nep-eec New Economics Papers
on European Economics
Issue of 2011‒01‒23
thirteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. The (in)stability of money demand in the Euro area By Nautz, Dieter; Rondorf, Ulrike
  2. Non-standard monetary policy measures and monetary developments By Domenico Giannone; Michele Lenza; Huw Pill; Lucrezia Reichlin
  3. Exit Strategies By Ignazio Angeloni; Ester Faia; Roland Winkler
  4. Germany and the European and Global Crises By Sergio Cesaratto; Antonella Stirati
  5. High-Skilled Immigration Policy in Europe By Martin Kahanec; Klaus F. Zimmermann
  6. Differences in Portfolios across Countries: Economic Environment versus Household Characteristics By Michael Haliassos; Dimitris Christelis; Dimitris Georgarakos
  7. Ownership concentration, institutional development and firm performance in Central and Eastern Europe By Balsmeier, Benjamin; Czarnitzki, Dirk
  8. How sensitive are subjective retirement expectations to increases in the statutory retirement age? The German case By Coppola, Michela; Wilke, Christina Benita
  9. Job Mobility in Europe, Japan and the U.S. By Borghans Lex; Golsteyn Bart
  10. Stock Market Expectations of Dutch Households By Hurd, Michael; Van Rooij, Marten; Winter, Joachim
  11. An Expert Stakeholder's View on European Integration Challenges By Amelie Constant; Martin Kahanec; Klaus F. Zimmermann
  12. Estimating the distributional effects of mortgage interest tax relief in Europe By Manos Matsaganis
  13. The End of the European Welfare States? Migration, Ethnic Diversity and Public Goods By Nikolaj A. Harmon

  1. By: Nautz, Dieter; Rondorf, Ulrike
    Abstract: The instability of standard money demand functions has undermined the role of monetary aggregates for monetary policy analysis in the euro area. This paper uses country-specific monetary aggregates to shed more light on the economics behind the instability of euro area money demand. Our results obtained from panel estimation indicate that the observed instability of standard money demand functions could be explained by omitted variables like e.g. technological progress that are important for money demand but constant across member countries. --
    Keywords: Money demand,cross-country analysis,panel error correction model,euro area
    JEL: E41 E51 E52
    Date: 2010
  2. By: Domenico Giannone (Université Libre de Bruxelles – ECARES, Avenue Roosevelt CP 114 Brussels, Belgium.); Michele Lenza (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Huw Pill (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Lucrezia Reichlin (London Business School)
    Abstract: Standard accounts of the Great Depression attribute an important causal role to monetary policy errors in accounting for the catastrophic collapse in economic activity observed in the early 1930s. While views vary on the relative importance of money versus credit contraction in the propagation of this policy error to the wider economy and ultimately price developments, a broad consensus exists in the economics profession around the view that the collapse in financial intermediation was a crucial intermediary step. What lessons have monetary policy makers taken from this episode? And how have they informed the conduct of monetary policy by leading central banks in recent times? This paper sets out to address these questions, in the context of the financial crisis of 2008-09 and with application to the euro area. It concludes that the Eurosystem’s non-standard monetary policy measures have supported monetary policy transmission and avoided the calamity of the 1930s. JEL Classification: E5, E4, E32.
    Keywords: Non-standard monetary policy, monetary policy shocks, Great Recession, money and credit.
    Date: 2011–01
  3. By: Ignazio Angeloni; Ester Faia; Roland Winkler
    Abstract: We study alternative scenarios for exiting the post-crisis fiscal and monetary accommodation using the model of Angeloni and Faia (2010), that combines a standard DSGE framework with a fragile banking sector, suitably modified and calibrated for the euro area. Credibly announced and fast fiscal consolidations dominate – based on simple criteria – alternative strategies incorporating various degrees of gradualism and surprise. The fiscal adjustment should be based on spending cuts or else be relatively skewed towards consumption taxes. The phasing out of monetary accommodation should be simultaneous or slightly delayed. We also find that, contrary to widespread belief, Basel III may well have an expansionary macroeconomic effect
    Keywords: exit strategies, debt consolidation, fiscal policy, monetary policy, capital requirements, bank runs
    JEL: E63
    Date: 2011–01
  4. By: Sergio Cesaratto; Antonella Stirati
    Abstract: Moving from the current global and European imbalances and crises, and from the consideration of the German reaction to them, the paper explores the political economy origins of the conservative German policy stance. It emerges that an export-oriented economy was a deliberate decision of the German elite after WW II and that the external constraint may be regarded as appropriately designed for internal discipline and efficiency (and vice-versa) in a self-reinforcing process. The conclusions illustrate some possible future scenarios for Europe.
    Keywords: European Monetary Union, financial crisis, Germany, neo-mercantilism
    Date: 2011–01
  5. By: Martin Kahanec; Klaus F. Zimmermann
    Abstract: Whether Europe will be able to stand up to its internal and external challenges crucially depends on its ability to manage its internal mobility and inflows of international migrants. Using a unique expert opinion survey, we document that Europe needs skilled migrants, and skill mismatch is to be expected. A review of current immigration policies shows that despite a number of positive recent developments Europe lacks a consistent strategy to address this challenge effectively, paralyzed by the notion of "fortress" Europe, which we argue should be abandoned. Since significant political tensions can be expected between native actors that favor and disfavor further immigration, improving European immigration policies and procedures is a formidable challenge. This task involves the need to improve Europe's image among potential migrants, especially the high-skilled ones.
    Keywords: High-skilled migration, mobility, immigration policy, Europe, European Union
    JEL: F22 J61
    Date: 2011
  6. By: Michael Haliassos; Dimitris Christelis; Dimitris Georgarakos (Mannheim Research Institute for the Economics of Aging (MEA))
    Abstract: We document and study international differences in both ownership and holdings of stocks, private businesses, homes, and mortgages among households aged fifty or more in thirteen countries, using new and comparable survey data. We employ counterfactual techniques to decompose observed differences across the Atlantic, within the US, and within Europe into those arising from differences in population characteristics and differences in economic environments. We then correlate the latter differences to country-level indicators. Ownership across the range of the assets considered tends to be more widespread among US households. We document that shortly prior to the current crisis, US households tended to invest larger amounts in stocks and smaller ones in homes, and to have larger mortgages in older age, even controlling for characteristics. This is consistent with the high prevalence of negative equity associated with the current crisis. More generally, we find that differences in household characteristics often play a small role, while differences in economic environments tend to explain most of the observed differences in ownership rates and in amounts held. The latter differences are much more pronounced among European countries than among US regions, suggesting further potential for harmonization of policies and institutions.
    JEL: G11 E21
    Date: 2010–09–08
  7. By: Balsmeier, Benjamin; Czarnitzki, Dirk
    Abstract: This paper analyzes the relationship of ownership concentration and firm performance in the context of different institutional environments in 28 Central and Eastern European transition economies. Using the BEEPS data for the period from 2002 to 2009 we find an inverted u-shaped relation of ownership concentration and firm performance for those firms that operate in non-EU-member countries as well as those firms that are situated in less developed legal systems according to Freedom House ratings. We interpret these findings as evidence for a classic agency problem in the lower part of the ownership concentration distribution that is dominated by a 'private benefits of control' problem with rising ownership concentration. --
    Keywords: corporate governance,firm growth,transition economies,ownership concentration
    JEL: G32 L25 O16 P31
    Date: 2010
  8. By: Coppola, Michela; Wilke, Christina Benita (Mannheim Research Institute for the Economics of Aging (MEA))
    Abstract: Population Aging poses an evident threat to the financial sustainability of pension systems based on a “pay-as-you-go†(PAYG) scheme. To cope with this threat, pension systems have undergone numerous reforms in many countries in order to keep people longer at work. One crucial element of these reforms typically is an increase in the statutory retirement age at which workers are legally allowed to retire. Two questions still remain unanswered: Will people really work longer? Who is more likely to retire before the new legal retirement age? In this paper, we focus on subjective retirement expectations, analysing if and to what extent they are affected by such a policy change. We consider the legislative reform introduced in Germany in 2007, which gradually will increase the statutory retirement age (SRA) from 65 to 67 years. Using the SAVE survey, a representative panel of German households, we estimate the increase of the individuals’ expected retirement age (ERA) as an effect of the reform. Our results show that less productive workers living in relatively wealthier households are more likely to plan an early retirement. The introduction of the reform seems to motivate better educated workers to remain longer in the labour force although it does not seem to completely succeed in keeping women longer in the labour force: especially among the younger cohorts, whose SRA will be 67 years, women are still more likely than men to plan an early retirement. In terms of the magnitude of the effect, we find that the reform shifted the expectations of the younger cohorts by almost two years – if these expectations will be realized, this reform would have been quite successful.
    JEL: D1 D84 H55
    Date: 2010–11–02
  9. By: Borghans Lex; Golsteyn Bart (ROA rm)
    Abstract: Evidence about job mobility outside the U.S. is scarce and difficult to compare crossnationallybecause of non-uniform data. We document job mobility patterns of collegegraduates in their first three years in the labor market, using unique uniform datacovering 11 European countries and Japan. Using the NLSY, we replicate the informationin this survey to compare the results to the U.S. We find that (1) U.S. graduates hold morejobs than European graduates. (2) Contrasting conventional wisdom, job mobility inJapan is only somewhat lower than the European average. (3) There are large differencesin job mobility within Europe.
    Keywords: education, training and the labour market;
    Date: 2011
  10. By: Hurd, Michael; Van Rooij, Marten; Winter, Joachim (Mannheim Research Institute for the Economics of Aging (MEA))
    Abstract: Despite its importance for the analysis of life-cycle behavior and, in particular, retirement planning, stock ownership by private households is poorly understood. Among other approaches to investigate this puzzle, recent research has started to elicit private households’ expectations of stock market returns. This paper reports findings from a study that collected data over a two-year period both on households’ stock market expectations (subjective probabilities of gains or losses) and on whether they own stocks. We document substantial heterogeneity in financial market expectations. Expectations are correlated with stock ownership. Over the two years of our data, stock market prices increased, and expectations of future stock market price changes also increased, lending support to the view that expectations are influenced by recent stock gains or losses.
    JEL: C42 D12 D84 G11
    Date: 2010–10–19
  11. By: Amelie Constant; Martin Kahanec; Klaus F. Zimmermann
    Abstract: The standard approach of analysing gaps in social and labor market outcomes of different ethnic groups relies on analysis of statistical data about the affected groups. In this paper we go beyond this approach by measuring the views of expert stakeholders involved in minority integration. This enables us to better understand the risk of minority exclusion; the inner nature of discrimination, negative attitudes and internal barriers; as well as the ethnic minorities' desires and perceptions about which approaches are better than others in dealing with integration challenges. Main findings are that ethnic minorities do want to change their situation, especially in terms of employment, education, housing and attitudes towards them. Insufficient knowledge of the official language, insufficient education, discriminatory attitudes and behavior towards ethnic minorities as well as institutional barriers, such as citizenship or legal restrictions, seem to constitute the key barriers to their social and labor market integration.
    Keywords: Attitudes, opinions, immigrants, ethnic minorities, labor market
    JEL: J15 J71 J78
    Date: 2011
  12. By: Manos Matsaganis (Athens University of Economics and Business)
    Abstract: This paper attempts to contribute to the analysis of mortgage interest tax relief from the perspective of the economics of social policy. It begins with a brief discussion of �fiscal welfare�, highlighting key contributions within this particular intellectual tradition. It then contrasts this largely critical approach to the standard, more neutral, treatment of mortgage interest tax relief in the housing literature. Finally, the paper draws on both approaches to present on-going research on the distributional effects of mortgage interest tax relief in Europe.
    Date: 2011–01–10
  13. By: Nikolaj A. Harmon (Princeton University)
    Abstract: Over the last several decades global migration ows have increased rapidly, resulting in corresponding increases in the number and sizes of ethnic minorities in many places - Western Europe in particular. Given the existing theory and evidence of a negative relationship between ethnic diversity and public goods, a simple extrapolation thus suggests that the large public sectors in Western Europe will shrink. However, stark differences in the histories of ethnic confl ict, quality of institutions and timing between the European case and the settings studied in the existing literature raises concerns that such an extrapolation might be misguided. Using data on municipal elections and budgetary outcomes in Danish municipalities 1981-2001 this paper attempts to address these concerns. Employing a rich set of controls and an IV strategy based on historical housing data, the main results of the paper show that ethnic diversity has impacted outcomes of municipal elections in a way consistent with lower public good demand. Using a simple theoretical model to disentangle ethnic diversity effects from other budgetary effects, the paper further shows that the same holds true for budgetary outcomes, although an untestable but plausible auxiliary assumption is required on the budgetary process. The findings have important implications for immigration and refugee policy both in Europe and more broadly.
    Keywords: migration, Denmark, elections, ethnic relations
    JEL: J18 J15 O15 N94 N34
    Date: 2010–12

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