nep-eec New Economics Papers
on European Economics
Issue of 2017‒06‒25
twelve papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. House prices and monetary policy in the euro area: evidence from structural VARs By Nocera, Andrea; Roma, Moreno
  2. Reducing large net foreign liabilities By Fidora, Michael; Schmitz, Martin; Tcheng, Céline
  3. Uncertainty and the Real Effects of Monetary Policy Shocks in the Euro Area By Giovanni Pellegrino
  4. The profit rate and asset-price inflation in the Spanish economy By Juan Pablo Mateo
  5. Opportunities and limits of rebalancing the Eurozone via wage policies By Eckhard Hein; Eckhard Achim Truger
  6. The Role of nominal wages in trade and current account surpluses By Gustav A. Horn; Fabian Lindner; Sabine Stephan
  7. Unemployment or Credit: Who Holds The Potential? Results From a Small-Open Economy By Mihnea Constantinescu; Anh Dinh Minh Nguyen
  8. Stagnation policy in the Eurozone and economic policy alternatives By Eckhard Hein
  9. Stability of the labour shares: evidence from OECD economies. By D., Ivan
  10. Heterogeneity of Bank Risk Weights in the EU; Evidence by Asset Class and Country of Counterparty Exposure By Rima Turk-Ariss
  11. Austerity Measures: Do they avert solvency crises? By Christos Shiamptanis
  12. Revenu universel : l'état du débat By Guillaume Allegre; Henri Sterdyniak

  1. By: Nocera, Andrea; Roma, Moreno
    Abstract: We use a Bayesian stochastic search variable selection structural VAR model to investigate the heterogeneous impact of housing demand shocks on the macroeconomy and the role of house prices in the monetary policy transmission, across euro area countries. A novel set of identification restrictions, which combines zero and sign restrictions, is proposed. By exploiting the cross-sectional dimension of our data, we explore the differences in the propagation channels of house prices and monetary policy and the challenges they pose in the process of real and nominal convergence in the Eurozone. Among the main results, we find a comparatively stronger housing wealth effect on consumption in Ireland and Spain. We provide new evidence in support of the financial accelerator hypothesis, showing that house prices play an important role in the availability of loans. A significant and highly heterogeneous effect of monetary policy on house price dynamics is also documented. JEL Classification: C22, E21, E31, E44, E52
    Keywords: Bayesian vector autoregression, house prices, identified VARs, monetary policy, policy counterfactuals
    Date: 2017–06
  2. By: Fidora, Michael; Schmitz, Martin; Tcheng, Céline
    Abstract: In light of persistently large net foreign liability NFL) positions in several euro area countries, we analyse 138 episodes of sizeable NFL reductions for a broad sample of advanced and emerging economies. We provide stylised facts on the channels through which NFLs were reduced and estimate factors which make episodes ‘stable’, i.e. sustained over the medium term. Our findings show that while GDP growth and valuation effects contribute most to NFL reductions overall, stable reduction episodes also require positive transaction effects (i.e. current account surpluses), in particular in advanced economies. Considering the different components of a country’s external balance sheet, we observe that reduction episodes were almost exclusively driven by a decline in gross external liabilities in emerging economies, while in advanced economies also gross external asset accumulation contributed significantly, in particular in stable episodes. Our econometric analysis shows that NFL reductions are more likely to be sustained if a country records strong average real GDP growth during an episode and exits the episode with a larger current account surplus. Moreover, we find evidence that nominal effective exchange rate depreciation during an episode is helpful for achieving episode stability in the short run, while IMF programmes and sovereign debt restructurings also contribute to longer term stability. JEL Classification: F21, F32, F34
    Keywords: external adjustment, external imbalances, net foreign assets, stock imbalances, valuation effects
    Date: 2017–06
  3. By: Giovanni Pellegrino (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: This paper estimates a nonlinear Interacted-VAR model to investigate whether the effectiveness of monetary policy shocks in the Euro area is influenced by the level of European uncertainty. Generalized Impulse Response Functions à la Koop et al. (1996) suggest that the peak and cumulative effects of monetary policy shocks are lower during uncertain times than during tranquil times, and significantly so once times of very high and very low uncertainty are considered.
    Keywords: Monetary policy shocks, Non-Linear Structural Vector Auto-Regressions, Interacted-VAR, Generalized Impulse Response Functions, uncertainty
    JEL: C32 E32 E52
    Date: 2017–06
  4. By: Juan Pablo Mateo (Department of Economics, New School for Social Research and University of Valladolid)
    Abstract: The measure of capital profitability in the Spanish economy is relevant because of both a process of capital accumulation since mid-nineties largely driven by asset-price inflation, as well as the deep economic crisis since late 2008. Therefore, in this article a comparative analysis is carried out using different databases and measures of the rate of profit, incorporating the financial sphere and addressing other different countries of the Eurozone. It shows the scope of the underlying valorization crisis in relation to previous decades and in terms of its fall experienced during the years not only of the housing boom, but also throughout the subsequent recession. In addition, this drop in profitability stands out in relation to other economies of the European periphery. Hence, this analysis puts the rate of profit at the center of the debate on the Great Recession in Spain, despite its absence in much of the economic literature, including heterodox approaches.
    Keywords: Profit rate, interest rates, Spain, Eurozone
    JEL: F60 E01 E32 E40 O52
    Date: 2017–06
  5. By: Eckhard Hein; Eckhard Achim Truger
    Abstract: In this paper we discuss the relationship between the current account rebalancing in the Eu-rozone, income distribution and wage policies with a focus on the main surplus economy, Germany. We will illustrate how and to which extent German wage policies could be able to contribute to a more balanced development of the Eurozone and to overcome the export-led mercantilist German model. Our analysis and our scenarios will be based on stylized econo-metric results for Germany, as they have recently been obtained in the empirical literature estimating the German demand and growth regime based on post-Kaleckian models. We will focus in particular on the relationship between nominal wages and functional income distribu-tion, on the one hand, and between functional income distribution and domestic demand, on the other hand. We show that more expansionary wage policy can contribute to reducing the excessive German current account surplus, mainly through the domestic income-imports channel. However, wage policy alone will be overburdened with the task of rebalancing. For this, in particular more expansionary fiscal policies are required.
    Keywords: Current account imbalances in the Eurozone, wage policies, distribution, exports, imports
    JEL: E21 E25 E27 E62 E64 F45 F47 H62
    Date: 2017
  6. By: Gustav A. Horn; Fabian Lindner; Sabine Stephan
    Abstract: A macroeconomically oriented wage policy in Germany in the years 2001 to 2015 would have led to a reduced growth of real net exports but would not have significantly reduced Germany's trade and current account surpluses. While real exports would have declined, higher export prices would have led to an increase in overall export receipts so that the current account surplus - denominated in euro terms - would scarcely have shrunk. Such a wage policy, however, would have increased domestic demand and would have influenced income distribution positively (an increase in the wage share). Such a policy would however, have improved the government's financial situation, thereby increasing its spending capacity. A combination of macroeconomic wage policy and a support by fiscal policy making use of the financial leeway created by higher wages would have decreased the nominal trade and current account balance to a greater degree than wage policy alone. Surpluses would mainly have been reduced through an increase in imports due to an improved domestic economic development. However, for the current account balance to be in line with EU rules, much stronger financial impulses would be needed.
    Date: 2017
  7. By: Mihnea Constantinescu (Bank of Lithuania); Anh Dinh Minh Nguyen (Bank of Lithuania)
    Abstract: This paper investigates the importance of unemployment and credit in determining the potential level of real activity for a small-open economy with a low degree of financialization. We estimate a multivariate unobserved component model (MUC) to derive the potential output and its associated output gap for the Lithuanian economy. The model is estimated via Bayesian methods and the time-paths of unobserved variables are extracted via the Kalman filter. We find that the inclusion of unemployment into the MUC model substantially improves the estimates of output gap in real-time. Once information about unemployment is accounted for, adding information about credit does not substantially alter either the estimates of output gap or its performance in real time. We uncover a strong negative correlation between the model-implied unemployment gap (without credit) and real credit growth. This explains the relatively muted impact of the financial variable on the level and dynamics of the output gap. Data revisions appear not to be the primary source of revisions on output gaps estimates.
    Keywords: Potential Output, Output Gap, Multivariate Unobserved Component, Kalman Filter, NAIRU, Real-Financial Cycle, Small-Open Economy
    JEL: C11 C32 E24 E32
    Date: 2017–04–24
  8. By: Eckhard Hein
    Abstract: Empirically, the macroeconomic institutions and the macroeconomic policy approach in the Eurozone have failed badly, both in terms of preventing the global financial and economic cri-sis from becoming a euro crisis and in generating a rapid recovery from the crisis, in particular. In this paper I will argue that the dominating macroeconomic policy regime in the Eurozone can be seen as a version of what Steindl (1979) had called ?stagnation policy?. To underline this argument, I will provide a simple Steindlian distribution and growth model in order to identi-fy the main channels through which stagnation policy affects accumulation and productivity growth. This will also provide a set of elements of a Steindlian anti-stagnation policy. Against this theoretical background I will then examine the macroeconomic institutions and the macro-economic policy approach of the Eurozone which has been based on the New Consensus Macroeconomics (NCM) and I will highlight its main deficiencies. This will then provide the grounds for an outline of an alternative macroeconomic policy approach for the specific institu-tional setup of the Eurozone based on a post-Keynesian/Steindlian/neo-Kaleckian approach.
    Keywords: stagnation, stagnation policy, Eurozone, policy alternatives, Steindl
    JEL: E02 E11 E12 E61 E63 E64 E65 F45
    Date: 2017
  9. By: D., Ivan
    Abstract: In light of ongoing concern about rising inequality in the developed economies, this paper revisits the old standing issue of the stability of the labour share. The paper focuses specifically on the empirical aspect of the problem and considers statistical properties of the labour share in OECD economies over 1960-2014 period, using a battery of time series models and unit root tests. We account for structural changes in labour share using Lagrange Multiplier (LM) unit root tests with up to two structural breaks, address the problem of heterogeneous level shifts using LM panel unit root test, and examine four types of statistical patterns (trend stationarity, mean reversion, random walk with and without drift) using Augmented Dickey-Fuller (ADF) test. Empirical results indicate diverse patterns in labour share movements, with downward deterministic trend with break(s) being the most preponderant. The upward trends are observed in a limited set of economies (Belgium, Luxembourg, and Netherlands). Overall, the stability of labour share hypothesis appears to find only weak support. Exploratory analysis demonstrates that most of the structural breaks are economically significant, short-term fluctuations in series correlate strongly with business cycle turning points, whilst medium-term movements in labour share are adequately explained in terms of broader political and also country-specific factors.
    Keywords: Labour share, unit root, trend, factor distribution of income.
    JEL: C22 D33 N10 P17
    Date: 2017–06–21
  10. By: Rima Turk-Ariss
    Abstract: Concerns about excessive variability in bank risk weights have prompted their review by regulators. This paper provides prima facie evidence on the extent of risk weight heterogeneity across broad asset classes and by country of counterparty for major banks in the European Union using internal models. It also finds that corporate risk weights are sensitive to the riskiness of an average representative firm, but not to a market indicator of a firm’s probablity of default. Under plausible yet severe hypothetical scenarios for harmonized risk weights, counterfactual capital ratios would decline significantly for some banks, but they would not experience a shortfall relative to Basel III’s minimum requirements. This, however, does not preclude falling short of meeting additional national supervisory capital requirements.
    Date: 2017–06–09
  11. By: Christos Shiamptanis (Wilfrid Laurier University)
    Abstract: Many countries are adopting austerity measures, whereby governments aggressively raise taxes, with the hope to dispel future solvency crisis. This paper investigates the implications of austerity on the likelihood of solvency crisis. We derive the maximum level of debt consistent with solvency, labelled as the effective fiscal limit on debt, and we show that its position depends on austerity. We find that countries like Italy that undergo strict austerity could lower their effective fiscal limit and induce a solvency crisis in the near future.
    Keywords: Austerity, Solvency Crisis, Fiscal Policy, Fiscal Limit, Default
    JEL: C63 E62 E63 F34 H63
    Date: 2017–06–19
  12. By: Guillaume Allegre (Observatoire français des conjonctures économiques); Henri Sterdyniak (Observatoire français des conjonctures économiques)
    Abstract: Dans une situation de maintien d’un niveau élevé de chômage et de pauvreté, d’extension de la précarité du travail, de crainte de disparition des emplois du fait de l’automatisation, le projet de revenu universel s’est installé dans le débat économique et social en France comme dans d’autres pays développés. Il s’agirait de verser à toute personne résidante dans le pays une allocation mensuelle sans aucune condition de ressources, d’activité, de contrepartie. Dans le cadre de sa mission d’animation et d’éclairage du débat économique, l’OFCE a organisé, le 13 octobre 2016, une journée d’étude à laquelle ont été conviés des chercheurs qui avaient travaillé sur ce projet, pour le développer, le soutenir ou le critiquer. Un e-book rassemble la plupart des contributions qui ont été présentées et discutées durant cette journée, parfois revues compte-tenu des enseignements de la discussion.
    Keywords: Fiscalité; Inégalités; Protection sociale; revenu de base; revenu universel
    Date: 2017–03

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