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on European Economics |
| By: | Bussière, M.; Chudik, A.; Mehl, A. |
| Abstract: | This paper uncovers the response pattern to global shocks of euro area countries' real effective exchange rates before and after the start of Economic and Monetary Union (EMU), a largely open ended question when the euro was created. We apply to that end a newly developed methodology based on high dimensional VAR theory. This approach features a dominant unit to a large set of over 60 countries' real effective exchange rates and is based on the comparison of two estimated systems: one before and one after EMU. We find strong evidence that the pattern of responses depends crucially on the nature of global shocks. In particular, post-EMU responses to global US dollar shocks have become similar to Germany's response before EMU, i.e. to that of the economy that used to issue Europe's most credible legacy currency. By contrast, post-EMU responses of euro area countries to global risk aversion shocks have become similar to those of Italy, Portugal or Spain before EMU, i.e. of economies of the euro area's periphery. Our findings also suggest that the divergence in external competitiveness among euro area countries over the last decade, which is at the core of today's debate on the future of the euro area, is more likely due to country-specific shocks than to global shocks. |
| Keywords: | Euro, Real Effective Exchange Rates, Weak and Strong Cross Sectional Dependence, High-Dimensional VAR, Identification of Shocks. |
| JEL: | C21 C23 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:336&r=eec |
| By: | Nils Jannsen; Melanie Klein |
| Abstract: | This paper analyzes the international transmission effects of euro area monetary policy shocks in to other western European countries, namely the United Kingdom, Sweden, Switzerland, Denmark, and Norway. For this purpose, we use a structural VAR model of the euro area and augment it consecutively by the foreign variables of interest. We find that a monetary policy shock in the euro area leads to a largely similar change in the interest rate and in GDP in these other western European countries. The effects on their exchange rates are limited and their trade balances usually are unaffected. Our results suggest that the income absorption effect to be more important than the expenditure switching effect in the international transmission of monetary policy and that exchange rate stabilization seems to be of some concern to monetary policy makers in small open economies |
| Keywords: | Monetary policy, international transmission, euro area, vector autoregression |
| JEL: | C32 E52 F41 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1718&r=eec |
| By: | Berka, Martin; Devereux, Michael B. |
| Abstract: | We study a newly constructed panel data set of relative prices for a large number of consumer goods among 31 European countries over a 15 year period. The data set includes eurozone members both before and after the inception of the euro, floating exchange rate countries of western Europe, and emerging market economies of Eastern and Southern Europe. We find that there is a substantial and continuing deviation from PPP at all levels of aggregation, both for traded and non-traded goods, even among eurozone members. Real exchange rates exhibit two clear properties in the sample; a) they are closely tied to GDP per capita relative to the European average, at all levels of aggregation and for both cross country time series variation, b) they are highly positively correlated with cross country and time series variation in the relative price of non-traded goods. We then construct a simple two-sector endowment economy model of real exchange rate determination which exhibits these two properties, calibrated to match the data. Simulating the model using the historical relative GDP per capita for each country, we find that for most countries, there is a very close fit between the actual and simulated real exchange rate. |
| Keywords: | real exchange rate, GDP, European countries, relative prices, |
| Date: | 2011–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:vuw:vuwecf:1687&r=eec |
| By: | Michele Manna (Bank of Italy) |
| Abstract: | In recent years, banks have become increasingly aware of the credit risk borne in lending in the interbank market and they select their counterparties accordingly. They may also fear that if they come across a bad borrower, rescue plans will be skewed towards domestic creditors; moreover, lenders may prefer to defend their rights in their own regulatory and legal jurisdiction. Using 2004-09 data, this paper argues that these elements, the “resolution edge” of the domestic creditor, contributed to the increase in the home bias of interbank lending by euro-area banks from mid-2007 on, while a more consistent downward pattern emerges in the home bias of banks from five non-euro-area countries (including the US and the UK). The intuition is that when the crisis broke out, euro-area banks reckoned that within-the-area cross-border interbank loans carried a distinct risk compared with domestic loans. By contrast, a large Swiss bank, for example, did not need to wait until 2007 to gauge that its business in New York was a very different matter from a deal in Zürich. |
| Keywords: | home bias, interbank market, euro area, banks resolution procedures |
| JEL: | C33 G11 G15 G21 K20 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_816_11&r=eec |
| By: | Scharpf, Fritz W. |
| Abstract: | The European Monetary Union (EMU) has removed crucial instruments of macroeconomic management from the control of democratically accountable governments. Worse still, the EMU has systemically caused 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 beyond Europe, the EMU 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 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 by EMU governments to 'rescue the euro' will do little to correct the economic imbalances and vulnerabilities, but are likely to deepen economic problems and political alienation in both the rescued and the rescuing polities. -- Die Europäische Währungsunion hat ihren Mitgliedstaaten die wesentlichen Instrumente der makroökonomischen Politik entzogen. Zugleich ist die einheitliche europäische Geldpolitik die strukturelle Ursache makroökonomischer Ungleichgewichte, die die Mitgliedstaaten mit den verbliebenen Mitteln nicht ausgleichen können. Und obwohl die internationale Finanzkrise nicht von Europa ausging, hat die Währungsunion die Verwundbarkeit einiger Mitgliedstaaten für deren Auswirkungen beträchtlich gesteigert. Die Folgen für die Wirtschaft der betroffenen Länder sind verheerend, und je mehr deren Politik gezwungen wird, die Forderungen und Erwartungen ihrer Bürger zu enttäuschen, desto eher kann die ökonomische Krise auch die demokratische Legitimität zerstören. Überdies ignorieren die gegenwärtigen Maßnahmen zur 'Rettung des Euro' die strukturellen Ursachen der ökonomischen Ungleichgewichte, und sie werden deshalb eher zur Verschärfung der ökonomischen Probleme und der politischen Frustration in den Geber- wie in den Nehmerländern beitragen. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:mpifgd:1111&r=eec |
| By: | Olivier Bargain (University College Dublin); Kristian Orsini (University of Leuven); Andreas Peichl (University of Cologne) |
| Abstract: | Despite numerous studies on labor supply, the size of elasticities is rarely com- parable 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 Euro- pean 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 |
| Date: | 2011–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:ucn:wpaper:201114&r=eec |
| By: | Hazans, Mihails (University of Latvia) |
| Abstract: | European Social Survey data on 30 countries, covering years 2004-2009, are used to look into joint institutional [and other macro] determinants of the rates of dependent employment without a contract, informal self-employment, and unemployment (secondary jobs are not accounted for). Consistently with theoretical predictions, quality of business environment has a significant negative impact on prevalence of both types of informal employment. The share of non-contracted employees is negatively affected by perceived quality of public services and is positively related to economic growth. GDP per capita has a positive impact on informality in Europe at large and within Eastern and Southern Europe. Other things equal, the share of non-contracted employees in the labor force across all European countries increases with the minimum-to-average wage ratio, with union density, with the share of first and second generation immigrants, and with income inequality, but falls with stricter employment protection legislation (EPL) and higher tax wedge on labor. Thus it appears that in Europe at large, labor cost effects of EPL and taxes are weaker than their impact via perceptions of job security and law enforcement, along with tax morale and the income effect. Yet the EPL effect on informality is positive (i.e., cost-related) when either Eastern and Southern Europe or Western and Northern Europe are considered separately. Furthermore, within Western and Northern Europe, the minimum wage effect is negative, whilst within Eastern and Southern Europe, the union effect is negative. Various panel data methods are used to confirm the robustness of the results. |
| Keywords: | labor market institutions, informal employment, immigrants, ethnic minorities |
| JEL: | J08 J21 J51 J61 K31 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5872&r=eec |
| By: | Silvia Magri (Banca d'Italia); Raffaella Pico (Banca d'Italia); Cristiana Rampazzi (Banca d'Italia) |
| Abstract: | Which households use consumer credit? This paper addresses the question using harmonized data from Eurostat’s EU-SILC survey for nine European countries in the period 2005-08. There is wide heterogeneity in participation in the consumer credit market, ranging from 15 to 46 per cent across countries. Most households relying on consumer credit are those whose head is young and well educated; they are large in size, revealing more pronounced consumption needs. According to life cycle theory, they use credit to increase their welfare by consumption smoothing. Moreover, they frequently have a current medium-high income as lenders prefer to grant loans to less risky borrowers. Nonetheless, a not negligible portion of those using credit, ranging between 8 and 16 per cent across countries, are poor. Consumer credit can also help in improving their welfare. However, poor households are more frequently delinquent. In 2008, between 2 and 11 per cent of all borrowers were in arrears; the same percentage among the poor is much higher, ranging from 7 to 25 per cent. |
| Keywords: | consumer credit, repayment arrears, consumption smoothing |
| JEL: | D12 D91 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_100_11&r=eec |
| By: | Hazans, Mihails (University of Latvia) |
| Abstract: | The European Social Survey data are used to analyze informal employment at the main job in 30 countries. Overall, informality decreases from South to West to East to North. However, dependent work without contract is more prevalent in Eastern Europe than in the West, except for Ireland, the UK and Austria. Between 2004 and 2009, no cases found when unemployment and dependent informality rates in a country went up together, suggesting that work without contract is pro-cyclical in Europe. Dependent informality rate is inversely related to skills (measured by either schooling or occupation). The low-educated, the young (especially students), the elderly, and persons with disabilities are more likely to work informally, other things equal. In Southern and Western Europe, immigrants from CEE and FSU feature the highest dependent informality rate, whilst in Eastern Europe this group is second after minorities without immigrant background. In Eastern, Southern and part of Western Europe, immigrants not covered by EU free mobility provisions are more likely to work without contracts than otherwise similar natives. We provide evidence that exclusion and discrimination play important role in pushing employees into informality, whilst this seems not to be the case for informal self-employed. Both on average and after controlling for a rich set of individual characteristics, informal employees in all parts of Europe are having the largest financial difficulties among all categories of employed population (yet they fare much better than the unemployed and discouraged), whilst informal self-employed are at least as well off as formal employees. |
| Keywords: | informal employment, human capital, discrimination, minorities, immigrants |
| JEL: | J21 J24 J61 J71 O17 O52 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5871&r=eec |
| By: | Christopher Reicher |
| Abstract: | This paper compares the aggregate effects of sectoral reallocation in the United States and Western Germany using a stochastic volatility model of sectoral employment growth. Reallocative shocks have no effect on the natural rate of unemployment in either country, and there is mild evidence that reallocative shocks are contractionary over the cycle. The overall statistical contribution of such shocks to the cycle, however, is limited. Reallocative shocks do not appear to be to blame for the rise in trend unemployment in Germany in the 1980s or for a possible rise in trend unemployment in the United States following the Great Recession |
| Keywords: | Sectoral shifts, reallocation, natural rate, unemployment, turbulence, stochastic volatility |
| JEL: | E24 E32 J24 J62 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1721&r=eec |
| By: | Hirsch, Boris (University of Erlangen-Nuremberg); Schnabel, Claus (University of Erlangen-Nuremberg) |
| Abstract: | Building on the right-to-manage model of collective bargaining, this paper tries to infer union power from the observed results in wage setting. It derives a time-varying indicator of union strength and confronts it with annual data for Germany. The results show that union power was relatively stable in the 1990s but fell substantially (by almost one-third) from 1999 to 2007. Two-thirds of this fall in union power follow from the reduction in the labour share relative to the capital share whereas changes in the gap between the net wage and the income when unemployed account for the remaining third. |
| Keywords: | labour share, wage bargaining, trade union power, Germany |
| JEL: | J50 J51 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5875&r=eec |
| By: | Castanheira, Micael; Nicodème, Gaëtan; Profeta, Paola |
| Abstract: | There is often a gap between the prescriptions of an “optimal” tax system and actual tax systems, some of which can be neither efficient economically nor efficient at redistributing income. With a focus on personal income taxes, this paper reviews the political economics literature on tax systems and reforms to see whether political mechanisms allow us to better understand why tax systems look the way they look. Finally, we exploit a database of reforms in labour taxation in the European Union to check the determinants of all reforms, on the one hand, and of targeted reforms, on the other hand. The results fit well with political economy theories and show that political variables carry more weight in triggering reforms than economic variables. This shed light on whether and how tax reforms are achievable. It also explains why many reforms that seem economically optimal fail to be implemented. |
| Keywords: | personal income tax; political economy; taxation |
| JEL: | H11 H21 H24 P16 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8507&r=eec |