nep-eec New Economics Papers
on European Economics
Issue of 2017‒02‒12
eleven papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Yields on sovereign debt, fragmentation and monetary policy transmission in the euro area: A GVAR approach By Victor Echevarria Icaza; Simón Sosvilla-Rivero
  2. External Monetary Shocks to Central and Eastern European Countries By Pierre LESUISSE
  3. Can a common currency foster a shared social identity across different nations? The case of the Euro. By Franz Buscha; Daniel Muller; Lionel Page
  4. Policy effectiveness is limited by a flat Phillips curve, stabilization as practiced in Europe and the US By David Kiefer
  5. The Euro and the Battle of Ideas By Brunnermeier, Markus; James, Harold; Landau, Jean-Pierre
  6. Global impact of US and euro area unconventional monetary policies: a comparison By Qianying Chen; Marco Lombardi; Alex Ross; Feng Zhu
  7. Tradability of Output and the Current Account: An Empirical Investigation for Europe By Roman Stöllinger
  8. Should pensions be redistributive? The impact of Spanish reforms on the system’s sustainability and adequacy By Concepció Patxot; Meritxell Solé; Guadalupe Souto
  9. Brexit and the European financial system By Uuriintuya Batsaikhan; Robert Kalcik; Dirk Schoenmaker
  10. Statutory Minimum Wages in the EU: Institutional Settings and Macroeconomic Implications By Arpaia, Alfonso; Cardoso, Pedro; Kiss, Aron; Van Herck, Kristine; Vandeplas, Anneleen
  11. The short-term impact of structural reforms on productivity growth: beyond direct effects By Ana Gouveia; Sílvia Santos; Inês Gonçalves

  1. By: Victor Echevarria Icaza (Universidad Complutense de Madrid Departamento de Fundamentos del Análisis Económico II (Economía Cuantitativa)); Simón Sosvilla-Rivero (Department of Quantitative Economics, Universidad Complutense de Madrid)
    Abstract: The divergence in sovereign yields has been presented as a reason for the lack of traction of monetary policy. We use a GVAR framework to assess the transmission of monetary policy in the period 2005-2016. We identify sovereign yield divergence as a key mechanism by which the leverage channel of monetary policy worked. Unconventional monetary policy was successful in mitigating this effect. When exploring the channels through which yields may affect the heterogeneous transmission of monetary policy, we find that the reaction of bank leverage depended substantially on where the sovereign yield originated, thus providing a mechanism that explains this heterogeneity. Second, large spillover effects meant that yield divergence decreased the traction of monetary policy even in anchor countries. Third, the heterogeneity in the transmission mechanism can be in part attributed to contagion from euro area wide sovereign stress. Fiscal credibility, therefore, may be an appropriate tool to enhance the output effect of monetary policy. Given the importance of spillovers, this credibility may be achieved by changes in the institutional make-up and policies in the euro area
    Keywords: monetary policy, spillovers, euro area crisis
    JEL: E52 E63 F45 H63
    Date: 2017–01
  2. By: Pierre LESUISSE
    Abstract: Few countries are part of the European Union but on the verge of the Euro-zone. This study aims at identifying the amplitude of the direct ECB monetary policy impact, i.e. the so-called international monetary spillovers, in Central and Eastern European countries (CEECs). The use of a panel-VAR method allows to deal with the small time span and endogeneity. We found that CEECs tend to significantly converge in monetary terms to the ECB standards. The direct impact on real variables remains relatively weak but contrary to the literature, is significant and in line with expectations. A persistent negative adjustment of GDP gives a quick glimpse of a robust reaction against monetary shock when the focus is made on the post-economic crisis period. The exchange rate regime plays a small but significant role in terms of magnitude. This increased interdependence is the result of macroeconomic reforms implemented during the last 25 years.
    Keywords: Monetary integration, External shocks, Panel VAR.
    JEL: F42 E52 C23
    Date: 2017–02
  3. 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 investigate 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: 2017–01
  4. By: David Kiefer
    Abstract: A standard model of activist macroeconomic policy derives a monetary reaction rule by assuming that governments have performance objectives, but are constrained by an augmented Phillips curve. In addition to monetary policy, governments apply a variety of instruments to influence inflation and output, including fiscal policy, bailouts and foreign exchange policy, but effectiveness is limited by Phillips curve flatness. Solving the Phillips curve and reaction rule for a reduced form, we study this theory with a panel of countries. A textbook version of the activist model leads to disappointing results; the activist model fits the data only slightly better than a flat-Phillipscurve benchmark. The econometric results are enhanced by accounting for autocorrelated shocks. Although results are mixed, our interpretation favors inertial inflation expectations over rational ones. An extension of this approach suggests that US policy is more effective than that of European governments, finding that the US Phillips curve is more than twice as steep.
    Keywords: stabilization policy, inflation targets, expectations JEL Classification: E61, E63
    Date: 2016
  5. By: Brunnermeier, Markus; James, Harold; Landau, Jean-Pierre
    Abstract: Book description: Why is Europe’s great monetary endeavor, the Euro, in trouble? A string of economic difficulties in Greece, Ireland, Spain, Italy, and other Eurozone nations has left observers wondering whether the currency union can survive. In this book, Markus Brunnermeier, Harold James, and Jean-Pierre Landau argue that the core problem with the Euro lies in the philosophical differences between the founding countries of the Eurozone, particularly Germany and France. But the authors also show how these seemingly incompatible differences can be reconciled to ensure Europe’s survival. As the authors demonstrate, Germany, a federal state with strong regional governments, saw the Maastricht Treaty, the framework for the Euro, as a set of rules. France, on the other hand, with a more centralized system of government, saw the framework as flexible, to be overseen by governments. The authors discuss how the troubles faced by the Euro have led its member states to focus on national, as opposed to collective, responses, a reaction explained by the resurgence of the battle of economic ideas: rules vs. discretion, liability vs. solidarity, solvency vs. liquidity, austerity vs. stimulus. Weaving together economic analysis and historical reflection, The Euro and the Battle of Ideas provides a forensic investigation and a roadmap for Europe’s future.
    JEL: B26 E58 N14
    Date: 2016
  6. By: Qianying Chen; Marco Lombardi; Alex Ross; Feng Zhu
    Abstract: The paper analyses and compares the domestic and cross-border effects of US and euro area unconventional monetary policy measures on 24 major advanced and emerging economies, based on an estimated global vector error-correction model (GVECM). Unconventional monetary policies are measured using shadow interest rates developed by Lombardi and Zhu (2014). Monetary policy shocks are identified using sign restrictions. The GVECM impulse responses suggest that US unconventional monetary policy generally has stronger domestic and cross-border impacts than euro area non-standard measures. Its spillovers to other economies are estimated to be more sizeable and persistent, especially in terms of output growth and inflation. There is evidence of diverse responses in the emerging economies in terms of exchange rate pressures, credit growth as well as monetary policy. In addition, the strength of cross-border transmission channels to the emerging economies appears to differ for US and euro area policies.
    Keywords: unconventional monetary policy; quantitative easing; shadow interest rate; spillover; global vector error correction model (GVECM)
    Date: 2017–01
  7. By: Roman Stöllinger (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: We put forward the hypothesis that increasing specialisation in the production of non-tradable output has a negative impact on the current account balance. This tradability hypothesis is directly derived from a two-sector inter-temporal current account model. To test it empirically we develop a value-added based tradability index which captures the tradability of a country’s output. Applied to a large sample of European countries, our empirical model provides strong evidence for a positive relationship between the current account balance and the tradability index. The main policy implication is that the anxieties about ‘de-industrialisation’ in large parts of Europe seem justified with a view to growing external imbalances.
    Keywords: current account, tradability index, tradable goods, structural change, value added exports
    JEL: F41 F32 F10 F14
    Date: 2017–01
  8. By: Concepció Patxot; Meritxell Solé; Guadalupe Souto
    Abstract: Concerns about the consequences of demographic ageing on the sustainability of the pension system has led to the adoption of reforms reducing pension expenditure. However, the impact of these reforms on pension adequacy is now coming under increasing scrutiny. Taking recent Spanish reforms as an example, this paper analyses the extent to which fostering pension sustainability threatens pension adequacy, with a particular focus on inter- and intragenerational equity. Using an extension of the DyPeS microsimulation model, results show that the introduction of mechanisms linking retirement pensions to the evolution of the social security budget balance has strong and negative effects on adequacy and on income redistribution. Unexpected effects of the Bismarckian reforms on income redistribution are also observed. The outcomes reported for the Spanish pension system highlight the need to reconsider the convenience of using the pension system as an income redistribution device.
    Date: 2017–02
  9. By: Uuriintuya Batsaikhan; Robert Kalcik; Dirk Schoenmaker
    Abstract: London is an international financial centre, serving European and global clients. A hard Brexit would lead to a partial migration of financial firms from London to the EU27 (EU minus UK) to ensure they can continue to serve their EU27 clients. Four major cities will host most of the new EU27 wholesale markets - Frankfurt, Paris, Dublin and Amsterdam. These cities have far fewer people employed in finance than London. Moreover, they host the European headquarters of fewer large companies. The partial migration of financial firms will thus have a major impact on these cities and their infrastructures. Banks are the key players in wholesale markets. United States and Swiss investment banks, together with one large German and three large French banks, will make up the core of the new EU27 wholesale markets. Some Dutch, Italian and Spanish banks are in the second tier. The forex, securities and derivatives trading markets are now in London. We map the current, limited market share of the four major cities that might host the EU27 client business. The expected migration of financial trading will lead to a large increase in trading capacity (eg bank trading floors). Clearing is the backbone of modern financial markets. A comparative overview of clearing facilities in the EU27 shows that Germany and France have some clearing capacity, but this will need to be expanded. The ownership of clearing is often intertwined with stock exchanges. Were the planned LSE-Deutsche Börse merger to go ahead, LSE would sell the Paris subsidiary of its clearinghouse. In terms of legal systems, there is an expectation that trading activities will be able to continue under English contract law, also in the EU27. A particular challenge is to develop FinTech (financial technology) in the EU27, as this innovative part of the market is currently based in London. We estimate that some 30,000 jobs might move from London to the EU27. This will put pressure on the facilities (infrastructure, offices, residential housing) in the recipient cities. The more the European Union market for financial services is integrated, the less need there will be for financial firms to move to one location, reducing the pressure for all facilities to be in one city (see Sapir et al, 2017, which is a companion piece to this paper).
    Date: 2017–02
  10. By: Arpaia, Alfonso (European Commission); Cardoso, Pedro (European Commission, Directorate Employment, Social Affairs and Inclusion); Kiss, Aron (European Commission); Van Herck, Kristine (European Commission, Directorate Employment, Social Affairs and Inclusion); Vandeplas, Anneleen (European Commission, Directorate Employment, Social Affairs and Inclusion)
    Abstract: This paper analyses some macroeconomic implications of the statutory minimum wage in the member states of the European Union and assesses how its institutional design influences these outcomes. First, the paper looks at the institutional dimensions of statutory minimum wage setting. On the basis of this information, an indicator of institutional stringency is built to characterise the degree of predictability of minimum wage setting. Second, it explores the impact of minimum wage changes on employment, prices, consumption, and poverty.
    Keywords: minimum wage, statutory minimum wage, composite indicator, poverty, in-work poverty, European Union
    JEL: J38 J52 E24 I32
    Date: 2017–02
  11. By: Ana Gouveia (GPEARI - Research and Economic Policy Division); Sílvia Santos; Inês Gonçalves
    Abstract: In recent years, literature has linked structural reforms with productivity growth. Considering Portugal’s recent comprehensive reform agenda, this topic acquires particular relevance. Using data for Portuguese firms for the period 2006-2014, this paper assesses the impact of structural reforms on firm’s productivity in the short-run. In line with existing literature, the analysis reveals that some reforms produce positive effects already in the short-run. There are, however, important differences across reform areas and firms, namely when comparing those at the technological frontier and the others. In particular, frontier firms are better equipped to materialize the gains of improved framework conditions and to deal with competitive pressures, grasping more often short-term gains. In any case, gains for those at the frontier are also beneficial for laggards via spillover effects, as both diffusion and catching-up mechanisms are, in general, positive for Portuguese firms. Finally, our analysis shows that, in the short-run, these spillovers may be potentiated or curbed by reforms, which therefore impact the economy also through indirect effects. Indeed, while pass-through is, in most cases, hampered by reforms, the effects on catching-up mechanisms are mixed; they improve with some reforms but are deteriorated with others.
    Keywords: Structural reforms, Growth, Productivity, Spillovers.
    JEL: D04 D22 D24 O33
    Date: 2017–02

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