Globalisation and euro area trade: Interactions and challenges

As a major player in world trade, the euro area is strongly influenced by globalisation, but is far from being a passive spectator. The paper analyses how the euro area’s trade specialization has changed in response to stronger international competition and the emergence of new global players, evaluating results and possible challenges ahead. The message remains mixed. On the positive side, the export specialisation of the euro area is increasing in some mediumhigh or high-tech sectors where productivity growth is strong and demand robust, such as pharmaceuticals, also by a more intensive recourse to importing intermediate goods from low-cost countries. On the other hand, in comparison to other industrialised economies, the euro area has been somewhat slower in moving towards research-intensive goods and away from labour-intensive sectors. While this could reflect data classification issues, it may also be a sign of structural rigidities in the euro area, which hinder adjustment processes.

Globalisation and euro area trade: Interactions and challenges

As a major player in world trade, the euro area is strongly influenced by globalisation, but is far from being a passive spectator. The paper analyses how the euro area’s trade specialization has changed in response to stronger international competition and the emergence of new global players, evaluating results and possible challenges ahead. The message remains mixed. On the positive side, the export specialisation of the euro area is increasing in some mediumhigh or high-tech sectors where productivity growth is strong and demand robust, such as pharmaceuticals, also by a more intensive recourse to importing intermediate goods from low-cost countries. On the other hand, in comparison to other industrialised economies, the euro area has been somewhat slower in moving towards research-intensive goods and away from labour-intensive sectors. While this could reflect data classification issues, it may also be a sign of structural rigidities in the euro area, which hinder adjustment processes

The Information Content Of Money And Credit For US Activity

We analyse the forecasting power of different monetary aggregates and credit variables for US GDP. Special attention is paid to the influence of the recent financial market crisis. For that purpose, in the first step we use a three-variable single-equation framework with real GDP, an interest rate spread and a monetary or credit variable, in forecasting horizons of one to eight quarters. This first stage thus serves to pre-select the variables with the highest forecasting content. In a second step, we use the selected monetary and credit variables within different VAR models, and compare their forecasting properties against a benchmark VAR model with GDP and the term spread. Our findings suggest that narrow monetary aggregates, as well as different credit variables, comprise useful predictive information for economic dynamics beyond that contained in the term spread. However, this finding only holds true in a sample that includes the most recent financial crisis. Looking forward, an open question is whether this change in the relationship between money, credit, the term spread and economic activity has been the result of a permanent structural break or whether we might go back to the previous relationships

The information content of money and credit for US activity

We analyse the forecasting power of different monetary aggregates and credit variables for US GDP. Special attention is paid to the influence of the recent financial market crisis. For that purpose, in the first step we use a three-variable single-equation framework with real GDP, an interest rate spread and a monetary or credit variable, in forecasting horizons of one to eight quarters. This first stage thus serves to pre-select the variables with the highest forecasting content. In a second step, we use the selected monetary and credit variables within different VAR models, and compare their forecasting properties against a benchmark VAR model with GDP and the term spread. Our findings suggest that narrow monetary aggregates, as well as different credit variables, comprise useful predictive information for economic dynamics beyond that contained in the term spread. However, this finding only holds true in a sample that includes the most recent financial crisis. Looking forward, an open question is whether this change in the relationship between money, credit, the term spread and economic activity has been the result of a permanent structural break or whether we might go back to the previous relationships

Model of the United States economy with learning MUSEL

The model presented here is an estimated medium-scale model for the United States (US) economy developed to forecast and analyse policy issues for the US. The model is specified to track the deviation of the medium- run developments from the balanced-growth-path via an estimated CES production function for the private sector, where factor augmenting technical progress is not constrained to evolve at a constant rate. The short-run deviations from the medium run are estimated based on three optimising private sector decision making units: firms, trade unions and households. We assume agents optimise under limited-information model-consistent learning, where each agent knows the parameters related to his/her optimization problem. Under this learning approach the effect of a monetary policy shock on output and inflation is more muted but persistent than under rational expectations, but both specifications are broadly comparable to other US macro models. Using the learning version, we .find stronger expansionary effects of an increase in government expenditure during periods of downturns compared to booms

Public Disclosure, Risk, and Performance at Bank Holding Companies

This paper examines the relationship between the amount of information disclosed by bank holding companies (BHCs) and their subsequent risk profile and performance. Using data from the annual reports of BHCs with large trading operations, we construct an index of publicly disclosed information about the BHCs’ forward-looking estimates of market risk exposure in their trading and market-making activities. The paper then examines the relationship between this index and the subsequent risk and return in both the BHCs’ trading activities and the firm overall, as proxied by equity market returns. The key findings are that more disclosure is associated with lower risk, especially idiosyncratic risk, and in turn with higher risk-adjusted returns. These findings suggest that greater disclosure is associated with more efficient risk taking and thus improved risk-return trade-offs, although the direction of causation is unclear

Current Account Imbalances and Structural Adjustment in the Euro Area: How to Rebalance Competitiveness

Low international competitiveness of a set of euro area countries, which have become evident by large current account deficits and rising risk premiums on government bonds, is one of the most challenging economic policy issues for Europe. We analyse the role of private restructuring and public structural reforms for the urgently needed readjustment of intra-euro area imbalances. A panel regression reveals a significant impact of private restructuring and public structural reforms on intra-euro area competitiveness. This implies that private restructuring and public reforms are rather than public transfers the best way to preserve long-term economic stability in Europe