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on European Economics |
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Issue of 2011‒03‒05
eighteen papers chosen by Giuseppe Marotta University of Modena and Reggio Emilia |
| By: | Ansgar Belke; Christian Dreger |
| Abstract: | In the debate on global imbalances, the euro area countries did not receive much attention so far. While the current account is on balance for the entire area, divergences between individual member states have increased since the introduction of the common currency. In this paper, the imbalances are traced to catching up and competitiveness factors using paneleconometric techniques. In line with the intertemporal approach to the current account, low income countries tend to run deficits, while rich countries realize surpluses. However, the effect diminishes, if early years are dropped from the sample. The competitiveness channel is more robust and shows the expected sign, i.e. a real appreciation leads to external deficits. To restore competitiveness, a reduction of unit labour costs is on the agenda. Since a deterioration of competitiveness is not a feasible strategy for the surplus countries, an asymmetric response across countries is required in order to reduce the imbalances. |
| Keywords: | Current account imbalances, catching up and competitiveness, euro area |
| JEL: | E44 F34 F36 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1106&r=eec |
| By: | Anna Iara; Guntram B. Wolff |
| Abstract: | The strengthening of national fiscal frameworks, including numerical fiscal rules, has recently been proposed as an important part of the economic governance reform package for the EU. The strength of numerical fiscal rules can be described along the dimensions of their statutory base, the room to revise budgetary objectives, provisions for their monitoring and enforcement, and their media visibility. With a unique data set summarizing the quality of national fiscal rules along these dimensions, we show that stronger fiscal rules in euro area member states reduce sovereign risk. According to our estimates, yield spreads against Germany of countries with relatively weak fiscal rules could be up to 100 basis points lower if they upgraded their numerical fiscal rules. The legal base turns out to be the most important dimension for the perceived effectiveness of the rules. The effectiveness of the correction and enforcement mechanisms turns out to be very important as well, while the role of the bodies in charge of monitoring and enforcing compliance is somewhat smaller. Overall, national fiscal rules are found to be beneficial for market assessments of governments' ability and willingness to timely service debt: they could thus provide an effective way to implement fiscal discipline. |
| JEL: | E43 E62 G12 H60 H63 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0433&r=eec |
| By: | Cândida Ferreira |
| Abstract: | This paper seeks to contribute to the relatively scarce published research on the relationship between bank efficiency and European integration in the wake of the recent financial crisis. Using Stochastic Frontier Analysis and Data Envelopment Analysis approaches, the study estimates bank efficiency for different panels of European Union countries during the time period 1994-2008. The main conclusions point to the persistence of inefficiencies, which decreased with the implementation of the European Monetary Union (in the time period 2000- 2008) but then increased slightly in the most recent phase (2004-2008), during which the EU had to adapt to the new universe of 27 member-states. On the other hand, there is evidence of a convergence process, although this is very slow and not strong enough to avoid the differences in the country efficiency scores. |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp082011&r=eec |
| By: | Pietro Biroli; Gilles Mourre; Alessandro Turrini |
| Abstract: | This paper assesses the adjustment mechanism in the euro area. Results show that the real exchange rate (REER) adjusts in such a way to redress cyclical divergences and that after monetary unification REER dynamics have become less reactive to country-specific shocks but also less persistent. It is found that regulations, notably affecting price and wage nominal flexibility and employment protection, play a role in the adjustment mechanism. Indicators of product and labour regulations appear to matter forboth the reaction of price competitiveness to cyclical divergences (differences between national and euro-area output gaps) and for the inertia of competitiveness indicators. Moreover, regulations appear to matter also for the extent to which common shocks may end up producing country-specific effects on the price competitiveness, as revealed by their interaction with proxies of unobservable common shocks along the lines of the methodology developed in Blanchard and Wolfers (2000). In light of the tendency towards less stringent regulations in past decades, the results seem consistent with the observed reduction in the persistence of inflation differentials, and has have implications for the design of adjustment-friendly product and labour market reforms. |
| JEL: | E30 F41 |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0428&r=eec |
| By: | Carlo Altavilla (University of Naples Parthenope and CSEF); Matteo Ciccarelli (European Central Bank) |
| Abstract: | This paper explores the role that the imperfect knowledge of the structure of the economy plays in the uncertainty surrounding the effects of rule-based monetary policy on unemployment dynamics in the euro area and the US. We employ a Bayesian model averaging procedure on a wide range of models which differ in several dimensions to account for the uncertainty that the policymaker faces when setting the monetary policy and evaluating its effect on real economy. We find evidence of a high degree of dispersion across models in both policy rule parameters and impulse response functions. Moreover, monetary policy shocks have very similar recessionary effects on the two economies with a different role played by the participation rate in the transmission mechanism. Finally, we show that a policy maker who does not take model uncertainty into account and selects the results on the basis of a single model may come to misleading conclusions not only about the transmission mechanism, but also about the differences between the euro area and the US, which are on average essentially small. |
| Keywords: | Monetary policy, Taylor rule, Real-time data, Great Moderation, Forecasting. |
| JEL: | E52 E58 C32 C53 C82 |
| Date: | 2011–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:274&r=eec |
| By: | Robert Inklaar; J. Christina Wang |
| Abstract: | The measurement of bank output, a difficult and contentious issue, has become even more important in the aftermath of the devastating financial crisis of recent years. In this paper, we argue that models of banks as processors of information and transactions imply a quantity measure of bank service output based on transaction counts instead of balances of loans and deposits. Compiling new and comparable output measures for the United States and a range of European countries, we show that our counts-based output series exhibit significantly different growth patterns from those of our balances-based output series over the years 1997 to 2009. Since the U.S. official statistics rely on counts while European statistics rely on balances, this implies a potentially considerable bias in the estimate of bank output growth in Europe vis-à-vis that in the United States. |
| Keywords: | Banks and banking - Customer services |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:11-1&r=eec |
| By: | Costas Karfakis |
| Abstract: | The purpose of this study is to examine whether the portfolio balance effect, operating through the outstanding debts of US and euro area, and the signaling effect of sterilized intervention, operating through the relative composition of official reserves of developing and emerging countries, explain the developments of the euro/dollar exchange rate. The empirical analysis reveals that both effects are statistically significant and have the correct signs. The Clark-West testing procedure indicates that the model which relates the exchange rate to official reserves and the interest rate differential outperforms the random walk model in the forecasting accuracy. |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0431&r=eec |
| By: | Toralf Pusch; Ingmar Kumpmann |
| Abstract: | Social security revenues are influenced by business cycle movements. In order to support the working of automatic stabilizers it would be necessary to calculate social insurance contribution rates independently from the state of the business cycle. This paper investigates whether European countries set social contribution rates according to such a rule. By means of VAR estimations, country-specific effects can be analyzed – in contrast to earlier studies which used a panel design. As a result, some countries under investigation seem to vary their social contribution rates in a procyclical way. |
| Keywords: | welfare state, procyclical policy, automatic stabilizers, social insurance, fiscal policy, European Union, business cycle |
| JEL: | E62 H53 H55 H75 J32 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:iwh:dispap:4-11&r=eec |
| By: | Michael Landesmann (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw); Robert Hierländer; Peter Huber; Anna Iara; Klaus Nowotny; Mary O'Mahony; Fei Peng; Catherine Robinson |
| Abstract: | The literature on international migration has repeatedly emphasized that the extent and structure of migration has an important impact on the competitiveness of regions and countries. This report provides an overview of the extent and the potential effects of high-skill migration to the EU27. It shows how many high-skilled migrants live in the EU, where these migrants come from, and how the European Union is positioned in the international competition for talent. Second, we examine how high-skilled migrants fare in European labour markets. Finally we address the issue of the effects of high-skill migration on multifactor productivity, gross value added and GDP per capita growth as well as patenting activities at the sectoral and regional levels. We find that - despite substantial heterogeneity among individual EU countries - high-skilled foreign-born are an important source for high-skilled labour in the EU27. There was some evidence that - on average - EU OECD economies (EU) had a lower share of highly qualified migrants than the (arithmetic) average of the (high migration) non-EU OECD economies. However, our results also suggest that this increasing selectivity of immigration regimes is countered by a relatively low qualification structure of short-term migrants in the EU. A second important policy relevant finding of this study is that high-skilled migrants in the EU face a number of challenges when entering the European labour market, that make them distinct from other migrant groups such as less skilled migrants. In particular the high-skilled migrants - in contrast to less skilled migrants - have lower labour market participation rates, higher unemployment rates and lower employment rates than comparable natives and face substantially higher risks of being employed in jobs that do not fit their skill structure. Our analysis regarding the impact of migration and of high-skilled migration in particular on sectoral productivity and gross value added (levels and growth) yielded a number of interesting results though still being preliminary. Particularly interesting was the difference of the impact of the share of migrants in levels and growth specifications, as well as the importance of a break-down by different groups of migrants (from EU and RoW). There was also a relatively robust result of a positive impact of the share of high-skill migrants and of an interactive effect of high-skill migrant share and ICT technology. As regards the analysis of migrants and regional growth and regional technological development (proxied by patents per capita) we found a positive relationship between the share of high-skilled employed persons and of high-skilled migrants and the growth rate of regional GDP per capita. |
| Keywords: | migration patterns, high-skill migration, job mismatch, productivity effects |
| JEL: | J61 I21 J11 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:wii:rpaper:rr:365&r=eec |
| By: | Martin Larch; Paul van den Noord; Lars Jonung |
| Abstract: | While current instruments of EU economic policy coordination helped stave off a full-scale depression, the post-2007 global financial and economic crisis has revealed a number of weaknesses in the Stability and Growth Pact, the EU framework for fiscal surveillance and fiscal policy coordination. This paper provides a diagnosis of how the SGP faired ahead and during the present crisis and offers a first comprehensive review of the ongoing academic and policy debate, including an account of the reform proposals adopted by the Commission on 29 September 2010. In our view, the current system of EU rules is unbalanced. It consists of (i) very specific provisions on how to conduct fiscal policy making in normal times with no effective enforcement mechanisms, and of (ii) no or extremely tight provisions for really bad economic times, like the Great Recession. A two-pronged approach as outlined in this report is needed to revive the Pact: tighter enforcement, coupled with broader macroeconomic surveillance, in good times and an open window for exceptionally bad times, including a crisis resolution mechanism at the EU level. |
| JEL: | E62 E63 H6 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0429&r=eec |
| By: | Lars Jonung; Staffan Linden |
| Abstract: | We use survey based inflationary expectations to explore the forecasting horizons implicitly used by the respondents to questions about the expected rate of inflation during the coming 12 months. We examine the forecast errors, the mean error and the RMSEs, to study if the forecast horizon is truly 12 months as implied by the questionnaires. Our working hypothesis is that the forecast error has a U-shaped pattern, reaching its lowest value on the 12-month horizon. Our exploratory study reveals large differences across countries. For most countries, we get the expected U-shaped outcome for the forecast errors. The horizon implicitly used by respondents when answering the questions is not related to the explicit time horizon of the questionnaire. On average respondents use the same horizon when answering both questions. |
| JEL: | C33 E31 E32 E37 E58 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0435&r=eec |
| By: | Ansgar Belke; Christian Gokus |
| Abstract: | This study is motivated by the development of credit-related instruments and signals of stock price movements of large banks during the recent financial crisis. What is common to most of the empirical studies in this field is that they concentrate on modeling the conditional mean. However, financial time series exhibit certain stylized features such as volatility clustering. But very few studies dealing with credit default swaps account for the characteristics of the variances. Our aim is to address this issue and to gain insights on the volatility patterns of CDS spreads, bond yield spreads and stock prices. A generalized autoregressive conditional heteroscedasticity (GARCH) model is applied to the data of four large US banks over the period ranging from January 01, 2006, to December 31, 2009. More specifically, a multivariate GARCH approach fits the data very well and also accounts for the dependency structure of the variables under consideration. With the commonly known shortcomings of credit ratings, the demand for market-based indicators has risen as they can help to assess the creditworthiness of debtors more reliably. The obtained findings suggest that volatility takes a significant higher level in times of crisis. This is particularly evident in the variances of stock returns and CDS spread changes. Furthermore, correlations and covariances are time-varying and also increased in absolute values after the outbreak of the crisis, indicating stronger dependency among the examined variables. Specific events which have a huge impact on the financial markets as a whole (e.g. the collapse of Lehman Brothers) are also visible in the (co)variances and correlations as strong movements in the respective series. |
| Keywords: | bond markets, credit default swaps, credit risk, financial crisis, GARCH, stock markets, volatility |
| JEL: | C53 G21 G24 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1107&r=eec |
| By: | Richard Frensch; Achim Schmillen (Osteuropa-Institut, Regensburg (Institut for East European Studies)) |
| Abstract: | Recent panel studies have found relatively high point estimates for the elasticity of ag-gregate price measures with respect to productivity in (former) transition economies, while other studies report price-productivity elasticity estimates to depend positively on average productivity in the sample. We aim to reconcile both results by putting com-parative price developments of transition economies in an international perspective. We argue that estimating simple price-productivity relationships without the inclusion of other real factors connected to reform effort might severely bias estimates for CEEC economies. Our results imply that, when controlling for reform effort and therefore avoiding this endogeneity problem, the price-productivity-elasticity for CEEC econo-mies was not different from that of non-transition economies during the first 15 years of transition. |
| Keywords: | Balassa-Samuelson, transition |
| JEL: | F40 F43 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:ost:wpaper:295&r=eec |
| By: | Marx, Paul (IZA) |
| Abstract: | The paper addresses an often neglected question in labour market research: to which extent do outcomes aggregated on the national level disguise occupational diversity in employment conditions? In particular, how and why do occupational groups differ with regard to the incidence of non-standard employment? To explore these questions, the paper derives a detailed occupational scheme from the literature, capturing the variety of labour market outcomes within countries. In a second step, the scheme is theoretically linked to the topic of non-standard work. It is argued that different degrees of skill specificity across occupational groups produce diverging incentives for flexible and long-term employment, respectively. This leads to the expectation of (some) service-sector occupations showing stronger tendencies towards non-standard employment than those in the industrial sector. Based on European and German micro data, the categorisation is used to decompose various labour market indicators. The results clearly demonstrate the unequal incidence of non-standard employment along the lines of the suggested categorisation. Moreover, the longitudinal perspective suggests that traditionally functioning occupational groups will be crowded out by more destandardised ones. |
| Keywords: | temporary employment, low-pay, labour market dualisation, occupational groups, post-industrial labour markets, Germany |
| JEL: | J21 J24 J31 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5521&r=eec |
| By: | Bårdsen, Gunnar (Department of Economics); den Reijer, Ard (Monetary Policy Department, Central Bank of Sweden); Jonasson, Patrik (Monetary Policy Department, Central Bank of Sweden); Nymoen, Ragnar (Department of Economics) |
| Abstract: | MOSES is an aggregate econometric model for Sweden, estimated on quarterly data, and intended for short-term forecasting and policy simulations. After a presentation of qualitative model properties, the econometric methodology is summarized. The model properties, within sample simulations, and examples of dynamic simulation (model forecasts) for the period 2009q2-2012q4 are presented. We address practical issues relating to operational use and maintenance of a macro model of this type. The detailed econometric equations are reported in an appendix. |
| Keywords: | macroeconomic model; policy analysis; general-to-specific modelling |
| JEL: | E12 E66 |
| Date: | 2011–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0249&r=eec |
| By: | Raphael Auer; Sebastien Kraenzlin |
| Abstract: | We document the provision of CHF liquidity by the Swiss National Bank (SNB) to banks domiciled outside Switzerland during the recent financial crisis. What makes the Swiss case special is the size of this liquidity provision—making up 80 percent of all short term CHF liquidity provided by the SNB—and also the measures that were adopted to distribute this liquidity. In addition to making CHF available to other central banks via SWAP facilities, the SNB also allows banks domiciled outside Switzerland to directly participate in its REPO transactions. Although this policy was adopted for reasons that predate the financial crisis, during the crisis it proved tremendously helpful as it gave the European banking system direct access to the primary funding facility for CHF. |
| Keywords: | Demand for money ; Monetary policy - Switzerland ; International finance |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:75&r=eec |
| By: | Jean Imbs; Isabelle Mejean |
| Abstract: | In a demand system with conventional CES preferences, the price elasticitites of aggregate trade flows are weighted averages of sector-specific elasticities of substitution. We describe a methodology that can be used to estimate country-specific values for the price elasticities of aggregate imports and exports. We first use disaggregated trade data to compute structural estimates of international substitutability for a large cross section of countries. We aggregate up the estimates using model-implied, country-specific weights. We obtain structural estimates of the price elasticities of aggregate exports and imports for more than 30 countries, including most developed and developing economies. |
| JEL: | F32 F02 F15 F41 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0432&r=eec |
| By: | Philip Lane (Institute for International Integration Studies, Trinity College Dublin) |
| Abstract: | This paper has three goals. First, it seeks to explain the origins of the Irish crisis. Second, it provides an interim assessment of the Irish government?s management of the crisis. Third, it evaluates the lessons from Ireland for the macroeconomics of monetary unions. |
| Keywords: | Irish crisis |
| JEL: | E5 F4 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp356&r=eec |