nep-eec New Economics Papers
on European Economics
Issue of 2009‒10‒17
eighteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. The European Credit Market and Institutions By Cândida Ferreira
  2. Stochastic Growth in the United States and Euro Area By Peter N. Ireland
  3. Money in a DSGE framework with an application to the Euro Zone By Benchimol, Jonathan; Fourçans, André
  4. Did the crisis affect inflation expectations? By Gabriele Galati; Steven Poelhekke; Chen Zhou
  5. Nowcasting Euro Area Economic Activity in Real-Time: The Role of Confidence Indicator By Domenico Giannone; Lucrezia Reichlin; Saverio Simonelli
  6. Inflation Target Shocks and Monetary Policy Inertia in the Euro Area By Fève,P.; Materon,J.; Sahuc, J-G.
  7. Adjustment in EMU: Is Convergence Assured? By Sebastian Dullien; Ulrich Fritsche; Ingrid Groessl; Michael Paetz
  8. The Importance of Global Shocks for National Policymakers: Rising Challenges for Central Banks By Ansgar Belke; Andreas Rees
  9. The effects of childbirth on women’s activity change and occupational mobility in Europe: Evidence from the European Community Household Panel. By Chzhen, Yekaterina
  10. Health care utilization among immigrants and native-born populations in 11 European countries. Results from the Survey of Health, Ageing and Retirement in Europe By Aïda Solé-Auró; Montserrat Guillén; Eileen M. Crimmins
  11. Real gains from flow-based methods for allocating power transmission capacity in Europe By Vincent Rious; Philippe Dessante
  12. Tariffs for European Gas Transmission Networks. Report on workshop proceedings By Vincent Rious; Michelle Hallack
  13. Lacking balancing market harmonisation in Europe: room for trader profits at the expense of economic efficiency? By Leen Vandezande; Leonardo Meeus; Ronnie Belmans; Marcelo Saguan; Jean-Michel Glachant; Vincent Rious
  14. Assessing the impact of the EU-sponsored trade liberalization in the MENA countries By Hagemejer, Jan; Cieslik, Andrzej
  15. Determinants of government bond spreads in new EU countries. By Ioana Alexopoulou; Irina Bunda; Annalisa Ferrando
  16. The impact of oil price changes on Spanish and euro area consumer price inflation By Luis J. Álvarez; Samuel Hurtado; Isabel Sánchez; Carlos Thomas
  17. The effects of privatization and consolidation on bank productivity: comparative evidence from Italy and Germany By Elisabetta Fiorentino; Alessio De Vincenzo; Frank Heid; Alexander Karmann; Michael Koetter
  18. The relationship between public and private saving in Spain: does Ricardian equivalence hold? By Francisco de Castro; José Luis Fernández

  1. By: Cândida Ferreira
    Abstract: This paper uses polled panel OLS robust estimations with quarterly data for 26 EU countries from the 1980s until 2006, comparing the results of three panels of countries during different time periods. The results obtained confirm the high degree of integration among the EU financial systems and demonstrate not only the quite high degree of openness of the financial markets, but also their indebtedness and the dependence of the EU banking institutions on the financial resources of other countries.
    Keywords: European credit market; European bank institutions; financial integration; panel estimates.
    JEL: E4 E5 G2
    Date: 2009–04
  2. By: Peter N. Ireland (Boston College)
    Abstract: This paper constructs a two-country stochastic growth model in which neutral and investment-specific technology shocks are nonstationary but cointegrated across economies. It uses this model to interpret data showing that while real investment has grown faster than real consumption in the United States since 1970, the opposite has been true in the Euro Area. The model, when estimated with these data, reveals that the EA missed out on the rapid investment-specific technological change enjoyed in the US during the 1990s; the EA, however, experienced more rapid neutral technological progress while the US economy stagnated during the 1970s.
    Keywords: growth, shocks, Euro area, technological change
    JEL: E32 F41 F43 O41 O47
    Date: 2009–09–30
  3. By: Benchimol, Jonathan (ESSEC Business School); Fourçans, André (ESSEC Business School)
    Abstract: In the current New Keynesian literature, the role of monetary aggregates is generally neglected. Yet it’s hard to imagine money completely “passive” to the rest of the system. By entering real money balances in a non-separable utility function, we introduce an explicit role for money via preference redefinition in a simple New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model. It involves new inflation and output gap specifications where money plays a significant role. We use the General Method of Moments (GMM) to calibrate our DSGE model of the Euro area and we show that the European Central Bank –ECB) should react more strongly to economic shocks as far as the role of money is found significant.
    Keywords: ECB; Inflation; Monetary Policy; Money
    JEL: E31 E51 E58
    Date: 2009–09
  4. By: Gabriele Galati; Steven Poelhekke; Chen Zhou
    Abstract: We investigate whether the anchoring properties of long-run inflation expectations in the United States, the euro area and the United Kingdom have changed around the economic crisis that erupted in mid-2007. We document that in these three economies, expectations measures extracted from inflation-indexed bonds and inflation swaps became much more volatile in 2007. Moreover, their sensitivity to news about inflation and other domestic macroeconomic variables – a measure of anchoring – increased first during the oil price rally in 2006–07, and then during the heightened turmoil triggered by the collapse of Lehman Brothers. Liquidity premia and technical factors have significantly influenced the behaviour of inflation-indexed markets since the outburst of the crisis. We show, however, that these factors did not contaminate the relationship between macroeconomic news and financial market-based inflation expectations at the daily frequency. By testing for structural breaks we conclude that in the United States, the euro area and the United Kingdom, long-run inflation expectations have become less firmly anchored during the crisis.
    Keywords: monetary policy; inflation and inflation compensation; anchors for expectations; crisis; liquidity.
    JEL: E31 E44 E52 E58
    Date: 2009–09
  5. By: Domenico Giannone; Lucrezia Reichlin; Saverio Simonelli
    Abstract: This paper assesses the role of surveys for the early estimates of GDP in the euro area in a model-based automated procedures which exploits the timeliness of their release. The analysis is conducted using both an historical evaluation and a real time case study on the current conjuncture.
    Keywords: Forecasting, factor model, real time data, large data sets, survey.
    JEL: E52 C33 C53
    Date: 2009
  6. By: Fève,P.; Materon,J.; Sahuc, J-G.
    Abstract: The Euro area as a whole has experienced a marked downward trend in inflation over the past decades and, concomitantly, a protracted period of depressed activity. Can permanent and gradual shifts in monetary policy be held responsible for these dynamics? To answer this question, we embed serially correlated changes in the inflation target into a DSGE model with real and nominal frictions. The formal Bayesian estimation of the model suggests that gradual changes in the inflation target have played a major role in the Euro area business cycle. Following an inflation target shock, the real interest rate increases sharply and persistently, leading to a protracted decline in economic activity. Counter--factual exercises show that, had monetary policy implemented its new inflation objective at a faster rate, the Euro zone would have experienced more sustained growth than it actually did.
    Keywords: Inflation target shocks , Gradualism , DSGE models , Bayesian econometrics.
    JEL: E31 E32 E52
    Date: 2009
  7. By: Sebastian Dullien (HTW Berlin, University of Applied Sciences, Germany); Ulrich Fritsche (University Hamburg, Germany); Ingrid Groessl (University Hamburg, Germany); Michael Paetz (University Hamburg, Germany)
    Abstract: Using a modified version of the model presented by Belke and Gros (2007), we analyze the stability of adjustment in a currency union. Using econometric estimates for parameter values we check the stability conditions for the 11 original EMU countries and Greece. We found significant instability in the model for a large number of countries. We then simulate the adjustment process for some empirically observed parameter values and find that even for countries with relatively smooth adjustment, the adjustment to a price shock in EMU might take several decades. Keywords: EMU, convergence, stability.
    Keywords: EMU, convergence, stability, inflation
    JEL: E32 E61 C32
    Date: 2009
  8. By: Ansgar Belke; Andreas Rees
    Abstract: We analyze the importance of global shocks for the global economy and national policy makers. More specifically, we investigate whether monetary policy has become less effective in the wake of financial globalization. We also examine whether there is increasing uncertainty for central banks due to globalization-driven changes in the national economic structure. A FAVAR framework is applied to derive structural shocks on a worldwide level and their impact on other global and also national variables. We estimate our macro model using quarterly data from Q1 1984 to Q4 2007 for the G7 countries plus the euro area. According to our results, global liquidity shocks are a driving force of the global economy and various national economies. However, some other shocks originating in house prices, GDP, technology and long-term interest rates play a role at the global level as well. These results prove to be robust across different specifications. Structural break tests indicate that global liquidity shocks have recently become more important as a determinant for house prices. In general, global variables have become more powerful over time in driving national variables.
    Keywords: Global shocks, international business cycle, international policy coordination and transmission, factor augmented vector autoregressive (FAVAR) models, common factors
    JEL: C22 E31 E32 F42
    Date: 2009
  9. By: Chzhen, Yekaterina (University of York)
    Abstract: This paper uses comparable longitudinal data from the European Community Household Panel from 1994 to 2001 to examine the effects of recent childbirth on the relative risks of switching to part-time, inactivity or unemployment for full-time women, as well as the effect of switching from full-time time to part-time work on the risk of occupational downgrading, in 13 European countries. Once important human capital and workplace characteristics are controlled for, full-time female workers who gave birth in year t are the most likely to remain full-time the following year only in Denmark and Spain. Full-time women are more likely to switch to part-time work than to remain working full-time in the Netherlands, Belgium, Austria and the UK, where female part-time rates are relatively high, but also in Italy, where part-time rates are generally low. At the same time, in Ireland, Italy, the UK and Finland, recent childbirth increases the probability of moving from full-time work to unemployment, while in the Netherlands, France, Italy, Greece, Germany, Austria, the UK and Finland, recent childbirth also increases the risk of switching to inactivity. Substantial evidence of occupational downgrading by skill and occupational hourly wage on switching from full-time to part-time work is found in the majority of the studied countries. Overall, downward occupational moves are substantially more likely amongst workers who switch from full-time to part-time work than amongst the working population at large, both for men and women.
    Keywords: women's labour supply; occupational transitions ; childbirth ; europe
    JEL: J22 J62 J13
    Date: 2009–10
  10. By: Aïda Solé-Auró (Faculty of Economics, University of Barcelona); Montserrat Guillén (Faculty of Economics, University of Barcelona); Eileen M. Crimmins (Andrus Gerontology Center. University of Southern California)
    Abstract: Objective: This study examines health care utilization of immigrants relative to the native-born populations aged 50 years and older in eleven European countries. Methods: We analyzed data from the Survey of Health Aging and Retirement in Europe (SHARE) from 2004 for a sample of 27,444 individuals. Negative Binomial regression was conducted to examine the difference in number of doctor visits, visits to General Practitioners (GPs), and hospital stays between immigrants and the native-born. Results: We find evidence those immigrants above age 50 use health services on average more than the native-born populations with the same characteristics. Our models show immigrants have between 6% and 27% more expected visits to the doctor, GP or hospital stays when compared to native-born populations in a number of European countries. Discussion: Elderly immigrant populations might be using health services more intensively due to cultural reasons.
    Keywords: count data, physician services, immigration
    Date: 2009–10
  11. By: Vincent Rious (SUPELEC-Campus Gif - SUPELEC); Philippe Dessante (SUPELEC-Campus Gif - SUPELEC)
    Abstract: This paper aims at understanding and assessing the main methods proposed by ETSO and EuroPEX [1] to define and allocate interconnection capacities in Europe. We model these methods and evaluate their technical and economic efficiency on a 7-node network. We find first, that, unsurprisingly, the allocation methods are all the more efficient as the Kirchhoff laws are integrated more precisely in the market clearing. Second, and more surprisingly, we find that the zonal vision of the grid considered by all these methods has important consequences on the technical and economic efficiency as it may cause the capacity limits of powerlines to be exceeded.
    Keywords: Electricity, Transmission Capacity Allocation, Market Coupling, ATC-based, flow-based.
    Date: 2009–04–29
  12. By: Vincent Rious (SUPELEC-Campus Gif - SUPELEC); Michelle Hallack (ADIS - Analyse des Dynamiques Industrielles et Sociales - Université Paris Sud - Paris XI)
    Abstract: The mainline of the workshop was the transmission tariffs on gas network from a European perspective. Transmission is a key issue for the European gas system for two reasons. First, transmission tariff should incentivize the efficient use of infrastructure and so facilitate the development of competition. Second, transmission tariff should also give enough return to network investors so that they upgrade the network efficently compared to their current and future uses not only for national infrastructures but also for cross-border pipelines. Three issues were especially treated in the different sessions during the workshop namely: 1° competition and efficient use of the network, 2° investment in national infrastructures, and 3° investment in cross-border infrastructures. Key conclusions and open questions from the debate among regulators, TSOs, stakeholders and academic delegates are reported here.
    Date: 2009–03–06
  13. By: Leen Vandezande (KUL - Katholieke Universiteit Leuven - Université Catholique de Louvain); Leonardo Meeus (KUL - Katholieke Universiteit Leuven - Université Catholique de Louvain); Ronnie Belmans (KUL - Katholieke Universiteit Leuven - Université Catholique de Louvain); Marcelo Saguan (ADIS - Analyse des Dynamiques Industrielles et Sociales - Université Paris Sud - Paris XI); Jean-Michel Glachant (LdP - Loyola de Palacio Programme - European University Institute); Vincent Rious (SUPELEC-Campus Gif - SUPELEC)
    Abstract: Following several regional initiatives on the day-ahead and intra-day stage, integrating real-time balancing markets constitutes a logical next step in the process towards an Internal Electricity Market (IEM) in Europe. So far, realtime balancing market designs significantly differ between European countries and a coordinated approach for cross-border exchange of balancing services is non-existent. This paper aims to illustrate that the current lack of balancing market harmonisation – in combination with an increasingly integrated day-ahead and intra-day trade – can be profitably exploited by traders. More specifically, trading strategies taking advantage of structural design differences in the imbalance settlement of two countries are identified and assessed. The paper analyses detailed data of the Belgian and French power system using statistics in order to verify the profitability of different trading strategies between both countries. Some of the identified trading strategies are found to be significantly profitable; others turn out to be loss-making. On average, France was the most attractive country for traders to be long in 2008; Belgium to be short. Profitable trading strategies can usally be carried out without any expense as cross-border capacities available at the intra-day stage are currently far from being used and no value is attributed to them. However, some profitable trading activities resulting from market design imperfections may induce economic inefficiencies
    Date: 2009–06–24
  14. By: Hagemejer, Jan; Cieslik, Andrzej
    Abstract: The EU-sponsored Barcelona conference in 1995 set the ambitious goal of creating the Euro-Mediterranean Free Trade Area (EUROMED) that would include the European Union and the MENA countries by 2010. The intermediate steps towards building the EUROMED have involved bilateral “vertical” trade liberalization between the EU and the particular MENA countries as well as “horizontal” trade liberalization among themselves. In this paper we evaluate empirically the effects of the new EU Association Agreements with the MENA countries using the augmented gravity equations derived from a variety of neoclassical and new trade theory models and panel data for the period 1980-2004. We find that while these agreements increased significantly imports of the MENA countries from the EU they had no positive impact on their exports to the EU which can be attributed to the asymmetry in trade liberalization between the EU and the MENA countries.
    Keywords: bilateral trade; gravity equation; preferential trade liberalization
    JEL: F11 F12
    Date: 2009–06
  15. By: Ioana Alexopoulou (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Irina Bunda (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Annalisa Ferrando (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: Based on a rich database of government bond spreads and macroeconomic indicators over the period 2001-2008, we propose an empirical assessment of the role of fundamentals in driving long-term sovereign bond spreads of the new EU countries (Bulgaria, Czech Republic, Latvia, Lithuania, Hungary, Poland, Romania and Slovakia). The results of a dynamic panel error correction model that accounts for both common long-run determinants and cross-country heterogeneities in sovereign bond spreads tend to suggest that fundamentals still matter for market’s assessment of a country creditworthiness. Countries’ levels of external debt, fiscal and current account balances, exchange and inflation rates, their degree of trade openness as well as short-term interest rate spreads play an important role in the new EU countries’ access to long-term finance. We furthermore challenge the pooled mean approach in order to check whether other factors may become relevant in the long-run for two subgroups of countries according to the developments in their current account balances. Fiscal fundamentals seem to matter most for one group of countries, those characterised by widening external imbalances and historically high levels of spreads. In a context of heightened risk aversion and potential for spill over effects, this group of countries are more exposed to domestic sources of vulnerability as well as to swings in market perceptions of sovereign risks. JEL Classification: G12, H60, E62.
    Keywords: long-term government bond spreads, new EU countries, pooled mean group estimation.
    Date: 2009–09
  16. By: Luis J. Álvarez (Banco de España); Samuel Hurtado (Banco de España); Isabel Sánchez (Banco de España); Carlos Thomas (Banco de España)
    Abstract: This paper assesses the impact of oil price changes on Spanish and euro area consumer price inflation. We find, consistently with recent international evidence, that the inflationary effect of oil price changes is limited, even though crude oil price fluctuations are a major driver of inflation variability. The impact on Spanish inflation is found to be somewhat higher than in the euro area. Direct effects are increasing over time, reflecting the higher spending of households on refined oil products, whereas indirect ones, defined in broad terms, are losing importance.
    Keywords: oil prices, consumer price infl ation, Spanish and Euro area infl ation, DSGE models
    JEL: E20 E31 E37
    Date: 2009–10
  17. By: Elisabetta Fiorentino (Deutsche Bundesbank); Alessio De Vincenzo (Bank of Italy); Frank Heid (Deutsche Bundesbank); Alexander Karmann (Technische Universität Dresden); Michael Koetter (University of Groningen)
    Abstract: The Italian and German banking systems shared similar characteristics early in the 1990s but have evolved in different directions since then: Italy privatized its publicly-owned banks while Germany has maintained a large share of state-owned savings banks. Contemporaneously, banks in both markets engaged heavily in mergers and acquisitions. We analyze how these activities have affected banksÂ’ productivity in the period 1994-2004, differentiating between technical change, efficiency change and scale economies. We find that privatized banks experienced a significant increase in productivity, especially if they subsequently merged with other banks. German banks were still able to increase their productivity through consolidation.
    Keywords: banking market integration, deregulation, total factor productivity, Italy, Germany
    JEL: D24 G21 G28 L33
    Date: 2009–09
  18. By: Francisco de Castro (Banco de España); José Luis Fernández (Banco de España)
    Abstract: This paper aims to test the validity of the Ricardian proposition for the Spanish economy from three different approaches: a) by testing its theoretical implications on the stability of national saving and the relationship between fiscal and current account balances, b) by carrying a number of tests on different structural consumption equations and, c) by testing this hypothesis in consumption functions stemming from the Euler equations derived from a consumer’s maximization problem. Our results lean toward rejection of the Ricardian proposition, although some degree of substitution between public and private saving is detected. In terms of policy implications, these results would suggest that there is some room for fiscal policy to exert its countercyclical role in the case of Spain. However, the effectiveness of such a policy might be limited in a context of rising debt ratios that trigger sustainability concerns and make consumers increasingly Ricardian.
    Keywords: Ricardian equivalence, debt neutrality, saving, fiscal policy
    JEL: E62 E21 H30
    Date: 2009–10

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