nep-eec New Economics Papers
on European Economics
Issue of 2007‒06‒11
thirty papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. The Effect of Globalization on Union Bargaining and Price-Cost Margins of Firms By Filip Abraham; Jozef Konings; Stijn Vanormelingen
  2. The reaction by industry insiders to M&As in the European financial industry By Campa, Jose M.; Hernando, Ignacio
  3. Engendered housework. A cross-european analysis By Voicu, Bogdan; Voicu, Malina; Strapkova, Katarina
  4. Memory for prices and the euro cash changeover: An analysis for cinema prices in Italy By Vincenzo Cestari; Paolo Del Giovane; Clelia Rossi-Arnaud
  5. Euro area inflation persistence in an estimated nonlinear DSGE model. By Gianni Amisano; Oreste Tristani
  6. Has the EU’s Single Market Programme fostered competition? Testing for a decrease in markup ratios in EU industries By Harald Badinger
  7. The Spatial Hierarchy of Technological Change and Economic Development in Europe By Verspagen, Bart
  8. Fiscal deficits in the U.S. and Europe: Revisiting the link with interest rates By Andrea Terzi
  9. Are EU budget deficits sustainable? By Mark J. Holmes; Jesus Otero; Theodore Panagiotidis
  10. Industry characteristics and anti-competitive behavior: Evidence from the EU By Gual, Jordi; Mas, Nuria
  11. One share-One vote, le nouveau Saint Graal By de Beaufort, Viviane
  12. No Derivative Shareholder Suits in Europe - A Model of Percentage Limits, Collusion and Residual Owners By Kristoffel Grechenig; Michael Sekyra
  13. How Does Liquidity Affect Government Bond Yields? By Carlo Favero, Marco Pagano and Ernst-Ludwig von Thadden
  14. The Determinants of Patent Applications Outcomes - Does Experience Matter? By Schneider, Cédric
  15. Poverty and the transition to adulthood: risky situations and risky events By Arnstein Aassve; Maria Iacovou
  16. Credit Market Imperfections and the Distribution of Policy Rents: The Common Agricultural Policy in the New EU Member States By Pavel Ciaian; Johan F.M. Swinnen
  17. Unemployment in East and West Europe By Münich, Daniel; Svejnar, Jan
  18. On the Stock Markets of CEE Countries: Fundamentals, Speculative Bubbles, and Cointegration By Pierdzioch, Christian; Kizys, Renatas
  19. Risk Taking by Banks in the Transition Countries By Paul Wachtel; Rainer Haselmann
  20. Workplace Flexibility and Institutions in Europe. A Tale of Two Countries. By Federica Origo
  21. The Relative Importance of Symmetric and Asymmetric Shocks: the Case of United Kingdom and Euro Area By Gert Peersman
  22. Why Are Mothers Working Longer Hours in Austria than in Germany? : A Comparative Micro Simulation Analysis By Helene Dearing; Helmut Hofer; Christine Lietz; Rudolf Winter-Ebmer; Katharina Wrohlich
  23. School To Work Transitions And The Impact Of Public Expenditure On Education By Blázquez Cuesta, Maite; García Pérez, José Ignacio
  25. Does It Pay to Invest in Education in Croatia? By Boris Vujčić; Vedran Šošić
  26. Immigrants' return to schooling in Sweden By Nordin, Martin
  27. How do banks adjust their capital ratios? Evidence from Germany By Memmel, Christoph; Raupach, Peter
  28. Transmission of business cycle shocks between unequal neighbours: Germany and Austria By Gerhard Fenz; Martin Schneider
  29. Open-end real estate funds in Germany – genesis and crisis By Bannier, Christina E.; Fecht, Falko; Tyrell, Marcel
  30. Diversification and the banks’ risk-return-characteristics – evidence from loan portfolios of German banks By Behr, Andreas; Kamp, Andreas; Memmel, Christoph; Pfingsten, Andreas

  1. By: Filip Abraham; Jozef Konings; Stijn Vanormelingen
    Abstract: In recent years, Europe has witnessed an accelerated process of economic integration. Trade barriers were removed, the euro was introduced and ten new member states have joined the European Union. This paper analyzes how this process of increased economic integration has affected labor and product markets. To this end, we use a panel of Belgian manufacturing firms to estimate price-cost margins and union bargaining power and show how various measures of globalization affect them. Our findings can be summarized as follows: On average, firms set prices about 30% above marginal costs, but there is substantial variation across sectors, with the lowest mark-up around 19% and the highest around 52%. In addition, we find evidence that unions bargain over both wages and employment. We estimate an index of bargaining power, which reflects the fraction of profits that is passed on to workers into higher wages. Depending on the sector, this fraction varies between 6% and 18% and it increases with the markups of firms. Finally, we find that globalization puts pressure on both markups and union bargaining power, especially when there is increased competition from the low wage countries. This suggests that increased globalization is associated with a moderation of wage claims in unionized countries, which should be associated with positive effects on employment.
    Keywords: Mark-ups, Trade Unions, International Trade
    JEL: F16 J50 L13
    Date: 2007
  2. By: Campa, Jose M. (IESE Business School); Hernando, Ignacio (Bank of Spain)
    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: 2007–04–07
  3. By: Voicu, Bogdan (Research Institute for Quality of Life, Romanian Academy of Science); Voicu, Malina (Research Institute for Quality of Life, Romanian Academy of Science); Strapkova, Katarina (Institute for Sociology, Slovak Academy of Sciences)
    Abstract: Division of the housework within the couple is the topic of this paper. We are specifically interested if the gender is still salient in the sharing of the domestic works, and which is its relative importance when controlling for various factors such as education, income, spouses’ occupational status, the type of social policies within the respective society, its level of development etc. We focus our research on the European societies, exploiting the data of the European Quality of Life Survey 2003. We inspect the differences between societies and search for individual level and country level explanations of the time spent for housework. Multilevel analysis is employed to test the hypotheses depicted from the existing literature.
    Keywords: housework; gender roles ; Europe ; EQLS ; multilevel analysis
    Date: 2007–05
  4. By: Vincenzo Cestari (Università Lumsa and CNR); Paolo Del Giovane (Bank of Italy); Clelia Rossi-Arnaud (Università di Roma - La Sapienza)
    Abstract: The question addressed by this study is whether consumers remember past prices correctly. We test Italian citizens’ memory for cinema prices with questionnaires distributed to moviegoers. The analysis concentrates on the memory of pre-euro prices, but the recall for a more recent period is also investigated. The results show that only a small percentage of respondents recalled the correct price, and that the average prices recalled were much lower than the actual pre-euro prices and dated back to years before the changeover. Price recall is less accurate for the respondents who perceive higher and more persistent inflation; it is also worse for the older respondents and for the less frequent movie-goers.
    Keywords: prices, memory, perceptions, euro
    JEL: D12 D8 E31
    Date: 2007–02
  5. By: Gianni Amisano (Directorate General Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Oreste Tristani (Directorate General Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: We estimate the approximate nonlinear solution of a small DSGE model on euro area data, using the conditional particle filter to compute the model likelihood. Our results are consistent with previous findings, based on simulated data, suggesting that this approach delivers sharper inference compared to the estimation of the linearised model. We also show that the nonlinear model can account for richer economic dynamics - the impulse responses to structural shocks vary depending on initial conditions selected within our estimation sample. JEL Classification: C11, C15, E31, E32, E52.
    Keywords: DSGE models, inflation persistence, second order approximations, sequential Monte Carlo, Bayesian estimation.
    Date: 2007–05
  6. By: Harald Badinger (Europainstitut/Department of Economics, Wirtschaftsuniversität Wien)
    Abstract: We use a panel approach, covering 10 EU Member States over the period 1981 to 1999, for each of three major industry groups (manufacturing, construction, and services) and 18 more detailed industries to test whether the EU’s Single Market Programme has led to a reduction in firms’ markups over marginal costs. We address explicitly the uncertainty with respect to the timing of the changeover and allow for a possibly continuous regime shift in a smooth transition analysis. Where regime shifts can be found, the velocity of transition is extremely high, making the linear model a justifiable approximation. We also test for discrete structural breaks in the time window from 1988 to 1996, taking up endogeneity concerns in a GMM framework. Markup reductions are found for aggregate manufacturing (though it is also suggested that markups increased in some manufacturing industries in the pre-completion period at the end of the 1980s) and – less robustly – for construction. In contrast, markups have gone up in most service industries since the early 90s, which confirms the weak state of the Single Market for services and suggests that anti-competitive defense strategies have emerged in the 1990s in service industries.
    Keywords: EU, markup, Single Market
    JEL: L11 F15
    Date: 2007–08–05
  7. By: Verspagen, Bart (Eindhoven University of Technology, UNU-MERIT)
    Abstract: This paper discusses the possibility of a spatial hierarchy of innovation and growth dynamics in Europe. A spatial hierarchy is understood as a geographical clustering of regions, where important differences exist in terms of innovation and growth dynamics between the clusters. The literature on regional growth and innovation is briefly scanned. After this, a database on European regional growth and innovation dynamics is presented. Spatial correlation analysis and spatial principal components analysis are used to explore the possibility of a spatial hier-archy in Europe. The results point to a hierarchy consisting of four groups: South Europe, East Europe, and two groups in West and North Europe. Growth and innovation performance in these clusters is discussed, and some policy conclusions are drawn.
    Keywords: Technological Change, Economic Development, Europe, Geographical Distribution, Government Policy
    JEL: O31 O18 O52 O38
    Date: 2007
  8. By: Andrea Terzi (Universita Cattolica, Milan, Italy)
    Keywords: deficits; fiscal deficit; interest rates; inflation
    Date: 2007–05–14
  9. By: Mark J. Holmes (Dept of Economics, Waikato University); Jesus Otero (Facultad de Economia, Universidad del Rosario); Theodore Panagiotidis (Department of Economics, Loughborough University)
    Abstract: In this paper, we test for the stationarity and sustainability of European Union budget deficits over the period 1971 to 2006, using a panel of thirteen member countries. Our testing strategy addresses two key concerns with regard to unit root panel data testing, namely (i) the identication of which members-states are stationary, and (ii) the presence of cross-sectional dependence. We employ a moving block bootstrap approach to the Hadri (2000) procedure that tests the null of joint stationarity. In contrast to the existing literature, we find that the EU countries considered are characterised by fiscal sustainability over the full sample period. This conclusion also holds when analysing sub-periods based on before and after the Maastricht treaty.
    Keywords: Heterogeneous dynamic panels, fiscal sustainability, mean reversion, panel stationarity test.
    JEL: C33 F32 F41
    Date: 2007–05
  10. By: Gual, Jordi (IESE Business School); Mas, Nuria (IESE Business School)
    Abstract: In the EU, competition policy is based on three main pillars: antitrust, merger control and monitoring state aid. Our analysis focuses on antitrust policy. In this context, the Commission is concerned about restrictive agreements and practices that imply an abuse of market power. The objective of this paper is to analyze what are the main criteria used by the Commission when deciding on anti-competitive practices. In particular, our goal is to determine whether and to what extent the Commission takes into account economic analysis when deciding whether anti-competitive behavior has taken place. There is a very extensive industrial organization literature which provides the theoretical and empirical background that associates industry features with the likelihood of practices that restrict competition. However, the literature evaluating the competition authority's decisions is much scarcer and has focused mainly on the analysis of merger policy. Our paper contributes to fill this gap in the literature. We examine almost 2,000 cases submitted to the Commission for consideration from January 1999 to February 2004 with the aim of determining which industry characteristics led the Commission to decide against an investigated firm on antitrust grounds.
    Keywords: Competition policy; Antitrust; European Commission; Mergers;
    Date: 2007–03–09
  11. By: de Beaufort, Viviane (ESSEC Business School)
    Abstract: More than one third of companies listed in the FTSE EUROFIRST 300 index are governed accordingly to principles differing from the One share – One vote standards. These exceptions could be illustrated by several practices such as Scandinavian multiple voting shares, non voting shares as seen in some State members as authorised by European Directives, French double voting shares, “golden shares” concerning recently privatized firms, or even preference shares as observed in Holland. Such variety can be explained by the fact that “control rights” and “cash-flow rights”, understood as essential to the company's activities, are distinctly considered in the shareholder practices. The question at stake is to know if the application of the One share – One vote as a European standard would be justified with regard to European Law, including its underlying principles, and to economic efficiency in general. Indeed, One share – One vote enthusiast affirm that this rule participates to corporate democracy and contributes to increases firms' performance. The aim of our study is to determine whether these principles are reached or not. As a preliminary remark, we can notice that the European Commission intervention is questionable. First, its competence, and therefore the legality of a potential action, is not obvious. Indeed, owing to the subsidiarity principle and the article 48.2: (“co-ordinating to the necessary extent the safeguards which, for the protection of the interests of members and others, are required by Member States of companies or firms, with a view to making such safeguards equivalent throughout the Community”.) and the European Parliament position concerning the Takeover Directive, the legitimacy of the European Commission in this case is undoubtedly compromised. Then, the application of One share - One vote, by the cancellation of certain rights attached to a share, would violate a democratic principle, founder of the European Union, and dedicated by Member States Constitutions, known as private property. It would have, as a result, an unjustified, not compensable and therefore, illegal expropriation. We also have to question ourselves concerning the concept of corporate democracy and its consequences on Europeans companies. Unquestionable at first glance, is the notion of democracy transposable it in corporate Law? Is it only referring to a strict equality between shareholders or rather intents to limit unequal situations and therefore, prevent dominant shareholders from unilaterally capturing the company's performance? The respect of principles such as equity, shareholders general interest and company's interest, combined with transparency rules and protection of minority shareholders leads us to favour the second supposition. Finally, we underline that the ultimate argument relating to efficiency as a result from the strict application of the One share – One vote rule, is tempered by economical studies and by the practice observed in several State members. The One share - One vote rule could definitely be necessary for market readability purposes. But, some exception to this rule might be justified with regard to the company's interest. Therefore, some flexibility principles should remain. A dogmatic approach focused on shareholders, or certain type of shareholders, would disadvantage the development of the internal market and could not be justifiable on a legal ground. We believe that promoting corporate democracy requests an enhancement of transparency with a better bordering of existing practices and a strengthening of minority shareholders (by improving an “upper standard” harmonization).
    Keywords: Corporate Governance; One share-One vote; Shareholder Democracy
    JEL: H00 K00
    Date: 2006–12
  12. By: Kristoffel Grechenig; Michael Sekyra
    Abstract: We address one of the cardinal puzzles of European corporate law: the lack of derivate shareholder suits. In the vast majority of European jurisdictions, shareholders can bring a derivative action (for damages) against the management for breach of fiduciary duty. In all of these countries, a derivative lawsuit is the only remedy against managerial misconduct. In spite of corporate fraud by managers there are no such lawsuits. We explain this apparent paradox on the basis of percentage limits. The laws of percentage limits require shareholders to hold a minimum amount of typically 5% to 10% in order to bring an action against the management and they are extremely wide-spread in Europe. Since small shareholders are not entitled to sue, there is an incentive for managers to collude with large shareholders. In a four-stage-model, we show that, given the current percentage limits, managers will misappropriate corporate assets and split the proceeds with large shareholders. Contrary to current and past approaches to agency theory, we find that, in this equilibrium, (1) large shareholders do not monitor the management, (2) small shareholders do not free ride and (3) the residual ownership is not held by the shareholders on the whole but by the managers and the large shareholders. This interpretation of the current situation is consistent with empirical studies that find a more concentrated shareholder structure in Europe than in the United States. Also published as: Columbia Law and Economics Working Paper No. 312 ( German Working Papers in Law and Economics: Vol. 2007: Article 2. ( SSRN (
    Keywords: Agency Theorey, Derivative Suits, Shareholder Suits, Percentage Limits, Collusion, Residual Owners, Corporate Fraud, Managerial Misconduct, European Law, European Corporations, Europe, Large Shareholders, Free Rider, Collective Action, Settlements, Monitoring, Rent-Seeking
    JEL: K22 K42 G30
    Date: 2007–06
  13. By: Carlo Favero, Marco Pagano and Ernst-Ludwig von Thadden
    Abstract: The paper explores the determinants of yield differentials between sovereign bonds in the Euro area. There is a common trend in yield differentials, which is correlated with a measure of aggregate risk. In contrast, liquidity differentials display sizeable heterogeneity and no common factor. We propose a simple model with endogenous liquidity demand, where a bond’s liquidity premium depends both on its transaction cost and on investment opportunities. The model predicts that yield differentials should increase in both liquidity and risk, with an interaction term of the opposite sign. Testing these predictions on daily data, we find that the aggregate risk factor is consistently priced, liquidity differentials are priced for a subset of countries, and their interaction with the risk factor is in line with the model’s prediction and crucial to detect their effect.
  14. By: Schneider, Cédric
    Abstract: The aim of this paper is to study the determinants of the outcomes of patent applications (withdrawal, refusal or grant). The application process at the European Patent Office is modelled in three stages, using a Trivariate Probit model with double selectivity correction in order to test whether the applicants ?patenting history has an effect on the outcome of the current application. I investigate the behavior of the applicant after the patent office has established the "state of the art", a precondition to an invention being patentable. The main results are (i) firms with large patents portfolios act following a "trial and error" strategy, by applying for large numbers of patents and thereafter waiting for the patent office?s final decision when the expected probability of grant is high, (ii) the technological importance of a patent is a crucial determinant of a successful application grant, (iii) a withdrawal is to be regarded as an expected refusal, since applicants tend to withdraw their applications when there is evidence that the inventions cannot be considered to be novel or to involve an inventive step.
    Keywords: European Patent Office; Intellectual Property Rights
    JEL: O34
    Date: 2007
  15. By: Arnstein Aassve (Institute for Social and Economic Research); Maria Iacovou (Institute for Social and Economic Research)
    Abstract: This paper analyses the factors associated with poverty among young people across 13 countries of the pre-enlargement European Union, and examines how these factors differ between countries. Previous research has shown that young people in most European countries face a higher-than-average risk of poverty; this is to be expected, since young adulthood is a time when people undergo rapid transitions in multiple spheres (education; the labour market; the family), many of which may pre-dispose the young person to poverty. Here, we use data from the European Community Household Panel (ECHP), making use of random effects models and discrete time hazard regressions to examine the role of several factors on a young person's probability of being poor; and on his or her probability of entering and exiting poverty. We also carry out parallel analysis using measures of non-monetary deprivation. Our results show that while many factors are correlated with young people's risks of poverty or deprivation, the largest risk factor by far is moving out of the parental home.
    Keywords: europe, poverty, young people
    Date: 2005–11
  16. By: Pavel Ciaian; Johan F.M. Swinnen
    Abstract: This article analyses how credit market imperfections affect the impacts of subsidies by analyzing the effects of agricultural subsidies in the new Eastern Member States of the European Union with a partial equilibrium model which integrates credit and land market imperfections. We show that credit constraints have important implications for the distribution of policy rents. Credit market imperfections may induce very different effects of direct payments and lump-sum transfers.
    Keywords: agricultural policy, imperfect credit markets, land market, policy rents.
    Date: 2007
  17. By: Münich, Daniel; Svejnar, Jan
    Abstract: In this paper, we use 1991-2005 panel data on the unemployed, vacancies, inflow into unemployment, and outflow from unemployment in five former communist economies and in the western part of Germany (a benchmark western economy) to examine the evolution of unemployment together with that of inflows into unemployment and vacancies. The comparison of the transition economies with an otherwise similar and spatially close market economy is useful because it enables us to identify the main differences and similarities in the evolution of the key variables, and thus draw conclusions as to whether different or similar factors cause high unemployment.
    Keywords: Communism; Labour; Transition; Unemployment
    JEL: C33 J4 J6 P2
    Date: 2007–06
  18. By: Pierdzioch, Christian; Kizys, Renatas
    Abstract: We report results on the international linkages of the stock markets of three Central and Eastern European (CEE) countries (Czech Republic, Hungary, and Poland). Our results are based on monthly data for the sample period from 1995 to 2006. We show that it is important to account for international linkages between fundamentals and speculative bubbles. Our results suggest that, with regard to fundamentals, the international linkages of the stock markets of the three CEE countries have strengthened at the end of the sample period. By contrast, with regard to speculative bubbles, their international linkages have become weaker at the end of the sample period.
    Keywords: Stock markets; Fundamentals; Speculative bubbles; Cointegration; CEE countries; Kalman filter
    JEL: G15 C32 F37
    Date: 2007–06–06
  19. By: Paul Wachtel; Rainer Haselmann
    Date: 2007
  20. By: Federica Origo
    Abstract: This paper studies the determinants of the joint adoption of employment, wage and working time flexibility in workplaces, paying attention to the existence of complementarities. To better understand the role of country-specific institutional features, we compare the adoption of flexibility in Italy and Great Britain, two EU countries characterized by quite different product and labour market regulation. Empirical analysis based on establishment-level data shows that the probability of adopting any forms of flexibility is highly influenced by both firm characteristics and institutional variables, mainly by employment protection, union power and firm-level bargaining. Country-specific patterns also emerge: in Italy employment and wage flexibility are complement and they are both substitute for time flexibility; in Great Britain the flexibility mix is less clear cut. These results suggest that both policy makers and social partners should be aware that incentives or restrictions to specific forms of flexibility are likely to produce effects also on the use of other flexible work arrangements.
    Keywords: flexibility, complementarities, institutions, multivariate probit
    JEL: J41 J49 J59
    Date: 2007–04
  21. By: Gert Peersman (Ghent University)
    Abstract: In this paper, we show how a simple model with sign restrictions can be used to identify symmetric and asymmetric supply, demand and monetary policy shocks in a two-country structural VAR. The results can be used to deal with several issues that are important in the OCA-literature. Whilst the method can be applied to many countries, we provide evidence for the UK versus the Euro Area which are compared versus the US as a benchmark. An important role for symmetric shocks with the Euro Area in explaining UK output fluctuations is found. However, the relative importance of asymmetric shocks, being around 20 percent in the long-run, cannot be ignored. In contrast, the degree of business cycle synchronization seems to have been higher with the US. Moreover, the historical average reaction of the policy rate to symmetric aggregate demand shocks was stronger in the UK than the Euro Area. We also confirm existing evidence of the exchange rate being an important independent source of shocks in the economy.
    Keywords: optimal currency areas, symmetric and asymmetric shocks, vector autoregressions
    JEL: C32 E42 F31 F33
    Date: 2007–10–05
  22. By: Helene Dearing; Helmut Hofer; Christine Lietz; Rudolf Winter-Ebmer; Katharina Wrohlich
    Abstract: Labor force participation rates of mothers in Austria and Germany are similar, however full-time employment rates are much higher among Austrian mothers. In order to find out to what extent these differences can be attributed to differences in the tax transfersystem, we perform a comparative micro simulation exercise. After estimating structural labor supply models of both countries, we interchange two important institutional characteristics of the two countries, namely (i) the definition of the tax unit within the personal income tax and (ii) the parental leave benefit scheme. As our analysis shows, differences in mothers' employment patterns can partly be explained by the different tax systems: While Germany has a system of joint taxation with income splitting for married couples, Austria taxes everyone individually, which leads to lower marginal tax rates for secondary earners than the German system.
    Keywords: Labor supply, micro simulation, family policy, income taxation, Austria, Germany
    JEL: J22 H31 H24
    Date: 2007
  23. By: Blázquez Cuesta, Maite (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.); García Pérez, José Ignacio (Universidad Pablo Olavide, FCEA & FEDEA)
    Abstract: In this paper we analyse how the decentralization process of the Spanish educational system has affected the school-to-work transition of youths over the last years. Using individual data from the Spanish Labor Force Survey for the period 1993-2002, we estimate a simultaneous equation model for the unemployment and employment hazard rates of these workers. We include public expenditure on education, at the regional level, as an explanatory factor in both hazards. Furthermore we account for cross-regional differences regarding the decision-making authority over education. Our results reveal that for both, university and non-university levels, public expenditure on education significantly improves the chances of Spanish youths in finding the first job after completing the educational system. However, it seems that the decentralization of university education has negative effects on youths’ labor market prospects in terms of exiting from unemployment, while no effects are observed for the case of non-university education.
    Keywords: connections, educational expenditure, decentralization, unemployment hazard, employment hazard
    JEL: I20 I22 I28
    Date: 2007–05
  24. By: Kristjan-Olari Leping; Ott Toomet
    Abstract: We analyse the ethnic wage gap in Estonia, a former Soviet republic and current EU member, which hosts a substantial Russianspeaking minority. The analysis covers a lengthy period from the final years of the Soviet Union until the first years of EU membership. We document the rise of a substantial wage gap among males in favour of the Estonian-speaking population. This result is robust with respect to controls for language skills, education, industry and occupation. The main factors causing the unexplained wage gap include different ethnicity-specific returns to education and working in the capital city. The gap for young and established workers is of equal size.We argue that the most plausible explanations are establishmentlevel segregation, possibly related to sorting and screening discrimination. Unobserved human capital, related to the segregated school system, may also play a certain role.
    Keywords: wage decomposition, ethnicity, Estonia, former Soviet Union
    JEL: J15 J31 J71 P23 P36
    Date: 2007
  25. By: Boris Vujčić (Faculty of Economics and Business, University of Zagreb and Croatian National Bank); Vedran Šošić (Croatian National Bank)
    Abstract: Countries of Central and Eastern Europe experienced a rapid increase of return to education with the advent of the transition. This is well-documented for most of the countries but, until now, there were no empirical studies of the dynamics of wage premiums in post-transition Croatia. This paper, therefore, intends to fill in that gap. We look at the dynamics of wage premiums in Croatia and estimate how much the return to education has changed between 1996 and 2004 on the basis of labor force survey data. We compare these results with similar ones for selected transition countries and then we look at some possible explanations of our findings. Contrary to most transition countries, premiums for education in Croatia began to grow only at the end of the 1990's. In a way, wage adjustment in Croatia has been delayed. However, by 2004, it reached the level of premiums found in other transition countries and advanced market economies, thus creating market incentives for investment in education. We also look at additional features of the wage structure, such as non-linearities in the return to education associated with attainment of credentials and return to experience.
    Keywords: Croatia, human capital, returns to education
    JEL: J31 P23 P52
    Date: 2007–05–29
  26. By: Nordin, Martin (Department of Economics, Lund University)
    Abstract: The aim of this paper is to examine if the returns to immigrants’ schooling are lower than the returns to natives’ schooling. In addition the paper tries to establish whether immigrants who invest in different amounts of Swedish education also differ in their returns to schooling. The results show that the difference in returns to schooling between immigrants and natives is generally quite small. Moreover, the returns to schooling are considerably higher for immigrants who arrived in Sweden during compulsory school age than for immigrants who arrived in Sweden after compulsory school age. Moreover, immigrants who complete their schooling in Sweden have, in general, much higher returns than immigrants with only foreign schooling.
    Keywords: Immigrants; return to schooling; incomes
    JEL: J15 J24
    Date: 2007–05–08
  27. By: Memmel, Christoph; Raupach, Peter
    Abstract: We analyze the dynamics of banks’ regulatory capital ratios. Using monthly data of regulatory capital ratios for a subset of large German banks, we estimate the target level and the adjustment speed of the capital ratio for each bank separately. We find evidence that, first, there exists a target level for a substantial percentage of banks; second, that private banks and banks with liquid assets are more likely to adjust their capital ratio tightly; and third, that banks compensate for low target capital ratios with low asset volatilities and high adjustment speeds. Fourth, banks with a target capital ratio seem to use an internal lower limit for their current ratios that is just above the regulatory minimum of 8%.
    Keywords: Regulatory bank capital, target capital ratio, partial adjustment, Ornstein-Uhlenbeck process
    JEL: G21 G32
    Date: 2007
  28. By: Gerhard Fenz (Oesterreichische Nationalbank, Economic Analysis Division); Martin Schneider (Oesterreichische Nationalbank, Economic Analysis Division)
    Abstract: This paper analyses the comovement of the German and Austrian economies and the transmission of German shocks to Austria. Static and dynamic correlation measures show a strong comovement and a change of the relative position in time of these two economies. The transmission of German shocks to Austria is analysed with a two-country VAR model. Using sign restrictions on impulse response functions, we identify German supply, demand and monetary policy shocks. We find that the average reaction of the Austrian economy to German shocks amounts to 44% of the German reaction and remains broadly stable over time.
    Keywords: business cycle, synchronization, vector autoregression, shock transmission, Austria, Germany.
    JEL: C32 E32 F41
    Date: 2007–05–14
  29. By: Bannier, Christina E.; Fecht, Falko; Tyrell, Marcel
    Abstract: Open-end real estate funds are of particular importance in the German bank- dominated financial system. However, recently the German open-end fund industry came under severe distress which triggered a broad discussion of required regulatory interventions. This paper gives a detailed description of the institutional structure of these funds and of the events that led to the crisis. Furthermore, it applies recent banking theory to openend real estate funds in order to understand why the open-end fund structure was so prevalent in Germany. Based on these theoretical insights we evaluate the various policy recommendations that have been raised.
    Keywords: Open-End Funds, Liquidity Transformation, Liquidity Crisis, Risk Sharing
    JEL: G23 G28
    Date: 2007
  30. By: Behr, Andreas; Kamp, Andreas; Memmel, Christoph; Pfingsten, Andreas
    Abstract: Banks face a tradeoff between diversifying and focusing their loan portfolio. In this paper we carry out an empirical study for the German market to shed light on the question whether or not the benefits of risk sharing outweigh those of specialization. We use data from the Bundesbank’s quarterly borrowers statistic to determine the degree of diversification in the banks’ loan portfolios and combine this data with the banks’ balance sheets and audit reports. The unique database comprises data from all German banks during the period from 1993 to 2003. Our main results can be summarized in three statements: i) Specialized banks have a slightly higher return than diversified banks. ii) Specialized banks have lower relative loan loss provisions and lower shares of non-performing loans, iii) However, the standard deviations of the loan loss provision ratio and the non-performing loan ratio are lower for diversified banks.
    Keywords: bank lending, loan portfolio, portfolio theory, diversification, riskreturn analysis
    JEL: C23 C43 G11 G21
    Date: 2007

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