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on European Economics |
| By: | Lorenzo Cappiello (European Central Bank, DG Research, Financial Research Division, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Peter Hördahl (European Central Bank, DG Research, Financial Research Division, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Arjan Kadareja (European Central Bank, DG Research, Financial Research Division, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Simone Manganelli (European Central Bank, DG Research, Financial Research Division, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | We assess whether the euro had an impact first on the degree of integration of European financial markets, and, second, on the euro area term structure. We propose two methodologies to measure integration - one relies on time-varying GARCH correlations, and the other one on a regression quantile-based codependence measure. We document an overall increase in co-movements in both equity and bond euro area markets, suggesting that integration has progressed since the introduction of the euro. However, while the correlations in bond markets reaches almost one for all euro area countries, co-movements in equity markets are much lower and the increase is limited to large euro area economies only. In the second part of the paper, we focus on the asset pricing implications of the euro. Specifically, we use a dynamic no-arbitrage term structure model to examine the risk ? return trade-off in the term structure of interest rates before and after the introduction of the euro. The analysis shows that while the average level of term premia seems little changed following the euro introduction, the variability of premia has been reduced as a result of smaller macro shocks during the euro period. Moreover, the macro factors that were found to be important in explaining the dynamics of premia before the introduction of the euro continue to play a key role in this respect also thereafter. |
| Keywords: | Financial markets, euro, financial integration, volatility, conditional correlation, term structure, fundamentals, risk premia. |
| JEL: | F36 G12 E43 E44 C22 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20060598&r=eec |
| By: | Julián Messina (CSEF, Università di Salerno, Via Ponte don Melillo, 84084 Fisciano (SA), Italy.); Giovanna Vallanti (Centre for Economic Performance, London School of Economics, Houghton Street, London WC2A 2AE, United Kingdom.) |
| 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: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20060602&r=eec |
| By: | Ignazio Angeloni (The Department of the Treasury, Italian Ministry of Economy and Finance, Via XX Settembre, 97, 00187 Rome, Italy.); Luc Aucremanne (National Bank of Belgium, Boulevard de Berlaimont 14, B-1000 Brussels, Belgium.); Matteo Ciccarelli (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | Surprisingly it did not, or at least not directly. Using micro data on consumer prices and sectoral inflation rates from 6 euro area countries, spanning several years before and after the introduction of the euro, we look at whether EMU has altered the behaviour of retail price setting and/or inflation dynamics. We find no evidence that anything has changed around 1999 – if anything, persistence may have slightly increased. At the end of 2001 and in the beginning of 2002 (period surrounding the euro cash changeover) retail price adjustment frequencies, both up and down, increased substantially, while the magnitude of the price adjustment, also both up and down, was smaller than otherwise. However, both settled quickly back to the earlier patterns. On the contrary, we do find evidence of a decline in the persistence of the inflation process in the mid-1990s. This could be due to a structural change in private inflationary expectations due, at least in part, to policies linked to the preparation of EMU; however, this interpretation is weakened by the fact that a similar decline occurred also in the US. |
| Keywords: | Price setting, Inflation persistence, Aggregate and Sectoral Inflation, EMU. |
| JEL: | E31 E42 E52 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20060597&r=eec |
| By: | Ark, Bart van (Groningen University) |
| Abstract: | This paper studies procyclical productivity growth at the industry level in the U.S. and in three European countries (France, Germany and the Netherlands). Industry-specific demand-side instruments are used to examine the prevalence of non-constant returns to scale and unmeasured input utilization. For the aggregate U.S. economy, unmeasured input utilization seems to explain procyclical productivity. However, this correction still leaves one in three U.S. industries with procyclical productivity. This failure of the model can also be seen in Europe and is mostly concentrated in services industries. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugggd:gd-75&r=eec |
| By: | Inklaar, Robert (Groningen University) |
| Abstract: | This paper studies procyclical productivity growth at the industry level in the U.S. and in three European countries (France, Germany and the Netherlands). Industry-specific demand-side instruments are used to examine the prevalence of non-constant returns to scale and unmeasured input utilization. For the aggregate U.S. economy, unmeasured input utilization seems to explain procyclical productivity. However, this correction still leaves one in three U.S. industries with procyclical productivity. This failure of the model can also be seen in Europe and is mostly concentrated in services industries. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugggd:gd-74&r=eec |
| By: | Livio Stracca (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper estimates a hybrid New Keynesian model on euro area data and evaluates the performance of different simple policy rules and of the optimal unconstrained rule under commitment. The study reaches two main conclusions. First, inflation is found to be mainly forward-looking in the euro area, which implies the optimal policy reaction to cost push shocks is a muted one. Second, a "speed limit" rule of the type recently proposed by Walsh (2003) is able to closely approximate the performance of the optimal rule under commitment. The optimal speed limit rule is also characterised by super-inertia, making it a first difference rule similar to those recently proposed as a possible solution to measurement problems in the level of the natural interest rate and of potential output. |
| Keywords: | Euro area, hybrid New Keynesian model, monetary policy rules, commitment, speed limit policies. |
| JEL: | E52 E58 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20060600&r=eec |
| By: | Claudia Kwapil (Oesterreichische Nationalbank, Economic Analysis Division); Johann Scharler (Oesterreichische Nationalbank, Economic Analysis Division) |
| Abstract: | In this paper we analyze equilibrium determinacy in a sticky price model in which the pass-through from policy rates to retail interest rates is sluggish and potentially incomplete. In addition, we empirically characterize and compare the interest rate pass-through process in the euro area and the U.S. We find that if the pass-through is incomplete in the long run, the standard Taylor principle is insufficient to guarantee equilibrium determinacy. Our empirical analysis indicates that this result might be particularly relevant for bank-based financial systems as for instance that in the euro area. |
| Keywords: | Interest Rate Pass-Through, Interest Rate Rules, Equilibrium Determinacy, Stability |
| JEL: | E32 E52 E58 |
| Date: | 2006–03–20 |
| URL: | http://d.repec.org/n?u=RePEc:onb:oenbwp:118&r=eec |
| By: | Hernandez-Canovas, Gines (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics); Koeter-Kant, Johanna |
| Abstract: | We examine the influence of cross country differences on debt maturity for small and medium size enterprises (SMEs) using a sample of 3366 SMEs from 19 European countries. We analyze a country's legal environment, institutional environment, banking structure and economic situation while controlling for firm specific characteristic. We find that SMEs in countries with high property rights that protect their creditors or enforce existing laws are more likely to obtain long-term debt. We also show evidence that banks seem to rely more on the legal, economic, and institutional determinants when determining the length of a loan agreement for micro firms than when granting loans to medium size firms. |
| Keywords: | Debt maturity; Small business lending; Banks; Legal system |
| JEL: | G21 G30 G32 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:vuarem:2006-9&r=eec |
| By: | Timmer, Marcel; Inklaar , Robert (Groningen University) |
| Abstract: | In this paper we asses whether productivity growth differentials between the U.S. and Europe in the distributive trade sector are real or mainly a statistical myth. New estimates of retail trade productivity are constructed, taking into account purchase prices of goods sold. We also adjust U.S. wholesale productivity growth for the upward bias due to the use of constant-quality prices of ICT-goods sales. We find that multifactor productivity growth in the U.S. has been higher than in Europe after 1995, but that this lead is smaller than suggested by national accounts based estimates. This finding is robust for various productivity measurement models. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugggd:gd-76&r=eec |
| By: | McGuckin, Robert; Ark, Bart van (Groningen University) |
| Abstract: | The purpose of this project is to increase our knowledge about trade-offs between productivity and labour market participation across the OECD, and more specifically in the European Union. The inquiry is focused around the question whether there is a trade-off between labour participation and productivity and, if so, how big it is and how long does it last. In particular, through a series of panel regressions we isolate the structural or long-term relationships, as well as identify how long the ?longterm? is. We also investigate the extent to which the trade-offs can be associated with particular types of workers (in terms of age or gender). Our main findings are, firstly, that the negative productivity response elasticity to a 1% rise in participation (measured as the employment rate) is less than 0.3 and peters out in less than 5 years. Secondly, increased participation is the key factor related to this productivity growth tradeoff. We find little effect of hours per worker on productivity. Thirdly, female participation has the strongest negative impact on productivity growth, but it is associated with specific age and/or cohort effects that are likely to diminish in the longer run. Finally, we investigate simple scenarios to look at the effect of increases in participation on productivity and per capita income, showing the large potential for income gains without much loss in productivity. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugggd:gd-78&r=eec |
| By: | Altissimo, Filippo; Cristadoro, Riccardo; Forni, Mario; Lippi, Marco; Veronese, Giovanni |
| Abstract: | This paper presents ideas and methods underlying the construction of a timely coincident index that tracks euro-area GDP growth, but, unlike GDP growth, (i) is updated monthly and almost in real time; (ii) is free from seasonal and shorter-run dynamics. We take as target the medium- long-run component of the GDP growth, defined in the frequency domain as including only waves of period larger than one year. We estimate the target by projecting it on generalized principal components extracted from a large panel of monthly macroeconomic series. The main contribution of the paper is that current values of our principal components, derived from a dynamic factor model, act as proxies for future values of GDP growth. In this way we improve with respect to the end-of-sample poor estimation which is typical with band-pass filters. Moreover, as it is defined as an estimate of a target which is observable (although with delay), the performance of our index at the end of the sample can be measured. |
| Keywords: | band-pass filter; coincident index; generalized principal components; large dataset factor models |
| JEL: | C51 E32 O30 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5633&r=eec |
| By: | Bruno S. Frey; Benno Torgler |
| Abstract: | Why so many people pay their taxes, although fines and audit probability are low, has become a central question in the tax compliance literature. A homo economicus, with a more refined motivation structure, helps us to shed light on this puzzle. This paper provides empirical evidence for the relevance of conditional cooperation, using survey data from 30 West and East European countries. We find a high correlation between perceived tax evasion and tax morale. The results remain robust after exploiting endogeneity and conducting several robustness tests. We also observe a strong positive correlation between institutional quality and tax morale. |
| Keywords: | tax morale; tax compliance; tax evasion; pro-social behavior; institutions |
| JEL: | H26 H73 D64 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:cra:wpaper:2006-11&r=eec |
| By: | Silvia Loddo |
| Abstract: | The lack of convergence across Italian Regions has been widely cited as an incontrovertible proof of failure of Cohesion policy. This paper aims to provide a twofold contribution to the debate on the effectiveness of Cohesion policies in Italy. Firstly, we provide an up-to-date view of convergence across Italian regions by focussing on the period covered by regional development policies carried out by European Community. The analysis reveals that poorer regions in Italy have indeed caught up with the richer regions over the period 1994-2004 and much of this convergence process has occurred towards region-specific steady states. Secondly, we consider Structural Funds as a conditioning variable in the convergence equation by using recently available data on expenditure implemented during the Second and the Third Planning Period. Our panel estimates point to a positive and significant impact of the Structural Funds on regional convergence in Italy over the period 1994-2004. When the Structural Funds are considered individually we find that the expenditure allocated by ERDF has medium term positive and significant returns while support to agriculture has short-term positive effects on growth which wane quickly. Finally, our results cast some doubt both on the (i) distributive efficiency of resources allocated by ESF and (ii) on the effectiveness of the intervention policies in support to education, Human capital and employment. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:cns:cnscwp:200603&r=eec |