nep-eec New Economics Papers
on European Economics
Issue of 2010‒07‒24
fifteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Fiscal federalism in crisis: lessons for Europe from the US By Zsolt Darvas
  2. The Euro-Project at Risk By Wilhem Hankel; Andreas Hauskrecht; Bryan Stuart
  3. The opening up of eastern Europe at 20-jobs, skills, and reverse maquiladoras? in Austria and Germany By Dalia Marin
  4. Extraordinary measures in extraordinary times – Public measures in support of the financial sector in the EU and the United States By Stéphanie Marie Stolz; Michael Wedow
  5. Financial Crisis in Central and Eastern Europe By Ekaterina Sprenger; Volkhart Vincentz
  6. Linkages between Excess Currency and Stock Market Returns:Granger Causality in Mean and Variance By Eirini Syngelaki;
  7. A factor-augmented probit model for business cycle analysis By Christophe Bellégo; Laurent Ferrara
  8. Bank Efficiency in Transitional Countries: Sensitivity to Stochastic Frontier Design By Zuzana Iršová
  9. Whatever Works: Dualisation and the Service Economy in Bismarckian Welfare States By Eichhorst, Werner; Marx, Paul
  10. Comportement de RSE et dialogue social : une comparaison France/Luxembourg By LE BAS Christian; POUSSING Nicolas
  11. Modeling Economic, Social and Environmental Implications of a Free Trade Agreement Between the European Union and The Russian Federation By Maryla Maliszewska; Elena Jarocinska; Milan Scasny
  12. The Gender Wage Gaps, 'Sticky Floors' and 'Glass Ceilings' of the European Union By Christofides, Louis N.; Polycarpou, Alexandros; Vrachimis, Konstantinos
  13. Do clusters generate greater innovation and growth? An analysis of European regions By Andrés Rodríguez-Pose; Fabrice Comptour
  14. Incorporation financial sector risk into monetary policy models: application to Chile By Dale F. Gray; Carlos Garcia; Leonardo Luna; Jorge Restrepo
  15. Monetization and Growth in Colonial New England, 1703-1749 By Peter L. Rousseau; Caleb Stroup

  1. By: Zsolt Darvas
    Abstract: Drawing comparisons between the fiscal architecture and situation in the US and the European Union, Bruegel Research Fellow Zsolt Darvas answers three questions in this Policy Contribution- Why has the euro been hit so hard? How would a more federal European fiscal union closer to the US model have helped? How do the euro area's fiscal architecture reform plans stand up in light of the US example? He concludes that a higher level of fiscal federation is not inevitable for the viability of the euro area, but current European fiscal reform proposals carry political risk and their implementation could be deficient or lack credibility. Introduction of a Eurobond covering up to 60 percent of member states? GDP would be a much more preferable solution.
    Date: 2010–07
  2. By: Wilhem Hankel; Andreas Hauskrecht (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); Bryan Stuart
    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: E42 E63 F15 F33 F34
    Date: 2010–05
  3. By: Dalia Marin
    Abstract: Many people in the European Union fear that eastern enlargement has led to major job losses in 'old' member states, particularly in Austria and Germany, as the two most important neighbours of the countries that joined the EU in 2004 and 2007. Are these fears justified'To address these questions, this paper makes use of new survey data of 660 German and Austrian firms with 2,200 investment projects in eastern Europe during the period 1990-2001. The new survey data represent 100 percent of Austrian and 80 percent of German direct investment in eastern Europe.
    Date: 2010–07
  4. By: Stéphanie Marie Stolz (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Michael Wedow (Deutsche Bundesbank, Wilhelm-Epstein-Straße 14, 60431 Frankfurt am Main, Germany.)
    Abstract: The extensive public support measures for the financial sector have been key for the management of the current financial crisis. This paper gives a detailed description of the measures taken by central banks and governments and attempts a preliminary assessment of the effectiveness of such measures. The geographical focus of the paper is on the European Union (EU) and the United States. The crisis response in bothregions has been largely similar in terms of both tools and scope, and monetary policy actions and bank rescue measures have become increasingly intertwined. However, there are important differences, not only between the EU and the United States (e.g. with regard to the involvement of the central bank), but also within the EU (e.g. asset relief schemes). JEL Classification: E58, E61, G21, G38
    Keywords: Bank rescue measures, public crisis management
    Date: 2010–07
  5. By: Ekaterina Sprenger (Osteuropa-Institut, Regensburg (Institut for East European Studies)); Volkhart Vincentz
    Abstract: Central and Eastern European Countries have been severely affected by the 2008 financial crisis. Several ways of contagion of the financial turmoil worked at different strengths in the different coun-tries. Although the disparities of the effects of the financial crisis are rather large, there are a number of common explanatory features. Mechanisms of transmission of the global financial crisis to the CEECs and its effects on these countries are discussed in this paper.
    Date: 2010–06
  6. By: Eirini Syngelaki (Economics,Finance and Accounting, National University of Ireland, Maynooth);
    Abstract: This paper investigates the causal linkages between monetary and equity market integration of the new member states (NMS) as well as of the non economic monetary union (Non- EMU) member states with the euro zone, after the official launch of the euro. Granger causality in mean and in variance tests are utilized. Our results reveal a number of interesting facts that can be summarized as follows. Firstly, there is little evidence of causality in mean effects for all countries. Secondly, there are significant spill over effects for the NMS. Thirdly, the excess currency return is the chief variable which leads the excess stock market return volatility of the NMS. Our findings have obvious implications for both investors and policy makers.
    Keywords: monetary market integration, equity market integration, Granger causality in-mean and in-variance, AR, Univariate GARCH
    JEL: F36 C22 G15
    Date: 2010
  7. By: Christophe Bellégo; Laurent Ferrara
    Abstract: Dimension reduction of large data sets has been recently the topic of interest of many research papers dealing with macroeconomic modelling. Especially dynamic factor models have been proved to be useful for GDP nowcasting or short-term forecasting. In this paper, we put forward an innovative factor-augmented probit model in order to analyze the business cycle. Factor estimation is carried either by standard statistical methods or by allowing a richer dynamic behaviour. An application is provided on euro area data in order to point out the ability of the model to detect recessions over the period 1974-2008.
    Date: 2010
  8. By: Zuzana Iršová (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: This article provides an empirical insight on the heterogeneity in the estimates of banking efficiency produced by the stochastic frontier approach. Using data from five countries of Central and Eastern Europe, we study the sensitivity of the efficiency score and the efficiency ranking to a change in the design of the frontier. We found that the average scores are significantly smaller when the transcendental logarithmic functional form is used in the profit efficiency measurement and when the scaling effect is neglected in the cost efficiency measurement. The implied bank ranking is robust to changes in the stochastic frontier definition for cost efficiency, but not for profit efficiency.
    Keywords: Banking, Efficiency, Stochastic Frontier Approach, Transitional countries
    JEL: C13 G21 L25
    Date: 2010–07
  9. By: Eichhorst, Werner (IZA); Marx, Paul (IZA)
    Abstract: The paper compares employment structures in five Continental welfare states. These countries feature broad similarities in their reliance on a more dualised model of labour market flexibility, particularly in service occupations with low skill requirements. However, a closer look also reveals considerable differences between national patterns of standard and non-standard work. In Germany (and to a lesser extent Austria), marginal part-time provides a fertile ground for low-paid service jobs, as non-wage labour costs are minimised. In France, fixed-term contracts are a flexible and also cheaper alternative to permanent contracts, especially for younger workers. Dutch service sector employers follow an eclectic approach, as can be seen from high shares of self-employed and part-timers, as well as temporary workers. Finally, Belgium has large proportions of very low-skilled, own-account self-employed and involuntary fixed-term contracts. On the basis of these results, we identify four transformative pathways towards a more inclusive or flexible labour market: growing wage dispersion, defection from both permanent full-time employment as well as from dependent employment, and government-sponsored labour cost reductions.
    Keywords: labour market dualisation, Continental Europe, fixed-term contracts, part-time work, wage dispersion
    JEL: J38 J41 J21 J58
    Date: 2010–06
  10. By: LE BAS Christian; POUSSING Nicolas
    Abstract: In this paper, we study CSR industrial firm behaviour in relation with social dialogue in two countries (France and Luxemburg). We address this topic by asking if two countries having different forms of social dialogue are able to induce even levels of incentives to implement social responsibility. Data collected through two surveys onto industrial firms set up the materials for observation. We also provide a statistical analysis onto the factors that affect CSR adoption.
    Keywords: Social dialogue; CSR; Country specificity
    Date: 2010–07
  11. By: Maryla Maliszewska; Elena Jarocinska; Milan Scasny
    Abstract: The EU-Russia Partnership and Cooperation Agreement, which entered into force in 1997 foresees the possible establishment of a free trade area (FTA) between the parties. The aim of our study is to evaluate the possible economic, social and environmental impact of such a free trade agreement between the European Union and Russia. The results of the analysis indicate that an EU-Russia FTA will be beneficial to the Russian Federation and the EU27. Some sectors are expected to contract in the medium term, but their importance in total output is small. Over the long run, the majority of sectors in Russia are expected to expand, while only a few sectors in the EU27 are expected to register negligible decreases in output. We estimate that welfare losses from the environmental damages would be very small for Russia (possibly even smaller due to the implementation of greener technologies), and negligible for the EU. Despite some significant negative medium-term social implications in selected sectors in Russia, the overall increase in economic activity and wages, coupled with likely domestic policies aiming at easing the impact of transitional unemployment, are expected to allow for the overall reduction in poverty rates. Overall, the results show that significant welfare gains (2.24% of GDP for Russia) would accrue from the deep FTA scenario involving a significant reduction of NTBs along with additional flanking measures, particularly on competition, IPR protection and corruption, which would help re-branding of Russia as a safe and attractive investment location. Also a number of countries such as Finland, Ireland, Netherlands, Denmark, Estonia, Slovakia, Slovenia and Sweden are expected to see their welfare increase by around 0.5% of GDP.
    Keywords: free trade agreement, WTO accession, European Union, Russian Federation, labor market, environment, NTBs, CGE
    JEL: F12 F15 F16 F17 F18
    Date: 2010
  12. By: Christofides, Louis N. (University of Cyprus); Polycarpou, Alexandros (University of Cyprus); Vrachimis, Konstantinos (University of Cyprus)
    Abstract: We consider and attempt to understand the gender wage gap across 24 EU member states, all of which share the objective of gender equality, using 2007 data from the European Union Statistics on Income and Living Conditions. The size of the gender wage gap varies considerably across countries and selection corrections affect the offered gap, sometimes substantially. Most of the gap cannot be explained by the characteristics available in this data set. Quantile regressions show that, in most countries, the wage gap is wider at the top of the wage distribution ('glass ceilings') and, in fewer countries, it is wider at the bottom of the wage distribution ('sticky floors'). These features are related to country-specific characteristics that cannot be evaluated at the member state level. We use the cross-country variation in this large sample of member states to explore the influence of (i) policies concerned with reconciling work and family life and (ii) wage-setting institutions. We find that policies and institutions are systematically related to unexplained gender wage gaps.
    Keywords: gender wage gap, selection, quantile effects, work-family reconciliation, wage-setting institutions
    JEL: J16 J31 J50 C21
    Date: 2010–07
  13. By: Andrés Rodríguez-Pose (IMDEA Social Sciences Institute); Fabrice Comptour (College of Europe, Bruges)
    Abstract: The analysis of clusters has attracted considerable interest over the last few decades. The articulation of clusters into complex networks and systems of innovation – generally known as regional innovation systems – has, in particular, been associated with the delivery of greater innovation and growth. However, despite the growing economic and policy relevance of clusters, little systematic research has been conducted into their association with other factors promoting innovation and economic growth. This paper addresses this issue by looking at the relationship between innovation and economic growth in 152 regions of Europe during the period between 1995 and 2006. Using an econometric model with a static and a dynamic dimension, the results of the analysis highlight that: a) regional growth through innovation in Europe is fundamentally connected to the presence of an adequate socioeconomic environment and, in particular, to the existence of a well-trained and educated pool of workers; b) the presence of clusters matters for regional growth, but only in combination with a good ‘social filter’, and this association wanes in time; c) more traditional R&D variables have a weak initial connection to economic development, but this connection increases over time and, is, once again, contingent on the existence of adequate socioeconomic conditions.
    Keywords: clusters; regional innovation systems; innovation; regional economic growth; socioeconomic conditions; regions; European Union
    Date: 2010–07–12
  14. By: Dale F. Gray (International Monetary Fund, Washington D.C.-USA); Carlos Garcia (ILADES-Georgetown University, Universidad Alberto Hurtado); Leonardo Luna (Transelec, Chile); Jorge Restrepo (Banco Central de Chile)
    Abstract: This article analyzes whether market-based financial stability indicators (FSIs) should be included in monetary policy models and, if so, how.1 Since the economy and interest rates affect financial sector credit risk, and the financial sector affects the economy, this article builds a model of financial sector vulnerability and integrates it into a macroeconomic framework, typically used for monetary policy analysis. More specifically, should the central bank explicitly include the financial stability indicator in its monetary policy (interest rate) reaction function? This is the most important question to be answered in this article. The alternative would be to react only indirectly to financial risk by reacting to inflation and gross domestic product (GDP) gaps, since they already include the effect that financial factors have on the economy.
    Keywords: financial sector risk, monetary policy models
    JEL: E32 E61 E62 E63 F41
    Date: 2009–12
  15. By: Peter L. Rousseau; Caleb Stroup
    Abstract: We examine econometrically the real effects of paper money's introduction into colonial New England over the 1703-1749 period. Departing from earlier analyses that focus primarily on the depreciation of paper money in the region, we show that expansion of the money stock promoted growth in modern sector activity and not the other way around. We also find that bills emitted for seigniorage purposes had a positive effect on the modern sector, while bills issued through loan banks did not.
    JEL: E42 N11
    Date: 2010–07

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