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on European Economics |
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Issue of 2016‒11‒06
fourteen papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Jessica Baker; Oriol Carreras; Simon Kirby; Jack Meaning |
| Abstract: | This paper investigates the determinants of sovereign bond yields in the Euro Area through the lens of the expectations hypothesis adjusting for measures of risk. This allows us to see the extent to which monetary policy, which controls the path of short-term nominal interest rates, is a driver of longer-term sovereign yields. To do this we include a forward-looking measure of expectations of overnight interest rates alongside debt-GDP in an error-correcting panel framework. We find that the expected path of the short-term nominal interest rate is a significant long-run determinant of 10 year sovereign bond yields in the Euro Area and that this relationship is robust to a wide range of alternative specifications and controls, especially in the Northern Euro Area economies. This result implies that the reduction in Northern Euro Area sovereign bond yields in recent years has been driven by the current and expected future loose stance of monetary policy. In the periphery economies this effect appears to have been dominated by other factors, such as default risk. |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:466&r=eec |
| By: | Dolls, Mathias |
| Abstract: | The Eurozone debt crisis has revived the debate about deeper fiscal integration in the European Economic and Monetary Union (EMU). Some observers argue that fiscal risk sharing is necessary to make the Eurozone more resilient to macroeconomic shocks and to avoid its break-up. However, the main concerns relate to the issues of permanent transfers across Member States and moral hazard. The 2012 Four Presidents' Report suggested that fiscal integration could include a common unemployment insurance system. A White Paper outlining further steps necessary to complete EMU is to be released by the European Commission in the spring of 2017. This ZEW policy brief presents new research findings on the stabilizing and redistributive effects of a common unemployment insurance scheme for the euro area (henceforth EMU-UI).1 It provides insights regarding its potential added value and discusses moral hazard issues. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewpbs:72016&r=eec |
| By: | Julien Pinter (Centre d'Economie de la Sorbonne, Amsterdam University, University of Saint-Louis); Charles Boissel (Paris HEC) |
| Abstract: | The paper proposes an alternative benchmark to the EURIBOR to analyze the post-crisis puzzling behavior of deposit rates in the Eurozone. Using bank-level CDS data for 6 major euro-countries, we build a simple country-level index for banks' cost of unsecured funding. The use of this index instead of the traditionally used EURIBOR restores the cointegration relationship between deposit rates and their reckoned opportunity cost. It also suggests that deposits have actually not been significantly over-remunerated in most euro area countries since the financial crisis, in contrast with what is often argued. Our index appears as a good alternative to the EURIBOR, which we show has become irrelevant for many countries |
| Keywords: | deposit rates; euribor; cointegration; panel estimates; banks |
| JEL: | E43 E50 G10 G21 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:16053&r=eec |
| By: | Bettendorf, Timo |
| Abstract: | During the 2008 financial crisis, increasing risk and spillovers became a main concern for policy makers and banks. In addition, changes in sovereign and bank risk are believed to have had strong effects on world-wide exchange rates. This paper aims to analyze these dynamics empirically. We estimate a Global VAR (GVAR) model for nine EMU countries plus Japan, the United Kingdom as well as the United States and identify structural risk shocks using sign restrictions, which are based on a theoretical model by Acharya et al. (2014, JF). Our results indicate that spillover effects of general risk are much stronger than those of bailouts. Furthermore, we demonstrate that the Euro depreciates significantly against the Yen and US Dollar following general risk shocks in the euro area and only to a small extent following bailout shocks. The Pound Sterling is not affected by any of these shocks. The Euro variability is, from the EMU perspective, mainly driven by shocks stemming from large countries (e.g. Germany, France and Italy). However, shocks from third countries also play an important role. |
| Keywords: | credit default swaps,bailouts,exchange rates,global var |
| JEL: | C55 F31 H63 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:422016&r=eec |
| By: | Glick, Reuven (Federal Reserve Bank of San Francisco) |
| Abstract: | The effects of the European Economic and Monetary Union (EMU) and European Union (EU) on trade are separately estimated using an empirical gravity model. Employing a panel approach with both time-varying country and dyadic fixed effects on a large span of data (across both countries and time), it is found that EMU and EU each significantly boosted exports. EMU expanded European trade by 40% for the original members, while the EU increased trade by almost 70%. Newer members have experienced even higher trade as a result of joining the EU, but more time is necessary to see the effects of their joining EMU. |
| JEL: | F15 F33 |
| Date: | 2016–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2016-27&r=eec |
| By: | Kurmas Akdogan |
| Abstract: | We examine the unemployment hysteresis hypothesis for 31 European countries, US and Japan, using alternative linear and nonlinear unit root tests, taking into account possible structural breaks. Two types of smooth transition models - Exponential Smooth Transition Autoregressive (ESTAR) and Asymmetric Exponential Smooth Transition Autoregressive (AESTAR) - are employed to account for the nonlinear mean-reverting behavior in unemployment due to heterogeneity in hiring and firing costs across firms. Four main results emerge: First, the hysteresis hypothesis is rejected for 60 percent of the countries in our sample. Second, nonlinear models capture the asymmetries in unemployment dynamics over the business cycle for some countries. Third, many of the series display multiple structural breaks which might point out shifts in mean level of unemployment. Fourth, forecasting powers of our nonlinear models display poor performance against the linear AR specification. The results have policy implications for the debate on the benefits of demand or supply side policies for tackling the current unemployment problem in Europe. |
| Keywords: | Unemployment hysteresis, Nonlinear adjustment, Structural breaks, Forecasting |
| JEL: | E24 C22 E27 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1618&r=eec |
| By: | Liza Jabbour; Enrico Vanino; Zhigang Tao; Yan Zhang |
| Abstract: | Despite growing international trade flows, the last decades have been characterized by an increasing recurrence to protectionist measures, especially through the adoption of anti-dumping (AD) measures. Dumping strategies might reduce international competition although the literature has frequently questioned to what extent AD measures have to do with unfair trade. Increasing concerns have been raised about the possible protectionist abuse of this trade defence instrument, especially in developed countries which may use AD actions to defend their mature industries from the price-competition of emerging economies. This paper provides a comprehensive analysis of the European Union (EU) AD measures against Chinese imports, looking at the contrasting effect on the performance of Chinese exporters, European producers and European importers. Our results suggest that EU AD measures successfully reduced the number of Chinese exporters although this results in an increase in the productivity of those remaining. The same EU AD measures have a mixed impact on the performance of European firms, bringing temporary benefits for domestic producers, but negatively affecting importers, with a perverse long-run effect of a reduced productivity gap between Chinese exporters and European firms. |
| Keywords: | anti-dumping, difference-in-differences, China, European Union, trade policy, lobbying |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:not:notgep:16/16&r=eec |
| By: | Acharya, Viral V.; Eisert, Tim; Eufinger, Christian; Hirsch, Christian |
| Abstract: | The ECB's Outright Monetary Transactions (OMT) program, launched in summer 2012, indirectly recapitalized periphery country banks through its positive impact on the value of sovereign bonds. However, the regained stability of the European banking sector has not fully transferred into economic growth. We show that zombie lending behavior of banks that still remained undercapitalized after the OMT announcement is an important reason for this development. As a result, there was no positive impact on real economic activity like employment or investment. Instead, firms mainly used the newly acquired funds to build up cash reserves. Finally, we document that creditworthy firms in industries with a high prevalence of zombie firms suffered significantly from the credit misallocation, which slowed down the economic recovery. |
| Keywords: | Unconventional Monetary Policy,Real Effects,Zombie Lending |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:152&r=eec |
| By: | Margarita Rubio (University of Nottingham); Mariarosaria Comunale (Bank of Lithuania) |
| Abstract: | In this paper, we develop a two-country monetary union new Keynesian general equilibrium model with housing and collateral constraints, to be calibrated for Lithuania and the rest of the euro area. Within this setting, and following the recent entrance of Lithuania in the EMU, the aim of this paper is twofold. First, we study how shocks are transmitted differently in the two regions, considering the recent common monetary policy. Then, we analyze how macroprudential policies should be conducted in Lithuania, in the context of the EMU. As a macroprudential tool, we propose a decentralized Taylor-type rule for the LTV which responds to national deviations in output and house prices. We find that, given the housing market features in Lithuania, common shocks are transmitted more strongly in this country than in the rest of the euro area. In terms of macroprudential policies, results show that the optimal policy in Lithuania with respect to the euro area may have a different intensity and that it delivers substantial benefits in terms of financial stability. |
| Keywords: | Macroprudential policy, housing market, LTV, monetary union, financial stability |
| JEL: | E32 F44 F36 |
| Date: | 2016–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:lie:wpaper:34&r=eec |
| By: | Schneider, Michael; Lillo, Fabrizio; Pelizzon, Loriana |
| Abstract: | Amid increasing regulation, structural changes of the market and Quantitative Easing as well as extremely low yields, concerns about the market liquidity of the Eurozone sovereign debt markets have been raised. We aim to quantify illiquidity risks, especially such related to liquidity dry-ups, and illiquidity spillover across maturities by examining the reaction to illiquidity shocks at high frequencies in two ways: a) the regular response to shocks using a variance decomposition and, b) the response to shocks in the extremes by detecting illiquidity shocks and modeling those as ultivariate Hawkes processes. We find that: a) market liquidity is more fragile and less predictable when an asset is very illiquid and, b) the response to shocks in the extremes is structurally different from the regular response. In 2015 long-term bonds are less liquid and the medium-term bonds are liquid, although we observe that in the extremes the medium-term bonds are increasingly driven by illiquidity spillover from the long-term titles. |
| Keywords: | liquidity,jump detection,Hawkes processes,government bonds,MTS bond market,Quantitative Easing |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:151&r=eec |
| By: | William R. Cline (Peterson Institute for International Economics) |
| Abstract: | Deutsche Bank's recent troubles, including a fine by the US Department of Justice for allegedly misleading investors in the sale of mortgage-backed securities, have led to a decline in the bank's share price. The bank, however, is not insolvent and would not be even if the full $14 billion fine were levied. Its problems, nonetheless, should prompt policymakers to focus on whether banking sector reform after the financial crisis is on track. The new shocks from large legal fines add to concerns about capital adequacy. Low stock market prices may further reflect doubts about asset valuations, especially for derivatives, and about risk weightings using internal models. Cline notes that the decline in the bank's share price in both January–February and September was prompted by the specter of losses to additional tier 1 (AT1) bonds that count toward the bank's total loss-absorbing capacity (TLAC) imposed by the Basel III regulatory reforms. He concludes that the bank's difficulties provide further support for additional bank capital beyond Basel III targets. Higher equity capital provides a larger cushion against insolvency in the face of shocks. With equity a larger share of the TLAC target of 18 percent of risk-weighted assets under Basel III, an additional benefit would be the resulting reduction in the need for contingent (AT1) capital, which has proven to be a source of market instability when investors fear writedowns on (or conversions of) such obligations. Low market valuations mean that banks would need to raise additional equity over time through retained earnings rather than immediately through new issuance when share prices are depressed. This problem is currently more severe for large banks in Europe than for those in the United States. Banks may also need to change their basic business models and downsize their balance sheets gradually until share prices rise toward book values. |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:iie:pbrief:pb16-19&r=eec |
| By: | Cédric Durand (Centre d'Economie de l'Université de Paris Nord (CEPN)); Maxime Gueuder (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS) |
| Abstract: | During the past decades, the link between profits and domestic investment weakened in the biggest high-income economies. This contribution explores this relaxation of the profits-investment nexus in a Marxist profit-centred perspective. Focusing on the impact of the origins and the uses of profits, we study the investment behaviour of non-financial corporations in relation to their profits at the macro level since 1980, a period marked by financialisation and globalisation. We contrast three competing hypotheses – the Revenge of the Rentiers, the Financial-turn of Accumulation and Globalisation – and test them through a macro panel data analysis for France, Germany, Italy, Japan, United-Kingdom and United States over the period 1980-2012. |
| Keywords: | Profits, Investment, Financialisation, Globalisation, Macro-panel analysis |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:upn:wpaper:2016-01&r=eec |
| By: | Germá-Bel (Departament of Economic Policy & GiM-IREA, University of Barcelona. Av. Diagonal 696; 08034 Barcelona, Spain.); Stephan Josep (Departament of Economic Policy & GiM-IREA, University of Barcelona. Av. Diagonal 696; 08034 Barcelona, Spain.) |
| Abstract: | The European Union launched a set of policies as part of its 2020 climate and energy package aimed at meeting its 20/20/20 headline targets for smart, sustainable and inclusive growth. This paper evaluates how successful new-to-the-market climate change mitigation technologies (CCMT) are in helping EU member states (MS) to reach these goals and, furthermore, whether there are differences between sectors subject to EU-wide polices. To do so, we seek to relate CCMT patent counts to two specific headline targets: (1) achieving 20% of gross final energy consumption from renewables, and (2) achieving a 20% increase in energy efficiency. Our results provide the first ex-post evaluation of the effectiveness of these technologies for combating climate change. Moreover, our sectoral impact assessment points to significant differences in the way in which these technologies contribute to policy goals across sectors. |
| Keywords: | Environmental Policy; Climate Change; Technological Change; Patent Count Data. JEL classification: O33; O38; Q55; Q58. |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:201612&r=eec |
| By: | Mikel Casares (Departamento de Economía-UPNA); Jesús Vázquez (Universidad del País Vasco (UPV/EHU)) |
| Abstract: | The volatility of unemployment fluctuations has been about 3 times higher in Spain than in Germany over the recent business cycles (1996-2013). In contrast, fluctuations of the rate of wage inflation were significantly more volatile in Germany than in Spain. We estimate a New-Keynesian model and find several explanatory factors: wage rigidity has been higher in Spain, the labor force has been more elastic in Germany than in Spain, large and persistent shocks augmenting the labor force have been estimated for Spain whereas in Germany there have been substantial shocks reducing the intensity of hours per worker, and the ECB’s policy design brought monetary shocks with much greater influence to the Spanish unemployment. |
| Keywords: | unemployment, Germany versus Spain, DSGE models |
| JEL: | E12 E23 E32 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:nav:ecupna:1602&r=eec |