nep-eec New Economics Papers
on European Economics
Issue of 2006‒02‒26
eighteen papers chosen by
Giuseppe Marotta
Universita di Modena e Reggio Emilia

  1. Monetary Policy in the Euro-Area: An Analysis Using a Stylized New-Keynesian Model By Garretsen H.; Moons C.; van Aarle B.
  2. Mergers and acquisitions in Europe By Martynova,Martina; Renneboog,Luc
  3. Does one size fit all? A Taylor-rule based analysis of monetary policy for current and future EMU members By Moons C.; Van Poeck A.
  4. Household Incomes and Redistribution in the European Union: Quantifying the Equalising Properties of Taxes and Benefits By Immervoll, Herwig; Levy, Horacio; Lietz, Christine; Mantovani, Daniela; O'Donoghue, Cathal; Sutherland, Holly; Verbist, Gerlinde
  5. Technological activity in the european regions By Barbara Dettori; Raffaele Paci; Stefano Usai
  6. Using the Dynamic Bi-Factor Model with Markov Switching to Predict the Cyclical Turns in the Large European Economies By Konstantin A. Kholodilin
  7. The trade-induced effects of the Services Directive and the country of origin principle By Roland de Bruijn; Henk Kox; Arjan Lejour
  8. A Strategic Model of European Gas Supply (GASMOD) By Franziska Holz; Christian von Hirschhausen; Claudia Kemfert
  9. On the relative stickiness of wages and prices in Western Europe and the United States: A structural VAR approach By Ferraz L.P.D.C.; Plasmans J.; Van Poeck A.
  10. Compensation of regional unemployment in housing markets By Wouter Vermeulen; Jos van Ommeren
  11. Alternative Tax-Benefit Strategies to Support Children in the European Union. Recent Reforms in Austria, Spain and the UK By Levy, Horacio; Lietz, Christine; Sutherland, Holly
  12. Exchange rate regimes and exchange market pressure in the new EU member countries By Van Poeck A.; Vanneste J.; Veiner M.
  13. Earnings Management and Audit Quality in Europe: Evidence from the Private Client Segment Market By Van Tendeloo Brenda; Vanstraelen A.
  14. Apply with Caution : Introducing UK-Style In-work Support in Germany By Peter Haan; Michal Myck
  15. Strengthening Innovation in the Netherlands: Making Better Use of Knowledge Creation in Innovation Activities By David Carey; Ekkehard Ernst; Rebecca Oyomopito; Jelte Theisens
  16. Informed Capital in a Hostile Environment : The Case of Relational Investors in Germany By Dorothea Schäfer ; Dirk Schilder
  17. Assessing the Wellbeing of the Spanish Elderly By Michele Boldrin; Sergi Jiménez-Martín
  18. Price Linkages between Stock, Bond and Housing Markets - Evidence from Finnish Data By Elias Oikarinen

  1. By: Garretsen H.; Moons C.; van Aarle B.
    Abstract: This paper analyses monetary policy in the Euro-Area using a stylized new-Keynesian model. A number of issues are focused upon: (i) optimal monetary policy under commitment and discretion, (ii) a comparison of optimal monetary policies and ad-hoc monetary policies, (iii) the effects of fiscal policies and foreign variables on monetary policy in the model. Using numerical simulations, it is analyzed how these aspects affect monetary policy of the ECB in particular and macro economic fluctuations in the Euro-Area in general.
    Date: 2005–12
  2. By: Martynova,Martina; Renneboog,Luc (Tilburg University, Center for Economic Research)
    Abstract: This paper provides a comprehensive overview of the European takeover market. We characterize the main features of the domestic and cross-border corporate takeovers involving European companies in the period 1993-2001. We provide detailed and comparable information on the size and dynamics of takeover activity in 28 Continental European countries, the UK and Ireland. The data is supplemented with the characteristics of takeover transactions, including the type of takeovers (negotiated acquisition or tender offer), bid attitude (friendly or hostile), payment method (all-cash, all-equity, or mixed deals), legal status of the target firm (public or private), takeover strategy (focus or diversification), amongst other factors. In addition, we investigate the shortterm wealth effects of 2,419 European mergers and acquisitions. We find announcement effects of 9% for target firms compared to a statistically significant announcement effect of only 0.5% for the bidders. Including the price run-up, the share price reaction amounts to 21% for the targets and 0.9% for the bidders. We show that the estimated shareholder wealth effect strongly depends on the different attributes of the takeovers. The type of takeover bid has a large impact on the short-term wealth effects for the target firm shareholders with hostile takeovers triggering substantially larger price reactions than friendly transactions. When a UK target is involved, the abnormal returns are higher than those of bids involving a Continental European target. There is strong evidence that the means of payment has a large impact on the share prices of both bidder and target.
    Keywords: takeovers;mergers and acquisitions;diversification;takeover waves;means of payment
    JEL: G34
    Date: 2006
  3. By: Moons C.; Van Poeck A.
    Abstract: This paper uses the Taylor rule to examine the appropriateness of ECB interest rate policy for the initial EMU members and the ten new EMU member states some of whom are expected to join the Eurozone in 2006-7. Specifically it addresses three questions. (1) Are there differences between the interest rate aggregated from the Taylor interest rates of individual member states in the euro area and the interest rate set by the ECB? (2) For which countries do the desired interest rates according to the original Taylor rule and the interest rate of the euro area differ most and in which respect? (3) The last question is whether the interest rate gaps change over time. We find that the ECB’s policy does not fit individual EMU members equally well and this result is unlikely to be changed with the addition of the ten new members, which will have only a marginal effect on the ECB interest rate stance.
    Date: 2005–10
  4. By: Immervoll, Herwig (University of Cambridge, OECD, European Centre for Social Welfare Policy and Research, Vienna and IZA, Bonn); Levy, Horacio (University of Essex); Lietz, Christine (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria); Mantovani, Daniela (University of Cambridge and Prometeia, Bologna); O'Donoghue, Cathal (National University of Ireland, Galway, IZA, Bonn and CHILD); Sutherland, Holly (University of Essex and DIW Berlin); Verbist, Gerlinde (University of Antwerp)
    Abstract: The systems of direct taxes and cash benefits in the Member States of the European Union vary considerably in size and structure. We explore their direct impacts on cross-sectional income inequality (termed "redistributive effect" for the purpose of this paper) using EUROMOD, a tax-benefit microsimulation model for the European Union. This relies on harmonised household micro-data representative of each national population together with simulations of entitlements to cash benefits and liabilities for taxes and social contributions. It allows us to draw a more comprehensive – and comparable – picture of the combined effects of transfers and taxes than is usually possible. We decompose the redistributive effect of taxbenefit systems to assess and compare the effectiveness of individual policies at reducing income disparities. We derive results for the 15 "old" members of the European Union and present them for each country separately as well as for the EU-15 as a whole.
    Keywords: Income inequality, Redistribution, Microsimulation, European Union
    JEL: C81 D31 H22 H55
    Date: 2006–02
  5. By: Barbara Dettori; Raffaele Paci; Stefano Usai
    Abstract: This paper investigates technological activity in the European regions. The analysis is based on a statistical databank set up by CRENoS on regional patenting at the European Patent Office spanning from 1978 to 2001 and classified by ISIC sectors at the 2 digit level. We consider 175 regions of 17 countries in Europe, the 15 members of the European Union plus Switzerland and Norway. An analysis of the spatial distribution of innovation activities in Europe is performed. Some global and local indicators for spatial association are presented, signaling the presence of a general dependence process in the distribution of the phenomena under examination. The analysis is implemented for different manufacturing sectors to assess for the presence of significant differences in the their spatial features. Moreover, the extent and strength of spatial externalities are evaluated for some subperiods spanning from the early eighties to the late nineties.
    Date: 2005
  6. By: Konstantin A. Kholodilin
  7. By: Roland de Bruijn; Henk Kox; Arjan Lejour
    Abstract: The proposed Services Directive by the European Commission could increase intra European trade in commercial services by 30 to 60 percent. This paper analyses the welfare effects of the trade growth using an applied general equilibrium model WorldScan. It shows that GDP could be raised by 0.3 to 0.7 percent and consumption by 0.5 to 1.2 percent in the European Union as a whole. These results could only be realised if the Services Directive is implemented including the country of origin principle. If this principle is excluded from the directive, trade increases only by 20 to 40 percent. The trade-induced welfare effects are correspondingly lower. GDP could rise by 0.2 to 0.4 percent and consumption by 0.3 to 0.7 percent in the EU as a whole. The country-specific effects vary: most of the new Member States will experience larger gains than the average Member State because their services trade is now still hampered by relatively large regulatory barriers in these countries.
    Keywords: Services Directive; trade; internal market EU; country of origin principle
    JEL: F12 F15 L51 L8
    Date: 2006–02
  8. By: Franziska Holz; Christian von Hirschhausen; Claudia Kemfert
  9. By: Ferraz L.P.D.C.; Plasmans J.; Van Poeck A.
    Date: 2005–08
  10. By: Wouter Vermeulen; Jos van Ommeren
    Abstract: Why are regional unemployment differentials in Europe so persistent if, as the wage curve literature demonstrates, there is no compensation in labour markets? We hypothesise that workers in high-unemployment regions are compensated in housing markets. Modelling regional unemployment differentials as a consequence of centralised wage bargaining, we show that clearing of land markets may undo the incentive for workers to migrate to low-unemployment regions in general equilibrium. The compensating differentials hypothesis is tested on city-level data for several countries. Controlling for variation in income and amenities, housing is found to be about 3 percent less expensive on average in cities where unemployment is 10 percent up. An analysis of housing demand survey data, which takes account of housing heterogeneity, yields a similar negative relationship. The magnitude of the income effect generated by this compensating differential is consistent with a -0.10 wage curve elasticity. Workers in regions with high unemployment and low per capita income are therefore not necessarily worse off, and regional support programs should take this into account.
    Keywords: regional unemployment; housing markets; wage curve; compensating differentials; hedonic models; regional policy
    JEL: R23 R13 J64
    Date: 2006–02
  11. By: Levy, Horacio (University of Essex); Lietz, Christine (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria); Sutherland, Holly (University of Essex and DIW Berlin)
    Abstract: We compare three EU countries that have recently experienced substantial but very different reforms of their family support systems: Austria, Spain and the UK. The structure of these systems is different: Austria emphases universal benefits, Spain tax concessions and the UK means-tested benefits. First the paper compares the distributional implications of these three approaches. The recent reforms have reinforced existing structures while increasing the amount of spending for children. The second step is to ask: What would have happened if these countries had transformed the architecture of their systems in either of the other two directions? We use EUROMOD, the European tax-benefit microsimulation model that is designed for making cross-country comparisons and answering “what if” questions such as these. We find that the three factors that can be distinguished – the level of spending, its structure, and the way it impacts in a national context – are all important to varying degrees.
    Keywords: Children, European Union, Policy Reform, Microsimulation
    JEL: C8 I3
    Date: 2006–02
  12. By: Van Poeck A.; Vanneste J.; Veiner M.
    Date: 2005–06
  13. By: Van Tendeloo Brenda; Vanstraelen A.
    Abstract: This paper examines audit quality in private firms across different European countries. Prior research (e.g. Becker et al., 1998; Francis et al., 1999) has shown that audit quality provides a constraint on earnings management for public firms. We investigate whether audit quality differentiation also holds in private firms, constituting the majority of the EU economy and the EU market for audit services. This is an empirical question given that opposing arguments for (and against) the existence of a Big 4 audit quality difference between public and private firms can be given. Moreover, we question whether this audit quality difference, if any, is influenced by institutional factors. Using data on private firms of six European countries, this study provides evidence that, after controlling for self-selection, audit quality differentiation between Big 4 and non-Big 4 audit firms also exists in the private client segment market. However, we do not find support for an audit quality difference between second-tier and small audit firms. Consistent with prior research, we find that private companies domiciled in countries with a stronger investor protection engage less in earnings management. In addition, our results suggest that audit quality and investor protection are substitutes in constraining earnings management in private firms, in the sense that the Big 4 audit quality effect attenuates when investor protection is stronger.
    Date: 2005–05
  14. By: Peter Haan; Michal Myck
  15. By: David Carey; Ekkehard Ernst; Rebecca Oyomopito; Jelte Theisens
    Abstract: Strengthening the innovation system in the Netherlands is a priority for raising productivity growth, which has been relatively weak in recent years. Knowledge creation in the Netherlands is strong -- scientific publications per capita are the sixth highest in the OECD -- but innovation activity is only around the average for OECD countries according to the EIS Summary Innovation Index. The main weaknesses are in business R&D intensity, the share of the population with tertiary education, and in commercially applying new knowledge. This paper discusses reforms being implemented to overcome these weaknesses and suggests directions for building on such reforms. Co-operation between public research organisations and innovating firms is being strengthened, support for innovation is being rationalised and measures are being taken to increase both the current and prospective supply of scientists and engineers with a view to making the Netherlands a more attractive location for R&D investments. To increase the tertiary attainment rate, the authorities are considering introducing shorter tertiary courses and are experimenting with greater competition among tertiary education suppliers for public funds. To strengthen performance in commercial application of new knowledge, barriers to entrepreneurship are being reduced but more should be done to strengthen incentives for entrepreneurship. This Working Paper relates to the 2005 OECD Economic Survey of the Netherlands ( <P>Renforcer l’innovation aux Pays-Bas Il est essentiel de renforcer le système d’innovation aux Pays-Bas pour y relancer la croissance de la productivité, qui est relativement faible depuis quelques années. La création de connaissances est dynamique aux Pays-Bas -- qui se classe au sixième rang des pays de l’OCDE en termes de publications scientifiques par habitant -- mais les activités d’innovation se situent simplement aux alentours de la moyenne de la zone OCDE, d’après l’indice de synthèse de l’innovation (ISI) du tableau de bord européen de l’innovation (TBEI). Les principaux points faibles résident dans l’intensité de recherche-développement (R-D) des entreprises, la proportion de la population diplômée de l’enseignement supérieur, et l’exploitation commerciale des nouvelles connaissances. Ce document examine les réformes mises en ?uvre actuellement dans le but de remédier à ces faiblesses, et propose des orientations en vue d’aller plus loin. Pour l’heure, la coopération entre les organismes de recherche publics et les entreprises innovantes est renforcée, le système de soutien à l’innovation est rationalisé, et des mesures sont prises pour accroître l’offre, tant actuelle que future, de scientifiques et d’ingénieurs en vue de faire des Pays-Bas un site plus attractif pour les investissements de R-D. Afin de relever le taux de diplômés de l’enseignement supérieur, les autorités envisagent de mettre en place des formations supérieures plus courtes et ont décidé, à titre expérimental, de faire davantage jouer la concurrence entre les fournisseurs de services d’enseignement supérieur pour l’attribution des fonds publics. Afin d’améliorer les résultats obtenus en matière d’exploitation commerciale des nouvelles connaissances, les pouvoirs publics s’emploient à réduire les obstacles à l’entrepreneuriat, mais il faudrait aller plus loin pour stimuler l’esprit d’entreprise. Ce document de travail complète l’Étude économique consacrée aux Pays-Bas par l’OCDE en 2005 (
    Keywords: réforme de la réglementation, regulatory reforms, innovation, innovation, Netherlands, Pays-Bas, product market competition, concurrence sur les marchés de produits, factor analysis, analyse factorielle, tertiary education, intellectual property rights, droit de propriété intellectuelle, patents, scientists and engineers, public research organisations, brevets, scientifiques et ingénieurs, entry barriers, enseignement supérieur, migration de travailleurs qualifiés, EIS, TBEI, R-D, R-D, skilled migration, tertiary attainment, taux de diplômés de l'enseignement supérieur, organisme de recherche public, barrières à l'entrée
    JEL: I2 O31 O33 O34 O38 O39 O52
    Date: 2006–02–10
  16. By: Dorothea Schäfer ; Dirk Schilder
  17. By: Michele Boldrin; Sergi Jiménez-Martín
    Abstract: In this paper we use a variety of data sources, both micro and macro, time series, cross section, and panel data to provide an empirical evaluation of the current level of economic wellbeing of the Spanish elderly, and of its determinants. We focus, in particular on the role played by the pension system and its generosity in terms of minimum pension supplements and non-contributive pensions. In an IV context, we find that actual Social Security benefits contribute substantially to explain income and consumption poverty levels and trends of low income and consumption percentiles. Thus we offer support to previous evidence for Spain emphasizing the role of minimum benefit policies.
    Keywords: Welfare State, Social Security, Retirement, Income Inequality, Poverty
    JEL: I3 H5 J14 J26
    Date: 2006–02
  18. By: Elias Oikarinen
    Abstract: There are a number of reasons to assume that significant interdependences exist between the financial asset markets and the housing market. Identifying the linkages between stock, bond and housing markets may improve return forecasts in different asset markets. Interdependence and predictability of different asset prices is of importance concerning portfolio diversification and allocation, especially from long-term investors’ point of view. Furthermore, linkages between asset classes are likely to have significant policy implications. The purpose of this paper is to study the long- and short-term dynamic interdependences between stock, bond and housing markets using time series econometrics and utilizing a quarterly dataset from Finland over 1970-2005. In addition to short-term dynamics, there also appears to be long-run interrelations between the asset prices according to cointegration analysis. There is clearly a structural break in the long-run relationship between stock and housing prices in the early 1990s. Interaction between the markets seems to have diminished after the break. In line with the theory and previous research, it is found that stock appreciation Granger caused housing price changes prior to 1993. Since 1993, in turn, stock appreciation seems to have Granger caused housing only through a cointegrating long-run relation. Co-movement of bond price changes with stock and housing appreciation is found to be weak, although bond prices belong to a long-run relation including also stock and housing prices.
    Keywords: asset prices, housing, co-movement, cointegration
    JEL: G10 G11
    Date: 2006–02–17

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