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on European Economics |
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Issue of 2009‒10‒10
eighteen papers chosen by Giuseppe Marotta University of Modena and Reggio Emilia |
| By: | Emil Stavrev; Martin Cihák; Thomas Harjes |
| Abstract: | We analyze the European Central Bank's (ECB's) response to the global financial crisis. Our results suggest that even during the crisis, the core part of ECB's monetary policy transmission-from policy rates to market rates-has continued to operate, but at a decreased efficiency. We also find some evidence that the ECB's non-standard measures, namely the lengthening of the maturity of monetary policy operations and the provision of funds at the fixed rate, reduced money market term spreads, facilitating the pass-through from policy to market rates. Furthermore, the results imply that the substantial increase in the ECB's balance sheet may have contributed to a reduction in government bond term spreads. |
| Keywords: | Central bank policy , Deflation , Economic models , European Monetary System , European Union , Financial crisis , Inflation , Liquidity controls , Monetary policy , Monetary transmission mechanism , |
| Date: | 2009–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:09/185&r=eec |
| By: | Julien Chevallier (EconomiX - CNRS : UMR7166 - Université de Paris X - Nanterre); Yannick Le Pen (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272); Benoît Sévi (GRANEM - Department of Law, Economics, and Management - Université d'Angers) |
| Abstract: | To improve risk management in the European Union Emissions Trading Scheme (EU ETS), the European Climate Exchange (ECX) has introduced option instruments in October 2006 after regulatory authorization. The central question we address is: can we identify a potential destabilizing effect of the introduction of options on the underlying market (EU ETS futures)? Indeed, the literature on commodities futures suggest that the introduction of derivatives may either decrease (due to more market depth) or increase (due to more speculation) volatility. As the identification of these effects ultimately remains an empirical question, we use daily data from April 2005 to April 2008 to document volatility behavior in the EU ETS. By instrumenting various GARCH models, endogenous break tests, and rolling window estimations, our results overall suggest that the introduction of the option market had no effect on the volatility in the EU ETS. These finding are robust to other likely influences linked to energy and commodity markets. |
| Date: | 2009–09–23 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00419339_v1&r=eec |
| By: | Martin Cihák; Erlend Nier |
| Abstract: | The global financial crisis has demonstrated weaknesses in resolution regimes for financial institutions around the globe, including in the European Union (EU). This paper considers the principles underlying resolution regimes for financial institutions, and draws out how a well-designed resolution regime can expand the toolset available for crisis management. Introducing, or in some cases expanding the scope, of these regimes is pressing to achieve more effective responses to ongoing financial sector weaknesses across the EU. |
| Keywords: | Bank resolution , Bank supervision , Bankruptcy , Banks , Credit risk , European Union , Financial institutions , Financial risk , Financial sector , Financial stability , Nonbank financial sector , Risk management , |
| Date: | 2009–09–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:09/200&r=eec |
| By: | Céline Allard |
| Abstract: | Since EU accession, trade flows have exhibited strong dynamics in Central-Eastern Europe (CEE). During the period leading to the current global turmoil, the region has also experienced continuous exchange rate appreciation and rapid FDI inflows, both likely to have affected these countries' competitiveness. This paper describes how the determinants of exports and imports have evolved in CEE countries over 2002-07 and econometrically derives their contribution to trade, with a view to assessing competitiveness developments. The analysis reveals that the global and domestic upswings, along with rising trade market shares, go a long way toward accounting for trade developments in CEE countries until 2007, pointing to continuous nonprice competitiveness gains. It also finds that exchange rate appreciation did not unduly weigh on export and import growth, suggesting that most of it reflected an upward movement in its equilibrium value. While the region entered the current period of global slowdown from a strong competitiveness position, the crisis also exposed the vulnerability of its heavy reliance on global demand to a trade shock. |
| Keywords: | Central and Eastern Europe , Cross country analysis , Economic models , European Union , Exchange rate appreciation , Exports , Foreign direct investment , Global competitiveness , Imports , Trade , |
| Date: | 2009–06–02 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:09/121&r=eec |
| By: | Seitz, Franz; Stoyan, Dietrich; Tödter, Karl-Heinz |
| Abstract: | This paper analyses how many euro coins outflow from Germany and which composition of coins is to be expected in the long run. To this end, a simple mathematical model is formulated and calibrated for ?1 coins. The introduction of the euro coins in 2002 presented a unique opportunity to analyse the cross-border migration and the mixing process of coins in different euro-area countries. Based on research by Stoyan and depending on growth assumptions, the annual outflow of German ?1 coins is calculated to lie somewhere between 4% and 5%. In the long run, the ratio of German ?1 coins in Germany is likely to converge to around 50%. |
| Keywords: | Euro coins,coin volumes,mixing process |
| JEL: | C61 E41 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:200927&r=eec |
| By: | Hagen, Tobias; Mohl, Philipp |
| Abstract: | More than one third of the European Union's total budget is spent on socalled Cohesion Policy via the structural funds. Its main purpose is to promote the development of the EU and to support convergence between the levels of development of the various European regions. Investigating the impact of European Cohesion Policy on economic growth and convergence is a wide research topic in applied econometric research. Nevertheless, the empirical evidence has provided mixed, if not contradictory, results. Against this background, the aim of this chapter is to provide a fundamental review on this topic. Taking fundamental methodological issues into account, we review the existing econometric evaluation studies, draw several conclusions and provide some remarks for future research. |
| Keywords: | Economic integration,regional growth,EU Cohesion Policy,panel data,spatial econometrics |
| JEL: | R10 R11 C21 C23 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:09052&r=eec |
| By: | Erik S. Reinert; Rainer Kattel; Margit Suurna |
| Abstract: | The paper aims to show that, first, innovation policies deployed in Central and Eastern European (CEE) countries since 1990s have been a double-edged sword: on the one hand enabling fast and furious industrial restructuring while, on the other hand, locking CEE economies into economic activities with low value added/productivity growth and thus undermining future sustainable growth. However, the impact of accession into the European Union (EU) has been equally pivotal for industrial restructuring and innovation policy making in CEE countries in the 2000s and this process can be summed up as a strong Europeanization of innovation policy in CEE. The paper proceeds to show, second, that also Europeanization has been largely a double-edged sword for CEE countries. Since joining the EU in 2004 or 2007, and already during the accession process, there is a strong change in innovation policies in many CEE countries towards a much more active role of the state. In this change there is a clear and strong role of EUÿs structural funding, particularly the negotiations and planning that comes with it. However, these changes come with specific problems: first, there is an over-emphasis in emerging CEE innovation policies on a linear understanding of innovation (from lab to market) that is based on the assumption that there is a growing demand from industry for R&D (which is not the case because of the structural changes that took place in the 1990s via the Washington Consensus policies); and, second, increasing usage of independent implementation agencies in an already weak administrative capacity environment lacking policy skills for networking and long-term planning. |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:tth:wpaper:23&r=eec |
| By: | Ralitza Dimova (Brunel University - Brunel University); François-Charles Wolff (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272) |
| Abstract: | Using data on 2317 mother-daughter pairs from 10 European countries, we investigate the impact of downward time and monetary transfers on the career choices of transfer-receiving young mothers. For Europe as a whole, we find a strong positive effect of grandchild care on the labor force participation and the degree of labor market involvement of the young mother, but no impact of monetary transfers on either of these decisions. Both recipients and donors with better endowments are more likely to participate in a monetary transaction, while mothers with lower level of human capital are more likely to provide time transfers to their better endowed daughters. |
| Date: | 2009–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00418766_v1&r=eec |
| By: | Alexander F. Tieman; Andrea M. Maechler |
| Abstract: | This paper estimates the magnitude of key effects on the real economy from financial sector stress. We focus on the short-run feedback effect from market-based indicators of financial sector risk to the real economy through the credit channel, and estimate this effect on an economy-wide (macro) level, as well as on the level of individual large banks. Both estimates yield significant feedback effects of substantial magnitude. The estimates are consistent with other work in this area. Our results suggest that prudential supervision could be enhanced by taking into account the feedback effects of financial instability in the real economy. We also propose a way to integrate feedback effects into stress tests in order to improve realism and accuracy or macroeconomic stress scenarios, as well as a metric to interpret stress testing results. |
| Keywords: | Banks , Credit expansion , Economic models , European Union , Financial risk , Financial sector , Financial stability , |
| Date: | 2009–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:09/198&r=eec |
| By: | Bayer, Christian (Bocconi University); Juessen, Falko (University of Dortmund) |
| Abstract: | This paper provides a cross-country comparison of life-cycle and business-cycle fluctuations in the dispersion of household-level wage innovations. We draw our inference from household panel data sets for the US, the UK, and Germany. First, we find that household characteristics explain about 25% of the dispersion in wages within an age group in all three countries. Second, the cross-sectional variance of wages is almost linearly increasing in household age in all three countries, but with increments being smaller in the European data. Third, we find that wage risk is procyclical in Germany while it is countercyclical in the US and acyclical in the UK, pointing towards labor market institutions being pivotal in determining the cyclical properties of labor market risk. |
| Keywords: | business cycle, uncertainty fluctuations, life-cycle risk, heterogeneity, wages |
| JEL: | E20 D31 D91 J31 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4402&r=eec |
| By: | Erkki Karo; Rainer Kattel |
| Abstract: | This paper analyses the development of Eastern European innovation systems since the 1990s by looking together at the theoretical and empirical accounts of two discourses that have had a siginificant impact on the development of innovation systems: innovation policy and public administration and management. We propose a framework for analysing the development of innovation policies distinguishing between two concepts - policy and administrative capacity . that are necessary for innovation policy making and implementation. Using the framework we show how the Eastern European innovation systems have, because of past legacies and international policy transfer, developed a highly specific understanding of innovation policy based on the initial impact of the Washington Consensus policies and later the European Union. We argue that because of the interplay between the principles and policy reccomendations of the two international discourses we can see the emergence of a .copying paradoxÿ in Eastern European innovation systems: that is, despite the perception of policy convergence, we can witness a divergence in the policy from the intended results, and as a result can talk about limited and de-contextualised policy-making capacities. |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:tth:wpaper:24&r=eec |
| By: | Ramos, Raul (University of Barcelona); Surinach, Jordi (University of Barcelona); Artís, Manuel (University of Barcelona) |
| Abstract: | The paper analyses the link between human capital and regional economic growth in the European Union. Using various indicators of human capital calculated from census microdata, we conclude that the recent economic performance of European regions is associated with an increase in overeducation. In fact, measures of educational mismatch seem to be more strongly connected to regional economic performance than do other traditional measures of human capital stock. |
| Keywords: | regional economic growth, human capital, educational mismatch, overeducation |
| JEL: | O18 O47 R23 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4453&r=eec |
| By: | Clark, Andrew E. (Paris School of Economics); Senik, Claudia (University Paris-Sorbonne, PSE) |
| Abstract: | This paper provides unprecedented direct evidence from large-scale survey data on both the intensity (how much?) and direction (to whom?) of income comparisons. Income comparisons are considered to be at least somewhat important by three-quarters of Europeans. They are associated with both lower levels of subjective well-being and a greater demand for income redistribution. The rich compare less and are more happy than average when they do, which latter is consistent with relative income theory. With respect to the direction of comparisons, colleagues are the most frequently-cited reference group. Those who compare to colleagues are happier than those who compare to other benchmarks; comparisons to friends are both less widespread and are associated with the lowest well-being scores. This is consistent with information effects, as colleagues' income arguably contains more information about the individual's own future prospects than do the incomes of other reference groups. Last, there is some evidence that reference groups are endogenous, with individuals tending to compare to those with whom they interact the most often. |
| Keywords: | income comparisons, relative income, reference groups, happiness, redistribution, European Social Survey |
| JEL: | D31 D63 I3 J31 Z13 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4414&r=eec |
| By: | Bassanini, Andrea (OECD); Marianna, Pascal (OECD) |
| Abstract: | There is an increasing interest in the process of job creation and destruction as well of hirings and separations. Many studies suggest that idiosyncratic firm-level characteristics shape both job and worker flows in a similar way in all countries. Others argue that cross-country differences in terms of gross job flows are minor. However, these statements are usually based on the comparison of national estimates, typically collected on the basis of different definitions and collection protocols. By contrast, in this paper, we use cross-country comparable data on both job and worker flows to examine key determinants of these flows and of their cross-country differences. We find that idiosyncratic firm (industry, firm age and size) and worker (age, gender, education) characteristics play an important role for both gross job and worker flows in all countries. Nevertheless, in contrast with part of the literature, we find that, even controlling for these factors, cross-country differences concerning both gross job and worker flows appear large and of a similar magnitude. Both job and worker flows in countries such as the United States and the United Kingdom exceed those in certain continental European countries by a factor of two. Moreover, the variation of worker flows across different dimensions is well explained by the variation of job flows, suggesting that, to a certain extent, the two flows can be used as substitutes in cross-country analysis. Consistently, churning flows, that is flows originating by firms churning workers and employees quitting and being replaced, display much less cross-country variation. |
| Keywords: | job creation, job destruction, hirings, separations, churning flows, cross-country differences |
| JEL: | J23 J24 J63 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4452&r=eec |
| By: | Ashoka Mody |
| Abstract: | This paper attempts to explain the recent rise and differentiation of sovereign spreads across the countries of the eurozone. Following the onset of the subprime crisis in July 2007, spreads rose but mainly on account of common global factors. The rescue of Bear Stearns in March 2008 marked a turning point. Countries thereafter were increasingly differentiated. Sovereign spreads of a eurozone country tended to rise when the prospects of its domestic financial sector worsened. It appears, therefore, that the rescue of Bear Stearns created a link between financial sector vulnerabilities and a larger contingent liability on public finances. Following the failure of Lehman Brothers, spreads also rose faster for countries with higher ratios of public debt-to-GDP. These transitional dynamics appear to have concluded with the nationalization of Anglo Irish: sovereign spreads throughout the eurozone jumped, with the jump emphasizing the differentiation by financial sector vulnerability and public debt levels. The results imply that, to varying degrees, countries may have moved to a new regime of weak economic outlook, financial sector fragilities, and strains on public finances. |
| Keywords: | Banking crisis , Bonds , Credit risk , Cross country analysis , European Union , Financial risk , Financial sector , Public debt , Public finance , Sovereign debt , |
| Date: | 2009–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:09/108&r=eec |
| By: | Bell, David N.F. (University of Stirling); Blanchflower, David G. (Dartmouth College) |
| Abstract: | There is a growing belief that the recession has run its course and that the goods market has started a period of slow, but sustainable, recovery. Improvement in the labor market may take some time, but many believe that unemployment will return to its 2007 level in the medium term. In this paper, we argue that recovery is by no means guaranteed and that the consequences for unemployment may be worse than anticipated. |
| Keywords: | unemployment, youth |
| JEL: | J64 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4455&r=eec |
| By: | Franco Peracchi (Faculty of Economics, University of Rome "Tor Vergata"); Claudio Rossetti (Faculty of Economics, University of Rome "Tor Vergata") |
| Abstract: | This paper shows that gender and regional differences in self-rated health in Europe are partly explained by differences in the prevalence of the various conditions. However, a non-negligible part of these differences is due to other causes, which may include differences in reporting own health. We employ the tool of “anchoring vignettes” to understand whether and how women and men living in different regions differently report levels in a number of health components or domains. We find that vignettes help identifying gender and regional differences in response scales. After controlling for these differences, both gender and regional variation in reported health is substantially reduced, although not entirely eliminated. Our results suggest that differences in response style should be taken into account when using self-assessment of health in socio-economic studies. Failing to do so may lead to misleading conclusions. |
| Keywords: | self-rated health, health domains, anchoring vignettes, reporting bias |
| JEL: | C35 C81 I12 J14 |
| Date: | 2009–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:142&r=eec |
| By: | João Sousa Andrade (GEMF/Faculdade de Economia, Universidade de Coimbra) |
| Abstract: | Will the current crisis accelerate the PIGS collapse? We approach the subject by comparing the responses of the unemployment rate to an output shock on those economies (Portugal, Italy, Greece and Spain) with those of a benchmark economy – the USA. Our methodological strategy relies on one of the pillars of empirical macroeconomics the Okun Law (OL) which we incorporated in a VAR model. We addressed two drawbacks usually present in OL, the interdependency problem and the non-stationarity problem. We have included in our models the participation rate as a way to overcome the former problem and for the later one we have analysed the time series properties of the variables used on our models. We propose stable VAR models for each of the economies involved and also a fixed-effects panel-VAR for the PIGS. The time for the absorption of shocks and the disequilibrium levels are much more favourable to USA, but we conclude also that in terms of unemployment we are not allowed to consider the PIGS as a homogenous group. |
| Keywords: | Okun Law, C-I, VAR, Participation rate, Stability and Impulses. |
| JEL: | C32 C51 J21 E24 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:wpaper:2009-11&r=eec |