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on European Economics |
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Issue of 2010‒07‒10
fourteen papers chosen by Giuseppe Marotta University of Modena and Reggio Emilia |
| By: | Fédéric Holm-Hadulla (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Kishore Kamath (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Ana Lamo (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Javier J. Pérez (Banco de España, Alcalá 50, E-28014 Madrid, Spain); Ludger Schuknecht (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main) |
| Abstract: | This paper examines the role of government wages in ensuring macroeconomic stability and competitiveness in the euro area. Recent empirical evidence suggests that government wage expenditure is subject to a pro-cyclical bias in most euro area countries and at the euro area aggregate level. Moreover, the evidence points to a strong positive correlation and co-movement between public and private wages in the short to medium term, both directly and indirectly via the price level, in most euro area countries. In a number of countries this interrelation between public and private wages coincided with strong public wage growth and competitiveness losses. These findings underpin the need for prudent public wage policies supported by strong domestic fiscal frameworks and appropriate wage-setting institutions in order to enhance economic stability and competitiveness in Economic and Monetary Union. JEL Classification: E62, E63, J45, H11, H50 |
| Keywords: | government wage expenditure, fiscal cyclicality, competitiveness |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20100112&r=eec |
| By: | Luis J. Álvarez (Banco de España); Pablo Burriel (Banco de España) |
| Abstract: | This paper presents US and euro area estimates for a fully heterogeneous model, in which there is a continuum of f rms setting prices with a constant probability of adjustment, which may differ from f rm to f rm. The estimated model accurately matches the empirical distribution function of individual price durations for the US and the euro area. Incorporating these micro based pricing rules into a DSGE model, we f nd that nominal shocks have a greater real impact in the fully heterogeneous economy than in the standard Calvo model. We also f nd that nominal and real shocks bring about a reallocation of resources among sectors. Monetary policy is found to have a greater real impact in the euro area than in the United States. |
| Keywords: | price setting, heterogeneity, DSGE, Calvo model |
| JEL: | C40 D40 E30 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1019&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:polcon:427&r=eec |
| By: | Robinson Kruse (Aarhus University, School of Economics and Management, CREATES); Sanne Hiller (Department of Economics, Aarhus School of Business, Aarhus University) |
| Abstract: | The European integration process has removed barriers to trade within Europe. We analyze which integration step has most profoundly influenced the trending behavior of export openness. We endogenously determine the single most decisive break in the trend, account for strong cross-country heterogeneity and propose a new measure for the strength of trend breaks. Highly open economies gain from both, monetary and real integration. In sharp contrast, less open economies do not benefit from real integration and even suffer from monetary integration. The major milestones for France, Germany, Italy and the Netherlands are the Euro introduction, the Maastricht Treaty, the Exchange Rate Mechanism I and the merge of EFTA and EEC to the European Economic Area, respectively. Our empirical results have important implications for inner-European economic development, as export openness feeds back into growth, unemployment and income convergence. |
| Keywords: | European Integration; Export Openness; Trends; Structural Breaks |
| JEL: | C22 F02 F15 F41 |
| Date: | 2010–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2010-27&r=eec |
| By: | Ansgar Belke |
| Abstract: | The ECB has accepted increasing amounts of rubbish collateral since the crisis started leading to exposure to serious private sector credit risk (i.e. default risk) on its collateralised lending and reverse operations (“repo”). This has led some commentators to argue that the ECB needs “fiscal back-up” to cover any potential losses to be able to continue pursuing price stability. This Brief argues that fiscal backing is not necessary for the ECB for three reasons. Firstly, the ECB balance sheet risk is small compared to the FED and BoE as it neither increased its quasi-fi scal operations as much as the Fed or the BoE nor did it engage to a very large extent in outright bond purchases during the financial crisis. Secondly, the ECB’s specific accounting principles of repo operations provide for more clarity and earlier recognition of losses. Thirdly, the ECB can draw on substantial reserves of the euro area national banks. |
| Keywords: | Central bank independence, central bank capital, counterparty risk, repurchase agreements, collateral, fiscal backing, liquidity, haircuts |
| JEL: | G32 E42 E51 E58 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0184&r=eec |
| By: | Rolf Strauch (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Aidan Meyler (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Roland Beck (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Agostino Consolo (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Riccardo Costantini; Michael Fidora (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Luca Gattini (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Bettina Landau (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Ana Lima (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); David Lodge (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Marco Lombardi (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Ricardo Mestre (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Matthias Mohr (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Moreno Roma (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Frauke Skudelny (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Michal Slavik (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Michel Soudan (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Martin Spitzer (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Melina Vasardani (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Vanessa Baugnet (National Bank of Belgium, boulevard de Berlaimont 14, 1000 Brussels, Belgium.); David Cornille (National Bank of Belgium, boulevard de Berlaimont 14, 1000 Brussels, Belgium.); Christin Hartmann (Deutsche Bundesbank, Wilhelm-Epstein-Straße 14, 60431 Frankfurt am Main, Germany.); Ulf Slopek (Deutsche Bundesbank, Wilhelm-Epstein-Straße 14, 60431 Frankfurt am Main, Germany.); Derry O’Brien (Central Bank and Financial Services Authority of Ireland,Dame Street, Dublin 2, Ireland.); Laura Weymes (Central Bank and Financial Services Authority of Ireland,Dame Street, Dublin 2, Ireland.); Zacharias Bragoudakis (Bank of Greece, 21, E. Venizelos Avenue, P. O. Box 3105, GR-10250 Athens, Greece.); Pinelopi Zioutou (Bank of Greece, 21, E. Venizelos Avenue, P. O. Box 3105, GR-10250 Athens, Greece.); Ángel Estrada (Banco de España, Alcalá 50, E-28014 Madrid, España.); María de los Llanos Matea (Banco de España, Alcalá 50, E-28014 Madrid, España.); Noelia Jiménez (Banco de España, Alcalá 50, E-28014 Madrid, España.); Anton Nakov (Banco de España, Alcalá 50, E-28014 Madrid, España.); Galo Nuño (Banco de España, Alcalá 50, E-28014 Madrid, España.); Erwan Gautier (Banque de France, 39, rue Croix-des-Petits-Champs, F-75049 Paris Cedex 01, France.); Delphine Irac (Banque de France, 39, rue Croix-des-Petits-Champs, F-75049 Paris Cedex 01, France.); Nicolas Maggiar (Banque de France, 39, rue Croix-des-Petits-Champs, F-75049 Paris Cedex 01, France.); Ivan Faiella (Banca d’Italia, Via Nazionale 91, I-00184 Rome, Italy.); Fabrizio Venditti (Banca d’Italia, Via Nazionale 91, I-00184 Rome, Italy.); Lena Cleanthous (Central Bank of Cyprus, 80, KENNEDY AVENUE, CY-1076 NICOSIA, Cyrpus); Muriel Bouchet (Banque centrale du Luxembourg; 2, boulevard Royal; L-2983 Luxembourg, Luxembourg.); Amela Hubic (Banque centrale du Luxembourg; 2, boulevard Royal; L-2983 Luxembourg, Luxembourg.); Brian Micallef (Central Bank of Malta, Pjazza Kastilja, Valletta, VLT 1060, MALTA.); Guido Schotten (De Nederlandsche Bank, Westeinde 1, 1017 ZN Amsterdam, the Netherlands.); Andreas Breitenfellner (Oesterreichische Nationalbank, Otto-Wagner-Platz 3, POB-61, A-1011 Vienna, Austria.); João Amador (Banco de Portugal, Av. Almirante Reis, 71 – 8°, 1150-012 Lisboa, Portugal.); Monika Tepina (BANK OF SLOVENIA, Slovenska 35, 1505 Ljubljana, Slovenija); Mikulas Car (Narodna banka Slovenska, Imricha Karvasa 1, 813 25 Bratislava); Milan Donoval (Narodna banka Slovenska, Imricha Karvasa 1, 813 25 Bratislava) |
| Abstract: | This report aims to analyse euro area energy markets and the impact of energy price changes on the macroeconomy from a monetary policy perspective. The core task of the report is to analyse the impact of energy price developments on output and consumer prices. Nevertheless, understanding the link between energy price fluctuations, inflationary pressures and the role of monetary policy in reacting to such pressure requires a deeper look at the structure of the economy. Energy prices have presented a challenge for the Eurosystem, as the volatility of the energy component of consumer prices has been high since the creation of EMU. At the same time, a look back into the past may not necessarily be very informative for gauging the likely impact of energy price changes on overall inflation in the future. For instance, the reaction of HICP inflation to energy price fluctuations seems to have been more muted during the past decade than in earlier periods such as the 1970s. JEL Classification: E20, E30, E50, Q43 |
| Keywords: | energy, pass-through, inflation, macroeconomy, monetary policy |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20100113&r=eec |
| By: | John Beirne; Guglielmo Maria Caporale; Nicola Spagnolo |
| Abstract: | In this paper we model the volatility of the spread between the overnight interest rate and the central bank policy rate (the policy spread) for the euro area and the UK during the two main phases of the financial crisis that began in late 2007. During the crisis, the policy spread exhibited signs of volatility, owing to the breakdown in interbank market activity. The determinants of this volatility are assessed using Stochastic Volatility models to gauge the role played by liquidity risk, credit risk (financial and sovereign), and interest rate expectations. Our results suggest that liquidity risk is the main determinant of the volatility of the policy spread, but also that private bank credit risk has become more apparent in the post-Lehman collapse phase of the crisis for the euro area as financial CDS premia rose due to possible default fears. In addition, the ECB appears to have been more effective in addressing liquidity risk since the onset of the crisis, and this may be related to its greater direct access to a broader range of counterparties and its acceptance of a broader range of eligible collateral. The main implication is that, in crisis times, a sufficiently flexible operational framework for monetary policy implementation produces the most timely response to market tensions. |
| Keywords: | Overnight Interest Rate Spread, Liquidity Risk, Credit Risk, Stochastic Volatility |
| JEL: | C32 E52 E58 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1029&r=eec |
| By: | Conte, Andrea; Schweizer, Philip; Dierx , Adriaan; Ilzkovitz, Fabienne |
| Abstract: | Improving the quality of public finances is a major challenge for European policy makers. The economic crisis has increased budgetary pressures and accentuated the tension between the need to sustain public spending aimed at raising the EU growth potential and the increased scarcity of public resources. Rising the efficiency and effectiveness of public spending in growth-enhancing areas such as education, R&D and innovation has become, therefore, even more important. This paper reviews the innovation performance of the different EU Member States and provides estimates of the relative efficiency of their R&D spending. In doing so, it aims at moving the policy discussion from mere volume-based policy targets towards a better assessment of the quality and effects of public R&D spending. The main contribution of this paper is therefore the identification of both (1) a suitable methodology for the evaluation of efficiency levels across Member States and (2) structural and policy determinants which may contribute to raise efficiency levels of R&D spending across countries and over time. Results indicate that there exist large cross-country differences in terms of measured efficiency, which is an indication that in many Member States there remains a significant potential for further improvement. Currently, there appears to be a divide in efficiency levels between old and new Member States. However, there is some evidence that the new Member States are catching up. The estimated efficiency scores indicate that all EU Member States have improved their efficiency levels over time. There is evidence that the efficiency of R&D spending is higher in countries with a strong knowledge base which, in turn, implies that increases in R&D spending do not necessarily lead to reductions in efficiency levels. Other factors that positively affect efficiency levels include the high-tech specialisation of the economy, the level of investment in education, the employment share in science and technology, and the degree of protection of intellectual property rights. Finally, a R&D tax treatment more oriented towards fiscal incentives rather than direct subsidies appears to have a positive effect on the efficiency level of R&D spending across EU Member States. This work is based on both a quantitative measurement of efficiency levels and a qualitative analysis of the policy instruments used in the Member States to promote R&D efficiency and effectiveness. Efficiency scores are calculated by means of the Stochastic Frontier Analysis for a set of input and output indicators in order to overcome the limitations associated with each individual indicator. A complementary survey of national governments highlights some further policy instruments that could contribute to increase the efficiency of R&D and innovation policies, in particular at the national level. The results of the survey argue in favour of adopting a systemic approach to R&D, education and innovation policies, including three main elements: (i) adapting educational programmes and the research infrastructure to the needs of science and industry; (ii) making a sustained commitment to knowledge investment by adopting medium-term funding programmes; and (iii) evaluating existing R&D programmes in order to determine which policy tools are the most effective and in which areas R&D investments offer the highest returns. More recently, Member States have introduced R&D spending measures specifically targeted to deal with the consequences of the economic crisis. A closer look at these measures reveals that Member States consider direct grants and offers of tax relief as appropriate instruments to counteract the effects of the crisis. It should be clear that such policy measures should be tailored to the specific needs and strengths of every Member State. |
| Keywords: | Public Finance; Efficiency; R&D spending; patents; innovation policy. |
| JEL: | H50 C23 O33 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23549&r=eec |
| By: | Fédéric Holm-Hadulla (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Sándor Gardó (Oesterreichische Nationalbank, Foreign Research Division, Otto-Wagner-Platz 3, A - 1090 Wien, Austria); Reiner Martin (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main) |
| Abstract: | The paper first reviews the main drivers of the growth and real convergence process in central, eastern and south-eastern Europe (CESEE) since 2000 and assesses the key macro-financial strengths and vulnerabilities of the region at the beginning of the global economic and financial crisis. The main part of the paper reviews financial and real economic developments in these countries since the crisis started to impact the CESEE region. The paper finds that developments have been rather heterogeneous in the region. CESEE countries with the largest economic imbalances tended to be most affected. National and international support measures appear to have helped to stabilise financial markets, and parent banks of foreign bank subsidiaries in CESEE were committed to sustaining their exposure to the region. The degree to which CESEE governments were able to use policy instruments to counter the real effects of the crisis is rather heterogeneous, depending inter alia on the exchange rate regime in place and the initial fiscal positions. JEL Classification: F15, F32, G01, G15, G18, H40 |
| Keywords: | Financial crisis, vulnerability indicators, central, eastern and south-eastern Europe |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20100114&r=eec |
| By: | Ansgar Belke |
| Abstract: | We develop a roadmap of how the ECB should further reduce the volume of money (money supply) and roll back credit easing in order to prevent inflation. The exits should be step-by-step rather than one-off . Communicating about the exit strategy must be an integral part of the exit strategy. Price stability should take precedence in all decisions. Due to vagabonding global liquidity, there is a strong case for globally coordinating monetary exit strategies. Given unsurmountable practical problems of coordinating exit with asymmetric country interests, however, the ECB should go ahead – perhaps joint with some Far Eastern economies. Coordination of monetary and fiscal exit would undermine ECB independence and is also technically out of reach within the euro area. |
| Keywords: | Exit strategies; international policy coordination and transmission; open market operations; unorthodox monetary policy |
| JEL: | E52 E58 F42 E63 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0183&r=eec |
| By: | Ozgur Erkan |
| Abstract: | In contrast to the attention devoted to the rejection of the EU Constitutional Treaty at French and Dutch referenda; the Spanish referendum, where this Treaty was ratified, remained under-researched by political scientists. This paper analyses the voting behaviour at the Spanish referendum on the EU Constitutional Treaty with the use of quantitative methods and the concept of first and second-order elections. This paper finds that the Spanish referendum was a second-order referendum, because the effects of domestic political issues in Spain had a greater impact on the electoral behaviour of Spanish voters than had genuinely European issues. This finding raises doubts over the suitability of using direct democracy in the EU in order to raise the legitimacy and democratic accountability of the European project. |
| Keywords: | Spain, EU, referendum, European Constitutional Treaty, first and second-order elections |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:eiq:eileqs:25&r=eec |
| By: | Thomas Farole (The World Bank); Andrés Rodríguez-Pose (IMDEA Ciencias Sociales); Michael Storper (London School of Economics) |
| Abstract: | Since the reform of the Structural Funds in 1989, the EU has made the principle of cohesion one of its key policies. Much of the language of European cohesion policy eschews the idea of tradeoffs between efficiency and equity, suggesting it is possible to maximise overall growth whilst also achieving continuous convergence in outcomes and productivity across Europe’s regions. Yet, given the rise in inter-regional disparities, it is unclear that cohesion policy has altered the pathway of development from what would have occurred in the absence of intervention. This paper draws on geographical economics, institutionalist social science, and endogenous growth theory, with the aim of providing a fresh look at cohesion policy. By highlighting a complex set of potential tradeoffs and inter-relations – overall growth and efficiency; inter-territorial equity; territorial democracy and governance capacities; and social equity within places – it revisits the rationale of cohesion policy, with particular attention to the geographical dynamics of economic development. |
| Date: | 2010–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:imd:wpaper:wp2010-14&r=eec |
| By: | Robinson Kruse (Aarhus University, School of Economics and Management, CREATES) |
| Abstract: | This paper deals with the possibility of changing persistence in European real effective exchange rates as initially analyzed by Gadea and Gracia (2009). By applying a CUSUM of squares-based test for constant versus changing persistence with desirable statistical properties, an OECD data set is reconsidered. The empirical results suggest that persistence remains constant over time for nearly all time series. Thus, European monetary integration has not affected the persistence of external competitiveness significantly. Moreover, strong evidence for non-stationarity is found. Explanations for the sharp contrast of new results towards the ones by Gadea and Gracia (2009) are provided. |
| Keywords: | Changing persistence, unit roots, structural breaks, European monetary integration |
| JEL: | C22 E61 F31 F42 |
| Date: | 2010–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2010-26&r=eec |
| By: | Daniele Checchi (University of Milan); Vito Peragine (University of Bari); Laura Serlenga (University of Bari) |
| Abstract: | This paper analyses the extent of income inequality and opportunity inequality in 25 European countries. The present work contributes to understanding the origin of standard income inequality, helping to identify potential institutional setups that are associated to opportunity inequality. We distinguish between ex-ante and ex-post opportunity inequality. We find that ex-ante equality of opportunity exhibits positive correlation with public expenditure in education, whereas ex-post equality of opportunity is also positively associated to union presence and to fiscal redistribution. |
| Keywords: | Inequality of opportunity, income inequality. |
| JEL: | D31 D63 J62 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2010-174&r=eec |