|
on European Economics |
| By: | Matthieu Bussiere; Alexander Chudik; Arnaud Mehl |
| 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: | Economic and Monetary Union ; Vector autoregression |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:102&r=eec |
| By: | Hein, Eckhard |
| Abstract: | In this paper the euro crisis is viewed as the most recent episode of the crisis of finance-dominated capitalism. Therefore, two major features of finance-dominated capitalism, the increasing inequality of income distribution and the rising imbalances of current accounts, are analysed for a set of major Euro area countries. Against this background the euro crisis is examined, and it is shown that the economic policy reactions of European governments and institutions, narrowly interpreting the crisis as a sovereign debt crisis caused by irresponsible behaviour of some member country governments, are misguided and will lead to deflationary stagnation and an increasing risk of disintegration of the Euro area. For this reason, finally an alternative macroeconomic policy approach tackling the basic contradictions of finance-dominated capitalism and the deficiencies of European economic policy institutions and economic policy strategies is outlined. It is argued that, on the one hand, an institution which convincingly guarantees public debt of Euro area member countries and, on the other hand, an expansionary macroeconomic policy approach, in particular in the current account surplus countries of the Euro area, need to be introduced. |
| Keywords: | Finance-dominated capitalism; distribution; financial and economic crisis; European economic policies |
| JEL: | E64 E25 E58 E65 E63 E61 |
| Date: | 2012–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35903&r=eec |
| By: | Jean Pisani-Ferry |
| Abstract: | The search for solutions to the euro crisis is based on a partial diagnosis that overemphasises the lack of enforcement of existing fiscal rules. Europeâ??s leaders should rather address the euro areaâ??s inherent weaknesses revealed by the crisis.At the core of euro-area vulnerability is an impossible trinity of strict no-monetary financing, bank-sovereign interdependence and no co-responsibility for public debt. This Policy Contribution assesses the corresponding three options for reform: a broader European Central Bank (ECB) mandate, the building of a banking federation, and fiscal union with common bonds. None will be easy.The least feasible option is a change to the ECBâ??s mandate; changing market perceptions would require the ECB to credibly commit overwhelming forces, and the ECB is simply not in a position to make such a commitment.The building of a banking federation, meanwhile, involves reforms that are bound to be difficult. Incremental progress is likely, but a breakthrough less so.This leaves fiscal union. It faces major obstacles, but a decision to move in this direction would signal to the markets and ECB a commitment to stronger Economic and Monetary Union. One possibility would be to introduce a limited, experimental scheme through which trust could be rebuilt. This Policy Contribution draws on presentations made at the XXIV Moneda y Crédito Symposium, Madrid, 3 November 2011, at the Asia-Europe Economic Forum conference in Seoul, 9 December, and at De Nederlandsche Bank in Amsterdam on 17 December. I am very grateful to Silvia Merler for excellent research assistance. I thank participants in these seminars and Bruegel colleagues for comments and criticisms. |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:674&r=eec |
| By: | Eickmeier, Sandra; Ng, Tim |
| Abstract: | We study how credit supply shocks in the US, the euro area and Japan are transmitted to other economies. We use the recently-developed GVAR approach to model financial variables jointly with macroeconomic variables in 33 countries for the period 1983-2009. We experiment with inter-country links that distinguish bilateral trade, portfolio investment, foreign direct investment and banking exposures, as well as asset-side vs. liability-side financial channels. Capturing both bilateral trade and inward foreign direct investment or outward banking claim exposures in a GVAR fits the data better than using trade weights only. We use sign restrictions on the short-run impulse responses to financial shocks that have the effect of reducing credit supply to the private sector. We find that negative US credit supply shocks have stronger negative effects on domestic and foreign GDP, compared to credit supply shocks from the euro area and Japan. Domestic and foreign credit and equity markets respond clearly to the credit supply shocks. Exchange rate responses are consistent with a flight to quality to the US dollar. The UK, another international financial centre, is also responsive to the shocks. These results are robust to the exclusion of the 2007-09 crisis episode from the sample. -- |
| Keywords: | international business cycles,credit supply shocks,trade and financial integration,Global VAR,sign restrictions |
| JEL: | F41 F44 F36 F15 C3 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:201127&r=eec |
| By: | Muñoz, Mª Pilar; Márquez, María Dolores; Sánchez, Josep A. |
| Abstract: | The main objective of this paper is to detect the existence of financial contagion between the North American and European markets during the recent crises. To accomplish this, the relationships between the US and the Euro zone stock markets are considered, taking the daily equity prices of the Standard and Poor’s 500 as representative of the United States market and for the European market, the five most representative indexes. Time Series Factor Analysis (TSFA) procedure has allowed concentrating the information of the European indexes into a unique factor, which captures the underlying structure of the European return series. The relationship between the European factor and the US stock return series has been analyzed by means of the dynamic conditional correlation model (DCC). Once the DCC is estimated, the contagion between both markets is analyzed. Finally, in order to explain the sudden changes in dynamic US-EU correlation, a Markov switching model is fitted, using as input variables the macroeconomic ones associated with the monetary policies of the US as well as those related to uncertainty in the markets. The results show that there was contagion between the United States and European markets in the Subprime and Global Financial crises. The two-regime Markov switching model has helped to explain the variability of the pair-wise correlation. The first regime contains mostly the financially stable periods, and the dynamic correlations in this regime are explained by macroeconomic variables and other related with monetary policies in Europe and US. The second regime is explained mainly by the Federal Funds rate and the evolution of the Euro/US Exchange rate. |
| Keywords: | Contagion; Dynamic Conditional Correlation; Financial Markets; Markov Switching Model; Time Series Factor Analysis; Macroeconomic variables |
| JEL: | G15 E44 G01 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35993&r=eec |
| By: | Peter Huber (WIFO); Gabriele Tondl |
| Abstract: | We offer an empirical, econometric analysis of the impact of migration on the EU 27's NUTS-2 regions in the period 2000-2007. While our results indicate that migration had no statistical impact on regional unemployment in the EU it had a significant impact on both per-capita GDP and productivity. The coefficients suggest that a 1 percent increase in immigration to immigration regions increased per-capita GDP by about 0.02 percent and productivity by about 0.03 percent. For emigration regions a 1 percent increase in the emigration rate leads to a reduction of 0.03 percent in per-capita GDP and 0.02 percent in productivity. Since immigration regions are also often regions with above-average GDP and productivity while emigration regions in Europe practically all have below-average GDP, migration seems to induce divergence rather than convergence. |
| Keywords: | Migration, Convergence, Unemployment |
| Date: | 2012–01–18 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2012:i:419&r=eec |
| By: | Marchal, Sarah (University of Antwerp); Marx, Ive (University of Antwerp); Van Mechelen, Natascha (University of Antwerp) |
| Abstract: | The present economic crisis comes against the background of decades of policy changes that have generally weakened the capacity of social safety nets to offer citizens with adequate resources for financial survival when labour markets fail to do so. Building on data for 24 European Union countries, this paper asks whether EU governments implemented additional measures during the first phase of the crisis to improve safety nets. Our data, drawn from a large network of national experts, show that many countries introduced supportive measures, in particular in the form of additional increases in gross minimum income benefits. More generous child benefits have also helped to increase net disposable incomes of families on minimum income. Behavioral requirements imposed on minimum income recipients have been neither tightened nor relaxed. In a limited number of countries, activation efforts aimed at minimum income recipients have been intensified. Despite some improvements, social safety nets in Europe remain far below widely accepted poverty thresholds, including the EU's own official measure. |
| Keywords: | crisis measures, poverty, minimum incomes, social policy, Europe |
| JEL: | I38 H75 H12 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6264&r=eec |
| By: | Marcos dal Bianco; Maximo Camacho; Gabriel Perez-Quiros |
| Abstract: | We propose a fundamentals-based econometric model for the weekly changes in the euro-dollar rate with the distinctive feature of mixing economic variables quoted at different frequencies. The model obtains good in-sample fit and, more importantly, encouraging out-of-sample forecasting results at horizons ranging from one-week to one month. Specifically, we obtain statistically significant improvements upon the hard-to-beat random-walk model using traditional statistical measures of forecasting error at all horizons. Moreover, our model obtains a great improvement when we use the direction of change metric, which has more economic relevance than other loss measures. With this measure, our model performs much better at all forecasting horizons than a naive model that predicts the exchange rate as an equal chance to go up or down, with statistically significant improvements. |
| Keywords: | Euro-dollar rate, Exchange rate forecasting, State-space model, Mixed frequencies |
| JEL: | F31 F37 C01 C22 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:bbv:wpaper:1201&r=eec |
| By: | Rossana Merola; Douglas Sutherland |
| Abstract: | During the economic and financial crisis, fiscal positions across the OECD countries deteriorated sharply. This raises the question of what level of primary deficit would ensure long-term sustainability and what degree of consolidation is needed. The purpose of this paper is to gauge the scale of fiscal consolidation that will be needed to ensure long-term sustainability. The analysis uses so-called fiscal gaps to provide a simple metric for how much consolidation is needed under a series of different assumptions and scenarios. The aim is to highlight the scale of the problems, how they differ across countries and the uncertainties surrounding the estimates. A first set of results suggest that lower debt targets provide greater room for manoeuvre to react to shocks in the future. A second set of results shows that growth-enhancing structural reforms | especially reforms of pension systems | can mitigate budget pressures resulting from ageing populations and hence contribute to fiscal consolidation. Furthermore, raising efficiency in the provision of health care and education can reduce budgetary pressures. Finally, achieving debt objectives under shocks to interest rates or to government spending would require additional tightening in most of the OECD countries.<P>Consolidation budgétaire : Partie 3. Projections à long terme et calcul des écarts budgétaires<BR>Durant la crise économique et financière, la position budgétaire des pays de l’OCDE s’est nettement dégradée. La question se pose dès lors de savoir quel niveau de déficit primaire assurerait la viabilité à long terme et quel degré d’assainissement est nécessaire. Ce document a pour objet d’évaluer l’ampleur de l’effort de consolidation budgétaire à consentir pour assurer la viabilité à long terme. L’analyse s’appuie sur les « écarts budgétaires », qui permettent de mesurer simplement l’ampleur de l’assainissement nécessaire suivant divers scénarios et hypothèses. L’objectif est de mettre en lumière l’échelle des problèmes, les différences qui existent d’un pays à l’autre et les incertitudes qui entourent les estimations. Une première série de résultats semble indiquer que des objectifs de dette plus bas offrent une plus grande marge de manoeuvre pour réagir aux chocs dans l’avenir. Une seconde série de résultats montre que des réformes structurelles propres à renforcer la croissance – en particulier les réformes des systèmes de retraite – peuvent atténuer les pressions budgétaires dues aux vieillissement des populations et, partant, contribuer à l’assainissement des finances publiques. Par ailleurs, rehausser l’efficience dans la prestation de services de santé et d’éducation peut atténuer les pressions budgétaires. Enfin, des chocs affectant les taux d’intérêt ou les dépenses publiques nécessiteraient un resserrement budgétaire plus sévère dans la plupart des pays de l’OCDE. |
| Keywords: | ageing populations, long-term projections, fiscal consolidation, long-term public finance sustainability, public social expenditure, vieillissement de la population, projections à long terme, consolidation budgétaire, viabilité des finances publiques à long terme, dépenses sociales publiques |
| JEL: | E62 H50 H68 J11 |
| Date: | 2012–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:934-en&r=eec |
| By: | Michael Brzoska; Raphael Bossong; Eric van Um |
| Abstract: | This paper presents key aspects and policy implications of a multi-annual research project on economic analyses of European security issues (EUSECON), with an emphasis on intentional threats of organised crime, piracy and terrorism. The first part argues that rational models can provide significant insights on the emergence and current patterns of terrorism and piracy. These findings could lead to new priorities or to more nuanced interventions in response to these threats. The second part focuses on the direct and indirect costs of both terrorism and organised crime. EUSECON provided new data about the scope of related illegal economic activities and explored the sensitivity of markets, societies and polities in the aftermath of terrorist attacks. It emerges that political actors are at greatest risk of over-responding, whereas mature economies display a high degree of resilience. Finally, the third part discusses economic approaches to policy evaluation. EUSECON clarified the benefits of transnational security cooperation, but also highlights the difficulties of rigorous costeffectiveness and cost-benefit calculations. Therefore, a more evidence-based approach to security policymaking, which is increasingly touted by EU decision-makers, remains elusive. In conclusion, European security policy needs further scrutiny from an economic perspective, in order to answer the increasing complexity of security challenges under the increasing financial or political constraints. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diweos:diweos58&r=eec |