nep-eec New Economics Papers
on European Economics
Issue of 2011‒08‒22
eight papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Exchange Rate Pass-Through and Monetary Integration in the Euro Area By Ayako Saiki
  2. Low-Wage Import Competition, Inflationary Pressure,and Industry Dynamics in Europe By Raphael Anton Auer; Kathrin Degen; Andreas M. Fischer
  3. Modeling Optimal Fiscal Consolidation Paths in a Selection of European Countries By Daniel Kanda
  4. Macroeconomic Imbalances as Indicators for Debt Crises in Europe By Tobias Knedlik; Gregor von Schweinitz
  5. Central banks and macroprudential policy. Some reflections from the Spanish experience By Enrique Alberola; Carlos Trucharte; Juan Luis Vega
  6. Zone euro : quand l’Union ne fait pas la force: Perspectives 2010-2011 pour l’économie européenne. By Blot, Christophe; Le Bayon, Sabine; Monperrus-Veroni, Paola; Antonin, Céline
  7. What Explains the German Labor Market Miracle in the Great Recession? By Burda, Michael C; Hunt, Jennifer
  8. Adjusting to external imbalances within the EMU, the case of Portugal By Francesco Franco

  1. By: Ayako Saiki
    Abstract: The purpose of this study is to examine how monetary integration affects the exchange rate pass-through, by testing whether monetary policy convergence in the euro area led to a convergence in terms of exchange rate pass-through. We conduct a comparative study between the “experiment group” (the euro area) and the “control group” (non-euro industrial countries). We find evidence for stronger convergence of exchange rate pass-through for the euro area economies as a group, especially around the 1980s. The group of non-euro industrial countries also had conditional convergence (convergence with permanent cross-sectional heterogeneity) in exchange rate pass-through, but its cross-sectional dispersion remains substantially larger compared to the euro area. This indicates that monetary integration affects the exchange rate pass-through. This has an important policy implication for the euro area, especially for the new member countries, as their exchange rate pass-through would not remain constant or purely exogenous; it should also converge to the euro area average as they work to achieve the Maastricht Criteria.
    Keywords: Monetary Policy; Central Banks and Their Policies; International Monetary Arrangements and Institutions
    JEL: E52 E58 F33
    Date: 2011–08
  2. By: Raphael Anton Auer; Kathrin Degen; Andreas M. Fischer
    Abstract: What is the impact of import competition from low-wage countries (LWCs) on inflationary pressure in Europe? This paper examines whether labor-intensive exports from emerging Europe, Asia, and other global regions have a uniform impact on producer prices in Germany, France, Italy, Sweden, and the United Kingdom. In a panel covering 110 (4-digit) NACE industries from 1995 to 2008, instrumental variable estimations predict that LWC import competition is associated with strong price effects. More specifically, when LWC exporters capture 1% of European market share, producer prices decrease by about 3%. In contrast, no effect is present for import competition from low-wage countries in Central and Eastern Europe. Next, decomposing the mechanisms that underlie the LWC price effect on European industry, we show that import competition has a pronounced effect on average productivity and only a muted effect on wages. Owing to the exit of firms and the increase in productivity, LWC import competition is shown to have substantially reduced employment in the European manufacturing sector.
    Keywords: intra-industry trade, comparative advantage, globalization
    JEL: F11 F12 F14 F16 F40
    Date: 2011
  3. By: Daniel Kanda
    Abstract: For a number of countries - Italy, Netherlands, the United Kingdom, Germany, Ireland, and France - this paper develops an inter-temporal model that elicits the implied country-preferences over balancing the conflicting objectives of fiscal consolidation and reduction of economic slack. The model suggests that some front-loading of adjustment is desirable, although the extent would vary by country preferences. It also finds that proposed consolidations may prove to be stronger than acceptable, especially if somewhat larger than anticipated fiscal multipliers lead to a sizeable economic deceleration.
    Keywords: Cross country analysis , Developed countries , Economic models , Europe , Fiscal consolidation , Fiscal policy , Fiscal sustainability ,
    Date: 2011–07–12
  4. By: Tobias Knedlik; Gregor von Schweinitz
    Abstract: European authorities and scholars published proposals on which indicators of macroeconomic imbalances might be used to uncover risks for the sustainability of public debt in the European Union. We test the ability of four proposed sets of indicators to send early-warnings of debt crises using a signals approach for the study of indicators and the construction of composite indicators. We find that a broad composite indicator has the highest predictive power. This fact still holds true if equal weights are used for the construction of the composite indicator in order to reflect the uncertainty about the origin of future crises.
    Keywords: macroeconomic surveillance, macroeconomic imbalances, economic governance, signals approach, European Union (EU), European Monetary Union (EMU)
    JEL: C14 E61 E62 F40
    Date: 2011–08
  5. By: Enrique Alberola (Banco de España); Carlos Trucharte (Banco de España); Juan Luis Vega (Banco de España)
    Abstract: The view that central banks must play a greater role in preserving financial stability has gained considerable ground in the aftermath of the crisis and macroprudential policy has become a central pillar to deal with financial stability. The policy frame of macroprudential policy, its toolbox and interactions with other policies is not completely established yet, though. In this context, Spain’s ten-year experience with its dynamic provision is a key reference. The analysis shows that, during the current financial crisis, dynamic provisions have proved useful to mitigate —to a limited extent— the build-up of risks and, above all, to provide substantial loss absorbency capacity to the financial institutions, suggesting that it could be an important tool for other banking systems. However, it is not the macro-prudential panacea: it needs to be complemented and be consistent with the rest of policies, either within the macro-prudential or in the broader context of macroeconomic management, including monetary policy. While there is a higher awareness of the contribution of monetary policy to financial stability, its role is in practice limited. The case of the euro area is particularly telling in this respect: macro-financial imbalances developed in sectors where financial integration was low and the effects hence were confined to the domestic economies. The asymmetry between a supranational monetary policy plus macroprudential surveillance and domestic implementation of macroprudential policies raises a set of issues which are worth exploring.
    Keywords: Macroprudential policy, Dynamic provision, Central banks
    JEL: E52 E58 G28
    Date: 2011–08
  6. By: Blot, Christophe (Centre de recherche en économie de Sciences Po); Le Bayon, Sabine (Centre de recherche en économie de Sciences Po); Monperrus-Veroni, Paola (Centre de recherche en économie de Sciences Po); Antonin, Céline (Centre de recherche en économie de Sciences Po)
    Abstract: La crise des dettes souveraines au début de l'année 2010 a pour l'instant eu un impact limité sur la croissance de la zone euro. Cette dernière a en particulier été forte au deuxième trimestre avec un rebond à 1 % (après 0,3 % au premier trimestre). L'activité a d'abord été tirée par des facteurs techniques puis par le redressement de l'investissement. La performance de l'Allemagne a été impressionnante (+2,2 % de croissance au deuxième trimestre 2010). Les facteurs qui ont soutenu la croissance au premier semestre 2010 continueraient d'être actifs en fin d'année. De ce fait, le PIB de la zone euro progresserait de 1,7 % en moyenne en 2010. Mais les interrogations liées aux dettes publiques ont laissé des traces, puisque les primes de risques sur les taux publics restent élevées dans plusieurs pays jugés fragiles par les marchés financiers (Grèce, Portugal, Espagne, Italie et Irlande) et que des plans de rigueur très forts ont été adoptés dans plusieurs pays, ce qui pèsera sur leur demande intérieure et donc sur les débouchés des autres pays. En 2011, la croissance du PIB de la zone euro resterait de 1,7 %, moins forte que ce que la dynamique entrevue en 2010 aurait pu laisser supposer. En effet, la restriction budgétaire deviendra générale dans la zone, intervenant alors même que le PIB par tête est inférieur de 4,2 % à son niveau du début 2008, que le taux de chômage reste élevé (9,9 % en 2011) et que le financement des entreprises reste problématique.
    Date: 2010–10
  7. By: Burda, Michael C; Hunt, Jennifer
    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 of time. We find that this provided disincentives for employers to lay off workers in the downturn. Although 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: extensive vs intensive employment margin; Germany; Great Recession; Hartz reforms; short time work; unemployment; working time accounts
    JEL: E24 E32 J6
    Date: 2011–08
  8. By: Francesco Franco
    Abstract: From 1995 to 2010 Portugal has accumulated a negative international asset position of 110 percent of GDP. In a developed and aging economy the number is astonishing and any argument to consider it sustainable must rely on extremely favorable forecasts on growth. Portuguese policy options are reduced in number: no autonomous monetary policy, no currency to devaluate, and limited discretion in changing fiscal deficits and government debt. To start the necessary deleveraging a remaining possible policy is a budget-neutral change of the tax structure that increases private saving and net exports. An increase in the VAT and a decrease in the employer’s social security contribution tax can achieve the desired outcome in the short run if they are complemented with wage moderation. To obtain a substantial improvement in competitiveness and a large decrease in consumption, the changes in the tax rates have to be large. While a precise quantitative assessment is difficult, the initial increase in the effective VAT rate needed to allow the social security tax to decrease by 16 percentage points (pp) is approximately 10 pp. Such a large increase in the effective VAT rate could be obtained by raising most of the reduced VAT rates to the new general VAT rate of 23 percent. The empirical analysis shows that over time the suggested tax swap could generate surpluses and improve the trade balance. A temporary version of the suggested tax-swap has the attractiveness to achieve a sharper increase in the private saving rate maintaining the short run gains in competitiveness. Finally, the temporary version of the fiscal devaluation could be the basis for an automatic stabilizer to external imbalances within a monetary union. JEL codes:
    Date: 2011

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