nep-eec New Economics Papers
on European Economics
Issue of 2006‒04‒08
23 papers chosen by
Giuseppe Marotta
Universita di Modena e Reggio Emilia

  1. Inflation Expectations and Inflation Uncertainty in the Eurozone: Evidence from Survey Data By Ivo J. M. Arnold; Jan J.G. Lemmen
  2. Labor productivity in Europe: Evidence from a sample of regions By Lionel Artige; Rosella Nicolini
  3. The Real Effects of EMU By Lane, Philip R.
  4. Job Flow Dynamics and Firing Restrictions: Evidence from Europe By Julián Messina; Giovanna Vallanti
  5. Price Stability, Inflation Convergence and Diversity in EMU: Does One Size Fit All? By Axel A. Weber; Günter W. Beck
  6. Does Money Matter in the ECB Strategy? New Evidence Based on ECB Communication By Helge Berger; Jakob de Haan; Jan-Egbert Sturm
  7. Living Arrangements in Western Europe: Does Cultural Origin Matter? By Paola Giuliano
  8. Satisfaction with Democracy and the Environment in Western Europe – a Panel Analysis By Alexander F. Wagner; Friedrich Schneider
  9. Inflation Rate Dispersion and Convergence in Monetary and Economic Unions: Lessons for the ECB By Günter W. Beck; Axel A. Weber
  10. Optimal Central Bank Design: Benchmarks for the ECB By Helge Berger
  11. Implementing greenhouse gas trading in Europe: lessons from economic literature and international experiences By Catherine Boeamare; Philippe Quirion
  12. Why Do Europeans Smoke More than Americans? By David M. Cutler; Edward L. Glaeser
  13. Do Prices grow more in Euroland? Evidence from the Airline Industry By Claudio A. Piga; Enrico Bachis
  14. Efficient Abatement in Separated Carbon Markets: A Theoretical and Quantitative Analysis of the EU Emissions Trading Scheme By Sonja Peterson
  15. The Bologna Process: How Student Mobility Affects Multi-Cultural Skills and Educational Quality By Lydia Mechtenberg; Roland Strausz
  16. Risk Determinants of direct democracy across Europe. By Fiorino, Nadia; Ricciuti, Roberto
  17. The Impact of Immigration on the Employment of Natives in Regional Labour Markets: A Meta-Analysis By Simonetta Longhi; Peter Nijkamp; Jacques Poot
  18. Meta-Analysis of the Business Cycle Correlation between the Euro Area and the CEECs By Jarko Fidrmuc; Iikka Korhonen
  19. What are their Words Worth? Political Plans and Economic Pains of Fiscal Consolidations in New EU Member States By Jan Zápal; Ondrej Schneider
  20. Measuring and Explaining Management Practices Across Firms and Countries By Bloom, Nicholas; Van Reenen, John
  21. Household Credit in the New Europe: Lending Boom or Sustainable Growth? By Coricelli, Fabrizio; Mucci, Fabio; Revoltella, Debora
  22. Explaining the Growth of Part-Time Employment: Factors of Supply and Demand By Euwals, Rob; Hogerbrugge, Maurice
  23. Evaluating the German "Mini-Job" Reform Using a True Natural Experiment By Marco Caliendo; Katharina Wrohlich

  1. By: Ivo J. M. Arnold; Jan J.G. Lemmen
    Abstract: This paper uses the European Commission’s Consumer Survey to assess whether inflation expectations have converged and whether inflation uncertainty has diminished following the introduction of the Euro in Europe. Consumers’ responses to the survey suggest that inflation expectations depend more on past national inflation rates than on the ECB’s anchor for price stability. The convergence in inflation expectations does not appear to be faster than the convergence in actual inflation rates. Regarding inflation uncertainty, the data indicate a relationship with country size, suggesting that within EMU, inflation uncertainty may increase in countries that have a smaller influence on ECB policy.
    Keywords: monetary union, inflation differentials, consumer survey
    JEL: D84 E31 E58
    Date: 2006
  2. By: Lionel Artige; Rosella Nicolini
    Abstract: The present paper aims at analyzing the sources of productivity in Europe to account for its recent underperformance and identify potential geographic idiosyncracies. We study the productivity performance and its sources in a sample of ten European regions belonging to four countries (France, Germany, Italy and Spain). Exploiting the increasing availability of disaggregated data at regional level in Europe, we propose both a descriptive statistics and an econometric analysis of productivity sources since 1995. Our main finding is that the sources of labor productivity are rather heterogeneous across our sample but may be associated with regional or national idiosyncracies.
    Keywords: Labor productivity, productivity determinants, European regions
    JEL: J24 O11 O18 O52
    Date: 2006–03–30
  3. By: Lane, Philip R.
    Abstract: We explore the impact of European monetary union (EMU) on the economies of the member countries. While the annual dispersion in inflation rates have not been much different to the variation across US regions, inflation differentials in the euro area have been much more persistent, such that cumulative intra-EMU real exchange rate movements have been quite substantial. EMU has indeed contributed to greater economic integration - however, economic linkages with the rest of the world have also been growing strongly, such that the relative importance of intra-EMU trade has not dramatically increased. In terms of future risks, a severe economic downturn or financial crisis in a member country will be the proving ground for the political viability of EMU.
    Keywords: EMU; heterogeneity; integration
    JEL: F2 F4
    Date: 2006–03
  4. By: Julián Messina (European Central Bank, University of Salerno and IZA Bonn); Giovanna Vallanti (London School of Economics)
    Abstract: We exploit homogeneous firm level data of manufacturing and non-manufacturing sectors to study the impact of firing restrictions on job flow dynamics across 14 European countries. We find that more stringent firing laws dampen the response of job destruction to the cycle, thus making job turnover less counter-cyclical. Moreover, the impact of firing costs on job creation and job destruction varies across sectors, depending on sector-specific trend growth. Our findings clearly suggest that such costs are more important in contracting than in growing sectors.
    Keywords: gross job flows, Europe, business cycle, firing costs
    JEL: J23 J63 J68
    Date: 2006–03
  5. By: Axel A. Weber (Deutsche Bundesbank); Günter W. Beck (University of Frankfurt and CFS)
    Abstract: Using a unique data set of regional inflation rates we are examining the extent and dynamics of inflation dispersion in major EMU countries before and after the introduction of the euro. For both periods, we find strong evidence in favor of mean reversion (ß-convergence) in inflation rates. However, half-lives to convergence are considerable and seem to have increased after 1999. The results indicate that the convergence process is nonlinear in the sense that its speed becomes smaller the further convergence has proceeded. An examination of the dynamics of overall inflation dispersion (s-convergence) shows that there has been a decline in dispersion in the first half of the 1990s. For the second half of the 1990s, no further decline can be observed. At the end of the sample period, dispersion has even increased. The existence of large persistence in European inflation rates is confirmed when distribution dynamics methodology is applied. At the end of the paper we present evidence for the sustainability of the ECB’s inflation target of an EMU-wide average inflation rate of less than but close to 2%.
    Keywords: Convergence, Deflation, ECB Monetary Policy, EMU, Regional Diversity
    JEL: E31 E52 E58
    Date: 2005–11–01
  6. By: Helge Berger; Jakob de Haan; Jan-Egbert Sturm
    Abstract: We examine the role of money in the policies of the ECB, using introductory statements of the ECB President at the monthly press conferences during 1999-2004. Over time, the relative amount of words devoted to the monetary analysis has decreased. Our analysis of indicators of the monetary policy stance suggests that developments in the monetary sector, while somewhat more important in the later half of the sample, only played a minor role most of the time. Our estimates of ECB interest rate decisions suggest that the ECB’s words (monetary-sector based policy intensions) are not an important determinant of its actions.
    Keywords: ECB, communication, monetary policy
    JEL: E43 E52 E58
    Date: 2006
  7. By: Paola Giuliano (International Monetary Fund and IZA Bonn)
    Abstract: Why are there such large differences in living arrangements across Western European countries? Conventional economic analyses have not been successful in explaining differences in living arrangements and particularly the dramatic increase in the fraction of young adults living with their parents in Mediterranean Europe. This paper presents a cultural interpretation. I argue that the sexual revolution of the 1970s - by liberalizing parental attitudes - had a differential impact on living arrangements in Northern and Southern Europe on account of the closer parent-child ties in Southern Europe. Such an explanation can easily explain both the shift in living arrangements over time and also observed North-South differentials. It receives support from data on the living arrangements of second-generation immigrants in the US. Both in 1970 and 2000, by country of origin, the US living arrangements of second-generation immigrants mimic those in Europe across countries; similarly the changes in the US across time by country of origin mimic the European changes. This duplication of the European pattern in a neutral environment, with the same unemployment benefits, the same welfare code and the same macroeconomic conditions suggests a major role for culture in determining living arrangements.
    Keywords: culture, living arrangements, immigrants, family
    JEL: D1 J1 Z13
    Date: 2006–03
  8. By: Alexander F. Wagner; Friedrich Schneider
    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
  9. By: Günter W. Beck (University of Frankfurt and CFS); Axel A. Weber (Deutsche Bundesbank)
    Abstract: Using a set of regional inflation rates we examine the dynamics of inflation dispersion within the U.S.A., Japan and across U.S. and Canadian regions. We find that inflation rate dispersion is significant throughout the sample period in all three samples. Based on methods applied in the empirical growth literature, we provide evidence in favor of significant mean reversion (ß- convergence) in inflation rates in all considered samples. The evidence on s-convergence is mixed, however. Observed declines in dispersion are usually associated with decreasing overall inflation levels which indicates a positive relationship between mean inflation and overall inflation rate dispersion. Our findings for the within-distribution dynamics of regional inflation rates show that dynamics are largest for Japanese prefectures, followed by U.S. metropolitan areas. For the combined U.S.-Canadian sample, we find a pattern of withindistribution dynamics that is comparable to that found for regions within the European Monetary Union (EMU). In line with findings in the so-called ‘border literature’ these results suggest that frictions across European markets are at least as large as they are, e.g., across North American markets.
    Keywords: Inflation Convergence, Deflation, ECB Monetary Policy, EMU, Regional Diversity
    JEL: E31 E52 E58
    Date: 2005–11–01
  10. By: Helge Berger
    Abstract: The paper discusses key elements of optimal central bank design and applies its findings to the Eurosystem. A particular focus is on the size of monetary policy committees, the degree of centralization, and the representation of relative economic size in the voting rights of regional (or sectoral) interests. Broad benchmarks for the optimal design of monetary policy committees are derived, combining relevant theoretical arguments with available empirical evidence. A new indicator compares the mismatch of relative regional economic size and voting rights in the monetary policy committees of the US Fed, the pre-1999 German Bundesbank, and the ECB over time. Based on these benchmarks, there seems to be room to improve the organization of the ECB Governing Board and current plans for reform.
    Keywords: central bank design, federal central banks, ECB, Eurosystem, ECB reform
    JEL: D72 E58
    Date: 2006
  11. By: Catherine Boeamare (CIRED - Centre International de Recherche sur l'Environnement et le Développement - - [CNRS : UMR8568] - [] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale du Génie Rural des Eaux et des Forêts][Ecole Nationale des Ponts et Chaussées]); Philippe Quirion (CIRED - Centre International de Recherche sur l'Environnement et le Développement - - [CNRS : UMR8568] - [] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale du Génie Rural des Eaux et des Forêts][Ecole Nationale des Ponts et Chaussées])
    Abstract: The European Commission (2001a) has recently presented a directive proposal to the European Parliament and Council in order to implement a greenhouse gas emission trading scheme. If this proposal survives the policy process, it will create the most ambitious trading system ever implemented. However the legislative process is an opportunity for various interest groups to amend environmental olicies which, as a result, generally deviate further from what economic literature proposes. A close look at implemented emission trading schemes, stressing their discrepancies with economic literature requests, is thus useful to increase the chances of forthcoming emission trading schemes to go through the political process.<br />We thus review ten emission trading systems, that are either implemented or at an advanced stage of the policy process. We draw attention to major points to be aware of when designing an emission trading system: sectoral and spatial coverage, permits allocation, temporal flexibility, trading organisation, monitoring, enforcement, compliance, and the harmonisation vs. subsidiarity issue.<br />The aim is to evaluate how far experiences in emission trading move away from theory and why. We then provide some lessons and recommendations on how to implement a greenhouse gas emission trading program in Europe. We identify some pros of<br />the Commission proposal (spatial and sectoral coverage, temporal flexibility, trading organisation, compliance rules), some potential drawbacks (allocation rules, monitoring and enforcement) and items on which further guidance is needed (monitoring and allocation rules). Lastly, the European Commission should devote prominent attention to the U.S. NOX Ozone Transport Commission budget program, as the only example of integration between the federal and state levels.
    Keywords: Emission trading; climate change policy; policy-making and implementation
    Date: 2006–03–29
  12. By: David M. Cutler; Edward L. Glaeser
    Abstract: While Americans are less healthy than Europeans along some dimensions (like obesity), Americans are significantly less likely to smoke than their European counterparts. This difference emerged in the 1970s and it is biggest among the most educated. The puzzle becomes larger once we account for cigarette prices and anti-smoking regulations, which are both higher in Europe. There is a nonmonotonic relationship between smoking and income; among richer countries and people, higher incomes are associated with less smoking. This can account for about one-fifth of the U.S./Europe difference. Almost one-half of the smoking difference appears to be the result of differences in beliefs about the health effects of smoking; Europeans are generally less likely to think that cigarette smoking is harmful.
    JEL: I1 J1 P5
    Date: 2006–03
  13. By: Claudio A. Piga (Dept of Economics, Loughborough University); Enrico Bachis (Business School, Nottingham University)
    Abstract: Using more than 10 million on-line fares, we study the determinants of yearly fares’ changes in June 2002-June 2005. We verify whether airlines took advantage, after the Euro introduction, of potential inflationary pressures by increasing their fares more in routes to Eurozone nations. The evidence suggests that this was the case only for the period end 2003-end 2004. To control for other factors that may affect fares’ setting decisions, we provide insights into the effects of the takeovers of Go Fly and Buzz by EasyJet and Ryan Air, respectively. Although we generally find that fares offered immediately after the takeover by the acquiring firms were lower than the ones charged by the target firms twelve months earlier, in one case the effects of the takeover on consumers’ welfare are ambiguous.
    Keywords: Price discrimination; takeovers, Euro, changeover, low cost carriers, liberalisation.
    JEL: L11 L13 L93
    Date: 2006–03
  14. By: Sonja Peterson
    Abstract: The European Emissions Trading Scheme for CO2 established in 2005 is the world's largest emissions trading scheme. Since it covers only some sectors of the European economies it can nevertheless not ensure that the Kyoto targets are reached at minimal cost. This paper first analyzes the conditions for cost efficiency in the current separated carbon markets accounting also for the possibilities of purchasing international carbon credits from outside the EU. A computable general equilibrium model is then used to assess the cost efficiency of current EU climate strategies. Finally, based both on the theoretical as well as the quantitative analysis, recommendations are derived for a better allocation of the reduction burden between the sectors participating in emissions trading, those that do not participate and international carbon purchases.
    Keywords: emissions trading, allocation, efficiency, separated markets
    JEL: H21 D61 Q48 D58
    Date: 2006–03
  15. By: Lydia Mechtenberg; Roland Strausz
    Abstract: We analyze the two goals behind the European Bologna Process of increasing student mobility: enabling graduates to develop multi– cultural skills and increasing the quality of universities. We isolate three effects: 1) a competition effect that raises quality; 2) a free rider effect that lowers quality; 3) a composition effect that influences the relative strengths of the two previous effects. The effects lead to a trade–off between the two goals. Full mobility may be optimal, only when externalities are high. In this case, student mobility yields inef- ficiently high educational quality. For moderate externalities partial mobility is optimal and yields an inefficiently low quality of education.
    Keywords: Student mobility, Quality of higher education, Multi–cultural skills, Bologna Process
    JEL: D61 H77 I28
    Date: 2006–03
  16. By: Fiorino, Nadia; Ricciuti, Roberto
    Abstract: This paper investigates on the demographic, economic, political and cultural determinants of direct democracy in European States using an index of citizen law-making for 43 countries. The test is interesting since there are important variations across European countries in the referendum and initiative use. We find that per capita income, population and ethnic fractionalization are poor determinants of direct democracy, while majoritarian elections and presidential systems are in general negatively related to direct democracy. A larger share of Catholic population is a positive determinant, whereas Muslims have a negative effect. Quality of governance indicators have a positive effect.
  17. By: Simonetta Longhi; Peter Nijkamp (Free University Amsterdam); Jacques Poot (University of Waikato)
    Abstract: Immigration is a phenomenon of growing significance in many countries. Increasing social tensions are leading to political pressure to limit a further influx of foreign-born persons on the grounds that the absorption capacity of host countries has been exceeded and social cohesion threatened. There is also in public discourse a common perception of immigration resulting in economic costs, particularly with respect to wages and employment opportunities of the native born. This warrants a scientific assessment, using comparative applied research, of the empirical validity of the perception of a negative impact of immigration on labour market outcomes. We apply meta-analytic techniques to 165 estimates from 9 recent studies for various OECD countries and assess whether immigration leads to job displacement among native workers. The ‘consensus estimate’ of the decline in native-born employment following a 1 percent increase in the number of immigrants is a mere 0.024 percent. However, the impact is somewhat larger on female than on male employment. The negative employment effect is also greater in Europe than in the United States. Furthermore, the results are sensitive to the choice of the study design. For example, failure to control for endogeneity of immigration itself leads to an underestimate of its employment impact.
    Keywords: immigration, employment, meta-analysis
    JEL: F22 J61
    Date: 2006–03
  18. By: Jarko Fidrmuc; Iikka Korhonen
    Abstract: We review the literature on business cycle correlation between the euro area and the Central and Eastern European countries (CEECs), a topic that has gained attention as the newest EU members approach monetary union. Our meta-analysis of 35 identified publications suggests some CEECs already have comparably high correlation with the euro area business cycle. We find that estimation methodologies can have a significant effect on correlation coefficients. While CEEC central bankers tend to be more conservative in their estimates than academics or eurosystem researchers, we find no evidence of a geographical bias in the studies.
    Keywords: monetary union, optimum currency area, business cycles, meta analysis
    JEL: C42 E32 F15 F31
    Date: 2006
  19. By: Jan Zápal; Ondrej Schneider
    Abstract: In this paper, we track fiscal authority behaviour in the ten new EU member states (NSM) in the period which immediately preceded their EU accession. We first present basic stylized facts about public budgets of those countries. The paper then analyses reasons which led to periods of fiscal consolidation in the NMS. Secondly, we also present evidence from Pre-Accession Economic and Convergence programmes of NMSs concerning planned steps of the fiscal authorities and try to contrast them with reality. Throughout the paper, we identify two different groups of countries which significantly differ in their fiscal behaviour. On the one side is the group of Baltic countries, displaying strong reform effort and responsible fiscal policy usually supported by strong economic growth. On the second extreme, we identify fiscally irresponsible central European countries and two Mediterranean islands displaying lax fiscal policies and little political will to implement costly reforms. Somewhere between stand Slovenia and Slovakia, first without a strong reform performance yet with budget deficits in compliance with the Stability and Growth Pact and later with recent reform efforts. Our key finding concerning the behaviour of the fiscally irresponsible group of countries is that their current problems with high budget deficits originate in their lax approach and inability to implement politically costly expenditure cuts which is apparent from their revision of budget plans and endeavour to shift envisioned deficit reductions into the future. Yet, this strategy has led those countries to an uncomfortable position vis-à-vis European fiscal rules.
    Keywords: fiscal policy, new member states, consolidations, Stability and Growth Pact, excessive deficit procedure, convergence programmes
    JEL: E60 E62 H60 H87
    Date: 2006
  20. By: Bloom, Nicholas; Van Reenen, John
    Abstract: We use an innovative survey tool to collect management practice data from 732 medium sized manufacturing firms in the US, France, Germany and the UK. These measures of managerial practice are strongly associated with firm-level productivity, profitability, Tobin’s Q, sales growth and survival rates. Management practices also display significant cross-country differences with US firms on average better managed than European firms, and significant within-country differences with a long tail of extremely badly managed firms. We find that poor management practices are more prevalent when (a) product market competition is weak and/or when (b) family-owned firms pass management control down to the eldest sons (primo geniture). European firms report lower levels of competition, while French and British firms also report substantially higher levels of primo geniture due to the influence of Norman legal origin and generous estate duty for family firms. We calculate that product market competition and family firms account for about half of the long tail of badly managed firms and up to two thirds of the American advantage over Europe in management practices.
    Keywords: competition; family firms; management practices; productivity
    JEL: L2 M2 O32 O33
    Date: 2006–03
  21. By: Coricelli, Fabrizio; Mucci, Fabio; Revoltella, Debora
    Abstract: Retail lending grew very fast in the New Europe region in the last years, prompting a debate on whether such a rapid growth can be considered sustainable. This paper investigates the main determinants of retail lending growth throughout the region. It tries to identify episodes of credit boom and analyzes the possible correlation between such booms, consumption booms and a country external account position. Estimating an aggregate consumption function, under the assumption of liquidity-constrained households, the paper finds that current trends in household credit markets largely reflect an equilibrium phenomenon, in which household credit increases rapidly from extremely low initial levels, in the context of a relaxation of liquidity constraints. The rate of growth of credit responds to changing market conditions on the supply side and to good prospects for income growth. In such an environment, loosening credit market conditions can have sizable effects on consumption, which, in some cases may create macroeconomic imbalances, both in terms of current account deficits and inflationary pressures.
    Keywords: credit booms; household credit; new members of the European Union
    JEL: D14 E21 E44
    Date: 2006–03
  22. By: Euwals, Rob; Hogerbrugge, Maurice
    Abstract: Using the Dutch Labour Force Survey 1991-2001, the authors investigate the incidence of part-time employment in the country with the highest part-time employment rate of the OECD countries. Women fulfil most part-time jobs, but a considerable fraction of men works part-time as well. Evidence from descriptive statistics and a macro-econometric model at the sectoral level of industry suggests that the growth of part-time employment in the 1990s relates strongly to the growth in female labour force participation. Factors of labour demand, like the shift from manufacturing to services and the increase in the demand for flexible labour, turn out to play a significant role as well.
    Keywords: labour demand; labour supply; panel data; part-time employment
    JEL: C33 J21 J23
    Date: 2006–04
  23. By: Marco Caliendo (DIW Berlin, IAB Nuremberg and IZA Bonn); Katharina Wrohlich (DIW Berlin and IZA Bonn)
    Abstract: Increasing work incentives for people with low incomes is a common topic in the policy debate across European countries. The "Mini-Job" reform in Germany - introduced on April 1, 2003 - can be seen in line with these policies, exempting labour income below a certain threshold from taxes and employees’ social security contributions. We carry out an ex-post evaluation to identify the short-run effects of this reform. Our identification strategy uses an exogenous variation in the interview months in the German Socio-Economic Panel, that allows us to distinguish groups that are (or are not) affected by the reform. To account for seasonal effects we additionally use a difference-in-differences strategy. The results show that the short-run effects of the reform are limited. We find no significant short-run effects for marginal employment. However, there is evidence that single men who are already employed react immediately and increase secondary job holding.
    Keywords: evaluation, natural experiment, difference-in-differences, marginal employment
    JEL: C25 H31 J68
    Date: 2006–03

This nep-eec issue is ©2006 by Giuseppe Marotta. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.