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on European Economics |
| By: | Herbert Buscher; Hubert Gabrisch |
| Abstract: | This study deals with the question whether the central banks of Sweden, Denmark and the UK can really influence short-term money markets and thus, would lose this influence in case of Euro adoption. We use a GARCH-M-GED model with daily money market rates. The model reveals the co-movement between the Euribor and the shortterm interest rates in these three countries. A high degree of co-movement might be seen as an argument for a weak impact of the central bank on its money markets. But this argument might only hold for tranquil times. Our approach reveals, in addition, whether there is a specific reaction of the money markets in turbulent times. Our finding is that the policy of the European Central Bank (ECB) has indeed a significant impact on the three money market rates, and there is no specific benefit for these countries to stay outside the Euro area. However, the GARCH-M-GED model further reveals risk divergence and unstable volatilities of risk in the case of adverse monetary shocks to the economy for Sweden and Denmark, compared to the Euro area. We conclude that the danger of adverse monetary developments cannot be addressed by a common monetary policy for these both countries, and this can be seen as an argument to stay outside the Euro area |
| Keywords: | Euro adoption, EMS, money markets, interest rates, GARCH-M-GED models, international financial markets |
| JEL: | E42 E43 F36 G15 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:iwh:dispap:9-11&r=eec |
| By: | Abad, José M; Loeffler, Axel; Zemanek, Holger |
| Abstract: | This paper analyses the implications of a continued divergence of TARGET2 balances for monetary policy in the euro area. The accumulation of TARGET2 claims (liabilities) would make ECB’s liquidity management asymmetric once the TARGET2 claims in core countries have crowded out central bank credit in those regions. Then while providing scarce liquidity to banks in countries with TARGET2 liabilities, the ECB will need to absorb excess liquidity in countries with TARGET2 claims. We discuss three alternatives and its implications to absorb excess liquidity in core regions: (1) Using market based measures might accelerate the capital flight from periphery to core countries and would add to the accumulation of risky assets by the ECB. (2) Conducting non-market based measures such as imposing differential (unremunerated) reserve requirements would distort banking markets and would support the development of shadow banking. (3) Staying passive would lead to decreasing interest rates in core Europe entailing inflationary pressure and overinvestment in those regions and possibly future instability of the banking system. |
| Keywords: | TARGET2 balances; monetary policy; euro area; Eurosystem; excess liquidity |
| JEL: | F32 E42 E58 E52 F36 |
| Date: | 2011–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:31937&r=eec |
| By: | Thanassis Kazanas (Athens University of Economics and Business); Elias Tzavalis (Athens University of Economics and Business) |
| Abstract: | This paper provides evidence that, since the sign of Maastricht Treaty, euro-area monetary authorities mainly follow a strong anti-inflationary policy. This policy can be described by a threshold monetary policy rule model which allows for distinct inflation policy regimes: a low and high. The paper finds that these authorities react more strongly to positive deviations of inflation and/or output from their target levels rather than to the negative. They do not seem to react at all to negative deviations of output from its target level in the low-inflation regime. We argue that this behaviour can be attributed to the attitude of the monetary authorities to build up credibility on stabilizing inflationary expectations. To evaluate the policy implications of the above euro-area monetary policy rule behaviour, the paper simulates a small New Keynesian model. This exercise clearly indicates that the absence of reaction of the euro-area monetary authorities to negative output gap when inflation is very low reduces their efficiency on dampening the effects of negative demand shocks on the economy. |
| Keywords: | Monetary policy, threshold models; regime-switching; generalized method of moments; New Keynesian model |
| JEL: | E52 C13 C30 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:130&r=eec |
| By: | European Commission |
| Abstract: | This report contains a detailed statistical and economic analysis of the tax systems of the Member States of the European Union, plus Iceland and Norway, which are Members of the European Economic Area. The data are presented within a unified statistical framework (the ESA95 harmonised system of national and regional accounts), which makes it possible to assess the heterogeneous national tax systems on a fully comparable basis. The standard classifications of tax revenues (by major type of tax or by level of government) presented in most international tax revenue statistics are hard to interpret in economic terms. This publication stands out for offering a breakdown of tax revenues by economic function (i.e. according to whether they are raised on consumption, labour or capital). This classification is based on disaggregated tax data and on a breakdown of the revenue from the personal income tax. Besides revenue data, the report also contains indicators of the average effective tax rate falling on consumption, labour and capital, as well as data on environmental taxation and on the top rates for the personal and corporate income tax. Country chapters give an overview of the tax system in each of the 29 countries covered, the revenue trends and the main recent policy changes. Detailed tables allow comparison between the individual countries and European averages. Data cover the 1995-2009 period and are presented both as a percentage of GDP and as a percentage of total taxation. This year's edition of the report for the first time includes data on average effective tax ratios (EATRs) for non-financial corporations. In addition, the report also contains a detailed new analysis of the impact of the economic and financial crisis on the tax systems of all EU Member States. |
| Keywords: | European Union, taxation |
| JEL: | H23 H24 H25 H27 H71 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:tax:taxtre:2011&r=eec |
| By: | Peeters, Marga; Den Reijer, Ard |
| Abstract: | This paper discusses the endeavours of policy makers to come to some degree of wage coordination among EU countries, aiming at aligning wage growth with labour productivity growth at the national levels. In this context, we analyse the wage and productivity developments in Germany, the European Union’s periphery countries Greece, Ireland, Portugal, and Spain along with the US for the period 1980-2010. Apart from the contribution of productivity to wages, we take into account the contributions of prices, unemployment, replacement rates and taxes by means of an econometrically estimated non-linear wage equation resulting from a wage bargaining model. We further study the downward rigidities of wages in depth. The findings show that in past times of low productivity, price inflation and reductions in unemployment put significant upward pressure on wage growth, also in the low inflationary period of the 2000s. Greece, Ireland, Portugal and Spain are far from aligning wage growth with productivity growth. German productivity is a major German wage determinant, but surely not the only one. To steer wages, policy makers can effectively use the replacement rate. |
| Keywords: | wages; compensation per employee; unit labour costs; productivity; wage formation; wage coordination; labour market; wage flexibility; unemployment; prices; replacement rate; monetary union; |
| JEL: | E24 J3 E5 C22 E6 |
| Date: | 2011–06–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:31102&r=eec |
| By: | Mueller, Dennis C. (Department of Economics Fakultät für Wirtschaftswissenschaften University of Vienna) |
| Abstract: | In the year 2000 at a meeting in Lisbon, leaders of the European Union (EU) articulated a set of goals for the Union, which have come to be called the Lisbon Strategy or Lisbon Agenda. The agenda had three main goals: to promote growth through innovation, to create a learning economy, and to bring about social and environmental renewal. Exactly what the last goal implies is not clear, at least to me, but the intent and substance behind the first two certainly is. Research spending was to rise across the EU, university enrollments would rise with them, and a more friendly environment for innovation would be created as markets continued to be liberalized and integrated. The EU leaders meeting in Lisbon set the year 2010 as their goal for fulfilling this agenda. The year 2010 has come and gone. Today, growth rates in Europe are even lower than they were in 2000. Research and university budgets have been cut – sometimes drastically – across the EU. These developments are, of course, largely a response to the recent financial crisis and its impact on state finances. But the crisis would not have been nearly as severe as it has been, if EU countries had been well on their way to fulfilling the goals of the Lisbon Agenda when the crisis hit. The EU’s failure to come anywhere near meeting the goals set out in the year 2000 stems, I shall argue, to underlying structural factors and ideological perspectives, which constitute major obstacles to the kind of knowledge-based, innovative society that the EU leaders dreamed of in Lisbon more than a decade ago. This paper attempts to identify what these obstacles are. |
| Keywords: | Entrepreneurship; Economic Growth; Human Capital; European Union |
| JEL: | J24 L26 L53 |
| Date: | 2011–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ratioi:0170&r=eec |
| By: | Sergio Andenmatten; Felix Brill |
| Abstract: | In this paper we test whether the co-movement of sovereign CDS premia increased significantly after the Greek debt crisis started in October 2009. We perform a bivariate test for contagion that is based on an approach proposed by Forbes and Rigobon (2002). Our sample consists of daily data between October 2008 and July 2010 for 39 countries including both emerging and industrialized countries. Our results indicate that there were periods of contagion for CDS markets during the Greek debt crisis, which is in contrast to the results from Forbes and Rigobon (2002) for equity markets after the Hong Kong crash and their conclusion of "no contagion, only interdependence". Especially for European countries we would instead conclude "both contagion and interdependence". |
| Keywords: | CDS market; Contagion; Greek debt crisis; Sovereign credit |
| JEL: | G12 G15 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp1104&r=eec |
| By: | Jerger, Jürgen; Röhe, Oke |
| Abstract: | We estimate a New Keynesian DSGE model on French, German and Spanish data. The main aim of this paper is to check for the respective sets of parameters that are stable over time, making use of the ESS procedure ( ”Estimate of Set of Stable parameters“) developed by Inoue and Rossi (2011). This new econometric technique allows to address the stability properties of each single parameter in a DSGE model separately. In the case of France and Germany our results point to structural breaks after the beginning of the second stage of EMU in the mid-nineties, while the estimates for Spain show a significant break just before the start of the third stage in 1998. Specifically, there are significant changes in monetary policy behavior for France and Spain, while monetary policy in Germany seems to be stable over time. |
| Keywords: | DSGE; EMU; Monetary Policy; Structural Breaks |
| JEL: | E31 E32 E52 |
| Date: | 2009–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:bay:rdwiwi:21427&r=eec |
| By: | Dino Martellato (Department of Economics, University Of Venice Cà Foscari) |
| Abstract: | We investigate in this paper the skirmishes that the US dollar and the euro had from 2007 to 2011 and, in particular, the two distinct sharp falls that the single currency had in 2008 and 2010. We basically consider how impulses coming from domestic money markets impact on the USD/EUR exchange rate through the Eurocurrency market. Our findings show that the cycles in the spreads in the LIBOR rates have a bearing on the direction of change in the spot exchange rate in a way which is different from that predicted by the interest rate parity. The exposure of the value of reserve currencies to the vagaries of the outside circulation in the Eurocurrency and FX markets is only one of the many different policy implications of the current arrangement of the international monetary system. In the final part of the paper we also discuss some of those tied to the very existence of the international money market and to competition among old and emerging global currencies and financial centres. |
| Keywords: | Exchange rates, LIBOR rates, reserve currencies, financial centres. |
| JEL: | F31 F33 F36 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2011_05&r=eec |
| By: | Massimo Antonini; Kevin Lee; Jacinta Pires |
| Abstract: | We document that, at business cycle frequencies, fluctuations in nominal variables, such as aggregate price levels and nominal interest rates, are substantially more synchronized across countries than fluctuations in real output. To the extent that domestic nominal variables are largely determined by domestic monetary policy, this might seem surprising. We ask if a parsimonious international business cycle model can account for this aspect of cross-country aggregate fluctuations. It can. Due to spillovers of technology shocks across countries, expected future responses of national central banks to fluctuations in domestic output and inflation generate movements in current prices and interest rates that are synchronized across countries even when output is not. Even modest spillovers produce cross-country correlations such as those in the data. |
| Keywords: | International business cycles, prices, interest rates. |
| URL: | http://d.repec.org/n?u=RePEc:not:notcfc:11/08&r=eec |
| By: | Bargain, Olivier (University College Dublin); Orsini, Kristian (K.U.Leuven); Peichl, Andreas (IZA) |
| Abstract: | Despite numerous studies on labor supply, the size of elasticities is rarely comparable across countries. In this paper, we suggest the first large-scale international comparison of elasticities, while netting out possible differences due to methods, data selection and the period of investigation. We rely on comparable data for 17 European countries and the US, a common empirical approach and a complete simulation of tax-benefit policies affecting household budgets. We find that wage-elasticities are small and vary less across countries than previously thought, e.g., between .2 and .6 for married women. Results are robust to several modeling assumptions. We show that differences in tax-benefit systems or demographic compositions explain little of the cross-country variation, leaving room for other interpretations, notably in terms of heterogeneous work preferences. We derive important implications for research on optimal taxation. |
| Keywords: | household labor supply, elasticity, taxation, Europe, US |
| JEL: | C25 C52 H31 J22 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5820&r=eec |