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on European Economics |
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Issue of 2010‒04‒04
seventeen papers chosen by Giuseppe Marotta University of Modena and Reggio Emilia |
| By: | Ansgar Belke; Holger Zemanek; Gunther Schnabl |
| Abstract: | In the past decade, a set of euro area countries has accumulated large current account defi cits. After a brief relaxation of the euro area internal imbalances in the wake of the fi nancial crisis, it appears as if this pattern arises anew when times normalize again and Germany still sticks to export-led growth. This issue has been labelled one of the most challenging economic policy issues for Europe inter alia by the European Commission and some other players on the EU level. In this paper, we analyse the role of private restructuring and structural reforms for the urgently needed sustainable readjustment of intra-euro area current account balances. A panel regression reveals a signifi cant impact of structural reforms on intra-euro area current account balances. This implies that in particular structural reforms and wage restraint in notorious current account and budget defi cit countries such as Greece are highly suitable to support long-term economic stability in Europe. |
| Keywords: | Structural reforms; current account balances; euro area; dynamic panel estimation; interaction term |
| JEL: | E24 F15 F16 F32 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0176&r=eec |
| By: | Juan Ignacio Aldasoro; Václav Žďárek |
| Abstract: | In this paper, we present evidence on the statistical features of observed dispersion in HICP inflation rates in the Euro area. Our descriptive exercise shows that there is still a remarkable dispersion of HICP inflation rates across the member countries. We find that most of dispersion originates in the non-traded categories of the HICP. This suggests that the main source of dispersion in countries' headline inflation rates is in those components of the HICP where non-traded goods (services, (public) goods with regulated and administered prices) are more intensely represented. We then examine the determinants of inflation differentials in a panel of the states of the Euro area in 1999–2007 using alternative classifications of this group and three different datasets. The evidence presented shows that output gaps and a proxy for price level convergence were statistically significant. On the other hand, some determinants that were found significant in previous studies (for example Honohan and Lane, 2003, 2004; ECB, 2003) has no impact on inflation in our expanded time span (e.g. exchange rate movements) The dispersion of HICP inflation is expected to increase in the coming years as the new EU member states will join the Euro area. There are some risks for these countries connected with the common monetary policy, which is adjusted more to the conditions of stabilized advanced economies forming the core of the Euro area. This creates potential problems for the EU common monetary policy (ECB), in particular negative (positive) interest rates, their repercussions on investment processes, consumption and the possibility of creating asset bubbles. |
| Keywords: | inflation differentials, price convergence, exchange rate, panel data |
| JEL: | C23 E31 F15 F41 |
| Date: | 2009–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2009-958&r=eec |
| By: | DANIEL DAIANU; LAURIAN LUNGU |
| Abstract: | What are the prospects for New Member States to join the euro-zone in the not too distant future? They seem to be in a catch-22 situation Because of the current financial crisis some Maastricht criteria would be more difficult to fulfil in the short and medium term, which would make it hard for them to join the eurozone. But there is also an argument, which highlight benefits of a faster accession due to dynamic effects for the countries involved and for the eurozone as a whole. |
| Keywords: | finance, EU, Europe, eurozone, enlargement |
| JEL: | E52 F36 |
| Date: | 2009–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2009-947&r=eec |
| By: | Carstensen, Kai; Wohlrabe, Klaus; Ziegler, Christina |
| Abstract: | In this paper we assess the information content of seven widely cited early indicators for the euro area with respect to forecasting area-wide industrial production. To this end, we use various tests that are designed to compare competing forecast models. In addition to the standard Diebold-Mariano test, we employ tests that account for specific problems typically encountered in forecast exercises. Specifically, we pay attention to nested model structures, we alleviate the problem of data snooping arising from multiple pairwise testing, and we analyze the structural stability in the relative forecast performance of one indicator compared to a benchmark model. Moreover, we consider loss functions that overweight forecast errors in booms and recessions to check whether a specific indicator that appears to be a good choice on average is also preferable in times of economic stress. We find that on average three indicators have superior forecast ability, namely the EuroCoin indicator, the OECD composite leading indicator, and the FAZ-Euro indicator published by the Frankfurter Allgemeine Zeitung. If one is interested in one-month forecasts only, the business climate indicator of the European Commission yields the smallest errors. However, the results are not completely invariant against the choice of the loss function. Moreover, rolling local tests reveal that the indicators are particularly useful in times of unusual changes in industrial production while the simple autoregressive benchmark is difficult to beat during time of average production growth. |
| Keywords: | weighted loss; leading indicators; euro area; forecasting |
| JEL: | C32 C53 E32 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:11442&r=eec |
| By: | L. Marattin; S. Salotti |
| Abstract: | The ongoing massive fiscal policy stimulus triggered increasing concerns on the potential impact on interest rate levels, as economic theory predicts. Particularly, the deterioration of some EMU countries’ fiscal positions has been putting at risk Eurozone’ financial stability. In this paper, we estimate a Panel VAR (PVAR) model on the EMU area employing annual data from 1970 to 2008 in order to assess the qualitative and quantitative impact of public debt on interest rates Our results show that prior to the introduction of the Euro an increase in public debt led to positive and significant effect on long-term nominal interest rates, with a stronger effect for high-debt countries. After the introduction of the single currency, the effect vanishes (in line with Bernoth 2004). We interpret this result as a confirmation of the crucial role of the monetary union in weakening the automatic risk-premium-based channel between debt shocks and returns on government bond. |
| JEL: | E62 G12 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:695&r=eec |
| By: | Ansgar Belke; Jens Klose |
| Abstract: | We assess diff erences that emerge in Taylor rule estimations for the Fed and the ECB before and after the start of the subprime crisis. For this purpose, we apply an explicit estimate of the equilibrium real interest rate and of potential output in order to account for variations within these variables over time. We argue that measures of money and credit growth, interest rate spreads and asset price infl ation should be added to the classical Taylor rule because these variables are proxies of a change in the equilibrium interest rate and are, thus, also likely to have played a major role in setting policy rates during the crisis. Our empirical results gained from a state-space model and GMM estimations reveal that, as far as the Fed is concerned, the impact of consumer price infl ation, and money and credit growth turns negative during the crisis while the sign of the asset price infl ation coeffi cient turns positive. Thus we are able to establish signifi cant diff erences in the parameters of the reaction functions of the Fed before and after the start of the subprime crisis. In case of the ECB, there is no evidence of a change in signs. Instead, the positive reaction to credit growth, consumer and house price infl ation becomes even stronger than before. Moreover we fi nd evidence of a less inertial policy of both the Fed and the ECB during the crisis. |
| Keywords: | Subprime crisis; Federal Reserve; European Central Bank; equilibrium real interest rate; Taylor rule |
| JEL: | E43 E52 E58 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0166&r=eec |
| By: | Bertola, Giuseppe; Dabusinskas, Aurelijus; Hoeberichts, Marco; Izquierdo, Mario; Kwapil, Claudia |
| Abstract: | This paper analyses information from survey data collected in the framework of the Eurosystem's Wage Dynamics Network (WDN) on patterns of firm-level adjustment to shocks. We document that the relative intensity and the character of price vs. cost and wage vs. employment adjustments in response to cost-push shocks depend - in theoretically sensible ways - on the intensity of competition in firms' product markets, on the importance of collective wage bargaining and on other structural and institutional features of firms and of their environment. Focusing on the passthrough of cost shocks to prices, our results suggest that the pass-through is lower in highly competitive firms. Furthermore, a high degree of employment protection and collective wage agreements tend to make this pass-through stronger. -- |
| Keywords: | Wage bargaining,labour-market institutions,survey data,European Union |
| JEL: | J31 J38 P50 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:201002&r=eec |
| By: | Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (Eiiw)); Jens K. Perret (Europäisches Institut für Internationale Wirtschaftsbeziehungen (Eiiw)) |
| Abstract: | Based on the OECD's classification of goods, we take a closer look at EU 15 countries and EU accession countries in terms of the dynamics of sectoral output growth - with due emphasis on the distinction between labor-intensive and science-intensive products. Sectoral output dynamics are explained by the (modified) revealed comparative advantage (RCA), specialization in terms of input intensity, the growth rate of RCA, past sectoral output dynamics and per capita output. In addition, we consider the development of nominal sectoral output development. Considerable differences between EU 15 and EU 10 countries were found, which point to different production regimes in leading EU countries and the Eastern European accession countries, respectively. This panel-based bottom-up approach to output growth suggests that structural change will affect the responsiveness of the supply side considerably. |
| Keywords: | RCA, Output Growth, Sektoral Output Analysis |
| JEL: | C23 O47 O52 R10 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:bwu:eiiwdp:disbei173&r=eec |
| By: | Christophe Rault; Guglielmo Maria Caporale; Robert Sova; Anamaria Sova |
| Abstract: | This paper analyses trade specialisation dynamics in two Eastern European countries (Romania and Bulgaria - EEC-2) vis-à-vis the core EU member states (EU-15) over the period 1990-2006. Specifically, we focus on whether there is a shift towards intra-industry trade leading to economic convergence and technological catch-up. We use recently developed static (FEM, REM and FEVD) and dynamic (GMM) panel data methods which take into account possible heterogeneity. Our empirical results indicate that intra-industry trade has indeed increased, but it is of the vertical rather than the horizontal type, resulting in complementary rather than competitive production patterns. |
| Keywords: | gravity models, panel data models, trade specialisation, comparative advantage |
| JEL: | F13 F15 C23 |
| Date: | 2009–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2009-959&r=eec |
| By: | Ansgar Belke; Joscha Beckmann; Michael Kühl |
| Abstract: | This paper examines the importance of diff erent economic sentiments, e.g. consumer moods, for the Central and Eastern European countries (CEECs) during the transition process. We fi rst analyze the importance of economic confi dence with respect to the CEECs’ fi nancial markets. Since the integration of formerly strongly-regulated markets into global markets can also lead to an increase in the dependence of the CEECs’ domestic market performance on global sentiments, we also investigate the relationship between global economic sentiments and domestic income and share prices. Finally, we test whether the impact of global sentiments and stock prices on domestic variables increases proportionally with the degree of integration. We also account for eff ects stemming from global income. For these purposes, we apply a restricted cointegrating VAR (CVAR) framework based upon a restricted autoregressive model which allows us to distinguish between the long-run and the short-run dynamics. For the long run we fi nd evidence supporting relationships between sentiments, income and share prices in the case of the Czech Republic. Our results for the short run suggest that economic sentiments in general are infl uenced by share prices but also off er some predictive power with respect to the latter. What is more, European sentiments play an important role in particular for the CEECs’ share prices and income. The signifi cance of this link increases with economic integration. |
| Keywords: | Cointegration; European integration; fi nancial markets; restricted autoregressive model; sentiments |
| JEL: | E44 G15 P2 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0174&r=eec |
| By: | Alexandra Ferreira-Lopes (ISCTE - Lisbon University Institute - Department of Economics, UNIDE-ERC and DINÂMIA); Tiago Neves Sequeira (UBI and INOVA-UNL) |
| Abstract: | In this work we assess the existence of a S-Curve pattern in ten Central and Eastern European Countries (CEEC-10) for the relation between the trade balance and the terms of trade. Empirical results support the existence of this curve for Slovenia, Czech Republic, Hungary, and also for an aggregate of the ten transition countries. In the case of Lithuania, Poland, Romania, and Slovakia the pattern is weaker than in the mentioned countries but it stills prevails. We then document this property of business cycles in the dynamic general equilibrium trade model of Backus, Kehoe, and Kydland (1994) calibrated specifically to match the CEEC-10 aggregate economy. Results support the existence of a S-Curve, except when technology shocks are absent and domestic and imported goods are perfect substitutes. |
| Keywords: | Central and Eastern European Countries, Current Account Dynamics, Terms of Trade, S-Curve. |
| JEL: | C68 F32 F41 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:isc:wpaper:ercwp0310&r=eec |
| By: | Coricelli, Fabrizio (Paris School of Economics); Driffield, Nigel (Aston University); Pal, Sarmistha (Brunel University); Roland, Isabelle (London School of Economics) |
| Abstract: | The paper examines the relationship between leverage and growth in a group of emerging central and eastern European countries, who are at different levels of financial market development. We hypothesize a non-linear relationship in that moderate leverage could boost growth while very high leverage could lower it by increasing the likelihood of financial distress and bankruptcy. Estimates of a Threshold model confirm the non-linear relationship in our sample, after controlling for various firm, industry and financial market characteristics. We also endogenously determine a threshold level of leverage beyond which further increases in leverage could lower TFP growth. |
| Keywords: | excess leverage, bank efficiency, market capitalization, TFP growth, Threshold model, non-linear relationship, transition experience |
| JEL: | G32 O16 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4834&r=eec |
| By: | Borek Vasicek |
| Abstract: | The paper seeks to shed light on inflation dynamics of four new EU member states (the Czech Republic, Hungary, Poland and Slovakia). To this end, the New Keynesian Phillips curve augmented for open economies is estimated and additional statistical tests applied. We find the following. (1) The claim of New Keynesians that the real marginal cost is the main inflation-forcing variable is fragile. (2) Inflation seems to be driven by external factors. (3) Although inflation holds forward-looking component, the backward-looking one is substantial. An intuitive explanation for higher inflation persistence may be rather adaptive than rational price setting of local firms. |
| Keywords: | Inflation dynamics, New Keynesian Phillips curve, CEE countries, GMM estimation |
| JEL: | C32 E31 |
| Date: | 2009–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2009-971&r=eec |
| By: | Borek Vasicek |
| Abstract: | This paper has three objectives. First, it aims at revealing the logic of interest rate setting pursued by monetary authorities of 12 new EU members. Using estimation of an augmented Taylor rule, we find that this setting was not always consistent with the official monetary policy. Second, we seek to shed light on the inflation process of these countries. To this end, we carry out an estimation of an open economy Philips curve (PC). Our main finding is that inflation rates were not only driven by backward persistency but also held a forward-looking component. Finally, we assess the viability of existing monetary arrangements for price stability. The analysis of the conditional inflation variance obtained from GARCH estimation of PC is used for this purpose. We conclude that inflation targeting is preferable to an exchange rate peg because it allowed decreasing the inflation rate and anchored its volatility. |
| Keywords: | open emerging economies, CEE countries, monetary policy rules, open economy Phillips curve, conditional inflation variance |
| JEL: | E31 E52 E58 P24 |
| Date: | 2009–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2009-968&r=eec |
| By: | Alfredo Martín-Oliver (Banco de España) |
| Abstract: | This paper examines the nature of competition in the Spanish banking industry during the years before and after Spain joined the European Monetary Union (EMU). The paper models competition in a product-differentiated market where banks choose from a list of price (interest rates of loans and deposits) and non-price variables (branches, advertising, IT capital). The empirically estimated demand and cost functions are used to simulate the values of the endogenous variables of the representative bank in response to the historically low official interest rates of the post Euro period. The results show that there has been a convergence in the levels of price competition in the loans and deposits markets during the post Euro period. Additionally, the paper finds that branches have lost weight in the mix of competition variables in benefit of advertising and IT capital. This is interpreted as evidence that traditional proximity banking is evolving towards distant banking. Finally, the simulation results highlight the high imbalances between loans and deposits for the representative bank in the regime of low official interest rates of the Euro zone. |
| Keywords: | banking competition, product differentiation, intangibles, simulation |
| JEL: | G21 D24 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1008&r=eec |
| By: | A. Fedele; A. Mantovani; F. Liucci |
| Abstract: | In this paper we consider a moral hazard problem between a creditworthy firm which needs funding and a bank. We first study under which conditions the firm does not obtain the loan. We then determine whether and how the intervention of an external financial institution can facilitate the access to credit. In particular, we focus on the European Investment Bank Group (EIBG), which provides (i) specific credit lines to help banks that finance small and medium-sized enterprises (SMEs)and (ii) guarantees for portfolios of SMEs'loans. We show that only during crises the EIBG intervention allows to totally overcome the credit crunch. |
| JEL: | D82 D21 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:699&r=eec |
| By: | Alexander Karaivanov (Simon Fraser University); Sonia Ruano (Banco de España); Jesús Saurina (Banco de España); Robert Townsend (MIT) |
| Abstract: | This paper examines whether financial constraints affect firms’ investment decisions for older (larger) firms. We compare a group of unbanked firms to firms that rely on formal financing. Specifically, we combine data from the Spanish Mercantile Registry and the Bank of Spain Credit Registry (CIR) to classify firms according to their number of banking relations: one, several, or none. Our empirical strategy combines two approaches based on a common theoretical model. First, using a standard Euler equation adjustment cost approach to investment, we find that single-banked firms in our sample are most likely to exhibit cash flow sensitivity while unbanked firms are not. Second, using structural maximum likelihood estimation, we find that unbanked firms have a financial structure which is close to credit subject to moral hazard with unobserved effort, whereas single-banked firms have a financial structure which is more limited, as in an exogenously imposed traditional debt model. Firms in the unbanked category do not rely on bonds, equity, or formal financial markets, but rather on other firms in a financial or family-tied group (with either pyramidal or informal structure). We are among the first to document the importance of such groups in a European country. We control for reverse causality by treating bank relationships as endogenous and/or by appropriate stratifications of the sample. |
| Keywords: | financial constraints, bank lending, investment Euler equations, moral hazard, structural estimation and testing |
| JEL: | C61 D82 D92 G21 G30 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1003&r=eec |