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on European Economics |
| By: | Christian Ewerhart (Institute for Empirical Research in Economics (IEW), Winterthurerstrasse 30, CH-8006 Zurich, Switzerland.); Nuno Cassola (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Natacha Valla (Banque de France, 39, rue Croix-des-Petits-Champs, F-75049 Paris Cedex 01, France.) |
| Abstract: | It is argued that bidders in liquidity-providing central bank operations should typically possess declining marginal valuations. Based on this hypothesis, we construct an equilibrium in central bank refinancing operations organised as variable rate tenders. In the case of the discriminatory pricing rule, bid shading does not disappear in large populations. The predictions of the model are shown to be consistent with the data for the euro area. JEL Classification: D44, E52. |
| Keywords: | Open market operations, uniform price auction, discriminatory auction, Eurosystem. |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20060668&r=eec |
| By: | Annette Kamps (Kiel Institute for the World Economy, Düsternbrooker Weg 120, 24105 Kiel, Germany.) |
| Abstract: | This paper investigates the determinants of currency invoicing in international trade. Although the currency of invoicing is central for the transmission of monetary policy, empirical research on this topic is scarce due to a lack of data. With a new extensive invoicing dataset and a panel model analysis this paper shows that a country’s membership or prospective membership of the EU plays a decisive role in the choice of the euro as invoicing currency. The role of the euro as vehicle currency is increasing but still limited when compared to the U.S. dollar. Monetary instability and low product differentiation favour vehicle pricing in U.S. dollar. An increase of euro invoicing due to higher exchange rate volatility supports the role of the euro as vehicle currency, however. High market power defined as the share of a country’s total exports to world exports and membership of the euro area make invoicing in the home currency (euro) more likely. JEL Classification: F41, F42, L11. |
| Keywords: | International trade, currency invoicing, panel data. |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20060665&r=eec |
| By: | Angela Maddaloni (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Alberto Musso (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Philipp Rother (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Melanie Ward-Warmedinger (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Thomas Westermann (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper examines the macroeconomic consequences of future demographic trends for economic growth, financial markets and public finances. It shows that in the absence of reforms and responses by economic agents, the currently projected demographic trends imply a decline in average real GDP growth and a severe burden in terms of pay-as-you-go pension and health care systems. Population ageing will change the financial landscape, with a potentially larger role for financial intermediaries and asset prices. All this points to a need to closely monitor demographic change also from a monetary policy perspective. While population projections are surrounded by considerable uncertainty and the effects of demographic change tend to be drawn out, the magnitude of the potential effects calls for an early recognition of this issue. This paper provides some input to the examination of possible policy issues. |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20060051&r=eec |
| By: | Alfredo M. Pereira (Department of Economics, College of William and Mary); Maria de Fátima Pinho (Instituto Superior de Contabilidade e Administração) |
| Abstract: | In a period of heightened concern about fiscal consolidation in the euro area a politically expedient way of controlling the public budget is to cut public investment. A critical question, however, is whether or not political expediency comes at a cost, in terms of both long-term economic performance and future budgetary contention efforts. First, common wisdom suggests that public investments have positive effects on economic performance although the empirical evidence is less clear. Second, it is conceivable that public investment has such strong effects on output, that over time it generates enough additional tax revenues to pay for itself. Obviously, it is equally plausible that the effects on output although positive are not strong enough for the public investment to pay for itself. In this paper we investigate these issues empirically for the twelve countries in the euro area using a vector auto-regressive approach. We conclude that the euro countries can be gathered in four groups according to the nature of the economic and budgetary impact of public investment. The first group includes Austria, Belgium, Luxembourg, and Netherlands, where the economic effects are either negative or positive but very small and, therefore, cuts will be harmless for the economy and effective from a budgetary perspective. The second group includes Finland, Portugal, and Spain, where public investment does not pay for itself and, therefore, cuts are an effective tool of budgetary consolidation although they are harmful for the economy. The third group includes France, Greece, and Ireland where public investment just pays for itself and therefore cuts are not an effective way of achieving long-term budgetary consolidation and are harmful for the economy. Finally, the fourth group includes Germany and Italy, where public investment more than pays for itself and, therefore, cuts are not only harmful for the economy but also counterproductive from a budgetary perspective. |
| Keywords: | public investment, economic performance, budgetary consolidation, euro area |
| JEL: | C32 E62 H54 |
| Date: | 2006–08–23 |
| URL: | http://d.repec.org/n?u=RePEc:cwm:wpaper:40&r=eec |
| By: | Ekkehard Ernst (Corresponding author: OECD, Economics Department, 2, Rue André Pascal, 75775 Paris Cedex 16, France.); Gang Gong (School of Economics and Management, Tsinghua University, Beijing 100084, China.); Willi Semmler (New School and SCEPA, New York, and CEM, Bielefeld University. Contacts: The New School for Social Research, 65 Fifth Avenue, New York, NY 10003, USA.); Lina Bukeviciute (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | We estimate a dynamic intertemporal model with non-clearing markets that mimics features of European labour markets, such as sticky nominal wages and sluggish adjustment of employment to shocks for 15 OECD countries. The estimates include a measure for the degree of labour market sluggishness that compares well with standard indicators of product and labour market regulation. Calibration of the model on a selected country sample confirms its explanatory power in comparison with the standard competitive markets model. In a second step, the measure for labour market sluggishness is used as a policy variable and model variants are simulated in order to assess the extent to which the countries would have performed better with more flexible labour markets. These policy experiments show that an increase in labour market flexibility reduces the volatility of consumption relative to production, improves intertemporal efficiency but entails higher employment risk for households. JEL Classification: E32, C61. |
| Keywords: | Nominal and real rigidities, non-clearing labour markets, business cycles, labour market reforms in OECD countries. |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20060666&r=eec |