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on European Economics |
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Issue of 2015‒08‒07
eleven papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Blanchard, Olivier J; Erceg, Christopher; Lindé, Jesper |
| Abstract: | We show that a fiscal expansion by the core economies of the euro area would have a large and positive impact on periphery GDP assuming that policy rates remain low for a prolonged period. Under our preferred model specification, an expansion of core government spending equal to one percent of euro area GDP would boost periphery GDP around 1 percent in a liquidity trap lasting three years, about half as large as the effect on core GDP. Accordingly, under a standard ad hoc loss function involving output and inflation gaps, increasing core spending would generate substantial welfare improvements, especially in the periphery. The benefits are considerably smaller under a utility-based welfare measure, reflecting in part that higher net exports play a material role in raising periphery GDP. |
| Keywords: | currency union; DSGE model; fiscal policy; liquidity trap; monetary policy; zero bound constraint |
| JEL: | E52 E58 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10716&r=all |
| By: | Daniela Bragoli (Università Cattolica); Massimiliano Rigon (Bank of Italy); Francesco Zanetti (University of Oxford) |
| Abstract: | This study investigates the appropriate measure for stabilizing inflation in the Euro Area. We use a model that accounts for both the heterogeneity observed in the degree of price rigidities across regions and sectors, and asymmetry of real disturbances in relative prices. Our work shows that the optimal weights to assign to each region or sector result from complex interactions between the degree of price stickiness, economic size and the distribution of shocks within regions. |
| Keywords: | Optimal monetary policy, Euro Area regions, asymmetric shocks, asymmetric price stickiness. |
| JEL: | E52 F41 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkcam:1503&r=all |
| By: | Marcello Pericoli (Bank of Italy); Marco Taboga (Bank of Italy) |
| Abstract: | Term structure models are routinely used by central banks to assess the impact of their communication on market participants' views of future interest rate developments. However, recent studies have pointed out that traditional term structure models can provide misleading indications when policy rates are at the zero lower bound (ZLB). One of the main drawbacks is that they are unable to reproduce the stylized fact that policy rates tend to remain at the ZLB for prolonged periods of time once they reach it. A consensus has recently emerged that shadow rate models, first introduced by Black (1995), are apt to solve this problem. The main idea is that the shadow rate (i.e., the short-term interest rate that would prevail in the absence of the ZLB) can move in negative territory for long time spans even when the actual rate remains close to the ZLB. Due to their high nonlinearity, shadow rate models are particularly difficult to estimate and have been so far only estimated with approximate methods. We propose an exact Bayesian method for their estimation. We use it to study developments in euro and US dollar yield curves since the end of the '90s. Our estimates confirm - and provide a quantitative assessment of - the fact that there has been a significant divergence of monetary policies in the euro area and in the US over the past years: between 2009 and 2013, the shadow rate was much lower in the US than in the euro area, while the opposite has been true since 2014; furthermore, at the end of our sample (January 2015), the most likely date of the the first increase in policy rates was estimated to be around mid-2015 in the US and around 2020 in the euro area. |
| Keywords: | zero lower bound, shadow rate term structure model |
| JEL: | C32 E43 G12 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1023_15&r=all |
| By: | Fabio Busetti (Bank of Italy); Michele Caivano (Bank of Italy); Lisa Rodano (Bank of Italy) |
| Abstract: | The paper uses dynamic quantile regressions to estimate and forecast the conditional distribution of euro-area inflation. As in a Phillips curve relationship we assume that inflation quantiles depend on past inflation, the output gap, and other determinants, namely oil prices and the exchange rate. We find significant time variation in the shape of the distribution. Overall, the quantile regression approach describes the distribution of inflation better than a benchmark univariate trend-cycle model with stochastic volatility, which is known to perform very well in forecasting inflation. In an out-of-sample prediction exercise, the quantile regression approach provides forecasts of the conditional distribution of inflation that are superior, overall, to those produced by the benchmark model. Averaging the distribution forecasts of the different models improves robustness and in some cases results in the greatest accuracy of distributional forecasts. |
| Keywords: | quantile regression, Phillips curve, time-varying distribution |
| JEL: | C32 E31 E37 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1027_15&r=all |
| By: | Matt Dickson (University of Bath); Fabien Postel-Vinay (Departement d'Economie de Sciences Po); Hélène Turon (Department of Economics (University of Bristol)) |
| Abstract: | n a context of widespread concern about budget deficits, it is important to assess whether public sector pay is in line with the private sector. Our paper proposes an estimation of differences in lifetime values of employment between public and private sectors for five European countries. We use data from the European Community Household Panel over the period 1994–2001 for Germany, the Netherlands, France, Italy and Spain. We look at lifetime values instead of wage levels because, as we show in our results, differences in earnings mobility, earnings volatility and job loss risk across sectors occur in many instances and these will matter to forward-looking individuals. When aggregated into a measure of lifetime value of employment in either sector, these differences yield estimates of the lifetime premium in the public sector for these five countries. We also present differences in the institutional and labour market structures in these countries and find that countries for which we estimate a positive lifetime premium in the public sector, i.e. France and Spain, are also the countries where access to the public sector requires costly entry procedures. This paper is to the best of our knowledge the first to use this dynamic approach applied to Europe, which we are able to do with a common dataset, time-period and model. |
| Keywords: | Income Dynamics; Job Mobility; Public-private Inequality; Selection Effects; Institutions |
| JEL: | J45 J31 J62 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/1frfnu9k0921o6s94ptnm0q4o&r=all |
| By: | Michelle Norris (School of Social Policy, Social Work and Social Justice, University College Dublin); Michael Byrne (National Institute of Regional and Spatial Analysis, Maynooth University,) |
| Abstract: | Ireland and Spain were amongst the European countries which experienced the most severe economic and fiscal problems following the global financial crisis. The proximate causes of these economic crashes have been explored in-depth by researchers and governments, who have highlighted strong parallels between the policy, regulatory and economic factors which underpinned them. In both countries residential property price inflation increased dramatically from the late 1990s driven by increased availability of cheap mortgages but unusually was accompanied by marked growth in new house building. Thus, following the international credit crunch in 2008, a simultaneous contraction in both mortgage credit and house building occurred in Ireland and Spain, which precipitated a marked knock-on decline in the employment, tax revenue and consumer spending which the housing boom had underpinned. This paper argues that the Irish and Spanish housing booms and busts are similar not just in terms of scale and proximate causes but also in terms of fundamental causes. In both countries the housing boom/bust cycle was underpinned by a suite of macroeconomic policies which aimed to use asset price growth to underpin rising demand and economic growth, or in other words achieve what Robert Brenner (2006) terms ‘asset-price Keynesianism’. This approach was particularly attractive to the Irish and Spanish governments because it enabled them to resolve historical legacies of industrial underdevelopment and regional imbalances by generating construction jobs in underdeveloped areas. As a result of the latter, local/regional governments in both countries played a key role in facilitating the implementation of this policy. |
| Keywords: | global financial crisis; economic crash; housing boom and bust; macroeconomic policies; asset price growth; industrial underdevelopment; ‘asset-price Keynesianism’ |
| Date: | 2015–07–20 |
| URL: | http://d.repec.org/n?u=RePEc:ucd:wpaper:201514&r=all |
| By: | Zareh Asatryan; Friedrich Heinemann; Hans Pitlik (WIFO) |
| Abstract: | The need to balance austerity with growth policies has put government efficiency high on the economic policy agenda in Europe. Administrative reforms which boost the efficiency of the administration can alleviate the trade-off between consolidation and public service provision. Against such backdrop, this study explores the determinants of efficiency enhancing public administration reforms for a panel of EU countries using a novel reform indicator. The findings support the political-economic reasoning: an economic and fiscal crisis is a potent catalyst for reforms, but a powerful bureaucracy effectively constrains the opportunities of a crisis to promote this particular type of reform. Furthermore, there is evidence for horizontal learning from other EU countries, and for vertical learning associated with a particular type of EU transfers. |
| Keywords: | Euro crisis, public sector efficiency, cohesion policy, theory of bureaucracy |
| Date: | 2015–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2015:i:500&r=all |
| By: | Anamaria Illes; Marco Lombardi; Paul Mizen |
| Abstract: | After the global finance crisis short-term policy rates were cut to near-zero levels, yet, bank lending rates did not fall as much as the decline in policy rates would have suggested. If the crisis represents a structural break in the relationship between policy rates and lending rates, how should central banks view the post-crisis transmission of policy to lending rates? This poses a major puzzle for monetary policymakers. Using a new weighted average cost of liabilities to measure banks’ effective funding costs we show a model of interest rate pass-through with dynamic panel data methods solves this puzzle, and has many other advantages over policy rates. It suggests central banks should focus on the cost of bank liabilities more broadly to understand the dynamics of lending rates. |
| Keywords: | Keywords: lending rates, policy rates, panel cointegration, financial crisis |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcfc:15/05&r=all |
| By: | Irene Brunetti; Davide Fiaschi; Lisa Gianmoena; Angela Parenti |
| Abstract: | is paper examines the growth rate volatility of per capita GDP of European regions in 1992-2008. We measure the regional volatility using a new methodology based onMarkov matrices and we investigate its main determinants. Volatility displays a geographical pattern and a significant spatial dependence. Output composition appears one of the main driver of volatility; among the other determinants we find a negative impact of the size of regional economies and of the flexibility of labour market, and a positive impact of the sectoral concentration, of the financialization of economy, and of the participation to EMU. |
| Keywords: | Markov Matrix, Asymmetric Fluctuations, Output Com-position, Size Effect, Spatial Dependence. |
| JEL: | C20 E32 O40 |
| Date: | 2015–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:pie:dsedps:2015/201&r=all |
| By: | Mikkel Hermansen; Oliver Röhn |
| Abstract: | The global financial crisis and the high associated costs have revived the academic and policy interest in “early warning indicators” of crises. This paper provides empirical evidence on the usefulness of a new set of vulnerability indicators, proposed in a companion paper (Röhn et al., 2015), in predicting severe recessions and crises in OECD countries. To evaluate the usefulness of the indicators the signalling approach is employed, which takes into account policy makers’ preferences between missing crises and false alarms. Our empirical evidence shows that the majority of indicators would have helped to predict severe recessions in the 34 OECD economies and Latvia between 1970 and 2014. Indicators of global risks consistently outperform domestic indicators in terms of their usefulness, highlighting the importance of taking international developments into account when assessing a country’s vulnerabilities. In the domestic areas, indicators that measure asset market imbalances (real house and equity prices, house price-to-income and house price-to-rent ratios), also perform consistently well both in and out-of sample. Domestic credit related variables appear particularly useful in signalling upcoming banking crises and in predicting the global financial crisis out-of-sample. The results are broadly robust to different definitions of costly events, different forecasting horizons and different time and country samples.<P>Résilience économique : L'utilité des indicateurs d'alerte rapide dans des pays de l'OCDE<BR>La crise financière mondiale et les coûts associés élevés ont ravivé l'intérêt pour les « indicateurs d'alerte rapide » des crises. Cette étude fournit des données statistiques sur l'utilité d'un nouvel ensemble d'indicateurs de vulnérabilité, proposé dans une étude connexe (Röhn et al., 2015), pour prédire les récessions graves et les crises dans les pays de l'OCDE. Pour évaluer l'utilité des indicateurs la méthode de signalisation est employée. Celle-ci prend en compte les préférences des décideurs politiques entre les crises manquantes et les fausses alarmes. Les résultats de l’analyse statistique montrent que la majorité des indicateurs aurait aidé à prédire les récessions sévères dans les 34 économies de l'OCDE et la Lettonie entre 1970 et 2014. Les indicateurs de risque global surclassent systématiquement les indicateurs domestiques en termes d’information utile, soulignant l'importance de prendre les développements internationaux en compte lors de l'évaluation des vulnérabilités d'un pays. Dans les champs domestiques, des indicateurs qui mesurent les déséquilibres du marché des actifs (les prix réels des logements et le cours des actions, le ratio du prix des logements au revenu disponible et le ratio du prix des logements au coût des loyers), performe bien dans et hors de l'échantillon. Les variables reliées au crédit domestique semblent particulièrement utile dans la signalisation des crises bancaires et à prédire la crise financière mondiale hors-échantillon. Les résultats sont globalement robustes pour différentes définitions d'événements onéreux, différents horizons de prévision et différents échantillons de temps et de pays. |
| Keywords: | recession, crisis, resilience, vulnerability, résilience, crise, déséquilibres, vulnérabilité |
| JEL: | E32 E44 E51 F47 |
| Date: | 2015–07–28 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1250-en&r=all |
| By: | Andrejs Bessonovs (Bank of Latvia) |
| Abstract: | We develop and assess a suite of statistical models for forecasting Latvia's GDP. Various univariate and multivariate econometric techniques are employed to obtain short-term GDP projections and to assess the performance of the models. We also compile information contained in the GDP components and obtain short-term GDP projections from a disaggregate perspective. We propose a novel approach assessing GDP from the production side in real time, which is subject to changes in NACE classification. Forecast accuracy of all individual statistical models is assessed recursively by out-of-sample forecasting procedure. We conclude that factor-based forecasts tend to dominate in the suite. Encouraging results are also obtained using disaggregate models of factor and bridge models, which could be considered as good alternatives to aggregate ones. Furthermore, combinations of the forecasts of the statistical models allow obtaining robust and accurate forecasts which lead to a reduction of forecast errors. |
| Keywords: | out-of-sample forecasting, real-time estimation, forecast combination, disaggregate approach |
| JEL: | C32 C51 C53 |
| Date: | 2015–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:ltv:wpaper:201501&r=all |