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on European Economics |
| By: | Malin Andersson (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Arne Gieseck (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Beatrice Pierluigi (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Nick Vidalis (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This study presents some stylised facts on wage growth differentials across the euro area countries in the years before and in the first eight years after the introduction of Economic and Monetary Union (EMU) in 1999. The study shows that wage growth dispersion, i.e. the degree of difference in wage growth at a given point in time, has been on a clear downward trend since the early 1980s. However, wage growth dispersion across the euro area countries still appears to be higher than the degree of wage growth dispersion within West Germany, the United States, Italy and Spain. Differences in wage growth rates between individual euro area countries and the euro area in the years before and in the first eight years after the introduction of EMU appear to be positively related to the respective differences between their Harmonised Index of Consumer Prices (HICP) inflation and average HICP inflation in the euro area. Conversely, relative wage growth differentials across euro area countries have been somewhat unrelated to relative productivity growth differentials. Some countries combine positive wage growth differentials and negative productivity growth differentials vis-à-vis the euro area average over an extended period – and hence positive unit labour cost growth differentials. These countries run the risk of accumulating competitiveness losses and it is therefore a challenge to ensure that the necessary adjustment mechanisms operate fully, in the sense that wage developments are sufficiently flexible and reflect productivity developments. Wage growth persistence within individual euro area countries – largely reflecting inflation persistence and certain institutional factors – might also have contributed somewhat to wage growth differentials across the euro area countries. Moreover, wage level convergence has also played a role in explaining wage growth patterns in the 1980s and the 1990s. However, since 1999, the link between the initial compensation level and the subsequent growth rate of compensation per employee appears barely significant. The study also shows a limited co-movement of wage growth across countries, even in the context of a high degree of business cycle synchronisation seen in the last few years. This suggests that the impact on wage growth of country-specific developments across euro area countries has been larger than the impact of common cyclical developments and external shocks. This could reflect the normal and desirable working of adjustment mechanisms, which – in an optimally functioning currency union with synchronised business cycles – would take place via price and cost and wage developments. On the other hand, structural impediments, for example a relatively low degree of openness in domestically-oriented sectors in some countries, might prevent a stronger link between the degree of synchronisation of wage growth rates and business cycles. JEL Classification: E24, E31, C10. |
| Keywords: | Cross-country wage dispersion, wage and productivity levels across countries and sectors. |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20080090&r=eec |
| By: | Beatrice Pierluigi (Corresponding author: EU Countries Division, Directorate General Economics, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Moreno Roma (EU Countries Division, Directorate General Economics, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper studies the role of wage moderation and labour and product market regulation for employment creation. To this end, labour demand estimates are presented for the five largest euro area countries at the aggregate level and for three macro sectors - manufacturing, construction and services. Estimates are carried out for individual countries as well as for the pooled group of countries. This paper shows that labour cost moderation generally helps employment creation, notwithstanding the fact that elasticities of employment to labour costs vary across the countries and sectors analysed. It also shows that some key institutional/structural variables add to the explanation of labour demand developments. In particular, in some countries and sectors, our results point to a negative link between employment growth, the unemployment benefit replacement rate and product market regulation. JEL Classification: E24, J23, J30, C22, C23. |
| Keywords: | Labour demand, labour cost, panel estimates. |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080912&r=eec |
| By: | Justina Fischer; Volker Hahn |
| Keywords: | ECB, trust, European Union, Eurobarometer, panel data, behavioral economics |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:twi:respas:0026&r=eec |
| By: | Lorenzo Cappiello (Directorate General Economics, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Arjan Kadareja (Bank of Albania and University of New York at Tirana; Address: Sheshi, Skenderbej 1, Tirana, Albania.); Simone Manganelli (Directorate General Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper investigates whether comovements between euro area equity returns at national and industry level have changed after the introduction of the euro. By adopting a regression quantile-based methodology, we find that after 1999 the degree of comovements among euro area national equity markets has augmented. By explicitly controlling for the impact of global factors, we show that this result cannot be explained away by recent world-wide trends. A more refined analysis based on an industry breakdown suggests that the increase in national index comovements is mainly driven by financial, industrials and consumer services sectors. JEL Classification: F36, G15, C22. |
| Keywords: | National and industry equity returns, euro, conditional comovements, regression quantiles. |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080906&r=eec |
| By: | António Afonso (Directorate General Economics, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Christophe Rault (Université d’Orléans, LEO, CNRS, UMR 6221, Rue de Blois-B.P.6739, 45067 Orléans Cedex 2, France; IZA, Germany; and William Davidson Institute at the University of Michigan, Ann Arbor, Michigan, 48109, USA.) |
| Abstract: | We use a 3-step analysis to assess the sustainability of public finances in the EU27. Firstly, we perform the SURADF specific panel unit root test to investigate the meanreverting behaviour of general government expenditure and revenue ratios. Secondly, we apply the bootstrap panel cointegration techniques that account for the time series and cross-sectional dependencies of the regression error. Thirdly, we check for a structural long-run equation between general government expenditures and revenues via SUR analysis. While results imply that public finances were not unsustainable for the EU panel, fiscal sustainability is an issue in most countries, with a below unit estimated coefficient of expenditure in the cointegration relation with revenue as the dependent variable. JEL Classification: C23, E62, H62. |
| Keywords: | Fiscal sustainability, EU, panel cointegration. |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080908&r=eec |
| By: | Lorenzo Cappiello (Directorate General Economics, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Marco Lo Duca (Directorate General Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Angela Maddaloni (Directorate General Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper provides new evidence on the dynamics of equity risk premia in euro area stock markets across country and industry portfolios. We develop and estimate a conditional intertemporal CAPM where returns on aggregate euro area, country and industry portfolios depend on the market risk as well as on the risk that the investment opportunity set changes over time. Prices of risks are time-varying, according to a Kalman filter approach. We findt that both market and intertemporal risks are significantly priced. When we include country and industry-specific risk factors they turn out to be not significantly priced for most industries, suggesting that euro area equity markets are well integrated. Overall, the analysis indicates that omitting the intertemporal factor leads to mispricing and misleading conclusions regarding the degree of financial integration across sectors and countries. JEL Classification: G12, F37, C32. |
| Keywords: | Conditional asset pricing, intertemporal risk, financial integration, multivariate GARCH, Kalman filter. |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080913&r=eec |
| By: | Laurent Bilke (Lehman Brothers, 25 Bank Street, London E14 5LE, United Kingdom.); Livio Stracca (Counsel to the Executive Board, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | We propose a new core inflation measure for the Euro area which places the emphasis on the more lasting, i.e. persistent, price developments at a disaggregated level. The importance of each component of the HICP is reweighted according to its relative persistence, as measured by the sum of the autoregressive coefficients or by an indicator of mean reversion. Unlike headline inflation, our baseline core inflation measure is highly correlated with ECB monetary policy decisions, which could mean that it contains ex ante (pre monetary policy) information on inflationary pressure. JEL Classification: E31. |
| Keywords: | Core inflation, inflation persistence. |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080905&r=eec |
| By: | Peter McAdam (Corresponding author: Directorate General Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Alpo Willman (Directorate General Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | We develop a framework for analyzing “medium-run” departures from balanced growth, and apply it to the economies of continental Europe. A time-varying factor-augmenting production function (mimicking “directed” technical change) with a below-unitary substitution elasticity coupled with supporting short-run factor demands (and price setting) is shown to account for the observed dynamics of factor incomes shares, capital deepening and the capital-output ratio. Based on careful data accounting, we also identify a rising mark-up, which we ascribe to the rise of Services. The balanced growth path emerges as a special (and testable) case of our framework, as do existing strands of medium-run debates. JEL Classification: C22, E23, E25, O30, O51. |
| Keywords: | Medium Run, Euro Area, Elasticity of Substitution, Factor-Augmenting Technical Progress, Productivity, Income Distribution, Adjustment Costs, Effective Labor Hours. |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080915&r=eec |
| By: | Silvia Giannangeli (Sant’Anna School of Advanced Studies, P.za Martiri della Libertà, 33, 56127 Pisa, Italy.); Ram?n G?mez-Salvador (Corresponding author: Directorate General Economics, Directorate General Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | The study aims at describing productivity growth in the manufacturing sector for a selected panel of five European countries using firm-level data. The paper explores the empirical regularities of firm productivity distribution across countries. In particular, we assess the degree of persistence of firm relative productivity and consider its effect on aggregate productivity improvements. Moreover, the paper analyses the impact of the competitive forces on aggregate productivity growth by disentangling the role of firm learning and market selection. Finally, we estimate the relationship between labour productivity growth and firm-specific factors such as size, age and capital intensity across countries. The paper uses annual account data over the period 1993-2003 from Amadeus dataset (Bureau van Dijk) for a balanced panel of manufacturing firms. In line with previous evidence, our analysis shows that firm relative productivity levels are both highly heterogeneous across firms and very persistent over time in all the countries in the sample. With reference to aggregate productivity growth, we find that both labour productivity and total factor productivity changes are mostly driven by firm learning, i.e. within-firm productivity improvements, in most European countries. Conversely, the reallocation of resources spurred by the competitive selection process is found to play a minor role in fostering aggregate productivity growth. Finally, in line with macroeconomic trends, gains in productivity seem to be associated with capital deepening, but also with employment losses. JEL Classification: D24, L11, L60. |
| Keywords: | Productivity growth, microdata, cross-country comparison. |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080914&r=eec |
| By: | Michael P Devereux; Simon Loretz |
| Abstract: | This paper assesses the efficiency properties of recent corporation tax reform proposals of the European Union to introduce international loss consolidation and formula apportionment. We extend the effective tax rate methodology of Devereux and Griffith (1999) to allow for a potential loss and use a large firm level data set to identify the distortions under the current system and following proposed tax reforms. We assess the efficiency of the overall tax system using the two concepts of capital export neutrality and market neutrality. Allowing international loss consolidation in the current system would signify a movement away from both notions of efficiency. A common consolidated tax base with formula apportionment system would move the system towards market neutrality, while improving capital export neutrality only little. |
| Keywords: | Corporate Taxation; International Loss Consolidation; Apportionment Rules; Common Consolidated Tax Base; |
| JEL: | H25 H87 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:btx:wpaper:0812&r=eec |
| By: | M. Bruna Zolin (Department of Economics, University Of Venice Cà Foscari) |
| Abstract: | In the trade policy debate, the complete liberalisation of world trade for agricultural products is one of the most relevant issues. European Union is a free trade area where agricultural products are protected and supported from the world market forces, more than any other good or service. The elimination of trade barriers among the EU member states has achieved European self-sufficiency in food and a strong integration in the European market. To resolve international disputes, Mc Sharry, Agenda 2000 and Mid Term Reforms of the CAP were introduced in the last decade, having in mind the reduction of domestic support, tariff barriers and export subsides. In this context, this paper studies the evolution of these trade flows among EU and some selected Asiatic countries. The aim is, on the one hand, to consider the impact of the progressive liberalisation of world agricultural trade in these areas, on the other hand, to measure the integration degree of these groups of countries. In order to be able to study these topics, this paper analyses the evolution of agricultural trade and of the role played by the different product groups. The paper is divided into three sections, followed by some concluding remarks. The first section studies the main agrarian policies adopted in the EU and some selected Asiatic countries. The second section presents the relationships among them. The third describes the agricultural import and export flows, considering the trade from a general perspective, from the point of view of the political decisions adopted and that of the agreements signed. |
| Keywords: | world trade, agricultural products, Asia and Europe integration |
| JEL: | Q17 Q18 P52 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2008_18&r=eec |
| By: | M. Dolores Collado (Universidad de Alicante); Iñigo Iturbe Ormaetxe (Universidad de Alicante) |
| Abstract: | Fighting poverty is one of the main goals in the most societies. This is usually done by the transferring resources to the poor. There exists a widespread view that the European countries are more generous to the poor than the United States. We study whether this is really the case. Firts we review the evidence on aggregate spending and we do not find convincing support for that view. Secondly, we analyze microeconomic evidence from the Current Population Survey and the European Community Household Panel and find mixed results. In particular, when we use the concept of relative poverty, we find that average transfers per poor person in the United States are 54% higher than in the European Union. When we exclude the old from the sample, this difference reduces to 20%. |
| Keywords: | Poverty, Public Transfers, Redistribution, Welfare State |
| JEL: | H51 H53 I38 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2008-05&r=eec |
| By: | Norma B. Coe; Gema Zamarro |
| Abstract: | What are the health impacts of retirement? As talk of raising retirement ages in pensions and social security schemes continues around the world, it is important to know both the costs and benefits for the individual as well as government budgets. The authors use the Survey of Health, Aging and Retirement in Europe (SHARE) dataset to address this question in a multicountry setting. Statutory retirement ages clearly induce retirement, but are not related to an individual's health. The authors find significant evidence that retirement has a health-preserving effect on overall general health but no evidence that retiring at younger ages has a health-preserving effect. |
| Keywords: | retirement, health, behaviors |
| JEL: | I10 J26 C21 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:ran:wpaper:588&r=eec |
| By: | Heinemann, Friedrich; Overesch, Michael; Rincke, Johannes |
| Abstract: | While there is a large and growing number of studies on the determinants of corporate tax rates, the literature has so far ignored the fact that the behavior of governments in setting tax rates is often best described as a discrete choice decision problem. We set up an empirical model that relates a government's decision whether to cut its corporate tax rate to the country's own inherited tax and taxes in neighboring countries. Using comprehensive data on corporate tax reforms in Europe since 1980, we find evidence suggesting that the position in terms of the tax burden imposed on corporate income relative to geographical neighbors strongly affects the probability of rate cutting tax reforms. Countries are particularly likely to cut their statutory tax rate if the inherited tax is high and if they are exposed to low-tax neighbors. |
| Keywords: | Tax reform, tax competition, corporate taxes |
| JEL: | H20 H25 H71 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:7300&r=eec |
| By: | Didier Blanchet (INSEE institut national de la statistique et des études économiques); Thierry Debrand (IRDES institut for research and information in health economics) |
| Abstract: | Individual preferences concerning retirement age are strongly differentiated both within and between countries. According to the Share survey, the proportion of workers aged from 50 to 65 who wished to retire as soon as possible in 2004 ranged from 31% in the Netherlands to 67% in Spain. Such a preference for early retirement can depend on both financial and non financial factors. Non financial factors include working conditions, health status and mortality expectations. Economic or "monetary" factors essentially correspond to the magnitude of pension entitlements and how they depend upon retirement age. Entitlements that depend positively on retirement age should reduce the motivation to retire as soon as possible. This paper compares the role of these different factors by combining individual data from the Share survey with macroeconomic indicators of pension entitlements recently produced by the OECD. Health and work conditions come out as strong determinants of the preference for early retirement. Being generally satisfied with one's work leads to a drop of approximately 16 percentage points in the probability of wishing to retire as soon as possible. Declaring oneself in bad or very bad health has a positive effect on this probability of a comparable order of magnitude. However, these non financial factors do not significantly contribute to the explanation of cross-country differentials. Conversely, financial factors seem to have a lower impact at micro-level, but a higher one for the explanation of cross-country differentials. |
| Keywords: | Retirement, Monetary factor, Health, Job satisfaction |
| JEL: | J28 I10 J26 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:irh:wpaper:dt13&r=eec |
| By: | T. BERGER; G. EVERAERT |
| Abstract: | This paper tests whether the impact of labour taxes on unemployment is symmetric with respect to increases and decreases in labour taxes. Using a panel of 16 OECD countries over the period 1970-2005, we estimate a panel unobserved component model to account for the fact that unemployment rates and labour taxes are non-stationary but not co integrated. We find a positive impact of tax increases in European and Nordic countries but no effect of decreasing labour taxes on the rate of unemployment. For Anglo-Saxon countries, no impact of labour taxes on unemployment is found. |
| Keywords: | unemployment, labour taxes, asymmetry, unobserved component model |
| JEL: | C15 C33 E24 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:08/523&r=eec |
| By: | Anger, Niels; Böhringer, Christoph; Oberndorfer, Ulrich |
| Abstract: | This paper presents a political-economy analysis of allowance allocation in the EU Emissions Trading Scheme (EU ETS). A common-agency model suggests that a politicalsupport maximizing government considers the preferences of sectoral interest groups besides public interest when allocating emissions permits. In the stylized model, industries represented by more powerful lobby groups face a lower regulatory burden, which for sufficiently high lobbying power leads to an inefficient emissions regulation. An empirical analysis of the first trading phase of the EU ETS corroborates our theoretical prediction for a cross-section of German firms, but also shows that the political-economy determinants of permit allocation depend on firm characteristics. We find that large carbon emitters that were heavily exposed to emissions regulation and simultaneously represented by powerful interest groups received higher levels of emissions allowances. In contrast, industrial lobbying power stand-alone or threats of potential worker layoffs did not exert a significant influence on the EU ETS allocation process. |
| Keywords: | Emissions trading, interest groups, regression analysis |
| JEL: | C10 P16 Q58 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:7295&r=eec |
| By: | Moslener, Ulf; Sturm, Bodo |
| Abstract: | Without participation of the United States, the world’s largest emitter of greenhouse gases, mitigation of global climate change seems hardly conceivable. Despite the U.S. rejection of the Kyoto Protocol and the reluctance of the Bush administration to engage in Post-Kyoto negotiations, recent developments suggest that the U.S. position towards climate policy might change in the medium run. This study provides an overview on current trends in U.S. climate policy. Besides the main elements of national climate policy proposals and state-level initiatives the climate contents in the U.S. presidential candidates’ agendas are outlined. Based on this overview recent trends in U.S. climate policy are related to the European approach to combat climate change. Furthermore, we elaborate on the aspects which may be important for Europe to design its own domestic and international climate policy in order to achieve the long-term goal of stabilizing greenhouse gas concentrations. |
| Keywords: | environmental regulation, climate policy, emissions trading |
| JEL: | H73 K32 N50 Q58 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:7298&r=eec |
| By: | Robert Shelburne (United Nations Economic Commission for Europe) |
| Abstract: | Many of the emerging market economies in Europe are presently running current account deficits which are quite high relative to any global or historical standard and are fundamentally unsustainable. This includes the three poorer European Union (EU) members of the old Europe (Greece, Portugal, and Spain), many of the EU’s new member states (largely the former transition economies which have joined since 2004), most of those non-EU members in south-east Europe, and a number of the CIS economies in eastern Europe and the Caucasus. The unweighted average current account deficit for this group has more than doubled from under four percent of GDP in 2003 to well over eight percent in 2007. This trend is significantly different than what has evolved in many of the world’s other emerging markets; these other economies have generally been running current account surpluses. This paper documents this development, describes the underlying factors that have brought it about, assesses the underlying vulnerability that has been created, and discusses the implications of this development for other emerging markets and global financial stability more generally. In addition, how these risks have evolved since the appearance of the global credit crisis beginning in the summer of 2007 is examined. |
| Keywords: | Current Account, Energing Markets, Europe, financing, development, transition economies, vulnerability, capital inflows |
| JEL: | F32 F36 F21 O11 O16 O52 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:ece:dispap:2008_2&r=eec |
| By: | Mario Holzner (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Josef Pöschl (The Vienna Institute for International Economic Studies, wiiw); A. Mihailov; Waltraut Urban (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Sándor Richter (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Vladimir Gligorov (The Vienna Institute for International Economic Studies, wiiw); Gábor Hunya (The Vienna Institute for International Economic Studies, wiiw); Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Peter Havlik (The Vienna Institute for International Economic Studies, wiiw); Zdenek Lukas (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | After a period of exceptionally high growth in the whole region of Central, East and Southeast Europe in the past two years, there has been some slowdown in GDP growth. Nevertheless growth remains largely robust. In particular the new member states of the EU (NMS) appear to be largely decoupled from negative global impacts, experiencing only a moderate slowdown in growth, except for the Baltics. The NMS feel, of course, the effects of external price or supply shocks. These effects should however be transient, provided there are no further price shocks in world markets. These are the main results of the medium-term forecast published by the Vienna Institute for International Economic Studies (wiiw). The resilience of the NMS derives from growing labour productivity partly offsetting the combined effects of appreciating currencies and rising wage costs. Therefore the slowdown is generally more moderate than commonly expected (with the exception of the Baltic countries, where more pronounce adjustments took place). The semi-sovereign monetary policies pursued in the major NMS bear many risks, yet on the whole they have proven effective in preventing the rise of both excessive credit booms and excessive real appreciation. The economies of the EU candidate and potential candidate countries in Southeast Europe continue to catch up vis-à-vis the EU. Southeast Europe (SEE-7: Albania, Bosnia and Herzegovina, Croatia, Macedonia, Montenegro, Serbia and Turkey) has turned into a high-growth region in recent years, but some deceleration of real GDP growth has become visible there too. The slowdown was most pronounced in Turkey after several years of very high growth. We reckon with an improving international business climate and expect the SEE-7 to return to higher growth by the year 2010. Inflation has calmed down, but it is still a matter of concern especially in Serbia and Turkey, the two countries where its dynamism was accompanied by currency depreciation against the euro. The countries are also faced with higher bills for imports of energy and food, so that the gap in the current account has widened. Unemployment is high, a fact that will not change substantially during the next few years. Inflation calms down: The whole region was hit by the external price shock that swiftly resulted in a rapid surge in domestic prices for food and energy. The report argues that the worldwide hike in energy and food prices in the period 2007-2008 is primarily a supply-side shock caused by production shortfalls that can be traced back to weather conditions or specific factors restricting production. Authorities in the countries of Central, East and Southeast Europe seem to be taking the current inflation acceleration in an unusually light manner. Some of the countries (those on a fixed exchange rate regime) lack the means to respond. Others respond weakly (if at all) because they expect a growth slowdown and harbour concerns over the continuing appreciation of local currencies. In the longer term, inflation and unit labour costs are shown to be moving mostly in tandem. Rising wages will not incur much of an inflationary risk as long as roughly matched by gains in labour productivity. As this holds true on the whole for the NMS, their longer-term inflation prospects are quite good. Price-wage spirals are not expected to spin out of control. In the absence of another round of world-market price shocks, inflation will subside fairly quickly. In the West Balkans, the inflationary spike will also be overcome relatively swiftly. Disinflation, however, will be slower in Kazakhstan, Russia, Turkey and Ukraine, given that it will be starting from much higher levels than elsewhere. The Russian economy has been booming in the past decade, largely owing to surging energy prices and export revenues. Apart from rising assertiveness, the shadow side of this boom has been widespread corruption and deteriorating external relations ' not only with the EU. The key challenges are ' apart from the fight against corruption and bureaucratic obstacles ' the diversification of the economy using Industrial Policy tools and government-sponsored investment programmes. The wiiw forecast for Russian GDP growth in the coming years reckons with ongoing reliance on the (modernized) energy sector, possibly with a few high-tech niches, and an average annual GDP growth of around 6% in 2010. The expected modest growth slowdown appears inevitable, at least until the end of the decade, before any (uncertain) modernization efforts start to bear fruit. Ukraine's economy keeps performing well, largely on account of the booming household consumption backed by expanding credit and generous social transfers. The dramatic surge in food prices has driven consumer inflation to above 30%; however, inflationary pressures should subside in the second half of 2008, not least thanks to the expected good grain harvest. The immediate growth prospects are good. The economic growth is home-driven, the widening external imbalances are covered by strong inflows of FDI, which are likely to pick up further following the country's recent WTO accession. Banking sector problems remain central to the economic development of Kazakhstan. On the positive side, the government has sufficient financial resources to withstand the crisis. Problems resulting from the banking crisis forced us to reduce our forecast for the GDP growth. But we have also revised our inflation forecast downwards primarily due to higher efficiency of government's policy which has included a broad spectrum of measures. Also in China the fast economic growth has moderately cooled down and the slowing down of the global economy will probably have a significant impact only in the months to come. Because of rapidly rising prices, China's policy makers will have to balance measures to fight inflation against the weakening economic outlook. |
| Keywords: | Central and East European new EU member states, Southeast Europe, Balkans, former Soviet Union, China, Turkey, economic forecasts, GDP growth, labour productivity, exchange rates, inflation, EU integration |
| JEL: | O52 O57 P24 P27 P33 P52 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:wii:fpaper:fc:2&r=eec |
| By: | Christopher T. Whelan (Economic and Social Research Institute (ESRI)); Brian Nolan (University College Dublin); Bertrand Maitre (Economic and Social Research Institute (ESRI)) |
| Abstract: | This paper uses new data from EU-SILC for twenty-six European countries to examine the structure and distribution of material deprivation in the enlarged EU. We identify three distinct dimensions of material deprivation relating to consumption, household facilities and neighbourhood environment, and construct indices of these dimensions for each country and the EU as a whole. The extent of variation across countries and welfare regimes is shown to depend on the dimension on which one focuses, as does the strength of the association with household income and subjective economic stress. The index of consumption deprivation has by far the highest correlation with income, provides a highly reliable measure in itself, and allows segments of the population to be identified that are sharply differentiated in terms of their multi-dimensional deprivation profiles. On the basis of this evidence we make some suggestions as to the manner in which the measurement of material deprivation in the European Union should be developed through the proposed special module of deprivation which will form part of the 2009 wave of EU-SILC. |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp249&r=eec |
| By: | von Hagen, Jurgen; Siedschlag, Iulia (Economic and Social Research Institute (ESRI)) |
| Abstract: | The countries of Central and Eastern Europe went from being largely closed to being largely open to international capital flows. This paper discusses their experience with capital account liberalization and coping with large capital inflows. We start with a discussion of basic economic characteristics and the real convergence achieved so far, and then discuss the pace and sequencing of capital account liberalization and the degree of international financial integration over the past decade. We then analyze trends and patterns of capital inflows in these countries in recent years. These stylized facts are useful for understanding the macroeconomic implications and policy challenges of coping with large capital inflows, which we discuss next. Finally we conclude with policy implications for emerging Asian economies. |
| JEL: | E44 F36 F41 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:esr:opeags:68&r=eec |
| By: | Lucinda Trigo Gamarra (University of Rostock) |
| Abstract: | The German insurance market was liberalized in 1994 by the introduction of the ‘single passport’ allowing European insurers to operate throughout the entire European Union. The European directive put also an end to price and insurance contract terms regulation. These measures were meant for removing the obstacles to competition within and between the insurance markets of the member states aiming at an increased efficiency of the European insurance markets. We analyze to which extent this aim has been achieved in the German life insurance market. The development of market performance is measured by changes in technical cost and profit efficiency levels since the liberalization, as well as a measurement of technological change. Technical cost efficiency levels are estimated by applying a stochastic “true” fixed effects distance frontier (Greene, 2005). Non-standard profit efficiency is derived in a second step following Kumbakhar (2006). According to our results, the industry experienced positive total factor productivity (TFP) growth during the observation period, which is mainly driven by substantial positive technological change. Technical cost efficiency and profit efficiency remained stable on average, but significant positive scale efficiency change can be found indicating that market consolidation in the presence of increasing returns to scale led to efficiency gains of the firms. |
| Keywords: | Insurance markets, Total factor productivity growth, Stochastic Frontier Analysis |
| JEL: | D24 G22 G28 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ros:wpaper:93&r=eec |
| By: | Juliette Milgram (Universidad de Granada); Marion Dovis (Centre d'Economie et de Finances Internationales (France)) |
| Abstract: | The aim of this paper is to examine the sensitivity of total factor productivity (TFP) to foreign competition in the case of a European country. Using the Olley and Pakes (1996) method, we calculate the TFP of Spanish manufacturing firms and study the impact of EU tariffs, foreign competition and imports on TFP at the firm level. Applying the System-GMM method, we find that TFP is negatively impacted by European tariffs, whereas the competition, in the form of increased presence of foreign products in the domestic market and firms' imports, leads to improvements of the TFP. Moreover, these two effects are complementary. We also find evidence of important asymmetries among firms depending on their involvement in foreign markets. El objetivo de este artículo es estudiar la sensibilidad de la productividad total de los factores (PTF) a la competencia extranjera en el caso de un país europeo. Calculamos la PTF de las empresas manufactureras españolas con el método de Olley y Pakes (1996) y estudiamos el impacto de los aranceles europeos, de la competencia extranjera y de las importaciones sobre la PTF de las empresas. Utilizando el método System-GMM, obtenemos que la PTF se ve negativamente afectada por los aranceles europeos, mientras la competencia, bajo la forma de una presencia mayor de productos extranjeros en el mercado domestico o en términos de importaciones de las empresas, contribuye a mejorar la PTF. Además, estos dos efectos son complementarios. Encontramos también pruebas de importantes asimetrías entre las empresas, dependiendo de su grado de implicación en los mercados internacionales. |
| Keywords: | productividad total de los factores, España, comercio, aranceles, heterogeneidad de las empresas. Total factor productivity, Spain, trade, tariffs, heterogeneity of firms. |
| JEL: | F12 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasec:2008-06&r=eec |
| By: | Angela I. Uwakwe (;Cardiff University; UK) |
| Abstract: | This paper examines the government finances for Italy to determine if they satisfy the Inter-temporal Budget Constraint (IBC) especially since post-Maastricht. Italy met the convergence criteria in order to be accepted as an EMU country. Arghyrou and Luintel (2005) examine the finances of Italy up to the pre-Maastricht convergence period and find that the finances of Italy showed weak form sustainability demonstrating a Maastricht effect. Standard assumptions have been that Italy’s true position of un-sustainability would be inherent post-Maastricht. This paper examines this issue and finds: (i) that the debt to GDP series shows that the finances of Italy are un-sustainable; (ii) however the government revenue and expenditure show weak form sustainability. This paper also finds a downward trend of the government debt to GDP ratio and a convergence of the government revenue and expenditure in recent times. This implies that the finances of Italy satisfy the IBC and indeed continue to maintain the result of weak sustainability even post-Maastricht. |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:aiu:abewps:75&r=eec |
| By: | Ian Walker (University of Warwick); Yu Zhu (University of Kent) |
| Abstract: | This paper reports estimates of the UK “college premium” for young graduates across successive cohorts from large cross section datasets for the UK pooled from 1994 to 2006 - a period when the higher education participation rate increased dramatically. The growth in relative labour demand suggests that graduate supply considerably outstripped demand which ought to imply a fall in the premium. We find no significant fall for men and even a large, but insignificant, rise for women. Quantile regression results reveal a fall in the premium only for men in the bottom quartile of the distribution of unobserved skills. |
| Keywords: | human capital, higher education, college premium |
| JEL: | I20 J3 |
| Date: | 2008–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:ucd:wpaper:200817&r=eec |
| By: | Barry E. Jones (Department of Economics, Binghamton University, PO Box 6000 Binghamton, NY 13902, USA.); Livio Stracca (Counsel to the Executive Board, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | Narrow and broad money measures (including Divisia aggregates) have been found to have explanatory power for UK output in backward-looking specifications of the IS curve. In this paper, we explore whether or not real balances enter into a forward-looking IS curve for the UK, building on the theoretical framework of Ireland (2004). To do this, we test for additive separability between consumption and money over a sizeable part of the post-ERM period using non-parametric methods. If consumption and money are not additively separable, then real money balances enter into the forward-looking IS curve (the converse does not hold, however). A main finding is that the UK data seem to be broadly consistent with additive separability for the the more recent period from 1999 to 2007. JEL Classification: C14, C43, C63, E21, E41. |
| Keywords: | Additive Separability, IS Curve, Non-Parametric Tests, Measurement Error, Divisia Monetary Aggregates. |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080904&r=eec |
| By: | Strawinski, Pawel |
| Abstract: | In the article private rate of return to higher education in the 1998-2005 period is considered. The model is based on a comparative advantage theory. Extended Mincerian wage equation is used to account for a non-random decision to undertake studies at university level. The estimate of private rate of return in Poland is roughly 9%, and it is among the highest in Europe. In addition, the unexpected rise in rate of return is observed. Moreover, positive relationship between graduation and the obtained wages was found. This change has been linked to labour market transformation and Skill Biased Technical Change. Also the influence of financing tertiary education is considered. |
| Keywords: | return to education, private returns, skill biased technical change, sample selection. |
| JEL: | I20 |
| Date: | 2008–06–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5184&r=eec |
| By: | Alexander Vogel (Leuphana Universität Lüneburg) |
| Abstract: | A wide range of empirical studies has analysed the relationship between exports and productivity in the manufacturing sector. By contrast, a detailed investigation of the services sector has remained neglected. To close this gap, this paper provides first evidence about export and productivity in the German business services sector. The database used is the German turnover tax statistics panel, which allows for the first time a detailed longitudinal analyses of exporting business services enterprises. Similar to the manufacturing sector, these enterprises are more productive than non-exporters, and more productive business services enterprises self-select into export markets. However, no evidence is found concerning the hypotheses that exporting increases productivity. |
| Keywords: | export; productivity; business services; panel data |
| JEL: | F14 F23 L89 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:89&r=eec |
| By: | Tim Callan (Economic and Social Research Institute (ESRI)); Sean Lyons (Economic and Social Research Institute (ESRI)); Sue Scott (Economic and Social Research Institute (ESRI)); Richard S. J. Tol (Economic and Social Research Institute (ESRI)); Stefano Verde (Trinity College Dublin) |
| Abstract: | We study the effects of carbon tax and revenue recycling across the income distribution in the Republic of Ireland. In absolute terms, a carbon tax of €20/tCO2 would cost the poorest households less than €3/week and the richest households more than €4/week. A carbon tax is regressive, therefore. However, if the tax revenue is used to increase social benefits and tax credits, households across the income distribution can be made better off without exhausting the total carbon tax revenue. |
| Keywords: | Carbon tax, Ireland, income distribution |
| JEL: | D31 H23 Q54 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp250&r=eec |
| By: | Kelly, Roger (Monetary Policy Committee Unit, Bank of England) |
| Abstract: | Two major events have affected the monetary regime in the United Kingdom in recent years, namely the introduction of inflation targeting, and the granting of operational independence to the Bank of England. In this paper we examine what impact, if any, these events have had on inflation expectations. A series of Granger causality tests are used in order to examine the causal relationship between a measure of prices and inflation expectations. We find evidence that the introduction of inflation targeting caused both the general public and professionals to anchor their expectations, rather than basing them on current RPI inflation. |
| Keywords: | inflation; expectations |
| JEL: | D84 E31 E58 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:mpc:wpaper:0024&r=eec |
| By: | Bernadette Biatour; Chantal Kegels |
| Abstract: | Using dynamic panel data on 20 Belgian market sectors over 1987-2005, the paper analyses the link between Multifactor Productivity (MFP) growth and three frequently cited determinants: business R&D, labour skills and ICT use. The theoretical framework of the analysis is given by the Aghion-Howitt model which explains the rate of MFP growth by the distance to the world technology frontier. |
| JEL: | I20 O30 O41 |
| Date: | 2008–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:fpb:wpaper:0811&r=eec |
| By: | Madden, D |
| Abstract: | Recent advances in the measurement of bi-dimensional poverty are applied to a measure of poverty which incorporates income and health poverty. The correlation between income and poverty is examined using the Receiver Operating Characteristics curve. Following from this unidimensional and bi-dimensional poverty indices are calculated for Ireland for the years 2003-2006. Individual and bi-dimensional indices generally show a decline over the period with the biggest decline between 2003 and 2004. The results are generally not sensitive to the degree of poverty aversion or the substitutability between the different dimensions of poverty. |
| Keywords: | receiver operating characteristic, multidimensional poverty. |
| JEL: | I12 I31 I32 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:yor:hectdg:08/14&r=eec |