Is productivity diverging in the EU? Evidence from 11 Member States

An argument that received a lot of attention in the political and economic discussion surrounding the recent crisis in the EU is that diverging trends in productivity across member countries will undermine the viability of the common currency. This article examines the issue of convergence in multifactor productivity using sector-level data from 11 EU Member States. A state-space model is developed, and formal Bayesian model comparisons are performed to infer whether productivity is diverging, both at the aggregate level and at a sector-by-sector basis. The data point toward diverging productivity at the aggregate level, but suggest the opposite for many individual sectors.     

External Economies in Procyclical Productivity: How Important Are They?

Using the method of Caballero and Lyons (1990,1992), I examined detailed Swedish manufacturing firm-level dataon output and factor inputs from 1979 through 1994. Panel regressionsshow that an increase in aggregate output and inputs appearsto raise individual firms' production beyond private marginalreturns, a result consistent with positive external effects fromaggregate activity. However, while considering potential specificationdifficulties, this analysis shows that a model in which high-frequencyexogenous shifts in technology drive the business cycle statisticallyoutperforms the Caballero-Lyons model. This finding suggeststhat economywide fluctuations in technology are more importantfor movements in firms' productivity than are external economies.     

New Narratives from the EU External Border – Humane Refoulement?

This article discusses changes in the discourse and practice of the EU external border. Findings of a small-scale research project looking at UNHCR’S Border Management and Protection of Refugees (BMPR) programme will discuss developments taking place at the EU external border and will show a new kind of narrative. Institutional cooperation, access to territory and compliance with the principle of non-refoulement seem to have improved. A more empathetic narrative of border security has found its way into institutions of enforcement authorities that primarily follow their mandate of protecting the state’s border and territory. This new narrative is, however, highly politicised and institutionally driven. By taking a more critical view, I introduce the concept of humane refoulement towards the end of the article describing the consequences of this new narrative and denoting it as hypocritical in its nature.     

Why risk popular ratification failure? A comparative analysis of the choice of the ratification instrument in the 25 Member States of the EU

Following the European integration history, referenda are a risky ratification strategy. Despite establishing a convention and intense treaty negotiations, an unprecedented number of eleven member states announced a referendum for the ratification of the constitutional treaty in 2004, two of them finally failed and stalled the ratification process. This study examines the choice of the ratification instrument by an empirical analysis of the strategic interaction between government, opposition parties and the electorate in the 25 ratification countries. Our analysis considers country-specific conditions and correctly predicts most of the ratification choices in countries which announced referenda (65%) and almost all parliamentary ratification cases (93%). The results reveal that governments choose referenda when they expect low gains from a treaty reform or are confronted with a Euro-sceptical parliamentary opposition. We also find that governments are eager to separate popular votes from domestic electoral campaigns.     

Inflation Dynamics and its Sources in the Ottoman Empire: 1586–1913

This study examines the dynamics and determinants of inflation in the Ottoman Empire during the 1586–1913 period. There are two possible reasons for inflation: fiscal expansion and monetary expansion, which could be generated through the debasement of local currency (Akçe). We used a set of political and structural variables in order to explain the change in inflation dynamics. In particular, we considered the war years, periods of Ottoman history that show different characteristics (the slow‐down period, the recession period and the break‐up period) and the period of constitutional monarchy. Moreover, we tested whether the inflation process was the same for each sultan and whether each sultan’s behavior during the first year was different from the rest of his reign. The empirical evidence reported here suggests that war accelerated inflation as expected and fiscal expansion rather than the debasement of the Akçe was the main reason for inflation. Moreover, the slow‐down, the recession and the break‐up periods affected inflation positively; both fiscal expansion and the debasement of the Akçe were seen in these three periods as sources of inflation. While employing different inflationary policies during his reign, each sultan accelerated inflation in the first year of his reign by the debasement of the Akçe or by fiscal expansion. Last, the constitutional monarchy period had a significant positive effect on inflation although fiscal expansion, rather than the debasement of the Akçe, was the source of inflation during this period.     

EU Banks Rating Assignments: Is There Heterogeneity between New and Old Member Countries?

We model EU countries' bank ratings using financial variables and allowing for intercept and slope heterogeneity. Our aim is to assess whether “old” and “new” EU countries are rated differently and to determine whether “new” ones are assigned lower ratings, ceteris paribus, than “old” ones. We find that country‐specific factors (in the form of heterogeneous intercepts) are a crucial determinant of ratings. Whilst “new” EU countries typically have lower ratings than “old” ones, after controlling for financial variables we also discover that all countries have significantly different intercepts, confirming our prior belief. This intercept heterogeneity suggests that each country's rating is assigned uniquely, after controlling for differences in financial factors, which may reflect differences in country risk and the legal and regulatory framework that banks face (such as foreclosure laws). In addition, we find that ratings may respond differently to the liquidity and operating expenses to operating income variables across countries. Typically ratings are more responsive to the former and less sensitive to the latter for “new” EU countries compared with “old” EU countries.     

EU fiscal stance vulnerability: Are the old members the gold members?

This paper investigates the effect of aggregate shocks on the fiscal stance of the EU, and of its old (OMS) and new (NMS) member states over a business cycle. The fiscal stance is measured by the government deficit. To study the impact of aggregate shocks, we use impulse responses derived from a pooled structural vector autoregression model estimated on annual panel data. We find that the fiscal deficits of OMS could be vulnerable to discretionary changes in government expenditures and revenues. In contrast, the fiscal stance of NMS shows vulnerability to GDP shocks, because the increase in revenues after a positive GDP shock is often outpaced by greater expenditure increases in NMS. The estimated fiscal vulnerabilities stem from disproportionate policy responses concerning government expenditures and a lacking discipline to control pro-cyclical fiscal spending. Our findings for the EU thus support application of fiscal rules focused on government expenditure rather than other fiscal variables.     

How Will EMU Affect Inflation and Unemployment in Europe?

This paper explores how European Monetary Union will change the wage setting behavior of national labor unions. We derive the impact of national inflation aversion and labor militancy on the performance of national labor markets under different monetary arrangements. A common central bank raises inflation and unemployment if it acts as conservatively as national central banks. However, unemployment falls in countries that previously tied their monetary policy to the Bundesbank. We also examine the composition of EMU and the influence of national labor market legislation.
JEL Classification : E 24; F 02; F 33     

How Important are Financial Frictions in the United States and the Euro Area?

This paper aims to evaluate whether frictions in credit markets are important for business cycles in the United States and the euro area. I modify the DSGE financial accelerator model developed by Bernanke, Gertler and Gilchrist (1999) by adding such frictions as price indexation to past inflation, sticky wages, consumption habits and variable capital utilization. When estimating the model using Bayesian methods, I find that financial frictions are relevant in both areas. According to the posterior odds ratio, the data clearly favor the model with financial frictions, both in the United States and the euro area. Moreover, financial frictions are larger in the euro area.     

Guaranteeing quality in the EU: who gains most?

Regulating product quality benefits consumers in reducing uncertainty and allowing them to economize on search costs. Theoretical analysis suggests that not all consumers benefit to the same extent, with non-poor, less well educated and older people tending to gain most. These conclusions are supported by regression analysis of Eurobarometer data on attitudes to an EU priority to guarantee quality. The results also indicate the essential nature of the EU trade-off with countries having to compromise on their desired outcome when agreeing on a common EU standard. Institutional trust is also a critical factor in determining support for such a standard.      

Female employment and occupational changes in the 1990s: How is the EU performing relative to the US?

This paper provides a comparison of the incidence and composition of female employment both in the EU and in the US. Despite a significant increase in female labour market participation in the EU, about 50% of the difference between the employment rates in the US and the EU can still be attributed to differences in the educational attainments and the employment rates of women aged 25–54. We highlight the main features of female employment in both areas, paying particular attention to the differences across age cohorts and educational levels. Our main findings are as follows: (i) the educational level of the EU female population is slowly converging to that of the US across age cohorts, (ii) the employment rates of less educated women are much lower in the EU than in the US (with the exceptions of the Scandinavian countries) even for women aged 25–34, and (iii) occupational segregation is lower for the younger highly educated women who seem to be entering more typically male occupations and less typically female occupations, although at a higher rate in the US than in the EU.     

Real capital market integration in the EU: How far has it gone? What will the effect of the euro be?

Much effort has been devoted to the study of financial market integration in Europe. Little is known, however, about real capital market integration – the degree to which plants and equipment move to take advantage of locally high returns. This paper looks at the evidence. An analysis of flows of foreign direct investment in Europe shows that integration was quite limited in the early 1980s, but has increased considerably since then. Another analysis looks at rates of return of a large number of firms. It reveals that country-specific factors play a significant role in explaining corporate returns, even after taking risk into account. This finding is incompatible with the CAPM definition of market integration. The view that integration is limited in Europe is further strengthened when the same approach is carried out for the USA and Canada. Part of the national specificity appears to be related to labour and goods market regulations, which harm firms profitability. If, by introducing more transparency and eliminating currency risk, EMU strengthens competition on the real capital market, one obvious economic benefit will be a more rational and efficient use of capital, but the most important potential consequences are political. Special-interest regulations of an exclusively national nature will not survive. They will either fall in a wave of internationalist liberalization, or become embedded in 'harmonized' regulations at the federal level. A reduction in excessive regulatory burdens, notably in the labour market, could lead to substantial and shared productivity gains.     

Falling Wage Shares in Europe and the United States: How Important is Aggregation Bias?

This paper sheds light on the importance of aggregation bias in the analysis of wage shares developments over time and across countries. We focus on five European countries and the United States and show that the trend decline in the aggregate wage share observed in these countries over much of the 1980s and 1990s partly reflects changes in the sectoral composition of the economy. The application of a fixed-weight aggregation method changes the profile of the observed wage share in a significant way: in particular there is no longer sign of an overshooting of the wage share levels of the early-1970s. Error-correction wage equations based on the adjusted wage shares generally have a better regression fit and show long-run elasticities of real wages to unemployment that vary less across countries and are substantially lower than those obtained with observed shares.     

Inflation,inflation uncertainty and growth: Are they related?

We examine the relationship between inflation uncertainty, inflation and growth using annual historical data on industrial countries covering in many cases more than one century. Proxying inflation uncertainty by the conditional variance of inflation shocks, we obtain the following results. (1) There is significant evidence for the positive effect of inflation uncertainty on inflation supporting the Cukierman–Meltzer hypothesis. (2) There is mixed evidence on the causal effect of inflation on inflation uncertainty. (3) There is strong evidence that inflation uncertainty is not detrimental to output growth.     

Foreign Direct Investment and the External Wealth of Nations: How Important Is Valuation?

While the balance sheet approach has increased the focus on position data, differences in valuation practices for foreign direct investment (FDI) make cross‐country comparisons difficult. To enhance comparability, the IMF's Balance of Payments and International Investment Position Manual, sixth edition, which some countries have already implemented and others will implement in the coming years, recommends seven methods for valuation of unlisted FDI. This paper demonstrates that both the valuation method and simple differences in estimation techniques can fundamentally change a country's financial balance sheet. Using Denmark as an illustration, unlisted FDI equity liabilities vary from 22 to 156 percent of GDP when applying different estimation techniques, but just one valuation method, price to earnings. These measurement uncertainties can lead to important misunderstandings and affect policy recommendations, thus pointing to the need for further international harmonization. While the results are presented in an FDI context, the uncertainties also apply to other macroeconomic datasets, including national accounts statistics.     

Demand in New Zealand hospitals: expect the unexpected?

The health care sector in New Zealand has undergone substantial structural reform since 1983 and stands out relative to other OECD countries, with relatively low per capita health expenditure and a high share of public funding. Efficient allocation of resources in this public dominant health system is therefore paramount. This article uses a national database of hospital admissions to predict hospital demand. We find lagged information on patient demand imperative in formulating an easy to implement approach for predictive purposes. Contrasting predicted with actual demand, we construct an indicator of volatility in unexpected patient demand (at both the hospital and the disease chapter level) and assess its role with regard to patient outcomes. There is consistent evidence that when actual patient numbers exceed predicted, patients stay in hospital significantly longer and are more likely to have an acute readmission.     

Business cycles in EU new member states: How and why are they different?

This paper uses the business cycle accounting framework to investigate the differences between economic fluctuations in Central and Eastern European (CEE) countries and the euro area. We decompose output movements into the contributions of four economic wedges, affecting the production technology, the agents’ intra- and intertemporal choices, and the aggregate resource constraint. We next analyze the observed cross-country differences in business cycles with respect to these four identified wedges. Our results indicate that business cycles in the CEE countries do differ from those observed in the euro area, even though substantial convergence has been achieved after the eastern EU enlargement. The major differences concern the importance of the intra- and intertemporal wedges, which account for a larger proportion of output fluctuations in the CEE region and also exhibit relatively little comovement with their euro area counterparts.