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on European Economics |
| By: | Zsolt Darvas |
| Abstract: | Many factors have contributed to the euro crisis. Some have been addressed by policymakers, even if belatedly, and European Union member states have been willing to improve the functioning of the euro area by agreeing to relinquish national sovereignty in some important areas. However, the most pressing issue threatening the integrity, even the existence, of the euro, has not been addressed: the deepening economic contraction in southern euro-area member states. The common interest lies in preserving the integrity of the euro area and in offering these countries improved prospects. Domestic structural reform and appropriate fiscal consolidation, wage increases and slower fiscal consolidation in economically stronger euro-area countries, a weaker euro exchange rate, debt restructuring and an investment programme should be part of the arsenal. In the medium term, more institutional change will be necessary to complement the planned overhaul of the euro area institutional framework. This will include the deployment of a euro-area economic stabilising tool, managing the overall fiscal stance of the euro area, some form of Eurobonds and measures to make euro-area level decision making bodies more effective and democratically legitimate. |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:755&r=eec |
| By: | Cristina Checherita-Westphal (European Central Bank); Andrew Hughes Hallett (Harvard Kennedy School); Philipp Rother (European Central Bank) |
| Abstract: | This paper highlights the importance of debt-related fiscal rules and derives growth-maximising public debt ratios from a simple theoretical model. On the basis of evidence on the productivity of public capital, we estimate public debt targets that governments should try to maintain if they wish to maximise growth for panels of OECD, EU and euro area countries, respectively. These are not arbitrary numbers, as many of the fiscal rules in the literature suggest, but are founded on long-run optimising behaviour, assuming that governments implement the so-called golden rule over the cycle; that is, they contract debt only to finance public investment. Our estimates suggest that the euro area should target debt levels of around 50% of GDP if member states are to have common targets. That is about 15 percentage points lower than the estimate for the growth-maximising debt ratio in our OECD sample and comfortably within the Stability and Growth Pact’s debt ceiling of 60% of GDP. We also indicate how forward looking budget reaction functions fit into a debt targeting framework. JEL Classification: H63, E22, O40 |
| Keywords: | Public debt, public capital, economic growth |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121472&r=eec |
| By: | Jean Pisani-Ferry |
| Abstract: | Extensive prior research on the economics of European monetary union highlighted some potential risks (the known unknowns) but overlooked others (the unknown unknowns). Asymmetries among participating countries, the potentially destabilising character of a one-size-fits all monetary policy, the weakness of adjustment mechanisms, the lack of incentives for fiscal discipline, the possibility of sovereign solvency crises and their adverse consequences were all known and understood. But policymakers often relied on a complacent reading of the evidence. â?¢ The potential for financial disruption was vastly underestimated. Economists generally did not consider, or underestimated, the possibility of balance of payment crises such as those experienced by southern European countries, or the risk of a feedback loop between banks and sovereigns. â?¢ Remedying EMUâ??s systemic deficiencies is on the policy agenda. Banking union would go a long way towards addressing the fault lines. The urgent question for economists is if it is going to be enough and, if not, what else should complement the â??bare-bonesâ?? EMU of Maastricht. This Policy Contribution is based on a keynote address at the conference The European Sovereign Debt Crisis: Background and Perspectives, held at the Danish National Bank on 13-14 April 2012. |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:756&r=eec |
| By: | Parello, Carmelo Pierpaolo; Visco, Vincenzo |
| Abstract: | This paper proposes a redemption fund for the euro zone countries alternative to that recently proposed by Doluca et al. (2012) – The European Redemption Pact: an Illustrative Guide, GCEE Working Paper No.2, February – and in coherence with a previous proposal of one of the author. In doing so, we envisage a country-specific amortization scheme in which the sovereign debts exceeding the 60% ceiling of GDP is redeemed in 30 years. The paper shows that our redemption scheme is cheaper and less constraining than that proposed by Doluca et al. (2012). Also, our paper shows that fiscal “brakes” – such as those required by the Fiscal Compact – are not necessary for the complete redemption of the Fund. |
| Keywords: | Sovereign debt crisis; Public debt; Amortization schedule; European redemption fund |
| JEL: | H87 H63 F36 |
| Date: | 2012–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42232&r=eec |
| By: | Alessandro Turrini |
| Abstract: | This paper estimates the impact of fiscal consolidation on unemployment and job market flows across EU countries using a recent database of consolidation episodes built on the basis of a “narrative” approach (Devries et al., 2011). Results show that the impact of fiscal consolidation on cyclical unemployment, is temporary and significant mostly for expenditure measures. As expected, the impact of fiscal policy shocks on job separation rates is much stronger in low-EPL countries, while high-EPL countries suffer from a stronger reduction in the rate at which new jobs are created. Since a reduced job-finding rate corresponds to a longer average duration of unemployment spells, fiscal policy shocks also tend to raise the share of long-term unemployment if EPL is stricter. Results are broadly confirmed when using "top-down" fiscal consolidation measures based on adjusting budgetary data for the cycle. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0462&r=eec |
| By: | Valentina Bosetti (Fondazione Eni Enrico Mattei and CMCC); Cristina Cattaneo (Fondazione Eni Enrico Mattei and CMCC); Elena Verdolini (Fondazione Eni Enrico Mattei and CMCC) |
| Abstract: | This paper analyses the effect of skilled migration on two measures of innovation, patenting and citations of scientific publications, in a panel of 20 European countries. Skilled migrants positively contribute to the knowledge formation in host countries as they add to the pool of skills in destination markets. Moreover, they positively affect natives' productivity, as new ideas are likely to arise through the interaction of diverse cultures and diverse approaches in problem solving. The empirical findings we present support this prediction. Greater diversity in the skilled professions are associated with higher levels of knowledge creation, measured either by the number of patents applied for through the Patent Cooperation Treaty or by the number of citations to published articles. This finding is robust to the use of different proxies for both the explanatory variables and the diversity index in the labour force. Specifically, we first measure diversity with a novel indicator which uses information on the skill level of foreigners’ occupations. We then check our results by following the general literature, which measures skills by looking at the foreigners’ level of education. We show that cultural diversity consistently increases the innovation performance of European Countries. |
| Keywords: | Cultural Diversity, Innovation, Skilled Migration, Knowledge Production Function, Europe |
| JEL: | F22 J24 O31 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2012.69&r=eec |
| By: | Mario Porqueddu (Bank of Italy); Fabrizio Venditti (Bank of Italy) |
| Abstract: | This paper analyzes the relationship between commodity prices and consumer food prices in the euro area and in its largest economies (Germany, France and Italy) and tests whether the latter respond asymmetrically to shocks to the former. The issue is of particular interest for those monetary authorities that target headline consumer price inflation, which has been heavily influenced by pronounced swings in international commodity prices in the past decade. The empirical analysis is based on two distinct but complementary approaches. First, we employ a structural model to identify a shock to commodity prices and verify using formal econometric tests whether the Impulse Response Functions of food consumer prices is invariant to the sign of the commodity price shock. Next, we employ predictive regressions and examine the relative forecasting ability of linear models compared with that of models that allow for sign-dependent nonlinearities. Overall, the empirical analysis uncovers very little evidence of asymmetries. |
| Keywords: | Food prices, Asymmetry, Inflation |
| JEL: | C32 C53 E31 Q17 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_878_12&r=eec |
| By: | Sébastien Philippe Kraenzlin; Thomas Nellen |
| Abstract: | We analyse deviations between interest rates paid in the Swiss franc unsecured money market and the respective Libor rate. First, banks that have access to the secured interbank market and the SNB's monetary policy operations pay less than banks without access. Second, domestically unchartered, foreign banks pay more than domestic banks. We find that these segmentations are limited both during normal times and during the financial crisis starting 2007 thanks to open access to the secured interbank market and the SNB's monetary policy operations. These findings reveal that a neglected aspect of monetary policy implementation matters, namely access policy. |
| Keywords: | access to central bank money, unsecured interbank money market, money market integration and segmentation, financialcrisis |
| JEL: | E58 G21 G28 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2012-12&r=eec |
| By: | Olfa Kaabia; Ilyes Abid |
| Abstract: | This paper studies whether and how U.S. shocks are transmitted to other OECD economies in the case of the subprime crisis. Using a large data set of financial and macroeconomic variables in 17 OECD countries from 1980:Q1 to 2006:Q2, we characterize the transmission channels by the interpretable factors and make a structural analysis using FAVAR models under a Bayesian approach. Our main findings suggest that differences exist in the contagion effects. This implies that no generalizations can be made for OECD countries even of equal economic size and in the same geographic region. Our results show that a large portion of the variance of domestic economic variables is explained by global factors and that the interest rate shock appears to play an important role in the spillover mechanism from the U.S to the OECD countries. |
| Keywords: | Transmission channels, Contagion, Bayesian estimation and FAVAR models. |
| JEL: | E44 F20 G15 G01 C11 C32 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2012-40&r=eec |
| By: | Raquel Ortega-Argilés (Instituto Superior Técnico, Lisboa, Portugal); Mariacristina Piva (DISCE, Università Cattolica); Marco Vivarelli (DISCE, Università Cattolica) |
| Abstract: | The literature has pointed to different causes to explain the productivity gap between Europe and United States in the last decades. This paper tests the hypothesis that the lower European productivity performance in comparison with the US can be explained not only by a lower level of corporate R&D investment, but also by a lower capacity to translate R&D investment into productivity gains. The proposed microeconometric estimates are based on a unique longitudinal database covering the period 1990-2008 and comprising 1,809 US and European companies for a total of 16,079 observations. Consistent with previous literature, we find robust evidence of a significant impact of R&D on productivity; however – using different estimation techniques - the R&D coefficients for the US firms always turn out to be significantly higher. To see to what extent these transatlantic differences may be related to the different sectoral structures in the US and the EU, we differentiated the analysis by sectors. The result is that both in manufacturing, services and high-tech sectors US firms are more efficient in translating their R&D investments into productivity increases. |
| Keywords: | R&D, productivity, embodied technological change, US, EU |
| JEL: | O33 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie2:dises1284&r=eec |
| By: | Sofía Galán (Banco de España); Sergio Puente (Banco de España) |
| Abstract: | We estimate the effects of a significant increase in the minimum wage in Spain between 2004 and 2010 on the individual probability of losing employment, using a large panel of social security records. Our main finding is that older people experienced the largest increase in the probability of losing their job, when compared with other age groups, including young people. The intuition is simple: among the affected (low-productivity) workers, young people are expected to increase their productivity more than older ones, who are in the flat part of their life-cycle productivity curve. Consequently, an employer facing a uniform increase in the minimum wage may find it profitable to retain young employees and to fire older ones |
| Keywords: | Minimum wage, labour demand, firing |
| JEL: | J23 J38 J63 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1237&r=eec |