|
on European Economics |
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Issue of 2013‒03‒02
fourteen papers chosen by Giuseppe Marotta University of Modena and Reggio Emilia |
| By: | Peter Claeys (Faculty of Economics, University of Barcelona); Borek Vašícek (Czech Czech National Bank, Economic Research Department) |
| Abstract: | We use the forecast-error variance decompositions from a VAR with daily sovereign bonds spreads since 2000 to detail the linkages between EU sovereign bond markets and banks over time. Using new summary statistics on the matrix of bilateral linkages, we show Spain is systemic for Europe. Its fiscal problems expose it to trouble in sovereign bond markets of the other Club Med countries, whereas its internationally grown banking sector transmits domestic economic trouble to the rest of Europe. This spillover has substantially increased since the outbreak of the Fiscal Crisis in the Eurozone in May 2010. We develop a real-time indicator to follow the degree of spillover on a daily basis. |
| Keywords: | spillover, contagion, sovereign bond spreads, fiscal policy, Eurozone, financial crisis, sovereign ratings.. JEL classification: G12, C14, E43, E62, G12, H62, H63 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:201301&r=eec |
| By: | Henri Audigé |
| Abstract: | The objective of this paper is to gauge how and to which extent the surge in Greek sovereign bond rates in 2010 and 2011 has spilled over the rest of the Euro-area. To this end, we rely on a new class of contagion tests based on Smooth Transition Conditional Correlation GARCH models (STCC-GARCH). Our results highlight the existence of contagion and “wake-up call†effects from Greece to Ireland and Portugal in 2010, and a decoupling in the correlations between Greece and other peripheral countries in 2011. Regarding the core countries, our findings suggest flight-to-quality effects from Greece to Germany and the Netherlands. |
| Keywords: | Bond market, contagion, European crisis, multivariate GARCH models |
| JEL: | C32 C58 G01 G12 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2013-02&r=eec |
| By: | Rishi Goyal; Petya Koeva Brooks; Mahmood Pradhan; Thierry Tressel; Giovanni Dell'Ariccia; Ceyla Pazarbasioglu |
| Abstract: | The SDN elaborates the case for, and the design of, a banking union for the euro area. It discusses the benefits and costs of a banking union, presents a steady state view of the banking union, elaborates difficult transition issues, and briefly discusses broader EU issues. As such, it assesses current plans and provides advice. It is accompanied by three background technical notes that analyze in depth the various elements of the banking union: a single supervisory framework; a single resolution and common safety net; and urgent issues related to repair of weak banks in Europe. |
| Keywords: | Banking systems;Europe;Euro Area;Bank supervision;Bank regulations;Bank resolution;Deposit insurance;Financial safety nets;Monetary unions;Banking Union; Single Supervisory Mechanism; Direct Recapitalization; European Stabilization Mechanism; Resolution; Deposit Insurance; Common Backstops |
| Date: | 2013–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfsdn:13/01&r=eec |
| By: | Dirk Schoenmaker (Duisenberg School of Finance); Arjen Siegmann (VU University Amsterdam) |
| Abstract: | An anticipated benefit of the prospective European Banking Union is stronger supervision of European banks. Another benefit would be enhanced resolution of banks in distress. While national governments confine themselves to the domestic effects of a banking failure, a European Resolution Authority would follow a supranational approach, under which domestic and cross-border effects within Europe are incorporated. Using a model of recapitalising banks, this paper develops indicators to measure the efficiency improvement of resolution. Next, these efficiency indicators are applied to the hypothetical resolution of the top 25 European banks, which count for the vast majority of cross-border banking in Europe. Our cost-benefit analysis indicates that the UK, Spain, Sweden, and the Netherlands are the main beneficiaries and thus have the largest economic incentives to join Europe’s Banking Union. |
| Keywords: | F33; G01; G28; H41 |
| Date: | 2013–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20130026&r=eec |
| By: | Dimitris Sardelis |
| Abstract: | The aim of the present article is to offer a strictly mathematical, statistical treatment of the current account balances in EU and in the Eurozone. Based on Eurostat data, an overview of the total and annual balances is first made for different collections among the EU countries. Then, using the Mathematica technical computing software, curve fitting is employed to determine the functions which best reflect how surpluses and deficits accumulate with time. It is shown that both EU and the Eurozone economies ultimately have to pass through a critical, turning point beyond which the accumulation of deficits exceeds the accumulation of surpluses thus marking a period of instability. An interval estimate at a ninety eight percent degree of confidence, yields that EU is found in a phase of instability since 2011 while the instability turning point for the Eurozone is bound to occur any year from 2015 to 2018. |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1302.6212&r=eec |
| By: | Luca Agnello (Banque de France and University of Palermo); Vitor Castro (University of Coimbra, GEMF and NIPE, Portugal); Ricardo M. Sousa (University of Minho, NIPE, London School of Economics and FMG) |
| Abstract: | Recent research has shown that the likelihood of fiscal consolidations ending is dependent on its age. Whether its behaviour is smooth or bumpy is an issue that deserves further attention. In this paper, we start by building on a narrative approach to identify episodes of fiscal consolidation. Then, we use data for a group of 17 industrial countries over the period 1978-2009 and both continuous-time and discrete-time duration models to investigate whether the fiscal consolidation programs are duration dependent. We find evidence suggesting that the likelihood of a fiscal consolidation ending indeed increases over time. Finally, we extend the baseline Weibull duration model in order to allow for the presence of a change-point in the duration dependence parameter. The empirical findings show that positive duration dependence is present in fiscal consolidations that last less than six years, but no evidence of duration dependence is found for older consolidations. Additionally, fiscal consolidations tend to last longer in non-European than in European countries. From a policy perspective, the results contained in this paper emphasize that chronical fiscal imbalances might lead to a vicious austerity cycle, which, in turn, becomes responsible for longer fiscal consolidation programs. Moreover, they highlight the importance of the existence of an institutional framework that imposes some discipline in the behaviour of fiscal authorities as a means of achieving credible and, thereby, shorter adjustment measures. |
| Keywords: | Fiscal Consolidation, Duration Analysis, Weibull Model, Duration Dependence, Change-Points. |
| JEL: | C41 E62 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:wpaper:2013-06.&r=eec |
| By: | Mark Weisbrot; Helene Jorgensen |
| Abstract: | The IMF makes policy recommendations to European countries through its Article IV consultations and resulting papers. This paper examines IMF policy recommendations to see whether they have contributed to the ongoing crisis in Europe, and also how they might affect other European Union goals such as those of Europe 2020, which seeks to reduce social exclusion, promote public investment in research and development, and promote employment and education. The paper examines the policy advice given by the IMF to European Union countries in 67 Article IV agreements for the four years 2008-2011 (IMF 2012c). |
| Keywords: | ILO, IMF, article Iv, |
| JEL: | E F E5 E6 J |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:epo:papers:2013-03&r=eec |
| By: | Stahlecker, Thomas; Kroll, Henning |
| Abstract: | As next to all aspects of research are becoming internationalised at a more and more rapid pace the need for the creation of transnational research infrastructures can no longer be seen as limited to certain fields of natural sciences. Against the background, new policies have been launched with the stated ambition of developing world-class research infrastructures through the creation of critical mass for scientific undertakings across the continent. Thus they seek to contribute to the establishment of a European Research Area in which the fragmentation of scientific resources can be minimised. Against this background, it was the aim of this paper to analyse whether selected policies with the aim to build capacity in this field are likely to contribute to their objective to help foster the emerging European Research Area. Based on a recent representative survey of 598 European research organisations and available data for the 6th and 7th Framework Programmes for Research, evidence was collected to address two main research questions. Firstly, we found that the four largest EU countries (Germany, France, Italy, UK) still dominate both lines of actions aimed at building or extending research infrastructures in Europe (I3 actions and design actions) with a view to budget, project co-ordination and, to a lesser degree, participation. Nonetheless, their dominance seems to subside gradually. In different respects, some smaller Member States have become better integrated in funding schemes of the 7th Framework Programme than they were under the 6th Framework Programme. Beneficiaries in that sense include Denmark, Finland, Norway and Greece. On the one hand, our findings thus illustrate that the aim to overcome fragmentation is clearly reflected in structure of the policy programmes while, on the other hand, they illustrate that a challenging task remains ahead. Secondly, we found that the structure of expenditure and participation in the related actions under both the 6th and the 7th Framework Programme does not yet match well with the factual pattern of research infrastructures in Europe. Partially, that is due to the European Framework Programme's traditional focus on (nuclear) physics and astronomy that continues to take the largest share of all related allocations of funding. Additionally, however, there is evidence of conscious priority setting in new fields such as energy research and life sciences. Finally, the structure of allocations and participation under the 7th Framework Programme has come to reflect the factual pattern of research infrastructures in Europe better than was the case under FP 6, not least due to in increased acknowledgement of the role of the social sciences. In conclusion, the European effort to build and strengthen key research infrastructures seems well on track to build new momentum although it is unlikely to overcome the persistent disparities across the continent in the nearer future. -- |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fisifr:r42013&r=eec |
| By: | Mark P. Taylor; Stefan Reitz |
| Abstract: | Although the ERM II rules allow the Danish krone to fluctuate against the euro within an official target zone of 4.5%, most of the time the exchange rate has remained in a narrow range around its unconditional mean. Estimating a Smooth Transition Autoregression Target Zone (STARTZ) model confirms that the exchange rate exhibits target zone dynamics consistent with a band of approximately 0.75 percent around its unconditional mean. We conclude that the Danmark Nationalbank intervention policy of intra-marginal operations successfully managed an informal target zone in the foreign exchange market. |
| Keywords: | Target Zone, STARTZ model, Intervention |
| JEL: | E58 F31 G15 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1827&r=eec |
| By: | Katalin Szilágyi (Magyar Nemzeti Bank (central bank of Hungary)); Dániel Baksa (Magyar Nemzeti Bank (central bank of Hungary)); Jaromir Benes (International Monetary Fund); Ágnes Horváth (Magyar Nemzeti Bank (central bank of Hungary)); Csaba Köber (Magyar Nemzeti Bank (central bank of Hungary)); Gábor D. Soós (Magyar Nemzeti Bank (central bank of Hungary)) |
| Abstract: | March 2011 marked the introduction of the Magyar Nemzeti Bank’s Monetary Policy Model (MPM), representing a paradigm shift in both macroeconomic projection and monetary policy decision support. In contrast to previous conditional projections, the MPM provides an endogenous definition of both the projected policy rate and the projected exchange rate. Given the forward-looking nature of the model, expectations of economic agents play a key role in the monetary transmission process; therefore, the future achievement of the inflation target is guaranteed by the projected path of the interest rate over the forecast horizon. In this paper, we discuss the underlying structure and logic behind the MPM, describe the key behavioural equations and examine how the channels of monetary transmission appear in the model. In addition, we present the empirical validation process in detail from calibration, through Bayesian estimation and discussion of the economic properties of the model to the historical projection exercise. Finally, we discuss the main challenges we faced during the first year of application. |
| Keywords: | model projection, simulation, central banking, monetary policy |
| JEL: | C51 E17 E52 E58 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:wpaper:2013/1&r=eec |
| By: | Paul de Grauwe |
| Abstract: | I analyse the nature of the design failures of the Eurozone. I argue first that the endogenous dynamics of booms and busts that are endemic in capitalism continued to work at the national level in the Eurozone and that the monetary union in no way disciplined these into a union-wide dynamics. On the contrary the monetary union probably exacerbated these national booms and busts. Second, the existing stabilizers that existed at the national level prior to the start of the union were stripped away from the member-states without being transposed at the monetary union level. This left the member states “naked” and fragile, unable to deal with the coming national disturbances. I study the way these failures can be overcome. This leads me to stress the role of the ECB as a lender of last resort and the need to make macroeconomic policies more symmetric so as to avoid a deflationary bias in the Eurozone. I conclude with some thoughts on political unification. |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:eiq:eileqs:57&r=eec |
| By: | Avram, Silvia; Figari, Francesco; Leventi, Chrysa; Levy, Horacio; Navicke, Jekaterina; Matsaganis, Manos; Militaru, Eva; Paulus, Alari; Rastrigina, Olga; Sutherland, Holly |
| Abstract: | We compare the distributional effects of policy changes presented as fiscal consolidation measures in nine EU countries that experienced large budget deficits following the financial crisis of the late 2000s and subsequent economic downturn, using the EU microsimulation model EUROMOD. The nine countries, Estonia, Greece, Spain, Italy, Latvia, Lithuania, Portugal, Romania and the UK, chose different policy mixes to achieve varying degrees of fiscal consolidation. We find that the burden of fiscal consolidation brought about through the first round effects of increases in personal taxes, cuts in spending on cash benefits and reductions in public sector pay is shared differently across the income distribution in the nine countries. In Greece, Spain, Italy, Latvia, Romania and the UK the better off lose a higher proportion of their incomes than the poor. At the other extreme, in Estonia, the poor lose a higher proportion than the rich. In Lithuania and Portugal the burden of fiscal consolidation falls more heavily on the poor and the rich than it does on those with middle incomes. Including increases in VAT alters the comparative picture by making the policy packages appear more regressive, to varying extents. |
| Date: | 2013–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:ese:emodwp:em2-13&r=eec |
| By: | Chetty, Raj (Harvard University); Friedman, John N. (Harvard University); Leth-Peterson, Soren (University of Copenhagen); Nielsen, Torben Heien (Danish National Centre for Social Research); Olsen, Tore (University of Copenhagen) |
| Abstract: | Do retirement savings policies--such as tax subsidies or employer-provided pension plans--increase total saving for retirement or simply induce shifting across accounts? We revisit this classic question using 45 million observations on wealth for the population of Denmark. We find that a policy's impact on wealth accumulation depends on whether it changes savings rates by active or passive choice. Tax subsidies, which rely upon individuals to take an action to raise savings, have small impacts on total wealth. We estimate that each $1 of tax expenditure on subsidies increases total saving by 1 cent. In contrast, policies that raise retirement contributions if individuals take no action--such as automatic employer contributions to retirement accounts--increase wealth accumulation substantially. Price subsidies only affect the behavior of active savers who respond to incentives, whereas automatic contributions increase the savings of passive individuals who do not reoptimize. We estimate that approximately 85% of individuals are passive savers. The 15% of active savers who respond to price subsidies do so primarily by shifting assets across accounts rather than reducing consumption. These individuals are also more likely to offset changes in automatic contributions and have higher wealth-income ratios. We conclude that automatic contributions are more effective at increasing savings rates than price subsidies for three reasons: (1) subsidies induce relatively few individuals to respond, (2) they generate substantial crowd-out conditional on response, and (3) they do not influence the savings behavior of passive individuals, who are least prepared for retirement. |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp13-002&r=eec |
| By: | Peter E.J. Steffen (Universität Hamburg (University of Hamburg)) |
| Abstract: | A method is presented that allows to separate the total labor income into parts of basic labor and human capital using annual micro data. As results yearly total income shares of physical and human capital and labor are obtained for a single country. The method is applied to Germany using micro data of the years 1976, 1985, 1995, and 2006. The obtained average income shares are in agreement with the well known results of Mankiw, Romer and Weil [8] if only employed workers are considered. If self-employed labor is also taken into account, the share ratios of physical and human capital and labor change to sK : sH : sL = 0:18 : 0:26 : 0:55. This result diers considerably from the generally expected share ratios for developed countries of 1/3 : 1/3 : 1/3. Further on, the development of the German income shares are investigated. The observed variation is in contradiction to a constant behavior as expected from Kaldor's stylized facts. The source could be traced to considerable changes in the qualication structure of the German work force. |
| Keywords: | human capital, Mikrozensus, annual factor income shares, factor share development |
| JEL: | D33 E25 J24 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:hep:macppr:201302&r=eec |