Peter Wierts

Cross-Sector Supervision: Which Model?

The purpose of this paper is to take the analysis one step further by focusing on the key question as regards the organizational structure: what are the pros and cons of combining different supervisory activities within one organization? In this context, we start by briefly describing the old and new Dutch supervisory models. The question is: how did we arrive at the new model? To answer this question, we take a closer look at financial market developments. We then compare cross-sector organizational models for financial supervision. We introduce a new framework for comparing these models and apply it to the functional model of the Netherlands and the integrated model of the United Kingdom. While confirming the familiar conclusion that there is no uniform best model,

How Credible are Multiannual Budgetary Plans in the EU

We investigate the track record of multi-annual budgetary plans of EU Member States formulated in the Stability and Convergence Programmes and updates. The study is based on the analysis of an original database summarizing the main macroeconomic and budgetary variables projected by the Member States in their Programmes under the original SGP. Results show that the failure to achieve the projected reductions in the general government deficit reflects primarily difficulties to adhere to expenditure plans in nominal terms. This does not seem to be due to particularly unfavorable macroeconomic developments, but rather to the difficulties of EU countries to implement the reforms which would have been necessary to respect the ambitious expenditure targets. On the revenue side, negative growth surprises have been relevant, but the effect is less important. Overall, conclusions point to a need for strengthening expenditure control mechanisms in most of the EU Member States.

Macroprudential Policy: The Need for a Coherent Policy Framework

The recent literature on macroprudential policy contains several suggestions for possible instruments. This paper puts forward and implements a method for arriving at a coherent policy framework. It starts by defining the role of macroprudential policy in the overall policy framework for the monetary and financial system. It then specifies the objective, intermediate targets (pillars), instruments, decision-making, accountability, and the legal base. We introduce a two pillar strategy. The basic presumption is that each instrument should be related to its intermediate target (pillar). This allows us to select a limited set of core instruments aimed at stabilising financial imbalances (pillar 1) and addressing externalities that arise from interconnections in the financial system (pillar 2).

How Do Expenditure Rules Affect Fiscal Behaviour

This paper investigates the role of self-enforced national expenditure rules in limiting the expenditure bias and procyclical expenditure increases/decreases due to revenue windfalls/shortfalls. A simple model predicts that expenditure rules can have the intended effects, but only if the political and institutional costs of non compliance are sufficiently large. Empirical estimations provide some support that expenditure rules affect expenditure outcomes in the hypothesised manner, especially when there are revenue shortfalls. We cannot disentangle, however, whether our results reflect a causal effect of expenditure rules on expenditure outcomes, or whether they are driven by a third variable of political preferences for addressing high expenditure to GDP ratios.

Composition of Exports and Export Performance of Eurozone Countries

This article investigates to what extent the composition of exports is related to the export performance of eurozone countries using a data set on exports from the oldest eurozone countries to their top 20 trade partners for the period 1988–2009. The results suggest that a higher share of high technology exports in total exports is positively related to total exports. Export composition also conditions the effects of the real exchange rate and partner income growth. The effect of the real exchange rate on exports becomes smaller the higher the share of high technology exports in total exports. The effect of partner income on exports becomes larger the higher the share of high technology exports in total exports.

From First-Release to Ex-Post Fiscal Data: Exploring the Sources of Revision Errors in the EU

This paper explores the determinants of deviations of ex-post budget outcomes from first-release outcomes published towards the end of the year of budget implementation. The predictive content of the first-release outcomes is important, because these figures are an input for the next budget and the fiscal surveillance process. Deviations of ex-post from first-release fiscal figures may arise for political and strategic reasons. In particular, Ministries of Finance control the production of first-release figures, and may have an incentive to be over-optimistic at this stage. Our results suggest that an improvement in the quality of institutions, whether measured by the tightness of national fiscal rules, the medium-term budgetary framework or budgetary transparency, reduces the degree of optimism at the first-release stage, thereby making first-release figures more informative about the eventual outcomes. This supports the European Commission proposals for minimum standards for national fiscal frameworks and amendments by the European Parliament for improving national ownership. It also strengthens the case for a close monitoring by the Commission of the first-release production of fiscal figures.

FROM BUDGETARY FORECASTS TO EX POST FISCAL DATA: EXPLORING THE EVOLUTION OF FISCAL FORECAST ERRORS IN THE EUROPEAN UNION

This paper splits the ex post error in the budget balance, defined as the final budget figure minus the planned figure, into implementation and revision errors, and investigates the determinants of these errors. The implementation error is the difference between the nowcast, published toward the end of the year of budget implementation, and the planned budget, while the revision error is the difference between the final figure and the nowcast. The split takes account of differences in reporting incentives at the different budgeting stages. The predictive content of fiscal plans is important, because it determines the reliability of the budget, while that of the nowcasts is important also because these figures are an input for the next budget and may contain important signals about the fiscal stance. Implementation and revision errors may arise for political and strategic reasons. Our results suggest that an improvement in the quality of institutions, whether measured by the tightness of national fiscal rules, the medium‐term budgetary framework or budgetary transparency, increases the quality of budgetary reporting at both the planning and the nowcast stage. This supports the recently adopted requirements on national fiscal frameworks. It also strengthens the case for a close monitoring by the European Commission of national budgeting.

Trade Dynamics in the Euro Area: The Role of Export Destination and Composition

We investigate to what extent the destination of exports and export composition affect the export performance of euro area countries, using a dataset on exports from euro area countries to their top 20 trade partners for the period 1980-2010. Our analysis shows that European integration has not led to an increase in the share of the core and the northern periphery in the exports of the southern periphery. Our results suggest that a higher share of high tech exports in total exports leads to a higher growth of total exports. Export composition also conditions the effects of the real exchange rate and partner income growth. The effect of the real exchange rate on export growth becomes smaller the higher the share of high tech exports in total exports. The effect of partner income on export growth becomes larger the higher the share of high tech exports in total exports.

Macroprudential Supervision: From Theory to Policy

Financial supervision focuses on the aggregate (macroprudential) in addition to the individual (microprudential). But an agreed framework for measuring and addressing financial imbalances is lacking. We propose a holistic approach for the financial system as a whole, beyond banking. Building on our model of financial amplification, the financial cycle is the key variable for measuring financial imbalances. The cycle can be curbed by leverage restrictions that might vary across countries. We make concrete policy proposals for the design of macroprudential instruments to simplify the current framework and make it more consistent.

Effective Macroprudential Policy: Cross-Sector Substitution from Price and Quantity Measures

Macroprudential policy is increasingly being implemented worldwide. Its effectiveness in influencing bank credit and its substitution effects beyond banking have been a key subject of discussion. Our empirical analysis confirms the expected effects of macroprudential policies on bank credit, both for advanced economies and emerging market economies. Yet we also find evidence of substitution effects towards nonbank credit, especially in advanced economies, reducing the policies’ effect on total credit. Quantity restrictions are particularly potent in constraining bank credit but also cause the strongest substitution effects. Policy implications indicate a need to extend macroprudential policy beyond banking, especially in advanced economies.