nep-eec New Economics Papers
on European Economics
Issue of 2011‒12‒05
nine papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. The improbable renaissance of the Phillips curve: The crisis and euro area inflation dynamics By Lourdes Acedo Montoya; Björn Döhring
  2. Household savings and mortgage decisions: the role of the "down-payment channel" in the euro area By Narcissa Balta; Eric Ruscher
  3. La Suisse et la zone euro : votre monnaie, notre problème ? La possibilité d'un ancrage de jure By Cyriac Guillaumin; Guillaume Vallet
  4. Do we follow the money? The drivers of migration across regions in the EU By Andrés Rodríguez-Pose; Tobias Ketterer
  6. Business Cycle, Currency and Trade, Revisited By Michael J. Artis; Toshihiro Okubo
  7. The wage dynamics in Spain: evidence from individual data By Victor Montuenga; Inmaculada Garcia
  8. RHOMOLO: A Dynamic General Equilibrium Modelling Approach to the Evaluation of the EU's Regional Policies By Ben Gardiner; Andries Brandsma; Olga Ivanova; d'Artis Kancs
  9. Trade and Employment: The Case of Denmark and Spain By Elena Arnal

  1. By: Lourdes Acedo Montoya; Björn Döhring
    Abstract: Why has euro area (core) inflation not fallen further during and after the "great recession"? How different are inflation dynamics across Member States? This paper analyses core inflation dynamics in the euro area and its Member States using a hybrid specification of the Phillips curve. Inflation expectations are directly observed from an expert survey, so no assumptions need to be imposed about expectations formation. The choice of the hybrid Phillips curve framework is vindicated, as the data clearly indicate the relevance of both backward-looking inflation and inflation expectations. The impact of the output gap on core inflation is significant but not large. The combination of stable inflation expectations, sluggish price adjustment and an only moderate impact of the output gap on inflation helps understanding the stability of core inflation despite large and persistent output gaps in the aftermath of the crisis. Although the heterogeneity of Phillips curve relationships across Member States is not large, the exceptionally large output gap caused by the crisis is one driver (among others) of the recently observed inflation differentials in the euro area.
    JEL: E31 E32
    Date: 2011–10
  2. By: Narcissa Balta; Eric Ruscher
    Abstract: This paper analyses the interactions between household wealth, mortgage decisions and savings in a single empirical framework and identifies an important role for a "down-payment channel" in the euro area. Contrary to the traditional housing wealth channel, the "down-payment channel" posits a positive relation between household savings and house prices: a rise in house prices forces credit-constrained households who wish to acquire a house to accumulate more savings in order to cover a higher down-payment (i.e. the share of the housing acquisition value that is not covered by a mortgage). The overall effect of a rise in house prices on private consumption can be seen as the result of two offsetting forces: a rise in house prices tends to push up consumption via the traditional housing wealth channel but it also tends to depress the consumption of credit-constrained households who wish to acquire a house via the down-payment channel. Estimates based on a structural VEC model for the euro area suggest that the down-payment effect tends to dominate in the medium term, translating into an overall negative impact of higher house prices on consumption in the euro area.
    JEL: E21 E44 D12
    Date: 2011–09
  3. By: Cyriac Guillaumin (CREG - Centre de recherche en économie de Grenoble - Université Pierre Mendès-France - Grenoble II : EA4625); Guillaume Vallet (UFR ESE - UPMF - Faculté d'Économie - Grenoble 2 - Université Pierre Mendès-France - Grenoble II)
    Abstract: Avec les récentes tensions au sein de la zone euro, le franc suisse s'est fortement apprécié face à l'euro, jouant un rôle de monnaie refuge internationale. Même si la Suisse n'est pas membre de l'Union européenne (UE), son degré élevé d'intégration de facto à celle-ci fait qu'une telle appréciation se transmet à l'économie réelle. Ainsi, si l'indépendance et l'autonomie monétaires officielles de la Suisse en Europe ont des avantages, elles induisent aussi des coûts non négligeables, notamment liés au statut particulier du franc suisse. Nous étudions dans cet article l'opportunité et la viabilité pour la Suisse d'une intégration monétaire "médiane" à l'UE qui permettrait de desserrer cette contrainte extérieure du taux de change, à savoir un ancrage de jure du franc suisse à l'euro. En nous intéressant plus précisément aux origines des fluctuations du taux de change du franc suisse à l'aide d'un modèle VAR structurel, nous mettons en évidence que l'ancrage serait viable pour la Suisse mais au prix d'une perte d'autonomie monétaire significative.
    Keywords: zone euro ; modèle ; monnaie ; taux de change ; politique monétaire ; modèle VAR ; Suisse
    Date: 2011
  4. By: Andrés Rodríguez-Pose; Tobias Ketterer
    Abstract: Most immigration theories tend to highlight that migration follows wealth and economic dynamism, but is this also the case across regions in Europe? The aim of the paper is to investigate whether migrants in Europe indeed follow the money and to contrast this with a variety of potential alternative explanations, including the presence of migrants from a similar origin. The analysis is based on panel data estimations including 133 European regions over a time period of 17 years. Different lag structures have been employed in order to distinguish between short- and long-run effects. The results cast some doubt about the prominence of pecuniary factors as a determinant of cross regional migration in Europe, with little evidence to support the idea that migration follows economic dynamism. Network effects, human capital related-, and ‘territorially embedded' innovation enhancing regional characteristics, by contrast, seem to play a much stronger role than hitherto considered. The study also reveals important differences among EU countries in the factors which determine regional migration.
    Date: 2011–09
  5. By: Ionescu Romeo
    Abstract: The paper deals with the necessity to implement sub-regional specific solutions in order to achieve the economic recovery. EU2 countries (Bulgaria and Romania) have the same political and economic past, present and future and the same challenges to face. This is why both countries are analysed together in order to present the disparities between the real economic environment and the economic recovery measures implemented. The punt is high, because these latest Member States would be transformed into a good practice example for other member and candidate countries. Unfortunately, the reality is different. The analysis is focused on the anti-crisis programs from EU2 and their experience with the international financial institutes. The analysis is supported by Eurostat and official databases in order to describe the symmetrical shock to asymmetrical implications on the economy. The conclusions of the analysis can be resumed to the following: the global crisis affected powerfully the latest two EU member states; the financial regulation represents a critical area to create a sustainable and efficient financial system; the real target for Romania and Bulgaria is to save themselves from the national bankruptcy; the popular pressure on the policymakers increased and the economic recovery implemented plans are not able to support the economic recovery in both countries. The analysis and the conclusions of the paper are followed by pertinent statistical tables and diagrams.
    Date: 2011–09
  6. By: Michael J. Artis (University of Manchester and CEPR); Toshihiro Okubo (Keio University)
    Abstract: This paper reports estimates based on long-run data sets for GDP and trade, with three subsamples chosen to reflect the first globalization period, the "bloc economy" period and the second globalization period. The business cycle is identified as the series of deviates from a Hodrick-Prescott filtered trend, and turning points are identified. Cross-correlations of the cyclical deviates are calculated for all the pairs of the 21 countries examined. It is apparent from casual inspection that the business cycle characteristics and the pattern of crosscorrelations in the bloc economy period are different from those found for the two globalization periods whilst there is less difference between the two globalization periods. Estimation is undertaken of equations to explain the pattern of cross correlations in terms of trade and currency union membership. A dummy for the countries that belong to the Eurozone is found to be significant for the period of the first globalization, that is, well before any manifestation of a common Euro-currency is available. By contrast, Asian business cycle co-movement cannot be found.
    Date: 2011–10
  7. By: Victor Montuenga; Inmaculada Garcia
    Abstract: In this paper we test the hypothesis of a wage curve against a Phillips curve for Spain within a framework which allos for these both and more general alternatives. To this end, we use data from the European Community Household Panel, which provides micro-information for the period 1994-2001. The results indicate that a partial wage adjustment is at work, as in other European countries, and that the long-run elasticiy of wages to unemploument is close to the 'empirical law of economics' of -0.1
    Date: 2011–09
  8. By: Ben Gardiner; Andries Brandsma; Olga Ivanova; d'Artis Kancs
    Abstract: This paper describes some of the features of a new dynamic general equilibrium framework (RHOMOLO) being developed at the European Commission (JRC-IPTS, together with DG REGIO) for evaluating EU Cohesion Policy. The design of the model reflects the objectives of Cohesion Policy, and a broader understanding of impact analysis which goes beyond pure economic effects and also considers environmental and social indicators. The model has both regional and sectoral dimensions – regionally, the aim is for complete NUTS2 (NUTS1 for Germany) coverage of the EU27, while the potential sector coverage is 23 – all of which leads to very large modelling dimensions and presents challenges in terms of data availability. The model is constructed using the concept of Dynamic Spatial Computable General Equilibrium (DSCGE), which ensures Walrasian equilibrium in a sequence of model solutions over time, and also incorporates elements of New Economic Geography (NEG) in the way it captures the forces of economic agglomeration and dispersion.
    Date: 2011–09
  9. By: Elena Arnal
    Abstract: Spain and Denmark are two European countries differing considerably in their development and productive structures as well as in their internationalisation process. This affects many dimensions of each economy, most notably their trade volumes, market sizes and product specialization. Spain and Denmark also differ significantly in labour market outcomes as well as in the design of labour market policies and institutions and the role they played in facilitating labour reallocation. For these reasons, it is instructive to compare them, in particular as they have demonstrated substantial labour market adjustments due to changing international economic conditions. While the results of direct comparisons cannot always be translated into policy action due to country-specific institutional settings and varying economic circumstances, comparative analysis has the potential to yield useful insights into best practices and transferrable policy lessons. With this in mind, the purpose of this paper is to consider the evolution of trade and labour market outcomes in Denmark and Spain since the early 1990s, in order to provide policy-relevant insights on the relationship between production, trade and labour markets in these countries. Special focus is given to the increased weight of some emerging economies in world trade patterns and how they have affected the trade patterns of these two European countries and their employment behaviours.
    Keywords: trade, employment, wages, inclusive growth
    JEL: F16
    Date: 2011–11

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