nep-eec New Economics Papers
on European Economics
Issue of 2014‒08‒28
seven papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. A Monetary Union requires a Banking Union By Hans Geeroms; Pawel Karbownik
  2. Avro Bölgesi Borç Krizi: GIIPS By Akçay, Belgin
  3. The Swedish Experience of Fiscal Reform: Lessons for Portugal By Jonung, Lars
  4. Do Eurozone yield spreads predict recessions? By Schock, Matthias
  5. Estonia and the European Monetary Union – Are there Benefi ts from a “Late” Accession? By Timo Baas
  6. Exchange Rate Volatility and the Foreign Trade in CEEC By Tomanova, Lucie
  7. Estimating the European Central Bank's "Extended Period of Time" By Bletzinger, Tilman; Wieland, Volker

  1. By: Hans Geeroms (Professor at KULeuven and College of Europe, Research Associate at CES); Pawel Karbownik (Deputy Director at the EU Economic Department of the Polish MFA)
    Abstract: This paper argues that a monetary union requires a banking union. While the USA developed both during a time span of two centuries, the EMU was created in the course of two decades and remains unfinished as the economic pillar is largely missing. The financial crisis and the Eurocrisis have shown that a genuine banking union is even more needed for the Eurozone than a budget or a fiscal union to let the euro survive.
    Keywords: banking Union, ECB, EMU, monetary policy, eurozone
    JEL: E10 E42 E44 E52 E58 E61 E63
    Date: 2014–06
  2. By: Akçay, Belgin (Department of Economic Policy, Ankara University, Ankara, Turkey)
    Abstract: Finance and financial markets were at the heart of the global economic crisis that began in August 2007. 2010 has seen the transformation of the global financial crisis into a sovereign debt crisis in the Eurozone. Starting from Greece, the debt crisis has put intense pressure on the bonds of other Eurozone countries, most notably Ireland, Portugal and Spain. Thus he Greek problem has become an Eurozone-wide problem. The crisis has hit these countries with large public deficits and debts. It also happens that they have undergone increasingly large current account deficits. Another feature of these countries has been their inflation rates, which have exceeded those in the rest of the Eurozone. All crisis countries have experienced a strong domestic demand shock. This shock, in turn, may have different causes. In Greece and Portugal fiscal policy has been mostly easy during this period along with credit boom. Ireland and Spain have undergone a credit boom and housing price bubble; when the bubble burst, both countries have had to bail banks out. In all these cases, the real exchange rate appreciation and the current deficits appear as consequences of these shocks.
    Keywords: Eurozone, GIIPS, sovereign debt crisis
    JEL: C45 F32 C45 E52 E61 H63
    Date: 2013
  3. By: Jonung, Lars (Department of Economics, Lund University)
    Abstract: This paper derives a set of policy lessons for Portugal from the new fiscal framework including a fiscal policy council that gradually emerged in Sweden after the deep economic crisis of the early 1990s. By now, Swedish public finances stand out among the strongest in Europe. Recent Swedish macroeconomic performance has been impressive. As Sweden and Portugal are small open economies in the periphery of Europe, Sweden may serve as a fiscal model for Portugal. Policy lessons are distilled from the Swedish experience for Portugal, stressing the importance of the economic policy culture for macroeconomic outcomes and for trust in government institutions and policies.
    Keywords: Fiscal rules; fiscal policy council; fiscal policy; public debt; Sweden; Portugal.
    JEL: E52 E62 E63 E65 F44 H62 O52
    Date: 2014–08–07
  4. By: Schock, Matthias
    Abstract: This paper examines the predictive power of the yield spread for GDP growth and recessions in the Eurozone from the 1990s to the recent past. An OLS and probit framework are used. Credit Default Swap (CDS) data on sovereign bonds as a new risk-adjustment method and a direct measure of default risk improve the quality of prediction significantly. Results show that the quality of growth and recession prediction with the commonly used yield spread remains high, as long as Eurozone sovereign default risk biases are considered.
    Keywords: yield curve, CDS spreads, economic activity
    JEL: E37 E43 E44 G1
    Date: 2014–08
  5. By: Timo Baas
    Abstract: The failure of the Maastricht criteria delayed Estonia’s accession to the European Monetary Union (EMU) until January 2011. During this time, trading shares with Eurozone countries declined, raising questions about the optimal accession time. In this study, the macroeconomic eff ects of introducing a common currency are analyzed by considering the state of the economy in diff erent years of accession. By accounting for currency conversion costs and in-house costs, we show that the trade eff ects of the EMU depend on the year of accession. In summary, a “late” accession induces higher benefi ts in terms of an increase in GDP, private consumption, and investment. However, the additional investment demand for building up capital stock in export industries is much higher in the “late” accession scenario. If foreign savings are not adjusted optimally, the “early” accession scenario might be benefi cial.
    Keywords: Eurozone; optimum currency areas; international trade; computable equilibrium model
    JEL: F15 F22 C68 J61 J30
    Date: 2014–06
  6. By: Tomanova, Lucie (Silesian University in Opava/Finance, School of Business Administration in Karvina, Karvina, Czech Republic)
    Abstract: The exchange rate plays an important role in a country’s export performance and currency volatility has impact on international trade, the balance of payments and economic performance, however, views on the impact of exchange rate volatility on international trade flows are inconsistent, thus it is necessary to examine this matter further, and with knowledge of the application to small open economies. This paper analyzes impact of exchange rate volatility on the export performance of Central and Eastern European countries. Using monthly time series data, the empirical analyses has been carried out for the period 01/1999 to 03/2013. Volatility’s impact on export performance is estimated on bilateral export flows of Czech Republic, Slovakia, Hungary and Poland to euro area. For the volatility measurement, G/ARCH models are used. Autoregressive distributed lag and error-correction approach are used to examine the impact of exchange rate volatility on the exports. The results suggest no significant relationship among the exchange rate volatility and export performance in CEE countries, impact of exchange rate volatility turns out to be ambiguous.
    Keywords: exchange rates, VECM, ARDL, export, volatility
    JEL: F31 F42 C22
    Date: 2013
  7. By: Bletzinger, Tilman; Wieland, Volker
    Abstract: On July 4, 2013 the ECB Governing Council provided more specific forward guidance than in the past by stating that it expects ECB interest rates to remain at present or lower levels for an extended period of time. As explained by ECB President Mario Draghi this expectation is based on the Council’s medium-term outlook for inflation conditional on economic activity and money and credit. Draghi also stressed that there is no precise deadline for this extended period of time, but that a reasonable period can be estimated by extracting a reaction function. In this note, we use such a reaction function, namely the interest rate rule from Orphanides and Wieland (2013) that matches past ECB interest rate decisions quite well, to project the rate path consistent with inflation and growth forecasts from the survey of professional forecasters published by the ECB on August 8, 2013. This evaluation suggests an increase in ECB interest rates by May 2014 at the latest. We also use the Eurosystem staff projection from June 6, 2013 for comparison. While it would imply a longer period of low rates, it does not match past ECB decisions as well as the reaction function with SPF forecasts. --
    Date: 2013

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