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on European Economics |
| By: | Adrien Béranger; Jézabel Couppey Soubeyran; Jézabel Laurence Scialom |
| Abstract: | This paper reviews the various mechanisms and rules that has been proposed to build a banking union in Europe. We argue that the banking union is a promising solution to the Eurozone crisis because it completes the unification of the Euro currency, forms a solution to both the financial and monetary fragmentation of the Euro area financial markets and helps breaking the vicious circle created by domestic banking system impairments and the sovereign debt crisis. We underline not only the shortcomings and hurdles to reach a fully-fledged banking union, and the hazards created by the inconsistencies between their phasing-in in the sequential schedule decided by states. To reduce the loopholes induced by the sequential approach, we propose to implement a rule of shared-bailout during the transition period that consist in a loss-sharing rule among countries hosting an entity of a bank group and indicted in the living wills of the systemic banking companies. |
| Keywords: | Eurozone, banking union, bank supervision, resolution |
| JEL: | G21 G28 H12 E58 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2014-39&r=all |
| By: | Mariam Camarero (Department of Economics, University Jaume I. Campus de Riu Sec E-12071 Castellón de la Plana, Spain); Gaetano D’Adamo (Department of Applied Economics II, University of Valencia. Av.da dels Tarongers s/n 46022 Valencia, Spain); Cecilio Tamarit (Department of Applied Economics II, University of Valencia. Av.da dels Tarongers s/n 46022 Valencia, Spain) |
| Abstract: | Over the last 15 years, the evolution of labor costs has been very diverse across EMU countries. Since wages have important second-round effects on prices and competitiveness, and EMU countries do not have the tool of the nominal exchange rate to correct for such imbalances, understanding the determinants of the wage is a matter of increasing concern and debate. We estimate the equilibrium wage equation for the Euro Area over the period 1995-2011 using panel cointegration techniques that allow for cross-section dependence and structural breaks. The results show that the equilibrium wage has a positive relation with productivity and negative relation with unemployment, as expected. We also include institutional variables in our analysis, showing that a more flexible labor market is consistent with long-run wage moderation. Allowing for a regime break, we find that, since 2004, possibly due to increased international competition, wage determination was more strictly related to productivity, and real wage appreciation triggers a drop in the real wage. Furthermore, results point to a wage-moderating role of government intervention and concertation in wage bargaining. |
| Keywords: | panel cointegration, wage setting, labor market |
| JEL: | E24 J31 C23 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:eec:wpaper:1407&r=all |
| By: | Pablo Burriel (Banco de España); María Isabel García-Belmonte (Banco de España) |
| Abstract: | In this paper we propose a new real-time forecasting model for euro area GDP growth, D€STINY, which attempts to bridge the existing gap in the literature between large- and small-scale dynamic factor models. By adopting a disaggregated modelling approach, D€STINY uses most of the information available for the euro area and the member countries (around 100 economic indicators), but without incurring in the nite sample problems of the large-scale methods, since all the estimated models are of a small scale. An empirical pseudo-real time application for the period 2004-2013 shows that D€STINY´s forecasting performance is clearly better than the standard alternative models and than the publicly available forecasts of other institutions. This is especially true for the period since the beginning of the crisis, which suggests that our approach may be more robust to periods of highly volatile data and to the possible presence of structural breaks in the sample. |
| Keywords: | business cycles, output growth, time series, Euro-STING model, large-scale model |
| JEL: | E32 C22 E27 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1323&r=all |
| By: | Agnès Bénassy-Quéré (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CESifo - CESifo, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); Dramane COULIBALY (EconomiX - CNRS : UMR7166 - Université Paris X - Paris Ouest Nanterre La Défense) |
| Abstract: | We study the contribution of market regulations in the dynamics of the real exchange rate within the European Union. Based on a model proposed by De Gregorio et al. (1994a), we show that both product market regulations in nontradable sectors and employment protection tend to inflate the real exchange rate. We then carry out an econometric estimation for European countries over 1985-2006 to quantify the contributions of the pure Balassa-Samuelson effect and those of market regulations in real exchange-rate variations. Based on this evidence and on a counter-factual experiment, we conclude that the relative evolution of product market regulations and employment protection across countries play a very significant role in real exchange-rate variations within the European Union and especially within the Euro area, through theirs impacts on the relative price of nontradable goods. |
| Keywords: | Real exchange rate ; Balassa-Samuelson effect ; Product market regulations ; Employment protection |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:gmonwp:hal-00961713&r=all |
| By: | Luigi Pierfranco Campiglio (DISCE, Università Cattolica) |
| Abstract: | The aim of the paper is to unbundle the main economic variables involved in the European Crisis and clarify their reciprocal relationship. The variables considered are: unemployment, inflation, consumptions, investments and current accounts. We use annual, quarterly and monthly data, until 2012, mid-2013 or an estimate of 2013 for the main European countries. The main results are the following: a) we show an emerging European economic divide, b) we detect a quasi-Okun relationship between investment and unemployment, c) we show the revival of the Phillips curve, especially in Germany, d) we test for the relationship between unemployment and the Government deficit, e) we show the existence of a relationship between unemployment and current account, f) we show how countries with high unemployment rate could bear the burden, g) we unbundle the unemployment-current account relationship, showing first the relationship between unemployment and final consumption, h) and then between final consumption, imports and current account, i) we show why a stable and growing inflation differential is not sustainable, but argue that internal devalution is not an effective policy, pushing inflation rates to a worrisome lower level and even outright deflation, l) we argue and show how to implement a more effective policy looking to the inflation differentials of specific products, looking to the case of Italy, m) we analyze the trade relationship between Germany and China, arguing that since the onset of the EMU and the successive membership of China to the WTO, a European structural break occurred, with some European countries relying much more on exports rather than domestic demand. A more general issue of sustainability and replicability of the Germany’s export led growth model is raised. |
| Keywords: | Great Recession, Europe, Germany, Unemployment, Inflation, Consumption, Investment, Current Account |
| JEL: | E24 E29 E30 E31 F32 F40 H62 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie5:ispe0067&r=all |
| By: | Julia Le Blanc; Alessandro Porpiglia; Federica Teppa; Junyi Zhu; Michael Ziegelmeyer |
| Abstract: | We study the role of household saving behaviour, of individual motives for saving and that of perceived liquidity constraints in 15 Euro Area countries. The empirical analysis is based on the Household Finance and Consumption Survey, a new harmonized data set collecting detailed information on wealth holdings, consumption and income at the household level. Since the data is from 2010-2011, strong conclusions as regards the present are difficult to draw. This is because the crisis may have affected the data, especially in countries that were severely hit. Nevertheless we find evidence of some degree of homogeneity across countries with respect to saving preferences and the relative importance of different motives for saving. In addition, credit constraints are more heterogeneous across geographic regions and perceived to be binding for specific groups of respondents. Households living in Mediterranean countries report to be more subject to binding liquidity constraints than households living in Continental Europe. Household characteristics and institutional macroeconomic variables are significant and economically important determinants of household saving preferences and credit constraints. |
| Keywords: | Household Finance and Consumption; Life Cycle Saving; Survey Data |
| JEL: | C8 D12 D14 D91 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:428&r=all |
| By: | Diego J. Pedregal (U. Castilla la Mancha); Javier J. Pérez (Banco de España); A. Jesús Sánchez-Fuentes (U. Complutense de Madrid) |
| Abstract: | In this paper we develop a comprehensive short-term fiscal forecasting system of use for the real-time monitoring of the Spanish government’s borrowing requirement. Spain has been at the centre of the recent European sovereign debt crisis, not least because of sizeable failures in meeting public deficit targets. The system comprises a suite of models, with different levels of disaggregation (bottom-up vs top-down; general government vs sub-sectors), which are suitable for the automatic processing of the large amount of monthly/quarterly fiscal data currently published by the Spanish statistical authorities. Our tools are instrumental in the ex-ante detection of risks to official projections, and can thus help reduce the ex-post reputational costs of budgetary slippage. On the basis of our results, we discuss how official monitoring bodies could expand, on one hand, their toolkit to evaluate regular adherence to targets (moving beyond a legalistic approach) and, on the other, their communication policies as regards sources of risks to (ex-ante) compliance with budgetary targets. |
| Keywords: | government accountability, transparency, fiscal Forecasting. |
| JEL: | E65 H6 C3 C82 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1416&r=all |
| By: | Giuseppina Malerba (DISCE, Università Cattolica); Marta Spreafico (DISCE, Università Cattolica) |
| Abstract: | This paper proposes a theoretical framework of the factors affecting the gap between the rich and the poor in the European Union, and utilizes a twelve-year panel (2000-2012) of 27 countries to identify the short-term effects of the macroeconomic performance, the level of household income inequality, and the social protection expenditure, controlling for several structural factors of income disparities. It is assessed their impact on the bottom, median and top shares of household income; it is found a different effect of the three core determinants before the Great Recession and during the crisis years, and a different public commitment depending on the type of welfare regime. |
| Keywords: | European Union, Great Recession, household disposable income distribution, income inequality, panel models, structural determinants |
| JEL: | C33 D31 I31 I32 I38 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie5:ispe0068&r=all |
| By: | Paul Mercier |
| Abstract: | Since October 2008, the credit granted by the Eurosystem to the Euro zone banking sector increased in a substantial way, as a result of the implementation of nonconventional measures, in particular the fact that the Eurosystem left to the banks the faculty to determine themselves the quantity of credit that they wished to obtain. This paper first recalls the foundations of the interbank money market and then analyses the evolution of the ?net liquidity needs? of the banking sector. It provided a clarification of the relation between the Eurosystem, the euro zone banking sector and the money market. In particular, it develops arguments against the myth of ?idle money parked with the Eurosystem?. |
| Keywords: | monetary policy implementation, central bank, central bank?s balance sheet, money market, liquidity deficit, excess liquidity |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:bclwp092&r=all |
| By: | Mark Aguiar; Manuel Amador; Emmanuel Farhi; Gita Gopinath |
| Abstract: | We characterize fiscal and monetary policy in a monetary union with the potential for rollover crises in sovereign debt markets. Member-country fiscal authorities lack commitment to repay their debt and choose fiscal policy independently. A common monetary authority chooses inflation for the union, also without commitment. We first describe the existence of a fiscal externality that arises in the presence of limited commitment and leads countries to over borrow; this externality rationalizes the imposition of debt ceilings in a monetary union. We then investigate the impact of the composition of debt in a monetary union, that is the fraction of high-debt versus low-debt members, on the occurrence of self-fulfilling debt crises. We demonstrate that a high-debt country may be less vulnerable to crises and have higher welfare when it belongs to a union with an intermediate mix of high- and low-debt members, than one where all other members are low-debt. This contrasts with the conventional wisdom that all countries should prefer a union with low-debt members, as such a union can credibly deliver low inflation. These findings shed new light on the criteria for an optimal currency area in the presence of rollover crises. |
| JEL: | E0 F0 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20277&r=all |
| By: | Ozlem Akin; José G. Montalvo; Jaume García Villar; José-Luis Peydró; Josep Maria Raya |
| Abstract: | We analyze the determinants of real estate and credit bubbles using a unique borrower-lender matched dataset on mortgage loans in Spain. The dataset contain real estate credit and price conditions (loan principal and spread, and the appraisal and market price) at the mortgage level, matched with borrower characteristics (such as income, labor status and contract) and the lender identity, over the last credit boom and bust. We find that lending standards are softer in the boom than in the bust. Moreover, despite some adjustment in lending conditions in the good times depending on borrower risk, the results suggest too soft lending standards and excessive risk-taking in the boom. For example, mortgage spreads for non-employed are identical to employed borrowers during the boom. Banks with worse corporate governance problems soften even more the standards. Finally, we analyze the mechanism by which banks could increase the supply of mortgage loans despite of regulatory restrictions on LTVs. The evidence is consistent with banks encouraging real estate appraisal firms to introduce an upward bias in appraisal prices (29%), to meet loan-to-value regulatory thresholds (40% of mortgages are just bunched on these limits), thus building-up the credit and the real estate bubble. |
| Keywords: | lending standards, credit supply, excessive risk-taking, bank incentives, conflicts of interest, moral hazard, prudential policy, financial crises, real estate bubble |
| JEL: | G01 G21 G28 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:772&r=all |
| By: | Ángel Estrada (Banco de España); Eva Valdeolivas (Banco de España); Javier Vallés (Banco de España); Daniel Garrote (Harvard Kennedy School) |
| Abstract: | Household debt in many advanced economies has increased significantly since the 1980s and accelerated in the years prior to the Great Recession, resulting in an aggregate reduction of saving rates in the developed economies. Some of those economies are now deleveraging, which may be affecting their recovery. We try to disentangle how these financial developments influence private consumption in a panel of OECD countries, after controlling for the traditional determinants (income, net financial and non-financial wealth, and interest rates). Consistent with the changes in the distribution of financial constraints, we find that aggregate consumption is also driven by the dynamics of housing debt accumulation and deleveraging. Precautionary savings, due to labour income uncertainty, have also influenced household decisions especially, during the 2007-2009 period. |
| Keywords: | private consumption, financial developments, precautionary savings, debt |
| JEL: | E21 E44 F01 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1415&r=all |