L’Intégration Européenne et la Soutenabilité Externe de l’Union Européenne: une application de la thèse de Feldstein-Horioka

The Feldstein-Horioka thesis was considered one of the greatest puzzles in economics. Born to measure international capital mobility, has known a process of immunisation to be conformed to empirical evidence and respect econometric knowledge. We apply to EU countries a formulation of the thesis which is adequate to test external sustainability and international capital mobility. Applying appropriate methods we conclude for the external sustainability of enlarged Europe as well as for high level of capital mobility. The capital mobility is more important for the old EU than for the enlarged one.Feldstein-Horioka, Mobilité du Capital, Épargne, Investissement, Contrainte extérieure

The PIGS, does the Group Exist? An empirical macroeconomic analysis based on the Okun Law

Will the current crisis accelerate the PIGS collapse? We approach the subject by comparing the responses of the unemployment rate to an output shock on those economies (Portugal, Italy, Greece and Spain) with those of a benchmark economy – the USA. Our methodological strategy relies on one of the pillars of empirical macroeconomics the Okun Law (OL) which we incorporated in a VAR model. We addressed two drawbacks usually present in OL, the interdependency problem and the non-stationarity problem. We have included in our models the participation rate as a way to overcome the former problem and for the later one we have analysed the time series properties of the variables used on our models. We propose stable VAR models for each of the economies involved and also a fixed-effects panel-VAR for the PIGS. The time for the absorption of shocks and the disequilibrium levels are much more favourable to USA, but we conclude also that in terms of unemployment we are not allowed to consider the PIGS as a homogenous group.Okun Law, C-I, VAR, Participation rate, Stability and Impulses.

The Fundamentals of the Portuguese Crisis

This paper analyses the fundamentals of the Portuguese crisis. The financial crisis of 2007 worsened and triggered the current Portuguese crisis. We argue that the main problem that the economy is facing is its output stagnation due to a kind of Dutch disease that has created high and increasing levels of indebtedness, low and decreasing levels of saving and has reduced Portuguese competitiveness. Moreover, the existence of a dualist labour market and a new vague of emigration reproduces inefficiency increasing unemployment of younger workers and the supply of human capital abroad funded by the Portuguese taxpayers. Governance problems such as bad public budget governance, lack of transparency and accountability are also at stake and have to be solved to allow the economy to return to its long-run growth path.Growth, Debt, Saving, Dutch disease, Unemployment, Budget policy.

The Fundamentals of the Portuguese Crisis

This paper analyses the fundamentals of the Portuguese crisis. The financial crisis of 2007 worsened and triggered the current Portuguese crisis. We argue that the main problem the economy is facing is its output stagnation due to a kind of Dutch disease that has created high and increasing levels of indebtedness, low and decreasing levels of saving and has reduced Portuguese competitiveness. Moreover, the existence of a dualist labour market and a new wave of emigration produce inefficiency, increasing unemployment of younger workers and the supply of human capital abroad funded by the Portuguese taxpayers. Governance problems such as poor public budget governance and lack of transparency and accountability are also at stake. These governance problems must be solved to allow the economy to return to its long-run growth path.ntion paid to it than hitherto.Growth, Debt, Saving, Dutch disease, Unemployment, Budget policy

Un Essaie d'Application de la Théorie Quantitative de la Monnaie à l'Economie Portugaise, 1854-1998

L'objectif de ce travail nous conduira à tester la pertinence d'accepter la théorie quantitative du revenu nominal dans l'économie portugaise. C'est-à-dire, on ira voir si un accroissement de l'offre de monnaie de x% entraîne, ou non, un accroissement de x% du revenu nominal. Les testes qu'on ira faire cherchent à démontrer cette théorie pour la longue période et aussi pour le processus d'ajustement qu'on appellera de courte période. Si on peut retenir cette hypothèse de comportement, on rencontre l'affirmation de Friedman, «There is an extraordinary empirical stability and regularity to such magnitudes as income velocity that cannot but impress anyone who works extensively with monetary data». Mais précisons, comme disait déjà Robertson, cette stabilité empirique ne nous oblige pas à accepter l'encaisse monétaire comme déterminé seulement par le revenu monétaire.Neste trabalho testaremos a pertinência de aceitar a teoria quantitativa do rendimento nominal para a economia portuguesa. Isto é, tentaremos verificar se um acréscimo da oferta de moeda de x% conduz, ou não, a um acréscimo de x% do rendimento nominal. Os testes que faremos procurarão demonstrar a validade desta teoria no longo prazo e também para o processo de ajustamento que designaremos por curto prazo. Se se puder reter esta hipótese de comportamento, reencontraremos a afirmação de Friedman: «There is an extraordinary empirical stability and regularity to such magnitudes as income velocity that cannot but impress anyone who works extensively with monetary data». No entanto, como dizia já Robertson, esta estabilidade não nos obriga a aceitar o encaixe monetário como sendo determinado apenas pelo rendimento nominal.Following Friedman we can say that from the macro-economic point of view we need a theory to explain a) the short-run division of a change in nominal income between prices and output; b) the short-run adjustment of nominal income to a change in money supply; and finally c) the correction mechanism that brings together that adjustment and the long-run equilibrium. Our objective is to study the last two points in the context of the Portuguese economy in the period 1859-1998. We have studied several models involving money to explain the behaviour of nominal income and we conclude that we cannot exclude a money supply (M1) elasticity of one. This result is obtained for the long as well as for the short-run. We can take the quantity theory as a money income theory for our data. Robustness of the results and good forecasting ability are the main characteristics of our models. We have applied several econometric models. Our first model is a single ecm equation with unrestricted and restricted coefficients. We also have found a co-integration vector by applying the Johansen method. With that vector we have constructed a VECM and obtained forecasts and impulse responses to shocks. We have done the same with a parsimonious model derived from the last one and estimated by FIML

Mobility of capital and external sustainability of the Portuguese economy

The Feldstein‐Horioka thesis was considered one of the greatest puzzles in economics. Proposed to be a measure of international capital mobility, has known a process of immunisation to be conformed to empirical evidence and respect econometric knowledge. We apply to the Portuguese economy the proposed tests not only to know the degree of capital mobility but also to know if this economy is external sustainable. The original ideas in the paper are our interpretation of the theoretical evolution of the F‐H thesis, the importance of analysing the random nature of the model of one equation and not only the retention coefficient and the macro view given by an appropriate VAR model with investment and saving. We conclude by the confirmation of important capital mobility in the Portuguese economy and the external unsustainability of this economy

How the gold standard functioned in Portugal: an analysis of some macroeconomic aspects

This paper studies the Gold Standard in Portugal. It was the first country in Europe to join Great Britain in 1854. The principle of free gold convertibility was abandoned in 1891. For the purposes of a macroeconomic study, we also extended the analysis up to 1913. Our study points out the mistake of comparing different systems with the same indicators. Examination of demand, supply and monetary shocks in the context of a VAR model confirm the idea that the principles of classical economics are appropriate for the Gold Standard in Portugal.Gold Standard, Macroeconomic Stability, Convertibility, Portugal, VAR and Unit Roots

How the Gold Standard Functioned in Portugal: An Analysis of Some Macroeconomic Aspects

The purpose of this study is to improve understanding of the gold standard period in Portugal through comparison with other monetary systems that were operated afterwards. Portugal was the first country in Europe to join Great Britain in the gold standard, in 1854, and it adhered to it for quite a long time. The principle of free gold convertibility of the Portuguese currency at a fixed price was abandoned in 1891, even though the classical gold standard as an international monetary system only began to fall apart as a result of the upheavals of the First World War. For the purposes of a macroeconomic study, we can thus first look at the expansion of the functioning of the gold standard in Portugal up to 1913. In addition to a desire to share the same monetary system as its trading and financial partner, the low price of gold and the domestic circulation of British gold coins also played a part, along with other factors, in the adoption of the gold standard in Portugal. While it was in force, it provided a nominal stable anchor and a mechanism of credible commitment, even though Portugal’s monetary authorities broke the “rules of the game”. Our analysis points out the mistake of comparing the stability of different monetary systems with the same indicators. The application of a VAR model enabled us to isolate the period 1854-1891 as being the one that actually corresponds to what we expect of gold standard behaviour. Examination of demand, supply and monetary shocks yields interesting results that confirm the idea that the principles of classical economics are appropriate for the gold standard period.Gold Standard, Macroeconomic Stability, Convertibility, Portugal, VAR, Unit Roots

The Portuguese Public Finances and the Spanish Horse

This study is based on the idea that inadequate use of fiscal policy through restrictive policies shifts the short-run demand curve that in turn induces shifts in the long-run supply curve leading to a dynamic reduction of growth. The analogy with the old metaphor of the Spanish horse seems obvious. We apply this idea to Portugal to 2002-2009, we will prove that in order not to be caught in the horse’s trap we have to keep the concept of potential output in the evaluation of the structural budget balance instead of replacing it by a trend indicator, which, can lead to a sustainable reduction of the “food” and consequently to a disaster. The goal of full employment is no longer present in the idea of zero public balances. In the medium-term, the cycles will offset each other when calculated in relation to a trend and thus the same applies to budget balances as defined in the Stability and Growth Pact (SGP). If actual output moves away persistently from full employment output, trend output will also move away from full employment. As a consequence, expenditures will tend to increase and incomes to decrease. This situation creates deficits that should be corrected by the SGP. This correction will lead to a reduction in demand and thus in actual output and therefore, necessarily, in trend output itself. We present an empirical solution to this problem based on the concept of trend output in order to correct its inflection after 2002. This analysis has two drawbacks, the influence of deficits in the prices of non-tradable goods and the fact that we may not have food to give to our horse. This is the case if public debt is too high. Nevertheless, this study shows that the criteria and methods that are used by the SGP in the definition of fiscal policy are incorrect.Budget deficit, cyclically adjusted budget balance, fiscal policy, Hodrick-Prescott filter and output gap.