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on European Economics |
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Issue of 2010‒07‒17
nineteen papers chosen by Giuseppe Marotta University of Modena and Reggio Emilia |
| By: | Crowley, Patrick; Aaron, Schultz |
| Abstract: | Convergence and synchronisation of business and growth cycles are important issues in the efficient formulation of euro area economic policies, and in particular European Central Bank (ECB) monetary policy. Although several studies in the economics literature address the issue of synchronicity of growth within the euro area, this is the first study to address this issue using cross-recurrence analysis. The main findings are that member state growth rates had largely converged before the introduction of the euro, but there is a wide degree of different synchronisation behaviours which appear non-linear in nature. Many of the euro area member states display what is termed here as "intermittency" in synchronization, although this is not consistent across countries or members of the euro area. These differences in synchronization behaviors could cause problems in future implementation of euro area monetary policy. |
| Keywords: | Euro area; business cycles; growth cycles; recurrence plots; recurrence quantification analysis; non-stationarity; complex systems; surrogate analysis. |
| JEL: | E32 C14 F43 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23728&r=eec |
| By: | Domenico Giannone; Jérôme Henry; Magdalena Lalik; Michèle Modugno |
| Abstract: | This paper describes how we constructed a real time database for the euro area covering more than 200 series regularly published in the European Central Bank Monthly Bulletin, as made available ahead of publication to the Governing Council members before their first meeting of the month. We describe the database in details and study the properties of the euro area real-time data flow and data revisions, also providing comparisons with the United States and Japan. We finally illustrate how such revisions can contribute to the uncertainty surrounding key macroeconomic ratios and the NAIRU. |
| Keywords: | real-time; euro area; revisions; database |
| JEL: | C01 C82 E24 E58 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/59649&r=eec |
| By: | Piyaporn Sodsriwiboon; Florence Jaumotte |
| Abstract: | The paper examines the causes, consequences, and potential cures of the large current account deficits in the Southern Euro Area (SEA). These were mostly driven by a decline in private saving rates. But it was the European Monetary Union and the Euro, which enabled these countries to maintain investment rates, and thus run larger current account deficits, by improving their access to the international pool of saving. The paper finds that the deficits in SEA in 2008 were larger than can be explained by fundamentals, though the situation varies substantially across countries. It also finds that although the global financial crisis has started to force some unwinding, the current account deficits are expected to remain high in the medium run, though again with substantial variation across countries. The paper argues these large external deficits pose risks to the economy and therefore matter, even in a currency union, and discusses some policy options to reduce them. |
| Date: | 2010–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/139&r=eec |
| By: | Hauskrecht, Andreas; Stuart, Bryan; Hankel, Wilhelm |
| Abstract: | In contrast to Robert Mundell‘s Optimum Currency Area theory and his recommendation of forming a monetary union, the economic fundamentals of Euro area member countries have not harmonized. The opposite holds: the Euro core countries - most of all Germany, but also the Netherlands and Finland - increased productivity growth while limiting nominal wage growth. However, Mediterranean countries - particularly Greece, but also Spain, Portugal, and Italy - have dramatically lost international competitiveness. Although the overall balance of payments for the Euro area at large is almost balanced, internal disequilibria are skyrocketing and default risk premiums and tensions within the Euro area are rising, thus jeopardizing the stability of the monetary union. The findings confirm that a common currency without fiscal union is inherently unstable. The international financial and economic crisis has merely triggered events which highlight this instability. The paper discusses three possible scenarios for the future of the Euro: a laissez faire approach, a bailout, and finally an exit strategy for the Mediterranean countries, or an organized exit by a group of core countries led by Germany, forming their own smaller monetary union. |
| Keywords: | Optimum currency areas; monetary union; risk spreads; central banking; exchange rates; fiscal policy |
| JEL: | E58 E42 E00 E44 F33 |
| Date: | 2010–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23750&r=eec |
| By: | Ignazio Angeloni |
| Abstract: | In this paper Bruegel Visiting Scholar Ignazio Angeloni (European Central Bank), Ester Faia (Goethe University Frankfurt, Kiel IfW and CEPREMAP) and Marco Lo Duca (European Central Bank) examine the links between monetary policy, financial risk and the business cycle, combining data evidence and a new DSGE model with banks. The model includes banks (modeled as in Diamond and Rajan, JF 2000 and JPE 2001) and a financial accelerator (Bernanke et al., 1999 Handbook). A monetary expansion increases the propensity of banks to assume risks. In turn, financial risks affect economic activity and prices. This "risk-taking" channel of monetary transmission, absent in pure financial accelerator models, operates via the leverage decisions of banks. The model results match certain features of the data, as emerged in recent panel data studies and in our own time series estimates for the US and the euro area. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:bre:wpaper:397&r=eec |
| By: | Kyriakos C. Neanidis; Christos S. Savva |
| Abstract: | Using a GARCH model we provide evidence that higher inflation uncertainty leads to higher inflation in the new European Union (EU) member states and candidate countries only prior to EU accession. During EU accession and entry inflation uncertainty has no effect on mean inflation. This result supports the consideration of policy regime shifts in assessing the nominal uncertainty-average inflation relationship. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:146&r=eec |
| By: | Sandra Schmidt; Dieter Nautz |
| Abstract: | This paper investigates why financial market experts misperceive the interest rate policy of the European Central Bank (ECB). Assuming a Taylor-rule-type reaction function of the ECB, we use qualitative survey data on expectations about the future interest rate, inflation, and output to discover the sources of in- dividual interest rate forecast errors. Based on a panel random coefficient model, we show that financial experts have systematically misperceived the ECB's in- terest rate rule. However, although experts tend to overestimate the impact of inflation on future interest rates, perceptions of monetary policy have become more accurate since clarification of the ECB's monetary policy strategy in May 2003. We find that this improved communication has reduced disagreement over the ECB's response to expected inflation during the financial crisis. |
| Keywords: | Central bank communication, Interest rate forecasts, Survey expectations, Panel random coefficient model |
| JEL: | E47 E52 E58 C23 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2010-036&r=eec |
| By: | Sergio Cesaratto |
| Abstract: | Contributions to Brancaccio and Fontana (2011) look at a variety of aspects of the current crisis, some of them focusing on the contingent financial causes, others on the underlying contradictions of capitalist economies. In this context, less attention has been paid to the role of Europe and particularly Germany. Europe has not been distinguished by an assertive and cooperative economic policy stance in the aftermath of the current crisis. German mercantilist policies are said to be behind the European policy stance and a source of regional and global imbalances. After a brief examination of the main pillars of European economic policy and German behaviour during the present crisis, these notes suggest an embryonic interpretation of the origins of mercantilist behaviour, dwelling on the nature of mercantilism in economic theory and commercial practice, and of the allegedly German mercantilist model. The suggested interpretation is that in the German case, the national mystique of a trade surplus may have had a role in disciplining the labour market and at the same time assuring profits. Recent developments in Spring 2010 have shown the gravity of the European imbalances in the global crisis (see Cesaratto 2010) and the relevance of the background issues discussed in the present paper. |
| JEL: | B11 N14 F1 F33 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:usi:wpaper:595&r=eec |
| By: | Götz Zeddies |
| Abstract: | During the last decades, international trade flows especially of the industrialized countries allegedly became more and more intra-industry. At the same time, employment perspectives particularly of the low-skilled by tendency deteriorated in these countries. This phenomenon is often traced back to the fact that intra-industry trade, which should theoretically involve low labor market adjustment, became increasingly vertical in nature and might thus entail labor market disruptions. Against this background, the present paper investigates the relationship between international trade patterns and selected labor market indicators in European countries, with a focus on vertical intra-industry trade. As the results show, neither inter- nor vertical intra-industry trade do have a verifiable effect on wage spread in EU member states. As far as structural unemployment is concerned, the latter increases only with the degree of countries’ specialization on capi-tal intensively manufactured products in inter-industry trade relations. Only for unemployment of the less-skilled, a slightly significant impact of superior vertical intra-industry trade seems to exist. However, the link between unemployment of the lower qualified and inter-industry specialization on labor intensive goods as well as parts and components imports is considerably higher. |
| Keywords: | intra-industry trade, trade and labor market interactions, unemployment |
| JEL: | F12 F16 J64 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:iwh:dispap:15-10&r=eec |
| By: | Friedrich Schneider; Andreas Buehn; Claudio E. Montenegro |
| Abstract: | This paper presents estimations of the shadow economies for 162 countries, including developing Eastern European, Central Asian, and high-income countries over the period 1999 to 2006/2007. According to the estimations, the average size of the shadow economy (as a percentage of "official" gross domestic product) in 2006 in 98 developing countries is 38.7 percent; in 21 Eastern European and Central Asian (mostly transition) countries, it is 38.1 percent, and in 25 high-income countries, it is 18.7 percent. The authors find that the driving forces of the shadow economy are an increased burden of taxation (both direct and indirect), combined with labor market regulations and the quality of public goods and services, as well as the state of the “official” economy. |
| Keywords: | shadow economy of 162 countries, tax burden, quality of state institutions, regulation, MIMIC and other estimation methods. |
| JEL: | O17 O5 D78 H2 H11 H26 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:udc:wpaper:wp322&r=eec |
| By: | Dalen, H.P. van (Tilburg University); Henkens, C.J.I.M. (Tilburg University); Henderikse, W.; Schippers, J. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ner:tilbur:urn:nbn:nl:ui:12-4111905&r=eec |
| By: | Gogas, Periklis (Democritus University of Thrace, Department of International Economic Relations and Development); Kothroulas, George (Democritus University of Thrace, Department of International Economic Relations and Development) |
| Abstract: | The purpose of this paper is to examine the effectiveness of the policies and procedures towards economic convergence between the countries that participated in the European Exchange Mechanism I and which are now members states of the Eurozone. The question posed is whether the introduction of the common currency has strengthened the synchronisation of the business cycles of the member states or it has acted as the monetary ground for the creation of a multi-speed Europe that includes economies that bear little resemblance in terms of their basic economic features and figures and especially with respect to the fluctuations in their Gross Domestic Product. The empirical analysis is done through the use of linear regressions, the estimation of the correlation coefficient, and also a proposed sign concordance index (SCI). The results provide evidence that the synchronisation of the cycles seems to become weaker since the adoption of the new currency. Especially for G6, the group of the smaller regional economies, the results are consistent throughout all three methodologies used and for both groups of countries’ cycles used as a comparison base, the broad EU15 and the narrow G3. |
| Keywords: | Business Cycle; Synchronisation; Eurozone |
| JEL: | E32 |
| Date: | 2010–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:ris:duthrp:2010_004&r=eec |
| By: | Ralf Hepp (Fordham University); Juergen von Hagen (University of Bonn and Indiana University) |
| Abstract: | We study the channels of interstate risk sharing in Germany for the time period 1970 to 2006, estimating the degrees of smoothing of a shock to a state's gross domestic product by factor markets, the government sector, and credit markets, respectively. Within the government sector, we pay special attention to Germany's fiscal equalization mechanism. For pre-unification Germany, we find that about 19 percent of a shock are smoothed by private factor markets, 50 percent are smoothed by the German government sector, and a further 17 percent are smoothed through credit markets. For the post-reunification period, 1995 to 2006, the relative importance of the smoothing channels has changed. Factor markets contribute around 50.5 percent to consumption smoothing. The government sector's role is diminished: it smoothes around 10 percent of a shock. Fiscal equalization only plays a very small role for consumption smoothing in Germany. |
| Keywords: | Regional Risk-sharing, Factor Markets, Consumption Smoothing, Fiscal Federalism |
| JEL: | H77 E63 F42 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2010-13&r=eec |
| By: | Carolin Hecht; Katja Hanewald |
| Abstract: | We exploit the natural experiment of the 2005 income tax reform in Germany to study the effects of tax incentives on consumer behavior in life insurance markets. Our empirical analysis of sociodemographic, economic, and psychological household characteristics elicited in the German SAVE study shows that two very different consumer groups buy (endowment) life insurance before and after the tax reform. We find that education plays a central role in reactions to the modified tax environment. Our stylized characterization of “arbitrageur” and “straggler” buyers will assist both life insurance firms and regulatory authorities design effective policies. |
| Keywords: | life insurance demand, tax incentives, financial literacy |
| JEL: | D12 D14 D91 G22 K34 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2010-034&r=eec |
| By: | J. Andrés; J.E. Boscá; R. Doménech; J. Ferri |
| Abstract: | The benefits implied by changing the growth model are at the heart of the heated political and economic debate in Spain. Increases in productivity and the reallocation of employment towards more innovative sectors are defended as the panacea for most of the ills afflicting the Spanish economy. In this paper we use a DSGE model with price rigidities, and labour market search frictions a la Mortensen- Pissarides, to assess the effects of the change in the growth model on unemployment. In so doing, we assume that the vigorous demand shock which has been mostly responsible for recent economic growth in Spain will be successfully substituted by a productivity shock as the main driver of Spain‘s economic growth in the future. So we assume that we actually succeed in the so called "change in the growth model". We show that whatever the benefits that this change might bring to the Spanish economy, the time span needed to bring the unemployment rate down to the European average actually increases. We then analyze the impact of several reforms in the labour market and evaluate their interaction with the new growth model. We conclude that changes in the economic structure do not make labour reforms any less necessary, but rather the opposite if we want to shorten employment recovery significantly. |
| Keywords: | productivity, labour market, general equilibrium. |
| JEL: | E24 E27 E65 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:bbv:wpaper:1013&r=eec |
| By: | Hansen, Thorsten |
| Date: | 2010–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:dissen:11150&r=eec |
| By: | Michelle Rendall |
| Abstract: | Continental Europe has seen a smaller rise in formal female employment compared with the United States or the Nordic countries. Additionally, Continental Europe has a substantially smaller service sector. These facts coincide with job requirements shifting from physical strength to intellectual capacity. Given empirical evidence, this paper develops a model of endogenous technical change, where new 'technologies' can be invented to increase the productivity of brain-inputs. Two inputs, brain and brawn, are combined through CES production functions into services and industrial goods, with the production sector for goods requiring more brawn than brain. Households allocate time to working at home or the labor market, choose consumption of services and goods, and invest in new technologies. The key is households can produce a substitute for market services and women have, on average, less brawn than men, giving them a comparative advantage with respect to staying home and working in the service sector. Therefore, an economy that does not facilitate the movement of women into the labor market, by imposing high taxes, causes service production to remain at home. This reduces technological innovation, pushing an economy into a self-reinforcing loop, where a small service sector feeds back into low total hours worked by women (and men), further depressing the service sector. |
| Keywords: | Technological progress, sectoral labor allocation, cross-country differences, gender wage gap, labor demand/supply. |
| JEL: | E21 E24 J20 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:492&r=eec |
| By: | Bas Berend Bakker; Anne Marie Gulde |
| Abstract: | In the past decade, most of the EU New Member States experienced a severe credit-boom bust cycle. This paper argues that the credit boom-bust cycle was to a large extent the result of factors external to the region (“bad luckâ€). Rapid credit growth followed from a high liquidity in global markets and the particular attractiveness of “new Europe†for capital flows, while the end of the credit cycle was brought about by a global crisis. However, the fact that some countries managed to avoid most of the excesses, including asset price bubbles and foreign exchange lending, suggests that policies and policy failures (“bad policiesâ€)—in particular overly expansionary macroeconomic settings and excessively optimistic views on prudential risks—also have played a critical role. |
| Date: | 2010–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/130&r=eec |
| By: | Angel de la Fuente |
| Abstract: | In this paper we construct a data set on EU cohesion aid to Spain during the planning period 2000- 06. The data are disaggregated by region, year and function and attempt to approximate the timing of actual executed expenditure on assisted projects. |
| Keywords: | Structural Funds, EU Cohesion policy |
| JEL: | R58 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:bbv:wpaper:1017&r=eec |