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on European Economics |
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Issue of 2014‒09‒29
eleven papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Thomas Brand; Fabien Tripier |
| Abstract: | Why have the Euro area and the US diverged since 2011 while they were highly synchronized during the recession of 2008-2009? To explain this divergence, we provide a structural interpretation of these episodes through the estimation of a business cycle model with financial frictions for both economies. Our results show that risk shocks, measured as the volatility of idiosyncratic uncertainty in the financial sector, have played a crucial role in the divergence with the absence of risk reversal in the Euro area. Risk shocks have stimulated US credit and investment growth since the trough of 2009 whereas they have been at the origin of the double-dip recession in the Euro area. A companion website is available at http://shiny.cepii.fr/risk-shocks-and-di vergence. |
| Keywords: | Great recession;Business cycles;Uncertainty;Divergence;Risk Shocks |
| JEL: | E3 E4 G3 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2014-11&r=eec |
| By: | Natacha Valla; Thomas Brand; Sébastien Doisy |
| Abstract: | Some five years after the severe recession of 2009, private sector investment in Europe is still dangerously sluggish. And public sector investment has been cut, reinforcing the downward trend seen over the past thirty years. In this paper, we discuss the complementarity between private and public sector investment. Evidence suggests that in the medium term, public investment does not hinder, but fosters, the quantity and efficiency of private investment. Moreover, our fiscal multiplier for public investment (at 1.4, considerably above ‘breakeven’) is significantly stronger than those for other fiscal instruments. Taken together, these two findings suggest that the public sphere would be well advised to tilt spending towards investment in areas such as infrastructure and human capital, which represent an investment for future generations. A new European initiative might be needed to get investment back on track and thus protect future growth. To this end we propose establishing, by treaty, a Eurosystem of Investment Banks (ESIB), around a pan-European financial capacity that would coordinate the actions of the national public investment banks of Euro area member states and add to their funding capacity. The ESIB would channel the Euro area’s excess savings towards investment in the right places throughout the continent. To do so in an economically sustainable and financially profitable way, funding would be conditional on firm commitments to growth-enhancing structural reforms and economic policies. Our proposed Eurosystem of Investment Banks (ESIB) would be structured around a federal centre and national entities. The central node, the Fede Fund, would be created by restructuring the European Investment Bank into a truly federal entity. The Fede Fund would orchestrate the joint work of national investment and development banks with a clear European map in mind. The mandate of the ESIB, enshrined in the Treaty, would be to promote long-term growth, well-being and employment in Europe. The mandate would, by definition, reflect a political consensus emanating democratically from the people of the Euro area member states. The ownership and governance of the Fede Fund would be key in ring-fencing the investment process from national political agendas not linked to the promotion of long-term growth. We propose a structure with both public and private Fede shareholders, who would collectively elect the ESIB Board of Directors. The Fede Fund would also issue debt to finance investment at an economically relevant scale (10% of Euro area GDP, so around €1tn). |
| Keywords: | public investment;private investment;Europe;European Investment Bank |
| JEL: | E6 H54 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepipb:2014-04&r=eec |
| By: | Grégory Claeys; Zsolt Darvas; Guntram B. Wolff |
| Abstract: | Prepared for the ECOFIN in Milan on 13 September 2014. See also interactive simulation to design your own EUI scheme. The issue: Unemployment in Europe has increased to high levels and economic growth has remained subdued. A debate on additional policy instruments to address the situation is therefore warranted. Fiscal stabilisation mechanisms have not provided adequate fiscal stabilisation during the crisis in some countries nor in the euro area as a whole. Different preferences and historical developments mean that national labour markets are differently organised, which sometimes hinders the efficient working of the monetary union. European Unemployment Insurance (EUI) has been proposed as a measure to contribute to fiscal policy management and improve labour markets. Policy challenge: European Unemployment Insurance is one option for stabilising country specific economic cycles thanks to risk sharing, but it would not substantively influence the area-wide fiscal stance. Moral hazard problems are significant but can be reduced by a less generous design and more harmonisation of labour markets. The former would, however, reducethe schemeâ??s stabilisation effect. Reform and harmonisation of labour markets would improve the functioning of monetary union, but would undermine long-standing preferences and ideals which the subsidiarity principle guarantees. The complexity of the design and implementation of EUI and the question of the rightlegal base suggests that it would be a long-term project and not a measure to help quickly the millions currently unemployed. |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polbrf:847&r=eec |
| By: | Jara Tamayo, Holguer Xavier; Sutherland, Holly |
| Abstract: | In this paper we explore the potential of a new unemployment insurance benefit at EMU level to improve the income protection available to the unemployed and their families. The benefit is designed to be additional to existing national provision where this falls short in terms of eligibility (coverage) and the amount payable. The “EMU-UI†has a common design across countries, which is intended to reduce the extent of current gaps in coverage where these are sizeable due to stringent eligibility conditions, to increase generosity where current unemployment benefits are low relative to earnings and to extend duration where this is shorter than 12 months. Our analysis compares the extent of the effect of these improvements across selected countries from the Monetary Union (Germany, Estonia, Greece, Spain, France, Italy, Latvia, Austria, Portugal and Finland) using EUROMOD to simulate entitlement to the national and EMU-UIs and to calculate the effect on household disposable income. We find that the EMU-UI reduces the risk of poverty for the new unemployed and has a positive effect on income stabilisation. The extent of these effects varies in size across countries for two main reasons: notable differences in design of national unemployment insurance schemes and differences in labour force characteristics across countries, mainly in the proportion of self-employed workers who are typically not covered by national schemes. In countries such as France and Finland there is little effect of EMU-UI on poverty risk and stabilisation, while Greece, Italy and Latvia benefit the most, in particular from the EMU proportional scheme. Our analysis highlights potential areas of future research in terms of improving the design of the EMU-UI and accounting for national or EMU level ways of financing, as well as refinements to the methodology used to assess the effects of transitions to unemployment. |
| Date: | 2014–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:ese:emodwp:em5-14&r=eec |
| By: | M. Falagiarda; W. D. Gregori |
| Abstract: | This paper attempts to evaluate the effects of fiscal policy announcements by the Italian government on the long-term sovereign bond spread of Italy relative to Germany. After collecting data on relevant fiscal policy announcements, we perform an econometric comparative analysis between the three cabinets that followed one another during the period 2009-2013. The results suggest that only fiscal policy announcements made by members of Monti's cabinet have been effective in influencing the Italian spread, revealing a remarkable credibility gap between Monti's technocratic administration and Berlusconi's and Letta's governments. |
| JEL: | E43 E62 G01 G12 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp961&r=eec |
| By: | Nicolas Carnot; Phil Evans; Serena Fatica; Gilles Mourre |
| Abstract: | This paper explores whether collective insurance schemes of various kinds could improve the degree of cyclical income stabilisation and the operation of fiscal stabilisers in the European Economic and Monetary Union (EMU). We review the potential issues, the underlying trade-offs and the necessary conditions for such schemes to be workable. The paper discusses "good" design features, which raise the potential efficiency and acceptability of these mechanisms. It argues that such schemes would preferably focus on large shocks, moderate the boom times as well as cushion adverse shocks, and include a degree of budgetary prudence to cater for real-time uncertainty in assessing business cycles. It carries out retrospective simulations using both "ex post" and "real-time" data. The results suggest that all the schemes considered would have provided non-negligible income stabilisation over the past 10-20 years, although somewhat less so when operating on the basis of data available in real time. The stabilisation schemes reviewed do not require particularly large or persistent payments into or out of them. |
| Keywords: | Risk-sharing; income smoothing; fiscal stabilisers; transfer scheme; output gap |
| JEL: | E61 E62 F36 F42 H77 |
| Date: | 2014–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/174988&r=eec |
| By: | Ekrame Boubtane (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Dramane Coulibaly (EconomiX - CNRS : UMR7166 - Université Paris X - Paris Ouest Nanterre La Défense); Christophe Rault (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans) |
| Abstract: | This paper examines the causality relationship between immigration, unemployment and economic growth of the host country. We employ the panel Granger causality testing approach of Kónya (2006) that is based on SUR systems and Wald tests with country specific bootstrap critical values. This approach allows to test for Granger-causality on each individual panel member separately by taking into account the contemporaneous correlation across countries. Using annual data over the 1980-2005 period for 22 OECD countries, we find that, only in Portugal, unemployment negatively causes immigration, while in any country, immigration does not cause unemployment. On the other hand, our results show that, in four countries (France, Iceland, Norway and the United Kingdom), growth positively causes immigration, whereas in any country, immigration does not cause growth. |
| Keywords: | Immigration; growth; unemployment; Granger causality |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00800970&r=eec |
| By: | Miguel Lebre de Freitas (Universidade de Aveiro and NIPE); Miguel de Faria e Castro (New York University) |
| Abstract: | We disentangle the extent to which the real exchange rate appreciation in Portugal during 1995-2010 reflected the emergence of wage-productivity misalignments or, instead, changes in the relative price of tradable and non-tradable goods. The available data suggests that the latter effect dominated at the aggregate level. The evidence is consistent with the view that the external imbalance that characterized the Portuguese economy during the 1990s and early 2000s was triggered by the liberalization of capital flows, and not by dysfunctional wage setting institutions. Using the Fundamental Equilibrium Exchange Rate approach, we find that recent oil price shocks played an important role in explaining the real exchange rate overvaluation in Portugal. |
| Keywords: | real exchange rate; FERER; unit labor costs |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:12/2014&r=eec |
| By: | Enrico Spolaore |
| Abstract: | This chapter discusses the process of European institutional integration from a political-economy perspective, linking the long-standing political debate on the nature of the European project to the recent economic literature on political integration and disintegration. First, we introduce the fundamental trade-off between economies of scale associated with larger political unions and the costs from sharing public goods and policies among more heterogeneous populations, and examine the implications of the trade-off for European integration. Second, we describe the two main political theories of European integration-intergovernmentalism and functionalism- and argue that both theories capture important aspects of European integration, but that neither view provides a complete and realistic interpretation of the process. Finally, we critically discuss the successes and limitations of the actual process of European institutional integration, from its beginnings after World War II to the current crisis. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:tuf:tuftec:0778&r=eec |
| By: | Gu, Wulong; Yan, Beiling |
| Abstract: | This paper presents estimates of effective multifactor productivity (MFP) growth for Canada, the United States, Australia, Japan and selected European Union (EU) countries, based on the EU KLEMS productivity database and the World Input-Output Tables. Effective MFP growth captures the impact of the productivity gains in upstream industries on the productivity growth and international competitiveness of domestic industries, thereby providing an appropriate measure of productivity growth and international competitiveness in the production of final demand products such as consumption, investment and export products. A substantial portion of MFP growth, especially for small, open economies such as Canada?s, is attributable to gains in the production of intermediate inputs in foreign countries. Productivity growth tends to be higher in investment and export products than for the production of consumption products. Technical progress and productivity growth in foreign countries have made a larger contribution to production growth in investment and export products than in consumption products. The analysis provides empirical evidence consistent with the hypothesis that effective MFP growth is a more informative relevant indicator of international competitiveness than is standard MFP growth. |
| Keywords: | Economic accounts, International trade, Productivity accounts |
| Date: | 2014–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp6e:2014037e&r=eec |
| By: | Point E.; Le Quéau E. |
| Abstract: | The French housing market showed some recovery in 2013 amid furthermoderate price falls in the Paris area, Île de France and the rest of the country,at -1.5%, -1.6% and -1.4% respectively, and as interest rates stabilised athistorically low levels. The volume of transactions for existing homes, the mainmarket segment, grew again (+2.1%) and housing loan production reboundedsharply (+56%). However, the latter trend reflects an unprecedented volume ofloan transfers, 1 which accounted for 18.1% of production in 2013. Against thisbackdrop, total outstanding loans showed a relatively small increase comparedto the long-term trend (+3.9%). In general, the market remains characterised by strong fundamentals,particularly borrower solvency, which is the main lending criterion, althoughsome risk indicators stabilised at high levels: - The initial maturity of new loans fell relative to 2012, to 19.1 years, and theaverage residual maturity declined from 15.4 years to 15.3 years; - The share of borrowers with a debt service ratio (i.e. the ratio of repayment costs to income) of 35% and above in total production fell again in 2013, as did the average debt service ratio: at 30%, it showed its sharpest decrease since 2001, while remaining significantly above that year’s level (27.6%); - The proportion of fixed-rate loans in total production rose again slightly to 92.8%, and they continued to make up the vast majority of outstanding loans (83.2%). Uncapped floating-rate loans, which entail the highest risk for borrowers, were no more than 4.8% of total loans at end-2013. Interest-only loans represent only a tiny proportion of production (0.3% in 2013); - Almost every home loan is covered by a mortgage or lender’s lien, or by a guarantee issued by a credit institution or an insurance company; - The cost of risk on housing loans, which had slightly increased in 2012, dipped slightly to 0.065% of outstanding loans. However, there are certain trends that deserve attention, although some ofthem seem to reflect a change in borrower structure in favour of those withrelatively higher than average income and/or assets: - The average loan amount continued to rise in 2013 despite falling propertyprices throughout France. In addition, the average loan-to-value (LTV) ratio at origination, i.e. the loan amount relative to the property purchase price, having contracted in 2012, rebounded by more than 4 percentage points to 84.1%, its highest level since 2001. However, these two trends have not been matched by a rise in the average debt service ratio (see above). Moreover, the sharp rise in the average LTV at origination partly reflects some banks’ inadequate recording of loan transfers (see below) and the average LTV after origination may be estimated at just over 56% at the end of 2013, which is roughly unchanged relative to 2012; - The ratio of gross non-performing housing loans continued to rise in 2013, but, at just under 1.5%, it remained significantly below the average ratio of non-performing loans overall (3.8%), which grew much more sharply relative to 2012. Nevertheless, delinquency rates vary significantly from one segment to another, with first-time buyers in particular now exhibiting the highest levels (2.8%); - At the same time, the average coverage ratio for housing loans stabilised at around 27%. This is still significantly lower than the ratio for all types of loans to customers (55.4%), but it seems appropriate given the substantial guarantees provided to banks; - While banks benefit from borrowers’ relatively good level of insurance against death or work disability, they are still exposed to prolonged unemployment risk as only a small fraction of their customers has taken out job-loss insurance; The strong growth in loan transfers is a major focal point in this context. Suchtransfers, whose underlying objective of retaining customers and increasingdeposit taking from individuals appears hard to sustain over the long run giventhe relatively finite total volume of savings, should not lead to theunderestimation of borrower default risk, which must be properly reflected inlending rates. In addition, the annual survey of the French PrudentialSupervision and Resolution Authority (Autorité de Contrôle Prudentiel et deRésolution - ACPR) reveals that some banks are not updating the valuation ofthe underlying properties when granting the new loans, which appearsinconsistent with a proper assessment of risk and should be corrected. Moregenerally, even though the aggregate value of financed property currentlyseems to comfortably exceed outstanding principal amounts, it is important thatbanks are able to regularly assess their tangible security throughout the life ofthe loans so that they are in a position to anticipate any sudden reversal in thehousing market Finally, while lower property prices and historically low lending rates havedriven some recovery in activity in the recent period, persistently difficultmacroeconomic conditions should encourage French banks to keep a closewatch on the development of risks within their housing loan portfolios. |
| Keywords: | housing loans, average loan amount, average loan maturity, loan-to-value ratio, debt-service ratio, non-performing loans and coverage, risk weighting. |
| JEL: | G21 R21 R31 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:analys:32&r=eec |