nep-eec New Economics Papers
on European Economics
Issue of 2010‒09‒11
eight papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. The effects of US economic and financial crises on euro area convergence By Fabio C. Bagliano; Claudio Morana
  2. Inflation Dynamics By Sylvia Kaufmann; Johann Scharler
  3. Geographic Macro and Regional Model for EU Policy Impact Analysis of Intangible Assets and Growth By Attila Varga; Péter Járosi; Tamás Sebestyén
  4. How Do Central Banks React to Wealth Composition and Asset Prices? By Vítor Castro; Ricardo M. Sousa
  5. Alternative methods for forecasting GDP By Dominique Guegan; Patrick Rakotomarolahy
  6. The recessive attitude of EMU policies: reflections on the italian experience, 1998–2008 By Canale, Rosaria Rita; Napolitano, Oreste
  7. A simple and flexible alternative to the Stability and Growth Pact deficit ceilings. Is it at hand? By V. Anton Muscatelli; Piergiovanna Natale; Patrizio Tirelli
  8. Les réformes des retraites en Europe dans la crise By Gérard Cornilleau; Catherine Mathieu; Henri Sterdyniak; Vincent Touzé

  1. By: Fabio C. Bagliano (Department of Economics and Public Finance "G. Prato", University of Torino); Claudio Morana (Department of Economics and Quantitative Methods, University of Eastern Piedmont)
    Abstract: As economic and financial integration between the US and the euro area is strong, assessing whether the recent US crisis may affect the process of real and nominal convergence within the euro area is important. The paper addresses this issue in the framework of a large-scale open economy macroeconometric model, featuring 14 euro area member countries, the USA, and 35 advanced and emerging economies. The results point to a likely contribution of US economic and financial crises to real divergence in the euro area, potentially affecting first, second and third moments of the output growth distribution; on the other hand, implications for nominal convergence are less clearcut.
    Keywords: Euro area convergence, Great Recession, financial crisis, economic crisis, factor vector autoregressive models
    JEL: C22 E32 F36
    Date: 2010–09
  2. By: Sylvia Kaufmann (Economic Studies Division, Oesterreichische Nationalbank); Johann Scharler (Department of Economics, University of Linz)
    Abstract: If firms borrow working capital to finance production, then nominal interest rates have a direct influence on in inflation dynamics, which appears to be the case empirically. However, interest rates may only partly mirror the cost of working capital. In this paper we explore the role of bank lending standards as a potential additional cost source and evaluate their empirical importance in explaining in ation dynamics in the US and in the euro area. JEL classification: E40, E50
    Keywords: New Keynesian Phillips Curve, Cost Channel, Bank Lending Standards, Bayesian
    Date: 2010–09–08
  3. By: Attila Varga (Department of Economics and Regional Studies, University of Pécs); Péter Járosi (Department of Economics and Regional Studies, University of Pécs); Tamás Sebestyén (Department of Economics and Regional Studies, University of Pécs)
    Abstract: This paper introduces the geographic macro and regional model for NUTS-2 regions of the Euro zone. This model consists of three blocks: the TFP, the SCGE and the MACRO blocks. The model is built for impact analysis of policies targeting intangible assets in the forms of R&D, human capital and social capital. The analysis can be done both at the regional and the EU macroeconomic levels. Policy simulations illustrate the capabilities of the complex model system.
    Keywords: TFP, SCGE models, DSGE models, impact analysis, R&D, human capital, social capital
    JEL: O31 H41 O40
    Date: 2010–06
  4. By: Vítor Castro (Universidade de Coimbra and NIPE); Ricardo M. Sousa (Universidade do Minho - NIPE)
    Abstract: We assess the response of monetary policy to developments in asset markets in the Euro Area, the US and the UK. We estimate the reaction of monetary policy to wealth composition and asset prices using: (i) a linear framework based on a fully simultaneous system approach in a Bayesian environment; and (ii) a nonlinear specification that relies on a smooth transition regression model. The linear framework suggests that wealth composition is indeed important in the formulation of monetary policy. However, the attempts of central banks to mitigate undesirable fluctuations in say, financial wealth, may disrupt housing wealth. A similar result can be found when we assess the reaction of monetary authority to asset prices, although concerns about "price" effects are smaller. The nonlinear model confirms these findings. However, the concerns over the wealth and its components are stronger once inflation is under control, i.e. below a certain target. Some disruptions between financial and housing wealth effects are still present. They can also be found in reaction to asset prices, despite being less intense.
    Keywords: monetary policy rules, wealth composition, asset prices.
    JEL: E37 E52
    Date: 2010
  5. By: Dominique Guegan (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Patrick Rakotomarolahy (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: An empirical forecast accuracy comparison of the non-parametric method, known as multivariate Nearest Neighbor method, with parametric VAR modelling is conducted on the euro area GDP. Using both methods for nowcasting and forecasting the GDP, through the estimation of economic indicators plugged in the bridge equations, we get more accurate forecasts when using nearest neighbor method. We prove also the asymptotic normality of the multivariate k-nearest neighbor regression estimator for dependent time series, providing confidence intervals for point forecast in time series.
    Keywords: Forecast - Economic indicators - GDP - Euro area - VAR - Multivariate k nearest neighbor regression - Asymptotic normality
    Date: 2010–12
  6. By: Canale, Rosaria Rita; Napolitano, Oreste
    Abstract: The EMU assigns a very marginal role to economic policy and relies on the leading idea that, if prices are kept constant, there will be an automatic convergence towards long-run equilibrium income. These beliefs represent the theoretical underpinnings of fiscal and monetary policy strategies in Europe. In order to highlight the weakness of these foundations, the paper evaluates empirically the effects of public expenditure and interest rate setting on equilibrium income in Italy from 1998 to 2008. The analysis supports the conclusions that government spending has a positive impact on national income while inflation targeting has a negative impact. Moreover the empirical evidence shows that a high level of debt does not produce negative effects on GDP. Finally, at a time of financial crisis, these results appear to be reinforced for fiscal policy, but weakened for monetary policy. The paper finally states that the EMU’s rigid rules for both fiscal and monetary policy have recessive attitudes, and limit the use of instruments to deal with high levels of unemployment, definitely undermining the future existence of the single-currency area.
    Keywords: Fiscal policy; Monetary policy; EMU; Italy
    JEL: E62 E12 E52
    Date: 2010–04
  7. By: V. Anton Muscatelli; Piergiovanna Natale; Patrizio Tirelli
    Abstract: We use a simple theoretical model of a monetary union where myopic discretionary fiscal policies generate excessive debt accumulation in steady state and inefficiently delayed debt adjustment following a shock. We advocate the adoption of a flexible debt targeting approach. By setting a long-term debt target and by raising the political cost associated to deviations from the optimal pace of debt reversal following a shock¸ institutional design induces the fiscal policymaker to implement unbiased discretionary responses to shocks. Since the power to discipline fiscal policymakers rests in the hands of national voters, this outcome can be achieved by increasing the transparency of the decision-making process, where national voters understand the long-term consequences of fiscal policies. In practice, we call for clearer and more focused supervision tasks for the European Commission and for a more active role of national Parliaments whenever a disagreement arises between the Commission and a national government.
    JEL: E52 E61 E63
    Date: 2010–07
  8. By: Gérard Cornilleau (Observatoire Français des Conjonctures Économiques); Catherine Mathieu (Observatoire Français des Conjonctures Économiques); Henri Sterdyniak (Observatoire Français des Conjonctures Économiques); Vincent Touzé (Observatoire Français des Conjonctures Économiques)
    Date: 2010–07

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