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on European Economics |
| By: | Maximilian Goedl (Karl-Franzens University of Graz); Joern Kleinert (Karl-Franzens University of Graz) |
| Abstract: | We analyze the determinants of interest rates on long-term government bonds within the Eurozone to assess whether the recent divergence in interest rates is attributable to changes in common economic fundamentals. First, we show that the panel approach, mostly employed by existing literature on this issue, has conceptual as well as empirical problems. Therefore we harness an event study approach using high-frequency (daily) data to investigate the impact of three categories of events on EMU government bond yields. Our results indicate that yields react to forecasts on key economic indicators such as growth and future budget deficits. In contrast, we do not find evidence that investors react to announcement of fiscal "bailouts" or austerity measures. |
| Keywords: | Product differentiation, Gravity Equation, Cross-border bank lending |
| JEL: | L14 F34 G21 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:grz:wpaper:2013-04&r=eec |
| By: | Colignatus, Thomas |
| Abstract: | The rules of the Eurozone cause the euro to function as the gold standard. The US economy performs better in some respects, partly because of the advantages of fiat money. The treaty on the EMU has to be adapted in order not to become dependent upon current ad hoc measures, with the loss of welfare over the years 2008-2013+. If Eurozone nations create their own national Economic Supreme Courts, then an optimal currency area can still come about without transfer to Brussels of national sovereignty on the budget. When consumers and agents can have deposits at a local branch of the European Central Bank, a system of deposit insurance has been established by itself. Advisable is a split-up between (1) the primary payment system with retail banks that are franchises of the ECB, (2) the secundary savings and loans banks, and (3) the tertiary investment banks. The shadow banking system must be redressed, with every financial transaction having an identified regulation. Conforming to an earlier proposal the ECB can create funds to redress debt. Notably, 400 billion euro can be created and invested in bank capital, and be directly neutralised by the capital requirement of 10.5%. Another 400 billion can be used to clean up the debt of Greece and Italy. Their participation in the Eurozone was a political decision and thus the Eurozone must bear the consequences. To satisfy the no-bailout-condition, Greece and Italy could create economic zones comparable to the lease of Hong Kong, where companies could invest and operate under international law for the next 40 years. |
| Keywords: | Economic stability; monetary policy; economic crisis; euro; European Central Bank; bank capital; risk free rate; fiscal policy; tax; external balance; Economic Supreme Court; optimal currency area; investment; investment banks; Banking Union |
| JEL: | E00 A10 P16 |
| Date: | 2013–04–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:45759&r=eec |
| By: | Thomas I. Palley |
| Abstract: | This paper argues the euro zone crisis is the product of a toxic neoliberal economic policy cocktail. The mixing of that cocktail traces all the way back to the early 1980s when Europe embraced the neoliberal economic model that undermined the income and demand generation process via wage stagnation and widened income inequality. Stagnation was serially postponed by a number of developments, including the stimulus from German re-unification and the low interest rate convergence produced by creation of the euro. The latter prompted a ten year credit and asset price bubble that created fictitious prosperity. Postponing stagnation in this fashion has had costs because it worsened the ultimate stagnation by creating large build-ups of debt. Additionally, the creation of the euro ensconced a flawed monetary system that fosters public debt crisis and the political economy of fiscal austerity. Lastly, during this period of postponement, Germany sought to avoid stagnation via export-led growth based on wage repression. That has created an internal balance of payments problem within the euro zone that is a further impediment to resolving the crisis. There is a way out of the crisis. It requires replacing the neoliberal economic model with a structural Keynesian model; remaking the European Central Bank so that it acts as government banker; having Germany replace its export-led growth wage suppression model with a domestic demand-led growth model; and creating a pan-European model of wage and fiscal policy coordination that blocks race to the bottom tendencies within Europe. Countries, particularly Germany, can implement some of this agenda on their own. However, much of the agenda must be implemented collectively, which makes change enormously difficult. Moreover, the war of ideas in favor of such reforms has yet to be won. Consequently, both politics and the ruling intellectual climate make success unlikely and augur a troubled future. |
| Keywords: | Financial crisis, euro zone, neoliberalism |
| JEL: | E00 E24 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:imk:wpaper:111-2013&r=eec |
| By: | Luca Agnello (Banque de France and University of Palermo); Vitor Castro (University of Coimbra, GEMF and NIPE); Ricardo M. Sousa (University of Minho, NIPE, London School of Economics and FMG) |
| Abstract: | This paper assesses the determinants of the length of fiscal consolidation using annual data for 17 industrial countries over the period 1978-2009. Relying on a narrative approach to identify fiscal consolidation episodes, we show that fiscal variables (such as the budget deficit and the level of public debt) and economic factors (such as the degree of openness, the inflation rate, the interest rate and per capita GDP) are crucial for the fiscal consolidation process. Additionally, we employ continuous and discrete-time duration analyses over a set of consolidation spells and find that evidence of positive duration dependence, i.e., as time goes by, the likelihood of a fiscal consolidation ending is higher. However, more flexible polynomial-in-time, time-dummies and cubic-splines specifications suggest that the hazard function is not monotonic: indeed, it increases until the eighth or ninth year and starts decreasing afterwards. We also find that: (i) spending-driven consolidations are shorter than tax-driven consolidations; (ii) both types of consolidation are longer in Non-European countries than for European countries; and (iii) the size of the consolidation program (in percentage of GDP) does not significantly affect duration. All in all, our results support the importance of cuts in government spending as a way of bringing economies into a sustainable path for public debt. Moreover, they highlight the role played by a fiscal framework that imposes discipline in governments as a device to credibly shorten the length of fiscal consolidation episodes. |
| Keywords: | fiscal consolidations, duration analysis, Weibull model, cubic splines. |
| JEL: | C41 E62 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:wpaper:2013-09.&r=eec |
| By: | Kahanec, Martin (Central European University); Fabo, Brian (Central European Labour Studies Institute) |
| Abstract: | This paper studies the migration response of the youth from new EU member states to disparate conditions in an enlarged European Union at the onset of the Great Recession. We use the Eurobarometer data and probabilistic econometric models to identify the key drivers of the intention to work in another member state of European Economic Area (EEA) and their expected duration. We find that migration intentions are high among those not married and among males with children, but both categories are also overrepresented among people with only temporary as opposed to long-term or permanent migration plans. Whereas age affects migration intentions negatively, education has no effect on whether working abroad is envisaged. However, conditional on envisaging to work abroad, completion of education (if after 16th birthday) is associated with long-term (at least five years), but not permanent, migration plans. Finally, we find that socio-demographic variables explain about as much variation of migration intentions as self-reported push and pull factors and migration constraints. |
| Keywords: | migration, EU labor markets, youth, EU enlargement, labor mobility, free movement of workers, transitional arrangements, new member states, European Union |
| JEL: | F22 J61 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7285&r=eec |
| By: | Nagayasu, Jun |
| Abstract: | This paper evaluates the forward premium puzzle using the Euro exchange rate. Unlike previous studies, our analysis utilizes time-varying parameter methods and is based on two approaches for evaluation of the puzzle; the traditional approach analyzing the sensitivity of interest rate differentials to the forward premium, and the other looking into deviations from the covered interest rate parity (CIRP) condition. Then we provide evidence that the forward premium puzzle indeed became more prominent around the time of the recent crisis periods such as the Lehman Shock and the Euro crisis. This is also shown to be consistent with a deterioration in the CIRP. |
| Keywords: | forward premium puzzle, risk premium, time-varying parameters, financial crises |
| JEL: | F31 F36 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:45746&r=eec |
| By: | Avouyi-Dovi, Sanvi; Idier, Julien |
| Abstract: | We consider the channel consisting in transferring the credit risk associated with refinancing operations between financial institutions to market participants. In particular, we analyze liquidity and volatility premia on the French government debt securities market, since these assets are used as collateral both in the open market operations of the ECB and on the interbank market. In our time-varying transition probability Markov-switching (TVTP-MS) model, we highlight the existence of two regimes. In one of them, which we refer to as the conventional regime, monetary policy neutrality is verified; in the other, which we dub the unconventional regime, monetary policy operations lead to volatility and liquidity premia on the collateral market. The existence of these conventional and unconventional regimes highlights some asymmetries in the conduct of monetary policy. |
| Keywords: | Monetary policy; Collateral; Liquidity; Volatility; French bond market; |
| JEL: | G10 C22 C53 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:ner:dauphi:urn:hdl:123456789/11155&r=eec |
| By: | Peter Martey Addo (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, Università Ca' Foscari of Venice - Department of Economics, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Monica Billio (Università Ca' Foscari of Venice - Department of Economics); Dominique Guegan (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | We propose a transparent way of establishing a turning point chronology for the Euro-zone business cycle. Our analysis is achieve by exploiting the concept of recurrence plots, in this case distance plot, to characterize and detect turning points in the business cycle for any economic system. Firstly, we exploit the concept of recurrence plots on the US Industrial Production Index (IPI) series to serve as a beachmark for our analysis since there already exist reference chronology for the US business cycle, provided by the Dating Committee of the National Bureau of Economic Research (NBER). We then use this concept in constructing a turning point chronology for the Euro-zone business cycle. In particular, we show that this approach permits to detect turning points and study the business cycle without a priori assumptions on the statistical properties on the underlying economic indicator. |
| Keywords: | Recurrence Plots; economic cycles; turning points; Euro-zone |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00803457&r=eec |
| By: | Thorsteinn Thorgeirsson; Paul van den Noord |
| Abstract: | This study examines the economic policies of the Icelandic government in the wake of the banking collapse of 2008 in terms of counter-factual policy options. The path chosen was important for the recovery but policy makers faced alternative policy options for handling the many difficult situations that arose, with potential implications for government finances and economic growth. We utilize two complementary macroeconomic models to assess the decisions taken and the recovery and on that basis develop counter-factual scenarios of how the crisis could have played out if the decisions had been different. Four alternative scenarios are considered involving different ways to deal with the collapse: i) adopt a more pro-cyclical fiscal policy, ii) allow the ISK exchange rate to drop without imposing capital controls, iii) pay the interest expense on the initial Icesave agreement, or iv) rescue the banks as Ireland did. Macroeconomic model simulations are performed to assess the impact of different decisions involving public finances on economic growth, unemployment and other macroeconomic variables over the period 2008-2025. The results are compared to the actual path taken. Addressing this question is potentially interesting in its own right and also from the point of view of other countries that have experienced similar crises but have responded differently. |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:ice:wpaper:wp62&r=eec |
| By: | Janusz Jablonowski (National Bank of Poland); Christoph Müller (Albert-Ludwigs-Universität Freiburg) |
| Abstract: | In this paper we evaluate the long-term performance of the Polish public pension system from three perspectives: fiscal stability, intergenerational redistribution and adequacy of pension benefits. We assess the two recent public pension reforms undertaken in Poland: 1) the shift of a part of pension contributions from the funded to the unfunded pension pillar and 2) the gradual increase in retirement ages to 67 for both men and women. The results suggest that the combined effect of both reforms shows a significant improvement in cash balances until 2040. The burden of the reforms is shared relatively equally across generations. The effect of higher retirement ages on benefit levels is also positive, especially for those having standard job contracts. What is worrying, however, is the general future drop of benefit levels, in particular for the group of self-employed persons. Policy makers should, therefore, start discussing possible measures today if they aim to avoid a significant increase in old age poverty in the future. |
| Keywords: | Generational Accounting, fiscal sustainability, fiscal policy, Poland, pension reform |
| JEL: | H50 H55 H60 H68 J10 H30 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:145&r=eec |
| By: | Francesco Daveri; Rèmy Lecat; Maria Laura Parisi |
| Abstract: | We use firm-level data for France and Italy to explore the impact of service regulation reform implemented in the two countries on the mark-up and eventually on the performance of firms between the second half of the 1990s and 2007. We find that the relation between entry barriers and productivity is negative and is crucially intermediated through the firm’s mark up. If both countries adopted OECD’s best practices in terms of entry barriers, their TFP level would increase by 3% for Italy and 3.5% for France. |
| Keywords: | Regulation, services, performance, TFP |
| JEL: | D24 K20 L51 O40 O57 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:itt:wpaper:2013-3&r=eec |