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on European Economics |
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Issue of 2011‒11‒07
thirteen papers chosen by Giuseppe Marotta University of Modena and Reggio Emilia |
| By: | João Rebelo Barbosa (Faculdade de Economia, Universidade do Porto); Rui Henrique Alves (CEF.UP, Faculdade de Economia, Universidade do Porto) |
| Abstract: | As the euro is on its second decade, the European sovereign debt crisis and the ever more evident disparities in competitiveness among member states are prompting many to question whether monetary union is bringing more benefits than costs. The optimum currency area (OCA) theory provides a framework with several criteria for such analysis. Most literature focuses either or on OCA individual criteria or on an aggregate analysis of these criteria, using meta-properties. Differently, we start by a descriptive analysis of the first twelve euro countries under six criteria between 1999 and 2009. We detect signs of labour geographic mobility. However, nominal wages growth largely outpaced productivity growth in some periphery countries, resulting in losses of competitiveness. Financial markets seem to be deeply integrated. Total intra-EMU trade increased, though core countries seem to have benefited more, as their relative competitiveness improved. We detect no increased homogeneity of exports structures of EMU countries. Inflation rates alternated between periods of convergence and of divergence, though prices levels consistently converged between EMU countries. Finally, budgetary indiscipline was frequent preventing several countries from having fiscal room to face asymmetrical shocks.We conclude by estimating the impact of five OCA criteria on countries’ relative competitiveness, using real effective exchange rates as a proxy. Differences in the growth of unit labour costs, the dissimilarity of trade and the differences in output growth were found to be significant. With a higher confidence level, bilateral trade is significant and points towards the specialization paradigm. Thus, we identify some causes of the divergent competitiveness between some EMU countries that contributed to weaker economic growth in parts of the euro area. |
| Keywords: | Optimum currency area, Euro Area; Economic and Monetary Union (EMU), Competitiveness |
| JEL: | E42 E63 F15 F33 F41 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:436&r=eec |
| By: | Gregor Semieniuk; Till van Treeck; Achim Truger |
| Abstract: | This paper evaluates whether the 2011 national stability programs (SPs) of the euro area countries are instrumental in achieving economic stability in the European Monetary Union (EMU). In particular, we analyze how the SPs address the double challenge of public deficits and external imbalances. Our analysis rests, first, on the accounting identities of the public, private, and foreign financial balances; and second, on the consideration of all SPs at once rather than separately. We find that conclusions are optimistic regarding GDP growth and fiscal consolidation, while current account rebalancing is neglected. The current SPs reach these conclusions by assuming strong global export markets, entrenched current account imbalances within the EMU as well as the deterioration of private financial balances in the current account deficit countries. By means of our simulations we conclude, on the one hand, that the failure of favorable global macroeconomic developments to materialize may lead to the opposite of the desired stability by exacerbating imbalances in the euro area. On the other hand, given symmetric efforts at rebalancing, the simulation suggests that for surplus countries that reduce their current account, a more expansionary fiscal policy will likely be required to maintain growth rates. |
| Keywords: | Euro Area; Stability Programs; Current Account Imbalances; Fiscal Policy; Stability and Growth Pact |
| JEL: | E10 E17 E62 F42 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_694&r=eec |
| By: | Stavarek, Daniel; Repkova, Iveta; Gajdosova, Katarina |
| Abstract: | Financial integration is the process that has been occurring in the European Union for many years and that intensified after adoption of the common currency in 1999. This paper discusses the theoretical framework of financial integration, particularly the definition, typology, benefits and drawbacks. More opportunities for risk sharing and diversification, better allocation of capital among investment opportunities, and potential for higher economic growth were identified as the crucial benefits of financial integration. By contrast, we consider increased vulnerability to external macroeconomic shocks and financial crises transmitted to higher output and consumption volatility as the most serious drawbacks of financial integration. The paper also summarizes the progress in financial integration that has been achieved in individual segments of the European Union financial sector. It is evident that the most integrated are the euro area money market and the government bonds markets. The remaining financial markets are still rather fragmented. |
| Keywords: | financial integration; financial markets; European Union; euro area |
| JEL: | G15 F33 F36 G21 |
| Date: | 2011–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34393&r=eec |
| By: | Adrian Wai-Kong Cheung; Jen-Je Su; Astrophel Kim Choo |
| Keywords: | market efficiency, serial uncorrelatedness, Euro exchange rate markets |
| JEL: | F31 C12 C22 G15 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:gri:fpaper:finance:201109&r=eec |
| By: | Martín Saldías |
| Abstract: | In a panel data framework applied to Portfolio Distance-to-Default series of corporate sectors in the euro area, this paper evaluates systemic and idiosyncratic determinants of default risk and examines how distress is transferred in and between the financial and corporate sectors since the early days of the euro. This approach takes into account observed and unobserved common factors and the presence of different degrees of cross-section dependence in the form of economic proximity. This paper contributes to the financial stability literature with a contingent claims approach to a sector-based analysis with a less dominant macro focus while being compatible with existing stress-testing methodologies in the literature. A disaggregated analysis of the different corporate and financial sectors allows for a more detailed assessment of specificities in terms of risk pro le, i.e. heterogeneity of business models, risk exposures and interaction with the rest of the macro environment. |
| JEL: | G13 C31 C33 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201130&r=eec |
| By: | Sell, Friedrich L.; Sauer, Beate |
| Abstract: | In this paper, we first present the state and the development of the European capital and current account imbalances. We demonstrate how large the heterogeneity among European countries is and that clustering here different types of countries is possible, but that it leads to different groupings than what has been labeled the PIGS or better GIPS countries on the one side and the GLNF countries on the other side. The same applies when it comes to cluster countries according to the debt ratio criterion. Hereafter, we put forward our own description of the mentioned ECB implicit financing scheme(s), among other things extending and complementing the recent base money market (supply and demand) analysis given by H.-W. Sinn and T. Wollmershäuser (2011). The core of the paper consists in a modified model of the New Austrian School of Economics - in the tradition of F. A. v. Hayek (1929, 1931) and in the vein of R. M. Garrison (2002) - which enables us to discuss the current distortions introduced by the Target2 credit channel into the capital markets of selected EMU countries and to detect its most important economic consequences. This part of the paper ends with a static welfare evaluation. Finally, we come up with some conclusions and suggestions for economic policy. -- |
| Keywords: | Target2 balances,current account deficits,ECB monetary policy,New Austrian Economics |
| JEL: | D61 E52 E58 F32 F34 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ubwwpe:20112&r=eec |
| By: | Ignazio Angeloni; André Sapir |
| Abstract: | After a thirty-year pause, discussions on the future of the international monetary system (IMS) have restarted. This is partly due to the fact that the IMS has facilitated, or at least not prevented, the economic and financial imbalances that led to the recent crisis. This paper argues that the international position of the US dollar is likely to erode in the coming years, though the speed of the process is uncertain. This will create a demand for other currencies to be used internationally as means of payment and store of value. The most likely candidates for filling the partial vacuum created by the dollarâ??s decline are the euro and the Chinese renminbi. The probability that the renminbi will eventually become one of the worldâ??s key currencies is very high, but the speed of the process is uncertain. As far as the euro is concerned, much will depend on if and how the sovereign debt crisis is resolved. Our view is that the crisis will be dealt with and that it will result in radical steps towards fiscal and financial integration. If such steps are taken, the euro will secure both internal stabilisation and a growing international role. |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:bre:wpaper:632&r=eec |
| By: | Stergios Skaperdas (Department of Economics, University of California-Irvine) |
| Abstract: | In Greece and other countries of the eurozone there are a number of misconceptions about the debt crisis. I argue against seven of such misconceptions (or, myths) about the effects of default, the primary cause of the crisis, the likely effects of an exit from the eurozone, the bargaining power of the Greek government in its negotiations with the EU/ECB/IMF troika, and others. Default and exit from the eurozone appears to be the most viable alternative in the long run; such a move would seem to require considerable preparation under short time constraints and a government with broad political support. |
| Keywords: | Eurozone; Greece; debt, default |
| JEL: | E65 F50 H63 H87 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:irv:wpaper:111202&r=eec |
| By: | Christopher Pissarides |
| Abstract: | Employment in the European Union is still falling short of the objectives set by the continent's leaders more than 10 years ago. Nobel laureate Chris Pissarides explains why Europe remains behind the United States in job creation, particularly in business services and the health and education sectors. |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepcnp:354&r=eec |
| By: | Hélène Latzer; Florian Mayneris |
| Abstract: | This paper contributes to the understanding of the determinants of country-level comparative advantages in terms of quality. More precisely, while the literature has mainly focused so far on supply-side determinants of such comparative advantages, we investigate both theoretically and empirically the role played by income distribution (average income and level of inequalities) of a country on the quality of its exports. Doing so, we provide new insights on the existence of demand-based determinants of the quality content of a country’s exports, in line with the Linder (1961) hypothesis, claiming that firms produce and export goods suited to the specific tastes of their local consumers. We build a model with economies of scale where non-homothetic preferences and within-country income differences determine the quality composition of production and exports. Having neutralized any supply-side comparative advantage, we show that richer countries produce and export higher quality goods, while the level of inequalities has an heterogenous impact, positively affecting the quality content of exports for rich enough countries only. We then corroborate our theoretical predictions on bilateral trade data for the enlarged European Union (EU), an integrated market displaying significant heterogeneity in terms of both average income and within-country inequalities of its members. Furthermore, we are able to show that in terms of magnitude of the effects, inequalities are a second-order demand-based determinant of the quality of exports as compared to average income. |
| Keywords: | Product quality, Income distribution, Trade, Economies of scale, European Union. |
| JEL: | F12 L15 O15 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2011-21&r=eec |
| By: | Hans Pitlik (WIFO); Margit Schratzenstaller (WIFO) |
| Abstract: | The relationship between government size and growth has received an enormous attention in the economics literature, and the recent financial crisis has forced this topic back on the agenda. A highly controversial debate in this respect is whether large governments are harmful for growth. Endogenous growth theory provides us with the view that tax structure and the composition of public expenditure may be important for growth, perhaps even more than total tax or expenditure levels. Government size and structure are, however, also reflected in the level and structure of market regulations, which may substitute or complement fiscal intervention. The study provides an overview of the growth-friendliness of fiscal and regulatory structures in a cross-section of EU 15 and EU 12 countries and highly developed OECD countries. Peripheral European (transition) countries are also included, whenever respective data are available. Our analysis is based on several measures capturing the expenditure and the tax side of the budgets, as well as regulatory policies. It is shown that the size and the structure of fiscal and regulatory regimes and, hence, the expected long-run growth impact of government activities, still differ markedly across countries. |
| Date: | 2011–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2011:i:404&r=eec |
| By: | Arrondel, L.; Savignac, F.; Tracol, K. |
| Abstract: | This paper analyzes the wealth effect on consumption in France by relying on two original household surveys. First, it provides the first estimate of the marginal propensity to consume out of wealth based on micro data for France (Enquête Patrimoine 2009, Insee): a low but significant wealth effect is obtained and financial wealth seems to be significant only for stockholders. Second, it studies how French households have adapted their consumption plans during the 2008-2009 crisis by relying on household self-assessed changes in future consumption (survey PATER). Besides the direct wealth effect, our results confirm the role played by changes in expectations on consumption plans, and thus, by the confidence channel as an additional transmission mechanism of the crisis. |
| Keywords: | wealth effect, housing and financial wealth, consumption, household survey, expectations. |
| JEL: | D12 E21 E44 C25 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:344&r=eec |
| By: | Blundell, Richard W (University College London); Bozio, Antoine (Institute for Fiscal Studies, London); Laroque, Guy (CREST-INSEE) |
| Abstract: | This paper documents the key stylised facts underlying the evolution of labour supply at the extensive and intensive margins in the last forty years in three countries: United-States, United-Kingdom and France. We develop a statistical decomposition that provides bounds on changes at the extensive and intensive margins. This decomposition is also shown to be coherent with the analysis of labour supply elasticities at these margins. We use detailed representative micro-datasets to examine the relative importance of the extensive and intensive margins in explaining the overall changes in total hours worked. |
| Keywords: | labor supply, employment, hours of work |
| JEL: | J21 J22 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6051&r=eec |