nep-eec New Economics Papers
on European Economics
Issue of 2011‒05‒07
six papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Portfolio holdings in the euro area - home bias and the role of international, domestic and sector-specific factors By Jochem, Axel; Volz, Ute
  2. Systemic Sovereign Credit Risk: Lessons from the U.S. and Europe By Andrew Ang; Francis A. Longstaff
  3. Has the EMU Reduced Wage Growth and Unemployment? Testing a Model of Trade Union Behaviour By Heiner Mikosch; Jan-Egbert Sturm
  4. Migration of Labor in Europe. Theory and Evidence. By Anderson, James
  5. The scarring effect of unemployment in ten European countries : an analysis based on the ECHP. By Olivia Ekert-Jaffé; Isabelle Terraz
  6. The bank lending channel: lessons from the crisis By Leonardo Gambacorta; David Marques-Ibanez

  1. By: Jochem, Axel; Volz, Ute
    Abstract: This paper aims to identify the determinants of portfolio restructuring in EMU member states since the introduction of the euro and especially during the financial turbulence of the past years. We find that, besides exchange rate volatility and traditional indicators of information and transaction costs, the perception of sovereign risk has become more important as a determinant of portfolio allocation. The shares of financial corporations have been affected disproportionately by this development. At the same time, banks substantially reduced their international investment, possibly the result of a deleveraging process. --
    Keywords: Financial Integration,Home Bias,Institutional Sectors,Financial Crisis
    JEL: F30 F32 F36 G11
    Date: 2011
  2. By: Andrew Ang; Francis A. Longstaff
    Abstract: We study the nature of systemic sovereign credit risk using CDS spreads for the U.S. Treasury, individual U.S. states, and major European countries. Using a multifactor affine framework that allows for both systemic and sovereign-specific credit shocks, we find that there is considerable heterogeneity across U.S. and European issuers in their sensitivity to systemic risk. U.S. and Euro systemic shocks are highly correlated, but there is much less systemic risk among U.S. sovereigns than among European sovereigns. We also find that U.S. and European systemic sovereign risk is strongly related to financial market variables. These results provide strong support for the view that systemic sovereign risk has its roots in financial markets rather than in macroeconomic fundamentals.
    JEL: E44 F21 F34 F36 G12 G13 G15 G18
    Date: 2011–04
  3. By: Heiner Mikosch (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Jan-Egbert Sturm (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: By using a model of trade union behaviour Grüner (2010) argues that the introduction of the European Monetary Union (EMU) led to lower wage growth and lower unemployment in participating countries. Following Grüner’s model, monetary centralization lets the central bank react less flexibly to national business cycle movements. This increases the amplitude of national business cycles which, in turn, leads to higher unemployment risk. In order to counter-balance this effect, trade unions lower their claims for wage mark-ups resulting in lower wage growth and lower unemployment. This paper uses macroeconomic data on OECD countries and a difference-in-differences approach to empirically test the implications of this model. Although we come up with some weak evidence for increased business cycle amplitudes within the EMU, we neither find a significant general effect of the EMU on wage growth nor on unemployment.
    Keywords: Common currency areas, EMU, Phillips curve, unemployment, wages
    JEL: E52 E58
    Date: 2011–04
  4. By: Anderson, James (Institute for labor economics, University of London and Data Centre for Work and Welfare)
    Abstract: The paper studies the impact of migration policy liberalization in the enlarged EU. Adopting a structural NEG approach, we attempt to asses the direction, size and dynamics of potential labor migration after the end of the 'transitional measures', which are restricting the relocation of workers. According to our simulation results, the liberalization of migration policy would induce additional 2 -3 percent of the total EU workforce to change their country of location,with most of migrant workers relocating as expected from East to the West. The average net migration rate is decreasing in the level of integration, and in portugal and the UK the immigration of workers has even reverted to emigration at higher levels of integration, suggesting that from the economic point of view no regulatory policy responses are necessary to labor mobility restrictions inposed on workers from the balkan member States and the Balkan Candidate Countries are obsolete and should be removed with respect to achieving the objectives of the Europe 2020 Growth Strategy.
    Keywords: Labor Migration, Romania
    JEL: F12
    Date: 2011–04
  5. By: Olivia Ekert-Jaffé; Isabelle Terraz
    Abstract: This paper investigates the effect of unemployment on earnings for ten European countries. Using an harmonised database (ECHP), we estimate the impact of declared unemployment on individuals while taking account of attrition and unobserved individual heterogeneity. We find that the unemployment effect differs by country and gender. The wage penalty is greater for men than for women. It is also higher in the more flexible economies. We suggest that labour market institutions such as unemployment benefits and wage-setting institutions may be avenues of investigation to explain these differences.
    Keywords: Unemployment, Unobserved heterogeneity, post unemployment earnings.
    JEL: J31 J64
    Date: 2011
  6. By: Leonardo Gambacorta; David Marques-Ibanez
    Abstract: The 2007-2010 financial crisis highlighted the central role of financial intermediaries' stability in buttressing a smooth transmission of credit to borrowers. While results from the years prior to the crisis often cast doubts on the strength of the bank lending channel, recent evidence shows that bank-specific characteristics can have a large impact on the provision of credit. We show that new factors, such as changes in banks' business models and market funding patterns, had modified the monetary transmission mechanism in Europe and in the US prior to the crisis, and demonstrate the existence of structural changes during the period of financial crisis. Banks with weaker core capital positions, greater dependence on market funding and on non-interest sources of income restricted the loan supply more strongly during the crisis period. These findings support the Basel III focus on banks' core capital and on funding liquidity risks. They also call for a more forward-looking approach to the statistical data coverage of the banking sector by central banks. In particular, there should be a stronger focus on monitoring those financial factors that are likely to influence the functioning of the monetary transmission mechanism particularly in a period of crisis.
    Keywords: bank lending channel, monetary policy, financial innovation
    Date: 2011–05

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