nep-eec New Economics Papers
on European Economics
Issue of 2005‒09‒17
twenty papers chosen by
Giuseppe Marotta
Universita di Modena e Reggio Emilia

  1. Ex-ante Evaluation of European ICTs Policies: Efficiency vs Cohesion Scenarios By Roberta Capello; Alessia Spairani
  2. The Impact of Institutions on the Employment Performance in European Labour Markets By Herbert Buscher; Christian Dreger; Raul Ramos; Jordi Surinach
  3. European Asylum Policy By Timothy J. Hatton
  4. Estimates of the Open Economy New Keynesian Phillips Curve for Euro Area Countries By Fabio Rumler
  5. Alternative Composite Lisbon Development Strategy Indices By Jong-Eun Oh; Almas Heshmati
  6. PRIVATE BANKING IN EUROPE - Getting Clients & Keeping Them! By Anna Omarini; Philip Molineux
  7. Diversity of capitalism and Central and Eastern European Countries. A statistical analysis. (In French) By Jean-Philippe BERROU (CED, IFReDE-GRES); Christophe CARRINCAZEAUX (E3i, IFReDE-GRES)
  8. Politics and the Creation of a European SEC:The Optimal UK Strategy – Constructive Inconsistency By Ruben Lee
  9. CONSUMER PRICE SETTING IN ITALY By Silvia Fabiani; Angela Gattulli; Roberto Sabbatini; Giovanni Veronese
  10. Trade, Product Variety and Welfare: A Quantitative Assessment for the Transition Economies in Central and Eastern Europe By Ralf Ruhwedel; Michael Funke
  11. Out in the cold? Iceland’s trade performance outside the EU By Francis Breedon; Thórarinn G. Pétursson
  12. The Effect of Capital Requirement Regulation on the Transmission of Monetary Policy: Evidence from Austria. By Philipp Engler; Terhi Jokipii; Christian Merkl; Pablo Rovira Kaltwasser; Lúcio Vinhas de Souza
  13. Local Employment Growth in West Germany: A Dynamic Panel Approach By Uwe Blien; Jens Suedekum; Katja Wolf
  14. Threshold Effects and Regional Economic Growth-Evidence from West Germany By Michael Funke; Annekatrin Niebuhr
  16. How Frequently Do Consumer Prices Change in Austria? Evidence from Micro CPI Data By Josef Baumgartner; Ernst Glatzer; Fabio Rumler; Alfred Stiglbauer
  17. Drifting Together or Falling Apart? The Empirics of Regional Economic Growth in Post-Unification Germany By Roberta Colavecchio; Declan Curran; Michael Funke
  18. What Drives Sector Allocation of Foreign Direct Investment in Iceland? By Helga Kristjánsdóttir
  19. Individual Wage Setting, Efficiency Wages and Productivity in Sweden By Lundborg, Per
  20. The Price-Setting Behavior of Austrian Firms: Some Survey Evidence By Claudia Kwapil; Josef Baumgartner; Johann Scharler

  1. By: Roberta Capello; Alessia Spairani
    Abstract: Normative interventions in the ICTs sector at the European level are in fact mainly driven by the idea that the impacts of advanced telecommunications technology adoptions are related both to their capacity to increase competitiveness and to their potential influence on regional disparities, enhancing growth rates and development of weaker and less developed regions. The result is that the well-known trade-off between efficiency and cohesion emerges quite evidently. In this paper, the aim is to provide an ex-ante evaluation of EU ICTs policies on regional development and regional disparities, through a scenario building methodology which allows to calculate the increase in per capita GDP at NUTS 2 level for all 15 EU member states according to efficiency or cohesion policy options. In particular, the aims are to provide a cost assessment of efficiency and cohesion ICTs policies and to detect different regional response to ICTs policies, by highlighting different behavioural attitudes and reacting capacities of regions in front of alternative ICTs policy scenarios.
    Date: 2004–08
  2. By: Herbert Buscher (Institute for Economic Research Halle (IWH)); Christian Dreger (Institute for Economic Research Halle (IWH) and IZA Bonn); Raul Ramos (AQR, University of Barcelona); Jordi Surinach (AQR, University of Barcelona)
    Abstract: This paper investigates the role of institutions for labour market performance across European countries. As participation rates have been rather stable over the past, the unemployment problem is mainly caused by shortages in labour demand. Labour demand is expressed by its structural parameters, such as the elasticities of employment to output and factor prices. Institutional variables include employment protection legislation, the structure of wage bargaining, measures describing the tax and transfer system and active labour market policies. As cointegration between employment, output and factor prices is detected, labour demand equations are fitted in levels by efficient estimation techniques. To account for possible structural change, time varying parameter models and aysmmetries due to the business cycle situation are considered. Then, labour demand elasticities are explained by institutions using panel fixed effects regressions. The results suggest that higher flexibility and incentives of households to work appear to be appropriate strategies to improve the employment record. The employment response to economic conditions is stronger in a more deregulated environment, and the absorption of shocks can be relieved. However, the institutional database should be improved in order to arrive at more definite policy conclusions.
    Keywords: EU employment, labour market institutions
    JEL: E24 J23 J51
    Date: 2005–08
  3. By: Timothy J. Hatton (Australian National University, University of Essex and IZA Bonn)
    Abstract: Policy towards asylum seekers has been a controversial topic for more than a decade. Rising numbers of asylum applications have been met with ever-tougher policies to deter them. Following a period of policy harmonisation, the EU has reached a crucial stage in the development of a new Common European Asylum System. This paper seeks to shed light on what form this should take. It summarizes the development of policy to date and it argues that these policies have been too tough, even from the point of view of EU citizens. Using an economic framework, it examines scenarios with different degrees of policy harmonisation and integration among EU countries. Finally, it argues that there is an important role for enhanced burden-sharing arrangements.
    Keywords: asylum, refugees, migration, policy cooperation
    JEL: F22 H41 H77 H87 J61 K42
    Date: 2005–07
  4. By: Fabio Rumler (Oesterreichische Nationalbank, Economic Analysis Division, Otto-Wagner-Platz 3, POB 61, 1011 Vienna, Austria)
    Abstract: This paper extends the existing literature on the open economy New Keynesian Phillips Curve by incorporating three dierent factors of production, domestic labor and imported as well as domestically produced intermediate goods, into a general model which nests existing closed economy and open economy models as special cases. The model is then estimated for 9 euro area countries and the euro area aggregate. We find that structural price rigidity is systematically lower in the open economy specification of the model than in the closed economy specification indicating that when firms face more variable input costs they tend to adjust their prices more frequently. However, when the model is estimated in its general specification including also domestic intermediate inputs, price rigidity increases again compared to the open economy specification without domestic intermediate inputs.
    Keywords: New Keynesian Phillips Curve; Open Economy; GMM
    JEL: E31 C22 E12
    Date: 2005–08–08
  5. By: Jong-Eun Oh (TEPP, Seoul National University); Almas Heshmati (TEPP, Seoul National University and IZA Bonn)
    Abstract: This study addresses the measurement of two composite Lisbon strategy indices that quantifies the level and patterns of development for ranking countries. The first index is nonparametric labelled as Lisbon strategy index (LSI). It is composed of six components: general economics, employment, innovation research, economic reform, social cohesion and environment, each generated from a number of Lisbon indicators. LSI by reducing the complexity of the set of indicators, it makes the ranking procedures quite simple. The second and parametric index is based on principal component analysis. Despite the difference in the ranking by the two indices, it is shown that the United States outperformed most EU-member states. Our investigations also show evidence of significant dynamic changes taking place, as the countries of the Union struggle to achieve the Lisbon goals. The necessity of a real reform agenda in several old and new members and candidate countries emerges from our analysis.
    Keywords: economic development, economic integration, composite index, Lisbon Agenda
    JEL: O10 C43 F15 O57
    Date: 2005–08
  6. By: Anna Omarini (Università Luigi Bocconi - Milan - Italy); Philip Molineux (SBARD, University of Wales Bangor)
    Abstract: The paper examines the features of private banking business in Europe and focuses on the key roles of client segmentation, retention and acquisition. There has been substantial growth in private banking business over the last decade or so as commercial banks have targeted both the 'mass-affluent' and more upmarket high net worth individuals (HNWI's). The combined amount of investable assets at the disposal of these two groups amounts to around Euro 6 trillion and a wide range of banks, investment firms and other operators have focused on devising strategies aimed at grabbing a share of this potentially lucrative market. The private client wealth management industry in Europe remains relatively fragmented although a few major players have emerged and consolidation is an ongoing theme in the sector. Given the commercial opportunities afforded by this business area the increased complexity of clients needs continues to be a critical strategic issue for industry participants. This paper illustrates important themes relating to the wealth management service proposition and focuses on client segmentation, retention and acquisition strategies. Overall we find that private banks will have to adopt a more systematic approach to these areas and in particular also have to pay greater qualitative and quantitative attention to client satisfaction, trust and loyalty issues if their client retention and acquisition strategies are to be a success.
    Keywords: Private banking, wealth management, segmentation
    JEL: G
    Date: 2005–09–09
  7. By: Jean-Philippe BERROU (CED, IFReDE-GRES); Christophe CARRINCAZEAUX (E3i, IFReDE-GRES)
    Abstract: Realised within the framework of the ESEMK project supported by the EU (FP6, Priority 7, Contract CIT-CT-2004-506077), the present study proposes a statistical analysis of the variety of the European socio-economic models integrating Central and Eastern European Countries (CEEC) using Bruno Amable’s approach of the diversity of capitalism. The analysis relies on the theoretical design of institutional complementarities whose coherence defines the character of model of capitalism. The aim of this methodological study is to test the stability of Amable’s results when new countries are introduced (Hungary, Poland, Czech Republic, Turkey and one emerging country, Mexico, in order to diversify our sample), and to position the CEEC with respect to the European models already identified. Although the typology of the five capitalisms seems finally well resist to the introduction of new countries, it is however necessary to note some more dubious configurations on the side of European continental and Mediterranean models. Concerning the new introduced countries, the three Central European countries differs from the whole of the other models whereas Turkey is close to the Mediterranean model.
    Keywords: variety of capitalism, institutional complementarities, Central and Eastern European Countries (CEEC)
    JEL: B52 P50
    Date: 2005
  8. By: Ruben Lee
    Abstract: This paper analyses the factors influencing whether a European Securities and Exchange Commission (ESEC) will be created and confirms the primary role that politics will play in its establishment. In the face of growing support for an ESEC, the paper recommends a strategy the UK should adopt towards the creation of such an institution. It is proposed that the UK adopt a three-pronged approach. First, the UK must, as it currently does, support the Lamfalussy Process in the hope that it works. Second, the UK must determine what criteria need to be assessed in order to evaluate whether the Lamfalussy Process together with the Financial Services Action Plan are in fact harming UK interests, and then make such an evaluation. Finally, if political support for an ESEC becomes unstoppable, the UK should negotiate for the creation of an appropriately structured ESEC – even though its backing for the Lamfalussy Process should logically preclude its support for any type of ESEC. A key attribute of the recommended strategy is thus that it is inconsistent. This is not, however, thought a problem. On the contrary, given that the creation of an ESEC is the stuff of politics and thus that a political response is called for, and given that other key participants’ policies on the creation of an ESEC are themselves inconsistent, the strategy proposed is argued as being not only constructive, but indeed rational.
    Date: 2005–09
  9. By: Silvia Fabiani (BANK OF ITALY); Angela Gattulli (BANK OF ITALY); Roberto Sabbatini (BANK OF ITALY); Giovanni Veronese (BANK OF ITALY)
    Abstract: This paper investigates the microeconomic behaviour of consumer prices in Italy using the individual price records underlying the Italian CPI dataset collected by Istat. We discuss how to analyse price stickiness using such a detailed database and compute a quantitative measure of the unconditional degree of price rigidity in the Italian economy. The analysis focuses on the monthly frequency of price changes and on the duration of price spells, with a sectoral breakdown as well as with a classification by type of outlet. Prices are in general found to be rather sticky, remaining unchanged on average for around 10 months; price spells last longer for non-energy industrial goods and services, much less for energy products. Prices are revised more frequently upwards than downwards, while the size of price changes is quite symmetric. Price st ickiness is found to be less marked in large modern stores than in smaller traditional shops. Price changes display considerable synchronisation, in particular in the services sector. The average frequency of price changes and the probability of observing a price change over time and across items are positively related to headline inflation and increases in VAT rates and negatively related to the share of attractive prices. These findings are consistent with the ones reported in similar national studies for other countries of the euro area, which were conducted by the National Central Banks within the Eurosystem Inflation Persistence Network.
    Keywords: consumer prices, nominal rigidity, frequency of price change
    JEL: D21 D40 E31
    Date: 2005–06
  10. By: Ralf Ruhwedel; Michael Funke
    Abstract: We calculate welfare gains of trade liberalization in the Central and East European transitioneconomies, following the approach of Romer (1994), who emphasized that proper modeling ofthe impact of trade restrictions on the number of available product varieties is crucial toquantifying the welfare impact of trade liberalization. The empirical work relies on directmeasures of product variety calculated from 5-digit trade data. Although the issue is far fromsettled, the emerging conclusion is that freer trade has boosted welfare.
    Keywords: Trade Liberalization, Product Variety, Welfare, Transition Economies
    JEL: D60 F14 F15
    Date: 2004–01
  11. By: Francis Breedon; Thórarinn G. Pétursson
    Abstract: Although entering a currency union involves both costs and benefits, an increasing body of research is finding that the benefits – in terms of international trade creation – are remarkably large. For example, Rose (2000) suggests that countries can up to triple their trade by joining a currency union. If true the impact on trade, income and welfare should Iceland join EMU could be enormous. However, by focussing simply on EMU rather than the broad range of currency unions studied by Rose, we find that the trade impact of EMU is smaller – but still statistically significant and economically important. Our findings suggest that the Iceland's trade with other EMU countries could increase by about 60% and that the trade-to-GDP ratio could rise by 12 percentage points should Iceland join the EU and EMU. This trade boost could consequently raise GDP per capita by roughly 4%. These effects would be even larger if the three current EMU outs (Denmark, Sweden and the UK) were also to enter EMU.
    Date: 2004–12
  12. By: Philipp Engler (Free University Berlin); Terhi Jokipii (Institute for International Integration Studies, Trinity College Dublin); Christian Merkl (Kiel Institute for World Economics and Kiel University); Pablo Rovira Kaltwasser (Catholic University of Leuven); Lúcio Vinhas de Souza (Kiel Institute for World Economics.)
    Abstract: This paper analyzes the role of bank capitalization on the transmission of monetary policy, using a quarterly dataset for Austrian banks spanning from 1997 to 2003. A substantial understanding of the transmission mechanism in different countries of the euro zone is not only of academic interest, but also an important prerequisite for central bankers to effectively accomplish their monetary policy goals. While we do find evidence in favor of the bank lending channel, with an important role active for capitalization, we are unable to confirm whether the bank capital channel is in force in Austria. Our results indicate some counter-cyclicality in lending activity, a finding that is in line with the existing Austrian literature.
    Keywords: Transmission of monetary policy; Bank capital regulation; Austria
    JEL: E4 E5
    Date: 2005–05–23
  13. By: Uwe Blien (Institute for Employment Research (IAB) and IZA Bonn); Jens Suedekum (University of Konstanz and IZA Bonn); Katja Wolf (Institute for Employment Research (IAB))
    Abstract: In this paper we study the dynamics of local employment growth in West Germany from 1980 to 2001. Using dynamic panel techniques, we analyse the timing of the impact of diversity and specialisation, as well as of the human capital structure of local industries. Diversity has a positive effect on employment growth in the short run, which is stronger in manufacturing than in services. Concerning specialization we find evidence for mean reversion, which is inconsistent with the idea that growth emphasizes itself. But there is considerable inertia in this process. A positive effect of education is only found in manufacturing. Additionally, we look at the impact of firm size and regional wages on local employment growth.
    Keywords: regional labour markets, externalities, local employment growth, dynamic panel estimation, urbanization and localisation effects
    JEL: R11 O40
    Date: 2005–07
  14. By: Michael Funke; Annekatrin Niebuhr
    Abstract: We study an overlapping generations model of human capital accumulation with threshold effects using regional data for West Germany. Our basic goal is to shed light on what makes German regions grow. The paper finds that the relative income distribution appears to be stratifying into a trimodal distribution. Thus, application of the threshold model to a real world case, here West Germany, shows that the model might help to explain regional growth patterns.
    Keywords: Regional Economic Growth, Human Capital, Germany
    JEL: J24 O40 R11 C31
    Date: 2005–01
    Abstract: We examine the transmission process of the policy rate to the lending and deposit rates in Greece for the period 1996-2004 within bivariate cointegration and error correction framework. A significant structural break takes place with the accession of Greece into EMU in 2001. The bank rates become much more responsive to the policy rate in terms of impact multipliers and speed of convergence to the equilibrium, a consequence of the common monetary policy. However, the process is still not complete even after the accession into the EMU.
    Keywords: interest rate pass-through, monetary policy, transmission dynamics, Greece.
    JEL: E52 E43
    Date: 2005–09–09
  16. By: Josef Baumgartner (Austrian Institute of Economic Research (WIFO), Arsenal Objekt 20, POB 91, 1103 Vienna, Austria); Ernst Glatzer (Oesterreichische Nationalbank, Economic Analysis Division, Otto-Wagner-Platz 3, POB 61, 1011 Vienna, Austria); Fabio Rumler (Oesterreichische Nationalbank, Economic Analysis Division, Otto-Wagner-Platz 3, POB 61, 1011 Vienna, Austria); Alfred Stiglbauer (Oesterreichische Nationalbank, Economic Analysis Division, Otto-Wagner-Platz 3, POB 61, 1011 Vienna, Austria)
    Abstract: In this paper a data set with price records collected for the computation of the Austrian CPI is used to estimate the average frequency of price changes and the duration of price spells to provide empirical evidence on the degree and characteristics of price rigidity in Austria. Depending on the estimation method applied, on average, prices are unchanged for 10 to 14 months. We find a strong heterogeneity across sectors and products. Price increases occur only slightly more often than price decreases. For both cases the typical size of the weighted average price change is quite large (11 and 15 percent, respectively). Like in related contributions we find that the aggregate hazard function is decreasing with time. Apart from heterogeneity across products and price setters, this is due to oversampling of products with a high frequency of price changes. Accounting for the unobserved heterogeneity in estimating the probability of a price change with a panel logit model (with fixed elementary product effects), we find a small but positive effect of the duration of a price spell on the probability of a price change. We also find that during the Euro cash changeover period the probability of price changes was higher.
    Keywords: Consumer prices; sticky prices; frequency and synchronization of price changes; duration of price spells
    JEL: C41 D21 E31 L11
    Date: 2005–07–25
  17. By: Roberta Colavecchio; Declan Curran; Michael Funke
    Abstract: The objective of this paper is to address the question of convergence across German districts in the first decade after German unification by drawing out and emphasising some stylised facts of regional per capita income dynamics. We achieve this by employing non-parametric techniques which focus on the evolution of the entire cross-sectional income distribution. In particular, we follow a distributional approach to convergence based on kernel density estimation and implement a number of tests to establish the statistical significance of our findings. This paper finds that the relative income distribution appears to be stratifying into a trimodal/bimodal distribution.
    Keywords: Regional Economic Growth, Germany, Convergence Clubs, Density Estimation, Modality Tests
    JEL: C14 R11 R12
    Date: 2005–08
  18. By: Helga Kristjánsdóttir (University of Iceland)
    Abstract: The objective of this paper is to examine how the driving forces of investment in a small country like Iceland differ from those in larger countries. Special attention is given to the dominating investment sector in Iceland due to its resource intensity. Estimates are based on 1989-1999 panel data on foreign direct investment in various sectors. This may help explain why the investment pattern in Iceland differs from the general case.
    Keywords: foreign direct investment; multinational corporations
    JEL: F21 F23
    Date: 2005–08
  19. By: Lundborg, Per (Trade Union Institute for Economic Research)
    Abstract: Swedish wage setting has undergone drastic changes during the last 10-15 years. While Sweden was known for its narrow wage distribution, wage differentiation and wage bargaining at the individual level has become leading principles among white-collar workers’ unions. The purpose of the present paper is to analyse the consequences of this wage policy shift. Wage differences have increased drastically among white-collar workers while remained constant or even decreased among blue collar workers. We show that wage differentiation has had a strong effect on white collar workers’ average wage, and caused a major increase in the wage gap between the aggregates of whitecollar and blue-collar workers. We also show that increases in the coefficient of variation of wages raise productivity in firms with many workers in that worker category. Last and foremost, we show that the transition to individual wage setting raises the scope for firms to set efficiency wages and we find support for the fair wage version of efficiency wage setting. The effects of higher wage/fair wage rates were stronger in the late 1990s, when wage differentiation increased more, than in the early 2000s.
    Keywords: Efficiency wages; productivity; wage differentials
    JEL: J31 J41 J51
    Date: 2005–09–09
  20. By: Claudia Kwapil (Oesterreichische Nationalbank, Economic Analysis Division, Otto-Wagner-Platz 3, POB 61, 1011 Vienna, Austria); Josef Baumgartner (Austrian Institute of Economic Research (WIFO), Arsenal Objekt 20, POB 91, 1103 Vienna, Austria); Johann Scharler (Oesterreichische Nationalbank, Economic Analysis Division, Otto-Wagner-Platz 3, POB 61, 1011 Vienna, Austria)
    Abstract: This paper explores the price-setting behavior of Austrian firms based on survey evidence. Our main result is that customer relationships are a major source of price stickiness in the Austrian economy. We also find that the majority of firms in our sample follows a timedependent pricing strategy. However, a substantial fraction of firms deviates from time-dependent pricing in the case of large shocks and switches to a state-dependent pricing strategy. In addition, we present evidence suggesting that the price response to various shocks is subject to asymmetries.
    Keywords: Price-setting behavior; Price rigidity
    JEL: C25 E30
    Date: 2005–07–11

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