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We revisit Wagner's law by function of government expenditure. Using data of 14 European countries between 1996 and 2013, we apply panel data and SUR methods to assess public expenditure-income elasticities. We find that some func...
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We revisit Wagner's law by function of government expenditure. Using data of 14 European countries between 1996 and 2013, we apply panel data and SUR methods to assess public expenditure-income elasticities. We find that some functions of government spending for a few countries (e.g. Austria, France, the Netherlands and Portugal) validate Wagner's law. For the Netherlands, expenditures with environment protection increase more than proportionately to economic growth, and for France that is the case of spending in housing and community amenities. In addition, Greece is the only country where two public spending items react more than one to one to growth.
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We assess the consequences of fiscal consolidation episodes on public sector efficiency (scores) for 35 OECD countries for the 2007-2020 period. We find that fiscal consolidations improve public sector efficiency and results are r...
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We assess the consequences of fiscal consolidation episodes on public sector efficiency (scores) for 35 OECD countries for the 2007-2020 period. We find that fiscal consolidations improve public sector efficiency and results are robust across efficiency models. Moreover, peripheral euro-area economies and economies with debt-to-GDP ratios between 60% and 90% are those whose public sector efficiency scores improve more when fiscal consolidation episodes occur. The evidence that fiscal consolidations enhance spending efficiency is an additional argument for fiscal consolidations, from a policy perspective.
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We assess the impact of announcements corresponding to different fiscal and monetary policy measures on 10-year sovereign bond yield spreads (relative to Germany) of 10 EMU countries during the period 01:1999-07:2016. Implementing...
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We assess the impact of announcements corresponding to different fiscal and monetary policy measures on 10-year sovereign bond yield spreads (relative to Germany) of 10 EMU countries during the period 01:1999-07:2016. Implementing country-fixed effects OLS regressions, we find that the European Commission's (EC) releases of the excessive deficit procedure significantly affect yield spreads. The EC releases of higher debt and better budget balance forecasts contribute to the rise and the decline of spreads, respectively. Moreover, we find that the announcements of the ECB's key interest rates together with the longer-term refinancing operations (LTROs) and the first covered bond purchase programme (CBPP1) negatively affect sovereign yield spreads in our sample of EMU countries. There was also some capital market mispricing of the sovereign bond risk in the Euro area before the Global Financial Crisis, notably regarding government debt forecasts. (C) 2020 Elsevier Inc. All rights reserved.
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We assess the time-varying features of fiscal sustainability in the euro area via revisiting the empirical relationship between the primary budget surplus and the debt-to-GDP ratio. Focusing on a sample of 11 Euro-area countries b...
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We assess the time-varying features of fiscal sustainability in the euro area via revisiting the empirical relationship between the primary budget surplus and the debt-to-GDP ratio. Focusing on a sample of 11 Euro-area countries between 1999Q1 and 2013Q4 and by means of time series analyses, we find that (a) fiscal policy seems to have been sustainable in Belgium, France, Germany, and the Netherlands and a Ricardian (monetary dominant) regime might have been present; (b) debt exhibited a negative response following an innovation in the budget surplus in half of the sample; (c) the time-varying coefficient model shows that the 20082009 global economic and financial crisis exerted a sizeable negative impact on fiscal sustainability; and (d) expenditure-based fiscal rules are strong determinants of fiscal sustainability. All in all, we found some evidence against the Fiscal Theory of the Price Level.
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In this paper, we decompose the current account (CA) balance in 19 Euro area countries into cyclical and non-cyclical components. For the period 1999:Q1 to 2015:Q4, we compute income elasticities of imports and of exports via an a...
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In this paper, we decompose the current account (CA) balance in 19 Euro area countries into cyclical and non-cyclical components. For the period 1999:Q1 to 2015:Q4, we compute income elasticities of imports and of exports via an alternative novel and improved approach by running time-varying coefficient models country-by-country. Then, in a panel set-up (and controlling for country-invariant characteristics), we uncover that terms of trade have a positive effect on both the cyclical and non-cyclical components of the CA, while the Global Financial Crisis, compensation of employees and the employment level have a negative effect on the cyclical component. Moreover, the crisis had a greater impact on the cyclical component of the CA due to movements in the real effective exchange rate. In addition, we find a negative effect of the crisis on the cyclical component of the CA for countries that received financial assistance from the European Union, notably Ireland, Portugal, Spain and Latvia.
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Sovereign default contagion was one of the most debated topics during the Eurozone sovereign debt crisis. Despite all the improvements in the financial situation since 2010, namely after European Central Bank quantitative easing p...
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Sovereign default contagion was one of the most debated topics during the Eurozone sovereign debt crisis. Despite all the improvements in the financial situation since 2010, namely after European Central Bank quantitative easing policies, the nature of the problem and the policy prescriptions are still under dispute today. Using an agent-based model, we simulate sovereign default contagion for different monetary policy options in a world where governments have random incomes, different heterogeneous borrowing behaviors and risk aversion levels and where countries can enter into ex-ante agreements to protect themselves against default. Our simulations showed that default contagion can be a very fast and "destructive" process, and that monetary policy can have a very important role in preventing sovereign defaults through zero interest rate and quantitative easing policies.
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We assess the cyclicality of current account balances for the period 2001Q1-2014Q4, focusing on Portugal and using Germany as a benchmark. We find that the cyclical component of the current account was positively explained by 3-mo...
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We assess the cyclicality of current account balances for the period 2001Q1-2014Q4, focusing on Portugal and using Germany as a benchmark. We find that the cyclical component of the current account was positively explained by 3-month Euribor, but negatively by the financial crisis, systemic stress in Europe, employment and compensation of employees. Moreover, the noncyclical current account was positively affected by the period of the economic and financial adjustment programme and the terms of trade, but negatively influenced by financial integration.
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We revisit a recently introduced agent model [ACS, 11. 99 (2008)], where economic growth is a consequence of education (human capital formation) and innovation, and investigate the influence of the agents' social network, both oil...
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We revisit a recently introduced agent model [ACS, 11. 99 (2008)], where economic growth is a consequence of education (human capital formation) and innovation, and investigate the influence of the agents' social network, both oil an agent's decision to pursue education and oil the output of new ideas. Regular and random networks are considered. The results are compared with the predictions of a mean field (representative agent) model.
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We assess the transmission of the Targeted Longer-Term Refinancing Operations (TLTRO) to the bank credit supply for the Euro area (2014-2017) and for Portugal (2011:02-2018:01), using a panel data setup. In order to estimate a cau...
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We assess the transmission of the Targeted Longer-Term Refinancing Operations (TLTRO) to the bank credit supply for the Euro area (2014-2017) and for Portugal (2011:02-2018:01), using a panel data setup. In order to estimate a causal effect, we construct an instrumental variable (IV) using the maximum borrowing allowance in the TLTRO. For the Euro area, we find a positive impact of the TLTRO on the amount of credit granted to the real economy, in particular in the less vulnerable countries. For Portugal, using a difference-in-differences model, we find that bidding banks set lower interest rates in relation to non-bidding banks and the difference seems to be larger in 2016 and 2017.
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We assess the role of monetary policy news shocks in the context of a medium scale DSGE model estimated on US data. We estimate several versions of the model and find decisive evidence in favour of the inclusion of monetary policy...
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We assess the role of monetary policy news shocks in the context of a medium scale DSGE model estimated on US data. We estimate several versions of the model and find decisive evidence in favour of the inclusion of monetary policy news shocks over a two-quarter horizon. According to our results, monetary policy news shocks account for a non negligible fraction of the variance of real variables, especially at shorter forecast horizons. Further, we document that the importance of monetary policy news shocks goes beyond what was observed in recent years. The historical importance of monetary policy news shocks dates back to the 1999-2006 period when the official FOMC statements provided information about both the current policy setting and the expected future policy path. We also show that adding monetary policy news shocks to the model does not lead to identification problems. (C) 2016 Elsevier B.V. All rights reserved.
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