nep-eec New Economics Papers
on European Economics
Issue of 2018‒12‒03
24 papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Explaining Monetary Spillovers: The Matrix Reloaded By Jonathan Kearns; Andreas Schrimpf; Dora Xia
  2. A monetary policy framework for the European Central Bank to deal with uncertainty By Grégory Claeys; Maria Demertzis; Jan Mazza
  3. Euro area sovereign yield spreads as determinants of private sector borrowing costs By Thomas Theobald; Silke Tober
  4. New Output Gap Estimates for Assessing Fiscal Policy with Lessons for Euro Area Reform By Heikki Oksanen
  5. Missing wage growth in the euro area: is the wage Philips curve non-linear? By Byrne, David; Zekaite, Zivile
  6. The Impact of Economic Sanctions on Russia and its Six Greatest European Trade Partners: a Country SVAR Analysis By Morad Bali
  7. Indicator-based estimates of the output gap in the euro area By Weiske, Sebastian
  8. Measuring the Natural Rates of Interest in Germany and Italy By Bystrov Victor
  9. The potential economic impact of Brexit on the Netherlands By Donal Smith; Christine Arriola; Caitlyn Carrico; Frank van Tongeren
  10. Macroeconomic Effects of the Adoption of the Euro in Serbia By Reinhard Neck; Klaus Weyerstrass
  11. Impact of the ECB Quantitative Easing on the French International Investment Position By Rafael Cezar; Maéva Silvestrini
  12. Does a Big Bazooka Matter? Central Bank Balance-Sheet Policies and Exchange Rates By Dedola, Luca; Georgiadis, Georgios; Grab, Johannes; Mehl, Arnaud
  13. The impact of the European Social Fund: The RHOMOLO assessment By Stylianos Sakkas; Andrea Conte; Simone Salotti
  14. International spillover effects of U.S. tax reforms: Evidence from Germany By Christofzik, Désirée I.; Elstner, Steffen
  15. Effects of monetary policy decisions on professional forecasters’ expectations and expectations uncertainty By Oinonen, Sami; Paloviita, Maritta; Viren, Matti
  16. Measuring the Implementation of the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions in the European Union By Nicholas Coleman; Andromachi Georgosouli; Tara Rice
  17. Increasing competitiveness at any price? By Nora Albu; Heike Joebges; Rudolf Zwiener
  18. Monopsony in the UK By Abel, Will; Tenreyro, Silvana; Thwaites, Gregory
  19. Democratic support and corruption: Lessons from East Europe By Enste, Dominik; Acht, Martin
  20. How do shocks to bank capital affect lending and growth? By Tölö, Eero; Miettinen, Paavo
  21. Fiscal consolidation in Croatia and other post-transition countries* By Pa?ko Burna?
  22. To what extent do policies contribute to self-employment? By Mark Baker; Balázs Égert; Gabor Fulop; Annabelle Mourougane
  23. The Relative Impact of Different Forces of Globalisation on Wage Inequality: A Fresh Look at the EU Experience By Stefan Jestl; Sebastian Leitner; Sandra M. Leitner
  24. The missing link: monetary policy and the labor share By Cantore, Christiano; Ferroni, Filippo; León-Ledesma, Miguel A.

  1. By: Jonathan Kearns; Andreas Schrimpf; Dora Xia
    Abstract: This paper examines whether euro area unconventional monetary policies have affected the loss-absorbing buffers (that is the resilience) of the banking industry. We employ various measures to capture the effect of the broad array of programmes used by the ECB to implement balance sheet policies, while we control for the effect of conventional and negative (or very low) interest rate policy. The results suggest that, above and away from the zero-lower bound, looser interest rate policy tends to weaken our measure of euro area banks' loss-absorbing buffers. On the contrary, further lowering interest rates near and below the zero lower bound seems to strengthen (or weaken less) such buffers, which points towards non-linearities arising in the vicinity of the lower bound. Moreover, balance sheet easing policies enhance bank level resilience overall. However, unconventional monetary policies seem to have increased the fragility of banks in the member states hardest hit by the 2011 sovereign debt crisis. In fact, the evidence presented in this paper suggest that the resilience gains of unconventional monetary policies have accrued mostly to banks headquartered in the so-called core euro area countries (Austria, Belgium, Finland, France, Germany, Luxembourg and Netherlands). Finally, unconventional monetary policies seem to have enhanced more the resilience of banks that were relatively stronger, i.e. that were in the higher deciles of the distribution of loss-absorbing buffers.
    Keywords: monetary policy spillovers, high-frequency data, financial integration
    JEL: E44 F36 F42
    Date: 2018–11
  2. By: Grégory Claeys; Maria Demertzis; Jan Mazza
    Abstract: This Policy Contribution was prepared for the European Parliament’s Committee on Economic and Monetary Affairs (ECON) as an input to the Monetary Dialogue of 26 November 2018 between ECON and the President of the European Central Bank. The original paper is available on the European Parliament’s webpage (here). Copyright remains with the European Parliament at all times. Central banks face new challenges. First, the potential long-term decline in neutral rates of interest in advanced economies could reduce the space for central banks to make policy-rate cuts. Second, the potential flattening of the Phillips curve (i.e. the weakening of the relationship between inflation and unemployment) in recent decades could reduce the ability of central banks to reach their inflation targets. Third, the discussion on whether central banks should also target financial stability has re-emerged as a result of the crisis. Fourth, the euro-area architectural framework remains incomplete. The problematic interaction between nineteen different fiscal policies and a common monetary policy, the lack of a stabilisation tool and differences in national macro-prudential frameworks would all suggest significant reforms are needed in these realms to strengthen the overall resilience of the system. However, the probability of seeing material changes before the next recession is relatively low, thus presumably leaving the European Central Bank’s pivotal role unchanged. More generally, fundamental uncertainty surrounding concepts at the core of the economy, and therefore demand management, has emerged. Monetary policy has to navigate without full knowledge of what the post-crisis ‘new normal’ is going to be. In light of these considerations, we recommend that the ECB should update its definition of price stability to target core inflation around two percent per year (allowing a tolerance band on either side of the two percent target), on average, over a longer time horizon. Compared to other proposals (such as increasing the targeted inflation level or price-level targeting), our recommendation has the advantage of not departing drastically from the current inflation target and is therefore easier to communicate. In our view, monetary policy should not target financial stability. Other more targeted (and country-specific) tools should be deployed to avoid the build-up of financial stability risks. Closer coordination with national macroprudential authorities and greater harmonisation in the use of macroprudential policies are however strongly recommended, as it is now acknowledged that financial and monetary policies are closely interlinked.
    Date: 2018–11
  3. By: Thomas Theobald; Silke Tober
    Abstract: We regress long-term private sector interest rates on a money market rate, a term premium and credit risk. As a contribution to the current debate about European safe assets, our interest is in quantifying domestic spillover effects from euro area sovereign bond spreads. Panel estimates show significant, albeit rather small long-run effects. Our findings indicate large cross-country differences but no evidence that the effect has become stronger over time. Using linear country-specific estimates, we find the effect to be significant in only some countries, the size of the maximum effect exceeding the average one more than three-fold. For one country, we also find a highly significant asymmetrical effect with positive spread changes having greater impact on private-sector borrowing costs than negative ones. Overall, we conclude that contagion costs in the euro area are substantial and will remain so until an effective form of European safe assets is created.
    Keywords: autoregressive distributed lag, composite cost of borrowing, sovereign spread
    JEL: E43 G10 F36
    Date: 2018
  4. By: Heikki Oksanen
    Abstract: Output gaps (OG) identify economic cycles and the cyclical and structural components in government budget balances. A new simple method for estimating OGs is presented here. The new results are more transparent than those published by the leading economic policy institutions. - The retroactive changes to the OGs as such do not indicate that they would have been incorrect. Instead, they naturally depend on what will happen afterwards, including changes in the fiscal and other policies conducted. - Fiscal policy in the euro area was tight in 2012-13, contributing to an unexpected fall in the GDP. Fiscal policy has generally amplified cycles in the euro area, except in 2009. - Procyclicality is caused by short-sighted fiscal discipline stemming from the mistrust among the member states. Policy reforms should focus on long-term sustainability and diminishing conflicts and mistrust. The numerous reform proposals should be assessed under two key criteria: (1) reducing mistrust across the members and (2) implementation without changes to the EU Treaty. Focussing on long-term sustainability meets them both.
    Keywords: euro, fiscal policy, output gaps
    JEL: E42 E62 H10
    Date: 2018
  5. By: Byrne, David (Central Bank of Ireland); Zekaite, Zivile (Central Bank of Ireland)
    Abstract: This Letter examines the relationship between wage growth and labour market tightness in the euro area, frequently represented by the Phillips curve. It predicts that falling unemployment should lead to greater wage growth. A key question for policymakers post-crisis is whether this relationship has changed or broken down. We show that the euro area wage Phillips curve is non-linear. When labour market slack is elevated, tightening does not lead to greater wage growth. The relationship only returns when slack is at lower levels. This finding explains why wage growth did not increase when the labour market tightened between 2013 and 2016, and why stronger wage growth has been evident since 2017.
    Date: 2018–11
  6. By: Morad Bali (CESICE - Centre d'études sur la sécurité internationale et les coopérations européennes - UPMF - Université Pierre Mendès France - Grenoble 2 - UGA - Université Grenoble Alpes)
    Abstract: The Ukrainian crisis of November 2013 has led to the proclamation of independence of the Republic of Crimea in March 2014, and its attachment to Russia. This attachment, recognised by Russia and contested by a large number of Western countries, triggered an international crisis between the Russian Federation and the West (European Union, United States of America, et cetera). As a means of applying pressure on Russia, Western countries decided to launch a set of international sanctions. This paper's goal is to assess on sanctions effects on Russian and European economies. Thus, a country structural vector autoregressive (CSVAR) model is used in order to witness the impact of a sanction shock on considered economies. To our best knowledge, this paper is the first to use a CSVAR model to study the economic growth effects of anti-Russian sanctions on the considered economies. The economic conflict repercussions are revealed on the Euro Area (19 countries), on the six biggest trade partners of Russia as a lone entity, and finally on the six biggest trade partners of Russia separately. Results witness that the shock's effects are quite different whether a sum of GDP is used or not. In addition, results reveal that Russia is the most impacted by sanctions with a quarter-on-quarter GDP growth decrease of 3.25% after 3 quarters. Yet, European economies are also negatively impacted by sanctions, even if the impact is much weaker: -0.075% for Finland, -0.025% for France, -0.0125% for Germany, -0.012% for Italy, and -0.063% for Poland. As a consequence, we can say that the own coercive measures of European countries have a negative impact on their economies.
    Keywords: Russian economy,European economies,Economic sanctions,International crisis,Vector autoregressive models,Crise internationale,Economies européennes,Sanctions économiques,Economie russe,Crise ukrainienne
    Date: 2018
  7. By: Weiske, Sebastian
    Abstract: The output gap is a key variable of business cycle analysis and policy. Obtaining reliable estimates for it, is very difficult, though. Most real-time estimates are frequently revised over time. The idea of this paper is to use various indicators, for example from business surveys, that (i) were highly correlated with the output gap in the past and (ii) that are ideally not subject to revisions. According to a real-time analysis, indicator-based estimates prove to be more reliable than estimates from international institutions. Currently, estimates point to positive output gaps in the euro area.
    Keywords: Business Cycles,Output Gap,Real-time Estimation,Business Survey Data
    JEL: E32 E37 E6
    Date: 2018
  8. By: Bystrov Victor (Faculty of Economics and Sociology, University of Lodz)
    Abstract: In this paper a semi-structural econometric model is implemented in order to estimate the natural rates of interest in two large economies of the Euro Area: Germany an Italy. The estimates suggest that after the financial crisis of 2007-2008 a decrease of the growth rate of potential output and the corresponding natural rate of interest was greater in Italy than in Germany which could have had important implications for the effectiveness of a common monetary policy. Unlike in other studies, it is found that the monetary policy stance was less expansionary in Italy as compared to Germany for the whole after-crisis period.
    Keywords: natural rate of interest, potential output, euro area, state-space model, Kalman filter
    JEL: C32 C51 E43 E52
    Date: 2018–10–22
  9. By: Donal Smith; Christine Arriola; Caitlyn Carrico; Frank van Tongeren
    Abstract: This paper provides estimates of the potential trade effects of an exit of the United Kingdom (UK) from the European Union (EU) on exports and production at the sectoral level as well as GDP in the Netherlands. Owing to the high uncertainty regarding the final trade agreement between the negotiating parties, the choice has been made to assume a worst case outcome where trade relations between the United Kingdom and EU are governed by World Trade Organization (WTO) most favoured nation (MFN) rules. In doing so, it provides an upper bound estimate of the potential negative economic impact stemming from disruptions in trade. Any final trade agreement that would result in closer relationships between the United Kingdom and the EU could reduce this negative impact. Simulations using the METRO model suggest that from an increase in tariff and non-tariff measures (NTM’s) Dutch exports to the UK would fall by 17% and GDP declines by 0.7% in the medium term compared to baseline. This effect is from the trade channel absent any change in foreign direct investment (FDI) or productivity. The Dutch agri-food sector would experience a 22% fall in its UK exports. There are some sectors that gain from the export opportunities provided by Brexit, notably financial services and transport.
    Keywords: Brexit, computable general equilibrium model, European Union, international trade, METRO model, Netherlands, sectoral economic effects
    JEL: C10 C68 F13 F14
    Date: 2018–11–28
  10. By: Reinhard Neck (Alpen-Adria-Universität Klagenfurt); Klaus Weyerstrass (Institute for Advanced Studies)
    Abstract: In 2009, Serbia applied officially for EU membership; in 2014, membership negotiations started. After joining the EU, Serbia will have to adopt the euro as legal tender as soon as it fulfils the relevant Maastricht criteria. By means of simulations with a macroeconometric model of the Serbian economy, we examine likely macroeconomic effects from Serbia?s membership of the EU and the Euro Area. We show that EU accession and the introduction of the euro bring about higher real GDP, more employment, and more sustainable public finances. The benefits of joining the Euro Area are mainly due to increases in productivity.
    Keywords: Serbia; EU; Euro Area; open economy macroeconomics; econometric model
    JEL: E17 O52 E52
    Date: 2018–11
  11. By: Rafael Cezar; Maéva Silvestrini
    Abstract: This paper aims at estimating the impact of the recent Asset Purchase Programs implemented by the ECB - known as Quantitative easing (QE) - on external assets and liabilities recorded in one economy’s International Investment Position (IIP). Our analysis focused on the case of France. We start by describing the recent evolution of the four main items constituting the French IIP; namely Portfolio Investments, Other Investments, Derivatives and Direct Investments. We observe ample, albeit temporary, variations of these items surrounding QE programs. This analysis is complemented by an econometric approach in which we consider as QE variables both the announcements of the programs and their actual implementation. QE measures do impact all the items of the French IIP. Announcements –and particularly the one of January 2015– play a stronger role compared to the amounts purchased. We also decompose changes in the IIP into flows and valuation effects and show that the latter is the most reactive to QE measures. Finally, we establish counterfactual scenarios to quantify what France’s IIP would have been in the absence of QE. The strong impact observed following the announcement of January 2015 is rapidly counterbalanced; which suggests an over-adjustment phenomenon at the beginning of the program. This analysis allows estimating the outcome of the policy on the net IIP and thus on international wealth transfer. Consistently with our previous findings, we observe a robust impact at the beginning of the program which is then partly offset.
    Keywords: Monetary policy, Quantitative Easing, Balance of payments, International investment position.
    JEL: E52 F32 G15
    Date: 2018
  12. By: Dedola, Luca (European Central Bank); Georgiadis, Georgios (European Central Bank); Grab, Johannes (European Central Bank); Mehl, Arnaud (European Central Bank)
    Abstract: We estimate the effects of quantitative easing (QE) measures by the ECB and the Federal Reserve on the US dollar-euro exchange rate at frequencies and horizons relevant for policymakers. To do so, we derive a theoretically-consistent local projection regression equation from the standard asset pricing formulation of exchange rate determination. We then proxy unobserved QE shocks by future changes in the relative size of central banks’ balance sheets, which we instrument with QE announcements in two-stage least squares regressions in order to account for their endogeneity. We find that QE measures have large and persistent effects on the exchange rate. For example, our estimates imply that the ECB’s APP program which raised the ECB’s balance sheet relative to that of the Federal Reserve by 35 percentage points between September 2014 and the end of 2016 depreciated the euro vis-á-vis the US dollar by 12%. Regarding transmission channels, we find that a relative QE shock that expands the ECB’s balance sheet relative to that of the Federal Reserve depreciates the US dollar-euro exchange rate by reducing euro-dollar short-term money market rate differentials, by widening the cross-currency basis and by eliciting adjustments in currency risk premia. Changes in the expectations about the future monetary policy stance, reflecting the “signalling” channel of QE, also contribute to the exchange rate response to QE shocks.
    Keywords: Quantitative easing; interest rate parity condition; CIP deviations
    JEL: E5 F3
    Date: 2018–11–02
  13. By: Stylianos Sakkas (European Commission - JRC); Andrea Conte (European Commission - JRC); Simone Salotti (European Commission - JRC)
    Abstract: The ESF is Europe's main instrument for supporting jobs, helping people get better jobs and ensuring fairer job opportunities for all EU citizens. The ESF includes 4 different thematic objectives aimed at promoting sustainable employment, social inclusion, education and the efficiency of the public administration. Policy simulations using the RHOMOLO dynamic CGE model show positive aggregate macro-economic effects of the ESF policy intervention. The ESF stimulates GDP and employment via increases in labour productivity, education and training, and additional demand-side effects. RHOMOLO is able to quantify the impact of the ESF in the EU as a whole as well as in each one of the 267 NUTS 2 EU regions. Less developed regions reap most of the benefits of ESF policy intervention. By 2030, the cumulative GDP impact of the ESF is larger than its cost, that is the ESF generates more than one euro for each euro spent in it.
    Keywords: rhomolo, growth, impact assessment, European social fund
    Date: 2018–10
  14. By: Christofzik, Désirée I.; Elstner, Steffen
    Abstract: This paper explores the international transmission of U.S. tax shocks and provides evidence for the German economy. Using structural vector autoregressions, we find that after a U.S. tax cut, German GDP increases moderately. While higher U.S. demand stimulates German exports, a deterioration of price competitiveness lowers this positive growth impulse. The current account increases significantly. Surprisingly, German prices fall as domestic companies reduce unit labor costs. The resulting increase of the real interest rate dampens domestic demand. German tax policy shows an opposite reaction to U.S. tax policy. The latter result, however, is driven by the decade of the 1970s. We find that significant changes in the transmission channels arise by distinguishing between different types of U.S. tax reforms. In particular, in contrast to U.S. personal income tax reforms, changes in the corporate income tax cause a depreciation of the German real effective exchange rate.
    Keywords: fiscal policy,tax policy,international spillovers,structural vector autoregressions
    JEL: H20 E32 E62 F44
    Date: 2018
  15. By: Oinonen, Sami; Paloviita, Maritta; Viren, Matti
    Abstract: In this paper, we examine how professional forecasters’ expectations and expectation uncertainty have reacted to the ECB’s interest rate decisions and non-conventional monetary policy measures during the period 1999-2017. The analysis makes use of a conventional dif-in-dif type set up with different time series tools. The results indicate that expectations have been sensitive to policy actions, but all forecasters’ reactions do not seem to follow the basic predictions of a standard New Keynesian model. Also the relationship between inflation and output forecasts does not seem to follow a Phillips curve type relationship. Moreover, short- and long term reactions to policy are often weakly related and of different sign. Interestingly, subjective forecast uncertainty measures are very sensitive to policy measures. Thus, there seems to be much heterogeneity in forecasters’ reactions to most policy decisions. All uncertainty measures, including long-term inflation uncertainty, have increased over time. This has to be taken into account when considering the anchoring of inflation expectations to the inflation target.
    JEL: E32 G02
    Date: 2018–11–20
  16. By: Nicholas Coleman; Andromachi Georgosouli; Tara Rice
    Abstract: There are lingering concerns about the health of European banks and extensive market commentary about whether post-crisis regulatory reforms in Europe have adequately addressed these concerns. In June 2012, European policymakers released the broad outlines of a proposal for a "European banking union" to strengthen the banking sector and help assuage concerns of investors and depositors, however, uncertainty remains regarding how the new EU bank resolution regime, the Bank Recovery and Resolution Directive (BRRD), will work in practice. This paper addresses whether the BRRD has fulfilled the requirements of the FSB Key Attributes for Resolution Regimes, which many take to be the gold standard bank resolution framework. We find that the BRRD diverges from the FSB Key Attributes or allows variation at the Member State level in multiple areas. The majority of these variations point to slight inconsistencies with the FSB recommendations. That said, some variations may have a larger impact than others.
    Keywords: FSB Key Attributes ; BRRD ; European Banks
    JEL: G20 G28 K23
    Date: 2018–11
  17. By: Nora Albu; Heike Joebges; Rudolf Zwiener
    Abstract: Dustmann/ Fitzenberger/ Schönberg/ Spitz-Oener (2014) praise the flexibility of German labour market institutions for the German turn-around from "Sick Man of Europe to Economic Superstar": The more decentralized, firm-specific wage-setting process since the mid-1990s increased wage inequality and reduced pay increases. According to the authors' novel calculations for unit labour costs of the "end product" the German export-oriented manufacturing sector experienced a very high decrease in unit labour costs between the mid-1990s and 2007. The authors claim that this increase in price competitiveness is behind exporting success and (implicitly) the turn-around in economic growth.While we value the authors' efforts to incorporate inputs from other sectors into the calculation of unit labour costs of the manufacturing sector through an input-output approach, we show that the calculation is unconvincing in several regards and overstates the costs reduction. Besides this, we also show that the link from unit labour costs to exports is weaker than implicitly assumed by the authors. We also criticize the implicit assumption that export success based on low wage growth furthers GDP growth, as the positive effect of low wages on exports has to be balanced against the negative effect on domestic demand. Overall, our findings suggest, the policy conclusions from the authors -real wage cuts were necessary to improve German competitiveness for turning around the economy - overstate the role of unit labour costs for GDP growth.
    Keywords: German export success, labour market reforms, Hartz reforms, price competitiveness, unit labour costs, REER, wage-led economy, bazaar economy, German unification costs
    JEL: E02 F16 J31 J32
    Date: 2018
  18. By: Abel, Will; Tenreyro, Silvana; Thwaites, Gregory
    Abstract: We study the evolution and effects of monopsony power in the UK private sector labour market from 1998 to 2017. Using linked employee-firm micro-data, we find that: (1) Measures of monopsony have been relatively stable across the time period examined - rising prior to the crisis, before subsequently falling again. (2) There is substantial cross-sectional variation in monopsony at the industry level. (3) Higher levels of labour market concentration are associated with lower pay amongst workers not covered by a collective bargaining agreement. (4) For workers covered by a collective bargaining agreement, the association between labour market concentration and pay is greatly reduced and in most cases disappears. (5) The link between productivity and wage levels is weaker when labour markets are more concentrated.
    JEL: J0
    Date: 2018–10–10
  19. By: Enste, Dominik; Acht, Martin
    Abstract: It has been recognized that the support for democracy seems to be increasing with the time spent in a democratic system. An individual's life experience living under democratic rule positively affects the support for democracy as a political system. Therefore it seemed inevitable that the newly democratic eastern European member countries of the European Union would reap the benefits of democratization and slowly foster democratic support. However, recent backlashes to democratic rule in those countries seem to be contradictory. Therefore this paper investigates whether people's rising democratic capital in these new democracies also increases the support for democracy in those countries. Furthermore we examine if the quality of other institutions and especially corruption play a role in shaping the support for democracy and whether the positive effect of democratic capital on democratic support might be undermined. We find that the recent repercussions to democratic rule in eastern European countries are no coincidence. The effect of people's rising democratic capital on the support for democracy is negative in those countries. It has therefore been falling. Moreover, we establish that the increased experiences of corruption in these states undermine the support for democracy. Specifically, that democracy and corruption are complementary institutions. Only in the absence of corruption can the experience of democracy have its full effect on prodemocratic attitudes.
    JEL: D02 D72 P37
    Date: 2018
  20. By: Tölö, Eero; Miettinen, Paavo
    Abstract: We examine bank capital shocks using a recent new approach based on non-normal errors in vector autoregressive models. Using a sample of 14 European economies over January 2004 through March 2018 we identify two distinct classes of bank capital shocks, capital tightening shocks, and bank profitability shocks. We find that both bank capital shocks frequently lead to changes in lending volume and interest rates for new loans. In contrast to some recent similar studies, we find less evidence for impact on production. Bank capital shocks have further effects on the substitution between the bank and market-based financing and on credit allocation across different borrower sectors. Policymakers may find these results useful when considering counter-cyclical adjustments to the bank capital requirements.
    JEL: C11 C32 C54
    Date: 2018–11–28
  21. By: Pa?ko Burna? (University of Split, Faculty of Economics)
    Abstract: Recent global economic crisis and the concerns about sustainability of public finances have resulted in stronger implementation of fiscal consolidation measures. The literature does not offer a consensus on the impact of these measures. Empirical research offers a rationale for both contractionary and expansionary effect of fiscal consolidation on economic activity. Studies that examine the macroeconomic and fiscal effects of consolidation in developed countries are not frequent either have a long history, while the same effects in the post-transition countries are un-investigated. This paper tries to shed some light on this relationship. Additional contribution of this paper relates to the usage of the narrative approach introduced by Romer and Romer (2010). The research results do not support the expansionary fiscal consolidation hypothesis. Therefore, analysis suggests that fiscal consolidation in the Republic of Croatia and other post-transition countries was not successful in achieving macroeconomic goals such as economic growth.* This paper was supported by Croatian Scientific Foundation under the project ?Public Finance Sustainability on the Path to the Monetary Union? (IP-2016-06-4609).
    Keywords: fiscal consolidation, economic growth, narrative approach, Croatia, post-transition countries
    JEL: E62 H62 H69
    Date: 2018–11
  22. By: Mark Baker (OECD); Balázs Égert (OECD); Gabor Fulop (OECD); Annabelle Mourougane (OECD)
    Abstract: Using cross-country time series panel regressions for the last two decades, this paper seeks to identify the main policy and institutional factors that explain the share of self-employment across European countries. It looks at the aggregate share of self-employed as well as its breakdown by age, skill and gender. The generosity of unemployment benefits, and to a lesser extent, spending on active labour market policies appear to be robust determinants of the long-term share of self-employed in European countries. No significant relation is found between the stringency of employment protection and aggregate self-employment. However, there are significant, and oppositely signed, impacts on high- and low-skilled self-employed separately. Both the tax wedge and the minimum wage appear to be positively related to the share of self-employed in the long term, but the relation holds for some categories of workers only.
    Keywords: labour market, OECD, self-employment
    JEL: C23 J40
    Date: 2018–11–16
  23. By: Stefan Jestl (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Sandra M. Leitner (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This paper analyses the contribution of immigration, trade and FDI to wage inequality of native workers in a sample of old and new EU Member States between 2008 and 2013. Methodologically, we use the regression-based Shapley value decomposition approach of Shorrocks (2013) to filter out their relative importance. We find that globalisation has very mixed effects and generally contributes little to wage inequality. Regarding their relative contributions, immigration and FDI are key contributors to wage inequality in old EU Member States, while trade is the key source of wage inequality in new EU Member States. For immigration, the associated increase in wage inequality is strongest and most consistent among Southern EU Member States. We also show that immigration, trade and FDI have different effects across the wage distribution that are however strongest at its centre. For trade and FDI, we also find sporadic inequality-reducing effects that are strongest at the top of the wage distribution.
    Keywords: wage inequality, trade, FDI, immigration, Shapley value decomposition
    JEL: J31 O15 F16
    Date: 2018–11
  24. By: Cantore, Christiano; Ferroni, Filippo; León-Ledesma, Miguel A.
    Abstract: The textbook New-Keynesian (NK) model implies that the labor share is pro-cyclical conditional on a monetary policy shock. We present evidence that a monetary policy tightening robustly increased the labor share and decreased real wages and labor productivity during the Great Moderation period in the US, the Euro Area, the UK, Australia, and Canada. We show that this is inconsistent not only with the basic NK model, but with a wide variety of NK models commonly used for monetary policy analysis and where the direct link between the labor share and the markup can be broken down.
    Keywords: labor share; monetary policy shocks; DSGE models
    JEL: C52 E23 E32
    Date: 2018–11–16

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