nep-eec New Economics Papers
on European Economics
Issue of 2006‒06‒10
eleven papers chosen by
Giuseppe Marotta
Universita di Modena e Reggio Emilia

  1. From Temporary Help Jobs to Permanent Employment: What Can We Learn from Matching Estimators and their Sensitivity? By Andrea Ichino; Fabrizia Mealli; Tommaso Nannicini
  2. Voting Power Implications of a Unified European Representation at the IMF By Leech, Dennis; Leech, Robert
  3. Pattern of trade and European economic integration : an unexpected relation By Fabien Rondeau (CREM - CNRS)
  4. Contagion ou globalisation sur les marchés financiers internationaux ? By Marie Brière; Ariane Chapelle; Ariane Szafarz
  5. Exchange Rate Variability, Pressures and Optimum Currency Area Criteria: Lessons for the Central and Eastern European Countries By Roman Horvath
  6. Bond Yield Compression in the Countries Converging to the Euro By Lucjan T. Orlowski; Kirsten Lommatzsch;
  7. Reasons for Real Appreciation in Central Europe By Michael Brandmeier
  8. Contagion Across and Integration of Central and Eastern European Stock Markets: Evidence from Intraday Data By Balazs Egert; Evzen Kocenda;
  9. Balassa-Samuelson Meets South Eastern Europe, the CIS and Turkey: A Close Encounter of the Third Kind? By Balázs Égert; ;
  10. Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues By Balázs Égert,; László Halpern; Ronald MacDonald
  11. The Monetary Transmission Mechanism in the Czech Republic (evidence from VAR analysis) By Katerina Arnostova; Jaromir Hurnik

  1. By: Andrea Ichino (University of Bologna, EUI, CEPR, CESifo and IZA Bonn); Fabrizia Mealli (University of Florence); Tommaso Nannicini (Universidad Carlos III de Madrid)
    Abstract: The diffusion of Temporary Work Agency (TWA) jobs originated a harsh policy debate and ambiguous empirical evidence. Results for the US, based on quasi-experimental evidence, suggest that a TWA assignment decreases the probability of finding a stable job, while results for Europe, based on the Conditional Independence Assumption (CIA), typically reach opposite conclusions. Using data for two Italian regions, we use a matching estimator to show that TWA assignments can be an effective springboard to permanent employment. We also propose a simulation-based sensitivity analysis, which highlights that only for one of these two regions our results are robust to specific failures of the CIA. We conclude that European studies based on the CIA should not be automatically discarded, but should be put under the scrutiny of a sensitivity analysis like the one we propose.
    Keywords: matching estimation, temporary employment
    JEL: C2 C8 J6
    Date: 2006–05
  2. By: Leech, Dennis (Warwick University); Leech, Robert (Birkbeck, London University)
    Abstract: We consider some of the implications of a proposed reform of the voting system of the IMF in which EU countries cease to be separately represented and are replaced by a single combined representative of the European bloc. The voting weight of the EU bloc is reduced accordingly. We analyse two cases: the Eurozone of 12 countries and the European Union of 25. Using voting power analysis we show that the reform could be very beneficial for the governance of the IMF, enhancing the voting power of individual member countries as a consequence of two large countervailing voting blocs. Specifically we analyse a range of EU voting weights and find the following for ordinary decisions requiring a simple majority: (1) All countries other than those of the EU and USA unambiguously gain power (measured absolutely or relatively); (2) The sum of powers of the EU bloc and USA is minimized when they have voting parity ; (3) The power of every other non-EU member is maximized when the EU and USA have parity ; (4) Each EU member could gain power - despite losing its seat and the reduction in EU voting weight - depending on the EU voting system that is adopted ; (5) The USA loses voting power (both absolutely and relatively) over ordinary decisions but retains its unilateral veto over special majority (85%) decisions (as does the EU bloc).
    Keywords: IMF ; European Union ; Voting Power Indices ; Penrose Index ; Banzhaf Index
    Date: 2005
  3. By: Fabien Rondeau (CREM - CNRS)
    Abstract: In this article, the degree of integration between European countries is linked to the evolution of the pattern of trade. Evolution of the long-run sensitivity between European outputs is estimated by recursive Fully-Modifed Ordinary Least Squares (FM-OLS) and compared to a recursive index of intra-industry trade. Significant correlations are found between integration and intra-industry trade share. Interestingly, correlations have not all the same sign: positive for one group of countries and negative for others. The explanatory variable seems to be the initial intra-industry trade share. In the last section, a Hansen test is computed and confirms a threshold effect of the pattern of trade on economic integration. Finally, the development of the intra-industry trade due to the creation of the European Monetary Union has a positive e¤ect on integration for some countries but also a negative e¤ect on integration for other European countries.
    Keywords: Trade, Growth, Intra-industry trade, Integration
    JEL: F4 F43 F02
    Date: 2006
  4. By: Marie Brière (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.); Ariane Chapelle (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.); Ariane Szafarz (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels and DULBEA, Brussels.)
    Abstract: L'interdépendance entre les marchés financiers constitue un souci majeur pour l'investisseur en quête de diversification internationale de son portefeuille. La littérature récente pointe en effet une augmentation des corrélations géographiques des rendements financiers durant ces dernières décennies. Les résultats sont cependant moins tranchés en ce qui concerne, d'une part, les corrélations entre actifs de classes différentes et, d'autre part, les dépendances pendant les périodes de crises financières. A cet égard, les effets conjoncturels de la contagion (pendant les crises) ne sont pas toujours clairement isolés des effets structurels de la globalisation (permanente). Cet article fait le point sur la méthodologie de test et les résultats empiriques relatifs à l'interdépendance entre rendements. Les tests de globalisation et de contagion sont scindés grâce à une définition ex ante rigoureuse des périodes de crise. La construction d'une large base de données permet ensuite d’étudier la stabilité des matrices de corrélations entre quatre classes d’actifs: les actions, les obligations gouvernementales et, ce qui est plus rare dans la littérature empirique, les obligations privées scindées en deux catégories: "investment grade" et "high yield". De plus, le découpage géographique s'opère en 4 zones distinctes: les Etats-Unis, le Royaume-Uni, le Japon et l'Europe. Les résultats confirment globalement l’instabilité des corrélations et pointent en faveur du cumul des effets de globalisation et de contagion, tout en soulignant qu’un plafond de globalisation semble atteint depuis au moins 8 ans sur les marchés d’actions. En outre, l’étude par classes de titres et l’analyse fine de la contagion, basée sur l'identification des 15 crises ayant secoué les marchés entre 1982 et 2005, permettent de dégager des résultats inédits concernant tant les corrélations intra- qu’inter-classes.
    Keywords: contagion, globalisation, marchés financiers internationaux.
    JEL: G15 G11
    Date: 2006–05
  5. By: Roman Horvath
    Abstract: This paper estimates the medium-term determinants of the bilateral exchange rate variability and exchange rate pressures for 20 developed countries in the 1990s. The results suggest that the optimum currency area criteria explain the dynamics of bilateral exchange rate variability and pressures to a large extent. Next, we predict exchange rate volatility and pressures for the Central and Eastern European Countries (CEECs). We find that the CEECs encounter exchange rate pressures at approximately the same level as the euro area countries did before they adopted the euro.
    Keywords: Euro Adoption, Exchange Rates, GMM, Optimum Currency Area.
    JEL: F15 F31 E58
    Date: 2005–12
  6. By: Lucjan T. Orlowski; Kirsten Lommatzsch;
    Abstract: We demonstrate that bond yield compression is under way in the countries converging to the euro and that German yields are significant drivers of local currency yields. Based on the evidence from Poland, Hungary and the Czech Republic, we conclude that these new Member States of the European Union are ready to adopt the euro without risking a disruptive shock to their financial stability. This message transpires from investigating the daily volatility dynamics of local bond yields as a function of German yields, conditional on changes in local term spreads, exchange rates and adjustments to central bank reference rates. Similar results of high sensitivity of local currency bond yields to changes in German yields are obtained from testing monthly series of macroeconomic fundamentals. These findings provide evidence of the potential usefulness of term spreads as indicators of monetary convergence.
    Keywords: term spread, term premium, yield compression, monetary convergence, new Member States, EMU, conditional volatility, asymmetric GARCH models
    JEL: E43 E44 F36
    Date: 2005–10–01
  7. By: Michael Brandmeier
    Abstract: The real economic effects of the considerably high appreciation in Central European Economies (CEE) are controversially disputed in the eve of the European Monetary Union (EMU) entry of several CEE economies. The Balassa-Samuelson-effect was made responsible for the expectation of higher inflation rates in CEE than in the EMU in the next years. Higher inflation rates will deteriorate the price competitiveness of the export sectors in the CEE countries because of real appreciation. This paper focuses on the effects of labour productivity differences in several industrial and service sectors on the consumer prices. Labour productivity changes are affected by the technology impact on labour demand and by the relative wage increases following from tensions of regional labour markets because of rising prices and skilled labour shortage. Real appreciation is determined by labour productivity differences and by capital good imports. We conclude that the negative coherence between real appreciation and the endangered price competitiveness of the export sectors in CEE has to be taken into account, unless the negative experience of loss of competitiveness because of sudden real appreciation in Eastern Germany will take place on a large scale in the eastern part of the enlarged euro area.
    Keywords: European Monetary Union, inflation differences, Balassa-Samuelson-effect, Central and Eastern Europe
    JEL: E31 F33 F41
    Date: 2006–06–02
  8. By: Balazs Egert; Evzen Kocenda;
    Abstract: We analyze interrelations between three stock markets in Central and Eastern Europe and, in addition, interconnections which may exist between Western European (DAX, CAC, UKX) and Central and Eastern European stock markets (BUX, PX-50, WIG20). The novelty of our paper rests mainly on the use of the five-minute tick intraday price data from the mid-2003 to the early 2005 for stock indices and on the wide range of econometric techniques employed. We find no robust cointegration relationship for any of the stock index pairs or for any of the extended specifications. There are signs of short-term spillover effects both in terms of stock returns and stock price volatility. Granger causality tests show the presence of bidirectional causality for returns as well as volatility series. The results based on a VAR framework indicate a more limited number of short-term relationships between the stock markets. In general, it appears that spillover effects are stronger from volatility to volatility than contagion effects from return to return series.
    Keywords: contagion and spillover effects, market integration, European emerging markets, intra-day data
    JEL: C22 F36 G15 O16 P59
    Date: 2005–11–01
  9. By: Balázs Égert; ;
    Abstract: This paper investigates the importance of the Balassa-Samuelson effect for two acceding countries (Bulgaria and Romania), two accession countries (Croatia and Turkey) and two CIS countries (Russia and Ukraine). The paper first studies the basic assumptions of the Balassa-Samuelson effect using yearly data, and then undertakes an econometric analysis of the assumptions on the basis of monthly data. The results suggest that for most of the countries, there is either amplification or attenuation, implying that any increase in the open sector’s productivity feeds onto changes in the relative price of non-tradables either imperfectly or in an over-proportionate manner. With these results as a background, the size of the Balassa-Samuelson effect is derived. For this purpose, a number of different sectoral classification schemes are used to group sectors into open and closed sectors, which makes a difference for some of the countries. The Balassa-Samuelson effect is found to play only a limited role for inflation and real exchange rate determination, and it seems to be roughly in line with earlier findings for the eight new EU member states of Central and Eastern Europe.
    Keywords: Balassa-Samuelson effect, productivity, inflation, real exchange rate, transition, South Eastern Europe, CIS, Turkey
    JEL: E31 O11 P17
    Date: 2005–11–01
  10. By: Balázs Égert,; László Halpern; Ronald MacDonald
    Abstract: In this paper we present an overview of a number of issues relating to the equilibrium exchange rates of transition economies of the former soviet bloc. In particular, we present a critical overview of the various methods available for calculating equilibrium exchange rates and discuss how useful they are likely to be for the transition economies. Amongst our findings is the result that the trend appreciation usually observed for the exchange rates of these economies is affected by factors other than the usual Balassa-Samuelson effect, such as the behaviour of the real exchange rate of the open sector and regulated prices. We then consider three main sources of uncertainty relating to the implementation of an equilibrium exchange rate model, namely: differences in the theoretical underpinnings; differences in the econometric estimation techniques; and differences relating to the time series and cross-sectional dimensions of the data. The ensuing three-dimensional space of real misalignments is probably a useful tool in determining the direction of a possible misalignment rather than its precise size.
    Keywords: equilibrium exchange rate, Purchasing Power Parity, trend appreciation, Balassa-Samuelson effect, productivity, inflation differential, tradable prices, regulated prices, Fundamental Equilibrium Exchange Rate, Behavioural Equilibrium Exchange Rate, Permanent Equilibrium Exchange Rate, NATREX, CHEER, transitional economies, euro.
    JEL: C15 E31 F31 O11 P17
    Date: 2005–10–01
  11. By: Katerina Arnostova; Jaromir Hurnik
    Abstract: Due to significant lags between a monetary policy action and the subsequent responses in the economy, understanding the transmission mechanism is of primary importance for conducting monetary policy. This paper analyses the monetary policy transmission mechanism using VAR models - the most widely used empirical methodology for analyzing the transmission mechanism in the Czech economy. Using the VAR methodology, the paper tries to evaluate the effects of an exogenous shock to monetary policy. The results show that an unexpected monetary policy tightening leads to a fall in output, whereas prices remain persistent for a certain time. The exchange rate reaction then heavily depends on the data sample used. Although it is clear that due to the rather short time span of the data, the results should be taken with caution, they at least show that the basic framework of how monetary policy affects the economy does not differ significantly either from what would be predicted by the theory or from the results obtained for more developed economies.
    Keywords: Impulse response, monetary policy, transmission mechanism, vector autoregressions.
    JEL: E37 E52
    Date: 2005–12

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.