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on European Economics |
| By: | Alberto Botta (Department of Political and Social Sciences, University of Pavia and Department of Law and Economics, Mediterranean University of Reggio Calabria) |
| Abstract: | In this paper we analyze the role of the nowadays Eurozone institutional setup in fostering the ongoing peripheral Euro countries’ sovereign debt crisis. According to the Modern Money Theory, we stress that the lack of a federal European government running anti-cyclical fiscal policy, the loss of monetary sovereignty by Euro Member States and the lack of a lender-of-last-resort central bank has significantly contributed to generate, amplify and protract the present crisis. In particular, we present a post- Keynesian Eurozone center-periphery model through which we show how, due to the incomplete nature of Eurozone institutions with respect to a full-fledged federal union, diverging trends and conflicting claims have emerged between center and peripheral Euro countries in the aftermath of the 2007-2008 financial meltdown. We emphasize two points. (i) Diverging trends and conflicting claims among Euro countries may represent a decisive obstacle to reform Eurozone towards a complete federal entity. However, they may prove to be self-defeating in the long run should financial turbulences seriously deepen also in large peripheral countries. (ii) Austerity packages alone do not address the core point of the Eurozone crisis. They could have sense only if included in a much wider reform agenda, whose final purpose is the creation of a federal European government which can run expansionary fiscal stances and of a government banker. In this sense, the unlimited bond-buying program recently launched by the European Central Banks is interpreted as a positive although mild step in the right direction out of the extreme monetarism which has so far shaped Eurozone institutions. |
| Keywords: | Eurozone debt crisis, Modern money theory, post-Keynesian center-periphery model |
| JEL: | E02 E12 H63 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:demwp0011&r=eec |
| By: | Robert Anderton (European Central Bank); Mario Izquierdo (European Central Bank); Ted Aranki (European Central Bank); Boele Bonthius (European Central Bank); Katarzyna Budnik (European Central Bank); Ramón Gómez-Salvador (European Central Bank); Valerie Jarvis (European Central Bank); Ana Lamo (European Central Bank); Aidan Meyler (European Central Bank); Daphne Momferatou (European Central Bank); Roberta Serafini (European Central Bank); Magdalena Spooner (European Central Bank); Martine Druant (Nationale Bank van België/Banque Nationale de Belgique); Jan De Mulder (Nationale Bank van België/Banque Nationale de Belgique); Katja Sonderhof (Deutsche Bundesbank); Daniel Radowski (Deutsche Bundesbank); Orsolya Soosaar (Eesti Pank/ Bank of Estonia); Natalja Viilmann (Eesti Pank/ Bank of Estonia); Suzanne Linehan (Central Bank of Ireland); Daphne Nicolitsas (Bank of Greece); Sergio Puente (Banco de España); Cristina Fernandez (Banco de España); Gregory Verdugo (Banque de France); Matteo Mogliani (Banque de France); Henri Fraisse (Banque de France); Roberta Zizza (Banca d’Italia); Michalis Ktoris (Central Bank of Cyprus); Cindy Veiga Nunes (Banque centrale du Luxembourg); Muriel Bouchet (Banque centrale du Luxembourg); Sandra Zerafa (Central Bank of Malta); Ian Sapiano (Central Bank of Malta); Marco Hoeberichts (De Nederlandsche Bank); Jante Parlevliet (De Nederlandsche Bank); Alfred Stiglbauer (Oesterreichische Nationalbank); Paul Ramskogler (Oesterreichische Nationalbank); José R. Maria (Banco de Portugal); Cláudia Duarte (Banco de Portugal); Manca Jesenko (Banka Slovenije); Helena Solcanska (Národná banka Slovenska); Pavel Gertler (Národná banka Slovenska); Vanhala Juuso (Suomen Pankki– Finlands Bank); Heidi Schauman (Suomen Pankki– Finlands Bank) |
| Abstract: | Between the start of the economic and financial crisis in 2008, and early 2010, almost four million jobs were lost in the euro area. Employment began to rise again in the first half of 2011, but declined once more at the end of that year and remains at around three million workers below the pre-crisis level. However, in comparison with the severity of the fall in GDP, employment adjustment has been relatively muted at the aggregate euro area level, mostly due to significant labour hoarding in several euro area countries. While the crisis has, so far, had a more limited or shorter-lived impact in some euro area countries, in others dramatic changes in employment and unemployment rates have been observed and, indeed, more recent data tend to show the effects of a reintensification of the crisis. The main objectives of this report are: (a) to understand the notable heterogeneity in the adjustment observed across euro area labour markets, ascertaining the role of the various shocks, labour market institutions and policy responses in shaping countries’ labour market reactions; and (b) to analyse the medium-term consequences of these labour market developments. With these objectives in mind, the SIR Task Force has carried out several specific exercises (e.g. it has conducted a questionnaire among euro area National Central Bank (NCB) experts on main policy measures adopted since the start of the crisis; it has updated a previous Wage Dynamics Network (WDN) questionnaire on wage bargaining institutions in euro area countries; and it has computed worker flows series from Labour Force Survey (LFS) microdata available at most euro area NCBs). JEL Classification: J2, J3, J6 |
| Keywords: | Labour demand; labour supply; employment; unemployment; participation; euro area countries; crisis; heterogeneity; labor market flows; working time; wages; collective bargaining; labour market institutions; rigidities; structural unemployment; mismatch; beveridge curve; hysteresis; NAIRU; labour market policies; structural reforms |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20120138&r=eec |
| By: | Victoria Ivashina; David S. Scharfstein; Jeremy C. Stein |
| Abstract: | A large share of dollar-denominated lending is done by non-U.S. banks, particularly European banks. We present a model in which such banks cut dollar lending more than euro lending in response to a shock to their credit quality. Because these banks rely on wholesale dollar funding, while raising more of their euro funding through insured retail deposits, the shock leads to a greater withdrawal of dollar funding. Banks can borrow in euros and swap into dollars to make up for the dollar shortfall, but this may lead to violations of covered interest parity (CIP) when there is limited capital to take the other side of the swap trade. In this case, synthetic dollar borrowing becomes expensive, which causes cuts in dollar lending. We test the model in the context of the Eurozone sovereign crisis, which escalated in the second half of 2011 and resulted in U.S. money-market funds sharply reducing the funding provided to European banks. Coincident with the contraction in dollar funding, there were significant violations of euro-dollar CIP. Moreover, dollar lending by Eurozone banks fell relative to their euro lending in both the U.S. and Europe; this was not the case for U.S. global banks. Finally, European banks that were more reliant on money funds experienced bigger declines in dollar lending. |
| JEL: | F36 F44 G01 G21 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18528&r=eec |
| By: | Natasa Bilkic (University of Paderborn); Ben Carreras Painter (University of Paderborn); Thomas Gries (University of Paderborn) |
| Abstract: | As a direct effect of the financial crisis in 2008, public debt began to accumulate rapidly, eventually leading to the European sovereign debt crisis. However, the dramatic increase in government debt is not only happening in European countries. All major G7 countries are experiencing similar developments. What are the implications of this kind of massive deficit and debt policy for the long term stability of these economies? Are there limits in debt-ratios that qualitatively change policy options? While theory can easily illustrate these limits, where are these limits in real economies? This paper examines the relationship between sovereign debt dynamics and capital formation, and accounts for the effects of the 2008 financial crisis on debt sustainability for the four largest advanced economies. We contribute to the literature on fiscal sustainability by framing the problem in an OLG model with government debt, physical capital, endogenous interest rates, and exogenous growth. For the calibration exercise we extract data from the OECD for Germany as a stabilization anchor in Europe, the U.S., the U.K., and Japan for almost two decades before the 2008 crisis. Except for intertemporal preferences all parameters are drawn or directly derived from the OECD database, or endogenously determined within the model. The results of the calibration exercise are alarming for all four countries under consideration. We identify debt ceilings that indicate a sustainable and unsustainable regime. For 2011, all four economies are either close to-, or have already passed the ceiling. The results call for a dramatic re-adjustment in budget policies for a consolidation period and long-term fiscal rules that make it possible to sustain sufficient capital intensity so that these economies can maintain their high income levels. Current conditions are already starting to restrict policy choices. However, the results also make it very clear that none of these economies would survive a second financial crisis such as the one in 2008. |
| Keywords: | fiscal sustainability, primary deficit, debt ceiling, fiscal rules, OLG, calibration, advanced economies |
| JEL: | H62 H63 E62 G01 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:pdn:wpaper:57&r=eec |
| By: | Alessandro Giovannelli (Department of Economics and Finance, University of Rome "Tor Vergata") |
| Abstract: | The primary objective of this paper is to propose two nonlinear extensions for macroeconomic forecasting using large datasets. First, we propose an alternative technique for factor estimation, i.e., kernel principal component analysis, which allows the factors to have a nonlinear relationship to the input variables. Second, we propose artificial neural networks as an alternative to the factor augmented linear forecasting equation. These two extensions allow us to determine whether, in general, there is empirical evidence in favor of nonlinear methods and, in particular, to verify whether the nonlinearity occurs in the estimation of the factors or in the functional form that links the target variable to the factors. In an effort to verify the empirical performances of the methods proposed, we conducted several pseudo forecasting exercises on the industrial production index and consumer price index for the Euro area and US economies. These methods were employed to construct the forecasts at 1-, 3-, 6-, and 12-month horizons using a large dataset containing 259 predictors for the Euro area and 131 predictors for the US economy. The results obtained from the empirical study suggest that the estimation of nonlinear factors, using kernel principal components, significantly improves the quality of forecasts compared to the linear method, while the results for artificial neural networks have the same forecasting ability as the factor augmented linear forecasting equation. |
| Keywords: | Kernel Principal Component Analysis; Large Dataset; Artificial Neural Networks; QuickNet; Forecasting |
| JEL: | C45 C53 C13 C33 |
| Date: | 2012–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:255&r=eec |
| By: | Mark Hallerberg; Benedicta Marzinotto; Guntram B. Wolff |
| Abstract: | For markets, European economic governance faces a crisis of policy effectiveness, while for citizens the European Union faces a democratic legitimacy crisis. The introduction of the European Semester economic policy surveillance system has not resolved these problems. Policy guidance deriving from the Semester is not focused enough on areas of significant spillovers and on problem countries, and national compliance is often procedural rather than actual. This brings into question both the Semesterâ??s effectiveness and the democratic legitimacy of the EUâ??s new intervention rights, which allow intrusion into national policy-making. |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polbrf:758&r=eec |
| By: | Paetzold, Jörg (University of Salzburg); van Vliet, Olaf (Department of Economics, Leiden University) |
| Abstract: | The European Employment Strategy (EES) aims to promote convergence of domestic labour market policies by soft law instruments. Previous studies on the impact of the EES are mainly focused on active labour market policies. The present study aims at explaining cross national variation in national passive labour market policies and unemployment benefit levels. Building on the most recent measures and pooled time series data, the empirical findings reveal the presence of a convergence process among the most advanced economies regarding passive labour market policy efforts, with the EES fostering this trend even further. Furthermore, our findings support the argument that the EES creates pressure on governments to reform domestic labour market policies, but this pressure varies across countries and over time. The results suggest that the recommendations from the European Council have contributed to unemployment benefit reform processes. |
| Keywords: | Passive labour market policies; convergence; European Employment Strategy; Europeanization; Open Method of Coordination; welfare state |
| JEL: | H53 J68 |
| Date: | 2012–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:ris:sbgwpe:2012_009&r=eec |
| By: | David Aristei (University of Perugia); Cristiano Perugini (University of Perugia) |
| Abstract: | In this paper we study intra-generational income mobility in European countries over the years shortly preceding the outburst of the global crisis. Income mobility plays a crucial role in shaping distributive patterns and is closely related to the capacity of a socio-economic system to provide equality of opportunities and the removal of social impediments. In this study we exploit the longitudinal structure of the EU-Silc database to provide a comprehensive overview of income mobility across 25 European countries, classified into six capitalistic models. After having descriptively analysed heterogeneity in income dynamics by means of alternative mobility measures, we identify the microeconomic drivers of household income mobility, focusing on the role of household and household head demographic, economic and job characteristics. Outcomes reveal that the levels and determinants of mobility differ remarkably in the various institutional models across Europe, particularly regarding demographic attributes, education and temporary/permanent/self-employment positions. |
| Keywords: | income mobility, household structure, institutional settings, EU-Silc data. |
| JEL: | D31 J10 O15 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2012-262&r=eec |