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The Impact of Exchange Rate Regimes on Production Structures across Countries: The European Case

Author: Christian Aubin Camelia Turcu
Vol.: 2014.05
Publishing house: i) INFER
Place: Speyer, London
year: 2014
No of pages: 22
ISBN na
category INFER Working Paper Series
price free to download EUR

This paper analyzes the impact of exchange rate variability on the economic specialization of European countries. Two theoretical approaches are used: the first one, advanced by Krugman (1991), underlines that the monetary integration is favouring the specialization of countries members of an integrated area while the second one, supported by Ricci (1997), considers that the exchange rate variability is the one that is enhancing countries specialization. In line with these two theoretical dimensions, we conduct empirical estimations on the EU countries (1993-2008) using two different measures of specialization. The results give a mixed picture: the link between specialization and exchange rate regimes is found to be significant but its sign differs according to the sectors desegregation. In order to conciliate these results with the two challenging theoretical settings, we propose an explanation based on the difference between inter-industry and intra-industry specialization.

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Systemic Sovereign Risk in Europe: an MES and CES Approach

Author: Alexandra Popescu Camelia Turcu
Vol.: 2014.04
Publishing house: i) INFER
Place: Speyer, London
year: 2014
No of pages: 31
ISBN
category INFER Working Paper Series
price EUR

We transpose the concept of systemic risk measurement used in the financial literature to the sovereign debt crisis. We base our analysis on two systemic risk measures, the Marginal Expected Short- fall (MES) and the Component Expected Shortfall (CES), that are estimated by a Dynamic Conditional Correlation model (DCC) and by non parametric techniques. We use daily data on government bonds yields 10Y and quarterly sovereign debts over the period 2001-2013 for eleven Eurozone countries. Our results allow us to identify the countries that have the highest contribution to systemic risk and to perform comparisons in terms of countries’ riskiness within the Eurozone.

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The Impact of FTAs on MENA Trade in Industrial and Agricultural Products

Author: Maria Dolores Parra Inmaculada Martínez-Zazoso Celestino Suárez-Burguet
Vol.: 2014.03
Publishing house: i) INFER
Place: Speyer, London
year: 2014
No of pages: 31
ISBN
category INFER Working Paper Series
price EUR

This paper analyses the impact of Free Trade Agreements (FTAs) on Middle East and North African Countries (MENA) trade for the period 1994-2010. The analysis distinguishes between industrial and agricultural trade separately to take into account the different liberalisation schedules. An augmented gravity model is estimated using up-to-date panel data techniques to control for all time-invariant bilateral factors that influence bilateral trade as well as for the so-called multilateral resistance. We also control for the endogeneity of the agreements and test for self-selection bias due to the presence of zero trade in our sample. The main findings indicate that both North-South- FTAs and South-South-FTAs have a similar impact in terms of increasing trade in MENA countries showing greater global market integration. We conclude that FTAs that include agricultural products, in which MENA countries have a clear comparative advantage, are more desirable for these countries than those only including industrial products.

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Asymmetry and Hysteresis: Two Perspectives on Pricing-to-Market Nonlinearity

Author: Svetlana Fedoseeva Laura M. Werner
Vol.: 2014.02
Publishing house: i) INFER
Place: Speyer, London
year: 2014
No of pages: 31
ISBN
category INFER Working Paper Series
price EUR

Pricing decisions of exporters, who are facing imperfect competition in their destination markets, might depend on exchange rate changes. While empirical literature often assumes that the impact of the exchange rate on the exporters’ prices is linear and the markup adjustment does not depend on magnitude or direction of the exchange rate change, we question this statement and test for hysteresis and asymmetry of pricing-to-market (PTM). Using the German export beer market as an example, we show that both types of nonlinearities play an important role in PTM decisions.

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Monetary Policy and Financial Stability: In Search of Trade-offs

Author: Armand Fouejieu A. Alexandra Popescu Patrick Villieu
Vol.: 2014.01
Publishing house: i) INFER
Place: Speyer, London
year: 2014
No of pages: 29
ISBN
category INFER Working Paper Series
price EUR

In the aftermath of the 2008 global financial crisis, it has been argued that monetary policy should prevent raising financial risk by responding actively to financial imbalances. This paper investigates the extent to which a central bank’s reaction to financial instability may be incompatible with its other macroeconomic stability objectives. The analytical framework relies on a New Keynesian model with an endogenous financial bubble, where it is assumed that tightening monetary policy can dampen raising financial risk. The paper concludes that a leaning against the wind strategy can generate trade-offs between the traditional inflation-output stability and financial stability objectives.

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Regional Specialisation and Sectoral Concentration in an Enlarged EU: A comprehensive updated overview

Author: Ulrike Stierle-von Schütz Michael H. Stierle Ulrike Stierle-von Schütz
Vol.: 2013.02
Publishing house: i) INFER
Place: Speyer, London
year: 2013
No of pages: 41
ISBN
category INFER Working Paper Series
price EUR

Economic theories, be it (new) trade, (new) growth or (new) economic geography are far from being able to describe and explain regional concentration of sectors or sectoral specialisation of regions. Consequently, empirical work should shed more light on these developments in incumbent EU member states and Central and Easter Europe. Our analysis aims at providing a comprehensive overview over concentration and specialisation developments in the EU including both the enlargement process and the first impacts of the economic crisis. Data include all EU member states, various sectoral breakdowns for all sectors, different indicators for economic activity, various levels of regional disaggregation and spanning from 1995 to 2010. Measures used include relative and absolute indicators for concentration and specialisation. Findings confirm that on an aggregated level specialisation and concentration are changing only gradually. While this holds true for the impact of EU enlargement, it even holds true for the impact of the economic crisis up to 2010. A more detailed analysis, however, reveals interesting results. While relative employment specialization decreases in EU Member States, relative production specialization (based on GVA) increases marginally over the observed time period. Sector developments are diverse and depend on the used economic variable, the regional level and the sectoral disaggregion. An overall concentration or deconcentration trend cannot be observed. Findings also confirm that it is crucial to perform a comprehensive analysis. Results based only on one indicator or on one dataset with one economic variable, one sectoral and regional disag-gregation might obstruct important developments.

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Tax and Spend, Spend and Tax, Fiscal Synchronisation or Institutional Separation? Examining the Case of Greece

Author: Christian Richter Dimitrios Paparas
Vol.: 2013.01
Publishing house: i) INFER
Place: Speyer, London
year: 2013
No of pages: 24
ISBN
category INFER Working Paper Series
price EUR

One of the most controversial issues in public finance and macroeconomics is the nature of the relationship between government spending and revenues. The debate between economists and politicians has been emphasised recently because of the increased budget deficits and defaults in many developed and developing countries. Many economists (Friedman, 1978; Payne, 1997; Darrat, 1998; Albatel, 2002) argued that it is very important to investigate whether the government spending determines the revenues and/or whether government revenue determines the government spending. We are applying an empirical analysis of the spend-tax or tax-spend hypothesis, in order to identify the direction of the causality between government spending and revenues in Greece for the period 1833-2009, a period of industrialisation, urbanisation, increased growth, increased government spending, and enormous budget deficits during the last decades and a serious problem with the public debt. In order to investigate the relationship between government revenues and spending we used the Dickey and Fuller (1979) and Phillips and Perron (1988) unit root tests , the Chow (1960) test and Zivot and Andrews (1992) unit root tests which allow structural changes, the Johansen (1988) cointegration approach and finally the Granger (1969) causality tests. We found strong evidence of long-run relationship between government spending and revenues. Additionally, we used the Granger-causality test which indicates that the causality runs from spending to revenues, thus support of the spend-tax hypothesis. The spend-tax hypothesis maintains that a political system somehow determines how much to spend and then makes the adjustments in tax policy and revenue sources in order to finance the government spending so limitations in spending will be effective for the economy of Greece, but no one could argue that limitations of taxation will be ineffective. It is very important to identify the causal direction between government spending and tax revenues, because the direction of causality provides useful insights into how the country can manage their unsustainable budget deficits in the future.

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The Impact of European Enlargement on the Direction and Prospects of Brussels Exports

Author: Karolien De Bruyne Jan Van Hove
Vol.: 2012.10
Publishing house: i) INFER
Place: Speyer, London
year: 2012
No of pages: 30
ISBN
category INFER Working Paper Series
price EUR

Previous studies have argued that the enlargement of the European Union triggered a geographical
reorientation and diversification in the exports by European Union member states, caused by a
combination of trade creation and trade diversion. This paper adds to the existing literature, by
analyzing the export dynamics and potentials of a city rather than a country. It focuses on Brussels,
the European capital. Our findings indicate that the new European Union member states became
important destination markets for Brussels exports in recent years. Moreover, there appear to be
large export potentials for Brussels products, in particular in Latin American and certain Asian
markets. The export potentials within the European Union are more limited, although several new
European Union member states are likely to become more important trading partners.

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The Validity of Wagner’s Law in the United Kingdom for the Period 1850-2010

Author: Christian Richter Paparas Dimitrios
Vol.: 2012.9
Publishing house: i) INFER
Place: Speyer, London
year: 2012
No of pages: 16
ISBN
category INFER Working Paper Series
price EUR

The relationship between national income and government spending is one of the most debated topics between economists and policy makers during the last decades. The objective of this paper is to examine the Wagner’s law validity, and if it can be applied in the U.K. public spending expansion for the period 1850-2010. According to Wagner’s hypothesis, fundamental economic growth is a determinant to the public sector growth. The public sector is said to be able to grow at a very high rate when compared to the national income. The data covers a period in which U.K. economy faced increased economic growth, government spending and met most of the assumption of Wagner’s Law (industrialisation, urbanisation, increased population). Furthermore, the long data set ensures the reliability of our results in terms of statistical and economic conclusions. We apply unit root tests, unit root tests with structural breaks, cointegration techniques and Granger causality tests. Our results indicate a presence of a long run relationship between national income and government spending, while the causality is bi-directional, thus we find support of Wagner’s and Keynesian hypotheses.

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Testing the UIP Theory in the CEE Countries. Evidence from the Garch Models

Author: Cristina Maria Triandafil Christian Richter
Vol.: 2012.8
Publishing house: i) INFER
Place: Speyer, London
year: 2012
No of pages: 31
ISBN
category INFER Working Paper Series
price EUR

This paper tests the Uncovered Interest Parity theorem at the level of the CEE countries using three types of GARCH models (EGARCH, TGARCH and CGARCH models). In general the empirical results highlight that UIP is not confirmed. We find that a possible explanation for this might consist of an indiscriminate risk premium that results in a violation of the underlying assumptions of UIP. The analysis brings in a series of risk premiums which reflect the build up of various risk layers encompassed in the dynamics of macro-economic fundamentals and macro-financial variables. Apart from revealing those risk layers which trigger macroeconomic volatility, the research sheds light on the countries’ limited capacity to achieve nominal and real convergence in the not too distant future.

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