nep-eec New Economics Papers
on European Economics
Issue of 2016‒10‒09
ten papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. "Greece: Getting Out of the Recession" By Dimitri B. Papadimitriou; Michalis Nikiforos; Gennaro Zezza
  2. Replacing Judgment by Statistics: Constructing Consumer Confidence Indicators on the basis of Data-driven Techniques. The Case of the Euro Area By Christian Gayer; Alessandro Girardi; Andreas Reuter
  3. Market and Political Power Interactions in Greece:An Empirical Investigation By Tryphon Kollintzas; Dimitris Papageorgiou; Efthymios Tsionas; Vanghelis Vassilatos
  4. Monetary Policy and Macroprudential Policy: Rivals or Teammates? By Simona Malovana; Jan Frait
  5. Post-crisis foreign trade trends and policies on the periphery of the European Union - comparison of the Iberian, Baltic and Central European region By Andrea Elteto; Katalin Antaloczy
  6. On some recent proposals of public debt restructuring in the Eurozone By Ernesto Longobardi; Antonio Pedone
  7. Inflation in the euro area and why it matters By Jakob de Haan; Marco Hoeberichts; Renske Maas; Federica Teppa
  8. Public finances and inflation: the case of Spain By Pablo Hernández de Cos; Samuel Hurtado; Francisco Martí; Javier J. Pérez
  9. Immigration and the UK: Reflections After Brexit By Marco Alfano; Christian Dustmann; Tommaso Frattini
  10. Global macroeconomic effects of exiting from unconventional monetary policy By Pietro Cova; Patrizio Pagano; Massimiliano Pisani

  1. By: Dimitri B. Papadimitriou; Michalis Nikiforos; Gennaro Zezza
    Abstract: The Greek government has agreed to a new round of fiscal austerity measures consisting of a sharp increase in taxes on income and property and further reductions in pension and other welfare-related expenditures. Based on our model of the Greek economy, policies aimed at reducing the government deficit will cause a recession, unless other components of aggregate demand increase enough to more than offset the negative impact of fiscal austerity on output and employment. In this report we argue that the troika strategy of increasing net exports to restart the economy has failed, partly because of the low impact of falling wages on prices, partly because of the low trade elasticities with respect to prices, and partly because of other events that caused a sharp reduction in transport services, which used to be Greece’s largest export sector. A policy initiative to boost aggregate demand is urgently needed, now more than ever. We propose a fiscal policy alternative based on innovative financing mechanisms, which could trigger a boost in confidence that would encourage renewed private investment.
    Date: 2016–09
  2. By: Christian Gayer (European Commission, DG-ECFIN); Alessandro Girardi (ISTAT); Andreas Reuter (European Commission, DG-ECFIN)
    Abstract: This article compares the properties of the European Commission (EC) Consumer Confidence Indicator (CCI) for the euro area with three alternative indices which differ from the former in that they (i) consider a richer set of survey questions and (ii) are the result of data-driven statistical techniques, rather than the simple arithmetic mean of the input series. The alternative indicators are shown to fail to produce significantly better forecasts of expansions and contractions in private consumption, once information from relevant, timely available hard data is controlled for. The conclusions change, however, if the analysis is re-conducted on well-defined subsets of survey questions. Concretely, the application of the alternative construction techniques to a data set which is limited to questions about consumers' personal finances produces an indicator which, combined with relevant macro-economic time series, yields significant improvements in forecasting expansions and contractions in private consumption.
    Keywords: consumer surveys, composite indicators, euro area, principal components analysis, partial least squares, ridge regression, macroeconomic forecasting
    JEL: C22 C53 E37
    Date: 2016
  3. By: Tryphon Kollintzas (Athens University of Economics and Business and CEPR); Dimitris Papageorgiou (Bank of Greece, Economic Analysis and Research Department); Efthymios Tsionas (Athens University of Economics and Business); Vanghelis Vassilatos (Athens University of Economics and Business)
    Abstract: In this paper, using a dynamic panel of 21 OECD countries, we find that, unlike the other OECD countries in the sample, wage setting institutions, competition conditions, public finances and external imbalances can account for the behavior of the public sector wage premium (WPR) and the self employed taxation gap (TSL) in Greece and to a lesser extent in Spain and Portugal, in a manner that is consistent with an “insiders-outsider s society” (IOS). That is, a politicoeconomic system characterized by groups of selfish elites that enjoy market power, but at the same time cooperate in influencing government in protecting and promoting their collective self interests. Then, we find that for Greece as well as Spain and Portugal, WPR and TSL have an adverse effect on both TFP and output growth. Finally, the effect of WPR and TSL on the business cycle (shock propagation mechanism) is investigated via a panel VAR analysis. Again, impulse response function analysis suggests that the shock propagation mechanism of WPR and TSL for Greece and to a lesser extent for Spain and Portugal, are quite different from the rest of the OECD countries. For example, in Greece, unlike the other OECD countries in the sample, a positive temporary shock in WPR causes TFP and output to fall and the public and current account deficits to increase. We take the TFP/output growth and the shock propagation mechanism results to provide strong evidence that Greece and to a lesser extent Spain and Portugal behave like IOS. For that matter, these results are important in order to understand the Greek crisis.
    Keywords: Labor market institutions; Political Institutions; Public sector wage premium; Self employed taxation gap; Growth;Business cycles; Greek crisis
    JEL: J44 J45 O43 O47 O57 P16
    Date: 2016–06
  4. By: Simona Malovana; Jan Frait
    Abstract: This paper sheds some light on situations in which monetary and macroprudential policies may interact (and potentially get into conflict) and contributes to the discussion about the coordination of those policies. Using data for the Czech Republic and five euro area countries we show that monetary tightening has a negative impact on the credit-to-GDP ratio and the non-risk-weighted bank capital ratio (i.e. a positive impact on bank leverage), while these effects have strengthened considerably since mid-2011. This supports the view that accommodative monetary policy contributes to a build-up of financial vulnerabilities, i.e. it boosts the credit cycle. On the other hand, the effect of the higher bank capital ratio is associated with some degree of uncertainty. For these and other reasons, coordination of the two policies is necessary to avoid an undesirable policy mix preventing effective achievement of the main objectives in the two policy areas.
    Keywords: Bayesian estimation, financial stability, macroprudential policy, monetary policy, time-varying panel VAR model
    JEL: E52 E58 E61 G12 G18
    Date: 2016–09
  5. By: Andrea Elteto (Institute of World Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences); Katalin Antaloczy (Faculty of International Management and Business, Budapest Business School)
    Abstract: The year of the great trade collapse in the world was 2009. The international crisis caused a shrinkage of domestic demand and general credit crunch. As a consequence, the growth-enhancing role of exports came into focus in most countries. Exports gained momentum from 2010 but with certain changes in structure and direction. Trade within global value chains has become more pronounced and non-EU markets were targeted by several firms. In certain countries it became a deliberate state policy to turn towards non-EU areas. On the one hand, our paper will describe government foreign trade strategies and institutional framework of the Iberian, Baltic and Central European countries, detecting possible similarities. On the other hand we will analyse the actual foreign trade data in the recent years; what are the main export products and services. Apart from desk research, our methodology consists of detailed trade data analysis from the Eurostat Comext database and service trade database. Based on these we can get a picture on the structure and direction of exports of the peripheric economies and this can be compared to the aims of the given states. Our preliminary hypothesis is that there is a gap between the reality and the intentions of the states. The size of this gap varies and is influenced by certain factors like the different involvement of multinational companies in the foreign trade or the different economic structure of these countries.
    Keywords: export, export promotion, Visegrád countries, Baltic countries, Iberian countries, global value chains
    JEL: F13 F14 P52
    Date: 2016–09
  6. By: Ernesto Longobardi (Università degli Studi di Bari "Aldo Moro"); Antonio Pedone (Università di Roma “La Sapienza”)
    Abstract: This paper considers the issue of sovereign debts in the Eurozone. The reasons for the reduction of public debt, which are quite strong in the present circumstances of slow growth, are briefly discussed with reference to EMU countries. Then the different possible strategies to reduce the public debt/GDP ratio while avoiding any form of debt restructuring are considered. The choice to cut public debt by means of a violent and unexpected upsurge of inflation, which in the past has often been the preferred solution, is not viable today in the Union. On the other side, alternative option for reducing the public debt by means of extraordinary finance instruments, such as wealth taxes, privatization of public companies and sale of public assets can assure only limited results. Thus the policy presently adopted in the EU, relying on the progressive accumulation of surpluses in the general government’s primary budget (the austerity solution), seems to be the only practicable exit. However the alternative of restructuring has been investigated with growing attention in the last few years. Two distinct perspectives have been followed. On one side a number of proposals deal with the issue of existing (legacy) debt. On the other one, several projects have been presented aimed to establish a permanent insolvency mechanism for sovereigns. The former group of projects wants to avoid the private sector involvement and are based on complex mechanism of securitization of future revenue of member states (seigniorage and taxes). There are reasons to doubt that they are something substantially different from the policies currently followed and, especially, that can be more favourable to growth. The latter group of proposals, concerning the institution of an ordered procedure of insolvency for sovereigns, are meant to make effective the no bail out principle, whose compliance has proved very difficult so far. The question is raised if this perspective is really realisable in the absence of any element of fiscal union.
    Keywords: Euro area debt crisis; restructuring legacy debt; sovereign insolvency procedure
    JEL: F34 H12 H63
    Date: 2016–09
  7. By: Jakob de Haan; Marco Hoeberichts; Renske Maas; Federica Teppa
    Abstract: This study provides an overview of the academic and policy debates about inflation. It is written in a non-technical way. We aim to explain the role of inflation in monetary policy making for a broad audience. Why do central banks care about inflation? How is inflation measured? Why are inflation expectations so important for monetary policymakers? How are inflation expectations measured? What can central banks do to realize their objective of price stability? These issues are all addressed in the present study, with a focus on the euro area.
    Date: 2016–09
  8. By: Pablo Hernández de Cos (Banco de España); Samuel Hurtado (Banco de España); Francisco Martí (Banco de España); Javier J. Pérez (Banco de España)
    Abstract: We empirically explore the influence of inflation on fiscal variables in the short, medium and long run, for the case of the Spanish economy, in particular to draw policy lessons for the design of the ongoing process of rebalancing of fiscal accounts. We focus on this topic through the lenses of: (i) the government budget constraint, to assess the influence of inflation on changes in public debt; (ii) accounting decompositions of nominal revenue and expenditure items into their real and price parts; (iii) a large-scale macroeconometric model that contains a detailed fiscal policy block; and (iv) a long-run accounting model on pension expenditure
    Keywords: inflation, public finances, public debt, fiscal consolidation
    JEL: E31 E62 H6
    Date: 2016–09
  9. By: Marco Alfano (University of Strathclyde); Christian Dustmann (University College London); Tommaso Frattini (University of Milan)
    Abstract: This paper describes the main features of immigration in the UK, and puts it in perspective with the experience of other advanced economies. It then reviews the most recent available evidence on the labour market and fiscal effects of immigration in the UK. This evidence is assessed in relation to some of the claims that were made in the run up to the Brexit referendum.
    Keywords: Immigration, Brexit, labour market impact, fiscal impact
    JEL: J31 J61 J68
    Date: 2016–09–28
  10. By: Pietro Cova (Banca d'Italia); Patrizio Pagano (The World Bank); Massimiliano Pisani (Banca d'Italia)
    Abstract: This paper evaluates the international macroeconomic spillovers from the Eurosystem’s expanded Asset Purchase Programme (APP) under alternative assumptions as regards (i) the unwinding of the asset positions accumulated under the APP and (ii) the normalization of the US monetary policy stance. We simulate a dynamic general equilibrium model of the world economy, calibrated to the Euro area (EA), the US, China, Japan, and the ‘rest of the world’ (RW). Our results are as follows. First, APP expansionary spillovers are dampened if the Eurosystem brings forward the unwinding of its bond holdings because of the lower increase in EA aggregate demand and, therefore, EA imports. The RW is the region most affected because it has the greatest trade integration with the EA. Second, if the US monetary authority announces that it will hold the policy rate constant for a shorter period of time – which dampens the increase in US aggregate demand and, therefore, US imports from the EA – then US spillovers to the EA, while still expansionary, as in the case of a slower normalization of the monetary policy stance, are more modest.
    Keywords: DSGE models, open-economy macroeconomics, non-standard monetary policy, zero lower bound
    JEL: E43 E44 E52 E58
    Date: 2016–09

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