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on European Economics |
| By: | Massimiliano Affinito (Bank of Italy) |
| Abstract: | This paper tests the hypothesis of liquidity hoarding in the Italian banking system during the 2007-2011 global financial crisis. According to this hypothesis, in periods of crisis, interbank markets stop working and central banks’ interventions are ineffective because banks hoard the liquidity injected rather than channelling it on to other banks and the real economy. The test uses monthly data at banking-group level for all intermediaries operating in Italy between January 1999 and August 2011. This is the first paper to use micro data to analyse the relationship between single banks’ positions vis-à -vis the central bank and the interbank market. The results show that the Italian interbank market functioned well even during the crisis, and, contrary to widespread conjecture, the liquidity injected by the Eurosystem was intermediated among banks and towards the real economy. This finding is robust to the use of several estimation methods and data on the different segments of the money market. |
| Keywords: | liquidity, financial crisis, central bank refinancing, interbank market |
| JEL: | G21 E52 C30 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_928_13&r=eec |
| By: | Marcello Pericoli (Bank of Italy) |
| Abstract: | The no-arbitrage affine Gaussian term structure model is used to analyse the impact of macroeconomic surprises on the nominal and the real term structure in the euro area and in the United States. We find that nominal rates are affected by surprises in economic growth, the labour market and the economic outlook in the United States, and above all by surprises in inflation in the euro area. As far as real rates are concerned, we find that they are not affected by macroeconomic surprises in the United States, but they are by surprises in inflation and monetary policy in the euro area. Inflation expectations in both areas are not systematically influenced by monetary policy surprises. In the United States forward inflation risk premia became sizeable around the start of the financial crisis at the end of the last decade and increased considerably just before the adoption of the first unconventional monetary policy measures in March 2009. By contrast, in the euro area forward inflation risk premia remained unchanged even after the adoption of the unconventional monetary policy measures in October 2008 and May 2010. In both areas long-term inflation expectations have been well anchored over the past years. |
| Keywords: | inflation risk premium, affine term structure, Kalman filter, macroeconomic and monetary surprises |
| JEL: | C02 G10 G12 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_927_13&r=eec |
| By: | Gautier M. Krings (ICTEAM, Université Catholique de Louvain); Jean-François Carpantier, (CREA, Université de Luxembourg); Jean-Charles Delvenne (ICTEAM, CORE, Université Catholique de Louvain) |
| Abstract: | We study the ever more integrated and ever more unbalanced trade relationships between European countries. To better capture the complexity of economic networks, we propose two global measures that assess the trade integration and the trade imbalances of the European countries. These measures are the network (or indirect) counterparts to traditional (or direct) measures such as the trade-to-GDP (Gross Domestic Product) and trade deficit-to-GDP ratios. Our indirect tools account for the European inter-country trade structure and follow (i) a decomposition of the global trade flow into elementary flows that highlight the long-range dependencies between exporting and importing economies and (ii) the commute-time distance for trade integration, which measures the impact of a perturbation in the economy of a country on another country, possibly through intermediate partners by domino effect. Our application addresses the impact of the launch of the Euro. We find that the indirect imbalance measures better identify the countries ultimately bearing deficits and surpluses, by neutralizing the impact of trade transit countries, such as the Netherlands. Among others, we find that ultimate surpluses of Germany are quite concentrated in only three partners. We also show that for some countries, the direct and indirect measures of trade integration diverge, thereby revealing that these countries (e.g. Greece and Portugal) trade to a smaller extent with countries considered as central in the European Union network. |
| Keywords: | Trade network, Integration, Euro, Rose effect, Flow decomposition, Commute-time distance |
| JEL: | F14 F15 F32 C45 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:13-22&r=eec |
| By: | Mirdala, Rajmund |
| Abstract: | Origins and implications of twin deficits occurrence in a large scale of countries seems to be a center of rigorous empirical as well as theoretical investigation for decades. The reality of persisting fiscal and current account deficits became obvious in many advanced as well as advancing, emerging and low-income countries seemingly without a direct association with the phase of business cycle or trends in key fundamental indicators. European transition economies experienced current account deficits during the most of the pre-crisis period. Despite generally improved economic environment and high rates of economic growth it seems that countries with weaker nominal anchor experienced periods of persisting fiscal imbalances during the most of the pre-crisis period. Crises period affected both fiscal stance of government budgets and current account pre-crisis levels and trends in all countries from the group. As a result, leading path of both indicators significantly changed. In the paper we analyze effects of fiscal policies on current accounts in the European transition economies. Our main objective is to investigate causal relationship between fiscal policy discretionary changes and associated current account adjustments. We identify episodes of large current account and fiscal policy changes to provide an in-depth insight into frequency as well as parallel occurrence of deteriorations (improvements) in current accounts and fiscal stance of government budgets. From employed VAR model we estimate responses of current accounts in each individual country to the cyclically adjusted primary balance shocks. |
| Keywords: | fiscal imbalances, current account adjustments, economic crisis, vector autoregression, impulse-response function |
| JEL: | C32 E62 F32 F41 H60 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:50362&r=eec |
| By: | Eric Dor (IESEG School of Management (LEM-CNRS)) |
| Abstract: | This paper computes the total recapitalization needs of the banking sector of each European country in case of a new systemic financial crisis. These estimations are based on the estimated capital shortages of big individual banks published by the Volatility Laboratory of New York University Stern Business School and the Center for Risk Management of Lausanne. |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:ies:wpaper:e201319&r=eec |
| By: | Sebastian Dellepiane (University of Strathclyde); Niamh Hardiman (School of Politics and International Relations, University College Dublin, UCD Geary Institute); Jon Las Heras (Manchester University) |
| Abstract: | This paper undertakes a structured, focused case-study comparison of housing bubbles in Ireland and Spain, based on the selection of two most-different cases that nonetheless share a common outcome of interest. Both countries were exposed to the same set of changes in their international policy environment in the late 1990s and early 2000s, in the form of a low interest rate regime associated with the creation of European Monetary Union (EMU). The two countries have very different economic structures, different political decision-making profiles, and different relationships between the political and banking systems. Yet these two countries had the most extreme experience of housing bubbles during the 200os, and both suffered a similar construction-related economic collapse that ruined their respective banking systems after 2008. The paper argues that the decision-making taking place within their very different domestic institutional frameworks was subordinated to the fact that they shared a similar form of international vulnerability. Both were extremely open to mobile international capital during the 2000s. Their vulnerability to financialization resulted in a common experience of very rapid asset price inflation, which left both countries particularly exposed when the international financial collapse took place. The shared experience of European ‘peripherality’ meant that two countries belonging to different ‘varieties of capitalism’ ended up with very similar kinds of economic collapse. |
| Keywords: | housing bubbles, financial liberalization, credit, Ireland, Spain |
| JEL: | F32 F52 G21 G28 |
| Date: | 2013–10–08 |
| URL: | http://d.repec.org/n?u=RePEc:ucd:wpaper:201318&r=eec |
| By: | Péter Fáykiss (Nemzetgazdasági Minisztérium); Gabriella Grosz (Magyar Nemzeti Bank (central bank of Hungary)); Gábor Szigel (Erste Bank) |
| Abstract: | In recent years, foreign banks’ presence in the form of branches instead of subsidiaries started to gain ground in most of the Central and Eastern European (CEE) countries, including Hungary. Due to the high share of foreign ownership in their banking systems, local authorities in CEE may perceive this trend towards the transformation of subsidiaries into branches as a loss of control over their financial systems. For the time being, we assess the financial stability risks related to this process to be rather moderate. First, no negative anomalies have been identified in respect of the existing branches in the Hungarian market, even though their market share is still small at this point. Furthermore, experience and our model results indicate that large universal banks, which constitute almost three quarters of the Hungarian market, are unlikely to switch to a branch model. Even though host country supervisors do not lose all responsibility for the regulation and supervision of branches, the use of certain regulatory instruments becomes more cumbersome or even impossible in certain cases. Thus, the spread of the branch model may increase the risk of contagion from parent banks in the host countries. Consequently, we think that the status quo appears to be the preferable option for the stability of the Hungarian banking system. |
| Keywords: | branch, regulation, organisational form, microprudential supervision, macroprudential supervision |
| JEL: | G21 G28 C21 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:opaper:2013/106&r=eec |
| By: | Enrique Alberola (Banco de España); Ángel Estrada (Banco de España); Daniel Santabárbara (Banco de España) |
| Abstract: | ‘The Great Recession’ was preceded by a prolonged period of high growth accompanied by low and stable inflation, the so called ‘Great Moderation’. During that period, potential growth estimates were trending upwards and output gaps remained small. However, other imbalances were progressively accumulating, eventually bringing about the worst crisis in decades. Standard potential growth estimates, which consider inflation as the only indicator of macroeconomic imbalances, along with the stability of inflation in that period, therefore provided misleading signals to policymakers. This paper introduces a methodology to obtain sustainable growth rates, as an alternative measure to potential growth. Sustainable growth is defined as the output growth that does not generate or widen macroeconomic imbalances, identified through a wide set of domestic and external indicators. This allow us to reassess the behavior of output gaps in the US, the UK, Spain, Germany and China both in ‘the Great Moderation’ period and during ‘the Great Recession’. In countries with large imbalances, sustainable growth rates are more stable than potential growth resulting in output gaps that were substantially larger in the period prior to the crisis. |
| Keywords: | sustainable growth, macroeconomic imbalances, output gaps, potential growth |
| JEL: | E32 F44 G01 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1313&r=eec |
| By: | Bos J.W.B.; Santen P.C. van; Schilp P. (GSBE) |
| Abstract: | This paper quantifies the effect of reallocation dynamics on aggregate productivity developments in the banking sectors of Europe and the United States. We document an increase in productivity over the period 1995-2009, on the order of 11 in the US and 19 in Europe. At an annual frequency, under-performing banks capture market share, while more productive banks lose market share, in particular in the US. The pattern of reallocation is markedly different between the geographical regions European productivity has grown by reallocating inputs through the first half of the sample, at the same time when reallocation diminished growth in the US. Within-firm growth has been rising steadily in both areas, largely due to technical change. The long- run positive effects of creative destruction are especially apparent in the US, where reallocation is an important driver of increases in aggregate productivity. |
| Keywords: | Single Equation Models; Single Variables: Truncated and Censored Models; Switching Regression Models; Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity; Technological Change; Research and Development; Intellectual Property Rights: General; Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence; |
| JEL: | O47 O30 D24 C24 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umagsb:2013056&r=eec |
| By: | Dimitri B. Papadimitriou; Michalis Nikiforos; Gennaro Zezza |
| Abstract: | Greece's unemployment rate just hit 27.6 percent. That wasn’t supposed to happen. Why has the troika--the European Commission, International Monetary Fund (IMF), and European Central Bank--been so consistently wrong about the effects of its handpicked policies? The strategy being imposed on Greece depends in large part on the idea of "internal devaluation": that reducing wages will make its products more attractive, thus spurring a return to economic growth powered by rising exports. Our research, based on a macroeconomic model specifically constructed for Greece, indicates that this strategy is not working. Achieving significant growth in net exports through internal devaluation would, at best, take a very long time--and a great deal of immiseration and social disintegration would take place while we waited for this theory to bear fruit. Despite some recent admissions of error along these lines by the IMF, the troika still relies on a theory of how the economy works that badly underestimates the negative effects of austerity. |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levyop:op_41&r=eec |