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on European Economics |
| By: | Matteo Barigozzi; Antonio M. Conti; Matteo Luciani |
| Abstract: | We study the effects of euro area common monetary policy by means of a structural dynamic factor model estimated on a large panel of euro area quarterly series. While we estimate a flat response of prices to a monetary policy shock, which we explain as aggregation of heterogeneous country-specific responses, we find no relevant asymmetries between countries in terms of output reaction. However, for both Spain and Italy, we find asymmetries in consumption, investment and unemployment. The introduction of the single currency in 1999 has helped reducing asymmetries in price responses but not in consumption and investment. |
| JEL: | C32 E41 E52 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0441&r=eec |
| By: | Marcos Poplawski-Ribeiro; Jan-Christoph Rulke |
| Abstract: | The paper uses survey data to analyze whether financial market expectations on government budget deficits changed in France, Germany, Italy, and the United Kingdom during the period of the Stability and Growth Pact (SGP). Our findings indicate that accuracy of financial expert deficit forecasts increased in France. Convergence between the European Commission's and market experts’ deficit forecasts also increased in France, Italy, and the United Kingdom, particularly during the period after SGP’s reform in 2005. Yet, convergence between markets’ forecasts and those of the French, German, and Italian national fiscal authorities seems not to have increased significantly during the SGP. |
| Keywords: | Budget deficits , Cross country analysis , Economic forecasting , Economic growth , European Economic and Monetary Union , Fiscal policy , Fiscal stability , France , Germany , Italy , United Kingdom , |
| Date: | 2011–03–04 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/48&r=eec |
| By: | Vanda Almeida; Gabriela Lopes de Castro; Ricardo Mourinho Félix; José Ramos Maria |
| Abstract: | This article focuses on the costs and benefits of a fiscal consolidation in a small euro area economy. The macroeconomic impacts and the welfare analysis are conducted in a New-Keynesian general equilibrium model with non-Ricardian agents. We define a benchmark fiscal consolidation strategy based on a permanent reduction in Government expenditure. We find that, over the long run, fiscal consolidation leads to a considerable increase in the level of output and consumption, and is welfare improving. In addition, the gains are boosted if the fiscal strategy also involves a tax reform that shifts the tax burden away from labour income towards the final goods consumption. However, important short-run costs arise, notably output, consumption and welfare losses. Finally, we assess the effect of alternative fiscal consolidation paths in terms of the degree of front loading, the speed of its completion and the interaction with risk premium. |
| JEL: | E62 F41 H62 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201105&r=eec |
| By: | Dixon, H.; Le Bihan, H. |
| Abstract: | The Generalized Calvo and the Generalized Taylor model of price and wage-setting are, unlike the standard Calvo and Taylor counterparts, exactly consistent with the distribution of durations observed in the data. Using price and wage micro-data from a major euro-area economy (France), we develop calibrated versions of these models. We assess the consequences for monetary policy transmission by embedding these calibrated models in a standard DSGE model. The Generalized Taylor model is found to help rationalizing the hump-shaped response of inflation, without resorting to the counterfactual assumption of systematic wage and price indexation. |
| Keywords: | Contract length, steady state, hazard rate, Calvo, Taylor, wage-setting, price-setting. |
| JEL: | E31 E32 E52 J30 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:324&r=eec |
| By: | Michael G. Arghyrou; Alexandros Kontonikas |
| 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. |
| JEL: | E43 E44 F30 G12 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0436&r=eec |
| By: | Dirk Schoenmaker (Duisenberg School of Finance & VU University Amsterdam); Wolf Wagner (CentER, Tilburg University & European Banking Center, Tilburg) |
| Abstract: | This paper focuses on the stability aspects of cross-border banking. We first argue that cross-border banking brings about various benefits and costs for financial stability. Based on this, we draw conclusions for the desirability of cross-border banking in the EU, and derive implications for its optimal form. Next, we derive metrics that allow quantifying whether cross-border banking in a country (or region) takes a desirable form and apply these metrics to the EU countries. Our results suggest that the countries with the largest banking centers, UK and Germany, are well diversified. By contrast, the New Member States (NMS) are highly dependent on a few West-European banks and thus vulnerable to contagion effects. The Nordic and Baltic regions are also much interwoven without much diversification. At the system-wide level, the EU banking system is weakly diversified, with an overexposure to the US and an underexposure to Japan and China. This explains why the recent US originated financial crisis had such a large impact on European banks. |
| Keywords: | International Banking; Portfolio Diversification; Financial Stability |
| JEL: | G21 G28 |
| Date: | 2011–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20110054&r=eec |
| By: | István P. Székely; Werner Roeger; Jan in 't Veld |
| Abstract: | This paper uses a multi region DSGE model with collateral constrained households and residential investment to examine the effectiveness of fiscal policy stimulus measures in a credit crisis. The paper explores alternative scenarios which differ by the type of budgetary measure, its length, the degree of monetary accommodation and the level of international coordination. In particular we provide estimates for New EU Member States where we take into account two aspects. First, debt denomination in foreign currency and second, higher nominal interest rates, which makes it less likely that the Central Bank is restricted by the zero bound and will consequently not accommodate a fiscal stimulus. We also compare our results to other recent results obtained in the literature on fiscal policy which generally do not consider credit constrained households. |
| Keywords: | Fiscal Policy, Monetary Policy, Fiscal Multiplier, Collateral Constraint, DSGE modelling |
| JEL: | E21 E62 F42 H31 H63 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:sec:cnstan:0423&r=eec |
| By: | Daniel Levy (Department of Economics, Bar Ilan University and RCEA); Frank Smets (European Central Bank and CEPR) |
| Abstract: | This introductory essay briefly summarizes the eleven empirical studies of price setting and price adjustment that are included in this special issue. The studies, which use data from several European countries, were conducted as part of the European Central Bank’s Inflation Persistence Network. |
| Keywords: | Price Rigidity, Price Flexibility, Cost of Price Adjustment, Menu Cost, Managerial and Customer Cost of Price Adjustment, Pricing, Price System, Price Setting, New Keynesian Economics, Store-Level Data, Micro-Level Data, Product-Level Data |
| JEL: | D21 D40 E12 E31 E50 E52 E58 L11 L16 M20 M30 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:biu:wpaper:2010-22&r=eec |
| By: | Gabor Pula (European Central Bank, Kaiserstraße 29, D-60311 Frankfurt am Main, Germany.); Daniel Santabárbara (Banco de España and European Central Bank, Kaiserstraße 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | There is an ongoing debate in the literature about the quality content of Chinese exports and to what extent China imposes a threat to the market positions of advanced economies. While China’s export structure is very similar to that of the advanced world, its export unit values are well below the level of developed economies. Building on the assumption that unit values reflect quality the prevailing view of the literature is that China exports low quality varieties of the same products than its advanced competitors. This paper challenges this view by relaxing the assumption that unit values reflect quality. We derive the quality of Chinese exports to the European Union by estimating disaggregated demand functions from a discrete choice model. The paper has two major findings. First, China’s share on the European Union market is larger than would be justified by its relatively low average prices, implying that the quality of Chinese export products is relatively high compared to many competitors. Second, China has gained quality relative to other competitors since 1995, indicating that China is climbing up the quality ladder. The relatively high and improving quality of China’s exports may be explained by the increasing role of global production networks in China. JEL Classification: F1, F12, F14, F15, F23. |
| Keywords: | Chinese Exports, Vertical Product Differentiation, Quality Ladder, Global Production Networks, Discrete Choice Model, COMEXT database. |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20111310&r=eec |
| By: | Gärtner, Manfred; Griesbach, Bjoern; Jung, Florian |
| Abstract: | This paper asks whether rating agencies played a passive role or were an active driving force during Europe's sovereign debt crisis. We address this by estimating relationships between sovereign debt ratings and macroeconomic and structural variables. We then use these equ-ations to decompose actual ratings into systematic and arbitrary components that are not explained by observed previous procedures of rating agencies. Next, we check whether both systematic and arbitrary parts of credit ratings affect credit spreads. We find that both do, which opens the possibility that arbitrary rating downgrades trigger processes of self-fulfilling prophecy that may drive even relatively healthy countries towards default. |
| Keywords: | Sovereign debt ratings, sovereign default, debt crisis, budget deficit, rating agencies, PIGS, risk premiums, government bond spreads. |
| JEL: | G24 H63 F34 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2011:06&r=eec |
| By: | Larry D. Wall; María J. Nieto; David Mayes |
| Abstract: | The European Union (EU) has been facilitating the growth of cross-border banking groups, but bank supervision remains the responsibility of national supervisors. This mismatch has long been recognized and various proposals have been offered to address this weakness. An alternative that would retain the most important advantages of full centralization is that of centralization only for those cross-border groups that are systemically important. All other banks would remain national responsibilities. To identify some of the issues (but not necessarily the best answers) raised by partial centralization in the EU, we look to the dual banking arrangements in the United States, which has long had both federal and state charters. One issue is that of who qualifies for and/or is required to adopt an EU charter. The U.S. policy of low-cost chartering changes encourages both good and bad competition among supervisors. A second issue is that of the potential mismatch between EU responsibility for prudential supervision of some banks and national provision of deposit insurance and lender of last resort services for all banks. A third potential issue is who should provide business conduct regulation. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2011-06&r=eec |
| By: | Christian Schmieder; Philipp Schmieder |
| Abstract: | This study investigates the link between bankruptcy and security legislation and potential credit losses faced by banks based on a cross-country study for the United States (US), the United Kingdom (UK) and Germany. Focusing on corporate credit, we find that legislation produces the highest credit risk in the US, followed by Germany, while UK law is found to be most favorable for banks. US banks gains from the higher number of informal restructurings (without losses) but lose from the low level of recovery in formal proceedings. German banks demand more credit risk mitigants than UK and US banks do, but still recover less than do UK banks. To be at par with UK banks, US banks would have to recover more than twice as much in formal proceedings, while German proceedings would have to be shortened by about one half. |
| Keywords: | Bankruptcy , Banks , Corporate sector , Credit risk , Cross country analysis , Economic models , Germany , Legislation , Loans , United Kingdom , United States , |
| Date: | 2011–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/55&r=eec |