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on European Economics |
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Issue of 2007‒01‒23
twenty-two papers chosen by Giuseppe Marotta Universita di Modena e Reggio Emilia |
| By: | Giuseppe Marotta |
| Abstract: | We search for multiple unknown structural breaks in the short term business lending rate pass-through in euro countries, possibly associated with the introduction of the single currency. One break is detected in five EMU countries, two are found in other four, and in the UK as well. The last break occurs much before the event for France, several quarters later for Austria, Germany, Italy and Portugal, and the UK, hinting at best at a loose link with the inception of EMU. Long run pass-throughs decrease (except for France), becoming even more incomplete (except for the Netherlands and the UK); though the adjustment to equilibrium has become faster, cross-country heterogeneity in the euro area has barely changed. An incomplete lending rate pass-through, even in the long run, for the least sticky bank rate and the persistence of cross-country heterogeneity make tougher for the ECB to realize an effective area-wide monetary policy. |
| Keywords: | Interest rates; Monetary policy; Economic and Monetary Union (EMU); Cointegration analysis; Structural breaks |
| JEL: | E43 E52 E58 F36 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:mod:modena:0612&r=eec |
| By: | Reint Gropp (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany; Corresponding author.); Christoffer Kok Sørensen (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Jung-Duk Lichtenberger (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper investigates the dynamics of the pass-through between market interest rates and bank interest rates in the euro area as a function of cyclical and structural differences in the financial system. We find that overall the speed of adjustment for loans is significantly faster than for deposits, and that the pass-through is especially sluggish for demand deposits and savings deposits. Bank soundness, credit risk and interest rate risk are found to exert a significant influence on the speed of pass through. We also find evidence of faster (slower) pass-through for loans (deposits) if the change in monetary policy was up (down). Overall, we find that competition among banks and competition from financial markets result in a faster bank interest rate pass-through. Finally, we find some evidence that financial innovation speeds up the pass-through for those market segments that are most directly affected by these innovations. JEL Classification: E43, G21. |
| Keywords: | Monetary transmission, banks, retail rates, financial structure. |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070714&r=eec |
| By: | Andrea Buffa (Center for Research on Pensions and Welfare Policies, Turin); Chiara Monticone |
| Abstract: | The decline in saving rates experienced by some European countries has raised concerns about the importance of a country’s wealth accumulation, in particular in light of a more fair but less generous pension system. This paper carries out a macroeconomic analysis of the impact of pension reforms implemented in the nineties on private saving. The evidence shows no tendency for saving to change in the post-reform period, which is consistent with preliminary results on pension reforms in the eighties. We conclude that the adequacy of saving can not find a source of improvement in the pension reforms of the last decade. |
| Keywords: | Pension, Saving |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:crp:wpaper:50&r=eec |
| By: | Jonas Dovern (Kiel Institute for World Economics (IfW Kiel)); Joerg Doepke (Fachhochschule Merseburg); Ulrich Fritsche (Department for Economics and Politics, University of Hamburg, and DIW Berlin); Jirka Slacalek (German Institute for Economic Research (DIW Berlin)) |
| 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: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:hep:macppr:200603&r=eec |
| By: | Jonas Dovern (Kiel Institute for World Economics (IfW Kiel)); Joerg Doepke (Fachhochschule Merseburg); Ulrich Fritsche (Department for Economics and Politics, University of Hamburg, and DIW Berlin); Jirka Slacalek (German Institute for Economic Research (DIW Berlin)) |
| Abstract: | We estimate the sticky information Phillips curve model ofMankiw and Reis (2002) using survey expectations of professional forecasters from four major European economies. Our estimates imply that inflation expectations in France, Germany and the United Kingdom are updated about once a year, in Italy about once each six months. |
| Keywords: | Inflation expectations, sticky information, Phillips curve, inflation persistence |
| JEL: | D84 E31 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:hep:macppr:200604&r=eec |
| By: | Gabriel Fagan (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Vítor Gaspar (Banco de Portugal, Avenida Almirante Reis, 71-8o, 1150, Lisboa, Portugal.) |
| Abstract: | In this paper we argue that, for a group of converging economies of the European Union, participation in the euro area has been associated with easier access to financing by domestic economic agents. Easier access to financing was a significant impulse leading to a sharp increase in households' expenditures and a corresponding fall in the savings ratio. Increased expenditure was associated with current account deficits, a sharp fall in the net foreign asset position and an increase in the households' indebtedness. At the same time there was a sizeable increase in the real exchange rate. In this paper, we show that it is possible to obtain all these qualitative features of adjustment using a simple analytical model of intertemporal equilibrium. Specifically, we consider a simple endowment economy with traded and non-traded goods populated by Blanchard-Yaari households. We also argue that the consideration of external habit formation improves the model's ability to mimic short to medium term adjustment dynamics while, at the same time, improving the plausibility of steady state effects. JEL Classification: F36, E21, F32. |
| Keywords: | Euro area, interest rate convergence, overlapping generations model. |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070716&r=eec |
| By: | Albert van der Horst; Arjan Lejour; Bas Straathof |
| Abstract: | Innovation seldom has purely domestic causes and consequences, but how can a European innovation policy complement or substitute national policies? Taking the subsidiarity principle as a starting point, this report discusses the economic rationale of a European innovation policy. Explorative empirical analysis suggests that public R&D and public funding of private R&D are subject to economies of scale and external effects. This is an argument in favour of a European innovation policy but amongst other things, the heterogeneity in social economic objectives on public R&D spending between Member States pleas for national government involvement. In addition, there are scale economies in the protection of intellectual property and in the development of standards. We conclude that a European innovation policy could have, or already has, substantial benefits over purely national policy in these areas. With respect to innovation policies targeted at SMEs, we do not find economies of scale or external effects. It seems to be efficient that these policies are mainly conducted at the national level. |
| Keywords: | innovation policy; subsidiarity; European Union |
| JEL: | O38 H77 H87 F15 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:docmnt:132&r=eec |
| By: | Sebastian Dullien (Financial Times Deutschland); Ulrich Fritsche (Department for Economics and Politics, University of Hamburg, and DIW Berlin) |
| Abstract: | This paper compares relative unit labour cost developments in the countries of the euro-area since the beginning of the European Monetary Union (EMU) both with historical developments and with intra-regional unit labour cost developments in the United States of America and Germany. To this end, unit labour cost indices for the US states and census regions from 1977 to 1997 as well as for the German Länder from 1970 to 2004 have been constructed. Against this benchmark, it is found that unit labour cost increases since 1999 in Portugal and to a lesser extent in Spain and Greece can be judged as excessive, pointing at labour market rigidities which might impair smooth working of EMU in the future. |
| Keywords: | Unit labor costs, divergence, convergence, Euro-zone, inflation |
| JEL: | F2 F4 N2 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:hep:macppr:200605&r=eec |
| By: | Mario A. Maggioni (DISEIS and Catholic University of Milan); Mario Nosvelli (CERIS-CNR); T. Erika Uberti (DISEIS and Catholic University of Milan) |
| Abstract: | In the last fifteen years, income differences among European Member States have been strongly narrowing while the process has been matched with a widening of the inter-regional variance within single countries. Traditionally, regional economic disparities in Europe have been ascribed to peripherality and/or to a high level of dependence on declining sectors. Nowadays regional disparities can be no longer defined only in terms of statistical differences in the values of standard macroeconomic indicators, but also according to innovative capacities and knowledge endowment. This paper provides an original framework for the interpretation of the existing relationships between innovation process and research activity in Europe and the structural and geographical features shaping the European scientific and technological map. In order to do so, we focus on two knowledge-based relational phenomena: participation in the same research networks (funded by the EU Fifth Framework Programme) and EPO co-patent applications. Using two complementary econometric techniques we try to assess those factors that determine patenting activity, distinguishing structural features, geographical and relational spillovers. Through these variables we measure the intrinsic relational structure of knowledge flows which directly connects people, institutions and, indirectly, regions, across European countries in order to test whether hierarchical relationships based on a-spatial networks between geographically distant excellence centres prevail over diffusive patterns based on spatial contiguity. |
| Keywords: | Spatial Distribution, Networks, European Analysis |
| JEL: | O31 R12 C21 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2006.153&r=eec |
| By: | Sijbren Cnossen |
| Abstract: | This paper provides estimates of the external costs of harmful alcohol use in the European Union (EU) and confronts them with the alcohol excise duty collections per adult and per litre of pure alcohol in the various Member States. In all but one Member State, drinkers do not appear to pay their way. This reflects the EU’s acquiescence in a formidable alcohol problem. Fifteen per cent of adults ‘drink too much’, while the extent of youth drinking has reached alarming proportions. The external costs should be internalised in price through an appropriate optimal alcohol excise duty, supplemented by regulatory measures aimed at specific problem groups. Further, a coordinated alcohol tax policy seems called for, which would, among others, raise the minimum duties on wine, beer and spirits, preferably in line with their relative alcohol content. A drawback of these measures is that they would reduce the welfare of moderate drinkers. |
| Keywords: | alcohol taxation; European Union; external costs; social costs |
| JEL: | H2 H8 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:76&r=eec |
| By: | Rob Alessie; Thomas F. Crossley; Vincent Hildebrand |
| Abstract: | We estimate a collective household model with survey data on financial satisfaction from the European Community Household Panel. Our estimates suggest that cohabitating individuals enjoy returns to scale in consumption that are towards the larger end of the range of estimates reported in the literature. They also suggest that the share of household income provided by the female partner is a significant determinant of her share of household consumption in most countries of the countries we study. |
| Keywords: | consumption, returns to scale, collective household models |
| JEL: | D12 D13 I31 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0607&r=eec |
| By: | Gaëtan Nicodème (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels and European Commission.) |
| Abstract: | The current debate in corporate taxation is focusing on leveling the tax playing field within the European Union for companies operating across-countries. However, tax burdens could also vary with the size of companies within the same country, raising the question whether large companies pay their share of the burden. This paper uses firm-level data for 21 European countries between 1992 and 2004. The paper finds a robust negative correlation between the number of employees and the effective tax burden of companies. This result tends to validate theories arguing that large companies may enjoy a lower tax burden. As a caveat, using total assets as size variable produces a positive relationship. This relationship is however less robust and less economically significant. |
| Keywords: | Corporate taxation, Effective tax rates, political power, political cost. |
| JEL: | E61 H21 H22 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:07-001&r=eec |
| By: | Pietro Caratti (Fondazione Eni Enrico Mattei); Gabriella Lo Cascio (Fondazione Eni Enrico Mattei) |
| Abstract: | The objective of this paper is to investigate the actual situation in the shift towards the implementation of Sustainable Development Policies in Europe. The aim is to highlight the key role of the European Union in bringing about sustainable development within Europe and also on the wider global stage. It will show how the European Commission performs its commitment in reaching a sustainable regulation by issuing some documents and declarations. The paper frames the EU action into an international framework of strategies, agreements and policies on SD and, at the same time, provides an overview on experiences of SD strategy implementations at the national level, according to the commission pressing on MS to produce their own SD strategy and implement it. Indicators systems, issues of interest and fields of actions are compared: the analysis of these elements aims to highlight common scenarios of SD strategies that reveal the trends towards a more sustainable growth in the European Union. |
| Keywords: | Sustainable Development, Globalization, Environment Policy, Strategy for Sustainable Development, Good Governance, Participation |
| JEL: | Q01 Q5 Q56 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2006.152&r=eec |
| By: | Manow, Philip,; Holger Döring |
| Abstract: | Abstract Voters who participate in elections to the European Parliament tend to use these elections to punish their domestic governing parties. Many students of the EU therefore claim that the party-political composition of the Parliament should systematically differ from that of the Council. This study, which compares empirically the party-political centers of gravity of these two central political actors, shows that opposed majorities between Council and Parliament may have other than simply electoral causes. The logic of domestic government formation works against the representation of politically more extreme parties, and hence against more EU-skeptic parties in the Council. At the same time, voters in EP elections vote more often for these more extreme and more EU-skeptic parties. The different locations of Council and Parliament in the pro-/contra-EU dimension may thus be caused by two – possibly interrelated – effects: a mechanical effect, due to the translation of votes into seats and then into ‘office’, and thus also into Council representation, and an electoral effect in elections to the European Parliament. The paper discusses the implications of this finding for our understanding of the political system of the EU and of its democratic legitimacy. |
| Keywords: | democracy; European elections; legitimacy; multilevel governance; multilevel governance; spatial theory; national parliaments; European Council; European Parliament |
| Date: | 2006–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:erp:mpifgx:p0074&r=eec |
| By: | CPB, in collaboration with ZEW, Mannheim |
| Abstract: | The European electricity and gas markets have been going through a process of liberalisation since the early 1990s. This process has changed the sector from a regulated structure of, predominantly, publicly owned monopolists controlling the entire supply chain, into a market where private and public generators and retailers compete on a regulated and unbundled system of transport infrastructure. This report assesses the evidence of the effects of liberalisation on efficiency, security of energy supply and environmental sustainability. |
| Keywords: | Liberalisation; energy; efficiency; security of supply; environmental policy |
| JEL: | L5 L94 L95 L98 Q4 Q5 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:docmnt:138&r=eec |
| By: | Sjef Ederveen; George Gelauff; JacquesPelkmans |
| Abstract: | This paper discusses the assessment of subsidiarity in the European Union from a broad fiscal federalism perspective. It incorporates recent insights from political economy analyses of fiscal federalism to arrive at a list of issues that need to be taken into account when considering whether concrete policies should be centralised in the European Union or not. |
| Keywords: | subsidiarity; fiscal federalism; political economy |
| JEL: | H11 H77 F15 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:docmnt:133&r=eec |
| By: | Isabel Grilo; Roy Thurik |
| Abstract: | The process of the entrepreneurial decision is decomposed in seven engagement levels ranging from “never thought about starting a business” to “gave up”, “thinking about it”, “taking steps for starting up”, “having a young business”, “having an older business” and “no longer being an entrepreneur”. By using a multinomial logit model we allow the effect of covariates to differ across the various entrepreneurial engagement levels. Data from two Entrepreneurship Flash Eurobarometer surveys (2002 and 2003) con-taining over 20,000 observations of the 15 old EU member states, Norway, Iceland, Liechtenstein and the US are used. Other than demographic variables, the set of explanatory variables used includes the percep-tion by respondents of administrative complexities, of availability of financial support and of risk tolerance, the respondents’ preference for self-employment and country specific effects. Among our results we find that the perception of lack of financial support has no discriminative effect across the various levels of en-trepreneurial engagement while perception of administrative complexities plays a negative role only for high levels of engagement. |
| Keywords: | entrepreneurship, determinants, nascent entrepreneurship, multinomial logit, barriers to entry, Europe |
| JEL: | H10 J23 L26 M13 R12 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:esi:egpdis:2007-02&r=eec |
| By: | Yuji Tamura |
| Abstract: | We investigate the importance of citizens’ opinions about economic impacts of immigration in their countries to their preferences for immigration restriction. We focus on personal views regarding how immigrants would affect the national labor market and the domestic public finance. Our analysis of survey data from 7 EU countries during the period 2002-2003 suggests that personal opinions about these issues do not explain individual preferences for immigration restriction. We find somewhat unexpectedly that employers were more likely to prefer immigration restriction than the rest. Those who relied on unemployment benefits were less likely to prefer immigration restriction than the others, although they were more likely to anticipate a negative labor market impact of immigration. The higher the relative income position, the lower the likelihood of preferring immigration restriction, and also the lower the likelihood of thinking that immigrants would negatively affect the national labor market. However, those whose income was relatively high were more likely to expect a negative net fiscal impact of immigration than low-income citizens. |
| Keywords: | Immigration, Citizens’preferences, European Union |
| Date: | 2007–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp199&r=eec |
| By: | Coeurdacier , Nicolas (ESSEC Business School); Martin, Philippe (University of Paris 1 Pantheon Sorbonne Economie) |
| Abstract: | This paper analyzes the determinants of cross-border asset holdings on cross-country data and a Swedish data set. We focus our analysis on the effect of the euro not only for the determinants of bond holdings, but also of equity and banking assets. With the help of a simple theoretical model, we attempt to disentangle the different effects that the euro may have had on asset holdings for both euro zone countries and countries outside of the euro zone such as Sweden. We find evidence that the euro has implied 1) a unilateral financial liberalization which makes it cheaper for all countries to buy euro zone assets. For bonds and equity holdings, this would translate into a 14% and 17% decrease in transaction costs. Using Swedish data, we find that the effect is larger for flows than for stocks. 2) a preferential financial liberalization which on top of the previous effect has decreased transaction costs inside the euro zone by 17% and 10% for bonds and equity respectively. 3) a diversion effect due to the fact that lower transaction costs inside the euro zone have led euro countries to purchase less Swedish equity. Our empirical analysis also suggests that the elasticity of substitution between bonds inside the euro zone is higher than between bonds denominated in different currencies. We illustrate this effect for transaction costs generated by the difference in the legal system. |
| Keywords: | International Asset Trade; Gravity Equation; Euro |
| JEL: | F30 F36 F41 G11 |
| Date: | 2007–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0202&r=eec |
| By: | Ulrich Fritsche (Department for Economics and Politics, University of Hamburg, and DIW Berlin); Jan Gottschalk (International Monetary Fund) |
| Abstract: | New-Keynesian macroeconomic models typically assume that any long-run trade-off between inflation and unemployment is ruled out. While this appears to be a reasonable characterization of the US economy, it is less clear that the natural rate hypothesis necessarily holds in a European country like Germany where hysteretic effects may invalidate it. Inspired by the framework developed by Farmer (2000) and Beyer and Farmer (2002), we investigate the long-run relationships between the interest rate, unemployment and inflation in West Germany from the early 1960s up to 2004 using a multivariate co-integration analysis technique. The results point to a structural break in the late 1970s. In the later time period we find for west Germany data a strong negative correlation between the trend components of inflation and unemployment. We show that this finding contradicts the natural rate hypothesis, introduce a version of the New Keynesian model which allows for some hysteresis and compare the effectiveness of monetary policy in these two models. In general, a policy rule with an aggressive response to a rise in unemployment performs better in a model with hysteretic characteristics than in a model without. |
| Keywords: | Cointegration, Vector error Correction Model, Unemployment, Phillips Curve, Hysteresis |
| JEL: | B22 C32 E24 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:hep:macppr:200601&r=eec |
| By: | Harold Creusen; Bert Minne; Henry van der Wiel |
| Abstract: | Competition in the Dutch market sector as a whole probably slightly declined during 1993- 2001. Within the market sector, a large variety in competition development exists. Competition changes have been rather small in many industries competition, but a considerable number of industries experienced a sharp rise or strong fall in competition. These findings are puzzling in light of regulatory reforms that have been implemented in the period observed. Yet, econometric analysis suggests that regulatory reforms could have intensified competition. However, strong growth of market demand has weakened competition and it counterbalanced to some extent the impact of regulatory reforms. If demand grows more rapidly than supply, then incumbent firms compete less aggressively. This should attract new competitors if entry barriers are low. Although entry has a positive effect on competition, its contribution has been negligible or even slightly negative. The analysis is based on two competition indicators. The model considerably explains the development of both indicators at the industry level. However, several determinants have statistically insignificant coefficients, particularly the estimated coefficients of entry and exit rates. |
| Keywords: | competition; measurement; competition policy |
| JEL: | D4 L1 L5 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:docmnt:136&r=eec |
| By: | Pekka Sulamaa; Mika Widgrén |
| Abstract: | This paper evaluates the economic effects of Turkish EU membership. The evaluation is based on the widely utilized computable general equilibrium called model GTAP (Global Trade Analysis Project). Imperfect competition is modelled by existence of scale economies on non agricultural sectors. The latest GTAP database version (base year 2001) is aggregated into seven regions: Turkey, Germany-Austria, North EU, South EU, Balkan countries, NAFTA, ASIA and Rest of World. We analyse economic effects of abolishing trade barriers between the EU25 and Turkey and applying common external tax on Turkey. Turkish EU membership is clearly beneficial for Turkey and it does not seem to have significant negative impact for the rest of the world. If we take scale economies into account the aggregate effects are larger than in perfect competition case. |
| Keywords: | Turkey, EU, CGE, international trade |
| Date: | 2007–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:fer:dpaper:410&r=eec |