nep-eec New Economics Papers
on European Economics
Issue of 2014‒10‒13
nine papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Migration as an Adjustment Mechanism in the Crisis? A Comparison of Europe and the United States By Jauer, Julia; Liebig, Thomas; Martin, John P.; Puhani, Patrick A.
  2. One currency, one price? Euro Changeover related inflation in Estonia By Jaanika Meriküll; Tairi Rõõm
  3. Macro News and Bond Yield Spreads in the Euro Area By Guglielmo Maria Caporale; Fabio Spagnolo; Nicola Spagnolo
  4. European government bond market integration in turbulent times By Pilar Abad; Helena Chuliá
  5. A global value chain analysis of macroeconomic imbalances in Europe By Stefan Ederer; Peter Reschenhofer
  6. Measuring Labour Mismatch in Europe By António Morgado; Tiago Neves Sequeira; Marcelo Santos; Alexandra Ferreira Lopes; Ana Balcão Reis
  7. What Matters Most in the Design of Stress Tests? Evidence from U.S. and the Europe By Bertrand Candelon; Amadou N. R. Sy
  8. What drives heterogeneity of procyclicality of loan loss provisions in the EU? By Malgorzata Olszak; Mateusz Pipien; Iwona Kowalska; Sylwia Roszkowska
  9. The lifecycle deficit in France, 1979-2005 By Hippolyte D'Albis; Carole Bonnet; Julien Navaux; Jacques Pelletan; Hector Toubon; François-Charles Wolff

  1. By: Jauer, Julia; Liebig, Thomas; Martin, John P.; Puhani, Patrick A.
    Abstract: The question of whether migration can be an equilibrating force in the labour market is an important criterion for an optimal currency area. It is of particular interest currently in the context of high and rising levels of labour market disparities, in particular within the Eurozone where there is no exchange-rate mechanism available to play this role. We shed some new light on this question by comparing pre- and post-crisis migration movements at the regional level in both Europe and the United States, and their association with asymmetric labour market shocks. We find that recent migration flows have reacted quite significantly to the EU enlargements in 2004 and 2007 and to changes in labour market conditions, particularly in Europe. Indeed, in contrast to the pre-crisis situation and the findings of previous empirical studies, there is tentative evidence that the migration response to the crisis has been considerable in Europe, in contrast to the United States where the crisis and subsequent sluggish recovery were not accompanied by greater interregional labour mobility in reaction to labour market shocks. Our estimates suggest that, if all measured population changes in Europe were due to migration for employment purposes – i.e. an upper-bound estimate – up to about a quarter of the asymmetric labour market shock would be absorbed by migration within a year. However, in the Eurozone the reaction mainly stems from migration of third-country nationals. Even within the group of Eurozone nationals, a significant part of the free mobility stems from immigrants from third countries who have taken on the nationality of their Eurozone host country.
    Keywords: Free mobility, migration, economic crisis, labour market adjustment, Eurozone, Europe, United States
    JEL: F15 F16 F22 J61
    Date: 2014–09
  2. By: Jaanika Meriküll; Tairi Rõõm
    Abstract: This paper studies euro changeover-related inflation using disaggregated price level data. The difference-in-differences approach is used and the control group for the treatment country, Estonia, is built from 12 euro area countries. The Nielsen Company disaggregated price data are employed at product, brand and shop-type level. The results indicate that while the overall inflationary effect of euro adoption was modest, the effects were significantly different across various market segments. Changeoverrelated inflation was higher for products that were relatively cheaper than the euro area average. Inflationary effects were stronger in smaller shops.
    Keywords: euro, currency changeover, market concentration, consumer behaviour
    JEL: D49 P46 E58
    Date: 2014–10–10
  3. By: Guglielmo Maria Caporale; Fabio Spagnolo; Nicola Spagnolo
    Abstract: This paper analyses the effects of newspaper coverage of macro news on the spread between the yield on the 10-year German Bund and on sovereign bonds in eight countries belonging to the euro area (Belgium, France, Greece, Ireland, Italy, the Netherlands, Portugal and Spain) using daily data for the period 1999-2014. The econometric analysis is based on the estimation of a VAR-GARCH model. The results can be summarised as follows. Negative news have significant positive effects on yield spreads in all PIIGS countries but Italy before September 2008; markets respond more to negative news, and their reaction has increased during the recent financial crisis. News volatility has a significant impact on yield spread volatility, the effects being more pronounced in the case of negative news and bigger in the most recent crisis period, especially in the PIIGS countries. Further, the conditional correlations between yield spreads and negative news are significant and positive, and their increase in absolute value during the financial crisis (especially in the PIIGS countries) indicates a higher sensitivity of yield spreads to negative releases.
    Keywords: News, Yield Spreads, Volatility Spillovers, VAR-GARCH model
    JEL: C32 F36 G15
    Date: 2014
  4. By: Pilar Abad (Department of Economics, Riskcenter-IREA, Universidad Rey Juan Carlos); Helena Chuliá (Department of Econometrics, Riskcenter-IREA, Universitat de Barcelona)
    Abstract: We investigate the dynamics of European government bond market integration during the financial crisis and, subsequently, during the European sovereign debt crisis. Based on the approach developed by Bae et al. (2003), we adopt an intuitive measure of integration: the higher the number of joint extreme price rises or falls, the higher the degree of integration. We also analyse the underlying determinants of the dynamics of integration using a binomial logistic regression. Our results reveal that the level of integration of European government bond markets with the euro area has changed over time, with notable differences between the financial and the European sovereign debt crises. We find that the Euribor, unexpected monetary policy announcements from the ECB and both regional and international volatility play an important role in determining the level of integration, and that, in general, the relevance of these factors does not change between the financial and the sovereign debt crises.
    Keywords: financial integration, European government bond markets, coexceedances, extreme returns, logistic regression
    Date: 2014–10
  5. By: Stefan Ederer; Peter Reschenhofer
    Abstract: This paper assesses whether or to what extent the macroeconomic imbalances, which emerged in the ‘North’ and ‘South’ of the European Monetary Union before the financial and economic crisis of 2008/09, are symmetric. Firstly, we calculate bilateral exports and imports between all EU member states, applying the concept of ’trade in value added’, and discuss their role in the emergence of trade surpluses and deficits. Secondly, we decompose the changes in the trade balances into the effects of shifts in final demand on the one side and changes in the global production patterns on the other. Thirdly, we quantify to what extent an increase in domestic demand in the North and a decrease in the South would support the elimination of these imbalances. Finally, we calculate a hypothetical scenario in which final demand would expand similarly in all EMU member states. Thereby we evaluate how the macroeconomic imbalances would have evolved in the case of more balanced demand developments in the EMU in the past, as well as how adjustment could possibly happen in the future.
    Keywords: European Monetary Union, macroeconomic imbalances, global value chains, input-output analysis
    JEL: C67 E60 F14 F15
    Date: 2014–09
  6. By: António Morgado (ISCAL - IPL. Polithecnic Institute of Lisbon); Tiago Neves Sequeira (Departamento de Gestão e Economia and CEFAGE-UBI); Marcelo Santos (Departamento de Gestão e Economia and CEFAGE-UBI); Alexandra Ferreira Lopes (Instituto Universitário de Lisboa, ISCTE-IUL, ISCTE); Ana Balcão Reis (Nova School of Business and Economics)
    Abstract: We calculate aggregate measures of mismatch in the labour market for 30 European countries. These indicators measure vertical mismatch (related to the level of education, e.g. overeducation, and undereducation) and horizontal mismatch (related to the eld of education) and are comparable across countries and through time. We obtain that in European countries between 15% to nearly 35% of workers have a job for which they have more (or less) qualications than the usual level. Approximately 20% to nearly 50% work in a job for which they do not have the usual eld qualication. There is a great variability on mismatch incidence across European labour markets. Undereducation affects more workers than overeducation in most European countries. Low correlations between mismatch and unemployment indicate that mismatch should be regarded as an additional informative variable, useful to characterize labour markets. We also study the in uence of the different measures of mismatch on the evolution of per capita output in both the short and long-run. We nd evidence of strong short-run effects of mismatch.
    Keywords: Education; Human Capital; Mismatch; Labour Market.
    JEL: J24 O50
    Date: 2014
  7. By: Bertrand Candelon; Amadou N. R. Sy
    Abstract: In the aftermath of the global financial crisis, supervisors in Europe and the U.S. have undertaken a series of bank stress tests to restore market confidence. In this paper we use event study methods to compare the market impact of all U.S. and EU-wide stress tests performed from 2009 to 2013. We find that, typically, the publication of stress test results has a positive impact on stressed banks’ returns. However, while the 2009 U.S. stress test had a large and positive impact on stressed banks, the impact of subsequent U.S. exercises decreased over time. Contrary to anecdotal evidence, we find that the 2011 EU exercise is the only EU-wide stress test that resulted in a significant negative market reaction. Comparing EU-wide stress tests among themselves and with U.S. stress tests highlights the importance of the governance of the stress tests. Governance turns out to be more important for the success of stress tests than technical elements, such as the minimum capital adequacy threshold or the level of disclosure of bank-by-bank data.
    Keywords: financial stability, macro-prudential, stress tests, financial stability
    JEL: G21 G28 G20
    Date: 2014–09–30
  8. By: Malgorzata Olszak (University of Warsaw, Faculty of Management); Mateusz Pipien (Cracow University of Economics, Economic Institute, National Bank of Poland); Iwona Kowalska (University of Warsaw, Faculty of Management); Sylwia Roszkowska (Faculty of Economic and Social Sciences, University of £ódŸ, National Bank of Poland)
    Abstract: This paper documents a large cross-bank and cross-country variation in the relationship between loan loss provisions and the business cycle and explores bank management specific, bank-activity specific and country specific (institutional and regulatory) features that explain this diversity in the European Union. Our results indicate that LLP in large, publicly traded and commercial banks, as well as in banks reporting in consolidated statements’ format, are more procyclical. Better investor protection and more restrictive bank regulations reduce the procyclicality of LLP. Additional evidence shows that moral hazard resulting from deposit insurance renders LLP more procyclical. We do not find support for the view that better quality of market monitoring mitigates the risk-taking behavior of banks. Our findings clearly indicate the empirical importance of earnings management for LLP procyclicality. Sensitivity of LLP to the business cycle seems to be limited in the case of banks which engage in more income smoothing and which apply prudent credit risk management.
    Keywords: loan loss provisions, procyclicality, earnings management, investor protection, bank regulation, bank supervision
    JEL: E32 E44 G21
    Date: 2014–05
  9. By: Hippolyte D'Albis (Paris School of Economics - Université Paris I - Panthéon-Sorbonne); Carole Bonnet (INED - Institut National d'Etudes Démographiques Paris - INED); Julien Navaux (LEDa - Laboratoire d'Economie de Dauphine - Université Paris IX - Paris Dauphine); Jacques Pelletan (UP8 - Université Paris 8, Vincennes-Saint-Denis - Université Paris VIII - Vincennes Saint-Denis); Hector Toubon (LEDa - Laboratoire d'Economie de Dauphine - Université Paris IX - Paris Dauphine); François-Charles Wolff (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272)
    Abstract: We use the National Transfer Accounts methodology to calculate the lifecycle deficit in France for the years 1979-2005. During this period, consumption profiles were roughly constant over age, while labor income profiles shifted to higher ages. The share of the aggregate lifecycle deficit in GDP rose sharply in the 1980s due to an increase in the mean age of the population. In contrast, the per capita shares of the lifecycle deficit attributed to the population under 20 and over 60 varied little during this period, even though the relative weights of these two age-segments has shifted continuously in favor of the latter.
    Keywords: Comptes de Transferts Nationaux; Consommation; Revenus du travail; Déficit de cycle de vie
    Date: 2014–07–28

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