|
on European Economics |
|
Issue of 2009‒02‒07
sixteen papers chosen by Giuseppe Marotta University of Modena and Reggio Emilia |
| By: | Kai Christoffel; Keith Kuester; Tobias Linzert |
| Abstract: | In this paper, we explore the role of labor markets for monetary policy in the euro area in a New Keynesian model in which labor markets are characterized by search and matching frictions.> We first investigate to which extent a more flexible labor market would alter the business cycle behavior and the transmission of monetary policy. We find that while a lower degree of wage rigidity makes monetary policy more effective, i.e. a monetary policy shock transmits faster onto inflation, the importance of other labor market rigidities for the transmission of shocks is rather limited. Second, having estimated the model by Bayesian techniques we analyze to which extent labor market shocks, such as disturbances in the vacancy posting process, shocks to the separation rate and variations in bargaining power are important determinants of business cycle fluctuations. Our results point primarily towards disturbances in the bargaining process as a significant contributor to inflation and output fluctuations. In sum, the paper supports current central bank practice which appears to put considerable effort into monitoring euro area wage dynamics and which appears to treat some of the other labor market information as less important for monetary policy. |
| Keywords: | Labor market - Europe ; European Union countries ; Monetary policy - Europe |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:09-1&r=eec |
| By: | Frankel, Jeffrey (Harvard U) |
| Abstract: | An advantage of monetary union is facilitating trade. After many critiques, Rose's basic finding is left standing: currency unions have greater trade effects than previously believed. Updated estimates also find an effect of the euro on trade among members that is significant (though mysteriously still only 15%). An argument for retaining monetary independence is asymmetric shocks, i.e., low cyclical correlation. Eastern European countries might want to wait before joining, because their trade patterns and cyclical correlations have been gradually shifting toward Western Europe anyway; thus the argument for the euro strengthens as time passes, while the argument against it weakens. |
| JEL: | F10 F33 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp08-059&r=eec |
| By: | Johannes Becker (Oxford University Centre for Business Taxation); Clemens Fuest (Oxford University Centre for Business Taxation) |
| Abstract: | The European Union provides coordination and financing of trans-European transport infrastructures, i.e. roads and railways, which link the EU Member States and reduce the cost of transport and mobility. This raises the question of whether EU involvement in this area is justified by inefficiencies of national infrastructure policies. Moreover, an often expressed concern is that policies enhancing mobility may boost tax competition. We analyse these questions using a model where countries compete for the location of profitable firms. We show that a coordination of investment in transport cost reducing infrastructures within union countries enhances welfare and mitigates tax competition. In contrast, with regard to union-periphery infrastructure, the union has an interest in a coordinated reduction of investment expenditures. Here, the effects on tax competition are ambiguous. Our results provide a rationale for EU-level regional policy that supports the development of intra-union infrastructure. |
| Keywords: | European Union, Infrastructure, Regional Policy, Tax Competition |
| JEL: | H54 H25 F23 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:btx:wpaper:0902&r=eec |
| By: | Spyros Economides |
| Abstract: | Most studies of differentiated integration are confined within the framework of the European Union (EU). The EU-Balkan relationship provides an opportunity to apply differentiated integration to links between the EU and a cluster of external states. Differentiated integration is at play in the relationship between the EU and the Balkans, especially in terms of time and space. Different states, at different times, have entered into binding contractual agreements with the EU, intended to enhance their ‘European perspective’. Objectives are seemingly common, there is a sequencing of commitments, and territorially we seek to prepare states so we can redraw our boundaries and include them within. Functionally differentiated integration as a concept faces a greater challenge as the Balkans are not part of the EU. Variable geometry and á la carte choices are not readily available to the Balkan states and as such their fate is decided by the existing membership and not by their own choices. |
| Keywords: | European integration; differentiated integration; enlargement; Western Balkans; South Eastern Europe. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:hel:greese:18&r=eec |
| By: | Matteo Ciccarelli (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Juan Angel García (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | The yield spread between nominal and inflation-linked bonds (or break-even inflation rates, BEIR) is a fundamental indicator of inflation expectations (and associated premia). This paper investigates which macroeconomic and financial variables explain BEIRs. We evaluate a large number of potential explanatory variables through Bayesian model selection techniques and document their explanatory power at different horizons. At short horizons, actual inflation dynamics is the main determinant of BEIRs. At long horizons, financial variables (i.e. term spread, bond market volatility) become increasingly relevant, but confidence and cyclical indicators remain important. JEL Classification: C11, C52, E31. |
| Keywords: | Break-even inflation rates, inflation risk premia, business cycle indicators, Bayesian model selection. |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20090996&r=eec |
| By: | Michele Ca’ Zorzi (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Alexander Chudik (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Alistair Dieppe (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper examines two competing approaches for calculating current account benchmarks, i.e. the external sustainability approach á la Lane and Milesi-Ferretti (LM) versus the structural current accounts literature (SCA) based on panel econometric techniques. The aim is to gauge the medium term adjustment in current account positions that may be required in some central and eastern European countries. As regards the LM approach, we show how the outcome is especially sensitive to (i) the normative choice for external indebtedness and (ii) the decision to exclude the foreign direct investment subcomponent from the NFA aggregate. Turning our search to the SCA approach, we assess its sensitivity to model and parameter uncertainty by setting different selection criteria to choose amongst the over 8000 possible combinations of fundamentals. Furthermore, to test the robustness of our findings we combine all models, attaching to each a probability (Bayesian Averaging of Classical Estimates). We show both the LM and SCA methodologies are not immune from severe drawbacks and conceptual difficulties. Nevertheless pulling together the results of both approaches point to the countries that may need a current account adjustment over a medium term horizon. JEL Classification: C11, C33, F15, F32, F34, F41, O52. |
| Keywords: | Current account, capital flows, financial integration, central and eastern Europe, panel data, model uncertainty, model combination. |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20090995&r=eec |
| By: | Chiara Coluzzi (University of Rome “Tor Vergata”, Via Columbia 2, I-00133 Roma, Italy.); Annalisa Ferrando (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Carmen Martinez-Carrascal (Banco de España, Alcalá 50, E-28014 Madrid, Spain.) |
| Abstract: | This paper investigates whether financial obstacles, and, more generally, financial pressure faced by firms, significantly affect firm growth. For this purpose, we use an unbalanced panel of about 1,000,000 observations for around 155,000 non-financial corporations in five euro area countries. In addition to the balance sheet information in this panel, we also rely on firm-level survey data. In this way we are able to work out a direct measure of the firms’ probability of facing financing obstacles. Our results indicate that, though based on few variables, this measure appears to be relevant in explaining firm growth in four out of the five countries considered. Other firm-level variables related to the financial pressure faced by firms, such as cash flow (debt burden) are found to exert a positive (negative) impact on firm growth, while the results for leverage are less clear-cut. JEL Classification: C23, E22, G32, L11, L25. |
| Keywords: | Financing Constraints, Firm Growth, Panel Data. |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20090997&r=eec |
| By: | Malwina Mejer; Bruno van Potteslberghe de la Potterie |
| Abstract: | This paper argues that the consequences of the ‘fragmentation’ of the European patent system are more dramatic than the mere prohibitive costs of maintaining a patent in force in many jurisdictions. First, detailed analysis of judicial systems in several European countries and four case studies provide evidence suggesting that heterogeneous national litigation costs, practices and outcome induce a high level of uncertainty. Second, a high degree of managerial complexity results from systemic incongruities due to easier ‘parallel imports’, possible ‘time paradoxes’ and the de facto paradox of having EU-level competition policy and granting authority ultimately facing national jurisdictional primacy on patent issues. These high degrees of uncertainty and complexity contribute to reduce the effectiveness of the European patent system and provide additional arguments in favour of the Community patent and a centralized litigation in Europe. |
| Keywords: | European patent system, patent cost, litigation process, enforcement, uncertainty |
| JEL: | K41 P14 O34 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2009_003&r=eec |
| By: | Barbara Dettori; Emanuela Marrocu; Raffaele Paci |
| Abstract: | In the last decade there has been an upsurge of studies on international comparisons of Total Factor Productivity (TFP). The empirical evidence suggests that countries and regions differ not only in traditional factor endowments (labour and physical capital) but mainly in productivity and technology. Therefore, a crucial issue is the analysis of the determinants of such differences in the efficiency levels across economies. In this paper we try to assess these issues by pursuing a twofold aim. First, we derive a regression based measure of regional TFP which have the nice advantage of not imposing a priori restrictions on the inputs elasticities; this is done by estimating a Cobb-Douglas production function relationship for 199 European regions over the period 1985-2006, which includes the traditional inputs as well as a measure of spatial interdependences across regions. Secondly, we investigate the determinants of the TFP levels by analyzing the role played by intangible factors: human capital, social capital and technological capital. It turns out that a large part of TFP differences across the European regions are explained by the disparities in the endowments of such assets. This outcome indicates the importance of policy strategies which aim at increasing the level of knowledge and social capital as stressed by the Lisbon agenda. |
| Keywords: | Total factor productivity; human capital; social capital; technology; Europe. |
| JEL: | R11 O47 O52 C31 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:cns:cnscwp:200823&r=eec |
| By: | Lemoine , Matthieu; Mazzi , Gian Luigi; Monperrus-Veroni , Paola; Reynes, Frédéric |
| Abstract: | We develop a new version of the production function (PF) approach usually used for estimating the output gap of the euro area. Our version does not call for any (often imprecise) measure of the capital stock and improves the estimation of the trend total factor productivity. We asses this approach by comparing it with two other multivariate methods mostly used for output gap estimates, a multivariate unobserved components (MUC) model and a Structural Vector Auto-Regressive (SVAR) model. The comparison is conducted by relying on assessment criteria such as the concordance of the turning points chronology with a reference one, the inflation forecasting power and the real-time consistency of the estimates. Two contributions are achieved. Firstly, we take into account data revisions and their impact on the output gap estimates by using vintage datasets coming from the Euro Area Business Cycle (EABCN) Real-Time Data-Base (RTDB). Secondly, the PF approach, generally employed by policy-makers despite of its difficult implementation, is assessed. We thus improve on previous papers which limited their assessment on other multivariate methods, e.g. MUC or SVAR models. The different methods show different ranks in relation to the three criteria. This new PF estimate appears highly concordant with the reference chronology. Its forecasting power appears favourable only for the shortest horizon (1 month). Finally, the SVAR model appears more consistent in real-time. |
| Keywords: | potential output; production function; state-space models; structural VARs |
| JEL: | C32 E32 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13128&r=eec |
| By: | Betty C. Daniel; Christos Shiamptanis |
| Abstract: | A country entering the EMU surrenders its monetary policy, and its debt becomes denominated in terms of a currency over which it has no direct control. A country's promise to uphold the fiscal limits in the Maastricht Treaty and the Stability and Growth Pact is implicitly a promise not to allow its fiscal stance to deteriorate to a position in which it places pressure on the central bank to forgo its price level target to finance fiscal deficits. Violation of these limits has raised questions about potential fiscal encroachment on the monetary authority's freedom to determine the price level. We specify a simple model of fiscal policy in which the fiscal authority faces an upper bound on the size of its primary surplus. Policy is determined by a fiscal rule, specified as an error correction model, in which the primary surplus responds to debt and a target variable. We show that for the monetary authority to have the freedom to control price, the primary surplus must respond strongly enough to lagged debt. Using panel techniques that allow for unit roots and for heterogeneity and cross-sectional dependence across countries, we estimate the coefficients of the error correction model for the primary surplus in a panel of ten EMU countries over the period 1970-2006. The group mean estimate for the coefficient on lagged debt is consistent with the hypothesis that the monetary authority can control the price level in the EMU, independent of fiscal influence. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:961&r=eec |
| By: | Gabriel Jiménez (Banco de España); Steven Ongena (Center–Tilburg University); José Luis Peydró (European Central Bank); Jesús Saurina (Banco de España) |
| Abstract: | We identify the impact of short-term interest rates on credit risk-taking by analyzing a comprehensive credit register from Spain, a country where for the last twenty years monetary policy was mostly decided abroad. Discrete choice, within borrower comparison and duration analyses show that lower overnight rates prior to loan origination lead banks to lend more to borrowers with a worse credit history and to grant more loans with a higher per period probability of default. Lower overnight rates during the life of the loan reduce this probability. Bank, borrower and market characteristics determine the impact of overnight rates on credit risk-taking. |
| Keywords: | monetary policy, low interest rates, financial stability, lending standards, credit risk-taking, credit composition, business cycle, liquidity risk |
| JEL: | E44 E5 G21 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0833&r=eec |
| By: | Pieter de Wilde |
| Abstract: | Scholarly debate on party-based Euroscepticism centers on the questions of how to define, measure and explain Euroscepticism. As a starting point, this paper observes that studies on Euroscepticism either focus on the positions of individual parties on issues of European integration or on the character of public discourse in different member states. Studies on party positions excel in emphasizing the agency political parties provide for Euroscepticism and the extent of domestic contestation, whereas studies of public discourse are more apt to uncover the meaning of Euroscepticism and its dynamics as parties interact in the public sphere. Both strands are predominantly focused on European integration in general or constitutional issues specifically. The present study incorporates the qualities of both strands, using the method of claims-making analysis. It furthermore aims to enrich our understanding of party-based Euroscepticism by studying a non-constitutional issue: debates on the EU budget in the Netherlands between 1992 and 2005. A mixed methodology research design provides both quantitative and qualitative data in a longitudinal comparative case study, leading to a conceptualization of how the permissive consensus in the Netherlands changed towards Euroscepticism through a process of politicization in which the issue was internalized, followed by calls for renationalization. Substantially, this study shows how the budget and its costs featured prominently in Dutch party politics and how the importance of this issue fed and featured Euroscepticism. |
| Keywords: | political parties; methodological issues; budget; agenda 2000; Netherlands |
| Date: | 2009–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:erp:reconx:p0040&r=eec |
| By: | Marjan, MAES (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics) |
| Abstract: | Early retirement is often explained as resulting from a voluntary labour supply choice of a utility maximizing individual. nonetheless, a lof of individuals perceive retirement as a forced instead as a voluntary decision. This paper tries to accomodate voluntary and unvoluntary labour supply decisions within one model. On the basis of a large administrative dataset merged with Census data, we estimate a discrete-time competing risk model of transitions from Belgian private-sector employees into unemployment, early and old-age retirement while accounting for forward-looking retirement incentives. The estimated coefficients are used to simulate a cut in early retirement benefits. Although this could enhance the financial sustainability of the social security system for elderly, one might expect that this may ofrce people to retire involuntarily through elderly unemployment where they end up with a lower living standard or even in poverty. Alternatively, it could stimulate employees to work longer until they qualify for old-age pension benefits. The model predicts a strong increase of the exit rates towards unemployment between age 52 and 57 while exit towards the old-age pension system marginally increases until age 63. In particular, blue-collars with physically demanding jobs in traditional industries have a higher risk to become unemployed while white-collar workers, members of voluntary saving plans or occupational pension schemes and highly educated workers are predicted to move in the old-age pension system. |
| Keywords: | competing-risk model; early retirement; retirement pathways; involuntary retirement |
| JEL: | J26 C25 H55 |
| Date: | 2008–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:208041&r=eec |
| By: | Hilde C. Bjørnland (Norwegian School of Management (BI) and Norges Bank (Central Bank of Norway)); Karsten Gerdrup (Norges Bank (Central Bank of Norway)); Anne Sofie Jore (Norges Bank (Central Bank of Norway)); Christie Smith (Norges Bank (Central Bank of Norway)); Leif Anders Thorsrud (Norges Bank (Central Bank of Norway)) |
| Abstract: | We develop a system that provides model-based forecasts for inflation in Norway. Forecasts are recursively evaluated from 1999 to 2008. The performance of the models over this period is then used to derive weights that are used to combine the forecasts. Our results indicate that model combination improves upon the point forecasts from individual models. Furthermore, when comparing the whole forecasting period; model combination outperforms Norges Banks own point forecast for inflation at the forecast horizon up to a year. By using a suite of models we allow for a greater range of modelling techniques and data to be used in the forecasting process. |
| Keywords: | Forecasting, forecast combination |
| JEL: | E52 E37 E47 |
| Date: | 2009–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2009_01&r=eec |
| By: | Gabriel Jiménez; Jose A. Lopez; Jesús Saurina |
| Abstract: | Managing the credit risk inherent to a corporate credit line is similar to that of a term loan, but with one key difference. For both instruments, the bank should know the borrower's probability of default (PD) and the facility's loss given default (LGD). However, since a credit line allows the borrowers to draw down the committed funds according to their own needs, the bank must also have a measure of the line's exposure at default (EAD). Our study, which is based on a census of all corporate lending within Spain over the last 20 years, provides the most comprehensive overview of corporate credit line use and EAD calculations to date. Our analysis shows that defaulting firms have significantly higher credit line usage rates and EAD values up to five years prior to their actual default. Furthermore, we find that there are important variations in EAD values due to credit line size, collateralization, and maturity. While our results are derived from data for a single country, they should provide useful benchmarks for further academic, business and policy research into this underdeveloped area of credit risk management. |
| Keywords: | Commercial loans ; Bank loans ; Credit |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2009-02&r=eec |