|
on European Economics |
| By: | Luís Francisco Aguiar (Universidade do Minho - NIPE); Maria Joana Soares (Universidade do Minho) |
| Abstract: | We use wavelet analysis to study cycle synchronization across the EU-15 and the Euro-12 countries. Based on the wavelet transform, we propose a metric to measure and test for business cycles synchronization. Several conclusions emerge. France and Germany form the core of the Euro land, being the most synchronized countries with the rest of Europe. Portugal, Greece, Ireland and Finland do not show statistically relevant degrees of synchronization with Europe. We also show that some countries (like Spain) have a French accent, while others have a German accent (e.g. Austria). Perhaps surprisingly, we find that the French business cycle has been leading the German business cycle as well as the rest of Europe. Among the countries that may, in the future, join the Euro, the Czech Republic seems the most promising candidate. |
| Keywords: | Business cycle synchronization, European Union integration, Continuous wavelet transform, Wavelet distance matrix, Multidimensional scaling |
| JEL: | E32 C22 F02 F15 F41 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:36/2010&r=eec |
| By: | Sebastian Barnes; Jeremy Lawson; Artur Radziwill |
| Abstract: | This paper considers the increase in current account imbalances in euro area countries since the early 1990s. While the euro area as a whole has remained relatively close to external balance, the current account balances of individual countries have diverged: Spain, Greece and Portugal ran large current account deficits by historical norms for industrial economies, while Germany and the Netherlands ran large surpluses. These imbalances are larger and more sustained than those observed in recent decades. While there has been extensive discussion of the US and Chinese external positions in the context of the debate on global imbalances, more attention has been given to the developments in the euro area only in the wake of the recent sovereign debt crisis. This paper uses a period-average model estimated on data for OECD countries since the late 1960s to investigate the determinants of current account imbalances. Fundamental economic factors are found to play an important role, in line with earlier studies, but do not fully explain the extent of imbalances over the past decade. The strength of housing investment appears to capture important effects over this period. This working paper relates to the 2010 OECD Economic Survey of the Euro Area (www.oecd.org/eco/surveys/euroarea).<P>Les déséquilibres de la balance courante dans la zone euro : une perspective comparative<BR>Ce document analyse l’augmentation des déséquilibres de la balance courante dans les pays de la zone euro depuis le début des années 90. Si le solde extérieur de la zone euro dans son ensemble est resté relativement proche de l’équilibre, les soldes des opérations courantes des pays pris individuellement ont divergé : l’Espagne, la Grèce et le Portugal ont connu d’importants déficits de la balance courante sur la base des normes historiques des économies industrielles, tandis que l’Allemagne et les Pays-Bas ont connu d’amples excédents. Ces déséquilibres sont plus importants et plus marqués que ceux observés ces dernières décennies. Alors qu’il y a eu de nombreuses études sur les positions extérieures des États-Unis et de la Chine dans le contexte du débat sur les déséquilibres globaux, l’attention ne s’est tourné vers l’évolution de la zone euro qu’à la suite de la récente crise sur les dettes souveraines. Ce document utilise un modèle estimé sur des données qui représentent des moyennes temporelles des pays de l’OCDE depuis la fin des années 60, pour rechercher les déterminants des déséquilibres de la balance courante. Il se trouve que les facteurs économiques fondamentaux y jouent un rôle important, conformément aux études antérieures, mais ils n’expliquent pas entièrement l’ampleur des déséquilibres au cours de la dernière décennie. La vigueur de l’investissement en logement semble expliquer des effets importants au cours de cette période. Ce document de travail porte sur l'Étude économique du Zone euro. (www.oecd.org/eco/etudes/zoneeuro). |
| Keywords: | euro area, current account, imbalances, zone Euro, solde extérieur |
| JEL: | F32 F41 |
| Date: | 2010–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:826-en&r=eec |
| By: | Sebastian Barnes |
| Abstract: | Some euro area countries accumulated large and persistent external imbalances during the upswing, revealing important weaknesses in the macroeconomic management of the monetary union. Greece, Ireland, Portugal and Spain ran large current account deficits by historical standards, while Finland, Germany and the Netherlands had substantial surpluses. Some of these deficits and surpluses were larger than appear justified by economic fundamentals. The massive debt accumulation made deficit economies vulnerable to shocks, complicated their recovery from the world financial crisis, and has challenged the stability of the euro area. In some countries, fiscal policy in the past decade failed to counter and sometimes aggravated these pressures. External imbalances were driven by underlying domestic economic, financial and sometimes fiscal imbalances. These were the result of a combination of a wide range of country-specific shocks and insufficient macroeconomic and financial stabilisation. Movements in real interest rates in some countries contributed to diverging borrowing and saving patterns, which fuelled credit booms and a weakening of competitiveness in some deficit countries. Weaknesses in financial regulation and over-optimistic growth expectations encouraged excessive risk-taking in both deficit and surplus countries. Harmful imbalances can be characterised by a misallocation of resources and increased vulnerability. When the financial crisis hit, some deficit countries faced the combined problems of a sharp contraction in private demand, an impaired financial system and weak public finances. Unwinding large imbalances, in both deficit and surplus countries, will be a prolonged and difficult process. A new and cross-cutting approach to economic and financial management in the euro area is required to ensure balanced development in the future. While the shocks that led to this build-up of imbalances may not recur, similar pressures are likely to arise within the monetary union in the future. Macroeconomic, financial and fiscal management should be strengthened in an integrated way, alongside structural reforms. This should aim to achieve the differentiation necessary to improve stabilisation of national economies, while ensuring that the euro area as a whole is protected from unsustainable developments in individual countries. Important legislative changes are underway at EU level to improve the surveillance of imbalances and to help ensure that the necessary corrective action is undertaken where risks emerge. This working paper relates to the 2010 OECD Economic Survey of the Euro Area (www.oecd.org/eco/surveys/euroarea).<P>Résorber et éviter les déséquilibres non soutenables dans la zone euro<BR>Certains pays de la zone euro ont accumulé des déséquilibres extérieurs importants et persistants durant la phase d’expansion, qui ont mis au jour de sérieuses déficiences dans la gestion macroéconomique de l’union monétaire. L’Espagne, la Grèce, l’Irlande et le Portugal ont enregistré des déficits de balance courante élevés par rapport aux périodes passées, alors que l’Allemagne, la Finlande et les Pays-Bas ont affiché des excédents substantiels. Certains de ces déficits et excédents étaient plus prononcés que ne le justifiaient, semble-t-il, les fondamentaux économiques. L’accumulation massive de la dette a rendu les économies déficitaires vulnérables face aux chocs, compliqué leur redressement après la crise financière mondiale et remis en cause la stabilité de la zone euro. Dans certains pays, la politique budgétaire n’a pu contrecarrer et a parfois même aggravé ces tensions. Les déséquilibres extérieurs ont été nourris par des déséquilibres internes sous-jacents, dans les domaines économique, financier et parfois budgétaire, imputables à la fois à une série de chocs par pays et à une stabilisation macroéconomique et financière insuffisante. Les variations des taux d’intérêt réels dans certains pays ont contribué à des profils d’emprunt et d’épargne divergents qui ont alimenté une forte expansion du crédit et suscité un affaiblissement de la compétitivité dans plusieurs pays déficitaires. Les déficiences de la réglementation financière et les anticipations de croissance exagérément optimistes ont encouragé une prise de risques excessifs dans les pays déficitaires comme dans les pays excédentaires. Les déséquilibres néfastes impliquent des distorsions dans l’allocation des ressources et une vulnérabilité accrue. Lorsque la crise financière a frappé, certains pays déficitaires ont été confrontés à une combinaison de problèmes : forte contraction de la demande privée, défaillance du système financier et fragilité des finances publiques. La correction des déséquilibres extérieurs, dans les pays déficitaires comme dans les pays excédentaires, sera longue et difficile. Une nouvelle approche pluridisciplinaire de la gestion économique et financière dans la zone euro s’impose pour assurer un développement équilibré à l’avenir. Les chocs qui ont conduit à cette accumulation de déséquilibres ne se reproduiront pas nécessairement, mais des pressions du même type apparaîtront vraisemblablement au sein de l’union monétaire. La gestion macroéconomique, financière et budgétaire devra être renforcée de façon intégrée, parallèlement à la mise en oeuvre de réformes structurelles. La différenciation nécessaire à une plus grande stabilisation des économies nationales pourra ainsi être assurée, tout en garantissant la protection de la zone euro dans son ensemble contre les évolutions peu viables intervenant dans les différents pays. D’importantes modifications législatives sont engagées au niveau de l’UE pour améliorer la surveillance des déséquilibres et veiller à ce que les mesures correctrices nécessaires soient engagées lorsque des risques se manifestent. Ce document de travail porte sur l'Étude économique du Zone euro. (www.oecd.org/eco/etudes/zoneeuro). |
| Keywords: | euro area, competitiveness, current account, monetary union, imbalances, credit booms, zone Euro, compétitivité, union monétaire, solde extérieur, expansion du crédit, déséquilibres |
| JEL: | F32 F36 F41 |
| Date: | 2010–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:827-en&r=eec |
| By: | Philip R. Lane |
| Abstract: | This paper describes the dynamics of the external positions of euro area countries since the formation of EMU. While external imbalances have been the main focus in recent times, current account balances can only be properly interpreted in the context of understanding the overall international balance sheet and the dynamics of the net foreign asset. The creation of the euro represented a fundamental financial shock, whose effects then coincided with a reshaping of the international financial system through important financial innovations and the credit boom and securitization boom that followed. The paper builds a profile of the international balance sheets of euro area countries in order to understand the sources and implications of shifts in net positions over the last decade. It is also considers the gross scale of cross-border holdings. To understand the international risk distribution, the overall position is broken down between equity and debt components. The international currency exposures embedded in the international balance sheets are described. In relation to net flows and net positions, the paper tracks the distribution and persistence of current account balances and net foreign asset positions across the member countries. Furthermore, we document that other factors (such as valuation effects) have been important in the dynamics of the net foreign asset positions, in addition to the contribution made by the cumulative current account position. This working paper relates to the 2010 OECD Economic Survey of the Euro Area (www.oecd.org/eco/surveys/euroarea).<P>L’intégration financière mondiale et les positions extérieures des pays de la zone euro<BR>Ce document décrit la dynamique des positions extérieures des pays de la zone euro depuis la formation de l’Union économique et monétaire. Alors que les déséquilibres externes ont été au centre des intérêts ces derniers temps, l’interprétation des soldes des opérations courantes ne peut se faire qu’à la lumière de la situation financière mondiale et de la dynamique des actifs nets extérieurs. La création de l’euro a représenté un choc financier fondamental, dont les effets ont alors coïncidé avec une réorganisation du système financier international à travers d’importantes innovations financières ainsi que de l’explosion du crédit et de l’envolée de la titrisation qui s’en ont suivies. Ce document établit un profil de la situation financière globale des pays de la zone euro afin de comprendre les origines et implications des positions nettes au cours de la dernière décennie. Il étudie également la forte ampleur des avoirs transnationaux. Pour comprendre la répartition internationale des risques, la situation globale est décomposée en avoirs et dettes. Les risques de change intégrés dans les bilans globaux y sont décrits. Le document retrace la répartition et la persistance des soldes courants et des positions nettes extérieures dans les différents pays membres, en lien avec les flux et positions nets. Par ailleurs, on montre qu’outre l’apport fourni par le cumul des soldes de la balance courante, les autres facteurs (tels que les effets de valorisation) ont été importants dans la dynamique des positions nettes extérieures. Ce document de travail se rapporte à l'Étude économique de la zone euro. (www.oecd.org/eco/etudes/zoneeuro). |
| Keywords: | capital flows, euro area, international investment position, currency exposures, flux de capitaux, zone Euro, position d’investissements internationaux, risque de change |
| JEL: | F21 F32 F34 F36 |
| Date: | 2010–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:830-en&r=eec |
| By: | Sebastian Barnes; Philip R. Lane; Artur Radziwill |
| Abstract: | The euro area financial system took excessive risks during the global credit boom, which in some countries led to an unsustainable increase in credit, higher asset prices and housing booms. This process helped to fuel large imbalances within the euro area. Banks played a key role in channelling funds from economies with large surpluses to deficit countries, leading in some cases to the accumulation of considerable risks for borrowers and lenders. Weaknesses in the regulatory and supervisory architecture contributed to these problems in the euro area, as in other OECD economies. Gaps in microprudential regulation created an environment prone to excessive risk-taking: capital buffers were too small; the quality of capital was inadequate; banks’ models underestimated risks; and risks were shifted off-balance sheet and beyond supervisory oversight. Liquidity risks were not adequately monitored. Systemic risks were allowed to build up as the authorities largely failed to counter the credit cycle. Some large systemic banks contributed to growing imbalances and vulnerability. The decentralised European supervisory architecture was not sufficiently effective in supervising large cross-border institutions. When the financial crisis hit, the co-ordination of cross-border rescues proved problematic and complicated efficient resolution. Stronger regulations are needed to improve financial stability. Effective microprudential regulation is the first line of defence. This should be upgraded by implementing the Basel III capital accord, as has been announced by the EU authorities, and a range of related measures. Some consideration should be given to an accelerated phasing-in. Macroprudential regulation should be significantly developed to mitigate pro-cyclicality and reduce systemic risks posed by large cross-border banks. The creation of the European Systemic Risk Board is welcome. To improve cross-border supervision, the European Banking Authority should have sufficient powers and resources to ensure that a system based on national supervision leads to coherent regulation and effective supervision. In addition, a cross-border crisis-management framework for Europe is needed. Overall, significant steps have already been taken by the EU authorities to address these issues and further reforms are under way. This working paper relates to the 2010 OECD Economic Survey of the Euro area. (www.oecd.org/eco/surveys/EuroArea).<P>Minimiser les risques de déséquilibre au sein du système bancaire européen<BR>Durant la phase d’explosion du crédit à l'échelle mondiale, le système financier de la zone euro a pris des risques excessifs qui ont abouti, dans quelques pays, à une augmentation insoutenable du crédit et à une flambée des prix des actifs et de l'immobilier. Ce processus a contribué au creusement d'importants déséquilibres au sein de la zone euro. Les banques ont joué un rôle majeur dans la transmission des ressources financières des économies affichant des excédents importants vers les pays déficitaires, ce qui a conduit, dans certains cas, à l'accumulation de risques considérables pour les emprunteurs comme pour les prêteurs. Les lacunes du dispositif de réglementation et de surveillance ont contribué à ces problèmes dans la zone euro, comme dans les autres économies de l’OCDE. Les failles de la réglementation microprudentielle ont favorisé la propension à prendre des risques excessifs : les volants de fonds propres des banques étaient trop faibles, la qualité des capitaux n'était pas adaptée, les modèles utilisés par les banques sous-estimaient les risques et ces risques étaient sortis des bilans et échappaient ainsi à la surveillance des autorités de contrôle. De plus, il n’y a pas eu de suivi convenable des risques de liquidité. Comme les autorités n’ont guère su s’opposer à l’expansion du crédit, des risques systémiques ont pu s'accumuler. Certaines grandes banques d'importance systémique ont contribué à l'aggravation des déséquilibres et de la vulnérabilité du système. Le dispositif européen de surveillance décentralisé n’était pas assez efficace pour contrôler les grandes institutions financières transnationales. Lorsque la crise financière a éclaté, la coordination des différents plans de sauvetage nationaux s'est avérée problématique et a contrarié le règlement efficient des faillites des établissements. Il convient de renforcer la réglementation de façon à améliorer la stabilité financière. La première ligne de défense réside dans une réglementation microprudentielle efficace. Cette réglementation doit être améliorée en appliquant l'Accord de Bâle III sur les fonds propres, comme l’ont annoncé les autorités de l’UE, ainsi qu'une série de mesures connexes. Il conviendrait d’envisager une accélération de leur mise en oeuvre. La réglementation macroprudentielle doit être nettement développée de façon à atténuer le caractère procyclique du dispositif et à réduire les risques systémiques que présentent les grands établissements transnationaux. La création du Comité européen du risque systémique est bienvenue. Pour améliorer la surveillance transnationale, l'Autorité bancaire européenne doit être dotée de prérogatives et de ressources suffisantes pour qu’un système fondé sur une surveillance exercée à l’échelle nationale donne naissance à une réglementation cohérente et un contrôle efficace. En outre, il convient de mettre en place un dispositif transfrontalier de gestion des crises à l'échelle de l'Europe. En résumé, les autorités européennes ont déjà pris des mesures substantielles pour s’attaquer à ces questions, et d’autres réformes sont en cours. Ce document de travail porte sur l'Étude économique du Zone euro. (www.oecd.org/eco/etudes/zoneeuro). |
| Keywords: | euro area, financial stability, zone Euro, stabilité financière |
| JEL: | G15 G21 G28 |
| Date: | 2010–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:828-en&r=eec |
| By: | Heryan, Tomas; Stavarek, Daniel |
| Abstract: | This paper investigates the nature of the causal relationships among interbank market interest rates and corporate loans interest rates in four countries from the euro area (Austria, Belgium, France and Italy), and in the Czech Republic. The paper also estimates a development of bank credit margin in banking industries of these countries in period from January 2004 to March 2010. Using Johansen cointegration and Granger causality tests on monthly data we investigate long-term as well as short-term causalities between the interest rates. The results suggest that interest rate relationships differ in all selected countries, and also that foreign majority owners of the Czech banks could affect interest rate policy of the subsidiaries to offset losses realized by the parent banks. |
| Keywords: | Cointegration; Granger Causality; Interbank Interest Rates; Lending Interest Rates; European Union |
| JEL: | E43 C32 E40 F36 |
| Date: | 2010–11–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:27276&r=eec |
| By: | Leszek Balcerowicz |
| Abstract: | This paper distinguishes four alternative sovereign debt resolution mechanisms: pure market solutions, modified market solutions, crisis lending by the IMF and other institutions, and the proposed Sovereign Debt Restructuring Mechanism (SDRM). It is hard to find--at the general level of analysis--the unique advantages of SDRM. The assessment of the European Stabilization Mechanism will ultimately depend on its operation, especially whether it will be a tool of subsidizing countries in debt distress or an instrument of fiscal crisis lending. The present fiscal problems in the eurozone are due to the erosion of fiscal discipline and not to the lack of strong compensatory transfers within the eurozone. The right model to look at the conditions for the stability of the eurozone is not a single state but the gold standard-type system, a system of sovereign states with a (de facto) single currency. Based on this analogy and considering modern developments, three types of measures are needed to safeguard the stability of the eurozone: (1) measures that would reduce the procyclicality of the macroeconomic policies and of the economy; (2) reforms that would help the eurozone economies grow out of increased public debt; and (3) steps to increase the flexibility of the economy so that it can deal with the future shocks in a better way. |
| Keywords: | Debt Resolution, European Union, Eurozone, Financial Crisis, SDRM |
| JEL: | F02 F00 H6 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:iie:wpaper:wp10-18&r=eec |
| By: | Samuel Bentolila (CEMFI, Centro de Estudios Monetarios y Financieros); Pierre Cahuc (Ecole Polytechnique and CREST); Juan J. Dolado (Universidad Carlos III de Madrid); Thomas Le Barbanchon (Ecole Polytechnique and CREST) |
| Abstract: | This paper analyzes the strikingly different response of unemployment to the Great Recession in France and Spain. Their labor market institutions are similar and their unemployment rates just before the crisis were both around 8%. Yet, in France, unemployment rate has increased by 2 percentage points, whereas in Spain it has shot up to 19% by the end of 2009. We assess what part of this differential is due to the larger gap between the dismissal costs of permanent and temporary contracts and the less restrictive rules regarding the use of the latter contracts in Spain. Using a calibrated search and matching model, we estimate that about 45% of the surge in Spanish unemployment could have been avoided had Spain adopted French employment protection legislation before the crisis started. |
| Keywords: | Temporary contracts, unemployment, Great Recession. |
| JEL: | H29 J23 J38 J41 J64 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2010_1009&r=eec |
| By: | Christian Friedrich (Graduate Institute for International and Development Studies, Geneva, Switzerland); Isabel Schnabel (Chair of Financial Economics, Johannes Gutenberg-UniversitŠt Mainz, Germany); Jeromin Zettelmeyer (European Bank for Reconstruction and Development, London, UK) |
| Abstract: | Using industry-level data, this paper shows that the European transition region benefited much more strongly from financial integration in terms of economic growth than other developing countries in the years preceding the current crisis. We analyze several factors that may explain this finding: financial development, institutional quality, trade integration, political integration, and financial integration itself. The explanation that stands out is political integration. Within the group of transition countries, the effect of financial integration is strongest for countries that are politically closest to the EU. This suggests that political and financial integration are complementary and that political integration can considerably increase the benefits of financial integration. |
| Keywords: | Financial integration; political integration; economic growth; parent banking; European transition economies |
| JEL: | E43 E52 E58 D44 |
| Date: | 2010–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:jgu:wpaper:1013&r=eec |
| By: | Carlos Gama Nogueira (Universidade do Minho - NIPE); Linda Gonçalves Veiga (Universidade do Minho - NIPE) |
| Abstract: | We investigate the determinants of public support for EU membership using a panel of fifteen countries over the 1974 - 2008 period. The results indicate that increases in inflation and unemployment rate generate a decrease in support for EU membership, while growth of GDP growth increases support. There is evidence of erosion in citizens’ support as time in the Union accumulates and when the country is under the excessive deficit procedure. Splitting the sample into different periods reveals that real economic variables were more influential in shaping citizens’ support for the EU than nominal variables during the first years of the Community, but inflation became the most relevant variable after implementation of the Treaty of the European Union. |
| Keywords: | European integration, public support, economic performance, panel-data |
| JEL: | H1 D7 F0 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:27/2010&r=eec |
| By: | Carolina Cosculluela Martínez (Departamento de Economía Aplicada I, Universidad Rey Juan Carlos, Pº de los Artilleros, s/n 28032, Madrid, Spain); Rafael Flores de Frutos (Departamento de Fundamentos de Análisis Económico II, Universidad Complutense de Madrid. Campus de Somosaguas, 28223, Ma-drid, Spain) |
| Abstract: | This paper studies dynamic responses of employment and GDP growth to a permanent, uni-tary shock in the housing capital stock for the Spanish economy. It quantifies the importance of this variable in the boom experienced by the Spanish economy during the pre-crisis years. Results confirm that building industry has been the most important engine for output and labour growth. |
| Keywords: | Housing capital stock, Spanish economy, Building industry, Labour growth. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:doicae:1003&r=eec |
| By: | Angelo Baglioni; Andrea Monticini (Catholic University, Milan, Italy) |
| Abstract: | We provide a simple model, able to explain why the overnight (ON) rate follows a downward intraday pattern, implicitly creating a positive intraday interest rate. While this normally reflects only some frictions, a liquidity crisis introduces a new component: the chance of an upward jump of the ON rate, which must be compensated by an intraday decline of the ON rate. By analyzing real time data for the e-MID interbank market, we show that the intraday rate has increased from a negligible level to a significant one after the start of the liquidity crisis in August 2007, and even more so since September 2008. The intraday rate is affected by the likelihood of a dry-up of the ON market, proxied by the 3M Euribor - Eonia swap spread. This evidence supports our model and it shows that a liquidity crisis impairs the ability of central banks to curb the market price of intraday liquidity, even by providing free daylight overdrafts. Such results have implications for the efficiency of the money market and of payment systems, as well as for the operational framework of central banks. |
| Keywords: | : interbank market, intraday interest rate, financial crisis, liquidity risk |
| JEL: | E4 E5 G21 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:gea:wpaper:4/2010&r=eec |