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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).

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Alfred Guender, Bernard Tolan, The predictive ability of a risk-adjusted yield spread for economic activity in Europe

Empirica, 2017, 44(1), S.1-27,
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.

Leon Podkaminer, "Thirlwall's Law" reconsidered

Empirica, 2017, 44(1), S.29-57,
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.

Sascha Sardadvar, Christian Reiner, Does the presence of high-skilled employees increase total and high-skilled employment in the long run? Evidence from Austria

Empirica, 2017, 44(1), S.59-89,
Studies conducted for the USA have found a positive effect of human capital endowments on employment growth, with human capital endowments diverging at the same time. In contrast, studies for European countries have found convergence of human capital endowments. This paper tests these relationships for the 99 Austrian districts for the observation period 1971-2011 by estimating how the presence of high-skilled employment affects total, low-skilled and high-skilled employment growth. To this end, OLS, fixed-effects and first-difference regressions are estimated. The results indicate continuous convergence of high-skilled employment which, however, slowed down significantly since the 1990s. In contrast to previous studies, evidence for positive effects of high-skilled on total and low-skilled employment is only weak and varies over time. Furthermore, the results show that total and high-skilled employment in suburban areas grew faster than in other regions, while districts which bordered the Eastern Bloc were disadvantaged. Nevertheless, spatial neighbourhood effects within Austria are only weak.

Ayşegül Çorakcı, Furkan Emirmahmutoglu, Tolga Omay, Re-examining the real interest rate parity hypothesis (RIPH) using panel unit root tests with asymmetry and cross-section dependence

Empirica, 2017, 44(1), S.91-120,
This paper investigates the validity of the real interest rate parity hypothesis (RIPH) using a panel unit root approach. For this purpose, first we estimate the possible non-linear data-generating processes of the real interest rate differential series and using these estimates determine which panel unit root test is better for analysing the RIPH. To this end, smooth transition autoregressive and threshold autoregressive (TAR) models are estimated for two different panels of countries: G 7 and post-Soviet transition economies. The results show that the data displays both strong asymmetry and high transition speed. Therefore, secondly, we propose a new panel unit root test where the alternative is stationary with asymmetric TAR adjustment, and provide their empirical power properties. Finally, we demonstrate that our newly proposed test is able to provide conclusive evidence in favour of the RIPH in contrast to the other panel unit root tests considered.

Goodness C. Aye, Mehmet Balcilar, Rangan Gupta, International stock return predictability: Is the role of U.S. time-varying?

Empirica, 2017, 44(1), S.121-146,
This study investigates the predictability of 11 industrialised stock returns with emphasis on the role of US returns. Using monthly data spanning 1980:2 to 2014:12, we show that there exist multiple structural breaks and non-linearities in the data. Therefore, we employ methods that are capable of accounting for these and at the same time date stamping the periods of causal relationship between the US returns and those of the other countries. First we implement a subsample analysis which relies on the set of models, data set and sample range as in Rapach et al. (J Finance LXVIII(4):1633-1662, 2013). Our results show that while the US returns played a strong predictive role based on the OLS pairwise Granger causality predictive regression and news-diffusion models, its role based on the adaptive elastic net model is weak. Second, we implement our preferred model: a bootstrap rolling window approach using our newly updated data on stock returns for each countries, and find that US stock return has significant predictive ability for all the countries at certain sub-periods. Given these results, it would be misleading to rely on results based on constant-parameter linear models that assume that the relationship between the US returns and those of other industrialised countries are permanent, since the relationship is, in fact, time-varying, and holds only at specific periods.

Víctor López-Pérez, Do professional forecasters behave as if they believed in the New Keynesian Phillips Curve for the euro area?

Empirica, 2017, 44(1), S.147-174,
This paper finds that participants in the European Central Bank's Survey of Professional Forecasters have submitted forecasts that are consistent with a (mostly forward-looking) empirical version of the New Keynesian Phillips Curve for the euro area. The estimation technique takes advantage of the panel nature of the Survey of Professional Forecasters' dataset to exploit both its time series and cross-section dimensions, and to control for unobservable individual heterogeneity across forecasters. The estimation results suggest that euro-area inflation forecasts have reacted less to unemployment forecasts after the start of the financial crisis but another cost measure (energy inflation) remains significant. This finding is consistent with a flatter Phillips Curve in the euro area after 2007. However, the reasons suggested by the International Monetary Fund for this finding, namely a better anchoring of inflation expectations and increases in structural unemployment do not seem to find support in the survey data. Instead, the expectations for compensation per employee submitted by professional forecasters are consistent with the existence of downward real-wage rigidities in euro-area labour markets.

Tsangyao Chang, Hsiao-Ping Chu, Frederick W. Deale, Rangan Gupta, The relationship between population growth and standard-of-living growth over 1870-2013. Evidence from a bootstrapped panel Granger causality test

Empirica, 2017, 44(1), S.175-201,
This paper examines the linkages between population growth and standard-of-living growth in 21 countries over the period of 1870-2013. We apply the bootstrap panel causality test proposed by Kónya (Econ Model 23:978-992, 2006), which accounts for both dependency and heterogeneity across countries. We find one-way Granger causality running from population growth to standard-of-living growth for Finland, France, Portugal, and Sweden, one-way Granger causality running from standard-of-living growth to population growth for Canada, Germany, Japan, Norway and Switzerland, two-way causality for Austria and Italy, and no causal relationship for Belgium, Brazil, Denmark, Netherlands, New Zealand, Spain, Sri Lanka, the UK, the USA, and Uruguay. Dividing the sample into two subsamples due to a structural break yields different results over the two periods of 1871-1951 and 1952-2013. Our empirical results suggest important policy implications for these 21 countries as the directions of causality differ across countries and time period.

Michael Böheim, Harald Oberhofer, Editorial, in: Special Issue: Challenges for Europe 2050 – Selected Papers of the EUROFRAME Conference 2015 and the WWWforEurope Project

Empirica, 2016, 43(4), S.657-660,

Friedrich Heinemann, Theocharis Grigoriadis, Origins of reform resistance and the Southern European regime, in: Special Issue: Challenges for Europe 2050 – Selected Papers of the EUROFRAME Conference 2015 and the WWWforEurope Project

Empirica, 2016, 43(4), S.661-691,
With a particular interest for Southern Europe, this contribution develops a classification of obstacles to economic policy reforms. This classification covers approaches ranging from classical economics and political-economic explanations to more innovative explanations linked to behavioural economics. The subsequent part analyses qualitatively and quantitatively to which extent the "Southern European regime" may imply a particular relevance of some of the potential reform obstacles classified before. We derive "reform ability profiles" which quantify several of the reform obstacles (or reform drivers) to compare EU countries in their likely reform predisposition. These profiles confirm particular Southern European weaknesses which tend to reduce the political-economic feasibility of long-term reforms: a low effectiveness in poverty protection, high intertemporal discounting and uncertainty avoidance, a poor information level of the population and deeply shattered trust in national institutions. In a microeconometric analysis based on Eurobarometer survey data, the analysis leaves the highly aggregated level and looks into the individual heterogeneity in reform acceptance. It is shown that several of the reform obstacles identified in theory are also empirically correlated with the individual inclination to accept reforms.

Andrea Bonfiglio, Beatrice Camaioni, S. Coderoni, Roberto Esposti, Francesco Pagliacci, Franco Sotte, Where does EU money eventually go? The distribution of CAP expenditure across the European space, in: Special Issue: Challenges for Europe 2050 – Selected Papers of the EUROFRAME Conference 2015 and the WWWforEurope Project

Empirica, 2016, 43(4), S.693-727,
This paper aims to assess the distribution of overall Gross Domestic Product and employment effects produced by Common Agricultural Policy (CAP) payments across the European Union space. It is empirically investigated how policy funds redistribute their effects among regions with different levels of rurality and economic development according to their degree and form of integration. This analysis is performed by constructing and applying a multiregional Input-Output model at a very high level of geographical disaggregation (NUTS 3 level). Alternative allocation of funds across regions (policy scenarios) is considered in order to assess redistributive impacts of possible CAP reforms. Results show that the impacts generated by the CAP across space do not only depend on the initial allocation of funds but also on intersectoral and interregional linkages. This evidence implies that even a radical reallocation of funds, though it may contribute to reducing regional imbalances, is less redistributive than expected.

Managing editor

Fritz Breuss

Univ.-Prof. Mag. Dr. Fritz Breuss

Funktion: Wissenschaftlicher Mitarbeiter
Forschungsbereiche: Makroökonomie und europäische Wirtschaftspolitik