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on European Economics |
| By: | Zsolt Darvas (Bruegel, Hungarian Academy of Sciences, Corvinus University of Budapest) |
| Abstract: | The global economic and financial crisis has raised further concerns about the euro-entry criteria, in addition to other factors, such as the effective tightening of the criteria due to the enlargement of the EU from 12 to 27 members, the highly unfavourable property of business cycle dependence, the internal inconsistency of the criteria due to the structural price level convergence of Central and Eastern European countries, and the continuous violation of the criteria by euro-area members. The interest rate criterion became a highly volatile measure. Many US metropolitan areas would fail to qualify to be members of the US monetary union by applying the currently used inflation criterion to the US. It is time to reform the criteria and to strengthen their economic rationale within the legal framework of the EU treaty. A good solution would be to relate all criteria to the average of the euro area and simultaneously to extend the compliance period from the currently considered one year to a longer period. |
| Keywords: | Euro, EU institutions, financial crisis, Maastricht-criteria |
| JEL: | F33 F36 F53 |
| Date: | 2010–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:mkg:wpaper:1003&r=eec |
| By: | Arghyrou, Michael G (Cardiff Business School); Kontonikas, Alexandros |
| Abstract: | We offer a detailed empirical investigation of the European sovereign debt crisis based on the theoretical model by Arghyrou and Tsoukalas (2010). We find evidence of a marked shift in market pricing behaviour from a 'convergence-trade' model before August 2007 to one driven by macro-fundamentals and international risk thereafter. The majority of EMU countries have experienced contagion from Greece. There is no evidence of significant speculation effects originating from CDS markets. Finally, the escalation of the Greek debt crisis since November 2009 is confirmed as the result of an unfavourable shift in country specific market expectations. Our findings highlight the necessity of structural, competitiveness-inducing reforms in periphery EMU countries and institutional reforms at the EMU level enhancing intra-EMU economic monitoring and policy co-ordination. |
| Keywords: | euro-area; crisis; spreads; fundamentals; expectations; contagion; speculation |
| JEL: | E43 E44 F30 G12 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2010/9&r=eec |
| By: | Dimitris A. Georgoutsos (Athens University of Economics & Business); Petros Migiakis (Bank of Greece) |
| Abstract: | In this paper we examine the dynamics of European sovereign bond yield spreads focusing on issues related to financial integration and market conditions. The finding of near-unit-root effects highlights the need for careful econometric specification. Thus we formulate sovereign bond yield spreads, for eleven EMU countries against the Bund for the period 1992:1-2009:12, as AR(1) processes, while allowing for regime switching effects, along the lines of a Markovian probabilistic specification. Specifically, by taking into account regime switching effects we examine, rather than assume, that monetary unification affected sovereign bond yield spreads, allowing for states of higher and lower interactions to be revealed. Next, we examine the effects of several exogenous explanatory variables. Our results indicate that European sovereign bonds achieved only partial integration even before the recent financial crisis, while financial integration and financial stability are found to be interconnected. Specifically, we find evidence of different effects exercised by the same deterministic factors on sovereign bond yield spreads even before the recent crisis. Additionally, it appears that a negative relation exists between low-volatility conditions and the magnitude of effects exercised by idiosyncratic risk factors on bond yield spreads. |
| Keywords: | financial integration; sovereign bond spreads; near unit root; regime shifts |
| JEL: | F21 G12 G32 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:115&r=eec |
| By: | Pavla, Vodová |
| Abstract: | The aim of this paper is to assess with price indicators the extent to which markets of loans provided to households in Visegrad countries are integrated with euro zone countries. Analysis of alignment and beta and sigma convergence concept showed that mortgage loan markets were much more integrated than consumer loan markets in period from January 2005 to March 2010. Czech and Slovak consumer loans market and Polish and Hungarian mortgage loans market have statistically significant relatively higher speed of convergence. However, barriers of integration are still very important. |
| Keywords: | credit market integration; price indicators; beta convergence; sigma convergence |
| JEL: | C23 F36 G21 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:25250&r=eec |
| By: | Delis, Manthos D; Mylonidis, Nikolaos |
| Abstract: | This note provides the first empirical assessment of the dynamic interrelation between government bond spreads and their associated credit default swaps (CDS). We use data for the Southern European countries (Greece, Italy, Portugal and Spain) that found themselves with a problematic public sector in the dawn of the recent financial distress. We find that CDS prices Granger-cause government bond spreads after the eruption of the 2007 subprime crisis. Feedback causality is detected during periods of financial and economic turmoil, thereby indicating that high risk aversion tends to perplex the transmission mechanism between CDS prices and government bond spreads. |
| Keywords: | Government bonds; Credit default swaps; Rolling Granger-causality tests |
| JEL: | G12 F34 |
| Date: | 2010–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:25270&r=eec |
| By: | Bruno Albuquerque |
| Abstract: | This work provides empirical evidence for a sizeable, statistically significant negative impact of the quality of fiscal institutions on public spending volatility for a panel of 25 EU countries over the 1980-2007 period. The dependent variable is the volatility of discretionary fiscal policy, which does not represent reactions to changes in economic conditions. Our baseline results thus give support to the strengthening of institutions to deal with excessive levels of discretion volatility, as more checks and balances make it harder for governments to change fiscal policy for reasons unrelated to the current state of the economy. Our results also show that bigger countries and bigger governments have less public spending volatility. In contrast to previous studies, the political factors do not seem to play a role, with the exception of the Herfindahl index, which suggests that high concentration of parliamentary seats in a few parties would increase public spending volatility. |
| JEL: | E32 E62 H30 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201017&r=eec |
| By: | Delia Velculescu |
| Abstract: | Traditional fiscal indicators focused on measures of current deficits and debt miss the potentially important implications of current policies for future public finances. This could be problematic, including in the case of Europe, where population aging is expected to pose additional fiscal costs not captured by such indicators. To better gauge the state of public finances in the EU27 countries, this paper derives forward-looking fiscal measures of intertemporal net worth both directly from the European Commission’s Aging Working Group’s long-run indicators and using a comprehensive public-sector balance sheet approach. These measures could be used as an "early warning" mechanism and also as a communication device with the public. Current estimates indicate that, on existing policies, the intertemporal net worth of the EU27 is deeply negative, even in excess of its GDP level, and is projected to worsen further over time. This suggests that Europe’s current policies need to be significantly strengthened to bring future liabilities in line with the EU governments’ capacity to generate assets. |
| Date: | 2010–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/177&r=eec |
| By: | Jan Babecký (Czech National Bank); Philip Du Caju (National Bank of Belgium); Theodora Kosma (Bank of Greece); Martina Lawless (Central Bank and Financial Services Authority of Ireland); Julián Messina (World Bank and University of Girona); Tairi Rõõm (Bank of Estonia) |
| Abstract: | It has been well established that the wages of individual workers react little, especially downwards, to shocks that hit their employer. This paper presents new evidence from a unique survey of firms across Europe on the prevalence of downward wage rigidity in both real and nominal terms. We analyse which firm-level and institutional factors are associated with wage rigidity. Our results indicate that it is related to workforce composition at the establishment level in a manner that is consistent with related theoretical models (e.g. efficiency wage theory, insider-outsider theory). We also find that wage rigidity depends on the labour market institutional environment. Collective bargaining coverage is positively related with downward real wage rigidity, measured on the basis of wage indexation. Downward nominal wage rigidity is positively associated with the extent of permanent contracts and this effect is stronger in countries with stricter employment protection regulations. |
| Keywords: | J30, J31, J32, C81, P5. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:110&r=eec |
| By: | Krebs, Tom; Scheffel, Martin |
| Abstract: | We develop a tractable macroeconomic model with employment risk and labor market search in order evaluate the effects of labor market reform on unemployment, growth, and welfare. The model has a large number of risk-averse households who can invest in risk-free physical capital and risky human capital. Unemployed households receive unemployment benefits and decide how much search effort to exert. We present a theoretical characterization result that facilitates the computation of equilibria substantially. We calibrate the model to German data and use the calibrated model economy to simulate the macroeconomic effects of the German labor market reforms of 2005 and 2006 (Hartz Reforms). We find that the 2005-reform had large employment effects: the equilibrium unemployment rate has been reduced by approximately 1.1 percentage points from 7.5 to 6.4 percent. Moreover, the drop in unemployment has led to substantial output gains. Finally, employed and short-term unemployed households experienced significant welfare gains, whereas the long-term unemployed have lost in welfare terms. The effects of the 2006-reform are qualitatively similar, but quantitatively much smaller. We also show that the social welfare maximizing replacement rate is lower than the current (post-reform) replacement rate in Germany. However, implementing the optimal unemployment benefit system generates only small welfare gains. -- |
| Keywords: | dynamic general equilibrium,heterogenous agents,human capital,labor market search,unemployment insurance,German labor market reform |
| JEL: | E24 E60 J64 J65 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:10050&r=eec |
| By: | Francisco Azpitarte |
| Abstract: | This paper presents a comparative analysis of the approaches to poverty based on income and wealth that have been proposed in the literature. Two types of approaches are considered: those that look at income and wealth separately when defining the poverty frontier, and those in which these two dimensions are integrated into a single index of welfare. We illustrate the implications of these approaches on the structure of poverty using data for two industrialized countries—for example, the United States and Spain. We find that the incidence of poverty in these two countries varies significantly depending on the poverty definition adopted. Despite this variation, our results suggest that the poverty problem is robust to changes in the way poverty is measured. Regarding the identification of the poor, there is a high level of misclassification between the poverty indices: for most of the pairwise comparisons, the proportion of households that are misclassified is above 50 percent. Interestingly, the rate of misclassification in the United States is significantly lower than in Spain. We argue that the higher correlation between income and wealth in the United States contributes to explaining the greater overlap between poverty indices in this country. |
| Keywords: | Wealth; Income; Multidimensional Poverty |
| JEL: | D14 D31 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_620&r=eec |
| By: | Giordano Mion (National Bank of Belgium, Research Department; London School of Economics, Department of Geography and Environment); Hylke Vandenbussche (Université Catholique de Louvain; LICOS); Linke Zhu (Catholic University of Leuven; LICOS) |
| Abstract: | We use Belgian firm-level data over the period 1996-2007 to analyze the impact of imports from China and other low-wage countries on firm growth, exit, and skill upgrading in manufacturing. For this purpose we use both industry-level and firm-level imports by country of origin and distinguish between firm-level outsourcing of final versus intermediate goods. Results indicate that, both industry-level import competition and firm-level outsourcing to China reduce firm employment growth and induce skill upgrading. In contrast, industry-level imports have no effect on Belgian firm survival, while firm-level outsourcing of finished goods to China even increased firm's probability of survival. In terms of skill upgrading, the effect of Chinese imports is large. Industry import competition from China accounts for 42% (20%) of the within firm increase in the share of skilled workers (non-production workers) in Belgian manufacturing over the period of our analysis, but these effects, as well as the employment reducing effect, remain mainly in low-tech industries. Firm-level outsourcing to China further accounts for a small but significant increase in the share of nonproduction workers. This change in employment structure is in line with predictions of offshoring models and Schott's (2008) 'moving up the quality ladder' story. All these results are robust to IV estimation |
| Keywords: | import competition, outsourcing, China, skill upgrading |
| JEL: | F11 F14 F16 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:201009-22&r=eec |
| By: | Jacob A. Bikker; Onno W. Steenbeek; Federico Torracchi |
| Abstract: | Administrative costs per participant appear to vary widely across pension funds in different countries. These costs are important because they reduce the rate of return on the investments of pension funds, and consequently raise the cost of retirement security. Using unique data on 90 pension funds over the period 2004-2008, this paper examines the impact of scale, the complexity of pension plans, and service quality on the administrative costs of pension funds, and compares those costs across Australia, Canada, the Netherlands, and the US. We find that, except for Canada, large unused economies of scale exist. Analyses on a disaggregated level confirm economies of scale for small and medium pension funds. Even though the pension funds in the sample are among the largest in the world, further cost savings appear to be possible. Higher service quality and more complex pension plans significantly raise costs, whereas offering only one pension plan reduces costs, as does a relatively large share of deferred (or sleeping) participants. Administrative costs vary significantly across pension fund types, with differences amounting to 100%. |
| Keywords: | Pension funds; Administrative costs; Scale economies; Service level; Complexity; Optimal scale. |
| JEL: | G23 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:1015&r=eec |