nep-eec New Economics Papers
on European Economics
Issue of 2010‒03‒20
sixteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Exchange Rate Misalignments at World and European Levels By Se-Eun Jeong; Jacques Mazier; Jamel Saadaoui
  2. Is Euro Area Money Demand (Still) Stable?: Cointegrated VAR versus Single Equation Techniques By Ansgar Belke; Robert Czudaj
  3. Comparing Monetary Policy Rules in a Small Open Economy Framework: An Empirical Analysis Using Bayesian Techniques By Eschenhof, Sabine
  4. A Short Note on the Nowcasting and the Forecasting of Euro-area GDP Using Non-Parametric Techniques By Dominique Guegan; Patrick Rakotomarolahy
  5. Green Shoots? Where, when and how? By Gabriel Pérez-Quiros; Maximo Camacho; Pilar Poncela
  6. Information Sharing and Cross-border Entry in European Banking By Caterina Giannetti; Nicola Jentzsch; Giancarlo Spagnolo
  7. Sticky Information vs Sticky Prices: An Empirical comparison within a D S G E framework for the Euro Area By Haider, Adnan; Ramzi, Drissi
  8. Increased price markup from union coordination: OECD panel evidence By Bjørnstad, Roger; Kalstad, Kjartan Øren
  9. Switching from convergence to divergence in the European Union: A case study By Grigoris Zarotiadis; Aristea Gkagka
  10. Trends in Economic Research: An International Perspective By Cardoso, Ana Rute; Guimaraes, Paulo; Zimmermann, Klaus F.
  11. Unemployment and Temporary Jobs in the Crisis: Comparing France and Spain By Samuel Bentolila; Pierre Cahuc; Juan José Dolado; Thomas Le Barbanchon, .
  12. Financialization and the rentier income share - evidence from the USA and Germany By Petra Dünhaupt
  13. The Spanish Crisis from a Global Perspective By Jesús Fernández-Villaverde; Lee Ohanian
  14. Ageing Workforce, Productivity and Labour costs of Belgian Firms By Vincent VANDENBERGHE; Fabio WALTENBERG
  15. Evaluating and estimating a DSGE model for the United Kingdom By Harrison, Richard; Oomen, Özlem
  16. Household debt, house prices and consumption in the United Kingdom: a quantitative theoretical analysis By Waldron, Matt; Zampolli, Fabrizio

  1. 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, these 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 the specific constraints that exist for each member of the Euro area. This article aims to examine to what extent the intra-European imbalances reflect exchange rate misalignments for each “national euro”.
    Keywords: Equilibrium Exchange Rate; Current Account Balance; Macroeconomic Balance
    Date: 2010–03–07
  2. By: Ansgar Belke; Robert Czudaj
    Abstract: In this paper we present an empirically stable euro area money demand model. Using a sample period until 2009:2 shows that the current financial and economic crisis that started in 2007 does not appear to have any noticeable impact on the stability of the euro area money demand function. We also compare single equation methods like the ARDL approach, FM-OLS, CCR and DOLS with the commonly used cointegrated Johansen VAR framework and show that the former are under certain circumstances more appropriate than the latter. What is more, they deliver results that are more in line with the economic theory. Hence, FMOLS, CCR and DOLS are useful in estimating standard money demand as well, although they have only been rarely applied for this purpose in previous studies.
    Keywords: ARDL model, cointegration, euro area, financial crisis, money demand
    JEL: C12 C22 C32 E41 E43 E58
    Date: 2010
  3. By: Eschenhof, Sabine
    Abstract: This paper examines the role of exchange rate changes in the monetary policy for the Euro Area. Moreover, it compares different Taylor-type policy rules with respect to the numerical results as well as the impulse responses to exogenous shocks and the fit of the different data model specifications when using the underlying data. Overall, a monetary policy rule which includes the expected inflation rate as well as the output gap performs best and supports a possible role of exchange rate changes in the Euro Area's monetary policy.
    Keywords: Bayesian Estimation, Small Open Economy, Monetary Policy, Taylor Rule
    Date: 2009–12
  4. By: Dominique Guegan (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Patrick Rakotomarolahy (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: The aim of this paper is to introduce a new methodology to forecast the monthly economic indicators used in the Gross Domestic Product (GDP) modelling in order to improve the forecasting accuracy. Our approach is based on multivariate k-nearest neighbors method and radial basis function method for which we provide new theoretical results. We apply these two methods to compute the quarter GDP on the Euro-zone, comparing our approach, with GDP obtained when we estimate the monthly indicators with a linear model, which is often used as a benchmark.
    Keywords: Multivariate k-Nearest Neighbor, Radial Basis Functions, Non-Parametric Forecasts, Economic indicators, GDP, Euro area
    Date: 2010
  5. By: Gabriel Pérez-Quiros; Maximo Camacho; Pilar Poncela
    Abstract: What is the meaning of green shoots? In this paper we provide a statistical definition of this term which allows us to analyze where, when and how the recovery started. With the same methodology, we coform that the symptoms of recovery are clear in the US, the Euro area and Spain with some differences in timing. In addition, we find some leading behavior from the quotes in the press to the actual confirmation of the data, even when the data include variables with clear expectations contents.
    Date: 2010–02
  6. By: Caterina Giannetti; Nicola Jentzsch; Giancarlo Spagnolo
    Abstract: Information asymmetries can severely limit cross-border border expansion of banks. When a bank enters a new market, it has incomplete information about potential new clients. Such asymmetries are reduced by credit registers, which distribute financial data on bank clients. We investigate the interaction of credit registers and bank entry modes (in form of branching and M&A) by using a new set of time series cross-section data for the EU-27 countries. We study how the presence of public and private credit registers and the type of information exchanged affect bank entry modes during the period 1990-2007. Our analysis shows that the existence of both types of registers increases the share of branching in the overall entries. Additionally, the establishment of public registers reduces concentration ratios, and some banking competition indicators (such as overhead costs/assets). The introduction of a private credit bureau, on the other hand, has no effect on concentration ratios, but positively contributes to competition (by decreasing interest rate margins). This suggests that credit registers facilitate direct entry through a reduction of information asymmetries, which in turn intensifies competition.
    Keywords: credit registries, foreign entry, asymmetric information
    JEL: F37 G21 G34 L13 O16
    Date: 2010
  7. By: Haider, Adnan; Ramzi, Drissi
    Abstract: In this paper we estimate four competing closed economy DSGE models: a standard Calvo (1983) type pricing model; Hernandez’s (2004) state-dependent pricing model; Mankiw and Reis (2002) standard sticky information model; and a mixed version of sticky price-information model. Each model incorporates various other standard New-Keynesian features such as habit formation, costs of adjustment in capital accumulation and variable capacity utilization. Using Bayesian Simulation techniques, we estimate each DSGE model for the Euro Area. While estimation, we also studies the welfare properties of various monetary policies. In particular, the Ramsey allocation has been computed, giving a natural benchmark for welfare comparisons. Our interesting results show that despite the apparent similarities of all models, their responses to shocks and fit to data are quite different and there is no agreement on their relative performance. As a result, Monetary Authorities cannot afford to rely on a single reference model of the economy but need a large number of alternative modeling tools available when they take their decision of optimal monetary policy.
    Keywords: new Keynesian economics; DSGE models; nominal rigidities; monetary policy; Bayesian Approach
    JEL: E32 E31 E37
    Date: 2010–03–03
  8. By: Bjørnstad, Roger; Kalstad, Kjartan Øren
    Abstract: Although coordination of wage bargaining probably affects entry barriers and competition in product markets, research on price determination has typically not considered such factors. In this paper the price markup depends on coordination and is estimated on a panel of 15 OECD countries. The estimates show that consumer prices may be as much as 21 percent higher in coordinated compared to uncoordinated countries, solely due to the effect of coordination on the price markup. Since coordination has a dampening effect on wages, this may explain why many researchers have been unable to find any clear effect of coordination on unemployment. --
    Keywords: Imperfect competition model,price markup,labor market institutions,unemployment,panel data model
    JEL: C23 E31 J51
    Date: 2010
  9. By: Grigoris Zarotiadis (Aristotle’s University of Thessaloniki); Aristea Gkagka (University of Ioannina)
    Abstract: EU member states do not get much from participating in a regional trade agreement and economic integration regime: beside the questionable effects on growth perspectives (€-area grew since 1960 with a gradually smaller rate than the world economy), there is a clear evidence for a profound, unpleasant, structural change regarding convergence. During the first two decades of the period we studied, the coefficient of variation of per capita (p.c.) GDP fell strongly and labour remuneration grew substantially relative to non-labour income. Yet, this picture changed after 1980! The previous trend of closing the gap among the countries reversed completely: in 2005, coefficient of variation grew back to the levels of 1960. At the same time, all previous gains of labour vanished: in the period 1980-2005 real wages lost about 35% against p.c. GDP. A persisting period of continuous divergence emerged after 1980, probably due to permanent, structural developments!
    Keywords: cross-country convergence, domestic inequality.
    JEL: O47 F15
    Date: 2010
  10. By: Cardoso, Ana Rute (IAE Barcelona (CSIC)); Guimaraes, Paulo (University of South Carolina); Zimmermann, Klaus F. (IZA, DIW Berlin and Bonn University)
    Abstract: Given the recent efforts in several countries to reorganize the research institutional setting to improve research productivity, our analysis addresses the following questions: To which extent has the recent awareness over international quality standards in economics around the world been reflected in research performance? How have individual countries fared? Do research quantity and quality indicators tell us the same story? We concentrate on trends taking place since the beginning of the 1990s and rely on a very comprehensive database of scientific journals, to provide a cross-country comparison of the evolution of research in economics. Our findings indicate that Europe is catching up with the US but, in terms of influential research, the US maintains a dominant position. The main continental European countries, Germany, France, Italy and Spain, experienced some of the largest growth rates in economic scientific output. Other European countries, namely the UK, Norway, the Netherlands, Denmark, and Sweden, have shown remarkable progress in per capita output. Collaborative research seems to be a key factor explaining the relative success of some European countries, in particular when it comes to publishing in top journals, attained predominantly through international collaborations.
    Keywords: research performance, publications, rankings, Europe, North-America, US
    JEL: A10 I20
    Date: 2010–02
  11. By: Samuel Bentolila; Pierre Cahuc; Juan José Dolado; Thomas Le Barbanchon, .
    Abstract: Our goal here is to explain the strikingly different response of Spanish unemployment relative to other European economies, in particular France, during the ongoing recession. The Spanish unemployment rate, which fell from 22% in 1994 to 8% in 2007, reached 19% by the end of 2009, whereas the French unemployment rate has only increased by less than 2 pp. during the crisis. We argue that labor market institutions in the two economies are rather similar, except for the larger gap between dismissal costs of workers with permanent and temporary contracts in Spain, which lead to huge flows of temporary workers out of and into unemployment. We estimate in a counterfactual scenario that more than one-half of the increase in the unemployment rate would have been avoided had Spain adopted French employment protection institutions before the recession started.
    Date: 2010–02
  12. By: Petra Dünhaupt (Macroeconomic Policy Institute (IMK) at the Hans Boeckler Foundation)
    Abstract: During the past two decades, there has been a shift of significance from the real to the financial sector. This development is often referred to as "financialization". Most industrial countries have experienced a decline in the share of labor income. Based on a review of empirics and literature, this paper seeks to determine who gained from the fall in the labor share of income in the USA and Germany, respectively. If financialization is indeed responsible for the decline, rentiers should be the beneficiaries. In order to identify the relevant effects, the profit share of the two countries under observation is split up between the share of retained earnings and the share of net property income (= rentiers' income). The presented evidence shows that the development of the rentier income share indeed corresponds quite well with the stages of development of financialization.
    Keywords: Financialization, income distribution, rentier income share
    JEL: E25 E44
    Date: 2010
  13. By: Jesús Fernández-Villaverde; Lee Ohanian
    Abstract: This paper studies the recent evolution of the Spanish economy in the context of the developments of the world economy and presents a benchmark model with …nancial frictions to assess the sources of these ‡uctuations. We pay particular attention to the comparison with the United States and some of Spain’s European peers in the 1994-2009 period. First, we document the long expansion between 1994 and early 2008 in terms of the main economic aggregates and the boom in the real estate market. Second, we also report on the fast downturn of these economies in the second half of 2008. Third, we use our benchmark model with …nancial frictions to evaluate how much we understand of the mechanism behind these large changes in aggregate behavior. We conclude with some policy remarks.
    Date: 2010–02
  14. By: Vincent VANDENBERGHE (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Fabio WALTENBERG (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and Centro de Estudos sobre Desigualdade e Desenvolvimento (CEDE), Universidade Federal Fluminense (UFF), Brazil)
    Abstract: The Belgian population is ageing due to demographic changes, so does the workforce of firms active in the country. Such a trend is likely to remain for the foreseeable future. And it will be reinforced by the willingness of public authorities to expand employment among individuals aged 50 or more. But are employers willing to employ older workers? The answer depends to a large extent on the ratio between older workersÕ productivity and their cost to employers. To address this question we tap into a unique firm-level panel data set to produce robust evidence on the causal effect of ageing on productivity and labour costs. Unobserved firm fixed-effects and short-term endogeneity of workforce age pose serious estimation challenges, which we try to cope with. Our results indicate a negative productivity differential for older workers ranging from 20 to 40% when compared with prime-age workers, and these productivity differentials are not compensated by lower relative labour costs. Furthermore, the (now dominant) service sector does not seem to offer working conditions that mitigate the negative age/productivity relationship. Finally, older workers in smaller firms (<100 workers) display a larger productivity differential and a productivity that is less aligned on labour costs.
    Keywords: Ageing, Labour Productivity, Panel Data Analysis
    JEL: J24 C52 D24
    Date: 2010–02–12
  15. By: Harrison, Richard (Bank of England); Oomen, Özlem (Bank of England)
    Abstract: We build a small open economy dynamic stochastic general equilibrium model, featuring many types of nominal and real frictions that have become standard in the literature. In recent years it has become possible to estimate such models using Bayesian methods. These exercises typically involve augmenting a stochastically singular model with a number of shocks to structural equations to make estimation feasible, even though the motivation for the choice of these shocks is often unspecified. In an attempt to put this approach on a more formal basis, we estimate the model in two stages. First, we evaluate a calibrated version of the stochastically singular model. Then, we augment the model with structural shocks motivated by the results of the evaluation stage and estimate the resulting model using UK data using a Bayesian approach. Finally, we reassess the adequacy of this augmented and estimated model in reconciling the dynamics of the model with the data. Our findings suggest that the shock processes play a crucial role in helping to match the data.
    Keywords: DSGE models; model evaluation; Bayesian estimation; monetary policy
    JEL: E40 E50
    Date: 2010–03–10
  16. By: Waldron, Matt (Bank of England); Zampolli, Fabrizio (Bank of England)
    Abstract: Household debt and house prices in the United Kingdom rose substantially between 1987 and 2006. In this paper we use a calibrated overlapping generations model of the household sector to examine the extent to which changes in demographics, lower inflation, and a lower long-run real interest rate may explain the build-up of debt and the rise in house prices over that period. Our model suggests that lower real interest rates were particularly important. If households expected lower real interest rates to persist, then the model can more than explain the rise in debt and can explain most of the rise in house prices. However, the model leaves a puzzle because it predicts that an unanticipated fall in real interest rates should lead to a consumption boom that did not materialise in the data.
    Keywords: Consumption; housing market; collateral constraints; life cycle; OLG
    JEL: E21 R31
    Date: 2010–03–10

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