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on European Economics |
| 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:aqr:wpaper:201301&r=eec |
| By: | Zsolt Darvas; Jean Pisani-Ferry; Guntram B. Wolff |
| Abstract: | The issue: The European Union's pre-crisis growth performance was disappointing enough, but the performance has been even more dismal since the onset of the crisis. Weak growth is undermining private and public deleveraging,and is fuelling continued banking fragility. Persistently high unemployment is eroding skills, discouraging labour market participation and undermining the EUâ??s long-term growth potential. Low overall growth is making it much tougher for the hard-hit economies in southern Europe to recover competitiveness and regain control of their public finances. Stagnation would reduce the attractiveness of Europe for investment. Under these conditions, Europe's social models are bound to prove unsustainable. Policy Challenge: The European Union's weak long-term growth potential and unsatisfactory recovery from the crisis represent a major policy challenge. Over and above the structural reform agenda, which vitally important, bold policy action is needed. The priority is to get bank credit going. Banking problems need to be assessed properly and bank resolution and recapitalisation should be pursued. Second, fostering the reallocation of factors to the most productive firms and the sectors that contribute to aggregate rebalancing is vital. Addressing intra-euro area competitiveness divergence is essential to support growth in southern Europe. Third, the speed of fiscal adjustment needs to be appropriate and EU funds should be front loaded to countries in deep recession, while the European Investment Bank should increase investment. See the annex for this Policy Brief here. |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polbrf:776&r=eec |
| By: | David Guerreiro |
| Abstract: | This paper is interested in linking formally external disequilibriums to the sovereign debt crisis the EMU is experiencing since 2009. Relying on the CHEER approach that connects the goods market to the capital market, we show that when a country belonging to a monetary union faces external disequilibrium relative to its main partner, the corresponding interest rate differential increases. Moreover, when these imbalances are persistent, it may trigger a balance of payments crisis. Our findings indicate that this phenomenon seems to be at play for the European countries under international assistance. |
| Keywords: | balance of payments crisis, CHEER, debt crisis, external imbalances, Eurozone |
| JEL: | F33 F34 G01 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:wsr:wpaper:y:2013:i:118&r=eec |
| By: | Christian Dreger; Yanqun Zhang |
| Abstract: | The Chinese economic development affects GDP growth and inflation in the advanced countries. A GVAR approach is used to model the interdependencies between the business cycles in China and industrial countries, including the US, the euro area and Japan. For robustness, the results are compared to those obtained by leading structural econometric models, such as NiGEM and OEF. Evidence is based on the responses to a Chinese shock stemming from the recent fiscal stimulus package. The results indicate that the impact on GDP growth in the advanced economies is substantial for the Asian region. The expansionary effects to the US and the euro area responses are much lower and decrease due to rising inflation pressure. The analysis also reveals that China is still highly vulnerable to shocks in industrial countries, including the government debt crisis in the euro area. |
| Keywords: | GVAR, Chinese integration, shock transmission, euro area debt crisis |
| JEL: | E32 F15 C51 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:wsr:wpaper:y:2013:i:116&r=eec |
| By: | Suni, Paavo; Vihriälä, Vesa |
| Abstract: | Abstract: The euro crisis has rekindled questions about the advantages and disadvantages of membership in the European Monetary Union. In the Northern periphery of the EU, the different monetary regime choices of Finland and Sweden have created a particularly interesting testing ground for the benefits of the EMU. The average growth rates were rather similar before the Great Recession that started in the autumn of 2009, while Sweden has grown faster since that. In terms of price stability Sweden has fared somewhat better than Finland in the EMU period. We assess the effects of the regime choice by simulating the behaviour of the Swedish economy with National Institute’s Global Econometric Model (NiGEM) on the assumption that Sweden had joined the EMU in 1999. The simulation exercise suggests that the independent monetary regime reduced the impact of the global shock on Sweden. The different monetary regimes cannot, however, explain the growth gap between Sweden and Finland anymore in 2012. Other factors, such as the decline of the Nokia cluster, are needed for that. As a whole, our results suggest that the different choices with regard to the EMU have not affected the macroeconomic outcomes very much. |
| Keywords: | Finland, Sweden, EMU, simulation, counter factual |
| JEL: | C15 F17 F37 P52 |
| Date: | 2013–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:rif:report:7&r=eec |
| By: | Christian Dreger; Jürgen Wolters |
| Abstract: | This paper examines the stability of money demand and the forecasting performance of a broad monetary aggregate (M3) in predicting euro area inflation. Excess liquidity is measured as the difference between the actual money stock and its fundamental value, the latter determined by a money demand function. The out-of sample forecasting performance is compared to widely used alternatives, such as the term structure of interest rates. The results indicate that the evolution of M3 is still in line with money demand even in the period of the financial and economic crisis. Monetary indi-cators are useful to predict inflation, if the forecasting equations are based on measures of excess liquidity. |
| Keywords: | Money demand, excess liquidity, inflation forecasts |
| JEL: | C22 C52 E41 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:wsr:wpaper:y:2013:i:119&r=eec |
| By: | António Afonso; Priscilla Toffano |
| Abstract: | We assess the existence of fiscal regime shifts in the U.K., Germany, and Italy, using Markov switching fiscal rules. On the basis of a newly built quarterly data set, our results show the existence of fiscal regimes shifts, sometimes coupled with regime switches also regarding monetary developments. While in the UK “active” and “passive” (Leeper, 1991) fiscal regimes are somewhat clearer cut, in Germany fiscal regimes have been overall less active, supporting more fiscal sustainability. For Italy, a more passive fiscal behaviour is uncovered in the run-up to EMU. |
| Keywords: | Fiscal regimes, Markov-switiching, EU. |
| JEL: | C22 E62 H62 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp102013&r=eec |
| By: | Erik S. Reinert; Rainer Kattel |
| Abstract: | This chapter argues that the crisis in the Baltic countries can be properly understood only in the context of the dramatic de-industrialization and structural change that took place in these countries, and other Eastern European economies, following the fall of the Berlin Wall. It is argued that with the Eastern enlargement, climaxing in 2004 with formally admitting Eastern European economies into the Union, the European Union gradu-ally abandoned its previous strategy of symmetrical integration . based on principles surviving from the Post World War II era, inspired by Fried-rich List . integrating the region�s economies into a structurally asym-metrical relationship that has common elements with colonialism. Once the real-estate bubbles collapsed, this underlying structural weakness became evident, causing wage collapse and outward migration. We show that the Eastern enlargement . along with financial architecture of the euro zone . also undermined the success of previous waves of enlarge-ments, particularly that of Spain. In the Baltic countries the effect of the crisis was, as could be expected, a massive redistribution of income: wages as a percentage of GDP (the share of �the 99 per cent�) plum-meted by some 6 percentage points while profits and rents (the share of �the one per cent�) rose correspondingly. We also discuss whether the Estonian case actually deserves to be called an .internal devaluation�, and indicate that what apparently dampened the crisis were not local policy initiatives but forces external to the region. The chapter also presents two different scenarios from the crisis in the 1930s . the US and the German ones . and asks if this crisis is likely to follow the US or the German pat-tern of income distribution. It is argued that the pattern likely to be fol-lowed is the German rather than the US one, which in the present context is likely to produce a long crisis and at worst make EU wage reductions permanent. |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:tth:wpaper:49&r=eec |
| By: | Maliranta, Mika; Vihriälä, Vesa |
| Abstract: | We assess Finland’s competitiveness in the light of various, mainly short-term indicators. It turns out that the weak export market performance over the last few years is linked to the deterioration of profitability of production in Finland. A better export and employment performance requires a decline of relative unit labour costs and an improvement of business profitability. Wage moderation would obviously serve this purpose. On the other hand, the determinants of Finland’s long-term competitiveness are quite good and maintaining and developing them should remain a key element of economic policy also in the future. In contrast, it would be a mistake to believe that Finland’s current competitiveness challenges could be solved primarily by improving management skills. |
| Keywords: | competitiveness, profitability, productivity, export performance, employment |
| JEL: | F40 E25 E64 J31 O47 |
| Date: | 2013–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:rif:report:9&r=eec |
| By: | Valeria Andreoni (European Commission – JRC - IPTS); Arto Inaki (European Commission – JRC - IPTS); Jose Manuel Rueda Cantuche (Pablo Olavide University); Nuno Sousa (European Commission – DG Trade) |
| Abstract: | This note provides an overview of the employment impact of exporting activity in the EU. We find that the exports of goods and services to the rest of the world supported around 25 million jobs in Europe in 2007 (an increase of 3 million since 2000). Two main additional insights stand out from this analysis: the importance of the complementary relation between the Single Market and external trade for job creation in Europe, and the “servicification” of the employment supported by exports. |
| Keywords: | Trade; Employment; Production Chain; Spillover Effect; Input-Output Analysis; EU27 |
| JEL: | E24 F16 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc71120&r=eec |
| By: | Nikula, Nuutti; Kotilainen, Markku |
| Abstract: | Abstract: We have defined the Baltic Sea Region as consisting of the following countries: Denmark, Estonia, Finland, Germany, Latvia, Lithuania, Poland, Sweden, and Russia. We investigate foreign direct investment (FDI) flows from 1995 to 2010 to these countries econometrically. We use two basic models: the first one treats aggregate FDI inflows by countries, and the second focuses on bilateral FDI flows between country pairs. Because of limitations in data availability, the second model is built for a smaller group of countries. In this model we take into account the origin country of the FDI. Our results show that macroeconomic factors such as corporate taxes are important determinants for FDI flows. We notice that these factors and their effects vary between the Baltic Sea Region countries. Foreign trade with the investing country is also a statistically significant determinant for FDI, i.e. the countries that have trade with each other also invest in each other. On the other hand distance between countries doesn’t explain FDI flows. Institutional factors such as EU membership or a common currency are not statistically significant in our estimations but this could be because of data limitations and because of the fact that these changes in countries’ international status are incorporated in the other variables and are also foreseen by the investors. |
| Keywords: | Foreign direct investment (FDI), Baltic Sea Region, Denmark, Estonia, Finland, Germany, Latvia, Lithuania, Poland, Sweden, Russia |
| JEL: | F21 F23 F13 F15 |
| Date: | 2013–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:rif:report:1&r=eec |
| By: | Barbara Annicchiarico; Fabio Di Dio; Francesco Felici; Libero Monteforte |
| Abstract: | This paper provides a full technical account of the Italian General Equilibrium Model (IGEM), a new dynamic general equilibrium model for the Italian economy developed at the Department of Treasury of the Italian Ministry of the Economy and Finance. IGEM integrates typical New Keynesian elements, such as imperfect competition and nominal rigidities, into a general equilibrium framework. One of the key features of the model is the detailed representation of the labor market, designed to capture the dualism of the Italian economic system. The new model will serve as a laboratory for policy analysis. |
| Keywords: | Dynamic General Equilibrium Model, Simulation Analysis, Italy |
| JEL: | E27 E30 E60 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:itt:wpaper:wp2013-04&r=eec |