nep-eec New Economics Papers
on European Economics
Issue of 2006‒01‒24
fifty-one papers chosen by
Giuseppe Marotta
Universita di Modena e Reggio Emilia

  1. Has the Stability and Growth Pact stabilised? Evidence from a panel of 12 European countries and some implications for the reform of the Pact By Carlos José Fonseca Marinheiro
  2. Bank interest rate pass-through in the euro area: a cross country comparison By Christoffer Kok Sorensen; Thomas Werner
  3. Inflation convergence and divergence within the European Monetary Union By Fabio Busetti; Lorenzo Forni; Andrew Harvey; Fabrizio Venditti
  4. The International Equity Holdings of Euro Area Investors By Philip Lane; Gian Maria Milesi-Ferretti
  5. Establishing Credibility: Evolving Perceptions of the European Central Bank By Linda S. Goldberg; Michael W. Klein
  6. Endogeneities of Optimum Currency Areas: What brings Countries Sharing a Single Currency Closer together? By Paul de Grauwe; Francesco Paolo Mongelli
  7. Towards European monetary integration - the evolution of currency risk premium as a measure for monetary convergence prior to the implementation of currency unions By Fernando González; Simo Launonen
  8. Exploring the international linkages of the euro area - a global VAR analysis By Stéphane Dées; Filippo di Mauro; M. Hashem Pesaran; L. Vanessa Smith
  9. Forecasting ECB monetary policy - accuracy is (still) a matter of geography By Helge Berger; Michael Ehrmann; Marcel Fratzscher
  10. Do ECB's Statements Steer Short-Term and Long-Term Interest Rates in the Euro Zone ? By Marie Musard-Gies
  11. CEE Banking Sector Co-Movement: Contagion or Interdependence? By Terhi Jokipii; Brian Lucey
  12. Turning-point indicators from business surveys: real-time detection for the euro area and its major member countries By Alberto Baffigi; Antonio Bassanetti
  13. On Prosperity and Posterity: The Need for Fiscal Discipline in a Monetary Union By Carsten Detken; Vítor Gaspar; Bernhard Winkler
  14. The timing of central bank communication By Michael Ehrmann; Marcel Fratzscher
  15. How the Eurosystem’s Treatment of Collateral in its Open Market Operations Weakens Fiscal Discipline in the Eurozone (and what to do about it) By Buiter, Willem H; Sibert, Anne
  16. Information variables for monetary policy in a small structural model of the euro area By Francesco Lippi; Stefano Neri
  17. The 'Sense and Nonsense of Maastricht' Revisited: What Have We Learnt About Stabilization In EMU? By Buiter, Willem H
  18. Risk Diversification by European Financial Conglomerates By Jan Frederik Slijkerman; Dirk Schoenmaker; Casper de Vries
  19. The Different Extent of Privatisation Proceeds in EU Countries: A Preliminary Explanation Using a Public Choice Approach By Ansgar Belke; Frank Baumgartner; Friedrich Schneider; Ralph Setzer
  20. Growth in euro area labour quality By Guido Schwerdt; Jarkko Turunen
  21. Labour force participation of the elderly in Europe : the importance of being healthy By Kalwij,Adriaan; Vermeulen,Frederic
  22. Party Groups and Policy Positions in the European Parliament By Gail McElroy; Ken Benoit
  23. Competition Policy and EU Governance By Annette Bongardt
  24. Migrating Workers and Jobs: A Challenge to the European Social Model? By Simon Commander; Axel Heitmueller; Laura Tyson
  25. Satisfaction with Democracy and the Environment in Western Europe: A Panel Analysis By Alexander F. Wagner; Friedrich Schneider
  26. On misusing National Accounts data for governance purposes By Jochen Hartwig
  27. Do gasoline prices converge in a unified Europe with non-harmonized tax rates? By Axel Dreher; Tim Krieger
  28. U.S. Antitrust and EU Competition Policy: Where has the Former Been, Where is the Latter Going? By Stephen Martin
  29. Heterogeneous Labor, Labor Market Frictions and Employment Effects of Technological Change. Theory and Empirical Evidence for the U.S. and Europe By Jens Rubart
  30. European External Assistance & Food Security: The End of the Line? By Colin Andrews
  31. Gender and private returns to education : a cross-European analysis By Concetta, Mendolicchio
  32. The Ten-Year Rule: Allocation of Emission Allowances in the EU Emission Trading System By Burtraw, Dallas; Kruger, Joseph; Zetterberg, Lars; Åhman, Markus
  33. Spatial Dispersion of Peering Clusters in the European Internet By Alessio D'Ignazio; Emanuele Giovannetti
  34. Civic Attitudes and the Design of Labor Market Institutions: Which Countries Can Implement the Danish Flexicurity Model? By Yann Algan; Pierre Cahuc
  35. Key institutional issues and possible scenarios for the review of the EC electronic communications framework By Larouche,P.; Visser,M. de
  36. EU Merger Remedies: A Preliminary Empirical Assessment By Tomaso Duso; Klaus Gugler; Burcin Yurtoglu
  37. Product Market Reforms and Employment in OECD Countries By Giuseppe Nicoletti; Stefano Scarpetta
  38. Evolution of trade patterns in the new EU member states By Jerome Henry; Pablo Hernandez de Cos; Sandro Momigliano
  39. Public Sector Efficiency: Evidence for New EU Member States and Emerging Markets By António Afonso; Ludger Schuknecht; Vito Tanzi
  40. New European Member States and the dependent elderly By Corinne Mette
  41. Product Market Competition and Economic Performance in France By Jens Høj; Michael Wise
  42. The Conglomerate Discount in Germany and the Relationship to Corporate Governance By Christian Weiner
  43. Parental Leave in Sweden: The Effects of the Second Daddy Month By Eriksson, Rickard
  44. The Distribution of Wealth in Sweden: Trends and Driving factors By Klevmarken, N. Anders
  45. Do capital gains affect consumption? Estimates of wealth effects from Italian households’ behavior By Luigi Guiso; Monica Paiella; Ignazio Visco
  46. Expenditure Patterns Post-Welfare Reform in the UK: Are Low-Income Families Starting to Catch Up? By Paul Gregg; Jane Waldfogel; Elizabeth Washbrook
  47. Ireland in EMU: more shocks, less insulation? By Patrick Honohan; Anthony Leddin
  48. Financial Globalization, Corporate Governance, and Eastern Europe By Rene M. Stulz
  49. How much of the Macroeconomic Variation in Eastern Europe is Attributable to External Shocks? By Bartosz Mackowiak
  50. The EU-Mercosur Association Process. An Analysis of Bilateral Trade By Alessia LO TURCO
  51. EU Agricultural Policy: What Developing Countries Need to Know By Alan Matthews; Jean-Christophe Bureau

  1. By: Carlos José Fonseca Marinheiro (Universidade de Coimbra and GEMF)
    Abstract: Ever since its inception EMU has been subject to controversy. The fiscal policy rules embedded in the Treaty on European Union, and clarified in the Stability and Growth Pact (SGP), are probably the most contentious. The SGP is being accused of being too rigid and of forcing pro-cyclicality in fiscal policy. We test the impact of the SGP rules on the cyclical properties of fiscal policy for a panel of 12 European countries. We conclude that contrary to what might have been expected the euro fiscal rules have reinforced the counter-cyclicality of fiscal policy. However, the results also show that the SGP is not being applied symmetrically over the cycle, leading to insufficient fiscal consolidation during economic upswings. This explains the recent difficulties of Portugal, Germany and France in complying with SGP requirements. Based on these conclusions we argue for the creation of independent national technical committees that would define an appropriate deficit target on an annual basis.
    Keywords: Fiscal policy, stabilisation, EMU, Stability and Growth Pact reform.
    JEL: E62 H62
    Date: 2005–12
  2. By: Christoffer Kok Sorensen (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.); Thomas Werner (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
    Abstract: The present paper investigates the pass-through between market interest rates and bank interest rates in the euro area. Compared to the large interest rate pass-through literature the paper mainly improves upon two points. First, a novel data set, partially based on new harmonised ECB bank interest rate statistics is used. Moreover, the market rates are selected in a way to match the maturities of bank and market rates using information provided by the new statistics. Secondly, new panel-econometric methods are applied to test for heterogeneity in the pass-through process. The paper shows a large heterogeneity in the pass-through of market rates to bank rates between euro area countries and finally possible explanations of the heterogeneity are discussed.
    Keywords: Interest rate pass-through; euro area countries; panel cointegration
    JEL: E43 G21
    Date: 2006–01
  3. By: Fabio Busetti (Bank of Italy, Research Department, Via Nazionale 91, 00184 Rome, Italy); Lorenzo Forni (Bank of Italy, Research Department, Via Nazionale 91, 00184 Rome, Italy); Andrew Harvey (University of Cambridge, Department of Applied Economics, Sidgwick Avenue, Cambridge CB3 9DE, United Kingdom); Fabrizio Venditti (Bank of Italy, Research Department, Via Nazionale 91, 00184 Rome, Italy)
    Abstract: We study the convergence properties of inflation rates among the countries of the European Monetary Union over the period 1980-2004. Given the Maastricht agreements and the adoption of the single currency, the sample can be naturally split into two parts, before and after the birth of the euro. We study convergence in the first sub-sample by means of univariate and multivariate unit root tests on inflation differentials, arguing that the power of the tests is considerably increased if the Dickey-Fuller regressions are run without an intercept term. Overall, we are able to accept the convergence hypothesis over the period 1980-1997. We then investigate whether the second sub-sample is characterized by stable inflation rates across the European countries. Using stationarity tests on inflation differentials, we find evidence of diverging behaviour. In particular, we can statistically detect two separate clusters, or convergence clubs: a lower inflation group that comprises Germany, France, Belgium, Austria, Finland and a higher inflation one with Spain, Netherlands, Greece, Portugal and Ireland. Italy appears to form a cluster of its own, standing in between the other two.
    Keywords: Absolute Convergence, Inflation Differentials, Stability, Unit Root Tests.
    JEL: C12 C22 C32 E31
    Date: 2006–01
  4. By: Philip Lane; Gian Maria Milesi-Ferretti
    Abstract: We provide a systematic analysis of bilateral, source and host factors driving portfolio equity investment by euro-area countries, using newly-released data on international equity holdings at the end of 2001. We find that bilateral equity holdings are strongly linked to bilateral trade in goods and services and are also associated with proxies for informational proximity. We further document that there exists a significant “euro-area bias”, with euro-area countries investing in other euro-area countries over and above the amount predicted by underlying fundamentals.
    Keywords: International portfolio equity investment, international trade; gravity.
    JEL: F21 F34
    Date: 2005–12–15
  5. By: Linda S. Goldberg; Michael W. Klein
    Abstract: The credibility of a central bank’s anti-inflation stance, a key determinant of its success, may reflect institutional structure or, more dynamically, the history of policy decisions. The first years of the European Central Bank (ECB) provide a natural experiment for considering whether, and how, central bank credibility evolves. In this paper, we present a model demonstrating how the high-frequency response of asset prices to news reflects market perceptions of the anti-inflation stance of a central bank. Empirical tests of this model on high frequency data, regressing both the change in the slope of the German yield curve and the change in the euro/dollar exchange rate on the surprise component of price news, suggest significant instability in the market’s perception of the policy stance of the ECB during its first five years of operation. Estimated smoothed paths of the coefficients linking news to asset prices show that these coefficients change with policies undertaken by the ECB. In contrast, there is no evidence of parameter instability for the response of the slope of the United States yield curve to price news during this period, suggesting no comparable evolution in the market perceptions of the commitment to inflation fighting by the Federal Reserve.
    Keywords: Central Banking, European Central Bank, Federal Reserve, inflation, exchange rate, credibility, yield curve
    JEL: F3 E5 E6
    Date: 2005–12–15
  6. By: Paul de Grauwe (Leuven University); Francesco Paolo Mongelli (European Central Bank)
    Abstract: This paper brings together several strands of the literature on the endogenous effects of monetary integration: i.e., whether sharing a single currency may set in motion forces bringing countries closer together. The start of the European Economic and Monetary Union (EMU) has spurred a new interest in this debate. There are four areas that we analyse in this context: the endogeneity of economic integration, in which we look primarily at evidence on prices and trade; the endogeneity of financial integration or equivalently insurance schemes that can be provided by capital markets; the endogeneity of symmetry of shocks and (similarly) at synchronisation of outputs; and the endogeneity of product and labour market flexibility. The paper presents a conceptual framework within which to illustrate such endogeneities. We present diverse arguments and, where possible, explore the incipient empirical literature focussing on the euro area. On the whole, concerning EMU, our preliminary conclusion is one of moderate optimism. The different endogeneities that exist in the dynamics towards optimum currency areas are at work. How strong these endogeneities are and how quickly they do their work remains to be seen.
    Keywords: Optimum Currency Area, Economic and Monetary Integration and EMU
    JEL: E42 F13 F33 F42
    Date: 2005–12
  7. By: Fernando González (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Simo Launonen (SEB Merchant Banking, Unioninkatu 30, P. O. Box 630, 00101 Helsinki, Finland)
    Abstract: We assess monetary convergence preceding the implementation of the EuropeanMonetary Union (EMU) through Kalman filtering estimates of the risk premium of eleven forward exchange rates of European and non-European currencies. Since all participating currencies are in effect identical from inception of a currency union, the convergence process to such an identical status should be reflected in the participating currencies' risk premiums prior to monetary union implementation. Starting from this assumption, we show the paths followed by the participating currencies towards monetary union. We find that the co-movements of risk premiums among the preceding European Monetary System (EMS) currencies differ across time periods but display a tendency to convergence to the German mark’s risk premium up to EMU implementation. The paper also shows a clear pattern of asymmetry of the participating currencies in relation to the German mark.
    Keywords: Currency unions, European Monetary Union, foreign exchange risk premium.
    JEL: F02 F31 F33 F36 G15 G18
    Date: 2005–12
  8. By: Stéphane Dées (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Filippo di Mauro (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); M. Hashem Pesaran (University of Cambridge, Faculty of Economics, Sidgwick Avenue, Cambridge, CB3 9DD, United Kingdom.); L. Vanessa Smith (University of Cambridge, Cambridge Endowment for Research in Finance, CB3 9DD Cambridge, United Kingdom)
    Abstract: This paper presents a quarterly global model linking individual country vector errorcorrecting models in which the domestic variables are related to the country-specific foreign variables. The global VAR (GVAR) model is estimated for 26 countries, the euro area being treated as a single economy, over the period 1979-2003. It advances research in this area in a number of directions. In particular, it provides a theoretical framework where the GVAR is derived as an approximation to a global unobserved common factor model. It develops a sieve bootstrap procedure for simulation of the GVAR as a whole to test the structural stability of the regression coefficients and error variances, and to establish confidence bounds for the impulse responses. Finally, in addition to generalized impulse responses, the paper also considers the use of the GVAR for "structural" impulse response analysis.
    Keywords: Global VAR (GVAR), Global interdependencies, global macroeconomic modeling, impulse responses.
    JEL: C32 E17 F47
    Date: 2005–12
  9. By: Helge Berger (Free University Berlin, Department of Economics, Boltzmannstr. 20, 12161 Berlin, Germany & CESifo.); Michael Ehrmann (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.); Marcel Fratzscher (European Central Bank,Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
    Abstract: Monetary policy in the euro area is conducted within a multi-country, multicultural, and multi-lingual context involving multiple central banking traditions. How does this heterogeneity affect the ability of economic agents to understand and to anticipate monetary policy by the ECB? Using a database of surveys of professional ECB policy forecasters in 24 countries, we find remarkable differences in forecast accuracy, and show that they are partly related to geography and clustering around informational hubs, as well as to country-specific economic conditions and traditions of independent central banking in the past. In large part this heterogeneity can be traced to differences in forecasting models. While some systematic differences between analysts have been transitional and are indicative of learning, others are more persistent.
    Keywords: monetary policy; ECB; forecast; geography; history; heterogeneity; Taylor rule; learning; transmission; survey data; communication.
    JEL: E52 E58 G14
    Date: 2006–01
  10. By: Marie Musard-Gies (LEO - Laboratoire d'économie d'Orleans - - CNRS : FRE2783 - Université d'Orléans)
    Abstract: In this paper, we aim at testing whether press conferences held after the meeting of the ECB's monetary policy council steer market short- and long-term interest rates in the euro zone. To meet this goal, we "codify" the statements according to whether they are neutral, hawkish, or dovish. We show, using a principal components analysis of euro-zone (short- and long-term) interest rates that the euro-zone's market rates, react significantly to the bias in statements, and more particularly to changes in statements from one meeting to the next. If we study separately the reaction of short- and long-term interest rates to change in statements, the short end of the yield curve reacts more sharply to statements than the long segment. We show that the effect of statements peaks on interest rates with a maturity of six or twelve months and is smaller for the longer maturities. Using non-parametric tests confirms our previous results.
    Keywords: Communication ; Transparency ; Monetary Policy ; European Central Bank.
    Date: 2006–01–06
  11. By: Terhi Jokipii; Brian Lucey
    Abstract: This paper examines banking and financial sector return co-movements between the three largest Central and Eastern European countries to have recently joined the European Union, namely the Czech Republic, Hungary and Poland. In order to build up an understanding of the soundness and stability of the banking systems of these new member states, we try to determine whether it is contagion, or interdependence that is driving the co-movements between these markets. Employing various different tests of propagation and controlling for own-country news and other fundamentals, we find evidence of cross-border banking sector contagion and determine that it is regional rather than international shocks that are driving the market movements.
    Keywords: Contagion, Macroeconomic news, Banking sector, Stock returns
    Date: 2005–12–15
  12. By: Alberto Baffigi (Banca d'Italia); Antonio Bassanetti (Banca d'Italia)
    Abstract: We present tools for real-time detection of turning points in the industrial production growth-cycle of the euro area and its four largest economies. In particular, we apply a multivariate hidden Markov model to national survey results – i.e. to the earliest information about current economic developments - in order to estimate the probability of expansionary and recessionary phases. The balances of opinions used as inputs of the model are selected by ranking them according to their degree of commonality with respect to the cyclical fluctuations of the industrial sector, as estimated with the Generalized Dynamic Factor Model. The indicators appear reliable and stable.
    Keywords: business cycle, hidden Markov model, business surveys
    JEL: E32 E37
    Date: 2004–06
  13. By: Carsten Detken (European Central Bank); Vítor Gaspar (European Central Bank); Bernhard Winkler (European Central Bank)
    Abstract: We show how in a Blanchard-Yaari, overlapping generations framework, perfect substitutability of government bonds in Monetary Union tempts governments to exploit the enlarged common pool of savings. In Nash equilibrium all governments increase their bond financed transfers to current generations (prosperity effect) at the expense of future generations (posterity effect). The resulting deficit bias occurs even if one assumes that before Monetary Union countries had eliminated their deficit bias by designing appropriate domestic institutions. The paper provides a rationale for an increased focus on fiscal discipline in Monetary Union, without the need to assume imperfect credibility of existing Treaty provisions or to refer to extreme situations involving sovereign default. We draw on existing empirical evidence to argue that the degree of government bond substitutability within the European Monetary Union is an order of magnitude larger than in the global economy.
    Keywords: fiscal spillover effects, common pool, overlapping generations, bond market integration, fiscal discipline, fiscal rules, European Monetary Union
    JEL: D62 E61 E63
    Date: 2005–12
  14. By: Michael Ehrmann (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Marcel Fratzscher (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany)
    Abstract: This paper explores whether there are systematic patterns as to when members of the decision-making committees of the Federal Reserve, the Bank of England and the European Central Bank communicate with the public, and under what circumstances such communication has the ability to move financial markets. The findings suggest that communication is generally seen as a tool to prepare markets for upcoming decisions, as it becomes more intense before committee meetings, and particularly so prior to interest rate changes. At the same time, markets react more strongly to communication prior to policy changes. Other instances where communication becomes more intense, or where financial markets become more responsive are also identified; even though these are more specific to the individual central banks, they are consistent with differences in the central banks’ monetary policy strategies and communication policies.
    Keywords: Communication; central bank; monetary policy; timing.
    JEL: E43 E52 E58 G12
    Date: 2005–12
  15. By: Buiter, Willem H; Sibert, Anne
    Abstract: Market interest rates on sovereign debt issued by the 12 Eurozone national governments differ very little from each other, despite the credit ratings of these governments ranging from triple A to single A, and despite significant differences among their objective indicators of fiscal-financial sustainability. We argue that this market failure is at least in part due to a policy failure: the operational practices of the European Central Bank and the rest of the Eurosystem in its collateralised open market operations convey the message that the Eurosystem views the debt of the 12 Eurozone sovereigns as equivalent. The euro-denominated debt instruments of all twelve Eurozone governments are deemed to be eligible for use as collateral in collateralised lending by the Eurosystem. They are in addition allocated to the same (highest) liquidity category (Tier One, Category 1) as the debt instruments of the Eurosystem itself and subject to the lowest 'valuation haircut' (discount on the market value). Haircuts also increase with the remaining time to maturity. This discourages the use as collateral of longer maturity debt which would be more likely to reveal differences in sovereign default risk. We propose that the size of the haircut on each debt instrument be related inversely to its credit rating. A further re-enforcement of the market’s ability to penalise and constrain unsustainable budgetary policies would be to declare the sovereign debt of nations that violate the conditions of the Stability and Growth Pact to be ineligible as collateral in Eurosystem Repos.
    Keywords: collateralised loans; Eurosystem; sovereign default risk
    JEL: E58 E63 G12
    Date: 2005–12
  16. By: Francesco Lippi (Banca d'Italia); Stefano Neri (Banca d'Italia)
    Abstract: This paper estimates a small New-Keynesian model with imperfect information and optimal discretionary policy using data for the euro area. The model is used to assess the usefulness of monetary aggregates and unit labour costs as information variables for monetary policy. The estimates reveal that the information content of the M3 monetary aggregate is limited. A more useful role emerges for the unit labour cost indicator, which contains information on potential output that helps to reduce the volatility of the output gap. Finally, the estimated weights for the objectives of monetary policy show that considerable importance is attributed to interest-rate smoothing, greater than to output gap stabilization. This finding indicates that the welfare gains of commitment may be smaller than suggested by typical parametrizations of New-Keynesian models.
    Keywords: monetary policy, Kalman filter, inflation, output gap
    JEL: E5
    Date: 2004–07
  17. By: Buiter, Willem H
    Abstract: This paper revisits the paper 'Excessive deficits: sense and nonsense in the Treaty of Maastricht', co-authored with Giancarlo Corsetti and Nouriel Roubini and published during 2003 in Economic Policy. The first section of the paper addresses the problem that the exchange rate and inflation criteria for EMU membership contained in the Treaty of Maastricht may well prevent two or more of the new EU members that now participate in ERM2 from becoming full EMU members as soon as they have spent the required two years in the ERM purgatory. This despite the fact that there are no fundamental economic obstacles to their successful participation in monetary union. I propose that, if an inflation convergence condition for EMU membership is deemed necessary, it be formulated in terms of the maximum permitted excess of a candidate country's inflation rate of traded goods prices over the average rate of price inflation of traded goods prices in the Eurozone. Revisiting the Excessive Deficit Procedure turns out to be attending a wake. The reforms of the Pact adopted in March 2005 effectively killed it. I argue that the death of this Pact is not a tragedy. While individual nation states are well-advised to adopt intelligent rules for their public debt and deficits to ensure fiscal-financial sustainability of the state and to enhance macroeconomic stability, the case for the supranational imposition, monitoring and enforcement of public debt and deficit rules is weak, except in one respect - one not addressed by the Pact. Effective demand spillovers in a world with nominal price and wage rigidities can lead to first-order welfare losses. The Pact, in its old or its new incarnation, does not address these issues as it prescribes or proscribes behaviour one country at a time, without reference to economic policy actions and other economic developments in the rest of the EMU or EU. The Pact is not designed to ensure coordinated fiscal policy in the E(M)U, let alone coordinated monetary and fiscal policy in the E(M)U. There is nothing in it that ensures that the E(M)U-wide fiscal stance and fiscal-monetary mix is appropriate given economic developments in the rest of the world and given the monetary-fiscal policy mix in the other key national and regional economies. From the perspective of the Principle of Subsidiarity, the Pact was therefore subject to both a Type 1 and a Type 2 error. It addressed (albeit ineffectively) matters of national fiscal sustainability and national macroeconomic stabilisation that ought to have been handled at the national level. It failed to address the appropriate Europe-wide fiscal stance and monetary-fiscal policy mix for which a supranational approach might have been desirable.
    Keywords: excessive deficit procedure; fiscal sustainability; macroeonomic stabilization; Stability and Growth Pact
    JEL: E52 E63 F33 F41 F42
    Date: 2005–12
  18. By: Jan Frederik Slijkerman (Faculty of Economics, Erasmus Universiteit Rotterdam); Dirk Schoenmaker (Vrije Universiteit Amsterdam, and Ministry of Finance, The Hague); Casper de Vries (Faculty of Economics, Erasmus Universiteit Rotterdam)
    Abstract: We study the dependence between the downside risk of European banks and insurers. Since the downside risk of banks and insurers differs, an interesting question from a supervisory point of view is the risk reduction that derives from diversification within large banks and financial conglomerates. We discuss the limited value of the normal distribution based correlation concept, and propose an alternative measure which better captures the downside dependence given the fat tail property of the risk distribution. This measure is estimated and indicates better diversification benefits for conglomerates versus large banks.
    Keywords: Financial conglomerates; Banking; Insurance; Diversification; Extreme Value Theory
    JEL: G21 G22 G28 C49
  19. By: Ansgar Belke; Frank Baumgartner; Friedrich Schneider; Ralph Setzer
    Abstract: This paper empirically investigates the differences in the motives of raising privatisation proceeds for a panel of EU countries from 1990 to 2000. More specifically, we test whether privatisations can be mainly interpreted (a) as ingredients of a larger reform package of economic liberalisation in formerly overregulated economies, (b) as a reaction to an increasing macroeconomic problem pressure and (c) as a means to foster growth and increase tax income and relax the fiscal stance with an eye on the demands by integration of economic and financial markets. Whereas we are able to corroborate claim (a) only partly, we gain consistent evidence in favour of claims (b) and (c).
    Keywords: European Union; panel analysis; partisan theory; privatisation proceeds; state-owned enterprises
    JEL: H42 E62 L33
    Date: 2006–01
  20. By: Guido Schwerdt (European University Institute, Department of Economics, Villa San Paolo, Via della Piazzuola 43, 50133 Florence, Italy); Jarkko Turunen (European Central Bank, DG-Economics, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
    Abstract: Composition of the euro area workforce evolves over time and in response to changing labour market conditions. We construct an estimate of growth in euro area labour quality over the period 1983-2004 and show that labour quality has grown on average by 0.6% year-on-year over this time period. Labour quality growth was significantly higher in the early 1990s than in the 1980s. This strong increase was driven by an increase in the share of those with tertiary education and workers in prime age. Growth in labour quality moderated again towards the end of the 1990’s, possibly reflecting the impact of robust employment growth resulting in the entry of workers with lower human capital. Labour quality growth has on average accounted for nearly one third of euro area labour productivity growth. The results point to a significant decline in the contribution of total factor productivity to euro area growth.
    Keywords: Human capital, labour quality, total factor productivity, growth accounting.
    JEL: E24 J24 O47
    Date: 2006–01
  21. By: Kalwij,Adriaan; Vermeulen,Frederic (Tilburg University, Center for Economic Research)
    Abstract: In this paper we study labour force participation behaviour of individuals aged 50-64 in 11 European countries. The data are drawn from the new Survey of Health, Ageing and Retirement in Europe (SHARE). The empirical analysis shows that health is multi-dimensional, in the sense that different health indicators have their own significant impact on individuals' participation decisions. Health effects differ markedly between countries. A counterfactual exercise shows that improved health conditions may yield over 10 percentage points higher participation rates for men in countries like Austria, Germany and Spain, and for females in the Netherlands and Sweden. Moreover, we show that the declining health condition with age accounts considerably for the decline in participation rates with age.
    Keywords: SHARE;labour force participation;health;retirement
    JEL: I10 J22 J26
    Date: 2005
  22. By: Gail McElroy; Ken Benoit
    Abstract: As the legislative body of the European Union, the European Parliament groups 732 elected representatives from over 170 national political parties from 25 member states. At the EP level, these members are affiliated with seven major party groups representing distinct policy positions. In this paper we provide precise estimates of these policy positions based on expert surveys in addition to characterizing the dimensionality of policy competition in the EP. Our results suggest not only that party groups have identifiable and differentiated positions on multiple issues of policy, but also that these positions group broadly into two orthogonal dimensions: one consisting of classic left-right social and economic issues, and the other related to the powers and scope of EU institutions.
    Keywords: Party Competition, Policy Positions, European Parliament, Expert Surveys.
    Date: 2005–12–15
  23. By: Annette Bongardt (DEGEI, Universidade de Aveiro)
    Abstract: This paper focuses on competition policy in the European Union from an economic, micro-governance point of view. It analyses recent developments in economic governance in the field of the common competition policy, which had for a long time been the exclusive competence of the European Commission (Community method), notably the nature and governance implications of recent developments associated with single market integration, the 5th EU enlargement, and the workload backlog of the Commission. The common competition policy has been subject to various changes against the background of increasing market integration and the expansion of the single market (for instance, the European merger regulation and the liberalisation of network industries, regulated at the national level), most recently by the new institutional framework (EC regulation 1/2003 by the EU Council) which entered into force on the day of the EU’s fifth enlargement on 1 May 2004 and which implies the direct and parallel application of EU anti-trust laws by national competition authorities (NCA).These developments in terms of the economic governance of competition policy render it important to analyse the competences of NCAs with respect to the European Commission but also in regard to each other and to sectoral national regulators. The paper concludes that although the single market and competition policy had looked profoundly Europeanised in the Community sphere, single market integration has not led to parallel centralisation at the Community level but to decentralisation and that challenges as to legal uncertainty and consistency of application remain to be resolved.
    Keywords: EU Competition Policy, European Union, Economic Governance, Regulation, European Union, Portugal
    JEL: L41 L42 L97 L98
    Date: 2005–12
  24. By: Simon Commander (London Business School and IZA Bonn); Axel Heitmueller (London Business School and IZA Bonn); Laura Tyson (London Business School)
    Abstract: This paper proceeds from two key assumptions. The first is that European countries are likely to face increased immigration of individuals. The second is that the emigration of jobs from Europe to other regions of the world through offshoring is also likely to increase. It has been widely argued that both factors are contributing to growing insecurity among European workers. This paper has two goals: first, to put the wider discussion of job displacement and wage changes resulting from immigration and offshoring on a firmer empirical foundation; and second, to explore changes in the European social model that will allow the European economies to adjust to the challenges and respond to the opportunities resulting from increased global competition from emerging market economies. Both immigration and offshoring confront European policy makers with trade-offs between efficiency and equity. These tradeoffs can be eased by active labour market and education policies to enhance the flexibility and skills of European workers so that they enjoy the productivity advantages necessary to support high wages and compete in the global economy. Such policies must combine an appropriate balance of incentives, obligations and benefits that focus on the overall employability of workers rather than on the number of jobs in a particular company or sector. A key challenge in designing such policies is how to combine generous income support for jobseekers while at the same time strengthening their incentives to find and accept available jobs.
    Keywords: offshoring, migration, social model, displacement
    JEL: J3 J6 H2 L0
    Date: 2006–01
  25. By: Alexander F. Wagner (Swiss Banking Institute, University of Zurich and University of Linz); Friedrich Schneider (University of Linz and IZA Bonn)
    Abstract: We construct a panel of satisfaction with democracy (SWD) and economic, institutional, and environmental variables for 1990-2001 for fifteen European countries. In this sample, controlling for a number of factors, we find that average SWD is higher where (1) there exists an energy / CO2 tax, where (2) government expenditures on the environment are higher, where (3) certain environmental regulations like packaging rules are in place, and (4) where the government puts in place environmental offices or other official bodies charged with addressing environmental concerns. We also find that, on the environmental quality side, (5) more cars on the roads, (6) less unleaded fuel, and (7) higher pesticide use intensity all decrease SWD.
    Keywords: satisfaction with democracy, environment
    JEL: K32 P16 Q21 Q28
    Date: 2006–01
  26. By: Jochen Hartwig (Swiss Institute for Business Cycle Research (KOF), Swiss Federal Institute of Technology Zurich (ETH))
    Abstract: According to KENDRICK (1996, p. 1), National Accounts have become “an indispensable tool for macroeconomic analysis, projections, and policy formulation”. The paper elaborates on this statement, addressing policy domains that rely heavily on National Accounts data. Yet – useful as they are – National Accounts can also be misused in the context of governance. The most common misapplication of National Accounts relates to the field of international comparisons. For instance, according to National Accounts data, the U.S. have outperformed all other high-income economies over the course of the 90s and up through the new millennium. In many European countries, public debate centres on the question how to devise ‘structural reforms’ in order to make the set-up of the respective economy more similar to that of the United States. Arguably, the main impact of National Accounts on governance can be found here. Still, there are large differences in the ways National Accounts calculations are carried out even among European countries, let alone between Europe and the U.S. The paper discusses several such differences, showing that the divergence in growth rates between the U.S. and the EU since 1997 can be explained almost entirely in terms of differing statistical methods.
    Keywords: National Accounts, governance, inflation and growth comparisons, deflation methods, statistical artefacts
    JEL: C43 C82 E31 O47 O57
    Date: 2005–03
  27. By: Axel Dreher (Swiss Institute for Business Cycle Research (KOF), Swiss Federal Institute of Technology Zurich (ETH)); Tim Krieger (Nordakademie, University of Applied Sciences Elmshorn,)
    Abstract: The paper presents univariate and panel unit root tests for gasoline and oil price convergence over the last decade. We test for the absolute versus relative version of the law of one price (LOOP) and estimate the speed of convergence as well as its development over time. Our results show that the absolute version of the LOOP cannot be supported. Constant price differences between countries remain, caused mainly by existing tax differences. The relative version of the LOOP is strongly supported by the data. The speed of convergence increased over time, but differs for gross and net-of-tax prices. We can show that national tax policy by EU member states is not (yet) threatened by arbitrage due to cross-border shopping.
    Keywords: price convergence, law of one price, gasoline, international taxation, European integration, panel unit roots
    JEL: H7 F15 Q48 C2
    Date: 2005–12
  28. By: Stephen Martin (Department of Economics, Krannert School of Management, Purdue University)
    Abstract: The earliest U.S. antitrust laws were adopted after technological changes — most importantly, the development of a national railway network — made the U.S. political union a single economic market. They were adopted with the stated, and no doubt largely sincere, purposes of preventing collusion and strategic entry-deterring behavior. Early application of the antitrust laws relied on a rule of competition to determine whether business conduct was or was not permitted. This has evolved into an explicit evaluation of the impact of businesses practices on consumer welfare, conceived of and measured in an economic sense. EU competition policy was adopted in advance of economic integration. It differed sharply from the traditional policies of the original EC6 member states toward business behavior. It was adopted with the stated, and most likely sincere, purpose of furthering economic integration, and to this end prohibited practices that were seen as distorting competition. Early applications of competition policy, particularly in the European Coal and Steel Community, may have had perverse effects. There are indications of an evolution towards an economic performance standard in the European Union as well.
    Keywords: US antitrust policy, EU competition policy, European Union, Economic governance, regulation
    JEL: L40 L41 L42 L51 L97 L98
    Date: 2005–12
  29. By: Jens Rubart (Institut für Volkswirtschaftslehre (Department of Economics), Technische Universität Darmstadt (Darmstadt University of Technology))
    Abstract: During the last two decades the so called IT revolution has led to a diverse pattern of growth and employment in OECD countries. In particular, anglo-saxon economies like the U.S. or the U.K. exhibited high rates of economic performance and low unemployment rates, whereas continental European countries showed low economic growth and high unemployment rates. Based on the findings of Lindquist (2004) that the relative demand for workers of different skills (measured by the variation of educational wage differences) varies significantly over the business cycle, we develop a dynamic general equilibrium model which accounts for skill biased technology shocks as well as for the employment record of labor which is divided into different categories of skills. Furthermore, the labor market is characterized by search and matching frictions which allows us to analyze different kinds of institutional settings which determine the negotiated wage rates as well as the demand for labor of the respective skill group. In particular, the latter assumption enables us to control for stylized facts of continental European labor markets. By confronting our theoretical results to empirical evidences it is shown that labor market frictions are necessary to reproduce empirical findings as the lagged response of output, wages and employment after unanticipated shocks to technology.
    Keywords: DGE Model, Heterogenous Labor, Skill Biased Technological Change, Search Unemployment
    JEL: E32 J21 J23 J24 J31 J41
    Date: 2006–01
  30. By: Colin Andrews
    Abstract: In 2007 the European Commission will introduce an ambitious reform of its external assistance structure. Under the new framework the current legal instruments and budget lines supporting food security interventions will be dissolved, with actions to be continued in the form of a “Thematic Programme”, complemented by new geographic and humanitarian instruments. An early prognosis suggests that the scope for EC food security support under these instruments and following the dissolution of the ‘ Food Security Budget line ' is uncertain. Recent official communications from the Commission to the European Parliament and Council afford low visibility to food security despite an expressed commitment to “poorer countries, difficult partnerships and fragile and failed states” The likely implications of ongoing discussions regarding a new European Development Policy Statement (2005) and forthcoming structures for external action under the Financial Perspectives (2007-2013) are also less than clear. Drawing from an analysis of these issues the paper identifies three policy challenges facing the European food security agenda in the future. These include: (i) Maintaining the value added of EC food security support (ii) Responding to countries in transition and crisis (iii) Ensuring policy coherence.
    Keywords: Note:
    Date: 2005–12–15
  31. By: Concetta, Mendolicchio (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)
    Abstract: The paper compares private returns to education of men and women for fourteen E.U. countries. Building on de la Fuente (2003), I define the rate of return as the discount rate equalizing marginal costs and benefits of education. I extend his model by estimating separately the values of the relevant parmeters for men and women and introducing variables specifically related to maternity leaves and benefits. The main result is that, given the profiles of earning of a man and a woman studying the average numbers of years in each country and working full-time up the end of their active lifes, women’s rates of return are higher for most countries
    Date: 2005–12–12
  32. By: Burtraw, Dallas (Resources For the Future); Kruger, Joseph; Zetterberg, Lars; Åhman, Markus
    Abstract: In its guidance on National Allocation Plans (NAPs), the European Commission has discouraged Member States from adopting allocation methodologies that would provide incentives to firms affecting their compliance behavior. The purpose is to promote economic efficiency and to prevent strategic behavior that deviates from individual and collective cost-minimization. For example, some methodologies would reward one type of compliance investment over another. To discourage such actions, the EU Emission Trading System guidelines prohibit ex post redistribution of emission allowances within an allocation period based on behavior in that period. Similarly, the Commission has indicated that decisions about the initial distribution of allowances in the second phase (2008-2012) must depend on measures prior to 2005 so as not to give companies an incentive to adjust their behavior to receive a larger allowance allocation. However, two other aspects of the NAPs—the treatment of closures and new entrants—may also affect firm behavior. An undercurrent in these guidelines is the question of whether Member States should allow incumbent emitters to hold infinitely lived, once-and-for-all property rights to a share of the emission allowances in the future. This paper develops an approach for balancing efficiency considerations with perceived issues of fairness. We propose a ten-year rule to guide policy regarding closure of existing sources and the status of new sources and to guide the initial distribution of emission allowances in general. A ten-year rule would address issues of fairness and capture an important part of the potential gains that could be achieved through an efficient initial distribution of allowances.
    Keywords: emission trading, allowance allocations, closures, new entrants, tradable permits, air pollution, cost-effectiveness, greenhouse gases, climate change, global warming, carbon dioxide
    JEL: Q2 Q25 Q4 L94
  33. By: Alessio D'Ignazio; Emanuele Giovannetti
    Abstract: We study the role played by geographical distance in the peering decisions between Internet Service Providers. Firstly, we assess whether or not the Internet industry shows clustering in peering; we then concentrate on the dynamics of the agglomeration process by studying the effects of bilateral distance in changing the morphology of existing peering patterns. Our results show a dominance of random spatial patterns in peering agreements. The sign of the effect of distance on the peering decision, driving the agglomeration/dispersion process, depends, however, on the initial level of clustering. We show that clustered patterns will disperse in the long run.
    Keywords: Internet, Peering, clustering, agglomeration, Networks, IXP
    JEL: C21 C25 D85 L86 R12 Z13
    Date: 2006–01
  34. By: Yann Algan (Université Marne la Vallée, CEPREMAP, OEP and IZA Bonn); Pierre Cahuc (Université Paris 1, CREST-INSEE, CEPR and IZA Bonn)
    Abstract: We argue that the efficiency of the Danish flexicurity Model, which combines high unemployment benefits with low job protection and high participation rate, relies on strong public-spiritedness. We also argue that Continental and Mediterranean European countries are unlikely to be able to implement the Danish Model because the lack of public-spiritedness of their citizens raises moral hazard issues which hinder the implementation of efficient public unemployment insurance.
    Keywords: job protection, unemployment benefits, civic attitudes
    JEL: J23 J65 J68
    Date: 2006–01
  35. By: Larouche,P.; Visser,M. de (TILEC (Tilburg Law and Economics Center))
    Date: 2005
  36. By: Tomaso Duso (Social Science Research Center Berlin (WZB), Reichpietschufer 50, D10785 Berlin, Germany. Tel: +49 30 25491 403, Fax: +49 30 25491 444.; Klaus Gugler (University of Vienna.; Burcin Yurtoglu (University of Vienna.
    Abstract: Mergers that substantially lessen competition are challenged by antitrust authorities. Instead of blocking anticompetitive transitions straight away, authorities might choose to negotiate with the merging parties and allow the transactions to proceed with modifications that restore or preserve the competition in the involved markets. We study a sample of 167 mergers that were under the European Commission’s scrutiny from 1990 to 2002. We use an event study methodology to identify the potential anticompetitive effects of mergers as well as the remedial provisions on these transactions. Stock market reactions around the day of the merger’s announcement provide information on the first question, whereas the stock market reactions around the commission’s final decision day convey information about the outcome of the bargaining process between the authority and the merging parties. We first classify mergers according to their effects on competition and then we develop hypotheses on the effects that remedies are supposed to achieve depending on the merger’s competitive outcome. We isolate several stylized facts. First, we find that remedies were not always appropriately imposed. Second, the market seems to be able to predict remedies’ effectiveness when applied in phase I. Third, the market also seems able to produce a good prior to phase II’s clearances and prohibitions, but not to remedies. This can be due either to a measurement problem or related to the increased merging firms’ bargaining power during the second phase of the merger review.
    Keywords: Merger Control, Remedies, European Commission, Event Studies
    JEL: L4 K21 C12 C13
    Date: 2006–01
  37. By: Giuseppe Nicoletti; Stefano Scarpetta
    Abstract: We estimate the employment effects of product market reforms aimed at increasing competitive pressures and easing government controls in a sample of OECD countries over the past two decades. We control for several labour market policies and institutions that are thought to influence equilibrium employment rates, and check whether there are interactions between these policies and product market reforms. We find cross-country evidence that some labour and product market policies may be complementary and adjust for this in regressions. Consistent with the implications of the imperfect competition/bargaining model of Blanchard and Giavazzi (2003), our estimates suggest that restrictive regulations have curbed employment rates significantly in countries where no product market reforms were implemented. These effects appear to have been magnified by the interaction of such regulations with labour market settings that provide a strong bargaining power to insiders, suggesting that rent sharing tends to depress employment. The implication is that significant employment gains can be obtained by deregulating product markets in overly regulated countries. Moreover, these employment gains are likely to be higher in countries that have rigid labour markets. <P>Effets sur l'emploi des réformes des marchés des biens et services dans les pays de l'OCDE Nous estimons l'impact sur l'emploi de réformes des marchés des biens et services augmentant la pression concurrentielle et allégeant le poids des règlementations, sur la base d’un échantillon de pays de l’OCDE et au cours des vingt dernières années. Les variables de contrôle incluent différents instruments de politique de l’emploi susceptibles de modifier le niveau des taux de chômage d’équilibre ou d’interagir avec les réformes du marché des biens. En effet, certaines politiques de l’emploi paraissent complémentaires de réformes sur le marché des biens. Les résultats obtenus sont cohérents avec le modèle de négociation et compétition imparfaite de Blanchard et Giavazzi (2003). Ils suggèrent que des règlementations restrictives se seraient traduites par des effets défavorables importants sur l’emploi dans les pays où aucune réforme significative sur le marché des biens n’a été mise en oeuvre. Ces effets défavorables auraient été renforcés par des institutions conférant un fort pouvoir de négociation aux insiders, accréditant l’idée selon laquelle la constitution de rente de situation sur le marché du travail pèse sur l’emploi. En termes de politique économique, cet article suggère que des gains significatifs quant au niveau de l’emploi peuvent être attendus d’une dérèglementation des marchés des biens dans les pays exagérément restrictifs dans ce domaine. Ces gains seraient d’autant plus élevés que les rigidités sur le marché du travail sont importantes.
    Keywords: product market regulation, labour market policies, employment performance, policy complementarity, complémentarité des politiques économiques, réglementation des marchés des biens et services, politique de l'emploi, fonctionnement du marché du travail
    JEL: J38 K20 L43
    Date: 2005–12–16
  38. By: Jerome Henry (European Central Bank); Pablo Hernandez de Cos (Banco de Espana); Sandro Momigliano (Banca d'Italia)
    Abstract: This paper reviews the existing empirical evidence on the short-term impact on prices of fiscal variables and assesses it against new results from harmonised simulations, conducted with six well-established econometric models used by the ECB and five national central banks (NCBs) of the Eurosystem. The outcome is also compared with results from the European Commission and the OECD models. Overall, a broad consensus appears on the impact on prices of changes in individual government budget items in the euro area. In all cases, changes in government demand and in direct taxes paid by households have a limited impact on prices in the first year while, in contrast, changes in indirect taxes and employers’ social security contributions have a relatively large impact. The second year results show that the effects on prices usually take some time to materialise fully; in particular, they often become large for the public consumption shock.
    Keywords: Euro area, model simulations, fiscal policy, prices
    JEL: E17 E31 E62
    Date: 2004–10
  39. By: António Afonso; Ludger Schuknecht; Vito Tanzi
    Abstract: In this paper we analyse public sector efficiency in the new member states of the European Union compared to that in emerging markets. After a conceptual discussion of expenditure efficiency measurement issues, we compute efficiency scores and rankings by applying a range of measurement techniques. The study finds that expenditure efficiency across new EU member states is rather diverse especially as compared to the group of top performing emerging markets in Asia. Econometric analysis shows that higher income, civil service competence and education levels as well as the security of property rights seem to facilitate the prevention of inefficiencies in the public sector.
    Keywords: government expenditure; efficiency; DEA; new EU member states; emerging markets.
    JEL: C14 H40 H50
  40. By: Corinne Mette
    Abstract: The ten new Member States who joined the European Union in May 2004 have increased the population of EU-15 by 20% and they together account for almost 16.4% of the total EU-25 population. The current ageing of the population of EU-15 has highlighted other challenges besides the well-known problems of financing pension and health systems. It has also highlighted the risk of dependency. Given the emergence of this new risk, one may wonder about the situation of the aforementioned new members. The present study shows that they do not appear to face the problem of elderly dependency on the same scale as the countries of EU-15, although in the coming decades it is likely they will have to contend with it to a much greater degree. The study also indicates that provision for dependent elderly care in the ten countries does not seem to be fully established as yet. However, Malta and Slovenia, countries which will have a considerable proportion of oldest people among their populations in the near future, are distinguishable from the others in that they appear better prepared in terms of dependent elderly care. Although Poland is considered to be far from prosperous as regards economic and social development, in terms of ageing –particularly provision for the dependent elderly- it appears better placed than most of the other new Member States, who appear to be less generous as regards assistance provided to the dependent elderly. The three Baltic states are distinguishable from the others in that the share of GDP allocated to this category is lowest, even though they are expected to have the oldest population in the coming decades.
  41. By: Jens Høj; Michael Wise
    Abstract: Over the past decade, French economic growth has been insufficient to bring down high and persistent unemployment. Available cross-country evidence suggests that enhancing competition is an important means to improve economic performance. France is catching up with best practice in competition policy reform. However, other policy considerations often hamper the emergence of effective competition. Relatively weak competitive pressures remain in a number of sectors, particularly in sheltered service industries. Restrictions on competition reduce productivity growth and hinder job creation in regulated sectors. Policy must focus on giving more weight to overall consumer welfare in the face of opposition from relatively small but vocal special interest groups. This paper discusses reforms that would increase competition by: i) strengthening institutions and better clarifying their responsibilities with respect to competition enforcement; ii) reinforcing the ability of sector regulators to improve non discriminatory third party access and other aspects of competition in the network industries; iii) abolishing overly prescriptive regulation in the retail sector; and iv) removing unnecessary protection in some professional services. This Working Paper relates to the 2005 OECD Economic Survey of France (
    Keywords: network industries, France, regulatory reforms, competition law, productivity and growth, retail sector, product market competition
    JEL: K21 L11 L16 L33 L43 L81 L9
    Date: 2006–01–04
  42. By: Christian Weiner
    Abstract: This paper documents the conglomerate discount for all available German firms and the DAX 30 firms in detail. It shows a moderate discount of about 0.06 based on German comparable firms and of about 0.20 for a combined sample of German and European peer groups. I further examine the relationship between the discount and industry concentration as well as uncertainty of valuation. Finally, I document that corporate governance behavior affects the conglomerate discount.
    Keywords: conglomerate discount, corporate governance
    JEL: G31 G32 G34
    Date: 2005–12
  43. By: Eriksson, Rickard (Swedish Institute for Social Research, Stockholm University)
    Abstract: In 2002 the number of months reserved for fathers in the Swedish parental leave system increased from one to two. This coincided with an increase of total time of parental leave from 12 to 13 months. The results are obtained using a natural experiment approach, comparing the behavior of parents to children born immediately before and after the reform. Both fathers and mothers increased their use of parental leave after the reform. The increase for fathers was caused by a shift of fathers using about one month of parental leave to about two months. The increase was smaller than after the introduction of the first daddy month. From this we can conclude that fixed costs for taking parental leave are not important for fathers and that the marginal utility of parental leave is not increasing in total parental leave.
    Keywords: Family benefits; parental leave; natural experiment; gender and labor markets
    JEL: J13 J16 J22 J48
    Date: 2005–12–22
  44. By: Klevmarken, N. Anders (Department of Economics)
    Abstract: Reviewing trends in the Swedish distribution of wealth it is demonstrated that the baby-boom cohorts have become relatively wealthy, both in terms of private wealth and in claims on the pension system. Results from a simulation model suggest that the elderly in the future will no longer belong to the relatively poor. They will though become relatively vulnerable to swings in the financial markets because a large share of their wealth is in the form of financial assets.This paper also argues that private life-cycle savings have been relatively weak in Sweden, while most of these kind of savings have been done through the public and collective pension systems. We see, however, indications of increasing life-cycle savings.
    Keywords: Distribution of wealth; portfolio composition; notional pension wealth; baby-boom cohorts; liabilities; financial assets
    JEL: D31
    Date: 2006–01–19
  45. By: Luigi Guiso (Università degli Studi di Sassari); Monica Paiella (Bank of Italy); Ignazio Visco (Bank of Italy)
    Abstract: We use detailed data on housing prices in Italy available for a large number of years and with a fine geographical breakdown to compute capital gains and losses on the most widespread asset among consumers, housing, and inquire whether changes in housing values affect consumption. We find that consumer expenditures do react to capital gains, with a marginal propensity to consume out of real value changes of housing wealth of about 0.02. Reactions are different across types of consumers: while homeowners increase consumption when house prices increase, with a marginal propensity of about 0.035, the renters’ response to the higher house cost tends to be that of increased savings. For the owners of listed stocks the response to capital gains is difficult to estimate with statistical precision, even if, for the limited sample of owners of these assets, its negative sign may be indicative of prevailing substitution over income effects.
    Keywords: wealth effects, consumption, housing, stock ownership
    JEL: D12 E21 E44
    Date: 2005–06
  46. By: Paul Gregg; Jane Waldfogel; Elizabeth Washbrook
    Abstract: In this paper we provide evidence on how the UK government’s welfare reforms since 1998 have affected the material well-being of children in low-income families. We examine changes in expenditure patterns and ownership of durable goods for low- and higher-income families between the pre-reform period (1995-1998) and the post-reform period (2000-2003), using data from the Family Expenditure Survey. The methodological approach is a difference-in-difference-in-difference analysis that exploits the fact that age variation in the reforms favoured low-income families over higher-income ones and families with children age under 11 over those with older children. We find that low-income families with children are catching up to more affluent families, in their expenditures and their possession of durable goods. Moreover, expenditures on child-related items are increasing faster than expenditures on other items.
    Keywords: child poverty; family expenditures; welfare reform; difference-in-difference
    JEL: I3 J18
    Date: 2005–05
  47. By: Patrick Honohan; Anthony Leddin
    Abstract: Despite anchoring the Irish monetary system to a common zone-wide exchange rate and interest rate, EMU has triggered sizable exchange rate and especially interest rate shocks to the Irish economy (albeit not appreciably greater than those experienced under previous exchange rate regimes). Interest rate movements have deviated widely from what a standard Taylor monetary policy rule would have counseled – though here again the deviations have been no worse in this regard than those of the previous regime. The most important shock has been associated with the large and sustained initial fall in nominal interest rates as EMU began. Through mechanisms which we formally model, the interest rate fall has had a lasting effect on property prices, construction activity and on the capacity of the labour market to absorb sizable net immigration, despite a sharp deterioration in wage competitiveness since 2002. As the long drawn-out impact of this shock subsides, the failure of the wage-bargaining system promptly to claw back the loss of competitiveness resulting from exogenous exchange rate movements is increasingly likely to show up in weaker aggregate employment performance.
    Date: 2005–12–15
  48. By: Rene M. Stulz
    Abstract: For many countries, the most significant barriers to trade in financial assets have been knocked down. Yet, the financial world is not flat because poor governance prevents firms from being widely held and from taking full advantage of financial globalization. Poor governance has implications for corporate finance as well as for macroeconomics. I show that poor governance in Eastern Europe is accompanied, as expected, by high corporate ownership concentration, low firm valuation, poor financial development, and low foreign participation.
    JEL: G11 G15 G32 F30
    Date: 2006–01
  49. By: Bartosz Mackowiak
    Abstract: We decompose by origin the sources of the variation in real aggregate output and aggregate price level in the Czech Republic, Hungary and Poland. We find that a sizable fraction of the variation is attributable to external shocks, especially so for aggregate price level. We show that euroarea interest rate shocks can account for a significant fraction of the external spillover effects. We conclude that theoretical models of advanced transition economies and policy rules for these economies should feature a prominent role for external shocks.
    Keywords: Vector autoregression, Granger causal priority, transition economies, external shocks
    JEL: F41 E3 O11 P2
    Date: 2005–10
  50. By: Alessia LO TURCO (Universita' Politecnica delle Marche, Dipartimento di Economia)
    Abstract: This study presents the evolution and actual situation of EU-MERCOSUR association process. The focus here is on trade relations according to the different technology intensities of the exchanged goods. The analysis results are used to evaluate the strength and weaknesses of the first inter-continental integrated area and to gain some preliminary insights on MERCOSUR growth prospects within the agreement frame.;The final section, moreover, shows some future avenues for research.
    Date: 2005–01
  51. By: Alan Matthews; Jean-Christophe Bureau
    Abstract: This paper provides a consolidated, up-to-date overview of the changes to the CAP and the factors making for further reform from the particular perspective of decision-makers in developing countries. It discusses the principles and mechanisms by which EU farmers are supported under the CAP, and the way in which these mechanisms have been changing since the first major reform of the CAP was adopted in 1992. The main pressures for further reform of the CAP are identified, emphasising the political economy of further reform to provide some sense to developing country policy-makers of how these pressures for reform might play out in the future. Taking a horizontal approach, the impact of reform on developing countries of the three main policy instruments – domestic support, border protection and export subsidies – are then discussed, followed by a focus on a few commodities of particular interest to developing countries. The conclusion develops a checklist of factors which developing country policymakers can use to help track the evolution of the debate on CAP reform and its impact on developing countries.
    Keywords: Common Agricultural Policy, Agricultural trade, WTO, developing countries.
    JEL: F13 Q17 Q18
    Date: 2005–12–15

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