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on European Economics |
| By: | Paul Hiebert (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Moreno Roma (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper examines the time varying dispersion in city house price levels across the four biggest euro area countries compared with those in the United States. Using available city-level data over the period 1987-2008, it tests for price convergence and analyses key factors explaining price differentials in a panel regression framework including per capita income, population and relative distances. Results indicate limited evidence of convergence in city-level house prices despite synchronised cycles in the national aggregates for most countries since the 1990s. There is an important role for income differentials in explaining city-level house price dispersion in Germany, France, and the US (but not in Italy or Spain once unobserved city factors are taken into account). At the same time, population differences across cities play a role, though this appears to be associated with amenities specific to a particular location. In general, there has been a lower dispersion of city-level house prices in the four largest euro area economies compared with the US in conjunction with a lower estimated income elasticity for house price differentials. The results, particularly for income, appear to be robust to restricting the analysis to large urban centres. JEL Classification: R21, R31, E31. |
| Keywords: | House price convergence, house price dispersion, house price drivers, panel data analysis. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101206&r=eec |
| By: | Dolls M; Fuest C; Peichl A |
| Abstract: | This paper analyzes the effectiveness of the tax and transfer systems in the European Union and the US to act as an automatic stabilizer in the current economic crisis. We find that automatic stabilizers absorb 38 per cent of a proportional income shock in the EU, compared to 32 per cent in the US. In the case of an unemployment shock 47 per cent of the shock are absorbed in the EU, compared to 34 per cent in the US. This cushioning of disposable income leads to a demand stabilization of up to 31 per cent in the EU and up to 28 per cent in the US. There is large heterogeneity within the EU. Automatic stabilizers in Eastern and Southern Europe are much lower than in Central and Northern European countries. We also investigate whether countries with weak automatic stabilizers have enacted larger fiscal stimulus programs. We find no evidence supporting this view. |
| JEL: | E32 E63 H2 H31 |
| Date: | 2010–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:ese:emodwp:em2/10&r=eec |
| By: | Zeno Enders (University of Bonn); Philip Jung (University of Mannheim); Gernot J. Mueller (University of Bonn) |
| Abstract: | In this paper we analyze European business cycles before and under EMU. Across the two periods we find 1) a significant decline in real exchange rate volatility, 2) significant changes in cross-country correlations, and 3) the volatility of macroeconomic fundamentals largely unchanged. We develop a two-country business cycle model and show that the calibrated model is able to replicate key features of the data prior to and under EMU. We find that the euro has a strong bearing on the transmission mechanism as cross-country spillovers increase substantially under EMU. As a result, foreign shocks become more and domestic shocks less important in accounting for the (unchanged) volatility of macroeconomic fundamentals. |
| Keywords: | European business cycles, Euro, Optimum Currency Area, EMU, Monetary Policy, Exchange rate regime, Cross-country spillovers |
| JEL: | F41 F42 E32 |
| Date: | 2010–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:onb:oenbwp:162&r=eec |
| By: | Tobias S. Blattner (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Emil Margaritov (Goethe University, Department of Money and Macroeconomics, House of Finance, Grueneburgplatz 1, 60323 Frankfurt am Main, Germany.) |
| Abstract: | Estimations of simple monetary policy rules are often very rigid. Standard practice requires that a decision is made as to which indicators the central bank is assumed to respond to, ignoring the data-rich environment in which policy-makers typically form their decisions. However, the choice of the feedback variables in the estimations of simple rules bears non-trivial implications for the prescriptions borne from these rules. This paper addresses this issue for the euro area using a new comprehensive real-time database for the euro area and examines the ECB’s past interest-rate setting behaviour in two complementary ways that are designed to deal with both model and data uncertainty. In a first step we follow the “thick-modelling” approach suggested byGranger and Jeon (2004) and estimate a series of 3,330 policy rules. In a second step we employ a factor-model approach similar to Bernanke and Boivin (2003) for the US Fed, but with structurally interpretable factors à la Belviso and Milani (2006). Taken together, we find a strong justification for the need of adopting robust approaches to describe the historical evolution of euro area monetary policy. We also find that the ECB is neither purely backward nor forward-looking, but reacts to a synthesis of the available information on the current and future state of the economy. JEL Classification: C50, E52, E58. |
| Keywords: | Taylor rules, Monetary policy, Real-time data. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101210&r=eec |
| By: | Figari F; Salvatori A; Sutherland H |
| Abstract: | As unemployment rises across the European Union (EU) it is important to understand the extent to which the incomes of the new unemployed are protected by tax-benefit systems and to assess the cost pressures on the social protection systems of this increase in unemployment. This paper uses the EU tax-benefit model EUROMOD to explore these issues, comparing effects in five EU countries. It provides evidence on the differing degrees of resilience of the household incomes of the newly unemployed due to the variations in the protection offered by the tax-benefit systems, according to whether unemployment benefit is payable, the household situation of the unemployed person, and across countries. |
| JEL: | C81 H55 I3 |
| Date: | 2010–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:ese:emodwp:em4/10&r=eec |
| By: | Matteo Barigozzi; Antonio Conti |
| Abstract: | We adopt a time-varying cointegration test to discriminate among different empirical studies claiming to find a stable Euro Area money demand equation. A time invariant relation explaining real balances is rejected by data, even when accounting for housing, financial and labour markets. Conversely, an international portfolio allocation approach provides stabilization. In particular, international financial markets, rather than monetary policy, are the key determinant of the observed diverging path of money growth. In terms of policy, we provide empirical support for a New Two Pillars Strategy aimed to achieve financial stability through money and credit and price stability through interest rates. |
| Keywords: | Euro Area Money Demand; Time-Varying Vector Error Correction Model; International Portfolio Allocation; Financial Stability |
| JEL: | E41 E44 C32 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/57649&r=eec |
| By: | Franco Fiordelisi (Faculty of Economics, University of Rome III, Via S. D’Amico 77, 00182, Rome, Italy.); David Marques-Ibanez (European Central Bank, Directorate General Research, Financial Research Division, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Phil Molyneux (European Central Bank, Directorate General Research, Financial Research Division, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | We analyze the impact of efficiency on bank risk. We also consider whether bank capital has an effect on this relationship. We model the inter-temporal relationships among efficiency, capital and risk for a large sample of commercial banks operating in the European Union. We find that reductions in cost and revenue efficiencies increase banks’ future risks thus supporting the bad management and efficiency version of the moral hazard hypotheses. In contrast, bank efficiency improvements contribute to shore up bank capital levels. Our findings suggest that banks lagging behind in their efficiency levels might expect higher risk and subdued capital positions in the near future. JEL Classification: G21, D24, C23, E44. |
| Keywords: | banking risk, capital, efficiency. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101211&r=eec |
| By: | Jean Pisani-Ferry |
| Abstract: | Bruegel Director Jean Pisani-Ferry focuses on the institutional response to the euro area crisis with the Van Rompuy Task Force being set up to reform economic governance. The task force is due to present its progress report shortly and the author examines two basic questions in this context? what went wrong in the euro area (and the lessons learnt from this) and consequently what are the three choices for reforming governance. He explains why implementation of existing rules need to be strengthened and why the Van Rompuy Task Force should revisit the fundamental principles on which the EMU is founded and resist the temptation to solely address divergences. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:bre:esslec:427&r=eec |
| By: | Gianni Amisano (European Central Bank, DG Research, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Gabriel Fagan (European Central Bank, DG Research, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | We develop a time-varying transition probabilities Markov Switching model in which inflation is characterised by two regimes (high and low inflation). Using Bayesian techniques, we apply the model to the euro area, Germany, the US, the UK and Canada for data from the 1960s up to the present. Our estimates suggest that a smoothed measure of broad money growth, corrected for real-time estimates of trend velocity and potential output growth, has important leading indicator properties for switches between inflation regimes. Thus money growth provides an important early warning indicator for risks to price stability. JEL Classification: C11, C53, E31. |
| Keywords: | money growth, inflation regimes, early warning, time varying transition probabilities, Markov Switching model, Bayesian inference. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101207&r=eec |
| By: | Fricke, Christoph; Menkhoff, Lukas |
| Abstract: | This paper examines the relative information shares of the Bund, i.e. the ten-year Euro bond future contract on German sovereign debt, versus two futures with shorter maturity. We find that the Bund is most important but does not dominate price discovery. The other contracts also have relevant - and at many days even higher - information shares. In examining determinants of information shares, we add order flow measures to market state variables and macroeconomic news. More order flow in a contract consistently increases this contract's information share. |
| JEL: | G14 G23 D85 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-449&r=eec |
| By: | Gunther Schnabl (Leipzig University, Grimmaische Straße 12, 04109 Leipzig, Germany.); Stephan Freitag (Leipzig University, Grimmaische Straße 12, 04109 Leipzig, Germany.) |
| Abstract: | The paper discusses global imbalances under the aspect of an asymmetric world monetary system. It identifies the US and Germany as center countries with rising / high current account deficits (US) and surpluses (Germany). These are matched by current account surpluses of countries stabilizing their exchange rates against the dollar (dollar periphery) and current account deficits of countries stabilizing their exchange rate against the euro (euro periphery). Meanwhile, the aggregate current account balance of the euro area has been by and large balanced. The paper finds that changes of world current account positions are affected by the macroeconomic policy decisions both in the centers and peripheries, albeit the centers – due to structural characteristics related to size – are argued to have a higher degree of freedom in macroeconomic policy making. In specific, expansionary monetary policy in the US as well as exchange rate stabilization and sterilization policies in the dollar periphery are found to have contributed to global current account imbalances. Given that the sample period for the analysis extends from 1981-2008, the results for Germany mostly capture the situation before the euro was created. JEL Classification: F31, F32. |
| Keywords: | Global Imbalances, Asymmetric World Monetary System, Twin Deficit, Twin Surplus, International Currency, Sterilization, Granger Causality Tests. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101208&r=eec |
| By: | L. Marattin; M. Marzo |
| Abstract: | Macroeconomic literature has traditionally regarded public expenditure as yielding no utility per se to any agent in the economy. In line with a few previous contributions (Linneman and Schabert 2004, Bouakez and Rebei 2007) we build a New Keynesian DSGE model with real and nominal rigidities and distortionary fiscal policy rules, calibrated on the Euro-area (1990:Q1-2008:Q4), where part of public spending is allowed to either Edgeworth complement or substitute private consumption by affecting its marginal utility. We show that the the interaction between the share of usefulness of public spending and the specification of fiscal and monetary policy rules is able to deliver private consumption multipliers which are in line with the empirical findings for the Euro-Area. |
| JEL: | E62 E63 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:704&r=eec |
| By: | Figari F; Iacovou M; Skew A; Sutherland H |
| Abstract: | This paper evaluates income distributions in four European countries (Austria, Italy, Spain and Hungary) using two complementary approaches: a standard approach based on reported incomes in survey data, and a microsimulation approach, where taxes and benefits are simulated. Given that benefit receipts tend to be under-reported in survey data, and over-estimated in microsimulation procedures, we may expect the two approaches to generate slightly different results. In fact, we find reasonably consistent results. To the extent that the results differ, we explore why these differences occur, and suggest directions for future research, where each approach may inform improvements in the other. |
| JEL: | C81 D31 I32 |
| Date: | 2010–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:ese:emodwp:em3/10&r=eec |
| By: | Özlem Onaran |
| Abstract: | <p>We are in a new episode of the global crisis: the struggle to distribute the costs of the crisis. The financial speculators and corporations are relabeling the crisis as a “sovereign debt crisis” and pressurizing the governments in diverse countries ranging from Greece to Britain to cut spending to avoid taxes on their profits and wealth. In Europe the crisis laid bare the historical divergences. At the root of the problem is the neoliberal model which turned the periphery of Europe into markets for the core. The restrained policy framework, which is based on strict inflation targeting, and which lacks fiscal transfers targeting productive investments in the periphery is the main cause of the divergences. </p><p>The EU’s current policies are still assuming that the problem is a lack of fiscal discipline and do not question the structural reasons behind the deficits and the “beggar my neighbor” policies of Germany. The deflationary consequences of wage cuts may turn the problem of debt to insolvency for private as well as the public sector.</p><p>The crisis calls for a major change in policy framework within Europe that places regional and social cohesion at the core of policy making. This is a crisis of distribution and a reversal of inequality at the expense of labor is the only real solution. </p> |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp226&r=eec |
| By: | Carlo Mazzaferro; Marcello Morciano; Elena Pisano; Simone Tedeschi |
| Abstract: | Household saving rate in Italy declined over the last two decades.This trend still persists despite three pension reforms have been enacted since the beginning of the nineties. In this paper we search further evidence of general macroeconomic effects through the analysis of households behaviour. In the first part of the paper we use data from five surveys of the Bank of Italy Surveys of Household Income and Wealth (SHIW) to estimate the lifetime profiles of saving and wealth accumulation. Estimates show that the age profile of the propensity to save has been influenced more by cohort effects than by general trend effects; whereas the age profile of the ratios of financial assets to disposable income has been subject to relevant trend effects. In the second part of the paper we analyse the effects of pension reforms on saving behaviour of Italian Households. Firstly we use a difference-in-difference estimator in order to test whether the groups more severely hit by the reforms actually increased their saving rate relative to the other groups. Then we estimate the Social Security Net Wealth (SSWN) for each individual in the SHIW in the analysed period (1989-2000). Finally we estimate the substitution coefficient between SSWN and private wealth taking into account that the reaction of saving to a change in SSWN depends also on age of the individual. Our results show that the reduction of SSWN is unequally distributed across individuals. The cut is stronger for self employed, young workers and women. Most of the groups more severely hit by the reforms did not increase their saving rate relative to the control group: younger households, in particular, did not increase the saving rate. On the whole a reduction of one Euro in SSWN seems to induce, on the average, a compensating increase in private wealth by about fifty cents. The substitution coefficient between private and social security wealth is higher for the richest and oldest part of the sample. Finally when we split the sample observations by year we find that the more dramatised is the impact of the reform, the higher is the substitution coefficient. |
| Keywords: | Pension reform; household saving; social security wealth; difference-in-difference |
| JEL: | E21 H55 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:mod:cappmo:0073&r=eec |
| By: | Vera Glassner; Toralf Pusch |
| Abstract: | In the European Monetary Union the transnational coordination of collective wage bargaining has acquired increased importance on the trade union agenda. The metal sector has been at the forefront of these developments. This paper addresses the issue of crossborder coordination of wage setting in the metal sector in the central western European region, that is, in Germany, the Netherlands and Belgium, where coordination practices have become firmly established in comparison to other sectors. When testing the interaction of wage developments in the metal sector of these three countries, relevant macroeconomic (inflation and labour productivity) and sector-related variables (employment, export-dependence) are considered with reference to the wage policy guidelines of the European Commission and the European Metalworkers’ Federation. Empirical evidence can be found for a wage coordination effect in the form of increasing compliance with the wage policy guidelines of the European Metalworkers’ Federation. The evidence for compliance with the stability-oriented wage guideline of the European Commission is weaker. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:iwh:dispap:13-10&r=eec |
| By: | Jordi Galí |
| Abstract: | Since its inception, a most distinctive (and controversial) feature of the ECB monetary policy strategy has been its emphasis on money and monetary analysis, which constitute the basis of the so-called monetary pillar. The present paper examines the performance of the monetary pillar around the recent financial crisis episode, and discusses its prospects in light of the renewed emphasis on financial stability and the need for enhanced macro-prudential policies. |
| Keywords: | monetary policy strategy, two pillar strategy, monetarism, financial stability. |
| JEL: | E52 E58 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1223&r=eec |
| By: | Maria Christidou (University Of Macedonia); Theodore Panagiotidis (University Of Macedonia) |
| Abstract: | The effect of the single currency on the Purchasing Power Parity (PPP) hypothesis is examined in this study for the 15 EU countries, vis a vis the US dollar, before and after the advent of the euro. Standard as well as nonlinear unit root tests are employed on the time series dimension. Unit root tests reject PPP and the highest half-lives are observed after the introduction of the single currency. Panel unit root (Pesaran, 2007) and stationarity tests (Hadri and Kurozumi, 2008) that take into account cross-sectional dependence are also estimated. The results remain inconclusive as panel stationarity tests fail to support PPP whereas panel unit root tests fail to reject PPP for the whole sample and for the period before the introduction of the single currency. |
| Keywords: | Purchasing Power Parity, half-life, nonlinear unit roots, panel unit roots, heterogeneity, cross-section dependence |
| JEL: | F31 F3 G15 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1018&r=eec |
| By: | Mooij, Ruud A., de; Devereux, Michael P. |
| Abstract: | We assess the quantitative impact of two reforms to corporation tax, which would eliminate the differential treatment of debt and equity: the allowance for corporate equity (ACE) and the comprehensive business income tax (CBIT).We explore the impact of these reforms on various decision margins, using an applied general equilibrium model for the EU calibrated with recent empirical estimates of elasticities. The results suggest that, if governments adjust statutory corporate tax rates to balance their budget, profit shifting and discrete location render CBIT more attractive for most individual European countries. European coordination makes a joint ACE more, and a joint CBIT less efficient. A combination of ACE and CBIT is always welfare improving. |
| JEL: | D58 H52 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ner:oxford:http://economics.ouls.ox.ac.uk/14762/&r=eec |
| By: | Da Rin, M. (Tilburg University); Di Giacomo, M.; Sembenelli, A. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ner:tilbur:urn:nbn:nl:ui:12-3607199&r=eec |