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on European Economics |
| By: | Philipp Hartmann (European Central Bank, DG-Research, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Stefan Straetmans (Limburg Institute of Financial Economics (LIFE), Economics Faculty, Maastricht University, P.O. Box 616, 6200 MD Maastricht, The Netherlands); Casper de Vries (Faculty of Economics, Erasmus University Rotterdam, P.O. Box 1738, 3000 DR Rotterdam,The Netherlands) |
| Abstract: | This paper derives indicators of the severity and structure of banking system risk from asymptotic interdependencies between banks’ equity prices. We use new tools available from multivariate extreme value theory to estimate individual banks’ exposure to each other (“contagion risk”) and to systematic risk. By applying structural break tests to those measures we study whether capital markets indicate changes in the importance of systemic risk over time. Using data for the United States and the euro area, we can also compare banking system stability between the two largest economies in the world. For Europe we assess the relative importance of cross-border bank spillovers as compared to domestic bank spillovers. The results suggest, inter alia, that systemic risk in the US is higher than in the euro area, mainly as cross-border risks are still relatively mild in Europe. On both sides of the Atlantic systemic risk has increased during the 1990s. |
| Keywords: | Banking; Systemic Risk; Asymptotic Dependence; Multivariate Extreme Value Theory; Structural Change Tests. |
| JEL: | G21 G28 G29 G12 C49 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20050527&r=eec |
| By: | Robert Anderton (European Central Bank and Special Professor at School of Economics, University of Nottingham, University Park, Nottingham NG7 2RD, United Kingdom.); Badi H. Baltagi (Department of Economics, Center for Policy Research, 426 Eggers Hall, Syracuse University, Syracuse, New York, 13244-1020, USA..); Frauke Skudelny (European Central Bank, Kaiserstrasse 29, Frankfurt am Main, Germany.); Nuno Sousa (European Commission.) |
| Abstract: | The aim of this paper is to improve our understanding of the key determinants of intra- and extra-euro area imports. Using a simultaneous equation estimation framework, and pooling the data across nine euro area countries as an approximation of the euro area, we estimate intra- and extra-euro area import demand functions and impose various restrictions within and across equations. We find that there are significant substitution effects between intra- and extra-euro area imports due to changes in their relative prices, while exchange rate volatility decreases trade vis-à-vis regions characterised by volatility and leads to substitution of trade away from higher-volatility regions towards lower-volatility regions. |
| Keywords: | Intra- and extra-euro area imports; substitution; trade integration; three stage least squares. |
| JEL: | F10 F15 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20050532&r=eec |
| By: | Sophocles N. Brissimis (Bank of Greece and University of Piraeus. Address: 21 E.Venizelos Ave., 10250 Athens, Greece.); Theodora S. Kosma (Corresponding author: Athens University of Economics and Business (AUEB), 76 Patission Street, 10434 Athens, Greece.) |
| Abstract: | This paper examines exchange rate pass-through in the euro area by accounting for the impact of exchange rate changes on exporting firms’ market power, cost structure and competitiveness. An international oligopoly model where exporting firms simultaneously decide on their pricing and innovation strategies is used as the basis for the econometric analysis. The estimations are carried out on data for manufacturing imports of three large euro area countries (Germany, France, Netherlands) from three major non-euro area import suppliers (US, Japan, UK). The results show that exporting firms’ price and innovation decisions in each source country are jointly determined and that total pass-through to euro area import prices is low. There are also indications that other factors, such as interactions with domestic producers, may be important for the determination of pass-through. Finally, euro area import prices are found to be sticky in local currency in the short run. |
| Keywords: | Exchange rate pass-through; market power; innovative activity; multivariate cointegration; euro exchange rate. |
| JEL: | C32 F39 L13 O31 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20050531&r=eec |
| By: | Silvia Fabiani (Corresponding author: Banca d'Italia, Rome, Italy); Claudia Kwapil (Corresponding author: Oesterreichische Nationalbank, Vienna, Austria); Martine Druant (Banque Nationale de Belgique, Brussels, Belgium); Ignacio Hernando (Banco de España, Madrid, Spain); Bettina Landau (European Central Bank, Kaiserstrasse 29, Frankfurt am Main, Germany.); Claire Loupias (Banque de France, Paris, France); Fernando Martins (Banco de Portugal, Lisbon, Portugal); Thomas Y. Mathä (Banque centrale du Luxembourg); Roberto Sabbatini (Banca d’Italia, Rome, Italy); Harald Stahl (Deutsche Bundesbank, Wilhelm-Epstein-Strasse 14, Frankfurt am Main, Germany.); Ad C. J. Stokman (De Nederlandsche Bank, Amsterdam) |
| Abstract: | This study investigates the pricing behaviour of firms in the euro area on the basis of surveys conducted by nine Eurosystem national central banks, covering more than 11,000 firms. The results, robust across countries, show that firms operate in monopolistically competitive markets, where prices are mostly set following markup rules and where price discrimination is common. Around one-third of firms follow mainly time-dependent pricing rules while twothirds allow for elements of state-dependence. The majority of firms take into account past and expected economic developments in their pricing decisions. Price stickiness is mainly driven by customer relationships – explicit and implicit contracts – and coordination failure. Firms adjust prices asymmetrically in response to shocks: while cost shocks have a greater impact when prices have to be raised than when they have to be reduced, reductions in demand are more likely to induce a price change than increases in demand. |
| Keywords: | Price setting; nominal rigidity; real rigidity; inflation persistence; survey data. |
| JEL: | E30 D40 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20050535&r=eec |
| By: | Goergen,M.; Martynova,M.; Renneboog,L. (TILEC (Tilburg Law and Economics Center)) |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubtil:200517&r=eec |
| By: | Guido Wolswijk (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany) |
| Abstract: | This paper analyses some fiscal aspects of mortgage debt in the EU. It first describes the main fiscal instruments that governments use to affect mortgage-financed home-ownership. In the empirical part, real mortgage debt growth is analysed for 15 EU countries using pooled regressions. Fiscal effects are included via after-tax interest rates. Other factors shown to be relevant for mortgage debt growth are house prices, financial deregulation, and stock markets while the effects of household income and inflation are less evident. Finally, the role of structural fiscal measures in reducing housing market volatility is highlighted. |
| Keywords: | Mortgage credit; loans; tax policy; income tax; interest deductibility. |
| JEL: | E51 E62 G21 H31 R21 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20050526&r=eec |
| By: | Jérôme Héricourt (TEAM); Mathilde Maurel (ROSES) |
| Abstract: | The purpose of this paper consists in assessing the extent of financial integration in the European Union using the Feldstein-Horioka criterion. More precisely, we test the cross-correlation of savings and investment rates across the regions of the European Union, using regional data from Regio and national statistical offices, over the period 1995-2000. Several important outcomes are reported by our article. First, we find that the financial integration seems to be realized inside each country, and we are able to rationalize the few puzzles we face. Second, we find that overall financial integration between EU regions is almost complete. After performing additional investigations on consistent sub-groups of regions, however, our analysis discards the illusion that the sole suppression of institutional barriers to capital mobility would be sufficient to achieve a perfect financial integration. In that spirit, our main finding is that History, language, borders and distance as a proxy for transaction and information costs, still matter. |
| Keywords: | Feldstein-Horioka puzzle, regional savings, investment, capital market, capital flows. |
| JEL: | E22 F21 G15 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:j05070&r=eec |
| By: | Elizaveta Krylova (European Central Bank, Market Operations, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Lorenzo Cappiello (DG-Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany); Roberto A. De Santis (DG Economics, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany) |
| Abstract: | By employing Lucas’ (1982) model, this study proposes an arbitrage relationship – the Uncovered Equity Return Parity (URP) condition – to explain the dynamics of exchange rates. When expected equity returns in a country/region are lower than expected equity returns in another country/region, the currency associated with the market offering lower returns is expected to appreciate. First, we test the URP assuming that investors are risk neutral and next we relax this hypothesis. The resulting risk premia are proxied by economic variables, which are related to the business cycle. We employ differentials in corporate earnings’ growth rates, short-term interest rate changes, annual inflation rates, and net equity flows. The URP explains a large fraction of the variability of some European currencies vis-à-vis the US dollar. When confronted with the naïve random walk model, the URP for the EUR/USD performs better in terms of forecasts for a set of alternative statistics. |
| Keywords: | Foreign exchange markets; asset pricing; random walk; UIP; GMM. |
| JEL: | F31 G15 C22 C53 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20050529&r=eec |
| By: | Olivier Blanchard |
| Abstract: | In the 1970s, European unemployment started increasing. It increased further in the 1980s, to reach a plateau in the 1990s. It is still high today, although the average unemployment rate hides a high degree of heterogeneity across countries. The focus of researchers and policy makers was initially on the role of shocks. As unemployment remained high, the focus has progressively shifted to institutions. This paper reviews the interaction of facts and theories, and gives a tentative assessment of what we know and what we still do not know. |
| JEL: | E24 J6 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11750&r=eec |
| By: | McCahery,J.A.; Vermeulen,E.P.M. (TILEC (Tilburg Law and Economics Center)) |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubtil:200510&r=eec |
| By: | J. ALBRECHT; M. NEYT; T. VERBEKE |
| Abstract: | The public choice literature suggests that bureaucrats might join forces with specific pressure and industrial groups which advocate an expansion of health care activities. As a result, the ongoing process of bureaucratisation can be a driving force behind the overproduction of health care services. In addition, Michel Foucault was the first to depict medicalisation and normalisation as processes part of a broader institutional infrastructure set up to control individuals. Both processes require a strong bureaucracy, established by the ruling elites. For our empirical analysis, the share of government employment in total employment has been used as a proxy for bureaucracy. Our results show that the process of bureaucratisation has a very significant and positive influence on national health care expenditures per capita in 20 European countries. Together with the evolution of per capita income, we can conclude that the ongoing bureaucratisation is one of the driving forces behind the rise of health care expenditures in Europe. A similar conclusion holds for the research intensity of the country. However, the combination of a high level of bureaucratisation and a high research intensity results in lowering per capita health expenditures. Our results furthermore confirm that the ageing of the population is consistently not significant once bureaucratisation is included in the analysis. |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:05/335&r=eec |
| By: | Bijl,P.W.J. de; Peitz,M. (TILEC (Tilburg Law and Economics Center)) |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubtil:200508&r=eec |
| By: | Hervé Boulhol (IXIS-CIB et TEAM) |
| Abstract: | This paper gives estimates of sectoral markup trends in thirteen OECD countries over the last three decades. It concludes with a slight, albeit heterogeneous, increase in price-cost margins (PCMs) overall, contrary to the generally expected effect of increased competition. More strikingly, it estabishes a clear pattern of PCM convergence both across countries and sectors. This convergence means that high margins have shrunk and low margins grown. These movements seem to be linked to the decline in the labour share. They point to a need to search for factors counterbalancing the pro-competitive effect on markups. |
| Keywords: | Markup, price-cost margin, pro-competitive effect, wage bargaining, labour share. |
| JEL: | L11 L13 L60 J40 F02 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:bla05056&r=eec |
| By: | McCahery,J.A.; Vermeulen,E.P.M. (TILEC (Tilburg Law and Economics Center)) |
| Date: | 2004 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubtil:200423&r=eec |
| By: | Bijl,P.W.J. de; Damme,E. van; Larouche,P. (TILEC (Tilburg Law and Economics Center)) |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubtil:200526&r=eec |
| By: | Joerg Bibow |
| Abstract: | This paper provides an overview of central banking arrangements in those European countries that have adopted the euro. Issues addressed include the structure of the ÒEurosystemÓ and its central banking functions, the kind of independence granted to the system and the role of monetary policy that central bankers have adopted for themselves, the Òtwo-pillar policy framework,Ó operating procedures, and actual performance since the euroÕs launch in 1999. The analysis concludes that, given the current macroeconomic policy regime, trends, and practices, the euro is on track for failure. |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_428&r=eec |
| By: | Luis J. Álvarez (Banco de España, Alcalá 48, 28014 Madrid, Spain); Ignacio Hernando (Banco de España, Alcalá 48, 28014 Madrid, Spain) |
| Abstract: | This paper reports the results of a survey carried out by the Banco de España on a sample of around 2000 Spanish firms to deepen the understanding of firms’ price setting behaviour. The main findings may be summarised as follows. Most Spanish firms are price setters that use predominantly state-dependent rules or a combination of time- and statedependent rules when reviewing their prices. Changes in costs are the main factor underlying price increases, whereas changes in market conditions (demand and competitors’ prices) are the main driving forces of price decreases. The degree of price flexibility is directly related to the share of energy inputs over total costs and to the intensity of competition, whereas it is inversely linked to the labour share. The three theories of price stickiness that receive the highest empirical support are implicit contracts, coordination failure and explicit contracts. |
| Keywords: | Price setting; price stickiness; survey data. |
| JEL: | D40 E31 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20050538&r=eec |
| By: | Daniela Del Boca; Silvia Pasqua; Chiara Pronzato |
| Abstract: | According to the agenda for employment set by the EU in 2000 for the following ten years, the target for female employment was set at 60 per cent for the year 2010. While Northern and most Continental countries have achieved this quantitative target, the Mediterranean countries are lagging behind. Labor market policies should be aimed to encourage women’s participation and reduce the cost of working. However the persistence of a negative relationship between participation and fertility in these countries implies that it is important to take fertility into account . We analyze a model of labor supply and fertility, using data from the ECHP (European Community Household Panel) for the period 1994-2000, merged with regional data describing the available labor market opportunities in the households’ environment. |
| Keywords: | Labor Market Decisions, Fertility, Childcare |
| JEL: | J2 C3 D1 |
| Date: | 2004–04 |
| URL: | http://d.repec.org/n?u=RePEc:wpc:wplist:wp08_04&r=eec |
| By: | Bandick, Roger (Department of Business, Economics, Statistics and Informatics); Hansson, Pär (FIEF) |
| Abstract: | We observe a substantial increase of foreign ownership in Sweden in the 1990s. Did that have any effect on relative demand for skilled labor? Has technology transfers often associated with inward FDI led to increased demand for skills due to skilled-biased technical change? Are there any grounds for the worries in the public Swedish debate that more skilled activities have been moved abroad to countries where the headquarters are located? We obtain support for that the share of skilled labor tends to rise in non-multinationals but not in multinationals that become foreign owned. Yet it does not seem to be any relationship between increased foreign ownership and the relative demand for skilled labor in Swedish manufacturing between 1986 and 2000. <p> Interestingly, increased competition from low-wage countries, rather than inward FDI, has had significant impact on skill upgrading, and appears to have played a larger role in the 1990s than before. |
| Keywords: | foreign ownership; skill upgrading; wage differentials |
| JEL: | F23 J23 J31 |
| Date: | 2005–11–04 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:oruesi:2005_010&r=eec |
| By: | Claudio Lucifora; Dominique Meurs |
| Abstract: | We investigate public-private pay determination using French, British and Italian microdata. While traditional methods focus on parametric methods to estimate the public sector pay gap, in this paper, we use both non-parametric (kernel) and quantile regression methods to analyse the distribution of wages across sectors. We show that the public-private (hourly) wage differential is sensitive to the choice of quantile and that the pattern of premia varies with both gender and skill. In all countries the public sector is found to pay more low skilled workers with respect to the private sector, whilst the reverse is true for high skilled workers. The effects are more pronounced for females. |
| Keywords: | Wage differentials, Public sector, Quantile regression |
| JEL: | J31 J45 C14 |
| Date: | 2004–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpc:wplist:wp04_04&r=eec |
| By: | Nykvist, Jenny (Department of Economics) |
| Abstract: | Do potential entrepreneurs face liquidity constraints? Or to put it differently, does a person have to be wealthy to start a new business? This question has been discussed in a large literature that has documented a positive relationship between initial wealth and entrepreneurship. However, in a recent paper Hurst and Lusardi (2004) use higher order of polynomials in wealth and find that there is no relationship between household initial wealth and the probability of starting an own business throughout most of the wealth distribution in the United States. In this paper we examine this relationship using similar methods on Swedish data. The data set used is LINDA, a register-based longitudinal data set for Sweden. The relationship is estimated using probit models with different specifications of wealth. However, the result that wealth is not important for new entrepreneurs cannot be replicated. Instead, the main finding of the paper is that the relationship between wealth and transition into entrepreneurship is positive but diminishing for the major part of the wealth distribution. Moreover, the relationship between wealth and entrepreneurship gets stronger as the models get less restricted with respect to wealth. Our result leads us to the conclusion that liquidity constraints do play a significant role when determining transition into entrepreneurship in Sweden. |
| Keywords: | Liquidity constraints; wealth; entrepreneurship; starting capital; business ownership |
| JEL: | D31 J23 J24 M13 |
| Date: | 2005–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2005_021&r=eec |
| By: | Joanne Evans and Richard Green |
| Abstract: | In an attempt to reduce high electricity prices in England and Wales, the government and regulator forced the largest generators to divest some plant in the late 1990s, and introduced New Electricity Trading Arrangements in March 2001. We use a supply function model to simulate prices from April 1997 to March 2004, and find no change in the relationship between our simulations and actual prices over this period. This implies that while the reduction in concentration has had a significant impact on short-term wholesale electricity prices, the switch from a centralised to a decentralised market has not. |
| Keywords: | Electricity, market power, concentration, market rules |
| JEL: | L94 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:05-13&r=eec |
| By: | Damme,E. van (TILEC (Tilburg Law and Economics Center)) |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubtil:200509&r=eec |
| By: | Goergen,M.; Manjon,M.C.; Renneboog,L. (TILEC (Tilburg Law and Economics Center)) |
| Date: | 2004 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubtil:200414&r=eec |
| By: | Alar Kein (Faculty of Economics and Business Administration, Tallinn University of Technology) |
| Abstract: | The paper examines the role of foreign stock markets’ price and volatility movements in the price and volatility movements in the Estonian stock market. Using daily log returns from July 8th, 1996 through December 31st, 2003 and applying a VAR-EGARCH framework, the author finds that there is a spillover of returns and volatility from foreign stock markets into the Estonian stock market. It is found that the stock prices in Estonia are influenced by the movement of prices on the markets of Denmark, Russia, Finland, the Czech Republic, Poland and the U.S.A. In general, the response to exogenous price movements is found to be contemporaneous, same-directional and symmetric, while the revealed impact of exogenous volatility-changes is rather market-specific and often asymmetric. The author also finds that the influence of the Finnish market on the Estonian market has significantly increased after the HEX-Group acquired the majority share in the Tallinn Stock Exchange and the integration of the Estonian stock market with the Finnish stock market began in April 2001. |
| Keywords: | stock returns, cross-border spillover of returns, cross-border spillover of volatility |
| JEL: | G12 G14 G15 G19 |
| URL: | http://d.repec.org/n?u=RePEc:ttu:wpaper:tutwpe05/120&r=eec |
| By: | McCahery,J.A.; Vermeulen,E.P.M. (TILEC (Tilburg Law and Economics Center)) |
| Date: | 2004 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubtil:200424&r=eec |
| By: | Hrabrin Bachev (Institute of Agricultural Economics, Sofia, Bulgaria) |
| Abstract: | Attempt has been made to identify dominant forms and factors for finance supply in Bulgarian farms. New Institutional and Transaction Costs Economics framework is used to estimate comparative efficiency of various modes for financing of short-term and long-term activities of farms of different type and size. Study is based on a large-scale microeconomic data collected through interviews with managers of 0.5% of commercial farms in the country. Big transitional institutional, economic and behavioral uncertainty combined with high asset specificity and low recurrence of transactions, have blocked use of market debt financing of farms. Great variety of specific private modes have emerged to overcome funding difficulties and to govern dependant transactions (internal investment, personal contacts, share investment, interlinked organization). However, vast development and maintenance costs (“free riding”) have prevented formation of effective collective credit supply forms. Large third-party (Government, international assistance, NGO) intervention has also taken place to finance (directly or indirectly) farms or to assist market and private modes of funding of farm activities. Nevertheless, for majority of Bulgarian farms external funding is still either too expensive (high interest rate, unaffordable collateral requirements, immense paper work and bureaucratic procedures, big “side payments”) or not accessible at all. High transaction costs for “credit supply”, and “marketing”, and “contract enforcement” are the major factors limiting farm enlargement at present stage of transition. Along with further credit support, public involvement should be directed to enhancement of efficiency of State lending programs and improvement of general institutional environment (legislative framework, contract enforcement system, market infrastructure etc.). |
| Keywords: | governing of finance in farms; transaction cost economics; transitional farm organization |
| JEL: | G |
| Date: | 2005–11–06 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0511003&r=eec |
| By: | Dimitrina Mihaylova (Center for Policy Studies, Central European University) |
| Abstract: | Ever since the 1990s, social capital has attracted attention from social science researchers. With its focus on the importance of intangible resources such as trust, social capital appeared to supplement existing theories of social and economic change. For its early proponents such as Bourdieu, Coleman and more famously, Putnam, social capital could be understood as a critical component in social reproduction, educational achievement and administrative efficiency. Social capital seems especially relevant in Central and Eastern Europe and the countries of the former Soviet Union. Not only does it direct attention to informal networks as ways of getting things done, it also explores how strong ties of personal trust co-exist with low levels of general trust and how this can affect economic and political reform. In terms of its actual policy implications, the conclusions of social capital research have not always been clear and it may be fair to say that expectations have been scaled down since the World Bank declared that social capital to be the missing link. This study offers a critical review of over seventy studies that have applied social capital to developments in Central and Eastern Europe and the former Soviet Union. The author draws from a variety of social science disciplines as well as including several reports from international organisations. The review investigates five principal fields in which social capital has been used to date and to provides a series of suggestions as to how such research can help encourage institutional and policy innovation. |
| JEL: | O P |
| Date: | 2005–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0511001&r=eec |
| By: | Damme,E. van (TILEC (Tilburg Law and Economics Center)) |
| Date: | 2004 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubtil:200407&r=eec |