nep-eec New Economics Papers
on European Economics
Issue of 2012‒04‒23
seventeen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Fiscal policy and the great recession in the Euro area By Günter Coenen; Roland Straub; Mathias Trabandt
  2. The Euro – A “MUST” for Small European States? By Renate Ohr; Mehmet Özalbayrak
  3. External Information and Monetary Policy Transmission in New EU Member States: Results from FAVAR Models By Zlatina Balabanova; Ralf Brüggemann
  4. Current accounts in Europe: implications of the external imbalances for the future of the common monetary policy By Agnieszka Gehringer
  5. The impact of macro news and central bank communication on emerging European forex markets By Balázs Égert; Evžen Kočenda
  6. Poland: Economy decoupled from the eurozone crisis By Leon Podkaminer
  7. Oil Shocks and the Euro as an Optimum Currency Area By Luís Francisco Aguiar; Teresa Maria Rodrigues; Maria Joana Soares
  8. Crises and Policy Responses within the Political Trilemma: Europe, 1929-1936 and 2008-2011 By Nikolaus Wolf
  9. The impact of exchange rate volatility on trade integration among North and South Mediterranean countries By Sabri, Nidal Rachid; Peeters, Marga; Abulaben, Diama K.
  10. Unemployment Dynamics in Central Europe: A Labor Flow Approach By Vladislav Flek; Martina Mysíková
  11. Narrowing Vertical Fiscal Imbalances in Four European Countries By Izabela Karpowicz
  12. Evaluation of Non-price Competitiveness of Exports from Central, Eastern and Southeastern European Countries in the EU Market By Konstantins Benkovskis; Julia Woerz
  13. International banking standards in emerging markets: testing the adaptation thesis in the European Union By Zdenìk Kudrna; Juraj Medzihorsky
  14. "Fiscal Devaluation" and Fiscal Consolidation: The VAT in Troubled Times By Ruud A. de Mooij; Michael Keen
  15. The Export Performance of Countries within Global Value Chains (GVCs) By Andrea Beltramello; Koen De Backer; Laurent Moussiegt
  16. The labour markets in Finland, Germany, Latvia, Norway, and Sweden 2006-2010 : Developments and challenges for the future By Klinger, Sabine; Spitznagel, Eugen; Alatalo, Johanna; Berglind, Karin; Gustavsson, Håkan; Kure, Hans; Nio, Ilkka; Salmins, Janis; Skuja, Vita; Sorbo, Johannes
  17. Implicit debt in public sector plans: An international comparison. By Ponds, E.H.M.; Severinson, C.; Yermo, J.

  1. By: Günter Coenen (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Roland Straub (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Mathias Trabandt (Board of Governors of the Federal Reserve System, Division of International Finance, 20th Street and Constitution Avenue N.W, Washington, DC 20551, USA.)
    Abstract: How much did fiscal policy contribute to euro area real GDP growth during the Great Recession? We estimate that discretionary fiscal measures have increased annualized quarterly real GDP growth during the crisis by up to 1.6 percentage points. We obtain our result by using an extended version of the European Central Bank’s New Area- Wide Model with a rich specification of the fiscal sector. A detailed modeling of the fiscal sector and the incorporation of as many as eight fiscal time series appear pivotal for our result. JEL Classification: C11, E32, E62.
    Keywords: Fiscal policy, DSGE modelling, Bayesian inference, euro area.
    Date: 2012–03
  2. By: Renate Ohr; Mehmet Özalbayrak
    Abstract: This paper deals with the question of what impact membership of the European Monetary Union (EMU) has had on small European states. We will also analyze whether or to what extent a large number of small member states affect the EMU itself when they vastly outnumber the large countries. We conclude that the small countries in the European Union are far from creating a homogeneous group. They differ in the length of EU membership, income per capita, membership and non-membership of the EMU, production structure, foreign trade policy, and stability readiness. However, they do share some characteristics, particularly their relatively high openness, through which domestic macroeconomic variables are easily influenced by external shocks. The welfare gains of a small country joining the eurozone depend on the extent to which the benefits (if existent) of higher financial credibility outweigh the loss of autonomous monetary policy. Finally, with regard to their significance in the EMU, in no case should cutbacks be made for small countries concerning the stability requirements.
    Keywords: Euro, European Monetary Union, economic integration, small open economy
    JEL: E42 E5 F15 F33 F55 O52
    Date: 2012–01–31
  3. By: Zlatina Balabanova (Department of Economics, University of Konstanz, Germany); Ralf Brüggemann (Department of Economics, University of Konstanz, Germany)
    Abstract: We investigate the e_ects of monetary policy shocks in the new European Union member states Czech Republic, Hungary, Poland and Slovakia. In contrast to existing studies, we explicitly account for external developments in European Monetary Union (EMU) countries and in other acceding countries. We do so by using factor-augmented vector-autoregressive models that employ the information from non-stationary factor time series. One set of VAR models includes factors obtained from a large cross-section of time series from EMU countries, while another set includes factors obtained from other acceding countries. We use cohesion analysis to facilitate the interpretation of the different factor time series. We find that including the EMU factors does not greatly affect the impulse response patterns in acceding countries. In contrast, including factors from other accession countries leads to substantial changes in impulse responses and to economically more plausible results. Overall, our analysis highlights that taking into account external economic developments properly is crucial for the analysis of monetary policy in the new EU member states.
    Keywords: Factor-augmented VARs, impulse-response analysis, monetary policy shocks, central and eastern European countries, European monetary union
    JEL: C32 C50 E52 C38
    Date: 2012–03–27
  4. By: Agnieszka Gehringer
    Abstract: The paper discusses the seriousness of current account imbalances in the last few decades in Europe, with a particular focus on the European Monetary Union. A closer look at the development of current accounts in European economies suggests the existence of some serious structural problems that might jeopardize economic performance of single countries, but even more importantly, of the entire monetary union. Although current account positions have been subject of numerous research projects till now, scarce interest has been offered regarding specifically the situation in the member states of the euro area and in the euro candidate countries. This lack of interest could be justified among others with the myopic conviction expressed in the literature that current account positions become irrelevant in a monetary union. Instead, there are conceptual reasons to be worried about external imbalances in a currency area, and particularly, in the current as well as potentially enlarged EMU.
    Keywords: current account imbalances, monetary union, central and eastern European countries, southern European countries
    JEL: F F F
    Date: 2012–03–05
  5. By: Balázs Égert; Evžen Kočenda
    Abstract: We analyze the impact of macroeconomic news and central bank communication on the exchange rates of three Central and Eastern European (CEE) currencies against the euro. In doing so, we first estimate standard and extended versions of the monetary model to capture deviations from the long-term monetary equilibrium. In the second stage, we employ a high-frequency GARCH model that includes accurately identified macroeconomic news, central bank communication and emerging market risk and allows for non-linear behavior as regards the deviation from equilibrium. Surprisingly, there is little support for non-linearity in the data. During the pre-crisis period (2004–2007) the major CEE currencies generally respond to macroeconomic news in an intuitive manner that corresponds to exchange rate-related theories. During the crisis (2008–2009), the responsiveness breaks down and the currencies react to news on the key economic indicator (real GDP growth). There is a lack of responsiveness to central bank communications during the pre-crisis period but all currencies react to central bank verbal interventions during the crisis. Our results show that the CEE currencies react to both macroeconomic news and central bank communications but this responsiveness differs during the pre-crisis and crisis periods. Detailed responses vary across the currencies and we conjecture that the exchange rate regime and the extent to which particular currencies are traded on the international forex market are potential explanations behind these differences.
    Keywords: exchange rate, macroeconomic news, central bank communication, monetary model, Central Europe, European Union
    JEL: E31 F31 O11 P17
    Date: 2012
  6. By: Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The general deterioration of conditions in the euro area (even in Germany) in the second half of 2011 has already affected the performance and prospects in most new member states. But so far Poland has kept its growth momentum. Growth in 2012 is likely to be satisfactory (though of course lower than in 2011) even if the euro area stagnates. The domestic economy is in no need for any meaningful deleveraging while fiscal and monetary policies will quite certainly not chase any overambitious goals. As in 2009 the Polish economy will benefit from its size, versatility and relative closedness. But the exchange rate volatility will continue to be a source of surprises which can be either pleasant or unpleasant.
    Date: 2012–03
  7. By: Luís Francisco Aguiar (Universidade do Minho - NIPE); Teresa Maria Rodrigues (University of Minho); Maria Joana Soares (Universidade do Minho)
    Abstract: SWe use wavelet analysis to study the impact of the Euro adoption on the oil price macroeconomy relation in the Euroland. We uncover evidence that the oil-macroeconomy relation changed in the past decades. We show that after the Euro adoption some countries became more similar with respect to how their macroeconomies react to oil shocks. However, we also conclude that the adoption of the common currency did not contribute to a higher degree of synchronization between Portugal, Ireland and Belgium and the rest of the countries in the Euroland. On the contrary, in these countries the macroeconomic reaction to an oil shock became more asymmetric after adopting the Euro.
    Keywords: Oil prices; Business cyles, the Euro, Optimum Currency Areas; Wavelet analysis
    JEL: Q43 C22 E32 F44
    Date: 2012
  8. By: Nikolaus Wolf (Humboldt-Universität zu Berlin, CEPR and CESifo)
    Abstract: The recent debate on the Eurozone failed to appreciate a particular characteristic of European crisis experiences, namely their fundamentally political character. To make my argument, I borrow from Dani Rodrik (2000) the framework of a “political trilemma” between cross-border economic integration, national institutions and democracy (in the sense of mass politics) and discuss its relation to the more commonly known “macroeconomic trilemma” as well as some limitations of the framework. The recent experience of a European debt crisis and the experience of Europe’s Great Depression can be interpreted as a “political trilemma”: both reflect the problem of designing effective policy responses to major economic shocks within the environment of deep economic integration across political boundaries and the regime choices that this involves. Within this framework I highlight some aspects of the 1930s that are informative to the policy choices in Europe today. Once we accept that some policy choices should be avoided, attention should be shifted to the remaining options and the obstacles that prevent their implementation, notably the challenge to transform democracy beyond national borders.
    Keywords: political trilemma, great depression, euro-crisis
    JEL: F42 F50 N14
    Date: 2012–04
  9. By: Sabri, Nidal Rachid; Peeters, Marga; Abulaben, Diama K.
    Abstract: The volatility of exchange rates leads to a reduction of international trade volumes, especially in emerging economies including the South Mediterranean countries. This study discusses the impact of exchange rates on bilateral South- North trade flows, which comes timely after the increased volatility between the Euro and Arab national currencies during the last few years and after the global financial crisis of 2008 that led to a sharp reduction at that time. We investigate the impact of exchange rate volatility on trade using monthly time series for the last ten years from 2000 up to 2011. By means of a Vector Auto Regression model with eXogenous variables (VARX) we estimate the reactions of bilateral exports and imports in response to exchange rate fluctuations between South and North Mediterranean economies. A sample of three South Arab countries is selected including Egypt, Jordan, and Morocco. Causality tests are conducted to examine the hypotheses. Our results show that the exports of goods from Egypt to the European Union decreases in comparison with the baseline by about 3% in case of an appreciation of 10% of the Egyptian pound vis-à-vis the euro, while the imports of Egypt from the EU increase by almost 10%. Also for Morocco, the imports from the EU react much stronger than the exports to the EU to a similar size appreciation of the Moroccan dirham. Jordan is less import-dependent, though reacts strongly in terms of exports if its dollar-pegged currency appreciates vis-à-vis the euro. Finally, we can conclude that the actual exchange rate changes are quite high.
    Keywords: international finance; trade; integration; Mediterranean; volatility; econometric modeling; Vector Autoregressions
    JEL: F4 C3 P45 F3 O16
    Date: 2012–03–27
  10. By: Vladislav Flek (University of Finance and Administration); Martina Mysíková (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: We analyze labor market flows and unemployment in the Czech Republic (CR), Slovakia and Poland over the period 2004–2007. Relative involvement of working-age population in gross labor market flows is approximately five times lower in central Europe than in the U.S. /UK. Yet, compared to neighboring countries, the CR suffers more from unemployment rigidity, as evidenced most convincingly by a relatively weakernet flowof workers from unemployment to employment. This net flow alone would cut the unemployment rate in Poland more than twice as fast as in the CR. The CR lags behind in creating jobs forthe unemployed, particularly for men, individuals with primary education, and for the 55–65 age group.
    Keywords: EU-SILC, labor market flows, longitudinal data, unemployment
    JEL: E24 J60 J63 J64
    Date: 2012–03
  11. By: Izabela Karpowicz
    Abstract: This paper describes the institutional changes that have induced a decline in the vertical fiscal imbalance (VFI) - defined as the share of sub-national own spending not financed through own revenues - in four European countries: Belgium, Italy, Norway, and Spain. The decline in VFI was achieved through progressive devolution of revenues to sub-national governments in Belgium, Italy, and Spain, while re-centralization of health sector expenditures was the cause of the decline in the VFI in Norway.
    Keywords: Cross country analysis , Current account balances , Europe , European Economic and Monetary Union , Fiscal policy , Government expenditures , Intergovernmental fiscal relations ,
    Date: 2012–03–29
  12. By: Konstantins Benkovskis; Julia Woerz
    Abstract: We propose an export price indicator adjusted for non-price factors as a measure of a country's competitiveness. Based on the approach by Broda and Weinstein (2006) who adjust price developments for changes in varieties of imported products, we relax their assumption of unchanged quality over time and apply this index to export prices of the ten CESEE EU Member States which acceded in 2004 and 2007. The index is calculated using data from Comext at the highly disaggregated eight-digit CN product level. Our analysis spans the time period from 1999 to 2010, thus including the recent global recession in 2009. The results show that all CESEE10 countries experienced loss in price competitiveness, although much smaller than is usually suggested by the traditional CPI-based or ULC-based real effective exchange rate measures. Although relative export prices (unit values) increased stronger in CESEE10 countries as compared with their competitors, the average quality of their goods increased even more, thus fully compensating for the rise in prices. These improvements in non-price competitiveness were pronounced in all CESEE10 countries.
    Keywords: non-price competitiveness, quality, relative export price
    JEL: C43 F12 F14 L15
    Date: 2012–04–13
  13. By: Zdenìk Kudrna (Austrian Academy of Sciences, Vienna); Juraj Medzihorsky (Central European University, Budapest)
    Abstract: This paper compares the bank regulatory regimes in the enlarged European Union in order to test the thesis claiming that international banking standards need to be adapted to emerging market circumstances. On the basis of World Bank surveys, we compile structural indices for the 10 post-communist EU members (emerging markets) as well as 17 advanced EU economies and compare them using Bayesian statistical procedures. Our findings show that there were systematic and significant differences, two-thirds of which can be explained by 8 of the 52 structural characteristics. The new member states regulatory regimes are more rule-based and leave less discretion for authorities, which is consistent with the thesis that the emerging market regulatory regimes — including those within the EU — needed to compensate for limited regulatory resources and higher political and economic volatility. Hence, the new generation of international banking standards should recognize these limitations.
    Keywords: banking, emerging markets, European Union, international standards, regulation
    JEL: G21 K23 P51
    Date: 2012–03
  14. By: Ruud A. de Mooij; Michael Keen
    Abstract: This paper focuses on two core tax design issues that arise in addressing current fiscal challenges. It first explores the idea, prominent in troubled Eurozone countries, of a "fiscal devaluation": shifting from social contributions to the VAT as a way to mimic a nominal devaluation. Empirical evidence is presented which suggests that in Eurozone countries this may indeed improve the trade balance in the short-run, though, as theory predicts, the effects eventually disappear. The paper then assesses the wider scope for VAT reform in meeting fiscal consolidation needs, developing and beginning to apply a methodology for finding additional VAT revenue in ways less distortionary and fairer than further raising the standard rate.
    Keywords: Europe , Fiscal consolidation , Taxation , Value added tax ,
    Date: 2012–03–22
  15. By: Andrea Beltramello; Koen De Backer; Laurent Moussiegt
    Abstract: The growing importance of global value chains (GVCs) in the international organisation of production increasingly challenges the traditional way of measuring countries’ export performance and hence international competitiveness. As a result of growing production fragmentation, a country’s export bundle nowadays incorporates imports of intermediate goods representing a (large) part of its value. In this case, simply looking at the evolution of exports may misrepresent the international competitive position of a country. This paper discusses the export performance of countries along the value chain by distinguishing upstream activities (i.e. the production of intermediate inputs) and more downstream activities (e.g. the final assembly of products). The empirical analysis first shows how imports of intermediates increasingly determine the export competitiveness of countries in final products. Second, the paper analyses the developments at the intensive and extensive margins of trade and studies how structural changes in terms of geographical and sectoral composition, largely outside the influence of national policies, have contributed to countries’ export performance.<BR>L'importance croissante des chaînes de valeur mondiales (CVM) dans l'organisation internationale de la production remet en question la façon traditionnelle de mesurer la performance à l’exportation et par conséquent la compétitivité internationale des pays. De nos jours, en raison de la fragmentation de la production, les exportations d'un pays intègrent des importations de biens intermédiaires qui représentent une partie (importante) de leur valeur. Dans ce cas, regarder exclusivement l'évolution des exportations peut biaiser la position concurrentielle internationale d'un pays. Ce document de travail examine la performance à l’exportation des pays au long des CVM, en distinguant les activités en amont (à savoir la production d'intrants) des activités en aval (par exemple l'assemblage final des produits). L'analyse empirique montre d'abord que les importations de biens intermédiaires déterminent de plus en plus la compétitivité des exportations des biens finaux des pays. Deuxièmement, le document de travail analyse les développements au niveau des marges intensive et extensive du commerce, et examine comment les changements structurels en termes de composition géographique et sectorielle des exportations, qui sont en grande partie hors de l'influence des politiques nationales, ont contribué à la performance à l’exportation des pays.
    Date: 2012–04–12
  16. By: Klinger, Sabine (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Spitznagel, Eugen (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Alatalo, Johanna; Berglind, Karin; Gustavsson, Håkan; Kure, Hans; Nio, Ilkka; Salmins, Janis; Skuja, Vita; Sorbo, Johannes
    Abstract: "Via the International Labour Market Forecasting Network, forecasters of the public employment services or comparable institutes from the Nordic countries as well as Germany and Austria exchange their analyses about the current and future development of the national economies and labour markets. This report documents some of the discussions during the past few years. Finland, Germany, Latvia, Norway, and Sweden exemplify their starting conditions and labour market reactions to the Great recession in 2008 and 2009." (Author's abstract, IAB-Doku) ((en))
    Date: 2012–04–03
  17. By: Ponds, E.H.M. (Tilburg University); Severinson, C.; Yermo, J.
    Date: 2012

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