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on European Economics |
| By: | Andrew McCallum; Frank Smets |
| Abstract: | We use the Factor-Augmented Vector Autoregression (FAVAR) approach of Bernanke, Boivin and Eliasz (2005) to estimate the effects of monetary policy shocks on wages and employment in the euro area. The use of a large data set comprising country, sectoral and euro area-wide data allows us to better identify common monetary policy shocks in the euro area and their effects on labour market outcomes. At the same time the FAVAR approach gives us estimates of how relative wages and employment in the various countries and sectors respond to these common shocks. The ultimate objective of our work is to relate the estimated cross-country differences in wage and employment responses to differences in labour market institutions and sectoral composition. |
| Keywords: | VAR, factor models, rigidity, labour market |
| JEL: | E3 E4 J3 J6 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1360&r=eec |
| By: | Alistair Dieppe (Directorate General Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Thomas Warmedinger (Directorate General Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | The paper proposes a modelling approach for euro area goods and services trade volumes and prices on the basis of a break-down of trade data into their intra- and extra-area components. Using the evidence from the newly estimated trade equations, the paper gives new insights into two important issues. The first issue concerns the exchange-rate pass-through (ERPT) to euro area import prices. The second issue relates to substitution effects between intra- and extra-area trade. These issues are further elaborated through simulation analyses using the ECB’s area-wide model (AWM). The simulations illustrate the impact of external and domestic shocks to trade in the euro area, in particular on intra- and extra-area trade. The richer dynamics from this disaggregated perspective provide additional insights and elucidate transmission channels of shocks that are not detectable from an aggregate (i.e. total trade) perspective. For instance, one interesting finding is that an appreciation of the euro has a significant downward impact on intra euro area trade. JEL Classification: E31, F17, C5. |
| Keywords: | Intra-/ extra-area trade, euro area, competitiveness and trade substitution, exchange-rate passthrough, pricing-to-market. |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070760&r=eec |
| By: | Francesco Drudi (Capital markets and Financial Structure Division, Directorate Monetary Policy, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Annalisa Ferrando (Capital markets and Financial Structure Division, Directorate Monetary Policy, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Petra Köhler-Ulbrich (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); David Marqués Ibañez (Capital markets and Financial Structure Division, Directorate Monetary Policy, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Philippine Cour-Thimann (Capital markets and Financial Structure Division, Directorate Monetary Policy, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Vanessa Baugnet; Elmar Stoess; Thomas Vlassopoulos; Carmen Martínez-Carrascal; Katia Tombois; Peter Mc.Goldrick; Carmelo Salleo; Romain Perrard; Maarten Hendrikx; Walter Waschiczek; Paula Antão; Anssi Rantala |
| Abstract: | This report analyses the financial position of non-financial enterprises in the euro area, in particular the amount of external financing, the choice between debt and equity and the composition and maturity structure of debt. It aims at identifying the main features of the euro area, as well as the peculiarities that depend on the country of origin and the sector of activity. Attention is also devoted to assessing whether a country’s institutional eatures are correlated with different financial structures by firms. In light of the particular interest in the access of small and medium-sized enterprises (SMEs) to financing, the report also analyses how financing patterns differ across large, medium-sized and small enterprises. Finally, the report discusses the recent trends observed in the corporate finance landscape of the euro area over the past few years. Although it is still too early to pass final judgement, vast structural changes are underway that could have already influenced in a positive way in the availability of external funds for firms. All in all, a comprehensive understanding of corporate finance in the euro area is important from a monetary policy perspective, given its impact on the transmission mechanism and for productivity and economic growth. Moreover, such an understanding is also relevant from a financial stability perspective. A first assessment is now possible eight years into the third stage of Economic and Monetary Union (EMU), given that sufficient data have been accumulated during this period. This assessment is particularly important as the introduction of the single currency has had significant structural effects on the working of financial markets, increasing their size and liquidity, and fostering cross-border competition. The data available for this report generally cover the period 1995-2005, and the cut-off date for the statistics included is 10 March 2007. |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20070063&r=eec |
| By: | Axel Börsch-Supan (Mannheim Research Institute for the Economics of Aging (MEA)) |
| Abstract: | The paper examines the generosity of the European welfare state towards the elderly. It shows how various dimensions of the welfare regimes have changed during the recent 10-15 years and how this evolution was related to the process of economic integration. Dimensions include general generosity towards the elderly and more specifically generosity towards early retirement and generosity towards the poor. Using aggregate data (EUROSTAT, OECD) as well as individual data (SHARE, the new Survey of Health, Ageing and Retirement in Europe), the paper looks at the statistical correlations among those types of system generosity and actual policy outcomes, such as unemployment and poverty rates among the young and the elderly, and the inequality in wealth, income and consumption. While the paper is largely descriptive, we also try to understand which economic and political forces drive social expenditures for the elderly in the European Union and whether spending for the elderly crowds out spending for the young. |
| Date: | 2007–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:mea:meawpa:07128&r=eec |
| By: | Michiel van Leuvensteijn (Netherlands Bureau for Economic Policy Analysis (CPB), P.O. Box 80510, 2508 GM, The Hague, The Netherlands.); Jacob A. Bikker (De Nederlandsche Bank (DNB), Supervisory Policy Division, Strategy Department, P.O. Box 98, NL-1000 AB Amsterdam, The Netherlands.); Adrian A.R.J.M. van Rixtel (International Economics and International Relations Department, Banco de España (BdE), Alcalá 48, 28014 Madrid, Spain.); Christoffer Kok Sørensen (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper is the first that applies a new measure of competition, the Boone indicator, to the banking industry. This approach is able to measure competition of bank market segments, such as the loan market, whereas many well-known measures of competition can consider the entire banking market only. A caveat of the Boone-indicator may be that it assumes that banks generally pass on at least part of their efficiency gains to their clients. Like most other model-based measures, this approach ignores differences in bank product quality and design, as well as the attractiveness of innovations. We measure competition on the lending markets in the five major EU countries as well as, for comparison, the UK, the US and Japan. Bearing the mentioned caveats in mind, our findings indicate that over the period 1994-2004 the US had the most competitive loan market, whereas overall loan markets in Germany and Spain were among the best competitive in the EU. The Netherlands occupied a more intermediate position, whereas in Italy competition declined significantly over time. The French, Japanese and UK loan markets were generally less competitive. Turning to competition among specific types of banks, commercial banks tend to be more competitive, particularly in Germany and the US, than savings and cooperative banks. JEL Classification: D4, G21, L1. |
| Keywords: | Banking industry, competition, loan markets, marginal costs, market shares. |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070768&r=eec |
| By: | Erik S. Reinert; Rainer Kattel |
| Abstract: | We argue that the process of European economic integration has made a qualitative shift: from a Listian symmetrical economic integration to an integrative and asymmetrical integration. This shift started in the early 1990s with the integration of the former Soviet economies into the economies of Europe and the world as a whole, reached its climax with the Eastern enlargement of the Union in 2004, and now forms the foundation of the renewed Lisbon Strategy. This change is measurably threatening European welfare: the economic periphery in the first instance, and potentially the core countries as well. Two parallel processes aggravate this development: the timing of the enlargement at this particular phase of the evolving techno-economic paradigm; and the creation of the European Monetary Union along the so-called Maastricht route towards convergence and fiscal stability. |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:tth:wpaper:14&r=eec |
| By: | Kox, Henk L.M>; Lejour, Arjan |
| Abstract: | Europe’s market for services is fragmented by many regulatory barriers. The Services directive proposed by the European Commission aims to integrate national services markets by reducing these barriers. Several studies indicate that bilateral trade and foreign direct investment in services could boost substantially. GDP and consumption could increase by 0.5% to about 1% on average in Europe. The effects for the Member States vary depending on the size of the barriers in their services markets and specialization. These results take account of scale effects, and forward and backward linkages in the economy, but ignore the effects of more competition on productivity and innovation in the long term. This paper assesses the channels though which an integrated European services market may generate these dynamic gains. Improved market access will stimulate competitive selection and productivity growth. Through trade and investment, knowledge spillovers will increase and innovation will be fostered. These channels are illustrated with quantitative evidence. |
| Keywords: | trade openess; services; dynamic effects; European Union |
| JEL: | F4 L8 F43 F15 O4 L11 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:3751&r=eec |
| By: | Jose Ignacio Gimenez (University of Zaragoza); Jose Alberto Molina (University of Zaragoza and IZA); Almudena Sevilla Sanz (University of Oxford) |
| Abstract: | This paper complements conventional economic analysis and presents a social norms interpretation to explain cross-country differences in partnership formation rates, and the dramatic decrease in partnership formation rates in Southern Europe in particular. We argue that increases in female human capital - by raising the opportunity cost of entering a partnership - had a differential impact on partnership formation rates in Northern and Southern Europe due to the different social norms regarding the household division of labor. Social norms are modeled as a constraint on the allocation of household labor that (if binding) diminishes the gains to enter a partnership. Furthermore, highly educated women are less likely to form a partnership, because the utility loss when a partnership is formed is lower the higher the female opportunity cost. We test the predictions of the model using 7 waves of the European Community Household Panel (1995-2001). For each country and year we construct the average of the female to male ratio of childcare time as an indicator of social norms regarding the household division of labor. The empirical findings support the predictions of the model. After controlling for the time and country variation in the data, as well as for permanent individual heterogeneity and other aggregate variables at the country level, the results suggest that more traditional social norms regarding the household division of labor negatively affect a woman's probability of forming a partnership. Thus, a woman living in a country with a more traditional division of household labor has, ceteris paribus, a lower probability of forming a partnership. Furthermore, as predicted by the theory, social norms have a stronger negative effect for highly educated women. To the extent that female education has increased over the years, and that Southern European countries have more traditional social norms, this latter finding may partly explain the dramatic decrease in partnership formation rates in Southern Europe. |
| Keywords: | marriage market, gender roles, household labor |
| JEL: | E21 I29 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2884&r=eec |
| By: | Pierre-Carl Michaud; Arthur van Soest; Tatiana Andreyeva |
| Abstract: | While the fraction of obese people is not as large in Europe as in the United States, obesity is becoming an important issue in Europe as well. Using comparable data from the Survey of Health, Aging and Retirement in Europe (SHARE) and the Health and Retirement Study in the U.S. (HRS), we analyze the correlates of obesity in the population ages 50 and above, focusing on measures of energy intake and expenditure as well as socio-economic status. Our main results are as follows: 1) Obesity rates differ substantially on both sides of the Atlantic and across European countries, with most of the difference coming from the right tail of the weight distribution. 2) Part of the difference in obesity prevalence between the U.S. and Europe is explained by a higher fraction of food eaten away from home and notably lower time devoted to cooking in the U.S. 3) Sedentary lifestyle or a lack of vigorous and moderate physical activity may also explain a substantial share of the cross-country differences. 4) Differential SES patterns of energy intake and expenditure across countries cannot fully account for the observed cross-country variation in the SES gradient in obesity. |
| Keywords: | Body Mass Index, International Comparison, SHARE |
| JEL: | I12 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:sedapp:185&r=eec |
| By: | Michael Ehrmann (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Marcel Fratzscher (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | The question how best to communicate monetary policy decisions remains a highly topical issue among central banks. Focusing on the experience of the European Central Bank, this paper studies how explanations of monetary policy decisions at press conferences are perceived by financial markets. The empirical findings show that ECB press conferences provide substantial additional information to financial markets beyond that contained in the monetary policy decisions, and that the information content is closely linked to the characteristics of the decisions. Press conferences indeed have on average had larger effects on financial markets than even the corresponding policy decisions, and with lower effects on volatility. Moreover, the Q&A part of the press conference fulfils a clarification role about the economic outlook, in particular during periods of large macroeconomic uncertainty. JEL Classification: E52, E58, G14. |
| Keywords: | Monetary policy; financial markets; real-time analysis; press conference; communication; European Central Bank. |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070767&r=eec |
| By: | Marco Bassetto; Vadym Lepetyuk |
| Abstract: | We consider the effect of excluding government investment from the deficit subject to the limits of the European Stability and Growth Pact. In the model we consider, residents of a given country discount future costs and benefits of government spending more than efficiency would dictate, because they fail to take into account the portion that will accrue to people that have not yet been born or immigrated into the country. It is thus in principle desirable to design budget rules that favor long-term investment (by allowing more borrowing) over other government spending that only carries short-term benefits. However, given the low rates of population growth, mortality, and mobility across European countries, we find that the distortions arising from treating all government spending equally are likely to be modest. We also show that these modest distortions can be alleviated only if net government investment is excluded from the deficit computation; excluding gross investment may even be counterproductive, as it promotes overspending in government capital. |
| JEL: | D61 E62 H41 H54 H62 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13200&r=eec |
| By: | Amisano, Giovanni; Tristani, Oreste |
| 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. |
| Keywords: | Bayesian estimation; DSGE models; inflation persistence; second order approximations; sequential Monte Carlo |
| JEL: | C11 C15 E31 E32 E52 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6373&r=eec |
| By: | Kox, Henk L.M.; Rubalcaba, Luis |
| Abstract: | A pervasive trend that characterised the past two decades of European economic growth is that the share in the economy of commercial services, and particularly business services, grows monotonically, and this mainly to the expense of the manufacturing sector. The structural shift reflects a changing and increasingly complex social division of labour between economic sectors. The fabric of inter-industry relations is being woven in a new way due to the growing specialisation in knowledge services, the exploitation of scale economies for human capital, lowered costs of outsourcing in-house services, and the growing encapsulation of manufacturing products in a ‘service jacket’. Business services, which inter alia includes the software industry and other knowledge-intensive business services (KIBS), play a key role in many of these processes. We argue that in recent decades business services contributed heavily to European economic growth, in terms of employment, productivity and innovation. A direct growth contribution stems from the business-services sector’s own remarkably fast growth, while an indirect growth contribution was caused by the positive knowledge and productivity spill-overs from business services to other industries. The spill-overs come in three forms: from original innovations, from speeding up knowledge diffusion, and from the reduction of human capital indivisibilities at firm level. The external supply of knowledge and skill inputs exploits positive external scale economies and reduces the role of internal (firm-level) scale (dis)economies associated with these inputs. The relatively low productivity growth that characterises some business-services sectors may be a drag on the sector's direct contribution to overall economic growth. The paper argues that there is no reason to expect a “Baumol disease” effect as long as the productivity and growth spill-overs from KIBS to other economic sectors are large enough. Finally, the paper pinpoints some policy 'handles' that could be instrumental in boosting the future contribution of business services to overall European economic growth. |
| Keywords: | economic growth; human capital; specialisation; business services; Europe |
| JEL: | L8 O52 O4 O3 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:3750&r=eec |
| By: | Axel Börsch-Supan (Mannheim Research Institute for the Economics of Aging (MEA)) |
| Abstract: | Disability insurance – the insurance against the loss of the ability to work – is a substantial part of social security expenditures in many countries. The enrolment rates in disability insurance vary strikingly across European countries and the US. This paper investigates the extent of, and the causes for, this variation, using data from SHARE, ELSA and HRS. We show that even after controlling for differences in the demographic structure and health status these differences remain. In turn, indicators of disability insurance generosity explain 75% of the cross-national variation. We conclude that country-specific disability insurance rules are a prime candidate to explain the observed cross-country variation in disability insurance enrolment. |
| Date: | 2007–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:mea:meawpa:07135&r=eec |
| By: | Javier Andrés (Universidad de Valencia); Fernando Restoy (Banco de España) |
| Abstract: | We analyse the likely effects of changes in the monetary and financial regimes of EMU countries on the dynamics of output and inflation. In particular, we evaluate the impact of the regime shift on the forecasting performance of reduced-form models. Data for both the pre-EMU and the EMU regimes are generated by a relatively standard open-economy-DSGE model with sticky prices and wages and restricted access to financial markets for some individuals. We find that the effects of the shift in the monetary regime on the processes followed by macroeconomic variables depend on the nature of the shocks hitting the economy. For plausible shocks distributions the reduction in the accuracy of VAR-based inflation forecasts is relatively large and significant. The effect of the regime shift on output forecasts seem rather more modest and statistically insignificant. The impact on ouput forecasting accuracy would be comparatively much larger if the new monetary union regime is accompanied by a moderate relaxation of constraints affecting financial market access. |
| Keywords: | forecasting, general equilibrium models, monetary union, inflation and output dynamics |
| JEL: | E17 E32 E37 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0718&r=eec |
| By: | Carlo Favero (Università Bocconi, IGIER, CSEF and CEPR); Marco Pagano (Università di Napoli "Federico II", CSEF and CEPR); Ernst-Ludwig von Thadden (Universität Mannheim and CEPR) |
| 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. |
| JEL: | E43 G12 |
| Date: | 2007–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:181&r=eec |
| By: | Fabien Curto Millet |
| Abstract: | Conjectures about inflation expectations are inextricably linked to our understanding of the relationship between the real and monetary sides of the economy; yet, direct empirical research on the matter has been scarce at best. This paper therefore examines the empirical properties of inflation expectations data constructed on the basis of both qualitative and quantitative surveys of consumers for a set of eight European countries. The rational perceptions hypothesis is tested and rejected by the data, a finding which in turn leads us to reject the rational expectations hypothesis and casts doubt on the New Keynesian Phillips Curve model. The popular alternative of using “rule-of-thumb” expectations in such models empirically is also found to be unrobust. Similarly, the conjecture by Akerlof et al. (2000) of a non-vertical long-run Phillips curve arising from the presence of “near-rational” expectations cannot be supported. The Mankiw and Reis (2002) Phillips curve based on the idea of “sticky information” succeeds in its intuition of a gradual adjustment of expectations, but its assumption of rational updating is challenged by the data in the context of the natural experiment provided by the UK's ERM disinflation. Instead, the adjustment mechanism for expectations appears to display largely adaptive characteristics. Finally, the paper provides some insights into the nature of the interaction between monetary policy and inflation expectations. |
| Keywords: | Inflation expectations, inflation perceptions, survey data, rationality, Phillips curve, consumers, expectations distribution, inflation targeting |
| JEL: | D84 E31 E52 E58 E61 E65 C22 C42 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1339&r=eec |
| By: | Derek W. Bunn (London Business School); Carlo Fezzi (University of East Anglia) |
| Abstract: | This paper addresses the economic impact of the EU Emission Trading Scheme for carbon on wholesale electricity and gas prices. Specifically, we analyse the mutual relationships between electricity, gas and carbon prices in the daily spot markets in the United Kingdom. Using a structural co-integrated VAR model, we show how the prices of carbon and gas jointly influence the equilibrium price of electricity. Furthermore, we derive the dynamic pass-trough of carbon into electricity price and the response of electricity and carbon prices to shocks in the gas price. |
| Keywords: | Carbon Emission Trading, Energy Markets, Structural VECM |
| JEL: | Q48 L94 C32 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2007.63&r=eec |
| By: | Bernd Genser (University of Konstanz); Dirk Schindler (University of Konstanz) |
| Date: | 2007–06–27 |
| URL: | http://d.repec.org/n?u=RePEc:knz:cofedp:0705&r=eec |
| By: | Nikola Bokan; Andrew Hughes Hallett |
| Abstract: | Most people accept that structural and labour market reforms are needed in Europe. However few have been undertaken. The usual conjecture is that reforms are costly in economic performance and costly to finance. Blanchard and Giavazzi (2003) and Spector (2004) develop a general equilibrium model with imperfect competition to show the impact of labour or product market deregulation. We extend that model to combine both reforms, and include the costs of financing them, the conflict between long run gains and short run costs, and to allow for reforms of distortionary taxation. We also extend the model to explain the natural rate of unemployment and non-wage employment costs, to show the impact of reform on the short and long run Phillips curve parameters. We find that structural reforms imply short run costs but long run gains (unemployment rises and then falls, while wages move in the opposite way); that the long run gains outweigh the short run costs; and that the financing of such reforms is the main stumbling block. We also find that the implications for welfare improvements and employment generation are quite different: tax reforms are more effective for welfare, but market liberalisation for employment. |
| Keywords: | Structural reform, wage bargains, short vs. long run substitutability, endogenous entry of firms |
| JEL: | J58 H23 E24 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1336&r=eec |
| By: | Christophe Rault (LEO, University of Orleans and IZA); Robert Sova (CES, Sorbonne University and A.S.E); Ana Maria Sova (CES, Sorbonne University and A.S.E) |
| Abstract: | Our paper deals with econometric developments for the estimation of the gravity model which lead to convergent parameter estimates even when a correlation exists between the explanatory variables and the specific unobservable characteristics of each unit. We implement panel data econometric techniques to characterize bilateral trade flows between heterogeneous economies. Our econometric results based on a sample of Eastern European countries (EEC) and OECD countries over a 18 year period highlight the importance of the taking into account of unobservable heterogeneity to obtain a specification in accordance with data properties and unbiased coefficients. The fixed effect factor decomposition (FEVD) technique appears the more suitable for this purpose. We focus more specifically on EEC countries belonging to the last wave of adhesion (Bulgaria and Romania). Since 1990, these countries have moved towards a market economy and more democracy. Our econometric results provide clear evidence in favor of the traditional trade theory based on comparative advantage which suggests a reallocation of labor intensive industry towards EEC generating a complementary specialization. |
| Keywords: | gravity models, unobserved effects, panel data models, international trade, comparative advantage |
| JEL: | F13 F15 C23 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2851&r=eec |
| By: | López de Foronda Pérez, Óscar (Departamento de Economía y Administración de Empresas, Facultad de Ciencias Económicas y Empresariales, Universidad de Burgos); López-Iturriaga, Félix; Santamaría Mariscal, Marcos (Departamento de Economía y Administración de Empresas, Facultad de Ciencias Económicas y Empresariales, Universidad de Burgos) |
| Abstract: | We analyze the relation between capital structure, ownership structure, and corporate value for a sample of 1,216 firms from 15 European countries. Our results stress two different conflicts of interest and show the differential role played by the mechanisms of corporate control depending on the legal and institutional environment. In common law countries, as a consequence of the relationships between managers and shareholders, capital structure and managerial ownership are the most effective mechanisms of control. In civil law countries, however, as a consequence of the conflicts between majority and minority shareholders, the ownership concentration and the sharing of control within the firm become crucial. In this scenario, the second reference shareholder plays a critical role in contesting the control of the dominant largest shareholder in order to reduce the extraction of private benefits and improve the firm’s performance |
| Keywords: | Law and finance approach, capital structure, ownership structure, corporate governance. |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:ntd:wpaper:2007-01&r=eec |
| By: | Axel Börsch-Supan (Mannheim Research Institute for the Economics of Aging (MEA)) |
| Abstract: | This paper is motivated by the idea to create, wherever possible, rational mechanisms that adapt pension systems automatically to a changed economic and demographic environment, rather than to leave such adaptations to discretionary high-profile pension reforms which all too often stir political opposition. The paper delineates the theory behind such rational mechanisms, shows the advantages and limits of „self-stabilizing“ pension systems, and compares the Swedish and the German approaches to rule-bound pension policy. |
| Date: | 2007–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:mea:meawpa:07132&r=eec |
| By: | Guido Wolswijk (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper provides estimates for the base elasticities of Dutch taxes, paying particular attention to differences between short-and long-term elasticities, and allowing for asymmetric adjustment. Estimates are presented for five tax categories for the period 1970-2005, after making appropriate corrections for effects of discretionary tax measures. The empirical results indicate that shortterm elasticities often are lower than long-term ones, notably when taxes are subdued. Consequently, shocks to tax revenues tend to be aggravated by the dynamics of short-term elasticities. Ignoring differences between short- and long-term elasticities contributes to revenue ‘surprises’ and an incorrect assessment of the fiscal stance. JEL Classification: H2, H62, H68. |
| Keywords: | Tax revenue, income elasticity, fiscal indicators, The Netherlands. |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070763&r=eec |
| By: | David G. Blanchflower (Dartmouth College, Bank of England, NBER, University of Stirling and IZA); Chris Shadforth (External Monetary Policy Committee Unit, Bank of England) |
| Abstract: | This paper examines the causes and consequences of changes in the incidence of entrepreneurship in the UK. Self-employment as a proportion of total employment is high by international standards in the United Kingdom, but the share has fluctuated over time. We examine the time series movements in self-employment, which are dominantly driven by financial liberalisation and changes in taxation rules, especially as they relate to the construction sector which is the dominant sector. We document that the median earnings of the self-employed is less than for employees. We show that in comparison with employees the self-employed are more likely to be male; immigrants; work in construction or financial activities; hold an apprenticeship; work in London; work long hours; have high levels of job satisfaction and happiness. Consistent with the existence of capital constraints on potential and actual entrepreneurs, the estimates imply that the probability of self-employment depends positively upon whether the individual ever received an inheritance or gift. Evidence is also found that rising house prices have increased the self-employment rate. There appears to be no evidence that changes in self-employment are correlated with changes in real GDP, nor national happiness. |
| Keywords: | self-employment |
| JEL: | L26 J23 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2818&r=eec |
| By: | Axel Börsch-Supan; Hendrik Jürges (Mannheim Research Institute for the Economics of Aging (MEA)) |
| Abstract: | Germans retire early. On the one hand, early retirement is very costly and amplifies the burden which the German public pension system has to carry due to population aging. On the other hand, however, early retirement is also seen as a much appreciated social achievement which increases the well-being especially of those workers who suffer from work-related health problems. This paper investigates the relation between early retirement and well-being using the GSOEP panel data. The general picture that emerges from our analysis is that early retirement as such seems to be related to subjective well-being, in fact more so than normal retirement. Early retirement most probably is a reaction to a health shock. Individuals are less happy in the year of early retirement than in the years before and after retirement. After retirement, individuals attain their pre-retirement satisfaction levels after a relatively short while. Hence, the early retirement effect on well-being appears to be negative and short-lived rather than positive and long. Whether this is an effect of retirement itself or a psychological adaptation to an underlying shock cannot be identified in our data and remains an open research issue waiting for a more objective measurement of health. |
| Date: | 2007–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:mea:meawpa:07134&r=eec |
| By: | Fernando Nieto (Banco de España) |
| Abstract: | This paper estimates a single-equation model to analyse the main explanatory factors behind changes in Spanish household credit, considering that the behaviour of its determinants is exogenous. According to the evidence reported, household borrowing is determined in the long run by real spending, gross wealth and the repayment term for outstanding credits, which have a positive influence, and by the cost of loans and the unemployment rate, the effect of which is of a negative sign. Developments in the short run are influenced by changes in long-term interest rates and in employment. The evidence offered suggests that, in general terms, the financing received by households over the period analysed is in line with what may be inferred from its determinants; however, the high volume of debt incurred entails greater exposure of the sector to unexpected changes in its income, in its wealth or in the cost of borrowing, especially in a setting in which floating-rate loans are increasingly significant. |
| Keywords: | credit, household, error correction |
| JEL: | C53 E51 R20 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0716&r=eec |
| By: | Luca Benati (Monetary Policy Strategy Division, European Central Bank, Kaiserstrasse 29, D-60311, Frankfurt am Main, Germany.) |
| Abstract: | We use a Bayesian time-varying parameters structural VAR with stochastic volatility for GDP deflator inflation, real GDP growth, a 3-month nominal rate, and the rate of growth of M4 to investigate the underlying causes of the Great Moderation in the United Kingdom. Our evidence points towards a dominant role played by shocks in fostering the more stable macroeconomic environment of the last two decades. Results from counterfactual simulations, in particular, show that (1) the Great Inflation was due, to a dominant extent, to large demand non-policy shocks, and to a lesser extent–especially in 1973 and 1979–to supply shocks; (2) imposing the 1970s’ monetary rule over the entire sample period would have made almost no difference in terms of inflation and output growth outcomes; and (3) mechanically ‘bringing the Monetary Policy Committee back in time’ would only have had a limited impact on the Great Inflation episode, at the cost of lower output growth. These results are quite striking in the light of the more traditional, narrative approach, which suggests that the monetary policy regime is an important factor in explaining the Great Moderation in the United Kingdom. We discuss one interpretation which could explain both sets of results, based on the ‘indeterminacy hypothesis’ advocated, for the United States, by Clarida, Gali, and Gertler (2000) and Lubik and Schorfheide (2004). JEL Classification: E32, E47, E52, E58. |
| Keywords: | VARs; stochastic volatility; identified VARs; timevarying parameters; frequency domain; Great Inflation; policy counterfactuals; Lucas critique; European Monetary System. |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070769&r=eec |
| By: | Ludger Wößmann (University of Munich, Ifo Institute, CESifo and IZA) |
| Abstract: | Cross-country evidence on student achievement might be hampered by omitted country characteristics such as language or legal differences. This paper uses cross-state variation in Germany, whose sixteen states share the same language and legal system, but pursue different education policies. The same results found previously across countries hold within Germany: Higher mean student performance is associated with central exams, private school operation, and socio-economic background, but not with spending, while higher equality of opportunity is associated with reduced tracking. In a model that pools German states with OECD countries, these fundamental determinants do not differ significantly between the two samples. |
| Keywords: | student performance, PISA, Germany, education production function, institutional effects in schooling |
| JEL: | I28 L38 L33 H52 D02 D63 J24 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2880&r=eec |
| By: | Eva Ortega (Banco de España); Pablo Burriel (Banco de España); José Luis Fernández (Banco de España); Eva Ferraz (Banco de España); Samuel Hurtado (Banco de España) |
| Abstract: | This paper presents the update of the macroeconometric model used at the Bank of Spain for medium term macroeconomic forecasting, as well as for performing policy simulations. The many changes that the Spanish economy has experimented in the last years, and the new system of national accounts published by the national statistical office, suggested that a reestimation of the model was due. This paper presents such reestimation with newer data (up to the end of 2005), and includes some modifications that were deemed necessary in certain equations. The quarterly model of the Bank of Spain keeps a similar structure to its previous version; it still is basically a demand-driven model. It is found that the Spanish economy shows, in general, higher sensitivity than in previous periods to changes in exogenous variables, especially in financial conditions. The new model reflects, too, changes in demographic trends, and presents an external sector less sentitive to changes in price-competitiveness. |
| Keywords: | economía española, Spanish economy, modelo macroeconómico, macroeconometric model |
| JEL: | E10 E17 E20 E60 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0717&r=eec |
| By: | David Haardt |
| Abstract: | This paper analyses the labour market transitions of older men and women using data from the British Household Panel Survey (BHPS). I find large peaks in exit rates out of employment at ages 60 (women) and 65 (both sexes) which occur in the exact birthday month. This suggests that pension schemes have strong incentive effects. Discrete-time hazard regression analysis shows that benefits and health status are the two most important determinants of retirement, with effects that are larger than found in previous studies for British and US men. When modelling unobserved heterogeneity I find that women are twice as likely as men to be `movers' between work and non-work. |
| Keywords: | labour market transitions, older men and women, BHPS |
| JEL: | J14 J16 J26 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:sedapp:197&r=eec |
| By: | Bernd Fitzenberger; Wolfgang Franz; Oliver Bode |
| Abstract: | Starting in 2006 the German economy currently experiences a cyclical revival which spreads to the labor market. Unemployment decreases markedly and regular employ- ment rises. At present, virtually all professional forecasts expect this upswing to con- tinue in the foreseeable future. |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1344&r=eec |
| By: | Samuel Bentolila; Juan J. Dolado; Juan F. Jimeno |
| Abstract: | This paper examines the evolution of the Phillips Curve (PC) for the Spanish economy since 1980. In particular, we focus on what has happened since the late 1990s. Since 1999 the unemployment rate has fallen by almost 7 percentage points, while inflation has remained relatively subdued around a plateau of 2%- 4%. Thus, the slope of the PC has become much flatter. We argue that this favorable evolution is largely due to the huge rise in the immigration rate, from 1% of the population in 1994 to 9.3% in 2006. We derive a New Keynesian Phillips curve accounting for the e¤ects of immigration, a variable which is found to shift the curve if preferences and bargaining power of immigrants and natives di¤er. We then estimate this curve for Spain since 1980 and find that while the fall in unemployment over the last 8 years comes along with an increase in inflation of 2.2 percentage points per year, the increase of the relative unemployment rate of immigrants vis-à-vis natives accounts for an ofsetting 0.9 percentage points drop in the inflation rate per year. |
| Keywords: | Phillips curve, immigration |
| JEL: | E31 J64 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1333&r=eec |
| By: | Alan Manning; Sanchari Roy |
| Abstract: | There is economic evidence that diversity has consequences for economic performance (see Alesinaand La Ferrara, 2005). This might have consequences for immigration policy - how many immigrantsto allow into a country and from what cultural background. But, central to such a discussion is thepace of cultural assimilation among immigrants - this under-researched topic is the focus of thispaper. It investigates the extent and determinants of British identity among those living in Britain andthe views on rights and responsibilities in societies. We find no evidence for a culture clash in general,and one connected with Muslims in particular. The vast majority of those born in Britain, of whateverethnicity or religion, think of themselves as British and we find evidence that third-generationimmigrants are more likely to think of themselves as British than second generation. Newly arrivedimmigrants almost never think of themselves as British but the longer they remain in the UK, themore likely it is that they do. This process of assimilation is faster for those from poorer and lessdemocratic countries, even though immigrants from these countries are often regarded as a particularcause for concern. Our analysis of rights and responsibilities finds much smaller differences in viewsbetween the UK-born and immigrants than within the UK-born population. |
| Keywords: | Immigration, Identity, Assimilation |
| JEL: | J61 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp0790&r=eec |
| By: | Karsten Kohn (Goethe University Frankfurt and IZA); Alexander C. Lembcke (London School of Economics and CEP) |
| Abstract: | Using linked employer-employee data from the German Structure of Earnings Survey 2001, this paper provides a comprehensive picture of the wage structure in three wage-setting regimes prevalent in the German system of industrial relations. We analyze wage distributions for various labor market subgroups by means of kernel density estimation, variance decompositions, and individual and firm-level wage regressions. Unions' impact through collective and firm-level bargaining mainly works towards a higher wage level and reduced overall and residual wage dispersion. Yet observed effects are considerably heterogeneous across different labor market groups. There is no clear evidence for wage floors formed by collectively bargained low wage brackets which would operate as minimum wages for different groups of workers. |
| Keywords: | collective wage bargaining, wage structure, kernel density estimation, variance decomposition, wage equations, German Structure of Earnings Survey |
| JEL: | J31 J51 J52 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2849&r=eec |
| By: | Martin Biewen (University of Mainz, DIW Berlin and IZA); Bernd Fitzenberger (University of Freiburg, ZEW, IFS and IZA); Aderonke Osikominu (University of Freiburg); Marie Waller (University of Freiburg and CDSE, University of Mannheim) |
| Abstract: | We use a new and exceptionally rich administrative data set for Germany to evaluate the employment effects of a variety of public sponsored training programs in the early 2000s. Building on the work of Sianesi (2003, 2004), we employ propensity score matching methods in a dynamic, multiple treatment framework in order to address program heterogeneity and dynamic selection into programs. Our results suggest that in West Germany both short-term and medium-term programs show considerable employment effects for certain population subgroups but in some cases the effects are zero in the medium run. Short-term programs are surprisingly effective when compared to the traditional and more expensive longer-term programs. With a few exceptions, we find little evidence for significant positive treatment effects in East Germany. There is some evidence that the employment effects decline for older workers and for low-skilled workers. |
| Keywords: | evaluation, multiple treatments, dynamic treatment effects, local linear matching, active labor market programs, administrative data |
| JEL: | C14 J68 H43 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2885&r=eec |
| By: | Lex Borghans (ROA, Maastricht University and IZA); Ben Kriechel (ROA, Maastricht University and IZA) |
| Abstract: | In this paper we document the wage structure and labor mobility in the Netherlands in the period 1999-2003. We explain the importance of wage-setting institutions in the Netherlands and the main actors. The analyses are based on administrative sources allowing for comparisons between and within firms, and in which workers can be followed over time. In the period investigated the Netherlands experienced an increase in wage inequality. Despite the centralized system of wage negotiations in the Netherlands, our findings suggest that market forces were the main determinant of wage growth. Workers with similar wages experienced similar wage increases in firms of different sizes. Wages increases were larger for low-skilled workers in industries with large increases in demand than in other industries. Variation in wage growth was mainly at the individual level. Firm-level wage increases accounted for only 12 % of the total variation. |
| Keywords: | wage structure, labor mobility |
| JEL: | J31 J50 J62 J63 M52 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2865&r=eec |
| By: | Albu, Lucian Liviu |
| Abstract: | Based on two Romanian household surveys, we analyse the structure of households’ income by sources: main job, secondary job, and hidden activities. After conceptual clarification and explanation of the methodology we used, we estimate the size of informal economy, analyse the relationship between variables related to different types of income, and explore the dynamics of the informal economy. We find that the main participants in the informal economy are the poor people: the survival motive is dominant in the Romanian informal economy. We estimate that both in September 1996 and in July 2003 the income from the informal economy amounted to about 1/4 of the total household income (23.6% in 1996 and 22.7% in 2003, respectively). Also, we estimate the share of income from the informal economy in the cases of various categories of population (defined according to the dimension of the official declared income per person in the household). The extension of our analysis to the entire year using the household population structure by deciles suggests that the informal economy has increased, on average, by about 2-2.5% over the period 1995-2002. Indeed, beside the actual level of income, the households’ involvement in informal activities is probably influenced by occupation, region, age, education, number of children and many other factors. However, certain conclusions could be outlined: a) People perceive taxation as the main cause of the underground economy; b) Separating the main motivations of operating in the informal sector in two groups, “subsistence” and “enterprise” respectively, the surveys suggest that the subsistence represented a relevant reason for the households’ decision to operate in the informal economy, including its underground segment; c) Informal activities supplied a “safety valve” within the surviving strategies adopted by the poorest households; d) Participation in informal economy seems to be not simply correlated with poverty: in the informal economy are involved poor people (having probably a low educational level), as well as rich persons, but their motivations are quite different. The former are practically “forced” to operate in the informal economy (the “subsistence” criterion), but the latter are “invited” to participate in it (the “enterprise” criterion). In both cases, at least during the first stages of transition to a free market system in Romania, the environment was propitious due to legislative incoherence, feeble penalty system in the cases of fraudulent activities, and existence of some accompanying elements of proper informal activity, such as corruption, bureaucracy, etc. However, the household’s behaviour related to the participation in informal economy is sometimes fundamentally different between the two extreme groups of population. This is why in this study we focused on a deeper investigation of the behavioural aspects of different groups of population related to the implication in the informal sector. |
| Keywords: | informal economy, secondary income, informal income, decent income |
| JEL: | C61 D10 E62 H31 J22 O17 P36 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:rjr:wpiecf:070601&r=eec |