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on European Economics |
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Issue of 2014‒10‒17
nine papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Eckhard Hein; Daniel Detzer |
| Abstract: | In this paper we outline alternative policy recommendations addressing the problems of differential inflation, divergence in competitiveness, and associated current account imbalances within the euro area. The major purpose of these alternative policy proposals is to generate sustainably high demand and output growth in the euro area as a whole, providing high levels of noninflationary employment, as well as preventing "export-led mercantilist" and "debt-led consumption boom" types of development, both within the euro area and with respect to the role of the euro area in the world economy. We provide a basic framework in order to systematically address the related issues, making use of Anthony Thirlwall's model of a "balance-of-payments-constrained growth rate." Based on this framework, we outline the required stance for alternative economic policies and then discuss the implications for alternative monetary, wage/incomes, and fiscal policies in the euro area as a whole, as well as the consequences for structural and regional policies in the euro-area periphery in particular. |
| Keywords: | Competitiveness; Current Account Imbalances; Differential Inflation Rates; Euro Area Economic Policies |
| JEL: | E61 E62 E63 E64 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_816&r=eec |
| 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: | F16 F22 J61 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-537&r=eec |
| By: | Franziska Bremus; Marcel Fratzscher |
| Abstract: | The paper analyzes the effects of changes to regulatory policy and to monetary policy on cross-border bank lending since the global financial crisis. Cross-border bank lending has decreased, and the home bias in the credit portfolio of banks has risen sharply, especially among banks in the euro area. Our results suggest that expansionary monetary policy in the source countries - as measured by the change in reserves held at central banks - has encouraged cross-border lending, both in euro area and non-euro area countries. Regarding regulatory policy, increases in financial supervisory power or independence of the supervisory authorities have encouraged credit outflows from source countries. The findings thus underline the importance of regulatory arbitrage as a driver of cross-border bank flows since the global financial crisis. However, in the euro area, arbitrage in capital stringency was linked to lower cross-border lending since the crisis. |
| Keywords: | Cross-border bank lending, financial integration, regulation, arbitrage, monetary policy, home bias |
| JEL: | F30 G11 G15 G28 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1411&r=eec |
| By: | Merike Kukk |
| Abstract: | The paper investigates the interdependence of household financial liabilities and assets, with special focus on the impact of liabilities on households’ holdings of financial assets. The paper uses the new ECB Household Finance and Consumption Survey from 2009–2010 covering euro area countries. The paper estimates a system of equations for households’ financial liabilities and assets, taking account of endogeneity and selection bias. The results indicate that higher household liabilities are related to lower holdings of financial assets. The findings are consistent with the hypothesis that wider use of credit leads to lower savings. The paper highlights that the distinction between the components of households’ wealth provides additional insights into households’ financial behaviour |
| Keywords: | household debt, household wealth, financial assets, liabilities, financial vulnerability |
| JEL: | D14 E21 D12 |
| Date: | 2014–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2014-2&r=eec |
| By: | Alfredo M. Pereira (Department of Economics, College of William and Mary, Williamsburg); Jorge M. Andraz (Faculdade de Economia, Universidade do Algarve, CEFAGE (UALG)) |
| Abstract: | We estimate the long-term impact of social security and social protection spending in a set of twelve EU countries. We estimate country-specific VARs relating GDP, unemployment, savings, and social spending. We find that social spending has a negative effect in most countries while the effects on savings are either not significant or positive but small. In turn, the negative effects on output are significant and in some cases large. Unemployment is the dominant channel through which social spending affects output. Our results imply that any increase in generosity would, under the current situation, bring detrimental macroeconomic effects. In addition, a less distortionary tax mix should be used to finance redistributive spending and the insurance component of the systems should be changed in the direction of a capitalization regime based on defined contributions. Obviously, this transition would take time and would not be costless but neither is maintaining the status quo. |
| Keywords: | Social security spending; Unemployment; Saving; Output; Fiscal multipliers; VAR; EU. |
| JEL: | C32 C51 C52 H55 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:cfe:wpcefa:2014_08&r=eec |
| By: | Okano Eiji (Nagoya City University,); Masashige Hamano (Sophia University); Pierre Picard (University of Luxembourg) |
| Abstract: | By developing a class of dynamic stochastic general equilibrium models with nominal rigidities and assuming a two-country currency union with sovereign risk, we show that there is not necessarily a trade-off between the prevention of default risk and stabilizing inflation. Under optimal monetary and fiscal policy, comprising a de facto inflation stabilization policy, the tax rate as an optimal fiscal policy tool plays an important role in stabilizing inflation, although not completely because of the distorted steady state. Changes in the tax rate to minimize welfare costs via stabilizing inflation then improve the fiscal surplus, and because of this and the incompletely stabilized inflation, the default rate does not increase as much. |
| Keywords: | Sovereign Risk; European Crisis; Optimal Monetary Policy; Fiscal Theory of the Price Level; Currency Union |
| JEL: | E52 E60 F41 F47 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:upd:utppwp:028&r=eec |
| By: | Alessandro Borin (Bank of Italy); Riccardo Cristadoro; Elena Mattevi (Bank of Italy) |
| Abstract: | Several factors contribute to attracting foreign investment: cyclical, such as demand fluctuations; structural, such as industrial specialization or the presence of natural resources; fiscal policy, including taxes; political, such as social stability and country governance; and finally, the overall quality of institutions. According to our estimates, the quality of institutions - measured by the World Bank’s Doing Business indicators - has a positive and significant effect in attracting foreign investment, even controlling for other relevant characteristics of the target countries. The time and complexity of procedures, rather than their costs, are key determinants in foreign investors’ choices. Italy, which receives less FDI than countries with similar economic characteristics, lags behind in those indicators of institution quality that most affect the allocation of investment. According to our analysis, if Italian institutions had been qualitatively in line with the euro-area average, foreign investment inflows would have been 15% (about 16 billion euros) higher during the 2006-2012 period. |
| Keywords: | foreign direct investment, FDI, Ease of Doing Business, institutions |
| JEL: | C33 F21 K20 O43 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_230_14&r=eec |
| By: | Efthymios Pavlidis; Alisa Yusupova; Ivan Paya; David Peel; Enrique MartÃnez-GarcÃa; Adrienne Mack; Valerie Grossman |
| Abstract: | The detection of explosive behavior in house prices and the implementation of early warning diagnosis tests are of great importance for policy-making. This paper applies the GSADF test developed by Phillips et al. (2012) and Phillips et al. (2013), a novel procedure for testing, detection and date-stamping of explosive behavior, to the data from the Dallas Fed International House Price Database documented in Mack and MartÃnez-GarcÃa (2011). We discuss the use of the GSADF test to monitor international housing markets. We assess the international boom and bust cycle experienced during the past 15 years through this lens— with special attention to the United States, the United Kingdom, and Spain. Our empirical results suggest that these three countries experienced a period of exuberance in housing prices during the late 90s and the fi…rst half of the 2000s that cannot be attributed solely to the behavior of fundamentals. Looking at all 22 countries covered in the International House Price Database, we detect a pattern of synchronized explosive behavior during the last international house boom-bust episode not seen before. |
| Keywords: | House prices, Unit-root tests, Exuberance |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:52032583&r=eec |
| By: | Barslund, Mikkel; Busse, Matthias |
| Abstract: | This Task Force report combines the most recent data from Eurostat with national sources to highlight the most significant labour mobility trends within the EU. Overall, the recent recession has not induced previously immobile workers to become more mobile, at least not in the larger member states. Mobility flows have moved away from crisis countries in response to the economic downturn but the desired increase in south-north mobility has not been observed so far. This leads the authors to conclude that successfully fostering mobility within EU15 countries requires tremendous effort. It is important that workers who are willing and able to move are not discouraged from doing so by unnecessary barriers to mobility. Improving the workings of the EURES system and its online job-matching platform; better cooperation of national employment agencies; streamlining the recognition of qualifications; and supporting language training within the EU are important contributions to labour mobility. The authors conclude that the EU is right to defend the free movement of workers. National governments should keep in mind that their ability to tap into an attractive foreign labour supply also hinges upon the perception of how mobile workers are treated in destination countries. If the political imperative requires regulations to be changed, such as the one guiding the coordination of social security, it is essential that no new mobility barriers are put in place. |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:eps:cepswp:9701&r=eec |