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on European Economics |
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Issue of 2014‒05‒04
seventeen papers chosen by Giuseppe Marotta University of Modena and Reggio Emilia |
| By: | Eddy Wymeersch (University of Gent, European Corporate Governance Institute) |
| Abstract: | The Regulation on the Single Supervisory Mechanism mandates the European Central Bank to exercise prudential supervision on the banks located in the Euro area, whether directly by the Bank’s own services for the significant banks, or indirectly by the national prudential supervisors but under the general guidance of the ECB for the less significant banks. The paper gives a detailed analysis of the new regime, its scope, the consequences for the existing supervisory systems, especially the home-host attribution of competences and the cooperation between the ECB and the national supervisors, the consequences for the non-euro Member States and for the third country jurisdictions. This regime is likely to substantially modify the existing supervisory landscape. It is the first step towards the Banking Union and is to be followed by legislative instruments on Bank Recovery and Resolution Directive, the Regulations on a Single Resolution Mechanism and on Deposit Guarantee Schemes. These three measures should allow dealing with defaulting banks without calling on the taxpayers. |
| Keywords: | Regulation Single Supervisory Mechanism, European Central Bank, European Banking Authority, banking prudential supervision, home-host, banking crisis |
| JEL: | G20 G28 G38 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:201404-255&r=eec |
| By: | Jean-Pierre Allegret; Hélène Raymond; Houda Rharrabti |
| Abstract: | This paper analyzes the influence of successive crises, including the recent European sovereign debt crisis, on banks’ equity returns for 11 countries. Our data span the period December 14th 2007-March 8th 2013 that encompasses different episodes of economic and financial turmoil since the collapse of the subprime credit market. Our contribution to the literature is twofold. First, we use an explicit multifactor model of equity returns extended with a sovereign risk factor. Second, we adopt a Smooth Transition Regression(STR) framework that allows for an endogenous definition of crisis periods and captures the changes in parameters associated with shift contagion. We find that contagion from the European sovereign debt crisis to banks’ equity returns has been confined to eurozone banks, whereas U.S. banks’ equity returns were unharmed by its direct impact and may even have benefited from a kind of flight to quality effect. Besides, across banks from the euro area, German financial institutions have not been completely spared by the eurozone debt crisis, though they have been relatively less affected. |
| Keywords: | Smooth Transition Regression model, European sovereign debt crisis, Banks’ equity returns, Contagion, Interdependence. |
| JEL: | E6 F3 G2 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2014-24&r=eec |
| By: | Portes, Richard; Fouquau, Julien; Delatte, Anne-Laure |
| Abstract: | Is the pricing of sovereign risk linear during bearish episodes? Or can initial shocks on economic fundamentals be exacerbated by endogenous factors that create nonlinearities? We test for nonlinearities in the sovereign bond market of European peripheral countries during the debt crisis and explain them. Our estimates based on a panel smooth threshold regression model during January 2006 to September 2012 show four main findings: 1) Peripheral sovereign spreads are subject to significant nonlinear dynamics. 2) The deterioration of mark et conditions for financial names changes the way investors price risk of the sovereigns. 3) The spreads of European peripheral countries have been priced above their historical values, given fundamentals, because of amplification effects. 4) Two CDS indices on financial names unambiguously stand out as leading drivers of these amplification effects. |
| Keywords: | European sovereign crisis; Panel Smooth Threshold Regression Models; CDS indices; |
| JEL: | E44 F34 G12 H63 C23 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:dau:papers:123456789/13143&r=eec |
| By: | Thomas Beissinger (University of Hohenheim, Germany); Nathalie Chusseau (EQUIPPE, University of Lille, France); Joel Hellier (EQUIPPE, Univ. of Lille and LEMNA, Univ. of Nantes, France) |
| Abstract: | A usual interpretation of the high performance of the German economy since 2006 is that the Hartz labour market reforms have boosted German competitiveness, resulting in higher exports, higher production and lower unemployment. We start from the diagnosis that this explanation is at odds with the sequence of observed facts. We propose and model an alternative scenario in which offshoring explains the gains in competitiveness but increases unemployment and inequality, and the subsequent labour market reforms lower unemployment by lessening the reservation wage and expanding the non-tradable sector, amplifying the rise in inequality. The model outcomes are consistent with all the developments of the German economy since 1995: 1) The model explains why Germany offshored earlier and more intensively than other Eurozone countries; 2) The increase in competitiveness and in the exports/production ratio occurs before the setting of the labour market reform, and this comes with both higher inequality and higher unemployment; 3) The setting of the labour market reform reduces unemployment and increases production, and this comes with a decrease in the exports/production ratio and an increase in inequality. We finally discuss (i) the possible extension of this `strategy' to other Eurozone countries, and (ii) alternative policies that act through similar mechanisms, but without increasing inequality. |
| Keywords: | Germany, inequality, labour market reform, offshoring, unemployment. |
| JEL: | H55 J31 J65 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2014-330&r=eec |
| By: | Campos, Nauro F (Brunel University); Coricelli, Fabrizio (Paris School of Economics); Moretti, Luigi (University of Padova) |
| Abstract: | This paper presents new estimates of the economic benefits from economic and political integration. Using the synthetic counterfactuals method, we estimate how GDP per capita and labour productivity would have behaved for the countries that joined the European Union (EU) in the 1973, 1980s, 1995 and 2004 enlargements, if those countries had not joined the EU. We find large positive effects from EU membership but these differ across countries and over time (they are only negative for Greece). We calculate that without deep economic and political integration, per capita incomes would have been, on average, approximately 12 percent lower. |
| Keywords: | economic growth, European Union, synthetic counterfactuals |
| JEL: | C33 F15 F43 O52 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8162&r=eec |
| By: | Maria Marcanova (Council for Budget Responsibility); Ludovit Odor (Council for Budget Responsibility) |
| Abstract: | In this paper we propose a new methodology to improve the estimation of structural budget balances in Slovakia. Major innovations compared to currently used methods are in using more robust output gap estimates, inclusion of pensions in the analysis, imposing consistency between various gap measures, elimination of effects of different deflators and using time-varying elasticities. Significant attention is attached also to one-off and temporary measures, where we define 10 principles for identification. The estimation is complemented with bottom-up approaches which focus more directly on discretionary fiscal action. Latest changes to the European fiscal framework have strengthened significantly the role of structural budget balances. With the adoption of the Fiscal Compact there is a numerical threshold each year for the deviation of the structural balance from the medium - term objective (or the adjustment path toward it). Moreover, automatic correction mechanisms are activated if the deviation is above the threshold. The basic motivation of this paper was that independent fiscal institutions are going to play an important role in triggering these correction mechanisms. |
| Keywords: | fiscal policy, budget balance, structural fiscal balance, one-off measures |
| JEL: | E32 E60 E62 H30 H60 H62 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:cbe:wpaper:201403&r=eec |
| By: | Gros, Daniel |
| Abstract: | The EMS crisis of the 1990s illustrated the importance of a lack of confidence in price or exchange rate stability, whereas the present crisis illustrates the importance of a lack of confidence in fiscal sustainability. Theoretically the difference between the two should be minor since, in terms of the real return to an investor, the loss of purchasing power can be the same when inflation is unexpectedly high, or when the nominal value of government debt is cut in a formal default. Experience has shown, however, that expropriation via a formal default is much more disruptive than via inflation. The paper starts by providing a brief review of the EMS crisis, emphasising that the most interesting period might be the ‘post-EMS’ crisis of 1993-95. It then reviews in section 2 the crisis factors, comparing the EMS crisis to today’s euro crisis. Section 3 outlines the main analytical issue, namely the potential instability of high public debt within and outside a monetary union. Section 4 then compares the pressure on public finance coming from the crises for the case of Italy. Section 5 uses data on ‘foreign currency’ debt to disentangle expectations of devaluation/inflation from expectations of default. Section 6 concludes. |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:eps:cepswp:9119&r=eec |
| By: | João Pinto (Faculdade de Economia e Gestão - Universidade Católica Portuguesa, Porto); Mário Coutinho dos Santos (Católica Lisbon School of Business and Economics - Universidade Católica Portuguesa, Lisboa) |
| Abstract: | We study the factors that, arguably, affect the probability of a new borrower choosing between structured finance (SF), either project finance (PF) loans or asset securitization (AS) bonds, and straight debt finance (SDF) – corporate bonds (CB) – transactions using a large cross section of 24,435 Western European loans and bonds issued between January 1st, 2000 and December 31st, 2011. Borrowers chose an SF transaction when they seek long-term financing and when they operate in a country with lower sovereign rating. Findings suggest that industrials, utilities, transportation, and governmental borrowers exhibit a higher likelihood of an SF transaction, more specifically, a PF transaction. Several macroeconomic factors, like market interest rate levels and volatility, and the slope of the Euro swap curve, positively influence the probability of observing an SF over an SDF transaction. The 2007-2008 financial crisis and the subsequent European sovereign debt crisis decrease the probability of observing an AS transaction. During the crisis, macroeconomic factors seem to significantly influence the probability of a sponsor to choose SF over SDF. We also find that credit spreads and loan to value ratios have a significant negative relationship for AS bonds. Overall, findings are in line with security design literature. SF transactions or instruments, based on extensively contractual and security design, allow the reduction of the net costs associated with asymmetric information and agency conflicts. |
| Keywords: | financing, security design, loan and bond pricing, structured finance, project finance, asset securitization, corporate bonds, financial crisis. |
| JEL: | F34 G01 G12 G21 G24 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:cap:wpaper:032014&r=eec |
| By: | Barnett, Alina (Bank of England); Chiu, Adrian (Bank of England); Franklin, Jeremy (Bank of England); Sebastia-Barriel, Maria (Bank of England) |
| Abstract: | Labour productivity in the United Kingdom has been exceptionally weak since the 2007/08 financial crisis. This paper uses firm-level data from the Office for National Statistics Annual Business Survey and the Inter-Departmental Business Register to better understand the nature of this weakness. Overall, our findings are consistent with existing literature which finds that within-firm productivity growth tends to be procyclical and emphasises the importance of the reallocation of resources between firms and sectors for productivity growth. More specifically, we find that up until 2011 there was a doubling in the proportion of firms with shrinking output and flat employment. This suggests that firms were able to respond flexibly to weak demand conditions by retaining staff at the expense of measured productivity, suggestive of an opening up of spare capacity within firms. However, the strength of recent hiring behaviour since 2012 means that this is now likely to be less of a factor. The lack of labour shedding, together with a low firm exit rate, is also indicative of low levels of resource reallocation between firms and sectors. To assess the importance of this to aggregate productivity growth we apply the method used by Baily, Bartelsman and Haltiwanger. We find that reallocation between firms (in terms of both the movement of labour and firm entry and exit) contributed significantly to aggregate productivity growth before the crisis, but its contribution fell substantially after. In fact, around one third of the productivity slowdown after 2007 can be attributed to slower reallocation of resources. The extent to which reduced factor reallocation, and so the weakness in productivity growth, persists remains a key question for the economic outlook. |
| Keywords: | Productivity growth; long-run growth; resource reallocation; entry; exit; financial crisis |
| JEL: | E32 L11 O47 |
| Date: | 2014–04–17 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0495&r=eec |
| By: | Dickson, Matt (University of Bath); Postel-Vinay, Fabien (University College London); Turon, Hélène (University of Bristol) |
| Abstract: | In a context of widespread concern about budget deficits, it is important to assess whether public sector pay is in line with the private sector. Our paper proposes an estimation of differences in lifetime values of employment between public and private sectors for five European countries. We use data from the European Community Household Panel over the period 1994-2001 for Germany, the Netherlands, France, Italy and Spain. We look at lifetime values instead of wage levels because, as we show in our results, differences in earnings mobility, earnings volatility and job loss risk across sectors occur in many instances and these will matter to forward-looking individuals. When aggregated into a measure of lifetime value of employment in either sector, these differences yield estimates of the lifetime premium in the public sector for these five countries. We also present differences in the institutional and labour market structures in these countries and find that countries for which we estimate a positive lifetime premium in the public sector, i.e. France and Spain, are also the countries where access to the public sector requires costly entry procedures. This paper is to the best of our knowledge the first to use this dynamic approach applied to Europe, which we are able to do with a common dataset, time-period and model. |
| Keywords: | income dynamics, job mobility, public-private inequality, selection effects, institutions |
| JEL: | J45 J31 J62 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8159&r=eec |
| By: | Michael A. Flor (University of Augsburg, Department of Economics) |
| Abstract: | We consider the cyclical properties of the German economy prior and after reunification in 1990 from the perspective of a real business cycle model. The model provides the framework for the selection and consistent measurement of the variables whose time series properties characterize the cycle. Simulations of the calibrated model reveal the model's potential to interpret the data. Major findings are that: i) the volatility of most aggregate time series has not changed significantly between the two time periods, ii) despite many conceptual differences between the European and the U.S. System of Accounts, the calibrated parameter values for the German economy are within the range of values usually employed in the real business cycle literature, iii) the model is closer to the data for the time period prior to reunification. |
| Keywords: | Macroeconomic Data, National Income, Product Accounts, Economic Fluctuations, Real Business Cycles |
| JEL: | C82 E01 E32 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:aug:augsbe:0324&r=eec |
| By: | Infelise,Federico |
| Abstract: | This paper maps the initiatives to support access to finance for small- and medium-sized enterprises (SMEs) that were available at national level in 2012 in the five biggest European economies (Germany, France, the UK, Italy and Spain). This mapping distinguishes initiatives promoted and financed primarily through public resources from those developed independently by the market. A second breakdown is proposed for those sources of finance with different targets, i.e. whether the target is debt financing (typically bank loans at favourable conditions, public guarantees on loans, etc.) or equity financing (typically venture capital funds, tax incentives on equity investments, etc.). A broad set of initiatives has been implemented to close the funding gap of SMEs in these five countries. The total amount of public spending for SMEs, however, has remained well below 1% of GDP. Public subsidisation of bank loans has been by far the most diffused type of intervention. Despite the fact that this strategy might prove to be effective in the short term, it fails to address long-term sustainability issues via a more diversified set of financing tools. |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:eps:ecmiwp:9188&r=eec |
| By: | David de Antonio Liedo (National Bank of Belgium, Research Department) |
| Abstract: | This paper proposes a method that takes into account the calendar of European and Belgian intraquarterly data releases to automatically update GDP growth expectations or nowcasts in realtime. The role of surveys is well known in the nowcasting literature, but this is the first paper that has attempted to isolate quality from timeliness as independent properties that can be expressed in function of the model parameters. The modeling framework allows for the incorporation of different kinds of survey data directly in levels and features a parsimonious specification of the GDP revision process which does not impose strict assumptions regarding the rationality of the statistical agency. The results in the empirical section emphasize the quality of survey data, which allows the model to produce accurate real GDP growth nowcasts for Belgium three months prior to the publication of the official flash estimate. |
| Keywords: | news, dynamic factor models, EM algorithm |
| JEL: | C32 C53 E37 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:201404-256&r=eec |
| By: | Mariam Camarero (Jaume I University); Josep Lluís Carrion-i-Silvestre (University of Barcelona); Cecilio Tamarit (University of Valencia) |
| Abstract: | In this paper we unify the traditional approaches to testing for s- cal sustainability considering the stock-ow system that scal variables con gure. Our approach encompasses previous ways of testing for sus- tainability. The results obtained for a group of 17 OECD countries point to weak scal sustainability, as well as to the existence of cointegration between de cit and debt, con rming the relevance of the stock-ow ap- proach. Allowing for structural breaks and multicointegration turns out to be of critical importance to assess whether the scal authorities apply their policies looking for sustainability and whether, simultaneously, they try to stabilize real debt target levels. |
| Keywords: | fi scal sustainability, cointegration, unit roots, structural breaks |
| JEL: | H62 E62 C22 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:eec:wpaper:1402&r=eec |
| By: | Naticchioni, Paolo (University of Rome 3); Raitano, Michele (Sapienza University of Rome); Vittori, Claudia (Sapienza University of Rome) |
| Abstract: | This paper documents the evolution of the experience-earnings profiles of private employees in Italy over the first six years of working career across three birth cohorts (1965-1969, 1970- 1974, 1975-1979). We explore the average trends and disentangle how the patterns vary according to individual skills, defined in terms of both educational levels and percentiles of the unconditional earnings distribution. Unlike previous studies, and in contrast with the expectations prompted by the skill-biased literature, our results surprisingly show that the Italian "best of youth", i.e. the best workers of the most recent cohorts (the high skilled), have suffered, compared to the previous cohorts, an earnings penalty much more severe than that experienced by unskilled workers. This finding also raises questions about the effectiveness of the European Employment Strategy, which repeatedly stressed the importance of human capital and technological knowledge as main drivers for European performance. |
| Keywords: | youth, cohorts, education, earnings, Italy |
| JEL: | J24 J31 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8140&r=eec |
| By: | Eva Schlenker (University of Hohenheim); Kai D. Schmid (Macroeconomic Policy Institute) |
| Abstract: | In this paper, we measure the effect of changing capital income shares upon inequality of gross household income. Using EU-SILC data covering 17 EU countries from 2005 to 2011 we find that capital income shares are positively associated with the concentration of gross household income. Moreover, we show that the transmission of a shift in capital income shares into the personal distribution of income depends on the concentration of capital income in an economy. Using fixed effect models we find that changing capital income shares play an important role in the development of household income inequality. Hence, in many industrialized countries income inequality has by no means evolved independently from the observed structural shift in factor income towards a higher capital income share over the last decades. |
| Keywords: | Factor shares, income inequality, EU-SILC, fixed effects. |
| JEL: | D31 D33 E6 E25 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2014-329&r=eec |
| By: | Orsetta Causa; Sonia Araujo; Agnès Cavaciuti; Nicolas Ruiz; Zuzana Smidova |
| Abstract: | This paper provides an assessment of how households’ income has fared compared with GDP. While the prime focus is on incomes around the median, attention is paid also to the bottom of the income distribution. Thus, one contribution of the paper is to deliver a fresh assessment of the evolution of inequality and poverty across OECD countries over the last fifteen years. The analysis relies on a rich array of indicators, producing new evidence of the various patterns of differences in income distributions across countries and over time. For example, it assesses the extent to which stability in overall income inequality masks compensating changes between the lower and upper halves of the income distribution. Also, it explores whether contracting inequalities coexist with increasing poverty. The paper adds to previous studies by introducing, measuring and analysing income polarisation in a cross-country comparative perspective. Distinguishing polarisation from inequality and comparing their evolution over time provides new policy-relevant perspectives on the nature of the changing income distribution. La croissance du point de vue des ménages : PIB et distribution des revenus dans les pays de l'OCDE Cet article analyse les évolutions des revenus des ménages en comparaison avec celles du produit intérieur brut (PIB). L’analyse se concentre sur les revenus proches de la médiane, mais une attention particulière est également portée aux bas revenus. Ainsi, une des contributions de ce rapport est de dégager un nouveau diagnostic de l’évolution des inégalités et de la pauvreté au cours des quinze dernières années dans les pays de l’OCDE. L’analyse repose sur un ensemble riche d’indicateurs, et produit une description fine de la nature des différences de distribution du revenu entre pays et au cours du temps. Par exemple, l’article montre qu’un niveau stable de l’inégalité dans son ensemble peut masquer des changements en sens inverse et qui se compensent entre la moitié haute et la moitié basse de la distribution. Aussi, l’article explore la possibilité que la réduction des inégalités puisse s’accompagner d’une hausse de la pauvreté. L’analyse étend les études précédentes en introduisant, mesurant et analysant la polarisation des revenus, et ce dans une perspective comparative entre pays. La distinction entre le concept de polarisation de celui d’inégalité et la comparaison de leur évolution au cours du temps portent un éclairage nouveau, y compris en matière de politique économique, quant à la nature des changements de distribution du revenu. |
| Keywords: | income distribution, poverty, inequality, median income, polarisation, middle class, classe moyenne, revenu médian, inégalités, polarisation, distribution des revenus, pauvreté |
| JEL: | D31 I31 I32 |
| Date: | 2014–04–14 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1111-en&r=eec |