nep-eec New Economics Papers
on European Economics
Issue of 2007‒12‒19
seventeen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Search Patterns and Absorptive Capacity: A Comparison of Low- and High-Technology Firms from Thirteen European Countries By Grimpe, Christoph; Sofka, Wolfgang
  2. Who Leads Financial Markets? By Weber, Enzo
  3. Contractual Design and Functions - Evidence from Service Contracts in the European Air Transport Industry By Johannes Fuhr
  4. Foreign banks in transition countries. To whom do they lend and how are they financed? By De Haas, Ralph; Naaborg, Ilko
  5. Does Immigration Affect the Phillips Curve? Some Evidence for Spain By Bentolila, Samuel; Dolado, Juan José; Jimeno, Juan Francisco
  6. Opinion-based surveys in the conjunctural analysis of the Spanish economy By Javier Jareño
  7. Boosting Manufacturing Productivity Through R&D: International Comparisons with Special Focus on Italy By Alessandro STERLACCHINI; Francesco VENTURINI
  8. Measuring and Explaining Inflation Persistence: Disaggregate Evidence on the Czech Republic By Ian Babetskii; Fabrizio Coricelli; Roman Horvath
  10. Employment risk and household formation: evidence from differences in firing costs By Mario García-Ferreira; Ernesto Villanueva
  11. Measuring the Effectiveness of R&D tax credits in the Netherlands By Boris Lokshin; Pierre Mohnen
  12. Pension institutions and annuities in Denmark By Skjodt, Peter; Andersen, Carsten
  13. The Riksbank’s Forecasting Performance By Andersson, Michael K.; Karlsson, Gustav; Svensson, Josef
  14. Do Agglomeration Economies Reduce the Sensitivity of Firm Location to Tax Differentials? By Mario Jametti; Marius Brülhart; Kurt Schmidheiny
  15. Annuities in Switzerland By Ruesch, Martin; Butler, Monika
  16. Pension fund finance and sponsoring companies: empirical evidence on theoretical hypotheses By E. Philip Davis; Sybille Grob; Leo de Haan
  17. Relationship lending: empirical evidence for Germany By Memmel, Christoph; Schmieder, Christian; Stein, Ingrid

  1. By: Grimpe, Christoph; Sofka, Wolfgang
    Abstract: Searching for externally available knowledge has been characterised as a vital part of the innovation process. Previous research has, however, almost exclusively focused on hightechnology environments, largely ignoring the substantial low- and medium-technology sectors of modern economies. We argue that low- and high-technology firms differ in their search patterns and that these moderate the relationship between innovation inputs and outputs. Based on a sample of 4,500 firms from 13 European countries we find that search patterns in low-technology industries focus on market knowledge while they are built around differences in technology sourcing activities for high-technology industries.
    Keywords: Absorptive capacity, search strategies, low-, medium- and high-technology sectors, open innovation
    JEL: L60 O32
    Date: 2007
  2. By: Weber, Enzo
    Abstract: The present paper embarks on an analysis of interactions between the US and Euroland in the capital, foreign exchange, money and stock markets from 1994 until 2006. Estimating multivariate EGARCH processes for the structural financial innovations determines causality-in-variance effects and provides a solution to the simultaneity problem of identifying the contemporaneous impacts between the daily variables. Structural mean equations can therefore give answers to the question of financial markets leadership: Generally speaking, the US effects on Europe still dominate, but the special econometric methodology is able to uncover otherwise neglected spillovers in the reverse direction.
    Keywords: Structural EGARCH; Financial Markets; United States; Euro Zone
    JEL: C32 G15
    Date: 2007–04
  3. By: Johannes Fuhr (Workgroup for Infrastructure Policy (WIP), Technische Universität Berlin)
    Abstract: Contracts within governance classes, e.g., alliances or supply chain contracts, display a great degree of variation in contractual design. In this paper, we explore (i) the alignment between provisions in functional classes and the underlying transaction attributes, and (ii) the impact of learning on transaction costs (via standardization of contract provisions). Drawing on a sample of 42 service contracts in the European air transport industry, we show that asset specificity has a dominant impact on the observed variation in all the provisions/attachments analyzed. The results do not support the proposition that individual transaction attributes drive the design of provisions in distinct functional dimensions (safeguarding, coordination, and contingency adaptability function). However, they demonstrate that the provision’s function determines whether standardization occurs in ‘learning arrangements’ at the industry level or at the firm level.
    Keywords: Transaction Cost Economics, Contract Design, Contractual Function, Learning, Air Transport
    JEL: L93 D23 L22
    Date: 2007
  4. By: De Haas, Ralph; Naaborg, Ilko
    Abstract: We use focused interviews with managers of foreign parent banks and their affiliates in Central Europe and the Baltic States to analyse the small-business lending and internal capital markets of multinational financial institutions. Our approach allows us to complement the standard empirical literature, which has difficulty in analysing important issues such as lending technologies and capital allocation. We find that the acquisition of local banks by foreign banks has not led to a persistent bias in these banks’ credit supply towards large multinational corporations. Instead, increased competition and the improvement of subsidiaries’ lending technologies have led foreign banks to gradually expand into the SME and retail markets. Second, it is demonstrated that local bank affiliates are strongly influenced by the capital allocation and credit steering mechanisms of the parent bank.
    Keywords: foreign banks; transition economies; small-business lending; internal capital markets
    JEL: F23 G32 G21 F36
    Date: 2006
  5. By: Bentolila, Samuel; Dolado, Juan José; Jimeno, Juan Francisco
    Abstract: The Phillips curve has flattened in Spain over 1995-2006: unemployment has fallen by 15 percentage points, with roughly constant inflation. This change has been more pronounced than elsewhere. We argue that this stems from the immigration boom in Spain over this period. We show that the New Keynesian Phillips curve is shifted by immigration if natives’ and immigrants’ labour supply or bargaining power differ. Estimation of the curve for Spain indicates that the fall in unemployment since 1995 would have led to an annual increase in inflation of 2.5 percentage points if it had not been largely offset by immigration.
    Keywords: Immigration; Phillips curve
    JEL: E31 J64
    Date: 2007–12
  6. By: Javier Jareño (Banco de España)
    Abstract: Opinion-based surveys, or quantitative surveys, are potentially very powerful tools for conjunctural analysis in view of their rapid availability and nature. This paper addresses the usefulness of these surveys for monitoring the Spanish economy. To do this it analyses the two most important opinion-based surveys, namely the European Commission's Business and Consumer Survey and the NTC-Research Purchasing Managers’ Indices, and their relationship to the Quarterly National Accounts macroeconomic data and to the Spanish economy's key conjunctural indicators. The results show that opinion-based surveys are generally useful tools for the conjunctural analysis of the Spanish economy, although they should be used with caution. Their usefulness is apparent in all the areas analysed: as indicators of economic developments, as pointers to changes in the trend of the economy and as tools for predicting the economic situation.
    Keywords: opinion survey, short-term analysis, Spain
    JEL: E20
    Date: 2007–12
  7. By: Alessandro STERLACCHINI (Universita' Politecnica delle Marche, Dipartimento di Management ed Organizzazione Aziendale); Francesco VENTURINI (Universita' Politecnica delle Marche, Dipartimento di Economia)
    Abstract: Using data for twelve manufacturing industries of five developed countries over the period 1980-2002, we perform a dynamic panel estimation - based on a ECM model - of the long-run elasticity of TFP with respect to the stock of R&D capital. The highest elasticity is found for the US (0.51) while lower values arise for Germany (0.29), France (0.23) and Spain (0.22); the latter, in turn, are higher than that estimated for Italy (0.14). The unsatisfactory performance of Italian manufacturing industries is confirmed by further analyses in which a better measurement of TFP is provided and the time period extended. The above findings and their policy implications are discussed firstly in the light of the US-EU divide in terms of R&D-induced productivity growth and, subsequently, by focussing on the Italian case.
    Keywords: R&D capital stock, manufacturing industries, productivity growth
    JEL: L6 O3 O4
    Date: 2007–12
  8. By: Ian Babetskii; Fabrizio Coricelli; Roman Horvath
    Abstract: The paper provides an empirical analysis of inflation persistence in the Czech Republic using 412 detailed product-level consumer price indexes underlying the consumer basket over the period from 1994:M1 to 2005:M12. Subject to various sensitivity tests, our results suggest that raw goods and non-durables, followed by services, display smaller inflation persistence than durables and processed goods. Inflation seems to be somewhat less persistent after the adoption of inflation targeting in 1998. There is also evidence for aggregation bias, that is, aggregate inflation is found to be more persistent than the underlying detailed components. Price dispersion, as a proxy for the degree of competition, is found to be negatively related to inflation persistence, suggesting that competition is not conducive to reducing persistence.
    Keywords: Inflation dynamics, inflation targeting, persistence.
    JEL: D40 E31
    Date: 2007–11
  9. By: Stefania Mojon-Azzi; Alfonso Sousa-Poza
    Abstract: This study examines the relationship between hypertension and life satisfaction using objective measures of hypertension from the Survey of Health, Ageing and Retirement in Europe (SHARE). Our results confirm the analysis in Blanchflower and Oswald (2007): there is a significant negative correlation between high blood-pressure problems and life satisfaction.
    Keywords: Hypertension, blood pressure, life satisfaction
    JEL: I10 I12 I19
    Date: 2007–12
  10. By: Mario García-Ferreira (NERA); Ernesto Villanueva (Banco de España)
    Abstract: The rate of new household formation among young adults who live with their parents has decreased in the last twenty years, specially in Southern Europe. At the same time, exposure to the risk that a young adult loses his or her job has increased. We use differences in firing costs across contract types in the Spanish labor market to identify if there is a causal link between both developments. Our first identification strategy exploits a legally-induced sharp increase in firing costs 3 years after the starting of a fixed-term contract between 1987 and 1996. The second uses variation in regional incentives to promote high-firing cost contracts between 1997 and 2001. Both strategies fail to detect a causal impact of job insecurity on the probability of forming a new household. Tentative evidence supports the notion that lower job insecurity has an impact on the form of tenure of the first house of residence, favoring home-ownership over renting.
    Keywords: Job security, household formation
    JEL: J1 J2
    Date: 2007–12
  11. By: Boris Lokshin; Pierre Mohnen
    Abstract: This paper examines the impact of the Dutch R&D fiscal incentive program, known as WBSO, on R&D capital formation. Taking a factor-demand approach we measure the elasticity of firm R&D capital accumulation to its user cost. An econometric model is estimated using a rich unbalanced panel covering the period 1996-2004 with firm-specific R&D user costs varying with tax incentives. Using the estimated user cost elasticity, we examine the impact of the R&D incentive program. We find evidence that the program of R&D incentives in the Netherlands has been effective in reducing the user cost of R&D and in stimulating firms’ investment in R&D. <P>Cette étude analyse l’effet du programme d’incitations fiscales à la recherche aux Pays-Bas, connu sous le nom de WBSO, sur la formation du capital de recherche. À partir d’une approche de demande de facteurs de production, nous mesurons l’élasticité du stock de capital de recherche au coût d’usage de la recherche. L’estimation économétrique se base sur un panel d’entreprises non-cylindré, couvrant la période 1996-2004, avec des coûts d’usage de la recherche variables. Nous trouvons que les incitations fiscales à la recherche ont effectivement baissé le coût d’usage de la recherche et ainsi stimulé les investissements en recherche et développement aux Pays-Bas.
    Keywords: R&D tax credits; panel data; crowding out; user-cost elasticity., crédit d’impôt à la recherche, données panel, coût d’usage à la recherche, crowding-out.
    JEL: O32 O38 H25 H50 C23
    Date: 2007–12–01
  12. By: Skjodt, Peter; Andersen, Carsten
    Abstract: This paper considers the overall structure of the Danish pension system, reviews the relative role of different types of pension institutions, and discusses their asset allocation strategies and investment performance. The paper also examines the regulation and supervision of providers of pension services, the growing reliance on risk-based supervision, and the application of the so-called contribution principle. The Danish pension system includes a modest universal social pension with a supplement for low-income pensioners and near universal participation in occupational and perso nal pensions that are primarily based on defined contribution plans. The annuity market is well developed: 50 percent of annual contributions are allocated to the purchase of deferred annuities, while immediate annuities are also purchased at or even after retirement. However, detailed comprehensive data on the rate of annuitization are lacking. Distinct features of the Danish pension system include the widespread use of profit participating contracts with minimum guaranteed benefits and regular provision of bonuses, covering both the accumulation and payout phases, and extensive use of group deferred annuity contracts. A new traffic light system with periodic stress testing has resulted in greater emphasis on asset liability matching and hedging strategies by pension institutions and a shift in investment policies in favor of foreign bonds and long-term swap contracts.
    Keywords: ,Debt Markets,Emerging Markets,Pensions & Retirement Systems,Insurance & Risk Mitigation
    Date: 2007–12–01
  13. By: Andersson, Michael K. (Monetary Policy Department, Central Bank of Sweden); Karlsson, Gustav (Monetary Policy Department, Central Bank of Sweden); Svensson, Josef (Monetary Policy Department, Central Bank of Sweden)
    Abstract: This paper describes the official Riksbank forecasts for the period 2000-06. The forecast variables are those that are important for monetary policy analysis, i.e. inflation, GDP, productivity, employment, labour force, unemployment and financial variables such as interest rate and foreign exchange rate. The Riksbank’s forecasts are presented and analyzed and compared with alternative forecasts, that is, those from other institutions and simple statistical models. One important message from the study is that macroeconomic forecasts are associated with an appreciable uncertainty; the forecast errors are often sizeable. The forecast memory, defined as how far the forecasts are more informative than the variables unconditional mean, is usually limited to the first year. Furthermore, we find that the inflation forecasts exhibit several appealing features, such as a predictability memory that (possibly) includes the second year, relatively low RMSE and weak efficiency. The forecasts for the investigated real variables are shown to be less precise and they have a shorter forecast memory. The exchange rate predictions demonstrate the least accurate (of the investigated variables) forecasts. Compared to other forecasters, the Riksbank’s predictions are often more accurate. This holds for a comparison with the National Institute of Economic Research, even though the differences are statistically insignificant, as well as for a comparison with the participants in the Consensus Forecasts panel, where the Riksbank’s predictions often are among the best. We also find indications that misjudgements for productivity growth have had effects on forecasts for both inflation and GDP, but the results suggest that the Riksbank has considered available information in an acceptable fashion. This is also true for the undertaken revisions (from one forecast occasion to another) of the published forecasts.
    Keywords: Judgements; Forecast Evaluation; Central Bank; Inflation; GDP; RMSE
    JEL: E27 E37 E52
    Date: 2007–12–01
  14. By: Mario Jametti (Department of Economics, York University); Marius Brülhart (University of Lausanne); Kurt Schmidheiny (Department of Economics and Business, Universitat Pompeu Fabra)
    Abstract: Low corporate taxes can help attract new firms. This is the main mechanism underpinning the standard race-to-the-bottom view of tax competition. A recent theoretical literature has qualified this view by formalizing the argument that agglomeration forces can reduce firms' sensitivity to tax differentials across locations. We test this proposition using data on firm startups across Swiss municipalities. We found that, on average, high corporate income taxes do deter new firms, but that this relationship is significantly weaker in the most spatially concentrated sectors. Location choices of firms in sectors with an agglomeration intensity at the twentieth percentile of the sample distribution are estimated to be twice as responsive to a given difference in local corporate tax burdens as firms in sectors with an agglomeration intensity at the eightieth percentile. Hence, our analysis confirms the theoretical prediction: agglomeration economies can neutralize the impact of tax differentials on firms' location choices.
    Keywords: Firm location, agglomeration economies, local taxation, count models, Switzerland
    JEL: R3 H32
    Date: 2007–12
  15. By: Ruesch, Martin; Butler, Monika
    Abstract: Switzerland ' s pension system has attracted considerable attention, mainly due to its reliance on a three-pillar structure. A relatively small pay-as-you-go system (first pillar) is complemented by a mandatory, employer-based, fully funded occupational pension scheme (second pillar). The main goal of this paper is to provide a detailed description and analysis of the Swiss pension system. Particular emphasis is placed on the second pillar and its role in the provision of old age benefits within the Swiss social security system. The paper shows, for example, that a typical individual with an uninterrupted career can expect a net (after-tax) replacement rate of at least 70 percent. Occupational pension plans are highly regulated. Minimum interest rate requirements and minimum conversion rates (at which the accumulated retirement balances are transformed into annuity streams) introduce many elements of defined benefit plans into notionally defined contribution schemes. The resulting money ' s worth ratios are very high (with the exception of single males). Switzerland also has a high annuitization rate by international standards (approximately 80 percent). However, due to high fragmentation of the scheme and non-uniform accounting practices, some aspects of the system are not very transparent. The paper sheds light on the financial health of the pension system and the evolution of the regulatory framework in the past two decades.
    Keywords: ,Debt Markets,Pensions & Retirement Systems,Emerging Markets,Gender and Law
    Date: 2007–12–01
  16. By: E. Philip Davis; Sybille Grob; Leo de Haan
    Abstract: This study presents empirical evidence on the influence of sponsoring companies on the funding and portfolio allocation of pension funds, an issue on which most extant literature is theoretical. We use a unique microdataset of 550 Dutch defined benefit company pension funds and 100 sponsoring firms over 1996-2005 to test the relevance of the main theoretical hypotheses, the first paper to do so in a comprehensive manner. We find that pension funds have lower cover ratios when (1) their sponsoring company is highly leveraged, (2) the fund's return on assets is relatively low, and (3) the sponsoring firm is small. Further, defined benefit pension funds are found to invest more in shares when their sponsoring companies are highly leveraged. These links in general suggest higher risk in the sponsor leads to correspondingly higher risk in the fund, and warrant close attention by regulators. 
    Keywords: Pension funds; Sponsoring company; Capital structure
    JEL: G23 G32
    Date: 2007–12
  17. By: Memmel, Christoph; Schmieder, Christian; Stein, Ingrid
    Abstract: Relationship lending is a common practice in credit financing all over the world, particularly in Germany. On the basis of a comprehensive data set comprising information on firm-bank relationships for more than 16,000 observations, this study analyses the determinants of relationship lending in Germany. We find that small, young and R&D-intensive firms tend to choose relationship lending. Furthermore, we find that firms with a higher creditworthiness are more likely to choose a relationship lender. We find that the importance of relationship lending stayed roughly constant since the mid 90s.
    Keywords: Relationship banking, German banking system, SME
    JEL: G21 G32
    Date: 2007

This nep-eec issue is ©2007 by Giuseppe Marotta. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.