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on European Economics |
| By: | Marcus Scheiblecker (WIFO) |
| Abstract: | Right from the start of the European currency union, trade imbalances could be observed in the current accounts and trade balances of the euro countries. The business cycle upswing reaching into 2008 and the strong inflow of cheap money led to a strong economic expansion especially in the periphery of the euro area. Traditionally abundant wage increases in these countries persisted. In the more export oriented economies in the core of the euro area, however, hardly any wage increases could be observed due to the lacklustre internal demand. As a consequence, those countries gained further in competitiveness in comparison to the periphery. This led to an increase in foreign trade imbalances. With the sharp drop of economic activity in 2008 and the swift dry-up of cheap financial means this process was interrupted. Since, labour unit costs of Spain, Portugal and Greece evolved much more muted than the average of the euro area. As a result, imports of those countries stagnated while exports increased at the same time which led to a nearly balanced external trade in 2012. |
| Keywords: | External imbalances Euro area Current account |
| Date: | 2013–08–29 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2013:i:453&r=eec |
| By: | Ansgar Belke |
| Abstract: | Small and medium size enterprises (SMEs) of southern euro area economies (e.g. Italy, Spain) pay significantly higher borrowing rates than their peers of the core (e.g. Germany, France) and this divergence is widening. It is argued that severe market failures prevent SMEs in southern euro area countries from access to key inputs, in particular access to finance. This paper makes an assessment of feasible options to improve finance access of SMEs, available to EU institutions as well as to the ECB in the context of its price stability mandate. Because of nonnegligible moral hazard issues, the paper is sceptical about a stronger involvement of the ECB in the (indirect) financing of SMEs through the securitisation of banks`loans or their use as collateral for monetary policy operations. The paper concludes with some proposals for extending finance access of SMEs, including through mutual guarantee institutions along the lines recently pursued by the European Investment Bank. |
| Keywords: | ECB; financial crisis; bank-firm relationships; credit guarantee schemes; monetary policy transmission; small business finance |
| JEL: | E23 E51 G21 O16 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0430&r=eec |
| By: | Ricardo Silva (Faculdade de Economia, University of Porto); Vitor Manuel Carvalho (Faculdade de Economia, University of Porto and CEF.UP); Ana Paula Ribeiro (Faculdade de Economia, University of Porto and CEF.UP) |
| Abstract: | In the current context where the limited role for monetary policy instruments apparently endows fiscal policy with higher effectiveness, European fiscal policy authorities are rather constrained by the fact of most countries being struggling against recessions together with the need to put public finances in a sustainable path. In this context, we assess how large are fiscal multipliers in Europe, for both aggregated and disaggregated spending and revenue variables. Moreover, we analyze how cycle phases and fiscal consolidation episodes shape the size of fiscal multipliers. We present evidence for the Euro area, relying on a VAR model with pooled annual data from 1998 to 2008. Estimation results show that, on average, transfers are the main driving force for the overall expenditure dynamics; moreover, wages exhibit negative impacts on output while positive effects are strongly driven by shocks in public investment and, to a lesser extent, by intermediate consumption. On the revenue side, all items impinge negatively on output growth. Additionally, our results show that public spending multiplier is positive in recessions while in expansions is smaller, inclusively, negative. Similarly, the effectiveness of the tax multiplier is, also, higher in recessions. Finally, we have found that consolidation phases affect negatively the size of multipliers. |
| Keywords: | Fiscal policy; Fiscal multipliers; Fiscal shocks; Business-cycle fluctuations; Public debt; Euro area; VAR analysis |
| JEL: | E32 E62 E65 H60 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:500&r=eec |
| By: | Jun Nagayasu (Faculty of engineering, information & systems, University of Tskuba) |
| 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: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:str:wpaper:1317&r=eec |
| By: | Monica Billio (Department of Economics, University of Venice Cà Foscari); Roberto Casarin (Department of Economics, University of Venice Cà Foscari); Francesco Ravazzolo (Norges Bank and BI Norwegian Business School); Herman K. van Dijk (Econometric Institute, Erasmus University Rotterdam and Econometrics Department VU University Amsterdam) |
| Abstract: | Interactions between the eurozone and US booms and busts and among major eurozone economies are analyzed by introducing a panel Markov-switching VAR model well suitable for a multi-country cyclical analysis. The model accommodates changes in low and high data frequencies and endogenous time-varying transition matrices of the country-specific Markov chains. The transition matrix of each Markov chain depends on its own past history and on the history of the other chains, thus allowing for modelling of the interactions between cycles. An endogenous common eurozone cycle is derived by aggregating country-specific cycles. The model is estimated using a simulation based Bayesian approach in which an efficient multi-move strategy algorithm is defined to draw common time-varying Markov-switching chains. Our results show that the US and eurozone cycles are not fully synchronized over the 1991-2013 sample period, with evidence of more recessions in the eurozone, in particular during the 90's when the monetary union was planned. Larger synchronization occurs at beginning of the Great Financial Crisis. Shocks affect the US 1-quarter in advance of the eurozone, but these spread very rapidly among economies. There exist reinforcement effects in the recession probabilities and in the probabilities of exiting recessions for both eurozone and US cycles, and substantial differences in the phase transitions within the eurozone. An increase in the number of eurozone countries in recession increases the probability of the US to stay within recession, while the US recession indicator has a negative impact on the probability to stay in recession for eurozone countries. Moreover, turning point analysis shows that the cycles of Germany, France and Italy are closer to the US cycle than other countries. Belgium, Spain, and Germany, provide more timely information on the aggregate recession than Netherlands and France. |
| Keywords: | Bayesian Model; Panel VAR; Markov-switching; International Business Cycles; Interaction mechanisms. |
| JEL: | C1 C11 C15 C32 F31 G15 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2013:17&r=eec |
| By: | Trapp, Monika; Wewel, Claudio |
| Abstract: | In this paper we study systemic risk for the US and Europe. We show that banks' exposures to common risk factors are crucial for systemic risk. We come to this conclusion by first showing that relations between US and European banks are smaller than within each region. We then show that European banks react more strongly to the onset of the financial crisis than US ones. Regarding the consequences of systemic risk, we show that dependence between the banking sector and a wide range of real sectors is limited. Our results imply that regulators and supervisors should address international bank dependencies arising from common risk factors, while recessions in real sectors due to bank defaults should be a secondary concern. -- |
| Keywords: | systemic risk,banking sector,real sectors,regulation,copula |
| JEL: | G01 G15 G18 G21 G28 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfrwps:1210r&r=eec |
| By: | Borsi, Mihály Tamás; Metiu, Norbert |
| Abstract: | This paper investigates economic convergence in real income per capita between 27 European Union countries. We employ a non-linear latent factor framework to study transitional behavior among economies between 1970 and 2010. Our results offer important insights on the economic catch-up exhibited by the new EU members in light of the institutional changes and macroeconomic adjustment processes undertaken over the last 40 years. Our main findings suggest no overall real income per capita convergence in the EU, however, we identify subgroups that converge to different steady states using an iterative testing procedure. Regional linkages play a significant role in determining the formation of convergence clubs. The empirical evidence suggests a clear separation between the new and old EU member states in the long run. -- |
| Keywords: | Club convergence,Dynamic factor model,Economic integration,Growth,New member states |
| JEL: | C33 O47 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:282013&r=eec |
| By: | Barbone, Luca (CASE - Center for Social and Economic Research); Kahanec, Martin (Central European University); Kureková, Lucia (Central European University); Zimmermann, Klaus F. (IZA and University of Bonn) |
| Abstract: | Report based on a study conducted for the European Commission, Bonn 2013 (50 pages) |
| Date: | 2013–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izarrs:55&r=eec |
| By: | Christopher Reicher |
| Abstract: | This paper provides a set of detailed estimated fiscal reaction functions for a panel of twenty industrialized countries, and it discusses commonalities and differences with regard to systematic fiscal policies across countries. In general, the countries in the panel adjust tax revenues strongly in response to the public debt, and they adjust tax revenues and transfer payments, but, interestingly, not tax rates, strongly in response to output fluctuations. Some countries such as Germany appear to adjust government consumption and investment relatively strongly in response to the public debt, while the United States adjusts capital tax rates relatively strongly. In general, an increased emphasis in the theoretical literature on the effects of procyclical tax revenues and countercyclical transfer payments as automatic stabilizers may be warranted |
| Keywords: | Fiscal policy, fiscal rule, deficits, taxes, government purchases, transfer payments |
| JEL: | E62 E63 H20 H62 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1850&r=eec |