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on European Economics |
| By: | Fritz Breuss (WIFO) |
| Abstract: | The ongoing Euro crisis and the worse economic development in Europe than in the USA are grounded, not the least in the delayed implementation of reforms of the banking sector. Whereas the leaks in economic governance of EMU have been fixed the banking sector is still not stabilised, even five years after Lehman Brothers. From the grand solution of a "European Banking Union" (EBU) only the first pillar, the European Bank Supervision with the single supervisory mechanism (SSM) will come into effect in 2014. The other necessary steps – the single resolution mechanism (SRM) and the single deposit guarantee mechanism (SDM) – will follow later. Until the "Europeanisation" will take place the bank recovery and resolution will be managed nationally based on EU law. A first evaluation indicates that the potential benefits of solving bank problems via the resolution mechanism of a new EBU would be distributed unequally between the member countries of the EU/Euro area. Germany would be the biggest loser, Spain and the Netherlands the biggest winners. Of the non-euro countries, the UK and Sweden have the most to gain, but Poland would lose. The country-specific gains of EBU depend on the number and size of banks which are located in a country. It is, however, not yet clear whether the goal of macroeconomic stabilising of bank resolutions would be better achieved when executed via the SRM or with the ESM, both for the countries affected and for the Euro area as a whole. |
| Keywords: | Economic and Monetary Union Eurozone European integration Banking Union |
| Date: | 2013–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2013:i:454&r=eec |
| By: | Stefano Neri (Banca d'Italia) |
| Abstract: | Since the early part of 2010 tensions in the sovereign debt markets of some euro-area countries have progressively distorted monetary and credit conditions, hindering the ECB monetary policy transmission mechanism and raising the cost of loans to non-financial corporations and households. This paper makes an empirical assessment of the impact of the tensions on bank lending rates in the main euro-area countries, concluding that they have had a significant impact on the cost of credit in the peripheral countries. A counterfactual exercise indicates that if the spreads had remained constant at the average levels recorded in April 2010, the interest rates on new loans to non-financial corporations and on residential mortgage loans to households in the peripheral countries would have been, on average, lower by 130 and 60 basis points, respectively, at the end of 2011. These results are robust to alternative measures of the cost of credit and econometric techniques. |
| Keywords: | sovereign debt crisis, bank lending rates, seemingly unrelated regression |
| JEL: | C32 E43 G21 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_170_13&r=eec |
| By: | Islami, Mevlud; Kurz-Kim, Jeong-Ryeol |
| Abstract: | In this paper, we construct a single composite financial stress indicator (FSI) which aims to predict developments in the real economy in the euro area. Our FSI was shown to perform better than the Euro STOXX 50 volatility index for the recent banking crisis and the euro-area sovereign debt crisis and to be able to serve as an early warning indicator for negative impacts of financial stress on the real economy. -- |
| Keywords: | financial stress indicator,predictability,financial crisis,real economy |
| JEL: | C12 G01 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:312013&r=eec |
| By: | Dimitrios P. Louzis (Bank of Greece) |
| Abstract: | This study examines the return (price) and volatility spillovers among the money, stock, foreign exchange and bond markets of the euro area, utilizing the forecast-error variance decomposition framework of a generalized VAR model proposed by Diebold and Yilmaz (2012) [Better to give than to receive: Predictive directional measurement of volatility spillovers. International Journal of Forecasting, 23, 57-66]. Our empirical results, based on a data set covering a twelve-year period (2000-2012), suggest a high level of total return and volatility spillover effects throughout the sample, indicating that, on average, more than the 50% of the forecast-error variance of the respective VAR model is explained by spillover effects. Moreover, the stock market is identified as the main transmitter of both return and volatility spillovers even during the current sovereign debt crisis. With the exception of the period 2011-2012, bonds of the periphery countries under financial support mechanisms are receivers of return spillovers, whereas, they transmit volatility spillovers to other markets diachronically. Finally, we identify the key role of money market in volatility transmission in the euro area during the outbreak of the global financial crisis. |
| Keywords: | Asset markets; Spillovers; Vector Autoregressive; Euro area; Financial Crisis. |
| JEL: | G01 G10 G20 C53 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:154&r=eec |
| By: | Yan Sun; Frigyes F Heinz; Giang Ho |
| Abstract: | This paper uses the Global VAR (GVAR) model proposed by Pesaran et al. (2004) to study cross-country linkages among euro area countries, other advanced European countries (including the Nordics, the UK, etc.), and the Central, Eastern and Southeastern European (CESEE) countries. An innovative feature of the paper is the use of combined trade and financial weights (based on BIS reporting banks’ external position data) to capture the very close trade and financial ties of the CESEE countries with the advanced Europe countries. The results show strong co-movements in output growth and interest rates but weaker linkages bewteen inflation and real credit growth within Europe. While the euro area is the dominant source of economic influences, there are also interesting subregional linkages, e.g. between the Nordic and the Baltic countries, and a small but notable impact of CESEE countries on the rest of the Europe. |
| Date: | 2013–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/194&r=eec |
| By: | Michal Andrle; Jan Bruha; Serhat Solmaz |
| Abstract: | This paper discusses comovement between inflation and output in the euro area. The strength of the comovement may not be apparent at first sight, but is clear at business cycle frequencies. Our results suggest that at business cycle frequency, the output and core inflation comovement is high and stable, and that inflation lags the cycle in output with roughly half of its variance. The strong relationship of output and inflation hints at the importance of demand shocks for the euro area business cycle. |
| Date: | 2013–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/192&r=eec |
| By: | Łukasz Goczek (Faculty of Economic Sciences, University of Warsaw); Dagmara Mycielska (Faculty of Economic Sciences, University of Warsaw) |
| Abstract: | The aim of the article is to examine the degree of the long-run interest rate convergence in the context of Poland's joining the EMU. In this perspective, it is frequently argued that the expectations of Poland's participation in the EMU should manifest themselves in long-run interest rate convergence. This should be visible in the long-run fall of interest rate risk premium in Poland. In contrast, the paper raises the question of the actual speed of such convergence and questions the existence of this phenomenon in Poland. Confirmation of the hypothesis concerning slow convergence in the risk premium is essential to the analysis of costs of the Polish accession to the EMU. The main hypothesis of the article is verified using a Vector Error-Correction Mechanism model of an Uncovered Interest Rate Parity and several parametric hypotheses concerning the speed and asymmetry of adjustment. |
| Keywords: | empirical analysis, Eurozone, interest rate convergence, monetary union |
| JEL: | E43 E52 E58 F41 F42 C32 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2013-21&r=eec |
| By: | Gärtner, Manfred; Griesbach, Björn; Mennillo, Giulia |
| Abstract: | We narrate Ireland’s recent odyssey from the pride and envy of Europe to kneeling supplicant through the eyes of an econometric model of the government bond market. The exercise suggests that, in essence, two developments triggered and propelled Ireland’s drift towards sovereign default: first, the global financial crisis that drove Ireland into a severe recession with collapsing tax revenues and increasing unemployment; second, a gap between the post-2007 increase in sovereign default risk that can actually be linked to macroeconomic fundamentals and the much bigger increase in perceived risk reflected by high interest rates and communicated by the massive downgrades of Ireland’s sovereign debt rating. |
| Keywords: | Financial crisis, Ireland, public debt, sovereign ratings, government budget, empirical model |
| JEL: | H62 H68 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2013:21&r=eec |
| By: | Glencross, Andrew |
| Abstract: | This paper analyses the EU's response to the Eurozone sovereign debt crisis. It examines the background to the crisis and how the threat to the single currency taxed the decision-making capacity of the EU, while also exposing long-standing fears about an absence of democratic legitimacy. In particular, the paper reflects on the democratic credentials of the EU response, examining the important role that continues to be played by democratic politics at the national level. This role will continue to be important since this is the level at which enforcement of debt brakes will occur. In addition, the analysis highlights the political fault lines that became apparent, notably the North/South split and the separation between countries inside and outside the Eurozone. Consequently, the paper concludes that these fault lines will characterize the future of integration, thereby complicating the search for a consensus on how to complete the banking union or pursue a free trade deal with the US. -- |
| Keywords: | Eurozone crisis,legitimacy,Fiscal compact,debt brakes |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ekhdps:313&r=eec |
| By: | D'Adamo, Gaetano (Universidad de Valencia); Rovelli, Riccardo (University of Bologna) |
| Abstract: | We model empirically the role of labor market institutions in affecting the response of inflation to labor market and exchange rate shocks in the EU. We adopt a simple Phillips curve framework, treating separately the sectors producing traded and non-traded goods. Our results show that labor market institutions have a significant role in affecting cross-country differences in inflation adjustment for the "sheltered" (non-trading) sector; the effects in the "exposed" (trading) sector are also significant but more limited. Increased wage coordination and more expenditure on LM policies (active or total) flatten the Phillips curve in both sectors. More active LM policies also reduce the persistence of inflation. However, but only in the non-trading sector, this effect is more than offset (in 15 countries out of 21) by the presence of stronger wage coordination, which increases the persistence of inflation. Finally, the adjustment of inflation to the real exchange rate, i.e. the exchange rate pass-through, is largely unaffected by institutional variables; only for non-tradables there is a strong negative effect of increased union density. |
| Keywords: | labor market institutions, inflation determinants, two-sector models |
| JEL: | E31 J50 J60 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7616&r=eec |
| By: | Islam, Roumeen |
| Abstract: | This paper examines the interaction between fiscal policy and the broader macroeconomic context in open economies. It asks two questions. First, what was the relationship between fiscal policy and current account balances in countries in Europe and Central Asia during the past dozen years? Second, how might changes in (a) output composition and (b) financial sector profitability affect revenues and thus, the assessment of the underlying structural fiscal balance? The study finds that, for flexible exchange rate countries, expansionary fiscal policy has been associated with wider current account deficits. Moreover, changes in net exports and in financial sector profitability may have significant impacts on fiscal balances because of changes in revenues from the value-added tax and the corporate profits tax as a share of gross domestic product. These findings suggest that the countries of Europe and Central Asia have reason to be prudent in terms of fiscal policy choices, even as gross domestic product rises. |
| Keywords: | Debt Markets,Economic Theory&Research,Currencies and Exchange Rates,Emerging Markets,Access to Finance |
| Date: | 2013–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6621&r=eec |
| By: | AMENDOLA, Adalgiso (CELPE - Centre of Labour Economics and Economic Policy, University of Salerno - Italy); DELL'ANNO, Roberto (CELPE - Centre of Labour Economics and Economic Policy, University of Salerno - Italy) |
| Abstract: | The aims of this article are to propose an overall index of social exclusion and to analyze its relationship with economic growth in European countries. We approach social exclusion as a multidimensional phenomenon by a three-mode principal components analysis (Tucker3 model). This method is applied to estimate an indicator of social exclusion for 28 European countries between 1995 and 2010. The empirical evidence shows that in short run (a) Granger causality runs one way from social exclusion to economic growth and not the other way; (b) countries with a higher level of social exclusion have higher growth rates of real GDP per capita; and (c) social exclusion has a larger effect than the income inequality on the economic growth. The policy implications of our analysis is that social inclusion is not a source of economic growth in the short term. |
| Keywords: | Social exclusion; Economic Growth; Multidimensional index; Three-mode principal components analysis |
| JEL: | C82 D63 O15 O52 |
| Date: | 2013–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:sal:celpdp:0126&r=eec |