nep-eec New Economics Papers
on European Economics
Issue of 2009‒01‒03
37 papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Sectoral Productivity, Density and Agglomeration in the Wider Europe By Robert Stehrer; Neil Foster
  2. EMU and Financial Integration By Philip R. Lane
  3. Facing the Monster 'Juste retour': On the Net Financial Position of Member States vis-à-vis the EU Budget and a Proposal for Reform By Sándor Richter
  4. The Role of Institutions in European Patterns of Work and Retirement By Agar Brugiavini; Axel Börsch-Supan; Enrica Croda
  5. Futures contract rates as monetary policy forecasts By Giuseppe Ferrero; Andrea Nobili
  6. Poverty in Ireland in Comparative European Perspective By Whelan, Christopher T.; Maitre, Bertrand
  7. When, how fast and by how much do trade costs change in the euro area? By Herwartz, Helmut; Weber, Henning
  8. Cross-Border Coordination Of Prudential Supervision And Deposit Guarantees By Daniel C. L. Hardy; María Nieto
  9. Modelling short-term interest rate spreads in the euro money market By Nuno Cassola; Claudio Morana
  10. The Determinants of Economic Growth in European Regions By Jesus Crespo Cuaresma; Gernot Doppelhofer; Martin Feldkircher
  11. Welfare and Employment: A European Dilemma? By Eichhorst, Werner; Hemerijck, Anton
  12. Intra-Industry Trade between Japan and European Countries: a Closer Look at the Quality Gap in VIIT By Yushi Yoshida; Nuno Carlos Leitão; Horácio Faustino
  13. Macroeconomics of Migration in New Member States By Rudolfs Bems; Philip Schellekens
  14. Fertility and Female Employment Dynamics in Europe: The Effect of Using Alternative Econometric Modeling Assumptions By Pierre-Carl Michaud; Konstantinos Tatsiramos
  15. What explains the spread between the euro overnight rate and the ECB's policy rate? By Tobias Linzert; Sandra Schmidt
  16. Restrictive immigration policy in Germany: pains and gains foregone? By Felbermayr, Gabriel J.; Geis, Wido; Kohler, Wilhelm K.
  17. Russian and Caspian hydrocarbons: energy supply stakes for the European Union By Catherine Locatelli
  18. Probability of informed trading on the euro overnight market rate - an update By Julien Idier; Stefano Nardelli
  19. Institutional Features of Wage Bargaining in 23 European Countries, the US and Japan By Du Caju, Philip; Gautier, Erwan; Momferatou, Daphne; Ward-Warmedinger, Melanie E.
  20. Early estimates of euro area real GDP growth - a bottom up approach from the production side. By Elke Hahn; Frauke Skudelny
  21. Skill Diffusion by Temporary Migration? Returns to Western European Work Experience in Central and East European Countries By Anna Iara
  22. Tax Competition in an Expanding European Union By Ronald B. Davies; Johannes Voget
  23. The interday and intraday patterns of the overnight market - evidence from an electronic platform By Renaud Beaupain; Alain Durré
  24. How Does Shared Capitalism Affect Economic Performance in the UK? By Alex Bryson; Richard B. Freeman
  25. Why the effective price for money exceeds the policy rate in the ECB tenders? By Tuomas Välimäki
  26. Pricing on the European Mass Tourism Market: Tour Operators, Low Cost Carriers and Internet By Jaume Rosselló Nadal; Antoni Riera Font
  27. Unemployment Insurance Generosity: A Trans-Atlantic Comparison By Pallage, Stéphane; Scruggs, Lyle; Zimmermann, Christian
  28. Auctioning of CO2 Emission Allowances in Phase 3 of the EU Emissions Trading Scheme By Benz, Eva; Löschel, Andreas; Sturm, Bodo
  29. Escaping low pay: do male labour market entrants stand a chance? By Pavlopoulos, Dimitris; Fouarge, Didier
  30. Demographic Uncertainty in Europe Implications on Macro Economic Trends and Pension Reforms. An Investigation with the INGENUE2 Model By Michel Aglietta; Vladimir Borgy
  31. Does EU Cohesion Policy Promote Growth? Evidence from Regional Data and Alternative Econometric Approaches By Mohl, Philipp; Hagen, Tobias
  32. Youth Unemployment and Retirement of the Elderly: the Case of Italy By Agar Brugiavini; Franco Peracchi
  33. Institutional Childcare: An Overview on the German Market By Muehler, Grit
  34. How Low Business Tax Rates Attract Multinational Headquarters: Municipality-Level Evidence from Germany By Becker, Sascha O.; Egger, Peter H.; Merlo, Valeria
  35. Education and Early Career Outcomes of Second-Generation Immigrants in France By Belzil, Christian; Poinas, François
  36. Does Family Control Affect Trade Performance? Evidence for Italian Firms By Giorgio Barba Navaretti; Riccardo Faini; Alessandra Tucci
  37. Communicating monetary policy intentions: The case of Norges Bank By Amund Holmsen; Jan F. Qvigstad; Øistein Røisland; Kristin Solberg-Johansen

  1. By: Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw); Neil Foster (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: In this paper we extend the agglomeration model of Ciccone (2002) to the level of industry. We then test this model using panel data for six sectors on regional level data for 27 EU member states. Our results for the aggregate economy confirm the estimates of Ciccone (2002). For our full sample of countries the sectoral level results also indicate significant agglomeration effects, with the exception of agriculture. Considering differences in the extent of agglomeration effects between new and old EU member states, however, leads to the conclusion that agglomeration effects tend to be stronger at both the aggregate and the sectoral level for new member states.
    Keywords: agglomeration, employment density, productivity, European regions
    JEL: R10
    Date: 2008–09
  2. By: Philip R. Lane
    Abstract: We assess the impact of the euro on financial integration. We document how the single currency has re-shaped financial markets and international investment patterns. We address the macroeconomic implications of enhanced financial integration, with a particular focus on the shift in net capital flows and the extent of international risk sharing. Finally, we outline the challenges posed by increased financial integration for the ECB and other European policymakers.
    Date: 2008–12–12
  3. By: Sándor Richter (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The 'juste retour' attitude, namely each EU member state's priority for securing the best possible individual net financial position vis-à-vis the community budget over any other consideration concerning the community budget is stronger than ever. The differences across member states in terms of net financial positions are indeed remarkable. In the period 1997-2006 the group of major net payer countries (the Netherlands, Germany, Sweden and Austria) had an average 'deficit' vis-à-vis the EU budget amounting to 0.35% of the GNI. For the group of minor net payers (Denmark, France, Finland and Italy) the respective indicator was 0.08% only. The UK with its rebate stood closer to the second group. The full impact of the 2004/2007 enlargement will be felt in 2013, after the 'phasing in' process will have been nearly completed. Estimated net financial positions for 2013 show that major net payers' financial positions will not change significantly but those of the minor payers' will deteriorate to a large extent. The net beneficiary member states will typically get substantially less (net) EU transfers than the cohesion countries had received in the 1990s. Several reform proposals envisage the introduction of a European tax. Various candidates for this tax were tested in the paper for fulfilling the requirement for proportionality of contributions to the EU budget with economic strength of the member states. The results show that a couple of member states would contribute substantially more or less to the community budget than their share is in the aggregate EU GNI, thus these taxes would open up a new battlefield for ¿juste retour¿ discussions. On the expenditure side of the EU budget conditions of eligibility for support have emerged over decades in the framework of various, with one another unrelated, EU policies. This led to a strong differentiation in the extent of financial support by member states, decoupled from their relative prosperity. Germany and the UK were overall 'losers' as in each main policy areas their share was substantially lower than in the aggregate EU GNI in 1997-2006. The Netherlands joined the club of overall 'losers' from 2003 on. The results of an estimation for 2013 hint at increasing polarization. 8 member states will be 'losers' both in agricultural and cohesion expenditures while 13 member states 'winners' in both areas, and only 6 of the 27 will have mixed position. The final chapter of the paper presents a comprehensive reform proposal which faces the juste retour problem frontally instead of negating or circumventing it. The corner stone of the proposed system is the EU 27 average per capita GNI, at official exchange rate. Each member state would receive annually a transfer from the EU budget that corresponds to 1% of the EU average per capita GNI multiplied by the number of inhabitants in the member state concerned. The revenues of the EU budget would be secured through contributions from member states, which would amount to 1% of the member state GNI. Member states with higher than EU average per capita GNI would be thus net payers, those with lower than the average per capita GNI of the EU would be net beneficiaries. Net contributions and receipts, respectively, would clearly reflect the difference in relative prosperity of the member states. This proposition is supplemented by recommendations for reform both on the revenues and expenditures sides of the EU budget. Comparing the estimated financial position of net payer member states in 2013 under the prevailing and the reformed system, respectively, show that each net payer would come off better, though to varying extent, under the new regime. Further enlargements, even with Turkey, would create an average net financial position for this group of member states matching that had been prevailing in 1997-2006. The same comparison for the net beneficiary member states, however, indicates less gains under the new regime. Clear rules for the post-2013 years, smaller, but safely secured and for the long run foreseeable transfers from the EU budget, further significantly increased flexibility in utilization of the EU resources may win the net beneficiary member states for the reforms proposed.
    Keywords: EU budget, cross member state redistribution, juste retour, fair sharing of burdens, net financial position, own resources and expenditures, financial perspective, reform, European tax
    JEL: F15 F36 H20 H23 H70 H77 H87
    Date: 2008–05
  4. By: Agar Brugiavini (Department of Economics, University Of Venice Cà Foscari); Axel Börsch-Supan (MEA Mannheim Research Institute for the Economics of Aging, University of Mannheim); Enrica Croda (Department of Economics, University Of Venice Cà Foscari)
    Abstract: This paper uses the Survey of Health, Ageing and Retirement in Europe (SHARE) to investigate the role of pension and social security institutions in shaping the European patterns of work and retirement. We provide evidence on the extent of “unused capacity” in labor force, on pathways to retirement and on the relationship between actual health status and disability take up. We find that institutional differences between countries explain much of the cross-national differences in work and retirement, while differences in health and demographics play only a minor role.
    Keywords: Aging, employment, retirement, health, disability, social security institutions, SHARE
    JEL: J14 J18 J26 J68 I12 C81
    Date: 2008
  5. By: Giuseppe Ferrero (Banca d’Italia, Via Nazionale 91, I-00184 Rome, Italy.); Andrea Nobili (Banca d’Italia, Via Nazionale 91, I-00184 Rome, Italy.)
    Abstract: The prices of futures contracts on short-term interest rates are commonly used by central banks to gauge market expectations concerning monetary policy decisions. Excess returns - the difference between futures rates and the realized rates - are positive, on average, and statistically significant, both in the euro area and in the United States. We find that these biases are significantly related to the business cycle only in the United States. Moreover, the sign and the significance of the estimated relationships with business cycle indicators are unstable over time. Breaking the excess returns down into risk premium and forecast error components, we find that risk premia are counter-cyclical in both areas. On the contrary, ex-post prediction errors, which represent the greater part of excess returns at longer horizons in both areas, are negatively correlated with the business cycle only in the United States. JEL Classification: E43, E44, E52.
    Keywords: Monetary policy expectations, excess returns, futures contracts, business cycle.
    Date: 2008–12
  6. By: Whelan, Christopher T. (ESRI); Maitre, Bertrand (ESRI)
    Abstract: In this paper we seek to put Irish poverty rates in a comparative European context. We do so in a context whereby the Irish economic boom and EU enlargement have led to increasing reservations being expressed regarding rates deriving from the EU 'at risk of poverty' indicator. Our comparative analysis reports findings for both overall levels of poverty and variation by household reference person characteristics for this indicator and a consistent poverty measure for Ireland, the UK and five smaller European countries spanning a range of welfare regimes. Our finding demonstrate that the distinctiveness of Ireland's situation lies not in the overall levels of poverty per se but in the very high penalties associated with being in household where the household reference person is a lone parent or excluded from the labour market.
    Date: 2008–11
  7. By: Herwartz, Helmut; Weber, Henning
    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.
    JEL: C31 C33 F13 F15 F33 F42
    Date: 2008
  8. By: Daniel C. L. Hardy; María Nieto
    Abstract: The scramble to expand deposit guarantees in Europe in response to recent financial turmoil confirms that the on-going integration of European financial markets requires closer coordination of prudential policies and financial safety nets. We study the optimal design of prudential supervision and deposit guarantee regulations in a multi-country, integrated banking market such as the European Union, where policy-makers have either similar or asymmetric preferences regarding profitability and stability of the banking sector. The paper concludes with recommendations on policy priorities in this area.
    Keywords: Deposit insurance , Europe , European Economic and Monetary Union , Economic integration , Bank supervision , Banking sector , Social safety nets , International cooperation ,
    Date: 2008–12–10
  9. By: Nuno Cassola (Financial Research Divison, DG Research, European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Claudio Morana (Università del Piemonte Orientale, Facoltà di Economia, Dipartimento di Scienze Economiche e Metodi Quantitativi, Via Perrone 18, 28100, Novara, Italy; International Center for Economic Research (ICER, Torino) and Center for Research on Pensions and Welfare Policies (CeRP, Torino).)
    Abstract: In the framework of a new money market econometric model, we assess the degree of precision achieved by the European Central Bank ECB) in meeting its operational target for the short-term interest rate and the impact of the U.S. sub-prime credit crisis on the euro money market during the second half of 2007. This is done in two steps. Firstly, the long-term behaviour of interest rates with one-week maturity is investigated by testing for co-breaking and for homogeneity of spreads against the minimum bid rate (MBR, the key policy rate). These tests capture the idea that successful steering of very short-term interest rates is inconsistent with the existence of more than one common trend driving the one-week interest rates and/or with nonstationarity of the spreads among interest rates of the same maturity (or measured against the MBR). Secondly, the impact of several shocks to the spreads (e.g. interest rate expectations, volumes of open market operations, interest rate volatility, policy interventions, and credit risk) is assessed by jointly modelling their behaviour. We show that, after August 2007, euro area commercial banks started paying a premium to participate in the ECB liquidity auctions. This puzzling phenomenon can be understood by the interplay between, on the one hand, adverse selection in the interbank market and, on the other hand, the broad range of collateral accepted by the ECB. We also show that after August 2007, the ECB steered the “risk-free” rate close to the policy rate, but has not fully off-set the impact of the credit events on other money market rates. JEL Classification: C32, E43, E50, E58, G15.
    Keywords: Money market interest rates, euro area, sub-prime credit crisis, credit risk, liquidity risk, long memory, structural change, fractional co-integration, co-breaking, fractionally integrated factor vector autoregressive model.
    Date: 2008–12
  10. By: Jesus Crespo Cuaresma; Gernot Doppelhofer; Martin Feldkircher
    Abstract: We use Bayesian Model Averaging (BMA) to evaluate the robustness of determinants of economic growth in a new dataset of 255 European regions in the 1995-2005 period. We use three different specifications based on (1) the cross-section of regions, (2) the cross-section of regions with country fixed effects and (3) the cross-section of regions with a spatial autoregressive (SAR) structure. We investigate the existence of parameter heterogeneity by allowing for interactions of potential explanatory variables with geographical dummies as extra regressors. We find remarkable differences between the determinants of economic growth implied by differences between regions and those within regions of a given country. In the cross-section of regions, we find evidence for conditional convergence with speed around two percent. The convergence process between countries is dominated by the catching up process of regions in Central and Eastern Europe (CEE), whereas convergence within countries is mostly a characteristic of regions in old EU member states. We also find robust evidence of positive growth of capital cities, a highly educated workforce and a negative effect of population density.
    Keywords: Model uncertainty, spatial autoregressive model, ddterminants of economic growth, European regions.
    JEL: C11 C15 C21 R11 O52
    Date: 2008–12
  11. By: Eichhorst, Werner (IZA); Hemerijck, Anton (WRR Netherlands Scientific Council for Government Policy)
    Abstract: The majority of the Member States of the European Union have undertaken remarkably comprehensive welfare and labor market reforms in the years since the 1990s. Many of these reforms, however, have not followed the conventional retrenchment and deregulation recipes, but rather took a liking to social pacts, activation, active ageing/avoidance of early retirement, part-time work, lifelong learning, parental leave, gender mainstreaming, flexicurity (balancing flexibility with security), reconciling work and family life. At first sight, these reforms seem to have resulted in relatively robust employment growth, especially for women and more recently older workers. European economic integration has fundamentally recast the boundaries of national systems of employment regulation and social protection, both by constraining the autonomy for domestic policy options but also by opening opportunities for EU-led social and employment coordination and agenda setting.
    Keywords: labor market reforms, European integration, welfare states
    JEL: J21 J58
    Date: 2008–12
  12. By: Yushi Yoshida; Nuno Carlos Leitão; Horácio Faustino
    Abstract: In this paper, we provide an overview of the development of intraindustry (IIT) trade between Japan and various European countries, including both old and new EU members, as well as emerging Eastern European countries. For the measurement of intra-industry trade, we construct a vertical intraindustry trade (VIIT) measure for various margins of unit price ratios, in addition to a Grubel-Lloyd index. By varying the margins from zero to significantly large values, the share of VIIT in total IIT changes from unity to zero, corresponding to the distributional characteristics of VIIT for each European country. Our empirical model attempts to explain the distributional characteristics of VIIT through foreign direct investments and country characteristics, in addition to traditional determinants of IIT, such as differences in GDP per capita, average GDP, and smaller and larger GDPs. Our sample covers 1988 to 2004 for bilateral trade between Japan and 31 European countries. Our econometric methodology for this panel data uses fixed-effect model estimation for static IIT. We find that intra-industry trade between European countries and Japan increases with their corresponding GDPs. Our preliminary results indicate that it is important to measure a wider range of quality based on relative prices rather than the traditional ratio used in the literature.
    Keywords: Intra-Industry Trade; Japan-Europe; Quality; Vertical IIT.
    JEL: F14
    Date: 2008–11
  13. By: Rudolfs Bems; Philip Schellekens
    Abstract: This paper examines the macroeconomic impact of migration on income convergence in the EU's New Member States (NMS). The paper focuses on cross-border mobility of labor and examines the implications for policymakers with the help of a general equilibrium model. It finds that cross-border labor mobility provides ample benefits in terms of faster and smoother convergence. Challenges, however, include containing wage pressures and better mobilizing and utilizing resident labor that does not cross borders.
    Keywords: Migration , Labor mobility , European Economic and Monetary Union , Wages , Capital flows , Economic growth , Income ,
    Date: 2008–12–04
  14. By: Pierre-Carl Michaud; Konstantinos Tatsiramos
    Abstract: The authors investigate the direct and long-run effects of fertility on employment in Europe estimating dynamic models of labor supply under different assumptions regarding the exogeneity of fertility and modeling assumptions related to initial conditions, unobserved heterogeneity and serial correlation in the error terms. They find overall large direct and long-run effects of giving birth on employment probabilities, and these effects differ considerably across countries. They find that within countries the results are sensitive to the statistical assumption made on initial conditions, the inclusion of serial correlation and the assumption of strict exogeneity of children. However, the pattern across countries is robust to these assumptions. They show that such patterns are largely consistent with prevailing institutional differences related to the flexibility of the labor markets and family policies.
    Date: 2008–11
  15. By: Tobias Linzert (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Sandra Schmidt (Centre for European Economic Research, L7, 1, D-68161 Mannheim, Germany.)
    Abstract: We employ a time series econometric framework to explore the structural determinants of the spread between the European Overnight Rate and the ECB’s Policy Rate (EONIA spread) aiming to explain the widening of the EONIA spread from mid-2004 to mid-2006. In particular, we estimate a model on the EONIA spread since the introduction of the new operational framework in March 2004 until August 2006. We show that the increase in the EONIA spread can for the largest part be explained by the current liquidity deficit. Moreover, tight liquidity conditions as well as an increase in banks’ liquidity uncertainty lead to a significant upward pressure on the spread. The ECB’s liquidity policy only reduces the spread if a loose policy is conducted during the last week of a maintenance period. Interestingly, interest rate expectations have not been found to have an important influence. JEL Classification: E43, E52, C22.
    Keywords: Overnight Market Rate (EONIA), Interest Rate Determination, Monetary Policy Implementation, Operational Framework.
    Date: 2008–12
  16. By: Felbermayr, Gabriel J.; Geis, Wido; Kohler, Wilhelm K.
    Abstract: Many European countries restrict immigration from new EU member countries. The rationale is to avoid adverse wage and employment effects. We quantify these effects for Germany. Following Borjas (2003), we estimate a structural model of labor demand, based on elasticities of substitution between workers with different experience levels and education. We allow for unemployment which we model in a price-wage-setting framework. Simulating a counterfactual scenario without restrictions for migration from new EU members countries, we find moderate negative wage effects, combined with increased unemployment for some types of workers. Wage-setting mitigates wage cuts.
    Keywords: wages, migration
    JEL: J48 J61 J68
    Date: 2008
  17. By: Catherine Locatelli (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : UMR5252 - Université Pierre Mendès-France - Grenoble II)
    Abstract: The crisis between Russia and Georgia in August 2008 highlights the fragility and instability of transporting gas from the Caspian and Central Asia to Europe via the "Caucasus transit corridor". The feasibility of one of the EU's possible strategies for diversifying its energy supplies might now be called into question. The aim of this article is to examine the new strategies that could emerge in the producing countries as well as those of international oil companies, and then look at what the consequences might be as far as the EU's diversification strategy is concerned.
    Date: 2008–12
  18. By: Julien Idier (Corresponding author: Banque de France, 39, rue Crois-des-Petits-Champs, F-75049 Paris Cedex 01, France.); Stefano Nardelli (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: In this paper the probability of informed trading (PIN) model developed by Easley and O’Hara (1992) is applied to analyze the role and impact of heterogeneities in euro overnight unsecured market. The empirical assessment of the functioning of this market is based on the PIN which measures the ability of traders to interpret signals on the expected evolution of the overnight rate. Results show that between 2000 and 2004 a heterogeneous learning process of market mechanisms within participants could be observed, whereas such asymmetries have been sharply decreasing since 2005. This is reviewed against some significant events that occurred in the euro money market, such as the reform of the Eurosystem’s operational framework in March 2004 and the recent financial market turmoil, which has represented a break in the steady decline of asymmetries as evidence suggest. JEL Classification: G14, E52.
    Keywords: Microstructure, PIN model, Money Markets.
    Date: 2008–12
  19. By: Du Caju, Philip (National Bank of Belgium); Gautier, Erwan (Bank of France); Momferatou, Daphne (European Central Bank); Ward-Warmedinger, Melanie E. (European Central Bank)
    Abstract: This paper presents information on wage bargaining institutions, collected using a standardized questionnaire. Our data provide information from 1995 and 2006, for four sectors of activity and the aggregate economy, considering 23 European countries, plus the US and Japan. Main findings include a high degree of regulation in wage setting in most countries. Although union membership is low in many countries, union coverage is high and almost all countries also have some form of national minimum wage. Most countries negotiate wages on several levels, the sectoral level still being the most dominant, with an increasingly important role for bargaining at the firm level. The average length of collective bargaining agreements is found to lie between one and three years. Most agreements are strongly driven by developments in prices and eleven countries have some form of indexation mechanism which affects wages. Cluster analysis identifies three country groupings of wage-setting institutions.
    Keywords: wage bargaining, institutions, indexation, trade union membership, cluster analysis
    JEL: J31 J38 J51 J58
    Date: 2008–12
  20. By: Elke Hahn (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Frauke Skudelny (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: This paper derives forecasts for euro area real GDP growth based on a bottom up approach from the production side. That is, GDP is forecast via the forecasts of value added across the different branches of activity, which is quite new in the literature. Linear regression models in the form of bridge equations are applied. In these models earlier available monthly indicators are used to bridge the gap of missing GDP data. The process of selecting the best performing equations is accomplished as a pseudo real time forecasting exercise, i.e. due account is taken of the pattern of available monthly variables over the forecast cycle. Moreover, by applying a very systematic procedure the best performing equations are selected from a pool of thousands of test bridge equations. Our modelling approach, finally, includes a further novelty which should be of particular interest to practitioners. In practice, forecasts for a particular quarter of GDP generally spread over a prolonged period of several months. We explore whether over this forecast cycle, where GDP is repeatedly forecast, the same set of equations or different ones should be used. Changing the set of bridge equations over the forecast cycle could be superior to keeping the same set of equations, as the relative merit of the included monthly indictors may shift over time owing to differences in their data characteristics. Overall, the models derived in this forecast exercise clearly outperform the benchmark models. The variables selected in the best equations for different situations over the forecast cycle vary substantially and the achieved results confirm the conjecture that allowing the variables in the bridge equations to differ over the forecast cycle can lead to substantial improvements in the forecast accuracy. JEL Classification: C22, C52, C53, E27.
    Keywords: Forecasting, bridge equations, euro area, GDP, bottom up approach.
    Date: 2008–12
  21. By: Anna Iara (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This paper contributes to the debate on the effects of migration by providing evidence on the returns to working experience from western Europe in eastern European labour markets. In particular, using the 2003 Youth Central and Eastern Eurobarometer dataset, we test the hypothesis that there are differential returns to foreign as opposed to domestic work experience. Our analysis combines the Mincer wage equation framework and the Roy model of migration. The latter suggests that migration responds to net expected benefits. Hence, return migration is endogenous with respect to differential returns to foreign working experience. To allow for selectivity on observable or unobservable characteristics, we estimate an endogenous switching model in two steps. This procedure combines probit estimates of propensities to work and to acquire foreign work expericence respectively, and OLS estimates of earnings equations for stayers and movers, with the inclusion of nonselection hazards obtained in the first step. The expected wage increase is the difference between post-return migrants' wages and wages under similar conditions in the absence of migration. For any individual, only one of these measures can be observed. We impute the respective counterfactuals from the separate wage regressions. Our analysis shows that movers and stayers are rewarded for different human capital characteristics. We find an average earnings premium for foreign work experience of around 30%. This can be seen as partial evidence for international skill diffusion: temporary migrants may upgrade their skills by learning on the job in countries with higher technological development, and subsequently bring human capital to their source country, thus adding to know-how diffusion and the catching-up of their economy. We perform additional empirical analyses to support this interpretation: we show that the premium found for return migration does not primarily reward the language proficiencies of returning migrants, and we further provide indicative evidence that no earnings premium is obtained for work-related stays abroad in other central and eastern European transition countries.
    Keywords: Central and Eastern Europe, return migration, wage premium, skill diffusion
    JEL: J31 J61 O15
    Date: 2008–07
  22. By: Ronald B. Davies (University College Dublin); Johannes Voget (Oxford University Centre for Business Taxation)
    Abstract: This paper empirically examines whether expansion of the EU has increased international tax competition. To do so, we use a simple model of tax competition to determine how a given country weights the taxes of others when choosing its own tax. This indicates that the market potential of a country (which includes both domestic consumption and exports) is the appropriate weight. This is an improvement on the ad-hoc and often endogenous weighting schemes used elsewhere. Unlike those studies, we find robust evidence for tax competition. In particular, our estimates suggest that EU membership affects responses with EU members responding more to the tax rates of other members. This lends credence to the above-noted concerns.
    Keywords: Corporate taxation; Tax Competition, European Union
    JEL: F1 H2 H7
    Date: 2008
  23. By: Renaud Beaupain (IESEG School of Management, 3 rue de la Digue, 59000 Lille, France.); Alain Durré (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: This paper examines the interday and intraday dynamics of the euro area overnight money market on the basis of an original set of market activity and liquidity proxies constructed from both pre- and post-trade data. The empirical literature provides extensive evidence supporting the rejection of the martingale hypothesis both between days and within days, primarily for interest rates and volatility. We extend this analysis and investigate the seasonality of market activity and liquidity in a market dominated by utilitarian traders. We provide evidence that the Eurosystem's operational framework and calendar effects cause the observed regular patterns. We additionally show that utilitarian trading intensifies at the turn of the reserve maintenance period. The increased un-certainty associated with greater information asymmetry between market participants when reserve requirements become binding lead to a deterioration of market liquidity. Our analysis additionally turns out to be sensitive to the implementation in March 2004 of structural changes to the operational framework and to the more frequent occurrence of fine-tuning operations since October 2004. JEL Classification: E43, E58, C22, C32.
    Keywords: Overnight money market, Eurosystem's operational framework, seasonality, market microstructure, tick data.
    Date: 2008–12
  24. By: Alex Bryson; Richard B. Freeman
    Abstract: This paper uses nationally representative linked workplace-employee data from the British2004 Workplace Employment Relations Survey to examine the operation of shared capitalistforms of pay - profit-sharing and group pay for performance, employee share ownership, andstock options—and their link to productivity. It shows that shared capitalism has grown inthe UK, as it has in the US; that different forms of shared capitalist pay complement eachother and other labour practices in the sense that firms use them together more than theywould if they chose modes of pay and work practices independently; and that workplacesswitch among schemes frequently, which suggests that they have trouble optimizing and thetransactions cost of switching are relatively low. Among the single schemes, shareownership has the clearest positive association with productivity, but its impact is largestwhen firms combine it with other forms of shared capitalist pay and modes of organization.
    Keywords: share ownership, payment systems, labour productivity
    JEL: J33 L23 L25
    Date: 2008–08
  25. By: Tuomas Välimäki (Suomen Pankki, P.O. Box 160, FIN-00101 Helsinki, Finland.)
    Abstract: The tender spread, i.e. the difference between the effective price for money in the ECB’s main refinancing operations and the prevailing policy rate, is one of the main determinants behind the evolution of the EONIA with respect to the ECB’s operational target. This study assesses the reasons for which the average tender spread did not reduce after the banks’ demand for liquidity was isolated from their interest rate expectations in March 2004. The paper offers two potential explanations for the unexpected behavior. First, following the increased precision in the ECB’s liquidity provision after the end-of- period fine tuning operations were added to the regularly applied tools, even a small bias in the liquidity supply could have resulted in a strictly positive tender spread. Second, banks’ uncertainty over their individual allotments in the tender operations may have led to a strictly positive tender spread. Furthermore, the significant growth in the refinancing volumes may have intensified the allotment uncertainty. JEL Classification: D44, E58.
    Keywords: Main refinancing operations, liquidity, EONIA, tenders.
    Date: 2008–12
  26. By: Jaume Rosselló Nadal (Centre de Recerca Econòmica (UIB · Sa Nostra)); Antoni Riera Font (Centre de Recerca Econòmica (UIB · Sa Nostra))
    Abstract: The recent expansion of Low Cost Carriers (LCCs) and the increasing use of Internet are provoking a deep transformation in the marketing of the typical Mediterranean summer tourism product in Europe. Internet may significantly reduce intermediary costs by enabling the connection between accommodation and transport business and consumers. At the same time, a more flexible product can be created in contrast to the conventional rigid tourist package offered by traditional tour operators. This paper investigates differences in price level and price dispersion across off-line and on-line markets and across tour operators and new emerging Internet retailers -including LCCs- using microdata on travel & accommodation individual expenses of tourists in the Balearic Islands, one of the most representative mature Mediterranean resorts. On the basis of the hedonic regression model, results suggest that price of transport; accommodation and board offered on Internet are lower than those offered by others channels, whatever the quality and quantity. Additionally, results reveal how on-line and off-line markets differ in the indirect value attributed to different characteristics of the product showing market segmentation.
    Keywords: Internet pricing, e-tail, hybrid retailers, intermediaries, tourist products, Mediterranean Sea.
    Date: 2008
  27. By: Pallage, Stéphane (University of Québec at Montréal); Scruggs, Lyle (University of Connecticut); Zimmermann, Christian (University of Connecticut)
    Abstract: The goal of this paper is to establish if unemployment insurance policies are more generous in Europe than in the United States, and by how much. We take the examples of France and one particular American state, Ohio, and use the methodology of Pallage, Scruggs and Zimmermann (2008) to find a unique parameter value for each region that fully characterizes the generosity of the system. These two values can then be used in structural models that compare the regions, for example to explain the differences in unemployment rates.
    Keywords: unemployment insurance, labor market policy evaluation
    JEL: E24 J65
    Date: 2008–12
  28. By: Benz, Eva; Löschel, Andreas; Sturm, Bodo
    Abstract: The “Climate action and renewable energy package” proposed by the European Commission in the beginning of 2008 suggests auctioning as basic principle for allocation for the upcoming third trading phase of the EU Emissions Trading Scheme that runs from 2013 to 2020. Overall, it is estimated that at least two third of the total quantity of allowances will be auctioned in 2013, to be increased to 100 % by 2020. In this paper, we emphasize the importance of a properly chosen auction design as the significantly higher auction share, compared to the past and current trading phase, is expected to yield a thin secondary market for CO2 allowances. We elaborate main criteria that a viable auction design is supposed to fulfil and propose a specific auction design for the third trading phase. The auction we recommend is a simultaneous dynamic uniform double auction. Die Europäische Kommission hat in ihrem „Klima- und Energiepaket“ vom Januar 2008 eine Weichenstellung für den europäischen Emissionshandel vorgeschlagen. Bislang wurden die Zertifikate an die betroffenen Unternehmen aus den energieintensiven Sektoren kostenfrei vergeben. Nach den Plänen der Kommission sollen Stromproduzenten ab 2013 alle benötigten Zertifikate ersteigern müssen. Unternehmen aus anderen energieintensiven Branchen sollen zunächst nur 20 % ersteigern, in 2020 dann 100 %. Da insgesamt mindestens zwei Drittel aller Zertifikate versteigert werden, ist zu erwarten, dass der freie Markt für Zertifikate ab 2013 deutlich dünner sein wird als dies bisher der Fall ist. Aus diesem Grund gewinnt das Design der Auktion an Bedeutung, denn vom Auktionspreis, der die Knappheit an Zertifikaten signalisieren soll, werden wichtige Investitionsentscheidungen in CO2-arme Technologien abhängen. Eventuelle Fehler im Auktionsdesign können, wenn die Zertifikate überwiegend versteigert werden, nicht mehr durch einen liquiden freien Markt „geheilt“ werden.
    Keywords: climate policy, emissions trading, auction design
    JEL: D44 Q48 Q54 Q58
    Date: 2008
  29. By: Pavlopoulos, Dimitris (CEPS/INSTEAD and K.U. Leuven); Fouarge, Didier (ROA, Maastricht University)
    Abstract: Purpose { This paper investigates the extent and the human-capital de- terminants of low-wage mobility for labour market entrants, in the UK and Germany. Design/methodology/approach { Using panel data for the UK (BHPS) and Germany (GSOEP), we apply a competing-risks duration model that al- lows us to study transitions from low pay to competing destination states: higher pay, self-employment, unemployment and inactivity. Unobserved het- erogeneity is tackled by a non-parametric mass-point approach. Findings { We ¯nd that low pay is only a temporary state for most young job starters. However, there is a small group of job starters that is caught in a trap of low pay, unemployment or inactivity. In the UK, job starters escape from low pay mainly by developing ¯rm-speci¯c skills. In Germany, involvement in formal vocational training and the attainment of apprenticeship quali¯cations account for low pay exits. Originality/value { Over the past decades, unemployment and low-wage employment have emerged as major challenges facing young labour market entrants. While most empirical studies focus exclusively on the transition from low pay to high pay, we show that a signi¯cant percentage of young entrants are caught in a low-pay - non-employment trap. Moreover, we show that, depending on the institutional context, di®erent types of human capital investments can account for a successful low-pay exit.
    Keywords: Low pay; labour market entry ; duration model ; human capital
    Date: 2008–12
  30. By: Michel Aglietta; Vladimir Borgy
    Abstract: Ageing is a main concern in Western Europe for the present half century. It impinges heavily upon the financing of retirement because a shrinking labour force will entail decelerating growth. Moreover, contrary to popular opinion and to most prospective studies which rely on deterministic demographic projections, the determinants of population size and structure are stochastic. The present paper makes use of the INGENUE2 model to assess the economic impact of demographic uncertainty in Western Europe. Demographic uncertainty affects saving, financial conditions and growth significantly from year 2025 onwards. Worst case scenarios can have crippling effects on the financing of public pension under present retirement policies. It makes all the more necessary to study alternatives. We simulate a policy that involves the development of a funding system to substitute to part of the projected increase in the contribution rate, both under deterministic and stochastic demographic forecasts
    Keywords: Computable General Equilibrium Models; international capital flows; life cycle models and saving; demographic trends and forecasts
    JEL: C68 F21 D91 J11
    Date: 2008–10
  31. By: Mohl, Philipp; Hagen, Tobias
    Abstract: This paper analyses the growth e®ects of EU structural funds using a new panel dataset of 124 NUTS-1 / NUTS-2 regions over the time period 1995-2005. We extend the current literature with regard to at least three aspects: First of all, we extend the time period of investigation, using structural funds payments of the last Financial Perspective 2000{2006 that have not been analysed before. Second, we use more precise measures of structural funds by distinguishing between Objective 1, 2 and 3 payments and by investigating the impact of time lags more carefully. Third, we examine the robustness of our results by comparing different econometric approaches highlighting specific methodological problems. Apart from \classical" panel data methods like system GMM, we apply spatial panel econometric techniques. The empirical evidence indicates that the Objective 1 payments in particular have a positive and significant impact on growth, whereas Objective 2 and 3 payments negatively affect the regions' growth rates. Furthermore, our results show that the growth impact occurs with a time lag of approximately two to three years.
    Keywords: EU structural funds, economic growth, spatial econometrics
    JEL: C21 O47 R11 R12
    Date: 2008
  32. By: Agar Brugiavini (Department of Economics, University Of Venice Cà Foscari); Franco Peracchi (University of Rome “Tor Vergata”)
    Abstract: This paper shows that the “lump of labor” assumption fails in Italy. The direct relationship between the unemployment rate of the young and the labor force participation of the old is pro-cyclical, i.e. a higher labor force participation of the old is related to a lower unemployment rate of the young. Hence both vary with the business cycle. In order to overcome endogeneity problems in explaining unemployment of the young, we resort to a simulated variable: “the inducement to retire”, which is constructed by simulating the social security benefits. We related the unemployment rate of the young to this incentive measure and find that a higher inducement to retire is associated to a higher unemployment rate – quite the opposite of the “young-in-old-out” story.
    Keywords: lump of labour, youth unemployment, early retirement
    JEL: H3 J2 J6
    Date: 2008
  33. By: Muehler, Grit
    Abstract: Institutional early childhood education and care can be funded and delivered in various ways relying on both the public and the private sector. The provision of childcare ranges from public operation to mixed markets with public and private providers to considerably marketised systems with predominantly private providers. One of the countries with a mixed childcare system is Germany where most of the childcare centres are operated by local authorities and non-profit organisations. Using newly available statistical data this paper provides a descriptive overview on the market for childcare in Germany from a providers' perspective. It answers the question if providers differ systematically with regard to centre characteristics, staff employed or the children taken care of. As the results show, the differences in operation affect many dimensions, nevertheless non-religious and for-profit centres on the one hand as well as public and religious centres on the other hand tend show similar characteristics.
    Keywords: institutional childcare, provision, public and private sector
    JEL: H44 J13 L33
    Date: 2008
  34. By: Becker, Sascha O.; Egger, Peter H.; Merlo, Valeria
    Abstract: Most existing empirical evidence on the impact of profit taxation on multinational firm activity is based on cross-country data. One major drawback of such data is that countries differ not only with regard to taxes but along other dimensions which might be hard to capture by means of observable characteristics. We compile a database of more than 11,000 municipalities in Germany to analyze the sensitivity of the location decisions of foreign MNEs with respect to business tax rates which are levied directly by the municipalities. Using count data models suited for cross-sectional and panel data, we find that higher business tax rates have a negative effect on the number of foreign MNE headquarters, after controlling for other determinants of firm location decisions. On average, a one-percent reduction of the municipal business tax rate (equivalent to a decline by about 0.14 percentage points) leads to an increase in the number of headquarters of foreign MNEs by about 0.05. Hence, the average municipality needs to reduce its business tax rate by 20% to attract one foreign MNE.
    Keywords: Multinational firms; Profit taxation; Regional public finance; Count d ata
    Date: 2008–12
  35. By: Belzil, Christian (Ecole Polytechnique, Paris); Poinas, François (CNRS, GATE)
    Abstract: We estimate a flexible dynamic model of education choices and early career employment outcomes of the French population. Individuals are allowed to choose between 4 options: continue to the next grade, accept a permanent contract, accept a temporary contract, or withdraw from the labor force (a residual state). Our analysis focuses on the comparison between French Second-Generation Immigrants whose parents are born in Africa and French-natives. We find that schooling attainments explain around two thirds of the differences in access to early career employment stability. However, one third cannot be linked to observed investment in human capital.
    Keywords: schooling attainments, second-generation immigrants, fixed term employment
    JEL: I2 J15 J24 J41
    Date: 2008–12
  36. By: Giorgio Barba Navaretti; Riccardo Faini; Alessandra Tucci
    Abstract: This paper examines whether the export decision of firms is affected by their ownership structure,specifically it looks at whether family control is an obstacle to entering foreign markets. Theunderlying assumption is that family firms are risk averse. Risk aversion may be an obstacle toentering foreign markets, as far as these are perceived as more volatile and risky than the domesticone, particularly when such choice entices bearing relatively high sunk costs. We develop anillustrative theoretical model that shows how the combination between high risk aversion and lowinitial productivity may hinder family firms' decision to enter foreign markets, particularly distantones. The empirical analysis, based on a detailed panel data set of Italian firms covering the yearsfrom 1995 to 2003, confirms such predictions by showing that family controlled firms do indeedexport less than other type of companies even after controlling for firm heterogeneity in productivity,size, technology and access to credit.
    Keywords: firm structure, foreign markets, family firms, exports
    JEL: F1 F14 L2
    Date: 2008–11
  37. By: Amund Holmsen (Norges Bank (Central Bank of Norway)); Jan F. Qvigstad (Norges Bank (Central Bank of Norway)); Øistein Røisland (Norges Bank (Central Bank of Norway)); Kristin Solberg-Johansen (Norges Bank (Central Bank of Norway))
    Abstract: Monetary policy works mainly through private agents' expectations. How precisely future policy intentions are communicated has, according to theory, implications for the outcome of monetary policy. Norges Bank has gone further than most other central banks in communicating its policy intentions. The Bank publishes its own interest rate forecast, along with forecasts of inflation, the output gap, and other key variables. Moreover, Norges Bank aims to be precise about how the policy intentions are formed. The Bank currently uses optimal policy in a timeless perspective as the normative benchmark when assessing the policy intentions. Given the reaction pattern based on the timeless perspective, the Bank identifies and explains the factors that bring about a change in the interest rate forecast from one Monetary Policy Report to the next. The main arguments for publishing the interest rate forecast are discussed and validated against three years of experience with such forecasts. In this paper, we find evidence of reduced volatility in market interest rates on the days with interest rate decisions, which suggests that communicating policy intentions more precisely improves the market participants' understanding of the central bank's reaction pattern.
    Keywords: Transparency, optimal monetary policy, interest rate forecasts
    JEL: E52 E58
    Date: 2008–12–12

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