Empirica Journal of European Economics
Sponsored by the Austrian Economic Association and the Austrian Institute of Economic Research
Empirica publishes empirical and theoretical work on all economic aspects of European Integration. The topics may range from
all challenges concerning the deepening of the European Union (Single Market, Lisbon Agenda, EMU) to enlargement and the external
relations of the EU (globalisation).
Recent issues(797 hits)
The aim of this work is to verify whether there is an inflation bias in the Euro-area monetary policy. I verify the presence
of a strategic repeated game between the European Central Bank and the market, in setting actual and expected inflation, and
consider the features of this game. In particular, the aim is to verify whether the market fixes the expected inflation strategically,
and how the probability of the kind of monetary policy is formed. It can be concluded that the market behaves strategically,
but an inflation bias does not emerge from data. The source of non-credibility cannot be the bank's lack of commitment, but
it may be a partial inability to control or to communicate economic shocks. These conclusions are robust to two different
estimation strategies, which are both based on regime-switching regressions. The effects of the recent financial and sovereign-debt
crises are taken into account.
The paper analyses the evolution of trade specialisation in Romania and Bulgaria beginning with the mid-1990s to 2012. Two
statistical methods are applied: cross-section analysis and the Markov chain technique. These methods are used both to establish
a link between different distributions of trade specialisation indicators in time and to find out if Romania and Bulgaria
have mainly specialised in competitive or non-competitive products. Although the main acceding countries to European Union
had registered an increasing degree of specialisation, our results indicate an opposite trend for the two countries.
In this article we investigate if the Swedish consumer prices for electricity are adjusted equally fast regardless of whether
the NordPool power market prices are decreased or increased. Due to relatively moderate variations in the variables, we have
applied quantile regression, since it is mainly the large changes (above the median) that essentially tend to have a considerable
effect on the consumer prices. Moreover, in order to adjust for stochastic- and deterministic trends, autocorrelation, structural
breaks as well as to measure asymmetric price transmission effects in the short- and in the medium-run, we apply a wavelet
decomposition approach. Our results show evidence that significantly positive asymmetric price transmission (APT) effects
exist in this market. More specifically, in the short run (based on the wavelet decomposition D1 for 1 to 2 months cycles),
we find that that there is a higher propensity to rapidly and systematically increase the consumer prices subsequently to
an increase in the NordPool market price, compared with the propensity to decrease their customers prices subsequently to
a corresponding drop in the NordPool market prices. However, no significant APT effects were detected in the medium or in
the long run (i.e., the asymmetric price transmission effects are observed only in the short run). In summary, we could isolate
significant APT effects in the short run (1 to 2 months decomposition cycles), and for large changes in the dependent variable
(percentiles = 0.9). Therefore, only large changes in the NordPool prices lead to feedback effects in the form of asymmetric
price transmission effects. Our evidence supports the notion of firms' downward stickiness of retail prices for maximising
profit, which are not expected to be found on a fully efficient market. Although our finding shows that the price inefficiency
is short-lived, these large temporal inefficiencies are still costly for the consumers. It should be noted that blunt traditional
powerless methods do not detect these APT effects, while our wavelet quantile methods are powerful and make a significant
contribution in the literature by providing new empirical evidence.
Central to this paper is the analysis of inflation dynamics in the Euro Area as well as in eleven individual Euro Area member
countries between 1990 and 2012. Based on the hybrid new Keynesian Phillips curve, the analyses include survey measures from
Consensus Economics to compare inflation dynamics across Euro Area member countries. Particular focus is set on the choice
of suitable measures of real marginal cost. In addition to the well-known output gap, the role of finance-neutral output gaps
and unemployment gaps is examined. Throughout the analyses, price setting is found to be largely backward-looking, but with
a decreasing trend over time. Countries' varying sensitivity to the different measures of real marginal cost is highlighted,
which may indicate persistent heterogeneity in Euro Area inflation dynamics. With the onset of the financial crisis, finance-neutral
output gaps outperform alternative measures of real marginal cost.
This study aims to analyse the impact of the development and stability of the financial sector on economic growth on the basis
of the quantitative methods that produce robust results. The following research hypotheses are tested: H1: The relationship
between financial sector development (stability) and economic growth is nonlinear. H2: An excessively large size of the financial
system does not lead to more rapid economic growth; it may even negatively affect GDP dynamics. H3: The inclusion of the post-crisis
period gives new insights of the nature of the relationship between financial system and economic growth. The analysis covers
the 28 EU and 34 OECD economies and the 1993-2013 period. The following variables are used to measure the financial sector:
domestic credit provided by financial sector, bank nonperforming loans, bank capital to assets ratio, market capitalisation
of listed companies, turnover ratio of stocks traded, and the monetisation ratio. A new element of the empirical analysis
is the application of the extended econometric and economic modelling, including testing nonlinear relationships, analysing
both levels and changes of the financial variables, as well as estimating the models on the basis of a moving panel with overlapping
observations. The regression equations are estimated by Blundell and Bond's GMM system estimator. Our results indicate that
all the research hypotheses have been positively verified.
Owing to exchange rate depreciation, trade balance may deteriorate in the short run but improves in the long run, hence the
J-curve phenomenon. Previous research has failed to find a strong support for this phenomenon, which could be due to assuming
exchange rate changes to have symmetric effects on the trade balance or due to assuming linear adjustment. The asymmetry cointegration
approach, which introduces nonlinearity into the model specification, may resolve a part of the problem if not all. Following
a recent nonlinear approach to cointegration (NARDL), this research examines the phenomenon displayed in Malaysia-EU bilateral
trade for each of the 63 industries that trade between the two regions. We find that exchange rate changes have significant
short-run asymmetric effects on the trade balance of most industries. As expected, the nonlinear model and asymmetry cointegration
provides more support for the J-curve.
Using a novel municipality-level panel dataset, this paper investigates the empirical characteristics of vertical fiscal imbalances
in Moldova over the period 2005-2013. The results show that the extent of variation in vertical fiscal imbalances across 898
municipalities can be explained by the level of per-capita income, fiscal capacity, and demographic characteristics, as well
as the central government's fiscal behaviour that reflects fiscal constraints and policy preferences at the national level.
Political affiliation does not appear to be a significant factor, but the results show lower vertical fiscal imbalances when
the mayor of a municipality belongs to the same party ruling the central government. Altogether, these findings underscore
the need for well-coordinated reforms to create economies of scale, enhance revenue collection, and improve the composition
of spending at the subnational level.
The complex interaction of technological development and socio-demographic change has accelerated a structural change in the
economy, resulting in a changing working environment and new forms of employment. In the field of self-employment, an emerging
trend towards one-person enterprises can be observed, which already represent more than 50 percent of all Austrian companies.
Based on a representative sample of 626 one-person enterprises in the Bundesland Carinthia, we found out that these micro
enterprises are mainly driven by motives like self-realisation or working without hierarchies. However, their emergence is
also partly due to a lack of opportunities in the (dependent) labour market. Additionally, we found evidence for the phenomenon
of hybrid self-employment, meaning that a significant part of the one-person enterprises (nearly 20 percent) is additionally
engaged in dependent work. The primary aim of this paper was to identify factors influencing these hybrid forms of employment
status between dependent work and self-employment. Based on a binary Logit model, we found evidence that the hybrid employment
status is mainly determined by age, the educational level, the situation in which the one-person enterprise was founded, the
duration of the enterprise as well as the motives for being self-employed.
This paper examines whether the pricing of risk is important for macroeconomic activity at the country level. We design a
risk-adjusted yield spread and test its predictive content for economic activity on the periphery and the centre of Europe
over the 1990-2012 period. This risk-adjusted bond yield spread is defined in a cross-country context and referred to as the
GZ-type spread. Increases in the yield on corporate bonds issued in the countries on the periphery relative to the riskless
yield (calculated using German zero-coupon term structure data) reflect increases in the risk premium that the financial market
imposes on borrowers. The risk premium rises in all countries during European-wide recessions of the recent past, particularly
those associated with the global financial and the sovereign debt crisis. Our findings indicate further that this GZ-type
spread acts as a reliable signal for imminent and near-term economic activity in countries where financial markets were shaken
to their foundations during the Crisis period. For Germany, the GZ-spread has predictive content for industrial production
but not for the unemployment rate. For GDP its predictive ability is confined to the EMU period.
Thirlwall's Law is found to be the necessary but not sufficient condition for balanced long-run growth. A simple equation
is considered whose empirical analysis could confirm – or reject – the validity of the Law. The analysis, conducted by means
of econometric co-integration using the Dynamic Ordinary Least Squares method applied to data for 59 countries covering the
years 1960-2012, suggests that Thirlwall's Law may not hold for the decisive majority of countries.