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on European Economics |
| By: | Mario Cerrato; Alexander Kadow; Ronald MacDonald |
| Abstract: | The so-called German Dominance Hypothesis (GDH) claimed that Bundesbank policies were transmitted into other European Monetary System (EMS) interest rates during the pre-euro era. We reformulate this hypothesis for the Central and Eastern European (CEE) countries that are on the verge of accessing the eurozone. We test this "Euro Dominance Hypothesis (EDH)" in a novel way using a global vector autoregressive (GVAR) approach that combines country-specic error correction models in a global system. We find that euro area monetary policies are transmitted into CEE interest rates which provides evidence for monetary integration between the eurozone and CEE countries. Our framework also allows for introducing global monetary shocks to provide empirical evidence regarding the eects of the recent nancial crisis on monetary integration in Europe. |
| Keywords: | German Dominance Hypothesis, Global VAR, Central and Eastern Europe, monetary integration, European integration. |
| JEL: | E58 F36 G15 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2010_21&r=eec |
| By: | Sophocles N. Brissimis (Bank of Greece, Economic Research Department, 21 E. Venizelos Avenue, Athens 10250, Greece.); Manthos D. Delis (University of Ioannina, Department of Economics, Ioannina 45110, Greece.) |
| Abstract: | Heterogeneity in the response of banks to a change in monetary policy is an important element in the transmission of this policy through banks. This paper examines the role of bank liquidity, capitalization and market power as internal factors influencing banks’ reaction in terms of lending and risk-taking to monetary policy impulses. The ultimate impact of a monetary policy change on bank performance is also considered. The empirical analysis, using large panel datasets for the United States and the euro area, elucidates the sources of differences in the response of banks to changes in policy interest rates by disaggregating down to the individual bank level. This is achieved by the use of a Local GMM technique that also enables us to quantify the degree of heterogeneity in the transmission mechanism. It is argued that the extensive heterogeneity in banks’ response identifies overlooked consequences of bank behavior and highlights potential monetary sources of the current financial distress. JEL Classification: E44, E52, G21, C14. |
| Keywords: | Monetary policy, Bank heterogeneity, Risk-taking, Bank performance. |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101233&r=eec |
| By: | Salvador Barrios; Sven Langedijk; Lucio Pench |
| Abstract: | Summary for non-specialistsThe global financial crisis has led to a sharp deterioration of EU countries' public finances. Views are split regarding the most appropriate consolidation strategy to follow, in particular considering: the timing of fiscal consolidation in relation to the path of economic recovery reflecting (a) the trade-off between consolidation and stabilisation; (b) fiscal consolidation in the context of a distressed banking system where the credit channel is hampered and without which economic recovery can hardly take place, (c) the absence of exchange rate adjustment in the euro area which could make it more difficult for countries with competitiveness problems to achieve successful fiscal consolidation. The existing literature on fiscal consolidations provides only partial evidence on these issues.In this paper our objective is to focus on the above points of discussion drawing on EU (and non-EU OECD) experiences during the period 1970-2008. We estimate econometrically the determinants of successful fiscal consolidations and show that: (i) in presence of a systemic financial crisis, the repair of the banking sector is a pre-condition for a fiscal consolidation to succeed in reducing debt levels (ii) even after the banking sector is repaired, fiscal consolidations are usually less successful than in absence of financial crises, although more vigorous fiscal consolidations (i.e. cold shower) tend to yield higher results (iii) current debt dynamics in the EU are very unfavourable and in some cases, coupled with rising debt servicing costs and much deteriorated growth outlook warranting differentiated consolidation strategies across EU countries (iv) We do not find conclusive evidence in support of exchange rates (including real exchange rate) depreciation/devaluation as enhancing the success of fiscal consolidation as their effect appear to be low and insignificant. |
| Keywords: | Fiscal consolidation financial crisis debt barrios langedijk pench |
| JEL: | H3 H6 E44 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0418&r=eec |
| By: | Tibor Lalinsky (Research Department, National Bank of Slovakia) |
| Abstract: | Slovak enterprises recorded significant worsening of economic and financial indicators in the time after euro adoption. Dramatic changes in the results of non-financial corporations were observed in most of the EU countries. The main driving factor was a drop in global demand. Some indicators suggest that the adoption of the euro and consequent effective exchange rate appreciation could have an additional negative effect on selected services. Decrease in price and cost competitiveness was only temporary. Tradable sector represented mainly by manufacturing seems to be sufficiently competitive. With gradual recovery of the global economy we can see a growing importance of previously identified competitiveness factors: support of research and development, education and innovations. |
| Keywords: | business competitiveness, impact of euro adoption |
| JEL: | D21 L10 L25 O12 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:svk:wpaper:1007&r=eec |
| By: | D'Agostino, Antonello (Central Bank and Financial Services Authority of Ireland); Bermingham, Colin (Central Bank and Financial Services Authority of Ireland) |
| Abstract: | The issue of forecast aggregation is to determine whether it is better to forecast a series directly or instead construct forecasts of its components and then sum these component forecasts. Notwithstanding some underlying theoretical results, it is gener- ally accepted that forecast aggregation is an empirical issue. Empirical results in the literature often go unexplained. This leaves forecasters in the dark when confronted with the option of forecast aggregation. We take our empirical exercise a step further by considering the underlying issues in more detail. We analyse two price datasets, one for the United States and one for the Euro Area, which have distinctive dynamics and provide a guide to model choice. We also consider multiple levels of aggregation for each dataset. The models include an autoregressive model, a factor augmented autoregressive model, a large Bayesian VAR and a time-varying model with stochastic volatility. We find that once the appropriate model has been found, forecast aggrega- tion can significantly improve forecast performance. These results are robust to the choice of data transformation. |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:8/rt/10&r=eec |
| By: | Lucjan T. Orlowski |
| Abstract: | Summary for non-specialistsThis study draws attention to the proliferation of tail risks in financial markets prior to and during the course of the recent global financial crisis. It examines the level of tail risks in selected equity, interbank lending and foreign exchange markets in selected EU Member States in relation to the United States. The extent of tail risks is assessed by applying general error distribution (GED) parameterization in GARCH volatility tests of the examined variables. The empirical tests prove that tail risks were pronounced across all of the examined European financial markets throughout the crisis. They were also significant prior to the crisis outbreak. The analyzed interbank lending markets exhibited more extreme volatility outbursts than the equity and foreign exchange markets. Several countercyclical monetary and macroprudential policies aimed at abating tail risks are identified and discussed. Flexible capital adequacy and contingent capital requirements for financial institutions are advocated. |
| Keywords: | Global financial crisis equity markets foreign exchange markets monetary policies macroprudential policies Orlowski |
| JEL: | E44 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0416&r=eec |
| By: | Salvador Barrios; Raffaele Fargnoli |
| Abstract: | Summary for non-specialistsThis paper examines the influence of governments' discretionary measures on tax revenues and tax elasticity in the European Union during the run-up to the 2008/2009 global financial crisis which was characterised by large swings in tax revenues.Using data collected in the context of the Output Gap Working Group of the Economic Policy Committee we show that while discretionary measures have had a limited impact on tax yields, they have in some cases significantly affected tax elasticities and thereby altered the relationship between tax revenues and the business cycle which plays a key role in the EU fiscal surveillance framework. Furthermore we provide evidence on the pro-cyclical nature of discretionary measures affecting tax revenues whereby governments tend to implement tax cuts during expansionary phases while resorting to tax increases during slowdowns. More generally our results suggest that the availability of detailed projections on the impact of discretionary measures by broad tax category would be instrumental to a better monitoring of tax revenues developments in the EU in order to better identify the role played by non-policy factors (such as asset prices) in driving tax revenues. Given that the time span covered by this database is in most cases still relatively short (covering on average 7 to 8 years) future updates of the data would allow to further dig into the issue of the influence of discretionary measures on tax elasticities as well as to provide elements for a backward assessment of fiscal plans vs. outcome. |
| Keywords: | financial crisis barrios Taxation discretionary measures fiscal policy financial crisis fiscal stance business cycle Fargnoli |
| JEL: | H2 E6 H6 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0419&r=eec |
| By: | Kim, Anna Myunghee (IZA) |
| Abstract: | This paper provides an evaluation of the status of migrant workers in Germany amidst the global financial crisis. Findings of the study are drawn from the latest available data on the labour market performance of native-German and non-German migrant workers as well as other socioeconomic integration measures of the receiving state. Compared to the experience of migrants in most of the major receiving states of the EU, the status of the predominantly low-skilled sector-employed migrant workers in Germany, where primarily the skilled-workforce concentrated industries of high-value products is affected, has remained unchanged during the crisis. On the other hand, marginalisation of the ethnic and national minority population appears to be a persistent phenomenon marked by long-standing labour market exclusion. This is manifested in over two decades of double-digit unemployment rates of the foreign migrant population in the former ‘guest-worker’ importing country. This implies for the economy the need to settle long-term problems and implement strategies towards a better labour market integration of the minority migrant population beyond the recent recession. |
| Keywords: | global financial crisis, low-skilled sector, migrant workers, guest-workers, labour market integration, minority migrant population |
| JEL: | F22 J61 O15 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5134&r=eec |
| By: | Grömling, Michael |
| Abstract: | -- |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wuewwb:107&r=eec |
| By: | Jan Zilinsky (MIT, Department of Economics) |
| Abstract: | This paper finds that public debt and a range of other economic variables are surprisingly weakly correlated with sovereign spreads in EU countries. Democratic capital, on the other hand, was a powerful predictor of spread heights between 2003 and 2007, while its relevance disappeared in late 2008, when only credit ratings were correlated with the investors' estimate of default probabilities. These results suggests that (1) institutional characteristics may sometimes play a central role in determining borrowing costs and (2) investors attach different weights to relevant variables depending on global macroeconomic conditions. |
| Keywords: | Public debt, Democratic capital, Long-term interest rates, Monetary unions, Financial crises |
| JEL: | H6 F5 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:svk:wpaper:1006&r=eec |