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on European Economics |
| By: | William A Allen; Richhild Moessner |
| Abstract: | We examine the liquidity effects of the euro area sovereign debt crisis, including its effects on euro area banks as a group, on intra-euro area financial flows, on the supply of and demand for collateral, and on international liquidity. The lending capacity of the euro area banking system has been much weakened, despite the remarkable growth of the operations of the Eurosystem, including its greatly increased lending, its intermediation between national central banks in surplus and deficit countries and its collateral policy. The euro crisis has also created international liquidity stresses. We find that central bank swap lines have only had limited effectiveness in alleviating the stresses, probably owing to some stigma being attached to their use. |
| Keywords: | Financial crisis, liquidity, foreign exchange swaps, central bank swap lines |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:390&r=eec |
| By: | Martina Cecioni (Banca d'Italia); Giuseppe Ferrero (Banca d'Italia) |
| Abstract: | The paper analyzes developments in TARGET2 imbalances within the euro area since 2007, from two perspectives: national central banks’ balance sheets and countries’ balance of payments (BoP). We examine the relationship between TARGET2 balances and the Eurosystem liquidity provision, analyzing how the circulation of the latter has changed during the crisis. We then study BoP developments in Greece, Portugal, Italy and Spain, investigating which of the following explanations accounts for the growing TARGET2 imbalances: (i) current account deficit, (ii) decrease of net inflows of private capital from securities and interbank markets and (iii) run on deposits. The results of our analysis suggest that while the increase in TARGET2 liabilities is related to the current account deficit in Greece, there is no evidence of this in Italy, Spain and Portugal. In all countries the increase is mostly driven by private capital outflows in securities and interbank markets; deposit runs are apparent only in Greece. In Italy, the reduction of capital inflows consisted entirely in a decrease in the interbank market cross-border activity and in portfolio investments by non-residents. |
| Keywords: | payment system, financial crisis, monetary policy |
| JEL: | E42 E52 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_136_12&r=eec |
| By: | Andrea Cardillo (Banca d'Italia); Andre Zaghini (Banca d'Italia) |
| Abstract: | We assess the long-term funding conditions for banks in the US, the euro area and the UK and, separately, for the group of global systemically important financial institutions (G-SIFIs), over the period 1997-2011. After the outbreak of the subprime crisis there was a considerable reshuffling of the relative weight of banks’ funding sources, also due to non-conventional monetary policy interventions, government support measures and a significant increase in wholesale funding costs. By looking at 6,400 bank bonds we find that both implicit and explicit guarantees by the sovereign have a substantial role in shaping the wholesale cost of bond issuance with significant differences between AAA-rated and lower-rated countries. However, when a bank CDS exists the role of the government is significantly reduced with the market giving more weight to the soundness and creditworthiness of the issuing institution. |
| Keywords: | long-term funding, bank balance sheet, financial crisis, G-SIFIs |
| JEL: | G21 G01 G18 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_137_12&r=eec |
| By: | Mara, Eugenia-Ramona |
| Abstract: | In this study we perform an analysis of the volatility of the budget deficit for EU countries. We address this issue starting from the new requirements of fiscal discipline imposed by the Treaty on Stability, Coordination and Governance adopted by 25 European Union member states and taking into account the economic crisis impact. The major purpose of this study is to identify the most significant determinants of budget deficit volatility in a comparative study for old EU member states and New Member States (NMS). This study aims to test the impact of macroeconomic variables such as public expenditures, economic growth rate, and unemployment on the budget balance volatility, based on panel data. The final purpose of the article is to reveal the strategies to stop the immense increase in fiscal deficits and to regain fiscal stability to fulfill the new rules of fiscal governance. We anticipate that the implementation of this new fiscal discipline requires a more efficient public sector for both old and NMS and a reconsideration of state intervention in the economy. |
| Keywords: | budget deficit; fiscal policy; economic growth |
| JEL: | H62 E62 E61 H3 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42555&r=eec |
| By: | Ciaglia, Sarah; Heinemann, Friedrich |
| Abstract: | In 2009, Germany introduced a new debt rule in its federal constitution (Grundgesetz). The socalled 'debt brake' prescribes a balanced budget for both the federal level and the states. However, the states have leeway regarding transposition and specification of the national requirements into their own state constitutions and budgetary laws. This analysis presents a comprehensive comparison of the 16 state provisions. We develop an indicator which quantifies the stringency of state rules (Strength of Fiscal Rule Indicator). Two results emerge: First, despite the common constitutional rule at the federal level, the analysis reveals a considerable heterogeneity across German states. Second, several highly indebted states miss the chance to make their fiscal regime more credible. This finding corresponds to the disincentives of the German federation. Due to bailout-guarantees enshrined in German federalism, German states do not have incentives to impress bond markets through particularly strict budgetary rules. -- |
| Keywords: | fiscal rules,debt brake,Germany,fiscal federalism |
| JEL: | H63 H74 H77 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:12067&r=eec |
| By: | Mathilde Maurel; Gunther Schnabl (Institute for Economic Policy, University of Leipzig) |
| Abstract: | The 2010 European debt crisis has revived the discussion concerning the optimum adjustment strategy in the face of asymmetric shocks. Whereas Mundell's (1961) seminal theory on optimum currency areas suggests depreciation in the face of crisis, the most recent emergence of competitive depreciations, competitive interest rate cuts or currency wars questions the exchange rate as an adjustment tool to asymmetric economic development. This paper approaches the question from a theoretical perspective by confronting exchange rate based adjustment with crisis adjustment via price and wage cuts. Econometric estimations yield a negative impact of exchange rate flexibility/volatility on growth, which is found to be particularly strong for countries with asymmetric business cycles and during recessions. Based on these findings we support a further enlargement of the European Monetary Union and recommend more exchange rate stability for the rest of the world. |
| Keywords: | Shock Adjustment, Exchange Rate Regime, Growth |
| Date: | 2011–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:hlj:hljwrp:18-2011&r=eec |
| By: | Dell'Anno, Roberto; Dollery, Brian |
| Abstract: | This paper provides an empirical analysis of fiscal illusion by estimating an index of fiscal illusion for 28 European countries over the period 1995–2008 employing a structural equation approach. Using MIMIC models, the paper investigates the main indicators of fiscal illusion and develops an index of fiscal illusion. It concludes that the chief deterninants for the deployment of fiscal illusion strategies are the share of self-employment on total employment, the educational level of citizens, and the size of tax burden. At the same time, policy makers attempt to ‘conceal’ the real tax burden by means of debt illusion, fiscal drag, wage withholding taxes, as well as taxes on labour. |
| Keywords: | Fiscal illusion; Financial illusion; MIMIC model; European countries |
| JEL: | H8 O52 H3 |
| Date: | 2012–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42537&r=eec |
| By: | Seidler, Jakub; Gersl, Adam |
| Abstract: | Excessive credit growth is often considered to be an indicator of future problems in the financial sector. This paper examines the issue of how best to determine whether the observed level of private sector credit is excessive in the context of the “countercyclical capital buffer”, a macroprudential tool proposed in the new regulatory framework of Basel II by the Basel Committee on Banking Supervision. An empirical analysis of selected Central and Eastern European countries, including the Czech Republic, provides alternative estimates of excessive private credit and shows that the HP filter calculation proposed by the Basel Committee is not necessarily a suitable indicator of excessive credit growth for converging countries. |
| Keywords: | credit growth; financial crisis; countercyclical capital buffer; Basel II |
| JEL: | G18 G01 G21 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42541&r=eec |
| By: | Kremp, E.; Sevestre, P. |
| Abstract: | This paper focuses on the access of independent French SMEs to bank lending and analyzes whether the observed evolution of credit to SMEs over the recent period was "demand driven" as a result of the decrease in firms' activity and investment projects or was "supply driven" with an increase in credit "rationing" stemming from a more cautious behavior of banks. Based on a sample of around 60,000 SMEs, we come to the conclusion that, despite the stronger standards used by banks when granting credit, French SMEs do not appear to have been strongly affected by credit rationing since 2008. This result goes against the common view that SMEs suffered from a strong credit restriction during the crisis but is perfectly in line with the results of several surveys about the access to finance of SMEs recently conducted in France. |
| Keywords: | Credit rationing, disequilibrium model, SME. |
| JEL: | E51 G21 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:405&r=eec |