nep-eec New Economics Papers
on European Economics
Issue of 2009‒05‒30
seventeen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Are more data always better for factor analysis? Results for the euro area, the six largest euro area countries and the UK. By Giovanni Caggiano; George Kapetanios; Vincent Labhard
  2. Labour Force Participation in the Euro Area: A Cohort Based Analysis. By Almut Balleer; Ramon Gomez-Salvador; Jarkko Turunen
  3. Fiscal behaviour in the European Union: rules, fiscal decentralization and government indebtedness. By António Afonso; Sebastian Hauptmeier
  4. The Euro at 10: Successes and Challenges By Thierry Warin
  5. Unemployment Compensation and High European Unemployment: A Reassessment with New Benefit Indicators By David R. Howell and Miriam Rehm
  6. Vulnerabilities in Central and Eastern Europe : Credit Growth By Aleksandra Zdzienicka-Durand
  7. Factors Influencing Tenure Choice in European Countries By Monika Bazyl
  8. Effects of High-Tech Capital, FDI and Outsourcing on Demand for Skills in West and East By Robert Stehrer; Piero Esposito
  9. Bidding behaviour in the ECB's main refinancing operations during the financial crisis. By Jens Eisenschmidt; Astrid Hirsch; Tobias Linzert
  10. Wealth Effects on Consumption: Evidence from the euro area. By Ricardo M. Sousa
  11. FDI in the European Union and Mena Countries: Institutional and Economic Determinants By José Caetano; Aurora galego
  12. The referendum threat, the rationally ignorant voter, and the political culture of the EU By Giandomenico Majone
  13. Bonding and Bridging Social Capital and Economic Growth By Beugelsdijk, S.; Smulders, J.A.
  14. On the realized volatility of the ECX CO2 emissions 2008 futures contract: distribution, dynamics and forecasting By Julien Chevallier; Benoît Sévi
  15. Banking and Borrowing in the EU ETS: An Econometric Appraisal of the 2005-2007 Intertemporal Market By Julien Chevallier; Emilie Alberola
  16. Is European accounting research fairly reflected in academic journals? An investigation of possible non-mainstream and language barrier biases By Bernard Raffournier; Alain Schatt
  17. Evaluating administrative burdens through SCM: some indications from the Italian experience By Laura Cavallo; Giuseppe Coco; Mario Martelli

  1. By: Giovanni Caggiano (Department of Economics, University of Padua, Via del Santo 33, 35123 Padova, Italy.); George Kapetanios (Department of Economics, Queen Mary University of London, Mile End Road, London E1 4NS, United Kingdom.); Vincent Labhard (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: Factor based forecasting has been at the forefront of developments in the macroeconometric forecasting literature in the recent past. Despite the flurry of activity in the area, a number of specification issues such as the choice of the number of factors in the forecasting regression, the benefits of combining factor-based forecasts and the choice of the dataset from which to extract the factors remain partly unaddressed. This paper provides a comprehensive empirical investigation of these issues using data for the euro area, the six largest euro area countries, and the UK. JEL Classification: C100,C150,C530.
    Keywords: Factors, Large Datasets, Forecast Combinations.
    Date: 2009–05
  2. By: Almut Balleer (Universität Bonn, D-53012 Bonn, Germany.); Ramon Gomez-Salvador (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Jarkko Turunen (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: We use a cohort based model to analyse determinants of labour force participation for disaggregated groups of workers in the euro area and the five largest euro area countries. The model captures age and cohort effects as indicators of (unobserved) determinants of participation behaviour. We use these effects and observed determinants to construct trends and projections of labour supply. Our results suggest that age and cohort effects can account for a substantial part of the recent increase in participation. Cohort effects are particularly relevant for women with those born in the late 1960s and early 1970s more likely to participate over the life-cycle. There is substantial variation in the estimated age and cohort effects across countries. Looking forward, positive cohort effects for women are not large enough to compensate for the downward impact of population ageing on participation rates in the euro area. JEL Classification: J11, J21.
    Keywords: labour force participation, cohort analysis, labour market institutions.
    Date: 2009–05
  3. By: António Afonso (Technical University of Lisbon, Department of Economics; UECE – Research Unit on Complexity and Economics, R. Miguel Lupi 20, 1249-078 Lisbon, Portugal.); Sebastian Hauptmeier (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: We assess the fiscal behaviour in the European Union countries for the period 1990-2005 via the responsiveness of budget balances to several determinants. The results show that the existence of effective fiscal rules, the degree of public spending decentralization, and the electoral cycle can impinge on the country’s fiscal position. Furthermore, the results also support the responsiveness of primary balances to government indebtedness. JEL Classification: C23, E62, H62.
    Keywords: fiscal regimes, fiscal rules, fiscal decentralization, European Union, panel Data.
    Date: 2009–05
  4. By: Thierry Warin
    Date: 2009–05–01
  5. By: David R. Howell and Miriam Rehm (New School for Social Research, New York, NY)
    Keywords: european unemployment;
    Date: 2009–04
  6. By: Aleksandra Zdzienicka-Durand (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)
    Abstract: In this work, we try to analyze the recent credit development in 11 Central and Eastern European countries and estimate the credit-to-GDP ratio equilibrium level using filtering methods and dynamic panel estimations. Our estimation findings corroborate previous fears about the rapid credit growth in the CEECs. Indeed, in many cases the credit expansion exceeds the level justified by their fundamentals or financial development. Under normal conditions, this rapid growth and even ''overshooting'' of banking credit could be considered as an adjustment to its long-term equilibrium level. However, in the actual crisis situation, this excessive credit growth can reinforce other existing disequilibria and lead to an increase in the financial vulnerability of these countries.
    Keywords: Bank Credit Growth; Dynamic Panel; CEECs
    Date: 2009
  7. By: Monika Bazyl
    Abstract: Homeownership rates are very different across European countries. They range from below 50% in Germany to over 80% in Greece, Spain or Ireland. However the differences lie not only in the overall homeownership rates but also in its structure, and this is the focus of this paper. Its aim is to study the impact of microeconomic factors on household¿s tenure choice, using a cross-country comparative approach. Logit models are constructed for each country using data for year 2000 from the Consortium of Household Panels for European Socio-Economic Research micro-database. The models show that marriage is a significant determinant of the decision to move to homeownership in all analysed countries, while co-habitating households are more likely to rent, except for Denmark. Nationality, income and age proved to be significant explanatory variables in several countries, while staying insignificant in others.
    Keywords: Tenure choice, homeownership, housing
    JEL: D10 R20
    Date: 2009
  8. By: Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw); Piero Esposito (University of Rome "La Sapienza")
    Abstract: In this paper we study the effects of high-tech capital, foreign direct investment flows and outsourcing on demand for labour differentiated by educational attainment levels in the manufacturing industries for two groups of countries over the period 1995-2004. These two groups of countries comprise Western and Eastern European countries respectively which are assumed to be differently affected by the European integration process. Using detailed trade data as a basis for measuring outsourcing we further distinguish the effects of trade and outsourcing on relative wages by different groups of partner countries. This allows to study the effects of 'inward' outsourcing and foreign direct investment flows to Central and Eastern European countries (which became quite important in this time) in the Western European countries and - conversely - to study the effects of 'outward' outsourcing and the increase in inward FDI stocks in the Central and Eastern European countries separately.
    Keywords: high-tech capital, outsourcing, foreign direct investment, demand for skills
    JEL: F15 F16 C23
    Date: 2009–03
  9. By: Jens Eisenschmidt (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Astrid Hirsch (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Tobias Linzert (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: Liquidity provision through its repo auctions has been one of the main instruments of the European Central Bank (ECB) to address the recent tensions in financial markets since summer 2007. In this paper, we analyse banks’ bidding behaviour in the ECB’s main refinancing operations (MROs) during the ongoing turmoil in money and financial markets. We employ a unique data set comprising repo auctions from March 2004 to October 2008 with bidding data from 877 counterparties. We find that increased bid rates during the turmoil can be explained by, inter alia, the increased individual refinancing motive, the increased attractiveness of the ECB’s tender operations due to its collateral framework and banks’ bidding more aggressively, i.e. at higher rates to avoid being rationed at the marginal rate in times of increased liquidity uncertainty. JEL Classification: E52, D44, C33, C34.
    Keywords: Central Bank Auctions, Financial Market Turmoil, Panel Sample Selection Model, Bidding Behavior, Monetary Policy Instruments.
    Date: 2009–05
  10. By: Ricardo M. Sousa (Economic Policies Research Unit (NIPE) and Department of Economics, University of Minho, Campus of Gualtar, 4710-057 Braga, Portugal.)
    Abstract: This paper estimates the wealth effects on consumption in the euro area as a whole. I show that: (i) financial wealth effects are relatively large and statistically significant; (ii) housing wealth effects are virtually nil and not significant; (iii) consumption growth exhibits strong persistence and responds sluggishly to shocks; and (iv) the immediate response of consumption to wealth is substantially different from the long- run wealth effects. By disaggregating financial wealth into its major components, the estimates suggest that wealth effects are particularly large for currency and deposits, and shares and mutual funds. In addition, consumption seems to be very responsive to financial liabilities and mortgage loans. JEL Classification: E21, E44, D12.
    Keywords: consumption, housing wealth, financial wealth.
    Date: 2009–05
  11. By: José Caetano (Universidade de Evora, Departamento de Economia, CEFAGE-UE); Aurora galego (Universidade de Evora, Departamento de Economia, CEFAGE-UE)
    Abstract: FDI flows to the Middle East and North Africa countries (MENA) have been relatively low when compared to the neighbouring European Union (EU) and to other developing and emerging countries. Furthermore, empirical research on FDI in these countries is relatively scarce. In this paper we use panel data regressions and consider a period of 9 years (since mid nineties) to investigate possible differences in the determinants of FDI performance in these regions. In particular, we use a panel of 42 countries which include 17 MENA countries and 25 European countries. Unlike previous studies, we consider the inward FDI performance index, as provided by UNCTAD, as dependent variable and include both institutional and macroeconomic variables as possible determinants of FDI. The aim is to investigate whether there are region-specific factors that are significant for FDI performance. We conclude that there are some significant differences on the institutional determinants of FDI performance, namely in what concerns Investment Freedom, Government Size and Trade Freedom.
    Keywords: Foreign Direct Investment; Determinants; Institutions; Middle East North Africa countries (MENA); European Union (EU); Panel Data.
    JEL: F21 C23
    Date: 2009
  12. By: Giandomenico Majone
    Abstract: The chasm separating elite and popular opinion on the achievements and finality of European integration was never so visible as after the negative referendums on the Constitutional and the Lisbon Treaties. The public attitude prevailing in the past has been characterized as one of permissive consensus, meaning that the integration project was seemingly taken for granted by European publics as an accepted part of the political landscape. The current stage of the integration process is best understood as the end of permissive consensus, but EU leaders do not seem to be sufficiently aware of the far-reaching consequences entailed by this change in public attitude. One important reason for this inability, or unwillingness, to assess realistically the new situation is the peculiar political culture grown up in more than half a century of intense, if not always productive, integrationist efforts. A striking demonstration of the hold of this political culture on the minds of Euro-leaders is the view of popular referendums as an unconscionable risk for the integration process--the referendum roulette. One of the favourite arguments against ratification of European treaties by popular referendum is that voters cannot be expected to read and evaluate technically and legally complex texts running into hundreds of pages. It will be shown, however, that this argument is flawed in several respects; carried to its logical conclusion, it would lead to severe restrictions of the franchise even at the national level. The reasons of the current discontent are to be found in the fear of a EU without border and limits and in the loss of confidence among significant parts of the electorate in the EU’s ability to deal with everyday issues. The Union may be entering an age of diminished expectations: leaders realize that the current approach to European integration no longer delivers very much, but there is little demand for an alternative approach that might do better. Some form of differentiated integration may offer the only possibility of avoiding the dilemma of dissolution or irrelevance.
    Keywords: Constitution for Europe; democracy; differentiated integration; federalism; political culture; referendum; treaty reform
    Date: 2009–05–15
  13. By: Beugelsdijk, S.; Smulders, J.A. (Tilburg University, Center for Economic Research)
    Abstract: In this paper we develop a formal model of economic growth and two types of social capital. Following extant literature, we model social capital as participation in two types of social networks: first, closed networks of family and friends, and, second, open networks that bridge different communities. Higher levels of social capital may crowd out economic growth through a reduction of working time. At the same time, participation in intercommunity networks reduces incentives for rent seeking and cheating, promoting economic growth. We test our hypotheses in a sample of European regions using unique data from the European Value Studies (EVS). Our findings show that it is important to distinguish between the nature of the social interaction.
    Keywords: social capital;economic growth;Europe;regions
    JEL: O40 R11 Z13
    Date: 2009
  14. By: Julien Chevallier (EconomiX - CNRS : UMR7166 - Université de Paris X - Nanterre); Benoît Sévi (GRANEM LEMNA - Université d'Angers - Université de Nantes)
    Abstract: The recent implementation of the EU Emissions Trading Scheme (EU ETS) in January 2005 created new financial risks for emitting firms. To deal with these risks, options are traded since October 2006. Because the EU ETS is a new market, the relevant underlying model for option pricing is still a controversial issue. This article improves our understanding of this issue by characterizing the conditional and unconditional distributions of the realized volatility for the 2008 futures contract in the European Climate Exchange (ECX), which is valid during Phase II (2008-2012) of the EU ETS. The realized volatility measures from naive, kernel-based and subsampling estimators are used to obtain inferences about the distributional and dynamic properties of the ECX emissions futures volatility. The distribution of the daily realized volatility in logarithmic form is shown to be close to normal. The mixture-of-distributions hypothesis is strongly rejected, as the returns standardized using daily measures of volatility clearly departs from normality. A simplified HAR-RV model (Corsi, 2009) with only a weekly component, which reproduces long memory properties of the series, is then used to model the volatility dynamics. Finally, the predictive accuracy of the HAR-RV model is tested against GARCH specifications using one-step-ahead forecasts, which confirms the HAR-RV superior ability. Our conclusions indicate that (i) the standard Brownian motion is not an adequate tool for option pricing in the EU ETS, and (ii) a jump component should be included in the stochastic process to price options, thus providing more efficient tools for risk-management activities.
    Keywords: CO2 Price; Realized Volatility; HAR-RV; GARCH; Futures Trading; Emissions Markets; EU ETS; Intraday data; Forecasting
    Date: 2009–05–25
  15. By: Julien Chevallier (EconomiX - CNRS : UMR7166 - Université de Paris X - Nanterre); Emilie Alberola (Mission Climat Caisse des Dépôts - Université Panthéon-Sorbonne - Paris I)
    Abstract: This article critically examines the EU ETS intertemporal market during its Phase I (2005-2007). We test the Hotelling rule as a key element of a competitive equilibrium to validate whether allowance prices rise at the same rate as the interest rate. Including readily observable characteristics of the EU ETS such as the presence of one endogenous structural break and the influence of other energy markets shocks, we argue the inter-period ban on banking undermines the ability of the EU ETS to provide efficient price signalling. We also find a significant relationship between allowance price changes and the expected scarcity of allowances approximated by the Ellerman-Parsons ratio. Finally, our results show evidence of institutional learning by market participants.
    Keywords: Emissions trading; Banking; EU ETS; Hotelling rule; Ellerman-Parsons Ratio
    Date: 2009–05–26
  16. By: Bernard Raffournier (HEC University of Geneva); Alain Schatt (Université de Bourgogne)
    Abstract: Recent research has revealed that most articles published in top US accounting journals come from institutions based in the US or a small number of other English-speaking countries (Jones and Roberts, 2005). It has also been shown that the research paradigm favoured by US journals is financial economics, with the result that articles on accounting history or social and behavioural accounting are very scarce. European journals exhibit a more diverse content. Nevertheless, as shown by some studies, British authors are the main contributors to these journals. As a consequence, the assertion has been made that the published literature is not perfectly representative of the diversity of European accounting research. The aim of this study is to test the validity of this assertion by comparing the content of eighteen major academic journals in accounting over five years (2000-2004) with the set of papers presented at the EAA congress in 2003, 2004 and 2005. The results give some support to the assertion that the diversity of European accounting research is imperfectly reflected in academic journals. They also are consistent with the idea that non English-speaking scholars are at a competitive disadvantage in the race for publication in recognized periodicals.
    Keywords: European accounting research; academic journals; language barrier biaises.
    JEL: M40
    Date: 2009–03
  17. By: Laura Cavallo (Prime Minister Office, Italy); Giuseppe Coco (University of Bari and Prime Minister Office.); Mario Martelli (University of Milan and Prime Minister Office, Italy)
    Abstract: A methodology to measure administrative burdens, based on the Dutch Standard Cost Model (SCM), has been applied in a large number of European countries, coupled in most cases with the commitment to a reduction target. This paper compares the application of the method in different national context and discusses its weaknesses and strengths against more complete forms of evaluation of the adequacy of regulation. The paper also discusses some indication arisen during the measurement of administrative burdens through SCM in Italy. Our main conclusion is that the SCM is a potentially useful tool and could provide motivation for culture change in policymaking. Its major strength, which lies mainly in its pragmatic approach and the possibility of commitment on a quantitative target, may be at the same time a source of weakness and may deliver some misleading results. Also some basic concepts of the model need a more rigorous definition to be consistently applied in different countries.
    Keywords: administrative burdens, better regulation, costs of regulation, European governance, standard cost model.
    Date: 2009–04

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