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on European Economics |
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Issue of 2016‒05‒28
fourteen papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | João Lopes (UECE, ISEG/University of Lisbon) |
| Abstract: | The great recession of 2008/2009 and the subsequent sovereign debt crises highlighted the existence of deep structural imbalances in the Euro Area: the large differences of competitiveness and growth potential between its northern and southern countries. In this paper, an input-output approach is used to study several facets of this phenomenon, namely the connection between current account (trade) imbalances and domestic final demand levels, as well as the sectoral specialization of tradable goods and services production. In the uncompetitive (current account deficit) economies of southern euro area, domestic final demand levels are in excess of its equilibrium values and the opposite occurs in the strong, competitive economies of the north. These external imbalances are parallel to, and in good measure explained by, a different geographic pattern of specialization favourable to the northern euro-area countries (sectors with higher value added and more intensive technological activities). The external dependency and value added generation capacity of the productive sectors of these economies are also quantified, with a new treatment of inter-industry output multipliers which follows closely Amaral et al (2011). The (gross) output growth potential given by the column sums of the Leontief inverse matrix (backward linkage indicators) results from three terms: inter-industry flows, value added and imported inputs. After a convenient arrangement of these terms, the evolution of backward linkage indicators can be used to detect structural changes, particularly quantifying a (net) growth effect (more value-added generation) and an external dependency effect (more imported inputs), and to classify the productive sectors accordingly. The empirical results of the paper are based on input-output tables for several years: 1995, 2000, 2005 and 2008, available in the World Input Output Database. The northern euro-area group is formed by Germany, Netherlands, Finland and Ireland. The southern is the so-called GIPS group (Greece, Italy, Portugal and Spain). |
| Keywords: | Input-output linkages, external dependency, structural change, Euro Area countries |
| JEL: | C67 D57 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:3606083&r=eec |
| By: | Massimo Amato; Luca Fantacci; Dimitri B. Papadimitriou; Gennaro Zezza |
| Abstract: | After reviewing the main determinants of the current eurozone crisis, this paper discusses the feasibility of introducing fiscal currencies as a way to restore fiscal space in peripheral countries, like Greece, that have so far adopted austerity measures in order to abide by their commitments to eurozone institutions and the International Monetary Fund. We show that the introduction of fiscal currencies would speed up the recovery, without violating the rules of eurozone treaties. At the same time, these processes could help transition the euro from its current status as the single currency to the status of "common clearing currency," along the lines proposed by John Maynard Keynes at Bretton Woods as a system of international monetary payments. Eurozone countries could therefore move from "Plan B," aimed at addressing member-state domestic problems, to a "Plan A" for a better European monetary system. |
| Keywords: | Euro; Fiscal Currencies; Austerity; Current Account Imbalances; Clearing Union |
| JEL: | E02 E12 E42 F45 |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_866&r=eec |
| By: | Altavilla, Carlo; Pagano, Marco; Simonelli, Saverio |
| Abstract: | Using novel monthly data for 226 euro-area banks from 2007 to 2015, we investigate the causes and effects of banks' sovereign exposures during and after the euro crisis. First, in the vulnerable countries, the publicly owned, recently bailed out and less strongly capitalized banks reacted to sovereign stress by increasing their domestic sovereign holdings more than other banks, suggesting that their choices were affected both by moral suasion and by yield-seeking. Second, their exposures significantly amplified the transmission of risk from the sovereign and its impact on lending. And this amplification of the impact on lending cannot be ascribed to spurious correlation or reverse causality. |
| Keywords: | credit risk; diabolic loop; euro debt crisis.; lending; sovereign exposures; sovereign risk |
| JEL: | E44 F3 G01 G21 H63 |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11269&r=eec |
| By: | Aida Caldera Sánchez; Alain de Serres; Naomitsu Yashiro |
| Abstract: | This paper reviews the main issues related to the short-term impact of structural reforms in different macroeconomic contexts and takes stock of existing theoretical and empirical studies. Taking reforms introduced in “normal” times as a benchmark, it reviews the available evidence on the impact of reforms that are implemented in “bad” times - i.e. in the presence of a sizeable negative output gap and persistently weak demand - as well as under different assumptions regarding the availability or effectiveness of macroeconomic policies in supporting the reforms. In doing so the paper focuses on the key channels through which different reforms influence short-term activity via the main components of demand and discusses how these channels operate under different macro conditions. Overall, the evidence suggests that in a context of weak demand, structural reform strategies will have significantly better chances of being successful if they put more weight on measures that in addition to stimulate employment or productivity in the medium term can best support demand in the short term. La mise en oeuvre de réformes structurelles en conjoncture défavorable : Une revue des enjeux et de la litérature récente Cette étude passe en revue les principales questions concernant l’impact à court terme des réformes structurelles introduites en conjonctures différentes et fait état de la litérature théorique et empirique récente sur le sujet. Prenant le cas des réformes introduites en conjoncture « normale » comme base de référence, les effets des réformes mises en oeuvre dans une conjoncture caractérisée par une demande anémique, un important déficit de production par rapport au potentiel ainsi qu’en présence de fortes contraintes sur les politiques macro-économiques sont ensuite passés en revue. L’étude met l’accent plus particulièrement sur les principaux mécanismes par lesquels les réformes affectent les principales composantes de la demande agrégée et discute dans quelle mesure ces mécanismes opèrent différemment selon le contexte macro-économique. Dans l’ensemble, les résultats des principales études passées en revue indique qu’en conjoncture défavorable, les stratégies de réformes doivent privilégier les mesures qui en plus de stimuler l’emploi et la productivité à moyen terme sont le plus susceptible de soutenir la demande à court terme. |
| Keywords: | structural reforms, reform sequencing, zero-lower bounds, reform packaging, stratégie de réformes, séquençage des réformes, réforme structurelle |
| JEL: | E21 E22 E23 E61 E65 |
| Date: | 2016–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1297-en&r=eec |
| By: | Li, Youwei; Waterworth, James |
| Abstract: | This paper examines the connectedness of the Eurozone sovereign debt market over the period 2005–2011. By employing measures built from the variance decompositions of approximating models we are able to define weighted, directed networks that enable a deeper understanding of the relationships between the Eurozone countries. We find that connectedness in the Eurozone was very high during the calm market conditions preceding the global financial crisis but decreased dramatically when the crisis took hold, and worsened as the Eurozone sovereign debt crisis emerged. The drop in connectedness was especially prevalent in the case of the peripheral countries with some of the most peripheral countries deteriorating into isolation. Our results have implications for both market participants and regulators. |
| Keywords: | European sovereign debt; MTS; Network; Connectedness; Return; Volatility |
| JEL: | G01 G15 H63 |
| Date: | 2016–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:71221&r=eec |
| By: | Holger Breinlich; Swati Dhingra; Gianmarco I. P. Ottaviano |
| Abstract: | Over the past two decades, the European Commission has negotiated a number of Free Trade Agreements (FTAs) which contain both traditional elements of bilateral tariff reductions, as well as additional liberalisation measures like non-tariff barriers. According to economic theory, FTAs lower trade barriers on imported goods, leading to consumer welfare gains from increase in product variety, better quality products and lower prices for existing products. We estimate the variety, quality and price effects of EU FTAs, drawing on recent developments in the quality literature and using detailed import price and expenditure data. On average, trade agreements the EU has entered into over the past two decades increased the quality of UK imports from its FTA partners by 26 per cent and lowered the quality-adjusted price of imports by 19 per cent. We find that consumer prices fell by 0.5 per cent for UK consumers as a result of FTAs with trade partners that are not members of the European Community. Price reductions for UK consumers are greater than those for EU12 consumers, whose prices fell by 0.3 per cent from non-EC FTAs. Using the set of non-EC FTA estimates to predict the effects of future FTAs, we find a projected decline in consumer prices for UK consumers of 0.4 per cent from an FTA with the United States (TTIP) and 0.2 per cent an FTA with Japan (EPA). For EU12 consumers, the TTIP and EPA are predicted to reduce consumer prices by 0.3 per cent and 0.1 per cent. |
| Keywords: | trade agreements; EU; consumers |
| JEL: | J1 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:66434&r=eec |
| By: | Franz Buscha; Daniel Muller; Lionel Page |
| Abstract: | Fostering the emergence of a "European identity" was one of the declared goals of the euro adoption. Now, years after the physical introduction of the common currency, we assess whether there has been an effect on a shared European identity. We use two different datasets in order to assess the impact of the euro adoption on the fostering of a self-declared "European Identity". We find that the effect of the euro is statistically insignificant although it is precisely estimated. This result holds important implications for European policy makers. It also sheds new light on the formation of social identities. |
| Keywords: | Social Identity, European Integration, Currency Union, Difference-in-Difference |
| JEL: | D02 D03 D7 H8 Z10 Z18 |
| Date: | 2016–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:qut:qubewp:wp036&r=eec |
| By: | Michalis Nikiforos; Dimitri B. Papadimitriou; Gennaro Zezza |
| Abstract: | This paper examines the issue of the Greek public debt from different perspectives. We provide a historical discussion of the accumulation of Greece's public debt since the 1960s and the role of public debt in the recent crisis. We show that the austerity imposed since 2010 has been unsuccessful in stabilizing the debt while at the same time taking a heavy toll on the Greek economy and society. The experience of the last six years shows that the country's public debt is clearly unsustainable, and therefore a bold restructuring is needed. An insistence on the current policies is not justifiable either on pragmatic or on moral or any other grounds. The experience of Germany in the early post-World War II period provides some useful hints for the way forward. A solution to the Greek public debt problem is a necessary but not sufficient condition for the solution of the Greek and wider European crisis. A broader agenda that deals with the malaises of the Greek economy and the structural imbalances of the eurozone is of vital importance. |
| Keywords: | Greece; Public Debt; Austerity; Eurozone; Crisis |
| JEL: | E62 F34 F41 N10 N94 |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_867&r=eec |
| By: | Maria Bas (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Lionel Fontagné (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique); Philippe Martin (Sciences Po); Thierry Mayer (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, Sciences Po) |
| Abstract: | The arrival of powerful new players on world markets –the foremost of these being China– automatically decreases market share for advanced economies. But France's export market share has decreased more than that of other European countries. This is not a result of poor geographic or sectoral specialisation, insuf-fi cient exporter support, under-representation of SMEs in exports or credit constraints, but, more fundamentally, is caused by an inadequate " quality/price ratio " for French products on average. When products are of quality, results are exceptional, as demonstrated by the luxury, aeronautical and electrical distribution goods sectors –sectors, with a flagship– and/or by brands, which appear to play a key role. A country's competitiveness comprises a price dimension and a non-price dimension. Regarding price competitiveness , direct labour costs represent just 23%, on average, of the total value of French exports and 44% when including the cost of labour for domestic intermediate consumption. Price competitiveness is therefore not solely a matter of labour costs for exporting companies. We also need to look at the input side, whether it be at intermediate goods (possibly imported), energy or even services produced in France for exporting companies. The central message here is that competitiveness is everybody's concern, and not just that of industrial companies. Greater effi ciency in non-tradable sectors (business services, construction, public services) also contributes to the creation of price competitiveness. |
| Keywords: | market shares,competitiveness |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:hal-01299873&r=eec |
| By: | Signe Krogstrup; Cédric Tille |
| Abstract: | We draw on a new data set on the use of Swiss francs and other currencies by European banks to assess the patterns of foreign currency bank lending. We show that the patterns differ sharply across foreign currencies. The Swiss franc is used predominantly for lending to residents, especially households. It is sensitive to the interest rate differential, exchange rate developments, funding availability, and to some extent international trade. Domestic lending in other currencies is used, to a greater extent, in cross-border lending, and for lending to resident nonfinancial firms, and is much less sensitive to the drivers identified for Swiss franc lending. Policy measures aimed at foreign currency lending have a clear impact on lending to residents. The results underline that not all foreign currencies are alike when it comes to foreign currency bank lending and the associated financial stability risks. |
| Keywords: | Swiss franc lending, foreign currency lending, cross-border transmission of shocks, European bank balance sheets |
| JEL: | F32 F34 F36 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2016-07&r=eec |
| By: | Thomas Krause; T. Sondershaus; Lena Tonzer |
| Abstract: | We construct a novel dataset to measure banks’ business and geographical complexity. Using these measures of complexity, we evaluate how they relate to banks’ idiosyncratic and systemic riskiness. The sample covers stock listed banks in the euro area from 2007 to 2014. Our results show that banks have increased their total number of subsidiaries while business and geographical complexity have declined. |
| Keywords: | bank risk, complexity, globalization |
| JEL: | G01 G20 G33 |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:iwh:dispap:17-16&r=eec |
| By: | Marek Dabrowski |
| Abstract: | This paper analyses three questions related to the EU/EMU integration infrastructure: (i) interrelation between monetary and fiscal integration; (ii) interrelation between monetary integration and closer coordination of macroeconomic policies and (iii) fiscal discipline vs. fiscal solidarity. On the first issue, we suggest that rationale of further fiscal and political integration should be guided by the costbenefit analysis based on the theory of fiscal federalism rather than OCA theory. On the second issue, we express conceptual and practical doubts regarding the way in which the Macroeconomic Imbalance Procedure has been designed and operated. On the third issue, we believe returning to the market discipline (based on credible danger of sovereign default) supplemented by clear and consistently enforced fiscal rules will have a key importance for long-term sustainability of a monetary union in Europe and avoiding dysfunctional fiscal federalism. |
| JEL: | F32 F33 F42 F45 H62 H63 H77 H81 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:013&r=eec |
| By: | Massimo Bordignon (Università Cattolica, Milano); Simona Scabrosetti (Università di Pavia) |
| Abstract: | By adopting a more specific political economy perspective, this paper aims at contributing to the debate on reforming the actual system of funding the EU budget. We argue that the present debate is often ill focused and that what is really at stake is the nature of the European Union, whether this is just a club of sovereign states or a true federation directly affecting European citizens, who have then the right to be represented even on matters concerning the EU budget. We also argue that the main reason to reform the present system lies in the legitimacy crisis the EU is currently facing and that proposed reforms should be assessed on the basis of their ability to address this problem. Also, a dynamic perspective, asking how a budget reform would affect the bargaining positions of the different European institutions, is essential to understand the forces at play and to assess the possibility that a reform will take place. |
| Keywords: | own resources, EU budget, EU tax, EU institutions |
| JEL: | H1 H6 H7 |
| URL: | http://d.repec.org/n?u=RePEc:ipu:wpaper:42&r=eec |
| By: | Maria Cristina Recchioni (Department of Managment, Università Politecnica delle Marche, Ancona, Italy); Gabriele Tedeschi (Department of Economics, Universidad Jaume I, Castellón, Spain) |
| Abstract: | We present a hybrid Heston model with a local stochastic volatility to describe government bond yield dynamics. The model is analytically tractable and, therefore, can be efficiently estimated using the maximum likelihood approach. Twofold is the model contribution. First, it captures changes in the yield volatility and predict future yield values of Germany, French, Italy and Spain. The result is an early-warning indicator which anticipates phases of instability characterizing the time series investigated. Then, the model describes convergence/divergence phenomena among European government bond yields and explores the countries' reactions to a common monetary policy described through the EONIA interbank rate. |
| Keywords: | Stochastic volatility model, Kolmogorov backward equation, maximum likelihood function, government bond yield forecasting |
| JEL: | C13 C32 G12 G17 E58 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:jau:wpaper:2016/06&r=eec |