nep-eec New Economics Papers
on European Economics
Issue of 2013‒09‒26
thirteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. Sovereign Default Risk and Banks in a Monetary Union By Uhlig, Harald
  2. Rebalancing: Evidence from Current Account Adjustment in Europe By Ruben Atoyan; Jonathan F Manning; Jesmin Rahman
  3. Italian Sovereign Spreads: Their Determinants and Pass-through to Bank Funding Costs and Lending Conditions By Edda Zoli
  4. The Evolution of Current Account Deficits in the Euro Area Periphery and the Baltics: Many Paths to the Same Endpoint By Joong Shik Kang; Jay C. Shambaugh
  5. The use of credit claims as collateral for Eurosystem credit operations By Tamura, Kentaro; Tabakis, Evangelos
  6. Risks to price stability, the zero lower bound and forward guidance: a real-time assessment By Coenen, Günter; Warne, Anders
  7. Functions and characteristics of corporate and sovereign CDS By Vogel, Heinz-Dieter; Bannier, Christina E.; Heidorn, Thomas
  8. Global and euro imbalances: China and Germany By Guonan Ma; Robert N McCauley
  9. The origins of the German current account surplus: Unbalanced productivity growth and structural change By Coricelli, Fabrizio; Ravasan, Farshad R; Wörgötter, Andreas
  10. Statistics and indicators for financial stability analysis and policy By Israël, Jean-Marc; Sandars, Patrick; Schubert, Aurel; Fischer, Björn
  11. Volatility and dynamic conditional correlations of European emerging stock markets By Baumohl, Eduard; Lyocsa, Stefan
  12. Reallocation of Resources Across Age in a Comparative European Setting By Bernhard Hammer; Alexia Prskawetz; Inga Freund
  13. Europe's unemployment problem By DREZE, Jacques; GOLLIER, Christian

  1. By: Uhlig, Harald
    Abstract: This paper seeks to understand the interplay between banks, bank regulation, sovereign default risk and central bank guarantees in a monetary union. I assume that banks can use sovereign bonds for repurchase agreements with a common central bank, and that their sovereign partially backs up any losses, should the banks not be able to repurchase the bonds. I argue that regulators in risky countries have an incentive to allow their banks to hold home risky bonds and risk defaults, while regulators in other “safe” countries will impose tighter regulation. As a result, governments in risky countries get to borrow more cheaply, effectively shifting the risk of some of the potential sovereign default losses on the common central bank.
    Keywords: bank regulation; common central bank; ECB; Euro zone crisis; European Central Bank; haircuts; repurchase operations; risk shifting; sovereign default risk
    JEL: E51 E58 E61 E65 G21 G28 H63
    Date: 2013–08
  2. By: Ruben Atoyan; Jonathan F Manning; Jesmin Rahman
    Abstract: After the 2003-2007 economic boom, European countries with large pre-crisis current account imbalances are undergoing adjustments. Countries are adjusting at different paces and ways reflecting the source and magnitude of imbalances, availability of financing, competitiveness of the tradable sector and external environment. While emerging European countries with large pre-crisis imbalances and a fixed exchange rate regime have seen sharp current account adjustments and a rebound in growth, adjustment in the euro zone periphery countries, which are also carrying a legacy of pre-crisis CA imbalances, has been gradual with difficulties bringing back growth. This paper is an empirical investigation of current account adjustment in Europe with a focus on these two groups, looking at contributions from cyclical and other factors, and seeking to draw policy conclusions.
    Keywords: Current account balances;Europe;Emerging markets;Current account deficits;Fiscal policy;Wage adjustments;Current Account adjustment, Rebalancing, Competitiveness, Euro Zone Periphery
    Date: 2013–03–22
  3. By: Edda Zoli
    Abstract: Volatility in Italian sovereign spreads has increased since mid-2011. This paper finds that news on the euro area debt crisis and country specific events were important drivers of sovereign spreads. Movements in sovereign spreads affect CDS spreads and bond yields of Italian banks, and are transmitted rapidly to firm lending rates. Banks with lower capital ratios and higher nonperforming loans were found to be more sensitive to swings in sovereign spreads. Credit supply constraints due to bank funding shortages from the sovereign debt crisis were a major factor behind the lending slowdown in late 2011, while in 2012 weak demand appears to have been driving changes in credit more than supply.
    Keywords: Banking sector;Italy;Sovereign debt;Loans;Financial instruments;Italian sovereign spreads, bank funding costs, lending conditions.
    Date: 2013–04–03
  4. By: Joong Shik Kang; Jay C. Shambaugh
    Abstract: Explanations of the large current account deficits for the euro area periphery and the Baltics in the run up to the crisis revolve around two main factors: deteriorating export performance or demand driven booms. We add that there were important movements in transfers and net income balances. While export performance remained relatively stable in most countries, for some countries, when transfers declined, households and firms borrowed so as to maintain the same level of spending. This was part of a persistent failure to adjust to trade deficits, which, along with rising net income payments, led to growing current account deficits. All of these factors played varying roles in the development of current account deficits across these countries.
    Keywords: Current account deficits;Euro Area;Greece;Portugal;Spain;Ireland;Baltics;Exports;Imports;Cross country analysis;current account deficit, transfer, income balance, competitiveness, domestic boom
    Date: 2013–07–17
  5. By: Tamura, Kentaro; Tabakis, Evangelos
    Abstract: Credit claims (or bank loans) represent a large share of the collateral accepted by the Eurosystem in its credit operations in recent years. Hence the techniques and procedures used in the use of credit claims as collateral have become significant elements of the monetary policy implementation mechanism in the euro area. The procedures involved in credit claim collateralisation, however, are generally more complex than those for marketable assets traded in regulated markets or in other markets accepted by the Eurosystem. While several types of credit claims are eligible as Eurosystem collateral, each type of credit claim has different characteristics which require specific considerations in the eligibility assessment. This paper provides an overview of the issues involved in the use of credit claims as collateral and relates these to some measures taken by both the public and the private sector aimed at facilitating their use in the euro area. The paper also elaborates on the syndicated loan market in the euro area as this market is sizeable, while it appears that the use of such loans as collateral remains limited. JEL Classification: G10, G12, G13
    Keywords: central bank collateral eligibility, Credit claim, syndicated loan
    Date: 2013–06
  6. By: Coenen, Günter; Warne, Anders
    Abstract: This paper employs stochastic simulations of the New Area-Wide Model—a micro-founded open-economy model developed at the ECB—to investigate the consequences of the zero lower bound on nominal interest rates for the evolution of risks to price stability in the euro area during the recent financial crisis. Using a formal measure of the balance of risks, which is derived from policy-makers’ preferences about inflation outcomes, we first show that downside risks to price stability were considerably greater than upside risks during the first half of 2009, followed by a gradual rebalancing of these risks until mid-2011 and a renewed deterioration thereafter. We find that the lower bound has induced a noticeable downward bias in the risk balance throughout our evaluation period because of the implied amplification of deflation risks. We then illustrate that, with nominal interest rates close to zero, forward guidance in the form of a time-based conditional commitment to keep interest rates low for longer can be successful in mitigating downside risks to price stability. However, we find that the provision of time-based forward guidance may give rise to upside risks over the medium term if extended too far into the future. By contrast, time-based forward guidance complemented with a threshold condition concerning tolerable future inflation can provide insurance against the materialisation of such upside risks. JEL Classification: E31, E37, E52, E58
    Keywords: deflation, DSGE modelling, euro area, forward guidance, monetary policy, zero lower bound
    Date: 2013–08
  7. By: Vogel, Heinz-Dieter; Bannier, Christina E.; Heidorn, Thomas
    Abstract: After the onset of the subprime crisis and the European debt crisis, credit default swaps (CDS) have seen a strong increase in usage. Particularly sovereign CDS protection has been sought after, paralleling the rise in sovereign debt levels, slumps in GDP growth and political tensions in Eurozone peripheral countries. Understanding the strengths and weaknesses of CDS products has hence become ever more important, from both the perspective of individual market participants and regulatory bodies. This paper gives an overview of the origins and characteristics of CDS products by discussing the various stages of the product life-cycle. In a second step, we investigate the development and functioning of the CDS market. We focus particularly on the differences between corporate and sovereign CDS and provide insights into the respective structure of market participants, means of product usage and regulatory conditions. --
    Keywords: Credit default swaps,European sovereign CDS,Corporate CDS
    JEL: G12
    Date: 2013
  8. By: Guonan Ma; Robert N McCauley
    Abstract: We analyse global and euro area imbalances by focusing on China and Germany as large surplus and creditor countries. In the 2000s, domestic reforms in both countries expanded the effective labour force, restrained wages, shifted income towards profits and increased corporate saving. As a result, both economies' current account surpluses widened before the global financial crisis, and that of Germany has proven more persistent as domestic investment has remained subdued.
    Keywords: Global imbalances, current account, capital account, saving and investment, international assets and liabilities, distribution of income; world banker
    Date: 2013–09
  9. By: Coricelli, Fabrizio; Ravasan, Farshad R; Wörgötter, Andreas
    Abstract: The surge in the German current account surplus in the 2000s is often interpreted as the result of efficiency-enhancing structural reforms, especially in the labor market. However, this interpretation is puzzling because the growth rate of the German economy has been one of the lowest in the Euro area in the 2000s. Using empirical evidence and a simple theoretical two-sector model, the paper argues that the German surplus is closely linked to the increasing gap between productivity growth in manufacturing and services. Such gap is due not only to improvements in the manufacturing sector but also to a significant slowdown of productivity growth in services. Therefore, despite the success in export markets, the German surplus may signal long-run weaknesses associated with constraints on service growth and the inability of productivity growth in manufacturing to create positive spill-over effects on services. Persistence of barriers to liberalization in services may partly explain these phenomena. The paper concludes that higher and more balanced growth could lead to an equilibrium reduction of the current account surplus.
    Keywords: German current account surplus; structural change; unbalanced productivity change
    JEL: E21 E22 F31 F41 O40
    Date: 2013–06
  10. By: Israël, Jean-Marc; Sandars, Patrick; Schubert, Aurel; Fischer, Björn
    Abstract: Timely and accurate data are key to the preparation of macro-prudential policy recommendations and decisions by the ESRB, as well as to monitoring policy decisions in terms of their impact on, or transmission to, the financial and non-financial economy. This paper illustrates the work that has been carried out by the European Central Bank, the European Systemic Risk Board and the European Supervisory Authorities over a period of more than two years from 2010 to 2012 to prepare, develop, implement and manage the initial set of statistical and supervisory information necessary to support the European Systemic Risk Board, from its inception in January 2011. The paper also touches on the statistical information that is provided to support the financial stability function of the European Central Bank. JEL Classification: F31, F47, F30
    Keywords: financial stability statistics, financial statistics, systemic risk
    Date: 2013–04
  11. By: Baumohl, Eduard; Lyocsa, Stefan
    Abstract: This study examines the relationship between time-varying correlations and conditional volatility among eight European emerging stock markets and the MSCI World stock market index from January 2000 to December 2012. Correlations are estimated in the standard and asymmetric dynamic conditional correlation (DCC) model frameworks. The results can be summarized by three main findings: (1) asymmetry in volatility is not a common phenomenon in emerging markets; (2) asymmetry in correlations is found only with respect to the Hungarian stock market; and (3) the relationship between volatility and correlations is positive and significant in all countries included in the study. Thus, diversification benefits decrease during periods of higher volatility.
    Keywords: conditional volatility, time-varying correlations, emerging markets
    JEL: C32 G01 G15
    Date: 2013–09–18
  12. By: Bernhard Hammer; Alexia Prskawetz; Inga Freund
    Abstract: We investigate the reallocation of resources across age and gender in a comparative European setting. Our analysis is based on concepts and data from the National Transfer Accounts (NTA) project, as well as on data from income and time use surveys. We introduce the aggregate NTA life cycle deficit as a concept of an economic dependency ratio. This dependency measure allows for flexible age limits and age-specific levels of economic dependency. We then move beyond the current NTA methodology and study gender differences in the generation of income and extend our analysis by unpaid household work. We find large cross-country differences in the age- and gender-specific levels and type of production activities and consequently in the organisation of the resource reallocation across age. Our results clearly indicate that a reform of the welfare system needs to take into account not only public transfers but also private transfers, in particular the services produced within the households for own consumption (e.g. childcare, cooking, cleaning...).
    Keywords: Ageing, challenges for welfare system, demographic change, welfare state
    JEL: I38 J10
    Date: 2013–09
  13. By: DREZE, Jacques; GOLLIER, Christian

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