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on European Economics |
| By: | Linda S. Goldberg; Michael W. Klein |
| Abstract: | The perceptions of a central bank's inflation aversion may reflect institutional structure or, more dynamically, the history of its policy decisions. In this paper, we present a novel empirical framework that uses high-frequency data to test for persistent variation in market perceptions of central bank inflation aversion. The first years of the European Central Bank (ECB) provide a natural experiment for this model. Tests of the effect of news announcements on the slope of yield curves in the euro area and on the euro-dollar exchange rate suggest that the market's perception of the policy stance of the ECB evolved significantly during the first six years of the Bank's operation, with a belief in its inflation aversion increasing in the wake of its monetary tightening. In contrast, tests based on the response of the slope of the U.S. yield curve to news offer no comparable evidence of any change in market perceptions of the inflation aversion of the Federal Reserve. |
| Keywords: | Banks and banking, Central ; Inflation (Finance) ; Monetary policy ; European Central Bank |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:231&r=eec |
| By: | Zsolt Darvas (Corvinus University, Budapest); Andrew K. Rose (György Szapáry; Magyar Nemzeti Bank) |
| Abstract: | Using a panel of 21 OECD countries and 40 years of annual data, we find that countries with similar government budget positions tend to have business cycles that fluctuate more closely. That is, fiscal convergence (in the form of persistently similar ratios of government surplus/deficit to GDP) is systematically associated with more synchronized business cycles. We also find evidence that reduced fiscal deficits increase business cycle synchronization. The Maastricht “convergence criteria,” used to determine eligibility for EMU, encouraged fiscal convergence and deficit reduction. They may thus have indirectly moved Europe closer to an optimum currency area, by reducing countries’ abilities to create idiosyncratic fiscal shocks. Our empirical results are economically and statistically significant, and robust. |
| Keywords: | European; monetary; union; policy; Maastricht; criteria; optimum; Mundell. |
| JEL: | F42 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:wpaper:2005/03&r=eec |
| By: | Frank Dierick (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Fatima Pires (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Martin Scheicher (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Kai Gereon Spitzer (Deutsche Bundesbank, Wilhelm-Epstein-Strasse 14, 60431 Frankfurt am Main, Germany) |
| Abstract: | Following the adoption by the Basel Committee of new capital rules for banks, a process is now taking place in the EU to transpose the rules into Community law and, ultimately, into national legislation. This paper gives an overview of the main issues that relate to the EU implementation, mainly from the perspectives of financial stability and financial integration. Although the EU rules are to a large extent based on the texts of the Basel Committee, modifications have been introduced to account for the specific legal and institutional setting, as well as for some features of the European financial system. The paper gives an overview of these modifications and deals in greater detail with a number of selected topics: the monitoring of procyclicality, the role of the consolidating supervisor and the treatment of real estate lending and covered bonds. The paper concludes with an outlook for the future. |
| Keywords: | Banks, Basel II, capital requirements, financial regulation, financial stability, financial supervision, risk management. |
| JEL: | G21 G28 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20050042&r=eec |
| By: | Mark A. Wynne |
| Abstract: | This paper provides an estimate of the measurement bias in the Harmonised Index of Consumer Prices (HICP) that the European Central Bank uses to define price stability in the euro area. The estimate is based on a comparison of the rate of increase in consumer prices as measured by the HICP and the responses to a question about recent changes in the cost of living on the European Commission’s monthly Harmonised Consumer Survey (HCS). I find that the HICP may overstate the true rate of inflation by about 1.0 to 1.5 percentage points a year. |
| Keywords: | Euro ; Inflation (Finance) |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:05-09&r=eec |
| By: | Martial Foucault (LAEP et European University Institute) |
| Abstract: | The European Union has decided to implement in 1999 an independent European security and defence policy (ESDP). As States' preferences in defence issues are characterized by a strong heterogeneity, I propose to determine the kind of allocation process for providing defence resources. By assuming European security as an impure public good due to spillin effects, this article aims at evaluating whether as Nash-Cournot or Lindhal process is better suitable for the ESDP. Based on an econometric analysis for the 1980-2002 period, it is concluded that the Europe of Defence follows a Nash-Cournot process for 10 out of 15 countries. This result strengthens the interdependency of defence policies for defining a common security need. |
| Keywords: | Public good provision, defence spending, allocation process, free-riding, Nash-Cournot, Lindhal. |
| JEL: | H0 H56 H87 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:j05082&r=eec |
| By: | Yuksel Gormez; Forrest Capie |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0302&r=eec |
| By: | Catherine Boemare (CIRED - Centre international de Recherche sur l'Environnement et le Développement - http://www.centre-cired.fr - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales;Ecole Nationale des Ponts et Chaussées;Ecole Nationale du Génie Rural des Eaux et des Forêts); Philippe Quirion (CIRED - Centre international de Recherche sur l'Environnement et le Développement - http://www.centre-cired.fr - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales;Ecole Nationale des Ponts et Chaussées;Ecole Nationale du Génie Rural des Eaux et des Forêts) |
| Abstract: | The European Commission (2001a) has recently presented a directive proposal to the European Parliament and Council in order to implement a greenhouse gas emission trading scheme. If this proposal survives the policy process, it will create the most ambitious trading system ever implemented. However the legislative process is an opportunity for various interest groups to amend envi-ronmental policies which, as a result, generally deviate further from what eco-nomic literature proposes. A close look at implemented emission trading schemes, stressing their discrepancies with economic literature requests, is thus useful to increase the chances of forthcoming emission trading schemes to go through the political process. <br /><br />We thus review ten emission trading systems, that are either implemented or at an advanced stage of the policy process. We draw attention to major points to be aware of when designing an emission trading system: sectoral and spatial coverage, permits allocation, temporal flexibility, trading organisation, moni-toring, enforcement, compliance, and the harmonisation vs. subsidiarity issue. The aim is to evaluate how far experiences in emission trading move away from theory and why. <br /><br />We then provide some lessons and recommendations on how to implement a greenhouse gas emission trading program in Europe. We identify some pros of the Commission proposal (spatial and sectoral coverage, temporal flexibility, trading organisation, compliance rules), some potential drawbacks (allocation rules, monitoring and enforcement) and items on which further guidance is needed (monitoring and allocation rules). Lastly, the European Commission should devote prominent attention to the U.S. NOX Ozone Transport Commis-sion budget program, as the only example of integration between the federal and state levels. |
| Keywords: | Emission trading, climate change policy, policy-making and implementation |
| Date: | 2005–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00007264_v1&r=eec |
| By: | Giuseppe Bruno (Bank of Italy, Economic Research Department); Ernesto Maurizio Ordine (Bank of Italy, Isernia Branch); Antonio Scalia (Bank of Italy, Monetary and Exchange Rate Policy Department) |
| Keywords: | Bidding Behaviour, auctions, open market operations, money market, liquidity management Abstract: We perform a panel analysis of bidding in the Eurosystem auctions, using individual data that include the bidder code, size, nationality and membership in a banking group. We find that an increase in interest rate volatility lowers the probability of bidding, but induces bidders to shade rates less. Large bidders participate more regularly, while group bidders demand larger amounts, showing an aptitude to act as liquidity brokers. Our findings support the transnational bank hypothesis (Freixas- Holthausen, 2005): banks with a multinational profile use their informational advantage to arbitrage out the differences in interest rates across countries, thus fostering money market integration. |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_562_05&r=eec |
| By: | Oren Sussman |
| Abstract: | In 2002, a new legislation that harmonises insolvency laws within the EU came into effect. I find reasons – both theoretical and empirical – to doubt whether the new law has achieved the goal of decreasing the cost of cross-border insolvency and borrowing. I thus suggest an alternative approach to the problem, which is based – to a larger extent – on market forces rather than on political or bureaucratic initiative. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:sbs:wpsefe:2005fe16&r=eec |
| By: | Joni Hersch; W. Kip Viscusi |
| Abstract: | This article examines age variations in support for environmental protection policies that affect climate change using a sample of over 14,000 respondents to a 1999 Eurobarometer survey. There is a steady decline with age in whether respondents are willing to incur higher gasoline prices to protect the environment. This relationship remains after controlling for socioeconomic characteristics. There are age-related differences in information about environmental risks, information sources about the environment, perceived health risks from climate change, and degree of worry about climate change. However, taking these factors into account does not eliminate the age variation in willingness to pay more for gasoline to protect the environment. |
| JEL: | Q25 H23 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11859&r=eec |
| By: | Jordi Pons Novell; Daniel A. Tirado Fabregat |
| Abstract: | This comparative study looks at the international impact of leading economics journals published in Spain, Italy, France and Germany. It also aims to establish whether they play a similar role in any of these 4 countries. For this purpose data were collected on the number of times that articles published in these journals are cited in international journals on the ISI Journals lists. The study focused on the number and characteristics of the citations received during the period 1996-2004 by articles published between 1995 and 1999 in a limited number of Spanish, Italian, French and German journals. The international impact of the Spanish journals was found to be similar in size and characteristics to that of the Italian publications. However, it differed sharply from the impact of the highest-ranking French and German journals. These last received a higher volume of citations, some of which also showed very different qualitative characteristics. |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:cte:dilfrp:dilf0508&r=eec |
| By: | Matthieu Bussière (European Central Bank); Jarko Fidrmuc (Ludwig-Maximilians-Universität München); Bernd Schnatz (European Central Bank) |
| Abstract: | The aim of the paper is to analyse the factors behind the rapid trade integration of the Central and Eastern European countries with the euro area in the past ten years and to gauge the potential for further integration. We use as benchmark an enhanced gravity model estimated with a large sample of bilateral trade flows across 61 countries since 1980. We show that a careful examination of the fixed effects of the model is crucial for the proper interpretation of the results: simply extracting the predicted values of the regression (“in-sample”) – as commonly done in the literature – leads to distorted results as it fails to take the transition process properly into account. As an alternative, we propose a two-stage “out-of-sample” approach. The results suggest that trade integration between most of the largest Central and Eastern European countries and the euro area is already relatively advanced, while the Baltic countries as well as the South Eastern European countries still have significant scope for integration. |
| Date: | 2005–10–25 |
| URL: | http://d.repec.org/n?u=RePEc:onb:oenbwp:105&r=eec |
| By: | Aristeidis Samitas (University of Aegean); Dimitris Kenourgios (University of Athens) |
| Abstract: | This paper investigates whether current and future domestic and international macroeconomic variables can explain long and short run stock returns in four “new” European countries (Poland, Czech Republic, Slovakia and Hungary). “Old” western European countries (U.K., France, Italy and Germany) are included in the empirical analysis, whilst USA is considered as a “foreign global influence”. Using the present value model of stock prices and a complete range of cointegration and causality tests, it is found that “new” European stock markets are not perfectly integrated with foreign financial markets, while domestic economic activity and the German factor are more influential on these stock markets than the American global factor. |
| Keywords: | Stock returns; macroeconomic factors; present value model; Central-Eastern (“New”) stock markets; “Old” European stock markets; USA. |
| JEL: | G15 |
| Date: | 2005–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0512022&r=eec |
| By: | Péter Benczúr (Magyar Nemzeti Bank); Attila Rátfai (Central European University, Budapest) |
| Abstract: | We carry out a detailed analysis of quarterly frequency dynamics in macroeconomic aggregates in twelve countries of Central and Eastern Europe. The facts we document include the variability and persistence in and the co-movement among output, and other major real and nominal variables. We find that consumption is highly volatile and government spending is procyclical. Gross fixed capital formation is highly volatile. Net exports are countercyclical. Imports are procyclical, much more than exports. Exports are most procyclical and persistent in open countries. Labor market variables are all highly volatile. Employment is lagging, and often procyclical. Real wages are dominantly procyclical. Productivity is dominantly procyclical and coincidental. Private credit is procyclical and dominantly lagging the cycle. The CPI is countercyclical, and is weakly leading or coincidental. The cyclicality of inflation is unclear, but its relative volatility is low. Net capital flows are mostly leading and procyclical and exhibit low persistence. Nominal interest rates are in general smooth and persistent. The nominal exchange rate is more persistent than the real one. Overall, we find that fluctuations in CEE countries are larger than in industrial countries, and are of similar size than in other emerging economies. This is particularly true about private consumption. The co-movement of variables, however, shows a large degree of similarity. A notable exception is government spending: unlike in industrial economies, it is rather procyclical in transition economies. The findings also indicate that Croatia and the accession group show broadly similar cyclical behavior to industrial countries. The most frequent country outliers are Bulgaria, Romania and Russia, especially in labor market, price and exchange rate variables. Excluding these countries from the sample makes many of the observed patterns in cyclical dynamics quite homogenous. |
| Keywords: | Business Cycle Facts, Central and Eastern Europe |
| JEL: | E32 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:wpaper:2005/02&r=eec |
| By: | Balázs Égert (Oesterreichische Nationalbank; MODEM, University of Paris X-Nanterre and William Davidson Institute); László Halpern (Institute of Economics, Hungarian Academy of Sciences; CEPR, Central European University and William Davidson Institute); Ronald MacDonald (University of Glasgow and CESifo) |
| Abstract: | In this paper we present an overview of a number of issues relating to the equilibrium exchange rates of transition economies of the former soviet bloc. In particular, we present a critical overview of the various methods available for calculating equilibrium exchange rates and discuss how useful they are likely to be for the transition economies. Amongst our findings is the result that the trend appreciation usually observed for the exchange rates of these economies is affected by factors other than the usual Balassa-Samuelson effect, such as the behaviour of the real exchange rate of the open sector and regulated prices. We then consider three main sources of uncertainty relating to the implementation of an equilibrium exchange rate model, namely: differences in the theoretical underpinnings; differences in the econometric estimation techniques; and differences relating to the time series and cross-sectional dimensions of the data. The ensuing three-dimensional space of real misalignments is probably a useful tool in determining the direction of a possible misalignment rather than its precise size. |
| Date: | 2005–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:onb:oenbwp:106&r=eec |
| By: | Andrea Zaghini (Banca d'Italia) |
| Abstract: | The paper analyses the most recent evolution of the trade specialisation pattern in the 10 new EU Member States. Relying on the empirical approach of the Markov transition matrices it analyses both the changes in the external shape of the distribution of comparative advantages and the intra-distribution dynamics. The new Members show an indeed dynamic trade pattern; they were able to gain comparative advantages relatively fast in sectors in which they were lagging behind at the beginning of the transition process, notably in some “high tech” products. In addition, many specialisation improvements occurred in those items for which the world demand expands at the fastest rate, hinting to the possibility of an increase in their trade shares on world markets. Both findings can be explained by the initial need to rebuild and modernise the entire capital stock, the significant skilled-labour force endowment, and the large FDI inflows that allowed them to skip intermediate states of technological development. |
| Keywords: | Revealed comparative advantages, international specialization model, distribution dynamics |
| JEL: | F14 F15 E23 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_568_05&r=eec |
| By: | Alexandre Baclet (INSEE Paris); Fabien Dell (PSE Paris and DIW Berlin); Katharina Wrohlich (DIW Berlin and IZA Bonn) |
| Abstract: | In this paper, we address the question whether family support via the income tax system is more generous in France than in Germany, as it is often claimed in the public debate. We use two micro-data sets and a micro-simulation model to compare effective average tax rates for different household types in France and Germany. Our analysis shows that the popular belief that French high income families with children face lower average tax rates than their German counterparts is true, however not due to the French Family splitting but rather to the different definitions of taxable incomes in both countries. Actually, low income families with less than three children even fare better in terms of tax relief in Germany than in France. The French system leads to lower average tax rates than the German one (over a large range of the income distribution) only for families with three children. |
| Keywords: | D31, H24, J18 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1894&r=eec |
| By: | Fatih Ozatay |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0511&r=eec |
| By: | Jose Mendez (Arizona State University); Ricardo Mora (Universidad Carlos III de Madrid); Carlos San Juan Mesonada (Universidad Carlos III de Madrid) |
| Abstract: | Using cointegration techniques, we estimate two models that capture the long-term relationship between Spanish prices and agricultural production. The models were estimated over Spanish agricultural data from 1970 to 2000, a period spanning Spain’s implementation of the Common Agricultural Policy in 1986 and the application of the MacSharry Reforms in 1992. The models, as well as plausible counterfactual scenarios constructed to assess the production changes induced by the CAP, lead to three principal results. First, we find that Spanish agricultural output is responsive to agricultural prices. Second, we find that the MacSharry reforms have been instrumental in restraining agricultural production. Third, we find that Spanish agricultural output would have been higher if Spain had not applied the CAP. These results are important and have broad implications. First, they strengthen the position of those reformers both within and outside of Europe that argue for lower price supports as an appropriate policy for stemming European agricultural surpluses. Second, they indicate that recent EU reforms, which have in effect extended the MacSharry reforms, are appropriate measures for curbing European agricultural surpluses. |
| Keywords: | Keywords: Price Support Policy; MacSharry Reforms; Cointegration Techniques; European Economic Integration. |
| JEL: | Q11 Q18 C32 F02 |
| Date: | 2005–12–23 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpit:0512014&r=eec |
| By: | Luca Casolaro (Bank of Italy, Economic Research Department); Leonardo Gambacorta (Bank of Italy, Economic Research Department); Luigi Guiso (Università di Sassari, Ente Einaudi e Cepr) |
| Abstract: | Regulation and contract enforcement may be important determinants of the development of the household loan market, as much as they are of the supply of corporate loans on which the literature has focused. This paper draws on the Italian experience to provide evidence that formal and informal institutions and banking regulation are crucial determinants of availability and cost of the household credit. Historically the Italian household credit market has been very small by international standards and its degree of development differs considerably across local markets. It has grown very fast over the last decade. This paper argues that the traditional small size reflects the joint operation of more limited legal and informal enforcement and tight financial regulation. Differences within Italy in the efficiency of the courts, in social trust and in exposure to regulation explain the geographical differences, while massive deregulation of market entry during the 1990s spurred supply and led to fast lending growth. This evidence, together with marked differences in the quality of legal enforcement, endowment of social capital and tightness of financial regulation across countries, implies that the forces found in Italy are likely to be a major explanation for the international differences in the size of the household loan market. |
| Keywords: | consumer loans, financial liberalization, financial contracts enforcement |
| JEL: | D12 E21 G21 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_560_05&r=eec |
| By: | Francesco Daveri; Cecilia Jona-Lasinio |
| Abstract: | The Italian economy is often said to be on a declining path. In this paper, we document that: (i) Italy’s current decline is a labor productivity problem (ii) the labor productivity slowdown stems from declining productivity growth in all industries but utilities (with manufacturing contributing for about one half of the reduction) and diminished interindustry reallocation of workers from agriculture to market services; (iii) the labor productivity slowdown has been mostly driven by declining TFP, with roughly unchanged capital deepening. The only mild decline of capital deepening is due to the rise in the value added share of capital that counteracted declining capital accumulation. |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:301&r=eec |
| By: | Sabien Dobbelaere (Ghent University, LICOS K.U. Leuven and IZA Bonn); Jacques Mairesse (CREST-INSEE, MERIT-Maastricht University and NBER) |
| Abstract: | This paper studies cross-sectional heterogeneity in price-cost margins and the extent of rent sharing among 48 sectors and 10738 (mainly manufacturing) firms in France. At the sectoral level, the average price-cost mark-up and the average extent of rent sharing amount to 1.701 and 0.368 respectively. Ignoring the occurrence of rent sharing reduces the average pricecost mark-up to 1.500. At the firm level, the average parameters are estimated at 1.814 and 0.558 respectively. Using the Swamy (1970) methodology which corrects the observed heterogeneity for sampling heterogeneity, the corresponding estimates of their robust true dispersion are 0.694 and 0.204. Excluding the existence of rent sharing brings the firm-level average price-cost mark-up down to 1.491. The corresponding robust true dispersion amounts to 0.493. |
| Keywords: | rent sharing, price-cost margins |
| JEL: | C23 D21 J50 L13 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1898&r=eec |
| By: | Frank G. van Oort; Erik Stam |
| Abstract: | Although there is growing evidence on the role of agglomeration economies in the formation and growth of firms, both the concepts of agglomeration economies and entrepreneurship tend to be ambiguously defined and measured in the literature. In this study, we aim to improve the conceptualisations and measures of agglomeration economies and entrepreneurship. Indicators of agglomeration economies are analysed in clearly defined urban regimes on three spatial scales in the Netherlands – national zoning, labour market connectedness, and urban size. This is done in order to uncover their effect on two entrepreneurial phases in the firm life cycle - new firm formation and the growth of incumbent firms in the relatively new ICT industry in the Netherlands. In comparison with new firm formation, the growth of incumbent firms is not so much related to spatial clustering of the ICT industry and other localized sources of knowledge economies associated with urban density. Instead, knowledge as an input for growth of incumbent firms is associated with more endogenous (firm internal) learning aspects, reflected by a significant correlate with R&D-investments. Also the effect of local ICT firm competition differs between the two types of firms: a positive effect on new firm formation, but a negative effect on incumbent firm growth. In general, agglomeration economies have stronger effects on the formation of ICT firms than on the growth of ICT firms. |
| Keywords: | agglomeration economics, spatial externalities, entrepreneurship, location, urban regimes, ICT industry |
| JEL: | D21 L25 L63 L86 M13 O18 R12 R30 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:egu:wpaper:0508&r=eec |