nep-eec New Economics Papers
on European Economics
Issue of 2014‒08‒16
ten papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Exit State-of-play in Implementing Macroeconomic Adjustment Programmes in the Euro Area By Ansgar Belke; Daniel Gros; Alcidi Cinzia; Leonor Coutinho; Alessandro Giovannini
  2. The Monetary Transmission Mechanism in the Euro Area: has it changed with the EMU? A VAR approach, with fiscal policy and financial stress considerations By António Afonso; António Jorge Silva
  3. Business Cycle (De)Synchronization in the Aftermath of the Global Financial Crisis: Implications for the Euro Area By Stelios Bekiros; Duc Khuong Nguyen; Gazi Salah Uddin; Bo Sjö
  4. Euro Area Policies: Selected Issues By International Monetary Fund. European Dept.
  5. Modeling financial integration, intra-EMU and Asian-US external imbalances By Karl Farmer; Irina Ban
  6. Euro Area Policies: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director By International Monetary Fund. European Dept.
  7. Deficiencies in the Development of an Estonian Welfare State By Klaus Schrader; Claus Friedrich Laaser; Janno Reiljan
  8. The ECB as Lender of Last Resort:Banks versus Governments By Adalbert Winkler
  9. Rebalancing in the Euro Area and Cyclicality of Current Account Adjustments By Thierry Tressel; Shengzu Wang
  10. Monetary Dialogue 2009-2014: Looking backward, looking forward By Ansgar Belke

  1. By: Ansgar Belke; Daniel Gros; Alcidi Cinzia; Leonor Coutinho; Alessandro Giovannini
    Abstract: Two of the four macroeconomic adjustment programmes, Portugal and Ireland’s, can be considered a success in the sense that the initial expectations in terms of adjustment, both fiscal and external, were broadly fulfilled. A rebound based on exports has taken hold in these two countries, but a full recovery will take years. In Greece the initial plans were insufficient. While the strong impact of the fiscal adjustment on demand could have been partially anticipated at the time, the resistance to structural reforms was more surprising and remains difficult to cure. The fiscal adjustment is now almost completed, but the external adjustment has not proceeded well. Exports are stagnating despite impressive falls in wage costs. In Cyprus, the outcome has so far been less severe than initially feared. It is still too early to find robust evidence in any country that the programmes have increased the long-term growth potential. Survey-based evidence suggests that structural reforms have not yet taken hold. The EU-led macroeconomic adjustment programmes outside the euro area (e.g. Latvia) seem to have been much stricter, but the adjustment was quicker and followed by a stronger rebound.
    Keywords: macroeconomics coordination, sudden stop
    JEL: G01 G12 E58 H12
    Date: 2014–06
  2. By: António Afonso; António Jorge Silva
    Abstract: We study whether the adoption of the Euro and a single monetary policy have brought about a change in the monetary transmission mechanism and between the interactions of monetary policy, fiscal policy and financial stress in the Euro area. We find that the stylized facts of monetary transmission remain valid, but the response of output and, especially, fiscal and financial stress variables to a monetary policy shock, seems to be stronger in the post-EMU period. Regarding fiscal and financial stress shocks, the inclusion in the post-EMU period of subprime and sovereign debt crises yields, changes, not only in the scale, but also in the patterns of the responses of our model’s main variables.
    Keywords: monetary transmission mechanism, fiscal policy, financial stress, Euro area, vector autoregressions
    JEL: E42 E44 E52 E58 E63
    Date: 2014–06
  3. By: Stelios Bekiros; Duc Khuong Nguyen; Gazi Salah Uddin; Bo Sjö
    Abstract: The introduction of Euro currency was a game-changing event intended to induce convergence of
    Keywords: Convergence; wavelet coherence; integration; Eurozone
    JEL: C22 E32
    Date: 2014–07–24
  4. By: International Monetary Fund. European Dept.
    Keywords: Fiscal policy;Labor markets;Unemployment;Capital markets;Investment;Current account;Public debt;Fiscal reforms;Selected Issues Papers;Euro Area;
    Date: 2014–07–14
  5. By: Karl Farmer (University of Graz); Irina Ban (Babes-Bolyai-University Cluj-Napoca)
    Abstract: Intra-EMU external imbalances in the pre-crisis period up to 2008 are traditionally explained by EMU-oriented factors, e.g. euro-related financial integration. Chen et al. (2013) also emphasize external trade shocks, such as the competitive challenge of emerging Asia and oil exporters to EMU-periphery's exports. Moreover, Asian-US external imbalances are attributed to financial integration between East Asia and the USA in the aftermath of the East-Asian currency crises in the late 1990s (Angeletos et al. 2011). Acknowledging these empirical facts this paper develops a Buiter (1981) three-country (EMU, Asia, US), two-region (EMU core, EMU periphery) OLG model to investigate the effects of both intra-EMU and Asian-US financial integration on intra- EMU, Asian and US external imbalances. We find that the widening of the intra-EMU external imbalances, in particular of trade imbalances, is related to the growth in Asian-US imbalances and the dynamic inefficiency of the world economy, caused by excessive saving in Asia.
    Keywords: External Imbalances; European Economic and Monetary Union; Overlapping Generations; Three-Country Model
    Date: 2014–07
  6. By: International Monetary Fund. European Dept.
    Abstract: KEY ISSUES Context. Real output has expanded for four consecutive quarters, and financial market sentiment has improved markedly. But the recovery is weak and uneven. Inflation has been too low for too long, financial markets are still fragmented, and structural gaps persist: these hinder rebalancing and substantial reductions in debt and unemployment. Policies. The economic expansion is grounded in complementary policy actions at both the national and euro area levels, but more is needed to strengthen the recovery: Supporting Demand. Recent ECB actions—including a rate cut, negative deposit rates and policy support for new bank lending to companies—should help address low inflation and financial fragmentation. But if inflation remains too low the ECB should consider a substantial balance sheet expansion, including through asset purchases. The broadly neutral overall fiscal stance is appropriate but any negative growth surprises should not trigger additional consolidation efforts as this would be self-defeating. Mending balance sheets and completing the banking union. Successfully executing the ongoing asset quality review and stress tests should spur balance sheet repair and help reverse fragmentation. Agreement on a single resolution mechanism and bail-in rules comprise important milestones towards banking union, but a common fiscal backstop is still needed. Advancing structural reforms. Alternative sources of funding through securitization, especially to credit-constrained SME’s, should be promoted. A comprehensive strategy, which boosts demand and removes country-specific structural impediments, is needed to tackle high youth unemployment. Competitiveness-enhancing reforms in debtor countries and higher public investment in creditor countries would promote needed rebalancing.
    Keywords: Article IV consultation reports;Economic recovery;Inflation;Monetary policy;Banking sector;Bank supervision;European Central Bank;Fiscal reforms;Access to capital markets;Economic indicators;Staff Reports;Press releases;Statistics;Data quality assessment framework;Euro Area;
    Date: 2014–07–14
  7. By: Klaus Schrader; Claus Friedrich Laaser; Janno Reiljan
    Abstract: Estonia is widely regarded as a paramount example for a successful transformation of a socialist economic system to a functioning market economy. Against the backdrop of this positive image which contrasts strongly with the crisis scenarios in Southern Europe the remaining problems of Estonia are often ignored. Estonia has hardly succeeded in catching-up economically with the richer countries of the euro area. Correspondingly, the level of social security is rather limited. In this paper the authors raise the question what the causes of the sluggish catching-up process are, and which opportunities Estonian economic policy has in order to close the wealth gap
    Keywords: Catching-up, social security, growth and structural change
    JEL: F43 H55 O52
    Date: 2014–07
  8. By: Adalbert Winkler
    Abstract: With the OMT program the ECB has de facto taken over the role as a lender of last resort (LoLR) for euro area governments. While this has been welcomed by some, many policymakers and economists, in particular in Germany, have strongly criticized the ECB for taking this step, even though it has been motivated by the same monetary policy considerations as the ECB’s role as a LoLR for banks. This paper addresses four arguments that are used to explain why it is acceptable to have the ECB as a LoLR for banks, while a LoLR role for governments has to be rejected. Overall we find that the arguments fail to convince. At the same time, all of them suggest that decisive steps towards fiscal and banking union are needed for the ECB to act as a successful LoLR for governments in the medium and long term.
    Date: 2014
  9. By: Thierry Tressel; Shengzu Wang
    Abstract: The paper examines progress with the external rebalancing of euro area deficit countries. Relative prices are adjusting at different pace across countries and with different compositions of wage cuts and labor shedding. There is so far limited evidence of resource re-allocation from non-tradable to tradable sectors, while improved export performance is still dependent on external demand from the rest of world. Current account adjustments have taken place, reflecting structural changes but also cyclical forces, suggesting that part of the improvements may unwind when cyclical conditions improve. Looking ahead, relying only on relative price adjustments (which adversely affects demand) to rebalance the euro area could prove very challenging. Structural reforms will play an important role in the reallocation of resources to the tradable sector and the associated relative price adjustment, while boosting non-price and price competitiveness.
    Date: 2014–07–22
  10. By: Ansgar Belke
    Abstract: This paper comments on the role of the Monetary Dialogue in the context of an evolving monetary policy. The discussion is conducted in terms of the adoption of forward guidance on interest rates by the European Central Bank (ECB), the ECB’s model choice and data revision policies in inflation forecasts, its membership in the Troika, its activities as a financial supervisor, as well as regards its bond purchasing activities and the implication for ECB monetary policy stemming from Fed’s envisaged exit from unconventional monetary policies. This paper also assesses on a case-by-case basis the actual exchange of information between the European Parliament (EP) and the ECB. We argue that the new ECB supervisory role has made the Monetary Dialogue exercise even more important "now" than in “normal” times. Still, we suggest changes, both procedural as well as regarding its focus range, to make it even more effective. In our view, the transparency/accountability issue represented by a Supervisory Board 'hosted' by ECB needs to be addressed. A crucial challenge for the Monetary Dialogue is also to assess the optimal degree of ECB transparency and accountability towards the EP, the key democratic institution.
    Keywords: accountability, European Parliament, forward guidance, Monetary Dialogue, transparency.
    JEL: E52 E58
    Date: 2014–04

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