nep-eec New Economics Papers
on European Economics
Issue of 2016‒08‒07
nine papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. An exploration of real-time revisions of output gap estimates across European countries. By Pablo Hernández de Cos; Aitor Lacuesta; Enrique Moral-Benito
  2. How competitiveness shocks affect macroeconomic performance across euro area countries By Karsten Staehr; Robert Vermeulen
  3. In Europe We Trust? By Ritzen, Jo; Haas, Jasmina
  4. A Long-Term Evaluation of Recent Hungarian Pension Reforms By Christoph Freudenberg; Tamás Berki; Ádám Reiff
  5. Comparative advantage of the EU in global value chains: How important and efficient are new EU members in transition? By Gurgul, Henryk; Lach, Łukasz
  6. Asymmetric volatility connectedness on forex markets By Jozef Barunik; Evzen Kocenda; Lukas Vacha
  7. The enigmatic dollar-euro exchange rate and the world's biggest forex market - performance, causes, consequences By Jan Priewe
  8. Globalization and the markups of European firms By Békés, Gábor; Hornok, Cecília; Muraközy, Balázs
  9. Are Bubbles Bad? Is a higher debt target for the Euro-zone desirable? By Coen N. Teulings

  1. By: Pablo Hernández de Cos (Banco de España); Aitor Lacuesta (Banco de España); Enrique Moral-Benito (Banco de España)
    Abstract: This document analyses real-time revisions in output gap estimates published by the European Commission for 15 countries over the period 2002-2014. We find that output gap revisions (both in levels and changes) are mainly driven by GDP growth forecast errors. Also, output gap revisions have opposite signs across expansions and recessions: real-time output gaps are downward biased (smaller than the final estimates) during expansions and upward biased (higher than the final estimates) in recessions. Our findings may have relevant implications for the conduct and assessment of fiscal policy in real time. For instance, according to our results, real-time estimates of the structural balance would be upward biased in expansions and downward biased in recessions. This implies that the fiscal stance of an economy estimated in real time would be excessively expansionary in recessions as compared to the final estimate. As a result, we argue that corrections to real-time estimates of the structural balance suggested in the literature should be contingent on the degree of slack in the economy.
    Keywords: output-gaps, real-time data, fiscal policy
    JEL: E32 E52 E60
    Date: 2016–07
  2. By: Karsten Staehr; Robert Vermeulen
    Abstract: This paper considers the short-term effects of competitiveness shocks on macroeconomic performance in the euro area. Vector autoregressive models are estimated on quarterly data from 1995 to 2013 for individual countries and the whole euro area. The results show that competitiveness shocks help to explain subsequent GDP developments in most countries but have little explanatory power for the current account balance and domestic credit. These results apply for all of the competitiveness measures considered, but a non-traditional competitiveness measure accounting for quality differences fares better in some cases. The effects of the competitiveness measures vary substantially across the countries in the euro area, which likely reflects their different economic structures and institutions. This heterogeneity suggests that policy measures seeking to improve competitiveness may have very different effects on economic performance and financial stability in different countries.
    Keywords: Competitiveness; macroeconomic variables; transmission; euro area
    JEL: E32 E61 F32
    Date: 2016–07
  3. By: Ritzen, Jo (IZA and Maastricht University); Haas, Jasmina (Maastricht University)
    Abstract: The decrease in the rule of law and in control of corruption in several EU countries is a threat to the cohesion in the EU. Brexit has reinforced the centrifugal forces in the EU. To counter this threat the EU needs to engage in unpopular measures as they infringe on the Member States' sovereignty. We propose to introduce new measures in treaty revisions like the possibility of individuals to appeal to European courts to counter negative developments in governance in EU Member States.
    Keywords: governance, institutions, EU, economic growth
    JEL: D02 D72 D78 E02 I31 K20 K33 O43 O52
    Date: 2016–07
  4. By: Christoph Freudenberg (Institute of Public Finance Freiburg University); Tamás Berki (Magyar Nemzeti Bank, Central Bank of Hungary); Ádám Reiff (Magyar Nemzeti Bank, Central Bank of Hungary)
    Abstract: This paper studies the effect of Hungarian pension reforms between 2009-2012 on the adequacy and long-term fiscal stability of the Hungarian public pension system. For the adequacy analysis, we use a micro simulation model to project future initial pension levels relative to future gross wages. For the analysis of fiscal stability, we use a generational accounting-based macro model to forecast future yearly cash balances and calculate implicit pension liability (IPL) indicators. We find that major recent reforms have stabilized the public pension system until around 2035, but after this, mainly due to unfavorable demographic developments, we project increasing deficits that reach about 4% of GDP by 2060.
    Keywords: Pension reforms, Sustainability of pension systems, Micro simulation
    JEL: H55
    Date: 2016
  5. By: Gurgul, Henryk; Lach, Łukasz
    Abstract: We suggest original modifications and extensions of the recently presented methodological developments in ex-post accounting framework in global value chains in order to obtain empirical results both for the analyzed group of ten CEE economies as well as at a country-and-sector-specific level. The empirical results confirm that the role of the selected CEE economies in transition in creating value added with respect to the total value added in the European Union in the GVC framework was biggest in the cases of agriculture-, wood-products-, metal-production, and travel-and-tourism-related sectors. We also found that, after two decades of transition, the measures of productivity in the examined economies in 2009 were still much lower as compared to the EU average for most of the sectors. Moreover, in the transition period, these indexes were increasing, especially after EU accession. In contrary, after two decades of transition, the measures of capital efficiency in the ten CEE economies in 2009 were comparable to the EU average for most of the sectors. Moreover, during this period, the growth rates of these indexes were, in general, positive. However, their growth rates dropped after EU accession.
    Keywords: value added; productivity; capital efficiency; CEE economies; international input-output matrices; transition
    JEL: C67 D57 F1
    Date: 2016–07–01
  6. By: Jozef Barunik; Evzen Kocenda; Lukas Vacha
    Abstract: We show how bad and good volatility propagate through forex markets, i.e., we provide evidence for asymmetric volatility connectedness on forex markets. Using high-frequency, intra-day data of the most actively traded currencies over 2007 - 2015 we document the dominating asymmetries in spillovers that are due to bad rather than good volatility. We also show that negative spillovers are chiefly tied to the dragging sovereign debt crisis in Europe while positive spillovers are correlated with the subprime crisis, different monetary policies among key world central banks, and developments on commodities markets. It seems that a combination of monetary and real-economy events is behind the net positive asymmetries in volatility spillovers, while fiscal factors are linked with net negative spillovers.
    Date: 2016–07
  7. By: Jan Priewe
    Abstract: Foreign exchange markets are the biggest financial markets on the globe, the dollar-euro market is the biggest among them with a daily turnover of $1.3 trillion. This market is the interface of the euro bloc and the dollar bloc which use mainly one of the major currencies, comprising 45-60% and 25% of global GDP, respectively. Hence the dollar-euro exchange rate is the prime exchange rate among thousands of others. After reviewing the exchange rate performance and the dismal state of exchange rate theories, the paper analyses in the first part the following questions: what determines the large and long swings and the turning points of the exchange rate super-cycle; what is the role of "fundamentals" and what are the non-fundamental determinants of the dollar-euro exchange rate. In the second part we analyse the consequences of high volatility and frequent misalignment of the dollar-euro rate: in what way is this exchange rate relevant for the real economies, as both the majority of the euro area's and the trade of the U.S. is denominated in own currency; what are the interdependencies between the dollar-euro exchange rate and internal imbalances in the current accounts of the euro area; has the relationship between exchange rates and trade changed, due to reduced elasticities; what is the impact of dollar-euro exchange rate on international financial markets.
    Date: 2016
  8. By: Békés, Gábor; Hornok, Cecília; Muraközy, Balázs
    Abstract: We use a unique cross-section survey of manufacturing firms from four European countries (France, Germany, Italy, Spain) linked with balance sheet data to study the relationship between key aspects of globalization and firm-level markups. The main results are: (i) Exporting is positively correlated with markups; (ii) Importing intermediate inputs and outsourcing are also positively correlated with markups; (iii) Firms with affiliates have higher markups than other firms, while simply membership in a group or being foreign-owned seems to be less important; (iv) Perceived competition from low-cost markets is negatively correlated with markups; (v) Higher quality production and innovation, especially if it results in IP, has a strong positive relationship with markups; (vi) While these variables are correlated, they are significant in a joint model including all four groups, and 'fully globalized' firms tend to charge around 100% higher markups than non-globalized firms.
    Keywords: markups,exporting,importing,FDI,innovation
    JEL: D22 D24 F14 L11 L60
    Date: 2016
  9. By: Coen N. Teulings
    Abstract: Bubbles are usually viewed as a threat to financial stability. This paper takes a more nuanced view. The world economy is going through an episode of Secular Stagnation, where the equilibrium rate of return on capital r is below the growth rate of the economy g. As is well known, rational bubbles are sustainable when r?g in a steady state equilibrium. Bubbles can then implement a dynamically efficient equilibrium. We show that from a structural point of view, bubbles, Pay-As-You-Go (PAYG) pensions and sovereign debt are perfect substitutes. However, when dealing with unexpected short run fluctuations in investment, sovereign debt is far more efficient than bubbles in shifting consumption over time and in risk sharing between generations. An increase in sovereign debt is therefore an efficient response to Secular Stagnation. Instead, the current Stability and Growth Pact for the Euro-zone embarks on an opposite course.
    Keywords: bubbles, dynamic efficiency, fiscal policy, Secular Stagnation
    JEL: E44 E62
    Date: 2016–07–27

This nep-eec issue is ©2016 by Giuseppe Marotta. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.