Twin deficits in CEEC economies: evidence from panel unit root tests

This paper analyses the relation between the external and government deficits in a panel of CEEC economies. We first assess by panel unit root tests whether the fiscal and external intertemporal budget constraints hold, and then examine the role of public and private expenditure in the dynamics of external indebtedness by panel regression. The results show that government deficit is a significant but relatively minor source of external imbalances, and that the external indebtedness of CEEC economies is sustainable.current account, budget deficit, panel data, twin deficits, sustainability

KEYNESIAN AND NEOCLASSICAL FISCAL SUSTAINABILITY INDICATORS, WITH APPLICATIONS TO EMU MEMBER COUNTRIES

The purposes of this paper are twofold: first, it aims at critically evaluating the solvency criterion, pioneered by Hamilton and Flavin (1986), which is nowadays almost hegemonic in the analysis of public debt sustainability, and at illustrating alternative measures of sustainability grounded on the dynamic stability approach originated by Domar (1944); secondly, it looks at sustainability in EMU member countries, with particular attention given to the relations between sustainability and the design of fiscal rules. The results show that the 3% rule imposed by the Maastricht treaty can be justified as a sustainability requirement for an 'average' EMU member country. At the same time, the dispersion around this average is quite substantial: this questions the viability of uniform deficit caps across EMU member countries.public debt sustainability, dynamic analysis, solvency constraint, EMU, fiscal rules

Dynamic paths of the European economy: simulations using an EU aggregate model

Using an aggregate econometric model for the EU we investigate by simulation methods some dynamic paths of the European economy in the next five years under alternative hypotheses concerning the growth of world demand, the European currency/USD exchange rate, and the monetary policy.econometric model,simulation,structural change,European economy, monetary policy

Narrowing the US twin deficits: simulations with a world macroeconometric model

In this paper we extend the macroeconometric model developed in Bagnai (2004) by linking it to a submodel for the Japanese economy, and we utilize this extended model to investigate several hypotheses of reduction in the US twin deficits. The Japanese submodel is specified and estimated along the lines set out in Bagnai and Carlucci (2003), using the “cointegration with endogenous structural break” estimation method of Gregory and Hansen (1996). The estimation results show that the Japanese economy underwent a major structural change after the first oil-price shock. The “twin deficits” simulations consider two policy instruments: a US dollar exchange rate devaluation, and a fiscal consolidation, carried out through a decrease in US government consumption. We analyze both different sizes and different timing of these policy measures, as well as their interactions, in order to evaluate their effectiveness, and the costs they impose on the partner countries (in particular, on the Euro area and Japan).twin deficits, structural break, econometric model, Japan, EMU, USA

Europe’s paradoxes

The essay aims at highlighting some fundamental paradoxes affecting the very structure of the European Union in its current organization. The currency union is not only insufficient, but ultimately impairing the economic efficiency of the Eurozone. The economic issues that the European Union project was designed to respond to do not correspond to the present circumstances. The European institutions and the European left-wing parties have lost sight of the proper parameters of social justice. Left-wing parties endorsing pro-capital policies and supranationalism deployed to overcome nationalism are the two main paradoxes that have a damaging impact on the present development of European institutions

Europe’s paradoxes

The essay aims at highlighting some fundamental paradoxes affecting the very structure of the European Union in its current organization. The currency union is not only insufficient, but ultimately impairing the economic efficiency of the Eurozone. The economic issues that the European Union project was designed to respond to do not correspond to the present circumstances. The European institutions and the European left-wing parties have lost sight of the proper parameters of social justice. Left-wing parties endorsing pro-capital policies and supranationalism deployed to overcome nationalism are the two main paradoxes that have a damaging impact on the present development of European institutions

Neoclassical versus Kaldorian explanations of southern Europe’s productivity slowdown

The productivity slowdown in European countries is among the major stylised facts of the last two decades. Several explanations have been proposed: some focus on demand-side effects, working through Kaldor’s second law of economic growth (also known as Verdoorn’s law), others on supply-side effects determined by a misallocation of the factors of production, caused either by labour market reforms or by perverse effects of financial integration (in Europe, related to the adoption of the euro). The latter explanation is put forward by some recent studies that stress how low interest rates brought about by the monetary union may have lowered productivity by inducing capital misallocation. The aim of this paper is to investigate the robustness of the latter empirical findings and to compare them with the alternative explanation offered by the post-Keynesian growth model, which instead emphasises the relation between foreign trade and productivity, along lines that go back to Adam Smith. To do so, we use a panel of industry-level data extracted from the EU KLEMS database, comparing these alternative explanations by panel cointegration techniques. The results shed some light on the role played by the single currency in the structural divergences among euro area member countries

In the eye of the storm : the Italian economy and the eurozone crisis

The eurozone crisis had a more significant and longer-lasting impact on Italy than on virtually any other member state, with the effects still visible a decade after. The extent of the shock was surprising in view of progress Italy had apparently made in the 1990s in terms of enhancing its capacity to meet the demands of European Monetary Union. The explanation for this traumatic economic experience lies in Italy’s deep, long-term, structural tensions which were placed under severe pressure during the 1990s and which were cracked open by the 2011 sovereign debt crisis. These have had long-standing economic effects as well as political ramifications in terms of a significant change in the Italy–EU relationship

An empirical analysis of the nexus between investment, fiscal balances and current account balances in Greece, Portugal and Spain

publisher: Elsevier articletitle: An empirical analysis of the nexus between investment, fiscal balances and current account balances in Greece, Portugal and Spain journaltitle: Economic Modelling articlelink: http://dx.doi.org/10.1016/j.econmod.2017.02.003 content_type: article copyright: © 2017 Elsevier B.V. All rights reserved