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on European Economics |
| By: | Antonio Ribba |
| Abstract: | The aim of this paper is to investigate the role played by macroeconomic shocks in shaping unemployment fluctuations, both in the USA and in the Euro area, in the recent, European Monetary Union, period. The task is accomplished by estimating a VAR model which jointly considers US and European variables. We identify the structural disturbances through sign restrictions on the dynamic response of variables. Our results show that there are real effects of monetary policy shocks and of non-monetary policy, financial shocks in both economic areas. Moreover, a significant role is also exerted by business cycle, adverse aggregate demand shocks. We provide an estimation of the relative importance of the identified structural shocks in explaining the variability of inflation and unemployment. Not surprisingly, in the last decade an important role has been played by financial shocks. |
| Keywords: | Structural VARs; Euro Area; Monetary Policy; Unemployment |
| JEL: | C32 E40 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:mod:depeco:627&r=eec |
| By: | Gianluigi Ferrucci (European Central Bank, Kaiserstrasse 29, 60311, Frankfurt am Main, Germany.); Rebeca Jiménez-Rodríguez (Department of Economics, University of Salamanca, Campus Miguel de Unamuno, E-37007, Salamanca, Spain.); Luca Onorante (European Central Bank, Kaiserstrasse 29, 60311, Frankfurt am Main, Germany.) |
| Abstract: | In this paper we analyse the pass-through of a commodity price shock along the food price chain in the euro area. Unlike the existing literature, which mainly focuses on food commodity prices quoted in international markets, we use a novel database that accounts for the role of the Common Agricultural Policy in the European Union. We model several departures from the linear pass-through benchmark and compare alternative specifications with aggregate and disaggregate food data. Overall, when the appropriate dataset and methodology are used, it is possible to identify a significant and longlasting food price pass-through. The results of our regressions are applied to the strong increase in food prices in the 2007-08 period; a simple decomposition exercise shows that commodity prices are the main determinant of the increase in producer and consumer prices, thus solving the pass-through puzzle highlighted in the existing literature for the euro area. JEL Classification: C32, C53, E3, Q17. |
| Keywords: | food commodity prices, inflation, non-linearities, pass-through. |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101168&r=eec |
| By: | J James Reade; Ulrich Volz |
| Abstract: | This paper considers the costs and benefits of Sweden joining the European Economic and Monetary Union (EMU). We pay particular attention to the costs of abandoning the krona in terms of a loss of monetary policy independence. For this purpose, we apply a cointegrated VAR framework to examine the degree of monetary independence that the Sveriges Riksbank enjoys. Our results suggest that Sweden has in fact relatively little to lose from joining EMU, at least in terms of monetary independence. We complement our analysis by looking into other criteria affecting the cost-benefit calculus of monetary integration, which, by and large, support our positive assessment of Swedish EMU membership. |
| Keywords: | Swedish EMU membership, Monetary Policy independence, European monetary integration |
| JEL: | E52 E58 F41 F42 C32 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:10-13&r=eec |
| By: | Inklaar, R.; Colangelo, A. (Groningen University) |
| Abstract: | Banks do not charge explicit fees for many of the services they provide but the service payment is bundled with the offered interest rates. This output therefore has to be imputed using estimates of the opportunity cost of funds. We argue that rather than using the single short-term, low-risk interest rate as in current official statistics, reference rates should more closely match the risk characteristics of loans and deposits. For the euro area, imputed bank output is, on average, 24 to 40 percent lower than according to current methodology. This implies an average downward adjustment of euro area GDP (at current prices) between 0.16 and 0.27 percent. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugggd:gd-117&r=eec |
| By: | European Commission |
| Abstract: | The European Commission services published a staff working document assessing the main sources of innovative financing under discussion. The analysis shows that for some of the instruments a "double dividend" of both raising revenues and improving market efficiency and stability could be reaped, in particular by putting a price on risk-taking in the financial sector and on carbon emissions. |
| Keywords: | European Union, taxation, financial transaction tax, bank levy, bonus tax, carbon tax, financial institutions |
| JEL: | G15 G18 G28 H21 H22 H23 H25 H27 H62 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:tax:taxstu:0031&r=eec |
| By: | Ansgar Belke |
| Abstract: | The ECB has accepted increasing amounts of rubbish collateral since the crisis started leading to exposure to serious private sector credit risk (i.e. default risk) on its collateralised lending and reverse operations ("repo"). This has led some commentators to argue that the ECB needs "fiscal back-up" to cover any potential losses to be able to continue pursuing price stability. This Brief argues that fiscal backing is not necessary for the ECB for three reasons. Firstly, the ECB balance sheet risk is small compared to the FED and BoE as it neither increased its quasi-fiscal operations as much as the Fed or the BoE nor did it engage to a very large extent in outright bond purchases during the financial crisis. Secondly, the ECB's specific accounting principles of repo operations provide for more clarity and earlier recognition of losses. Thirdly, the ECB can draw on substantial reserves of the euro area national banks. |
| Keywords: | Central bank independence, central bank capital, counterparty risk, repurchase agreements, collateral, fiscal backing, liquidity, haircuts |
| JEL: | G32 E42 E51 E58 E63 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp996&r=eec |
| By: | Jesmin Rahman |
| Abstract: | This paper estimates revenue and expenditure pro-cyclicality with respect to output and domestic absorption in new member states of the European Union and Croatia to assess whether these countries used the boom years of 2003-07 to create sufficient fiscal space. The current crisis has found many countries short of fiscal space. As these countries enter a different phase of capital inflows, some with large vulnerabilities and inflexible monetary policy options, the role of fiscal policy becomes more important. This paper also looks at these issues to see how fiscal policy can play a more effective role in demand management in these countries. |
| Date: | 2010–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/97&r=eec |
| By: | Reckon |
| Abstract: | This report is concerned with quantifying and analysing the VAT gap in each EU Member State over the period 2000?2006. This report has been produced by Reckon LLP following a study commissioned by the European Commission, Directorate-General for Taxation and Customs Union. It is the result of independent work carried out by Reckon LLP, and does not necessarily reflect the opinions or position of the European Commission or of the national bodies consulted. Any errors are our own. |
| Keywords: | European Union, taxation, value added taxation, tax fraud |
| JEL: | H25 H26 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:tax:taxstu:0029&r=eec |
| By: | Martin Berka; Michael B. Devereux |
| Abstract: | We study a newly constructed panel data set of relative prices of a large number of consumer goods among 31 European countries. We find that there is a substantial and nondiminishing deviation from PPP at all levels of aggregation, even among euro zone members. However, real exchange rates are very closely tied to relative GDP per capita within Europe, both across countries and over time. This relationship is highly robust at all levels of aggregation. We construct a simple two-sector endowment economy model of real exchange rate determination. Simulating the model using the historical relative GDP per capita for each country, we find that for most (but not all) countries there is a very close fit between the actual and simulated real exchange rate. |
| Keywords: | Foreign exchange rates ; Prices ; Econometric models ; Gross domestic product ; International trade ; Purchasing power parity |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:46&r=eec |
| By: | ZEW |
| Abstract: | The project 'Effective tax rates in an enlarged European Union' is based on the methodology used for the calculation of effective tax rates (ETRs) as set out by Devereux and Griffith (1999, 2003). It extends the scope of the calculation of ETRs conducted under the study on effective levels of company taxation within an enlarged EU (2008). The project includes a focus on the effects of tax reforms in the EU27 for the period 1998-2009 and their impact on the level of taxation for both domestic and cross-border investment. |
| Keywords: | European Union, taxation, corporate taxation, effective tax rates |
| JEL: | H25 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:tax:taxstu:0030&r=eec |
| By: | Elaine Hutson (School of Business, University College Dublin); Anthony O'Driscoll (School of Business, University College Dublin) |
| Abstract: | Using a sample of 1,154 European firms from 11 countries, we show that firm-level exchange exposure for Eurozone and non-Eurozone European firms has increased since the advent of the euro, but this rise was smaller for Eurozone than non-Eurozone firms. The increase in firmspecific risk is offset by a substantial reduction in market-level exchange exposure in most Eurozone countries, so the advent of the Eurozone appears to have been associated with a shift in exchange risk from systematic to firm-specific. We also find that Eurozone firms’ exchange exposure is greater than that of non-Eurozone European firms, and univariate testing confirms the significance of this difference. In a multivariate setting, however, after controlling for countryspecific and firm-specific characteristics that potentially influence the extent of exposure – economic openness, governance factors, firm size, industry and several financial ratios – this difference is no longer apparent. |
| Keywords: | foreign exchange exposure, euro, Eurozone, economic openness |
| Date: | 2010–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:ucd:wpaper:200841&r=eec |
| By: | Mohler, Lukas; Seitz, Michael |
| Abstract: | Over the last decade, European Union members have experienced a dramatic increase in imports. This increase was accompanied by a strong growth in the number of imported goods and trading partners, indicating positive welfare gains for consumers via an extended set of consumption possibilities, as pointed out in the "New Trade Theory". In this paper, we apply the methodology developed by Feenstra (1994) and Broda and Weinstein (2006) to estimate structurally the gains from imported variety for the 27 countries of the European Union using highly disaggregated trade data at the HTS-8 level from Eurostat for the period of 1999 to 2008. Our results show that, within the European Union, especially “newer” and smaller member states exhibit high gains from newly imported varieties. Furthermore, we find that the vast majority of the gains from variety for consumers stem from intra-European Union trade. |
| Keywords: | European Union; Welfare Gains from Trade; Trade in Variety |
| JEL: | F12 F14 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:11477&r=eec |
| By: | Georges Caravelis |
| Abstract: | We appraise the new EU supervisory architecture presented by the Commission in a package of five 'draft legislative acts'. Two would establish a European Systemic Risk Board (ESRB) to undertake macro-prudential issues. Three would establish the system of European Supervisory Authorities (ESAs): Banking, Securities and Insurance.. . The theoretical case for this package of 'draft legislative acts' has been made by the High-Level Group on Financial Supervision in the EU. The ' package ' has been examined by the ECOFIN of 2 December 2009, which agreed on a 'general approach'; it has introduced changes to the Commission's three draft legislative acts concerning the European Supervisory Authorities (ESAs). We examine the theoretical approach underlying the draft legislative acts, which is based on the State theory of money. We find it incomplete in the case of the ESRB because the mission of ECB in 'mitigating system risks within the financial system' cannot be attained without real powers and tools; it is in essence a Macro-economic phenomenon.. . We also arrive at another conclusion relating to the three proposals on the ESAs. The theoretical underpinning of the three is based on the premise of 'regulating for the sake of regulation'. Today's evolution of the EU cannot allow Authorities over-passing the Treaty competence. Nor could the ESAs attain their objective of 'setting the common rules for supervising national entities'. Thus the conception of the EU system of financial supervision is deficient, in need of repair.. . We propose an alternative approach to the new EU supervisory architecture consisting of three elements. First, we restate the case for the Central Banks in order to assume responsibility for the 'last resort of managing risk', and endowed with real power. Second, the role of the national central banks (NCBs) in 'micro-supervision' is substantial enhanced. Third, a structure for the budgetary burden is proposed by the establishment of the 'European Fund for Financial Stability' (EFFS).. |
| Keywords: | Theory of money; European Supervisory Authorities, de Larosière report; financial supervision; money externalities; European Central Bank; National Central Banks; European Steering Committee of Vice-Governors of NCBs; credit rating agencies; European Fiscal Authority; European Fund for Financial Stability; financial transaction tax; natural monopoly |
| Date: | 2010–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2010/11&r=eec |
| By: | Markus Knell (Oesterreichische Nationalbank, Economic Studies Division, Otto-Wagner-Platz 3, POB-61, A-1011 Vienna, Austria.) |
| Abstract: | In this paper I study the relation between real wage rigidity (RWR) and nominal price and wage rigidity. I show that in a standard DSGE model RWR is mainly affected by the interaction of the two nominal rigidities and not by other structural parameters. The degree of RWR is, however, considerably influenced by the modelling assumption about the structure of wage contracts (Calvo vs. Taylor) and about other institutional characteristics of wage-setting (clustering of contracts, heterogeneous contract length, indexation). I use survey evidence on price- and wage-setting for 15 European countries to calculate the degrees of RWR implied by the theoretical model. The average levels of RWR are broadly in line with empirical estimates based on macroeconomic data. In order to be able to also match the observed cross-country variation in RWR it is, however, essential to move beyond the country-specific durations of price and wages and to take more institutional details into account. JEL Classification: E31, E32, E24, J51. |
| Keywords: | Inflation Persistence, Real Wage Rigidity, Nominal Wage Rigidity, DSGE models, Staggered Contracts. |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101180&r=eec |
| By: | Alessandro Giustiniani; Wim Fonteyne; Wouter Bossu; Alessandro Gullo; Sean Kerr; Daniel C. L. Hardy; Luis Cortavarria |
| Abstract: | This paper proposes an integrated crisis management and resolution framework for the EU's single banking market. It comprises a European Resolution Authority (ERA), armed with the mandate and the tools to deal cost-effectively with failing systemic cross-border banks, and is designed to address many fundamental operational and incentive problems. It also seeks to reduce moral hazard and better protect countries against the risk of twin fiscal-financial crises by detaching banks from government budgets. The ERA would be most effective if it were twinned or combined with a European Deposit Insurance and Resolution Fund. |
| Keywords: | Bank reforms , Bank resolution , Bank supervision , Banking crisis , Banking systems , Economic integration , European Monetary System , Financial crisis , Financial stability , Global Financial Crisis 2008-2009 , Risk management , |
| Date: | 2010–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/70&r=eec |
| By: | Paolo Gelain (School of Economics and Finance – University of St Andrews – Castlecliffe, The Scores, Fife, United Kingdom, KY1 9AL,) |
| Abstract: | In this paper I estimate a New Keynesian Dynamic Stochastic General Equilibrium model for the Euro Area, which closely follows the structure of the model developed by Smets and Wouters (2003, 2005, 2007), with the addition of the so-called financial accelerator mechanism developed in Bernanke, Gertler and Gilchrist (1999). The main aim is to obtain a time series for the unobserved external finance premium that entrepreneurs pay on their loans, with the further aim of providing a dynamic analysis of it. Results confirm in general what was recently found for the US by De Graeve (2008), namely that (1) the model incorporating financial frictions can generate a series for the premium, without using any financial macroeconomic aggregates, that is highly correlated with available proxies for it, (2) the estimated premium is not necessarily counter-cyclical (this depends on the shock considered). Nevertheless, although in addition the model with financial frictions better describes Euro Area data than the model without them, the former is not satisfactory in many other respects. For instance, the accelerator effect turns out to be statistically not significant. However, this does not impede financial frictions from remaining a key ingredient to model. In fact, I found that the estimated premium is a very powerful predictor of inflation. It overcomes, in terms of the Mean Squared Forecast Error, the traditional output gap measure in a Phillips curve specification. JEL Classification: E4, E5, E37. |
| Keywords: | NK DSGE, Euro Area External Finance Premium, Financial Accelerator, Bayesian Estimation, Inflation Forecast |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101171&r=eec |
| By: | Ruud de Mooij (CPB Netherlands); Michael P. Devereux (Oxford University Centre for Business Taxation) |
| Abstract: | This paper explores the economic implications of an allowance for corporate equity (ACE), a comprehensive business income tax (CBIT) and a combination of the two in the EU. We illustrate the key trade-offs in designing ACE and CBIT in the presence of tax distortions at various decision margins of firms, such as its financial structure, investment, profit allocation and discrete location. Using an applied general equilibrium model for Europe, we quantitatively assess the effects of ACE, CBIT and combined reforms in EU countries. The results suggest that ACE is welfare improving as long as corporate tax rates are not used to cover the cost of base narrowing. CBIT typically reduces welfare by exacerbating marginal investment distortions. When governments adjust statutory corporate tax rates to balance their budget, however, CBIT reforms become more attractive while ACE reforms are welfare reducing in a number of countries. European coordination of reforms mitigates fiscal spillovers within the EU and renders ACE reforms more, and CBIT reforms less, attractive for welfare. A combination of ACE and CBIT reforms can be designed to be revenue neutral and welfare improving through smaller financial distortions. |
| Keywords: | European Union, corporate taxation |
| JEL: | H25 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:tax:taxstu:0028&r=eec |
| By: | Fédéric Holm-Hadulla (European Central Bank, Kaiserstrasse 29, 60311, Frankfurt am Main, Germany.); Sebastian Hauptmeier (European Central Bank, Kaiserstrasse 29, 60311, Frankfurt am Main, Germany.); Philipp Rother (European Central Bank, Kaiserstrasse 29, 60311, Frankfurt am Main, Germany.) |
| Abstract: | We study the impact of numerical expenditure rules on the propensity of governments to deviate from expenditure targets in response to surprises in cyclical conditions. Theoretical considerations suggest that due to political fragmentation in the budgetary process expenditure policy might be prone to a pro-cyclical bias. However, this tendency may be mitigated by numerical expenditure rules. These hypotheses are tested against data from a panel of EU Member States. Our key findings are that (i) deviations between actual and planned government expenditure are positively related to unanticipated changes in the output gap, and (ii) numerical expenditure rules reduce this pro-cyclical bias. Moreover, the pro-cyclical spending bias is found to be particularly pronounced for spending items with a high degree of budgetary flexibility. JEL Classification: C23, E62, H50. |
| Keywords: | expenditure rules, fiscal discipline, stabilisation, spending bias. |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101169&r=eec |
| By: | Muge Adalet (Koc University); Sumru Oz (Koc University) |
| Abstract: | This paper uses a simple VAR analysis to examine 5 CEE countries (the Czech Republic, Hungary, Poland, Romania and Slovakia) in order to understand whether their business cycles are synchronized with each other and/or with the major economies that they are supposed to be linked with, namely the US, Germany and Russia. We find that there are differences across the CEE countries themselves and that there is no common CEE business cycle. Comparing the individual CEE business cycles with those of the dominant economies, we find that Hungary and Poland are related to the US business cycle, reflecting the fact that they are more integrated with the global economy, whereas Slovakia is closer to the Russian cycle. Finally, splitting the sample into the late 1990s and 2000s due to the transition nature of these economies in the former period shows that the influence of Russia on the CEE economies has declined over time. However, in contrast to the expectations that CEE countries are likely to be affected by Germany in the second half of the sample due to EU negotiations followed by full membership, among the CEE countries only the business cycle of Slovakia is synchronized with that of Germany. On the other hand the Czech Republic, Hungary and Poland are synchronized with the US business cycle, showing that globalization has decreased the importance of distance. |
| Keywords: | Business cycle synchronization, CEE countries, EMU |
| JEL: | E32 F15 F41 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1014&r=eec |
| By: | Antonczyk, Dirk; DeLeire, Thomas; Fitzenberger, Bernd |
| Abstract: | This paper compares trends in wage inequality in the U.S. and Germany using an approach developed by MaCurdy and Mroz (1995) to separate age, time, and cohort effects. Between 1979 and 2004, wage inequality increased strongly in both the U.S. and Germany but there were various country specific aspects of this increase. For the U.S., we find faster wage growth since the 1990s at the top (80% quantile) and the bottom (20% quantile) compared to the median of the wage distribution, which is evidence for polarization in the U.S. labor market. In contrast, we find little evidence for wage polarization in Germany. Moreover, we see a large role played by cohort effects in Germany, while we find only small cohort effects in the U.S.. Employment trends in both countries are consistent with polarization since the 1990s. We conclude that although there is evidence in both the U.S. and Germany which is consistent with a technology-driven polarization of the labor market, the patterns of trends in wage inequality differ strongly enough that technology effects alone cannot explain the empirical findings. -- |
| Keywords: | Wage Inequality,Polarization,International Comparison,Cohort Study,Quantile Regression |
| JEL: | J30 J31 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:10015&r=eec |