nep-eec New Economics Papers
on European Economics
Issue of 2010‒01‒30
eleven papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. An area-wide real-time database for the euro area. By Domenico Giannone; Jérôme Henry; Magdalena Lalik; Michele Modugno
  2. Determinants of inflation and price level differentials across the euro area countries. By Malin Andersson; Klaus Masuch; Marc Schiffbauer
  3. Investigating the Perceptions of Credit Constraints in the European Union By Canton, E.J.F.; Grilo, I.; Monteagudo, J.; Zwan, P. van der
  4. Payment scale economies, competition, and pricing. By David B. Humphrey
  5. SEPA, efficiency, and payment card competition. By Wilko Bolt; Heiko Schmiedel
  6. IFRS Adoption in the E.U., accounting harmonization and market efficiency: a review By Gabriele Guggiola
  7. Return to retail banking and payments. By Iftekhar Hasan; Heiko Schmiedel; Liang Song
  8. Pension Benefit and Hours Worked By MIYAZAWA Kensuke
  9. US and EU Trade Policies and East Asia By Peter Drysdale; Christopher Findlay
  10. United Kingdom Eurozone Entry Scenarios Evaluated By John Ryan
  11. Inherited or Earned? Performance of Foreign Banks in Central and Eastern Europe By Emilia Magdalena Jurzyk; Olena Havrylchyk

  1. By: Domenico Giannone (Université Libre de Bruxelles, ECARES CP 144, B-1050 Bruxelles, Belgium.); Jérôme Henry (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Magdalena Lalik (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Michele Modugno (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: This paper describes how we constructed a real-time database for the euro area covering more than 200 series regularly published in the European Central Bank Monthly Bulletin, as made available ahead of publication to the Governing Council members before their first meeting of the month. We describe the database in details and study the properties of the euro area real-time data flow and data revisions, also providing comparisons with the United States and Japan. We finally illustrate how such revisions can contribute to the uncertainty surrounding key macroeconomic ratios and the NAIRU. JEL Classification: C01, C82, E24, E58.
    Keywords: real-time; euro area; revisions; database.
    Date: 2010–01
  2. By: Malin Andersson (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Klaus Masuch (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Marc Schiffbauer (University of Bonn, Regina-Pacis-Weg 3, D-53113 Bonn, Germany.)
    Abstract: This paper analyses the determinants of inflation differentials and price levels across the euro area countries. Dynamic panel estimations for the period 1999-2006 show that inflation differentials are primarily determined by cyclical positions and inflation persistence. The persistence in inflation differentials appears to be partly explained by administered prices and to some extent by product market regulations. In a cointegrating framework we find that the price level of each euro area country is governed by the levels of GDP per capita. JEL Classification: E32, E52, E43, F2.
    Keywords: inflation differentials, inflation persistence, price level, convergence.
    Date: 2009–12
  3. By: Canton, E.J.F.; Grilo, I.; Monteagudo, J.; Zwan, P. van der (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: The promotion and support of small and medium-sized enterprises (SMEs) forms an essential ingredient in policies to help improve Europe’s economic performance. A key issue in this context is whether SMEs face undue difficulty when trying to access credit. Using survey data from 2005 and 2006 covering almost 5,000 SMEs in the European Union, we investigate the determinants of firms’ perceived financing constraints, focusing on bank loans. It turns out that a firm’s age plays an important role in that older firms perceive external financing as being less difficult. Also, relationship banking helps to perceive an increased availability to credit. On the other hand, the ownership structure of a firm is not systematically related to perceived credit constraints, while turnover relaxes firms’ perceptions in the “new†EU 10 countries, but not in the “old†Member States. There exist significant country differences and this cross-country variation can be partly explained by the degree of competition in the banking sector. It has to be stressed that these survey data have been collected well before the present economic crisis; the results here do not describe the present situation but rather the more structural elements of the relationship between perceived access to credit and the determinants studied in a normal economic situation.
    Keywords: financing constraints;credit rationing;SMEs;Europe
    Date: 2010–01–04
  4. By: David B. Humphrey (Department of Finance, Florida State University, 600 W. College Avenue, Tallahassee, FL 32306, United States.)
    Abstract: Payment scale economies affect banking costs, competition in payment services, and pricing. Our scale measure relates operating cost to physical measures of European banking "output", finding large economies. This differs from relating total cost to the value of balance sheet assets (the conventional approach). Interest expenses are excluded since differences here are primarily due to mix, not scale. Also, since standard indicators of competition can give inconsistent results, a revenue-based frontier measure is developed and applied to European banks, with little difference evident across countries. Existing differences in bank prices (EC report) are associated with small differences in competition. JEL Classification: E41, C53.
    Keywords: Payment scale economies; bank competition; frontier analysis; European banks.
    Date: 2009–12
  5. By: Wilko Bolt (De Nederlandsche Bank, Research Department, Postbus 98, 1000 AB Amsterdam, The Netherlands.); Heiko Schmiedel (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: This paper analyzes the welfare implications of creating a Single Euro Payments Area. We study the e®ects of increased network compatibility and payment scale economies on consumer and merchant card fees and its impact on card usage. In particular, we model competition among debit cards and between debit and credit cards. We show that competitive pressures dampen merchant fees and increase total card acceptance. The paper argues that there is room for multilateral interchange fee arrangements to achieve optimal consumer and merchant fees, taking safety, income uncertainty, default risk, merchant's pricing power, and the avoided cost of cash at the retailers side into account. Consumers and merchants are likely to benefit the most from the creation of SEPA when sufficient payment card competition alleviates potential monopolistic tendencies. JEL Classification: L11; G21; D53.
    Keywords: SEPA; card network competition; optimal pricing; economic welfare.
    Date: 2009–12
  6. By: Gabriele Guggiola (Department of Economics, University of Insubria, Italy)
    Abstract: As of 1st January 2005 all European listed companies had to adopt IAS/IFRS in order to prepare their consolidated financial statements. Five years later, the paper analyses the advancements in the accounting harmonisation process within European countries and between E.U. and the rest of the world, overviewing the first available evidences on financial market efficiency. The paper has three main objectives. It aims at providing a state-of-the-art of the process of IFRS adoption in the E.U. pointing out the positive observable effects and the main drawbacks and at reviewing the existent literature developed during the last years on this subject. Finally, it aims at identifying some interesting and so far not explored research areas. JEL Classification: M41
    Keywords: International Financial Accounting Standards; European Union;International accounting Harmonization; Convergence
    Date: 2010–01
  7. By: Iftekhar Hasan (The Lally School of Management and Technology of Rensselaer Polytechnic Institute, 110 8th Street - Pittsburgh Building, Troy, NY12180, U.S.A.); Heiko Schmiedel (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Liang Song (Rensselaer Polytechnic Institute, 110 8th Street - Pittsburgh Building, Troy, NY 12180, U.S.A.)
    Abstract: The European banking industry joined forces to achieve a fully integrated market for retail payment services in the euro area: the Single Euro Payments Area (SEPA). Against this background, the present paper examines the fundamental relationship between retail payment business and overall bank performance. Using data from across 27 European markets over the period 2000-07, we analyse whether the provisions of retail payment services are reflected in improved bank performance, using accounting ratios and efficiency measures. The results confirm that the performance of banks in countries with more developed retail payment service markets is better. This relationship is stronger in countries with a relatively high adoption of retail payment transaction technologies. Retail payment transaction technology itself can also improve bank performance, and evidence shows that heterogeneity in retail payment instruments is associated with enhanced bank performance. Similarly, a higher usage of electronic retail payment instruments seems to stimulate banking business. We also show that retail payment services have a more significant impact on savings and cooperative bank performance although they have a positive influence on the performance of commercial banks. Additionally, findings reveal that impact of retail services on bank performance is dominated by fee income. Finally, an effective payment service market is found to be associated with higher bank stability. Our findings are robust to different regression specifications. The results may also be informative for the industry when reconsidering its business models in the light of current financial market developments. JEL Classification: G21, G28.
    Keywords: retail payment; bank performance; cost and profit efficiency.
    Date: 2009–12
  8. By: MIYAZAWA Kensuke
    Abstract: This paper clarifies the effects of pension benefit systems on aggregate hours worked. By incorporating the labor income taxes and the social security taxes into a representative agent model, previous studies successfully explain the long term decline in the hours worked in some continental European countries, and the differences between these European countries and the U.S. in recent years. However, their model underpredicts the hours worked in Japan and Sweden. We measure the marginal pension benefit rates of the labor supply, which the previous studies do not take into account, and incorporate them into previous studies. We fid that the marginal pension benefit can explain much of the discrepancy between the actual hours worked and the predictions of the previous studies. This result also implies that the pension benefit might offset the effect of the unemployment insurance that is thought to make the prediction worse in some continental European countries.
    Date: 2010–01
  9. By: Peter Drysdale; Christopher Findlay (Australian National University, University of Adelaide)
    Abstract: This article identifies a number of examples of apparent lack of coherence in United States and European Union trade policies. They include the effect of preferential policies that lock in trade shares and inhibit growth promoting structural adjustment, biases in tariff structures, policies that affect incentives of developing countries to make commitments in the World Trade Organisation, the use of anti-dumping actions and the nature of tariff peaks and escalation. The origins of the lack of policy coherence lie within the domestic policy-making processes of the developed economies. An important question, then, is whether opportunity exists for East Asian economies to mobilise to induce an external shock sufficient to shift policy consensus in the United States and the European Union – The key elements of such a grand bargain on trade in manufactured goods would include an explicit East Asian commitment to bind more tariff lines, initiatives to resolve the problem of accelerating anti-dumping actions and a replacement for the program of tariff preferences. A package of trade policy reforms of this type in East Asia would constitute a substantial offer and benefit to the United States and the European Union. It has the potential to trigger a response of equal benefit to East Asian economies.
    Keywords: Trade Policy, US, EU, East Asia
    JEL: F1
    Date: 2010–01
  10. By: John Ryan (University of Venice)
    Abstract: After 10 years of abstinence from the European Monetary Union, should the UK be seriously thinking about joining the Eurozone? Especially in view of the European Central Bank's improved reputation as a crisis manager in the wake of the financial crisis, could EMU represent a safe haven for the UK economy? Would it be wise for Britain to attach itself to the reserve currency Euro to avoid the perils of drifting alone on a storm-tossed open sea? These are big questions. They have been debated in the UK for a generation and have become relevant again during the current financial and economic crises. I will in this short paper assess three scenarios regarding the UK and the Euro - UK entry, EMU collapses before a UK entry, No UK entry and I will discuss the Eurozone view on potential UK membership.
    Keywords: UK Economy, Eurozone, Euro, Sterling, European Central Bank
    JEL: E12 E41 E52 E60 F02
    Date: 2009
  11. By: Emilia Magdalena Jurzyk; Olena Havrylchyk
    Abstract: Using a combination of propensity score matching and difference-in-difference techniques we investigate the impact of foreign bank ownership on the performance and market power of acquired banks operating in Central and Eastern Europe. This approach allows us to control for selection bias as larger but less profitable banks were more likely to be acquired by foreign investors. We show that during three years after the takeover, banks have become more profitable due to cost minimization and better risk management. They have additionally gained market share, because they passed their lower cost of funds to borrowers in terms of lower lending rates. Previous studies failed to pick up the improvements in performance of takeover banks, because they did not account for the performance of financial institutions before acquisitions.
    Keywords: Bank restructuring , Banking sector , Central and Eastern Europe , Economic models , Foreign investment , Profits , Risk management ,
    Date: 2010–01–08

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