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on European Economics |
| By: | Agnes Benassy-Quere; Edouard Turkisch |
| Abstract: | In this paper, we provide an assessment of the rotation rule decided by the European Council for the functioning of the ECB Governing council after EMU enlargement. Desired interest rates by each member of the Governing council are calculated on the basis of Fisher, truncated Taylor and Taylor rules successively, and on the basis of a convergence of both GDP per capita and price levels within the EU in 30 years. Then, various decision rules are simulated. We show that moving from the “old” rule (where each member of the Governing council has a vote at each meeting) to the “new” one (where, at a given meeting, only 15 national governors have a vote) does not have much impact on the decisions made by the Governing council in an enlarged Eurozone. However, should rotations be relatively infrequent, the system could end up close to a constituency system. In this case, core Euro12 countries could be better off in a Euro25 than in the Euro12, because they would be in the position of imposing lower interest rates. However, core Euro12 would be worse off in a Euro22 compared to a Euro12 because high inflation countries would be able to impose higher interest rates. On the whole, in a Euro25, the (fast) rotation system which was decided by the European Council appears acceptable by all Euro members because it is never the worst system. However, full centralisation (where the choice of the interest rate is left to the Executive board) would deliver the same results, with much lower transaction costs. |
| Keywords: | ECB; EMU; enlargement; monetary policy; voting |
| JEL: | E58 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2005-20&r=eec |
| By: | Schwerdt, Guido; Turunen, Jarkko |
| Abstract: | Composition of the euro area workforce evolves over time and in response to changing labour market conditions. We construct an estimate of growth in euro area labour quality over the period 1983-2004 and show that labour quality has grown on average by 0.6% year-on-year over this time period. Labour quality growth was significantly higher in the early 1990s than in the 1980s. This strong increase was driven by an increase in the share of those with tertiary education and workers in prime age. Growth in labour quality moderated again towards the end of the 1990s, possibly reflecting the impact of robust employment growth resulting in the entry of workers with lower human capital. Labour quality growth has on average accounted for nearly one third of euro area labour productivity growth. The results point to a significant decline in the contribution of total factor productivity to euro area growth. |
| Keywords: | growth accounting; human capital; labour quality; total factor productivity |
| JEL: | E24 J24 O47 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5509&r=eec |
| By: | Helge Berger (Free University Berlin, Germany and CESifo, Munich, Germany); Jakob de Haan (University of Groningen, The Netherlands and CESifo, Munich, Germany); Jan-Egbert Sturm (Swiss Institute for Business Cycle Research (KOF), Swiss Federal Institute of Technology Zurich (ETH)) |
| Abstract: | We examine the role of money in the policies of the ECB, using introductory statements of the ECB President at the monthly press conferences during 1999-2004. Over time, the relative amount of words devoted to the monetary analysis has decreased. Our analysis of indicators of the monetary policy stance suggests that developments in the monetary sector, while somewhat more important in the later half of the sample, only played a minor role most of the time. Our estimates of ECB interest rate decisions suggest that the ECB’s words (monetary-sector based policy intensions) are not an important determinant of its actions. |
| Keywords: | ECB, communication, monetary policy |
| JEL: | E58 E52 E43 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:06-125&r=eec |
| By: | Tommaso Mancini-Griffoli; Laurent L. Pauwels (IUHEI, The Graduate Institute of International Studies, Geneva) |
| Abstract: | The debate on whether a common currency increases trade has persisted for years. Recently, the introduction of the Euro has been hailed as a possible natural experiment to test this theory. But the ensuing empirical literature has inadequately dealt with the very few observations in the post-break period, by recurring to formal residuals-based tests constructed on asymptotic results that cannot be verified. We extend the very recent Andrews' (2003) end-of-sample instability test to panel data in order to rigorously investigate whether the introduction of the Euro has affected trade in the EU. The test features a distribution built with empirical subsampling techniques, robust to very few post break observations. We also use recently developed methods to deal with nonstationarity in our regressors. As in the literature, we find a structural break in trade between Euro-Area countries when using a traditional gravity equation. The break begins in 1999 Q1, but is short-lived as it lasts only 10 quarters (2 1/2 years). We then take the additional step to explain this break. We test a micro-founded augmented gravity equation to capture supply-side effects stemming from macroeconomic policies accompanying the Euro. Namely, we show that the break can be explained by a marked decrease in real interest rates across the Euro-Area preceding and following the introduction of the Euro. Alternatively, we find equally conclusive evidence for the role of institutional integration deployed at the time of the Euro in fostering trade. Lastly, we find no evidence of a break in trade between non Euro Area EU15 countries and between non Euro Area EU 15 and Euro Area countries. |
| Keywords: | Gravity equation; International Trade; Common Currency; Instability tests in Panel data; Euro Area. |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heiwp04-2006&r=eec |
| By: | David Newbery |
| Abstract: | Europe is liberalising electricity in accordance with the European Commission’s Electricity Directives. Different countries have responded differently, notably in the extent of restructuring, treatment of mergers, market power, and vertical unbundling. While Britain and Norway have achieved effective competition, others like Germany, Spain and France are still struggling to deal with dominant and sometimes vertically integrated companies. The Netherlands offers an interesting intermediate case, where good economic analysis has sometimes been thwarted by legalistic interpretations. Investment under the new Emissions Trading system could further transform the electricity industry but may be hampered by slow progress in liberalising European gas markets. |
| Keywords: | Competition, liberalisation, restructuring, electricity, market power |
| JEL: | G34 K23 L51 L94 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0615&r=eec |
| By: | Ivan Paya (Universidad de Alicante); Agustín Duarte (Universidad de Alicante); Ioannis A. Venetis (Centre of Planning and Economic Research (KEPE)) |
| Abstract: | Although the spread has been established as a leading indicator of economic activity, recent studies on US and EU countries have documented, theoretically and empirically, that the term spread-output growth relationship may not be stable over time and it may be subjected to nonlinearities. Using aggregate data for the Euro area over the period 1970:1 - 2000:4, we applied linear regression as well as nonlinear models to examine the predictive accuracy of the term spread-output growth relationship. Our results confirm the ability of the yield curve as a leading indicator. Moreover, significant nonlinearity with respect to time and past annual growth is detected outperforming the linear model in out-of-sample forecasts of one-year-ahead annual growth. Furthermore probit models that use the EMU and US yield spreads are successful in predicting EMU recessions. |
| Keywords: | Term Spread and Real Growth; Threshold Models; Recession; Forecasting Accuracy |
| Date: | 2004–07 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2004-31&r=eec |
| By: | Olivetti, Claudia; Petrongolo, Barbara |
| Abstract: | Gender wage and employment gaps are negatively correlated across countries. We argue that non-random selection of women into work explains an important part of such correlation and thus of the observed variation in wage gaps. The idea is that, if women who are employed tend to have relatively high-wage characteristics, low female employment rates may become consistent with low gender wage gaps simply because low-wage women would not feature in the observed wage distribution. We explore this idea across the US and EU countries estimating gender gaps in potential wages. We recover information on wages for those not in work in a given year using alternative imputation techniques. Imputation is based on (i) wage observations from other waves in the sample, (ii) observable characteristics of the nonemployed and (iii) a statistical repeated-sampling model. We then estimate median wage gaps on the resulting imputed wage distributions, thus simply requiring assumptions on the position of the imputed wage observations with respect to the median, but not on their level. We obtain higher median wage gaps on imputed rather than actual wage distributions for most countries in the sample. However, this difference is small in the US, the UK and most central and northern EU countries, and becomes sizeable in Ireland, France and southern EU, all countries in which gender employment gaps are high. In particular, correction for employment selection explains more than a half of the observed correlation between wage and employment gaps. |
| Keywords: | median gender gaps; sample selection; wage imputation |
| JEL: | E24 J16 J31 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5506&r=eec |
| By: | Dirk Brounen; Peter Neuteboom; Arjen van Dijkhuizen |
| Abstract: | In this paper we analyze the development of house prices for eight different countries over the period 1970-2003. First we look at real house price dynamics of the United States, the United Kingdom, Germany, France, Italy, the Netherlands, Sweden, and Belgium. After discussing the observable similarities and variations in national house prices, we continue by analyzing structural differences in legislation and mortgage markets, which might help us to understand the cross-sectional variation in prices levels and price developments. Next, we construct a comprehensive first-buyer affordability model in which nominal house prices are corrected for household income changes and the net financing costs of mortgage payments. This model grants us a second look on the cross-section of international house price dynamics. We finish our study with first-buyer elasticity tests, which give a first glance on the stability of each price level on the basis of affordability. |
| Keywords: | house prices; affordability index; price-elasticity; stress test. |
| JEL: | E44 E64 G12 G18 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:083&r=eec |
| By: | Lydia Mechtenberg (Technical University of Berlin); Roland Strausz (Free University of Berlin, Department of Economics) |
| Abstract: | We analyze the two goals behind the European Bologna Process of increasing student mobility: enabling graduates to develop multi--cultural skills and increasing the quality of universities. We isolate three effects: 1) a competition effect that raises quality; 2) a free rider effect that lowers quality; 3) a composition effect that influences the relative strengths of the two previous effects. The effects lead to a trade--off between the two goals. Full mobility may be optimal, only when externalities are high. In this case, student mobility yields inefficiently high educational quality. For more moderate externalities partial mobility is optimal and yields an inefficiently low quality of education. |
| Keywords: | Student mobility, Quality of higher education, Multi--cultural skills, Bologna Process |
| URL: | http://d.repec.org/n?u=RePEc:bef:lsbest:030&r=eec |
| By: | Olena Havrylchyk; Emilia Jurzyk |
| Abstract: | Using data for 265 banks in Central and Eastern European Countries for the period of 1995-2003, this paper analyses the differences in profitability between domestic and foreign banks. We show that foreign banks, especially greenfield institutions, earn higher profits than domestic banks. However, this effect is acquired, rather than inherited, since there is evidence that foreign banks tend to take over less profitable institutions. Profits of foreign banks in the CEEC also exceed profits of their parent banks, explaining the reasons for their entry. Further, we study benefits and costs of foreign ownership by analyzing determinants of profitability for domestic, takeover, and greenfield banks. Profits of foreign banks are less affected by macroeconomic conditions in their host countries. However, greenfield banks are sensitive to the situation at their parent banks. Only domestic banks enjoy higher profits in more concentrated banking markets, whereas takeover bans suffer from diseconomies of scale due to the fact that they acquired large institutions. |
| Keywords: | Banking system; competition; FDI; financial markets; transition economies |
| JEL: | G15 G21 F36 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2005-21&r=eec |
| By: | Guisan, Carmen |
| Abstract: | Some of the main challenges for European Union at the beginning of the 21st century are to increase the rates of employment and the real wages, particularly in those regions and economic sectors with the lowest levels, as well as to develop realistic policies of net immigration, which should have into account the limitations of EU for employment creation and growth of real Gdp, in order to avoid diminutions of average wages and social services expenditure per inhabitant. We estimate some econometric models which explain the lower rates of employment and wages of Europe in comparison with the USA, analyse those differences during the period 1960-2003 and suggest some changes in EU policies in order to increase both average wages and the rates of employment. EU immigration policies should be realistic and limited to the capacities of jobs creation, and the international cooperation of EU with developing countries should be more focused to foster investments and to increase employment and income per inhabitant in the countries of origin of immigrants. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:eaa:ecodev:83&r=eec |
| By: | Robert Plasman (DULBEA, Université libre de Bruxelles, Brussels); Michael Rusinek (DULBEA, Université libre de Bruxelles, Brussels); François Rycx (DULBEA, Université libre de Bruxelles, Brussels, and IZA, Bonn) |
| Abstract: | Using a unique harmonized matched employer-employee dataset (European Structure of Earnings Survey, 1995), we study the impact of the regime of collective bargaining on wages in the manufacturing sector of three countries that are characterized by a multilevel system of bargaining: Belgium, Denmark and Spain. Our findings show that, compared to multi-employer bargaining, single-employer bargaining has a positive effect both on wage levels and on wage dispersion in Belgium and in Denmark. In Spain, single-employer bargaining also increases wage levels but reduces wage dispersion. Our interpretation is that in Belgium and Denmark, single-employer bargaining is used to adapt pay to the specific needs of the firm while, in Spain, it is mainly used by trade unions in order to compress the wage distribution. |
| Keywords: | Collective bargaining, wage structure. |
| JEL: | J31 J51 J52 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:dul:wpaper:06-01rs&r=eec |
| By: | Koster, M.B.M. de; Shinohara, M. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University) |
| Abstract: | Japanese companies value service and quality highly and they put much effort in realising this. However, survey research carried out in 2001 among senior managers of Japanese logistics companies in the Netherlands, indicated that these efforts do not result in significant performance differences compared to western companies. In this exploratory paper, we report of company visits and interviews with managers of Japanese logistics companies in Western Europe. They described a clash of cultures underlying their operations, prohibiting them from achieving performance excellence. The causes focus around two key factors: the unique concept of Japanese service, based on future rewards which are absent in Western Europe; different employment circumstances in Western Europe, which make Japanese human resource management ineffective, and the Japanese career development system which makes that Japanese managers do not always have the right focus in their job abroad. We conclude that Japanese subsidiaries in Western Europe should keep on nourishing their unequalled service standards, while simultaneously adapting to efficiency standards of Western business practices in order to become more successful in the future. |
| Keywords: | Logistics;Service Operation;Quality;Japanese Culture;Europe; |
| Date: | 2006–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:30008038&r=eec |
| By: | Persson, Maria (Department of Economics, Lund University); Wilhelmsson, Fredrik (Department of Economics, Lund University) |
| Abstract: | Since the 1960’s, the EU has offered trade preferences to developing countries in a complex set of systems. Broadly these systems can be divided into preferences for African, Caribbean and Pacific (ACP) countries, Mediterranean preferences and the Generalised System of Preferences (GSP). We construct a detailed database over these trade preferences and use it to assess whether they have had an effect on developing countries’ exports and whether the systems have had different impact on exports. To achieve this we also estimate the effect of the successive EU enlargements on exports from developing countries. A gravity model taking into account the evolution of developing countries’ exports is estimated on a large sample of EU importers and developing country exporters over the period 1960-2002. The main findings are that certain preference systems have had large effects—the largest are found for the ACP countries, where the preferences increase exports by about 30 %, followed by Mediterranean countries—and that, countries joining the EU, ceteris paribus, import less from developing countries as they become members. |
| Keywords: | EU trade preferences; Trade; Developing Countries; Gravity model |
| JEL: | C23 F13 |
| Date: | 2006–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2006_004&r=eec |
| By: | Raabe Katharina; Arnold Ivo J.M.; Kool Clemens J.M. (METEOR) |
| Abstract: | This paper presents evidence on the industry effects of bank lending in Germany and asks whether bank lending to single industries depends on industry-specific bank credit demand or on monetary policy as determinant of bank credit supply. To this end, we estimate individual bank lending functions for 17 manufacturing and non-manufacturing industries and five banking groups using quarterly bank balance sheet and bank lending data for the period 1992:1-2002:4. The evidence from dynamic panel data models illustrates that industry bank lending responds more to changes in industry-specific bank credit demand than to changes in monetary policy. We report evidence in favor of a credit channel through bank lending, but find the bank lending effects of monetary policy to be very sensitive to the choice of industry. The empirical results, hence, lend strong support to the existence of industry effects of bank lending. In view of this finding, we conclude that bank lending growth and monetary policy effectiveness crucially depend on the industry composition of bank credit portfolios. |
| Keywords: | monetary economics ; |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2006005&r=eec |
| By: | Jacob A. Bikker; Peter J.G. Vlaar |
| Abstract: | In the Netherlands, the typical pension contract nowadays comprises an average earnings defined benefit pension in which only nominal benefits are guaranteed, but with the intention to provide wage indexation. In the new supervisory regime, the guaranteed pension rights, based on market valuation, are subject to risk-based solvency requirements. Provisioning is not required for conditional pension rights, though contributions have to be consistent with the indexation ambition, as communicated with the participants. This paper analyses to what extent indexation is indeed likely, given different indexation and contribution policies. Thereby, it explains how intergenerational risk sharing in defined benefit pension plans can provide a reasonable insurance of pension benefits against wage or price inflation. Moreover, it illustrates the tenability of defined benefit pension plans under ageing, the new fair-value accounting regimes, and possible volatility on financial markets. The analysis is based on a stochastic Pension Asset and Liability Model for the Netherlands (PALMNET). According to the PALMNET simulations, voluntary provisioning for indexation is to be recommended. Without reserving, indexation cuts may be severe and the solvency requirements incidentally lead to extreme premiums. Fully guaranteed indexation is virtually unaffordable under the new supervisory regime, because the real discount rate is generally both very low and volatile. |
| Keywords: | Average wage defined benefit pension; Monte Carlo simulations; Regulation. J.E.L. Code: C15; C59; G23; J18 |
| JEL: | C33 E41 G3 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:086&r=eec |