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Euro Area (euro + area)
Terms modified by Euro Area Selected AbstractsWILL BUSINESS CYCLES IN THE EURO AREA CONVERGE?JOURNAL OF ECONOMIC SURVEYS, Issue 2 2008A CRITICAL SURVEY OF EMPIRICAL RESEARCH Abstract This survey of business cycle synchronization in the European monetary union focuses on two issues: have business cycles become more similar, and which factors drive business cycle synchronization. We conclude that business cycles in the euro area have gone through periods of both convergence and divergence. Still, there is quite some evidence that during the 1990s business cycle synchronization in the euro area has increased. Higher trade intensity is found to lead to more synchronization, but the point estimates vary widely. The evidence for other factors affecting business cycle synchronization is very mixed. [source] The International Financial Crisis Viewed by ExpertsECONOMIC NOTES, Issue 1-2 2009Antonio Forte The occurrence of the international financial crisis and the spread out of its effects on the global economy prompted experts around the world to think about how to manage the crisis and which measures to implement in order to restore normal economic and financial conditions. In this paper, we present and discuss the results of an international expert survey. We use these experts' perceptions to pursue a twofold target to understand their perceptions about the causes of the crisis, and of the policies to solve it. Interestingly, experts seem to broadly concur on what caused the crisis but their perceptions diverge regarding the policies. Furthermore, substantial differences in perceptions emerge between the Euro Area and the United States. We also find that the Federal Reserve and the European Central Bank monetary policies during the crisis are judged barely adequate. Finally, different views distinguish academicians from other experts. [source] The Liquidity Premium in the Money Market: A Comparison of the German Mark Period and the Euro AreaGERMAN ECONOMIC REVIEW, Issue 2 2006Alain Durré Expectations hypothesis; money market; liquidity premium; cointegration analysis Abstract. This paper investigates to what extent the expectations hypothesis of the term structure (EHTS) of interest rates receives some support since the launch of the European single currency. Empirical evidence shows that in general this theory applies to most European countries, and to Germany in particular. The objective of this paper thus is twofold. First, the EHTS for the German money market and for a larger sample including the German mark period and the euro money market is tested in order to check whether the results for the former are affected by the new financial environment since January 1999. Second, the implications of the results for the monetary policy assessment are discussed. We estimate cointegrating vector autoregressive models in order to quantify the level of the liquidity premium. The results suggest that financial markets do not consider the monetary policy of the European Central Bank simply as the one prevailing during the German period. [source] The Transmission of US Monetary Policy to the Euro Area,INTERNATIONAL FINANCE, Issue 1 2010Stefano Neri This paper studies how changes in the federal funds rate by the US Federal Reserve affect the eurozone economy. In our analysis, the international transmission mechanism works through movements in the exchange rate, commodity prices, short-term interest rates and the trade balance. We find that an increase in the federal funds rate causes the euro to immediately depreciate, while commodity, and in particular oil, prices decline sharply, reflecting a decline in demand. Lower commodity prices stimulate household consumption in the short run, and the higher aggregate demand induces an expansion of eurozone economic activity. Our results show that the effects of changes in the federal funds rate on commodity prices are greater than previously found in the literature. Our analysis also assesses the likely effects on the eurozone economy of the European Central Bank's (ECB's) own responses to macroeconomic developments. We find that the expansionary effect of lower commodity prices and a depreciated euro on the eurozone economy is partially offset by the ECB increasing short-term nominal interest rates to curb inflationary pressures in an expanding economy. This result highlights the importance of commodity prices and the euro,dollar exchange rate as inputs into European monetary policy-making, as seen, for example, in the Eurosystem staff macroeconomic projections used by the Governing Council to assess the risks to price stability. [source] A Speed Limit Monetary Policy Rule for the Euro Area,INTERNATIONAL FINANCE, Issue 1 2007Livio StraccaArticle first published online: 5 APR 200 The main task of central banks is to set the level of short-term nominal interest rates in reaction to economic developments, with the aim of achieving their statutory objectives (typically some combination of inflation and output variability). If agents are forward-looking, central banks can achieve better macroeconomic outcomes by committing to follow a rule-like behaviour. Against this background, the contribution of this paper is twofold. First, it estimates a small-scale model of the euro area economy that can be used as a benchmark for the evaluation of different simple policy rules in the euro area economy. Second, it studies the performance of a relatively new type of rule, labelled ,speed limit' (SL), where the nominal interest rate reacts to the rate of growth in the output gap. The main conclusion of the study is that an SL policy performs remarkably well. [source] The EU Economy: Member States Outside the Euro Area in 2009JCMS: JOURNAL OF COMMON MARKET STUDIES, Issue 2010RICHARD CONNOLLY First page of article [source] Economic Developments in the Euro AreaJCMS: JOURNAL OF COMMON MARKET STUDIES, Issue 2009AMY VERDUN First page of article [source] Developments in the Economies of Member States Outside the Euro AreaJCMS: JOURNAL OF COMMON MARKET STUDIES, Issue 2009DEBRA JOHNSON First page of article [source] The ECB Governing Council in an Enlarged Euro Area,JCMS: JOURNAL OF COMMON MARKET STUDIES, Issue 1 2009AGNÈS BÉNASSY-QUÉRÉ We study the impact of rotating votes in the ECB Governing Council after EMU enlargement, based on national and euro-wide Taylor rules and on a convergence assumption. We find that the rotation system yields monetary policy decisions that are close both to full centralization and to a voting rule without rotations. [source] Economic Developments in the Euro AreaJCMS: JOURNAL OF COMMON MARKET STUDIES, Issue 2008AMY VERDUN First page of article [source] Economic Developments in the Euro AreaJCMS: JOURNAL OF COMMON MARKET STUDIES, Issue 2006AMY VERDUN First page of article [source] Developments in the Economies of Member States Outside the Euro AreaJCMS: JOURNAL OF COMMON MARKET STUDIES, Issue 2006DEBRA JOHNSON First page of article [source] Testing the New Keynesian Phillips Curve Through Vector Autoregressive Models: Results from the Euro Area,OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 1 2008Luca Fanelli Abstract This paper addresses the issue of testing the ,hybrid' New Keynesian Phillips curve (NKPC) through vector autoregressive (VAR) systems and likelihood methods, giving special emphasis to the case where the variables are non-stationary. The idea is to use a VAR for both the inflation rate and the explanatory variable(s) to approximate the dynamics of the system and derive testable restrictions. Attention is focused on the ,inexact' formulation of the NKPC. Empirical results over the period 1971,98 show that the NKPC is far from providing a ,good first approximation' of inflation dynamics in the Euro area. [source] Non-linearities, Business Cycles and Exchange RatesECONOMIC NOTES, Issue 3 2008Menzie D. Chinn This paper conjoins the disparate empirical literatures on exchange rate models and monetary policy models, with special reference to the importance of output, inflation gaps and exchange rate targets. It focuses in on the dollar/euro exchange rate, and the differential results arising from using alternative measures of the output gap for the US and for the Euro area. A comparison of ,in-sample' prediction against alternative models of exchange rates is also conducted. In addition to predictive power, I also assess the various models' plausibility as economic explanations for exchange rate movements, based on the conformity of coefficient estimates with priors. Taylor rule fundamentals appear to do as well, or better, than other models at the 1-year horizon. [source] Oil and the Euro area economyECONOMIC POLICY, Issue 60 2009Gert Peersman Summary We examine the macroeconomic effects of different types of oil shocks and the oil transmission mechanism in the Euro area. A comparison is made with the US and across individual member countries. First, we find that the underlying source of the oil price shift is crucial to determine the repercussions on the economy and the appropriate monetary policy reaction. Second, the transmission mechanism is considerably different compared to the US. In particular, inflationary effects in the US are mainly driven by a strong direct pass-through of rising energy prices and indirect effects of higher production costs. In contrast, Euro area inflation reacts sluggishly and is much more driven by second-round effects of increasing wages. The monetary policy reaction of the ECB to oil shocks is also strikingly different compared to the FED. The inflation objective, relative to the output stabilization objective, appears more important for Euro area monetary authorities than for the FED. Third, there are substantial asymmetries across member countries. These differences are due to different labour market dynamics which are further aggravated by a common monetary policy stance which does not fit all. --- Gert Peersman and Ine Van Robays [source] Measuring Synchronization and Convergence of Business Cycles for the Euro area, UK and US,OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 1 2008Siem Jan Koopman Abstract This paper investigates business cycle relations among different economies in the Euro area. Cyclical dynamics are explicitly modelled as part of a time series model. We introduce mechanisms that allow for increasing or diminishing phase shifts and for time-varying association patterns in different cycles. Standard Kalman filter techniques are used to estimate the parameters simultaneously by maximum likelihood. The empirical illustrations are based on gross domestic product (GDP) series of seven European countries that are compared with the GDP series of the Euro area and that of the US. The original integrated time series are band-pass filtered. We find that there is an increasing resemblance between the business cycle fluctuations of the European countries analysed and those of the Euro area, although with varying patterns. [source] Testing the New Keynesian Phillips Curve Through Vector Autoregressive Models: Results from the Euro Area,OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 1 2008Luca Fanelli Abstract This paper addresses the issue of testing the ,hybrid' New Keynesian Phillips curve (NKPC) through vector autoregressive (VAR) systems and likelihood methods, giving special emphasis to the case where the variables are non-stationary. The idea is to use a VAR for both the inflation rate and the explanatory variable(s) to approximate the dynamics of the system and derive testable restrictions. Attention is focused on the ,inexact' formulation of the NKPC. Empirical results over the period 1971,98 show that the NKPC is far from providing a ,good first approximation' of inflation dynamics in the Euro area. [source] Macroeconomic News and the Euro/Dollar Exchange RateECONOMIC NOTES, Issue 3 2003Gabriele Galati This paper investigates to what extent daily movements in the euro/dollar rate were driven by news about the macroeconomic situation in the USA and the euro area during the first two years of EMU. We examine whether market participants reacted to news in different ways depending on whether the news came from the USA or from the euro area, and whether the news was good or bad. Furthermore, we investigate whether traders' reaction to news has changed over time. We find that macroeconomic news has a statistically significant correlation with daily movements of the euro against the dollar. However, this relationship exhibits considerable time variation. There are indications of asymmetric response, but to different extents at different times. Our results also provide evidence that the market seemed to ignore good news and remain fixated on bad news from the euro area, as often claimed in market commentaries, but only for some time. Finally, we find evidence that the impact of macroeconomic news on the euro/dollar rate was stronger when news switches from good to bad or vice versa. (J.E.L.: F31). [source] Central Bank and Commercial Banks' Liquidity Management , What is the Relationship?ECONOMIC NOTES, Issue 1 2003Ulrich Bindseil The paper explores the relation between individual banks' liquidity management in the euro area and the ECB's management of the aggregate current accounts held by banks with the Eurosystem. It is argued that, in the case of the euro area with its large, remunerated reserve requirements that have to be fulfilled only on average over a one-month period, the banks' demand for working balances to serve as a buffer against market imperfections is always below reserve requirements. It is therefore normally sufficient for the ECB when steering short-term interest rates to control aggregate liquidity in a way that the aggregate banking system is in a position to fulfil adequately its reserve requirements. In particular, the ECB normally does not need to take care of any factors that affect temporarily the demand for working balances, such as the level and uncertainties of interbank payment flows. However, two exceptions are noteworthy and are discussed in the paper: the banks' balance sheet management activities implying a regular end of month peak of the EONIA rate; and the liquidity situation in the case of substantive market tensions as in the days following the terrorist attacks of 11 September 2001. The need of the ECB's liquidity management to address the associated deviations from a model of perfect markets is discussed. [source] Capital quality improvement and the sources of economic growth in the euro areaECONOMIC POLICY, Issue 42 2005Plutarchos Sakellaris SUMMARY Capital quality improvement and Euroland growth Sources of growth Europe's growth slowed in the 1990s, reinforcing the overall impression of a need to catch up with the US regarding standards of living. In reaction, EU leaders adopted the famous Lisbon Agenda in 2000. The Agenda is now under review, the aim being to determine why progress on its pro-growth goals has been unsatisfactory and what can be done about it. The first crucial step in this process is to understand the true sources of the European growth slowdown. Sources-of-growth calculations have always been imprecise, but evidence from the US suggests that ,quality upgrading', especially in capital goods , has substantially worsened the precision problem since the 1990s. Unfortunately, quality adjusted sources-of-growth calculations, however, have not performed satisfactorily for Europe, so Europe's leaders are working with potentially misleading accounts of Europe's growth slowdown. Redressing this omission is the goal of this paper. Failure to account properly for capital quality improvements leads to two mistakes. First, overall GDP is underestimated. Our calculations, for example, show that euro area GDP growth was underestimated on average by 0.7 percentage points annually in the late 1990s. However, similar quality-adjustment figures raise US growth figures in the same period by even more, so quality-adjusting suggests that the US,EU growth gap was even more pronounced than previously believed. Secondly, the sources-of-growth calculations used to prioritize Europe's pro-growth policies are skewed. Our calculations show that the contribution of the slowdown in disembodied technical progress to the overall slowdown is more pronounced after quality adjustment. Our findings point to the need for adoption of microeconomic measures aimed at enhancing overall efficiency and boosting innovation activity. Such measures would aim at a better business environment, e.g. by easing regulatory and administrative burden and liberalizing energy and telecommunications markets. , Plutarchos Sakellaris and Focco Vijselaar [source] Financial Integration and EMUEUROPEAN FINANCIAL MANAGEMENT, Issue 1 2005Franklin Allen G21; G34; F23 Abstract This paper investigates the effect of European Monetary Union on the integration of the financial services industry within European using data on the announcements of M&A's within the industry. We find some evidence that EMU has helped financial integration within the euro area. In addition, financial institutions in EMU countries became more active in initiating integration between EMU and non-EMU partners, which also contributed to overall regional integration within European. The more active role of EMU institutions suggests that institutions residing in the eurozone became stronger players in the corporate control market. However, EMU does not facilitate the entry of non-European institutions into European. [source] The impact of the euro on Europe's financial marketsFINANCIAL MARKETS, INSTITUTIONS & INSTRUMENTS, Issue 3 2003Gabriele Galati This paper presents an overview of the impact of the introduction of the euro on Europe's financial structure over the first four years since the start of EMU. It analyzes changes in money markets, bond markets, equity markets and foreign exchange markets. Euro's role in originating or catalyzing trends has been uneven across the spectrum of financial markets. From the supply side, banks and investors in fixed income markets have become more focused on the characteristics of individual borrowers rather than the nationality of the issuer and have built up expertise to evaluate credit risk. European equity markets have also been affected by the enhanced ability of investors to build strategies with a pan-European perspective as prices increasingly reflected risk factors specific to industrial sectors rather than individual countries. On the borrower side, EMU has increased the attractiveness of market-based financing methods by allowing debt issuers to tap institutional portfolios across the euro area. Lower barriers to cross-border financial transactions have also increased the contestability of the market for financial services, be it at the wholesale or the retail level. The introduction of the euro has also highlighted the shortcomings of existing institutional structures and areas where excessive focus on narrowly defined interests may stand in the way of realizing the full potential benefits from the new environment. Diverging legal and institutional infrastructures and market practices can impede further financial market development and deepening. Hence, the euro has put a premium on cooperation between national authorities and institution as a means of achieving a more harmonized financial environment. The impact of EMU on depth in foreign exchange markets has been less clear-cut, as volatility, spreads, trading volumes and liquidity appear not to have changed in a substantial way. Overall, it seems that the new currency has made some progress towards the goal of becoming a currency of international stature that would rival that of the US dollar. However, a number of the necessary next steps towards achieving this goal are also among the trickiest to implement. [source] Using Taylor Rules to Understand European Central Bank Monetary PolicyGERMAN ECONOMIC REVIEW, Issue 3 2007Stephan Sauer Taylor rule; European Central Bank; real-time data Abstract. Over the last decade, the simple instrument policy rule developed by Taylor has become a popular tool for evaluating the monetary policy of central banks. As an extensive empirical analysis of the European Central Bank's (ECB) past behaviour still seems to be in its infancy, we estimate several instrument policy reaction functions for the ECB to shed some light on actual monetary policy in the euro area under the presidency of Wim Duisenberg and answer questions like whether the ECB has actually followed a stabilizing or a destabilizing rule so far. Looking at contemporaneous Taylor rules, the evidence presented suggests that the ECB is accommodating changes in inflation and hence follows a destabilizing policy. However, this impression seems to be largely due to the lack of a forward-looking perspective in such specifications. Either assuming rational expectations and using a forward-looking specification, or using expectations as derived from surveys result in Taylor rules that do imply a stabilizing role of the ECB. The use of real-time industrial production data does not seem to play such a significant role as in the case of the United States. [source] Monetary and Fiscal Policy Rules in the EMUGERMAN ECONOMIC REVIEW, Issue 4 2004Bas Van Aarle EMU; fiscal policy; monetary policy Abstract. This paper studies the design and effects of monetary and fiscal policy in the euro area. To do so, a stylized two-region model of monetary and fiscal policy rules in the EMU is built. We analyse how monetary and fiscal rules affect the adjustment dynamics in the model. Both the effects on the individual countries and on the EMU aggregate economy are studied. Three aspects play an important role in the analysis: (i) the consequences of alternative monetary and fiscal policy rules, (ii) the consequences of asymmetries between EMU countries (asymmetries in macroeconomic shocks and macroeconomic structures), and (iii) the role of alternative degrees of backward- and forward-looking behaviour in consumer decisions and inflation expectations. [source] TECHNOLOGY SHOCKS AND ROBUST SIGN RESTRICTIONS IN A EURO AREA SVAR,INTERNATIONAL ECONOMIC REVIEW, Issue 3 2009Gert Peersman We use a model-based identification strategy to estimate the impact of technology shocks on hours worked and employment in the euro area. The sign restrictions applied in the vector autoregression (VAR) analysis are consistent with a large class of dynamic stochastic general equilibrium (DSGE) models and are robust to parameter uncertainty. The results are in line with the conventional Real Business Cycle (RBC) interpretation that hours worked rise as a result of a positive technology shock. By comparing the sign restrictions method to the long-run restriction approach of Galí (Quaterly Journal of Economics,(1992) 709,38), we show that the results do not depend on the stochastic specification of the hours worked series or the data sample but only on the identification scheme. [source] Gradualism, Transparency and the Improved Operational Framework: A Look at Overnight Volatility Transmission,INTERNATIONAL FINANCE, Issue 2 2009Silvio Colarossi This paper proposes a possible way of assessing the effect on interest rate dynamics of changes in the decision-making method, in the communication strategy and in the operational framework of a central bank. Through a generalized autoregressive conditional heteroscedasticity (GARCH) specification, we show that the United States and the euro area displayed a limited but significant spillover of volatility from money market to longer-term rates. We then checked the stability of this phenomenon in the most recent period of improved policy-making and found empirical evidence to show that the transmission of overnight volatility along the yield curve had entirely disappeared. [source] Does Global Liquidity Matter for Monetary Policy in the Euro Area?,INTERNATIONAL FINANCE, Issue 1 2009Helge Berger Global excess liquidity prevalent across the world's financial markets (or its sudden absence) is sometimes believed to limit sovereign monetary policy even in large economies such as the euro area. However, there is still discussion about what constitutes global excess liquidity and how exactly it shapes the policy environment. Our approach adjusts liquidity for a longer-term interest rate and output effects and focuses on US and Japanese liquidity as relevant proxies for global developments from a euro area perspective. We find that, in particular, excess liquidity in the US tends to lead developments in euro area liquidity. US excess liquidity is also consistently positive as a determinant of euro area inflation and is shown to be Granger-causal for euro area inflation in an out-of-sample forecasting exercise. There is some evidence that, at least in part, this result seems to be related to a weakening of the effectiveness of monetary policy in the euro area interest during times of excessive US liquidity. In contrast, the influence of euro area excess liquidity on euro area inflation is more limited. [source] A Structural Investigation of Third-Currency Shocks to Bilateral Exchange Rates,INTERNATIONAL FINANCE, Issue 1 2008Martin Melecky An exchange rate between two currencies can be materially affected by shocks emerging from a third country. A US demand shock, for example, can affect the exchange rate between the euro and the yen. Because positive US demand shocks have a greater positive impact on Japanese interest rates than on euro area rates, the yen appreciates against the euro in response. Using quarterly data on the United States, the euro area and Japan from 1981 to 2006, this paper shows that the third-currency effects are significant even when exchange rates evolve according to uncovered interest parity. This is because interest rates are typically set in response to output and inflation, which are in turn influenced by other exchange rates. More importantly, third-currency effects are also transmitted to the actual exchange rate through the expected future exchange rate, which is, in a multi-country set-up, influenced by third-countries' fundamentals and shocks. Third-currency effects have a stronger impact on the currency of a relatively more open economy. The analysis implies that small open economies should avoid strict forms of bilateral exchange rate targeting, since higher trade and financial openness work as a force intrinsically amplifying currency fluctuations. [source] Does Government Spending Crowd in Private Consumption?INTERNATIONAL FINANCE, Issue 3 2005Empirical Evidence for the Euro Area, Theory In this paper, we revisit the effects of government spending shocks on private consumption which have been at centre stage of the macroeconomic policy debate for quite a long time. We conduct our analysis in an estimated model of the euro area, which is representative of a new generation of dynamic stochastic general equilibrium (DSGE) models usable for quantitative policy analysis. We show that the inclusion of non-Ricardian households, which simply consume their current disposable income, is in general conducive to raising the level of consumption in response to government spending shocks when compared with a benchmark specification without non-Ricardian households. However, we find that there is only a fairly small chance that government spending shocks crowd in consumption, mainly because the estimated share of non-Ricardian households is relatively low, but also because of the large negative wealth effect induced by the highly persistent nature of government spending shocks. [source] Does the Yield Spread Predict Recessions in the Euro Area?,INTERNATIONAL FINANCE, Issue 2 2005Fabio MonetaArticle first published online: 16 DEC 200 This paper studies the informational content of the slope of the yield curve as a predictor of recessions in the euro area and provides evidence of the potential usefulness of this indicator for monetary policy purposes. In particular, the historical predictive power of ten variations of yield spreads, for different segments of the yield curve, is tested using a probit model. The yield spread between the ten-year government bond rate and the three-month interbank rate outperforms all other spreads in predicting recessions in the euro area. The forecast accuracy of the spread between ten-year and three-month interest rates is also explored in an exercise of out-of-sample forecasting. This yield spread appears to contain information beyond that already available in the history of output, and to outperform other competitor indicators. [source] | ||||||||||||||||||||||