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on European Economics |
| By: | Lucas, André (VU University Amsterdam and Tinbergen Institute); Schwaab, Bernd (European Central Bank); Zhang, Xin (Research Department, Central Bank of Sweden) |
| Abstract: | We propose an empirical framework to assess the likelihood of joint and conditional sovereign default from observed CDS prices. Our model is based on a dynamic skewed-t distribution that captures all salient features of the data, including skewed and heavytailed changes in the price of CDS protection against sovereign default, as well as dynamic volatilities and correlations that ensure that uncertainty and risk dependence can increase in times of stress. We apply the framework to euro area sovereign CDS spreads during the euro area debt crisis. Our results reveal significant time-variation in distress dependence and spill-over effects for sovereign default risk. We investigate market perceptions of joint and conditional sovereign risk around announcements of Eurosystem asset purchases programs, and document a strong impact on joint risk. |
| Keywords: | sovereign credit risk; higher order moments; time-varying parameters; financial stability |
| JEL: | C32 G32 |
| Date: | 2013–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0269&r=eec |
| By: | Erica Perego (CREA, Université de Luxembourg); Wessel N. Vermeulen (CREA, Université de Luxembourg) |
| Abstract: | This paper studies the dynamic correlation between stocks, between government bonds and between stocks and bonds within the Euro-zone in the last decade. In order to better understand the development of the financial market we argue that it is necessary to analyse all such relations simultaneously rather than focus at one. We firstly calculate the dynamic correlation for the previous asset classes. Results presented at the asset-region level, i.e. north-stock, north-bonds, south-stocks and south-bonds, visualise the divergence in integration in Europe and highlight the he- terogeneity in these markets. Secondly, we study the macroeconomic factors that determine these correlations. We find that, when we allow for regional division, not only cross-asset correlations within regions behave differently from each other, but also cross-assets cross-regions dynamic correlations can be explained with ma- croeconomic factors such as the relative market uncertainty between countries and balance of payments dynamics. |
| Keywords: | Currency union, financial markets, time-varying correlation. |
| JEL: | C23 E44 G14 G15 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:13-08&r=eec |
| By: | Robert Kollmann |
| Abstract: | This paper estimates a two-country model with a global bank, using US and Euro Area (EA) data, and Bayesian methods. The estimated model matches key US and EA business cycle statistics. Empirically, a model version with a bank capital requirement outperforms a structure without such a constraint. A loan loss originating in one country triggers a global output reduction. Banking shocks matter more for EA macro variables than for US real activity. Banking shocks account for about 3%-5% of the unconditional variance of US GDP and for 4%-14% of the variance of EA GDP. During the Great Recession (2007-09), banking shocks accounted for about 12%-20% of the fall in US and EA GDP, and for more than a third of the fall in EA investment and employment. |
| Keywords: | financial crisis, global banking, real activity, investment, Bayesian econometrics. |
| JEL: | F36 F37 E44 G21 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2013-30&r=eec |
| By: | Melisso Boschi; Massimiliano Marzo; Simone Salotti |
| Abstract: | We investigate the sources of macroeconomic (output and inflation) variability in selected European countries within and outside the European Monetary Union: Germany, Italy, Austria, the UK and Poland. Using quarterly data from 1985:1 to 2005:4, we estimate a Global Vector Autoregressive (GVAR) model that includes fifteen countries and regions, covering more than 90 per cent of the World GDP. We find that domestic factors explain most of the macroeconomic variability over the short horizon, i.e. from zero to four quarters, but become progressively dominated by international ones at larger horizons. Regional factors appear to be particularly important. As for output, we detect no significant differences between countries currently members of the European Monetary Union and non-members. As for inflation, on the contrary, regional factors are more influential than those of the rest of the world for the EMU member countries, differently from non-members.. |
| Keywords: | Business cycle, inflation, European Monetary Union, Global VAR (GVAR) |
| JEL: | C32 E32 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2013-28&r=eec |
| By: | Eric Dor (IESEG School of Management (LEM-CNRS)) |
| Abstract: | Since the launch of the euro, French and German industrial productions have extremely diverged. French manufacturing production decreased while German manufacturing industry very strongly increased. The decrease or stagnation of exports of French products contrasts with the strong increase of German exports. France lost market shares on the foreign markets. This evolution is a direct consequence of the flaws of the monetary union as it has been organized. Also, due to sharp differences in the average degree of sophistication of French products, sharing a common currency with Germany inevitably had to lead to a loss of competitiveness of France on foreign markets. |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:ies:wpaper:e201307&r=eec |
| By: | David Iselin (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Boriss Siliverstovs (KOF Swiss Economic Institute, ETH Zurich, Switzerland) |
| Abstract: | On the basis of keyword searches in newspaper articles several versions of the Recession-word Index (RWI) are constructed for Germany and Switzerland. We use these indices in order to track the business cycle dynamics in these two countries. Our main findings are the following. First, we show that augmenting benchmark autoregressive models with the RWI generally leads to improvement in accuracy of one-step ahead forecasts of GDP growth compared to those obtained by the benchmark model. Second, the accuracy of out-of-sample forecasts obtained with models augmented with the RWI is comparable to that of models augmented with established economic indicators in both countries, such as the Ifo Business Climate Index and the ZEW Indicator of Economic Sentiment for Germany, and the KOF Economic Barometer and the Purchasing Managers Index in manufacturing for Switzerland. Third, we show that the RWI-based forecasts are more accurate than the consensus forecasts (published by Consensus Economics Inc.) for Switzerland, whereas we reach the opposite conclusion for Germany. In fact, the accuracy of the consensus forecasts of GDP growth for Germany appears to be superior to that of any other indicator considered in our study. These results are robust to changes in estimation/forecast samples, the use of rolling vs expanding estimation windows, and the inclusion of a web-based recession indicator extracted from Google Trends into a set of the competing models. |
| Keywords: | Nowcasting, Recession, R-word Index, Google Trends |
| JEL: | C22 C53 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:13-337&r=eec |
| By: | Cahuc, Pierre (Ecole Polytechnique, Paris); Carcillo, Stéphane (OECD); Zimmermann, Klaus F. (IZA and University of Bonn) |
| Abstract: | Youth unemployment is notoriously high in France, in particular for the low-skilled. Within the EU, only the crisis countries of Southern Europe fare worse. This report delivered to the French Council of Economic Analysis analyzes the causes and consequences of this alarming trend. In addition, drawing on the available evidence on various measures that could improve the current situation, concrete policies proposals are derived that cover the areas of vocational education, second chance programs, job search assistance, income support, employment subsidies and dismissal protection. |
| Keywords: | labor policy, youth unemployment, minimum wage, vocational education, employment protection, France |
| JEL: | J24 J38 J68 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izapps:pp64&r=eec |
| By: | Edoardo Di Porto (MEMOTEF, Department "Sapienza" University of Rome and EQUIPPE USTL/Lille); Leandro Elia (Institute for the Protection and Security of the Citizen European Commission-Joint Research Centre); Cristina Tealdi (IMT Lucca Institute for Advanced Studies) |
| Abstract: | We analyze how different policy interventions may incentive the transition of workers from the informal to the formal sector. We use Italian data over the period 1998-2008 to evaluate ex post whether the 2003 Italian labor market reform was able to reach the objective to reduce the share of shadow employment. Based on our empirical results, we develop an ex ante evaluation based on a search and matching model, á la Mortensen and Pissarides to determine the right combination of policy interventions which may be effective in generating a significant reduction in undeclared work together with an expansion of the formal sector. We find that in an economy where permanent and temporary contracts coexist, the combination of lower payroll taxes for permanent jobs and higher probability of being audited generates a compression of the informal sector, leaving unemployment unchanged. A similar result can be obtained through a reduction of the firing cost associated with permanent jobs, even though this causes temporary contracts to increase relatively more than permanent contracts. |
| Keywords: | Labor tax evasion, temporary contracts, firing costs, search frictions, policy evaluation |
| JEL: | J38 J63 J64 H26 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:ial:wpaper:2/2013&r=eec |
| By: | Jonas Dovern; Björn van Roye |
| Abstract: | We analyze the international transmission of financial stress and its effects on economic activity. We construct country specific monthly financial stress indexes (FSI) using dynamic factor models from 1970 until 2012 for 20 countries. We show that there is a strong co-movement of the FSI during financial crises and that the FSI of financially open countries are relatively more correlated to FSI in other countries. Subsequently, we investigate the international transmission of financial stress and its impact on economic activity in a Global VAR (GVAR) model. We show that i) financial stress is quickly transmitted internationally, ii) financial stress has a lagged but persistent negative effect on economic activity, and iii) that economic slowdowns induce only limited financial stress |
| Keywords: | Financial stress, Financial crises, Business Cycles, Dynamic Factor Model, Global VAR |
| JEL: | E32 E52 F36 F37 F41 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1844&r=eec |
| By: | Valeria Gattai |
| Abstract: | This paper provides original evidence about Chinese and Indian Outward Direct Investment in Italy. Firm-level data have been collected through survey interviews involving the whole population of Dragon and Elephant multinationals. With a response rate of 80%, we draw a detailed profile of the parent companies and investigate their main drivers, entry modes, and satisfaction with the local operations. |
| Keywords: | outward direct investment, India, China, Italy |
| JEL: | F23 O53 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:248&r=eec |