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on European Economics |
| By: | Klaus Regling; Servaas Deroose; Reinhard Felke; Paul Kutos (Asian Development Bank Institute) |
| Abstract: | The first decade of economic and monetary union in Europe (EMU) has been a huge success. EMU has significantly benefited its member countries and accelerated the European integration process. Imbalances within EMU—differences in growth, inflation, competitiveness, current account and budget balances—have, however, increased in the last 10 years and, with their economic implications, have become more evident in the global economic crisis. The euro has served as a shield during the crisis, and arguments that the crisis would lead to a breakup of the monetary union are neither new nor convincing. But there are lessons to be learned. Policies should be better coordinated among EMU members and structural reforms accelerated, the framework for the supervision of financial markets strengthened, and external representation streamlined. The crisis has also made the euro more attractive, and most EU countries that are not yet members of EMU are expected to join during the next decade. |
| Keywords: | Europe monetary union, economic integration, financial crisis, reform |
| JEL: | E6 F15 F3 F42 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:eab:govern:2317&r=eec |
| By: | Luciana Barbosa; Sónia Costa |
| Abstract: | This paper aims to identify the determinants behind the different evolution of sovereign bond yields in euro area countries for the period of the current crisis. Up to the time of the collapse of Lehman Brothers, global risk premium was the main driver of spreads. Afterwards, the relevance of idiosyncratic factors increased. Although liquidity premiums played a larger role in the months following September 2008, as the financial crisis spilled over into a strongly deteriorating macroeconomic environment, the importance of country credit risk factors increased. In the first five months of 2010, heterogeneity in sovereign credit risk premiums and a further increase in global risk aversion were, to a large extent, the determining factors behind the evolution of spreads. |
| JEL: | E43 G12 G15 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201022&r=eec |
| By: | Charles Wyplosz (Asian Development Bank Institute) |
| Abstract: | This paper contrasts the United States (US) and European situations during the crisis and examines how much of the crisis has been imported by Europe from the US. The paper argues that Europe never had a chance to avoid contagion from the US. It also documents the relatively limited reaction of both monetary and fiscal authorities. Muted fiscal policy actions may well be a consequence of the Stability and Growth Pact despite its having been de facto suspended. While the European Central Bank (ECB) intervened promptly and massively to attempt to maintain liquidity in the money market, it has been slow in dealing with the upcoming recession. The concluding remarks consider the differences that the monetary union has made and their relevance. |
| Keywords: | US, Europe, financial crisis, fiscal policy, European Central Bank |
| JEL: | E42 E58 E61 F32 F33 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:eab:financ:2325&r=eec |
| By: | L'OEILLET, Guillaume; LICHERON, Julien |
| Abstract: | Monetary policy is usually perceived as an important transmission channel in the negative relationship between oil prices and economic performance. It may also constitute a short-term explanation of the non-linearity in this relationship, since Central Bankers may be more sensitive to the potential inflationary threats entailed by high oil price increases than to small increases or decreases. In this paper, we use an extended Taylor rule to investigate the role of oil prices in the ECB monetary policy strategy. A contemporaneous reaction function is estimated using both a GMM framework and an Ordered Probit model, and several oil indicators are constructed and tested. The main results suggest that oil prices play a key role in the ECB interest-rate setting, since it appears as a relevant indicator of future inflation. However, the ECB seems to react asymmetrically: only oil price increases influence its decision setting, not oil prices decreases. Monetary policy may thus transmit and amplify the asymmetry in the relationship between oil prices and activity in the euro area. Further investigations suggest that a preference for price stability provides an important explanation of this asymmetric behaviour of the ECB. |
| Keywords: | Oil prices ; Monetary policy ; Taylor rule ; Asymmetry ; ECB. |
| JEL: | E0 E58 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:26203&r=eec |
| By: | Angelos Liontakis (Agricultural Economics and Rural Development Department, Agricultural University of Athens); Christos T. Papadas (Agricultural Economics and Rural Development Department, Agricultural University of Athens) |
| Abstract: | Concepts and developments in the literature of economic growth and convergence have recently been adopted and used in the study of inflation rate convergence. This paper examines initially the existence of â-convergence, as mean reversion, of food price inflation rates in the European Union, using the stochastic convergence approach of panel data unit root tests. It examines also the existence of ó-convergence but in order capture sufficiently the evolving distributional dynamics, non-parametric econometric methods are implemented as well. An alternative conditional density estimator, proposed in the literature, is applied for this reason. This estimator is chosen as superior, not only to the restrictive discrete Markov chain approaches but also to the usual estimators of conditional densities using stochastic kernels. Monthly data on the EU harmonized consumer price indices of food and eleven specific food product subgroups are used, for the 15 older EU member states, covering the 1997-2009 period. |
| Keywords: | Kernel density estimator, convergence, distribution dynamics, food price inflation |
| JEL: | E31 C14 C33 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:aua:wpaper:2010-6&r=eec |
| By: | Joan Costa-i-Font |
| Abstract: | This paper empirically examines the regional effects of sharing a single currency on bilateral trade with other European Union partners. It takes advantage of a gravity specification of bilateral trade between 17 Spanish regions and 13 European countries over the period 1997-2004, which in turn allows accounting for two distinct definitions of a single currency depending on its temporal set up. That is, the “exchange rate volatility effect” (from exchange rate fixing in 1999) is distinguished from the so-called “common currency effect” (resulting from the issuing of a new currency in 2002). Findings are suggestive of a regional concentration of currency union effects in a few regions, namely those relatively more open to trade. Such effects on regional trade within Europe are found to fade away over time. Trade enhancing effects are found to vary range from 45% to 16%. When the “exchange rate volatility effect” was significant, the pure currency union effect was found to be almost negligible. |
| Keywords: | gravity models, trade flows, regional heterogeneity, monetary union |
| JEL: | F4 F11 F33 |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:eiq:eileqs:26&r=eec |
| By: | Shinji Takagi (Asian Development Bank Institute) |
| Abstract: | The paper examines the recent European crisis management programs of the International Monetary Fund (IMF) to see how the lessons of Asia were applied. Compared to the Asian programs of 1997, the European programs of 2008 were better funded and their structural conditionality more focused. Other than these, the overall thrust of the programs was similar: fiscal and monetary tightening, coupled with banking reforms. The real difference, however, was not so much about content but about philosophy. Relative to the Asian programs, the European programs were characterized by more emphasis on ownership, greater collaboration among stakeholders, more realistic assumptions and greater transparency about the risks and the logic of policy actions, and more built-in flexibility of targets and policy options. This approach to crisis management, foreshadowing the major reform of conditionality in March 2009, incorporated the changes that had been made since the Asian crisis in the IMF’s policies and procedures to manage capital account crises more effectively. Despite these recent changes in the way the IMF does its business, Asia appears to remain unengaged. The lesson Asia should draw from Europe is that it should build a strong regional institution to complement, and catalyze the involvement of, the IMF. Only then can the lessons learned in Asia over 10 years ago be applied back in Asia to benefit its own people. |
| Keywords: | IMF, European crisis management programs, Asia |
| JEL: | E65 F33 F53 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:eab:macroe:2322&r=eec |
| By: | Berger F; Islam N; Liégeois P |
| Abstract: | In this study, the household labour supply is modelled as a discrete choice problem assuming that preference for leisure and consumption can be described by a quadratic utility function which allows for non-convexities in the budget set. We assess behavioural responses to the significant changes in the tax-benefit system during 2001-2002 in Luxembourg. Only moderate impact is found, on average, on the efficiency of the economy as measured by the labour supply effects. The impact is indeed concentrated on richer single women. These increase significantly their labour force, which more than doubles the non-behavioural effect of the tax reform on disposable income and boosts the gains in well-being for that part of population. |
| JEL: | C25 H24 H31 J22 |
| Date: | 2010–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:ese:emodwp:em5/10&r=eec |
| By: | Maria Montero (University of Nottingham, School of Economics) |
| Abstract: | Power indices suggest that adding new members to a voting body may increase the power of an existing member, even if the number of votes of all existing members and the decision rule remain constant. This phenomenon is known as the paradox of new members. This paper uses the leading model of majoritarian bargaining and shows that the paradox is predicted in equilibrium for past EU enlargements. Furthermore, a majority of members would have been in favor of the 1981 enlargement even if members were bargaining over a fixed budget. |
| Keywords: | Majoritarian Bargaining, Weighted Voting, Power Measures, EU Enlargement, Paradox of New Members |
| JEL: | C71 C72 C78 |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2010.123&r=eec |
| By: | David Colander |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:mdl:mdlpap:1039&r=eec |
| By: | Finter, Philipp; Niessen-Ruenzi, Alexandra; Ruenzi, Stefan |
| Abstract: | This paper investigates whether investor sentiment can explain stock returns on the German stock market. Based on a principal component analysis, we construct a sentiment indicator that condenses information of several well-known sentiment proxies. We show that this indicator explains the return spread between sentiment stocks and stocks that are not sensitive to sentiment fluctuations. Specifically, stocks that are difficult to arbitrage and hard to value are sensitive to the indicator. However, we do not find much predictive power of sentiment for future stock returns. This is consistent with sentiment being of minor importance on the German stock market that is characterized by a low fraction of retail investors. -- |
| Keywords: | Investor Sentiment,Stock Returns,German Stock Market |
| JEL: | G12 G14 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfrwps:1003&r=eec |