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on European Economics |
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Issue of 2009‒02‒22
twenty-two papers chosen by Giuseppe Marotta University of Modena and Reggio Emilia |
| By: | Cândida Ferreira |
| Abstract: | This paper confirms the importance of the financial systems behaviour conditions to the credit channel of monetary policy in the entire European Union (EU). It uses panel fixedeffect estimations and quarterly data for 26 EU countries for the period from Q1 1999 to Q3 2006 in an adaptation of the Bernanke and Blinder (1988) model. The findings also reveal the high degree of foreign dependence and indebtedness of the EU banking institutions and their similar reactions to the macroeconomic and the monetary policy environments. |
| Keywords: | European integration; bank credit; monetary policy transmission; panel estimates. |
| JEL: | E4 E5 G2 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp82009&r=eec |
| By: | Monika Slabá (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic) |
| Abstract: | In the article, I focus on the goal of creating a single competitive European natural gas market. After a brief discourse on the debate between theoretical and practical economists on the best mode to liberalise the energy sector, I lay out the vision of the European Union for gas market liberalisation and its outcome. With the help of a case study from the Czech Republic, I explain that the competencies of the European Union to reach its goals in a sufficient way are limited and, moreover, that EU reforms may even create unintended, negative side effects, which in some cases deliver less benefits than costs. The cause is the basic features – or the “nature” - of the gas market and the different institutional settings of each member state within which liberalisation has been implemented. The third package of legislation introduced by the European Commission in September 2007 should boost the single competitive market. Proposed provisions influence legal andregulatory rules and have an impact on market structure; however, none of these provisions have the power to change the key characteristics of the gas market, which remain the real source of the problem, namely the lack of self-sufficiency of the EU with regard to sources of natural gas and the oligopoly nature of important gas producers out of reach of EU legislation. The impossibility to change these key characteristics of the gas market indicates that a more important challenge than the third package will be active foreign policy of the EU, aimed either at opening markets beyond the EU border or at protecting fragile competition. |
| Keywords: | gas sector, liberalisation, unbundling, market structure, market performance, European Union, Czech Republic |
| JEL: | G34 L1 L43 L95 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2009_08&r=eec |
| By: | António Afonso; Christophe Rault |
| Abstract: | We investigate the existence of Granger-causality between current account and government budget balances over the period 1970-2007, for different EU and OECD country groupings. We use a panel-data approach based on SUR systems and Wald tests with country specific bootstrap critical values. Our results show a causal relation from budget deficits to current account deficits for several EU countries: Bulgaria, Czech Republic, Estonia, Finland, France, Italy, Hungary, Lithuania, Poland, and Slovakia, along the lines of the so-called twin-deficit relationship. Considering the effective real exchange rate in the SUR system does not substantially alter the results. |
| Keywords: | panel causality tests; budget deficit; external imbalance; real exchange rates; EU; OECD. |
| JEL: | C23 E62 F32 H62 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp22009&r=eec |
| By: | R. Trotignon; A. Denny Ellerman |
| Abstract: | This paper exploits a little used data resource within the central registry of the European Union’s Emissions Trading System (EU ETS) to analyze cross border flows of allowances for compliance purposes during the first trading period (2005- 2007). The extent of cross border trading is small in the aggregate but remarkably frequent in matching allowance deficits and surpluses at the installation level throughout the EU. As such, these data provide evidence of the high and wide-spread market participation that is the precondition of efficient abatement in a cap-and-trade system. There is also remarkable little difference in the monetization of allowance surpluses between participants in the EU15 and those in the East European New Member States. Finally, comparison of these data with the more commonly reported data on allocations and verified emissions reveals considerable recourse to a novel feature of the EU ETS: borrowing from the next year’s allocation to satisfy current compliance requirements. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0812&r=eec |
| By: | Groh, Alexander P. (IESE Business School); Liechtenstein, Heinrich (IESE Business School); Lieser, Karsten (IESE Business School) |
| Abstract: | We calculate composite indexes to compare the attractiveness of 25 European countries for institutional investments into the Venture Capital and Private Equity asset class. To achieve this we use 42 different criteria and propose an aggregation structure that allows for benchmarking on more granular levels. The United Kingdom leads our ranking, followed by Ireland, Denmark, Sweden and Norway. While Germany is slightly above the average European attractiveness level, the scores for France, Italy, Spain, and Greece are rather disappointing. Our analyses reveal that while the United Kingdom is similar to the other European countries with respect to many criteria, there are two major differences which ultimately affect its attractiveness: its investor protection and corporate governance rules; and the size and liquidity of its capital market. The state of the capital market is likewise a proxy for the professionalism of the financial community, deal flow and exit opportunities. We determine a reasonable correlation between our attractiveness index scores and actual Venture Capital and Private Equity fundraising activities and prove the robustness of our calculations. Our findings across all the European countries suggest that while investor protection and capital markets are in fact very important determinants of attractiveness, there are numerous other criteria to consider. |
| Keywords: | Venture Capital; Private Equity; Alternative Asset; International Asset Allocation; |
| JEL: | G11 G23 G24 O16 P52 |
| Date: | 2008–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0773&r=eec |
| By: | Gijsbert Zwart |
| Abstract: | The European natural gas market is characterized by declining indigenous resources, particularly in the UK and the Netherlands, and a growing dependence on a small number of large exporters who, as a consequence, see their market power increasing.<br> In this paper we analyze long-run scenarios for the European natural gas markets in a model, NATGAS, that explicitly includes both factors, resource constraints and producers’ market power. <br> We analyze the impact of conditions on the global LNG market on market shares of pipeline gas suppliers, as well as on the speed of depletion of indigenous European resources. We focus on how shadow prices of resource constraints affect substitution patterns in the various scenarios. |
| Keywords: | European natural gas market; complementarity model; market power; resource rent |
| JEL: | C61 L13 Q31 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:116&r=eec |
| By: | Campa, Jose M. (IESE Business School); Moschieri, Caterina (IESE Business School) |
| Abstract: | This paper provides a comprehensive overview of the process of European mergers and acquisitions. We characterize the main features of M&A activity in Europe in the period 2001-2007. We review the process of M&A regulatory integration and patterns of activity. Most European M&As still take place among domestic firms, although cross-border transactions are larger in value and have been slightly increasing, especially in regulated industries. Transactions are likely to be friendly, partially negotiated via public tender offers and private deals, and paid in cash, especially for smaller deals. Competing bids are still fairly rare and less likely to be completed. Target shareholders obtain an average premium of around 20% and this premium is slightly declining with deal size. Regulatory differences are large, particularly in the application of takeover regulations, and uncertainty persists in the predictability of the national regulatory agencies. |
| Keywords: | European cross-border; domestic merger; acquisitions; M&A trends; |
| Date: | 2008–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0762&r=eec |
| By: | Bronwyn H. Hall; Grid Thoma; Salvatore Torrisi |
| Abstract: | We take a first look at financial patents at the European Patent Office (EPO). As is the case at the US Patent and Trademark Office (USPTO), the number of financial patents in Europe has increased significantly in parallel with significant changes in payment and financial systems. Scholars have argued that financial patents, like other business methods patents, have low value and are owned for strategic reasons rather than for protecting real inventions. We find that established firms in non-financial sectors with diversified patent portfolios own a large share of financial patents at the EPO. However, new specialized technology providers in the financial area also hold a number of such patents. Decisions on the financial patent applications take longer and they are more likely to be refused by the patent office, suggesting greater uncertainty over validity than for other patents. They are also more likely to be opposed, which is consistent with the fact that their other economic value indicators are higher. |
| JEL: | G20 L86 O31 O34 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14714&r=eec |
| By: | Christian Dreger; Jürgen Wolters |
| Abstract: | The appropriate design of monetary policy in integrated financial markets is one of the most challenging areas for central banks. One hot topic is whether the rise in liquidity in recent years has contributed to the formation of price bubbles in asset markets. If strong linkages exist, the inclusion of asset prices in the monetary policy rule can eventually limit speculative runs and negative effects on the real economy in the future. We explore the impacts of liquidity shocks on real share and house prices and the influence of wealth prices on liquidity. VAR models are specified for the US and the euro area. To control for international spillovers, global VARs are also considered. Differences in the results can provide a measure on the impact of financial market integration. The specifications point to some impact of liquidity shocks on house prices, while asset prices are not affected. |
| Keywords: | Liquidity shocks, asset prices, GVAR analysis, monetary policy |
| JEL: | E44 G10 C32 C52 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp860&r=eec |
| By: | Michael Artis; Christian Dreger; Konstantin A. Kholodilin |
| Abstract: | We examine real business cycle convergence for 41 euro area regions and 48 US states. Results obtained by a panel model with spatial correlation indicate that the relevance of common business cycle factors is rather stable over the past two decades in the euro area and the US. Ongoing business cycle convergence often detected in a country data is not confirmed at the regional level. The degree of synchronization across the euro area is similar to that to be found for the US states. Thus, the lack of convergence does not seem to be an impediment to a common monetary policy. |
| Keywords: | Business cycle convergence, spatial correlation, spatial panel model |
| JEL: | E32 C51 E37 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp859&r=eec |
| By: | A. Denny Ellerman |
| Abstract: | The European Union's Emission Trading Scheme (EU ETS) is the world's first multinational cap-and-trade system for greenhouse gases. As an agreement between sovereign nations with diverse historical, institutional, and economic circumstances, it can be seen as a prototype for an eventual global climate regime. Interestingly, the problems that are often seen as dooming a global trading system — international financial flows and institutional readiness — haven't appeared in the EU ETS, at least not yet. The more serious problems that emerge from the brief experience of the EU ETS are those of (1) developing a central coordinating organization, (2) devising side benefits to encourage participation, and (3) dealing with the interrelated issues of harmonization, differentiation, and stringency. The pre-existing organizational structure and membership benefits of the European Union provided convenient and almost accidental solutions to the need for a central institution and side benefits, but these solutions will not work on a global scale and there are no obvious substitutes. Furthermore, the EU ETS is only beginning to test the practicality of harmonizing allocations within the trading system, differentiating responsibilities among participants, and increasing the stringency of emissions caps. The trial period of the EU ETS punted on these problems, as was appropriate for a trial period, but they are now being addressed seriously. From a global perspective, the answers that are being worked out in Europe will say a great deal about what will be feasible on a broader, global scale. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0813&r=eec |
| By: | Olli Castrén (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main.); Trevor Fitzpatrick (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main.); Matthias Sydow (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | In terms of regulatory and economic capital, credit risk is the most significant risk faced by banks. We implement a credit risk model - based on publicly available information - with the aim of developing a tool to monitor credit risk in a sample of large and complex banking groups (LCBGs) in the EU. The results indicate varying credit risk profiles across these LCBGs and over time. Furthermore, the results show that large negative shocks to real GDP have the largest impact on the credit risk profiles of banks in the sample. Notwithstanding some caveats, the results demonstrate the potential value of this approach for monitoring financial stability. JEL Classification: C02, C19, C52, C61, E32. |
| Keywords: | Portfolio credit risk measurement, stress testing, macroeconomic shock measurement. |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901002&r=eec |
| By: | Travaglini, Claudio (Associazione Italiana per la Cultura della Cooperazione e del Non Profit) |
| Abstract: | The role of the nonprofit sector in the European Community is widely recognized by the Commission and European Parliament, which look to these organizations to promote the development and integration of EU citizens in activities relevant to the societies of member states. Recognizing the importance of these enterprises, European central bodies seek to promote growth through funding programs for training and professionalization and through communications that define the roles and the operations of these entities. This social economy or Third Sector is very heterogeneous, not only in the types of organizations and operations, but also in the types of relationships with civil society and especially in reporting and accounting practices (Jerger and Lapsley, 1998). The European Commission and Parliament have largely avoided issuing specific rules for financial reporting applicable to all players in the social economy. (Not-for-profit enterprises engaged in business, mainly cooperatives and social cooperatives, are covered in an indirect way by the Community directive in accounting.) A large area of doubt results, particularly concerning associations and foundations, which makes it difficult to gauge the results of these actors' contributions to the social economy. The gray area, paradoxically, covers just those types of entities that have become more pervasive within civil society and that are especially well positioned to promote integration among EU citizens. The enlargement of the Community to twenty-five nations, connected with the free movement of people and activities, raises to extraordinary importance the need for a framework for nonprofits to report accounting information and a model annual budget that are common to all European states. Developing a common framework requires an analysis of national accounting models, including the role of cultural factors (Doupnika and Riccio 2006). It is therefore vital to develop cultural and legislative analyses for those countries that have imposed accounting requirements on players in the Third Sector. Through these analyses, we may derive a path for the creation of a single accounting model. This article seeks to highlight possible areas of overlap in accounting models, through an analysis of accounting regulations applicable to not-for-profit organizations in the United Kingdom, Spain, and Italy. |
| Keywords: | Financial reporting; common framework; funding programs; communications |
| JEL: | A13 |
| Date: | 2008–11–05 |
| URL: | http://d.repec.org/n?u=RePEc:ris:aiccon:2008_055&r=eec |
| By: | Adrien de Hauteclocque; Jean-Michel Glachant |
| Abstract: | Long-term supply contracts often have ambiguous effects on the competitive structure, investment and consumer welfare in the long term. In a context of market building, these effects are likely to be worsened and thus even harder to assess. Since liberalization and especially since the release of the Energy Sector Enquiry in early 2007, the portfolio of long-term supply contracts of the former incumbents have become a priority for review by the European Commission and the national competition authorities. It is widely believed that European Competition authorities take a dogmatic view on these contracts and systemically emphasize the risk of foreclosure over their positive effects on investment and operation. This paper depicts the methodology that has emerged in the recent line of cases and argues that this interpretation is largely misguided. It shows that a multiple-step approach is used to reduce regulation costs and balance anti-competitive effects with potential efficiency gains. However, if an economic approach is now clearly implemented, competition policy is constrained by the procedural aspect of the legal process and the remedies imposed remain open for discussion. |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0816&r=eec |
| By: | Zsolt Darvas (Institute of Economics - Hungarian Academy of Sciences); Gyorgy Szapary (Central European University) |
| Abstract: | The paper discusses the risks and challenges faced by the new members on the road to the euro and the strategies for and timing of euro adoption. We investigate the real-nominal convergence nexus from the perspective of euro area entry. We argue that the initial level of economic development as measured by per capita income and the speed of real convergence have a bearing on the strategies to follow and on the timing of entry into euro area. This is because the lower is the per capita income, the larger is the price level gap to close and the greater is the danger of credit booms and overheating. We argue that inflation targeting with floating rates is better suited than hard pegs to manage the price level catching-up process. We suggest a modification in the Maastricht inflation criterion which as currently defined has lost its economic logic. |
| Keywords: | euro area, convergence, exchange rate, inflation |
| JEL: | E31 E52 E60 F30 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:0824&r=eec |
| By: | Manuela Arcanjo |
| Abstract: | In the extensive literature that has been dedicated during the past fifteen years to the analysis of the reform of the welfare states, a significant number of studies have focused on the characterisation of the nature and direction of the changes in the main social programmes. This article seeks to contribute to this debate by analysing the reform of unemployment insurance schemes between 1993 and 2007 in France, Germany, Portugal and Spain, as representative of the conservative regime. A comparative analysis is carried out by examining the major legislative amendments concerning eligibility criteria and entitlement conditions, as they are expressed by legislation in the four countries. The findings of the study indicate that the four countries have adopted different instruments at different moments in time, while no significant differences were detected between them, and that the legislative changes introduced in the four insurance schemes may be seen to constitute a real erosion of social rights. |
| Keywords: | Welfare state reform; Retrenchment; Unemployment insurance schemes; Social rights. |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp42009&r=eec |
| By: | Judit Karsai (Institute of Economics - Hungarian Academy of Sciences) |
| Abstract: | The current downturn in the American and Western European economies, combined with increasing regulatory pressure on private equity throughout the developed world, made emerging markets an attractive destination for private equity. As part of the emerging markets, Central and Eastern Europe's (CEE) private equity industry was an accidental beneficiary of this development. The attractiveness of the CEE markets was also boosted by the fact that value added resulted from the organic growth of the companies, rather than from leverage utilisation. As a result of the crisis in autumn 2008, the growth financed by loans itself became a synonym of the risk. Consequently the CEE countries as parts of emerging markets were handicapped, irrespective of the already applied greatest cautiousness of investors and the relatively deteriorated availability and higher interest rates of provided loans in the region. Since the majority of high volume capital raised recently by private equity funds in the CEE region still expected to be invested, it is not likely that the cutback of private equity financing in the CEE countries will be as radical as it was in the developed markets. The Golden Age of the private equity investments in the CEE region, however, ended in the autumn of 2008. The paper forecasts the future developments of the private equity industry in the CEE region, based on a detailed analysis of the five years' tendencies. The paper reviews within an international surrounding the changes in the volume and structure of raised regional funds, as well as the actual investment trends by the related countries and sectors. The study provides several examples for the applied individual corporate level investments strategies of private equity investors in the CEE region. The chosen exit routes and returns received by regional private equity investors are also illustrated with actual examples. The final part of the analysis speculates on the future effects of the global financial crisis and recession on the private equity industry of the CEE region. |
| Keywords: | Venture Capital, Private Equity, Central Eastern Europe (CEE), International Asset Allocation, Institutional Investors, Merger & Acquisition, Corporate Restructuring |
| JEL: | G23 G24 G34 M13 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:0901&r=eec |
| By: | A. Denny Ellerman; Stephan Feilhauer |
| Abstract: | This paper uses top-down trend analysis and a bottom-up power sector model to define upper and lower boundaries on abatement in Germany in the first phase of the EU Emissions Trading Scheme (2005-2007). Long-term trend analysis reveals the decoupling of economic activity and carbon emissions in Germany that has occurred since 1996 and has accelerated since 2005, in response to rising commodities prices, the introduction of a carbon trading, and other measures undertaken in Germany. Differing emission intensity trends and emissions counterfactuals are constructed using emissions, power generation, and macroeconomic data. Resulting top-down estimates set the upper bound of abatement in Phase I at 121.9 mn tons for all EU-ETS sectors and 56.7 mn tons for the power sector only. Using the tuned version of the model “E-simulate” a lower boundary of Phase I abatement is established at 13.2 million tons, based only on fuel switching in the power sector, which constitutes 61% of German ETS sector emissions. The paper characterizes abatement, critically discusses the underlying assumptions of the outcomes, and examines the impact of two main factors on power sector abatement, namely price and load. |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0817&r=eec |
| By: | Ludmila Fadejeva; Aleksejs Melihovs |
| Abstract: | This paper aims at characterising fluctuations of economic activity that are common for the Baltic States, CEE countries, euro area countries and Russia. The real standardised GDP quarterly growth is chosen as an indicator of economic development of the countries. Three methods are employed: static factor analysis, dynamic factor model and dynamic correlation. Special attention is given to the analysis of Latvian economy. The results of the study show that the Baltic economies are similar in economic development and share a common factor. After 2000, the real standardised GDP growth in the Baltic States became more correlated with the GDP growth of the main euro area countries indicating growing synchronisation of economic development between these country groups. The role of the main final demand components (exports, consumption and investment) in explaining common fluctuations in the real standardised GDP growth in the Baltic States is evaluated by analysing common factors for each component and dynamic correlation between components for each country. |
| Keywords: | business cycle synchronisation, dynamic factor model, dynamic correlation |
| JEL: | E32 F20 C10 |
| Date: | 2008–05–05 |
| URL: | http://d.repec.org/n?u=RePEc:ltv:wpaper:200803&r=eec |
| By: | Konstantin A. Kholodilin; Boriss Siliverstovs |
| Abstract: | The paper evaluates the quality of the German national accounting data (GDP and its use-side components) as measured by the magnitude and dispersion of the forecast/ revision errors. It is demonstrated that government consumption series are the least reliable, whereas real GDP and real private consumption data are the most reliable. In addition, early forecasts of GDP, private consumption, and investment growth rates are shown to be systematically upward biased. Finally, early forecasts of all the variables seem to be no more accurate than naïve forecasts based on the historical mean of the final data. |
| Keywords: | Quality of statistical data, real-time data, signal-to-noise ratio, forecasts, revisions |
| JEL: | C53 C89 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp858&r=eec |
| By: | Carlo Mazzaferro; Marcello Morciano |
| Abstract: | We present the technical structure of CAPP_DYN, a population based dynamic microsimulation model for the analysis of long term redistributive effects of social policies, developed at CAPP (Centro di Analisi delle Politiche Pubbliche) to study the intergenerational and the intragenerational redistributive effects of reforms in the social security system. The model simulates probabilistically the socio-demographic and economic evolution of a representative sample of the Italian population for the period 2005-2050. After a short review of the existing similar models for the Italian economy, a rather detailed analysis and discussion of the functioning of the model as well as a description of estimation procedures employed in each single module of the models is offered. |
| Keywords: | Dynamic microsimulation; lifetime and intragenerational redistribution; social security systems |
| JEL: | C51 C52 H55 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:mod:depeco:0595&r=eec |
| By: | Karakaya, Güngör |
| Abstract: | In this paper we analyze the problem of population ageing in terms of non-medical care needs of persons who are dependent or have lost their autonomy, in order to provide the various public and private administrations active in these fields with some food for thought. The anticipated increase in dependency poses significant challenges in terms of needs evolution and financing. Using administrative data on the Belgian population to build indicators on the prevalence of dependency at home in the three regions in 2001, we find that the likelihood of a sustained increase in the Flemish prevalence rates ultimately amplifies the magnitude of the financing problems that the Flemish dependency insurance scheme has experienced since its first years of operation. Results also show that the smaller increases or the decreases (according to the scenario selected) expected in Wallonia and Brussels are likely to mitigate concern about the sustainability of any long-term care insurance in Wallonia and therefore to facilitate its eventual introduction. |
| Keywords: | Long-term care; Old age assistance; Demographic changes; Regional inequalities; Projection |
| JEL: | J14 I12 I18 J11 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13394&r=eec |