nep-eec New Economics Papers
on European Economics
Issue of 2012‒06‒13
eight papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. The cost of a Greek Euro Exit for Spain By Eric Dor
  2. Determinants of Global and Intra-European Imbalances By Gunther Schnabl; Stephan Freitag
  3. Non-linearities in exchange rate pass-through: Evidence from smooth transition models By Ben Cheikh, Nidhaleddine
  4. Monetary Policy Reform in a World of Central Banks By Gunther Schnabl
  5. A Tale of Three Countries: Recovery after Banking Crises By Zsolt Darvas
  6. Job Market Polarization and Employment Protection in Europe By Barbara Pertold-Gebicka
  7. Spain 2011 Pension Reform By Conde-Ruiz, J. Ignacio; Gonzalez, Clara I.
  8. Urban Regions in Europe – Preconditions and Strategies for Growth and Development in the Global Economy By Gråsjö, Urban; Karlsson, Charlie

  1. By: Eric Dor (IESEG School of Management (LEM-CNRS))
    Abstract: This paper summarizes the main costs of a Greek euro exit for Spain, including its central bank. It is assumed that, after having left the euro, Greece would be compelled to default on any pre-existing sovereign debt denominated in euro. Indeed the new national currency would sharply depreciate. The debts denominated in euro's would thus become enormous once converted into the new currency. It is hard to conceive how the country could pay the service of these debts.
    Date: 2012–09
  2. By: Gunther Schnabl (Institute for Economic Policy, University of Leipzig); Stephan Freitag (Institute for Economic Policy, University of Leipzig)
    Abstract: The paper discusses global current account imbalances in the context of an asymmetric world monetary system and asymmetric current account developments. It identifies the US and Germany as center countries with rising / high current account deficits (US) and surpluses (Germany). These are matched by current account surpluses of countries stabilizing their exchange rates against the dollar (dollar periphery) and current account deficits of countries stabilizing their exchange rate against the euro or members of the euro area (euro periphery). The paper finds that changes of world current account positions are closely linked to the monetary policy decision patterns both in the centers and peripheries. Whereas in the centers current account positions are affected by monetary policies, in the peripheries exchange rate stabilization cum sterilization matters. In specific, monetary expansion in the US as well as exchange rate stabilization and sterilization policies in the dollar periphery are found to have contributed to global imbalances.
    Keywords: Global Imbalances, Intra-European Imbalances, Asymmetric Monetary Policies, Foreign Reserve Accumulation, Sterilization, Granger Causality Tests, Panel Regressions
    JEL: F31 F32
    Date: 2012–05–28
  3. By: Ben Cheikh, Nidhaleddine
    Abstract: This paper examines the presence of nonlinear mechanisms in the exchange rate pass-through (ERPT) to CPI inflation for 12 euro area (EA) countries. Using smooth transition models, we explore the existence of non-linearities with respect to three macroeconomic factors, namely inflation rate, exchange rate fluctuations and business cycle. Our results reveals that exchange rate transmission is higher when inflation rate surpass some threshold. We give a supportive evidence to the Taylor’s view that pass-through is decreasing in a lower and more stable inflation environment. Next, we check the asymmetry of pass-through with respect to both direction and magnitude of exchange rate. In one hand, results provide an asymmetrical ERPT to appreciations and depreciations, but there is no clear direction of asymmetry. In the other hand, the degree of pass-through is found to be higher for large exchange rate changes than for small ones. Finally, when we examine the non-linearities of ERPT relative to business cycle, we report that passthrough depends positively on economic activity; that is, when real GDP is growing above some threshold, the extent of ERPT becomes higher.
    Keywords: Exchange Rate Pass-Through; Inflation; Smooth transition regression models; Euro area
    JEL: E31 C22 F41 F31
    Date: 2012–04
  4. By: Gunther Schnabl (Institute for Economic Policy, University of Leipzig)
    Abstract: The paper identifies based on the monetary overinvestment theories by Wicksell (1898), Mises (1912) and Hayek (1929) monetary policy mistakes in large industrial countries issuing international currencies. It its argued that a neglect towards monetary policy reform in a world dominated by financial markets has led to the erosion of the allocation and signaling function of the interest rate, which has triggered an excessive rise of the government debt and structural distortions in the world economy. The backlash of high government debt levels on monetary policy making is argued to have led to a hysteresis of the liquidity trap. In this context, monetary reform is discussed with respect to the exit from low interest rate and high debt policies, an adaption of monetary policy rules to financial market dominated economic development, and the displacement of the prevalent world monetary system. Enhanced competition between dollar and euro as international currencies moderated by East Asia is proposed to constitute a more stable international monetary system.
    Keywords: Economic Instability, Credit Cycles, Monetary Policy, Hayek, Mises, Monetary Policy Rules, Monetary Policy Reform, Currency Competition
    JEL: E42 E58 F33 F44
    Date: 2012–05–28
  5. By: Zsolt Darvas (Institute of Economics Research Centre for Economic and Regional Studies Hungarian Academy of Sciences)
    Abstract: Iceland, Ireland and Latvia experienced similar developments before the crisis, such as sharp increases in banks' balance sheets and the expansion of the construction sector. However the impact of the crisis was different: Latvia was hit harder than any other country in the world. Ireland also suffered heavily, while Iceland came out from the crisis with the smallest fall in employment, despite the greatest shock to the financial system. There were marked differences in policy mix: currency collapse in Iceland but not in Latvia, letting banks fail in Iceland but not in Ireland, and the introduction of strict capital controls only in Iceland. The speed of fiscal consolidation was fastest in Latvia and slowest in Ireland. Economic recovery has started in all three countries and there are several encouraging signals. The programme targets in terms of fiscal adjustment, structural reforms and financial reform are on track in all three countries. Iceland seems to have the right policy mix. Internal devaluation in Ireland and Latvia through wage cuts did not work, because privatesector wages hardly changed. The productivity increase was significant in Ireland and moderate in Latvia, yet was the result of a greater fall in employment than the fall in output, with harmful social consequences. The experience with the collapse of the gigantic Icelandic banking system suggests that letting banks fail when they had a faulty business model is the right choice. There is a strong case for a European banking federation.
    Keywords: banking crisis; banking sector restructuring; economic recovery; currency devaluation; internal devaluation; capital controls; fiscal adjustment
    JEL: F31 F32 J30 O40
    Date: 2012–01
  6. By: Barbara Pertold-Gebicka (Department of Economics and Business, Aarhus University, Denmark)
    Abstract: Although much attention has been paid to the polarization of national labor markets, with employment and wage growth occurring in both low- and high- but not middle-skill occupations, there is little consistent evidence on cross-country differences in this process. I analyze job polarization in 12 European countries using an occupational skill-intensity measure, which is independent of country-specific labor supply conditions. Extensive cross-country differences in the extent of polarization correspond to variation in economic conditions and to dissimilarities in the employment protection legislation.
    Keywords: polarization, employment protection, skill requirements, occupational structure
    JEL: J21 J24 K31
    Date: 2012–06–06
  7. By: Conde-Ruiz, J. Ignacio; Gonzalez, Clara I.
    Abstract: The aim of this paper is to evaluate the impact of the Spanish pension reform enacted in 2011. We use an accounting model with heterogeneous agents and overlapping generations in order to project revenues and expenditures of the pension system for the next four decades. Specifically, we analyze the impact of changes in the replacement rate, in the period of calculation and the delay of the retirement age. We obtain results under two alternative migration scenarios: (i) a combination of the latest figures released by the INE, which forecast a reduced annual immigration net flow of some 70,000 persons; and (ii) a revised scenario featuring a more generous hypothesis concerning this net flow. We demonstrate that the results show that these three changes instigated by the reform could imply a savings of about 3 percentage points of GDP in 2051. However, we couldn't include in the evaluation the sustainability factor (that transform the Spanish system in a defined contribution scheme) that will start in 2027 due to the lack of details in the text of the Reform. Finally, we analyze the changes in average pensions by gender, skill, and nationality.
    Date: 2012–05
  8. By: Gråsjö, Urban (University West); Karlsson, Charlie (Jönköping International Business School)
    Abstract: Nowadays it is well-established fact that urban regions and large ones in particular are crucial for promoting creativity, innovation and subsequent economic growth in the economy. There-fore, it is important to focus policies in Europe on how to improve the existing conditions of urban regions so they can function as engines of economic growth. The purpose of this paper is to discuss policies needed to meet the current urban challenges and to make urban regions in Europe more competitive. A problem with current spatial policies at the EU-level as well as at the national level in most countries is that the policies mainly ignore functional urban re-gions and instead focus on administrative regions. A reason for this is that there is often no political body with authority over the whole functional urban region. In this paper, we present ideas for a new type of spatial policies in Europe focusing on innovation and growth. For in-stance, there is a need to take measures to increase the density of population and companies in functional urban regions and to improve transport infrastructure to increase the geographical extension of functional regions. There is also a need to develop more urban regions into real innovation nodes by developing more elite universities with a proper R&D funding and a ca-pacity to compete with the best universities in the US. Another focus must be on increased investments in higher education as well as policies aiming at increasing the attractiveness of urban regions in terms of housing infrastructure and supply of amenities.
    Keywords: Urban regions; Urban policy; Growth; Innovation; Europe
    JEL: O18 R11 R58
    Date: 2012–06–01

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