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on European Economics |
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Issue of 2012‒05‒29
fifteen papers chosen by Giuseppe Marotta University of Modena and Reggio Emilia |
| By: | Buiter, Willem H.; Rahbari, Ebrahim |
| Abstract: | The paper establishes that sovereigns, like banks, need a lender of last resort (LoLR). In the euro area the ECB, with its estimated €3.4 trillion non-inflationary loss absorption capacity, is the only credible sovereign LoLR. The ECB/Eurosystem has been acting as sovereign LoLR through its SMP purchases of periphery sovereign debt in the secondary markets. It has also contributed, through the deeply subsidised bank funding it provided through the 3-year LTROs, half of a mechanism to purchase periphery sovereign debt in the primary issue markets. The other half has been financial repression requiring banks in Italy and Spain to purchase more of their own government’s debt than they would voluntarily and at below-market yields. We expect that, once Spain and Italy are under troika programmes, the Eurosystem will also lend to these sovereigns indirectly, through loans by the national central banks to the IMF which on-lends them to these sovereigns. We recommend that, to increase its effectiveness as LoLR, the ESM be given a banking license. To reduce the illegitimate and unaccountable abuse of the ECB/Eurosystem as a quasi-fiscal actor, we propose that all its credit risk-related losses be jointly and severally guaranteed/indemnified by the 17 euro area member states. |
| Keywords: | Central bank; EMU; Financial repression; Lender of Last Resort; Quasi-fiscal activities; Seigniorage |
| JEL: | E02 E31 E42 E43 E44 E63 G21 G28 H12 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8974&r=eec |
| By: | De Santis, Roberto A; Favero, Carlo A.; Roffia, Barbara |
| Abstract: | This paper argues that a stable broad money demand for the euro area over the period 1980-2011 can be obtained by modelling cross border international portfolio allocation. As a consequence, model-based excess liquidity measures, namely the difference between actual M3 growth (net of the inflation objective) and the expected money demand trend dynamics, can be useful to predict HICP inflation. |
| Keywords: | Euro area money demand; inflation forecasts; monetary policy; portfolio allocation |
| JEL: | E4 E44 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8957&r=eec |
| By: | Jean-Baptiste Gossé (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris XIII - Paris Nord - CNRS : UMR7234); Cyriac Guillaumin (CREG - Centre de recherche en économie de Grenoble - Université Pierre Mendès-France - Grenoble II : EA4625) |
| Abstract: | This paper studies the impact of the main external shocks which the eurozone and member states have undergone since the start of the 2000s. Such shocks have been monetary (drop in global interest rates), financial (two stock market crises) and real (rising oil prices and an accumulation of global current account imbalances). We have used a structural VAR (SVAR) methodology, on the basis of which we have defined four structural shocks: external, supply, demand and monetary. The estimates obtained using SVAR models enabled us to determine the impact of these shocks on the eurozone and its member countries. The study highlights the diversity of reactions inside the eurozone. The repercussions of the oil and monetary shocks were fairly similar in all eurozone countries - excepting the Netherlands and the United Kingdom - but financial crises and global imbalances have had very different effects. External shocks explain one-fifth of the growth differential and current account balance variance and about one-third of fluctuations in the real effective exchange rate in Europe. The impact of the oil crisis was particularly large, but it pushed the euro down. Global imbalances explain a large proportion of exchange rate fluctuations but drove the euro up. Furthermore the response functions to financial and monetary crises are similar, except for current account functions. A financial crisis seems to result in the withdrawal of larger volumes of assets than a monetary crisis. The study thus highlights the diversity of the reactions in the eurozone and shows that external shocks do more to explain variations in the real effective exchange rate than in the growth differential or current account, while underlining the particularly important part played by global imbalances in European exchange rate fluctuations. |
| Keywords: | global imbalances, current account, eurozone, structural VAR model, contemporary and long-term restrictions, external shock, exogeneity hypothesis. |
| Date: | 2011–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00610024&r=eec |
| By: | Juraj Zeman (National Bank of Slovakia, Research Department) |
| Abstract: | Entering monetary union brings both benefits and costs. The loss of an independent monetary policy, including the loss of exchange rate policy, constrains the ability to stabilize the domestic economy in the event of asymmetric shocks. This leads to more volatile business cycles and hence lower utility of risk-averse agents in the economy. On the other hand, the common currency reduces transaction costs, thus increasing trade and growth. The objective of this article is to quantitatively evaluate these costs and benefits, using an estimated two-country DSGE model for Slovakia and the euro area. |
| Keywords: | monetary union, costs and benefits, two-country DSGE |
| JEL: | E E F F42 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:svk:wpaper:1016&r=eec |
| By: | Lane, Philip R.; Pels, Barbara |
| Abstract: | The European crisis is partly attributable to the sharp increase in external imbalances across Europe during the pre-crisis period. We examine current account imbalances in Europe over 1995-2007, together with the underlying saving and investment rates (and their subcomponents). We find that the discrete expansion in current account imbalances during the 2002-2007 period can be attributed to a strengthening in the link between growth forecasts and current account balances. A striking pattern was that greater optimism about future growth was associated with lower savings and higher construction investment, rather than investment in productive capital. |
| Keywords: | current account; EMU; Europe |
| JEL: | E63 F41 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8958&r=eec |
| By: | Patrick Brämer (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Horst Gischer (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Toni Richter (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Mirko Weiß (German Savings Banks Association) |
| Abstract: | Our paper calls attention to the heterogeneous levels of competition in EMU banking systems. We enhanced the ECB MFI interest rate statistics by calculating a lending rate average weighted by loan volumes for each EMU member country. Employing a modified Lerner Index, our unique data set enables us to calculate banks' price setting power in the national lending business alone, instead of measuring market power for banks' total business. For 12 countries, we ultimately show that market power in the exclusive segment of lending is greater than market power in total banking business. In an OLS regression model, we investigate to what extent loan rate variations can be explained by changing degrees of market power during the period 2003-2009. Significant cross-country differences can be observed. We find that changes in the national degree of competition considerably affect funding conditions in the individual countries and therefore hinder a homogeneous transmission of ECB monetary policy. |
| Keywords: | banking competition; European Monetary Union; Lerner Index; monetary policy |
| JEL: | E43 E52 E58 L16 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:mag:wpaper:120010&r=eec |
| By: | Achim Zeileis; Christoph Leitner; Kurt Hornik |
| Abstract: | Four years after the last European football championship (EURO) in Austria and Switzerland, the two finalists of the EURO 2008 - Spain and Germany - are again the clear favorites for the EURO 2012 in Poland and the Ukraine. Using a bookmaker consensus rating - obtained by aggregating winning odds from 23 online bookmakers - the forecast winning probability for Spain is 25.8% followed by Germany with 22.2%, while all other competitors have much lower winning probabilities (The Netherlands are in third place with a predicted 11.3%). Furthermore, by complementing the bookmaker consensus results with simulations of the whole tournament, we can infer that the probability for a rematch between Spain and Germany in the final is 8.9% with the odds just slightly in favor of Spain for prevailing again in such a final (with a winning probability of 52.9%). Thus, one can conclude that - based on bookmakers' expectations - it seems most likely that history repeats itself and Spain defends its European championship title against Germany. However, this outcome is by no means certain and many other courses of the tournament are not unlikely as will be presented here. All forecasts are the result of an aggregation of quoted winning odds for each team in the EURO 2012: These are first adjusted for profit margins ("overrounds"), averaged on the log-odds scale, and then transformed back to winning probabilities. Moreover, team abilities (or strengths) are approximated by an "inverse" procedure of tournament simulations, yielding estimates of all pairwise probabilities (for matches between each pair of teams) as well as probabilities to proceed to the various stages of the tournament. This technique correctly predicted the EURO 2008 final (Leitner, Zeileis, Hornik 2008), with better results than other rating/forecast methods (Leitner, Zeileis, Hornik 2010a), and correctly predicted Spain as the 2010 FIFA World Champion (Leitner, Zeileis, Hornik 2010b). Compared to the EURO 2008 forecasts, there are many parallels but two notable differences: First, the gap between Spain/Germany and all remaining teams is much larger. Second, the odds for the predicted final were slightly in favor of Germany in 2008 whereas this year the situation is reversed. |
| Keywords: | consensus, agreement, bookmakers odds, sports tournaments, EURO 2012 |
| JEL: | C53 C40 D84 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2012-09&r=eec |
| By: | Bartz, Kevin; Fuchs-Schündeln, Nicola |
| Abstract: | Based on a modified Spatiotemporal Autoregressive Model (STAR), we analyze whether borders still constitute significant impediments to labor market integration in the European Union, despite the formal law of free movement of labor. Using regional data from the EU-15 countries over 21 years, we find that this is the case. We further investigate whether the abolishment of border checks through the Schengen agreement or the introduction of the Euro improved our measure of labor market integration across borders, and do not find evidence in favor. Last, we investigate the role of languages, and potentially cultures, as obstacles to labor market integration. We find that indeed language borders play a larger role than country borders in explaining the lack of labor market integration across borders. |
| Keywords: | European integration; labor market integration; spatial econometrics |
| JEL: | C4 J4 J6 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8987&r=eec |
| By: | Hasan, Iftekhar (Fordham University and Bank of Finland); De Renzis, Tania (Central Bank of Malta); Schmiedel , Heiko (European Central Bank) |
| Abstract: | This paper examines the fundamental relationship between retail payments and overall economic growth. Using data from across 27 European markets over the period 1995–2009, the results confirm that migration to efficient electronic retail payments stimulates overall economic growth, consumption and trade. Among different payment instruments, this relationship is strongest for card payments, followed by credit transfers and direct debits. Cheque payments are found to have a relatively low macroeconomic impact. Retail payment transaction technology itself is also associated positively to real economic aggregates. We also show that initiatives to integrate and harmonise retail payment markets foster trade and consumption and thereby have a beneficial effect for whole economy. Additionally, the findings reveal that the impact of retail payments on economic growth is more pronounced in euro area countries. Our findings are robust to different regression specifications. The study supports the adoption of policies promoting a swift migration to efficient and harmonised electronic payment instruments. |
| Keywords: | retail payments; economic growth; financial development |
| JEL: | G20 G21 |
| Date: | 2012–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2012_019&r=eec |
| By: | Costain, James (Banco de España.); de Blas, Beatriz (Departamento de Análisis Económico (Teoría e Historia Económica), Universidad Autónoma de Madrid.) |
| Abstract: | Current proposals to address the European sovereign debt crisis envision some sort of fiscal union to complement the Economic and Monetary Union, backed by stronger sanctions against countries that deviate from budget balance. We argue that sanctions are an indirect approach to balancing budgets, and that member states, and Europe as a whole, could instead consider delegating effective fiscal instruments with a direct budgetary impact to an independent authority. Outside of a fiscal union, a solvent country could establish an independent fiscal authority at the national level, with a mandate to maintain long-term budget balance. Delegating a few powerful fiscal instruments to an institution of this type could cut off speculation about fiscal sustainability without ceding sovereignty to a supranational body. Inside a fiscal union, delegating one or more fiscal levers of each Eurozone member state to a national or European fiscal authority could eliminate moral hazard without relying on sanctions per se. Many fiscal instruments can serve to balance budgets, but in the context of a monetary union the chosen instrument should ideally be one that increases competitiveness when recession looms. The instrument should also be one that is quick and simple to adjust, with a large budgetary impact and minimal redistributional consequences. For consistency with these criteria, we argue that fiscal adjustments should operate on the spending side, rather than the revenue side, and that spending adjustments should affect the prices the government pays, instead of the quantities of goods and services it purchases. We discuss in detail how a system of this sort could be implemented. |
| Keywords: | Fiscal delegation; public spending; sovereign debt; monetary union. |
| JEL: | E32 E62 E63 F41 H63 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:uam:wpaper:201211&r=eec |
| By: | Valeria Costantini; Francesco Crespi |
| Abstract: | This paper examines how the last wave of the European Union enlargement process has influenced the export competitiveness of EU countries. A technology-augmented gravity model is applied to distinguished manufacturing sectors to test the effect of the economic integration as well as the role of technological capabilities on export dynamics in old and new EU countries. The main findings reveal that the enlargement process has produced an overall larger positive impact on export flows for new members and that this positive effect appears not to be confined to low-tech sectors. In addition, the study shows that the level of technological capabilities is a crucial driving factor for export dynamics, both for old and new EU countries, and that the interrelations between the EU enlargement process and the level of technological capabilities are relevant. |
| Keywords: | EU enlargement, technological capabilities, innovation, industries, international trade, gravity models |
| JEL: | F14 F15 O14 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:rtr:wpaper:0152&r=eec |
| By: | Jean-Baptiste Gossé (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris XIII - Paris Nord - CNRS : UMR7234); Dominique Plihon (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris XIII - Paris Nord - CNRS : UMR7234) |
| Abstract: | This article provides insight into the future of financial markets and regulation in order to define what would be the best strategy for Europe. To preserve financial stability, Europe has to choose between financial opening and independently determining how to regulate finance. Among the five scenarios we defined, three achieve financial stability both inside and outside Europe. In terms of market efficiency, the multi-polar scenario is the best and the fragmentation scenario is the worst, since gains of integration depend on the size of the new capital market. Regarding sovereignty of regulation, fragmentation is the best scenario and the multi-polar scenario is the worst because it necessitates coordination at the global level which implies moving further away from respective national preferences. However, the more realistic option seems to be the regionalisation scenario: (i) this level of coordination seems much more realistic than the global one; (ii) the market should be of sufficient size to enjoy substantial benefits of integration. Nevertheless, the "European government" might gradually increase the degree of financial integration outside Europe in line with the degree of cooperation with the rest of the world. |
| Keywords: | Financial Stability, Supervision and Regulation, Financial Integration |
| Date: | 2011–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00613251&r=eec |
| By: | Dachs, Bernhard; Biege, Sabine; Borowiecki, Marcin; Lay, Gunther; Jäger, Angela; Schartinger, Doris |
| Abstract: | This paper provides new evidence for the servitization of European manufacturing – the trend that manufacturing firms increasingly offer services along with their physical products. We employ input-output data as well as data from a company survey to give a comprehensive picture of servitization across countries and industries. The share of services in the output of manufacturing industries increased in the large majority of European countries between 1995 and 2005 and between 2000 and 2005. Service output of manu-facturing, however, is still small compared to the output of physical products. The highest service shares are found in small countries with a high degree of openness and R&D intensity. EU-12 Member States have lower shares of service output compared to the EU-15. There is a strong link between servitization and technological innovation at different levels. Countries with the highest shares of services on manufacturing output have also the highest R&D intensities at the aggregate level. The service output of these countries consists predominantly of knowledge-intensive services. Highly innovative sectors reveal also the highest share of firms that offer services and the highest turnover generated with services. Examples are electrical and optical equipment, machinery, or the chemical and pharmaceutical industry. At the firm level, we find a U-shaped relationship between firm size and service output, which indicates that small, but also large manufacturing firms have advantages in servitization. Producers of complex, customized products tend to have a higher share of services in output than producers of simple, mass-produced goods. Moreover, firms which have launched products new to the market during the last two years are more likely to realize higher shares of turnover from services compared to companies which launched no products new to the market. |
| Keywords: | Servitization; structural change; manufacturing; input-output tables; innovation; knowledge-intensive services |
| JEL: | L16 O30 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:38873&r=eec |
| By: | Daniel Cohen (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Sébastien Villemot (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | Why do countries default? this seemingly simple question has yet to be adequately answered in the literature. Indeed, prevailing modelling strategies compel the to choose between two enappealing model features: depending on the cost of default selected by the modeler, either the debt ratios are too high and the probability of default is toot low or the opposite is true. In view of the historical evidence that countries always default is too low or crisis, we propose a novel approach to the theory of debt default and develop a model that matches the key stylized facts regarding sovereign risk. |
| Keywords: | Sovereign debt ; Lévy stochastic processes |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00692038&r=eec |
| By: | Gabriel Zucman (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | This paper shows that official statistics substantially underestimate the net foreign asset positions of rich countries because they fail to capture most of the assets held by households in offshore tax havens. Drawing on systematic anomalies in portfolio investment positions and a unique Swiss dataset, I find that 8% of the global financial wealth of households is held in tax havens, 6% of which goes unrecorded. On the basis of plausible assumptions, accounting for unrecorded assets turns the eurozone, officially the world's second largest net debtor, into a net creditor. It also reduces the U.S. net debt significantly. The results shed new light on global imbalances and challenge the widespread view that, after a decade of poor-to-rich capital flows, external assets are now in poor countries and debts in rich countries. I provide concrete proposals to improve international investment statistics. |
| Keywords: | Tax havens ; International investment positions ; Global imbalances |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00565224&r=eec |