nep-eec New Economics Papers
on European Economics
Issue of 2009‒12‒11
sixteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Changes in International Business Cycle Affiliations By Erdenebat Bataa; Denise R. Osborn; Marianne Sensier; Dick van Dijk
  2. Unifying EU Representation at the IMF Executive Board By Brandner, Peter; Grech, Harald; Paterson, Iain
  3. Exchange Rate Misalignments at World and European Levels By Se-Eun Jeong; Jacques Mazier; Jamel Saadaoui
  4. A factor analysis approch to measuring European loan and bond market integration By Wagenvoort, Rien; Ebner, André; Morgese Borys, Magdalena
  5. Inferring market power from retail deposit interest rates in the euro area By Vajanne, Laura
  6. Fiscal Policy in the European Monetary Union By Betty C. Daniel; Christos Shiamptanis
  7. Brainy Africans to Fortress Europe: For Money or Colonial Vestiges? By Constant, Amelie F.; Tien, Bienvenue
  8. How Deep is a Crisis? Policy Responses and Structural Factors Behind Diverging Performances By Jean-Paul Fitoussi; Francesco Saraceno
  9. Employment convergence of immigrants in the European Union By Szilvia Hamori
  10. Efficiency of EU Merger Control in the 1990-2008 Period By Goran Serdarevic; Petr Teply
  11. The Distributional Impact of In Kind Public Benefits in European Countries By Paulus, Alari; Sutherland, Holly; Tsakloglou, Panos
  12. Aviation and the EU ETS - Lessons learned from previous emissions trading schemes By Kopsch, Fredrik
  13. Measuring International Technology Spillovers and Progress Towards the European Research Area By Siedschlag, Iulia
  14. The Impact of the Crisis on Budget Policy in Central and Eastern Europe By Zsolt Darvas
  15. Global Integration of Central and Eastern European Financial Markets: The Role of Economic Sentiments By Ansgar Belke; Joscha Beckmann; Michael Kühl
  16. Have Labour Market Reforms at the Turn of the Millennium Changed Job Durations of the New Entrants? A Comparative Study for Germany and Italy By Giannelli, Gianna Claudia; Jaenichen, Ursula; Villosio, Claudia

  1. By: Erdenebat Bataa; Denise R. Osborn; Marianne Sensier; Dick van Dijk
    Abstract: We investigate changes in international business cycle affiliations using an iterative procedure for detecting system-wide structural breaks. We analyze GDP growth rates in two systems, one with the US, Euro-area, UK and Canada and the other for the Euro-area countries of France, Germany and Italy. We discover that international dynamic interactions change in both the mid-1980s and early 1990s, with such changes being particularly important for studying influences on the aggregate Euro-area. However, contemporaneous (conditional) correlations between these Euro-area countries increase in 1984 and 1998, with a large increase in correlations also evident across the international system during the 1990s.
    Date: 2009
  2. By: Brandner, Peter (Federal Ministry of Finance, Austria); Grech, Harald (Oesterreichische Nationalbank); Paterson, Iain (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria)
    Abstract: The consequences of consolidating EU representation at the IMF Executive Board by regrouping the 27 Member States into two EU constituencies, euro area and non-euro area, are discussed. In particular we contrast voting power as proposed by Penrose-Banzhaf (PBI) and Shapley-Shubik (SSI), and other respectively related measures of blocking (or veto) power and decision efficiency as proposed by Coleman and Paterson. Hitherto, IMF-specific literature is PBI-based. However, theoretical reasons and empirical plausibility arguments for the SSI are compelling. The (SSI) voting power of the two large constituencies – U.S.A. and euro area – reflects their corresponding voting shares over a range of majority thresholds, whereas PBI voting power reduces to only half of vote share at the majority threshold of 85% needed for some Executive Board decisions. SSI-related estimates of veto power are generally lower than the Coleman indices. Correspondingly, the efficiency of collective decision-making is considerably underestimated by the Coleman measure;
    Keywords: International Monetary Fund, European Union, Voting power analysis, Veto power
    JEL: C71 D71
    Date: 2009–11
  3. By: Se-Eun Jeong (CEPN - Centre d'économie de l'Université de Paris Nord - CNRS : UMR7115 - Université Paris-Nord - Paris XIII); Jacques Mazier (CEPN - Centre d'économie de l'Université de Paris Nord - CNRS : UMR7115 - Université Paris-Nord - Paris XIII); Jamel Saadaoui (CEPN - Centre d'économie de l'Université de Paris Nord - CNRS : UMR7115 - Université Paris-Nord - Paris XIII)
    Abstract: Since the mid-1990s, we observe an increase of world current account imbalances. These imbalances have only been partially reduced since the burst of the crisis in 2007. They reflect, to some extent, exchange rate misalignments, an issue which has been frequently studied in the literature. However, imbalances, which have reinforced in the 2000s, are also important inside the Euro area. This analysis cannot be reduced to simple estimates of euro misalignment at the world level because of specific constraints that exist for each member of the Euro area. This article aims to examine to what extent intra-European imbalances reflect exchange rate misalignments for each “national euro”.
    Keywords: Equilibrium Exchange Rate; Current Account Balance; Macroeconomic Balance
    Date: 2009–11–24
  4. By: Wagenvoort, Rien; Ebner, André; Morgese Borys, Magdalena
    Abstract: By using an existing and a new convergence measure, this paper assesses whether bank loan and bond interest rates are converging for the non-financial corporate sector across the euro area. Whilst we find evidence for complete bond market integration, the market for bank loans remains segmented, albeit to various degrees depending on the type and size of the loan. Factor analysis reveals that rates on large loans and small loans with long rate fixation periods have weakly converged in the sense that, up to a fixed effect, their evolution is driven by common factors only. In contrast, the price evolution of small loans with short rate fixation periods is still affected by country-specific dynamic factors. There are few signs that bank loan rates are becoming more uniform with time.
    Keywords: financial market integration; corporate loan; corporate bond; panel unit root test; factor analysis
    JEL: C12 C23 G12 G2
    Date: 2009–11
  5. By: Vajanne, Laura (Bank of Finland Research)
    Abstract: This paper tests for the existence of market power in banking, using data on demand deposit rates of households and corresponding market rates in five euro area countries. An implicit measure for market power is based on a partial adjustment model that also allows for an asymmetric response of deposit rates to changes in market rates. The period covers the ten years since introduction of the euro. The analysis indicates that banks are exercising major market power within the euro area. In addition to general sluggishness, bank deposit rates’ reactions are clearly asymmetric: flexible when market rates are decreasing and rigid when rates are increasing. The degree of asymmetric behaviour can be interpreted as a further indication of the market power banks exercise. Despite country differences, a general pattern of interest rate adjustment in demand deposit pricing is observable.
    Keywords: competition; banking industry; retail interest rates
    JEL: G21 L11 L13
    Date: 2009–11–02
  6. By: Betty C. Daniel (University at Albany); Christos Shiamptanis (Central Bank of Cyprus)
    Abstract: An EMU country that adheres to the Maastricht and the Stability and Growth Pact limits is implicitly promising not to allow its fiscal stance to deteriorate to a position in which it places pressure on the European Central Bank to forgo its price level target to finance fiscal deficits. Violation of these limits has raised questions about potential fiscal encroachment on the monetary authority’s freedom to determine the price level. We show that for the monetary authority to have the freedom to control price, the primary surplus must respond strongly enough to lagged debt. Panel estimates are consistent with monetary control of the price level.
    Keywords: European Monetary Union, monetary policy, fiscal policy, Fiscal Theory of the Price Level, panel cointegration, error correction
    JEL: C32 C33 E42 E62 F33
    Date: 2009–07
  7. By: Constant, Amelie F. (DIW DC, George Washington University); Tien, Bienvenue (DIW DC)
    Abstract: Economic reasons along with cultural affinities and the existence of networks have been the main determinants explaining migration flows between home and host countries. This paper reconsiders these approaches combined with the gravity model and empirically tests the hypothesis that ex-colonial links can still play an important role in the emigration decision. We employ a general linear mixed model, and apply it to the case of skilled, educated and talented Africans, who migrate to Fortress Europe over the period of 1990 to 2001. While we find some differences in the exodus of skilled Africans by sub-regions, the magnitude of the colonial vestige in Africa is a significant determinant of emigration flows. Overall, Portugal is preferred to the UK which is preferred more than Belgium, Germany and Italy. Brainy Africans are, however, indifferent between the UK, France and Spain as a destination country. Established immigrant networks and higher standards of living with job opportunities in the host country are also very important drivers of the emigration of brainy Africans to the European ex-colonial powers.
    Keywords: skilled migration, Africa, colonization, networks, economic reasons
    JEL: F22 O15 J61
    Date: 2009–12
  8. By: Jean-Paul Fitoussi (Observatoire Français des Conjonctures Économiques); Francesco Saraceno (Observatoire Français des Conjonctures Économiques)
    Abstract: The effects of the current crisis on the level of output, and consequently on unemployment and poverty, are likely to be deep and long lasting; they should not be underestimated, especially now that some timid signs of recovery are appearing. The crisis was triggered by the US financial sector, but its roots are real, and can be traced to the deepening income inequality of the last three decades, which led to a chronic deficiency of aggregate demand. In the Unites States, the center of the crisis, the policy reaction has been bold, and as a consequence the effects of the crisis are less striking than in the eurozone, where only France has a comparable performance. The policy inertia of the eurozone countries, in fact, is more structural, and is related to the institutions for the economic governance of Europe. The statute of the ECB and the SGP reflect the doctrine opposed to discretionary macroeconomic policies, constrain eurozone governments and its monetary policy. The relatively better performance of France can in fact be explained with these lenses(?) as on one side it has a well developed system of automatic stabilizers, and on the other it suffered less than other OECD countries the deepening of income inequality. Developing countries, suffering from a crisis that certainly they did not originate, should be given the means to carry on policies to contrast the crisis, thus avoiding pauperization and the long term negative effects of the adverse shock they experienced.
    Keywords: Economic Crisis, Fiscal Policy, Monetary Policy, Income Distribution, Policy Coordination, European Governance
    JEL: E24 E50 E61 F01
    Date: 2009–11
  9. By: Szilvia Hamori (Institute of Economics Hungarian Academy of Sciences)
    Abstract: In light of the importance of immigrants' labour market integration in the host countries, this study examines the employment convergence between foreign-born and native-born in the European Union (EU), by gender and broad region of origin - distinguishing between immigrants born within and outside the EU - based on data drawn from the European Labour Force Survey. The estimation results point to numerous differences across immigrant groups, genders and receiving EU regions - especially between the Southern EU member states and the rest of the EU15 and between the Eastern European countries admitted in 2004 and the 15 pre-enlargement member states.
    Keywords: Immigrants, Employment, European Union
    JEL: F22 J21 J61
    Date: 2009–10
  10. By: Goran Serdarevic (EEIP, a.s; Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Petr Teply (EEIP, a.s; Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: The main goal of this paper is to provide an analysis of key regulatory changes in the European merger control and to evaluate their real impact on the efficiency of merger regulation. Our main contribution is an empirical analysis of a unique representative sample of 161 horizontal mergers covering the final regulatory assessments during the period from 1990 to 2008. We use stock market data to identify those cases where there are discrepancies between the Commission and market evaluation of the merger. The PROBIT model is then used to further investigate the sources of these discrepancies. Our results suggest that the Commission’s decisions are not purely explained by the motive of protecting consumer welfare and that other political and institutional factors do play a role in setting policy. We did not find evidence that the Commission protects competitors at the expense of consumers and foreign firms. Moreover, we conclude that the regulatory reform introduced in 2004 has significantly enhanced efficiency of the European merger control. To the authors’ best knowledge, this paper is the first study using stock market data to evaluate an impact of the recent EU merger control.
    Keywords: merger control, European Union, political economy, regulatory reform, PROBIT model
    JEL: L4 K21 C25 D78
    Date: 2009–12
  11. By: Paulus, Alari (ISER, University of Essex); Sutherland, Holly (ISER, University of Essex); Tsakloglou, Panos (Athens University of Economics and Business)
    Abstract: International comparisons of inequality based on measures of disposable income may not be valid if the size and incidence of publicly-provided in kind benefits differ across the countries considered. The benefits that are financed by taxation in one country may need to be purchased out of disposable income in another. We estimate the size and incidence of in kind or "non cash" benefits from public housing subsidies, education and health care for five European countries using comparable methods and data. Inequality in the augmented income measure is dramatically lower than in disposable income, with the effects of the three components varying in importance across countries. Adapting equivalence scales to take proper account of differences in needs for health care and education across population members reduces the scale of the effect, but does not eliminate it.
    Keywords: inequality, in kind transfers, cross-national comparisons
    JEL: I38
    Date: 2009–11
  12. By: Kopsch, Fredrik (Swedish National Road and Transport Research Institute)
    Abstract: <p>Designing an emissions trading scheme requires in-depth knowledge about several aspects. This paper attempts to clarify some important design points of the forthcoming emissions trading scheme for aviation under the EU ETS. Five general key points of system design are acknowledged and comparisons are made to previous and current emission trading schemes. Above all, it is argued that initial allocations of emission permits and the trade barrier between the aviation sector and EU ETS need to be carefully examined.<p>
    Keywords: Aviation; Tradable permits; System design; Policy
    JEL: L51 P48 Q52 Q53 Q58
    Date: 2009–12–01
  13. By: Siedschlag, Iulia
    Abstract: The objective of this paper is to contribute to the development of an evidence-based system to monitor progress towards the European Research Area (ERA) and a knowledge-based economy. We start with an overview of existing theory and empirical evidence on the role of international technology spillovers on economic growth. Further, we discuss the transmission channels of international technology spillovers and barriers to international technology diffusion. Next we turn to measuring specialisation in knowledge-based sectors and geographical concentration patterns of these sectors. The remainder of this paper proposes three sets of indicators to monitor progress towards the ERA and a knowledge-based economy in relation to international technology diffusion.
    Keywords: Absorptive capacity/European Research Area/International technology spillovers/Knowledge-intensive economy/growth
    JEL: F23 F42 F43 O33 O47
    Date: 2009–11
  14. By: Zsolt Darvas (Institute of Economics - Hungarian Academy of Sciences, Bruegel - Brussels, Corvinus University of Budapest)
    Abstract: This paper describes the particular impacts of the financial and economic crisis on Central and Eastern European (CEE) countries, studies pro-cyclicality of fiscal policies, discusses the impact of the crisis on fiscal policy, and the policy response of various governments. After drawing some lessons for fiscal policy from previous emerging market crises, the paper concludes with some thoughts on the appropriate policy response from a more normative perspective. The key message of the paper is that the crisis should be used as an opportunity to introduce reforms to avoid future pro-cyclical fiscal policies, to increase the quality of budgeting and to increase credibility. These reforms should include fiscal responsibility laws comprising medium-term fiscal frameworks, fiscal rules, and independent fiscal councils. When fiscal consolidation is accompanied by fiscal reforms that increase credibility, non-Keynesian effects may offset to some extent the contraction caused by the consolidation.
    Keywords: budget policy, Central and Eastern European (CEE) countries, financial and economic crisis
    JEL: C32 E62 H60
    Date: 2009–11
  15. By: Ansgar Belke; Joscha Beckmann; Michael Kühl
    Abstract: This paper examines the importance of different economic sentiments, e.g. consumer moods, for the Central and Eastern European countries (CEECs) during the transition process. We first analyze the importance of economic confidence with respect to the CEEC's financial markets. Since the integration of formerly strongly regulated markets into global markets can also lead to an increase of the dependence of the CEECs' domestic market performance from global sentiments, we also investigate the relationship between global economic sentiments and domestic income and share prices. Finally, we test whether the impact of global sentiments and stock prices on domestic variables increases proportionally with the degree of integration. For these purposes, we apply a structural cointegrating VAR (CVAR) framework based upon a restricted autoregressive model which allows us to distinguish between the long-run and the short-run dynamics. For the long run we find evidence supporting relationships between sentiments, income and share prices in case of the Czech Republic. Our results for the short run suggest that economic sentiments in general are strongly influenced by share prices and income but also offer some predictive power with respect to the latter. What is more, global sentiments play an important role in particular for the CEECs' share prices and income. The significance of this link increases with economic integration.
    Keywords: Cointegration, European integration, financial markets, restricted autoregressive model, sentiments
    JEL: E44 G15 P2
    Date: 2009
  16. By: Giannelli, Gianna Claudia (University of Florence); Jaenichen, Ursula (IAB, Nürnberg); Villosio, Claudia (Collegio Carlo Alberto)
    Abstract: According to the aims of the labour market reforms of the 90s implemented in many European countries, workers may stay at their first job for a shorter time, but should be able to switch jobs easily. This would generate a trade-off between job opportunities and job stability. This paper addresses this issue using administrative longitudinal data for Germany and Italy, taken as representative examples of continuous and isolated reforms, respectively. The estimated piecewise constant job and employment duration models show that changes in the durations of the first job and employment – measured as the sum of multiple consecutive jobs – are observed in periods of labour market reforms. However, the existence of a trade-off is not confirmed by the results. In Germany, men have experienced an increase in employment stability over time, mated with somewhat longer job durations, while women have not benefitted from an increase in employment durations as a compensation for the marked decrease in their first job durations. In Italy, employment stability of the new entrants of both sexes has not improved after the reforms. The reduction in the duration of the first job has not been counterbalanced by an increase in the opportunity to find rapidly another job. These results suggest that the objective of increasing job opportunities by means of labour market deregulation has not been fully achieved.
    Keywords: labour market reforms, precarious jobs, tenure, work career, employment duration, mixed proportional hazard
    JEL: J62 J64 J68 K31 C41
    Date: 2009–11

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