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 (841 hits)
Mohsen Bahmani-Oskooee, Muhammad Aftab
Aftab et al. (Empirica 43:461-485, 2016) in this journal assessed the impact of exchange rate volatility on Malaysia-EU trade
at commodity level using the linear ARDL approach of Pesaran et al. (J Appl Econom 16:289-326, 2001) and did not find significant
effects in most of the 81 Malaysian exporting and 66 importing industries. In this paper, we argue for asymmetric effects
of exchange rate volatility on the same industries' trades which implies using Shin et al.'s (Festschrift in Honor of Peter
Schmidt, Springer, New York, 2014) non-linear ARDL approach. While we find short-run asymmetric effects of volatility in almost
all industries, we find evidence of adjustment asymmetry in 17 exporting and nine importing industries. We also find significant
impact or short-run cumulative asymmetry in 12 exporting and six importing industries. The most important finding is significant
long-run asymmetric effects in 36 Malaysian exporting industries and 25 Malaysian importing industries. Clearly, trade flows
react to an increased exchange rate volatility differently than to a decreased volatility.
This paper studies the role of regime shifts and time-varying volatilities in market integration in a Markov-switching volatility
regime environment among the US, European and Asian developed securitised real estate markets. With a two-state volatility
model, the study finds the co-dependence, co-movement and synchronisation of volatility regime at the high volatility state
are stronger between the US and European securitised real estate markets. Although correlations among the markets are higher
in a high volatility regime than in a low volatility regime, there is limited evidence of contagious effects during the high
volatility periods between some markets. Moreover, the unsecuritised real estate markets are different from their securitised
equivalent in the volatility regime characteristics, correlation pattern and level, as well as the extent of correlation change
and contagion effect in high volatility state. Thus, the regime-switching results from stock markets may not be automatically
extended to the corresponding public real estate markets, and require rigorous empirical scrutiny.
N. Nergiz Dincer, Ayça Tekin-Koru, Pinar Yasar
Turkey has been deeply integrated with the EU, its largest trading partner, particularly following the Customs Union agreement
in 1996. However, the free trade agreements (FTAs) signed by the EU with third party countries may create some unfair competitive
pressures, market share and welfare losses for Turkey. This study investigates the impact of the FTA signed by Algeria and
the EU in 2005 on Turkey's trade flows. Covering 181 countries, a difference-in-differences analysis embedded in an extended
gravity framework is employed to quantify the trade effects of the EU-Algeria FTA for the period of 1996–2013. Our findings
suggest that bilateral trade between Turkey and Algeria is affected adversely due to the FTA. The counterfactual analysis
shows that Turkish exports and imports to/from Algeria could have been 12 and 17 percent higher, respectively, had there been
no FTA between the EU and Algeria.
Zoryana Olekseyuk, Edward J. Balistreri
We analyse the deep and comprehensive free trade area (DCFTA) between Ukraine and the EU using a multi-regional general-equilibrium
simulation model. Three alternative trade structures are implemented: 1. a standard specification of perfect competition based
on the Armington assumption of regionally differentiated goods; 2. monopolistic competition among symmetric manufacturing
firms; and 3. a competitive selection model of heterogeneous manufacturing firms. Across these structures the DCFTA indicates
relatively large gains for Ukraine of more than 3 percent. We show, however, that the gains for Ukraine are lower when we
consider monopolistic competition in manufacturing. This is attributed to a movement of resources into Ukraine's traditional
export sectors to the EU, which produce under constant returns. While there is little danger of deindustrialisation dominating
the overall welfare gains, we do observe substantially lower gains when we consider monopolistic competition. To our knowledge,
this is the first empirical confirmation of the theoretic predication that the relative gains from trade in monopolistic competition
models might be lower than under perfect competition in the context of a numeric simulation of economic integration. Under
the popular heterogeneous-firms monopolistic competition theory we find significant firm selection effects indicating welfare
impacts for Ukraine that are less than under the Armington structure but above those found under symmetric firms and monopolistic
competition. These results are important considerations for Ukraine's overall development strategy.
This study examines the long-run causal relationship between government revenues and spending of the Swedish economy over
the period 1722–2011. The results based on hidden cointegration technique and a modified version of the Granger non-causality
test, show that there exists a long-run and asymmetric relationship between government spending and government revenues. Our
estimation results can be summarised into three main empirical findings. First, the government follows a hard budget constraint
and soft budget constraint strategies in the case of negative and positive shocks, respectively. Second, negative shocks to
the fiscal budget are removed fairly quickly compared to positive shocks. Third, bi-directional causality between revenues
and expenditures offers support in favour of the fiscal synchronisation hypothesis. The policy implication is that budget
deficit's reduction could be achieved through government spending cut, accompanied by contemporaneous tax controls.
Maximilian Gödl, Christoph Zwick
This paper characterises the long-run distribution of Austrian public debt using a Markov chain model of the debt-GDP ratio
and several key macroeconomic variables. We apply Bayesian techniques to estimate the transition probabilities of the model
which allows to incorporate information from other countries. Based on the model, we argue that the historical record of Austrian
fiscal policy is consistent with a stable long-run distribution of the debt-GDP ratio with an expected value close to the
60 percent threshold of the Maastricht treaty. Our results suggest that the strong increase in the debt-GDP ratio in the aftermath
of the recent financial crisis should be seen as a transitory tail event rather than as a sign of long-run unsustainability.
However, we also show that the existence of a stable long-run distribution depends on a continuing tendency of fiscal policy
to "lean against debt" by reducing the primary deficit in face of rising debt. Finally, we assess how exogenous shocks to
the primary deficit and real GDP growth affect the model-implied distribution.
Alessandra Bettocchi, Elena Giarda, Cristiana Moriconi, Federica Orsini, Rita Romeo
In this study we develop a micro-founded model to analyse the economic-financial conditions of Italian households. Using household
level data, we build an indicator to identify vulnerable households based on their budget constraint and the composition of
their financial portfolio. Then, we calculate the impact of the predicted trends of macroeconomic variables on the indicator
in order to monitor its evolution in the short term (2015–2017). The empirical analysis is based on the Survey of Household
Income and Wealth of the Bank of Italy and on a set of macroeconomic forecasts. Our findings suggest that the macroeconomic
scenario for the period 2015–2017 implies a progressive reduction in the percentage of vulnerable households for the full
extent of the projection.
Michael Christl, Monika Köppl-Turyna
In this work, we simulate the effects of the tax autonomy of the Austrian Länder on the levels of public employment in each
Land. We show that depending on the strength of the public sector lobby, tax autonomy would require a reduction of employment
in the public sector of between 25 and 35 percent of the current level. We also show that tax autonomy increases welfare levels
by 1 to 1.5 percent; that is, the positive change in the disposable income of the workers more than offsets the welfare loss
resulting from the lower provision of public goods. Finally, we show that the reduction of public employment is superior in
terms of welfare to an alternative scenario in which employment levels are held constant but the wage levels in the public
sector are adjusted.
Laura Barbieri, Chiara Mussida
Using a macro-micro econometric framework that allows studying the labour market dynamics, this paper offers an in-depth investigation
of the structures of both national and macro regional labour markets in Italy. The simulation results reveal structural differences
between regions in the short as well as the long run. Regional gaps represent one of the main components of the natural unemployment
rate in Italy. The results may help regional and national policy makers in the European Union to formulate strategies tailored
to the specific needs of regional labour markets.
Massimiliano Agovino, Luigi Aldieri, Antonio Garofalo, Concetto Paolo Vinci
In this paper we investigate the role of patents in the relationship between R&D activity, spillovers and employment at the
firm level. A reduced-form labour demand equation is estimated. Our analysis is based upon a dataset consisting of 879 R&D-intensive
manufacturing firms worldwide for which information was collected for the period 2002–2010. We use data from all EU R&D investment
scoreboard editions issued every year until 2011 by the JRC-IPTS (scoreboards). Since the innovation output of the industrial
strategy of every firm is the number of patents, the main contribution to the existing literature is to investigate also the
impact of patents to R&D ratio and patents to spillovers ratio on employment level. The empirical results suggest a significant
impact of R&D spillover effects on company employment although the results differ substantially according to the spillover
stock, which may considerably affect policy implications.