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on European Economics |
| By: | Antonio Colangelo (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Robert Inklaar (University of Groningen, PO Box 800, 9700 AV Groningen, The Netherlands.) |
| Abstract: | Banks do not charge explicit fees for many of the services they provide but the service payment is bundled with the offered interest rates. This output therefore has to be imputed using estimates of the opportunity cost of funds. We argue that rather than using the single short-term, low-risk interest rate as in current official statistics, reference rates should more closely match the risk characteristics of loans and deposits. For the euro area, imputed bank output is, on average, 24 to 40 percent lower than according to current methodology. This implies an average downward adjustment of euro area GDP (at current prices) between 0.16 and 0.27 percent. JEL Classification: E01, E44, O47. |
| Keywords: | Bank output, FISIM, risk, loan interest rates, deposit interest rates. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101204&r=eec |
| By: | Pistor, Katharina |
| Abstract: | Twenty years after the fall of the iron curtain-which for decades had separated East from West-most countries of Central and Eastern Europe are now members of the European Union; some have even adopted the euro. Nonetheless, these countries have also |
| Keywords: | financial regulation, global finance, home-host country regulation |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2010-65&r=eec |
| By: | Hogrefe, Jan; Jung, Benjamin; Kohler, Wilhelm |
| Abstract: | We know that euro-area member countries have absorbed asymmetric shocks in ways that are inconsistent with a common nominal anchor. Based on a reformulation of the gravity model that allows for such bilateral misalignment, we disentangle the conventional trade cost channel and trade effects deriving from 'implicit currency misalignment'. Econometric estimation reveals that the currency misalignment channel exerts a significant trade effect on bilateral exports. We retrieve country specific estimates of the euro effect on trade based on misalignment. This reveals asymmetric trade effects and heterogeneous outlooks across countries for the costs and benefits from adopting the euro. -- |
| Keywords: | Euro,gravity model,exchange rates,purchasing power parity,trade imbalances |
| JEL: | F12 F13 F15 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:10023&r=eec |
| By: | Massimiliano Marcellino; Alberto Musso |
| Abstract: | This paper provides real time evidence on the usefulness of the euro area output gap as a leading indicator for inflation and growth. A genuine real-time data set for the euro area is used, including vintages of several alternative gap estimates. It turns out that, despite some difference across output gap estimates and forecast horizons, the results point clearly to a lack of any usefulness of real-time output gap estimates for inflation forecasting both in the short term (one-quarter and one-year ahead) and the medium term (two-year and three-year ahead). By contrast, we find some evidence that several output gap estimates are useful to forecast real GDP growth, particularly in the short term, and some appear also useful in the medium run. A comparison with the US yields similar conclusions. |
| Keywords: | Output gap, real-time data, euro area, inflation forecasts, real GDP forecasts, data revisions. |
| JEL: | E31 E37 E52 E58 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2010/15&r=eec |
| By: | Genschel, Philipp; Jachtenfuchs, Markus |
| Abstract: | The paper analyzes the common assumption that the EU has little power over taxation. We find that the EU's own taxing power is indeed narrowly circumscribed: its revenues have evolved from rather supranational beginnings in the 1950s towards an increasingly intergovernmental system. Based on a comprehensive analysis of EU tax legislation and ECJ tax jurisprudence from 1958 to 2007, we show that at the same time, the EU exerts considerable regulatory control over the member states' taxing power and imposes tighter constraints on member state taxes than the US federal government imposes on state taxation. These findings contradict the standard account of the EU as a regulatory polity which specializes in apolitical issues of market creation and leaves political issues to the member states: despite strong safeguards, the EU massively regulates the highly salient issue of member state taxation. -- |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:sfb597:114&r=eec |
| By: | Alexander Popov (European Central Bank, Financial Research Division, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Gregory F. Udell |
| Abstract: | We study the effect of financial distress in foreign parent banks on local SME financing in 14 central and eastern European countries during the early stages of the 2007-2008 financial crisis. We use survey data on applicant and non-applicant firms that enable us to disentangle effects driven by shocks to the banking system from recession-driven demand shocks that may vary across lenders. We find strong evidence that credit tightened in the relatively early stages of the crises caused by the following types of bank financial distress: 1) low equity ratio; 2) low Tier 1 capital ratio; and 3) losses on financial assets. We also find that foreign banks transmit to Main Street a larger portion of similar financial shocks than domestic banks. The observed decline in credit is greater among high-risk firms and firms with fewer tangible assets. JEL Classification: E44, E51, F34, G21. |
| Keywords: | credit crunch, financial crisis, bank lending channel, business lending. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101203&r=eec |
| By: | Guglielmo Maria Caporale; Roman Matousek; Chris Stewart |
| Abstract: | We model EU countries' bank ratings using financial variables and allowing for intercept and slope heterogeneity. Our aim is to assess whether "old" and "new" EU countries are rated differently and to determine whether "new" ones are assigned lower ratings, ceteris paribus, than "old" ones. We find that country-specific factors (in the form of heterogeneous intercepts) are a crucial determinant of ratings. Whilst "new" EU countries typically have lower ratings than "old" ones, after controlling for financial variables we also discover that all countries have significantly different intercepts, confirming our prior belief. This intercept heterogeneity suggests that each country's rating is assigned uniquely, after controlling for differences in financial factors, which may reflect differences in country risk and the legal and regulatory framework that banks face (such as foreclosure laws). In addition, we find that ratings may respond differently to the liquidity and operating expenses to operating income variables across countries. Typically ratings are more responsive to the former and less sensitive to the latter for "new" EU countries compared with "old" EU countries. |
| Keywords: | EU countries, banks, ratings, ordered probit models, index of indicator variable |
| JEL: | C25 C51 C52 G21 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1009&r=eec |
| By: | Hubert Gabrisch; L. Orlowski |
| Abstract: | We argue that monetary policies in euro-candidate countries should also aim at mitigating excessive instability of the key target and instrument variables of monetary policy during turbulent market periods. Our empirical tests show a significant degree of leptokurtosis, thus prevalence of tail-risks, in the conditional volatility series of such variables in the euro-candidate countries. Their central banks will be well-advised to use both standard and unorthodox (discretionary) tools of monetary policy to mitigate such extreme risks while steering their economies out of the crisis and through the euroconvergence process. Such policies provide flexibility that is not embedded in the Taylor-type instrument rules, or in the Maastricht convergence criteria. |
| Keywords: | monetary policy rules, tail-risks, convergence to the euro, global financial crisis, equity market risk, interest rate risk, exchange rate risk |
| JEL: | E44 F31 G15 P34 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:iwh:dispap:12-10&r=eec |
| By: | Betty C. Daniel (University at Albany); Christos Shiamptanis (Central Bank of Cyprus) |
| Abstract: | A country entering a monetary union gives up the right to determine its own monetary policy, thereby relinquishing monetary instruments to assure fiscal solvency. In this paper, we develop a new theoretical model to address fiscal solvency risk. We show that when debt is subject to an upper bound and policy faces stochastic shocks, a government can find itself in a position for which the expected present value of future surpluses under current policy is less than debt. Agents refuse to lend into such a position, and the sudden stop of capital flows defines a fiscal solvency crisis. We model the dynamics of a fiscal solvency crisis in a monetary union under the assumption that the fiscal authority will respond to the crisis using default to reduce the value of debt. We simulate the model to estimate fiscal solvency risk in the European Monetary Union. We find that countries adhering to the Stability and Growth Pack limits are perfectly safe, while countries like Greece and Italy, whose debt relative to GDP has strayed far above the 60 percent limit, are not. |
| Keywords: | European Monetary Union, sovereign default, financial crisis |
| JEL: | E42 E47 E62 F34 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:cyb:wpaper:2010-3&r=eec |
| By: | Vassilis Monastiriotis; Sotirios Zartaloudis |
| Abstract: | There is a widespread perception among the public and policy-makers that EMU carries one-way pressures for enhanced flexibility in the labour market. We discuss the theoretical basis of this by examining four mechanisms through which the establishment of the common currency and the functioning of EMU can impact on the labour markets, both within the Eurozone and of the New Member States. We argue that the theory and empirics of the link between EMU and labour market flexibility are not conclusive, leaving room for varying degrees of, and directions for, the (de)regulation of national labour markets. This discretion is partly reflected in the experience of labour market reforms in the Eurozone. An examination of the institutional framework for employment policies in the EU further corroborates the conclusion that EMU does not restrict, but rather puts on the agenda, the active exploration of policy options aimed at strengthening the resilience and adaptability of the European economy as well as its quality, fairness and competitiveness. We argue that this is no different today, during or after the crisis, than it was ‘before it all started’. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:eiq:eileqs:23&r=eec |