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on European Economics |
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Issue of 2014‒10‒22
ten papers chosen by Giuseppe Marotta Università degli Studi di Modena e Reggio Emilia |
| By: | Manuel Ramos Francia; Ana María Aguilar Argaez; Santiago García-Verdú; Gabriel Cuadra |
| Abstract: | We compare the experience of Latin American external debt crises, in particular the one in the 80s, with the current European one. We do so with the aim of shedding some light on the needed adjustment mechanisms. We argue for the need of much larger debt relief in Europe. To address the moral hazard problems that would arise, we propose providing such relief conditional on the reduction of both the fiscal and the current account deficits to zero as a commitment signal. |
| Keywords: | Sovereign Debt, Debt Crisis, Crisis Management. |
| JEL: | F34 H12 H63 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2014-17&r=eec |
| By: | Gabriela Castro (Economics and Research Department, Banco de Portugal); Ricardo M. Felix (Economics and Research Department, Banco de Portugal); Paulo Julio (Economics and Research Department, Banco de Portugal; and CEFAGE); Jose R. Maria (Economics and Research Department, Banco de Portugal) |
| Abstract: | Using PESSOA, a DSGE model for a small euro area economy, we analyze the size of fiscal multipliers associated with a large fiscal consolidation in "normal times" and in "crisis times." The crisis times scenario embodies a temporary increase in nominal rigidities and in financial frictions, purportedly better reflecting the underlying economic environment during the "Great Recession." Results show that impact multipliers are around 50-70 percent larger in crisis times for expenditure-based fiscal consolidations. A government consumption-based adjustment yields the highest impact multiplier (1.8 in crisis times vis-à-vis 1.2 in normal times). Revenue-based fiscal consolidations are also more recessive in crisis times, though the differences against normal times are less pronounced. Length: 37 pages |
| Keywords: | Fiscal multipliers; crisis; DSGE model; euro area; monetary union; small open economy. |
| JEL: | E62 F41 H62 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:cfe:wpcefa:2014_07&r=eec |
| By: | Juan Carlos Cuestas; Karsten Staehr |
| Abstract: | This paper considers the relationship between domestic credit and foreign capital flows in the GIIPS countries before and after the outbreak of the global financial crisis. Cointegration analyses on the pre-crisis sample reveal that domestic credit and net foreign liabilities are cointegrated for Greece, Italy, Portugal and Spain, but not for Ireland. For the first four countries the long-run coefficient is in all cases around one, suggesting a one-to-one relationship between domestic leveraging and foreign capital inflows. Estimation of VECMs on data from the pre-crisis period shows that the adjustment to deviations from the long-run relationship takes place through changes in domestic credit for Greece and Italy, while the adjustment is bidirectional for Portugal and Spain. These results suggest that “push” from foreign capital inflows was an important factor in the pre-crisis leveraging. The deleveraging after the crisis was largely unrelated to developments in foreign capital flows |
| Keywords: | leveraging, capital flows, financial crisis, cointegration |
| JEL: | F32 E51 E44 C32 |
| Date: | 2014–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2014-4&r=eec |
| By: | Manish K. Singh (Department of Economic Theory, Universitat de Barcelona); Marta Gómez-Puig (Department of Economic Theory, Universitat de Barcelona); Simón Sosvilla-Rivero (Department of Quantitative Economics, Universidad Complutense de Madrid) |
| Abstract: | Based on contingent claims analysis(CCA), this paper tries to estimate the systemic risk build-up in the European Economic and Monetary Union (EMU) countries using a market based measure "distance-to-default"(DtD). It analyzes the individual and aggregated series for a comprehensive set of banks in each eurozone country over the period 2004-Q4 to 2013-Q2. Given the structural differences in financial sector and banking regulations at national level, the indices provide a useful indicator for monitoring country specific banking vulnerability and stress. We find that average DtD indicators are intuitive, forward-looking and timely risk indicators. The underlying trend, fluctuations and correlations among indices help us analyze the interdependence while cross-sectional differences in DtD prior to crisis suggest banking sector fragility in peripheral EMU countries. |
| Keywords: | contingent claim analysis, distance-to-default, systemic risk |
| JEL: | G01 G21 G28 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:aee:wpaper:1410&r=eec |
| By: | Patrice Ollivaud; David Turner |
| Abstract: | This paper estimates potential output losses from the global financial crisis by comparing recent OECD published projections with a counter-factual assuming a continuation of pre-crisis productivity trends and a trend employment rate which is sensitive to demographic trends. Among the 19 OECD countries which experienced a banking crisis over the period 2007-11, the median loss in potential output in 2014 is estimated to be 3¾ per cent, compared to 2¾ per cent among all OECD countries. The crisis hit does, however, vary widely across countries, being more than 10% for several smaller European, mainly euro area, countries. The largest adverse effects come from lower trend productivity, which is a combination of both lower total factor productivity and lower capital per worker. Despite large increases in structural unemployment in some countries, the contribution of lower potential employment to the crisis hit is limited because the adverse effect on labour force participation is generally much less than might have been expected on the basis of previous severe downturns. This may partly reflect pension reforms and a tightening up of early retirement pathways. Pre-crisis conditions relating to over-heating and financial excesses, including high inflation, high investment, large current account deficits, low real interest rates, high total economy indebtedness and more rapid growth in capital-per-worker are all correlated with larger post-crisis potential output losses. This suggests that underlying the potential output losses was a substantial misallocation of resources, especially of capital, in the pre-crisis boom period. On the other hand, more competition-friendly product market regulation is associated with smaller crisis-related losses of potential output, suggesting it facilitates a reallocation of resources across firms and sectors in the aftermath of an adverse shock and so helps to mitigate its consequences. Les conséquences de la crise financière mondiale sur la production potentielle de l'OCDE Cette étude propose une estimation des pertes de production potentielle liées à la crise financière mondiale en comparant les projections de l’OCDE publiées récemment avec une situation hypothétique où les tendances de la productivité observées avant la crise sont maintenues et où le taux d’emploi tendanciel dépend des tendances démographiques. Parmi les 19 pays de l’OCDE qui ont connu une crise bancaire durant la période 2007-2011, l’estimation de la perte médiane de potentiel de production atteint 3,75 pour cent en 2014, à comparer avec 2,75 pour cent pour tous les pays de l’OCDE. L’impact de la crise, cependant, varie beaucoup selon les pays, et dépasse 10% pour plusieurs petits pays européens, notamment dans la zone euro. L’effet négatif vient principalement d’une plus faible productivité tendancielle, combinaison d’une plus faible productivité totale des facteurs et d’un capital productif par travailleur inférieur. En dépit d’une augmentation conséquente du taux de chômage structurel dans plusieurs pays, la contribution de l’emploi potentiel à l’impact total de la crise est faible, notamment parce que l’effet négatif sur les taux d’activité a été en général beaucoup moins important que ce qui était attendu au vu des récessions précédentes. Cela traduit en partie les réformes passées sur les retraites et un resserrement des conditions de départ anticipé à la retraite. La surchauffe économique et les excès financiers, y compris une forte inflation, un investissement élevé, un déficit important de balance courante, un taux d’intérêt réel bas, un endettement important de l’ensemble de l’économie et enfin une croissance plus rapide du capital par travailleur, sont des conditions préalables corrélées à la perte de potentiel de production. Cela suggère que la source de ces pertes de potentiel réside dans une mauvaise répartition des ressources, et notamment de capital, dans la période de boom précédant la crise. Par ailleurs, une réglementation plus souple des marchés des produits est associée à des pertes moins importantes de potentiel de production liées à la crise, suggérant ainsi qu’elles améliorent la redistribution des ressources entre les firmes et les secteurs quand survient un choc négatif, et par conséquent, participent à limiter ses conséquences. |
| Keywords: | banking crisis, global financial crisis, financial crisis, potential output, production potentielle, crise bancaire, crise financière, potentiel de production, crise financière mondiale |
| JEL: | E32 E44 |
| Date: | 2014–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1166-en&r=eec |
| By: | Paul Viefers; Ferdinand Fichtner; Simon Junker; Maximilian Podstawski |
| Abstract: | This paper presents a revised version of the DIW Economic Barometer, the business cycle index of the German Institute for Economic Research (DIW Berlin). As in earlier versions, we put forward a factor model on a monthly frequency to filter the latent state of the aggregate economy. In the new version, the resulting business cycle factor is based on more than 300 variables. The main methodological changes relate to (i) the estimation procedure, (ii) treatment of publication lags and missings, and (iii) the decomposition of the index into contributions from different sectors of the economy. Alongside several practical advantages, we also document a better historical nowcasting performance of the new index. |
| Keywords: | Business Cycles, Nowcasting, Dynamic Factor Models, Principal Components |
| JEL: | E32 E37 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1414&r=eec |
| By: | Ludmila Fadejeva; Martin Feldkircher; Thomas Reininger |
| Abstract: | In this paper, we examine international transmission of the negative credit supply shock, which originated in the euro area and the US. We use the multi-country global vector autoregression (GVAR) approach with trade and bilateral banking exposures as weights, and identify five structural shocks via sign restrictions. Special focus of this research is on CESEE – a region that shares strong financial linkages with the euro area. Our main results are as follows. First, US-specific shocks account for a significant share in explaining the deviations from growth trends in output and total credit in both the euro area and the US; second, compared to a domestic aggregate demand shock, the economic downturn caused by the credit supply shock in the US and the euro area can bring more harm in the long run, yet the international spillover of the former is stronger; third, the transmission of euro area shocks to emerging Europe is faster and more pronounced compared to US shocks; fourth, there is strong heterogeneity in responses of emerging Europe to shocks in the euro area and the US. |
| Keywords: | credit shock, global vector autoregressions, sign restrictions |
| JEL: | C32 F44 E32 O54 |
| Date: | 2014–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:ltv:wpaper:201405&r=eec |
| By: | Gyorgy Gyomai; Marc Wildi |
| Abstract: | We estimate the business-cycles of G7 countries, as defined by an ideal 2-10 year bandpass filter applied to country-specific GDP target series (GDP-BP). Since this target series cannot be observed in real-time, due to the symmetry of the bandpass filter, we analyze and compare the leading performances of the well-known HP-filter, as currently implemented in the OECD CLI’s, as well as of the Multivariate Direct Filter Approach (MDFA) relying on explanatory time series, as selected for current CLIs. The paper shows that efficiency gains by MDFA over HP are substantial along the full revision-sequence and they are consistent across countries as well as over time, when referenced against GDP-BP. Nous estimons les cycles économiques des pays du G7, définis par un filtre passe-bande idéal de 2 - 10 ans appliqué à des séries du PIB spécifiques à chaque pays. Comme cette série cible ne peut être observée en temps réel, en raison de la symétrie du filtre passe-bande, nous analysons et comparons les caractéristiques avancées du filtre HP bien connu, tel qu'il est actuellement implémenté pour le calcul des indicateurs composites avancés de l’OCDE, ainsi que l’approche par le filtre direct multivarié (MDFA), en s’appuyant sur les séries temporelles actuellement utilisées pour les indicateurs composites avancés. Ce document montre que des gains d'efficacité du filtre direct multivarié par rapport au filtre HP sont considérables au cours de la séquence complète de révision et qu’ils sont cohérents entre les pays ainsi que dans le temps, lorsqu'ils se réfèrent à la série du PIB. |
| Date: | 2012–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:oec:stdaaa:2012/5-en&r=eec |
| By: | Tairi Rõõm; Katri Urke |
| Abstract: | Estonia changed over from the kroon to the euro in January 2011. This paper analyses the inflationary effect of this event. The analysis is based on the Harmonised Indices of Consumer Prices. The difference-in-differences method is employed where the treated group is Estonia and the control group consists of the other EU member states. The estimation results imply that the inflationary impact of the euro changeover was either insignificant or small in magnitude, depending on which treatment period is considered. The acceleration in inflation mostly occurred in the second half of 2010, during the six-month period prior to the adoption of the euro. Although the actual effect of the euro changeover on inflation was modest, most Estonian citizens felt that the introduction of the new currency increased consumer prices considerably. |
| Keywords: | euro, currency changeover, consumer prices, inflation |
| JEL: | D49 P46 E58 |
| Date: | 2014–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2014-6&r=eec |
| By: | Daniele Ciani (Banca d'Italia); Wanda Cornacchia (Banca d'Italia); Paolo Garofalo (Banca d'Italia) |
| Abstract: | Risks are emerging in the real estate sector in Europe and the authorities have taken macroprudential measures to contain them. This paper reviews the main measures that have been or are being adopted in a number of European countries, and analyzes the main issues concerning the choice and the effectiveness of the different instruments. In the countries examined, the macroprudential instruments are just beginning to be phased and clear evidence of their effectiveness is not yet available. In some countries several measures have been introduced: given the uncertainty surrounding the functioning of these tools, the use of multiple instruments appears to offer greater potential, including in terms of the ability to reduce avoidance. The initial experiences show that macroprudential measures are more effective if they are put in place promptly when the indicators of risk in the real estate market and finance start to worsen. Calibration issues also appear to be crucial for their effectiveness. |
| Keywords: | macroprudential policy, macroprudential measures, real estate market |
| JEL: | E44 E58 E61 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_227_14&r=eec |