nep-eec New Economics Papers
on European Economics
Issue of 2011‒06‒11
sixteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. The distribution of employees’ labour earnings in the European Union: Data, concepts and first results By Andrea Brandolini; Alfonso Rosolia; Roberto Torrini
  2. Monetary Union, Fiscal Crisis and the Preemption of Democracy By Fritz W. Scharpf
  3. Estimating Phillips Curves in Turbulent Times using the ECBs Survey of Professional Forecasters* By Gary Koop; Luca Onorante
  4. Sovereign credit ratings and financial markets linkages: application to European data By António Afonso; Davide Furceri; Pedro Gomes
  5. Business Cycle Similarity Measuring in the Eurozone Member and Candidate Countries: an Alternative Approach By Petr Rozmahel; Nikola Najman
  6. Intangible capital and Productivity Growth in European Countries By Cecilia Iona Lasinio; Massimiliano Iommi; Stefano Manzocchi
  7. Determinants of the Dinar-Euro Nominal Exchange Rate By Milan Nedeljkovic; Branko Urosevic
  8. Long Term Implications of the ICT Revolution: Applying the Lessons of Growth Theory and Growth Accounting By Nicholas Oulton
  9. Potential Output in DSGE Models By Igor Vetlov; Tibor Hlédik; Magnus Jonsson; Henrik Kucsera; Massimiliano Pisani
  10. Does Globalization Affect Regional Growth? Evidence for NUTS-2 Regions in EU-27 By Polasek, Wolfgang; Sellner, Richard
  11. Joint estimates of automatic and discretionary fiscal policy for the OECD By Julia Darby; Jacques Melitz
  12. What Explains the German Labor Market Miracle in the Great Recession? By Michael C. Burda; Jennifer Hunt
  13. The Effect of Emu on Bond Market Integration and Investor Portfolio Allocations. By Pieterse-Bloem, M.
  14. Inflation Perception and Anticipation Gaps in the Eurozone By Svatopluk Kapounek; Lubor Lacina
  15. From First-Release to Ex-Post Fiscal Data: Exploring the Sources of Revision Errors in the EU By Beetsma, Roel; Bluhm, Benjamin; Giuliodori, Massimo; Wierts, Peter
  16. Forecasting Financial Stress By Jan Willem Slingenberg; Jakob de Haan

  1. By: Andrea Brandolini (Bank of Italy, Department for Structural Economic Analysis); Alfonso Rosolia (Bank of Italy, Department for Structural Economic Analysis); Roberto Torrini (Bank of Italy, Department for Structural Economic Analysis)
    Abstract: This paper studies the distribution of labour earnings among employees within the EU using data from Wave 2007-1 of the Community Statistics on Income and Living Conditions (EUSILC). The review of available information and the comparisons with external sources show that the EU-SILC data are not exempt from problems, particularly in some countries, yet can be fruitfully used to study the distribution of earnings in the EU; they also allow researchers to assess the sensitivity of results to various concepts of labour earnings. The ranking of countries by median full-time equivalent monthly gross earnings shows Eastern European nations at the bottom and Luxembourg at the top; earnings differences are sizeable, both across and within countries. Taking the euro area and the EU-25 (excluding Malta, for which data are unavailable) as a whole, inequality is higher when earnings are measured in euro at market rates rather than at purchasing power parities. The wage distribution is wider in the EU-25 than in the euro area, which is not surprising given that the former includes the poorer Eastern European countries that joined the Union in 2004. The higher inequality observed in the EU-25 is largely attributable to differences between countries, which are essentially due to the returns to individual attributes rather than to a different composition of the workforce with respect to these attributes.
    Keywords: wage inequality, EU and euro area labour markets.
    JEL: J31 D33
    Date: 2011
  2. By: Fritz W. Scharpf
    Abstract: The European Monetary Union (EMU) has removed crucial instruments of macroeconomic management from the control of democratically accountable governments. Worse yet, it has been the systemic cause of destabilizing macroeconomic imbalances that member states found difficult or impossible to counteract with their remaining policy instruments. And even though the international financial crisis had its origins outside Europe, the Monetary Union has greatly increased the vulnerability of some member states to its repercussions. Its effects have undermined the economic and fiscal viability of some EMU member states, and they have frustrated political demands and expectations to an extent that may yet transform the economic crisis into a crisis of democratic legitimacy. Moreover, present efforts of EMU governments to rescue the Euro will do little to correct economic imbalances and vulnerabilities, but are likely to deepen economic problems and political alienation in both, the rescued and the rescuing polities.
    Date: 2011–05–25
  3. By: Gary Koop (Department of Economics, University of Strathclyde); Luca Onorante (European Central Bank)
    Abstract: This paper uses forecasts from the European Central Bank?s Survey of Professional Forecasters to investigate the relationship between inflation and inflation expectations in the euro area. We use theoretical structures based on the New Keynesian and Neoclassical Phillips curves to inform our empirical work. Given the relatively short data span of the Survey of Professional Forecasters and the need to control for many explanatory variables,we use dynamic model averaging in order to ensure a parsimonious econometric specification. We use both regression-based and VAR-based methods. We find no support for the backward looking behavior embedded in the Neo-classical Phillips curve. Much more support is found for the forward looking behavior of the New Keynesian Phillips curve, but most of this support is found after the beginning of the financial crisis.
    Keywords: inflation expectations, survey of professional forecasters,Phillips curve, Bayesian
    JEL: E31 C53 C11
    Date: 2011–03
  4. By: António Afonso (European Central Bank, Directorate General Economics, Fiscal Policies Division, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany and ISEG/UTL – Technical University of Lisbon, Department of Economics.); Davide Furceri (OECD, Department of Economics, 2 Rue André-Pascal, 75775 Paris, France and University of Palermo, Viale delle Scienze, 90128, Palermo, Italy.); Pedro Gomes (Universidad Carlos III de Madrid, Department of Economics, c/ Madrid 126, 28903 Getafe, Spain.)
    Abstract: We use EU sovereign bond yield and CDS spreads daily data to carry out an event study analysis on the reaction of government yield spreads before and after announcements from rating agencies (Standard & Poor’s, Moody’s, Fitch). Our results show: significant responses of government bond yield spreads to changes in rating notations and outlook, particularly in the case of negative announcements; announcements are not anticipated at 1-2 months horizon but there is bi-directional causality between ratings and spreads within 1-2 weeks; spillover effects especially from lower rated countries to higher rated countries; and persistence effects for recently downgraded countries. JEL Classification: C23, E44, G15.
    Keywords: credit ratings, sovereign yields, rating agencies.
    Date: 2011–06
  5. By: Petr Rozmahel (Research Centre, FBE MENDELU in Brno); Nikola Najman (Department of Economics, FBE MENDELU in Brno)
    Abstract: The article sheds some light on the process of measuring business cycle similarity and points out the fact that contemporary studies usually simplify this problem by measuring a simple correlation of cyclical development in GDP. The main goal is to assess the level of business cycle similarity in selected Eurozone member and candidate countries using the Concordance index. The Concordance index embodies an alternative and rarely used approach to measuring the similarity of business cycles. The article also includes a comparison of the Concordance index technique with traditional correlation methods. The results show that the Czech Republic belongs to the states with relatively high level of concordance comparing to the other Eurozone member and candidate countries. Accordingly, the measure of business cycle concordance should not serve as an argument for slowing down of the monetary integration process in the Czech Republic. The resultant concordance measures also give an evidence of relatively low level of the business cycle similarity of Slovak economy and the Eurozone, which might imply a possibly higher risk of the asymmetric shock occurrence in Slovakia.
    Keywords: business cycle, concordance index, correlation analysis, optimum currency area
    JEL: E32 F41
    Date: 2011–04
  6. By: Cecilia Iona Lasinio (Istat and Luiss Lab); Massimiliano Iommi (ISTAT); Stefano Manzocchi (Università Luiss "Guido Carli")
    Abstract: This paper provides evidence about the diffusion of intangible investment across the EU27 member countries and investigates the role of intangible capital as a source of growth to improve our understanding of the international differences in the mix of drivers of productivity growth across Europe. Our study shows that the capitalization of intangible assets, allow identifying additional sources of long-run growth. We show that intangibles have been a relevant source of growth across European countries and that they cannot be omitted from national accounts. In particular, the ?unexplained? component of macro-economic dynamics, the Total Factor Productivity, becomes less important, while physical capital turns out to be strongly complementary with intangible capital.
    Keywords: Intangible capital, Productivity Growth, European countries
    JEL: O3 O4 O5
    Date: 2011
  7. By: Milan Nedeljkovic (National Bank of Serbia); Branko Urosevic (National Bank of Serbia)
    Abstract: This paper studies drivers of daily dynamics of the nominal dinar-euro exchange rate from September 2006 to June 2010. Using a novel semiparametric approach we are able to incorporate the evidence of nonlinearities under very weak assumptions on the underlying data generating process. We identify several factors influencing daily exchange rate returns whose importance varies over time. In the period preceeding the financial crisis, information in past returns, changes in households’ foreign currency savings and banks' net purchases of foreign currency are the most significant factors. From September 2008 onwards other factors related to changes in country's risk and the information processing in the market gain importance. NBS interventions are found to be effective with a time delay.
    Keywords: Foreign exchange market, Partially linear model, Kernel estimation
    JEL: F31 C14 G18
    Date: 2011–05
  8. By: Nicholas Oulton
    Abstract: How big a boost to long run growth can countries expect from the ICT revolution? I use the results of growth accounting and the insights from a two-sector growth model to answer this question. The use of a two-sector rather than a one-sector model is required because of the very rapid rate at which the prices of ICT products have fallen in the past and are expected to fall in the future. According to the two-sector model, the main boost to growth comes from ICT use, not ICT production. Even a country which has zero ICT production can benefit via improving terms of trade. In the long run, the falling relative price of ICT products boosts the growth of GDP and consumption by inducing faster accumulation of ICT capital. I quantify this effect on the long run growth rate of 15 European and 4 non-European countries, using data from the EU KLEMS database. The ICT intensity of production (the ICT income share) is much lower in many European countries than it is in the United States or Sweden. Nevertheless the contribution to the long run growth of labour productivity stemming from even the current levels of ICT intensity is substantial: about half a percent per annum on average in the countries studied here. Eventually, the ICT revolution may diffuse more widely so ICT intensity may reach at least the same level as currently in the U.S. or Sweden, which would add a further 0.2 percentage points per annum to long run growth.
    Keywords: Potential output, productivity, ICT, two-sector model, growth accounting, termsof trade
    JEL: E23 F43 O41
    Date: 2010–11
  9. By: Igor Vetlov (Bank of Lithuania); Tibor Hlédik (Czech National Bank); Magnus Jonsson (Sveriges Riksbank); Henrik Kucsera (Magyar Nemzeti Bank); Massimiliano Pisani (Banca d'Italia)
    Abstract: In view of the increasing use of Dynamic Stochastic General Equilibrium (DSGE) models in the macroeconomic projections and the policy process, this paper examines, both conceptually and empirically, alternative notions of potential output within DSGE models. Furthermore, it provides historical estimates of potential output/output gaps on the basis of selected DSGE models developed by the European System of Central Banks’ staff. These estimates are compared to the corresponding estimates obtained applying more traditional methods. Finally, the paper assesses the usefulness of the DSGE model-based output gaps for gauging inflationary pressures.
    Keywords: potential output, simulation and forecasting models, monetary policy
    JEL: E32 E37 E52
    Date: 2011–06–03
  10. By: Polasek, Wolfgang (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria); Sellner, Richard (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria)
    Abstract: We analyze the influence of newly constructed globalization measures on regional growth for the EU-27 countries between 2001 and 2006. The spatial Chow-Lin procedure, a method constructed by the authors, was used to construct on a NUTS-2 level a complete regional data for exports, imports and FDI inward stocks, which serve as indicators for the influence of globalization, integration and technology transfers on European regions. The results suggest that most regions have significantly benefited from globalization measured by increasing trade openness and FDI. In a non-linear growth convergence model the growth elasticities for globalization and technology transfers decrease with increasing GDP per capita. Furthermore, the estimated elasticity for FDI decreases when the model includes a higher human capital premium for CEE countries and a small significant growth enhancing effect accrues from the structural funds expenditures in the EU.
    Keywords: Regional globalization measures, EU integration (structural funds), Regional growth convergence models, Foreign direct investment (FDI)
    JEL: C11 C15 C51 R12
    Date: 2011–05
  11. By: Julia Darby (Department of Economics, University of Strathclyde); Jacques Melitz (Department of Economics, School of Management and Languages, Heriot-Watt University, Edinburgh.)
    Abstract: Official calculations of automatic stabilizers are seriously flawed since they rest on the assumption that the only element of social spending that reacts automatically to the cycle is unemployment compensation. This puts into question many estimates of discretionary fiscal policy. In response, we propose a simultaneous estimate of automatic and discretionary fiscal policy. This leads us, quite naturally, to a tripartite decomposition of the budget balance between revenues, social spending and other spending as a bare minimum. Our headline results for a panel of 20 OECD countries in 1981-2003 are .59 automatic stabilization in percentage-points of primary surplus balances. All of this stabilization remains following discretionary responses during contractions, but arguably only about 3/5 of it remains so in expansions while discretionary behavior cancels the rest. We pay a lot of attention to the impact of the Maastricht Treaty and the SGP on the EU members of our sample and to real time data.
    Keywords: Fiscal stabilization, automatic stabilizers, discretionary policy.
    JEL: E62 H53 H62
    Date: 2011–04
  12. By: Michael C. Burda; Jennifer Hunt
    Abstract: Germany experienced an even deeper fall in GDP in the Great Recession than the United States with little employment loss. Employers’ reticence to hire in the preceding expansion - associated in part with a lack of confidence it would last - contributed to an employment shortfall equivalent to 40 percent of the missing employment decline in the recession. Another 20 percent may be explained by wage moderation. A third important element was the widespread adoption of working time accounts, which permit employers to avoid overtime pay if hours per worker average to standard hours over a window. We find that this provided disincentives for employers to lay off workers in the downturn. While the overall cuts in hours per worker were consistent with the severity of the Great Recession, reduction of working time account balances substituted for traditional government-sponsored short time work.
    Keywords: unemployment, Germany, Great Recession, short time work, working time accounts, Hartz reforms, extensive vs. intensive employment margin
    JEL: E24 E65 J23 J33
    Date: 2011–06
  13. By: Pieterse-Bloem, M. (Universiteit van Tilburg)
    Date: 2011
  14. By: Svatopluk Kapounek (Department of Finance, FBE MENDELU in Brno); Lubor Lacina (Department of Finance, FBE MENDELU in Brno)
    Abstract: There is significant empirical evidence that the introduction of the euro led to a significant increase of perceived inflation in most countries. Such an increase and persistence in the perceived inflation might then have an impact on inflation expectations and other macroeconomic variables. The authors have used the short-term Phillips curve to describe the difference between inflation expectations and its current values, subsequently to identify the impact of this difference on other economic indicators. The paper is structured as follows: Section 1 provides an overview of the theory and empiricism on the gap between measured and perceived inflation. Section 2 then builds up the theoretical framework based on the short–term Phillips curve approach and derives two hypotheses, to be tested subsequently. Section 3 provides the methodology. Section 4 presents the modelling and results of the empirical analysis. In section 5 authors compare its results and used methodology with papers and studies on a similar topic. Finally, Section 6 concludes and provides recommendations for the economic policy.
    Keywords: monetary integration, perceived and anticipated inflation, adaptive and rational expectations hypothesis, expectations-augmented Phillips curve, stationarity, ADF test
    JEL: E42
    Date: 2011–04
  15. By: Beetsma, Roel; Bluhm, Benjamin; Giuliodori, Massimo; Wierts, Peter
    Abstract: This paper explores the determinants of deviations of ex-post budget outcomes from first-release outcomes published towards the end of the year of budget implementation. The predictive content of the first-release outcomes is important, because these figures are an input for the next budget and the fiscal surveillance process. Deviations of ex-post from first-release fiscal figures may arise for political and strategic reasons. In particular, Ministries of Finance control the production of first-release figures, and may have an incentive to be over-optimistic at this stage. Our results suggest that an improvement in the quality of institutions, whether measured by the tightness of national fiscal rules, the medium-term budgetary framework or budgetary transparency, reduces the degree of optimism at the first-release stage, thereby making first-release figures more informative about the eventual outcomes. This supports the European Commission proposals for minimum standards for national fiscal frameworks and amendments by the European Parliament for improving national ownership. It also strengthens the case for a close monitoring by the Commission of the first-release production of fiscal figures.
    Keywords: base effect; biases; decomposition; denominator effect; ex-post data; first-release data; fiscal institutions; fiscal policy; growth effect; real-time data
    JEL: E6 H6
    Date: 2011–06
  16. By: Jan Willem Slingenberg; Jakob de Haan
    Abstract: This paper uses a Financial Stress Index (FSI) for 13 OECD countries to examine which variables can help predicting financial stress. A stress index measures the current state of stress in the financial system and summarizes it in a single statistic. We employ three criteria for indicators to be used in constructing a multi-country FSI (the index covers the entire financial system, indicators used are available at a high frequency for many countries for a long period, and are comparable) to come up with our FSI. Our results suggest that financial stress is hard to predict. Only credit growth has predictive power for most countries. Several other variables have predictive power for some countries, but not for others.
    Keywords: financial stress index; predicting financial stress
    JEL: E5 G10
    Date: 2011–04

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