Table Of ContentEconomic Spillovers, Structural Reforms
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·
Bas van Aarle Klaus Weyerstrass
Editors
Economic Spillovers,
Structural Reforms
and Policy Coordination
in the Euro Area
Physica-Verlag
ASpringerCompany
Dr.BasvanAarle Dr.KlausWeyerstrass
UniversityofMaastricht InstituteforAdvancedStudies(IHS)
Tongersestraat53 Stumpergasse56
6211LMMaastricht 1060Vienna
TheNetherlands Austria
[email protected] [email protected]
ISBN 978-3-7908-1969-4 e-ISBN 978-3-7908-1970-0
DOI 10.1007/978-3-7908-1970-0
ContributionstoEconomicsISSN1431-1933
LibraryofCongressControlNumber:2007937172
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Preface
Starting point of most of the chapters in this book has been a research pro-
ject ("Economic Spillovers and Policy Coordination in the Euro Area"
(tender ECFIN/C/2004/01)) that was prepared by the Institute for Ad-
vanced Studies Carinthia (IHS Kärnten) for the European Commission, Di-
rectorate General Economic and Financial Affairs.
The main objective of this project was to provide estimates of the
magnitude of economic spillover and the impact of economic policy coor-
dination on economic performance in the euro area. The evidence on the
economic spillover and impact of policy coordination in the euro area that
was found during this project, has been consecutively worked out in the
chapters of this book. In this way, the book aims at contributing to the on-
going debate on the need for greater flexibility in EMU’s budgetary rules
and on strategies for structural reform in capital, labour and product mar-
kets in the EU.
We are very grateful to Dermot Hodson for his guidance of this pro-
ject from the side of the European Commission and to all authors for shar-
ing their interests in these topics. We thank Niels Peter Thomas, editor of
the Springer series Contributions to Economics for his stimulating and
careful guidance during the preparation of the manuscript. Gabriele Keidel
of Springer carefully proofread the entire text.
June 2007, Bas van Aarle and Klaus Weyerstrass.
Contents
Preface...............................................................................................v
Contributors....................................................................................xi
1 Economic spillovers, structural reforms and policy
coordination in the Euro Area: An overview.............................1
Klaus Weyerstrass, Koen Schoors and Bas van Aarle
1.1 Introduction..........................................................................1
1.2 A working definition of spillovers.......................................3
1.3 Overview of the literature....................................................6
1.4 Overview of the main results.............................................13
1.5 Policy implications and avenues for further research........17
References....................................................................................22
2 Budgetary spillovers and short-term interest rates.................27
Bas van Aarle
2.1 Introduction........................................................................27
2.2 Methodology and literature................................................28
2.3 Fiscal spillovers at the aggregate Euro Area level.............30
2.4 Fiscal spillovers in the Euro Area at the country level......36
2.5 Conclusion.........................................................................49
Appendix: Characteristics of the dataset.....................................50
References....................................................................................52
3 Budgetary spillovers and long-term interest rates..................55
Peter Claeys
3.1 Introduction........................................................................55
3.2 Deficits and interest rates: is there any robust evidence?..57
3.2.1 Static versus dynamic models....................................57
viii Contents
3.2.2 Capital flows and crowding out in open economies..61
3.2.3 Monetary integration and crowding out....................62
3.3 A stock-flow fiscal VAR for open economies..................63
3.4 Crowding-out effects of fiscal policies.............................73
3.5 Spillovers of fiscal policies...............................................74
3.5.1 Relative fiscal shocks and relative crowding out......75
3.5.2 Crowding out in small open economies....................80
3.5.3 Robustness checks.....................................................93
3.6 Conclusion........................................................................94
Appendix A: Domestic economy: SVAR models with
exogenous debt ratio...................................................................97
Appendix B: SVAR models with yield......................................98
References.................................................................................101
4 Budgetary stabilisation and the level of public debt............107
Niko Gobbin
4.1 Introduction.....................................................................107
4.2 A look at fiscal theory and empirics...............................108
4.3 Threshold regression models..........................................112
4.4 Data description and regression set-up...........................115
4.5 Results.............................................................................117
4.6 Conclusion......................................................................122
Appendix A: Data sources and definitions...............................122
Appendix B: ADF unit root tests..............................................124
Appendix C...............................................................................124
Appendix D: Years above the threshold...................................125
References.................................................................................126
5 Spillovers from economic reform...........................................129
Klaus Weyerstrass and Johannes Jaenicke
5.1 Introduction.....................................................................129
5.2 Determination of mark-up ratios.....................................130
5.3 Mark-up and macroeconomic performance....................137
5.3.1 Total factor productivity growth.............................137
5.3.2 Employment............................................................140
5.3.3 Unemployment rate.................................................142
5.3.4 Labour productivity growth.....................................143
5.4 The influence of regulation on the mark-up...................145
Contents ix
5.5 Conclusion.......................................................................150
Appendix: Data sources and definitions....................................152
References..................................................................................153
6 Macroeconomic and welfare effects of structural and
budgetary policies: spillovers in the MSG3 model................155
Reinhard Neck and Gottfried Haber
6.1 Introduction......................................................................155
6.2 Effects of structural policies............................................156
6.3 Budgetary consolidation policies.....................................162
6.4 Structural reform and budgetary consolidation...............176
6.5 Sensitivity analysis: monetary versus inflation targeting185
6.6 Welfare Effects................................................................191
Appendix: The MSG3 Macroeconomic Global Model.............198
References..................................................................................201
7 Have Europe’s labour markets become more flexible? An
exercise in measuring the relative flexibility of wages across
countries and time....................................................................203
Andrew Hughes Hallett, Christian Richter and Xiaoshan Chen
7.1 Introduction......................................................................203
7.2 Methodology: The analytic background and estimation
technique..........................................................................205
7.3 The empirical evidence on wage flexibility.....................207
7.4 Statistical results..............................................................208
7.5 The benchmark and indicators of wage flexibility..........211
7.6 The US wages spectrum..................................................214
7.7 Country by country results...............................................215
7.8 Conclusion.......................................................................223
Appendix: Time frequency techniques and the estimation of
time-varying spectra or cross-spectra........................................224
References..................................................................................229
Index..............................................................................................233
Contributors
Xiaoshan Chen Reinhard Neck
Department of Economics Department of Economics
Loughborough University Klagenfurt University
Loughborough, LE11 3TU Universitaetsstrasse 65-67
United Kingdom A-9020 Klagenfurt, Austria
Peter Claeys Christian Richter
Facultat de Ciències Department of Economics
Econòmiques i Empresarials Loughborough University
Universitat de Barcelona Loughborough, LE11 3TU
E-08034 Barcelona, Spain United Kingdom
Niko Gobbin Koen Schoors
Department of Economics Department of Economics
Faculty of Economics and B. A. Faculty of Economics and B.A.
Ghent University Ghent University
Hoveniersberg 24 Hoveniersberg 24
B-9000 Ghent, Belgium B-9000 Ghent, Belgium
Gottfried Haber Bas van Aarle
Department of Economics Faculty of Economics and B.A.
Klagenfurt University University of Maastricht
Universitaetsstrasse 65-67 Tongersestraat 53
A-9020 Klagenfurt, Austria NL-6211 LD Maastricht, Netherlands
Andrew Hughes Hallett Klaus Weyerstrass
School of Public Policy Institute for Advanced Studies
George Mason University Stumpergasse 56,
Fairfax, VA 22030, USA A-1060 Vienna, Austria
Johannes Jaenicke
Faculty of Economics
University of Erfurt
Nordhäuser Str. 63
D-99089 Erfurt, Germany
