nep-eec New Economics Papers
on European Economics
Issue of 2006‒04‒01
twelve papers chosen by
Giuseppe Marotta
Universita di Modena e Reggio Emilia

  1. Mergers and Acquisitions in Europe By Martynova,Marina; Renneboog,Luc
  2. On the efficiency-legitimacy trade-off in EMU By Francisco Torres
  3. Benchmarking Electricity Liberalisation in Europe’Benchmarking Electricity Liberalisation in Europe By Richard Green; Arturo Lorenzoni; Yannick Perez; Michael Pollitt
  4. Precondition for a successful implementation of supervisors' Primpt Corrective Action: Is there a case for a banking standard in the EU? By Larry Wall; Maria Nieto
  5. Does inflation targeting anchor long-run inflation expectations? evidence from long-term bond yields in the U.S., U.K., and Sweden By Refet S. Gürkaynak; Andrew T. Levin; Eric T. Swanson
  6. The Characteristics of Business Cycles in Selected European Emerging Market Economies By Fabrizio Carmignani
  7. Public Policy and the Transition to Private Pension Provision in the United States and Europe By Onorato Castellino; Elsa Fornero
  8. Growth in the ‘Cohesion Countries’: the Irish tortoise and the Portuguese hare, 1979-2002 By Pedro Lains
  9. Experts' earning forecasts: bias, herding and gossamer information By Olivier Guedj; Jean-Philippe Bouchaud
  10. Exchange-rate pass-through in the G-7 countries By Jane E. Ihrig; Mario Marazzi; Alexander D. Rothenberg
  11. Some Aspects of Recent Trade Developments in South-East Europe By Vitalija Gaucaite-Wittich
  12. FDI inflows to the Transition Economies in Eastern Europe: Magnitude and Determinants By Johnson, Andreas

  1. By: Martynova,Marina; Renneboog,Luc (TILEC (Tilburg Law and Economics Center))
    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
  2. By: Francisco Torres (Universidade de Aveiro)
    Abstract: This paper addresses the question whether the process of European monetary integration implies efficiency-legitimacy trade-off. The paper considers that the process of monetary policy delegation to the European Central Bank (ECB), ratified by all European Union (EU) parliaments, was a non-zero-sum game, increasing both the efficiency and the legitimacy of monetary policy in the eurozone. There was however a change in the nature of delegation: the initial principal (EU national governments and/or parliaments) delegated to the agent (the ECB) control over its behaviour in regard to monetary policy. The paper distinguishes two types of constraints for monetary policy: credibility constraints and political constraints. The change in the nature of delegation of monetary policy (tying the hands of the principal) was a means of dealing with credibility constraints. The paper goes on investigating whether, and if so to what extent, the European Parliament (EP) is fit to function as a principal of the ECB as a means of dealing with political constraints. Thus, the paper analyses the European Parliament’s increased involvement in overseeing the Central Bank’s activities, aiming at understanding whether and how that new and special role (an informal institution of dialogue) could affect the trade-off between efficiency and legitimacy in the conduct of monetary policy in the eurozone.
    Keywords: Economic and Monetary Union; monetary policy delegation: efficiency and legitimacy; accountability; responsiveness; principal-agent relations; governance
    JEL: E58 E61 E65
    Date: 2006–03
  3. By: Richard Green; Arturo Lorenzoni; Yannick Perez; Michael Pollitt
    Abstract: In this paper, we discuss the choice and use of benchmarks in each of five areas relevant to an assessment of the progress of EU electricity sector liberalisation. These areas are market design, market power, EU enlargement, regulation, and sustainability. Our aim is to discuss the most important benchmarks for each area, and to do so in the context of that area. Where a benchmark can be used as a signal that things are going well (or badly) we will discuss the values associated with a good (or bad) signal. This paper forms part of the final report of the EU funded Sustainable Energy Specific Support Assessment project (SESSA, see
    Keywords: electricity reform, market design, market power, regulation,EU enlargement, environmental sustainability
    JEL: L11 L50 L94
    Date: 2006–03
  4. By: Larry Wall; Maria Nieto
    Abstract: Over the past years, several countries around the world have adopted a system of prudential prompt corrective action (PCA). the European Union countries are being encouraged to adopt PCA by policy analysts who explicitly call for its adoption. To date, most of the discussion on PCA has focussed on its overall merits. This paper focuses on the preconditions needed for the adoption of an effective PCA. These precondtions include conceptual elements such as a prudential supervisory focus on minimizing deposit insurance losses and mandating supervisory action as capital declines. These preconditions also include institutional aspects such as greater supervisory independence and authority, more effective resolution mechanisms and better methods of meauring capital.
    Date: 2006–03
  5. By: Refet S. Gürkaynak; Andrew T. Levin; Eric T. Swanson
    Abstract: We investigate the extent to which inflation targeting helps anchor long-run inflation expectations by comparing the behavior of daily bond yield data in the United Kingdom and Sweden--both inflation targeters--to that in the United States, a non-inflation-targeter. Using the difference between far-ahead forward rates on nominal and inflation-indexed bonds as a measure of compensation for expected inflation and inflation risk at long horizons, we examine how much, if at all, far-ahead forward inflation compensation moves in response to macroeconomic data releases and monetary policy announcements. In the U.S., we find that forward inflation compensation exhibits highly significant responses to economic news. In the U.K., we find a level of sensitivity similar to that in the U.S. prior to the Bank of England gaining independence in 1997, but a striking absence of such sensitivity since the central bank became independent. In Sweden, we find that forward inflation compensation has been insensitive to economic news over the whole period for which we have data. Our findings support the view that a well-known and credible inflation target helps to anchor the private sector's perceptions of the distribution of long-run inflation outcomes.
    Keywords: Inflation (Finance) ; Prices ; Monetary policy
    Date: 2006
  6. By: Fabrizio Carmignani (United Nations Economic Commission for Europe)
    Abstract: This paper analyses the business cycles of selected European emerging market economies (EME) in terms of their statistical properties and degree of synchronization with the euro area, and discusses the associated policy implications. The evidence suggests that in these economies cyclical fluctuations are wider and more frequent than in the euro area, that there is moderate consumption smoothing, and that technological shocks and labour hoarding are driving labour-market dynamics. The macroeconomic policy stance is not significantly countercyclical. Furthermore, the degree of synchronization of domestic business cycles with the business cycle of the euro area is weak in all the EME except Hungary and Poland.
    Keywords: business cycles, European macroeconomics, emerging market economies
    JEL: E32 E60 P24
    Date: 2005–12
  7. By: Onorato Castellino (University of Turin and Center for Research on Pensions and Welfare Policies, Turin); Elsa Fornero (University of Turin and Center for Research on Pensions and Welfare Policies, Turin)
    Abstract: PAYG and funding may and do coexist in social security systems. The proportions of this coexistence, however, are quite variable from country to country. The paper examines the US and a number of European countries, looking at both the present state and the foreseeable trends in future decades. The impact of a mixed system is analysed under the relevant viewpoints, with special reference to the adequacy and sustainability of the overall structure and to the distribution of risk.
    Date: 2006–03
  8. By: Pedro Lains (Instituto de Ciências Sociais, Universidade de Lisboa)
    Abstract: The deepening of economic and financial integration in the European Union has led to different responses from the group of ‘cohesion’ countries. Ireland and Portugal stand out as the two extreme examples, as Ireland caught-up to the forerunners very rapidly after the launching of EMU, in 1992, whereas Portugal lost ground. This paper looks at structural shifts in order to explain the different performances of the two economies. We conclude that Portugal’s labour productivity lag was the outcome of a less favourable structure of employment; that differences in the structure of employment are not clustered in specific industries; and that such structural differences are associated with different factor endowments, namely physical and human capital.
    Keywords: Economic growth; structural change; European integration; Ireland; Portugal.
    JEL: F15 F43 N14 O4 O52
    Date: 2006–03
  9. By: Olivier Guedj (Capital Fund Management); Jean-Philippe Bouchaud (Science & Finance, Capital Fund Management; CEA Saclay;)
    Abstract: We study the statistics of earning forecasts of US, EU, UK and JP stocks during the period 1987-2004. We confirm, on this large data set, that financial analysts are on average over-optimistic and show a pronounced herding behavior. These effects are time dependent, and were particularly strong in the early nineties and during the Internet bubble. We furthermore find that their forecast ability is, in relative terms, quite poor and comparable in quality, a year ahead, to the simplest `no change' forecast. As a result of herding, analysts agree with each other five to ten times more than with the actual result. We have shown that significant differences exist between US stocks and EU stocks, that may partly be explained as a company size effect. Interestingly, herding effects appear to be stronger in the US than in the Eurozone. Finally, we study the correlation of errors across stocks and show that significant sectorization occurs, some sectors being easier to predict than others. These results add to the list of arguments suggesting that the tenets of Efficient Market Theory are untenable.
    JEL: G10
    Date: 2004–10
  10. By: Jane E. Ihrig; Mario Marazzi; Alexander D. Rothenberg
    Abstract: This paper examines the current thinking on exchange-rate pass-through to both import prices and consumer prices and estimates the extent to which they have fallen in the G-7 countries since the late 1970s and 1980s. For import-price pass-through we find that all countries experience a numerical decline in the responsiveness of import prices to exchange-rate movements; for nearly half of these countries the decline between 1975-1989 and 1990-2004 is statistically significant. We estimate that while a 10 percent depreciation in the local currency would have increased import prices by nearly 7 percent on average across these countries in the late 1970s and 1980s, it would have only increased import prices by 4 percent in the last 15 years. The responsiveness of consumer prices to exchange-rate movements declines for nearly every country, with the decline being statistically significant for two countries. Specifically, while a 10 percent depreciation in the local currency would have increased consumer prices by almost 2 percent on average in the late 1970s and 1980s, it would have had a neutral effect on consumer prices in the last 15 years.
    Keywords: Foreign exchange rates ; Pricing ; Group of Seven countries
    Date: 2006
  11. By: Vitalija Gaucaite-Wittich (United Nations Economic Commission for Europe)
    Abstract: This paper aims to provide some insight into the changing potential of trade for the south-east European countries, including Turkey. The study presents a comprehensive analysis of changes in south-east European trade flows over the past ten years (1995-2004) and investigates the region’s factor endowments. It also draws attention to policy measures aimed at addressing challenges in the increasingly competitive global economy. On most of these issues the study draws a comparison with the pre-accession experience of the new EU member countries from eastern Europe (EU-8). The study stresses the importance of openness to trade for the economic development of the region and the need to work together within cooperative arrangements.
    Keywords: South-east Europe, Western Balkans,international trade, factor intensity, revealed comparative advantage
    JEL: F15 P27 P52
    Date: 2005–12
  12. By: Johnson, Andreas (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper shows that there are large differences in the volume of FDI that individual European transition economies have attracted and tries to find determinants that can explain this distribution of FDI, using panel data. This paper makes a distinction between ‘traditional’ determinants based on the motive for FDI and ‘transition-specific’ determinants. The empirical analysis contributes to earlier research by separating the transition economies into two groups, CEE and CIS countries. The CEE group consists of countries with a much higher GDP per capita than the CIS group, and this is reflected in the observation that the FDI flows to the CEE are primarily driven by a market-seeking motive while resource-seeking investment can explain the distribution of FDI among the CIS economies. This paper also concludes that transition performance and the choice of primary privatisation method are important in explaining FDI inflows to the transition economies. The analysis only finds weak evidence for efficiency-seeking FDI into the region.
    Keywords: foreign direct investment; Eastern Europe; transition; privatisation
    JEL: F21 F23 P21
    Date: 2006–03–29

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