nep-eec New Economics Papers
on European Economics
Issue of 2008‒07‒05
fourteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Benchmarking the Lisbon Strategy By Demosthenes Ioannou; Marien Ferdinandusse; Marco Lo Duca; Wouter Coussens
  2. Benchmarking the Lisbon Strategy By Klaus Masuch; Ramon Gómez-Salvador; Nadine Leiner-Killinger; Rolf Strauch; Jarkko Turunen; Melanie Ward-Warmedinger; Jan De Mulder; Harald Stahl; Yvonne McCarthy; Daphne Nicolitsas; Aitor Lacuesta; Mathilde Ravanel; Piero Cipollone; Christelle Olsommer; Alfred Stiglbauer; Álvaro Novo; Klara Stovicek; Heidi Schauman; Almut Balleer; Kieran McQuinn; Pasqualino Montanaro; Alfonso Rosolia; Eliana Viviano; Cláudia Filipa Duarte; Matija Vodopivec
  3. Short-term forecasting of GDP using large monthly datasets – A pseudo real-time forecast evaluation exercise By K. Barhoumi; S. Benk; R. Cristadoro; A. Den Reijer; A. Jakaitiene; P. Jelonek; A. Rua; K. Ruth; C. Van Nieuwenhuyze; G. Rünstler
  4. The Informational Content of Trades on the EuroMTS Platform. By Alessandro Girardi
  5. Is There Increasing Regional Specialisation within the General Process of Deindustrialisation? By Kurt Geppert; Martin Gornig; Anna Lejpras
  6. The EU VAT Treatment of Public Sector Bodies: Slowly Moving in the Wrong Direction By Rita de la Feria
  7. Does immigration affect the Phillips curve? Some evidence for Spain By Samuel Bentolila; Juan J. Dolado; Juan F. Jimeno
  8. Milan’s Cycle as an Accurate Leading Indicator for the Italian Business Cycle By Matteo Pelagatti; Valeria Negri
  9. Main features of the labour policy in Portugal By António Brandão Moniz; Tobias Woll
  10. House Prices and Economic Risks - Are Irish Households Rational? By Dirk G. Baur and Conor McKeating
  11. Development of Wage Inequality for Natives and Immigrants in Germany : Evidence from Quantile Regression and Decomposition By Heiko Peters
  12. Welfare reforms and child well-being in the US and UK By Waldfogel, Jane
  13. High Growth Firms and Job Creation in Finland By Matthias Deschryvere
  14. Does downsizing improve organizational performance? An analysis of Spanish manufacturing firms By Fernando Munoz-Bullon; Maria Jose Sanchez-Bueno

  1. By: Demosthenes Ioannou (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Marien Ferdinandusse (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Marco Lo Duca (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Wouter Coussens (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: This paper reviews the governance framework of the Lisbon Strategy and discusses the specific option of increasing the role of benchmarking as a means of improving the implementation record of structural reforms in the European Union. Against this background, the paper puts forward a possible avenue for developing a strong form of quantitative benchmarking, namely ranking. The ranking methodology relies on the construction of a synthetic indicator using the “benefit of the doubt” approach, which acknowledges differences in emphasis among Member States with regard to structural reform priorities. The methodology is applied by using the structural indicators that have been commonly agreed by the governments of the Member States, but could also be used for ranking exercises on the basis of other indicators. JEL Classification: E5, J1, J2, J6.
    Keywords: Labour supply, employment, participation, hours worked, immigration, skill and education, structural policies, labour demand, unemployment, euro area countries, labour markets, taxes and benefi ts, childcare, pensions, training, human capital, labour quality, working time and contracts, discrimination, mismatch, returns to education.
    Date: 2008–06
  2. By: Klaus Masuch (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Ramon Gómez-Salvador (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Nadine Leiner-Killinger (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Rolf Strauch (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Jarkko Turunen (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Melanie Ward-Warmedinger (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Jan De Mulder (Nationale Bank van België/Banque Nationale de Belgique, Boulevard de Berlaimont 14, 1000 Brussels, Belgium.); Harald Stahl (Deutsche Bundesbank, Wilhelm-Epstein-Strasse 14, 60431 Frankfurt am Main, Germany.); Yvonne McCarthy (Central Bank and Financial Services Authority of Ireland, Dame Street, Dublin 1, Ireland.); Daphne Nicolitsas (Bank of Greece, 21, E. Venizelos Avenue, 10250 Athens, Greece.); Aitor Lacuesta (Banco de España, Alcala 50, 28014 Madrid, Spain.); Mathilde Ravanel (Banque de France, 39, rue Croix-des Petits-Champs, 75049 Paris Cedex 01, France.); Piero Cipollone (Banca d'Italia, Via Nazionale 91, 00184 Rome, Italy.); Christelle Olsommer (Banque centrale du Luxembourg, 2 boulevard Royal, 2983 Luxembourg.); Alfred Stiglbauer (Oesterreichische Nationalbank, Otto Wagner Platz 3, 1011 Wien, Austria.); Álvaro Novo (Banco de Portugal, 148, Rua do Comercio, 1101 Lisbon Codex, Portugal.); Klara Stovicek (Banka Slovenije, Slovenska 35, 1505 Ljubljana, Slovenia.); Heidi Schauman (Suomen Pankki - Finlands Bank, P.O. Box 160, 00101 Helsinki, Finland.); Almut Balleer; Kieran McQuinn (Central Bank and Financial Services Authority of Ireland, Dame Street, Dublin 1, Ireland.); Pasqualino Montanaro (Banca d'Italia, Via Nazionale 91, 00184 Rome, Italy.); Alfonso Rosolia (Banca d'Italia, Via Nazionale 91, 00184 Rome, Italy.); Eliana Viviano (Banca d'Italia, Via Nazionale 91, 00184 Rome, Italy.); Cláudia Filipa Duarte (Banco de Portugal, 148, Rua do Comercio, 1101 Lisbon Codex, Portugal.); Matija Vodopivec (Banka Slovenije, Slovenska 35, 1505 Ljubljana, Slovenia.)
    Abstract: The aim of this report, which has been prepared by a Task Force of the Monetary Policy Committee of the Eurosystem, is to describe and analyse the main developments in labour supply and its determinants in the euro area, review the links between labour supply and labour market institutions, assess how well labour supply reflects the demand for labour in the euro area and identify the future challenges for policy-makers. The data available for this report generally cover the period from 1983 to spring 2007. JEL Classification: D02, P11, P16, C43, C61.
    Keywords: Lisbon Strategy, economic governance, benchmarking, benefit of the doubt weighting.
    Date: 2008–06
  3. By: K. Barhoumi; S. Benk; R. Cristadoro; A. Den Reijer; A. Jakaitiene; P. Jelonek; A. Rua; K. Ruth; C. Van Nieuwenhuyze; G. Rünstler (ECB, DG Research)
    Abstract: This paper evaluates different models for the short-term forecasting of real GDP growth in ten selected European countries and the euro area as a whole. Purely quarterly models are compared with models designed to exploit early releases of monthly indicators for the nowcast and forecast of quarterly GDP growth. Amongst the latter, we consider small bridge equations and forecast equations in which the bridging between monthly and quarterly data is achieved through a regression on factors extracted from large monthly datasets. The forecasting exercise is performed in a simulated real-time context, which takes account of publication lags in the individual series. In general, we find that models that exploit monthly information outperform models that use purely quarterly data and, amongst the former, factor models perform best.
    Keywords: Bridge models, Dynamic factor models, real-time data flow
    JEL: E37 C53
    Date: 2008–06
  4. By: Alessandro Girardi (ISAE - Institute for Studies and Economic Analyses and University of Rome Tor Vergata)
    Abstract: This paper presents unambiguous evidence that trading European government securities on EuroMTS contributes to determine their (unobservable) efficient price. Using twenty-seven months of daily transaction prices data for 107 bonds issued by eleven European governments, the estimated EuroMTS market’s contribution to price discovery is about 20 percent, on average. Further, the amount of price discovery turns out to be strongly related to trading activity and price volatility conditions even controlling for institutional factors and for the maturity of bonds. Overall, the empirical results suggest that trades conveying information occur on EuroMTS when the level of liquidity is sufficiently high.
    Keywords: European bond markets, price discovery, MTS system.
    JEL: G10 C21 C32
    Date: 2008–05
  5. By: Kurt Geppert; Martin Gornig; Anna Lejpras
    Abstract: Trade theory and economic geography suggest that the removal of trade barriers is likely to bring about more economic specialisation and potentially more diverse development paths between countries and regions. Thus, the deepening and extending European integration should be accompanied by an increasing regional specialisation. In contrast, our results for the period from 1995 to 2004 show considerably declining differences in the share of manufacturing in total value added across nations and regions of the EU. The decrease in sectoral specialisation is accompanied by a strong and almost uniform process of deindustrialisation. However, this trend is slowing down and manufacturing shares appear to be gradually approaching lower limits. These bounds are specific according to national affiliation and settlement types of regions.
    Keywords: Regional specialisation, deindustrialisation, EU, nonlinear modelling
    JEL: R11 O14 O18
    Date: 2008
  6. By: Rita de la Feria (Oxford University Centre for Business Taxation)
    Abstract: In most countries applying a VAT system, the activities and transactions undertaken by public sector bodies are not subject to full taxation. The rationale usually invoked to justify lack of full taxation is of a mixed conceptual and political kind. On one hand, there is a view that the activities of those bodies are hard to tax and that, in practice, it is almost impossible to establish a single VAT treatment applicable to all of them. One the other hand, and more importantly, there is a perception that exclusion of the products supplied by public sector bodies from full taxation, achieves social and distributional aims. The rule under the EU VAT system is that supplies by public sector bodies are non-taxable. In practice, however, the VAT treatment of public sector bodies is extremely complex, giving rise to significant legal problems and economic distortions. The aim of this paper is to consider the current legislative framework, with special consideration being given to recent developments in this area, at both legislative and jurisprudential levels, in an attempt to determine whether they constitute positive progress, or whether together they represent a slow and subtle move towards a further deepening of the system’s already existing flaws.
    Date: 2008
  7. By: Samuel Bentolila (CEMFI); Juan J. Dolado (Universidad Carlos III de Madrid); Juan F. Jimeno (Banco de España)
    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' labor 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: Phillips curve, immigration
    JEL: E31 J64
    Date: 2008–06
  8. By: Matteo Pelagatti; Valeria Negri
    Abstract: A coincident business cycle indicator for the Milan area is built on the basis of a monthly industrial survey carried out by Assolombarda, the largest territorial entrepreneurial association in Italy. The indicator is extracted from three time series concerning the production level and the internal and foreign order book as declared by some 250 Assolombarda associates. This indicator is potentially very valuable in itself, being Milan one of the most dynamic economic systems in Italy and Europe, but it becomes much more interesting when compared to the Italian business cycle as extracted form the Italian industrial production index. Indeed, notwithstanding the deep differences in the nature of the data, the indicator for Milan has an extremely high coherence with the Italian cycle and the former leads the latter by approximately 4-5 months. Furthermore there is a direct relation between the amplitude of the cycle and the leading time of the Milan indicator.
    Keywords: Leading indicator, unobserved components model, structural time series model, local business survey
    JEL: C22 C32 C53 E32 L60
    Date: 2008–05
  9. By: António Brandão Moniz (IET - Research Centre on Enterprise and Work Innovation - WORKS project); Tobias Woll (IET - Research Centre on Enterprise and Work Innovation - WORKS project)
    Abstract: In this working paper is presented information on the Portuguese labour market developed with the support of the European project WORKS-“Work organisation and restructuring in the knowledge society”. Is still a on the process article and thus commentaries are welcome. The structure is based on the following topics: a) The employment policy (Time regimes - time use, flexibility, part-time work, work-life balance -, and the work contracts regimes – wages, contract types, diversity); b) Education and training (skilling outcomes, rules on retraining and further training, employability schemes, transferability of skills); c) Equal opportunities (relevance of equal opportunity regulation for restructuring outcomes, the role of gender and age regulation); d) Restructuring effects (policy on transfer of personnel, policy on redundancies, and participation or voice in restructuring).
    Keywords: labour market; work organisation; knowledge society; employment policy; Education; gender
    Date: 2007–12–13
  10. By: Dirk G. Baur and Conor McKeating
    Abstract: This study analyzes the evolution of house prices in Ireland and investigates the question of whether Irish households are overexposed to certain economic risks rendering the decision to buy a house too risky and hence irrational. We use a simple theoretical framework to demonstrate the investment options of a typical household and derive the risk factors associated with the purchase of a house with respect to other types of investment. Irish households hold the majority of their investments in property, specifically in their own houses. The empirical results illustrate that this wealth is exposed to inflation, interest rate changes and the business cycle. This exposure, while not problematic in times of low interest rates, moderate inflation and economic expansion, amplifies the risk to the value of households’ investments if inflation increases, interest rates rise or the economy is in recession. We argue that the adoption of the euro has increased this risk because interest rates are exogenous to the Irish economy which could lead to a situation of deteriorating economic conditions and rising interest rates. Our findings indicate that Irish households potentially underestimate the risk of buying a house. Viewing the purchase of a house as a risky investment could help reduce private debt in the future.
    Date: 2008–06–06
  11. By: Heiko Peters
    Abstract: To study the development of wage inequality is important for the economic performance as well as for the development of employment. First, I estimate the remuneration to personal characteristics for Germans and immigrants across the wage distribution using quantile regression. My database is the German socio-economic panel for the period 1984-2006. I find a higher inequality between skill groups for Germans relative to immigrants. The returns to skill for the highest educational attainment are higher for Germans across the wage distribution compared to immigrants. But within-group inequality for the group with the highest educational attainment is higher for immigrants. Both groups have concave experience-earnings profiles. One more year of work experience increases the wage more for Germans. Secondly I use the decomposition method of Melly (2006). Decomposition methods are suitable to get further insights into the question as to whether or not the observable differences in the distribution are caused by the difference in the composition or differences in the estimated coefficients. Immigrants have a negative wage gap relative to Germans. The wage gap rises across the distribution and is due to a rising discrimination of immigrants across the wage distribution for the years 1992 and 2006. For the year 1984 the characteristic effect is responsible for the wage gap. Inequality rises for both groups between the year 1992 and 2006. The increase is much stronger for Immigrants. The coefficient effect is mainly responsible for the wage increase across time for both groups.
    Keywords: Wage inequality, immigrants, Germany, decomposition, quantile regression
    JEL: C2 D30 J31
    Date: 2008
  12. By: Waldfogel, Jane (Columbia University School of Social Work)
    Abstract: This paper examines the effects of recent welfare reforms in the US and UK on the well-being of children in low-income families, looking specifically at the effects on poverty, family expenditures, and child health and development. The paper finds some commonalities but also some notable differences. Common to both countries is a sizable reduction in child poverty, although the reduction in child poverty in the US has been less, and some families appear to have been left behind. Expenditure data also point to divergence across the two countries. In the UK, low-income families affected by the reforms are spending more money on items related to children and are more likely to own a car and a phone, while in the US, families affected by welfare reforms are primarily spending more money on items related to employment but not items for children. Finally, a common finding across countries is a relative dearth of more direct evidence on the well-being of children, and specifically how the reforms have affected child health and development. Identifying such effects remains an important topic for further research.
    Keywords: Welfare reform; Child well-being
    JEL: I30 J10
    Date: 2008–05–17
  13. By: Matthias Deschryvere
    Abstract: ABSTRACT : The goal of this descriptive paper is to identify which firms add the most employment in Finland. The analysis is based on firm and establishment data from the Finnish Business Register (period 2003–2006). It is found that in 2006 Finland had 750 High Growth Firms (according to the OECD-definition). This represents roughly 5% of the firms with at least 10 employees. As growth has a multi-facetted nature it is crucial to not only focus on how much a firm grows but also how it grows. Not all of those 750 HGF’s grew organically. In fact, of all the jobs they created 65% turned out to be organic employment. There seems to be a positive relationship between the initial size of a HGF and what proportion of the employment is acquired. Correcting for acquisition growth leaves us with 642 organic HGF’s. The share of HGF’s was the highest in the sectors “other business activities”, “computer and related activities” and “health and social work”. It does look like a substantial number of HGF’s have been expanding due to trends in domestic outsourcing. Future research should focus on the causes and consequences of the expansion of those firms. Firm group information should be used as to be able to better capture shifts of employment between firms of the same group.
    Keywords: firm growth, high growth firms, job creation, growth patterns
    JEL: D21 L25 M13 O12 O40
    Date: 2008–06–30
  14. By: Fernando Munoz-Bullon; Maria Jose Sanchez-Bueno
    Abstract: The objective of this study is to examine the effect of downsizing on corporate performance, considering a sample of manufacturing firms drawn from the Spanish Survey of Business Strategies during the 1993- 2005 period. No significant differences in post-downsizing performance arise between companies which downsize and those that do not. Likewise, we find that substantial workforce reductions through collective dismissals do not either lead to improved performance levels. Downsizing, therefore, may not be a way for managers to increase performance, particularly in a context like the Spanish one, where the labour market is characterized by a high protection of employees’ rights and substantial contract termination costs.
    Keywords: Downsizing, Corporate performance, Spanish labour market
    JEL: J21 J65
    Date: 2008–06

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