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on European Economics |
| By: | McQuinn, Kieran (Central Bank and Financial Services Authority of Ireland); Slevin, Geraldine (Central Bank and Financial Services Authority of Ireland) |
| Abstract: | In this paper we examine the role played by technology spillovers between the United States and the Euro area. We explicitly assume that the United States acts as a growth leader for Europe and that the Euro area is constantly converging to US total factor productivity (TFP) levels. As a result, a growing divergence in the level of US TFP vis-`a-vis that of Europe results in an increase in the growth rate of Euro area TFP. The model is applied to TFP data from 26 subsectors of both economies. The role of greater ICT adoption in increasing Euro area TFP is also explored. |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:13/rt/09&r=eec |
| By: | Luca Agnello (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Jacopo Cimadomo (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper explores how discretionary fiscal policies on the revenue side of the government budget have reacted to economic fluctuations in European Union countries. For this purpose, it uses data on legislated revenue changes and structural indicators provided twice per year by National Central Banks of European Union countries in the ESCB framework for analysing fiscal policy. The analysis is based on the estimation of fiscal policy rules linking these measures of legislated fiscal policy changes to the output gap and other control variables. Then, baseline results are compared with regression estimates where variations of cyclically-adjusted indicators are used as proxy for discretionary fiscal policies, as conventionally proposed in the empirical literature on fiscal policy. Results suggest that, overall, legislated changes in taxes and social security contributions have responded in a strongly pro-cyclical way to the business cycle, while commonly-used cyclical-adjustment methods point to a-cyclicality. JEL Classification: E62, E65, H20. |
| Keywords: | Discretionary fiscal policies, government revenues, cyclical sensitivity, legislation changes, narrative approach, ESCB disaggregated framework. |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20091118&r=eec |
| By: | Raphael Espinoza (International Monetary Fund, 700 19th Street, N.W., Washington, D.C. 20431, USA.); Fabio Fornari (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Marco J. Lombardi (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | Previous research has shown that the US business cycle leads the European cycle by a few quarters, and can therefore help predicting euro area GDP. We investigate whether financial variables provide additional predictive power. We use a VAR model of the US and the euro area GDPs and extend it to take into account common global shocks and information provided by selected combinations of financial variables. In-sample analysis shows that shocks to financial variables influence real activity with a peak around 4 to 6 quarters after the shock. Out-of-sample Root-Mean- Squared Forecast Error (RMFE) shows that adding financial variables yields smaller errors in forecasting US economic activity, especially at a five-quarter horizon, but the gain is overall tiny in economic terms. This link is even less prominent in the euro area, where financial indicators do not improve short and medium term GDP forecasts even when their timely availability, relative to a given GDP release, is exploited. The same conclusion is reached with a dataset of quarterly industrial production indices, although financial variables marginally improve forecasts of monthly industrial production. We argue that the findings that financial variables have no predictive power for future activity in the euro area relate to the unconditional nature of the RMFE metric. When forecasting ability is assessed as if in real time (i.e. conditionally on the information available at the time when forecasts are made), we find that models using financial variables would have been preferred in many episodes, and in particular between 1999 and 2002. Results from the historical decomposition of a VAR model indeed suggest that in that period shocks were predominantly of financial nature. JEL Classification: F30, F42, F47. |
| Keywords: | VAR, Financial Variables, International Linkages, Conditional Forecast. |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20091108&r=eec |
| By: | Ryan, Mary (Central Bank and Financial Services Authority of Ireland) |
| Abstract: | Reviewing economic performance over the past three decades, it is apparent that GDP growth in the US has been faring better than that in the Euro Area. This paper aims to identify periods where growth rates have diverged between the two economic areas with particular focus on the role of investment as a means of accumulating productive capital stock. The relative importance of capital in GDP growth is assessed for the US, Euro Area aggregate and individual Member States. Investment growth rates for the Euro Area are reviewed on a disaggregated basis, noting the relative contributions of each country to the total. Finally, the Marginal Product of Capital is calculated for each country, with a view to assessing whether disparities in investment growth rates between Euro Area countries can be understood in this context. |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:15/rt/09&r=eec |
| By: | L. Marattin; S. Salotti |
| Abstract: | We investigate the effects of fiscal policy on private consumption and investment in the European Union. A certain consensus has aroused that fiscal impulses have expansionary Keynesian effects on the economic activity. However, the existing empirical literature has concentrated on few countries, mostly outside the EU. We check the validity of this result for the EU area, by using annual data and a panel vector auto-regression approach (PVAR). Our results show that increases in public spending lead to positive and significant effects on private consumption and private investment. According to our baseline estimate, a 1% increase in public spending produces a 0.36% on impact rise in private consumption, and a 0.79% impact rise in private investment. The effects are substantial, and die out slowly (faster in the case of private consumption). A further disaggregation between wage and non-wage components reveals different effects. As for the impact on private consumption, our results show that public salaries have a relatively stronger stimulating role, a result which is probably due to the importance of the public sector especially in continental Europe. On the other hand, the positive impact on private investment is mainly due to the non-wage component of government consumption. |
| JEL: | E62 C33 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:686&r=eec |
| By: | Bellégo, C.; Ferrara, L. |
| Abstract: | Recent macroeconomic evolutions during the years 2008 and 2009 have pointed out the impact of financial markets on economic activity. In this paper, we propose to evaluate the ability of a set of financial variables to forecast recessions in the euro area by using a non-linear binary response model associated with information combination. Especially, we focus on a time-varying probit model whose parameters evolve according to a Markov chain. For various forecast horizons, we provide a readable and leading signal of recession by combining information according to two combining schemes over the sample 1970-2006. First we average recession probabilities and second we linearly combine variables through a dynamic factor model in order to estimate an innovative factor-augmented probit model. Out-of-sample results over the period 2007-2008 show that financial variables would have been helpful in predicting a recession signal as September 2007, that is around six months before the effective start of the 2008-2009 recession in the euro area. |
| Keywords: | Macroeconomic forecasting, Business cycles, Turning points, Financial markets, Non-linear time series, Combining forecasts. |
| JEL: | C53 E32 E44 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:259&r=eec |
| By: | Gilbert Cette; Yusuf Kocoglu; Jacques Mairesse |
| Abstract: | This study compares labor and total factor productivity (TFP) in France, Japan, the United Kingdom and the United States in the very long (since 1890) and medium (since 1980) runs. During the past century, the United States has overtaken the United Kingdom and become the leading world economy. During the past 25 years, the four countries have also experienced contrasting advances in productivity, in particular as a result of unequal investment in information and communication technology (ICT). The past 120 years have been characterized by: (i) rapid economic growth and large productivity gains in all four countries; (ii) a long decline of productivity in the United Kingdom relative to the United States, and to a lesser extent also to France and Japan, a relative decline that was interrupted by the second world war (WW2); (iii) the remarkable catching-up to the United States by France and Japan after WW2, that stopped in the case of Japan during the 1990s. Capital deepening (at least to the extent this can be measured) accounts for a large share of the variations in performance; increasingly during the past 25 years, this has meant ICT capital deepening. However, the capital contribution to growth varies considerably over time and across the four countries, and it is always less important, except in Japan, than the contribution of the various other factors underlying TFP growth, such as, among others, labor skills, technical and organizational changes and knowledge spillovers. Most recently (in 2006), before the current financial world crisis, hourly labor productivity levels were slightly higher in France than in the United States, and noticeably lower in the United Kingdom (by roughly 10%) and even lower in Japan (30%), while TFP levels are very close in France, the United Kingdom and the United States, but much lower (40%) in Japan. |
| JEL: | E22 J24 N10 O47 O57 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15577&r=eec |
| By: | Benos, Nikos |
| Abstract: | This paper studies whether a reallocation of the components of public spending and revenues can enhance economic growth using data on 14 EU countries during 1990-2006. The results provide support for endogenous growth models. Specifically, the findings are: a) public expenditures on infrastructure (economic affairs, general public services) and property rights protection (defense, public order-safety) exert a positive impact on growth; b) distortionary taxation depresses growth; c) government expenditures on human capital enhancing activities (education, health, housing-community amenities, environment protection, recreation-culture-religion) and social protection do not have a significant growth effect. However, when coefficient heterogeneity across countries along with non-linearities are taken into account and public expenditures are further disaggregated, we have in addition that government outlays on education, defense and social protection are growth-enhancing. These findings are robust to changes in specification and estimation methodology. |
| Keywords: | Panel Data; Fiscal Policy; Taxation; Government Expenditures. |
| JEL: | E62 C23 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19174&r=eec |
| By: | Barthélemy, J.; Marx, M.; Poissonnier, A. |
| Abstract: | We analyze the euro area business cycle in a medium scale DSGE model where we assume two stochastic trends: one on total factor productivity and one on the inflation target of the central bank. To justify our choice of integrated trends, we test alternative specifications for both of them. We do so, estimating trends together with the model's structural parameters, to prevent estimation biases. In our estimates, business cycle fluctuations are dominated by investment specific shocks and preference shocks of households. Our results cast doubts on the view that cost push shocks dominate economic fluctuations in DSGE models and show that productivity shocks drive fluctuations on a longer term. As a conclusion, we present our estimation's historical reading of the business cycle in the euro area. This estimation gives credible explanations of major economic events since 1985. |
| Keywords: | New Keynesian model, Business Cycle, Bayesian estimation. |
| JEL: | E32 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:258&r=eec |
| By: | Juraj Stancik; Timo Valila |
| Abstract: | The share of public investment relative to consumption expenditure has declined in past decades. Earlier literature has attributed this stylised fact variably to the relative political ease of cutting investment; different cyclical patterns of public investment and consumption; or to EMU’s fiscal rules. We consider the impact of both cyclical and structural changes in the fiscal stance on public spending composition for a panel of EU countries, including individual components of public investment. We find that both cyclically-induced and structural changes in the fiscal stance affect the composition of public spending, with fiscal tightening of both types increasing, not decreasing, the relative share of investment and loosening favouring consumption expenditure. There is, however, some asymmetry in that the gain in investment following a tightening tends to be smaller than the gain in consumption expenditure following a loosening. Of the components of public investment, infrastructure and redistribution respond to cyclical changes in the fiscal stance, while investment in hospitals and schools responds most clearly to structural changes. |
| Keywords: | Fiscal policy, public expenditure, fiscal stance. |
| JEL: | E62 H50 H62 C33 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp394&r=eec |
| By: | Fabrizio Mazzonna (Faculty of Economics, University of Rome "Tor Vergata"); Franco Peracchi (Faculty of Economics, University of Rome "Tor Vergata") |
| Abstract: | We investigate the relationship between aging, cognitive abilities and retirement using the Survey on Health, Aging and Retirement in Europe (SHARE), a longitudinal survey that offers the possibility of comparing several European countries using nationally representative samples of the population aged 50+. We use a version of the model proposed by Grossman (1972) as a guide for our empirical specification of the age-profile of cognitive abilities. According to the model, retirement plays a fundamental role in explaining the process of cognitive deterioration. Our empirical results confirm this key prediction. They also indicate that education plays a fundamental role in explaining heterogeneity in the level of cognitive abilities. |
| Keywords: | Aging; cognitive abilities; retirement; education; SHARE |
| JEL: | J14 J24 C23 |
| Date: | 2009–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:152&r=eec |
| By: | Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw); Terry Ward; Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Michael Landesmann (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | This study has been prepared for the European Commission (Framework Contract B2/Entr/05/091) and is composed of five sections. The first three sections all deal with assessing the role of skills in the European economy: Section 1 undertakes a number of econometric exercises to analyse the relationship between skills and two indicators of competitiveness, productivity growth and exports. This and the next section represent new research effort in that a disaggregated database (by NACE 2-digit industries) has been used to analyse this relationship. Section 2 extends the analysis towards the relationship between skills and economic growth by analysing the role of skills in the context of a growth accounting exercise where skill changes are separately identified in affecting the 'quality of labour services' and hence the contribution of labour input to value added. Again the analysis exploits the detailed, disaggregated database made recently available through the EU KLEMS project. Section 3 presents an overview of skill compositional changes in different groups of EU economies. We distinguish between EU Northern economies, EU South (composed of Greece, Portugal and Spain) and the New Member States (restricted to only four countries, the Czech Republic, Hungary, Slovakia and Slovenia, for data reasons). In this section aggregate, economy-wide skill upgrading is decomposed into 'within' and 'between' (industry) changes in skill composition and the results show interesting patterns distinguished for more advanced and catching-up types of economies. The last two sections move away from the topic of reviewing the impact of skills on economic performance and the tracking of changing skill demands in EU economies. In section 4, a literature overview is provided of empirical studies regarding returns to skill acquisition through schooling and training. The idea behind this section is that returns to schooling and training reflect both skill shortages and also provide the basis for decisions with regard to skill acquisition. Finally, section 5 presents a country-by-country overview of how information is gathered with regard to skill gaps in different EU economies. The methodologies and sources for assessing skill shortages are reviewed. These are a necessary ingredient into any attempt of designing policies in relation to skill planning and the design of schooling and training institutions. The section closes with a recommendation on useful extension of European-wide vacancy statistics. |
| Keywords: | skills, competitiveness, European industry, Industry, International Trade and Competitiveness, Labour and Migration |
| JEL: | D24 F14 J24 O47 O52 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:wii:rpaper:rr:356&r=eec |
| By: | Muller, Adrian (Department of Economics, School of Business, Economics and Law, Göteborg University); Sterner, Thomas (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | In permit trading systems, free initial allocation is common practice. A recent example is the European Union Greenhouse Gas Emission Trading Scheme (EU-ETS). We investigate effects of different free allocation schemes on incentives and identify significant perverse effects on abatement and output employing a simple multi-period model. Firms have incentives for strategic action if allocation in one period depends on their actions in previous ones and thus can be influenced by them. These findings play a major role where trading schemes become increasingly popular as environmental or resource use policy instruments. This is of particular relevance in the EU-ETS, where the current period is a trial-period before the first commitment period of the Kyoto protocol. Finally, this paper fills a gap in the literature by establishing a consistent terminology for initial allocation.<p> |
| Keywords: | - |
| JEL: | D62 D78 Q50 |
| Date: | 2009–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0413&r=eec |
| By: | Mamatzakis, E; Koutsomanoli, A |
| Abstract: | European banking markets have become increasingly integrated in recent years, but barriers to full integration, especially in retail banking, still remain. This paper covers a gap in the literature by providing a first insight into the process of financial integration in the European Union (EU) in terms of convergence in the speed of adjustment of cost inefficiency to equilibrium level. We employ a quadratic loss function specification based on forward-looking rational expectations to model the underlying dynamics of efficiency scores in the banking industry of the EU-15 region over the period 1998-2005. Results show that there is considerable variation in the speed of adjustment across banking systems, while over time it also appears that continuing efforts to advance financial integration have not as yet led to an improvement in the speed of adjustment to the long run equilibrium. |
| Keywords: | Speed of adjustment; rational expectations; cost inefficiency |
| JEL: | D21 G21 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19379&r=eec |
| By: | Jan Bena; Peter Ondko |
| Abstract: | We examine whether financial systems facilitate efficient allocation of resources into perspective projects. Employing European micro-level data from 1996-2005, we show that firms in industries with the best growth opportunities use more external finance in financially more developed countries. The result is robust to controlling for technology determinants of external finance and to choosing different proxies for growth opportunities. We also find that the explanatory power of the technology determinants decreases significantly once growth opportunities are controlled for, which suggests that the often used measures of determinants of external finance are partly driven by growth opportunities. |
| Keywords: | Financial development, external finance, allocative efficiency |
| JEL: | F3 O16 G3 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp398&r=eec |
| By: | Peter Havlik (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Roman Stöllinger (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | This policy paper, prepared as part of the Background Study for the European Competitiveness Report 2009, analyses the external trade in goods and services between the EU and the BRICs. The paper starts with the analysis of the global position of the EU and the BRICs in world trade (using the IMF DOT and UN COMTRADE databases) and moves subsequently to a more detailed analysis of regional (individual EU countries' trade with the BRICs), commodity and industry-specific trade specialization patterns, using the Eurostat Comext database. The key features of services trade are addressed as well. |
| Keywords: | foreign trade, trade specialization, competitiveness, European Union, Brazil, Russia, India, China, Industry, International Trade and Competitiveness, Services |
| JEL: | F10 F14 F23 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:wii:rpaper:rr:357&r=eec |
| By: | Ortega, Francesc; Peri, Giovanni |
| Abstract: | This paper contains three important contributions to the literature on international migrations. First, it compiles a new dataset on migration flows and stocks and on immigration laws for 14 OECD destination countries and 74 sending countries for each year over the period 1980-2005. Second, it extends the empirical model of migration choice across multiple destinations, developed by Grogger and Hanson (2008), by allowing for unobserved individual heterogeneity between migrants and non-migrants. We use the model to derive a pseudo-gravity empirical specification of the economic and legal determinants of international migration. Our estimates show that bilateral migration flows are increasing in the income per capita gap between origin and destination. We also find that bilateral flows decrease significantly when the destination countries adopt stricter immigration laws. Third, we estimate the impact of immigration flows on employment, investment and productivity in the receiving OECD countries using as instruments the ”push” factors only in the gravity equation. We find that immigration increases employment one for one, implying no crowding-out of natives. In addition, investment responds rapidly and vigorously, and total factor productivity is not affected. These results imply that immigration increases the total GDP of the receiving country in the short-run one-for-one, without affecting average wages or labor productivity. We also find that the effects of immigration are less beneficial when the receiving economy is in bad economic times. |
| Keywords: | international Migration; Push and Pull factors; Migration costs; Employment; Investment; Productivity |
| JEL: | J6 O15 J0 |
| Date: | 2009–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19183&r=eec |
| By: | Gligorov, Vladimir |
| Abstract: | Migration from the European economies in transition is discussed on the bases of the research carried out within the framework of the Global Development Network over the last four to five years. Trade-offs between functionings and capabilities are traced in cases of voluntary and involuntary migration as well as in the case of permanent and temporary migration. Various causes and effects of migration are considered. Policy proposals end the paper. There is a literature review in the appendix with the view to check the claims made in the public debate on migration against the existing knowledge on that subject. |
| Keywords: | transition countries; migration; labour markets; European integration |
| JEL: | Z1 O15 |
| Date: | 2009–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19198&r=eec |
| By: | Ojo, Marianne |
| Abstract: | The past few years have seen a growing trend towards the focus on audit liability. In the UK, the Company Law Reform Bill which became the Companies Act 2006, has removed the previously existing limits on auditor liability and compelled an agreement between the company and the auditor. As well as the UK, audit liability caps also currently exist in Austria, Belgium, Germany, Greece and Slovenia. This paper addresses the four options presented by the European Commission in the reform of the audit liability regime in Europe. It also responds to the proposals put forward by Doralt and others in their response to the European Commission’s four options. The paper commences with a background to how increased audit concentration has contributed to increased audit liability measures. It then discusses the significance of the Companies Act 2006, following the leading case of Caparo Industries plc v Dickman and Others. The four options presented by the European Commission for reforming auditors’ liability regime are then introduced. In arriving at a preferred choice, the need for a consideration of harmonisation and facilitating greater cooperation between national financial regulators, were contributory factors. |
| Keywords: | audit; liability; financial; regulation |
| JEL: | L5 K2 M42 M4 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19242&r=eec |
| By: | Mendonça, Joana; Grimpe, Christoph |
| Abstract: | The question whether agglomeration externalities arise either from specialization or diversification of economic activity has since long been a major topic in the analysis of factors determining economic growth. In this paper we analyze whether a more specialized or a more diverse skill composition of labor in regions affects the level of new firm entries in general as well as in technology- and knowledge-intensive subsectors. We compare Germany and Portugal which exhibit, though EU member states, different institutional infrastructures for entrepreneurship. Based on a harmonized dataset, our results indicate that the skill composition has different effects on firm entry in the two countries. More specifically, for Portugal the specialization of skills has a positive effect on the level on new firm entry in all sectors. In contrast to this, our results for Germany reveal exactly the opposite effect. These results suggest that both specialization and diversity theories hold, and that the effect thus may depend on other more local and regional factors. -- |
| Keywords: | Entrepreneurship,skill composition,regional analysis,comparative study |
| JEL: | J24 L26 O57 R11 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:09060&r=eec |