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on European Economics |
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Issue of 2007‒06‒02
twenty-six papers chosen by Giuseppe Marotta University of Modena and Reggio Emilia |
| By: | Ana Lamo (Directorate General Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Javier J. Pérez (Directorate General Economic, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Ludger Schuknecht (Directorate General Economic, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This study examines the business cycle behaviour of public consumption and its main components; the public wage bill (including compensation per employee and public employment)and intermediate consumption in the euro area aggregate, euro area countries and a group of selected non-euro area OECD countries (Denmark, Sweden, the UK, Japan and the US). It looks across a large number of variables and methods, using annual data from 1960 to 2005. It finds robust evidence supporting that public consumption, wages and employment co-move with the business cycle in a pro-cyclical manner with 1-2 year lags, notably for the euro area aggregate and euro area countries. The findings reflect mainly the correlation between cyclical developments (automatic stabilizers), but also point to the important role of pro-cyclical discretionary fiscal policies. JEL Classification: E62, E63, H50. |
| Keywords: | Public consumption, public wages, public employment, stylized facts, filtering, thick modelling. |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070757&r=eec |
| By: | Fischer, Christoph |
| Abstract: | Inflation differentials within European Monetary Union (EMU) are increasingly seen as exerting adverse effects on the price competitiveness of member countries’ firms and – given the common monetary policy within EMU – as being detrimental to euro-area economies, in particular to those with relatively high inflation rates. Using three simple measures of international price competitiveness for EMU countries, the paper analyses whether these indicators have displayed distinctive trends since the start of EMU and whether they converge with or diverge from their respective fundamental value. It is found that all three indicators suggest a gain in competitiveness for the German economy and a corresponding loss for Italy, Portugal and Spain. Two of the indicators, however, suggest that these trends reduce former disparities and, thus, contribute to a convergence of competitiveness within EMU while the third would imply the opposite. |
| Keywords: | Price competitiveness, EMU, purchasing power parity, productivity approach, panel unit root tests, panel cointegration |
| JEL: | E31 F31 F36 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:5572&r=eec |
| By: | Samuel Reynard (Swiss National Bank, Research Unit, Boersenstrasse 15, 8022 Zurich, Switzerland.) |
| Abstract: | This paper presents a systematic empirical relationship between money and subsequent prices and output, using US, euro area and Swiss data since the 1960-70s. Monetary developments, unlike interest rate stance measures, are shown to provide qualitative and quantitative information on subsequent inflation. The usefulness of monetary analysis is contrasted to weaknesses in modeling monetary policy and inflation with respectively short-term interest rates and real activity measures. The analysis sheds light on the recent change in inflation volatility and persistence as well as on the Phillips curve flattening, and reveals drawbacks in pursuing a low inflation target without considering monetary aggregates. JEL Classification: E52, E58, E41, E3. |
| Keywords: | Monetary policy, monetary aggregates, inflation, output, Taylor rule, equilibrium interest rate. |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070756&r=eec |
| By: | Scharnagl, Michael; Schumacher, Christian |
| Abstract: | This paper addresses the relative importance of monetary indicators for forecasting inflation in the euro area in a Bayesian framework. Bayesian Model Averaging (BMA)based on predictive likelihoods provides a framework that allows for the estimation of inclusion probabilities of a particular variable, that is the probability of that variable being in the forecast model. A novel aspect of the paper is the discussion of group-wise inclusion probabilities, which helps to address the empirical question whether the group of monetary variables is relevant for forecasting euro area inflation. In our application, we consider about thirty monetary and non-monetary indicators for inflation. Using this data, BMA provides inclusion probabilities and weights for Bayesian forecast combination. The empirical results for euro area data show that monetary aggregates and non-monetary indicators together play an important role for forecasting inflation, whereas the isolated information content of both groups is limited. Forecast combination can only partly outperform single-indicator benchmark models. |
| Keywords: | inflation forecasting, monetary indicators, Bayesian Model Averaging, inclusion probability |
| JEL: | C11 C52 E31 E37 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:5573&r=eec |
| By: | José M. Campa (IESE Business School); Ignacio Hernando (Banco de España) |
| Abstract: | This paper looks at the reaction by industry insiders, industry analysts and competing firms, to the announcement of M&As that took place in the European Union financial industry in the period 1998-2006. Analysts covering firms involved in an M&A transaction do not significantly alter their recommendation. This is consistent with the hypothesis that the transaction on average is "fairly priced" and that stock market prices reflect all relevant information on the assets. We also find that the correlation between excess returns for merging and competing firms is positive and, in some cases, significantly higher for domestic mergers than for international deals. This is consistent with the idea that domestic deals are more likely to have a negative impact on industry competition. |
| Keywords: | mergers and acquisitions, analysts recommendations, rival firms |
| JEL: | G20 G34 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0713&r=eec |
| By: | Francois Degeorge (University of Lugano and Swiss Finance Institute); Ernst Maug (School of Business Administration, University of Mannheim) |
| Abstract: | We survey research on corporate finance in Europe. The ambition is to provide the reader with an overview of what we learned, particularly since the beginning of the 1990s. We focus on two themes: (1) the practice and institutions in Europe are heterogeneous and different from those in the United States, and we identify areas where the gap seems to be narrowing; (2) we wish to draw some more general conclusions with respect to the law and finance paradigm that has dominated recent research on comparative institutional analysis, and the diversity of European institutions seems to present an ideal testing ground for this approach. We find that the ability of the law and finance approach to capture the relevant differences within Europe is often limited. We focus in particular on equity primary markets;privatizations; cross-listings; capital structure and payout policy; mergers and acquisitions; business groups, pyramids and dual class shares; and valuation and the cost of capital. |
| Keywords: | Corporate finance, Europe |
| JEL: | G3 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp17&r=eec |
| By: | Marta Ba?bura (ECARES, Université Libre de Bruxelles, Avenue Franklin D. Roosevelt 50, B-1050 Brussels, Belgium.); Gerhard Rünstler (Directorate General Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | We derive forecast weights and uncertainty measures for assessing the role of individual series in a dynamic factor model (DFM) to forecast euro area GDP from monthly indicators. The use of the Kalman filter allows us to deal with publication lags when calculating the above measures. We find that surveys and financial data contain important information beyond the monthly real activity measures for the GDP forecasts. However, this is discovered only, if their more timely publication is properly taken into account. Differences in publication lags play a very important role and should be considered in forecast evaluation. JEL Classification: E37, C53. |
| Keywords: | Dynamic factor models, forecasting, filter weights. |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070751&r=eec |
| By: | Michela Catenacci (Fondazione Eni Enrico Mattei); Barbara Buchner (International Energy Agency); Alessandra Sgobbi (Fondazione Eni Enrico Mattei) |
| Abstract: | The European Union Emission Trading System (EU ETS) is a landmark environmental policy, representing the world’s first large-scale greenhouse gas (GHG) trading program. The coexistence of state actors and top-down processes with stakeholders participation and flexible abatement strategies make the EU ETS a powerful instrument of cross sectoral integration of environmental concerns, which benefits from a high level of interaction among the actors involved and a significant degree of information exchange. However, the same peculiarities of the system make it difficult to identify a correspondence with a single mode of governance. The EU ETS shows characteristics of the decision making processes and institutions engaged, the tools and instruments used as well as the actors involved, which change according to the different levels of governance, and belong both to the old and to the new modes of governance. The emission trading scheme represents a clear example of Multi-Level governance, where the different modes of governance interact among them and affect each other. |
| Keywords: | Environmental Policy Integration, Climate Change, Emission Trading, EU Policy |
| JEL: | H23 F53 Q28 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2007.54&r=eec |
| By: | Eloi Laurent; Jacques Le Cacheux |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:0704&r=eec |
| By: | Sato, S.; Grubb, M.; Cust, J.; Chan, K.; Korppoo, A.; Ceppi, P. |
| Abstract: | We summarises the main factors that differentiate impacts of the EU ETS on profitability and market share. By examining sampling a range of sectors, we present some simple metrics and indicators to help judge the nature of potential impacts. We also consider briefly the mitigation response to these impacts by sectors, and how they may evolve over time. The broad conclusion confirms the aggregate findings presented in the existing literature - most participating sectors are likely to profit under the current ETS structure out to 2012 at the cost of a modest loss of market share, but this may not hold for individual companies and regions. The period 2008-12 can assist participating sectors to build experience and financial reserves for longer term technology investments and diversification, providing the continuation and basic principles of the EU ETS post-2012 is quickly defined and incentives are in place for sectors to pursue this. |
| Keywords: | Emissions trading, industrial competitiveness, spillovers, allowance allocation, perverse incentives. |
| JEL: | Q52 Q58 F18 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0712&r=eec |
| By: | Catherine Mathieu (Observatoire Français des Conjonctures Économiques); Henri Sterdyniak (Observatoire Français des Conjonctures Économiques) |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:0714&r=eec |
| By: | El Mouhoub Mouhoud (CEPN - Centre d'économie de l'Université de Paris Nord - [CNRS : UMR7115] - [Université Paris-Nord - Paris XIII]); Joel Oudinet (CEPN - Centre d'économie de l'Université de Paris Nord - [CNRS : UMR7115] - [Université Paris-Nord - Paris XIII]) |
| Abstract: | Cet article analyse le rôle et les déterminants des migrations de main-d'œuvre sur les marchés du travail des pays de l'Union européenne selon le degré de qualification des migrants, leurs caractéristiques sur les marchés du travail et leur origine intra ou extracommunautaire. L'immigration dans les pays de l'UE apparaît moins sensible aux variables de déséquilibre du marché du travail, telles que le niveau de salaire relatif et le taux de chômage relatif qu'aux variables structurelles telles que les effets de réseaux ou les différences d'aménités. Toutefois, les migrants qui viennent des pays non membres de l'Union Européenne sont davantage influencés par les différences de salaires entre les pays dans leur choix du pays d'accueil que les migrants d'origine intracommunautaire. |
| Keywords: | Migration; Flux migratoires; Mobilités; Union Européenne; réseaux |
| Date: | 2007–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00149151_v1&r=eec |
| By: | Antonio Garcia Pascual; Elina Ribakova; Renzo G. Avesani |
| Abstract: | The rapid mortgage credit growth experienced in recent years in mature and emerging countries has raised some stability concerns. Many European credit institutions in mature markets have reacted by increasing securitization, particularly via mortgage covered bonds. From the issuer's perspective, these instruments have become an attractive funding source and a tool for assetliability management; from the investor's perspective, covered bonds enjoy a favorable risk-return profile and a very liquid market. In this paper, we examine the two largest "jumbo" covered bond markets, Germany and Spain. We show how movements in covered bond prices can be used to analyze the credit developments of the underlying issuer and the quality of its mortgage portfolio. Our analysis also suggests that mortgage covered bonds could be of interest to other mature and emerging markets facing similar risks related to mortgage credit. |
| Keywords: | Bonds , Germany , Spain , Credit , Financial institutions , Economic indicators , |
| Date: | 2007–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/20&r=eec |
| By: | Michelacci, Claudio; Pijoan-Mas, Josep |
| Abstract: | We consider a labor market search model where, by working longer hours, individuals acquire greater skills and thereby obtain better jobs. We show that job inequality, which leads to within-skill wage differences, gives incentives to work longer hours. By contrast, a higher probability of losing jobs, a longer duration of unemployment, and in general a less tight labor market discourage working time. We show that the different evolution of labor market conditions in the US and in Continental Europe over the last three decades can quantitatively explain the diverging evolution of the number of hours worked per employee across the two sides of the Atlantic. It can also explain why the fraction of prime age male workers working very long hours has increased substantially in the US, after reverting a trend of secular decline. |
| Keywords: | human capital; search; unemployment; wage inequality; working hours |
| JEL: | E24 G31 J31 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6314&r=eec |
| By: | Elena Angelini (Directorate General Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Massimiliano Marcellino (IGIER, CEPR and IEP - Bocconi University, Via Sarfatti 25, 20136 Milano, Italy.) |
| Abstract: | In this paper we compare alternative approaches for the construction of time series of macroeconomic variables for Unified Germany prior to 1991, and then use them for the construction of corresponding time series for the euro area. The resulting series for Germany and the euro area are compared with existing ones on the basis of both descriptive statistics and results of econometric analyses conducted with the alternative time series. We find that more sophisticated time series methods for backdating can yield sizeable gains. JEL Classification: C32, C43, C82. |
| Keywords: | Backdating, Factor Model, Unified Germany, Euro Area. |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070752&r=eec |
| By: | Aurelijus Dabušinskas; Dmitry Kulikov |
| Abstract: | This paper presents an empirical analysis of the inflation process in Estonia, Latvia and Lithuania within the framework of the New Keynesian Phillips Curve (NKPC) model of Galí and Gertler (1999) and Galí et al. (2001). An open economy extension by Leith and Malley (2003) and a NKPC model that explicitly incorporates energy into the average real marginal cost measure are also considered. The primary focus of the paper is to identify and compare the underlying structural parameters of the NKPC model across the three Baltic economies. Empirical NKPC model estimates point to a limited role of the cost measure in determining inflation dynamics in the three Baltic countries. It has been found that the inflation process in these countries primarily depends on inflation expectations and past inflation rates. Price setting flexibility, as measured by the price stickiness parameter, tends to be lower than in the euro area but higher than in the US, while the share of backward-looking price setters is found to be higher on average. |
| Keywords: | New Keynesian Phillips Curve, inflation dynamics, open economy, |
| JEL: | E31 C22 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2007-07&r=eec |
| By: | Nekby, Lena (Stockholm University Linnaeus Center for Integration Studies - SULCIS); Özcan, Gülay (Stockholm University Linnaeus Center for Integration Studies - SULCIS) |
| Abstract: | The importance of investing in host country-specific human capital such as domestic language proficiency and domestic education is often cited as a determining factor for the labor market success of immigrants. This suggests that entirely domestic educations should even out the playing field providing equal labor market opportunities for natives and immigrants with similar (domestic) educations. This study follows a cohort of students from Swedish compulsory school graduation in 1988 until 2002 in order to document ethnic differences in education, including grades and field of education, and subsequent labor market outcomes. Results indicate both initial differences in youth labor market status and long term differences in employment rates, most notably for those with Non-European backgrounds. Differences in level or field of domestic education cannot explain persistent employment gaps. However, employment gaps are driven by differences among those with secondary school only. No employment or income gaps are found for the university educated. |
| Keywords: | Ethnic minorities; Education; Employment; Income; Discrimination |
| JEL: | I21 J15 J71 Z13 |
| Date: | 2007–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sulcis:2007_003&r=eec |
| By: | Jerome Creel (Observatoire Français des Conjonctures Économiques); Paola Monperrus-Veroni (Observatoire Français des Conjonctures Économiques); Francesco Saraceno (Observatoire Français des Conjonctures Économiques) |
| Abstract: | This paper uses the SVAR methodology to investigate the effects of public investment on growth, and more specifically, the effects of the introduction of a golden rule of public finance. We extend the existing literature by estimating a model of the British economy that takes into account long run factors such as public debt accumulation. We find that in such a long run framework, public investment has a significant and permanently positive effect on GDP growth; this result runs counter to the most recent literature on the topic that was limited to a short run specification. We further find, by comparing different subsamples, that the introduction of the golden rule in 1997 strengthened the positive effect of public investment. |
| Keywords: | fiscal policy, golden rule of public finance, Structural VAR, Public Investment, UK Economy |
| JEL: | C32 E60 E63 H60 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:0713&r=eec |
| By: | Hélène Perivier (Observatoire Français des Conjonctures Économiques) |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:0707&r=eec |
| By: | Stenberg, Anders (Swedish Institute for Social Research, Stockholm University) |
| Abstract: | This study is the first to explore the earnings effects of credits attained in adult education at upper secondary level (AE) in Sweden. It is also investigated whether individuals with and without AE prior to enrolment in higher studies differ in their achievements at university and/or in their subsequent earnings. The analyses are based on register data of the cohort born in 1970 of which more than one third at some point has been registered in AE. In the preferred specification, credits equal to one year of AE are found to increase annual wage earnings by 4.1 per cent for males and 3.6 per cent for females. The results are mainly driven by course credits with an element of specific knowledge such as health related subjects and computer science, while more general subjects such as Mathematics, Swedish or English are linked with zero returns. Concerning higher education, the results indicate a lower payoff for AE individuals if higher studies are limited to less than two years. There is also evidence of a lower probability of completing four years of higher studies, in particular among females. |
| Keywords: | Adult education; wage earnings |
| JEL: | H52 J68 |
| Date: | 2007–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sofiwp:2007_006&r=eec |
| By: | Eléna Stancanelli (CNRS) |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:0710&r=eec |
| By: | Jamasb, T.; Pollitt, M. |
| Abstract: | This paper reviews the recent experience of the UK electricity distribution sector under incentive regulation. The UK has a significant and transparent history in implementing incentive regulation in the period since 1990. We demonstrate the successes of this period in reducing costs, prices and energy losses while maintaining quality of service. We also draw out the lessons for other countries in implementing distribution sector reform. We conclude by discussing the place of incentive regulation of networks within the wider reform context, the required legislative framework, the need for appropriate unbundling, the importance of quality of service incentives, the regulatory information requirements and the role of sector rationalisation. |
| Keywords: | Electricity, liberalisation, regulation, benchmarking |
| JEL: | L52 L94 Q48 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0709&r=eec |
| By: | David S. Gerber; René Weber |
| Abstract: | This paper focuses on the nexus between pension funds' balance sheet liabilities, reflecting their age profile and payments obligations, and the investment behavior and costs of these funds. The context of the analysis is the stringent regulatory framework and the highly fragmented and heterogeneous pension fund landscape in Switzerland. Detailed data from the Swiss Pension Statistic are analyzed using multivariate OLS-regressions. The evidence shows that a younger age structure and lower short-term benefits payouts are related to a higher share of equities and lower real estate holdings. Legal form, pension plan type, and size are important for administrative costs. The findings support the view that aging may lead to increased risk aversion and thus to a lower engagement of institutional investors in equities. |
| Keywords: | Pensions , Switzerland , Aging , Resource allocation , Investment , Asset management , |
| Date: | 2007–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/29&r=eec |
| By: | Nielsen, Chantal Pohl |
| Abstract: | Anecdotes abound in the Danish public debate about well-educated immigrants that are in jobs they are formally overqualified for. Using a 1995-2002 panel data set based on Danish registers, this study attempts to find out how large a problem immigrant overeducation is in the context of the Danish labor market. More specifically, three questions are posed: First, to what extent are immigrants overeducated and are they more likely to be so than native Danes? Second, why are some immigrants more likely to become overeducated than others? And finally, what are the consequences of overeducation for individual wages? The authors find that among wage earners with at least a vocational education or higher, 25 percen t of male non-Western immigrants are overeducated. The same applies for 15 percent of native Danes. Particularly immigrants with a foreign-acquired education risk becoming overeducated - here the share is 30 percent among those with a vocational education or higher. The authors find that Danish labor market experience is extremely important in reducing the likelihood of becoming overeducated. Years spent in the country without accumulating labor market experience do not improve an individual ' s chances of an appropriate job-to-education match. In terms of earnings consequences, the study concludes that years of overeducation do increase wages for immigrants, but much less so than years of adequate education. This is also true for native Danes, but the relative penalty for overeducation is much larger for immigrants than for Danes. |
| Keywords: | Labor Markets,Population Policies,Access & Equity in Basic Education,Education For All,Teaching and Learning |
| Date: | 2007–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4234&r=eec |
| By: | Fouquin, Michel; Nayman, Laurence; Wagner, Laurent |
| Abstract: | This paper investigates the determinants of intra-firm trade of multinational firms located in France, using data on French companies. Results on the vertical pattern of production networks differ according to the affiliates’ location. Lower wage and transportation costs in the developing countries increase, as expected, the vertical segmentation of production. In the developed countries, lower trade and unit wage costs, and hence, a strong and positive labour productivity matter a lot in explaining French MNCs’ preferences. Among the other variables of interest, partnership and market potential have been given special attention. The results substantiate a mix of vertical and horizontal FDI, mainly when we separate out capital intensive from labour intensive intermediate products. |
| Keywords: | Multinational Firms, Intra-firm Trade, Intermediate Products, Vertical Production Networks, Horizontal FDI |
| JEL: | F1 F23 L1 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:5565&r=eec |
| By: | Philippe Mahler (Socioeconomic Institute, University of Zurich) |
| Abstract: | Obesity is increasing worldwide for both adults and children. Genetic disposition is responsible for some variation in body weight but cannot explain the dramatic increase in the last two decades. The increase must be due to structural and behavioral changes. One such behavioral change is the increase in working females in the last decades. The absence from the mother reduces potential child care time in the family. Reduced child care time may have adverse effects on the prevalence of obesity in children and adults. This paper analyzes the effect of mother’s labor supply in childhood on young adults probability of being obese in Germany. Using a sample drawn from the German Socio-Economic Panel the results show that a higher labor supply of the mother increases the probability for her child to be obese as young adult. This result underlines the importance of childhood environment on children’s later life outcome and the importance of behavioral changes in explaining the increase in obesity. |
| Keywords: | GSOEP, obesity, female labor supply, child care, sibling estimation |
| JEL: | I12 J22 D10 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:soz:wpaper:0707&r=eec |