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on European Economics |
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Issue of 2009‒03‒28
twenty-one papers chosen by Giuseppe Marotta University of Modena and Reggio Emilia |
| By: | Véronique Genre (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Karsten Kohn (KfW Bankengruppe Frankfurt, Palmengartenstraße 5-9,D-60325 Frankfurt am Main, Germany.); Daphne Momferatou (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main.) |
| Abstract: | This paper focuses on the euro area wage structure and its potential determinants from a sectoral viewpoint. Merging information from the OECD Structural Analysis database with data from the EU Labour Force Survey, we construct a cross-country panel of 22 industries in 8 euro area countries for 1991-2002. Data inspection confirms the existence of a fairly stable inter-industry wage structure that is similar across countries. We then apply panel data techniques to identify factors explaining inter-industry wage differentials in the euro area. Both workforce characteristics (e.g., human capital variables) and firm-related characteristics (e.g., capital intensity, productivity) contribute significantly. However, considerable wage heterogeneity across sectors remains. Idiosyncratic sector and country specifics, reflecting different sociocultural and institutional backgrounds, appear to bear a major role. While our paper only uses direct evidence from workforce and firm-related characteristics, we also try to relate the remaining heterogeneity to institutional characteristics, based on available relevant literature. JEL Classification: J31, J24, J51. |
| Keywords: | euro area, inter-industry wage differentials, panel estimation, firm and workforce characteristics, labour market institutions. |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901022&r=eec |
| By: | Isabel Vansteenkiste (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Paul Hiebert (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper empirically assesses the prospects for house price spillovers in the euro area, where co-movement in house prices across countries may be particularly relevant given a general trend with monetary union toward increasing linkages in trade, financial markets, and general economic conditions. The application involves a Global VAR for three housing demand variables (real house prices, real per capita disposable income, and the real interest rate) on the basis of quarterly data for 10 euro area countries (Belgium, Germany, Ireland, Spain, France, Italy, the Netherlands, Austria, Portugal and Finland) over the period 1989-2007. The results suggest limited house price spillovers in the euro area, with evidence of some overshooting in the first 1-3 years after the shock, followed by a long run aggregate euro area impact of country-specific changes in real house prices related in part to the country's economic weight. This contrasts with the impacts of a shock to domestic long-term interest rates, with the latter causing a permanent shift in house prices after around 3 years. Underlying this aggregate development are rather heterogeneous house price spillovers at the country level, with a strong importance for economic weight in the euro area in governing their general magnitude, while geographic proximity appears to also play a role. JEL Classification: R21, R31, C32. |
| Keywords: | House price, Global VAR (GVAR), International linkages. |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901026&r=eec |
| By: | Helge Berger; Thomas Harjes |
| Abstract: | Global excess liquidity is sometimes believed to limit sovereign monetary policy even in large economies, including the euro area. There is much discussion about what constitutes global excess liquidity and our approach adjusts liquidity for longer-term interest rate and output effects. We find that especially excess liquidity in the U.S. leads developments in euro area liquidity. U.S. excess liquidity also enters consistently positive as a determinant of euro area inflation. There is some evidence that this result may be related to a weakening of the effectiveness of monetary policy in the euro area during times of excessive U.S. liquidity. |
| Keywords: | Excess liquidity , Europe , Euro Area , United States , Japan , Monetary policy , Interest rates , Inflation , |
| Date: | 2009–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:09/17&r=eec |
| By: | Sebastian Weber |
| Abstract: | The European Union made a number of steps not least of them the introduction of a common currency to foster the integration of the European financial markets. A number of papers have tried to gauge the degree of integration for various financial markets looking at the convergence of interest rates. A common finding is that government bond markets are quite well integrated. In this paper stochastic Kernel density estimates are used to take a closer look at the dynamics that drive the process of interest rate convergence. The main finding is that countries with large initial deviations from the mean interest rate do indeed converge. Interestingly the candidates least suspected namely the countries initially with interest rates at the mean level show a pattern of slight divergence. |
| Keywords: | Financial markets integration, euro area government bonds, stochastic Kernel-density estimates |
| JEL: | C23 G15 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp864&r=eec |
| By: | António Afonso (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Luca Agnello (University of Palermo, Department of Economics, Viale delle Scienze, 90128 Palermo, Sicily, Italy.); Davide Furceri (OECD, 2, rue André Pascal, F-75775 Paris Cedex 16, France.); Ricardo Sousa (Economic Policies Research Unit (NIPE), University of Minho, Department of Economics, Campus of Gualtar, 4710-057 - Braga, Portugal.) |
| Abstract: | We use a new approach to assess long-term fiscal developments. By analyzing the time varying behaviour of the two components of government spending and revenue – responsiveness and persistence – we are able to infer about the sources of fiscal behaviour. Drawing on quarterly data we estimate recursively these components within a system of government revenue and spending equations using a Three-Stage Least Square method. In this way we track fiscal developments, i.e. possible fiscal deteriorations and/or improvements for eight European Union countries plus the US. Results suggest that positions have not significantly changed for Finland, France, Germany, Spain, the United Kingdom and the US, whilst they have improved for Belgium, Italy, and the Netherlands. JEL Classification: E62, H50. |
| Keywords: | Fiscal Deterioration, Fiscal Sustainability. |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901032&r=eec |
| By: | Klaus F. Zimmermann |
| Abstract: | This paper outlines the importance of labor mobility for the improvement in allocating and distributing economic resources. We are faced with an increasing lack of skilled workers and a growing tendency of unemployment amongst the low-skilled. A central political objective for the future will not only be education policy but also the recruitment of high-skilled workers from international and European labor markets. Additional skilled labor increases well-being and reduces inequality. However, internal European barriers to mobility are difficult to break through. An improved transparency of the European labor market, a greater command of languages and a standardization of the social security system can strengthen mobility. The key to mobility is in promoting the integration of international workers in the European migration process, which can be strengthened through circular migration. The European "blue card" initiative and the opening of labor markets to foreign graduates who have been trained in Europe could set a new course. |
| Keywords: | Migration, migration effects, EU Eastern enlargement, free movement of workers |
| JEL: | F22 J15 J61 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp862&r=eec |
| By: | Brenke, Karl (DIW Berlin); Yuksel, Mutlu (IZA); Zimmermann, Klaus F. (IZA, DIW Berlin and Bonn University) |
| Abstract: | The numbers of migrants from the accessions countries have clearly increased since the enlargement of the EU in 2004. Following enlargement, the net inflow of EU8 immigrants has become 2.5 times larger than the four-year period before enlargement. Poles constitute the largest immigrant group among the EU8 immigrants: since enlargement, 63% of all immigrants and 71% of EU8 immigrants are from Poland. This chapter presents new evidence on the impact of immigrant flow from EU8 countries on the German labor market since EU enlargement. Unlike other EU countries, Germany has not immediately opened up its labor market for immigrants from the new member states. Nevertheless, our analysis documents a substantial inflow and suggests that the composition of EU8 immigrants has changed since EU enlargement. The majority of the new EU8 immigrants are male and young, and they are less educated compared to previous immigrant groups. We also find that recent EU8 immigrants are more likely to be self-employed than employed as a wage earner. Furthermore, these recent EU8 immigrants earn less conditional on being employed or self-employed. Our findings suggest that these recent EU8 immigrants are more likely to compete with immigrants from outside of Europe for low-skilled jobs instead of competing with German natives. While Germany needs high-skilled immigrants, our analysis suggests that the new EU8 immigrants only replace non-EU immigrants in low-skilled jobs. These results underline the importance of more open immigration policies targeting high-skilled immigrants. The current policy not only cannot attract the required high-skilled workforce, but also cannot avoid the attraction of low-skilled immigrants, and is a complete failure. |
| Keywords: | wages, international migration, EU enlargement, employment |
| JEL: | J61 F22 E24 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4055&r=eec |
| By: | Nicolas Coeurdacier (London Business School, Regent's Park, London NW1 4SA, UK.); Roberto A. De Santis (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Antonin Aviat (Paris School of Economics, Pse--Ens, 48 bd Jourdan, F-75014 Paris, France.) |
| Abstract: | Cross-border mergers and acquisitions (M&As) sharply increased over the last two decades. It is often pointed out that cross-border capital reallocation is partly the result of financial liberalization policies, government policies and regional agreements. In this paper, we identify some of the main forces driving cross-border M&As using a unique database on bilateral cross-border M&As at the sectoral level (in manufacturing and services) over the period 1985-2004. We focus on the role of institutional and financial developments with a special attention to the role played by the European Integration process. We identify the impact of (i) joining the European Union and (ii) joining the Euro on cross-border M&As. We show that EU and EMU have almost doubled M&As in manufacturing towards their members from all over the globe, with an additional 50% increase within EMU countries. Conversely, the service sector did not exploit the opportunity offered by the single currency. We also show how cross-border M&As are linked to the acquirer expected profitability and provide insights on the effectiveness of policies to attract foreign capital (such as corporate tax incentives, and interventions to improve the country's financial system and product market regulations). JEL Classification: F30, F36, F41, G11. |
| Keywords: | Cross Mergers and Acquisitions, Gravity Equation, Euro. |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901018&r=eec |
| By: | Cristina Checherita (George Mason University, School of Public Policy, 3401 Fairfax Drive, MS 3B1, Arlington, VA 22201, USA.); Christiane Nickel (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Philipp Rother (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper provides evidence on the role of net fiscal transfers to households and EU structural funds for per-capita output convergence across a large sample of European regions during the period 1995-2005. We find that net fiscal transfers, while achieving regional redistribution, seem to impede output growth and promote an "immiserising convergence" - output growth rates in poor receiving regions decline by less than in rich paying regions. EU structural and cohesion funds spent during 1994-1999 had a positive, but slight, impact on future economic growth, mainly through the human development component. JEL Classification: E62, R11, R23. |
| Keywords: | Fiscal policy, convergence, regional economic growth, regional migration. |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901029&r=eec |
| By: | Yener Altunbaş (Bangor Business School, Bangor University, Bangor, Gwynedd, LL57 2DG, United Kingdom.); Alper Kara (Loughborough University Business School, LE113TU, United Kingdom.); David Marqués-Ibáñez (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | Following the introduction of the euro, the markets for large debt financing experienced a historical expansion. We investigate the financial factors behind the issuance of syndicated loans for an extensive sample of euro area non-financial corporations. For the first time we compare these factors to those of its major competitor: the corporate bond market. We find that large firms, with greater financial leverage, more (verifiable) profits and higher liquidation values tend to prefer syndicated loans. In contrast, firms with larger levels of short-term debt and those perceived by markets as having more growth opportunities favour financing through corporate bonds. JEL Classification: D40, F30, G21. |
| Keywords: | syndicated loans, corporate bonds, debt choice, the euro. |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901028&r=eec |
| By: | Paul Hiebert (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Matthias Sydow (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | We apply a dynamic dividend-discount model to analyse unexpected housing returns in a panel of eight euro area countries which together comprise 90% of euro area GDP. The application of this model allows for a decomposition of house price movements into movements in rent (cash-flow) and expected return news components. The empirical application of the model involves the estimation of a panel vector autoregressive model (VAR) for four variables –excess return to housing, rents, the real interest rate and real disposable per capita income– using quarterly data over the period 1985-2007. This empirical investigation yields two main findings. First, the bulk of the variability of house price movements in the panel of countries analysed can be attributed to movements in the rental yield. Indeed, perturbations to rents appear to result in a one-to-one analogous movement in house prices over the long term once controlling for changes in expected returns. Second, evidence from the dynamic profile of shocks along with the negative co-movement between changing rental yield expectations and changing expected returns on housing assets would suggest that euro area house prices overreact to news. JEL Classification: R21, C33, G12. |
| Keywords: | House price, housing rental yield, return decomposition, panel VAR estimation, cash flow news. |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901019&r=eec |
| By: | Martin Cihák; Tigran Poghosyan |
| Abstract: | The global financial crisis has highlighted the importance of early identification of weak banks: when problems are identified late, solutions are much more costly. Until recently, Europe has seen only a small number of outright bank failures, which made the estimation of early warning models for bank supervision very difficult. This paper presents a unique database of individual bank distress across the European Union from mid-1990s to 2008. Using this data set, we analyze the causes of banking distress in Europe. We identify a set of indicators and thresholds that can help to distinguish sound banks from those vulnerable to financial distress. |
| Keywords: | Banks , Europe , Bank soundness , Bank supervision , Financial stability , Databases , Forecasting models , Data analysis , Cross country analysis , Economic integration , |
| Date: | 2009–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:09/9&r=eec |
| By: | Olga Arratibel (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Christophe Kamps (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Nadine Leiner-Killinger (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | To the best of our knowledge, our paper is the first systematic study of the predictive power of monetary aggregates for future inflation for the cross section of New EU Member States. This paper provides stylized facts on monetary versus non-monetary (economic and fiscal) determinants of inflation in these countries as well as formal econometric evidence on the forecast performance of a large set of monetary and non-monetary indicators. The forecast evaluation results suggest that, as has been found for other countries before, it is difficult to find models that significantly outperform a simple benchmark, especially at short forecast horizons. Nevertheless, monetary indicators are found to contain useful information for predicting inflation at longer (3-year) horizons. JEL Classification: C53, E31, E37, E51, E52, E62, P24 |
| Keywords: | Inflation forecasting, leading indicators, monetary policy, information content of money, fiscal policy, New EU Member States |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901015&r=eec |
| By: | Silvia Sgherri; Alessandro Galesi |
| Abstract: | The recent financial crisis raises important issues about the transmission of financial shocks across borders. In this paper, a global vector autoregressive (GVAR) model is constructed to assess the relevance of international spillovers following a historical slowdown in U.S. equity prices. The GVAR model contains 27 country-specific models, including the United States, 17 European advanced economies, and 9 European emerging economies. Each country model is linked to the others by a set of country-specific foreign variables, computed using bilateral bank lending exposures. Results reveal considerable comovements of equity prices across mature financial markets. However, the effects on credit growth are found to be country-specific. Evidence indicates that asset prices are the main channel through which-in the short run-financial shocks are transmitted internationally, while the contribution of other variables-like the cost and quantity of credit-becomes more important over longer horizons. |
| Keywords: | Spillovers , Europe , Emerging markets , Financial systems , Economic integration , Regional shocks , Capital markets , Cross country analysis , Economic models , |
| Date: | 2009–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:09/23&r=eec |
| By: | McMorrow, Kieran; Röger, Werner; Turrini, Alessandro Antonio |
| Abstract: | The EU-US total factor productivity (TFP) growth gap since the mid-1990's is concentrated in a handful of market service industries (most notably retail trade) and in ICT-producing manufacturing, whilst the EU exhibits a stronger performance in a number of the network utilities. This paper explores the industry-specific determinants of the EU-US TFP growth gap using the EU KLEMS database. As found in previous analyses (e.g., Nicoletti and Scarpetta (2003); Griffith, Redding, and Van Reenen (2004); Inklaar, Timmer and Van Ark (2008)), TFP growth appears to be driven by catching-up phenomena associated with the gradual adoption of new-vintage technologies. Compared with previous analyses, TFP growth is also significantly driven by developments taking place at the "technological frontier," increasingly so since the mid-1990's. Industries with higher R&D expenditures and higher adoption rates for ICT-intensive technologies appear to exhibit higher TFP growth rates, whilst human capital has mostly a significant effect across countries. Regarding industry specific determinants, ICT producing industries appear to benefit from R&D in terms of stronger spillovers from TFP gains at the frontier; network utilities are strongly affected by improvements associated with reduced product market regulations; whilst the retail trade industry is significantly influenced by consumption dynamics which permit a better exploitation of scale economies. |
| Keywords: | European Union; growth determinants; total factor productivity |
| JEL: | D24 O47 O52 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:7237&r=eec |
| By: | Jens Eisenschmidt (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Jens Tapking (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | Unsecured interbank money market rates such as the Euribor increased strongly with the start of the financial market turbulences in August 2007. There is clear evidence that these rates reached levels that cannot be explained alone by higher credit risk. This article presents this evidence and provides a theoretical explanation which refers to the funding liquidity risk of lenders in unsecured term money markets. JEL Classification: G01, G10, G21. |
| Keywords: | Liquidity premium, interbank money markets, unsecured lending, 2007/2008 financial market turmoil. |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901025&r=eec |
| By: | Catherine Fuss (National Bank of BelgiumNational Bank of Belgium, Research Department, 14, bd. de Berlaimont, 1000 Brussels, Belgium.); Ladislav Wintr (Central Bank of Luxembourg, Economics and Research Department, 2 boulevard Royal, L – 2983 Luxembourg, Luxembourg.) |
| Abstract: | Using firm-level data for Belgium over the period 1997-2005, we evaluate the elasticity of firms' labour and real average labour compensation to microeconomic total factor productivity (TFP). Our results may be summarised as follows. First, we find that the elasticity of average labour compensation to firm-level TFP is very low contrary to that of labour, consistent with real wage rigidity. Second, while the elasticity of average labour compensation to idiosyncratic firm-level TFP is close to zero, the elasticity with respect to aggregate sector-level TFP is high. We argue that average labour compensation adjustment mainly occur at the sector level through sectoral collective bargaining, which leaves little room for firm-level adjustment to firm-specific shocks. Third, we report evidence of a positive relationship between hours and idiosyncratic TFP, as well as aggregate TFP within the year. JEL Classification: J30, J60. |
| Keywords: | labour compensation, employment, hours, Total Factor Productivity. |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901021&r=eec |
| By: | Michael Elsby; Bart Hobijn; Aysegul Sahin |
| Abstract: | We provide a set of comparable estimates for the rates of inflow to and outflow from unemployment for 14 OECD economies using publicly available data. We then devise a method to decompose changes in unemployment into contributions accounted for by changes in inflow and outflow rates for cases where unemployment deviates from its flow steady state, as it does in many countries. Our decomposition reveals that fluctuations in both inflow and outflow rates contribute substantially to unemployment variation within countries. For Anglo-Saxon economies we find approximately a 20:80 inflow/outflow split to unemployment variation, while for Continental European and Nordic countries, we observe much closer to a 50:50 split. Using the estimated flow rates we compute gross worker flows into and out of unemployment. In all economies we observe that increases in inflows lead increases in unemployment, whereas outflows lag a ramp up in unemployment. |
| Keywords: | Unemployment |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2009-04&r=eec |
| By: | Henrik Andersen (Norges Bank (Central Bank of Norway)) |
| Abstract: | While the new capital adequacy framework, Basel II, aims to make the banks’ capital requirements more sensitive to the underlying risk of the assets, it may also introduce an additional source of procyclicality in the banking sector. A growing share of the literature has assessed the potential cyclicality of Basel II. However, only parts of the banks’ assets have been considered. In addition, the cyclicality of the capital positions is usually left out of the calculations. This paper applies the stress testing framework of Norges Bank to analyse the cyclicality of capital positions and the cyclicality of Basel II capital requirements for the entire bank portfolio of Norwegian banks. We find a substantial increase in the calculated Basel II capital requirements in a recession scenario for the Norwegian economy. We also find a negative co-movement between capital positions and Basel II capital requirements. Hence, our analysis demonstrates that Basel II may introduce an additional source of procyclicality. |
| Keywords: | Basel II, procyclicality, capital positions |
| JEL: | E32 G21 G28 G33 |
| Date: | 2009–03–13 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2009_04&r=eec |
| By: | Huber, Martin; Lechner, Michael; Walter, Thomas; Wunsch, Conny |
| Abstract: | Many Western economies have reformed their welfare systems with the aim of activating welfare recipients by increasing welfare-to-work programmes and job search enforcement. We evaluate the three most important German welfare-to-work programmes implemented after a major reform in January 2005 ("Hartz IV"). Our analysis is based on a unique combination of large scale survey and administrative data that is unusually rich with respect to individual, household, agency level, and regional information. We use this richness to allow for a selection-on-observables approach when doing the econometric evaluation. We find that short-term training programmes on average increase their participants' employment perspectives and that all programmes induce further programme participation. We also show that there is considerable effect heterogeneity across different subgroups of participants that could be exploited to improve the allocation of welfare recipients to the specific programmes and thus increase overall programme effectiveness. |
| Keywords: | panel data; targeting; programme evaluation; propensity score matching,; Welfare-to-work policies |
| JEL: | J68 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:7238&r=eec |
| By: | Österholm, Pär (National Institute of Economic Research) |
| Abstract: | This paper investigates the effects of the financial crisis on the Swedish real economy. In order to do this, an index which describes the financial conditions of the Swedish economy is developed. The index indicates that domestic Swedish financial conditions have deteriorated substan-tially during 2008 and are now at the highest level since the crisis of the early 1990’s. A Bayesian VAR model with both US and Swedish variables is used to assess the quantitative effects of the financial crisis on Swedish real GDP growth. Results suggest that the Swedish economy will grow substantially slower in the next couple of years due to the financial crisis. |
| Keywords: | GDP growth; Bayesian VAR |
| JEL: | E37 E44 |
| Date: | 2009–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nierwp:0110&r=eec |