Re-examining inequality persistence

Although it is not a new phenomenon, in recent years inequality has moved to the top of the political agenda given the concern that will result in political instability and social resentment. Persistence in inequality can further undermine economic growth and development by hindering educational opportunities, human capital formation, and intergenerational mobility. The persistent nature of inequality stands as one of the most serious challenges for the global economy. This paper analyses inequality persistence for a sample of 60 countries from 1984 to 2015. The authors conclude that inequality is persistent and government redistribution polices through taxes and transfers did not significantly reduce inequality persistence

Co-movement between residential and commercial housing prices: evidence from a new database

The aim of this paper is to shed some light on the issue of the co-movement between residential real estate and commercial real estate using a newly developed database by the Bank if International Settlements. Our results point for the existence of a unique common nonlinear trend in the five countries analysed

Current account sustainability in Central and Eastern Europe: structural change and crisis

In this paper we analyse the evolution of the current account as a percentage of GDP for a group of Central and Eastern European Countries. Instead of analysing only the variable for unit roots, we go a step further and test for different speeds of mean reversion dependent on break dates endogenously determined. We apply the Bai and Perron method to find that most countries have managed to balance their current account, but some of them should keep an eye on the low speed of mean reversion and the deviation of the time trend from balance

Social Exclusion and Convergence in the EU: An Assessment of the Europe 2020 Strategy

Economic convergence has long been a declared objective of the EU and considered the fundamental mechanism for achieving socioeconomic cohesion. The recent economic crisis had an uneven impact across EU countries and brought a halt to the process of economic and social convergence. In response to this situation, the Europe 2020 strategy, launched in 2010, aimed to deliver social and territorial cohesion in the Member States. In this paper we evaluate the poverty and social exclusion pillar of the Europe 2020 strategy by analysing whether it has promoted convergence across the EU countries in the indicators devised to capture risk of poverty, severe material deprivation, and the number of persons living in households with very low work intensity. Our results for all three rates indicate that convergence occurs in heterogeneous clubs that do not follow a geographic east‒west or south‒north pattern. Convergence within each club, especially for the severe deprivation rate, takes place by means of a catching-up process, with Eastern European levels converging on the Western levels. Finally, not only is there club convergence, but there is no tendency for the clubs to convergence. Poverty and social cohesion indicators show a multi-speed Europe, casting doubt on the sustainability of the overall convergence process in the EU

Disentangling permanent and transitory monetary shocks with a nonlinear Taylor rule

This article provides an estimation method to decompose monetary policy innovations into persistent and transitory components using the nonlinear Taylor rule proposed in Andolfatto, Hendry, and Moran (2008) [Are inflation expectations rational? Journal of Monetary Economics, 55, 406–422]. To use the Kalman filter as the optimal signal extraction technique, we use a convenient reformulation for the state equation by allowing expectations to play a significant role in explaining the future time evolution of monetary shocks. This alternative formulation allows us to perform the maximum likelihood estimation for all the parameters involved in the monetary policy as well as to recover conditional probabilities of regime change. Empirical evidence on the US monetary policy making is provided for the period covering 1986-Q1 to 2021-Q2. We compare our empirical estimates with those obtained based on the particle filter. While both procedures lead to similar quantitative and qualitative findings, our approach has much less computational cost

Does Perceived Corruption Converge? International Evidence

This article analyses the evolution over time of perceived corruption for a large set of countries worldwide. To proxy corruption, we use the recently proposed Bayesian Corruption Index (Standaert, S. (2015). Divining the level of corruption: A bayesian state space approach, Journal of Comparative Economics, 43(3), 782–803). We employ the test developed by (Phillips, P., & Sul, D. (2007). Transition modeling and econometric convergence tests. Econometrica, 75, 1771–1855) that enables the endogenous determination of convergence clubs for countries over time. Having divided countries into convergence clubs, we explore whether each club differs from the others in terms of their competitiveness ranking. In particular, drawing on the 2019 Global Competitiveness Report, we focus not only on the global competitiveness score, but also on the first and the fifth pillars of competitiveness: institutions and health, respectively. Mean and median scores for clubs confirm the general rule that low perceived corruption levels tend to be associated with high-income countries with established democracies, high-quality healthcare systems, and relatively low-income inequality. However, countries such as Spain and Italy, which are innovation-driven economies with excellent scores in the health pillar, are in the worst club for perceived corruption, suggesting there are additional idiosyncratic aspects that could drive perceived corruption levels

Fiscal consumption and private consumption in Europe: what have we learned?

In this paper we contribute to the long literature on how fiscal policy affects the real economy. In particular, we focus on how government consumption affects private consumption for a pool of European economies. We estimate panel vector error correction models between the two consumption variables for the EU 28 + Norway and Switzerland, for the two periods before and after 2008. The results show that government consumption affects private consumption differently in the periods before and after 2008. This means an increase in government consumption could have a positive impact on private consumption.Mercedes Monfort acknowledges the financial support from the University Jaume I research project UJI-B2020-16. Juan Carlos Cuestas acknowledges the financial support from the Generalitat Valenciana project AICO2021/005

The education pillar of the Europe 2020 strategy: a convergence analysis

In March 2010, the European Commission launched the Europe 2020 strategy ‘for smart, sustainable and inclusive growth’ in the EU. Education is a major pillar of the Europe 2020 strategy due to its long-run impact on economic growth, productivity, and social cohesion. The Europe 2020 strategy established two headline targets on early leavers from education and training and tertiary educational attainment at the EU level. This paper attempts to assess the Europe 2020 strategy for the education pillar in terms of convergence across countries. Despite the fact that every country in the EU has its own national targets in these two headline indicators, progress on the achievement of the Europe 2020 strategy requires convergence. Thus, even if the EU as a whole meets its targets in 2020, the existence of a growing divide between the best and worst performing countries would cast doubt on the prospects of real economic convergence and the sustainability of the process. Our empirical findings reveal the existence of convergence clubs in educational attainment and the early leavers rate, and points towards the idea of multi-speed transitional dynamics in Europe, calling into question the convergence in educational performance in the EU

Has the relationship between the real exchange rate and its fundamentals changed over time?

In this paper we contribute to the literature on determining the real exchange rate by using models that incorporate structural breaks and nonlinearities. We estimate cointegrated dynamic ordinary least squares regressions and quantile regressions. We find that the estimated coefficients for the EU members from central and eastern Europe are different to those for the other member states. We also find that the models are different before and after the crisis that started in 2008, and this affects the outcome of the long-run equations for the EU15 + Cyprus and Malta.Juan Carlos Cuestas gratefully acknowledges University Jaume I project UJI-B2019-15 and Generalitat Valencia project AICO2021/005. Mercedes Monfort are grateful for support from the University Jaume I research project UJI-B2020-16

Measuring the Cost of Covid-19 in Terms of the Rise in the Unemployment Rate: The Case of Spain

In this article, we aim to estimate what the cost of Covid-19 has been in terms of unemployment for Spain. We use a simple autoregressive model to simulate what the unemployment rate would have been without the pandemic and we compare this with the actual values. We also forecast the unemployment rate for 2021 and 2022 to analyse the persistence of the pandemic shock to unemployment