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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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Andrea Beccarini, Verifying time inconsistency of the ECB monetary policy by means of a regime-switching approach

Empirica, 2017, 44(2), S.203-227,
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.

Irina Marilena Ban, Measuring trade specialization dynamics: the case of Romania and Bulgaria

Empirica, 2017, 44(2), S.229-248,
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.

Hyunjoo Kim Karlsson, Peter Karlsson, Kristofer Månsson, Pär Sjölander, Wavelet quantile analysis of asymmetric pricing on the Swedish power market

Empirica, 2017, 44(2), S.249-260,
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.

Johanna Amberger, Ralf Fendel, Understanding inflation dynamics in the Euro Area: deviants and commonalities across member countries

Empirica, 2017, 44(2), S.261-293,
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.

Mariusz Prochniak, Katarzyna Wasiak, The impact of the financial system on economic growth in the context of the global crisis: empirical evidence for the EU and OECD countries

Empirica, 2017, 44(2), S.295-337,
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.

Mohsen Bahmani-Oskooee, Muhammad Aftab, Asymmetric effects of exchange rate changes on the Malaysia-EU trade: evidence from industry data

Empirica, 2017, 44(2), S.339-365,
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.

Serhan Cevik, Size matters: fragmentation and vertical fiscal imbalances in Moldova

Empirica, 2017, 44(2), S.367-381,
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.

Dieter Bögenhold, Andrea Klinglmair, One-person enterprises and the phenomenon of hybrid self-employment: evidence from an empirical study

Empirica, 2017, 44(2), S.383-404,
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.

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.

Managing editor

Fritz Breuss

Univ.-Prof. Mag. Dr. Fritz Breuss

Funktion: Wissenschaftlicher Mitarbeiter
Forschungsbereiche: Makroökonomie und europäische Wirtschaftspolitik