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on European Economics |
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Issue of 2014‒11‒12
fourteen papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | BRESSER-PEREIRA, Luiz Carlos; ROSSI, Pedro |
| Abstract: | This paper presents an interpretation of the European crisis based on the balance of payments imbalances within the Eurozone and highlighting the role of the “internal†real exchange rates as a primary cause of the crisis. It explores the structural contradictions that turn the Euro into a “foreign currency†for each individual Eurozone country. These contradictions imply the inability of national central banks to monetize the public and private debts, which makes the Euro crisis a sovereign crisis similar to those typical of emerging countries, but whose solution presents additional obstacles. |
| Date: | 2014–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:eesptd:371&r=eec |
| By: | Giulio Cifarelli (Dipartimento di Scienze per l'Economia e l'Impresa); Giovanna Paladino |
| Abstract: | This paper investigates the interest rate pass-through in eight European countries analyzing their short-run and long-run monetary transmission mechanisms. We investigate the relationship between the Euribor and the long-run interest rate on loans to non-financial corporations and allow for a mark-up which can be affected by country specific funding conditions and/or stochastic structural breaks. We detect significant differences across countries. Cointegration between the Euribor and the long-term bank loan interest rates holds for Germany, France, and the Netherlands, where banks seem to apply a constant mark-up. In the remaining countries of the sample the long-run pass-through is directly affected by changes in banks’ cost of funding, due to shifts in the spread between domestic and German long-term government bond interest rates. The selection of the country specific ESTAR/LSTAR parameterization of the short-run dynamics detects a high degree of heterogeneity. The transition variables vary from the government bond spreads, in countries which were involved in the European debt crisis via sovereign bond market contagion, to the VXO index and to the Euribor monthly volatility. |
| Keywords: | Interest rate pass-through, Cointegration, ESTAR/LSTAR parameterization, EMU. |
| JEL: | E43 E52 F36 C32 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2014_22.rdf&r=eec |
| By: | Comunale, Mariarosaria |
| Abstract: | This paper provides an empirical study of the asymmetrical spillovers of the euro-US dollar exchange rate on inflation in the euro zone. We divide the euro zone members in two groups of countries: "core" (closely related to Germany) and "periphery", testing if the euro-US dollar exchange rate is still able to give a different impact on the groups ’ performance as in the past US dollar-deutschmark polarization phenomenon. Using a dynamic panel data framework based on an exchange rate pass-through model, we estimate the elasticities of the two groups by system IV-GMM and the common correlated effects mean group estimator, testing for the asymmetry. Estimating the model with the first type of method, the exchange rate pass-through coefficient is always significant but the asymmetry between the groups is rejected. Using the common correlated effects mean group estimator we find that the coefficient is significantly negative only for core countries and the hypothesis of asymmetry is confirmed. Note that the significance disappears if we control for the first three years of EMU, but the coefficients for core and periphery have opposite sign in any case. Instead, other unobservable factors, representing global events or spillovers effects, play a relevant role in all the specifications. By using the nominal effective exchange rate instead, we found a significant coefficient in case of the whole EMU, while the elasticities for core and periphery are not statistically different from zero. Based on these results, we can conclude that the euro-US dollar is an important factor, but not the only key factor, in determining the asymmetry in inflation between core and periphery. The nominal effective exchange rate instead is a very important driver for the inflation only considering the whole euro zone. Therefore, the EMU seems to not have insulate enough some member countries from shocks coming from outside, as in the case of nominal exchange rate shocks. |
| Keywords: | Exchange Rate Pass-Through, Dynamic Panel Data, Inflation, Exchange Rates,European Monetary Union, Cross-sectional dependence |
| JEL: | C33 E31 F31 F36 F41 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:57704&r=eec |
| By: | Manish K. Singh (Faculty of Economics, University of Barcelona); Marta Gómez-Puig (Faculty of Economics, University of Barcelona); Simón Sosvilla-Rivero (Faculty of Economics, Complutense University of Madrid) |
| Abstract: | Based on contingent claims analysis (CCA), this paper tries to estimate the systemic risk build-up in the European Economic and Monetary Union (EMU) countries using a market based measure \distance-to-default" (DtD). It analyzes the individual and aggregated series for a comprehensive set of banks in each eurozone country over the period 2004-Q4 to 2013-Q2. Given the structural di_erences in _nancial sector and banking regulations at national level, the indices provide a useful indicator for monitoring country speci_c banking vulnerability and stress. We _nd that average DtD indicators are intuitive, forward-looking and timely risk indicators. The underlying trend, uctuations and correlations among indices help us analyze the interdependence while cross-sectional di_erences in DtD prior to crisis suggest banking sector fragility in peripheral EMU countries. |
| Keywords: | contingent claim analysis, distance-to-default, systemic risk JEL classification: G01, G21, G28 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:201421&r=eec |
| By: | Pilar Abad (Faculty of Economics, University of Barcelona); Helena Chuliá (Faculty of Economics, University of Barcelona) |
| Abstract: | In this paper 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 (coexceedances), 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 sovreign debt crises. |
| Keywords: | Financial integration; European government bond markets; coexceedances; extreme returns; logistic regression. JEL classification: C25; F36; G15 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:201424&r=eec |
| By: | Elena Bobeica; Paulo Soares Esteves; António Rua; Karsten Staehr |
| Abstract: | The paper investigates the link between domestic demand pressure and exports by considering an error correction dynamic panel model for eleven euro area countries over the last two decades. The results suggest that there is a statistically signi?cant substitution e¤ect between domestic and foreign sales. Furthermore, this relationship appears to be asymmetric, as the link is much stronger when domestic demand falls than when it increases. Weakness in the domestic market translates into increased e¤orts to serve markets abroad, but, conversely, during times of boom, exports are not negatively a¤ected by increasing domestic sales. This reorientation towards foreign markets was particularly important during the crisis period, and thus could represent a new adjustment channel to strong negative domestic shocks. The results have important policy implications, as this substitution effect between domestic and external markets might allow the euro area countries under stress to improve their trade outcomes with a relatively small downward pressure on domestic prices. |
| JEL: | C22 C50 F16 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201415&r=eec |
| By: | Brigitte Granville; Sana Hussain |
| Abstract: | This paper examines the synchronization in business and financial cycles both across and within a representative sample of Eurozone countries. |
| Keywords: | business cycles, concordance, European Union, financial cycles, time-frequency analysis. |
| JEL: | C14 E32 E44 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:cgs:wpaper:56&r=eec |
| By: | Virkola, Tuomo |
| Abstract: | This paper provides a characterization of the fiscal policy framework in four established federal countries with heterogeneous intergovernmental relations and demographic characteristics: Canada, Germany, Switzerland and the United States. We consider the implications of fiscal federalism from three different perspectives. First, we study the allocation of expenditure responsibilities and revenue generating instruments to different levels of government (federal, state and local) and discuss the role of intergovernmental transfers schemes and fiscal rules in each country. Second, we study the implementation of macroeconomic stabilization policy across different levels of government. Third, we discuss the evidence on the degree of inter-state risk sharing and the role of federal transfers in smoothing regional income shocks in federal countries. We conclude with the main implications to the euro area and to the debate on common fiscal instruments. |
| Keywords: | fiscal federalism, fiscal union, risk sharing |
| JEL: | E62 H60 H70 |
| Date: | 2014–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:rif:report:38&r=eec |
| By: | Ansgar Belke |
| Abstract: | This paper comments on the pros and cons of exit strategies. The focus is on the impact on the Euro area economy of the exit from unconventional monetary policies (UMP) by the Fed, which, appears to be the first central bank to lay out an exiting path. In this context, it discusses the issue of policy coordination between central banks in the light of the substantial potential spillover effects via capital flows and exchange rate adjustments of unconventional monetary policies. The risks of a premature versus a delayed exit are assessed. In particular, the paper looks at the risk associated to spillover effects from UMP exit and the different shapes of exit paths. It also analyse exit strategies in a wider context and the associated financial stability risks, with a specific focus on the role of uncertainty. The paper presents estimates of the impact of the Fed’s exit from UMP in 2014 on the Euro area economy using new and innovative global IMF models. Finally, specific policy options to minimize exit risks are discussed and compared. |
| Keywords: | federal funds rate, exit strategies, global spillovers, international policy coordination, sudden stop |
| JEL: | G01 G12 E58 H12 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:rmn:wpaper:201401&r=eec |
| By: | Gullstrand , Joakim (Department of Economics, Lund University); Olofsdotter, Karin (Department of Economics, Lund University) |
| Abstract: | This paper investigates trade effects of the euro focusing on the impact on bystanders. A common currency is expected to lower both variable and fixed trade costs, inducing increased trade flows between currency-union members on both intensive and extensive margins of trade. While this trade-creating effect has gained attention in recent work using firm-level data, few studies have looked on the possible trade-diverting effect for firms remaining outside. In this paper, we use data for Swedish manufacturing firms covering the 1997-2006 period in order to assess the potential trade-diverting effects of the euro on Swedish exports. We consider variations in the impact of the euro taking both firm, industry and export-market characteristics into account. Our results suggest that there are some trade-diverting effects on the intensive margin but that these negative effects of the euro on trade flows are asymmetric and only valid for core markets within the Eurozone. |
| Keywords: | euro; trade diversion; exports; heterogeneous firms |
| JEL: | F10 |
| Date: | 2014–09–12 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2014_033&r=eec |
| By: | Berka, Martin (University of Auckland); Devereux, Michael B. (University of British Columbia); Engel, Charles (University of Wisconsin) |
| Abstract: | We investigate the link between real exchange rates and sectoral total factor productivity measures for countries in the Eurozone. Real exchange rate patterns closely accord with an amended Balassa-Samuelson interpretation, both in cross-section and time series. We construct a sticky price dynamic general equilibrium model to generate a cross-section and time series of real exchange rates that can be directly compared to the data. Under the assumption of a common currency, estimates from simulated regressions are very similar to the empirical estimates for the Eurozone. Our findings contrast with previous studies that have found little relationship between productivity levels and the real exchange rate among high-income countries, but those studies have included country pairs which have a floating nominal exchange rate. |
| JEL: | F31 F41 |
| Date: | 2014–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:196&r=eec |
| By: | Daniel Dias; Carlos Robalo Marques; Christine Richmond |
| Abstract: | We use Portuguese firm-level data to investigate whether changes in resource misallocation may have contributed to the poor economic performance of some southern and peripheral European countries leading up to the Eurozone crisis. We extend Hsieh and Klenow's (2009) methodology to include intermediate inputs and consider all sectors of the economy (agriculture, manufacturing, and services). We find that within-industry misallocation almost doubled between 1996 and 2011. Equalizing total factor revenue productivity across firms within an industry could have boosted valued-added 48 percent and 79 percent above actual levels in 1996 and 2011, respectively. This implies that deteriorating allocative eficiency may have shaved around 1.3 percentage points of the annual GDP growth during the 1996-2011 period. Allocative eficiency deterioration, despite being a widespread phenomenon, is significantly higher in the service sector, with 5 industries accounting for 72 percent of the total variation. Capital distortions are the most important source of potential value-added eficiency gains, especially in the service sector, with a relative contribution increasing over time. |
| JEL: | D24 O11 O47 O41 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201411&r=eec |
| By: | Tomislav Globan (Faculty of Economics and Business, University of Zagreb); Vladimir Arčabić (Faculty of Economics and Business, University of Zagreb); Petar Sorić (Faculty of Economics and Business, University of Zagreb) |
| Abstract: | This paper analyzes the domestic and external inflation determinants for eight non-eurozone new EU member states (NMS). The empirical literature has been rather silent on the comparison of the relative importance of domestic vs. foreign inflation determinants. This paper aims to fill this gap and add to the literature by several methodological and empirical contributions. Empirical analysis is based on the structural vector autoregression (SVAR) model. It enables the authors to decompose inflation into its domestic and foreign component via historical decomposition analysis. Results indicate that foreign shocks are a major factor in explaining inflation dynamics in the medium run, while the short run inflation dynamics is mainly influenced by domestic shocks. Moreover, the importance of the foreign inflation component has had a rising trend in the pre-crisis period in all NMS, while the start of that trend mostly coincided with their accession to the EU. The global financial crisis seems to have decreased the importance of the foreign inflation component, although the results vary across countries. Since foreign shocks proved to be a very important determinant of inflation in NMS, the main policy implication of this study is the need to augment the classical Taylor rule with foreign factors in case of small open economies. |
| Keywords: | domestic and external inflation determinants, historical decomposition, inflation, new EU member states, consumer surveys |
| JEL: | C22 E31 E52 F41 |
| Date: | 2014–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:zag:wpaper:1405&r=eec |
| By: | Ketenci, Natalya |
| Abstract: | This paper examines the level of capital mobility in European Union members using the generalized method of moments (GMM) estimation technique developed by Hansen (1982). This study investigates the validity of the Feldstein-Horioka puzzle within the GMM framework and the impact of the global financial crisis on the level of capital mobility in EU members. In general, the world countries with time have a tendency to a higher level of capital market openness. According to Feldstein and Horioka (1980), a higher saving-investment correlation is related to lower capital mobility. In this paper, panel data for 27 European countries were used for the period of 1995-2013 on the quarterly basis. The empirical results provide evidence of high capital mobility in EU members, obtaining a low value of a saving retention coefficient. The results of estimations indicate significant dependence of investments on its past values. It is found that the global financial crisis had a deeply negative impact on investment rates during the first three quarters of 2008, followed by a recovery in the last quarter. The empirical results indicate that the level of capital mobility increased in the first three quarters and decreased in the fourth quarter of 2008 compared to estimations without dummies. Thus increase in investments and decrease in the international capital mobility level of European countries in the last quarter of 2008 indicate a relative increase in domestic capital flows, taking into account high risk in the international market. |
| Keywords: | Capital mobility, Feldstein-Horioka puzzle, saving-investment association, generalized method of moments (GMM), EU, panel data. |
| JEL: | F32 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:59014&r=eec |