Occasional papers published in 2007

Communication device to a broad audience

Our Occasional Paper Series (OPS) disseminates work carried out by, as a rule, ECB staff on subjects that relate to the main tasks and functions of the ECB and the ESCB. Occasional Papers (OPs) are addressed to a wide audience, including other policy-makers, financial analysts, academics, the media and the interested general public. Understanding the papers will normally require some prior knowledge of the topic.

No. 77
19 December 2007
Oil market structure, network effects and the choice of currency for oil invoicing

Abstract

JEL Classification

G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading

O13 : Economic Development, Technological Change, and Growth→Economic Development→Agriculture, Natural Resources, Energy, Environment, Other Primary Products

Q41 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Demand and Supply, Prices

Abstract

A recurring theme in recent years in the debate on the international role of currencies has been the possiblity of pricing oil in euro. This paper contributes to these debates by providing a detailed review of the empirical evidence regarding the market for crude oil and current oil invoicing practices. It introduces a network effect model to identify the conditions under which a parallel invoicing in different currencies would be possible. The paper also includes a simulation designed to illustrate the dynamics of the currency choice of oil invoicing.

No. 76
18 December 2007
Prudential and oversight requirements for securities settlement

Abstract

JEL Classification

G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages

G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation

Abstract

This paper analyses the current national and international regulatory regimes relevant for European banks, CSDs and ICSDs, and compares them with the requirements in order to answer the following questions: Is there any overlap between the provisions of the CPSS-IOSCO Recommendations and the existing international and national requirements to which European SSSs and banks are subject? Are current provisions equivalent or more restrictive ("super-equivalent") for banks and CSDs? In what respect? Does the overlap between the CPSS-IOSCO Recommendations and existing regulation result in double requirements? This paper presents the results of this comparative analysis and attempts to answer such questions.

No. 74
30 October 2007
Analysis of revisions to general economic statistics

Abstract

JEL Classification

E01 : Macroeconomics and Monetary Economics→General→Measurement and Data on National Income and Product Accounts and Wealth, Environmental Accounts

E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth

E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital

E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation

E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit

Abstract

The preparations for the introduction of the euro in 1999 involved the need for a new set of statistics for the euro area. Since then, significant progress has been made with regard to the coverage, timeliness and accuracy of these statistics. The reliability of the first releases - i.e. their stability in the process of later revisions - is an important quality-related feature. New data releases for the euro area have generally shown a very small or no bias, i.e. data revisions have been very modest and comparable with those of, for example, the United States or Japan. Despite the relatively small size of revisions, however, their combination with the low growth of the euro area economy may have drawn attention to such revisions of economic data for the euro area. This paper quantifies the revisions to selected key indicators in the period from the start of Monetary Union in 1999 to July 2007 and compares them with the corresponding mediumterm averages (1999-2006). The analysis covers the euro area, its six largest member countries, the United Kingdom, the United States and Japan. For this purpose, available time series for the various periods involved are used, series that record all revisions to published statistical data releases. The analysis is carried out separately for GDP growth and its expenditure components, for employment, unemployment rates, compensation per employee, labour cost indicators, industrial production, retail trade turnover and consumer prices. Overall, the evidence presented in this paper suggests that euro area data releases have generally shown a very small or no bias and have been more stable than those for individual euro area countries. Furthermore, recent euro area data how levels of revisions similar to those of the past, or levels of revisions that stabilised after the implementation of harmonised statistical concepts had largely been completed.

No. 75
23 October 2007
The role of other financial intermediaries in monetary and credit developments in the euro area

Abstract

Abstract

Monetary growth has increased significantly in the euro area in recent years, raising concerns about the risks to price stability. Viewed from a sectoral perspective, this increase reflects to a large extent the deposit holdings of other financial intermediaries (OFIs). This paper presents analytical work on the role of OFIs in monetary and credit developments in the euro area. Although, at the moment, some shortcomings in the data available - such as the lack of long time series data - seriously limit the analysis of the role of OFIs in monetary and credit aggregates, it seems clear that OFIs have gained considerable importance in recent years, not only as a factor affecting monetary developments, but also for the functioning of the financial system. This gain in importance may be due to financial deregulation and liberalisation, as well as financial innovation. These developments are reflected in the integration and deepening of euro area financial markets, as well as in investors' attitude to risk.

No. 73
28 September 2007
Reserve accumulation: objective or by-product?

Abstract

JEL Classification

F31 : International Economics→International Finance→Foreign Exchange

F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics

Abstract

This paper examines whether the level of reserves in emerging market countries has become excessive. It presents a discussion of "adequacy" versus "excessive" levels of reserves, and presents calculations of reserve adequacy for a large number of emerging market countries. Two categories of countries can be distinguished: i) those whose reserves have grown on account of a need for self-insurance against financial crises, and which tend to be reasonably in line with adequacy measures (mainly Latin American countries and countries in central and eastern Europe), and ii) those whose reserve accumulation is nowadays primarily the result of rapid export-led growth supported by a lack of exchange rate flexibility. This is especially the case for several emerging Asian countries, whose reserve levels have grown far beyond what can reasonably considered adequate. Various opinions on Asian exchange rate and reserves policies are examined, and the costs and benefits of currency undervaluation are assessed. Attention is also paid to the composition of the reserves. The paper concludes by bringing together the various strands of the analysis and enumerating the main implications of largescale reserve accumulation for the international monetary system.

No. 72
24 September 2007
The role of financial markets and innovation in productivity and growth in Europe

Abstract

JEL Classification

G00 : Financial Economics→General→General

O16 : Economic Development, Technological Change, and Growth→Economic Development→Financial Markets, Saving and Capital Investment, Corporate Finance and Governance

O43 : Economic Development, Technological Change, and Growth→Economic Growth and Aggregate Productivity→Institutions and Growth

E61 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Policy Objectives, Policy Designs and Consistency, Policy Coordination

Abstract

The extended period of limited growth experienced until recently in many European countries raises the issue as to which policies could be most effective in improving their economic performance. This paper argues that further financial sector reforms may be a valuable complement to ongoing efforts to reform labour and product markets. There is a long-standing view in the economic literature that well-functioning financial systems allow economies to exploit the benefits of innovation in terms of productivity and growth. Moreover, measured productivity differentials between Europe and the United States seem to originate particularly in the financial sector and from sectors that are particularly dependent on external financing. Building on and summarising the existing literature, this paper first introduces a number of concepts that are important for financial sector analyses and policies. Second, it presents a selection of indicators describing the efficiency and development of the European financial system from the perspective of a variety of dimensions. Third, an attempt is made to estimate the extent to which greater financial efficiency might improve the allocation of productive capital in Europe. While in the recent past the research and policy debate in Europe has focused on fostering financial integration, the present paper puts the main emphasis on financial development or modernisation in the context of the finance and growth literature. The results suggest that there are a number of ways in which the financial market framework conditions in Europe can be improved to increase the contribution of the financial system to innovation, productivity and growth. The most robust conclusions can be drawn for certain aspects of corporate governance, the efficiency of legal systems in resolving conflicts in financial transactions and some structural features of European bank sectors.

No. 70
24 August 2007
The search for Columbus' egg: finding a new formula to determine quotas at the IMF

Abstract

JEL Classification

E : Macroeconomics and Monetary Economics

Abstract

The present paper does not claim to solve the Columbus' egg conundrum. There even may not be a "silver bullet"

No. 68
24 August 2007
The securities custody industry

Abstract

JEL Classification

G15 : Financial Economics→General Financial Markets→International Financial Markets

G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages

L22 : Industrial Organization→Firm Objectives, Organization, and Behavior→Firm Organization and Market Structure

Abstract

Custody is, in essence, a service consisting in holding (and normally administering) securities on behalf of third parties. In step with the growth of sophisticated financial markets, custody has evolved into a complex industry no longer characterised by physical safekeeping but by a range of information and banking services. Given the multi-tier structure of the industry, custody services are provided by a variety of intermediaries. This paper describes the development of the custody industry and the structure of the custody services market. It also discusses the risks involved in custody and the challenges the industry is facing, particularly in the European context.

No. 71
22 August 2007
The economic impact of the Single Euro Payments Area

Abstract

JEL Classification

G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages

L11 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance→Production, Pricing, and Market Structure, Size Distribution of Firms

L22 : Industrial Organization→Firm Objectives, Organization, and Behavior→Firm Organization and Market Structure

Abstract

With the realisation of the Single Euro Payments Area (SEPA), there will be no difference in the euro area between national and cross-border retail payments. SEPA is aimed at fostering competition and innovation, and improving conditions for customers. This requires concerted efforts from various stakeholders, in particular the banking industry, to align national practices. The Eurosystem strongly supports the SEPA project. In its catalyst role, the European Central Bank (ECB) closely monitors and assesses the overall development of SEPA. Against this background, the ECB has carried out in cooperation with the banking industry a SEPA impact study with the aim of enriching its understanding of the potential economic consequences of SEPA. Based on the quantitative and qualitative expectations of major pan-European banks, the study finds that the overall financial impact for the banking industry varies according to different scenarios of the SEPA project. The coexistence of national and SEPA retail payment schemes is expected to lead to initial investments borne by the banks. In the longer term, banks expect to benefit from improved cost efficiency and economies of scale and scope. Furthermore, banks are expected to face downward pressure on their revenues as competition will increase across borders and as a result of new market entrants. The findings of the study confirm the view that a dual SEPA implementation phase should be as short as possible. In fact, a longer migration period would give rise to higher costs than a shorter period. It can furthermore be concluded that those institutions that embrace new technological developments, create new businesses and provide innovative services are likely to gain most from SEPA.

No. 69
21 August 2007
Fiscal policy in Mediterranean countries: developments, structures and implications for monetary policy

Abstract

Abstract

Southern and eastern Mediterranean countries have many fiscal challenges in common with other emerging market and mature economies concerning deficit and debt reduction and the maintenance of fiscal discipline. However, most countries in the region also face some specific fiscal issues, such as relatively high public debt, dependence on some form or another of donor dependence or concessional financing, high budgetary exposure to fluctuations in hydrocarbon prices, high defence expenditure and weak tax bases. Against this background, this paper reviews fiscal developments and fiscal policy issues in the ten countries that are participants or observers in the EU's Barcelona process. The main focus is on the implications of these developments and issues for macroeconomic stability, given that countries in the region have made considerable progress in terms of macroeconomic stabilisation over the last two decades, which is reflected in particular in lower inflation rates. The analysis distinguishes between non-oil-producing and oil-producing countries in the region, as they exhibit different fiscal features and are confronted with different challenges. In the case of non-oil-producing countries, the key challenges stem from high deficits and debt levels, including implicit and contingent liabilities, notwithstanding some progress in fiscal consolidation in most of these countries over the last years. In the case of oil-producing countries, whose fiscal situation has significantly improved in recent years in the wake of high oil prices, the key challenges for fiscal management stem from the heavy reliance on an exhaustible source of revenues and a large exposure to fluctuations in international hydrocarbon prices. A shock originating from - or being transmitted via and exacerbated by - the fiscal sector appears to be the single most important macroeconomic risk in many countries.

No. 67
26 July 2007
Towards harmonised balance of payments and international investment position statistics - the experience of the European compilers

Abstract

JEL Classification

B41 : History of Economic Thought, Methodology, and Heterodox Approaches→Economic Methodology→Economic Methodology

C13 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Estimation: General

C18 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Methodological Issues: General

C80 : Mathematical and Quantitative Methods→Data Collection and Data Estimation Methodology, Computer Programs→General

C82 : Mathematical and Quantitative Methods→Data Collection and Data Estimation Methodology, Computer Programs→Methodology for Collecting, Estimating, and Organizing Macroeconomic Data, Data Access

E01 : Macroeconomics and Monetary Economics→General→Measurement and Data on National Income and Product Accounts and Wealth, Environmental Accounts

E59 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Other

F15 : International Economics→Trade→Economic Integration

F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements

F24 : International Economics→International Factor Movements and International Business→Remittances

F33 : International Economics→International Finance→International Monetary Arrangements and Institutions

F49 : International Economics→Macroeconomic Aspects of International Trade and Finance→Other

Abstract

External statistics

No. 64
18 July 2007
The use of portfolio credit risk models in central banks

Abstract

JEL Classification

E : Macroeconomics and Monetary Economics

Abstract

This report summarises the findings of the task force. It is organised as follows. Section 2 starts with a discussion of the relevance of credit risk for central banks. It is followed by a short introduction to credit risk models, parameters and systems in Section 3, focusing on models used by members of the task force. Section 4 presents the results of the simulation exercise undertaken by the task force. The lessons from these simulations as well as other conclusions are discussed in Section 5.

No. 65
10 July 2007
The performance of credit rating systems in the assessment of collateral used in Eurosystem monetary policy operations

Abstract

JEL Classification

G20 : Financial Economics→Financial Institutions and Services→General

G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation

C49 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Other

Abstract

The aims of this paper are twofold: first, we attempt to express the threshold of a single "A" rating as issued by major international rating agencies in terms of annualised probabilities of default. We use data from Standard & Poor's and Moody's publicly available rating histories to construct confidence intervals for the level of probability of default to be associated with the single "A" rating. The focus on the single "A" rating level is not accidental, as this is the credit quality level at which the Eurosystem considers financial assets to be eligible collateral for its monetary policy operations. The second aim is to review various existing validation models for the probability of default which enable the analyst to check the ability of credit assessment systems to forecast future default events. Within this context the paper proposes a simple mechanism for the comparison of the performance of major rating agencies and that of other credit assessment systems, such as the internal ratings-based systems of commercial banks under the Basel II regime. This is done to provide a simple validation yardstick to help in the monitoring of the performance of the different credit assessment systems participating in the assessment of eligible collateral underlying Eurosystem monetary policy operations. Contrary to the widely used confidence interval approach, our proposal, based on an interpretation of p-values as frequencies, guarantees a convergence to an ex

ante fixed probability of default (PD) value. Given the general characteristics of the problem considered, we consider this simple mechanism to also be applicable in other contexts.

No. 66
6 July 2007
Structural reforms in EMU and the role of monetary policy: a survey of the literature

Abstract

Abstract

The need for structural reforms in the euro area has often been advocated. These reforms would improve the welfare of euro area citizens and also, as a welcome side-effect, facilitate the conduct of monetary policy. Against this background, a particularly relevant question that can be posed is whether monetary policy should help implement structural reforms. The objective of this paper is to provide a review of the existing literature on structural reforms in Economic and Monetary Union (EMU) and to discuss the possible ways in which monetary policy could support the structural reform process. In the context of EMU, the main conclusions that emerge are that the monetary policy for the euro area is not the appropriate tool for mitigating the potential and uncertain short-term costs of reforms or for providing incentives for structural reforms at the national level. However, credible monetary policy aimed at price stability can improve the functioning of the supply side of the economy and contribute to an environment which is conducive to welfare-enhancing structural changes. In addition, the ECB's contribution to the implementation of structural reforms takes the form of analysis, assessment and communication.

No. 63
28 June 2007
Corporate finance in the euro area - including background material

Abstract

JEL Classification

D92 : Microeconomics→Intertemporal Choice→Intertemporal Firm Choice, Investment, Capacity, and Financing

G30 : Financial Economics→Corporate Finance and Governance→General

G10 : Financial Economics→General Financial Markets→General

O16 : Economic Development, Technological Change, and Growth→Economic Development→Financial Markets, Saving and Capital Investment, Corporate Finance and Governance

K40 : Law and Economics→Legal Procedure, the Legal System, and Illegal Behavior→General

Abstract

This report analyses the financial position of non-financial enterprises in the euro area, in particular the amount of external financing, the choice between debt and equity and the composition and maturity structure of debt. It aims at identifying the main features of the euro area, as well as the peculiarities that depend on the country of origin and the sector of activity. Attention is also devoted to assessing whether a country's institutional features are correlated with different financial structures by firms. In light of the particular interest in the access of small and medium-sized enterprises (SMEs) to financing, the report also analyses how financing patterns differ across large, medium-sized and small enterprises. Finally, the report discusses the recent trends observed in the corporate finance landscape of the euro area over the past few years. Although it is still too early to pass final judgement, vast structural changes are underway that could have already influenced in a positive way in the availability of external funds for firms. All in all, a comprehensive understanding of corporate finance in the euro area is important from a monetary policy perspective, given its impact on the transmission mechanism and for productivity and economic growth. Moreover, such an understanding is also relevant from a financial stability perspective. A first assessment is now possible eight years into the third stage of Economic and Monetary Union (EMU), given that sufficient data have been accumulated during this period. This assessment is particularly important as the introduction of the single currency has had significant structural effects on the working of financial markets, increasing their size and liquidity, and fostering cross-border competition. The data available for this report generally cover the period 1995-2005, and the cut-off date for the statistics included is 10 March 2007.

No. 62
4 June 2007
Inflation-linked bonds from a Central Bank perspective

Abstract

JEL Classification

E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy

E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy

E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies

G10 : Financial Economics→General Financial Markets→General

Abstract

Inflation-linked bond markets have experienced significant growth in recent years. This growth is somewhat surprising, for inflation-linked bonds cannot be considered a financial innovation and their development has taken place in a period of historically low global inflation and inflation expectations. In this context, the purpose of this paper is twofold. First, it provides a selective survey of the key arguments for and against the issuance of inflation-linked debt, and some of the factors that help to understand their recent growth. Second, it illustrates the use of these instruments to better monitor investors' inflation expectations and growth prospects from a central bank perspective.

No. 60
23 April 2007
Commodity price fluctuations and their impact on monetary and fiscal policies in Western and Central Africa

Abstract

Abstract

Commodity prices play an important role in economic developments in most of the 24 Western and Central African (WCA) countries covered in this paper. It is confirmed that in the light of rising commodity prices between 1999 and 2005, net oil exporters recorded strong growth rates while net oil-importing countries - albeit benefiting from increases in their major non-oil commodity export prices - displayed somewhat lower growth. For most WCA economies, inflation rates appear less affected by commodity price changes and more determined by exchange rate regimes as well as monetary and fiscal policies. While passthrough effects from international to domestic energy prices were significant, notably in oilimporting countries, second-round effects on overall prices seem limited. Governments of oil-rich countries reacted prudently to windfall revenues, partly running sizable fiscal surpluses. A favourable supply response to rising spending as well as sterilisation efforts and increasing

money demand also helped to dampen inflationary pressures. However, substantial excess reserves of commercial banks reflect challenges in financial sector developments and the effectiveness of monetary policy in

many WCA countries. Given currently widely used fixed exchange rate regimes, fiscal policy will continue to carry the main burden of macroeconomic adjustment and of sustaining non-inflationary growth, which remains the key policy challenge facing WCA authorities.

No. 61
18 April 2007
Determinants of growth in the central and eastern European EU member states - a production function approach

Abstract

Abstract

Overall, the prospects for a continued and reasonably fast real convergence process between the EU 8 countries and the euro area are good. However, the continuation of the rapid progress made by many EU 8 countries in the past cannot be taken for granted. In fact, in order to ensure that fast economic growth in the EU 8 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.

No. 59
5 April 2007
The ECB survey of professional forecasters (SPF) - A review after eight years' experience

Abstract

JEL Classification

C83 : Mathematical and Quantitative Methods→Data Collection and Data Estimation Methodology, Computer Programs→Survey Methods, Sampling Methods

E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications

E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General

Abstract

Eight years have passed since the European Central Bank (ECB) launched its Survey of Professional Forecasters (SPF). The SPF asks a panel of approximately 75 forecasters located in the European Union (EU) for their short- to longer-term expectations for macroeconomic variables such as euro area inflation, growth and unemployment. This paper provides an initial assessment of the information content of this survey. First, we consider shorter-term (i.e., one- and two-year ahead rolling horizon) forecasts. The analysis suggests that, over the sample period, in common with other private and institutional forecasters, the SPF systematically under-forecast inflation but that there is less evidence of such systematic errors for GDP and unemployment forecasts. However, these findings, which generally hold regardless of whether one considers the aggregate SPF panel or individual responses, should be interpreted with caution given the relatively short sample period available for the analysis. Second, we consider SPF respondents

No. 58
30 March 2007
Long-term growth prospects for the Russian economy

Abstract

JEL Classification

O43 : Economic Development, Technological Change, and Growth→Economic Growth and Aggregate Productivity→Institutions and Growth

O51 : Economic Development, Technological Change, and Growth→Economywide Country Studies→U.S., Canada

O11 : Economic Development, Technological Change, and Growth→Economic Development→Macroeconomic Analyses of Economic Development

O14 : Economic Development, Technological Change, and Growth→Economic Development→Industrialization, Manufacturing and Service Industries, Choice of Technology

Abstract

This paper provides an assessment of Russia's long-term growth prospects. In particular, it addresses the question of the medium- and long-term sustainability of the country's currently high growth rates. Starting from the notion that Russia's fast economic expansion in recent years has benefited from a number of singular factors such as the unprecedented rise in oil prices, the paper presents new evidence on Russia's oil price dependency using a Vector Error Correction Model (VECM) framework. The findings indicate that the positive impact of rising oil prices on Russia's GDP growth has increased in recent years, but tends to be buffered by an appreciation of the real effective exchange rate which is stimulating imports. Additionally, there is empirical confirmation that growth in the service sector - a symptom usually associated with the Dutch disease phenomenon - is mainly a result of the transition process. Finally, the paper provides an overview of the relevant factors that are likely to affect Russia's growth performance in the future.

No. 57
28 March 2007
Understanding price developments and consumer price indices in south-eastern Europe

Abstract

JEL Classification

E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth

O52 : Economic Development, Technological Change, and Growth→Economywide Country Studies→Europe

O57 : Economic Development, Technological Change, and Growth→Economywide Country Studies→Comparative Studies of Countries

P22 : Economic Systems→Socialist Systems and Transitional Economies→Prices

Abstract

The primary goal of monetary policy in most economies of the world is to achieve and maintain price stability. This paper evaluates price developments and consumer price indices in south-eastern European countries, i.e. countries that have either recently joined the EU or are candidate or potential candidate countries. It is motivated by the fact that, in transition countries, inflation has generally been higher and more volatile than in advanced economies. The analysis reveals that the subindex housing/energy appears to be the main driving force behind overall inflation in the region. In most of the countries under review, administered prices prove to be an important factor in consumer price developments, with their weights increasing over time. Inflation volatility in south-eastern Europe is significantly higher than in the euro area. While this is partly due to a higher level of inflation, it also reflects a more pronounced share for the most volatile sub-indices as well as the marked impact of administered prices on the overall price index, a phenomenon which has also been seen in the central and eastern European countries. While in most south-eastern European countries no HICP has been calculated yet, there is little evidence suggesting that the future use of the HICP will result in a systematic change in inflation patterns in the respective countries. However, as deviations have been observed in a few countries for certain periods, without further information on the structure of the respective national CPI and the HICP such differences cannot be fully excluded.

No. 56
28 March 2007
Assessing fiscal soundness: theory and practice

Abstract

Abstract

This paper presents a survey of methods for assessing fiscal soundness, i.e. the capability of governments to honour their obligations in the short run and in the long run. The need for a comprehensive monitoring of fiscal soundness derives from the risks to economic stability that arise from the actual or expected difficulty a government may have in honouring its

obligations. For the long run, methods derived from the government's intertemporal budget constraint make it possible to assess the size of a necessary adjustment to achieve sustainability of the debt burden. Uncertainty regarding shocks to the fiscal situation or the behaviour of financial market participants calls for the monitoring of financial flows and government obligations in the short run. Vigilance needs to be all the higher, the greater the uncertainty regarding long-term sustainability.

No. 55
1 March 2007
Globalisation and euro area trade - interactions and challenges

Abstract

JEL Classification

F62 : International Economics→Economic Impacts of Globalization→Macroeconomic Impacts

Abstract

As a major player in world trade, the euro area is strongly influenced by globalisation, but is far from being a passive spectator. The paper analyses how the euro area's trade specialization has changed in response to stronger international competition and the emergence of new global players, evaluating results and possible challenges ahead. The message remains mixed. On the positive side, the export specialisation of the euro area is increasing in some medium-high or high-tech sectors where productivity growth is strong and demand robust, such as pharmaceuticals, also by a more intensive recourse to importing intermediate goods from low-cost countries. On the other hand, in comparison to other industrialised economies, the euro area has been somewhat slower in moving towards research-intensive goods and away from labour-intensive sectors. While this could reflect data classification issues, it may also be a sign of structural rigidities in the euro area, which hinder adjustment processes.

Disclaimer: Please keep in mind that OPs are published in the name of the author(s). Their views do not necessarily reflect those of the ECB.