Marga Peeters

Does Demand and Price Uncertainty Affect Belgian and Spanish Corporate Investment

This paper investigates erapirically the influence of uncertainty on corporate investment. Uncertainty of demand, output prices and investment prices are measured by the standard deviation of (pre-)filtered Belgian (1984-1992) and Spanish (1983-1993) panel data, and included as explanatory variables in the investment equations derived from a neo-classical model with financial constraints. GMM-results indicate that investment behaviour towards output price uncertainty differs significantly in conjecture with a firms size and leverage.

Measuring Monetary Conditions in Europe: Use and Limitations of the MCI

The Monetary Conditions Index is a composite index of interest and exchange rates frequently used by (central) banks, the IMF, and the OECD. This paper considers the benefits and weaknesses of the MCI in the light of large macroeconometric models. It follows that the impact of the exchange rate on GDP relative to the impact of the short-term interest rate is substantially lower under a monetary union. For most countries, including a long-term interest rate in the MCI only affects the level of the MCI and not its turning points.

GDP-spillovers in multi-country models

Abstract Spillovers resulting from fiscal and monetary policy are compared and analysed in small static, small dynamic and large dynamic multi-country models. To compare the size of the spillovers, we consider simulations in which GDP for a certain number of years is held one percent above base in the country where the shock originates. The results indicate that spillovers are large in size. An important transmission mechanism in the contribution to foreign GDP is found to be the foreign real interest rate, contributions to foreign GDP generated through trade are found to be small. In empirical models with endogenous exchange and interest rates, it was found that under floating exchange rate regimes spillovers are much smaller than under pegged exchange rate regimes. Furthermore, we note that under floating exchange rate regimes, spillovers seem to be larger in small (dynamic) models than in large empirical models.

On Wage Formation, Wage Development and Flexibility: A Comparison between European Countries and the United States

For Germany, Spain, France, the Netherlands and the US an Error Correction Model with a long-term non-linear wage equation is estimated by 3-SLS to obtain consistent estimates, accounting for endogeneity and common shocks. On the basis of the estimated parameter elasticities of wages with respect to labour productivity, value added and consumer prices, taxes, unemployment and replacement rates are computed along with the wage contributions. The results indicate that the dominant role of prices in the formation of wages in the seventies and eighties was taken over by labour productivity in the US and unemployment in Spain and – almost- in the Netherlands at the end of the nineties. Evidence for a stronger real wage flexibility of the US in comparison with the four European countries is not found.

MAKMODEL: A Macro-Econometric Model for the Republic of Macedonia

This report describes the macro-econometric model for the Republic of Macedonia MAKMODEL. It documents the main features of this model that was built by research teams of the Macedonian and Dutch central bank during July 1999 - June 2001 as one module of a large scale PHARE-project, funded by the European Commission. Details on the statistical aspects of the Macedonian monthly data collected for the period 1993-1999 are provided, along with the construction and estimation of the econometric model. The last sections present some simulation and forecasting examples. The ultimate aim of MAKMODEL is to use it for macro-economic policy analyses at the Macedonian central bank, by means of keeping the statistical basis up to date, elaborating upon the model, and making forecasts and running simulations in the near future.

Persistence, Asymmetries and Interrelation in Factor Demand

A neoclassical factor demand model for structures, equipment and labour is analyzed. It incorporates a variety of dynamic specifications, such as a multi-period time-to-build for structures, internal adjustment costs for each production factor, and external investment adjustment costs. First-order conditions of the model are estimated by the generalized method of moments using manufacturing industry data from the US, Canada, West Germany, the UK (all 1960.I-1988.IV), France (1970.I-1992.II) and the Netherlands (1971.I-1990.IV). The results endorse time-to-build for structures, persistence of technology shocks and interrelations in adjustment cost dynamics.

On Wage Formation, Wage Flexibility and Wage Coordination: A Focus on the Wage Impact of Productivity in Germany, Greece, Ireland, Portugal, Spain and the United States

This paper discusses the endeavours of policy makers to come to some degree of wage coordination among EU countries, aiming at aligning wage growth with labour productivity growth at the national levels. In this context, we analyse the wage and productivity developments in Germany, the European Union’s periphery countries Greece, Ireland, Portugal, and Spain along with the US for the period 1980- 2010. Apart from the contribution of productivity to wages, we take into account the contributions of prices, unemployment, replacement rates and taxes by means of an econometrically estimated non-linear wage equation resulting from a wage bargaining model. We further study the downward rigidities of wages in depth. The findings show that in past times of low productivity, price inflation and reductions in unemployment put significant upward pressure on wage growth, also in the low inflationary period of the 2000s. Greece, Ireland, Portugal and Spain are far from aligning wage growth with productivity growth. German productivity is a major German wage determinant, but surely not the only one. To steer wages, policy makers can effectively use the replacement rate.

Demographic Change Across the Globe - Maintaining Social Security in Ageing Economies

This paper investigates the fiscal pressure from demographic change in relation to the labour marketspace for fifty countries that cover 75% of the world population. The pressure-to-space indicator ranks Poland, Turkey and Greece high. Apart from Turkey and India, developing countries rank low due to low spending on the old (pensions, health care) and the young (education, family costs). Peculiarly, economies with higher pressure have more space. The hypothesis that ageing economies have started using their space in anticipation to higher demographic pressure is rejected. Raising the retirement age in developed economies by five years alleviates the pressure by almost 30% and creates 10% more labour market space.

Macro-economic policy reactions to soaring food prices in Mediterranean countries, Russia, the CIS and the GCC

The aim of this study is to analyse the price developments and to compare national macroeconomic policies in response to the consumer prices that started to soar in 2007 across the European Neighbourhood Policy countries, the other arcelona countries2, Russia, the Gulf Cooperation Council countries and the euro area. The analyses focus primarily on ag-flation, but we analyse also the capital inflows in view of income levels in the EUs neighbour countries. The analyses unambiguously show that food inflation was pushing up total inflation, even despite the provision of food subsidies by national authorities.

International Financial Integration of South-Mediterranean Economies: A Bird's-Eye View

Should South-Mediterranean economies continue their financial integration in the world economy, considering their current stance and in view of the experiences of developed economies with the global financial crisis? The economies of the North-African rim, that is Morocco, Algeria, Tunisia, Libya and Egypt have become more exposed to the global economy during the decades 1990s and 2000s. The same holds to some extent for the Middle Eastern economies Palestine and Syria, while Jordan and Lebanon have become very open economies. In light of the unprecedented developments in the financial sectors of developed economies in the Creation-Dates 2008-2009 and in view of the current political Arab upheaval, this paper reviews the pros and cons of financial integration. It analyses financial integration indicators, as well as financial stability, and compares the South-Mediterranean region with other regions worldwide. In the global perspective of other regions worldwide, this group of South-Mediterranean economies is unique. From this study follows that most countries of this group have high cross-border bank assets in combination with limited bank liabilities, high inflows of FDI and remittances and relatively high outflows of remittances. Apart from their low degree of cross-border bank indebtedness, they are more financially integrated in the world economy in comparison with Asia, the CIS, Latin-America and the Sub-Sahara. The relatively low degree of trade and financial integration in the region and world economy sheltered these economies to a large extent from the negative external shocks during the global financial crisis of 2008-09. At the same time, the South-Mediterranean region has foregone the economic dividend that developed regions worldwide reaped thanks to growing financial sectors. At the moment of the writing of this paper, that is 2012, so after the global crisis and after or during the upheavals or revolutions in some countries, these South-Mediterranean economies are at a crossroad. This paper studies the status quo, the achievements of the last Creation-Dates and sheds light on the pros and cons of further financial integration, regionally or worldwide.