nep-eec New Economics Papers
on European Economics
Issue of 2006‒04‒29
twenty papers chosen by
Giuseppe Marotta
Universita di Modena e Reggio Emilia

  1. Trends and cycles in the euro area: how much heterogeneity and should we worry about it? By Domenico Giannone; Lucrezia Reichlin
  2. The effects of EMU on structural reforms in labour and product markets By Romain Duval; Jørgen Elmeskov
  3. Euro-Area Sovereign Yield Dynamics: the role of order imbalance By Menkveld, Albert J.; Cheung, Yiu C.; Jong, Frank de
  4. Welfare Migration in Europe and the Cost of a Harmonised Social Assistance By Giacomo De Giorgi; Michele Pellizzari
  5. Interpreting Euro Area Inflation at High and Low Frequencies By Assenmacher-Wesche, Katrin; Gerlach, Stefan
  6. The Dynamics of European Inflation Expectations By Jörg Döpke; Jonas Dovern; Ulrich Fritsche; Jirka Slacalek
  7. Hysteresis and Persistence in the Course of Unemployment : The EU and US Experience By Christian Dreger; Hans-Eggert Reimers
  8. Economies of Density, Network Size and Spatial Scope in the European Airline Industry By Hugo Salgado; Manuel Romero-Hernández
  9. Can Post-Grant Reviews Improve Patent System Design? A Twin Study of US and European Patents By Stuart J.H. Graham; Dietmar Harhoff
  10. Economies of Scope in European Railways: An Efficiency Analysis By Christian Growitsch; Heike Wetzel
  11. Enhanced Cooperation in an Enlarged EU By Joachim Ahrens; Renate Ohr; Götz Zeddies
  12. Bank Efficiency in the Enlarged European Union By Dániel Holló; Márton Nagy
  13. Is Europe becoming a knowledge-driven economy? Evidence from EU developed regions By Alessandro STERLACCHINI; Francesco VENTURINI
  14. Volatility Regimes in Central and Eastern European Countries' Exchange Rates By Frömmel, Michael
  15. Services Policies in Transition Economies: On the EU and WTO as Commitment Mechanisms By Eschenbach, Felix; Hoekman, Bernard
  16. Decentralisation and health care outcomes: An empirical analysis within the European Union By David Cantarero Prieto; Marta Pascual Saez
  17. Impact of Cultural Differences on Knowledge Transfer in British, Hungarian and Polish Enterprises By Aleksandra Hauke
  18. The Evolution of Top Incomes in an Egalitarian Society: Sweden, 1903–2004 By Roine, Jesper; Waldenström, Daniel
  19. On the Stability of the German Beveridge Curve: A Spatial Econometric Perspective By Reinhold Kosfeld; Christian Dreger; Hans-Friedrich Eckey
  20. Assessing the Risk of Oil Spills in the Mediterranean: the Case of the Route from the Black Sea to Italy By Andrea Bigano; Paul Sheehan

  1. By: Domenico Giannone (European Centre for Advanced Research in Economics and Statistics (ECARES) Université Libre de Bruxelles, CP 114, Av. F.D. Roosevelt, 50. B-1050 Brussels, Belgium); Lucrezia Reichlin (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
    Abstract: Not so much and we should not, at least not yet.
    Keywords: International Business Cycles, Euro Area, Risk Sharing, European Integration, Income Insurance.
    JEL: E32 C33 C53 F2 F43
    Date: 2006–03
  2. By: Romain Duval (OECD Economics Department, 2 rue Andre Pascal, 75775 Paris Cedex 16, France.); Jørgen Elmeskov (OECD Economics Department, 2 rue Andre Pascal, 75775 Paris Cedex 16, France.)
    Abstract: Will EMU accelerate or retard structural reform in labour and product markets? The theoretical literature is ambiguous. New descriptive evidence provided in this paper suggests that euro-area countries have made relatively good progress in structural reform. However, it is much less clear whether progress can be ascribed to EMU membership. To explore further the influence of monetary regime, the paper undertakes an econometric examination of the likelihood that countries undertake reform in five specific areas of labour and product market policies. Based on pooled cross-country/time series Probit regressions covering 21 countries and the period 1985-2003, it is found that structural reform is strengthened by high unemployment, crisis, healthy public finances, reforms in other policy fields and small country size. Further, countries that pursue fixed exchange-rate regimes or participate in monetary union, and therefore have little or no monetary autonomy, appear to undertake less reform – with the effect possibly being concentrated on large countries.
    Keywords: political economy; EMU; euro; reforms; labour market; product market.
    JEL: D7 O52
    Date: 2006–03
  3. By: Menkveld, Albert J. (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics); Cheung, Yiu C.; Jong, Frank de
    Abstract: We study sovereign yield dynamics and order flow in the largest euro-area treasury markets. We exploit unique transaction data to explain daily yield changes in the tenðyear government bands of Italy, France, Belgium, and Germany. We use a state space model to decompose these changes into (i) a benchmark yield innovation, (ii) a yield spread common factor innovation, (iii) country-specific innovations, and (iv) (transitory) microstructure effects. We relate changes in each of these factors to national order imbalance and find that Italian order imbalance impacts the common factor innovation, French and Belgian order imbalance impact country-specific innovations, and German order imbalance only changes yields temporarily. Order imbalance, however, does not have explanatory power for the most important factor: benchmark yield innovations.
    Keywords: Government bond; Order imbalance; Euro
    JEL: G10 G15 G18
    Date: 2006
  4. By: Giacomo De Giorgi; Michele Pellizzari (IGIER-Bocconi and IZA Bonn)
    Abstract: The enlargement of the European Union has increased concerns about the role of generous welfare transfers in attracting migrants. This paper explores the issue of welfare migration across the 15 countries of the pre-enlargement Union and finds a significant but small effect of the generosity of welfare on migration decisions. This effect, however, is still large enough to distort the distribution of migration flows and, possibly, offset the potential benefits of migration as an inflow of mobile labour into countries with traditionally sedentary native workers. A possible way to eliminate these distortions is the harmonisation of welfare at the level of the Union. The second part of the paper estimates the costs and benefits of what could be a first step in this direction: the introduction of a uniform European minimum income. The results show that, for a realistic minimum income threshold, the new system would cost about three quarters of what is currently spent on housing and social assistance benefits. Despite its reasonable cost, the distribution of net donors and net receivers across countries is such that the actual implementation of this system would be politically problematic.
    Keywords: EU enlargement, migration, welfare state
    JEL: J61
    Date: 2006–04
  5. By: Assenmacher-Wesche, Katrin; Gerlach, Stefan
    Abstract: Several authors have recently interpreted the ECB's two-pillar framework as separate approaches to forecast and analyse inflation at different time horizons or frequency bands. The ECB has publicly supported this understanding of the framework. This paper presents further evidence on the behaviour of euro area inflation using band spectrum regressions, which allow for a natural definition of the short and long run in terms of specific frequency bands, and causality tests in the frequency domain. The main finding is that variations in inflation are well explained by low-frequency movements of money and real income growth and high-frequency fluctuations of the output gap.
    Keywords: frequency domain; inflation; money growth; quantity theory; spectral regression
    JEL: C22 E3 E5
    Date: 2006–04
  6. By: Jörg Döpke; Jonas Dovern; Ulrich Fritsche; Jirka Slacalek
    Abstract: We investigate the relevance of the Carroll's sticky information model of inflation expectations for four major European economies (France, Germany, Italy and the United Kingdom). Using survey data on household and expert inflation expectations we argue that the model adequately captures the dynamics of household inflation expectations. We estimate two alternative parametrizations of the sticky information model which differ in the stationarity assumptions about the underlying series. Our baseline stationary estimation suggests that the average frequency of information updating for the European households is roughly once in 18 months. The vector error-correction model implies households update information about once a year.
    Keywords: Inflation expectations, sticky information, inflation persistence
    JEL: D84 E31
    Date: 2006
  7. By: Christian Dreger; Hans-Eggert Reimers
    Abstract: We investigate hysteresis and persistence behaviour in the course of unemployment in EU countries and US states by means of first and second generation panel unit root tests. While the former tests assume independent cross sections, the latter control for dependencies. The first generation tests indicate, that unemployment is persistent, but nevertheless stationary. Second generation tests reveal mixed results, but the evidence for stationarity is much stronger for the US. Hysteresis in EU unemployment is attributed to the idiosyncratic, but not to the common component. In contrast, idiosyncratic components are stationary in the US. If hysteresis behaviour is also relevant here, it is more likely to arise in the common component. These findings might reflect a lower degree of migration of the unemployed in the EU from starving into prosperous regions, possibly because of language barriers or national labour market regulations
    Keywords: Unemployment persistence, hysteresis, panel unit roots
    JEL: C22 C23 E24
    Date: 2006
  8. By: Hugo Salgado; Manuel Romero-Hernández
    Abstract: In this article we use four different indices to measure cost performance of the European Airline Industry. By using the number of routes as an indicator of Network Size, we are able to estimate indicators of Economies of Density, Network Size and Spatial Scope. By estimating total and variable cost functions we are also able to calculate an index of the excess capacity of the firms. For this purpose, we use data from the years 1984 to 1998, a period during which several deregulation measures were imposed on the European airline industry. Our results suggest that in the year 1998, almost all the firms had Economics of Density in their existing networks, while several of the firms also had Economies of Network Size and Economies of Spatial Scope. These results support our hypothesis that fusion, alliance, and merger strategies followed by the principal European airlines after 1998 are not just explained by marketing strategies, but also by the cost structure of the industry.
  9. By: Stuart J.H. Graham (Georgia Institute of Technology); Dietmar Harhoff (University of Munich, CEPR and ZEW)
    Abstract: This paper assesses the impact of adopting a post-grant review institution in the US patent system by comparing the “opposition careers” of European Patent Office (EPO) equivalents of litigated US patents to those of a control group of EPO patents. We demonstrate several novel methods of "twinning" US and European patents and investigate the implications of employing these different methods in our data analysis. We find that EPO equivalents of US litigated patent applications are more likely to be awarded EPO patent protection than are equivalents of unlitigated patents, and the opposition rate for EPO equivalents of US litigated patents is about three times higher than for equivalents of unlitigated patents. Patents attacked under European opposition are shown to be either revoked completely or narrowed in about 70 percent of all cases. For EPO equivalents of US litigated patents, the appeal rate against opposition outcomes is considerably higher than for control-group patents. Based on our estimates, we calculate a range of net welfare benefits that would accrue from adopting a post-grant review system. Our results provide strong evidence that the United States could benefit substantially from adopting an administrative post-grant patent review, provided that the post-grant mechanism is not too costly.
    Keywords: patent system, post-grant review, opposition, litigation
    JEL: K41 K11 L10
    Date: 2006–04
  10. By: Christian Growitsch; Heike Wetzel
    Abstract: Im Zuge der Reformen der europäischen Eisenbahnindustrie entschieden die nationalen Regierungen Europas sowie die EU Kommission, die Eisenbahnmärkte zu liberalisieren und die Schieneninfrastruktur vom Fahrbetrieb organisatorisch zu trennen. Vertikal integrierte Eisenbahnunternehmen – Unternehmen, die sowohl das Schienennetz als auch den Transportbetrieb unterhalten – äußern die Befürchtung, daß eine solche Separierung Vorteile der vertikalen Integration (sogenannte Verbundvorteile) vermindern würde und somit nicht geeignet sei, die gesamtgesellschaftliche Wohlfahrt zu erhöhen. In diesem Aufsatz untersuchen wir mittels einer pan-europäischen Analyse die Produktivität europäischer Eisenbahnunternehmen und berücksichtigen dabei insbesondere etwaige Verbundvorteile indem wir überprüfen, ob integrierte Eisenbahnunternehmen eine höhere technische Effizienz aufweisen als vertikal separierte Unternehmen. Dazu berechnen wir ein Data Envelopment Analysis super-efficiency bootstrapping Modell, das die Effizienz der integrierten Produktionstechnologie im Verhältnis zu einer Referenzgruppe virtueller, aus den separierten Unternehmen konstruierter Beobachtungseinheiten berechnet. Unsere Forschungsergebnisse weisen auf existierende Verbundvorteile für die Mehrzahl der europäischen Eisenbahnunternehmen hin.
    Date: 2006–04
  11. By: Joachim Ahrens; Renate Ohr; Götz Zeddies
    Abstract: The paper adresses the need for more flexibility in the integration process of the European Union after its recent eastward enlargement. Due to the increasing number of decision-makers and the increasing heterogeneity of economic structures, financial constraints, societal preferences, and political interests, European integration based on the uniformity principle is hardly feasible. In order to avoid a rank growth of integration and yet to strengthen the momentum of flexibility, so-called enhanced cooperation appears to be an appropriate instrument to be applied to the overall integration process. In this context the paper analyzes different possible developments of selected common policies in the EU if enhanced cooperation is practised by a sub-group of EU-members. Based on cluster analysis similarities and distinctions among the EU members with respect to some specific policy realms are elaborated to identify clusters, or clubs, of countries which may apply the instrument of enhanced cooperation in the specific policy fields.
    Keywords: European integration, enhanced cooperation, cluster analysis
    JEL: E61 F15 F42
    Date: 2006–04–25
  12. By: Dániel Holló; Márton Nagy (Magyar Nemzeti Bank)
    Abstract: This paper aims to estimate bank efficiency differences across member states of the European Union and tries to explain their causes. We show on an empirical basis that the level and spread of bank efficiency in the EU and their changes are significantly determined by characteristics of operational environment and the “conscious” behaviour of management.In the long term, through the integration of financial markets and institutions, as well as the establishment of the Single European Banking Market, the impact of advantages and disadvantages underlying the operational environment is reduced or eliminated; therefore only managerial ability is of any relevance. Our findings suggest that there is a costefficiency gap and convergence between the old and new member states, irrespective of the specifications of the model. With respect to profit efficiency, however, differences in efficiency between the two regions are only established after controlling for some major characteristics of the varying operational environments. Our study also investigates the relevance of and the correlation between accounting-based and statistics-based efficiency indicators. We conclude that the accounting based efficiency indicators are inadequate for managing heterogeneity arising from institutional and operational environments. Hence such indicators only allow limited cross-sectional comparison through time.
    Keywords: parametric approach, X- and alternative profit-efficiency, Fourier-flexible functional form, banking system.
    JEL: F36 G15 G21 G34
    Date: 2006
  13. By: Alessandro STERLACCHINI (Universita' Politecnica delle Marche, Dipartimento di Management ed Organizzazione Aziendale); Francesco VENTURINI (Universita' Politecnica delle Marche, Dipartimento di Economia)
    Abstract: In this paper, a set of knowledge base indicators are used as explanatory variables of the 1995-2002 growth performances of 150 NUTSII regions belonging to ten countries of the former EU15. Their impact is estimated by controlling for the initial levels of the dependent variables, the structural features of the regions and the presence of spatial correlation. The results show that GDP per capita growth is positively affected by the intensity of R&D and the share of adults with tertiary education. The R&D intensity is particularly effective in explaining the growth of labour productivity while that of occupation ratio is significantly influenced by the intensity of higher education. Thus, although structural characteristics and starting levels of economic performances have differently shaped the rates of economic growth across regions, our findings strongly support the Lisbon strategy as they indicate that, also within the EU, a sustained investment in R&D, knowledge and education is rewarding.
    Keywords: knowledge innovation education endowment, regional economic growth
    JEL: O18 O33 R11
    Date: 2006–03
  14. By: Frömmel, Michael
    Abstract: We investigate the exchange rate volatility of six Central and Eastern European countries (CEEC) between 1994 and 2004. The analysis merges two approaches, the GARCH-model (Bollerslev 1986) and the Markov Switching Model (Hamilton 1989). We discover switches between high and low volatility regimes which are consistent with policy settings for Hungary, Poland and, less pronounced, the Czech Republic, whereas Romania and Slovakia do not show a clear picture. Slovenia, finally, shows some kind of anticipation of the wide fluctuation margins in ERM2.
    Keywords: CEEC, exchange rate volatility, regime switching GARCH, Markov switching model, transition economies
    JEL: E42 F31 F36
    Date: 2006–04
  15. By: Eschenbach, Felix; Hoekman, Bernard
    Abstract: We analyze the extent to which the EU-15 and 16 transition economies used the WTO General Agreement on Trade in Services (GATS) to commit to service sector policy reforms. GATS commitments are compared with the evolution of actual policy stances over time. While there is substantial variance across transition economies on both actual policies and GATS commitments, we find an inverse relationship between the depth of GATS commitments and the 'quality' of actual services policies as assessed by the private sector. In part this can be explained by the fact that the prospect of EU accession makes GATS less relevant as a commitment device for a subset of transition economies. However, for many of the non-EU accession candidates the WTO seems to be a weak commitment device. One explanation is that the small size of the markets concerned generates weak external enforcement incentives. Our findings suggest greater collective investment by WTO members in monitoring and transparency is needed to increase the benefits of WTO membership to small countries.
    Keywords: accession; EU; services liberalization; trade agreements; WTO transition economies
    JEL: F13
    Date: 2006–04
  16. By: David Cantarero Prieto; Marta Pascual Saez
    Abstract: The aim of this paper is to explore the impact of decentralisation on health care outcomes in the European Union. We investigate the hypothesis that shifts towards greater decentralisation would be accompanied by improvements in population health by using infant mortality and life expectancy as dependent variables. The results of the empirical analysis suggest that income, decentralisation, health care resources and lifestyles in European Union did have an influence on infant mortality and life expectancy. This paper adds a new empirical perspective to the evaluation of the economic gains arising from greater decentralisation in health care.
  17. By: Aleksandra Hauke (University of Economics)
    Abstract: The aim of the article is to verify the hypothesis, that despite the cultural differences existing among Great Britain, Hungary and Poland, all enterprises put much effort to ensure good conditions for knowledge sharing by their employees. It consists of two major parts. In the first one, the theoretical concepts of culture and knowledge are presented. In the second part, the interpretation of results obtained in research on macro and micro level analyses in three European countries are shown. The macro level analysis is based on the differences in cultural dimensions presented by G. Hofstede and R. Gestland while the micro level analysis is conducted based on the results of empirical investigation carried out by International Research Group: Marketing in the XXI century, among companies operating in Great Britain, Hungary and Poland. Results obtained through this survey are compared with cultural dimensions in order to see how significant the distance between the received theory and empirical investigation is.
    Keywords: Cultural Differences, Knowledge Transfer
    JEL: L10
    Date: 2006–04
  18. By: Roine, Jesper (Dept. of Economics, Stockholm School of Economics); Waldenström, Daniel (Research Institute of Industrial Economics)
    Abstract: This study presents new homogenous series of top income shares in Sweden over the period 1903 to 2004. We find that, starting from higher levels of inequality than in other Western countries, the income share of the Swedish top decile drops sharply over the first eighty years of the century. The fall is almost entirely due to a dramatic drop in the top percentile, while the lower half of the top decile experiences virtually no change over this period. Most of the decrease takes place before the expansion of the welfare state, in fact, by 1950 Swedish top income shares were already lower than in other countries. In the past decades the Swedish top income shares developed very differently depending on whether capital gains are included or not. Including them, Sweden’s experience resembles that in the U.S. and the U.K. with sharp increases in top incomes, whereas excluding them Sweden looks more like the Continental European countries where top income shares have remained relatively constant. A possible interpretation of our results is that Sweden over the past 20 years has become a country where it is more important make the right investments than to have a high salary to become rich.
    Keywords: Income inequality; Income distribution; Wealth distribution; Top incomes; Welfare State; Sweden; Taxation; Capital gains
    JEL: D31 H20 J30 N30
    Date: 2006–04–11
  19. By: Reinhold Kosfeld (University of Kassel); Christian Dreger (DIW Berlin and IZA Bonn); Hans-Friedrich Eckey (University of Kassel)
    Abstract: In this paper, the framework of the aggregated Beveridge curve is used to investigate the effectiveness of the job matching process using German regional labour market data. For a fixed matching technology, the Beveridge curve postulates a negative relationship between the unemployment rate and the rate of vacancies, which is efficiently estimated using spatial econometric techniques. The eigenfunction decomposition approach suggested by Griffith (2000, 2003) is the workhorse to identify spatial and nonspatial components. As the significance of the spatial pattern might vary over time, inference is conducted on the base of a spatial SUR model. Shifts of the Beveridge curve will affect its position, and time series estimates on this parameter are obtained. In contrast to findings for the US and the UK, the results provide serious indication that the degree of job mismatch has increased over the last decade. Although the outward shift of the Beveridge curve can be explained by structural factors such as the evolution of long term unemployment, it is also affected by business cycle fluctuations. The role of cyclical factors challenges the stability property of the curve. The relationship might be inappropriate to investigate policy measures directed to improve the mismatch, such as labour market reforms.
    Keywords: Beveridge curve, job mismatch, business cycle, long-term unemployment, spatial SUR model
    JEL: C21 C23 E24 E32
    Date: 2006–04
  20. By: Andrea Bigano (Fondazione Eni Enrico Mattei); Paul Sheehan (Fondazione Eni Enrico Mattei and École Polytechnique Fédérale de Lausanne)
    Abstract: Recent major spills on European coasts have highlighted the primary policy relevance for the EU of oil spills. This paper assesses the risks related to carrying oil to the EU along the route from the Russian Black Sea coast to Sicily, Italy (one of the most congested and strategically relevant European import routes). We develop a methodology based on Fault Tree Analysis, and we apply it to the most likely causes of an oil spill. We couple the resulting probabilities with data on expected spill size, types of oil carried and cleanup costs, to estimate expected costs for cleanup and loss of cargo. The route analysed appears to be a risky one; there is a “high” to “very high” risk of a spill along this route. The Turkish Straits turn out to be the major danger point; however, there is no obvious hierarchy amongst the other sites along the route.
    Keywords: Oil spills, Cleanup costs, Risk analysis
    JEL: Q32 Q51 Q52 Q53
    Date: 2006–02

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