nep-eec New Economics Papers
on European Economics
Issue of 2013‒09‒28
thirteen papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. What’s going on behind the euro area Beveridge curve(s)? By Bonthuis, Boele; Jarvis, Valerie; Vanhala, Juuso
  2. Assessing asset purchases within the ECB’s securities markets programme By Eser, Fabian; Schwaab, Bernd
  3. “Loose lips sinking markets?": the impact of political communication on sovereign bond spreads By Gade, Thomas; Salines, Marion; Glöckler, Gabriel; Strodthoff, Steffen
  4. Policy Coordination, Convergence, and the Rise and Crisis of EMU Imbalances By Bertola, Giuseppe
  5. A Rating Agency for Europe – A good idea? By Bartels, Bernhard; Weder di Mauro, Beatrice
  6. Economic Policy Coordination in the EMU: From Maastricht via SGP to the Fiscal Pact By Jorgen Mortensen
  7. Too Small to Fail? Subnational Spending Pressures in Europe By Luc Eyraud; Marialuz Moreno Badia
  8. Islamic finance in Europe By di Mauro, Filippo; Caristi, Pierluigi; Couderc, Stéphane; di Maria, Angela; Ho, Lauren; Grewal, Beljeet Kaur; Masciantonio, Sergio; Ongena, Steven; Zaher, Sajjad
  9. Debt Crises and Risk Sharing: The Role of Markets versus Sovereigns By Kalemli-Ozcan, Sebnem; Luttini, Emiliano; Sørensen, Bent E
  10. European Union: Publication of Financial Sector Assessment Program Documentation—Technical Note on Deposit Insurance By International Monetary Fund. Monetary and Capital Markets Department
  11. European Union: Publication of Financial Sector Assessment Program Documentation—Technical Note on Financial Integration and Fragmentation in the European Union By International Monetary Fund. Monetary and Capital Markets Department
  12. European Union: Financial Sector Stability Assessment By International Monetary Fund. Monetary and Capital Markets Department
  13. Asset Allocation and Monetary Policy: Evidence from the Eurozone By Hau, Harald; Lai, Sandy

  1. By: Bonthuis, Boele; Jarvis, Valerie; Vanhala, Juuso
    Abstract: This paper studies unemployment and vacancy developments in the euro area at the aggregate and country level over the Great Recession. The recent crisis has had a heterogeneous impact on euro area labour markets, leading to significant employment losses, especially in some sectors. The extent to which the rise in unemployment and particularly long-term unemployment reflects growing mismatch across euro area labour markets is one of the biggest questions facing euro area labour market policy makers. This paper attempts to shed light on this question by analysing developments in euro area Beveridge curves over the past 20 years, at both the aggregate level and on a disaggregated basis for all euro area countries. Using a simple model of Beveridge curve developments, we test for statistical significance of observed developments and find a significant shift in the euro area Beveridge curve since the onset of the crisis, but considerable heterogeneity at the country level. At the extremes, country level differences include a significant outward shift in the Beveridge curve for Spain and France, an inward shift for Germany, while some euro area countries reveal no significant changes in the responsiveness of unemployment to vacancy developments over the course of the crisis. We include an examination of factors underlying the observed developments across the countries. JEL Classification: J62, J63, E24, E32
    Keywords: Beveridge curve, labour shortages, mismatch, Unemployment, vacancies
    Date: 2013–09
  2. By: Eser, Fabian; Schwaab, Bernd
    Abstract: We assess the yield impact of asset purchases within the ECB’s Securities Markets Programme in five euro area sovereign bond markets during 2010-11. Identification is non-trivial and based on time series panel data regression on predetermined purchases and control covariates. In addition to large and economically significant announcement effects, we find an average impact at the five year maturity per e1 bn of bond purchases of approximately -1 to -2 bps (Italy), -3 bps (Ireland), -4 to -6 bps (Spain), -6 to -9 bps (Portugal), and up to -17 to -21 bps (Greece). The impact depends on market size and a default risk signal, and is approximately -3 basis points at a five-year maturity for purchases of 1/1000 of the respective debt market. Bond yield volatility is lower on intervention days for most SMP countries, due to less extreme movements occurring when the Eurosystem is active as a buyer. A dynamic specification points to both transitory and longer-lived effects from purchases. JEL Classification: C32, G12
    Keywords: Central bank asset purchases, effectiveness of non-standard monetary policy measures, European Central Bank, Securities Markets Programme
    Date: 2013–09
  3. By: Gade, Thomas; Salines, Marion; Glöckler, Gabriel; Strodthoff, Steffen
    Abstract: Taking a cue from the assertion that “loose lips sink markets” (Carmassi and Micossi, 2010), this paper investigates to what extent and why political communication has had an impact on the sovereign bond spreads of selected euro area countries over the German Bund. Drawing on 25,000 news media releases between January 2009 and October 2011, it empirically compares political communication across various political actors at the supranational and national levels in the euro area. It finds empirical evidence that, in the short term, certain types of political communication have a quantifiable effect on sovereign bond spreads. This effect can be positive or negative depending on the type of communication, possibly fueling self-reinforcing feedback loops between markets and policy actions. Subsequently, this paper explores possible reasons for this observed phenomenon. It analyses the specific economic, political and institutional context in which political communication works in Europe and finds that the potential for miscommunication is structurally higher in the euro area than in other nation-based currency areas. Finally, the paper identifies avenues to make communication policy more effective and puts forward possible measures to mitigate the risks of miscommunication. JEL Classification: G21, G12
    Keywords: political communication, Public finances, sovereign bond spreads, sovereign debt crisis
    Date: 2013–07
  4. By: Bertola, Giuseppe
    Abstract: When economic integration fosters expectations of productivity convergence, capital flows are driven by consumption-smoothing anticipation of income growth patterns as well as by factor-intensity equalization. In the euro area, financial integration eased accumulation of international imbalances, but the convergence that appears to have been expected was not realized. The resulting crisis casts doubt on the sustainability of the current configuration of the European integration process. A robust and coherent European market and policy integration process would require supranational implementation of the behavioral constraints and contingent redistribution schemes that traditionally operate within National socio-economic systems, and have been weakened in recent experience by uncoordinated policy competition.
    Keywords: Current accounts; Economic integration; Income distribution
    JEL: E2 F3
    Date: 2013–05
  5. By: Bartels, Bernhard; Weder di Mauro, Beatrice
    Abstract: This paper compares the sovereign rating performance of a large European based rating agency with the Big Three. Using monthly ratings for 56 advanced and emerging economies from June 1999 to October 2012, we explore if Feri behaves differently with respect to rating levels, propensity of down- or upgrade and volatility. In addition, we test for herding behaviour among agencies and "neighbourhood bias" using a gravity model. We find that Feri tends to have a negative "neighbourhood bias", i.e it was tougher on European countries than its anglo-saxon competitors before the crisis and downgraded them more swiftly and aggressively during the crisis. Also, Feri's sovereign ratings tend to be more volatile than the ones of the Big Three though less prone to herding.
    Keywords: Credit Rating Agencies; European Rating Agency; Sovereign Risk
    JEL: E62 F34
    Date: 2013–06
  6. By: Jorgen Mortensen
    Abstract: The present paper first takes a step backwards with an attempt to situate the adoption of this Treaty in discussion of the SGP and the “Maastricht criteria” (the criteria for EMU membership fixed in the Maastricht Treaty) in a longer perspective of the sharing of competences for macroeconomic policy making within the EU from the initial Treaty to the Maastricht Treaty and the Stability and Growth Pact (SGP). It then presents the main features of the Fiscal Treaty and its relation to the SGP and draws some conclusions as regards the importance and relevance of this new step in the process of economic policy coordination. It concludes that the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union does not seem to offer a definitive solution to the problem of finding the appropriate budgetarymonetary policy mix in the EMU already well identified in the Delors report in 1989 and regularly emphasised ever since and now seriously aggravated due to the Crisis. Furthermore, the implementation of this Treaty may under certain circumstances contribute to an increase in the uncertainties as regards the distribution of the competences between the European Parliament and national parliaments and between the former and the Commission and the Council.
    Keywords: Economic Policy Coordination, Stability and Growth Pact, Maastricht Treaty, Fiscal Treaty, Sustainability of Fiscal Policy
    JEL: E61 E62 E52
    Date: 2013–08
  7. By: Luc Eyraud; Marialuz Moreno Badia
    Abstract: The purpose of this paper is to assess whether expenditure decentralization has contributed to weakening fiscal performance in Europe. Using a panel of EU15 countries for the period 1995-2011, we estimate three econometric models and ask the following questions: (1) does the form of spending decentralization affect the general government fiscal balance?; (2) is there evidence of spending duplication?; and (3) are soft budget constraints prevalent at the subnational level in Europe? Our results indicate that current decentralization models may have some shortcomings and efforts to achieve fiscal consolidation would require improvements in three areas: better matching subnational spending and revenues; reshaping some expenditure assignments to reduce overlap; and improving the effectiveness of institutional arrangements at the subnational level.
    Keywords: Government expenditures;Europe;Fiscal consolidation;Economic models;Cross country analysis;fiscal federalism, local governments, fiscal balance, EU
    Date: 2013–02–25
  8. By: di Mauro, Filippo; Caristi, Pierluigi; Couderc, Stéphane; di Maria, Angela; Ho, Lauren; Grewal, Beljeet Kaur; Masciantonio, Sergio; Ongena, Steven; Zaher, Sajjad
    Abstract: Islamic finance is based on ethical principles in line with Islamic religious law. Despite its low share of the global financial market, Islamic finance has been one of this sector’s fastest growing components over the last decades and has gained further momentum in the wake of the financial crisis. The paper examines the development of and possible prospects for Islamic finance, with a special focus on Europe. It compares Islamic and conventional finance, particularly as concerns risks associated with the operations of respective institutions, as well as corporate governance. The paper also analyses empirical evidence comparing Islamic and conventional financial institutions with regard to their: (i) efficiency and profitability; and (ii) stability and resilience. Finally, the paper considers the conduct of monetary policy in an Islamic banking context. This is not uncomplicated given the fact that interest rates – normally a cornerstone of monetary policy – are prohibited under Islamic finance. Liquidity management issues are thus discussed here, with particular reference to the euro area. JEL Classification: G21, G28, G34, K21, L4
    Keywords: central bank monetary policy and regulations, Financial Institutions, Globalisation, slamic finance
    Date: 2013–06
  9. By: Kalemli-Ozcan, Sebnem; Luttini, Emiliano; Sørensen, Bent E
    Abstract: Using a variance decomposition of shocks to GDP, we quantify the role of international factor income, international transfers, and saving in achieving risk sharing during the recent European crisis. We focus on the sub-periods 1990--2007, 2008--2009, and 2010 and consider separately the European countries hit by the sovereign debt crisis in 2010. We decompose risk sharing from saving into contributions from government and private saving and show that fiscal austerity programs played an important role in hindering risk sharing during the sovereign debt crisis.
    Keywords: Capital Markets; Income Insurance; International Financial Integration
    JEL: E2 E6 F15 G15
    Date: 2013–07
  10. By: International Monetary Fund. Monetary and Capital Markets Department
    Keywords: Financial Sector Assessment Program;European Union;Deposit insurance;Banks;Bank supervision;European Economic and Monetary Union;Europe;
    Date: 2013–03–15
  11. By: International Monetary Fund. Monetary and Capital Markets Department
    Keywords: Financial Sector Assessment Program;European Union;Economic integration;Banking systems;European Economic and Monetary Union;Europe;
    Date: 2013–03–15
  12. By: International Monetary Fund. Monetary and Capital Markets Department
    Keywords: Financial system stability assessment;European Union;Financial sector;Banks;Financial institutions;Bank supervision;Bank resolution;Deposit insurance;Monetary policy;Insurance supervision;Risk management;European Economic and Monetary Union;Europe;
    Date: 2013–03–15
  13. By: Hau, Harald; Lai, Sandy
    Abstract: The eurozone has a single short-term nominal interest rate, but monetary policy conditions measured by either real short-term interest rates or Taylor rule residuals varied substantially across countries in the period from 2003-2010. We use this cross-country variation in the (local) tightness of monetary policy to examine its influence on equity and money market flows. In line with a powerful risk-shifting channel, we find that fund investors in countries with decreased real interest rates shift their portfolio investment out of the money market and into the riskier equity market. A ten-basis-point lower real short-term interest rate is associated with a 0.8% incremental money market outflow and a 1% incremental equity market inflow by local investors relative to asset under management. The latter produces the strongest equity price increase in countries where domestic institutional investors represent a large share of the countries' stock market capitalization.
    Keywords: asset price inflation; monetary policy; risk seeking; Taylor rule residuals
    JEL: G11 G14 G23
    Date: 2013–08

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