Beyond the Phillips curve: Understanding low wage growth in the euro area

a column by Christiane Nickel, Elena Bobeica, Gerrit Koester, Eliza Lis, Mario Porqueddu and Cecilia Sarchi for VOX: CEPR’s Policy Portal

Wage growth in the euro area over 2013 to 2017 was subdued despite notable improvements in the labour market, leading some to claim a breakdown of the output–inflation relationship.

This column presents comparative analyses of wage developments in the euro area, showing that the Phillips curve is alive and well and can be used to explain much of the weakness in wage growth during 2013-2017. Other factors also found to have played a role include compositional effects, the possible non-linear reaction of wage growth to cyclical improvements, and structural and institutional factors.

Figure 1 Measures of wage growth over the cycle

Note: left-hand scale: annual rates of change; right-hand scale: percentage of the labour force. Latest observation: Q2 2019 for unemployment rate and negotiated wages and Q1 2019 for the rest.
Sources: Eurostat, national statistical offices, NCB and ECB staff calculations.

Continue reading and find some illuminating graphs and charts.

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The inflation puzzle in the euro area – it’s the trend not the cycle!

a column by Thomas Hasenzagl, Filippo Pellegrino, Lucrezia Reichlin and Giovanni Ricco for VOX: CEPR’s Policy Portal

What is happening to inflation and output in the euro area? The ECB has apparently lost the ability to raise inflation and price expectations have been sliding since the last recession. Much of the policy debate has focused on the flattening of the Phillips curve.

Yet, as this column shows, estimations of the joint output-inflation process point to a decline of both output potential and trend inflation as the most relevant elements of the puzzle.

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Modelling impact of economic and demographic factors on personal saving rate in the euro area

an article by Renáta Pitoňáková (Comenius University in Bratislava, Slovakia) published in International Journal of Trade and Global Markets Volume 12 Number 3/4 (2019)

Abstract

The decision of economic subjects whether to consume or save is determined by different economic, monetary, and demographic factors.

The paper focuses upon personal saving rate of the whole euro area taking into account economic and demographic aspects. The modelling uses quarterly data within 2005 Q1-2017 Q2.

The results indicate a negative relation between savings and dependency ratio of elderly suggesting savings for retirement. Government spending pushes savings up, inflation causes dissaving.

Implications are for governing bodies directing measures for investment and consumption, for pension systems when managing sustainability of pension funds due to population ageing and for households when deciding about savings or consumption.

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The global macroeconomics of a trade war: Findings from the EAGLE model

a column by Wilko Bolt, Kostas Mavromatis and Sweder Van Wijnbergen for VOX: CEPR’s Policy Portal

Increasing protectionism will slow down world trade and may dampen global economic growth.

This column examines the global macroeconomic consequences of a major trade conflict between the US and China, and shows that the two countries would be the biggest losers from a 10% ‘tit-for-tat’ trade war between them. As long as it does not get involved in the conflict, the euro area may temporally gain from trade diversion, as competitiveness improves and imports from regions whose exports are blocked elsewhere become cheaper.

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Quantitative easing and the ‘hot potato’ effect: Evidence from euro area banks

a column by Ellen Ryan and Karl Whelan for VOX: CEPR’s Policy Portal

The EU’s asset purchase programme saw its central banks’ reserve balances increase to unprecedent levels.

This column analyses the response of banks in the euro area to this expansion in system-wide reserves, in particular whether they absorbed the excess liquidity or tried to push it off their balance sheets. The findings suggest that banks dealt with the increased reserves with the purchase of debt securities or paying down funding sources rather than lending to the real economy.

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Banking integration in the EMU: Let's get real!

a column by Mathias Hoffmann, Egor Maslov, Bent Sørensen and Iryna Stewen for VOX: CEPR’s Policy Portal

Bank-to-bank lending in the euro area has increased, direct cross-border lending has not.

The column shows that dependence on domestic banks reduces risk-sharing in a crisis, reducing GDP growth in affected country-sectors. Benefits from banking integration are only robust to global shocks if banking integration takes the form of cross-border lending to firms and households.

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Sovereign bond pricing in the euro area: When legal clauses matter

a column by Marcos Chamon, Julian Schumacher and Christoph Trebesch for VOX: CEPR’s Policy Portal

Do investors care about the legal characteristics of sovereign debt?

Focusing on the euro area, this column compares sovereign bonds issued under domestic law to those issued under a foreign jurisdiction, which are harder to restructure in a debt crisis since they are out of reach of the borrowing country’s legislature.

This legal protection means that foreign law bonds trade at a premium (with lower yields), but only in situations of severe distress such as Greece or Portugal in 2011/2012. In the midst of a crisis, governments can borrow more cheaply by issuing in foreign law.

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The impact of non-tariff barriers on EU goods trade after Brexit

a column by Stephen Byrne and Jonathan Rice for VOX: CEPR’s Policy Portal

While the effect of Brexit on trade between the UK and the remaining EU member states has received considerable attention, to date little work has considered the issue of non-tariff barriers.

This column explores how increased documentary compliance and border delays will affect EU members’ exports to the UK. Time-sensitive goods are found to be most at risk of suffering from increases in non-tariff barriers.

Based on current trade composition, Latvia, Ireland, and Denmark are the trading partners that will be most affected.

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Identifying Income and Wealth-Poor Households in the Euro Area

an article by Philip Müller (University of Göttingen, Germany) and Tobias Schmidt (Deutsche Bundesbank, Frankfurt am Main, Germany) published in Journal of Poverty Volume 22 Issue 2 (2018)

Abstract

In this article, the authors analyze different measures of asset and income poverty using microdata for 15 Euro-Area countries from the 2010 Household Finance and Consumption Survey. The authors are particularly interested in the way in which specific definitions of income and wealth poverty affect the number and sociodemographic characteristics of poor households, as well as their portfolio composition and consumption expenditure.

The authors find that adding wealth to the poverty definition mainly influences the percentage of poor households but has a limited effect on the documented sociodemographic composition, portfolio structure, and food consumption of poor households compared to the patterns under a pure income poverty measure.

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euro area seasonally adjusted deficit

Eurostat Statistics in focus Issue number 3/2013

Growth in the EU-27 deficit influenced by a one-off operation in the United Kingdom in the second quarter of 2012

Eurostat publishes for the first time seasonally adjusted and working day adjusted quarterly data on government revenue, expenditure and surplus (+)/ deficit (-) for some Member States and the EU aggregates, thus expanding on the previous publication, which covered only EU aggregates.

This publication is based on data transmitted to Eurostat at the end of December 2012 and includes data coverage of the first three quarters of 2012. It complements the press release on quarterly debt.

In the third quarter of 2012, the seasonally adjusted general government deficit to GDP ratio stood at -4.0% in the euro area (EA-17) and -4.4% in the European Union (EU-27).

In the previous quarter it stood at -4.0% in the EA-17 and -3.2% in the EU-27. EU-27 and EA-17 general government total revenue amounted to 44.8 % and 46.8 % of GDP respectively, while total expenditure stood at 49.2 % and 50.8 % of GDP.

Full text (PDF 4pp)

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Euro area government debt up to 90.0% of GDP

via Eurostat News releases

At the end of the second quarter of 2012, the government debt to GDP ratio in the euro area (EA17) stood at 90.0%, compared with 88.2% at the end of the first quarter of 2012.

In the EU27 the ratio increased from 83.5% to 84.9%. Compared with the second quarter of 2011, the government debt to GDP ratio rose in both the euro area (from 87.1% to 90.0%) and the EU27 (from 81.4% to 84.9%).

These data are released by Eurostat, the statistical office of the European Union.

Full statistical release (PDF 4pp)

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European exports 2000-2007: direct and indirect effects on employment and labour income in the EU 27 and euro area

Issue number 36/2012 via Eurostat Statistics in focus

Between 2000 and 2007 more than two-thirds of the embodied employment in European exports was due to manufactured products, while financial and real estate services showed the largest embodied labour income per person employed in exports activities, both in the European Union (EU-27) and in the euro area.

At the end of the period (2007), the embodied labour income per person directly or indirectly employed in exports activities was 12 % higher in EA than in EU-27. During 2000-2007, the labour intensity of exports has dropped in both, EU-27 and EA, however to lesser extend in the EA.

Full text (PDF 8pp)

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Euro area government debt up to 88.2% of GDP

via Eurostat News releases

At the end of the first quarter of 2012, the government debt to GDP ratio in the euro area (EA17) stood at 88.2%, compared with 87.3% at the end of the fourth quarter of 2011. In the EU27 the ratio increased from 82.5% to 83.4%. Compared with the first quarter of 2011, the government debt to GDP ratio rose in both the euro area (from 86.2% to 88.2%) and the EU27 (from 80.4% to 83.4%).

Read the full release (PDF 4pp)

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