nep-eec New Economics Papers
on European Economics
Issue of 2007‒11‒03
nineteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Inflation Expectations of Experts and ECB Communication By Ullrich, Katrin
  2. The role of other financial intermediaries in monetary and credit developments in the euro area By Philippe Moutot; Dieter Gerdesmeier; Adriana Lojschová; Julian von Landesberger
  3. Institutions, Governance and Economic Growth in the EU: is there a role for the Lisbon Strategy By Francisco Torres; Annette Bongardt
  4. Euro area in‡ation persistence in an estimated nonlinear DSGE model By Gianni Amisano; Oreste Tristani
  5. The High-Frequency Response of the EUR-US Dollar Exchange Rate to ECB Monetary Policy Announcements By Christian Conrad; Michael J. Lamla
  6. The Speed of Euro Adoption By Columba, Francesco
  7. Banking Competition and Capital Ratios By Martin Cihák; Klaus Schaeck
  8. House Prices and Employment Reallocation: International Evidence By Bover, Olympia; Jimeno, Juan Francisco
  9. L'économie sociale dans une perspective européenne By Edith Archambault
  10. Employment in Poland 2006: productivity for jobs By Baranowska, Anna; Bukowski, Maciej; Bober, Magda; Lewandowski, Piotr; Magda, Iga; Sarzalska, Malgorzata; Szydlowski, Arkadiusz; Zawistowski, Julian
  11. Assimilation in Sweden: Wages, Employment and Work Income By Lundborg, Per
  12. Equalization Transfers and Dynamic Fiscal Adjustment: Results for German Municipalities and a US-German Comparison By Thiess Buettner
  13. A Long Run Structural Macroeconometric Model for Germany By Schneider, Elena; Chen, Pu; Frohn, Joachim
  14. The French social protection system in the throes of reform (1975-2007) By Jean-Claude Barbier
  15. German Works Councils and The Anatomy of Wages By John T. Addison; Paulino Teixeira; Thomas Zwick
  16. The Austrian Business Cycle - A Characterization By Sandra Martina Leitner
  17. Capital Market Development in a Small Country: The Case of Slovenia By Jochen R. Andritzky
  18. Toward a Robust Fiscal Framework for Iceland: Motivation and Practical Suggestions By Anthony Annett
  19. Wealth Concentration over the Path of Development: Sweden, 1873–2005 By Roine, Jesper; Waldenström, Daniel

  1. By: Ullrich, Katrin
    Abstract: The communication policy of the European Central Bank attracts a lot of attention from financial markets. This paper analyses the informational content of the monthly introductory statements of the ECB president explaining interest rate decisions with regard to inflation expectations of financial market experts for the euro area from February 1999 to June 2007. Estimations are conducted for the influence of ECB communication on expectations formation besides other macroeconomic variables. As the results indicate, the indicator measuring the informational content of ECB rhetoric contributes to the explanation of inflation expectations formation.
    Keywords: inflation expectations formation, central bank communication, Carlson-Parkin method, survey expectations
    JEL: D83 D84 E52 E58
    Date: 2007
  2. By: Philippe Moutot (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Dieter Gerdesmeier (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Adriana Lojschová (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Julian von Landesberger (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: Monetary growth has increased significantly in the euro area in recent years, raising concerns about the risks to price stability. Viewed from a sectoral perspective, this increase reflects to a large extent the deposit holdings of other financial intermediaries (OFIs). This paper presents analytical work on the role of OFIs in monetary and credit developments in the euro area. Although, at the moment, some shortcomings in the data available – such as the lack of long time series data – seriously limit the analysis of the role of OFIs in monetary and credit aggregates, it seems clear that OFIs have gained considerable importance in recent years, not only as a factor affecting monetary developments, but also for the functioning of the financial system. This gain in importance may be due to financial deregulation and liberalisation, as well as financial innovation. These developments are reflected in the integration and deepening of euro area financial markets, as well as in investors’ attitude to risk.
    Date: 2007–10
  3. By: Francisco Torres (Universidade Moderna de Lisboa,Universidade Católica); Annette Bongardt (Universidade Moderna de Lisboa)
    Abstract: In order to ensure that the internal market delivers (growth, jobs) in the face of a changing market and technological environment (internal market liberalisation, globalisation, the knowledge-based economy) and to take advantage of the opportunities that it presents, the European Union (EU) needs to create an adequate institutional framework that promotes its efficiency potential and adaptive capacity. In the reality of European mixed economies, its capacity to solve the structural problems that impair productivity and economic growth in Europe hinges very much on governance, in particular when reforms to realise international synergies and complementarities or policy-learning with a view to common goals involve not only the EU but as well the Member State level. The Lisbon Agenda can be considered an exercise of policy coordination that needs to ensure that Member States’ over-regulated economies comply both with liberalisation in the Single Market and with an adequate European-wide institutional environment for sustainable growth without coordination mismatches, protectionism and market segmentation. This ultimately raises the question, central to this paper, of the adequate governance level and of the regulatory model to adopt (systems competition and/or European regulation).
    Keywords: Economic Integration; Governance; European Union; Single Market; Lisbon Agenda; Open method of coordination; Liberalisation; Regulatory model; Growth and competitiveness.
    JEL: F15 P48 F50 H73
    Date: 2007
  4. By: Gianni Amisano (European Central Bank, University of Brescia and The Rimini Centre for Economics Analysis, Rimini, Italy.); Oreste Tristani (European Central Bank.)
    Abstract: We estimate the approximate nonlinear solution of a small DSGE model on euro area data, using the conditional particle …lter to compute the model likelihood. Our results are consistent with previous …ndings, 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: DSGE models, in‡ation persistence, second order approximations, sequential Monte Carlo, Bayesian estimation.
    JEL: C11 C15 E31 E32 E52
    Date: 2007–07
  5. By: Christian Conrad (Department of Management, Technology, and Economics, ETH Zurich); Michael J. Lamla (Department of Management, Technology, and Economics, ETH Zurich)
    Abstract: We investigate the impact of the European Central Bank's monetary policy an- nouncements on the level and volatility of the EUR-US Dollar exchange rate em- ploying an AR-FIGARCH specification. Using high-frequency data we estimate the individual and complementary effects of the release of the interest rate decision, the ECB's introductory statement and the question and answer session. Surprise interest rate changes explain the movements in the exchange rate immediately after press release. During the introductory statement, communication with respect to future price developments is most relevant and has two important functions: (i) it explains the previously announced decision and (ii) it serves as a guide for the future path of monetary policy.
    Keywords: European Central Bank, monetary policy announcements, communication, exchange rate, expectations, long memory GARCH processes
    JEL: C22 E52 E58 F31
    Date: 2007–09
  6. By: Columba, Francesco
    Abstract: This paper estimates the speed and determinants of euro adoption across Italian provinces by exploiting the natural experiment in early 2002 when euro and lira dually circulated as legal tender. A unique data set with daily observations on the net flows of euro banknotes from the branches of the Bank of Italy, province by province, is used. The speed of euro adoption differs according to the availability of transaction technology and demographic characteristics. Lessons for countries adopting a new currency are obtained.
    Keywords: currency; euro; financial innovation; monetary transition
    JEL: E51 E42
    Date: 2007
  7. By: Martin Cihák; Klaus Schaeck
    Abstract: We use data for more than 2,600 European banks to test whether increased competition causes banks to hold higher capital ratios. Employing panel data techniques, and distinguishing between the competitive conduct of small and large banks, we show that banks tend to hold higher capital ratios when operating in a more competitive environment. This result holds when controlling for the degree of concentration in banking systems, inter-industry competition, characteristics of the wider financial system, and the regulatory and institutional environment.
    Keywords: Working Paper , Banks , Capital , Competition , Bank supervision , Industrial structure ,
    Date: 2007–09–17
  8. By: Bover, Olympia; Jimeno, Juan Francisco
    Abstract: Over the last decade house prices increased remarkably in many countries. However, while in several countries there was an employment boom in the construction sector, in others the share of employment in this sector did not significantly change. In this paper we estimate a model of labour demand in the construction sector, featuring building constraints, which explains many of the international differences in the response of sectoral reallocation of employment to house prices. Countries with more building possibilities (Spain, Sweden and the US) have a high sectoral reallocation of employment, and display larger elasticities of labour demand in the construction sector with respect to house prices than countries that seem to have fewer building possibilities (Belgium, the Netherlands, and the UK). Nevertheless, our estimates imply that, for the whole economy, the elasticity of labour demand with respect to house prices is broadly similar across countries.
    Keywords: House prices; labour demand; sectoral reallocation of labour
    JEL: J23 R32
    Date: 2007–10
  9. By: Edith Archambault (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: Cette contribution voudrait montrer qu’il existe un modèle européen d’économie sociale qui contraste avec celui des Etats-Unis. Ce modèle européen peut se décliner en variantes liées aux régimes d’Etat-providence et aux origines sociales des divers pays Dans la première partie historique, comme dans la seconde actuelle, on privilégiera le pays et le segment de l’économie sociale les mieux connus : la France et les associations. Enfin on conclura sur les rapports ambigus entre les institutions européennes et l’économie sociale.<br /> .
    Keywords: économie sociale; Europe; économie sociale; coopératives; mutuelles; associations; institutions sans but lucratif
    Date: 2007
  10. By: Baranowska, Anna; Bukowski, Maciej; Bober, Magda; Lewandowski, Piotr; Magda, Iga; Sarzalska, Malgorzata; Szydlowski, Arkadiusz; Zawistowski, Julian
    Abstract: This book constitutes a follow-up and extension of Employment in Poland 2005. In this issue we analyse the influence of demand-side factors on Polish labour market and especially so from the macroeconomic and regional perspectives. We begin with macroeconomic look at the labour markets in eight – out of ten – states which joined the EU in 2004. We focus on identifying aggregate disturbances which had a crucial influence on the economic fluctuations within the CEE region in the period 1994-2005, and we assess to what extent these disturbances are responsible for different dynamics of unemployment and employment trends in the examined countries and to what extent different fiscal and monetary approaches adopted at that time contributed to remedy these disturbances. The key finding resulting is that the relatively most significant decrease in employment and increase in unemployment levels in Europe, which came about in Poland after the year 2000, are due to the idiosyncratic decrease in return on capital and total factor productivity [TFP] dynamics. We also find that, although the policy-mix adopted in the above period was not the direct cause for the slowdown, its role in accommodating the shock was probably moderately negative. Then we study regional differences in the labour market in Poland in the period 2000-2005. We analyse aggregate data and identify microeconomic factors affecting trends in job creation and destruction. We group the NUTS4 regions in Poland in six homogenous clusters and find that in the period 2000-2005 no significant changes in the labour market indicators occurred either between clusters or between voivodeships (NUTS2 regions). This is so because the direction and depth of fluctuations on the regional scale were generally shaped by aggregate shocks which affected the economy as a whole. Moreover, the above period saw a greater differentiation in terms of productivity and thus, in most parts of Poland, increasing employment and unemployment rates are due to the development of labour-intensive manufacturing. We argue that only the largest urban conglomerations in Poland have adopted the development model which supports high economic growth in medium and long term. In third part of the study we focus on spatial mobility of Polish workers. In case of both internal and international migrations we demonstrate that economic factors determine significantly decisions about changing place of residence and that the key incentive to migrate is higher wages in the destination location and a relatively worse situation in the labour market in the region of origin. We also estimate the scale of international migration from Poland, which indicate that the number of people who stayed abroad for more than two months in the year 2005 was higher by approximately 165,000-379,000 people than before EU accession, due to one-time increase in migration flows. Moreover, we point out that international migration is mostly seasonal and that emigrants retain strong ties with their homeland. As for internal migration, we argue that its aggregate intensity is relatively modest and we emphasise that although in general the population moves from smaller to larger conglomerates, the limited scale of these movements makes the progress in urbanisation being slow and agglomerations less numerous than in other EU member states. In the long run, this may constitute an obstacle for real convergence to the most developed EU countries. Finally we scrutinize work in the non-observed economy (NOE) in Poland. According to various methodologies we asses the NOE output at 15-30 per cent of the GDP, and we find that the main reasons behind the existence of the grey economy in Poland are overly burdensome fiscal policy and excessively restrictive economic regulations. We close the report with demonstrating links between areas we studied and implications for labour market and economic policy in Poland.
    Keywords: Poland; unemployment; employment; transition countries; labour market shocks; unemployment persistance; regional disparities; labour migration; informal employment
    JEL: J23 E24 R23
    Date: 2006–12
  11. By: Lundborg, Per (Stockholm University Linnaeus Center for Integration Studies - SULCIS)
    Abstract: While differences in days in unemployment even out after some time after immigration, wage differences between immigrants and natives remain in the long run. Employment assimilation is more or less immediate for labour immigrants, while it takes approximately twenty years for non-labour immigrants to obtain the same employment status as natives and labour immigrants. We also find that the high educated non-labour immigrants’ income of work lag behind those of high educated natives more than wages of low educated non-labour immigrants do to low educated natives. Thus, low educated immigrants assimilate faster than high educated. Similarly, male non-labour immigrants’ work income lag behind male natives’ income more than female non-labour immigrants’ income do to female natives’ income. Thus, female immigrants assimilate faster than male immigrants.
    Keywords: Immigrants; earnings assimilation; integration
    JEL: J31 J61
    Date: 2007–10–25
  12. By: Thiess Buettner (Ifo Institute)
    Abstract: A large panel of German municipalities is employed in order to investigate the dynamic fiscal policy adjustment of local jurisdictions using a VEC model which explicitly takes account of the intertemporal budget constraint. The results confirm that a substantial part of adjustment takes place by offsetting changes in intergovernmental transfers, in particular, in ‘fiscal equalization’ transfers: in present value terms about 34 cents of a one euro decrease in own revenue is compensated by subsequent changes in equalization transfers. The contribution of intergovernmental transfers to restoring fiscal balance, therefore, is about two to three times higher, compared to the case of US municipalities investigated by Buettner and Wildasin (2006). Nevertheless, budget components such as own revenues and general expenditures display larger fluctuations in the German case. This is consistent with the view that fiscal equalization transfers create a moral-hazard problem.
    Keywords: Fiscal balance; Intergovernmental transfers; Local governments; Fiscal equalization
    JEL: H74 H72 H77
    Date: 2007–10
  13. By: Schneider, Elena; Chen, Pu; Frohn, Joachim
    Abstract: The objective of this paper is to apply the method developed in Garratt, Lee, Pesaran, and Shin (2000) to build a structural model for Germany with a transparent and theoretically coherent foundation. The modelling strategy consists of a set of long-run structural relationships suggested by economic theory and an otherwise unrestricted VAR model. It turns out that we can rebuild the structure of the model in Garratt, Lee, Pesaran, and Shin (2003b) for German data. Five long run relations : PPP, UIP, production function, trade balance, and real money balance characterize the equilibrium state of Germany as an open economy in our structural model.
    Keywords: Long-Run Structural VAR, Macroeconomic Modelling, A structural Model for Germany, Oil Price Shock
    JEL: C32 E24
    Date: 2007
  14. By: Jean-Claude Barbier (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: The French system of social protection, contrary to many simplistic accounts, has undergone quite a great number of reforms in the past 30 years. This were very differentiated across sectors but also appear as linked to the business cycle. The French system, in its present developments does not manifest a too simplistic "path-dependency", because of its hybrid character : it is not easy to insert it into the traditional tripartition of welfare regimes, and, precisely because of this hybrid nature, the current developments can be explained in terms of the "imprint" of past history, which has perhaps always been hybrid. This text is a follow-up to the book written with Bruno Théret, Le nouveau système français de protection sociale (Éditions La Découverte).
    Keywords: France, social protection, welfare state.
    Date: 2007–10
  15. By: John T. Addison (Department of Economics, Moore School of Business University of South Carolina, USA and The Rimini Centre for Economics Analysis, Rimini, Italy.); Paulino Teixeira (Faculdade de Economia, Universidade de Coimbra, Potugal); Thomas Zwick (Centre for European Economic Research (ZEW),Mannheim, Germany)
    Abstract: This paper provides the first comprehensive examination of the effect of German works councils on wages, using matched employer-employee data from the German LIAB for 2001. We find that works councils are associated with higher earnings: the wage premium is around 11 percent, and is higher under formal collective bargaining. This result persists after taking account of worker and establishment heterogeneity and the endogeneity of works council presence. Using quantile regressions, we further report that the works council premium is decreasing in the position of the worker in the wage distribution; and is higher for women than for men. Finally, the works council wage premium is associated with longer job tenure, which suggests that some of the premium is a noncompetitive rent. That said, it remains entirely possible that works council ÔvoiceÕ may dominate its distributive effects, at least insofar as the tenure result is concerned.
    Keywords: matched employer-employee data, rent seeking, tenure, wages, wage distribution, works councils, collective bargaining.
    JEL: J31 J50
    Date: 2007–07
  16. By: Sandra Martina Leitner (Department of Economics, Johannes Kepler University Linz, Austria)
    Abstract: Economies constantly undergo significant cyclical variations of distinct pattern and origin. In duration, business cycles vary from more than one to ten or twelve years, and comprise a boom, or expansionary phase, followed by a recession, or contractionary phase. Such cycles recur at unpredictable intervals and do not last for a fixed length of time. Recessions are characterized by high unemployment and low productivity with highly asymmetric short but sharper cycles than expansions. The purpose of this paper is to provide an overall picture of the Austrian business cycle covering the period 1970 until 2004 by studying the cycle’s “stylized facts” in terms of volatility, co-movements and persistence. The notion of stylized facts stems from the renowned work of Burns and Mitchell (1946) intending to provide and interpret model-free observations of macroeconomic variables’ behavior. Additionally potential hypotheses as to the source of observed cycles will be tested, pointing at the significant role supply-side shocks like technology play in triggering observed business cycles. This paper is organized as follows: Section I describes the methodology applied to extract the cyclical component from observed macroeconomic data. Section II gives a brief description of business cycle regularities observed in industrialized countries, while section III applies the empirical test to the economy case Austria and discusses the results on the basis of the data’s second moments. Section IV attempts to identify potential sources of observed cycles, focusing on prices and the real wage rate as discriminatory factors. A discussion of the baseline Real Business Cycle Model’s basic characteristics as well as resemblances with the observed data represents the focal points of section V while section VI concludes.
    Date: 2007–10
  17. By: Jochen R. Andritzky
    Abstract: Small emerging economies, despite their significant growth, lack the scale to develop thriving capital markets from their local investor and issuer base that are able to deliver the benefits of a large, mature market. Slovenia is such an example. Despite the necessary infrastructure in place, trading has remained thin and issuance activity has been dormant. This paper proposes a two-pronged strategy for capital market development that leverages the existing setup in the context of regional integration such as within the EU. While using the case of Slovenia, this path might be indicative for other small countries that are part of a larger economically integrated region.
    Keywords: Working Paper , Capital markets , Slovenia , Financial integration , Small states ,
    Date: 2007–10–01
  18. By: Anthony Annett
    Abstract: Expenditure in Iceland, especially related to the government wage bill, has tended to move in a procyclical manner, related to the fragmentation of political decision making. Iceland's elevated macroeconomic volatility reinforces these tendencies, as large booms unleash greater fiscal pressures as well as procyclical revenue elasticities that magnify these underlying strains. To improve its fiscal framework, Iceland could look to the experience of countries like Belgium and the Netherlands. In particular, it could adopt binding nominal expenditure rules, independent forecasts, and use representative committees to lay out medium-term targets across different levels of government.
    Keywords: Working Paper , Fiscal policy , Iceland , Government expenditures , Political economy ,
    Date: 2007–10–10
  19. By: Roine, Jesper (Stockholm School of Economics); Waldenström, Daniel (Research Institute of Industrial Economics (IFN))
    Abstract: We study the development of wealth concentration in Sweden over 130 years, from the beginning of industrialization until present day. Our series are based on a wide array of new evidence from estate- and wealth tax data, estimates of foreign and domestic family firm-wealth and of pension and social security wealth. We find that the Swedish wealth concentration was at a historically high level in the agrarian state and that it did not change much during early industrialization. From World War I up until about 1950, the richest percentile lost ground to the rest of the top wealth decile where relatively income rich households accumulated new wealth. In the postwar period, the entire top decile lost out relative to the rest of the population, much due to the spread of owner-occupied housing. Around 1980, wealth compression stopped and inequality increased. We introduce new ways of approximating the effects of international flows and find that the recent increase in Swedish wealth inequality is likely to be larger than what official estimates suggest.
    Keywords: Wealth concentration; Wealth distribution; Inequality; Income distribution; Sweden; Welfare state; Pension wealth; Augmented wealth
    JEL: D14 D31 N33 N34
    Date: 2007–10–16

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