nep-eec New Economics Papers
on European Economics
Issue of 2008‒02‒02
sixteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Is training more frequent when the wage premium is smaller? Evidence from the European Community Household Panel By Andrea Bassanini; Giorgio Brunello
  2. What Explains the Spread Between the Euro Overnight Rate and the ECB’s Policy Rate? By Linzert, Tobias; Schmidt, Sandra
  3. Business Cycle Analysis with Multivariate Markov Switching Models By Monica Billio; Jacques Anas; Laurent Ferrara; Marco Lo Duca
  4. Fiscal Policy and Monetary Integration in Europe: An Update By Candelon Bertrand; Muysken Joan; Vermeulen Robert
  5. Competition versus Efficiency: What drives franchise values in European banking? By O. DE JONGHE; R. VANDER VENNET
  6. What determines commercial banks’ demand for reserves in the interbank market By Kempa, Michal
  7. Characteristics Of Migrant Entrepreneurship In Europe By Baycan-Levent, Tuzin; Nijkamp, Peter
  8. Economic growth and budgetary components - a panel assessment for the EU By António Afonso; Juan González Alegre
  9. Energy and climate policies to 2020 : the impacts of the european " 20/20/20 " approach By Loreta Stankeviciute; Patrick Criqui
  10. Changing trends in rural self-employment in Europe By Gulumser, Aliye Ahu; Baycan Levent, Tuzin; Nijkamp, Peter
  11. Do Labour Market Institutions Matter? : Micro-Level Wage Effects of International Outsourcing in Three European Countries By Ingo Geishecker; Holger Görg; Jakob Roland Munch
  12. Macroeconomic consequences of migration diversion : a CGE simulation for Germany and the UK By Baas, Timo; Brücker, Herbert
  13. Refinancing Europe’s Higher Education through Deferred and Income-Contingent Fees: An empirical assessment using Belgian, German and UK data By O Debande; Vincent Vandenberghe
  14. Volatility Regimes in Central and Eastern European Countries’ Exchange Rates By M. FRÖMMEL
  15. The Phillips Curve and NAIRU Revisited: New Estimates for Germany By Fitzenberger, Bernd; Franz, Wolfgang; Bode, Oliver
  16. Uncertainty and the price of risk in a nominal convergence process By Ricardo Gimeno; José Manuel Marqués

  1. By: Andrea Bassanini (ERMES - Equipe de recherche sur les marches, l'emploi et la simulation - CNRS : UMR7017 - Université Panthéon-Assas - Paris II, CEPN - Centre d'économie de l'Université de Paris Nord - CNRS : UMR7115 - Université Paris-Nord - Paris XIII); Giorgio Brunello (dipartimento di scienze economiche - Universita di Padova)
    Abstract: According to Becker [1964], when labour markets are perfectly competitive, general training is paid by the worker, who reaps all the benefits from the investment. Therefore, ceteris paribus, the greater the training wage premium, the greater the investment in general training. Using data from the European Community Household Panel, we compute a proxy of the training wage premium in clusters of homogeneous workers and find that smaller premia induce greater incidence of off-site training, which is likely to impart general skills. Our findings suggest that the Becker model provides insufficient guidance to understand empirical training patterns. Conversely, they are not inconsistent with theories of training in imperfectly competitive labour markets, in which firms may be willing to finance general training if the wage structure is compressed, that is, if the increase in productivity after training is greater than the increase in pay.
    Keywords: General training; Off-site training; Training wage premia; Wage compression; ECHP
    Date: 2008
  2. By: Linzert, Tobias; Schmidt, Sandra
    Abstract: In this paper we employ a time series econometric framework to explore the structural determinants of the spread between the euro overnight rate and the ECB’s policy rate (EONIA spread) aiming to explain the widening of the EONIA spread in the period from mid-2004 to mid-2006. We mainly estimate a model of the EONIA spread from March 2004 until August 2006. The analysis identifies possible driving forces underlying the evolution of the spread over time and aims to quantify the impact of specific factors on the observed upward shift. We show that the increase in the EONIA spread can for the largest part be explained by the current liquidity deficit. Moreover, tight liquidity conditions as well as an increase in banks’ uncertainty about the liquidity conditions lead to a significant upward pressure on the spread. ECB’s liquidity policy only has a significant impact on the reduction of the spread if a loose policy is conducted during the last week of an MRO. Interestingly, interest rate expectations have not been found to have an important influence.
    Keywords: Overnight Market Rate (EONIA), Interest Rate Determination, Monetary Policy Implementation, Operational Framework
    JEL: C22 E43 E52
    Date: 2007
  3. By: Monica Billio (Department of Economics, University Of Venice Cà Foscari); Jacques Anas (Coe Rexecode, Paris); Laurent Ferrara (Banque de Frances); Marco Lo Duca (European Central Bank)
    Abstract: The class of Markov switching models can be extended in two main directions in a multivariate framework. In the first approach, the switching dynamics are introduced by way of a common latent factor. In the second approach a VAR model with parameters depending on one common Markov chain is considered (MSVAR). We will extend the MSVAR approach allowing for the presence of specific Markov chains in each equation of the VAR (MMSVAR). In the MMSVAR approach we also explore the introduction of correlated Markov chains which allow us to evaluate the relationships among phases in different economies or sectors and introduce causality relationships, which allow a more parsimonious representation. We apply our model to study the relationship between cyclical phases of the industrial production in the US and Euro zone. Moreover, we construct a MMS model to explore the cyclical relationship between the Euro zone industrial production and the industrial component of the European Sentiment Index.
    Keywords: Economic cycles, Multivariate models, Markov switching models, Common latent factors, Causality, Euro-zone
    JEL: C50 C32 E32
    Date: 2007
  4. By: Candelon Bertrand; Muysken Joan; Vermeulen Robert (METEOR)
    Abstract: By distinguishing between discretionary and non-discretionary fiscal policy, this paper analyses the stability of fiscal rules for EMU countries before and after the Maastricht Treaty. Using both Instrumental Variables and GMM techniques, it turns out that discretionary fiscal policy remains procyclical after 1992. This result contradicts the previous findings of Galí and Perotti (2003). It also appears that fiscal rules differ between large and small countries: especially large countries follow a procyclical discretionary policy. Furthermore, the paper shows that discretionary fiscal policy does exhibit different behaviour facing supply or demand constraints. The procyclical discretionary policy is followed mainly during upswings, when supply constraints are prevalent. Finally, there is no support for the presence of a ‘fatigue effect’ in fiscal discipline.
    Keywords: macroeconomics ;
    Date: 2007
    Abstract: This paper investigates how stock market investors perceive the impact of market structure and efficiency on the long-run performance potential of European banks. To that end, a modified Tobin’s Q ratio is introduced as a measure of bank franchise value. This measure is applied to discriminate between the Market Structure and Efficient-Structure hypotheses in a coherent forward-looking framework, in which differences in banks’ horizontal and vertical differentiation strategies are controlled for. The results show that banks with better management or production technologies possess a long-run competitive advantage. In addition, bank market concentration does not affect all banks equally. Only the banks with a large market share in a concentrated market are able to generate non-competitive rents. The paper further documents that the forward-looking, long-run perspective and the noise adjustment of the performance measure overcome most of the drawbacks associated with testing these hypotheses in a multi-country set-up. Finally, notwithstanding the international expansion of bank activities, the harmonization of regulation and the macroeconomic convergence in the European Union (EU15), we still find that country-specific macroeconomic variables have a significant impact on bank performance. The findings indicate that there is a trade-off between competition and stability that should be taken into account when assessing mergers or acquisitions.
    Keywords: charter value, market power, efficiency, Tobin’s Q, stochastic frontier
    JEL: G21 G28 G32 L11
    Date: 2007–12
  6. By: Kempa, Michal (University of Helsinki)
    Abstract: In this paper I analyse the determinants of commercial banks’ demand for reserves in the interbank market. I first document the pattern in the Eurosystem, where banks deviate from the required reserves balance at the start of the maintenance period only to meet the requirements closer to the settlement day. Using my model I show that this behaviour can be explained by certain trade-related frictions and costs. Examples include potential extra expenses tied to large transactions or the asymmetry between the cost of borrowing and profits from lending. I also find that borrowing decisions can be largely unaffected by current liquidity, which has important implications for the implementation of central bank monetary policy: in order to influence the level of interest rates, the central bank must focus on controlling market expectations.
    Keywords: money markets; EONIA; liquidity effect
    JEL: E43 E52 E58
    Date: 2007–12–12
  7. By: Baycan-Levent, Tuzin (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics); Nijkamp, Peter
    Abstract: The present paper aims to investigate and compare various modalities of migrant entrepreneurship in European countries in order to design a systematic classification of migrant entrepreneurship and to highlight key factors of migrant entrepreneurship in Europe. The paper is based on a comparative assessment of available quantitative data and qualitative information derived from a broad review of findings from previous studies in the literature. Our quantitative evaluation includes the European OECD countries, while our qualitative investigation addresses migrant entrepreneurship experiences in eight European countries: Denmark, Germany, Greece, Italy, the Netherlands, Portugal, Sweden and the UK. The results of our comparative analysis show that the general picture of European migrant entrepreneurship is determined by some distinct push factors such as high unemployment rates and low participation rates or low status in the labour market as well as by an accompanying factor, viz. mixed embeddedness. The results of our comparative evaluation are summarized in a systematic typological table. These show that, while an informal and labour-intensive sector, an underground economy, and small companies and traditional households prompt migrant entrepreneurship in Southern European countries, an overrepresentation of non-Western immigrants among the self-employed, as well as relatively lower income levels of self-employed immigrants compared to both self-employed natives and employed immigrants are decisive for migrant entrepreneurship in Northern European countries.
    Date: 2007
  8. By: António Afonso (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Juan González Alegre (European University Institute, Via della Piazzuola, 43, I-50133, Firenze, Italy.)
    Abstract: In this paper we test whether a reallocation of government budget items can enhance long-term GDP growth in a set of European countries. We apply modern panel data techniques to the period 1970-2006, and we use three alternative dependent variables in a growth regression: economic growth, total factor productivity and labour productivity. Our results are able to identify also the distortions induced by public expenditure in the private factors allocation. In particular, we detect a strong crowding-in effect associated to public investment, which have enhanced economic growth by boosting private investment. We also associate a significant dependence of productivity on public expenditure on education as well as the role of social security and health issues in growth and the labour market. JEL Classification: C23, E62, H50, O40.
    Keywords: Economic growth, panel models, fiscal policy.
    Date: 2008–01
  9. By: Loreta Stankeviciute (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : UMR5252 - Université Pierre Mendès-France - Grenoble II); Patrick Criqui (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : UMR5252 - Université Pierre Mendès-France - Grenoble II)
    Abstract: Purpose :<br />The study aims to quantify the possible interactions between the three European objectives in the horizon of 2020 : (i) the reduction of 20% of greenhouse gas emissions (GHG) (2) the saving of 20% of the European energy consumption and (3) a share of 20% of renewable energies in the overall energy consumption. Particular focus is, however, placed on the influence of the CO2 emission reduction targets and on their consequences on the carbon price in 2020. <br /><br />Design/methodology/approach :<br />In order to explore the interactions among the three European objectives and their induced effects, a number of scenarios are tested within a combination of two modeling tools : the POLES world energy model and ASPEN, an auxiliary model dedicated to the analysis of quota trading systems. With reasonable assumptions for the burden sharing among the Member States, the energy efficiency objectives and the renewable energy targets are achieved using national quota systems in each European country (white and green certificate systems and their implicit prices), while the CO2 emission reduction is carried out within the European Emissions Trading Scheme (ETS) in line with the objective of 20% emission reduction.<br /><br />Findings :<br />The paper shows, in particular, that the two quota policies (WC and GC) decrease significantly the European marginal emission reduction cost and consequently, the compliance costs for ETS participants. The high renewable target compliance cost could be reduced significantly if carbon price signal and energy saving policies are in place. The paper also shows that the sole carbon price signal has a limited influence for stimulating renewable energies and energy savings and thus concludes on the need for specific policies targeting these two areas.
    Keywords: CO2 emissions ;carbon price ; white certificate price ; green certificate price ; European Union
    Date: 2008–01–30
  10. By: Gulumser, Aliye Ahu (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics); Baycan Levent, Tuzin; Nijkamp, Peter
    Abstract: In recent years, several countries have emphasized the importance of employment in rural areas by setting up schemes for strategic priorities and financial resources for rural development. Currently, many countries regard self-employment in rural areas as the key element of rural development. This in contrast to the past, where agriculture was the only employment resource in rural areas; today’s rural areas have changed and offer different business opportunities not only in agriculture, but also in service sectors such as mass and small-scale tourism activities. Nevertheless, agriculture still keeps its importance in rural and national economy. Against this background, the aim of this study is to evaluate rural self-employment in the EU countries, while comparing Turkey’s self- employment with data on EU member states. The study focuses on self-employment trends in agriculture sector on the basis of changing motivations and participations of males and females. The data and information used for comparison and evaluation are based on Eurostat and Turkstat data. The results of our study show that agricultural employment and self-employment exhibit a slight decrease over time and that the impact of this decrease in male and female employment differs among countries in Europe. The results of our study show also that the motivation of Turkish women towards self-employment is higher than that of European women and of Turkish men.
    Date: 2007
  11. By: Ingo Geishecker; Holger Görg; Jakob Roland Munch
    Abstract: This paper studies the impact of outsourcing on individual wages in three European countries with markedly different labour market institutions: Germany, the UK and Denmark. To do so we use individual level data sets for the three countries and construct comparable measures of outsourcing at the industry level, distinguishing outsourcing by broad region. Estimating the same specification on different data show that there are some interesting differences in the effect of outsourcing across countries. We discuss some possible reasons for these differences based on labour market institutions.
    Keywords: International outsourcing, individual wages, labour market institutions
    JEL: F16 J31 C23
    Date: 2008
  12. By: Baas, Timo (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Brücker, Herbert (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "This paper examines the macroeconomic consequences of the diversion of migration flows away from Germany towards the UK in the course of the EU Eastern Enlargement. The EU has agreed with the new member states from Central and Eastern Europe transitional periods for the free movement of workers. The selective application of migration restrictions during the transitional periods has resulted in a reversal of the pre-enlargement allocation of migration flows from the new member states across the EU: Germany as the main destination before enlargement attracts only modest immigration flows since 2004, while the UK and Ireland which have been only marginally affected by immigration prior to enlargement absorb about 60% of the inflows in the post-enlargement period. The macroeconomic effects of this diversion process is analysed in this paper on the basis of a CGE model which considers wage rigidities. We find that higher migration is associated with larger GDP and employment gains, but also with a smaller wage increase and a smaller decline of the unemployment rate. The diversion of migration flows away from Germany towards the UK yields thus a higher GDP and employment growth in the UK. The joint GDP of Germany and the UK declines by 0.1 per cent as a consequence of the migration restrictions." (author's abstract, IAB-Doku) ((en))
    JEL: F15 F22 C68 J61 J30
    Date: 2008–01–28
  13. By: O Debande; Vincent Vandenberghe
    Abstract: The arguments for refinancing the European Union's (EU) higher education via higher tuition fees largely rest on preserving the profitability of the educational investment and offering deferred and income-contingent payments. Using income survey datasets on Belgium, Germany and the United Kingdom (UK) we first estimate how graduates' private return on educational investment is likely to be affected by higher private contributions. We then evaluate the effect of income-contingent and deferred payment mechanisms on lifetime net income and its capacity to account for graduates' ability to pay, considering numerous ways of financing the cost of introducing income-contingency. Our analysis reveals that increasing individuals' contributions to higher education costs, through income-contingent and deferred instruments, does not significantly affect the private rate of return of heterogeneous graduates, allows for payments to be indexed to ability to pay, and can be implemented in ways that minimize the risk of adverse selection. These findings prove robust to significant variations between countries' unharmonised higher education institutional structures.
    Keywords: Higher Education Finance, income-contingent loans, risk pooling and risk shifting
    JEL: I28 H52
    Date: 2007–06
  14. By: M. FRÖMMEL
    Abstract: The choice of an exchange rate arrangement affects exchange rate volatility: higher flexibility goes ahead with increasing volatility and vice versa (Flood and Rose 1995, 1999). We investigate five Central and Eastern European countries between 1994 and 2004. The analysis merges two approaches, the GARCH-model (Bollerslev 1986) and the Markov Switching- Model (Hamilton 1989). We discover switches between high and low volatility regimes consistent with policy settings for Hungary, Poland and, less pronounced, the Czech Republic, whereas Romania and Slovakia do not show a clear picture.
    Keywords: CEEC, exchange rate volatility, regime switching GARCH, Markov switching model, transition economies
    JEL: E42 F31 F36
    Date: 2007–10
  15. By: Fitzenberger, Bernd; Franz, Wolfgang; Bode, Oliver
    Abstract: This paper provides new estimates of a time–varying NAIRU for Germany taking account of the structural break caused by German unification based on the Kalman Filter and on a partially linear model as two alternatives. Estimating a standard Phillips curve, the sum of coefficients associated with expected inflation is far beyond unity, whatever measure of expected inflation rates is employed. Therefore, either the NAIRU concept is not applicable to Germany or, as it is our suggestion, one estimates the unemployment rate that is compatible with a tolerable inflation rate of say 2 percent following roughly the inflation target put forward by the European Central Bank. The estimates presented in this paper suggest that the NAIRU compatible with 2 percent inflation in Germany is currently around 7 percent if the definition of unemployment follows the concept of the ILO. In contrast to the consensus in the literature, our estimates suggest furthermore that the NAIRU in Germany has not increased since the early 1990’s.
    Keywords: NAIRU, unemployment, inflation, Phillips curve, Okun’s Law, German unification, Kalman Filter, partially linear model
    JEL: C22 E24 E31
    Date: 2007
  16. By: Ricardo Gimeno (Banco de España); José Manuel Marqués (Banco de España)
    Abstract: In this paper we decompose nominal interest rates into real risk-free rates, inflation expectations and risk premia using an affine model that takes as factors the observed inflation rate and the parameters generated in the zero yield curve estimation. We apply this model to the Spanish economy during the 90s, which is an especially challenging exercise given the nominal convergence towards the European Monetary Union (EMU) then under way. The methodology seems to be suitable for other countries currently involved in convergence towards EMU. The evidence indicates that inflation expectations and risk premia account for most of the observed variation in nominal rates, while real risk-free interest rates show a reduction during this period lower than that suggested by other approaches.
    Keywords: Real interest rates, Risk Premium, Inflation expectations, Affine Model
    JEL: G12 E43 E44 C53
    Date: 2008–01

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