Keywords: | European integration; Equity markets; Diversification |
| JEL: | F36 G10 G15 |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:fam:rpseri:rp117&r=eec |
| By: | Didier Cossin (IMD International); Hongze Lu (IMD International, HEC, University of Lausanne) |
| Abstract: | Market prices of corporate bond spreads and of credit default swap (CDS) rates do not match each other. In this paper, we argue that the liquidity premium, the cheapest-to-deliver (CTD) option and actual market segmentation explain the pricing differences. Using the European transaction data from Reuters and Bloomberg, we estimate a liquidity premium that is time-varying and firm-specific. We show that when time-dependent liquidity premiums are considered, corporate bond spreads and CDS rates behave in a much closer way than previous studies have shown. We also find that high equity volatility drives pricing differences that can be explained by the CTD option. |
| Keywords: | credit default swap; corporate bond yields; liquidity premium; cheapest-to-deliver options; debt-CDS arbitrage |
| JEL: | C13 G12 G13 |
| URL: | http://d.repec.org/n?u=RePEc:fam:rpseri:rp133&r=eec |
| By: | Jeremy Grant; Thomas Kirchmaier |
| Abstract: | In this paper, we document how European companies can use financial tunnelling to the disadvantage of minority shareholders, despite improved legislation directed at eliminating such activities. In four case studies, two German and two Italian, we document how newly established corporate governance standards were successfully circumvented by dominant shareholders, major financial institutions, politicians, and in the worst case the regulator. These cases demonstrate that for effective Corporate Governance to work, one not only has to change the law, but even more importantly, one has to ensure the widespread acceptance of new rules. The litmus test of corporate governance reforms in any country is whether the rules are applied objectively in situations where powerful elites perceive they are disadvantaged under the new regulations. |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgdps:dp536&r=eec |
| By: | Buddelmeyer, Hielke (Melbourne Institute of Applied Economic and Social Research and IZA Bonn); Mourre, Gilles (ECFIN, European Commission); Ward, Melanie (European Central Bank, CEPR and IZA Bonn) |
| Abstract: | This paper looks at the role of part-time work in labour mobility for 11 European countries. We find some evidence of part-time work being used as a stepping stone into full-time employment, but for a small proportion of individuals (less than 5%). Part-time jobs are also found to be more frequently taken up as a means to enter the labour market than to leave it. Multinomial logit regression of the determinants of part-time work reveals household composition, past labour market history and country of residence as very important for both men and women in their decision to work part time. Random effects regression controlling for individual heterogeneity, and the comparison of results for Europe and the US, reveals that a significantly higher proportion of female workers in Europe prefer inactivity and a significantly lower percentage prefer full-time, over part-time employment, than in the US, with considerable variation across EU countries. |
| Keywords: | labour market mobility and flexibility, labour supply, full-time and part-time employment, unemployment, non-employment, gender, stepping stones, labour market entry and exit |
| JEL: | J21 J22 J16 J60 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1550&r=eec |
| By: | Vincent Hildebrand; Philippe Van Kerm |
| Abstract: | We examine the effect of income inequality on individual self-rated health status in a pooled sample of 10 member states of the European Union using longitudinal data from the European Community Household Panel (ECHP) survey. Taking advantage of the longitudinal and cross-national nature of our data, and carefully modelling the self-reported health information, we avoid several of the pitfalls suffered by earlier studies on this topic. We calculate income inequality indices measured at two standard levels of geography (NUTS-0 and NUTS-1) and find consistent evidence that income inequality is negatively related to self-rate health status in the European Union for both men and women. However, despite its statistical significance, the magnitude of the impact on inequality on health is small. |
| Keywords: | self-rated health; income inequality; European Union; panel data |
| JEL: | D63 I12 I18 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:sedapp:127&r=eec |
| By: | Maciej Firla-Cuchra; Tim Jenkinson |
| Abstract: | Securitisations usually involve creating multiple tranches of a single issue with different characteristics, placed on the market as separate securities. Various theoretical explanations have been advanced to explain such tranching. This paper provides the first systematic testing of such theories using a proprietary database of over 5000 separate tranches in European securitisations raising a total of $1 trillion. We find support for asymmetric information and market segmentation explanations for tranching and present evidence on how such different rationales influence the structuring process in practice. We also investigate the impact of tranching on the price of securities issued. For those issues where our model predicts a higher optimal number of tranches, we find that additional uniquely-rated tranches are associated with higher prices for the issue as a whole. |
| JEL: | G21 G22 G28 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:sbs:wpsefe:2005fe04&r=eec |
| By: | Bettina Peters (ZEW Centre for European Economic Research) |
| Abstract: | Using a recently developed model which allows to separate a few well- established employment effects of product and process innovations, this paper reports new results on the relationship between innovation and employment growth in Germany. The model is tailor-made for analysing firm-level employment effects of innovations using specific information provided by CIS data. It establishes a theoretical link between employment growth and innovation output. The econometric analysis confirms that product innovations have a positive impact on employment. In contrast to previous studies, this effect is independent of the novelty degree. Moreover, different employment effects between manufacturing and service firms regarding process innovations were found. Finally, from a cross country perspective the results for Germany are similar to those found for Spain and the UK. |
| Keywords: | Innovation, employment, applied econometrics, manufacturing, services |
| JEL: | O33 J23 C21 O32 L60 |
| Date: | 2005–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0504002&r=eec |
| By: | Fabio Sabatini (University of Rome La Sapienza) |
| Abstract: | The aim of this paper is to trace a map of Italian local social capital endowments. It focuses on the “structural” dimension of the concept, as identified with social networks. The analysis is based on a dataset collected by the author including about two hundred indicators of five main social capital dimensions: strong family ties, weak informal ties, voluntary organizations, civic awareness, and political participation. 51 key variables are selected for performing principal component analyses both on each of the five groups and on the entire dataset, in order to build latent indicators for every single social capital’s dimension and for the concept as a whole. Finally, a multiple factor analysis is run on the entire dataset, in search of a single synthetic measure of social capital. A clear distinction emerges between bonding social capital, shaped by strong family ties, and bridging and linking social capital, shaped by weak ties among friends, neighboors and members in voluntary organizations. Areas characterized by high levels of bonding social capital can suffer from a lack of bridging and linking ties. The study provides a valuable synthetic indicator capturing the particular configuration of social capital which the literature generally associates with positive economic outcomes. |
| Keywords: | Social capital, Social networks, Economic development, Principal component analysis, Multiple factor analysis |
| JEL: | A12 O10 O18 R11 |
| Date: | 2005–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0504003&r=eec |
| By: | Loukas Spanos (National & Kapodistrian University of Athens, Dept. of Economics) |
| Abstract: | The upgrading of the Greek capital market and the effort to join other mature capital markets has posed corporate governance reform as a first priority. In addition, the 2004 Olympic Games put the Greek market in the international spotlight and will likely invite interest from foreign investors. More than ever, an efficient corporate governance framework is condition sine qua non for the competitive transformation of the capital market and the business world. At the same time the European Union (EU) faces both the pressure and challenge for harmonization of the laws and regulations and convergence of corporate governance systems, especially after the entrance of the new member states. The paper has two objectives: (i) to present the main aspects of corporate governance in Greece, contributing to the relevant growing body of literature, and (ii) to place the current corporate governance developments and trends in Greece within the international debate, especially in the light of the recent debate to improve and convergence corporate governance in EU. Firstly, I review the corporate governance debate and its implication at the EU level. Secondly, I describe the corporate governance framework in Greece in the light of the recent key reforms. Finally, I summarize the overall findings and proceed with some critical points and recommendations for the potential future direction of the corporate governance agenda in Greece. |
| Keywords: | Corporate governance, rating, disclosure, ownership, Greece |
| JEL: | G |
| Date: | 2005–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0502017&r=eec |
| By: | Daniel Stavarek (Silesian University - School of Business Administration) |
| Abstract: | This paper estimates commercial banks’ efficiency in three relatively homogenous groups of countries with different level of economic development and different involvement in the process of European integration. The first group consists of Portugal and Greece, the second group is represented by the Czech Republic, Hungary, Poland and Slovakia and the third group includes Bulgaria and Romania. The paper aims to reveal whether the differences among regions and countries in the stage of European integration and economic situation are visible also in banking efficiency. Thus we test the hypothesis that the higher degree of European economic integration and economic development goes hand in hand with higher baking efficiency. Employing Data Envelopment Analysis on unconsolidated data we evaluate efficiency of banks in a core of their business - financial intermediation - in 2002-2003. Results suggest that differences in banking efficiency exist among analyzed regions and the hierarchy corresponds with the hierarchy of regions and countries in terms of economic development and degree of integration. Thus, low level of financial intermediation efficiency in Central and Eastern European countries may undermine their effort to boost the economic growth and catch-up the forerunning countries. The importance of the efficiency gap is underscored by the fact that only some of the catching-up countries recorded higher growth of efficiency than the forerunners. |
| Keywords: | efficiency, banks, Data Envelopment Analysis, integration |
| JEL: | C14 G21 |
| Date: | 2005–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0502020&r=eec |
| By: | Jacinto Vidigal da Silva (University of Evora); Miguel Diz (University of Evora) |
| Abstract: | This paper examines the valuation effects of mergers & acquisitions in the Portuguese banking industry from 1995 to 2003 over a 41-day (-20, +20) event window. Evidence shows some targets gains, but no gains for the bidders. The combined entity (target+bidder) shows no significant gains contradicting some other European studies but confirming the great majority of American research. |
| Keywords: | Mergers and acquisitions (M&A), bidder, target, event window, shareholder value, abnormal returns |
| JEL: | G |
| Date: | 2005–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0503002&r=eec |
| By: | Giovanni Mastrobuoni (Princeton University) |
| Abstract: | Despite the expectations of economists that the euro changeover would have no effect on prices, I show that European consumers perceive the contrary. The data indicate that consumers based their perceptions about inflation on goods that are frequently purchased. I use this insight to develop and estimate a model of imperfect information that explains why these goods were subject to higher price growth after the changeover. The data indicate that Spain, Italy and France show a stronger euro- effect on prices. The data also suggest that this price growth is correlated with consumers' ability to adapt to the new currency. |
| Keywords: | euro, currency changeover, imperfect information, search costs, price setting |
| JEL: | D83 F33 L11 |
| Date: | 2005–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpif:0503003&r=eec |
| By: | Martin Melecky |
| Abstract: | The ECB recommends to prospective euro-area members that they choose the central parities, for fixing their currencies against the euro, consistent with a broad range of economic indicators while taking account of the market rate as well. In this paper, we estimate a behavioral model of the real exchange rates for a group of the EU 5 countries, along with equilibrium real exchange rates. In addition, we propose a methodology for estimating an optimal timing for ERM II entry based on convergence properties of the equilibrium real exchange rate. We find that the estimated optimal timing for ERM II entry derived from the analysis of the equilibrium real exchange rate suggests that fixing the national currencies of the EU 5 countries in forthcoming years would not be in contradiction with the convergence properties of the real equilibrium exchange rate. |
| Keywords: | Equilibrium Exchange Rate, ERM II Entry, Time-Series Panel Data |
| JEL: | C52 C53 E58 E61 F31 |
| Date: | 2005–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpif:0503008&r=eec |
| By: | Ralph de Haas (De Nederlandsche Bank); Ilko Naaborg (University of Groningen) |
| Abstract: | On the basis of focused interviews with managers of foreign parent banks and their affiliates in Central Europe and the Baltics, we analyse foreign banks’ small business lending and internal capital markets. This allows us to complement the standard empirical literature, which has difficulty in measuring important variables such as lending technologies and capital allocation systems. We find that the acquisition of local banks by foreign banks has not led to a persistent bias in these banks’ credit supply towards large multinational corporations. Instead, increased competition and the improvement of subsidiaries’ lending technologies have led foreign banks to gradually expand into the SME and retail markets. Second, we show that local bank affiliates are strongly influenced by the capital allocation and credit steering mechanisms of the parent bank. The credit growth of subsidiaries therefore potentially depends on the financial health of the foreign based parent bank. |
| Keywords: | foreign banks, transition economies, small business lending, internal capital markets |
| JEL: | F23 F36 G21 G31 G32 |
| Date: | 2005–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpif:0504004&r=eec |
| By: | Michele Cincera (Université Libre de Bruxelles-DULBEA-CERT & CEPR); Olivia Galgau (Université Libre de Bruxelles-DULBEA) |
| Abstract: | The European Union and its Member States have been engaged in product market reforms over a long period with notable reforms including the Single Market Program and the Lisbon Agenda launched in March 2000. Product market reforms are seen as exerting both a direct and an indirect impact on productivity, however, the net effects of the direct effect were found to be small. This study concentrates on the impact of product market reforms on firm entry and exit that can itself be decomposed into two effects: internal restructuring which refers to productivity growth of individual firms present in the industry and external restructuring whereby the process of market selection leads to a reallocation of resources among individual firms. The change in firm entry and exit will in turn affect macroeconomic performance. |
| Keywords: | Market entry and exit, product market reforms, macroeconomic performance |
| JEL: | L16 L50 O47 O52 |
| Date: | 2005–03–28 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0503013&r=eec |
| By: | José Caetano (University of Évora); Aurora Galego (University of Évora) |
| Abstract: | The Eastern enlargement represents an opportunity for trade expansion for all the countries involved. In fact, trade between the EU and the Central Eastern European Countries (CEEC) has grown considerably in the nineties, coinciding with the transition period and the preparation of the CEEC to full-membership. In this paper we analyse the characteristics and evolution of the EU- CEEC trade in the last decade and study the potential bilateral trade flows between the EU and the CEEC. In particular, besides analysing trade relations between CEEC and the EU, we will study trade developments among the CEEC. Moreover, we will take into consideration the sectoral dimension in the analysis. The analysis is based on the gravity model approach using panel data from 1993 to 2001. It is possible to conclude that there is still scope for further expansion of the trade flows between some CEEC and some of the EU countries. Furthermore, there is scope for growth on trade flows among the CEEC, due to the fact that EU membership will promote complete trade liberalisation among these countries. |
| Keywords: | Trade, EU enlargement, Gravity Models |
| JEL: | F1 F2 |
| Date: | 2005–04–07 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpit:0504002&r=eec |
| By: | Horst Entorf (Technische Universität Darmstadt); Hannes Spengler (Technische Universität Darmstadt) |
| Abstract: | This paper contains a documentation of the EU regional crime database (EURCD). The EURCD is the basis of the analyses presented in our recently published book 'Crime in Europe' which, in turn, is the result of a research project conducted on behalf of the EU Commission. The EURCD is a panel dataset containing information on 12 Interpol crime categories (murder, sex offences, rape, serious assault, theft, aggravated theft, robbery and violent theft, breaking and entering, theft of motor cars, fraud, drug offences and total offences) across eight EU member states (Denmark, Germany, Spain, Italy, the Netherlands, Finland, Sweden and England & Wales) for the maximal period 1980-1998 (length of period depends on country and region). The spatial structure of the EURCD is organised according to Eurostat's NUTS-system, meaning that it contains data broken down into, for instance, German 'Kreise', Spanish 'Provincias' and Italian 'Provincias'. Crime data obtained for countries which, for reasons explained in the paper, could not (Belgium, Greece, Portugal) or only partly (England & Wales) be integrated into the analyses is (or will soon be) provided in country-specific files. There is a lack of data for Ireland and Luxemburg because regional crime data does not exist for these countries, and for France and Austria which refused to participate in the project. In order to allow multivariate analyses of the causes and consequences of crime the EURCD also contains a sizeable number of non-crime variables. By providing this data to the public we hope to enhance empirical crime research in Europe which until today has been denied adequate attention by both criminologists and economists. |
| JEL: | K42 |
| Date: | 2005–01–23 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwple:0501004&r=eec |
| By: | Michal Brzoza-Brzezina (National Bank of Poland, Warsaw School of Economics) |
| Abstract: | In this paper we analyse the potential for lending booms in three biggest new EU member states (Czech Republic, Hungary and Poland) during the process of Euro adoption. Experience of old members (Greece, Ireland and Portugal) as well as econometric evidence speak in favour of strong increases in credit in Hungary and Poland and against such an event in the Czech Republic. However, the expected lending booms are smaller than those Ireland and Portugal witnessed recently. We state that, given the current data set, no substantial risk to the banking sectors of the new member states should be expected. We also find that the monetary consequences of these booms for the Euro-area as a whole will be almost negligible. |
| Keywords: | lending booms, Euro area, banking sector stability, new member states |
| JEL: | E51 E58 G21 |
| Date: | 2005–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502002&r=eec |
| By: | Ratto M. (European Commission - Joint Research Centre); Roeger W. (European Commission - DG Economic & Financial Affairs); in’t Veld J. (European Commission - DG Economic & Financial Affairs); Girardi R. (European Commission - Joint Research Centre) |
| Abstract: | In recent years a new consensus has emerged in macroeconomics in general and in model building in particular, the so called New Keynesian Paradigm (NKM). This paper applies Bayesian estimation techniques to a time series data set of the euro area and presents estimates of a DSGE model. The purpose of this paper is not to estimate the current version of the QUEST model directly with these methods but rather to estimate a prototype new generation New-Keynesian DSGE model. This model can then serve as a benchmark for an estimation of a QUEST specification. In fact in some dimensions the QUEST model may need to be adjusted to come closer to a DSGE model. |
| Keywords: | Bayesian Analysis, General Equilibrium Models, SDGE, Estimation |
| JEL: | E22 C11 D58 |
| Date: | 2005–03–03 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503002&r=eec |
| By: | Patrick Crowley (Texas A&M University - Corpus Christi); Jim Lee (Texas A&M University - Corpus Christi) |
| Abstract: | This article analyses the frequency components of European business cycles using real GDP by employing multiresolution decomposition (MRD) with the use of maximal overlap discrete wavelet transforms (MODWT). Static wavelet variance and correlation analysis is performed, and phasing is studied using co-correlation with the eurozone by scale. Lastly dynamic conditional correlation GARCH models are used to obtain dynamic correlation estimates by scale against the EU to evaluate synchronicity of cycles through time. The general …ndings are that eurozone members fall into one of three categories: i) high static and dynamic correlations at all frequency cycles (e.g. France, Belgium, Germany), ii) low static and dynamic correlations, with little sign of convergence occurring (e.g. Greece), and iii) low static correlation but convergent dynamic correlations (e.g. Finland and Ireland) |
| Keywords: | Business cycles, growth cycles, European Union, multiresolution analysis, wavelets, co-correlation, dynamic correlation. |
| JEL: | E32 O52 |
| Date: | 2005–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503015&r=eec |
| By: | Zenon Kontolemis (International Monetary Fund); Kevin Ross (International Monetary Fund) |
| Abstract: | This paper assesses the role of exchange rates in moderating the impact of economic disturbances in the new member states of the European Union, and finds some evidence in favour of this proposition. Exchange rates are mostly driven by real (demand) shocks, whilst output by real supply shocks. Nominal shocks, which have no long-run impact on output, are nevertheless important in explaining exchange rate fluctuations implying that less exchange rate flexibility may indeed be warranted in the run- up to the adoption of the euro. We find that while interest rate shocks generally do not explain exchange rate fluctuations, credit shocks matter in certain cases and seem to have considerable impact on exchange rate developments (e.g., for Poland). The analysis also shows that based on the average responses of exchange rates to different shocks, the adoption of narrow bands inside ERM II may be risky. |
| Keywords: | Exchange rate fluctuations, transmission economies, ERM II, EMU, structural VAR |
| JEL: | E |
| Date: | 2005–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504015&r=eec |
| By: | Julie Le Gallo (IERSO IFReDE-GRES); Sandy Dall'erba (REAL) |
| Abstract: | This paper analyzes the evolution of labor productivity disparities among 145 European regions over 1975-2000 according to the concepts of ƒã- and ƒÒ-convergence and emphasizes the importance of including spatial effects and a disaggregated analysis at a sectoral level. We detect a significant -convergence only in aggregate labor productivity and in the services sectors among peripheral regions. We also show that omitting spatial effects leads to biased measures of -convergence. We then estimate a pooled -convergence model including spatial autocorrelation and sectoral differentiation. The results indicate that disparities in productivity levels between core and peripheral regions persist by vary by sector. |
| Keywords: | convergence, spatial econometrics, labor productivity, sectoral approach |
| JEL: | O52 R11 R15 |
| Date: | 2005–03–16 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpur:0503004&r=eec |