|
on European Economics |
|
Issue of 2013‒05‒24
thirteen papers chosen by Giuseppe Marotta University of Modena and Reggio Emilia |
| By: | Philip R. Lane (Institute for International Integration Studies, Trinity College Dublin) |
| Abstract: | This paper reviews the growth record of the member countries of the euro area and assesses the outlook for future economic performance. We describe how the external and fiscal adjustment challenges facing the euro periphery amplify the growth risks facing these countries. We address how growth prospects can be improved by shifts in the macroeconomic policy mix, carefully-timed structural reforms, debt restructuring and the resolution of the existential crisis facing the euro area. |
| Keywords: | euro crisis, structural reform, external adjustment |
| JEL: | E63 F32 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp426&r=eec |
| By: | Fève, Patrick; Sahuc, Jean-Guillaume |
| Abstract: | This article addresses the existence of a wide range of estimated government spending multipliers in a dynamic stochastic general equilibrium model of the euro area. Our estimation results and counterfactual exercises provide evidence that omitting the interactions of key ingredients at the estimation stage (such as Edgeworth complementarity between private consumption and government expenditures, endogenous government spending policy and general time nonseparable preferences) paves the way for potentially large biases. We argue that uncertainty on the quantitative assessments of fiscal programmes could partly originate from these biases. |
| Keywords: | Government spending multiplier, DSGE models, Estimation bias, Euro area. |
| JEL: | C32 E32 E62 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:27173&r=eec |
| By: | Paul Hubert (Ofce sciences-po) |
| Abstract: | The European Central Bank publishes inflation projections quarterly. This paper aims at establishing whether they influence private forecasts and whether they may be considered as an enhanced means of implementing policy decisions by facilitating private agents’ information processing. We provide original evidence that ECB inflation projections do influence private inflation expectations. We also find that ECB projections give information about future ECB rate movements, and that the ECB rate has different effects if complemented or not with the publication of ECB projections. We conclude that ECB projections enable private agents to correctly interpret and predict policy decisions. |
| Keywords: | Monetary policy, ECB, Private forecasts, Influence, Structural Var |
| JEL: | E52 E58 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:1304&r=eec |
| By: | Covi, Giovanni |
| Abstract: | The general aim of the paper is to address the doubts that too often the Central Banks’ tools and operations don’t fit for a fine tuning of the economies, and this is even more true in harsh times. The paper begins with an overview on the great failures respectively of the Federal Reserve, the so called "golden silence" in the 1929 Great Crash, and of the European Central Bank during the second great contraction, the 2008 Financial Crisis. Then I critically appraise the so-called “Two pillar approach”, a methodological tool employed by the ECB for assessing the risks to price stability. I survey the literature on the subject with the purpose of going at the roots of the “technical” difficulties. The first outcome emphasizes the existing disagreement between the criticisms and the proposed solutions. The second outcome is the unanimity of the opinions that the inflation target chosen at 2% by ECB for the Eurozone is too low, thereby making the whole MPS excessively restrictive. I conclude observing that the “core” inflation-target of 2% is in fact at the very basis of the ECB non-intervention policy. For a simple and sobering reason: even if between 2003 and 2008 the stock market bubble was growing at unreal rate, since the inflation target wasn’t in any jeopardy, the European Central Bank didn’t do anything. Maintaining the goal of price stability was much more important than assuring financial stability, thereby preventing the Financial Crisis. |
| Keywords: | Monetary Policy – Central Banking – European Central Bank – Inflation - Financial Crisis |
| JEL: | E52 E58 |
| Date: | 2013–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:47085&r=eec |
| By: | Philipp König; Kartik Anand; Frank Heinemann; |
| Abstract: | Bank liability guarantee schemes have traditionally been viewed as costless measures to shore up investor confidence and stave off bank runs. However, as the experiences of some European countries, most notably Ireland, have demonstrated, the credibility and effectiveness of these guarantees is crucially intertwined with the sovereign’s funding risks. Employing methods from the literature on global games, we develop a simple model to explore the systemic linkage between the rollover risks of a bank and a government, which are connected through the government’s guarantee of bank liabilities. We show the existence and uniqueness of the joint equilibrium and derive its comparative static properties. In solving for the optimal guarantee numerically, we show how its credibility may be improved through policies that promote balance sheet transparency. We explain the asymmetry in risk-transfer between sovereign and banking sector, following the introduction of a guarantee as being attributed to the resolution of strategic uncertainties held by bank depositors and the opacity of the banks’ balance sheets. |
| Keywords: | bank debt guarantees, transparency, bank default, sovereign default, global games |
| JEL: | G01 G28 D89 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2013-025&r=eec |
| By: | Dabrowski , Marek (BOFIT) |
| Abstract: | Achieving price stability has been a serious challenge for CIS countries. In the first half of the 1990s, they experienced very high inflation or hyperinflation, which had originated in the perestroika period and following the dissolution of the ruble area. After the introduction of new currencies and stabilization programs in the mid-1990s, inflation moderated to two-digit levels. However, for lack of sufficient fiscal policy support, this partial progress did not succeed in preventing the financial crisis of 1998/99. The economic boom of the 2000s allowed for a return to macroeconomic stability with stronger fiscal fundamentals, but nevertheless proved insufficient to withstand the shock from the global financial crisis of 2008/09. The paper analyses the evolution monetary policy regimes of in the CIS countries over the decade of the 2000s and early 2010s and is based on the publicly available cross-country statistics and other information provided by the IMF. The paper compares financial openness in these economies both de jure and de facto. These findings will be tested against the empirical data on exchange rate movements and changes in central banks’ international reserves. The paper concludes with a discussion on practical choices which CIS countries have in respect of their future monetary policy regimes. |
| Keywords: | monetary policy; CIS; financial openness; inflation |
| JEL: | E42 E58 P24 P52 |
| Date: | 2013–05–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2013_008&r=eec |
| By: | Nicholas Apergis; Arusha Cooray |
| Abstract: | The goal of the present paper is to investigate not only the dynamics of the Greek public debt, but also the appropriate measures required for achieving fiscal consolidation. The empirical estimation is carried out using a macroeconomic dataset spanning the period 1980-2008 and both the 3SLS methodological approach on a theoretical model and the structural VAR methodology to perform forecast tests and to calibrate the future paths of the public debt variable up to 2020. The results suggest that only an aggressive growth policy could permit the country to achieve debt sustainability. The results are expected to have important implications to policy makers for designing effective macroeconomic policy in terms of achieving sustainable levels of public debt. |
| Keywords: | primary balance, public debt, structural modeling, Greece |
| JEL: | E62 C51 C30 E27 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2013-25&r=eec |
| By: | Elias Soukiazis (Faculty of Economics, University of Coimbra and GEMF, Portugal); Pedre André Cerqueira (Faculty of Economics, University of Coimbra and GEMF, Portugal); Micaela Antunes (Department of Economics, Business and Industrial Engineering, University of Aveiro and GEMF, Portugal) |
| Abstract: | Recently, Soukiazis E., Cerqueira P., and Antunes M. (2013) developed a model – hereafter the SCA model - that takes into account both internal and external imbalances and where relative prices are not neutral in the pace economic growth. The SCA model can be considered as an extension of the well known Thirlwall´s Law (Thirlwall, 1979) stating that growth can be constrained by the balance-of-payments when the current account is in permanent deficit. However, Thirlwall´s Law focuses on external imbalances as impediments to growth and does not consider the case where internal imbalances (budget deficits or public debt) can also constrain growth. The recent European public debt crisis in the peripheral countries shows that when internal imbalances are out of control they can constrain growth and domestic demand in a severe way. The aim of this paper is to implement the more complete SCA model in Italy and check its accuracy for explaining the growth path in this country. Our empirical analysis shows mainly that Italy grew less than its potential capacity due to supply constraints. A scenarios analysis shows that improving external trade performance is the most effective way to achieve higher growth in Italy. |
| Keywords: | Internal and external imbalances, price and income elasticities of external trade, equilibrium growth rates, 3SLS system regressions, supply constraints. |
| JEL: | C32 E12 H6 O4 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:wpaper:2013-14.&r=eec |
| By: | L. Marattin |
| Abstract: | This paper offers a formal analysis of the relationship between changes in government primary balance and debt-to-GDP ratio. it establishes the conditions under which a fiscal consolidation increases - instead of decreasing - the stock of government liabilities relative to aggregate output. A crucial role is played by the relationship between the elasticities of average cost of debt and nominal output to primary balance: while the former depends on debt maturity and risk premia dynamics, the latter relates to the well-known controversy on the size of government spending multipliers. The paper shows an application to the ongoing fiscal consolidation process in the Eurozone. |
| JEL: | E62 H32 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp880&r=eec |
| By: | Gabriel Pino; Juan de Dios Tena; Antoni Espasa |
| Abstract: | We study the performance of different modelling strategies for 969 and 600 monthly price indexes disaggregated by sectors and geographical areas in Spain, regions, and in the EA12, countries, in order to obtain a detailed picture of inflation and relative sectoral prices through geographical areas for each economy, using the forecasts from those models. The study also provides a description of the spatial cointegration restrictions which could be useful for understanding price setting within an economy. We use spatial bi-dimensional vector equilibrium correction models, where the price indexes for each sector are allowed to be cointegrated with prices in neighbouring areas using different definitions of neighbourhood. We find that geographical disaggregation forecasts are very reliable on a regional level in Spain as they improve the forecasting accuracy of headline inflation relative to alternative methods. Geographical disaggregation forecasts are also reliable for the EA12 but only because derived headline inflation forecasting is not significantly worse than alternative forecasts. These results show that regional analysis within countries is appropriate in the euro area. These highly disaggregated forecasts can be used for competitive and other type of macro and regional analysis |
| Keywords: | Spatial cointegration, Regional and sectoral prices, Regional analysis, Relative prices, Price setting, Competitiveness |
| JEL: | C2 C5 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:cte:wsrepe:ws130807&r=eec |
| By: | Gerlach, Petra |
| Abstract: | Since the onset of the financial crisis, income and consumption have fallen sharply in Ireland, particularly for young households. This paper shows that young households are more likely than older ones to be exposed to unemployment, arrears and negative equity. These may give rise to credit constraints and buffer-stock savings. Savings may be built up not only to finance future consumption, but also to deleverage, since high indebtedness makes the access to additional credit more difficult. We show that the permanent income hypothesis, which posits that consumption should evolve more smoothly than actual income, apparently fails to hold for households in negative equity, at risk thereof and at risk of unemployment. This may have caused much of the decline in aggregate consumption during the crisis. |
| Keywords: | Credit constraints,Ireland,Household Budget Survey |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp457&r=eec |
| By: | Alfonso Mendoza Velázquez; Peter N. Smith |
| Abstract: | The equity premium in the UK appears to have risen significantly since the start of the financial crisis and the associated extended recession. This paper examines the relationship between the business cycle and equity market returns to see how robust this association is. Several classifications of UK business cycle quarters are examined and related to the returns from an investment strategy which buys the market one or more quarters after a business cycle quarter and holds it for one year. Official business cycle dating methods as well as identified structural macroeconomic shocks are examined. The findings are that there is clear evidence for counter-cyclicality in excess returns. Returns are significantly higher in the year following a recession rather than an expansion quarter. There is also a significant difference in the pattern of returns if the downturn in the quarter is the result of a supply or demand shock. Negative supply shocks are found to have an especially large and significant counter cyclical impact on returns. This paper analyses a long period of UK data for determining realised returns using revised data as well as expected returns using a shorter dataset of real-time data. The paper finds similar results for the two datasets suggesting that realsied and expected returns may not be so different from one another. The paper also assesses the ability of the models to forecast outside of their sample period. |
| Keywords: | Equity Returns, Equity Premium, Business Cycle |
| JEL: | G12 C32 C51 E44 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2013-22&r=eec |
| By: | Aleksandra Parteka (Gdansk University of Technology, Gdansk, Poland) |
| Abstract: | This paper presents empirical evidence on the diversification process concerning Polish exports (1994-2010), compared to European and global samples of countries. It analyzes both the commodity structure of Polish trade and the geographical diversification of Poland’s trading partners. The analysis draws on highly disaggregated data on exports (HS 6digit) and combines descriptive analysis with non-parametric, semi-parametric and parametric estimation models. The results suggest that Poland (exporting 84% of all goods present in the sample) can be placed among countries with well-diversified export products. In terms of geographical diversification, Poland exploits approximately one-fifth of its theoretical overall market reach potential (the best score among new member states) and the diversification of its partner countries increased in the period analyzed. The Polish export portfolio, in terms of the variety of both its products and receiving markets, is more diversified than what is typical for countries at approximately the same stage of economic development. |
| Keywords: | diversification, trade, export, Poland |
| JEL: | F14 F41 O11 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:gdk:wpaper:10&r=eec |