Showing papers in "International Economics and Economic Policy in 2009"
TL;DR: In this article, the authors employ a kernel-based matching approach as a nonparametric test to test the relationship between foreign ownership and the innovative behavior and performance of enterprises, and find that the impact of foreign ownership on innovation input and outcome is not significant in most variables.
Abstract: This paper tests the relationship between foreign ownership and the innovative behaviour and performance of enterprises. The analysis uses data from the Community Innovation Survey (CIS 3) for Austria. We employ a kernel-based matching approach as a non-parametric test. After controlling for size, sectoral affiliation, export intensity and other variables that influence innovative behaviour we find that the impact of foreign ownership on innovation input and outcome is not significant in most variables. Membership in a multinational enterprise group, however, significantly helps to overcome different obstacles in the innovation process, such as the lack of financial resources, the lack of technological and market information or organisational problems. The nationality of the parent enterprise does not matter for innovative behaviour and performance except in the case of Anglo-Saxon-owned enterprises.
48 citations
TL;DR: In this paper, a modified gravity equation was used to analyze the impact of international telecommunication volumes on trade volume in Europe, showing that a rise of the international telecommunications volume by 10% raises trade by 2% in Europe.
Abstract: The liberalization of telecommunications has contributed to considerable price reductions in international telephony and to rising volumes of telecommunications This raises the issue of the economic impact of international telephony Falling international information and transaction costs should stimulate competition and enlarge the market radius for producers in the tradables sector—this lets us to expect trade creation effects of international telecommunications; this in turn should raise output provided that more intensive international telecommunications stimulates international diffusion of knowledge or brings about trade-related specialization gains Based on a modified gravity equation which is taking into account the role of international telecommunication volumes—based on new ITU data—we show that international telephony has a significant positive impact on trade volume: A rise of the international telecommunications volume by 10% raises trade by 2% in Europe At the same time the coefficients of the traditional variables, GDP in the exporting and the importing country, are smaller than in traditional approaches Thus from a policy perspective the modernization and growth of the international telecommunications network—within a system of enhanced competition—is crucial for Europe: economic integration will be reinforced From this perspective the Lisbon Agenda is right to emphasize the importance of creating a digitally networked knowledge society
24 citations
TL;DR: This paper reviewed the debate over how to strengthen the international monetary and financial system in this light and concluded that "2008 was marked by the tenth anniversary of the Asian crisis and the debate about how to reform the international financial architecture but also by the outbreak of the most serious global credit crisis in generations".
Abstract: 2008 was marked by the tenth anniversary of the Asian crisis and the debate over how to reform the international financial architecture but also by the outbreak of the most serious global credit crisis in generations. This paper reviews the debate over how to strengthen the international monetary and financial system in this light.
21 citations
TL;DR: In this paper, the degree of financial integration for a selected number of new EU member states with Germany was assessed using a threshold vector error-correction (TVECM) model with fixed rolling window.
Abstract: We assess the degree of financial integration for a selected number of “new” EU member states with Germany. The analysis is performed using a threshold vector error-correction (TVECM) model with fixed rolling window. By employing this methodology we are able to evaluate the degree and dynamics of transaction costs resulting from various market imperfections. TVECM model is applied on interest rate data from different segments of financial markets covering the 1994–2006 period. The hypothesis we test is to what extent European integration tendencies resulted in a more efficient and integrated financial markets. Our findings support the gradual integration hypothesis.
17 citations
TL;DR: The authors assesses the usefulness of four commonly-used gap measures for a small set of European countries and show that the policy implications can be very different depending on the gap measure and that, consequently, care should be exercised when employing any such measure.
Abstract: Reflecting domestic demand pressures, the output gap has important implications for economic analysis This paper assesses the usefulness of four commonly-used gap measures for a small set of European countries The main results are that the policy implications can be very different depending on the gap measure and that, consequently, care should be exercised when employing any such measure Moreover the paper investigates in a simple inflation forecasting framework the common assertion that the output gap could improve the forecasting accuracy For annual observations, however, these measures rarely provide useful information and there is no single best measure across countries
13 citations
TL;DR: In this paper, the authors present a technique by which the monetary transmission mechanism of Germany, France, the UK and the Eurozone can be decomposed into its component cycles, compared across economies and across time.
Abstract: This paper makes three contributions. First we present a technique by which the monetary transmission mechanism of Germany, France, the UK and the Eurozone can be decomposed into its component cycles, compared across economies and across time. As a result, we found that the individual data generating processes have varied over time. Second we show that Germany has now converged on the rest of Europe and not vice versa, although Germany had dominated monetary policy making in Europe for many years. Third, we show that the UK as an outsider has behaved like a peripheral EMU country, even when EMU was not in place. In other words, the transmission mechanisms of Germany and the UK were fundamentally different. Hence, when that German monetary policy dominated Europe in a way that was not in line with the rest of Europe, never mind the UK, it is no surprise that the UK eventually left the ERM (1992). The current financial crisis may enforce the trend of convergence of the transmission mechanism. But there have been signs of a divergence between core and periphery, to some extent involving the UK, so this general convergence, as opposed to tighter convergence in the core, may not last.
11 citations
TL;DR: In this article, the authors claim that nominal and real divergences in a monetary union are endogenous dynamics and not necessarily a result of any asymmetrical shocks and propose a rational expectations model that presents inflation differentials, current account deficits and eventually ratcheting the economy down as an effect of joining the monetary union or of restrictions which a common currency puts on interest rates and exchange rate flexibility.
Abstract: After 10 years of the euro it is well documented that the paths and rates of growth differ among the countries of the zone. In particular, some countries experience a kind of a business cycle characterized with an economic slowdown or recession after a period of strong demand and overheating. This paper offers a theoretical explanation of these phenomena. I claim that nominal and real divergences in a monetary union are endogenous dynamics and not necessarily a result of any asymmetrical shocks. The paper develops micro-based, rational expectations model that presents inflation differentials, current account deficits and eventually ratcheting the economy down as an effect of joining a monetary union or–more specifically–of restrictions which a common currency puts on interest rates and exchange rate flexibility. Within this theoretical framework the results of economic policy in a monetary union may be suboptimal; the domestic product ends up below its potential level that the economy could attain at a flexible exchange rate and an individually set interest rate. This solution is an example of Nash equilibrium which is not Pareto optimal. It proves again that micro-optimization is not a substitute for a proper macroeconomic policy that should create the right conditions for decisions taken by individual agents. When representative agents differ among countries with respect to their inter-temporal preferences macro-policies should be “customized”, one size does not fit all. As a bonus, the conclusions of the paper also find an easy application to the business cycles typical for exchange rate based inflation stabilization programmes, an issue once extensively discussed in the literature. These cycles receive in the paper a coherent theoretical explanation with the same rationale that stands behind the description of nominal and real divergences in a monetary union.
11 citations
TL;DR: In this article, the authors present estimations of trade equations for individual euro area countries using a vector error correction model and show that exchange rate innovations affect individual euro-area countries at different rates, complicating the response of the euro area's one-size-fits-all monetary policy.
Abstract: Although the euro area is not one of the major players in current global imbalances, the rebalancing of the current global imbalances is coupled with a significant appreciation of the euro against. In this paper, I present estimations of trade equations for individual euro area countries using a vector error correction model. Each euro area member has got a different trade elasticity, in the short as well as in the short run. Results show that exchange rate innovations affect individual euro area countries at different rates, complicating the response of the euro area’s one-size-fits-all monetary policy.
9 citations
TL;DR: In this article, the authors use time-varying spectral methods to decompose the links between the two leading Asian economies and the US, and find that the links with the US have been weakening, while those based on China have strengthened.
Abstract: This paper tests the hypothesis that the economic relationships between China and her major trading partners have changed over the past 20 years with the industrialisation of China, and the emergence of Japan as a source of investment and network trade in sophisticated manufactures, and the US as a source of finance and investment assets, supplier of services and an apparently inexhaustible demand for consumer and intermediate goods. Has this changed the size and direction of spillovers in the region, and has it curtailed or eliminated American economic leadership? We use time-varying spectral methods to decompose the links between the two leading Asian economies and the US. We find: (a) the links with the US have been weakening, while those based on China have strengthened; (b) that this is not new—it has been happening since the 1980s, but has now been reversed by the surge in trade; (c) that the links with the US have been rather complex, with the US able to shape the cycles elsewhere through her control of monetary conditions, but the China zone able to control the size of their cycles; (d) that Japan remains linked to (and dependent on) the US; and (e) there is no evidence that pegged exchange rates encourage convergence.
9 citations
TL;DR: In this paper, an econometric analysis of the entry of Central and Eastern European Countries to the EU is presented, and the authors explore the resulting ambiguous theoretical predictions via an economic model.
Abstract: EU enlargement involves the simultaneous liberalisation of goods and financial markets. While the issue of free trade in capital versus goods has frequently been the subject of study in international economics, the emphasis has typically been on physical capital (machines etc) rather than financial capital. This paper considers this distinction in a world with asymmetric information, moral hazard and hence credit rationing, and explores the resulting ambiguous theoretical predictions via an econometric analysis of the entry of the Central and Eastern European Countries to the EU.
8 citations
TL;DR: In this paper, the authors compare the welfare level of a small country under a freely floating, a managed floating, and a pegged exchange rate regime, by modifying and generalizing Hamada's (2002) model to accommodate intervention policy.
Abstract: This paper examines the welfare comparisons between a freely floating, a managed floating, and a pegged exchange rate regime. We compare the expected loss under these regimes by modifying and generalizing Hamada’s (2002) model to accommodate intervention policy. We consider the de jure and de facto classifications, where the former is defined by the officially stated intentions of the monetary authorities, while the latter is based on the actually observed behavior of the nominal exchange rate. We first examine the exchange rate regimes from the central bank’s policy stance and the actual exchange rate policy. Next we assume that the regime which the private sector perceives according to an official announcement may be different from the one adopted actually by the central bank. We examine nine combinations of the de jure and de facto regimes. We interpret that, whenever they are different, there is informational friction between the central bank and the private sector. We show that the welfare level of a small country under freely floating is no less than that under other regimes, and that with some restrictive conditions, the de facto pegged or de facto managed floating is close to freely floating. This partly explains “Fear of floating” and “Fear of pegging”.
TL;DR: In this paper, the authors analyzed the process of nominal and real convergence in the new Member States of the European Union (NMS) and evaluated potential benefits and risks connected with joining the euro.
Abstract: This paper analyses the process of nominal and real convergence in the new Member States of the European Union (NMS). The importance of nominal and real convergence is underlined in connection with a successful catching-up. The NMS economies experienced robust economic growth in recent years, which had a positive impact on the convergence process. Although this favourable development of real convergence is accompanied by a simultaneous price (nominal) convergence, the comparative price level is still biased towards lower level in comparison with the per capita income. The regression analysis shows interdependence between the comparative price and the income per capita level. This basis enables to evaluate potential benefits and risks connected with joining the euro. The benefits connected with elimination of exchange rate risks and reduction of transaction costs can be compared with the disadvantages associated with the loss of an independent monetary policy and an adjusting exchange rate mechanism. Attention is paid to a potential impact on nominal and real convergence of the observed countries. There are some risks for these countries connected with the common monetary policy, which is adjusted more to the conditions of stabilized advanced economies, forming the core of the Eurozone. These risks can be overcome on the basis of a fast labour productivity growth, accompanied by an adequate policy, ensuring the macroeconomic stability. The rapid productivity growth is raising the relative price level. The Maastricht dilemma, i.e. the fulfilment of two objectives during the stay in ERM II (the price stability and the exchange rate volatility) under on-going nominal convergence enforces an appropriate monetary and fiscal policy. However, such strict policies may slow down the economic growth. Another possible measure for keeping the price stability is a relaxation of the fluctuation band (its full exploitation to the upper and bottom limits), or a change of the central parity (revaluation).
TL;DR: In this paper, a semi-structural macroeconomic model based on gradually adjusting wages and prices and hybrid, cross-over inflation expectation formation is analyzed and estimated with aggregate data of the U.S. and the Euro Area.
Abstract: In this paper a semi-structural macroeconomic model based on gradually adjusting wages and prices and hybrid, cross-over inflation expectation formation is analyzed and estimated with aggregate data of the U.S. and the Euro Area. Besides comparing, among other things, the determinants of the wage- and price inflation dynamics in both economies, the role of different macroeconomic transmission channels for the stability of the two-country system is investigated.
TL;DR: In this article, the authors propose an international multilevel competition policy system, which draws on the insights of the analysis of multileve systems of institutions. But it does not address the problem of the lack of supranational governance of private international restrictions to market competition.
Abstract: This paper develops a proposal for an international multilevel competition policy system, which draws on the insights of the analysis of multilevel systems of institutions. In doing so, it targets to contribute bridging a gap in the current world economic order, i.e. the lack of supranational governance of private international restrictions to market competition. Such governance can effectively be designed against the background of a combination of the well-known nondiscrimination principle and a lead jurisdiction model. Put very briefly, competition policy on the global level restricts itself to the selection and appointment of appropriate lead jurisdictions for concrete cross-border antitrust cases, while the substantive treatment remains within the competence of the existing national and regional antitrust regimes.
TL;DR: In this article, the exchange rate is included in the Taylor rule when there is heterogeneity in currency trade to have a determinate and least squares learnable rational expectations equilibrium that also is desirable in an inflation rate targeting regime.
Abstract: It is demonstrated in this paper that the exchange rate should be included in the Taylor rule when there is heterogeneity in currency trade to have a determinate and least squares learnable rational expectations equilibrium that also is desirable in an inflation rate targeting regime. Moreover, for certain Taylor rule parameterizations, these properties of the interest rate rule are robust against the degree of technical trading in currency trading.
TL;DR: The authors applied a sequential procedure to identify implicit exchange rate regimes for currencies of the Central and Eastern European Countries vis-a-vis the euro, and found that implicit bands have existed in many subperiods for almost all currencies under study.
Abstract: This paper attempts to identify implicit exchange rate regimes for currencies of the Central and Eastern European Countries vis-a-vis the euro. To that end, we apply a sequential procedure that considers the dynamics of exchange rates to data covering the period from 1977:01 to 2006:02. Our results would suggest that implicit bands have existed in many subperiods for almost all currencies under study. Once we detect de facto discrepancies between de facto and de iure exchange rate regimes, we propose a model in order to explain these decisions. Our results suggest a positive association between the previous inflation rate and the probability of a peg with the euro, and a negative association with past unemployment rate.
TL;DR: In this paper, the effects of a monetary union enlargement using the techniques and outcomes from an extensive research project on macroeconomic policy coordination in the EMU are studied. But the authors focus on the first pillar and construct a multi-player linear-quadratic continuous-time model of 5 countries and 4 central banks to evaluate effects of accession of a new member to an existing MU.
Abstract: This paper studies the effects of a monetary union enlargement using the techniques and outcomes from an extensive research project on macroeconomic policy coordination in the EMU. Our approach is characterized by two main pillars: (i) linear-quadratic differential games to capture externalities, spillovers and strategic behaviour of (fiscal and monetary) players; and (ii) endogenous coalition formation concepts which enable us to study a creation and stability of different cooperation arrangements. In this paper we focus on the first pillar and construct a multi-player linear-quadratic continuous-time model of 5 countries and 4 central banks to evaluate effects of accession of a new member to an existing MU. Our findings stress the importance of an asymmetric shock confirming basic results of the OCA theory. It comes out that in our setting it is never profitable to enlarge the monetary union when there is a risk of an asymmetric shock. What is more, the potential losses from accession are so high that it can be barely possible to design a transfer system to compensate for a worse situation of some countries.
TL;DR: In this article, the consequences of original sin (the fact that the currency of an emerging market economy usually cannot be used to borrow abroad) for macroeconomic stability are analyzed. But the authors do not consider the effect of currency deblurring on the price setting behavior of firms.
Abstract: This paper analyses the consequences of “original sin” (the fact that the currency of an emerging market economy usually cannot be used to borrow abroad) for macroeconomic stability. The approach is based on third-generation models of currency crises, but differs from alternative versions by explicitly modeling the price setting behavior of firms if prices are sticky and there is incomplete information about the future exchange rate. It is shown that a small depreciation is beneficial, but a large one is detrimental.
TL;DR: In this paper, the authors investigated the contribution of capital deepening, technological progress and efficiency improvement to economic growth while focusing on cross-country data, and found that the average contribution of technological catch-up to per worker output growth was negative on the worldwide scale and this trend continued till the mid 1990ies.
Abstract: This paper studies contribution of capital deepening, technological progress and efficiency improvement to economic growth while focusing on cross-country data, and thus finds itself at the crossroads of growth and development accounting We take a production frontier approach to growth accounting and choose DEA as the frontier estimation method To explore the effects that windfall gains from natural resource use have on growth, output data are corrected for pure natural resource rents—part of GDP figures not earned by either labor or capital Taking into account countries’ natural resources, we find that in the two decades from 1970 to 1990 the average contribution of technological catch-up to per worker output growth was, if anything, negative on the worldwide scale and this trend continued till the mid 1990ies Analysis of efficiency estimates also shows a possible change over the period of 1970–1990 in the effect of natural resources on country’s performance
TL;DR: In this article, a simple two region, two good, two-factor model is proposed to illustrate how an improvement in one region's import infrastructure can affect firms' location decisions and the nature of the trading equilibrium.
Abstract: The purpose of this study is to illustrate, with a simple two-region, two-good, two-factor model, how an improvement in one region’s import infrastructure can affect firms’ location decisions and the nature of the trading equilibrium. It is shown that, through improvements in import infrastructure, one region might divert high-tech industries to another region. This effect reduces the incentive to improve import infrastructure.