nep-eec New Economics Papers
on European Economics
Issue of 2007‒03‒17
nineteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Does the Dispersion of Unit Labor Cost Dynamics in the EMU Imply Long-run Divergence? : Results from a Comparison with the United States of America and Germany By Sebastian Dullien; Ulrich Fritsche
  2. Sectoral Survey-based Confidence Indicators for Europe By Andrea Carriero and Massimiliano Marcellino
  3. Legislate or Delegate? Bargaining over Implementation and Legislative Authority in the European Union By Carl-Fredrik Bergström; Henry Farrell; Adrienne Héritier
  4. Efficiency of stability-oriented institutions: the European case By Fabrice Capoen; Jerome Creel
  5. Monitoring the Economy of the Euro Area: A Comparison of Composite Coincident Indexes By Andrea Carriero and Massimiliano Marcellino
  6. Is there an identity within international stock market volatilities? By Caiado, Jorge; Crato, Nuno; Peña, Daniel
  7. Evolution comparée de la consommation de médicaments dans les 5 pays européens entre 2000 et 2004 : analyse de 7 classes pharmaco-thérapeutiques By Viens, Gérard; Levesque, Karine; Chahwakilian, Pierre; El Hasnaoui, Abdelkader; Gaudillat, Anne; Nicol, Guénolé; Crouzier, Caroline
  8. Productivity and Size of the Export Market Evidence for West and East German Plants, 2004 By Joachim Wagner
  9. Decentralization in the EU Emissions Trading Scheme and Lessons for Global Policy By Kruger, Joseph; Oates, Wallace E.; Pizer, William A.
  10. The part-time wage penalty in European countries:How large is it for men? By Sîle O'DOrchai; Robert Plasman; François Rycx
  11. Earnings Instability and Tenure By Lorenzo Cappellari; Marco Leonardi
  12. Entrepreneurship, Liquidity Constraints and Start-up Costs By Raquel Fonseca; Pierre-Carl Michaud; Thepthida Sopraseuth
  13. Stress testing of the stability of the Italian banking system: a VAR approach By Renato Filosa
  14. Financial Expectations, Consumption and Saving: A Microeconomic Analysis. By Sarah Brown; Karl Taylor
  15. The Over-Education of UK Immigrants: Evidence from the Labour Force Survey. By Joanne Kathryn Lindley; Pamela Lenton
  16. Pension Provision and Retirement Saving: Lessons from the United Kingdom By Richard Disney; Carl Emmerson; Matthew Wakefield
  17. Local Environmental Quality and Life-Satisfaction in Germany By Katrin Rehdanz; David J. Maddison
  18. Comparing Public Attitudes Towards Providing for the Livelihood of the Elderly in Two aging Sodieties: Germany and Japan By Bernd Hayo; Hiroyuki Ono
  19. Credit Risk in the Czech Economy By Petr Jakubík

  1. By: Sebastian Dullien; Ulrich Fritsche
    Abstract: Using unit labor cost (ULC) data from Euro area countries as well as US States and German Länder we investigate inflation convergence using different approaches, namely panel unit root tests, co-integration tests and error-correction models. All in all we cannot reject convergence of ULC growth in EMU, however, country-specific deviations from the rest of the currency union are more pronounced in Europe and more persistent. This holds before and after the introduction of the common currency.
    Keywords: Unit labor costs, inflation, EMU, convergence, panel unit root tests, convergence clubs
    JEL: E31 O47 C32
    Date: 2007
  2. By: Andrea Carriero and Massimiliano Marcellino
    Abstract: In this paper we analyze a novel dataset of Business and Consumer Surveys, using dynamic factor techniques, to produce composite coincident indices (CCIs) at the sectoral level for the European countries and for Europe as a whole. Few CCIs are available for Europe compared to the US, and most of them use macroeconomic variables and focus on aggregate activity. However, there are often delays in the release of macroeconomic data, later revisions, and differences in the definition of the variables across countries, while the surveys are timely available, not subject to revision, and fully comparable across countries. Moreover, there are substantial discrepancies in activity at the sectoral level, which justifies the interest in a sectoral disaggregation. Compared to the Confidence Indicators produced by the European Commission, which are based on a simple average of the aggregate survey answers, we show that factor based CCIs, using survey answers at a more disaggregate level, produce higher correlation with the reference series for the majority of sectors and countries.
  3. By: Carl-Fredrik Bergström; Henry Farrell; Adrienne Héritier
    Keywords: accountability; European Commission; Council of Ministers; European Parliament; European Parliament
    Date: 2006–12–15
  4. By: Fabrice Capoen (Université de Caen); Jerome Creel (Observatoire Français des Conjonctures Économiques)
    Abstract: Stability-oriented European institutions correspond to the general prescriptions of the ‘new macroeconomics consensus’. This contribution provides an assessment of the pros and cons of these institutions in terms of macro stabilisation and exchange-rate swings drawing on different scenarios. We argue that the institutions which have been associated with the Euro – limits on public deficits and a conservative central bank – have somewhat jeopardized the efficiency of this new exchange-rate regime. Adaptation of institutions is thus needed: either cooperation or coordination may enhance European welfare.
    Keywords: monetary policy, fiscal policy, central bank; stability pact; time-consistency; exchange rate, cooperation, coordination
    JEL: E63 F41 H60
    Date: 2007
  5. By: Andrea Carriero and Massimiliano Marcellino
    Abstract: Monitoring the current status of the economy is quite relevant for policy making but also for the decisions of private agents, consumers and firms. Since it is difficult to identify a single variable that provides a good measure of current economic conditions, it can be preferable to consider a combination of several coincident indicators, i.e., a composite coincident index (CCI). In this paper, we review the main statistical techniques for the construction of CCIs, propose a new pooling-based method, and apply the alternative techniques for constructing CCIs for the largest European countries in the euro area and for the euro area as a whole. We find that different statistical techniques yield comparable CCIs, so that it is possible to reach a consensus on the status of the economy.
  6. By: Caiado, Jorge; Crato, Nuno; Peña, Daniel
    Abstract: Previous studies have investigated the comovements of international equity returns by using mean correlations, cointegration, common factor analysis, and other approaches. This paper investigates the evolution of the affinity among major euro and non-euro area stock markets in the period 1966-2006 by using distance-based methods for clustering analysis of time series. A periodogram-based metric for mean and squared returns is used to compute distances between the series. This method solves the shortcoming of unequal sample sizes found for different countries. Then, by using dendrogram and multidimensional scaling techniques based on the computed distances, we display clusters for the series of returns and volatilities. The data were divided into two sample periods: previous and subsequent to the introduction of the euro as an electronic currency. For market returns, euro-area countries do not seem to come closer after the introduction of the euro. There is some identity that is maintained after 1998. For squared returns, we found a clear change with the introduction of the euro. Up to 1998, there is a weak linkage among euro area countries. After 1998, the euro area stock markets volatilities have become considerably more homogenous. For reference, we explored also the correlations among the series. We found that some stock markets within the European Monetary Union are strongly correlated in returns and in squared returns, and that some euro and non-euro area markets are not correlated in returns, but are weakly correlated in squared returns.
    Keywords: Cluster analysis; Euro area; International stock markets; Returns and squared returns; Periodogram; Volatility.
    JEL: G15
    Date: 2007
  7. By: Viens, Gérard (Essec Business School); Levesque, Karine (Aremis consultants); Chahwakilian, Pierre (GlaxoSmithKline); El Hasnaoui, Abdelkader (GlaxoSmithKline); Gaudillat, Anne (GlaxoSmithKline); Nicol, Guénolé (GlaxoSmithKline); Crouzier, Caroline (GlaxoSmithKline)
    Abstract: The drug consumption level in France is often considered as being one of the most important in Europe. This study aims at confirming this assertion over the period 2000-2004 by comparing drug consumption in Germany, Spain, France, Italy and the United-Kingdom. The results show that in 2004 drug consumption in France was no more the biggest for all the seven studied classes. Moreover, the consumption levels of the five countries have converged between 2000 and 2004, as well as the consumption structures.
    Keywords: Defined Daily Dose (DDD); Drug Consumption; European Comparative Analysis
    JEL: I11
    Date: 2007–02
  8. By: Joachim Wagner
    Abstract: Using unique recently released nationally representative high-quality data at the plant level, this paper presents the first comprehensive evidence on the relationship between productivity and size of the export market for Germany, a leading actor on the world market for manufactured goods. It documents that firms that export to countries inside the euro-zone are more productive than firms that sell their products in Germany only, but less productive than firms that export to countries outside the euro-zone, too. This is in line with the hypothesis that export markets outside the euro-zone have higher entry costs that can only by paid by more productive firms.
    Keywords: Exports, productivity, micro data, Germany
    JEL: D21 F14
    Date: 2007–03
  9. By: Kruger, Joseph; Oates, Wallace E.; Pizer, William A. (Resources for the Future)
    Abstract: In 2005, the European Union introduced the largest and most ambitious emissions trading program in the world to meet its Kyoto commitments for the containment of global climate change. The EU Emissions Trading Scheme (EU ETS) has some distinctive features that differentiate it from the more standard model of emissions trading. In particular, it has a relatively decentralized structure that gives individual member states responsibility for setting targets, allocating permits, determining verification and enforcement, and making some choices about flexibility. It is also a “cap-within-a-cap,” seeking to achieve the Kyoto targets while only covering about half of EU emissions. Finally, it is a program that many hope will link with other greenhouse gas trading programs in the future—something we have not seen among existing trading systems. Examining these features coupled with recent EU ETS experience offers lessons about how cost effectiveness, equity, flexibility, and compliance fare in a multi-jurisdictional trading program, and highlights the challenges facing a global emissions trading regime.
    Keywords: emissions trading, Kyoto Protocol, European Union, linking, climate change
    JEL: Q54 Q58 F53
    Date: 2007–02–05
  10. By: Sîle O'DOrchai (DULBEA, Université libre de Bruxelles, Brussels); Robert Plasman (DULBEA, Université libre de Bruxelles, Brussels); François Rycx (DULBEA, Université libre de Bruxelles, Brussels, and IZA, Bonn)
    Abstract: Economic theory advances a number of reasons for the existence of a wage gap between part-time and full-time workers. Empirical work has concentrated on the wage effects of part-time work for women. For men, much less empirical evidence exists, mainly because of lacking data. In this paper, we take advantage of access to unique harmonised LEE data (i.e. the 1995 ESES) to investigate the magnitude and sources of the part-time wage penalty for male workers in six European countries (i.e. Belgium, Denmark, Ireland, Italy, Spain, and the UK). Findings show that the raw part-time wage gap for men fluctuates substantially across countries. They also suggest that policy initiatives to promote lifelong learning and training are of great importance to help part-timers catch up. Furthermore, except for Italy, they point to a persisting problem of occupational and sectoral segregation between men working part-time and full-time which requires renewed policy attention.
    Keywords: work status, part-time employment, wage gap, decomposition, human capital, segregation.
    JEL: C13 C31 J24 J31 J71
    Date: 2007–01
  11. By: Lorenzo Cappellari (DISCE, Università Cattolica); Marco Leonardi (Dipartimento di Studi del Lavoro, Università di Milano)
    Abstract: This paper develops a tractable empirical approach to estimate the effect of on-the-job tenure on the permanent and transitory variance of earnings. The model is also used to evaluate the earnings instability associated with fixed-term contract (short-tenure contracts) in Italy. Our results indicate that each year of tenure on the job reduces earnings instability on average by 15%. Workers on a fixed-term contract on average have an earnings instability 10% higher than workers on a permanent contract. Workers who spend their entire working life on fixed-term contracts can expect an earnings instability twice as high.
    Keywords: earnings instability, earnings dynamics, tenure, temporary contracts, minimum distance estimation.
    JEL: C23 J21 J31
    Date: 2007–03
  12. By: Raquel Fonseca; Pierre-Carl Michaud; Thepthida Sopraseuth
    Abstract: We study the effects of liquidity constraints and start-up costs on the relationship between wealth and the fraction of entrepreneurs in an economy. We develop a dynamic occupational choice model that yields predictions that can be tested on cross-sectional data with exogenous variation in liquidity constraints (e.g. access to credit) and start-up costs. We use three highly comparable micro datasets (SHARE, ELSA and HRS) focusing on the population age 50+ in 9 countries. These countries have very different levels of start-up costs and potential liquidity constraints. Reduced form results support our theoretical predictions. While higher liquidity constraints yield a steeper wealth profile for the fraction of workers in entrepreneurship, startup costs flatten this relationship by depressing the marginal value of being an entrepreneur as a function of wealth. Countries with high start-up costs such as Italy, Spain and France have flatter wealth gradients.
    Keywords: entrepreneurship, liquidity constraints, start-up costs, occupational choice, cross-country comparisons
    JEL: E21 E23 J20
    Date: 2007–02
  13. By: Renato Filosa
    Abstract: With the aim of contributing to the use of stress testing techniques, by now a commonly-used practice adopted by the financial community to understand the determinants of financial instability, and to measure the size of financial risk, this work represents an application of macro stress testing to the Italian banking system. The paper tries to provide an answer to two interrelated questions. Whether, and the extent to which, procyclicality is a prominent feature of banks’ soundness and whether exogenous, or policy induced, tightening of monetary conditions (sharp and sustained increases in the interest rate and/or appreciation of the exchange rate) significantly increases banks’ fragility. The task is accomplished by the estimation of three alternative VAR models each using different indicators of banks’ soundness: the ratio of non performing loans (flow and stock data) and interest margins to outstanding loans. Two main conclusions emerge. First: the behaviour of either non performing loans or interest margins is only weakly procyclical: i.e. that the solidity of Italian banks could be seriously undermined only in case of falls in output far more severe than in any previous recession since the end of the World War II. The preoccupation expressed by the literature about the dangers of financial procyclicality seems, therefore, grossly exaggerated in the case of Italy. Second: in a hypothetical scenario where monetary conditions are drastically tightened our banks’ soundness indicators exhibit little variations. In this case too the importance attached by the literature to exchange rate swings, or monetary tightening more generally, for the setting off of financial crises is vastly overstated.
    Keywords: banking crises; financial crises; procyclicality; profitability; stress testing; VAR
    JEL: E32 E44 G21
    Date: 2007–03
  14. By: Sarah Brown; Karl Taylor (Department of Economics, The University of Sheffield)
    Abstract: We explore the determinants of individuals´ financial expectations using data from the British Household Panel Survey (BHPS) 1991-2001. Our findings suggest that individuals´ financial predictions are influenced by both the life cycle and the business cycle. We also investigate the extent to which the accuracy of past financial expectations affects current financial expectations. Interestingly, only past financial optimism matters, regardless of the accuracy of the prediction. We also explore the relationship between financial realisations and expectations and we find that expectations tend to fall short of financial realisations. Finally, we investigate the relationship between financial expectations, savings and consumption. Our findings suggest that financial optimism is inversely associated with savings and that current financial expectations serve to predict future consumption.
    Keywords: Consumption, Financial Expectations, Financial Realisations, Forecasting Accuracy, Savings.
    JEL: D10 D84 E32
    Date: 2006–05
  15. By: Joanne Kathryn Lindley; Pamela Lenton (Department of Economics, The University of Sheffield)
    Abstract: We investigate the incidence of over-education, as well as the effect on earnings, for immigrants and natives drawn from the Labour Force Survey between 1993 and 2003. This paper investigates whether immigrants are more or less likely to be over and under-educated than are natives and if there is any evidence of economic assimilation in such propensity differences. In addition we examine whether immigrants exhibit a larger or smaller earnings for over-education compared to natives. We find that native born non-whites and immigrants are more likely to be over-educated, even after conditioning on all other socio-economic factors (including ethnicity and English speaking country of origin). However, we also find evidence of assimilation in the incidence of immigrant over-education towards that of natives. Finally, we find that over-education implies a lower return to earnings for immigrants and non-white natives, compared to native born whites. The largest loss in earnings due to over-education actually applies to white education entrants, moreover we find no significant return to over-education for non-white labour market entrants, once we distinguish between these two immigrant groups.
    Keywords: over-education, earnings, immigrants, assimilation.
    JEL: J24 J7
    Date: 2006–01
  16. By: Richard Disney; Carl Emmerson; Matthew Wakefield
    Abstract: We describe the trajectory of pension reform in the United Kingdom, which has focussed on keeping the cost of public pension programmes down during a period of steady population ageing whilst attempting to maintain an adequate minimum level of income security for low income households in retirement. Instruments for achieving these aims have been to target public benefits on low income households, permitting individuals to opt out of the second tier of the public programme into private retirement accounts, and the use of tax incentives to encourage additional private retirement saving. Frequent reforms to the pension programme raise the question of whether households can make reasonable private retirement saving provision in the light of growing complexity and potential shortcomings in individual decision-making. This paper sheds some light on these issues.
    Keywords: pensions, social security, retirement saving
    JEL: D91 H55
    Date: 2007–02
  17. By: Katrin Rehdanz (Research unit Sustainability and Global Change, Hamburg); David J. Maddison
    Abstract: Hitherto the task of valuing differences in environmental quality arising from air pollution and noise nuisance has been carried out mainly by using the hedonic price technique. This paper proposes a different approach to deriving information on individual preferences for local environmental quality. It analyses data drawn from the German socio economic panel in an attempt to explain differences in self-reported levels of well-being in terms of environmental quality. Mindful of existing research a large number of other explanatory variables are included to control for socio-demographic differences, economic circumstances as well as neighbourhood characteristics. Differences in local air quality and noise levels are measured by how much an individual feels affected by air pollution or noise exposure in their residential area. The evidence suggests that even when controlling for a range of other factors higher local air pollution and noise levels significantly diminish subjective well-being. But interestingly differences in perceived air and noise pollution are not capitalised into differences in house prices.
    Keywords: air pollution, environmental quality, Germany, life-satisfaction, noise exposure, well-being
    JEL: R19 Q53 Q58
    Date: 2006–09
  18. By: Bernd Hayo (Faculty of Business Administration and Economics, Philipps Universitaet Marburg); Hiroyuki Ono (Faculty of Economics, Toyo Universtiy)
    Abstract: This paper studies attitudes about who should provide for the livelihood of the elderly in two aging societies, namely Germany and Japan. Applying an ordered logit model to individual data from representative public opinion surveys, it is analysed which socio-demographic, economic or political variables help to explain people’s attitudes on whether the government or individuals should be responsible for the livelihood of the elderly. We find that while higher income makes people more inclined towards the individual option, age is found to do the opposite in both countries. We conjecture that this age effect is related to the level of knowledge about the current situation of the public pension system. We also find that the part-time work status significantly affects attitudes in both countries, but not the same way. It affects adversely the inclination towards a government-based pension system in the case of Japan but positively in Germany. Other significant influences are the pensioner status of the respondents in Japan and their political position in the case of German data.
    Keywords: Livelihood of elderly, pension reform, public attitudes, aging societies, Germany, Japan
    JEL: H55 Z10
    Date: 2007
  19. By: Petr Jakubík (Czech National Bank; Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: This paper deals with credit risk in the Czech aggregate economy. It follows structural Merton's approach. A latent factor model is employed within this framework. Estimation of this model can help to understand relation between credit risk and macroeconomic indicators. The credit risk model of the Czech aggregate economy was estimated in this manner for purpose of stress testing. The results of this study can be used for stress testing of banking sector.
    Keywords: banking, credit risk, latent factor model, default rate, stress test
    JEL: G21 G28 G33
    Date: 2007–03

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