nep-eec New Economics Papers
on European Economics
Issue of 2014‒02‒08
six papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. “Causality and Contagion in EMU Sovereign Debt Markets” By Marta Gómez-Puig; Simón Sosvilla-Rivero
  2. The growth performance and prospects in the Euro area: a balance-of-payments approach By Carluccio Bianchi; Eleonora Lorenzini
  3. Migration as an Adjustment Mechanism in the Crisis? A Comparison of Europe and the United States By Jauer, Julia; Liebig, Thomas; Martin, John P.; Puhani, Patrick A.
  4. How macroeconomic imbalances interact? Evidence from a panel VAR analysis By Blaise Gnimassoun; Valérie Mignon
  5. What drives loan losses in Europe? By Jokivuolle, Esa; Pesola, Jarmo; Viren, Matti
  6. Measuring the EU value added embodied in EU foreign exports by consolidating 27 national supply and use tables for 2000-2007 By Rueda-Cantuche, José M.; Oosterhaven, Jan; Bouwmeester, Maaike C.

  1. By: Marta Gómez-Puig (Faculty of Economics, University of Barcelona); Simón Sosvilla-Rivero (Department of Quantitative Economics, Universidad Complutense de Madrid)
    Abstract: This paper contributes to the literature by applying the Grangercausality approach and endogenous breakpoint test to offer an operational definition of contagion to examine European Economic and Monetary Union (EMU) countries public debt behaviour. A database of yields on 10-year government bonds issued by 11 EMU countries covering fourteen years of monetary union is used. The main results suggest that the 41 new causality patterns, which appeared for the first time in the crisis period, and the intensification of causality recorded in 70% of the cases, provide clear evidence of contagion in the aftermath of the current euro debt crisis.
    Keywords: Sovereign bond yields, Granger-Causality, Contagion, Euro area. JEL classification: E44, F36, G15, C52
    Date: 2014–02
  2. By: Carluccio Bianchi (Department of Economics and Management, University of Pavia); Eleonora Lorenzini (Department of Economics and Management, University of Pavia)
    Abstract: This paper aims to apply the balance of payments constrained-growth model to explain Euro area growth performance in the last forty years and to discuss likely prospects for the future. After a formal reconsideration of the long-run and short-run arguments supporting the validity of the Post-Keynesian approach to economic growth, a simplified and an extended version of the basic model are outlined. The application of these models to the Euro area experience shows that Thirlwall’s Law performs quite well in explaining growth in all decades under consideration. The fundamental reasons behind the recent unsatisfactory EMU growth experience, therefore, appear to be a decreasing export dynamics and a rising dependence on imports. Given current trends, the prospects for the future appear to be gloomy, unless structural reforms of the productive system are promoted in order to improve overall EMU competitiveness.
    Keywords: Growth, Euro area, Thirlwall’s Law, balance-of-payments constraint, import and export functions
    JEL: E12 F14 O40 O52
    Date: 2014–02
  3. By: Jauer, Julia (OECD); Liebig, Thomas (OECD); Martin, John P. (OECD); Puhani, Patrick A. (University of Hannover)
    Abstract: The question of whether migration can be an equilibrating force in the labour market is an important criterion for an optimal currency area. It is of particular interest currently in the context of high and rising levels of labour market disparities, in particular within the Eurozone where there is no exchange-rate mechanism available to play this role. We shed some new light on this question by comparing pre- and post-crisis migration movements at the regional level in both Europe and the United States, and their association with asymmetric labour market shocks. We find that recent migration flows have reacted quite significantly to the EU enlargements in 2004 and 2007 and to changes in labour market conditions, particularly in Europe. Indeed, in contrast to the pre-crisis situation and the findings of previous empirical studies, there is tentative evidence that the migration response to the crisis has been considerable in Europe, in contrast to the United States where the crisis and subsequent sluggish recovery were not accompanied by greater interregional labour mobility in reaction to labour market shocks. Our estimates suggest that, if all measured population changes in Europe were due to migration for employment purposes – i.e. an upper-bound estimate – up to about a quarter of the asymmetric labour market shock would be absorbed by migration within a year. However, in the Eurozone the reaction mainly stems from migration of third-country nationals. Even within the group of Eurozone nationals, a significant part of the free mobility stems from immigrants from third countries who have taken on the nationality of their Eurozone host country.
    Keywords: free mobility, migration, economic crisis, labour market adjustment, Eurozone, Europe, United States
    JEL: F15 F16 F22 J61
    Date: 2014–01
  4. By: Blaise Gnimassoun; Valérie Mignon
    Abstract: This paper aims at investigating the interactions between three key macroeconomic imbalances, namely current-account discrepancies (external imbalances), output gaps (internal imbalances), and exchange-rate misalignments. To this end, we rely on the estimation of a panel VAR model for a sample of 22 industrialized countries over the 1980-2011 period. Our findings show that macroeconomic imbalances strongly interact through a causal relationship. We evidence that if current-account disequilibria threaten the stability of the global economy, their origin can be found in internal imbalances and exchange-rate misalignments: positive output-gap shocks as well as currency overvaluation deepen current-account deficits. In addition, while variations in external imbalances mainly result from exchange-rate misalignments in the euro area, they are mostly explained by output gaps for non-eurozone members.
    Keywords: global imbalances, current account, output gap, exchange-rate misalignments,panel VAR
    JEL: F32 F31 C33
    Date: 2014
  5. By: Jokivuolle, Esa (Bank of Finland Research); Pesola, Jarmo (Bank of Finland); Viren, Matti (University of Turku and Bank of Finland)
    Abstract: We model banks’ loan losses with a panel of European countries for the period 1982–2012 using three country-specific macro variables: output growth shocks, real interest rates, and a measure of excessive private sector indebtedness. We find that a drop in output has an intensified impact on rising loan losses if the economy is excessively indebted. This may explain differences in loan losses in different recessions across time and across countries. For instance, the dramatic output drop in Finland in 2009 did not cause large loan losses compared with the Finnish crisis of the early 1990s because of the more moderate level of indebtedness. Low interest rates during the recent recession may have been another, perhaps the most important, factor mitigating loan losses.
    Keywords: loan losses; banking crises; indebtedness
    JEL: E44 G28
    Date: 2013–12–30
  6. By: Rueda-Cantuche, José M.; Oosterhaven, Jan; Bouwmeester, Maaike C. (Groningen University)
    Abstract: This paper develops a method to consolidate national supply-use tables (SUTs) into a single supra-regional SUT. The method deals with mirror trade statistics problems, such as the different valuation of imports and exports, and it corrects for the double-counting of re-exports. To test the contribution of the various construction steps, the paper decomposes the EU value added that is embodied in the EU exports to third countries into seven components. When the national SUTs for the period 2000-2007 are used, neglecting intra-EU spillover and feedback effects between the 27 EU-members results in an underestimation of the embodied value added of 12-15%. Not consolidating the national tables leads to a further under-estimation of 11-16%. Both types of errors are substantial. With these underestimations removed, the exports to third countries still only explain around 11% of the EU27 GDP.
    Date: 2014

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