nep-eec New Economics Papers
on European Economics
Issue of 2015‒08‒01
six papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. "Making the Euro Viable: The Euro Treasury Plan" By Jorg Bibow
  2. On the importance of the dual labour market for a country within a monetary union By Anna Kosior; Michał Rubaszek; Kamil Wierus
  3. Hysteresis and the European unemployment problem revisited By Jordi Galí
  4. The Agenda for Structural Reform in Europe By Fatás, Antonio
  5. Tail comovement in option-implied inflation expectations as an indicator of anchoring By Sara Cecchetti; Filippo Natoli; Laura Sigalotti
  6. Economic resilience: A new set of vulnerability indicators for OECD countries By Oliver Röhn; Aida Caldera Sánchez; Mikkel Hermansen; Morten Rasmussen

  1. By: Jorg Bibow
    Abstract: The euro crisis remains unresolved and the euro currency union incomplete and extraordinarily vulnerable. The euro regime's essential flaw and ultimate source of vulnerability is the decoupling of central bank and treasury institutions in the euro currency union. We propose a "Euro Treasury" scheme to properly fix the regime and resolve the euro crisis. This scheme would establish a rudimentary fiscal union that is not a transfer union. The core idea is to create a Euro Treasury as a vehicle to pool future eurozone public investment spending and to have it funded by proper eurozone treasury securities. The Euro Treasury could fulfill a number of additional purposes while operating mainly on the basis of a strict rule. The plan would also provide a much-needed fiscal boost to recovery and foster a more benign intra-area rebalancing.
    Keywords: Economic and Monetary Union; Euro Crisis; Euro Treasury; Fiscal Union; Public Investment
    JEL: E32 E62 E63 H62 H63
    Date: 2015–07
  2. By: Anna Kosior; Michał Rubaszek; Kamil Wierus
    Abstract: The paper investigates whether differences in the popularity of fixed term contacts on the labour market can be a source of divergent dynamics of unemployment among European Monetary Union economies. For that purpose we construct a database of labor market institutions for a group of eleven euro area countries and years 1995-2013 to conduct a series of dynamic panel regressions. We find a robust and significant impact of duality on unemployment dynamics: high duality rate amplifies its responsiveness to output shocks and lowers its persistence. The heterogeneous unemployment developments, in turn, are a challenge for the conduct of common monetary policy. We conclude that improved stability at both the euro area and country level may be obtained by a coordinated shift to ‘single-contract’ that closes the disproportion between temporary and regular contracts.
    Keywords: Dual labour market, Monetary Union, Panel Data
    JEL: C23 F02 J68
    Date: 2015
  3. By: Jordi Galí
    Abstract: The unemployment rate in the euro area appears to contain a significant nonstationary component, suggesting that some shocks have permanent effects on that variable. I explore possible sources of this nonstationarity through the lens of a New Keynesian model with unemployment, and assess their empirical relevance.
    Keywords: wage stickiness, New Keynesian model, unemployment fluctuations, Phillips curve, insider-outsider model.
    JEL: E24 E31 E32
    Date: 2015–06
  4. By: Fatás, Antonio
    Abstract: This paper reviews, from a macroeconomic point of view, the agenda for structural reforms in Europe. Structural reforms have been part of the economic policy discussions of European governments since the 70s when economic growth and employment started lagging relative to the US. The global financial crisis has created a sense of urgency because of the low performance of many European economies during the past decade. Our empirical analysis first shows that there exists a strong correlation between policies, institutions and economic performance. We also show that reforms are happening and they are happening faster in the countries that need them the most. However, the speed of reforms is not always fast enough, reforms happen in an isolated manner and their effects are not as large as planned. In addition, we see reforms slowing down possibly because the low-growth environment has not provided the best economic or political environment to support a sustainable process of broad reforms. We conclude with some thoughts on what would take to accelerate the reform process and the potential role of Europe and its institutions.
    Keywords: euro; Europe; structural reforms
    JEL: E6 O1
    Date: 2015–07
  5. By: Sara Cecchetti (Bank of Italy); Filippo Natoli (Bank of Italy); Laura Sigalotti (Bank of Italy)
    Abstract: We analyse the degree of anchoring of inflation expectations in the euro area. Using a new estimation technique, we look at the tail co-movement between the moments of short- and long-term distributions of inflation expectations, where those distributions are estimated from daily quotes of inflation derivatives. We find that, since mid-2014, negative tail events impacting short-term inflation expectations have been increasingly channelled to long-term views, igniting both downward revisions in expectations and upward changes in uncertainty; instead, positive short-term tail events have left long-term moments mostly unaffected. This asymmetric behaviour may signal a disanchoring from below of long-term inflation expectations.
    Keywords: disanchoring, inflation swaps, inflation options, option-implied density, tail comovement
    JEL: C14 C58 E31 E44 G13
    Date: 2015–07
  6. By: Oliver Röhn; Aida Caldera Sánchez; Mikkel Hermansen; Morten Rasmussen
    Abstract: The high costs of crises underscore the need to strengthen the resilience of economies, notably by assessing early on potential vulnerabilities that can lead to such costly events. This paper first discusses the source and nature of potential vulnerabilities in OECD countries that can lead to costly economic crises. Based on the most recent evidence from the early warning literature and lessons learned from the global financial crisis, it then proposes a new dataset of more than 70 vulnerability indicators that could be monitored to assess country risks in OECD economies. The indicators are grouped into five domestic areas: i) financial sector imbalances, ii) non-financial sector imbalances, iii) asset market imbalances, iv) public sector imbalances and v) external sector imbalances. An additional international “spillovers, contagion and global risks” category aims at capturing vulnerabilities that could transmit from one country to another through financial, trade or confidence channels. Evidence in a companion paper (Hermansen and Röhn, 2015) shows that the majority of the proposed indicators for which sufficiently long time series exists is helpful in predicting severe recessions and crises in the 34 OECD economies and Latvia between 1970 and 2014.<P>Résilience économique: Un nouvel ensemble d'indicateurs de vulnérabilité pour les pays OCDE<BR>Les coûts élevés des crises soulignent la nécessité de renforcer la résilience des économies, notamment en évaluant à temps les vulnérabilités potentielles qui peuvent causer de tels événements onéreux. Cette étude traite tout d'abord de l’origine et de la nature des vulnérabilités potentielles dans les pays de l'OCDE qui peuvent conduire à des crises économiques coûteuses. Sur la base des résultats documentés dans la littérature récente et des leçons tirées de la crise financière mondiale, l’étude propose ensuite un nouvel ensemble de données de plus de 70 indicateurs de vulnérabilité qui pourraient permettre d’évaluer les risques pays des économies de l'OCDE. Les indicateurs sont regroupés en cinq domaines domestique: i) les déséquilibres du secteur financier, ii) les déséquilibres du secteur non-financier, iii) les déséquilibres du marché des actifs, iv) les déséquilibres du secteur public et v) les déséquilibres du secteur externe. Une catégorie supplémentaire « retombées, contagion et risques globales » vise à capter les vulnérabilités qui pourraient se transmettre d'un pays à un autre par le canal de la finance, du commerce ou de la confiance. Les résultats présentés dans un document connexe (Hermansen et Röhn, 2015) montrent que la majorité des indicateurs proposés ici pour lesquels il existe des séries temporelles suffisamment longues sont utiles pour prévoir les récessions graves et les crises dans les 34 pays de l'OCDE et la Lettonie entre 1970 et 2014.
    Keywords: recession, crisis, resilience, imbalances, vulnerability, déséquilibres, vulnérabilité, résilience, crise, récession
    JEL: E44 E51 F37 F47
    Date: 2015–07–28

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