nep-eec New Economics Papers
on European Economics
Issue of 2009‒11‒21
eighteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. A Stable Model for Euro Area Money Demand: Revisiting the Role of Wealth. By Andreas Beyer
  2. Downward Nominal and Real Wage Rigidity: Survey Evidence from European Firms. By Jan Babecký; Philip Du Caju; Theodora Kosma; Martina Lawless; Julián Messina; Tairi Rõõm
  3. The Margins of Labour Cost Adjustment: Survey Evidence from European Firms. By Jan Babecký; Philip Du Caju; Theodora Kosma; Martina Lawless; Julián Messina; Tairi Rõõm
  4. Europe’s Internal Market at Fifty: Over the Hill? By Straathof, B.; Linder, G-J.
  5. How are firms' wages and prices linked: survey evidence in Europe By Martine Druant; Silvia Fabiani; Gabor Kezdig; Ana Lamo; Fernando Martins; Roberto Sabbatini
  6. How Stable Are Monetary Models of the Dollar-Euro Exchange Rate?: A Time-varying Coefficient Approach By Joscha Beckmann; Ansgar Belke; Michael Kühl
  7. Pass-through of external shocks along the pricing chain: A panel estimation approach for the euro area. By Bettina Landau; Frauke Skudelny
  8. The performance of the European Stock Markets: a time-varying Sharpe ratio approach By José A. Soares da Fonseca
  9. Modelling State Dependence and Feedback Effects between Poverty, Employment and Parental Home Emancipation among European Youth By Sara Ayllón
  10. Does State Street lead to Europe? The case of financial exchange innovations By Komulainen, Mari; Takalo, Tuomas
  11. Sectorial Border Effects in the European Single Market: an Explanation through Industrial Concentration. By Gianluca Cafiso
  12. From Business model to Business model portfolio in the european biopharmaceutical industry By Valérie Sabatier; Vincent Mangematin; Tristan Rouselle
  13. Inflation persistence in New EU Member States: Is it different than in the Euro Area Members? By Maria Popa
  14. The Real Effect of Financial Crises in the European Transition Economies By Davide Furceri; Aleksandra Zdzienicka
  15. Wage-setting behavior in France - additional evidence from an ad-hoc survey. By Jérémi Montornès; Jacques-Bernard Sauner-Leroy
  17. The determinants of university patenting: Do incentives matter? By Tomás del Barrio-Castro; José García-Quevedo
  18. Do Firms Learn by Exporting or Learn to Export? Evidence from Small and Medium-Sized Enterprises (SMEs) in Swedish Manufacturing By Hansson, Pär; Eliasson, Kent; Lindvert, Markus

  1. By: Andreas Beyer (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: In this paper we present an empirically stable money demand model for Euro area M3. We show that housing wealth is an important explanatory variable of long-run money demand that captures the trending behaviour of M3 velocity, in particular its shift in the first half of this decade. We show that the current financial crisis has no impact on the stability of our money demand model. JEL Classification: C22, C32, E41.
    Keywords: Money Demand, Parameter Constancy, Wealth, Cointegration, Vector Error Correction Model.
    Date: 2009–11
  2. By: Jan Babecký (Czech National Bank, Na Příkopě 28, 115 03 Praha 1, Czech Republic.); Philip Du Caju (National Bank of Belgium, Boulevard de Berlaimont 14, B-1000 Brussels, Belgium.); Theodora Kosma (Bank of Greece, 21, E. Venizelos Avenue, P. O. Box 3105, GR-10250 Athens, Greece.); Martina Lawless (Central Bank and Financial Services Authority of Ireland, Dame Street, Dublin 2, Ireland.); Julián Messina (The World Bank, 1818 H Street, NW, Washington, DC 20433, USA.); Tairi Rõõm (Bank of Estonia, Estonia pst. 13, ET-15095 Tallinn, Estonia.)
    Abstract: It has been well established that the wages of individual workers react little, especially downwards, to shocks that hit their employer. This paper presents new evidence from a unique survey of firms across Europe on the prevalence of downward wage rigidity in both real and nominal terms. We analyse which firm-level and institutional factors are associated with wage rigidity. Our results indicate that it is related to workforce composition at the establishment level in a manner that is consistent with related theoretical models (e.g. efficiency wage theory, insider-outsider theory). We also find that wage rigidity depends on the labour market institutional environment. Collective bargaining coverage is positively related with downward real wage rigidity, measured on the basis of wage indexation. Downward nominal wage rigidity is positively associated with the extent of permanent contracts and this effect is stronger in countries with stricter employment protection regulations. JEL Classification: J30, J31, J32, C81, P5.
    Keywords: downward nominal wage rigidity, downward real wage rigidity, wage indexation, survey data, European Union.
    Date: 2009–11
  3. By: Jan Babecký (Czech National Bank, Na Příkopě 28, 115 03 Praha 1, Czech Republic.); Philip Du Caju (National Bank of Belgium, Boulevard de Berlaimont 14, B-1000 Brussels, Belgium.); Theodora Kosma (Bank of Greece, 21, E. Venizelos Avenue, P. O. Box 3105, GR-10250 Athens, Greece.); Martina Lawless (Central Bank and Financial Services Authority of Ireland, Dame Street, Dublin 2, Ireland.); Julián Messina (The World Bank, 1818 H Street, NW, Washington, DC 20433, USA.); Tairi Rõõm (Bank of Estonia, Estonia pst. 13, ET-15095 Tallinn, Estonia.)
    Abstract: Firms have multiple options at the time of adjusting their wage bills. However, previous literature has mainly focused on base wages. We broaden the analysis beyond downward rigidity in base wages by investigating the use of other margins of labour cost adjustment at the firm level. Using data from a unique survey, we find that firms make frequent use of other, more flexible, components of compensation to adjust the cost of labour. Changes in bonuses and non-pay benefits are some of the potential margins firms use to reduce costs. We also show how the margins of adjustment chosen are affected by firm and worker characteristics. JEL Classification: J30, C81, P5.
    Keywords: labour costs, wage rigidity, firm survey, European Union.
    Date: 2009–11
  4. By: Straathof, B. (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics); Linder, G-J.
    Abstract: For more than half a century, members of the European Union (EU) have pursued policies aimed at reducing the cost of cross-border transactions. Using a closed-form solution for the non-linear gravity system of Anderson and Van Wincoop (2003) we find that Internal Market policies have created trade between EU members, while diversion of trade with non members has been limited. Around 1995, 18 percent of total trade by EU15 countries can be attributed to the Internal Market. In the second half of the 1990’s the European advantage started to deteriorate relative to other trade flows: in 2005 the contribution of the Internal Market was just 9 percent. Most enlargements of the EU have had a positive impact on trade.
    Keywords: European Union, gravity equation, trade diversion
    JEL: F15 F10
    Date: 2009
  5. By: Martine Druant (National Bank of Belgium); Silvia Fabiani (Bank of Italy); Gabor Kezdig (Central European University); Ana Lamo (European Central Bank); Fernando Martins (Bank of Portugal); Roberto Sabbatini (Bank of Italy, Economic Research Department)
    Abstract: This paper presents new evidence on the patterns of price and wage adjustment in European firms and on the extent of nominal rigidities. It uses a unique dataset collected through a firm-level survey conducted in a broad range of countries and covering various sectors. Several conclusions are drawn from this evidence. Firms adjust wages less frequently than prices: the former tend to remain unchanged for about 15 months on average, the latter for around 10 months. The degree of price rigidity varies substantially across sectors and depends strongly on economic features, such as the intensity of competition, the exposure to foreign markets and the share of labour costs in total cost. Instead, country specificities, mostly related to the labour marketÂ’s institutional setting, are more relevant in characterising the pattern of wage adjustment. The latter also exhibits a substantial degree of time-dependence, as firms tend to concentrate wage changes in a specific month, mostly January in the majority of countries. Wage and price changes feed into each other at the micro level and there is a relationship between wage and price rigidity.
    Keywords: survey, wage rigidity, price rigidity, indexation, labour market institutions, time dependence
    JEL: D21 E30 J31
    Date: 2009–10
  6. By: Joscha Beckmann; Ansgar Belke; Michael Kühl
    Abstract: This paper examines the significance of different fundamental regimes by applying various monetary models of the exchange rate to one of the politically most important exchange rates, the exchange rate of the US dollar vis-à-vis the euro (the DM). We use monthly data from 1975:01 to 2007:12. Applying a novel time-varying coefficient estimation approach, we come up with interesting properties of our empirical models. First, there is no stable long-run equilibrium relationship among fundamentals and exchange rates since the breakdown of Bretton Woods. Second, there are no recurring regimes, i.e. across different regimes either the coefficient values for the same fundamentals differ or the significance differs. Third, there is no regime in which no fundamentals enter. Fourth, the deviations resulting from the stepwise cointegrating relationship act as a significant error-correction mechanism. In other words, we are able to show that fundamentals play an important role in determining the exchange rate although their impact differs significantly across different sub-periods.
    Keywords: Structural exchange rate models, cointegration, structural breaks, switching regression, time-varying coefficient approach
    JEL: E44 F31 G12
    Date: 2009
  7. By: Bettina Landau (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Frauke Skudelny (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: In this paper we analyse in a mark-up framework the pass-through of commodity price and exchange rate shocks to the main components of producer and consumer prices. Thereby we link movements in prices at the different production stages as firms set their prices as a mark-up over production costs. The empirical results reveal significant linkages between different price stages in the euro area. The overall results are roughly in line with the literature and provide insight into the effects at different stages of the production chain. Non-energy commodity prices turn out to be important determinants of euro area prices. JEL Classification: E31, E37.
    Keywords: Pass-through, producer prices, consumer prices, commodity prices, exchange rate.
    Date: 2009–11
  8. By: José A. Soares da Fonseca (Faculdade de Economia/GEMF, Universidade de Coimbra)
    Abstract: This article studies the performance of the national stock markets of sixteen European countries (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Holland, Ireland, Italy, Norway, Portugal, Spain, Sweden Switzerland and United Kingdom), using daily data covering the period between 2nd January 2001 and 30th May 2009. Daily expected returns, and the conditional volatility of each index, were calculated using a model combining the market model and an implicit long-term relation between the index prices. Finally, time-varying (conditional) Sharpe ratios were calculated for each index. These were used as the basis for a statistical comparison of the performance of the stock indexes of this group of countries, throughout different sub periods corresponding to different conditions (of expansion and depression) in the stock markets.
    Keywords: expected return, Sharpe ratio, market model, conditional volatility
    JEL: F36 G15
    Date: 2009–11
  9. By: Sara Ayllón
    Abstract: Youth is one of the phases in the life-cycle when some of the most decisive life transitions take place. Entering the labour market or leaving parental home are events with important consequences for the economic well-being of young adults. In this paper, the interrelationship between employment, residential emancipation and poverty dynamics is studied for eight European countries by means of an econometric model with feedback effects. Results show that youth poverty genuine state dependence is positive and highly significant. Evidence proves there is a strong causal effect between poverty and leaving home in Scandinavian countries, however, time in economic hardship does not last long. In Southern Europe, instead, youth tend to leave their parental home much later in order to avoid falling into a poverty state that is more persistent. Past poverty has negative consequences on the likelihood of employment.
    Keywords: Youth poverty dynamics, trivariate multinomial probit, state dependence, feedback effects, unobserved heterogeneity
    JEL: I32 J13 C33
    Date: 2009
  10. By: Komulainen, Mari (National Board of Patents and Registration of Finland); Takalo, Tuomas (Bank of Finland and University of Jyväskylä)
    Abstract: We study whether and to what extent financial exchange innovations are in practice patentable in Europe. We find that exchange-related applications initially increased significantly after the State Street decision but subsequently decreased. The clear majority (65%) of applications come from the U.S. investment banks and exchanges themselves being among the most active innovators. But patents were not easly granted in response to these applications (only 3% of them led to valid patent). The high post-grant opposition rate (41%) for granted patents indicated that competitors tightly monitored each other’s patents. The evidence, as augmented with clinical case studies, supports the notion that, for an invention to pass the inventive step requirement for obtaining a European patent, it should have technical features for solving a sufficiently challenging technical problem. Our evidence suggests that patentability standards for financial methods have not weakened in Europe in the aftermath of the State Street decision and that the inventive step requirement constitutes a major obstacle for applicants to overcome in order to obtain a financial exchange patent in Europe.
    Keywords: finance patents; financial innovation; business method patents; patent policy; management of intellectual property in financial services
    JEL: G24 G28 K29 O32 O34
    Date: 2009–09–22
  11. By: Gianluca Cafiso (University of Catania, Economics Department, Corso Italia 55, Catania – Italy.)
    Abstract: The purpose of this paper is to explain the relation between the Border Effect and industrial concentration. This is achieved by founding this relation on the Home Market Effect and testing the robustness of this foundation through an application to the European Single Market. A sectorial Gravity Equation is estimated using different econometric estimators, in particular we discuss a recently suggested technique for the estimation of log-linear CES models. Overall, our findings suggest a steady relation between the Border Effect and industrial concentration. Besides, the analysis of industrial concentration through a synthetic index provides us with valuable insights into the structure of the European industry. JEL Classification: F10, F12, F15.
    Keywords: Trade, Border Effect, Industrial Concentration, Home Market Effect, European Single Market.
    Date: 2009–11
  12. By: Valérie Sabatier (GAEL - Economie Appliquée de Grenoble - INRA : UR1215 - Université Pierre Mendès-France - Grenoble II, 3PX Therapeutics - 3PX Therapeutics); Vincent Mangematin (MTS - Management Technologique et Strategique - Grenoble Ecole de Management); Tristan Rouselle (3PX Therapeutics - 3PX Therapeutics)
    Abstract: At the crossroad of firm's core competencies and of the anticipations of consumers' needs, the business model approach complements corporate and business strategy approaches. Firms combine several business models simultaneously to deliver value to different markets, building a portfolio of business model. For managers, business model and business model portfolio are particularly useful to address customer's needs and organisational capabilities of the firm. They also emphasise how the initial core competency of the firm can be extended or redeployed to increase the rent. Business model portfolio describes the firm's strategy to balance time-to-market, revenue stream, risk and interdependencies. It conceptualises firm diversification within the same industry to generate and capture rents. They finally describe two generic dimensions: core competence extension to enlarge the market and to address additional customers and core competence redeployment to serve similar market with the same core competence.
    Keywords: Biopharmaceutical; portfolio; corporate strategy; business strategy; core competence; coherence; value chain
    Date: 2009–11–12
  13. By: Maria Popa
    Abstract: Is inflation persistence in the New Member States comparable to that in the Euro Area? We argue that persistence may not be as different between the two groups as one might expect. The paper provides a structural measure for the inflation persistence in the New Member States: New Hybrid Phillips Curve. The data set used includes samples for five new member of the EU. We describe the dynamics of inflation using the New Hybrid Phillips Curve as framework. Structural measures show that backward-looking behavior may be a more important component in explaining inflation persistence in the New Member States than in the Euro Area.
    Keywords: inflation persistence, Hybrid Phillips Curve
    Date: 2009–10
  14. By: Davide Furceri (OECD and University of Palermo); Aleksandra Zdzienicka (GATE-CNRS/ENS LSH, University of Lyon, France)
    Abstract: The aim of this work is to assess the impact of financial crises on output for 11 European transition economies (CEECs). The results suggest that financial crises have a significant and permanent effect, lowering long-term output by about 17 percent. The effect is more important in smaller countries, with relative higher dependence on external financing, and in which the banking sector noticed more important financial disequilibria. We also found that fiscal policy measures have been the most efficient tools in dealing with the crises, while the role of monetary policy instruments has been rather blinded. Exchange rate resulted to be more a propagator than a crises absorber, while the IMF credit has been found to have positive (but not significant) impact on growth performance. Finally, the effect for the CEECs is much bigger than in the EU advanced economies, for which we found that financial crises lowers long-term output only by 2 percent.
    Keywords: Output Growth, Financial Crisis, CEECs.
    JEL: G1 E6
    Date: 2009
  15. By: Jérémi Montornès (Banque de France, 31, rue croix-des-petits-champs, 75 049 Paris Cedex 01, France); Jacques-Bernard Sauner-Leroy (Banque de France, 31, rue croix-des-petits-champs, 75 049 Paris Cedex 01, France)
    Abstract: We investigate the wage-setting behavior of French companies using an ad-hoc survey conducted specifically for this study. Our main results are the following. i) Wages are changed infrequently. The mean duration of wage contracts is one year. Wage changes occur at regular intervals during the year and are concentrated in January and July. ii) We find a lower degree of downward real wage rigidity and nominal wage rigidity in France compared to the European average. iii) About one third of companies have an internal policy to grant wage increases according to inflation. iv) When companies are faced adverse shocks, only a partial response is transmitted into prices. Companies also adopt cost-cutting strategies. The wage of newly hired employees plays an important role in this adjustment. JEL Classification: E3, D4, L11.
    Keywords: wage rigidity, wage-setting behavior, survey data.
    Date: 2009–10
  16. By: Francesco Aiello; Valeria Pupo (Dipartimento di Economia e Statistica, Università della Calabria)
    Abstract: This paper aims to provide a contribution to the debate on the effectiveness of cohesion policies in Italy. The focus is on the territorial effects of EU spending from 1996 to 2007. The empirical analysis is based on the estimate of an expanded neoclassical growth model in which the Structural Funds are one of the variables that explain the convergence across Italian regions. Using panel data and a dynamic panel estimator we find that the Structural Funds, even having had a greater impact in the South compared to the Centre-North, have not contributed to reduce the economic divide in Italy.
    Keywords: Structural Funds, Regional Policy, Economic Divide in Italy
    JEL: H50 R58 O47
    Date: 2009–10
  17. By: Tomás del Barrio-Castro (University of the Balearic Islands); José García-Quevedo (IEB, Universitat de Barcelona)
    Abstract: In recent years various studies have examined the factors that may explain academic patents. Existing analyses have also underlined the substantial differences to be found in European countries in the institutional framework that defines property rights for academic patents. The objective of this study is to contribute to the empirical literature on the factors explaining academic patents and to determine whether the incentives that universities offer researchers contribute towards explaining the differences in academic patenting activity. The results of the econometric analysis for the Spanish universities point towards the conclusion that the principal factor determining the patents is funding of R&D while royalty incentives to researchers do not appear to be significant.
    Keywords: Patents, University, R&D
    Date: 2009–11
  18. By: Hansson, Pär (Department of Business, Economics, Statistics and Informatics); Eliasson, Kent (Department of Economics, Umeå University); Lindvert, Markus (Growth Analysis)
    Abstract: Using a matching approach, we compare the productivity trajectories of future exporters and matched and unmatched non-exporters. Future exporters have higher productivity than do unmatched non-exporters before entry into the export market, which indicates self-selection into exports. More interestingly, we also find a productivity increase among future exporters relative to matched non-exporters 1-2 years before export entry. However, the productivity gap between future exporters and matched non-exporters does not continue to grow after export entry. Our results suggest that learning-to-export occurs but that learning-by-exporting does not. In contrast to previous studies on Swedish manufacturing, we focus particularly on small and medium-sized enterprises (SMEs)
    Keywords: productivity; learning-to-export; learning-by-exporting; matching
    JEL: D24 F14
    Date: 2009–11–16

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