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on European Economics |
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Issue of 2016‒01‒18
fourteen papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Zsolt Darvas (Institute of Economics - Centre for Economic and Regional Studies - Hungarian Academy of Sciences and Bruegel and Corvinus University of Budapest); Andras Simon (retired Head of Research at the Central Bank of Hungary) |
| Abstract: | This paper argues that the Phillips curve relationship is not sufficient to trace back the output gap, because the effect of excess demand is not symmetric across tradeable and non-tradeable sectors. In the non-tradeable sector, excess demand creates excess employment and inflation via the Phillips curve, while in the tradeable sector much of the excess demand is absorbed by the trade balance. We set up an unobserved-components model including both a Phillips curve and a current account equation to estimate ‘sustainable output’ for 45 countries. Our estimates for many countries differ substantially from the potential output estimates of the European Commission, IMF and OECD. We assemble a comprehensive real-time dataset to estimate our model on data which was available in each year from 2004-15. Our model was able to identify correctly the sign of pre-crisis output gaps using real time data for countries such as the United States, Spain and Ireland, in contrast to the estimates of the three institutions, which estimated negative output gaps real-time, while their current estimates for the pre-crisis period suggest positive gaps. In the past five years the annual output gap estimate revisions of our model, the European Commission, IMF, OECD and the Hodrick-Prescott filter were broadly similar in the range of 0.5-1.0 percent of GDP for advanced countries. Such large revisions are worrisome, because the European fiscal framework can translate the imprecision in output gap estimates into poorly grounded fiscal policymaking in the EU. |
| Keywords: | equilibrium current account; international trade; Kalman-filter; open economy; Phillips-curve; potential output; real-time data; sustainable output; state-space models |
| JEL: | C32 E32 F41 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:1557&r=eec |
| By: | Merike Kukk; Karsten Staehr |
| Abstract: | This paper uses panel data estimations on annual data from 10 Central and Eastern European countries to assess the effect of different macroeconomic variables on the dynamics of corporate and household saving. The analyses reveal that changes in the macroeconomic environment are important for the saving rates in both sectors, but with marked differences across the sectors. The differences are most pronounced for the output gap, the real interest rate, the inflation rate and the current account balance. Some variables such as the unemployment rate and changes in the real exchange rate are unimportant in both sectors. The differences across the sectors underscore the importance of analysing corporate and household saving separately |
| Keywords: | sectoral saving rates, Central and Eastern Europe, macroeconomic variables |
| JEL: | E21 E32 E44 |
| Date: | 2015–12–30 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2015-5&r=eec |
| By: | Volker Hallwirth |
| Abstract: | The aim of the European Union's Macroeconomic Imbalance Procedure (MIP) is to prevent and correct macroeconomic imbalances before they get out of hand. The President's of the EU and Euro area institutions recommend in their report on "Completing Europe's Economic and Monetary Union" to strengthen this procedure. A euro area system of Competitiveness Authorities is recommended, which should "assess whether wages are evolving in line with productivity and compare with developments in other euro area countries and in the main comparable trading partners". Along these lines it is analysed in this Study how well MIP has worked in the past and how it could make a more effective contribution to preventing and correcting divergences in competitiveness. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:imk:studie:44-2015&r=eec |
| By: | Martin Hillebrand (European Stability Mechanism); Peter Schwendner (Zurich University of Applied Sciences); Martin Schuele (Zurich University of Applied Sciences); Thomas Ott (Zurich University of Applied Sciences) |
| Abstract: | From 2004 to 2015, the market perception of the sovereign risks of the euro area government bonds experienced several different phases, reflected in a clear time structure of the correlation matrix between the yield changes. “Core†and “peripheral†bonds cluster in a bloc-like structure, but the correlations between the blocs are time-dependent and even become negative in periods of stress. Using noise-filtered partial correlation influences, this time dependency can be evaluated and visualized using network graphs. Our results support the view that market-implied spillover risks have decreased since the European rescue and stability mechanisms came into force in 2011. EFSF bond issues have been trading as part of the “core†bloc since 2011. In 2015, spillover risks reappeared during the Eurogroup’s negotiations with Greece, although the periphery yields did not show risk spreads that were as large as those in 2012. |
| Keywords: | Contagion risk; correlation networks; euro area; sovereign bonds; European Stability Mechanism; financial stability |
| JEL: | C14 G01 G11 G12 G15 D85 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:stm:wpaper:8&r=eec |
| By: | Tomáš Heryán (Department of Finance and Accounting, School of Business Administration, Silesian University); Panayiotis G. Tzeremes (Department of Economics, University of Thessaly); Roman Matousek (University of Kent, Kent Business School) |
| Abstract: | This study focuses on the bank lending channels and transmission mechanisms of monetary policy in European Union (EU) countries. In accordance with previous empirical studies, we deploy the generalized method of moments (GMM) with pooled annual data. We examine the period from 1999 to 2012. We extend the current research on the transmission mechanisms of monetary policy in the following way: first, we compare the differences between the ‘old’ Economic Monetary Union (EMU) and ‘new’ EU countries. Second, we examine the interaction terms between bank characteristics and both monetary policy indicators. In particular, we examine the impact of short-term interest rates and monetary aggregate M2 on bank behaviour. Assuming a more obvious transmission mechanism, we argue that, in the group of ‘old’ EMU countries, the lending channel is affected by smaller banks that are less liquid or are strongly capitalized. For ‘new’ EU countries, we find similar results, i.e., the lending channel affects smaller banks. However, in terms of liquidity and capital adequacy and assuming a more obvious transmission mechanism, we find an opposing result. Those countries’ lending channel is affected by smaller banks with higher levels of liquidity and lower bank capital. Third, we describe how transmission mechanisms changed during the crises period. |
| Keywords: | lending channel, transmission mechanism, crisis times, old EMU and new EU countries |
| JEL: | C58 G01 G21 G28 |
| Date: | 2016–01–04 |
| URL: | http://d.repec.org/n?u=RePEc:opa:wpaper:0027&r=eec |
| By: | Dimitri B. Papadimitriou; Michalis Nikiforos; Gennaro Zezza |
| Abstract: | The Greek economy has not succeeded in restoring growth, nor has it managed to restore a climate of reduced uncertainty, which is crucial for stabilizing the business climate and promoting investment. On the contrary, the new round of austerity measures that has been agreed upon implies another year of recession in 2016. After reviewing some recent indicators for the Greek economy, we project the trajectory of key macroeconomic indicators over the next three years. Our model shows that a slow recovery can be expected beginning in 2017, at a pace that is well below what is needed to alleviate poverty and reduce unemployment. We then analyze the impact of a public investment program financed by European institutions, of a size that is feasible given the current political and economic conditions, and find that, while such a plan would help stimulate the economy, it would not be sufficient to speed up the recovery. Finally, we revise our earlier proposal for a fiscal stimulus financed through the emission of a complementary currency targeted to job creation. Our model shows that such a plan, calibrated in a way that avoids inflationary pressures, would be more effective--without disrupting the targets the government has agreed upon in terms of its primary surplus, and without reversing the improvement in the current account. |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levysa:sa_gr_1_16&r=eec |
| By: | Petra Palic (The Institute of Economics, Zagreb); Petra Posedel Simovic (Zagreb School of Economics and Management); Maruska Vizek (The Institute of Economics, Zagreb) |
| Abstract: | We use data for 24 European countries, spanning from 1994 to 2015, in order to examine how changes in macroeconomic conditions influence the country’s risk premium volatility proxied by sovereign spreads variance. In the first part of the empirical analysis we estimate the univariate generalised autoregressive conditional heteroskedasticity (GARCH) model in order to obtain the conditional variance of sovereign bond spreads. We show that the increase of this variance coincides with economic and financial crisis occurring either in the country or globally. In the second part of the empirical analysis we estimate panel vector autoregression (panel VAR) model in order to model the interplay among macroeconomic fundamentals (inflation, output gap, public debt and interest rates) and the country´s risk premium volatility. We show that overheating of the economy, along with the unexpected increase in public debt, inflation and interest rates increase the country´s risk premium volatility. We also show that sudden increase in country´s risk premium volatility depresses the economy, exerts deflationary pressures on consumer prices, and is followed by strong and permanent increase in public debt. |
| Keywords: | sovereign bond markets, panel VAR, European Union |
| JEL: | C33 E44 F34 G15 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:iez:wpaper:1505&r=eec |
| By: | Christophe Piette (Research Department, NBB) |
| Abstract: | This paper investigates the usefulness, within the frameworks of the standard bridge model and the ‘bridging with factors’ approach, of a predictor selection procedure that builds on the elastic net algorithm. A pseudo-real time forecasting exercise is performed, in which estimates for Belgium’s quarterly GDP are generated using a monthly dataset of 93 potential predictors. While the simulation results indicate that specifying forecasting models using this procedure can lead to a slight improvement in terms of predictive accuracy over shorter horizons, the forecasting errors made by these ‘targeted’ models are not found to be significantly different from those based on the principal components extracted from the entire set of available indicators. In other words, the only advantage of following such an approach lies in the fact that it enables the forecaster to streamline the information set. |
| Keywords: | bridge models, nowcasting, variable selection |
| JEL: | C22 E37 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:201601-290&r=eec |
| By: | Andres Kuusk; Karsten Staehr; Uku Varblane |
| Abstract: | This paper assesses the extent of structural or sectoral change and its importance for aggregate productivity growth during times of boom, bust and recovery. The analysis covers 10 EU countries from Central and Eastern Europe over the years 2001–2012. The reallocation of labour across sectors was substantial during the boom, very extensive in 2009 at the depth of the crisis and modest in the subsequent recovery period. The contribution of sectoral change to aggregate productivity growth is computed using various decomposition methods. Changes in labour productivity within sectors play the dominant role for aggregate productivity growth, while reallocation of labour between sectors is less important. This pattern is found through most of the sample period despite large differences in the extent of sectoral change during the boom, crisis and recovery |
| Keywords: | labour productivity, structural change, reallocation, productivity decomposition |
| JEL: | L16 E32 P23 |
| Date: | 2015–12–30 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2015-2&r=eec |
| By: | Juan Carlos Cuestas; Karsten Staehr; Fabio Filipozzi |
| Abstract: | This paper examines the empirical validity of the hypothesis of uncovered interest parity (UIP) using data from five Central and Eastern European countries with floating exchange rates for the period 2003–2014. The analysis includes forward-looking as well as static expectations and also allows for different types of structural breaks. The variable representing the deviation from UIP is stationary when expectations are forward-looking, ruling out persistent divergences from UIP. The deviation from UIP is however typically not stationary when expectations are static, even when structural breaks are incorporated, and this leads to the rejection of the UIP hypothesis in this case. The results underscore the importance of the expectations assumptions when the UIP hypothesis is tested |
| Keywords: | uncovered interest parity, carry trade, expectations, structural breaks, Central and Eastern Europe |
| JEL: | C32 F15 |
| Date: | 2015–12–30 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2015-4&r=eec |
| By: | João Pereira (University of Évora, Department of Economics and CEFAGE-UE, Portugal); Maria Aurora Galego (University of Évora, Department of Economics and CEFAGE-UE, Portugal) |
| Abstract: | In this paper we investigate the determinants of wage gaps between European countries using data from the EU-SILC data base. Unlike previous studies, we decompose these gaps across the wage distribution by employing a recent methodology proposed by Firpo et al (2009) and Fortin et al. (2011). This approach allows analysing the contribution of each covariate to the wage decomposition components (wage structure and wage composition). We conclude that both wage structure and wage composition effects contribute to explaining wage differentials, but that the wage structure effect is more important. This effect seems to be mainly explained by differences in unknown factors. The composition effect, in turn, is explained by differences in education, in the occupational structure, in the percentage of workers with supervisory responsibilities and to a lesser extent by differences in the industrial structure and in the workers’ level of experience. |
| Keywords: | Wage differences; Unconditional quantile regression; Wage decompositions. |
| JEL: | C21 D31 J01 J31 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:cfe:wpcefa:2015_15&r=eec |
| By: | Anne Drumaux; Julien Ravet |
| Abstract: | This paper aims at testing the incitative role of past structural funds on the achievement oftargets of Europe 2020 strategy. The methodology used is a quantitative analysis aiming atexplaining a dependant variable “difference to target” for each dimension of Europe 2020(employment rate, R&D expenditures, greenhouse gas emissions, renewable energy, earlyleaving from education, tertiary education, people at risk of poverty) by several independentvariables, namely structural funds consumption (inputs), structural funds outputs over theperiod 2007-2013, cumulated structural funds for the previous period 2000-2006. Theseindependent variables will be used among other variables classically considered by scholarsand/or by the European Commission. |
| Keywords: | Strategic Management; European Governance; Europe 2020; Sustainable Development |
| JEL: | L38 N64 O52 Q56 |
| Date: | 2016–01–11 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/224008&r=eec |
| By: | Isabel Argimón (Banco de España); Ángel Estrada (Banco de España); Michel Dietsch (ACPR-Banque de France) |
| Abstract: | European banks hold 10% of their total assets in portfolios that give rise to unrealised gains and losses which under Basel III will no longer be allowed to be removed from banks’ regulatory capital. Using a sample of European banks, and taking advantage of the different treatment afforded, under Basel II, to such gains and losses among jurisdictions and instruments and over time, we find evidence that: a) the inclusion of unrealised gains and losses in capital ratios increases their volatility; b) the partial inclusion of unrealised gains and total inclusion of losses on fixed-income securities in regulatory capital, compared with the complete exclusion of both (neutralisation), reduces the volume of securities categorised as Available For Sale (AFS), thus potentially affecting liquidity management and demand for bonds (most of which are currently government bonds); and c) the higher the partial inclusion of gains from debt instruments, the lower the holdings of such instruments in the AFS category and the higher the regulatory Tier 1 capital ratio, thus affecting banks’ capital buffer strategy. We do not find evidence that the removal of neutralisation would impact capital ratios. |
| Keywords: | prudential regulation, regulatory capital, fair value accounting, prudential filters |
| JEL: | G21 M41 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1538&r=eec |
| By: | Keuschnigg, Christian |
| Abstract: | The gains in life expectancy are expected to double the dependency ratio and increase population by 10% in Switzerland until 2050. To quantify the effects on pensions, taxes and social contributions, we use an overlapping generations model with five margins of labor supply: labor market participation, hours worked, job search, retirement, and on-the-job training. A passive fiscal strategy would be very costly. A comprehensive reform, including an increase in the effective retirement age to 68 years, may limit the tax increases to 4 percentage points of value added tax and reduce the decline of per capita income to less than 6%. |
| Keywords: | Aging, pensions, taxation, labor market effects, growth |
| JEL: | D58 D91 H55 J26 J64 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2016:01&r=eec |