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on European Economics |
| By: | Ronald Heijmans; Lola Hernández; Richard Heuver |
| Abstract: | This paper investigates how changes in the monetary policy framework have affected the overnight money market lending rate for the Dutch segment of the euro area during tranquil and crisis times. We present an EGARCH model on the volatility of the overnight lending rate. The results show that modifications of the monetary policy framework in 2004 decreased the volatility of the rate. Since the turmoil of the crisis started the volatility increased again. Our method makes it possible for central banks to monitor the volatility of the rate and the impact of changes in the policy for the whole euro area. |
| Keywords: | financial stability; unsecured interbank money market; EONIA; monetary policy |
| JEL: | E42 E43 E44 E52 G20 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:374&r=eec |
| By: | Skouras, Thanos |
| Abstract: | In the aftermath of the Lehman Brothers collapse, Germany's insistence that each country was to defend its banking system on its own rather than by the European Union acting jointly, is what triggered the euro crisis. This is because it made it inevitable that the weakest countries with the least healthy public finances would sooner or later come under attack. It is argued that the root of the crisis is not excessive sovereign debt but the deficient construction of the euro and, more specifically, the absence of a common treasury. The main lessons of the crisis are then briefly presented and a less evident lesson, at least for economists, is discussed at length. This is that national pride and prejudice can influence the unfolding of events in uncertain and dangerous ways that do not make rational sense. In the concluding sections, the present state of the crisis and the future prospects for Europe are examined and, finally, Greece’s future is assessed in the light of this analysis. |
| Keywords: | crisis, European Union, debt, policy making, prejudice |
| JEL: | E65 F36 G01 |
| Date: | 2013–03–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:45221&r=eec |
| By: | Jesus Fernandez-Villaverde; Luis Garicano; Tano Santos |
| Abstract: | We study the mechanisms through which the adoption of the Euro delayed, rather than advanced, economic reforms in the Euro zone periphery and led to the deterioration of important institutions in these countries. We show that the abandonment of the reform process and the institutional deterioration, in turn, not only reduced their growth prospects but also fed back into financial conditions, prolonging the credit boom and delaying the response to the bubble when the speculative nature of the cycle was already evident. We analyze empirically the interrelation between the financial boom and the reform process in Greece, Spain, Ireland, and Portugal and, by way of contrast, in Germany, a country that did experience a reform process after the creation of the Euro. |
| JEL: | D72 E0 G15 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18899&r=eec |
| By: | Bénassy-quéré, A.; Roussellet, A. |
| Abstract: | We provide a first attempt to include o?-balance sheet, implicit insurance to SIFIs into a consistent assessment of fiscal sustainability, for 27 countries of the European Union. We first calculate tax gaps a la Blanchard (1990) and Blanchard et al. (1990). We then introduce two alternative measures of implicit o?-balance sheet liabilities related to the risk of a systemic bank crisis. The first one relies on microeconomic data at the bank level. The second one is based on econometric estimations of the probability and the cost of a systemic banking crisis. The former approach provides an upper evaluation of the fiscal cost of systemic banking crises, whereas the latter one provides a lower one. Hence we believe that the combined use of these two methodologies helps to gauge the range of fiscal risk. |
| Keywords: | Fiscal sustainability, tax gap, systemic banking risk, off-balance sheet liabilities. |
| JEL: | H21 H23 J41 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:428&r=eec |
| By: | Michiel Bijlsma; Gijsbert T. J. Zwart |
| Abstract: | We compare the structure of the financial sectors of the EU27, Japan and the United States, looking at a set of 23 indicators. We find a large variation within the European Union in the structure of the financial sector. Using principal components analysis, we identify robust groups of EU countries. One group consists of the eastern European members that entered the EU more recently.These have substantially smaller financial sectors than the old member states. A second group can be classified as market-based (MBEU) and the third group is more bank-based (BBEU). We compare US, MBEU, BBEU, Eastern EU and Japan with the following main results. First, the groups within Europe are geographically related. Second, in many indicators, MBEU countries are closer to the (market-based) US, while BBEU countries more closely resemble Japan. Paradoxically, however, market-based EU countries also have large banking sectors. Banks in market-based countries have larger cross-border assets and liabilities, and derive a larger fraction of their income from fees, rather than interest income, than banks in bank-based countries. Finally, for most indicators, the ordering of groups of countries is quite stable over time, but while the crisis has had no impact on the relative ordering of the groups, it has slightly widened the gap between the US and all EU regions insome respects. We also find that during the crisis, substitution between market-based and bank-based sources of finance occurred in the US, and to a lesser extent in MBEU and BBEU countries. |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:bre:wpaper:774&r=eec |
| By: | Vries, Gaaitzen J. de; Timmer, Marcel; Los, Bart (Groningen University) |
| Abstract: | In a world dominated by the emergence of global value chains, production processes increasingly fragment across a variety of countries. We provide new macro-economic evidence on this phenomenon, using a Theil-type distribution index of value added, which we call the international production fragmentation (IPF) index. In contrast to the well-known Feenstra and Hanson (1999) measure, this novel index does not suffer from a country size-bias and double counting due to re-imported intermediates. Moreover, it is sensitive to changes in the country-distribution of value added. We identify global value chains (GVCs) by the countryindustry in which the last stage of production takes place. Using a new dataset of world input-output tables covering 40 countries, we find that since 1995 production processes for most manufacturing goods in Europe increasingly fragmented across countries, although at different paces. In 2008, GVCs of electrical products and transportation equipment were generally most internationally fragmented, while food products and minerals production the least. Averaged across products, Belgium, Ireland and the Netherlands had the most fragmented GVCs in 2008, followed by Germany, the Czech Republic, and Hungary, where fragmentation increased at a high pace since 1995. We also find that in 1995, European value chains were mainly fragmented across other EU countries. Afterwards, however, there has been a strong trend towards increased participation of non-European countries. The financial crisis in 2008 led only to a temporary reduction in international production fragmentation. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugggd:gd-131&r=eec |
| By: | Paul de Grauwe |
| Abstract: | I analyse the nature of the design failures of the Eurozone. I argue first that the endogenous dynamics of booms and busts that are endemic in capitalism continued to work at the national level in the Eurozone and that the monetary union in no way disciplined these into a union-wide dynamics. On the contrary the monetary union probably exacerbated these national booms and busts. Second, the existing stabilizers that existed at the national level prior to the start of the union were stripped away from the member-states without being transposed at the monetary union level. This left the member states naked and fragile, unable to deal with the coming national disturbances. I study the way these failures can be overcome. This leads me to stress the role of the ECB as a lender of last resort and the need to make macroeconomic policies more symmetric so as to avoid a deflationary bias in the Eurozone. I conclude with some thoughts on political unification. |
| Date: | 2013–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:erp:leqsxx:p0057&r=eec |
| By: | Brian Fabo; Martin Kahanec |
| Abstract: | This paper studies the migration response of the youth from new EU member states to disparate conditions in an enlarged European Union at the onset of the Great Recession. We use the Eurobarometer data and probabilistic econometric models to identify the key drivers of the intention to work in another member state of European Economic Area (EEA) and their expected duration. We find that migration intentions are high among those not married and among males with children, but both categories are also overrepresented among people with only temporary as opposed to long-term or permanent migration plans. Whereas age affects migration intentions negatively, education has no effect on whether working abroad is envisaged. However, conditional on envisaging to work abroad, completion of education (if after 16th birthday) is associated with long-term (at least five years), but not permanent, migration plans. Finally, we find that socio-demographic variables explain about as much variation of migration intentions as self-reported push and pull factors and migration constraints. |
| Keywords: | EU labor markets, migration, youth, EU enlargement, labor mobility, free movement of workers, transitional arrangements, new member states, European Union |
| JEL: | F22 J61 |
| Date: | 2013–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:cel:dpaper:6&r=eec |
| By: | Oganesyan, Gayane |
| Abstract: | This paper analyzes whether the Lender of Last Resort function has changed in consequence of the recent Global Financial Crisis. The unprecedented emergency actions of the Federal Reserve, European Central Bank and the Bank of England are analyzed in terms of Walter Bagehot's traditional Lender of Last Resort doctrine. The central banks' actions are compared to identify the extensions and paint a general picture of the modern and much more comprehensive Lender of Last Resort function, which includes provision of liquidity and collateral, lowering interest rates and expansionary monetary policy, loosening collateral standards, supporting critical institutions, opening special liquidity facilities that target specific markets or groups of agents, and becoming market maker of last resort and buyer of last resort. The Lender of Last Resort function has been found to have changed. -- |
| Keywords: | Lender of Last Resort,Walter Bagehot's Lombard Street,penalty rate,secure collateral,solvency and illiquidity,monetary policy,Federal Reserve Bank,European Central Bank,Bank of England,Market Maker of Last Resort,quantitative easing,Buyer of Last Resort |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:192013&r=eec |