Is there a “reform fatigue” in the euro area?
TL;DR: In this paper, the authors investigated the impact of monetary policy within a currency union on progress in structural reforms and found that reform fatigue, market punishment, and good-times complacency may explain the deceleration of reform in the euro area.
About: This article is published in Economic Modelling.The article was published on 2009-07-01. It has received 4 citations till now. The article focuses on the topics: Currency union & Foreign exchange risk.
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TL;DR: In this article, the authors find that despite a substantially unchanged problem load in the last 20 years, EU Member States witnessed a recent surge in pension reforms, due to higher risk premia charged by international financial actors.
Abstract:
Despite a substantially unchanged problem load in the last 20 years, EU Member States witnessed a recent surge in pension reforms. Since the Great Recession, external market and political pressures started outcompeting national politics in pension-related decisions. Employing European Commission data on major pension reforms during 2006–2015, we find that governments respond to higher risk premia charged by international financial actors. Macro-policy fundamentals, such as budget deficits, and micro-policy indicators, such as pension spending, instead, only signal the necessity to act. They trigger the reforms in the presence of EU conditionality, that is, in the presence of Excessive Deficit Procedures and Country-Specific Recommendations within the European Semester. These findings deepen our understanding of the Europeanization of social policy, contribute to the literature on the political economy of reforms and testify to the declining role of domestic factors in the politics of the welfare state.
9 citations
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TL;DR: In this article, the authors argue that pension policy change in Western Europe is also related to the “shock” of European Monetary Union (EMU), and use a Spatial Autoregressive Probit model with event-history features to test whether the decision to reform can be best explained by domestic factors, diffusion dynamics, or similar exposure to a common shock.
Abstract: Existing research has linked the adoption of pension reforms to demographic pressures, party ideology, and the diffusion of social policy ideas. We argue that pension policy change in Western Europe is also related to the “shock” of European Monetary Union (EMU). We use a Spatial Autoregressive Probit model with event-history features to test whether the decision to reform can be best explained by domestic factors, diffusion dynamics, or similar exposure to a common shock. We find that EMU made pension reform more likely for low and moderately indebted countries in the early 1990s but delayed reform in the late 1990s. Demographic pressures and policy diffusion also mattered for reform adoption, but not more than the EMU shock.
6 citations
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TL;DR: In this article, a case study of the European banking union is used to test whether intergovernmentalism or neofunctionalism can properly account for evinced integrative outcomes.
Abstract: Are the grand theories of integration still relevant today and capable of describing integration in the European Union? Have the general principles of the grand theories lost their ability to accurately describe European integration? For policy makers and scholars that rely on theories, the answer to these questions are of axiomatic importance Since 2012, steps towards a banking union provide the most contemporary and far reaching manifestation of European integration making the area ripe for studying these questions Focusing on the member states of the Eurozone adds relevance to the discussion, because the grand theories should apply more adeptly to this more highly integrated group To discern whether a single grand theory can account for present empirical findings, this paper relies upon a case study of the European banking union to test whether intergovernmentalism or neofunctionalism can properly account for evinced integrative outcomes The grand theories will be tested to see if they are capable of explaining the entirety of the integration process within their own logical confines Instead of an exhaustive approach that describes the preferences of each member state, coalitions will be curated to discern group negotiating preferences and taken alongside the actions of supranational actors to test the relevance of the grand theories of European integration
5 citations
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01 Jan 2015
TL;DR: The Eurozone crisis and its aftershocks have forced the ECB to move into uncharted territory as discussed by the authors, and various asset purchase programs, bank liquidity support, forward guidance, and recently open-ended quantitative easing have all been used to address tail risks from sovereign and bank sector shocks and deflation risks.
Abstract: The Eurozone crisis and its aftershocks have forced the ECB to move into uncharted territory. Historically low interest rates and even negative deposit rates, various asset purchase programs, bank liquidity support, forward guidance, and recently open-ended quantitative easing (QE) have all been used to address tail risks from sovereign and bank sector shocks and deflation risks. The ECB has become the subject of criticism because of these measures. Some have argued that it has been behind the curve, acting too late and not aggressively enough. Others have argued that the central bank has already gone too far. The verdict is still out, but the fact is that the ECB’s crisis management has so far avoided the worst and the euro has survived for now, but the Eurozone’s recovery has been very weak.
1 citations
References
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01 Jan 1961
TL;DR: A theory of optimum currency areas is proposed in this paper, where the authors argue that periodic balance-of-payments crises will remain an integral feature of the international economic system as long as fixed exchange rates and rigid wage and price levels prevent the terms of trade from fulfilling a natural role in the adjustment process.
Abstract: It is patently obvious that periodic balance-of-payments crises will remain an integral feature of the international economic system as long as fixed exchange rates and rigid wage and price levels prevent the terms of trade from fulfilling a natural role in the adjustment process. It is, however, far easier to pose the problem and to criticize the alternatives than it is to offer constructive and feasible suggestions for the elimination of what has become an international disequilibrium system.' The present paper, unfortunately, illustrates that proposition by cautioning against the practicability, in certain cases, of the most plausible alternative: a system of national currencies connected by flexible exchange rates. A system of flexible exchange rates is usually presented, by its proponents,2 as a device whereby depreciation can take the place of unemployment when the external balance is in deficit, and appreciation can replace inflation when it is in surplus. But the question then arises whether all existing national currencies should be flexible. Should the Ghanian pound be freed to fluctuate against all currencies or ought the present sterling-area currencies remain pegged to the pound sterling? Or, supposing that the Common Market countries proceed with their plans for economic union, should these countries allow each national currency to fluctuate, or would a single currency area be preferable? The problem can be posed in a general and more revealing way by defining a currency area as a domain within which exchange rates are fixed and asking: What is the appropriate domain of a currency area? It might seem at first that the question is purely academic since it hardly appears within the realm of political feasibility that national currencies would ever be abandoned in favor of any other arrangement. To this, three answers can be given: (1) Certain parts of the world are undergoing processes of economic integration and disintegration, new experiments are being made, and a conception of what constitutes an optimum currency area can clarify the meaning of these experiments. (2) Those countries, like Canada, which have experimented with flexible exchange rates are likely to face particular problems which the theory of optimum currency areas can elucidate if the national currency area does not coincide with the optimum currency area. (3) The idea can be used to illustrate certain functions of currencies which have been inadequately treated in the economic literature and which are sometimes neglected in the consideration of problems of economic policy. A Theory of Optimum Currency Areas It is patently obvious that periodic balance-of-payments crises will remain an integral feature of the international economic system as long as fixed exchange rates and rigid wage and price levels prevent the terms of trade from fulfilling a natural role in the adjustment process. It is, however, far easier to pose the problem and to criticize the alternatives than it is to offer constructive and feasible suggestions for the elimination of what has become an international disequilibrium system.' The present paper, unfortunately, illustrates that proposition by cautioning against the practicability, in certain cases, of the most plausible alternative: a system of national currencies connected by flexible exchange rates. A system of flexible exchange rates is usually presented, by its proponents,2 as a device whereby depreciation can take the place of unemployment when the external balance is in deficit, and appreciation can replace inflation when it is in surplus. But the question then arises whether all existing national currencies should be flexible. Should the Ghanian pound be freed to fluctuate against all currencies or ought the present sterling-area currencies remain pegged to the pound sterling? Or, supposing that the Common Market countries proceed with their plans for economic union, should these countries allow each national currency to fluctuate, or would a single currency area be preferable? The problem can be posed in a general and more revealing way by defining a currency area as a domain within which exchange rates are fixed and asking: What is the appropriate domain of a currency area? It might seem at first that the question is purely academic since it hardly appears within the realm of political feasibility that national currencies would ever be abandoned in favor of any other arrangement. To this, three answers can be given: (1) Certain parts of the world are undergoing processes of economic integration and disintegration, new experiments are being made, and a conception of what constitutes an optimum currency area can clarify the meaning of these experiments. (2) Those countries, like Canada, which have experimented with flexible exchange rates are likely to face particular problems which the theory of optimum currency areas can elucidate if the national currency area does not coincide with the optimum currency area. (3) The idea can be used to illustrate certain functions of currencies which have been inadequately treated in the economic literature and which are sometimes neglected in the consideration of problems of economic policy.
4,673 citations
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TL;DR: The authors discusses the state of our knowledge on the political economy of this process and discusses the helpful rules for reformers to follow in guiding their policies through complicated political terrain, and suggest that reformers internalize the correct lessons from the East Asian experience.
Abstract: One of the eventual consequences of the global debt crisis was a wave of market-oriented economic reforms. This paper discusses the state of our knowledge on the political economy of this process. Why were inefficient, and often unsustainable policies maintained for so long? Why are so many governments reforming now, after decades of adherence to policies of an opposite kind? Have the reformers internalized the correct lessons from the East Asian experience? Finally, are there any helpful rules for reformers to follow in guiding their policies through complicated political terrain?
1,274 citations
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TL;DR: In this paper, the authors review the experiences of developing countries with market-oriented reforms, using the tools of modern political economy and impose intellectual discipline by requiring that actors behave rationally using available information and that basic economic relationships such as budget constraints be accounted for.
Abstract: We review the experiences of developing countries with market-oriented reforms, using the tools of modern political economy. We impose intellectual discipline by requiring that actors behave rationally using available information and that basic economic relationships such as budget constraints be accounted for. We attempt to integrate two approaches, one based on dynamic games played by interest groups, with one that focus on limited information and the dynamics of learning. We describe the “starting point” as the set of “old” policies and we attempt to explain the dynamics (political, economic and informational) that lead to reform (section II). We analyze strategies for reformers subject to political constraints (section Ш). We evaluate the aggregate and distributional costs of reforms, emphasizing the importance of looking at the right counterfactuals (section IV). We conclude by pointing to the challenges ahead: the second-stage institutional reforms necessary to take off from underdevelopment.
212 citations
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TL;DR: In this article, the authors discuss three econometric problems that are rarely given adequate discussion in textbooks: model uncertainty, parameter heterogeneity, and outliers, and show that extreme bounds analysis can be adapted to address all three problems simultaneously.
Abstract: The paper discusses three econometric problems that are rarely given adequate discussion in textbooks: model uncertainty, parameter heterogeneity, and outliers. Leamer’s extreme bounds analysis can be adapted to address all three problems simultaneously. Two examples are presented based on an influential cross-country growth paper by Levine and Renelt (American Economic Review, vol. 82, 1992, pp. 942-63).
204 citations
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01 Jan 2005
TL;DR: The authors examines likely economic developments and policy challenges for the five former transition countries in central Europe (the Czech Republic, Hungary, Poland, the Slovak Republic and Slovenia) which joined the EU in May 2004.
Abstract: Upon entry into the European Union (EU), countries become members of the Economic and Monetary Union (EMU), with a derogation from adopting the euro as their currency. This paper examines likely economic developments and policy challenges for the five former transition countries in central Europe (the Czech Republic, Hungary, Poland, the Slovak Republic and Slovenia) which joined the EU in May 2004. These economies operate independent monetary policies but have not yet achieved policy convergence with the rest of the euro area.
126 citations