New technologies are driving transformational changes in the global financial system. Virtual currencies (VCs) and the underlying distributed ledger systems are among these. VCs offer many potential benefits, but also considerable risks. VCs could raise efficiency and in the long run strengthen financial inclusion. At the same time, VCs could be potential vehicles for money laundering, terrorist financing, tax evasion and fraud. While risks to the conduct of monetary policy seem less likely to arise at this stage given the very small scale of VCs, risks to financial stability may eventually emerge as the new technologies become more widely used. National authorities have begun to address these challenges and will need to calibrate regulation in a manner that appropriately addresses the risks without stifling innovation. As experience is gained, international standards and best practices could be considered to provide guidance on the most appropriate regulatory responses in different fields, thereby promoting harmonization and cooperation across jurisdictions.

Virtual Currencies and Beyond; Initial Considerations

Real Wages over the Business Cycle: OECD Evidence from the Time and Frequency Domains *

Composition of the euro area workforce evolves over time and in response to changing labor market conditions. We construct an estimate of growth in euro area labor quality over the period 1983–2005 and show that labor quality has grown on average by 0.47 percent year-on-year. Labor quality growth was significantly higher in the early 1990s than in the 1980s. This strong increase was driven mainly by an increase in the share of those with tertiary education and workers in prime age. Growth in labor quality moderated again toward the end of the 1990s, possibly reflecting the impact of robust employment growth resulting in the entry of workers with lower human capital. The contribution of labor quality to labor productivity has increased over time, accounting for up to one fourth of euro area labor productivity growth. The results point to a lower contribution of total factor productivity to euro area growth.

https://papers.ssrn.com/sol3/Delivery.cfm/roiw_252.pdf?abstractid=1030129&mirid=3

Growth in euro area labor quality

Overall, the prospects for a continued and reasonably fast real convergence process between the EU8 countries and the euro area are good However, the continuation of the rapid progress made by many EU8 countries in the past cannot be taken for granted In fact, in order to ensure that fast economic growth in the EU8 countries remains sustainable, it is crucial for these economies to take appropriate policy action First it is important to recall that sound macroeconomic policies including credible monetary policy and appropriate fiscal policy are essential to ensure the appropriate framework conditions for further growth and convergence Second, they need to address structural labour market problems, in particular by reducing regional and skill mismatches Third, they must make further efforts to improve the business environment, in order to ensure that the capital accumulation process continues and R&D investments increase Many of the above-mentioned facets of growth-enhancing policy will also help to ensure a continued inflow of foreign direct investment (FDI), which in turn is expected to help accelerate the convergence process

/pdf/determinants-of-growth-in-the-central-and-eastern-european-437ukw6k2d.pdf

Determinants of Growth in the Central and Eastern European EU Member States - A Production Function Approach

We develop a framework for measuring and analyzing medium-run departures from balanced growth, and apply it to developments in the euro area. A time-varying factor-augmenting production function (mimicking directed technical change) with below-unitary substitution elasticity is shown to account for the observed dynamics of factor incomes shares, TFP growth, and its components. Based on careful data accounting, we also identify a rising markup and the importance of financial-market regulations in the 1970s. The balanced growth path emerges as a special (and testable) case of our framework, as do existing strands of medium-run debates.

Medium run redux

This paper provides a description and a discussion of some important aspects relating to recent productivity developments in the euro area. Following decades of stronger gains in the euro area than in the US, labour productivity growth has fallen behind that in the US in recent years. This reflects a decline in average labour productivity growth observed in the euro area since the mid-1990s, which stands in sharp contrast with opposite developments in the US. The decline in labour productivity growth experienced in the euro area since the mid-1990s resulted from both lower capital deepening and lower total factor productivity growth. From a sectoral perspective, industries not producing or using intensively information and communication technology (ICT) would appear mostly responsible for the decline in average labour productivity growth since the mid-1990s. These developments were broadly experienced by most euro area countries. A comparison with developments in the US suggests that the euro area economy seems to have benefited much less from increased production and use of ICT technologies, in particular in the services sector. Diverging trends in labour productivity growth between the euro area and the US in recent years mainly reflect developments in a number of specific ICT-using services such as retail, wholesale and some financial services where strong gains were registered in the US. The evidence presented in this paper suggests that, in order to support economic growth in the euro area, emphasis should be given to both policy measures that directly address the determinants of productivity and, given the interactions among the various factors of growth, to policies that raise labour utilisation. JEL Classification: J24, O47

Labour productivity developments in the euro area

Banks across the Caribbean have lost important Correspondent Banking Relationships (CBRs). The macroeconomic impact has so far been limited, in part because banks either have multiple relationships or have been successful in replacing lost CBRs. However, the cost of services has increased substantially, some services have been cut back, and some sectors have experienced reduced access. Policy options to address multiple drivers, including lower profitability and risk aversion by global banks, require tailored actions by several stakeholders.

/pdf/loss-of-correspondent-banking-relationships-in-the-caribbean-4bpkynxrgo.pdf

Loss of Correspondent Banking Relationships in the Caribbean

Available empirical evidence of real wage cyclicality is not conclusive about the direction nor the degree of cyclical movement of real wages as a response to business cycle fluctuations. In an effort to provide a consistent set of evidence for the euro area and OECD countries we describe the cyclical behaviour of real wages using aggregate data and focusing on different indicators and techniques. Furthermore, filling a gap in the literature on cyclicality of real wages, we assess the impact of labour market institutions on real wage cyclicality. In a first step, we find that a standard investigation of unconditional correlations of filtered real wage and output series misses important information about the dynamics of the series. Therefore, we also adopt a dynamic method proposed in Den Haan (2000) that can account for the dynamic nature of the variables under consideration. Using quarterly aggregate data for the euro area for both the whole economy and manufacturing we find that aggregate real wages in the euro area have been largely a-cyclical since the 1970s. At the same time, it appears that the largest euro area countries, and most OECD countries, have experienced a moderate pro-cyclical real wage behaviour over this time period. These results suggest an important role for cross-country differences and differences depending on the wage variable used and the sectoral coverage of the data. In a second step we observe that wage cyclicality is closely linked with labour market institutions. In particular, countries with a larger extent of the population covered by union contracts have less pro-cyclical movements in real wages. * The views of this paper reflect those of the authors and not those of the European Central Bank. We would like to thank Gilles Mourre for valuable discussions and contributions to a preliminary version of the paper as well as for the construction of a first version of the dataset, and Neale Kennedy and Geoff Kenny for comments on a previous version of the paper. We are also grateful to the participants at the CEPR/ECB Workshop “What helps or hinders labour market adjustments in Europe?” (European Central Bank, June 28-29, 2004) for their comments. Contact information: Julian Messina (julian.messina@ecb.int), Chiara Strozzi (strozzi.chiara@unimore.it) and Jarkko Turunen (jarkko.turunen@ecb.int).

Jarkko Turunen

Papers

Labour productivity developments in the euro area

Loss of Correspondent Banking Relationships in the Caribbean

Cyclical Behaviour of Real Wages in the Euro Area and OECD Countries