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on European Economics |
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Issue of 2016‒07‒30
fifteen papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Álvaro Pina |
| Abstract: | Across the euro area, the ability of public finances to support equitable growth has tended to deteriorate. Concerns about high and rising public debt, together with market pressure in some cases, led to sharp fiscal consolidation in 2011-13, against the backdrop of a weak economic situation at the time, which is considered to have made the recession deeper and longer. Consolidation has slowed down afterwards, but countries with fiscal space have made limited use of the leeway allowed under EU fiscal rules to support euro area aggregate demand. The expenditure composition has generally become less growth-friendly, with large cuts in public investment. On the revenue side, already high taxes on labour have tended to increase further. Structural reforms with direct positive implications for the composition or efficiency of public finances have stalled. While most policy levers to improve public finances remain at the country level, European and national policies can be mutually reinforcing in fiscal governance and public investment. To achieve a euro area fiscal stance that fosters the recovery, countries with fiscal space under the Stability and Growth Pact rules should use budgetary support to raise growth, and existing incentives and flexibility should be taken advantage of to pursue reforms of tax and spending policies. At the national level, it is essential to further upgrade budgetary frameworks, including through the adoption of expenditure rules and regular performance of spending reviews. To promote capital formation and make it more effective, EU budget resources for investment should be deployed in a way to crowd in national public funds and private financing, and foster greater investment productivity. At the national level, better coordination of investment across levels of government and upgraded administrative capacity would increase investment efficiency. This Working Paper relates to the 2016 OECD Economic Survey of the euro area (www.oecd.org/eco/surveys/economic-survey-european-union-and-euro-area.htm) Rendre les finances publiques plus favorables à la croissance et à l'équité dans la zone euro Dans la zone euro, la capacité des finances publiques à soutenir la croissance équitable s’est globalement détériorée. Face aux inquiétudes suscitées par le niveau élevé et croissant de l’endettement public, et parfois sous la pression exercée par les marchés, les autorités des pays ont procédé à un effort d’assainissement budgétaire massif en 2011-13 dans un contexte de conjoncture économique défavorable, ce qui est généralement considéré comme ayant contribué à intensifier et à prolonger la récession. Le processus d’assainissement s’est ensuite ralenti, mais les pays disposant d’une marge de manoeuvre budgétaire ont peu utilisé la souplesse autorisée par les règles budgétaires de l’UE pour stimuler la demande globale dans la zone euro. De manière générale, la composition des dépenses est devenue moins favorable à la croissance du fait de coupes drastiques dans les investissements publics. Sur le plan des recettes, la fiscalité du travail, déjà élevée, s’est encore alourdie. Les réformes structurelles qui peuvent avoir des retombées positives directes sur la composition ou l’efficience des finances publiques ont marqué le pas. Si la plupart des leviers d’action permettant d’améliorer les finances publiques restent situés au niveau des pays, les politiques européennes et nationales peuvent se renforcer mutuellement dans les domaines de la gouvernance budgétaire et de l’investissement public. Pour faire en sorte que l’orientation budgétaire de l’ensemble de la zone euro contribue à alimenter la reprise, les pays qui disposent d’une marge de manoeuvre budgétaire au sens des règles du Pacte de stabilité et de croissance devraient recourir à l’appui budgétaire pour stimuler la croissance, et il faudra mettre à profit les dispositifs d’incitation existants et la souplesse prévue par les règles en vigueur pour poursuivre la réforme des politiques fiscales et de dépenses. Au niveau national, il est essentiel de poursuivre l’amélioration des cadres budgétaires, y compris en adoptant des règles de dépenses et en procédant à des examens réguliers des dépenses. Pour promouvoir la formation de capital et rendre celui-ci plus efficace, les ressources budgétaires de l’UE disponibles pour l’investissement devraient être déployées de façon à créer un effet d’attraction sur les fonds publics et les financements privés nationaux et à rendre l’investissement plus productif. À l’échelon national, des investissements mieux coordonnés entre les différents niveaux d’administration et des capacités administratives renforcées conféreraient aux investissements une efficience accrue. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de la Zone euro 2016 (http://www.oecd.org/fr/economie/etude-e conomique-union-europeenne-et-zone-euro. htm) |
| Keywords: | stability and growth pact, euro area, public investment, fiscal councils, fiscal consolidation, assainissement budgétaire, organismes budgétaires indépendants, zone Euro, pacte de stabilité et de croissance, investissement public |
| JEL: | E62 F45 H20 H50 H54 H61 |
| Date: | 2016–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1316-en&r=eec |
| By: | Miguel Homem Ferreira; Luis Catela Nunes; Jose Tavares |
| Abstract: | The objective of this paper is to assess the differences between contagion and investors’ risk aversion in terms of their impact on European sovereign bond yields during the financial crisis. This paper evaluates contagion at banking level, as it has the advantage of capturing the exposure of sovereign debt markets to financial sector’s risk and also the contagion between sovereign spreads that occurs through the financial sector channel. The paper analyzes the period from 2008 to 2012 and also the Greek, Portuguese and Spanish bailout periods. The results indicate that the main driver of yields in Europe is risk aversion and not contagion. The main differences between Central and Southern European countries’ yields are explained by risk aversion. This channel has a much stronger impact on the periphery. On the other hand, contagion exerts a similar influence throughout all European countries. JEL codes: |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:unl:unlfep:wp604&r=eec |
| By: | Jan Stráský |
| Abstract: | The EU Single Market remains far from completed: progress in goods and services market integration has stalled, financial markets are still fragmented along national lines and the barriers to labour mobility remain high. Restrictive regulation within countries and regulatory heterogeneity across them hamper the internal market, reducing trade and investment flows. Network sectors, such as energy and transportation, are insufficiently interconnected and open to competition, and inefficient as a result. Reinvigorating the single market is one of the key tools to strengthen the recovery of the European Union and restore faster growth of income per capita. To support the recovery, structural reforms that yield short-run as well as long-run gains should be prioritised. Policies enhancing labour and capital mobility are especially relevant, as they provide channels of adjustment to country-specific shocks and reinforce the effectiveness of stabilisation policies. Policies enhancing capital mobility include improved securitisation, better collection and sharing of credit information regarding smaller firms and the convergence of insolvency regimes. Labour mobility within the European Union would profit from reduced administrative and regulatory burden, such as faster recognition of professional qualifications and better portability of social and pension rights. Product markets reforms also have the potential to deliver benefits swiftly, not least by unlocking investment. Regulatory burdens could be alleviated by better impact assessment for legislative proposals and ex post evaluation of policies. Product market reforms in network sectors should include harmonisation of regulations and technical specifications, with the target of establishing single EU regulators. This Working Paper relates to the 2016 OECD Economic Survey of the European Union (www.oecd.org/eco/surveys/economic-survey-european-union-and-euro-area.htm) Priorités pour l'achèvement du marché unique dans l'Union Européenne Le marché unique de l’UE est encore loin d’être achevé : les progrès en matière d’intégration des marchés de produits et services marquent le pas, les marchés financiers demeurent fragmentés par pays et les obstacles à la mobilité de la main-d’oeuvre restent nombreux. La réglementation restrictive dans les pays et l’hétérogénéité des réglementations entre eux entravent le marché intérieur, ce qui provoque une réduction des courants d’échanges et des flux d’investissement. Les industries de réseau, comme l’énergie et les transports par exemple, ne sont pas suffisamment interdépendantes et ouvertes à la concurrence, d’où leur inefficience. La redynamisation du marché unique est l’un des principaux outils pour consolider la reprise dans l'Union européenne et renouer avec une croissance plus rapide du revenu par habitant. Pour stimuler la reprise, les réformes structurelles qui sont à l’origine de progrès à court et long terme devraient avoir la priorité. Les mesures qui renforcent la mobilité de la main-d’oeuvre et des capitaux sont particulièrement importantes puisqu’elles offrent des solutions d’ajustement aux chocs propres à certains pays et améliorent l’efficacité des mesures de stabilisation. Les mesures qui renforcent la mobilité des capitaux englobent une titrisation réactivée, un recueil et un partage améliorés des données sur le crédit concernant les petites entreprises et la convergence des régimes de faillite. La mobilité de la main-d’oeuvre au sein de l’Union européenne aurait tout à gagner d’une réduction de la charge administrative et du poids de la réglementation, par exemple via une reconnaissance plus rapide des qualifications professionnelles et une meilleure transférabilité des prestations sociales et droits à pension. Les réformes des marchés de produits sont aussi susceptibles d’avoir des effets positifs rapides, notamment en facilitant l’investissement. Le poids de la réglementation pourrait être allégé grâce à une analyse d’impact de meilleure qualité pour les propositions législatives et à une évaluation ex post des mesures. Les réformes des marchés de produits dans les industries de réseau devraient inclure une harmonisation des réglementations et spécifications techniques dans le but de créer une autorité de régulation unique à l'échelle de l'UE. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de l'Union Européenne (www.oecd.org/fr/eco/etudes/etude-econom ique-union-europeenne-et-zone-euro.htm) |
| Keywords: | economic integration, labour migration, EU single market, non-bank financial institutions, Capital Markets Union, intégration économique, institutions financières non bancaires, migration de la main-d'oeuvre, Marché unique européen |
| JEL: | F15 F22 F36 G23 L51 L88 L98 |
| Date: | 2016–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1315-en&r=eec |
| By: | Malte Rieth; Lisa Gehrt |
| Abstract: | The academic literature provides no clear answer to this question. In principle, the recent slowdown in reform activity and fiscal consolidation in the euro area may derive from several developments. Potential reasons involve the end of the economic recession, the provision of financial assistance to crisis countries, and improved financing conditions for governments as a result of unconventional monetary policy, which all reduced reform pressure. While existing studies analyse several of these causes of reform delays in general, there is only very limited evidence for such a relation in the current environment in the euro area. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwrup:99en&r=eec |
| By: | Reinder Haitsma; Deren Unalmis; Jakob de Haan |
| Abstract: | Using an event study method, we examine how stock markets respond to the policies of the European Central Bank during 1999-2015. We use market prices of futures (government bonds) to identify surprises in (un)conventional monetary policy. Our results suggest that especially unconventional monetary policy surprises affect the EURO STOXX 50 index. We also find evidence for the credit channel, notably for unconventional monetary policy surprises. Our results also suggest that value and past loser stocks show a larger reaction to monetary policy surprises. These results are confirmed if identification of monetary policy surprises is based on the Rigobon-Sack heteroscedasticity approach. |
| Keywords: | Monetary policy surprises, Stock prices, Event studies approach, Identification through heteroscedasticity |
| JEL: | E43 E44 E52 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1605&r=eec |
| By: | Silvia Fabiani (Bank of Italy); Stefano Federico (Bank of Italy); Alberto Felettigh (Bank of Italy) |
| Abstract: | We investigate the role of cyclical factors in the adjustment of Italy’s external balance from 2010, developing a model that infers the potential levels of domestic demand and of imports and exports from an exogenous measure of potential output, in an internally coherent fashion and also taking composition effects into account. According to our results, in 2015 Italy’s cyclically-adjusted current account surplus came to about 0.5 percentage points of GDP; the overall external rebalancing of the Italian economy has largely been of a non-cyclical nature, with a positive contribution from the decline in the prices of energy commodities. By applying our methodology to the other major euro-area countries, we find that current account imbalances over the recent period are amplified when assessed in cyclically-adjusted terms. |
| Keywords: | current account, business fluctuations, macroeconomic imbalances, output gap |
| JEL: | F32 F40 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_346_16&r=eec |
| By: | Bussière, Matthieu; Schmidt, Julia; Valla, Natacha |
| Abstract: | This paper documents recent trends in international financial flows, based on a newly assembled dataset covering 40 advanced and emerging countries. It highlights four stylized facts: first, the "Great Retrenchment" that took place during the crisis has proved very persistent; second, this fall can predominantly be related to advanced economies, especially in Western Europe; third, net flows have fallen substantially relative to the years preceding the crisis; and fourth, profound changes have occurred in the composition of international financial flows in ways which should help to strengthen resilience and deliver genuine cross-border risk-sharing. This paper then turns to possible explanations for and likely implications of these changes, with regard to international financial stability issues. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eibwps:201602&r=eec |
| By: | Svetlana Makarova |
| Abstract: | The main scope of the paper is to evaluate the hypothesis that the monetary policy of the European Central Bank leads to convergence in bank-induced effects in inflation forecast uncertainty for euro area countries. Inflation forecast uncertainty is measured by the root mean squared pseudo ex-post errors of inflation forecasts net of the ARCH-GARCH effects. A bootstrap-type test is proposed for testing convergence of growth of the cross-country uncertainty ratio, understood as the fraction of the estimated policy effects in inflation uncertainty. Results obtained from monthly data for 16 countries for the period January 1991 to November 2014 and with forecast horizons from 1 to 18 months show strong evidence of such convergence among the euro area countries to a common leve |
| Keywords: | inflation ex-post uncertainty, monetary policy, country effects, inflation forecasting |
| JEL: | F14 F43 O57 |
| Date: | 2016–07–19 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2016-5&r=eec |
| By: | Michael Hachula; Michele Piffer; Malte Rieth |
| Abstract: | We study the macroeconomic effects of unconventional monetary policy in the euro area using structural vector autoregressions, identified with an external instrument. The instrument is the common unexpected variation in euro area sovereign spreads for different maturities on policy announcement days. We first show that expansionary monetary surprises are effective at lowering public and private interest rates and increasing economic activity, consumer prices, and inflation expectations. We also find, however, that the shocks lead to a rise in primary public expenditures, a divergence of consumer prices within the union, and a widening of internal trade balances. |
| Keywords: | Central banks, structural VAR with external instruments, fiscal policy, monetary union |
| JEL: | E52 E58 E63 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1596&r=eec |
| By: | Annalisa Bucalossi (Bank of Italy); Antonio Scalia (Bank of Italy) |
| Abstract: | Using estimates of the Basel III leverage ratio, we show the rapid convergence of banks in the euro area towards levels well above the preliminary 3 per cent threshold. Contrary to predictions that the new requirement might interfere with the conduct of monetary policy and its transmission via the money market, throughout 2014 we find that leverage-constrained banks have decreased neither Eurosystem refinancing nor trading volume on repo markets. We measure the extent to which banks in the euro area have until now benefited from improvements in their regulatory capital, the low reporting frequency of the leverage ratio, and the favourable treatment of repo and derivatives trades with central counterparties in calculating the ratio, achieving an average of 5 per cent at end-June 2015. This level is likely to fall to around 4.5 per cent by March 2017, as a consequence of the Eurosystem Asset Purchase Programme, which causes an expansion of banks’ balance sheets and, therefore, an increase in the denominator of the leverage ratio. |
| Keywords: | Basel III, leverage ratio, central bank operations, European banks, repo market |
| JEL: | E58 G21 G28 G1 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_347_16&r=eec |
| By: | Patrice Ollivaud; Pierre-Alain Pionnier; Elena Rusticelli; Cyrille Schwellnus; Seung-Hee Koh |
| Abstract: | This paper compares the short-term forecasting performance of state-of-the-art large-scale dynamic factor models (DFMs) and the small-scale bridge models routinely used at the OECD. Pseudo-real time out-of-sample forecasts for France, Germany, Italy, Japan, United Kingdom and the United States during and after the Great Recession (2008-2014) suggest that large-scale DFMs are not systematically more accurate than small-scale bridge models, especially at short forecast horizons. Moreover, DFM parameters appear to be highly unstable during the Great Recession (2008-2009), making forecast revisions between successive vintages difficult to explain as revisions cannot be fully attributed to news on specific groups of indicators. The implication for OECD forecasting practice is that there would be no gain from switching from the current small-scale bridge models to large-scale DFMs. Prévoir le PIB pendant et après la Grande Récession : Une comparaison des modèles d'étalonnage de petite taille et des modèles à facteurs dynamiques de grande taille Cet article compare les performances en prévision à court terme de modèles à facteurs dynamiques (DFMs) de grande taille standard dans la littérature à celles des modèles d’étalonnage de petite taille couramment utilisés à l’OCDE pour les exercices de prévision. Des prévisions hors échantillon en pseudo temps réel pour la France, l’Allemagne, l’Italie, le Japon le Royaume-Uni et les États-Unis pendant et après la Grande Récession (2008-2014) montrent que les DFMs de grande taille ne sont pas plus performants, en moyenne, que les modèles d’étalonnage de petite taille, notamment aux horizons les plus courts. De plus, les paramètres des DFMs sont très instables pendant la Grande Récession, ce qui rend les révisions des prévisions d’un exercice à l’autre plus difficiles à expliquer et à relier à différents groupes d’indicateurs. En pratique, nous en concluons que l’OCDE n’aurait pas intérêt, pour ses exercices de prévision, à abandonner les modèles d’étalonnage de petite taille pour les DFMs de grande taille. |
| Keywords: | dynamic factor models, bridge models, big data, nowcasting, prévision en temps réel, modèle d’étalonnage, modèles à facteurs dynamiques, mégadonnées |
| JEL: | C53 E37 |
| Date: | 2016–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1313-en&r=eec |
| By: | Gelman, Maria; Jochem, Axel; Reitz, Stefan |
| Abstract: | The paper analyses the transmission of global financial shocks to individual member states of the European Monetary Union (EMU), in which monetary policy is delegated to the ECB and financial markets are fully integrated. Using a panel VAR model, we show that the asymmetric effects of global shocks on member states are partly offset by the uniform access of commercial banks to the Eurosystem's open market operations in conjunction with the redistribution of liquidity via the TARGET mechanism. However, an appropriate policy mix of sound public finances, solid financial regulation and targeted macroprudential measures is necessary in order to safeguard macroeconomic sustainability without needing to manage capital flows. |
| Keywords: | monetary union,capital flows,global financial cycle,macroeconomic imbalances |
| JEL: | F32 F36 F45 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:232016&r=eec |
| By: | d'Artis Kancs; Patrizio Lecca |
| Abstract: | The issues of the forced migration and the integration of refugees in the society and labour markets are high on the policy agenda of the EU. Apart from humanitarian aspects, a sustainable integration of refugees is important also for social, economic, budgetary and others reasons. Indeed, the potential consequences of the asylum seeker acceptance are being often discussed, though little scientific evidence has been provided for the policy debate so far. The present study attempts to shed light on the long-run social, economic and budgetary effects of forced immigration into the EU by applying a macroeconomic model of the European Commission and performing scenario analysis of alternative refugee integration scenarios. Our simulation results suggest that, although, refugee integration (e.g. by providing language and professional training) is costly for the public budget, in the medium- to long-run, the social, economic and fiscal benefits may significantly outweigh the short-run refugee integration costs. In addition, the integration policy has the potential to play an important role in improving the social inclusion, filling vacancies, improving the ratio of workers to economically inactive, addressing Europe’s alarming demographic challenges, and boosting jobs and growth in the EU. |
| Keywords: | Migration, refugees, social inclusion, labour market, integration policy, modelling, scenario analyses. |
| JEL: | F22 J6 J11 J24 |
| Date: | 2016–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2016_08&r=eec |
| By: | Moyen, Stephane; Stähler, Nikolai; Winkler, Fabian |
| Abstract: | We discuss how cross-country unemployment insurance can be used to improve international risk sharing. We use a two-country business cycle model with incomplete financial markets and frictional labor markets where the unemployment insurance scheme operates across both countries. Cross-country insurance through the unemployment insurance system can be achieved without affecting unemployment outcomes. The Ramsey-optimal policy however prescribes a more countercyclical replacement rate when international risk sharing concerns enter the unemployment insurance trade-off. We calibrate our model to Eurozone data and find that optimal stabilizing transfers through the unemployment insurance system are sizable and mainly stabilize consumption in the periphery countries, while optimal replacement rates are countercyclical overall. Moreover, we find that debt-financed national policies are a poor substitute for fiscal transfers. |
| Keywords: | Fiscal Union ; International Business Cycles ; International Risk Sharing ; Unemployment Insurance |
| JEL: | E32 E62 H21 J64 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2016-54&r=eec |
| By: | Julian Neira (University of Exeter) |
| Abstract: | Using a harmonized dataset constructed from national statistical agencies' data for a sample of OECD countries, I document a systematic positive relationship between i) aggregate productivity, ii) the employment share by large firms and iii) the proportion of large firms in the economy. I propose that differences in bankruptcy procedures can explain this relationship. In a model of financial intermediation and informational frictions, I show that as bankruptcy procedures worsen --- measured by the amount a lender can recover from bankrupt borrowers --- lenders respond by shifting their portfolio of loans to smaller (less productive) enterprises. This finding is supported by empirical evidence: across countries, efficient bankruptcy procedures are associated with a higher proportion of new bank loans allocated to large firms. In the model, moving the level of recovery rate from the U.S. level to that of the lowest recovery rate country in the OECD sample reduces TFP by 30%. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:228&r=eec |