nep-eec New Economics Papers
on European Economics
Issue of 2013‒09‒25
three papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Assessing the New Keynesian Phillips Curve in the Euro Area Using Disaggregate Data By Norkute, Milda
  2. Cost of borrowing shocks and fiscal adjustment By Oliver de Groot; Fédéric Holm-Hadulla; Nadine Leiner-Killinger
  3. Quels sont les enseignements de l'histoire du fédéralisme américain pour la zone euro actuelle ? By Dominique Jacob

  1. By: Norkute, Milda (Department of Economics, Lund University)
    Abstract: There is no a priori reason to suppose that price-setting behaviour is homogeneous across sectors and countries. Aggregate data is, however, commonly used to estimate the New Keynesian Phillips curve (NKPC), which may very well yield erroneous results if price-setting behaviour is heterogeneous. In this paper we therefore estimate the hybrid NKPC for the Euro Area using a novel sectoral data set containing quarterly observations from 1999Q1 to 2012Q1. We show that a positive relationship between inflation and real marginal cost cannot be established empirically for a majority of countries and sectors. We also perform a meta-analysis by combining the results of individual significance tests in order to assess the validity of the NKPC in each country across all sectors and in each sector across all countries. We find no empirical evidence for the NKPC in the Euro Area when this meta-analysis is used. Our results therefore raise doubts about the appropriateness of the NKPC for the analysis of inflation dynamics and monetary policy in the Euro Area.
    Keywords: New Keynesian Phillips curve; Inflation; Meta-analysis
    JEL: C12 E31
    Date: 2013–09–13
  2. By: Oliver de Groot; Fédéric Holm-Hadulla; Nadine Leiner-Killinger
    Abstract: Do capital markets impose fiscal discipline on governments? We investigate the responses of fiscal variables to a change in the interest rate paid by governments on their debt in a panel of 14 European countries over four decades. To this end, we estimate a panel vector autoregressive (PVAR) model, using sign restrictions via the penalty function method of Mountford and Uhlig (2009) to identify structural cost of borrowing shocks. Our baseline estimation shows that a 1 percentage point rise in the cost of borrowing leads to a cumulative improvement of the primary balance-to-GDP ratio of approximately 2 percentage points over 10 years, with the fiscal response becoming significantly evident only two years after the shock. We also find that the bulk of fiscal adjustment takes place via a rise in government revenue rather than a cut in primary expenditure. The size of the total fiscal adjustment, however, is insufficient to avoid the gross government debt-to-GDP ratio from rising as a consequence of the shock. Sub-dividing our sample, we also find that for countries participating in Economic and Monetary Union (EMU) the primary balance response to a cost of borrowing shock was stronger in the period after 1992 (the year in which the Maastricht Treaty was signed) than prior to 1992.
    Date: 2013
  3. By: Dominique Jacob (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - Université Montesquieu - Bordeaux IV : EA2954)
    Abstract: Cet article aux enseignements issus de l'Histoire américaine de la crise des dettes publiques gérée par Alexander Hamilton à la guerre de sécession. afin d'en tirer les éventuels enseignements pour une zone euro fédérale qui disposerait d'un budget commun. On montrera, ensuite, que la fragmentation monétaire américaine des années Roosevelt est plus proche de la situation de la crise actuelle de la zone euro que ne l'était celle de la guerre de sécession. Sur le plan monétaire, les travaux de König (2012), Carlson et Weelock (2013) permettent d'établir une grande similitude entre la situation non coopérative qui prévalait alors entre les banques fédérales de district et les dissensions qui prévalent actuellement entre banques centrales nationales européennes au sein du système de paiements transfrontaliers Target 2. Appel (2003) montre que l'un des buts des Banking Act de 1933 et 1935 était de mettre fin aux rivalités entre les banques de district fédérale et la Réserve Fédérale de New York, en leur interdisant d'agir pour leur compte propre et en les soumettant aux injonctions de cette dernière. Pour la zone euro, cela permet d'envisager des mesures politiques susceptibles de limiter les conflits entre Banques centrales créancières du Nord et banques centrales débitrices du Sud au sein de Target 2.
    Keywords: Pays européens, crise financière, monnaie unique, Target 2
    Date: 2013–09–11

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