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on European Economics |
| By: | Crowley, Patrick M (Texas A&M University and Bank of Finland Research); Schultz, Aaron (Athinoula A. Martinos Center for Biomedical Imaging and Massachusetts General Hospital) |
| 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 to address the 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 to be non-linear in nature. Many of the euro area member states display what is termed here ‘intermittency’ in synchronization, although this is not consistent across countries or members of the euro area. These differences in synchronization behaviors could introduce further challenges in managing the country-specific effects of the common monetary policy in the euro area. |
| Keywords: | Euro area; business cycles; growth cycles; recurrence plots; non-stationarity; complex systems; surrogate analysis |
| JEL: | C65 E32 F15 |
| Date: | 2010–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2010_016&r=eec |
| By: | Franz Seitz (University of Applied Sciences Weiden, Hetzenrichter Weg 15, D-92637 Weiden, Germany.); Julian von Landesberger (European Central Bank, Directorate General Economics, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | In this paper we analyse household holdings of the broad monetary aggregate M3 in the euro area from 1991 until 2009. We develop four models, two in nominal, two in real terms, with satisfactory economic and statistical properties. The main determinants are a transactions variable, wealth considerations, opportunity costs and uncertainty. The models are robust to different estimation strategies, samples considered and a multitude of mis-specification tests. The exercise also provides insights that go beyond the portfolio allocation decision of households. According to our analysis, it is quite apparent that in equilibrium, households jointly determine consumption and broad money holdings both influenced by wealth as well as interest rates. JEL Classification: E41, C23, C32, D21. |
| Keywords: | money demand, cointegrated VARs, households. |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101238&r=eec |
| By: | Ansgar Belke |
| Abstract: | After the dramatic rescue package for the euro area, the governing council of the European Central Bank decided to purchase European government bonds – to ensure an “orderly monetary policy transmission mechanism”. Many observers argued that, by bond purchases, national fi scal policies could from now on dominate the common monetary policy. This note argues that they are quite right. The ECB has indeed become more dependent in political and fi nancial terms. The ECB has decided to sterilise its bond purchases – compensating those purchases through sales of other bonds or money market instruments to keep the overall money supply unaff ected. This is to counter accusations that the ECB is monetizing government debt. This note addresses how eff ective these sterilisation policies are. One problem inherent in the sterilization approach is that it reshuffl es only the liability side of the ECB’s balance sheet. It is not well-suited to either diminish the bloated ECB balance sheet or to remove the potentially toxic covered or sovereign bonds from it. In addition, the intake of potentially toxic assets as collateral and by outright purchases in the central bank balance sheet artifi cially keeps the asset prices up and does not prevent the (quite intransparent) risk transfer from one group of countries to another to occur. Finally, sterilization takes place in a setting of still ultra-lax monetary policies, i.e. of new liquidity-enhancing operations with unlimited allotment, and, hence, does not appear to be overly irrelevant. A credible strategy to deal with the fi nancial crisis should deal primarily with the asset side of the ECB balance sheet. This note also addresses negative side eff ects of the SMP such as, for instance, the fact that the ECB is currently curbing real returns at the bond markets through its bond purchases. Currently, the real return of Spanish, Portuguese and Italian bonds only amounts to 3 to 3.5 percent. This is almost certainly not enough to attract private capital these countries are heavily dependent on. The most worrisome aspect is that the euro area has stumbled into a perpetuation of unconventional monetary policies by the execution of the SMP. Of course, the intentions are to bail out banks (but not just banks) and to support governments with issuance. What is diffi cult to see at the moment is how, once started, it will be able to stop. Finally, the ECB has been too silent about the following key questions which tends to frighten potential private investors in euro area sovereign bonds: What exactly is the composition of the sovereign bonds the ECB is buying? Which criteria are applied to select bonds to purchase? How is the ECB’s bond purchase strategy characterized in cases and periods of primary issuance? How long is the SMP going to last and what amounts may be spent? |
| Keywords: | accountability; bail-out; bond purchases; central bank independence; insolvency risk; Securities Markets Programme; transparency |
| JEL: | G32 E42 E51 E58 E63 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0194&r=eec |
| By: | Éva Katalin Polgár (European Central Bank, EU Neighbouring Regions Division, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Julia Wörz (Oesterreichische Nationalbank, Foreign Research Division, Otto WW agner Platz 3, 1011 Vienna, Austria.) |
| Abstract: | This paper analyses the relationship between openness to trade and wages at the industry level (15 manufacturing industries) in 25 EU countries over the period from 1995 to 2005. By applying a cross-country and industry-specific approach, it is possible to control for unobserved heterogeneity at both country and industry levels. We also differentiate between intra and inter-industry trade as well as between trade from western and eastern Europe and we try to assess the relative importance of foreign wages versus domestic productivity developments in an open environment. We find that trade is not an important driver of wages, since the wage response to trade is small. Moreover, in line with the Stolper-Samuelson reasoning, imports from the west generally benefit wages in central and eastern Europe, while imports from the east rather tend to harm wages in the west. The overall wage response is still negative in some sectors, particularly in more resource-based industries. Nevertheless, increased trade reinforces the productivity-wage link and weakens the co-movement of wages particularly in the west, while at the industry level there is little evidence of such a wagedisciplining effect of trade. JEL Classification: F14, F15, F16, J31. |
| Keywords: | openness, wages, bilateral trade, European integration, wage discipline, industry level. |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101244&r=eec |
| By: | Carlo Panico |
| Abstract: | <p>The factors that allow the launch of a speculative attack, such as those on <span>he government debts of Greece, Spain, Portugal, Ireland and Italy in 2010,</span> are always multiple. In this case, they can be found in some simultaneous events (e.g. the regional German elections of the 9<sup>th</sup> of May), in some previous faulty behaviors of the governments under attack, and in some defects of the institutional organization of the European Monetary Union. </p><p>Those who believe that the operation of market forces (and of financial speculation) is always able to bring about efficiency tend to stress the role played by the faulty behaviors of the authorities. Those holding a different standpoint tend to blame the faults in the institutional organization that have prevented the authorities from operating effectively against the speculative attack. For those having faith in the “market efficiency hypothesis”, the government of Greece and of the other countries under attack failed to take advantage of the positive trend of the world economy before the financial crisis.</p> |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp234&r=eec |
| By: | Isabel Argimón (Banco de España); Jenifer Ruiz (European University Institute, Florence) |
| Abstract: | The EU's transposition of Basel II into European law has been done through the Capital Requirements Directive (CRD). Although the Directive establishes, in general, uniform rules to set capital requirements across European countries, there are some areas where the Directive allows some heterogeneity. In particular, countries are asked to choose among different possibilities when transposing the Directive, which are called national discretions (ND). The main objective of our research is to use such observed heterogeneity to gather empirical evidence on the effects on European banks of more or less stringency and more or less risk sensitivity in capital requirements. Following the approach in Barth et al. (2004, 2006, 2008) we build index numbers for groups of national discretions and applying Altunbas et al. (2007) approach, we provide evidence on their effect on banks' risk, capital, efficiency and cost. We show that more stringency and more risk sensitivity in regulation not always result in a trade off between efficiency and solvency: the impact depends on the area of national discretion on which such characteristics apply. |
| Keywords: | Prudential regulation, capital requirements, bank capital, risk, efficiency |
| JEL: | E61 G21 G28 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1029&r=eec |
| By: | Christiane Nickel (European Central Bank, Directorate General Economics, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Philipp Rother (European Central Bank, Directorate General Economics, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Lilli Zimmermann (Center for European Studies (CEUS) at WHU – Otto Beisheim School of Management, Burgplatz 2, D-56179 Vallendar, Germany.) |
| Abstract: | The financial crisis of 2008/2009 has left European economies with a sizeable public debt stock bringing back the question what factors help to reduce these fiscal imbalances. Using data for the period 1985-2009 this paper identifies factors determining major public debt reductions. On average, the total debt reduction per country amounted to almost 37 percentage points of GDP. We estimate several specifications of a logistic probability model. Our findings suggest that, first, major debt reductions are mainly driven by decisive and lasting (rather than timid and short-lived) fiscal consolidation efforts focused on reducing government expenditure, in particular, cuts in social benefits and public wages. Second, robust real GDP growth also increases the likelihood of a major debt reduction because it helps countries to "grow their way out" of indebtedness. Third, high debt servicing costs play a disciplinary role strengthened by market forces and require governments to set up credible plans to stop and reverse the increasing debt ratios. JEL Classification: C35, E62, H6. |
| Keywords: | Fiscal policy, public debt, binary choice models. |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101241&r=eec |
| By: | Sophocles N. Brissimis (Bank of Greece, Economic Research Department, 21 E. Venizelos Ave., Athens 10250, Greece.); George Hondroyiannis (Bank of Greece, 21 E. Venizelos Ave., Athens 10250, Greece.); Christos Papazoglou (Bank of Greece, 21 E. Venizelos Ave., Athens 10250, Greece.); Nicholas T. Tsaveas (Bank of Greece, 21 E. Venizelos Ave., Athens 10250, Greece.); Melina A. Vasardani (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | The aim of this paper is to study the main macroeconomic, financial and structural factors that shaped current account developments in Greece over the period from 1960 to 2007 and discuss these developments in relation to the issue of external sustainability. Concerns over Greece’s external sustainability have emerged since 1999 when the current account deficit widened substantially and exhibited high persistence. The empirical model used, which theoretically rests on the intertemporal approach, treats the current account as the gap between domestic saving and investment. We examine the behaviour of the current account in the long run and the short run using co-integration analysis and a variety of econometric tests to account for the effect of significant structural changes in the period under review. We find that a stable equilibrium current account model can be derived if the ratio of private sector financing to GDP, as a proxy for financial liberalisation, is included in the specification. Policy options to restore the country’s external sustainability are explored based on the estimated equilibrium model. JEL Classification: F30, F32. |
| Keywords: | Current account model, external sustainability. |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101243&r=eec |
| By: | Amy K. Filipek (Department of Economics, The College of William and Mary); Till Schreiber (Department of Economics, The College of William and Mary) |
| Abstract: | The ‘Stability and Growth Pact’ aims to constrain excessive fiscal deficits by member countries in the European Monetary Union. It identifies and prescribes sanctions for countries that breach the Maastricht deficit and debt ceilings. Under strong criticism for its apparent favoritism of Germany and France, the SGP was reformed in 2005, after which its deficit procedures became more responsive to the economic climate and were individualized to the country’s circumstances. This paper explores the reformed SGP’s performance, especially in light of the recent Greek debt and global financial crises, and proposes further changes to the Pact, while paying special attention to political feasibility. In it we suggest reforms to the SGP that focus on national ownership of fiscal discipline and an extension of Medium Term Objectives to include a consideration of large external imbalances. We show that the latter can provide an early warning signal for potential future difficulties for public finances. |
| Keywords: | European Monetary Union, fiscal adjustment, external imbalances, global financial crisis |
| JEL: | F33 H60 |
| Date: | 2010–09–16 |
| URL: | http://d.repec.org/n?u=RePEc:cwm:wpaper:97&r=eec |
| By: | Grigorescu, Adriana; Balalia , Alina Elena |
| Abstract: | The budget of the European Union (EU) is financed by the member states’ own resources and has different types of sources. A tax which represents the percentage of a member state’s Gross National Product into the European Union’s Gross National Product is one the main source for the budget. In addition, trade fees, duties, a fee applied on value added tax (VAT) are relevant contributions in financing the budget of the EU. In order to achieve a high level of welfare, the UE is funding a lot of actions at the community level. The EU support is reflected by structural funds, which generate a lot of benefits for the member states, encouraging the competition among them. The paper discusses about the involvement of the EU in funding the member states, taking into consideration the current context of the economic crisis. This crisis period, starting with 2007, creates new situations for which the UE has to adapt its offer of structural funds towards the member states. The situation of member states, the distribution of structural funds, main domains for investment in the current context and ways of actions is analyzed, in order to obtain an overall perspective on the EU support. |
| Keywords: | European Union; member states; structural funds; economic crisis |
| JEL: | E65 E61 |
| Date: | 2009–11–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:25130&r=eec |
| By: | Jean-Charles Bricongne (Banque de France, 31 rue Croix des petits champs, 75001 Paris, France.); Lionel Fontagné (Paris School of Economics, University Paris 1.); Guillaume Gaulier (Banque de France, 31 rue Croix des petits champs, 75001 Paris, France.); Daria Taglioni (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Vincent Vicard (Banque de France, 31 rue Croix des petits champs, 75001 Paris, France.) |
| Abstract: | Global trade contracted quickly and severely during the global crisis. This paper, using a unique dataset of French firms, matching together export data with firm-level credit constraints, shows that most of the 2008-2009 trade collapse is accounted by the unprecedented demand shock and by product characteristics. While all firms have been evenly affected by the crisis, large firms did so mainly through the intensive margin and by reducing the portfolio of products offered in each destination served. Smaller exporters instead have been forced to reduce the range of destinations served or to stop exporting altogether. Credit constraints, on their part, emerged as an aggravating factor for firms active in sectors of high financial dependence. Nonetheless, as the share of credit constrained firms is small and their number did not increase much during the crisis, the overall impact of credit constraints on trade remains limited. JEL Classification: F02, F10, G01. |
| Keywords: | financial crisis, credit constraints, international trade, firms’ heterogeneity, intensive and extensive margins. |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101245&r=eec |
| By: | Marattin, Luigi; Salotti, Simone |
| Abstract: | This paper investigates the effects of government spending on private consumption and investment in the European Union. A certain consensus has been reached on the expansionary Keynesian effects on the economic activity of fiscal impulses. However, the existing empirical literature has concentrated on few countries, mostly outside the EU. We check the validity of this result for the EU area, by using annual data and a panel vector auto-regression approach (PVAR), with particular attention being paid to robustness across alternative identification assumptions (based on Cholesky orderings). Our results show that shocks in public spending positively affect private consumption and investment. According to our baseline estimate, a 1% increase in public spending produces a 0.24% impact rise in private consumption, and a 0.41% impact rise in private investment. The effects are substantial, and die out slowly in the case of private consumption (the cumulative impact amounts to 0.56% after 3 years), but much faster in the case of private investment. A further disaggregation between wage and non-wage components reveals that public salaries have a relatively stronger stimulating role. Note that this is not due to the different weights on GDP of the two components, which have comparable values in our sample. |
| Keywords: | Fiscal policy, private consumption, panel vector autoregression. |
| JEL: | E62 C33 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19476&r=eec |