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on European Economics |
| By: | P. Manasse; L. Zavalloni |
| Abstract: | This paper addresses the following questions. Is there evidence of contagion in the Eurozone? To what extent do sovereign risk and the vulnerability to contagion depend on fundamentals as opposed to a country's "credibility"? We look at the empirical evidence on EU sovereigns CDS spreads and estimate an econometric model where the crucial role is played by time varying parameters. We model CDS spread changes at country level as reflecting three different factors: a Global sovereign risk factor, a European sovereign risk factor and a Financial intermediaries risk factor. Our main findings are as follows. First, while the US subprime crisis affects all European sovereign risks, the Greek crisis is largely a matter concerning the Euro Zone. Second, differences in vulnerability to contagion in the Eurozone are remarkable: after the Greek crisis the core Eurozone members become less vulnerable to EUZ contagion, possibly due to a safe-heaven effect, while peripheric countries become more vulnerable. Third, market fundamentals go a long way in explaining these differences: they jointly explain between 54 and 80% of the cross-country variation in idiosyncratic risks and in the vulnerability to contagion, largely supporting the "wake-up calls" hypothesis suggesting that market participats bocome more wary of market fundamentals during finacial crises. |
| JEL: | E44 F34 G01 G12 G15 H63 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp863&r=eec |
| By: | Jean Pisani-Ferry; Erkki Vihriälä; Guntram B. Wolff |
| Abstract: | Europe has responded to the crisis with strengthened budgetary and macroeconomic surveillance, the creation of the European Stability Mechanism, liquidity provisioning by resilient economies and the European Central Bank and a process towards a banking union. However, a monetary union requires some form of budget for fiscal stabilisation in case of shocks, and as a backstop to the banking union. This paper compares four quantitatively different schemes of fiscal stabilisation and proposes a new scheme based on GDP-indexed bonds. The options considered are: (i) A federal budget with unemployment and corporate taxes shifted to euro-area level; (ii) a support scheme based on deviations from potential output;(iii) an insurance scheme via which governments would issue bonds indexed to GDP, and (iv) a scheme in which access to jointly guaranteed borrowing is combined with gradual withdrawal of fiscal sovereignty. Our comparison is based on strong assumptions. We carry out a preliminary, limited simulation of how the debt-to-GDP ratio would have developed between 2008-14 under the four schemes for Greece, Ireland, Portugal, Spain and an â??averageâ?? country.The schemes have varying implications in each case for debt sustainability. |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:765&r=eec |
| By: | Luca Arciero; Ronald Heijmans; Richard Heuver; Marco Massarenti; Cristina Picillo; Francesco Vacirca |
| Abstract: | This paper develops a methodology, based on Furfine (1999), to identify unsecured interbank money market loans from transaction data of the most important euro processing payment system, TARGET2, for maturity ranging from one day (overnight) up to three months. The implementation has been verified with (i) interbank money market transactions executed on the Italian trading platform e-MID and (ii) aggregated reporting by the EONIA panel banks. The Type 2 (false negative) error for the best performing algorithm setup is equal to 0.92%. The results focus on three levels: Eurosystem, core versus (geographical) periphery and countries (Italy and the Netherlands). The different stages of the global financial crisis and of the sovereign debt crises are clearly visible in the interbank money market, characterised by significant drops in the turnover. We find aggregated interest rates very close to the EONIA but we observe high heterogeneity across countries and market participants. |
| Keywords: | euro interbank money market; Furfine; TARGET2; financial stability; EONIA |
| JEL: | E42 E44 E58 G01 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:369&r=eec |
| By: | Kohonen, Anssi |
| Abstract: | The paper develops an easy-to-apply test for contagion. In order to address the main challenge of any contagion test, that of endogeneity, the testing is conducted in the structural vector autoregression (SVAR) framework where we assume the reduced form errors follow a mixed-normal distribution. This distributional assumption enables us to use a recently developed SVAR model identification method with no need to restrict any of the instantaneous linkages between the variables. In the empirical part of the paper, we apply our test to the eurozone's ten years government bond spreads over Germany. In this maturity, the bond spreads mainly reflect governments' default risk. The years we consider are 2005-2010, and we find evidence of contagion in the spreads. Furthermore, it appears that, during the beginning of the euro debt crisis, there was transmission of government default risk from Greece to the other countries. However, Greece was not the only source country of contagion. |
| Keywords: | SVAR; contagion; interdependencies; hypothesis testing; sovereign spreads |
| JEL: | C10 F30 C30 E40 G10 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43823&r=eec |
| By: | Canofari Paolo; Di Bartolomeo Giovanni; Piersanti Giovanni |
| Abstract: | This paper analyzes strategic interactions and contagion effects in countries joined to a monetary union. Using game theory and a cost-benefit analysis, the paper determines the set of equilibrium solutions under which country-specific shocks are transmitted to other member countries giving rise to contagion. Numerical simulations, obtained by a simple calibration of the model on some key Mediterranean countries of the Euro Zone, show the probabilities of contagion from Greece to Spain and Italy. |
| Keywords: | Shadow exchange rate, currency crisis, monetary unions, contagion, Nash equilibria |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:ter:wpaper:0098&r=eec |
| By: | Emanuele Millemaci (Dipartimento DESMaS “V. Pareto”, Università degli Studi di Messina, Italy); Ferdinando Ofria (Dipartimento DESMaS “V. Pareto”, Università degli Studi di Messina, Italy) |
| Abstract: | The objective of this study is to investigate the validity of the Kaldor-Verdoorn’s Law in explaining the long run determinants of the labor productivity growth for the manufacturing sector of some developed economies (Western European Countries, Australia, Canada, Japan and United States). We consider the period 1973-2006 using data provided by the European Commission - Economics and Financial Affairs. Our findings suggest that the law is valid for the manufacturing as countries show increasing returns to scale. Capital growth and labor cost growth do not appear important in explaining productivity growth. The estimated Verdoorn coefficients are found to be substantially stable throughout the period. |
| Keywords: | Increasing Returns, Kaldor-Verdoorn Law, Productivity Growth, Manufacturing Sector |
| JEL: | C32 O47 O57 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2012.92&r=eec |
| By: | Oscar Bernal Diaz; Astrid Herinckx; Ariane Szafarz |
| Abstract: | Exploiting cross-sectional and time-series variations in European regulations during the July 2008 – June 2009 period, we show that: 1) Prohibition on covered short selling raises bid-ask spread and reduces trading volume, 2) Prohibition on naked short selling raises both volatility and bid-ask spread, 3) Disclosure requirements raise volatility and reduce trading volume, and 4) No regulation is effective against price decline. Overall, all short-sale regulations harm market efficiency. However, naked short-selling prohibition is the only regulation that leaves volumes unchanged while addressing the failure to deliver. Therefore, we argue that this is the least damaging to market efficiency. |
| Keywords: | short selling; disclosure requirement; market efficiency; regulation; volatility |
| JEL: | G18 G14 G00 K20 O52 |
| Date: | 2013–01–09 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/136916&r=eec |
| By: | Matthias S. Hertweck; Oliver Sigrist |
| Abstract: | This paper quantifies the impact of the Hartz reforms on matching efficiency, using monthly SOEP gross worker flows (1983-2009). We show that, until the early 2000s, close to 60% of changes in the unemployment rate are due to changes in the inflow rate (job separation). On the contrary, since the implementation of the reforms in the mid-2000s, the importance of the outflow rate (job finding) has been steadily increasing. This indicates that matching efficiency has improved substantially in recent years. Results from an estimated matching function — pointing to efficiency gains of more than 20% — corroborate this finding. |
| Keywords: | SOEP gross worker flows, Hartz reforms, matching efficiency, unemployment fluctuations |
| JEL: | E24 E32 J63 J64 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp532&r=eec |
| By: | Ziegelmeyer, Michael; Nick, Julius (Munich Center for the Economics of Aging (MEA)) |
| Abstract: | Financing pensions in the EU is a challenge. Many EU countries introduced private pension schemes to compensate declining public pension levels due to reforms made necessary by demographic change. In 2001, Germany introduced the Riester pension. Ten years after introduction the prevalence rate of this voluntary private pension scheme approximates 37%. However, numerous criticisms raise doubts that the market for Riester products is transparent. Using the 2010 German SAVE survey, this paper investigates for the first time terminated and dormant Riester contracts on a household level. Respectively 14.5% and 12.5% of households who own or have owned a Riester contract terminated it or stopped paying contributions. We find that around 45% of terminated or dormant Riester contracts are caused at least partly by product-related reasons, which is significantly higher than for endowment life insurance contracts. Uptake of a new contract after a termination is more likely if termination is productrelated. Nevertheless, after a termination 73% of households do not sign a new contract, which can have serious long-term consequences for old-age income. Households with low income, low financial wealth or low pension literacy are more likely to have terminated or dormant contracts. Low income and low financial wealth households also have the lowest prevalence rate of Riester contracts and are at higher risk of old-age poverty. |
| JEL: | D12 D91 D14 J26 |
| Date: | 2012–08–20 |
| URL: | http://d.repec.org/n?u=RePEc:mea:meawpa:12262&r=eec |