nep-eec New Economics Papers
on European Economics
Issue of 2006‒07‒02
twenty papers chosen by
Giuseppe Marotta
Universita di Modena e Reggio Emilia

  1. Forecasting ECB Monetary Policy: Accuracy Is (Still) a Matter of Geography By Helge Berger; Michael Ehrmann; Marcel Fratzscher
  2. The External Policy of the Euro Area: Organizing for Foreign Exchange Intervention By C. Randall Henning
  3. "Brain Drain Competition" Policies in Europe: a Survey By Pierpaolo Giannoccolo
  4. How do mergers and acquisitions affect bondholders in Europe? : evidence on the impact and spillover of governance and legal standards By Renneboog,Luc; Szilagyi,Peter G.
  5. Properties of the Histogram Location Approach and the Extent and Change of Downward Nominal Wage Rigidity in the EU By Andreas Behr
  6. Cross-national differences in income poverty among Europe´s 50+ By Hallberg, Daniel
  7. Services policies in transition economies : on the European Union and the World Trade Organization as commitment mechanisms By Hoekman, Bernard; Eschenbach, Felix
  8. Lobbying Systems in the European Union: A Quantitative Study By Broscheid, Andreas, David Coen
  9. Socially responsible investment: differences between Europe and United States By Louche, C.; Lydenberg, Steven
  10. Euro Stoxx 50: 1997-2005. Shareholder value creation in Europe By Fernandez, Pablo; Carabias, Jose M.; Aznarez, Julio; Carbonell, Oscar E.
  11. Macroeconomic Challenges with EU Accession in Southeastern Europe: An Overview By Piritta Sorsa
  12. Pay Inequality in Europe 1995-2000: Convergence Between Countries and Stability Inside By James Galbraith; Enrique Garcilazo
  13. Skill Diffusion by Temporary Migration? Returns to Western European Working Experience in the EU Accession Countries By Anna Iara
  14. How Does Investing in Cheap Labour Countries Affect Performance at Home? France and Italy By Giorgio Barba Navaretti; Davide Castellani; Anne-Célia Disdier
  15. An Age Perspective on Economic Well-Being and Social Protection in Nine OECD Countries By Thai-Thanh Dang; Herwig Immervoll; Daniela Mantovani; Kristian Orsini; Holly Sutherland
  16. Financial Deregulation and Economic Growth in the Czech Republic, Hungary and Poland By Patricia McGrath; ;
  17. Convergence and shocks in the road to EU: Empirical investigations for Bulgaria and Romania By Jean-Marc Figuet; Nikolay Nenovsky;
  18. Implications of ERM2 for Poland’s Monetary Policy By Lucjan Orlowski; Kryzstof Rybinski;
  19. Offshoring in Europe—Evidence of a Two-Way Street from Denmark By Peter D. Ørberg Jensen; Jacob Funk Kirkegaard; Nicolai Søndergaard Laugesen
  20. Evaluation of Mass Privatization in Bulgaria By Jeffrey Miller; ;

  1. By: Helge Berger; Michael Ehrmann; Marcel Fratzscher
    Abstract: Monetary policy in the euro area is conducted within a multicountry, multicultural, and multilingual context involving multiple central banking traditions. How does this heterogeneity affect the ability of economic agents to understand and to anticipate monetary policy by the European Central Bank (ECB)? Using a database of surveys of professional ECB policy forecasters in 24 countries, we find remarkable differences in forecast accuracy, and show that they are partly related to geography and clustering around informational hubs, as well as to country-specific economic conditions and traditions of independent central banking in the past. In large part, this heterogeneity can be traced to differences in forecasting models. While some systematic differences between analysts have been transitional and are indicative of learning, others are more persistent.
    Keywords: Monetary policy , Europe , European Central Bank , Economic forecasting , Data collection , Data analysis ,
    Date: 2006–02–17
  2. By: C. Randall Henning (Institute for International Economics)
    Abstract: Scholarship on European integration has extensively debated the external character of the monetary union. The institutions of exchange rate policymaking bear substantially on the euro area’s role in international monetary conflict and cooperation. This working paper examines the institutional arrangements for foreign exchange intervention within the euro area and the policymaking surrounding the market operations of autumn 2000—the only case to date of euro area intervention in currency markets. Drawing on interviews of officials in finance ministries, central banks, European institutions, and international organizations, as well as public sources, the paper specifies the division of labor among the European Central Bank (ECB), Eurogroup, and other European actors and compares that arrangement with corresponding arrangements in the G-7 partners. It concludes, among other things, that (1) the interinstitutional understanding within the euro area gives substantial latitude to the ECB, greater latitude than held by central banks in its G-7 partners, (2) but the understanding is susceptible to renegotiation over time, and (3) economic divergence within the euro area potentially threatens the ability of the monetary union to act coherently externally.
    Keywords: Foreign Exchange Intervention, Exchange Rate Policy and Policymaking, Economic and Monetary Union, Euro-Dollar Exchange Rate, European Central Bank, Eurogroup, G-7 Cooperation, Transatlantic Monetary Relations, Political Economy of Exchange Rates
    JEL: F31 F32 F33 F42
    Date: 2006–06
  3. By: Pierpaolo Giannoccolo
    Abstract: To obtain the "1.2 million additional research personnel, including 700.000 additional researchers" necessary to "irrigate" the industries science-based, The EU stresses that it is not sufficient increase the investment in Research. We have to stop the European Brain Drain. We have to reverse it; "Europeans who have moved abroad would love to come home". We have to remember that the "Brain Drain should work in both directions", then we have to attract foreign brilliant scientists and compete to the US A. In this paper we give a survey of the principal “Brain Drain Competition” policies implemented in Europe. The key strategies and mechanisms found are: making the academic system more open and flexible; improving the regulatory conditions particularly on immigration; better sign-posting and information at national level; dedicated grants for foreign researchers; adapting income situations to market forces; providing tax reductions specifically for researchers and knowledge workers; more active international marketing and support for international researchers. Finally, we analyse the effects of these policies on the Brain Drain in Europe by giving examples of countries (i.e. UK, France, Germany, Belgium, etc) that that effectively reverse the Brain Drain and attract foreign researchers, and the exemplum of the Italy that it is “a countries that supplies talent to Europe and the Americas”.
    Keywords: Brain Drain, Migration policies, Human Capital, High skilled workers.
    JEL: F22 I23 J24 P16
    Date: 2005–02
  4. By: Renneboog,Luc; Szilagyi,Peter G. (Tilburg University, Center for Economic Research)
    Abstract: This paper contributes to the comparative corporate governance literature by showing how cross-country differences in governance and legal standards affect the bondholder wealth effects of European merger and acquisitions (M&As). Using investment-grade Eurobonds, we find some remarkable results. Firstly, M&As involving European firms are considerably more bondholderfriendly than are US domestic deals. Bidding firm bondholders earn economically significant positive returns, while target bondholders incur positive but insignificant returns. Overall, acquisitions do generate value to European bidding firms, but most of the wealth effect is captured by the bondholders. Secondly, bondholder gains in both bidding and target firms are systematically higher in M&As that involve Continental European firms. Thirdly, bidder abnormal bond returns are lower in cross-border deals. However, this is counterbalanced if creditor rights and the efficiency of credit contract enforcement are stronger in the target country. There is also strong evidence that, consistent with crossborder spillovers, improved creditor protection redistributes wealth from shareholders to bondholders. Finally, we document that bondholder wealth changes are subject to changes in asset risk and to a negative listing effect similar to that previously reported for changes in shareholder wealth.
    Keywords: bondholder returns;Eurobonds;mergers and acquisitions;creditor rights; takeover;corporate governance;shareholders abnormal returns;M&A;insolvency
    JEL: G34 G32 G12 G14
    Date: 2006
  5. By: Andreas Behr
    Abstract: The histogram location approach has been proposed by Kahn (1997) to estimate the fraction of wage cuts prevented by downward nominal wage rigidity. In this paper, we analyze the validity of the approach by means of a simulation study which yielded evidence of unbiasedness but also of potential underestimation of rigidity parameter uncertainty and therefore of potential anticonservative inference. We apply the histogram location approach to estimate the extent of downward nominal wage rigidity across the EU for 1995-2001. Our data base is the User Data Base (UDB) of the European Community Household Panel (ECHP). The results show wide variation in the fraction of wage cuts prevented by nominal wage rigidity across the EU. The lowest rigidity parameters are found for the UK, Spain and Ireland, the largest for Portugal and Italy. Analyzing the change of rigidity between sub periods 1995-1997 and 1999-2001 even shows an widening of the differences in nominal wage rigidity. Due to the finding of large differences across the EU, the results imply that the costs of low inflation policies across the EU differ substantially.
    JEL: J30
    Date: 2006–06–12
  6. By: Hallberg, Daniel (Department of Economics)
    Abstract: This paper studies income poverty among the 50+ population in 10 EU countries using newly collected data from the SHARE (Survey of Health, Ageing and Retirement in Europe) project. A measure of the household’s disposable annual income is used. Relative income poverty range from 10 percent (in Sweden) to 22 percent (in Switzerland). Logistic regression estimates show that unemployment, being a homemaker, self-employed, living single, and having a child living close, are associated with an increased likelihood of poverty. Less risk of poverty can be found among those that have supervision over the workplace, have obtained more education, are home owners, and, in some countries, among those that are relatively old.
    Keywords: Poverty; disposable income; household income; cross-country comparison; relative poverty
    JEL: D31 I31 I32 J14
    Date: 2006–06–25
  7. By: Hoekman, Bernard; Eschenbach, Felix
    Abstract: The authors 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. They compare GATS commitments with the evolution of actual policy stances over time. While there is substantial variance across transition economies on both actual policies and GATS commitments, the authors 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. But 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. The authors ' findings suggest greater collective investment by WTO members in monitoring and the need for transparency to increase the benefits of WTO membership to small countries.
    Keywords: Trade and Services,Trade Law,World Trade Organization,Trade and Regional Integration,Free Trade
    Date: 2006–06–01
  8. By: Broscheid, Andreas, David Coen
    Keywords: European Commission; interest intermediation; interest representation; legitimacy; lobbying; pluralism; political opportunity structure; political representation
    Date: 2006–05–24
  9. By: Louche, C.; Lydenberg, Steven
    Abstract: Since the early 1970s, Socially Responsible Investment (SRI) has grown from a curiosity and niche-market phenomenon in the financial world to become a global movement, which is embraced now in most countries around the world. The paper focuses on the development and practices of SRI in the United States and Europe. The aim is to explore the historical, cultural and political embeddedness of SRI. Based on second sources of information, it offers a comparative analysis of the development and current practices of SRI on both sides of the Atlantic and discusses the future trends for SRI. The paper shows that SRI movements in both regions present some differences in terms of definitions, actors involved, vocabulary and motivations, and strategies implemented. However, they also share a common underlying purpose and seeking similar goals of improving corporations’ policies and practices on social and environmental issues.
    Keywords: Socially Responsible Investment, Europe, United States
    Date: 2006–06–22
  10. By: Fernandez, Pablo (IESE Business School); Carabias, Jose M. (IESE Business School); Aznarez, Julio (ESE, Business School); Carbonell, Oscar E. (IPADE Business School)
    Abstract: 2005 was a very good year for the shareholders of the companies in the Euro Stoxx 50. The shareholder value creation of these 50 companies was €292.9 billion. The companies that created most value for their shareholders were Total (€30 billion), Sanofi-Synthelabo (€23.2 billion) and Eni (€20.7 billion). The companies that destroyed most value were telecoms: Deutsche Telekom (€-14.8 billion), France Telecom (€-11.8 billion) and Telecom Italia (€-7.1 billion). In 2005, the Euro Stoxx 50 was slightly more volatile than the S&P 500. Shareholder value creation in the three-year period 2003-2005 was €551 billion. The market value of the 50 companies included in the Euro Stoxx 50 was €2.1 trillion in 2005, although only €1.8 trillion were included in the index. SAP was the top shareholder value creator and Deutsche Telekom the top shareholder value destroyer during the eight-year period 1997-2005. A portfolio long in the companies that entered the index and short in the companies that abandoned the index had on average a 6.85% return in the 20 days prior to the index recomposition and a 0.97% return in the 20 days after the index recomposition.
    Keywords: shareholder value creation; created shareholder value; shareholder value added; shareholder return; required return to equity;
    JEL: G12 G31 M21
    Date: 2006–04–15
  11. By: Piritta Sorsa
    Abstract: The paper reviews key macroeconomic challenges with EU accession in Southeastern Europe (SEE). Most of the countries in the region are years away from EU accession and need substantial progress to meet the key macroeconomic criteria-the establishment of a functioning market economy and macroeconomic stability. The former calls for further structural reforms. While macroeconomic stability is essential throughout the EU accession process, the importance of specific outcomes increases in the last stage of accession, when countries face decisions to apply for entry into the ERM2 and the Maastricht criteria (Bulgaria and Romania). The main challenges with establishing macroeconomic stability in other countries are related to sustainability of their monetary frameworks, risks from rapid financial deepening, and further fiscal consolidation to support growth and stabilization. Most of the SEE countries have room to lower public spending and increase the share of pro-growth spending.
    Keywords: Markets , Europe , European Union , Fiscal policy , Economic stabilization ,
    Date: 2006–02–17
  12. By: James Galbraith; Enrique Garcilazo
    Abstract: This paper measures pay inequality in the EU during the convergence process to the Monetary Union. The decomposability property of Theil's T statistic permits us to construct a three-level hierarchical panel data set of pay inequalities for the years 1995-2000: between and within regions, countries, and for the European continent as a whole. We find a marked pattern of declining pay inequality across Europe for this period, which is due mainly to the rising (initially, negative) position of the United Kingdom and decreasing positive position of Germany.
    JEL: O52 R23 D63 E24 J31
    Date: 2005–12–07
  13. By: Anna Iara (The Vienna Institute of International Economic Studies and Center for European Integration Studies, University of Bonn)
    Abstract: Temporary migration is of growing significance in Europe. Upon migration to a country with higher technological development that typically coincides with positive wage differentials, temporary migrants may upgrade their skills by learning on the job and subsequently import the newly acquired human capital to their source country, thus adding to international know-how diffusion and the catching up of the respective economy. This paper is the first to provide supportive evidence of this hypothesis in a cross-country East to West European perspective, using the 2003 Youth Eurobarometer dataset.
    Keywords: Central and Eastern Europe, return migration, wage premium, skill diffusion
    Date: 2006
  14. By: Giorgio Barba Navaretti (University of Milano and Centro Studi Luca d’Agliano); Davide Castellani (Università di Urbino and Centro Studi Luca d’Agliano); Anne-Célia Disdier (INRA-INAPG (UMR Economie Publique) and Université de Paris 1 (CES))
    Abstract: Transferring low tech manufacturing jobs to cheap labour countries is often seen by part of the general public and policy makers as a step into the de-industrialisation of the European economies. However, several recent contributions have shown that the effects on home economies are rarely negative and often positive. Our paper contributes to this literature by examining how outward investments to cheap labour countries affect home activities of a sample of French and Italian firms that turn multinational in the period analysed. The effects of these investments are also compared to the effects of outward investments to developed economies. The analysis is carried out by using propensity score matching in order to build an appropriate counterfactual of national firms. This provides the hypothetical benchmark of what would have happened to domestic activities if firms had not invested abroad. We find no evidence of a negative effect of outward investments to cheap labour countries. In Italy they enhance the efficiency of home activities, with also positive long term effect on output and employment growth. Also for France we find a positive effect on productivity and the size of domestic activity, although not as robust and significant. Investments to developed economies from both countries have essentially scale effects but which do not trickle down on productivity at home.
    Keywords: multinational firms, productivity, propensity score matching
    JEL: F23 D21 C14
    Date: 2006
  15. By: Thai-Thanh Dang (OECD); Herwig Immervoll (OECD, ISER, University of Essex, European Centre Vienna and IZA Bonn); Daniela Mantovani (Universita di Modena e Reggio Emilia); Kristian Orsini (Catholic University Leuven); Holly Sutherland (ISER, University of Essex)
    Abstract: This paper quantifies the economic well-being of different age groups and the extent of their reliance on incomes from public and private sources. The aim is to establish how social benefits, and the taxes needed to finance them, affect income levels and disparities across different age groups. Results are compared across nine OECD countries using household micro-data and microsimulation models to illustrate the influence of market income patterns, household structures and social protection measures on the income distribution among and between different age groups. We use information from the late 1990s to establish a "distributional baseline" that refers to an early phase of the projected increase in dependency ratios and also pre-dates some of the major reforms that are introduced to address these. Results even for this period show that social protection was already largely "old-age" protection, with those aged 65 and over typically receiving almost three times the (net) cash transfers of the average person. In most countries, the incidence of "low" incomes was nevertheless higher among old-age individuals than for the population as a whole. We argue, however, that the cross-country evidence suggests some scope for re-balancing social protection spending without necessarily compromising distributional objectives.
    Keywords: inequality, poverty, social protection, ageing, demographics, microsimulation
    JEL: C81 D31 H22 H55
    Date: 2006–06
  16. By: Patricia McGrath; ;
    Abstract: Advocates of financial regulation, Arestis and Demetriades, argue that financial liberalisation does not impact on financial market efficiency and the allocation of investment. Results in this study find that Czech, Hungarian and Polish firms are subject to scrutiny when applying for credit. The firm’s ability to provide collateral, the potential of the proposed investment project and individual financial backgrounds are all factors that are used before loans are offered, and it likely that allocational efficiency is strengthened in these circumstances, and not weakened. Stiglitz has the view that financial repression improves the quality of the pool of loans. Results here indicate that companies in these countries previously had very limited access to credit while government owned companies and government projects received the bulk of credit. After deregulation it became apparent that the quality of the pool of loans was very poor. This study supports Shaw’s assertion that financial deregulation improves financial deepening.
    Keywords: Transition Economies, Industrial Development, Financial Deregulation, Economic Growth, Eastern Europe
    JEL: G G2 G21
    Date: 2005–11–01
  17. By: Jean-Marc Figuet; Nikolay Nenovsky;
    Abstract: Despite their progress Bulgaria and Romania significantly differ from the EU economies. In this article, on the basis of the theoretical and empirical achievements of the theory of optimal and (endogenous) currency areas we study to what extent the two South European economies are able to adopt the common economic (and above all monetary) policy of the EU, and to what extent the convergence to the EU stimulates the economic development of these countries. Despite the similarities, the two countries now differ fundamentally in their choice of a monetary regime – while Romania uses inflation targeting and a flexible exchange rate, Bulgaria has adopted a currency board regime. For this purpose we analyze: (i) the degree of nominal, real and financial convergence and synchronization of the economic cycle with that of the European Union (using unconditional ß convergence approach). Income and price levels, inflation rate, interest rate, monetary aggregates, credit, productivity etc. are among the studied variables; (ii) the resistance to different external and internal shocks (using VAR model) as well as (iii) the mechanisms for balancing and absorption of these shocks. To give a better comparative picture we compose the panel including Hungary and Czech Republic.
    Keywords: convergence, shocks, EU enlargement, Bulgaria and Romania
    JEL: E3 F4 P2
    Date: 2006–02–01
  18. By: Lucjan Orlowski; Kryzstof Rybinski;
    Abstract: This study proposes an extension to the inflation targeting framework for Poland that takes into consideration the exchange rate stability constraints imposed by the obligatory participation in the ERM2 on the path to the euro. The modified policy framework is based on targeting the differential between the domestic and the implicit euro area inflation forecasts. The exchange rate stability objective enters the central bank reaction function and is treated as an indicator variable. Adjustments of interest rates respond to changes in the relative inflation forecast, while foreign exchange market intervention is applied for the purpose of stabilizing the exchange rate. The dynamic market equilibrium exchange rate is ascertained by employing the Johanssen cointegration tests and the threshold generalized autoregressive heteroscedasticity model with the in-mean extension and generalized error distribution (TGARCH-M-GED).
    Keywords: inflation targeting, monetary convergence, ERM2, euro, Poland, cointegration, GARCH
    JEL: E58 E61 F33 P24
    Date: 2005–12–01
  19. By: Peter D. Ørberg Jensen (Copenhagen Business School); Jacob Funk Kirkegaard (Institute for International Economics); Nicolai Søndergaard Laugesen (Rambøll Management)
    Abstract: Based on a large Danish survey of companies in tradable goods and services sectors, this working paper presents the results of offshoring and its impact on jobs, adding new perspectives to the globalization debate. Globalization entails a cross-border flow of jobs, but contrary to the mainstream media portrayal of globalization, it is not a one-way but a two-way street. In 2002–05 more jobs were created as a result of offshoring of activities into eastern Denmark from companies outside Denmark (i.e., inshored to Denmark) than were eliminated due to offshoring from companies in the Danish region. Overall, the employment effects of both offshoring and inshoring were found to be limited to less than 1 percent of all jobs either lost to offshoring or gained via inshoring. For Denmark, the worries in purely numerical terms regarding the employment effects of globalization seem overly alarmist. However, the trends revealed in the study do pose challenges for low-skilled workers—the group most negatively affected—and for highly skilled specialists, who face pressure to constantly upgrade their skills. Policy implications can be drawn in view of our results to ensure that labor markets are able to meet the demands of globalizing firms.
    Keywords: Labor Market, Offshoring, Offshore Outsourcing, High- and Low-Skilled Workers, Skill Bias, Denmark, Flexicurity
    JEL: J23 J24 J38 L23
    Date: 2006–06
  20. By: Jeffrey Miller; ;
    Abstract: The mass privatization program in Bulgaria was implemented in 1996-97. Following programs in countries like the Czech Republic, more sophisticated regulatory bodies were put into place to prevent the kind of abuses observed elsewhere. This study finds that Bulgaria avoided some of the extreme problems that manifested themselves in these other countries, but there were still serious problems of dilution. Dilution is similar in both mass privatization firms and nonmass privatization firms. Dilution is associated with positive performance, suggesting that more concentrated ownership has had some benefits. Even after a number of years have passed, mass privatization firms have performed less well than firms privatized by other means.
    Keywords: Bulgaria, mass privatization, dilution
    JEL: P5 P3 G3
    Date: 2006–03–01

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