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on European Economics |
| By: | Kerstin Bernoth; Burcu Erdogan |
| Abstract: | We study the determinants of sovereign bond yield spreads across 10 EMU countries between Q1/1999 and Q1/2010. We apply a semiparametric time-varying coefficient model to identify, to what extent an observed change in the yield spread is due to a shift in macroeconomic fundamentals or due to altering risk pricing. We find that at the beginning of EMU, the government debt level and the general investors' risk aversion had a significant impact on interest differentials. In the subsequent years, however, financial markets paid less attention to the fiscal position of a country and the safe haven status of Germany diminished in importance. By the end of 2006, two years before the fall of Lehman Brothers, financial markets began to grant Germany safe haven status again. One year later, when financial turmoil began, the market reaction to fiscal loosening increased considerably. The altering in risk pricing over time period confirms the need of time-varying coefficient models in this context. |
| Keywords: | sovereign bond spreads, fiscal policy, euro area, financial crisis, semiparametric time-varying coefficient model, nonparametric estimation |
| JEL: | C14 E43 E62 G12 H62 H63 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1078&r=eec |
| By: | Raphael Auer; Kathrin Degen; Andreas M. Fischer |
| Abstract: | What is the impact of import competition from other low-wage countries (LWCs) on inflationary pressure in Western Europe? This paper seeks to understand whether labor-intensive exports from emerging Europe, Asia, and other global regions have a uniform impact on producer prices in Germany, France, Italy, Sweden, and the United Kingdom. In a panel covering 110 (4-digit) NACE industries from 1995 to 2008, IV estimates predict that LWC import competition is associated with strong price effects. More specifically, when Chinese exporters capture 1 percent of European market share, producer prices decrease about 2 percent. In contrast, no effect is present for import competition from low-wage countries in Central and Eastern Europe. |
| Keywords: | International trade - Econometric models ; Labor market ; Inflation (Finance) - Euro area ; Globalization |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:65&r=eec |
| By: | Stavarek, Daniel |
| Abstract: | In the paper we choose the correct model specification for eight new EU Member States (NMS) to estimate the exchange market pressure (EMP) over the period 1995-2009. The results suggest that growth of domestic credit and money multiplier had a significantly positive impact on EMP. Furthermore, EMP in many NMS was determined by foreign disturbances, namely euro area’s money supply, foreign capital inflow and interest rate differential. EMP in most of NMS with flexible exchange rate regime was primarily absorbed by changes in international reserves. This forms, along with fundamentally stable EMP development in recent years, a solid basis for potential fulfilment of the exchange rate stability convergence criterion. |
| Keywords: | exchange market pressure; Girton-Roper model; determinants; new EU Member States |
| JEL: | C32 F31 F36 |
| Date: | 2010–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:26933&r=eec |
| By: | Mathias Dolls; Clemens Fuest; Andreas Peichl |
| Abstract: | This paper analyzes the effectiveness of social protection systems in Europe and the US to provide (income) insurance against macro level shocks in terms of automatic stabilizers. We find that automatic stabilizers absorb 38% of a proportional income shock and 47% of an idiosyncratic unemployment shock in Europe, compared to 32% and 34% in the US. There is large heterogeneity within Europe with stabilization being much lower in Eastern and Southern than in Central and Northern Europe. Our results suggest that social transfers, in particular the rather generous systems of unemployment insurance in Europe, play a key role for the stabilization of disposable incomes and explain a large part of the difference in automatic stabilizers between Europe and the US. |
| Keywords: | Automatic Stabilization, Crisis, Liquidity Constraints, Fiscal Stimulus |
| JEL: | E32 E63 H2 H31 |
| Date: | 2010–07–16 |
| URL: | http://d.repec.org/n?u=RePEc:cgr:cgsser:01-02&r=eec |
| By: | Alfio Cerami |
| Abstract: | This paper investigates the reasons, the transformative processes and the social mechanisms involved in the establishment of the European economic and monetary union (EMU). Contrary to commonly accepted theories and approaches used to explain institutional change, it argues that the establishment of the EMU has not simply been the product of historical paths, the rational choices of actors, or social construction of new economic ideas and preferences, as new-institutionalists or social constructivists would emphasize, but also and, perhaps, even more importantly, it has been the product of self-fulfilling prophecies that have facilitated and accelerated the process of institutional change. By adopting a Sociology of European Integration perspective, this paper also discusses the role of four crucial forces that initiating a causal chain of social mechanisms have helped in the establishment of the EMU: context-bounded rationality, embodied institutions, reflexivity and double-contingency. |
| Keywords: | Europeanization; neo-institutionalism; negative integration; EMU; EMU; Euro; Single Market; economic integration; Amsterdam Treaty; Maastricht Treaty; Nice Treaty |
| Date: | 2010–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:erp:scpoxx:p0003&r=eec |
| By: | Silvia Sgherri; Hanan Morsy |
| Abstract: | Italy’s deep-rooted structural problems resulted in an unsatisfactory productivity performance and a dismal growth over the last 15 years. The global financial crisis has exacerbated these long-standing weaknesses, taking a heavy toll on Italy’s economy. With output back to its end-2001 level, Italy’s output losses associated with the crisis have been, thus far, about 132 billion of 2000 euro (around 10 percent of precrisis 1998 - 2004 real GDP). About three quarters of these losses are estimated to be due to a shortfall in potential output. Potential output is not expected to rebound to its precrisis trend over the medium term, even though growth is projected to do so within the next two years. In the short-run, the decline in output is mainly accounted for by a collapse in productivity; in the medium term, employment and capital are also likely to be affected, with implications for the longer-term growth and fiscal outlook. |
| Date: | 2010–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/244&r=eec |
| By: | Guglielmo Maria Caporale; Alessandro Girardi; Paolo Paesani |
| Abstract: | Using high-frequency transaction data for the three largest European markets (France, Germany and Italy), this paper documents the existence of an asymmetric relationship between market liquidity and trading imbalances: when quoted spreads rise (fall) and liquidity falls (increases) buy (sell) orders tend to prevail. Risk-averse market-makers, with inventory-depletion risk being their main concern, tend to quote wider (narrower) spreads when they think bond appreciation is more (less) likely to occur. It is also found that the probability of being in a specific regime is related to observable bond market characteristics, stock market volatility, macroeconomic releases and liquidity management operations of the monetary authorities. |
| Keywords: | Liquidity, trading activity, Treasury bond market, Europe, commonality |
| JEL: | G1 G15 C32 C33 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1080&r=eec |
| By: | Eichhorst, Werner (IZA); Escudero, Veronica (ILO International Labour Organization); Marx, Paul (IZA); Tobin, Steven (International Institute for Labour Studies (ILO)) |
| Abstract: | The paper takes a comparative perspective on the labour market impact on G20 and EU countries of the financial and economic crisis that began in 2008. It starts from the observation that the decline in employment and rise in unemployment in relation to output or GDP reductions varies significantly across countries. It examines the impacts from an institutional perspective taking into account different channels of external, internal and wage flexibility determined by both the institutional arrangements in place before the crisis and discretionary reforms implemented during the crisis. Emphasis is placed on the role of permanent and temporary jobs, working time adjustment, wage flexibility and active and passive labour market policies. The paper shows that, at least for the time being, unemployment increases have been contained in countries with comparatively strong internal flexibility. At the same time, however, it appears that the crisis has – at least in some cases – contributed to a further dualization of labour markets given that risks are allocated unequally across types of employment. |
| Keywords: | crisis, employment, EPL, institutions, dual labour markets, flexibility |
| JEL: | J58 J65 J21 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5320&r=eec |
| By: | Leonor Coutinho; Luc De Wulf; Santiago Florez; Cyrus Sassanpour |
| Abstract: | Until the early 1990s, the discussions on fiscal policy primarily centered on the functions of economic stabilization, income redistribution and resource allocation. Long-term growth was not usually viewed as an end itself, and fiscal policy was often not sufficiently tailored to the different circumstances and priorities of countries at different stages of development. It is only relatively recently that the discussion has gradually focused on the links between different dimensions of quality of public finances and economic growth. Based on the conceptual framework for linking the quality of public finances and economic growth that has been developed by the European Commission and applied to the EU Member States, this study examines the conditions under which the budgetary policy, and more specifically expenditure, revenue and financing design would be supportive of growth in the Mediterranean partner countries of the European Union. The study also highlights some of the interlinkages between fiscal policy and growth and summarises empirical findings found in the literature with particular focus on Mediterranean partner countries of the European Union. The main findings of the study are similar to those that apply to the EU Member States and can be summarised as follows: • The way government expenditures are financed matters. Deficit and debt financing clearly undermines growth performance. • The composition of expenditure does matter however the efficiency of the expenditure undertaken is even more important for growth. For countries with good governance indicators the positive impact of the productive expenditures on growth was enhanced. The analysis was applied to the efficiency of education and health expenditures with basically similar results. • Notwithstanding the importance of 'fair' income distribution, when tax policy relies heavily on income taxation to do so, the analysis suggests a likely negative effect on growth. Specifically, consumption taxes were found to depress growth by up to four times less than income taxes. The study concludes by highlighting possible areas in the planning and execution of fiscal policy and governance where growth enhancing interventions can be applied. |
| Keywords: | public finance, economic growth, Mediterranean region |
| JEL: | H1 H2 H3 H5 H6 H7 E6 O1 O2 O4 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:sec:cnrepo:0094&r=eec |
| By: | Sandrine Levasseur (OFCE, Research Department); Sandrine Levasseur (Observatoire Français des Conjonctures Économiques) |
| Abstract: | In this paper, we assess the extent to which multinational firms - in the first instance, the German ones - may adjust their international outsourcing over the business cycle in the Czech Republic and Slovakia. For that purpose, we have used monthly data of production for the manufacturing sector as a whole and some of its sub-sectors, since 2000 onwards. Our econometrical estimates suggest that there would be an asymmetry in the international outsourcing across the states of the economy, meaning that multinationals firms would be engaged differently in outsourcing activities, depending on whether bad or good economic times occur. Yet, such an asymmetry is found increasing over the time for German and French multinationals operating in the transport equipment sector of Slovakia. Another conclusion is that international outsourcing made by multinational firms in Slovakia may account for a portion of its large business cycles volatility. |
| Keywords: | International outsourcing, foreign direct investment, business cycles, Central and Eastern European countries, European integration. |
| JEL: | F21 F23 F4 L60 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:1031&r=eec |
| By: | Anna Ilyina; Eugenio Cerutti; Yulia Makarova; Christian Schmieder |
| Abstract: | This paper presents a stylized analysis of the effects of ring-fencing (i.e., different restrictions on cross-border transfers of excess profits and/or capital between a parent bank and its subsidiaries located in different jurisdictions) on cross-border banks. Using a sample of 25 large European banking groups with subsidiaries in Central, Eastern and Southern Europe (CESE), we analyze the impact of a CESE credit shock on the capital buffers needed by the sample banking groups under different forms of ring-fencing. Our simulations show that under stricter forms of ring-fencing, sample banking groups have substantially larger needs for capital buffers at the parent and/or subsidiary level than under less strict (or in the absence of any) ring-fencing. |
| Keywords: | Banks , Capital , Credit risk , Cross country analysis , Eastern Europe , International banking , Regional shocks , |
| Date: | 2010–11–04 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/247&r=eec |
| By: | Valerie Herzberg |
| Abstract: | Between 2000 and 2007 nonfinancial private sector credit expanded rapidly in the Baltic countries, resulting in a non-negligible build-up of debt. Could this legacy debt hold back the economic recovery of the region? This paper analyzes the setting in each of the three countries and, with the help of an experimental Debt Overhang Index (DOI), draws tentative conclusions for domestic demand. |
| Keywords: | Baltics , Credit expansion , Cross country analysis , Economic models , Economic recovery , Nonbank financial sector , Private sector , Public debt , |
| Date: | 2010–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/250&r=eec |