nep-eec New Economics Papers
on European Economics
Issue of 2017‒09‒03
ten papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Spillovers from the ECB's non-standard monetary policy measures on south-eastern Europe By Moder, Isabella
  2. An estimated Dynamic Stochastic Disequilibrium model of Euro-Area unemployment By Christian Schoder
  3. Eurace Open: An agent-based multi-country model By Marko Petrovic; Bulent Ozel; Andrea Teglio; Marco Raberto; Silvano Cincotti
  4. The Credit Default Swap market contagion during recent crises: International evidence By Saker Sabkha; Christian De Peretti; Dorra Hmaied
  5. The European Deposit Insurance in Perspective By Theo Kiriazidis
  6. Macroeconomic Determinants of MIR Rate: Evidence from the Euro area By Anastasiou, Dimitrios
  7. Theories, techniques and the formation of German business cycle forecasts: Evidence from a survey among professional forecasters By Jörg Döpke; Ulrich Fritsche; Gabi Waldhof
  8. Debt and Stabilization Policy: Evidence from a Euro Area FAVAR By Jackson, Laura E.; Owyang, Michael T.; Zubairy, Sarah
  9. Financial stress and economic dynamics: An application to France By Sofiane Aboura; Björn Van Roye
  10. Taux négatifs: made for Switzerland By Jean-Pierre Danthine

  1. By: Moder, Isabella
    Abstract: This paper is the first to comprehensively assess the impact of the euro area’s non-standard monetary policy measures on south-eastern Europe. By employing bilateral BVAR models, I am able to estimate the response of output and prices for each country, as well as to shed more light on potential shock transmission channels. The results suggest that the ECB’s non-standard monetary policy measures have had pronounced price effects on all south-eastern European countries, and output effects on approximately half of them. While I also find exports to be a relevant transmission channel in most cases, the interbank market rate responds significantly only in a few cases as the region was subject to significant cross-border bank deleveraging after the crisis. Furthermore, the results suggest that the exchange rate regime does not play a role in determining the sign and magnitude of price level and output responses. This is in line with the absence of distinct exchange rate responses in the model output, suggesting that exchange rates did not act as buffers for spillovers of euro area non-standard monetary policy measures on south-eastern Europe. JEL Classification: C11, C32, E52, F42
    Keywords: BVAR, EU integration, international shock transmission, unconventional monetary policy
    Date: 2017–08
  2. By: Christian Schoder (Department of Economics, New School for Social Research)
    Abstract: An empirical variant of the Dynamic Stochastic Disequilibrium (DSDE) model proposed by Schoder (2017a) is estimated for the Euro Area using Bayesian inference. Unemployment arises from job rationing due to insucient aggregate spending. The nominal wage is taken as a policy variable subject to a collective Nash bargaining process between workers and rms with the state of the labor market a ecting the relative bargaining power. A consumption function is implied by a precautionary saving motive arising from an uninsurable risk of permanent income loss. Comparing the estimated DSDE model to the corresponding estimated Dynamic Stochastic General Equilibrium (DSGE) model with frictional unemployment yields the following results: (i ) the DSDE model outperforms the corresponding DSGE model empirically according to the Bayes factor. (ii ) The scal multiplier is considerably higher in the DSDE model than in the DSGE model. (iii ) As observed empirically, the DSDE model predicts the real wage to move pro-cyclically with a lag whereas the DSGE model predicts a counter-cyclical movement. (iv ) In the DSDE model, a productivity shock is contractionary in the short run and expansionary in the medium run. (v) Strengthening the worker's bargaining power is expansionary in the short run and contractionary in the medium run. (vi ) Output variation is mainly driven by demand shocks in the DSDE model. Productivity shocks are important only in the DSGE model. (vii ) Unemployment variation is primarily caused by demand and productivity shocks in the DSDE model. Labor supply shocks are essential only in the DSGE model.
    Date: 2017–08
  3. By: Marko Petrovic (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Bulent Ozel (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Andrea Teglio (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Marco Raberto (DIME-University of Genoa, Italy); Silvano Cincotti (DIME-University of Genoa, Italy)
    Abstract: The global economic and financial crises, whose genesis is often associated with the collapse of Lehman Brothers, had a pervasive impact on all the leading economies in the world. The place where it might have been more disruptive has been the European Union (EU), which revealed a structural fragility and inadequacy to tackle some of the main challenges ahead. In this paper we mainly focus on migration challenges, further integrations of a monetary union, spatial inequality, and sovereign debt crisis. To address the relevant issues, we use a multi-country model that is an extension of the Eurace agent-based model. We design a flexible modeling framework that can host many different countries. In this paper the model hosts four countries. It is designed as a monetary union of two countries with international labor market, international trade, and international financial market, and another two independent countries that are always identical to the union members and serve as control states. We found that when countries are identical it is always beneficial to join the union, however an excess of workers mobility can weaken the performance of the union and even create persistent inequality between countries. Moreover, the monetary policy of the union central bank can deteriorate if the difference between countries growth and in general it tends to overshoot the inflation target. When the two countries differ in productivity, the union on aggregate performs again better than the sum of the isolated countries counterparts. However, taking into account the welfare in both countries of the union, it is not always convenient to form the union. The performance of the union is strongly affected by the level of labor market frictions and the size of the productivity gap among countries. The real sovereign debt per capita in the union increases with low mobility frictions and high productivity gap. Stronger fiscal integration (fiscal transfers) reduces inequality between countries, allowing the low productivity country and, hence, the total union to sustain even with a higher mobility of workers.
    Keywords: Agent-based multi-country model, migration, integration, monetary union, monetary policy, fiscal policy
    JEL: E02 E2 F22 F4
    Date: 2017
  4. By: Saker Sabkha (ISFA - Institut des Science Financière et d'Assurances - Université de Lyon); Christian De Peretti (ISFA - Institut des Science Financière et d'Assurances - Université de Lyon); Dorra Hmaied (IHEC - Institut des Hautes Etudes Commerciales de Carthage)
    Abstract: This paper analyzes the dynamics of credit default swaps spreads in order to determine whether the sovereign credit default swap market is prone to contagion effects. Analysis is made on credit default swap spreads data of 35 worldwide countries belonging to four different categories of economies over a period ranging from 2006 until 2014, covering the subprime crisis and the European sovereign debt crisis. A novel approach is proposed to estimate dynamic conditional correlations between CDS spreads using AR(1)-FIEGARCH(1,d,1)-DCC model. Based on our findings, we put a slant on the financial market vulnerability, reinforced by contagion effects during the different phases of the crises. Furthermore, analysis of each county solely show that contagion effects are more stern during the Eurozone crisis comparing to the global financial crisis and that the level of exposure to crises is different across global markets and regions. Yet, our approach provide evidences that crises spread to countries across the world regardless their economic status or geographical positions.
    Keywords: Sovereign risk spillover,Credit Default Swaps,Contagion phenomenon,Dynamic Conditional Correlation
    Date: 2017–08–07
  5. By: Theo Kiriazidis
    Abstract: The DI operates as a rent-sharing arrangement. This paper argues that such an arrangement can operate effectively only if the appropriate level of deposits is mobilized towards this end, and highlights the inevitable outcome: fierce competition for deposits amongst the Eurozone MSs. To deepen the argument data analysis is provided indicating the existence of regulatory subsidy in the form of implicit though effective DI, moral hazard and adverse selection. Against this background, the EU Commission promotes the creation of an EDIS as the third pillar of the BU. The EDIS proposal is considered by Economic institutions in strictly economic terms. Yet, the EP promotes a restrictive course supporting a liquidity providing EDIS. The paper argues that such an EDIS would render regulatory subsidy and rent-seeking behavior persisting, by allowing national policies to be pursued with considerable discretionary power and in the context of increasing competition for deposits. This would run contrary to the BU objectives and constitute a major failure of the programme.
    Date: 2017–08
  6. By: Anastasiou, Dimitrios
    Abstract: The objective of this study is to examine the determinants of MIR rate in the Euro area for the period 2003Q1-2015Q3. By employing Fixed Effects, Random Effects and Dynamic OLS (DOLS) as econometric methodologies, I examine if the MIR rate is affected by the following macroeconomic factors: unemployment rate, inflation rate, GDP growth, political stability index and wages as % to GDP. All of these factors found to exert great significance to MIR rate and thus they have to be taken into consideration when macro-prudential policies are designing.
    Keywords: MIR rate; Interest margin; DOLS estimation; Euro area; European Central Bank.
    JEL: C33 C51 E4 E43 E58 G2
    Date: 2017–04
  7. By: Jörg Döpke (University of Applied Sciences Merseburg (Hochschule Merseburg)); Ulrich Fritsche (Universität Hamburg); Gabi Waldhof (Martin-Luther-Universität Halle-Wittenberg)
    Abstract: The paper reports results of a survey among active forecasters of the German business cycle. Relying on 82 respondents from 37 different institutions, we investigate what models and theories forecasters subscribe to and find that they are pronounced conservative in the sense, that they overwhelmingly rely on methods and theories that have been well-established for a long time, while more recent approaches are relatively unimportant for the practice of business cycle forecasting. DSGE models are mostly used in public institutions. In line with findings in the literature there are tendencies of “leaning towards consensus” (especially for public institutions) and “sticky adjustment of forecasts” with regard to new information. We find little evidence that the behaviour of forecasters has changed fundamentally since the Great Recession but there are signs that forecast errors are evaluated more carefully. Also, a stable relationship between preferred theories and methods and forecast accuracy cannot be established.
    Keywords: Forecast error evaluation, questionnaire, survey, business cycle forecast, professional forecaster
    JEL: E32 E37 C83
    Date: 2017–08
  8. By: Jackson, Laura E. (Bentley University); Owyang, Michael T. (Federal Reserve Bank of St. Louis); Zubairy, Sarah (Texas A&M University)
    Abstract: The Euro-area poses a unique problem in evaluating policy: a currency union with a shared monetary policy and country-specific fiscal policy. Analysis can be further complicated if high levels of public debt affect the performance of stabilization policy. We construct a framework capable of handling these issues with an application to Euro-Area data. In order to incorporate multiple macroeconomic series from each country but, simultaneously, treat country-specific fiscal policy, we develop a hierarchical factor-augmented VAR with zero restrictions on the loadings that yield country-level factors. Monetary policy, then, responds to area-wide conditions but fiscal policy responds only to its country level conditions. We find that there is broad quantitative variation in different countries'' responses to area-wide monetary policy and both qualitative and quantitative variation in responses to country-specific fiscal policy. Moreover, we find that debt conditions do not diminish the effectiveness of policy in a significant manner, suggesting that any negative effects must come through other channels.
    Keywords: Government spending; monetary policy; European Monetary Union; debt
    JEL: C32 E58 E62
    Date: 2017–07–27
  9. By: Sofiane Aboura (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique); Björn Van Roye (ECB - European Central Bank - European Central Bank)
    Abstract: In this paper, we develop a financial stress index for France that can be used as a real-time composite indicator for the state of financial stability in France. We take 17 financial variables from different market segments and extract a common stress component using a dynamic approximate factor model. We estimate the model with a combined maximum-likelihood and Expectation-Maximization algorithm allowing for mixed frequencies and an arbitrary pattern of missing data. Using a Markov-Switching Bayesian VAR model, we show that an episode of high financial stress is associated with significantly lower economic activity, whereas movements in the index in a low-stress regime do not incur significant changes in economic activity. Therefore, this index can be used in real time as an early warning signal of systemic risk in the French financial sector.
    Keywords: Financial Systems,Financial Stress Index,Recessions,Slowdowns,Financial Crises
    Date: 2017–05–23
  10. By: Jean-Pierre Danthine (CEPR - Center for Economic Policy Research - CEPR, UNIL - Université de Lausanne, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)
    Abstract: Une petite économie ouverte dotée d’une monnaie refuge, comme la Suisse, a besoin d’un différentiel d’intérêt négatif avec la zone euro. Sur la durée, un différentiel approprié est la seule possibilité d’éviter une surévaluation excessive du franc. Les perspectives de stagnation séculaire et de taux durablement bas rendent impérative une nouvelle appréciation de l’importance et de l’utilité des taux négatifs pour l’économie suisse. La BNS devrait être autorisée à prélever une redevance sur les retraits anormaux de papier monnaie, et être ainsi à même d’imposer des taux significativement plus bas qu’aujourd’hui afin de restaurer un différentiel d’intérêt proche de sa moyenne historique.
    Keywords: taux d'intérêt négatifs,monnaie papier,monnaie refuge
    Date: 2017–08

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