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on European Economics |
| By: | Philip R. Lane |
| Abstract: | This essay addresses the macroeconomics of international financial integration from a European perspective. We first analyse the role of international financial integration in promoting economic convergence among members of the European Union. Next, we analyse the implications of increasing financial linkages, both within Europe and between Europe and other regions in the world economy. Finally, we assess how increased financial integration has altered the economics of external adjustment. |
| Date: | 2008–11–04 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp265&r=eec |
| By: | Rault, Christophe (University of Orléans); Caporale, Guglielmo Maria (Brunel University); Sova, Ana Maria (CREST & Université Paris 1 Panthéon-Sorbonne); Sova, Robert (CREST & Université Paris 1 Panthéon-Sorbonne) |
| Abstract: | The expansion of regionalism has spawned an extensive theoretical literature analysing the effects of Free Trade Agreements (FTAs) on trade flows. In this paper we focus on FTAs (also called European agreements) between the European Union (EU-15) and the Central and Eastern European countries (CEEC-4, i.e. Bulgaria, Hungary, Poland and Romania) and model their effects on trade flows by treating the agreement variable as endogenous. Our theoretical framework is the gravity model, and the econometric method used to isolate and eliminate the potential endogeneity bias of the agreement variable is the fixed effect vector decomposition (FEVD) technique. Our estimation results indicate a positive and significant impact of FTAs on trade flows. This finding is robust to the inclusion in the sample of a group of control countries (specifically Belarus, the Russian Federation and Ukraine) that did not sign an FTA. Besides, we show that trade growth after the FTA agreement with the EU was signed exceeded trade growth of the control group of countries which did not become members. |
| Keywords: | regionalisation, European integration, panel data methods |
| JEL: | E61 F13 F15 C25 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3782&r=eec |
| By: | Silvio Contessi; Pierangelo DePace |
| Abstract: | We study the cross-sectional correlations of net, total, and disaggregated capital flows for the major source and recipient European Union countries. We seek evidence of changes in these correlations since the introduction of the euro to understand whether the European Union can be considered a unique entity with regard to its international capital flows. We first use Ng's (2006) "uniform spacing" methodology to rank cross-sectional correlations (i.e., which flows comove more) and to shed light on potential common factors driving international equity flows. We find that a common factor structure is suitable for equity flows disaggregated by sign but not for net and total flows. We only find mixed evidence that correlations between types of flows have changed since the introduction of the euro. |
| Keywords: | Capital investments ; European Union countries |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2008-042&r=eec |
| By: | Matteo Bugamelli; Fabiano Schivardi; Roberta Zizza |
| Abstract: | We test whether and how the adoption of the euro, narrowly defined as the end of competitive devaluations, has affected member states' productive structures, distinguishing between within and across sector reallocation. We find evidence that the euro has been accompanied by a reallocation of activity within rather than across sectors. Since its adoption, productivity growth has been relatively stronger in country-sectors that once relied more on competitive devaluations to regain price competitiveness. This effect is robust to potential omitted-variable bias and correlated effects. Firm-level evidence from Italian manufacturing confirms that low-tech businesses, which arguably benefitted most from devaluations, have been restructuring more since the adoption of the euro. Restructuring has entailed a shift of business focus from production to upstream and downstream activities, such as product design, advertising, marketing and distribution, and a corresponding reduction in the share of blue collar workers. |
| JEL: | F33 J24 L16 O47 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14454&r=eec |
| By: | Helmut Herwartz; Henning Weber |
| Abstract: | Microfoundations of the euro’s effect on euro area trade hinge on the timing, the speed and the size of adjustment in trade costs. We estimate timing, speed and size of adjustment in trade costs for sectoral trade data. Our approach allows for sector specific impacts of trade costs on sectoral trade while controlling for unobserved but time-variant variables at the sector level. We find that, due to falling trade costs, trade within the euro area increases between the years 2000 and 2003 by 10 to 20 percent compared with trade between European countries that are not members of the euro area. Adjustment of individual sectors is extremely fast whereas aggregate adjustment spreads out because different sectors adjust at distinct times. |
| Keywords: | Euro trade effect, gravity model, smooth transition, Kalman filter |
| JEL: | C31 C33 F13 F15 F33 F42 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2008-065&r=eec |
| By: | Maria Demertzis; Andrew Hughes Hallett; Nicolien Schermer |
| Abstract: | This paper investigates the impact of increasing globalization on labor markets, in terms of wage inflation and the distribution of activity across regions. Specifically, we study the effects of aggregation in the labor markets on the distribution of employment and inflationary pressures, where there are differences in market structures and transmission mechanisms underpinned by relatively immobile labor. To demonstrate these ideas, we take the European experience as a “laboratory to show what can be expected from globalization in the labor markets in practice. Using models of wage leadership vs. locational competition, we examine the extent and strength of aggregation effects on labor market costs using a sample of data from 1983 to 2007 which covers the period of the creation of the Euro. We find that the aggregation effect has decreased significantly since the start of EMU, thereby improving the tradeoff between inflation and unemployment. At the same time, while Germany played an important role in the run-up to EMU in terms of wage leader, its role has now decreased and been replaced by globalization forces. This has led to increased locational competition in terms of wage formation. We demonstrate this with the emerging role of the US as the benchmark for wage setting in Europe. |
| Keywords: | Phillips Curves; aggregation; locational competition; wage leadership. |
| JEL: | F15 F42 J60 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:186&r=eec |
| By: | Zagaglia , Paolo (Bank of Finland Research) |
| Abstract: | In this paper we study how the pattern of segmentation in the euro area money market has been affected by the recent turmoil in financial markets. We use nonparametric estimates of realized volatility to test for volatility spillovers between rates at different maturities. For the pre-turmoil period, exogeneity tests from VAR models suggest the presence of a transmission channel from longer maturities to the overnight. This disappears in the subsample starting in August 9 2007. The results of the semiparametric tests of Cappiello, Gerard and Manganelli (2005) report evidence of an increase in volatility contagion within the longer end of the money market curve. However this takes place in the lower tail of the empirical distributions.In this paper we study how the pattern of segmentation in the euro area money market has been affected by the recent turmoil in financial markets. We use nonparametric estimates of realized volatility to test for volatility spillovers between rates at different maturities. For the pre-turmoil period, exogeneity tests from VAR models suggest the presence of a transmission channel from longer maturities to the overnight. This disappears in the subsample starting in August 9 2007. The results of the semiparametric tests of Cappiello, Gerard and Manganelli (2005) report evidence of an increase in volatility contagion within the longer end of the money market curve. However this takes place in the lower tail of the empirical distributions. |
| Keywords: | money market; high-frequency data; time-series methods |
| JEL: | C22 E58 |
| Date: | 2008–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2008_023&r=eec |
| By: | Christiane Baumeister (Ghent University); Eveline Durinck (Ghent University); Gert Peersman (Ghent University) |
| Abstract: | In this paper, we investigate how the dynamic effects of excess liquidity shocks on economic activity, asset prices and inflation differ over time. We show that the impact varies considerably over time, depends on the source of increased liquidity (M1, M3-M1 or credit) and the underlying state of the economy (asset price boom-bust, business cycle, inflation cycle, credit cycle and monetary policy stance). |
| Keywords: | Liquidity, asset prices, inflation, time-varying coefficients |
| JEL: | E31 E32 E44 E51 E52 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:200810-17&r=eec |
| By: | Angelo Baglioni (DISCE, Università Cattolica); Andrea Monticini (DISCE, Università Cattolica) |
| Abstract: | By analyzing high frequency data for the European interbank market, we show that the intraday interest rate (implicitly defined by the term structure of the ON rate) jumped by more than ten times at the outset of the financial turmoil in August 2007, resulting in an inefficiency of the money market. This took place despite the provision of unlimited free daylight overdrafts by the ECB, on a collateralized basis. We suggest that such result may be attributed to an increase of the liquidity premium and of the cost of collateral. |
| Keywords: | intraday interest rate, liquidity crisis, money market, central banking |
| JEL: | G3 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie3:ief0083&r=eec |
| By: | Tanya, Molodtsova; Nikolsko-Rzhevskyy, Alex; Papell, David |
| Abstract: | This paper uses real-time data to analyze whether the variables that normally enter central banks’ interest-rate-setting rules, which we call Taylor rule fundamentals, can provide evidence of out-of-sample predictability for the United States Dollar/Euro exchange rate from the inception of the Euro in 1999 to the end of 2007. The major result of the paper is that the null hypothesis of no predictability can be rejected against an alternative hypothesis of predictability with Taylor rule fundamentals for a wide variety of specifications that include inflation and a measure of real economic activity in the forecasting regression. We also present less formal evidence that, with real-time data, the Taylor rule provides a better description of ECB than of Fed policy during this period. While the evidence of predictability is only found for specifications that do not include the real exchange rate in the forecasting regression, the results are robust to whether or not the coefficients on inflation and the real economic activity measure are constrained to be the same for the U.S. and the Euro Area and to whether or not there is interest rate smoothing. The evidence of predictability is stronger for real-time than for revised data, about the same with inflation forecasts as with inflation rates, and weakens if output gap growth is included in the forecasting regression. Bad news about inflation and good news about real economic activity both lead to out-of-sample predictability through forecasted exchange rate appreciation. |
| Keywords: | Taylor rule; euro; exchange rate; forecasting; ECB; euro area. |
| JEL: | F37 E58 E52 F31 |
| Date: | 2008–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:11348&r=eec |
| By: | OGGIONI, Giorgia (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); SMEERS, Yves (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)) |
| Abstract: | The inception of the Emission Trading System in Europe (EU-ETS) has made power price more expensive. This affects the competitiveness of electricity intensive industrial consumers and may force them to leave Europe. Taking up of a proposal of the industrial sector, we explore the possible application of special contracts, based on the average cost pricing system, which would mitigate the impact of CO2 cost on their electricity price. The model supposes fixed generation capacities. A companion paper treats the case with capacity expansion. We first consider a reference model representing a perfectly competitive market where all consumers (households and industries) are price-takers and buy electricity at the short-run marginal cost. We then change the market design assuming that large industrial consumers pay power either at a single or at a nodal average cost price. The analysis of these problems is conducted with simulation models applied to the Northwestern European market. The equilibrium models developed are implemented in the GAMS environment. |
| Keywords: | average cost pricing, complementarity conditions, EU-ETS, Northwestern Europe market. |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvco:2008001&r=eec |
| By: | COELLI, Tim (CEPA, University of Queensland); LEFEBVRE, Mathieu (CREPP, Université de Liège); PESTIEAU, Pierre (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)) |
| Abstract: | In this paper we use data on five social inclusion indicators (poverty, inequality, unemployment, education and health) to assess the performance of 15 European welfare states (EU15) over a ten-year period from 1995 to 2004. Aggregate measures of performance are obtained using index number methods similar to those employed in the construction of the widely used Human Development Index (HDI). These are compared with alternative measures derived from data envelopment analysis (DEA) methods. The influence of methodology choice and the assumptions made in scaling indicators upon the results obtained is illustrated and discussed. We also analyse the evolution of performance over time, finding evidence of some convergence in performance and no sign of social dumping. |
| Keywords: | performance measure, best practice frontier, social protection. |
| JEL: | H50 C14 D24 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvco:2008012&r=eec |
| By: | Aitor Ciarreta Antuñano (Dpto. de Fundamentos del Análisis Económico II (UPV/EHU)); Ainhoa Zarraga Alonso (Dpto. de Economía Aplicada III (UPV/EHU)) |
| Abstract: | We apply recent panel methodology to investigate the relationship between electricity consumption and real GDP for a set of 12 European Union countries using annual data for the period 1970-2004. Recently developed tests for panel unit roots, cointegration in heterogeneous panels and panel causality are employed. The results show a long-run relationship between the series. We estimate this relationship and test for causality. We find no short-run causality in any direction. These results might help to design appropriate electricity consumption policies in the sample countries, as well as investment policies in interconnections to build a single European market for electricity. |
| Keywords: | Electricity consumption; economic growth; panel cointegration; panel causality |
| JEL: | C33 Q40 |
| Date: | 2008–11–05 |
| URL: | http://d.repec.org/n?u=RePEc:ehu:biltok:200804&r=eec |
| By: | Weber, Lars; Asmus, Juergen |
| Abstract: | The European Union service sector hampers many regulations by the Member States. For this reason, the European Commission issued a directive to reduce regulations and raise competition. We update the study from Kox, Lejourr and Montizaan (2005) with the latest changes of the directive on services o the internal market. Based on OECD-Panel data, we are able to develop a linear service trade model to investigate the economic benefit of such a directive. Our results show that the volume of service trade would decline with a between 2.6%-5.4%. This surprising outcome is contrary to previous results from Kox, Lejour and Montizaan (2005) or Breuss and Badinger (2005). We show that this is due to the latest modification in the service directive. |
| Keywords: | Regulatory Barriers; OECD Panel Data; Service Trade; European Union |
| JEL: | F12 C23 O52 |
| Date: | 2008–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:11441&r=eec |
| By: | Heike Wetzel (Institute of Economics, University of Lüneburg) |
| Abstract: | This paper analyzes the performance of the European railway sector in the period of deregulation (1990-2005). Using a stochastic frontier panel data model that controls for unobserved heterogeneity a multiple-output multiple input distance function model is estimated in order to evaluate the sources of productivity growth: technological progress, technical efficiency change and scale effects. The results indicate that technology improvements were by far the most important driver of productivity growth, followed by gains in technical efficiency, and to a lesser extent by exploitation of scale economies. Overall, we find an average productivity growth of 39 per cent within the sample period. |
| Keywords: | European railways, Deregulation, Stochastic frontier analysis,Total factor productivity |
| JEL: | D24 L51 L92 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:101&r=eec |
| By: | Karsten Staehr |
| Abstract: | This paper discusses the prospects of the new EU members from Central and Eastern Europe joining the European Economic and Monetary Union in the short and medium term. The countries must attain and sustain inflation rates sufficiently low to abide by the Maastricht inflation criterion, but this is complicated by the process of real convergence exerting upward pressure on the inflation rate. The paper discusses different strategies which the new EU countries can apply. It is argued that no one-size-fits-all policy is available and that some countries might be better off postponing EMU membership in pursuit of other goals. Still, the special circumstances concerning the Central and Eastern European EU countries suggest that the process of admission of new countries to the EMU should be adaptive and pragmatic |
| Keywords: | Monetary Union, inflation, Maastricht inflation criterion, CEE |
| JEL: | E31 E61 |
| Date: | 2008–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2008-4&r=eec |
| By: | Tanja Broz (The Institute of Economics, Zagreb) |
| Abstract: | This paper aims to analyse the correlation of demand and supply shocks between the EMU and CEECs in order to examine whether there is some degree of business cycle coordination between them. The main objective is to investigate the impact on Croatia and compare it with other CEECs. Croatia is of interest in this paper since there is a lack of empirical studies on this topic which include Croatia in the sample. Information on the correlation of demand and supply shocks between the EMU and CEECs is important if a country wants to introduce the euro since the synchronisation of business cycles and policy coordination will have a significant impact on willingness to enter the monetary union (except if the decision is a political one). Since Croatia has started its path towards the EU, it should be expected that it will introduce the euro, since there is no opt-out clause for new members. In order to gather results, supply and demand shocks are extracted from data using Blanchard and Quah (1989) methodoogy and then the correlations of shocks between the EMU and CEECs are calculated as well as the size of shocks and the speed of adjustments. Results indicate that Croatia is, at the moment, far from being ready for the common monetary policy with the EMU; while other CEE countries such as Slovenia and Latvia, which in fact first applied for the introduction of euro, have the closest correlation of their business cycles with those of the EMU. |
| Keywords: | supply and demand shocks, European Monetary Union, Central and Eastern European countries |
| JEL: | E32 E42 F33 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:iez:wpaper:0801&r=eec |
| By: | Donato Masciandaro (Paolo Baffi Centre, Bocconi University); Marc Quintyn (IMF Institute, International Monetary Fund) |
| Abstract: | We propose a path dependence approach to analyze the evolution of the financial supervisory architecture, focusing on the institutional role of the central bank, and then apply our framework to describe the institutional settings in a selected sample of countries. The policymaker who decides to maintain or reform the supervisory architecture is influenced by the existing institutional setting in a systematic way: the more the central bank is actually involved in supervision, the less likely a more concentrated supervisory regime will emerge, and vice versa (path dependence effect). We test the path dependence effect describing and evaluating the evolution and the present state of the architecture of six national supervisory regimes in South Eastern Europe (SEE): Albania, Bulgaria, Greece, Romania, Serbia and Turkey. The study of the SEE countries confirms the postulated role of the central bank in the institutional setting. In five cases the high involvement of the central bank in supervision is correlated with a multi–authority regime, while in one case a high degree of financial supervision unification is related with low central bank involvement. |
| Keywords: | Financial Supervision; Central Banks; Path Dependence; Political Economy; South Eastern Europe. |
| JEL: | G18 G28 E58 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:89&r=eec |
| By: | Kliti Ceca (Bank of Albania); Kelmend Rexha (Bank of Albania); Elsida Orhan (Bank of Albania) |
| Abstract: | This paper aims to present the main developments of banking and finance in Albania in a historical perspective. This historical overview might help to better understand not only the great difficulties and obstacles the country faced in the past but also the successes it achieved. It is widely known that the financial system, especially the banking sector, is considered as very important as it serves as a catalyst for the economic development of the country. And this is because financial depth determines economic growth. The paper also highlights the future challenges that the Albanian financial system will face within the context of the country’s European integration and the EU harmonization of the financial policies. |
| Keywords: | Historical perspectives; Financial system; Bank-dominated system; Panics; EU integration |
| JEL: | G21 G22 N24 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:84&r=eec |
| By: | Peichl, Andreas (IZA); Schaefer, Thilo (University of Cologne); Scheicher, Christoph (University of Cologne) |
| Abstract: | In this paper, we define a new class of richness measures. In contrast to the often used headcount, these new measures are sensitive to changes in rich persons' income and therefore allow for a more sophisticated analysis of richness. We demonstrate the application of these new measures to analyze the development of poverty and richness over time in Germany, to compare Germany to many other European countries and to investigate the impact of tax reforms on poverty and richness. Using these examples, we show the importance of taking into account the intensity of changes and not only the number of people beyond a given richness line (headcount). We propose to use the new measures in addition to the headcount index for a more comprehensive analysis of richness. |
| Keywords: | richness, affluence, poverty, tax reform, flat tax |
| JEL: | D31 H23 I32 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3790&r=eec |
| By: | Anita Tuladhar; Dennis P. J. Botman |
| Abstract: | The Czech Republic has embarked on an ambitious tax reform and expenditure package to bring the deficit sustainably below 3 percent, and intends to reduce the deficit to 1 percent of GDP by 2012. To address the long-term fiscal challenge due to population aging, pension reform proposals are also being considered. In this paper we assess the macroeconomic effects of these measures using the Global Fiscal Model. The tax reform package will achieve a more efficient tax system. If implemented successfully with the intended expenditure savings measures, debt is projected to improve markedly while output would expand. Fiscal sustainability will not be restored, however, even if further measures to bring the deficit to 1 percent of GDP by 2012. Instead, raising the retirement age and prefunding future aging costs would be needed to keep debt below 60 percent of GDP through 2050. |
| Keywords: | Czech Republic , Tax reforms , Fiscal policy , Budget deficits , Aging , Population , Pensions , Debt sustainability , |
| Date: | 2008–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:08/125&r=eec |
| By: | Palmer, Edward |
| Abstract: | Far-reaching changes in the regulation of financial markets and the organization of public pensions in the 1980s and 1990s transformed the landscape for retirement products in Sweden. First, banking and insurance were extensively deregulated in the 1980s, while the securities markets experienced major expansion. Insurance received a large boost from the authorization of unit-linked products in the early 1990s. Second, the public pension system was reformed. Survivor benefits for widows were eliminated from the public pillar in the late 1980s, leading to a large increase in demand for term life insurance. The old defined benefit public pension system was replaced by a notional or nonfinancial defined contribution (NDC) scheme, while a funded defined contribution (FDC) component was also created in the public pillar. The four occupational pension funds that cover the majority of Swedish workers were also converted into FDC schemes. This paper reviews the implications of these changes for the Swedish annuity market. It discusses the regulation of payout options in Sweden, highlighting the compulsory use of life annuities in the public pillar and the preference for term annuities in the occupational funds. It examines the performance of providers of retirement products, including the PPM, and reviews the increasing focus on risk-based regulation and supervision. The paper also emphasizes Sweden's success in moving in the direction of increased funding and privatization of old age insurance, while maintaining its basic character as a highly developed welfare state. |
| Keywords: | ,Debt Markets,Emerging Markets,Pensions&Retirement Systems,Insurance Law |
| Date: | 2008–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4748&r=eec |
| By: | Matti Sarvimäki |
| Abstract: | Abstract: I study the assimilation of immigrants to the Finnish labor market and welfare system. The initial immigrant-native earnings gaps are large. While longterm immigrants experience a rapid earnings growth, only men from OECD countries converge to natives' earnings. Among all immigrant groups earnings grow predominantly due to improving employment rates rather than wage growth. Earnings profiles for temporary immigrants are flat. Furthermore, direct study of the use of social benefits suggests that immigrants learn to use the welfare system gradually. In particular, non-OECD households substantially increase their use of social assistance during their first five years in the country despite simultaneously doubling their earnings. JEL classification: J61, J31, F22 |
| Keywords: | Immigrants, assimilation, welfare state, social benefits |
| Date: | 2008–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:fer:dpaper:454&r=eec |