nep-eec New Economics Papers
on European Economics
Issue of 2010‒02‒27
twelve papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. The Euro Cash Changeover, Inflation Perceptions and the Media By Michael J. Lamla; Sarah M. Lein
  2. The State of Wage Convergence in the European Monetary Union By Paul Ramskogler
  3. Financial Regulation, Integration and Synchronization of Economic Activity By Sebnem Kalemli-Ozcan; Elias Papaioannou; José Luis Peydró
  4. Deep Financial Integration and Volatility By Sebnem Kalemli-Ozcan; Bent E. Sørensen; Vadym Volosovych
  5. The EU in the G8 System: Assessing EU Member States' Involvement By Skander Nasra; Dries Lesage; Jan Orbie; Thijs Van de Graaf; Mattias Vermeiren
  6. When parties (also) position themselves: an introduction to the EU Profiler By Alexander H. Trechsel; Peter Mair
  7. Long Memory and Volatility Dynamics in the US Dollar Exchange Rate By Guglielmo Maria Caporale; Luis A. Gil-Alana
  8. (How) Do the ECB and the Fed React to Financial Market Uncertainty?: The Taylor Rule in Times of Crisis By Ansgar Belke; Jens Klose
  9. An Analysis of European Online micro-lending Websites By Arvind Ashta; Djamchid Assadi
  10. Central bank dollar swap lines and overseas dollar funding costs By Linda S. Goldberg; Craig Kennedy; Jason Miu
  11. Results of a special questionnaire for participants in the ECB Survey of Professional Forecasters (SPF) By Meyler, Aidan; Rubene, Ieva
  12. The Marcoeconomic Aggregates for England, 1209-2008 By Clark, Gregory

  1. By: Michael J. Lamla (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Sarah M. Lein (Swiss National Bank, Zurich)
    Abstract: In the aftermath of the euro cash changeover consumers’ inflation perceptions rose substantially in the euro area countries while actual inflation figures remained almost unchanged. During that period media reporting on the potentially large inflationary effect of the euro introduction intensified. In this paper we argue that the information set of the public has been distorted through the significant slant in the media. Employing an unique dataset for Germany, we provide evidence that media reporting has a statistically significant and economically meaningful impact on inflation perceptions and contributed to their sharp rise in the aftermath of the euro cash changeover.
    Keywords: Monetary policy, inflation perceptions, media coverage, media bias
    JEL: E52 D83
    Date: 2010–02
  2. By: Paul Ramskogler (Department of Economics, Vienna University of Economics & B.A.)
    Abstract: Before the introduction of the Euro many observers had expected an increase of inflationary pressures due to a de-coordination-shock to national wage bargaining. However, if anything systematically happened after the introduction of the Euro wage restraint increased (Posen and Gould 2006). A possible explanation for this finding is that a system of pattern bargaining has emerged with Germany figuring as a “centre of gravity” for European wage bargains (Traxler et al. 2008, Traxler and Brandl 2009). This paper studies wage and nominal unit labour cost spill-overs for the EMU for a panel over 13 manufacturing sectors from 1992-2005 and quantifies the effects of different countries. It turns out that there are strong interdependencies across EMU-members with regard to nominal wage growth. Indeed, a leading role accrues to Germany whose wage developments are twice as influential as those of the next important countries. Remarkably, the strong interdependence of wage growth is not reflected with regard to unit labour costs. Here, only the development in a core group composed of Austria, France, Germany and the Netherlands, is bound to each other. The development of nominal unit labour costs in other countries is largely independent from each other and especially from this core group.
    JEL: L16 J31 J52 F42
    Date: 2010–01
  3. By: Sebnem Kalemli-Ozcan (University of Houston and NBER); Elias Papaioannou; José Luis Peydró
    Abstract: We investigate the effect of financial integration on the degree of international business cycle synchronization. For identfication, we use a confidential database on banks' bilateral exposure over the past three decades and employ a novel bilateral country-pair panel instrumental vari- ables approach. First, we show that conditional on global shocks and country-pair fixed factors countries that become more financially integrated over time have less synchronized growth pat- terns, in line with the standard theories of output fluctuations. Second, to isolate the one-way impact of financial integration on output co-movement and account for measurement error in the financial integration measure, we exploit variation in the transposition dates of the European Union-wide legislative acts (the "Directives") from the Financial Services Action Plan (FSAP). These laws are designed to harmonize regulation of financial markets in the European Union. We find that increases in financial integration stemming from regulatory-legislative harmoniza- tion policies in capital markets are followed by more divergent output cycles, even when we condition on monetary unification. Our results contrast with those of the previous empirical studies. We reconcile the different results by showing that the earlier estimates suffer from the standard identification problems.
    Keywords: Banking Integration, Co-movement, Fluctuations, Financial Legislation
    JEL: E32 F15 F36 G21 O16
    Date: 2010–02
  4. By: Sebnem Kalemli-Ozcan (University of Houston and NBER); Bent E. Sørensen; Vadym Volosovych
    Abstract: We investigate the relationship between financial integration and output volatility at micro and macro levels. Using a very large firm-level dataset (AMADEUS) from 16 European countries, we construct a measure of "deep" financial integration at the regional level based on observations of foreign ownership at the firm-level. We find a significant positive effect of foreign ownership on the volatility of firms' outcomes in static as well as dynamic empirical frameworks. This effect survives aggregation and carries over to regional output, leading to a positive association between deep financial integration and aggregate fluctuations. To identify the causal effect of financial integration on volatility we exploit variation in the transposition dates of the European Union-wide legislative acts from the Financial Services Action Plan (FSAP). We find that high trust regions located in countries who harmonized their capital markets sooner have increased levels of financial integration and volatility.
    Keywords: firm volatility, foreign ownership, regional integration, social capital, macro volatility
    JEL: E32 F15 F36 O16
    Date: 2010–02
  5. By: Skander Nasra; Dries Lesage; Jan Orbie; Thijs Van de Graaf; Mattias Vermeiren
    Abstract: Even though the role of the European Union (EU) in international organizations has generated increasing academic and political interest, scant attention has been devoted to the EU’s participation in the Group of Eight (G8). The launch of the renewed Group of Twenty (G20), however, has sparked intense debate among member states about the way in which the EU is represented in the G8 system. The central issue covered in this paper is the participation of the EU in the G8 system. In particular, we focus on the involvement of the 23 non-G8 EU members (EU23) and the role of the European Commission and the Council Presidency. The focus lies on the internal EU level, rather than on the question of the EU’s bargaining power at the international level. The paper draws on insights of Moravcsik’s liberal intergovernmentalism to explain the variation of the EU23’s involvement in the following policy domains: development aid, energy, finance and monetary affairs and trade. The paper finds a pattern of differing involvement that varies along the lines of the three forums within the G8 system: low involvement in the G8, medium involvement in the G20 and high involvement in the Group of Seven (G7). Four factors are suggested that explain the involvement of the EU23 in the internal EU coordination process: internal competences, intra-EU consensus, policy implications and the role of EU actors
    Keywords: G7
    Date: 2009–09–15
  6. By: Alexander H. Trechsel; Peter Mair
    Abstract: This paper is intended to frame and describe a novel method of political party positioning within the European Union and beyond. Ever since the groundbreaking work by Downs in the 1950s, political scientists have derived a variety of methods to empirically determine the position of parties on dimensions measuring differences in policies or ideologies. Today, two sets of techniques dominate this research domain: expert surveys and manifesto/ programme coding. What is common to both techniques is that the positioning is done by qualified scholars and other experts outside the parties, and that it is not always possible to trace the grounds on which a party was coded in one way rather than another. The EU Profiler project, a large-scale, interdisciplinary and pan-European research endeavour, takes a step beyond these established methods by using party self-positioning and by offering full documentation. That is, and in addition to conventional expert coding, some 300 political parties in Europe have been invited to place themselves on 30 issue dimensions. Moreover, and in so far as it proved possible, each coded position for each party is fully documented with extracts from party manifestos, party leaders' speeches, or relevant press or policy statements. The resulting data offer unique opportunities for comparing the accuracy and efficiency among party positioning techniques, exploring for the first time and in a systematic way the auto-positioning of political parties throughout Europe, and offering close textual documentation for the positions taken on each issue dimension.
    Date: 2009–12–15
  7. By: Guglielmo Maria Caporale; Luis A. Gil-Alana
    Abstract: This paper focuses on nominal exchange rates, specifically the US dollar rate vis-à-vis the Euro and the Japanese Yen at a daily frequency. We model both absolute values of returns and squared returns using long-memory techniques, being particularly interested in volatility modelling and forecasting given their importance for FOREX dealers. Compared with previous studies using a standard fractional integration framework such as Granger and Ding (1996), we estimate a more general model which allows for dependence not only at the zero but also at other frequencies. The results show differences in the behaviour of the two series: a long-memory cyclical model and a standard I(d) model seem to be the most appropriate for the US dollar rate vis-à-vis the Euro and the Japanese Yen respectively.
    Keywords: Fractional integration, Long memory, Exchange rates, Volatility
    JEL: C22 O40
    Date: 2010
  8. By: Ansgar Belke; Jens Klose
    Abstract: We assess differences that emerge in Taylor rule estimations for the Fed and the ECB before and after the start of the subprime crisis. For this purpose, we apply an explicit estimate of the equilibrium real interest rate and of potential output in order to account for variations within these variables over time. We argue that measures of money and credit growth, interest rate spreads and asset price inflation should be added to the classical Taylor rule because these variables are proxies of a change in the equilibrium interest rate and are, thus, also ikely to have played a major role in setting policy rates during the crisis. Our empirical results gained from a state-space model and GMM estimations reveal that, as far as the Fed is concerned, the impact of consumer price inflation, and money and credit growth turns negative during the crisis while the sign of the asset price inflation coefficient turns positive. Thus we are able to establish significant differences in the parameters of the reaction functions of the Fed before and after the start of the subprime crisis. In case of the ECB, there is no evidence of a change in signs. Instead, the positive reaction to credit growth, consumer and house price inflation becomes even stronger than before. Moreover we find evidence of a less inertial policy of both the Fed and the ECB during the crisis.
    Keywords: Subprime crisis, Federal Reserve, European Central Bank, equilibrium real interest rate, Taylor rule
    JEL: E43 E52 E58
    Date: 2010
  9. By: Arvind Ashta (CEREN, Burgundy School of Business (Groupe ESC Dijon-Bourgogne), France and Centre Emile Bernheim, CERMi, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels.); Djamchid Assadi (CEREN, Burgundy School of Business (Groupe ESC Dijon-Bourgogne), France)
    Abstract: Purpose of the paper: With the development of web 2.0, a new kind on lending is taking place on the internet, termed peer to peer lending or social lending. In Europe, this includes commercial lending websites such as Zopa, smava, boober, Kokos, Monetto. At the same time, following the lead of Kiva in the US, European microcredit web platforms are coming up including MyC4 and Babyloan in Europe. The paper examines how the legal design of the online websites differs from the microcredit websites in Europe and how this impacts social performance issues of the different models. Design/Methodology/Approach: Since the population size of these websites is rather small, we use a comparative case study approach. The case study approach is the most adapted to studying small samples in more detail. The case studies are based on exploring of websites and review of academic literature and press reports. Key results: We find that although web2.0 permits platform models, most sites (commercial or micro-lending) have retained intermediary roles and have not permitted direct peer to peer contact. The paper will outline the advantages to both borrowers and lenders in the different models and their motivations. Challenges for expansion, such as trust-building as well as a marketing analysis will also be presented. Impact: The findings would lead microfinance institutions to lobby for specific laws, and invest in online lending solutions to radically reduce operating costs as well as to increase outreach. Value: This research would add value to those who are operating in or launching new online microcredit platforms to understand this young and fast changing marketplace.
    Keywords: online lending, regulation, social performance, microfinance
    Date: 2009–06
  10. By: Linda S. Goldberg; Craig Kennedy; Jason Miu
    Abstract: Following a scarcity of dollar funding available internationally to financial institutions, in December 2007 the Federal Reserve began to establish or expand Temporary Reciprocal Currency Arrangements with fourteen other central banks. These central banks had the capacity to use the swap facilities to provide dollar liquidity to institutions in their jurisdictions. This paper presents the developments in the dollar swap facilities through the end of 2009. The facilities were a response to dollar funding shortages outside the United States and were effective at making dollars more broadly available to financial institutions overseas during a period of market dysfunction. Formal research, as well as more descriptive accounts, suggests that the dollar swap lines among central banks were effective at reducing the dollar funding pressures abroad and the stresses in money markets. While these findings are compelling, it is still difficult to draw definitive lessons on particular facilities given the numerous changes over time in market conditions and policy responses.
    Keywords: Banks and banking, Central ; Swaps (Finance) ; Foreign exchange ; Dollar, American ; Liquidity (Economics) ; Currency convertibility ; Federal Reserve System
    Date: 2010
  11. By: Meyler, Aidan; Rubene, Ieva
    Abstract: This document provides a summary of the aggregate results of a special questionnaire which was sent to the participants in the ECB Survey of Professional Forecasters (SPF) in autumn 2008, in the context of the ten-year anniversary of the SPF’s launch in January 1999. In summary, the results show that the SPF responses are quite timely and that the forecasts are based on heterogeneous assumptions that are predominantly generated in house. In addition, although both structural and time series models are widely used, judgement also plays a key role, in particular for the reported probability distributions. It is thus very important to consider the heterogeneity of the SPF forecasts when analysing and interpreting the results of the SPF.
    Keywords: SPF; Survey; Forecasts; Expectations; Formation
    JEL: D81 D84 C53 E17 C42 E37
    Date: 2009–04
  12. By: Clark, Gregory (University of California, Davis)
    Abstract: Estimates are developed of the major macroeconomic aggregates--wages, land rents, interest rates, prices, factor shares, sectoral shares in output and employment, and real wages--for England by decade between 1209 and 2008. The efficiency of the economy 1209-2008 is also estimated. One finding is that the growth of real wages in the Industrial Revolution era and beyond was faster than the growth of output per person. Indeed until recently the greatest recipient of modern growth in England has been unskilled workers. The data also creates a number of puzzles, the principle one being the very high levels of output and efficiency estimated for England in the medieval era. This data is thus inconsistent with the general notion that there was a period of Smithian growth between 1300 and 1800 which preceded the Industrial Revolution, as expressed in such recent works as De Vries (2008).
    Date: 2009–10

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