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Working Paper Series in Economics
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No. wp2010-07
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- Giuseppe Bertola, Aurelijus Dabušinskas, Marco Hoeberichts, Mario Izquierdo, Claudia Kwapil, Jérémi Montornès and Daniel Radowski
- Price, wage and employment response to shocks : evidence from the WDN survey
This paper analyses information from survey data collected in the framework of the Eurosystem's Wage Dynamics Network (WDN) on patterns of firm-level adjustment to shocks. We document that the relative intensity and the character of price vs. cost and wage vs. employment adjustments in response to cost-push shocks depend - in theoretically sensible ways - on the intensity of competition in firms' product markets, on the importance of collective wage bargaining and on other structural and institutional features of firms and of their environment. Focusing on the pass-through of cost shocks to prices, our results suggest that the pass-through is lower in highly competitive firms. Furthermore, a high degree of employment protection and collective wage agreements tend to make this pass-through stronger
- JEL-Codes: J31, J38, P50
- Keywords: wage bargaining, labour-market institutions, survey data, European Union
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No. wp2010-06
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- Karsten Staehr
- Inflation in the New EU Countries from Central and Eastern Europe : Theories and panel data estimations
This paper seeks to identify factors driving consumer price inflation in the new EU member countries from Central and Eastern Europe. Different theories are discussed, including some of particular importance to economies experiencing high economic growth and rapid structural change. The explanatory power of the theories is tested using panel data estimations based on annual data from 1997 to 2007. Convergence- related factors, including the Balassa-Samuelson and the Bhagwati capital-deepening effects, are important drivers of inflation. Import inflation and, by implication, exchange rate developments have an important impact, while the exchange rate regime is unimportant. Higher government debt and larger revenues are associated with higher inflation. The cyclical position as measured by unemployment, employment changes or the current account balance is found to affect inflation. Food price shocks have large but short-lived effects, while energy price shocks have longer-lasting effects on the inflation rate. Multicollinearity across the explanatory variables makes it difficult to identify the effect of each individual factor
- JEL-Codes: E31, E42, E63, P24
- Keywords: inflation, inflation theories, real and nominal convergence, inflation determinants
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No. wp2010-05
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- Masso, Jaan, Roolaht, Tõnu and Varblane, Urmas
- Foreign direct investment and innovation in Central and eastern Europe : evidence from Estonia
A growing literature is trying to analyse the productivity gap between domestic and foreign firms with differences in innovation indicators. In our paper we analyse the relationship between inward and outward FDI at either company or industry level and the innovation behaviour of companies in Estonia. We use company-level data from three waves of the Community Innovation Surveys, which are combined with financial data from the Estonian Business Register and FDI data from the balance of payments statistics. For the analysis we apply a structural model involving equations on innovation expenditure, innovation outcome and productivity, and also innovation accounting and propensity score matching approaches. Our results show that the higher innovation output of foreign owned companies vanishes after various company characteristics are controlled for, but there were significant differences in innovation inputs such as the higher use of knowledge sourcing and the lower importance of various impeding factors. Outward investment has a positive influence on innovativeness among both domestic and foreign owned companies
- JEL-Codes: F10, F23, O30
- Keywords: innovation, internationalisation, foreign direct investments, catching-up countries
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No. wp2010-04
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- Karsten Staehr
- Income convergence and inflation in Central and Eastern Europe : does the sun always rise in the East
This paper investigates the process of price convergence in the 10 new EU countries from Central and Eastern Europe. The analyses are based on panel data from 1995 to 2008 of the common currency price relative to the EU15 average. The lagged income level exhibit little explanatory power towards relative inflation, while the lagged price level has some explanatory power. In the long term the relative income and price levels are closely correlated implying concurrent nominal and real convergence. Deviations from the long-term relation between price and income levels are gradually closed by changes in relative inflation and GDP growth, but the process of convergence appears to be rather slow. In the short term the capital inflows associated with current account deficits put substantial upward pressure on the relative price inflation, while the Balassa-Samuelson effect appears to be subdued
- JEL-Codes: E31, O57, P24
- Keywords: real convergence, nominal convergence, real exchange rate, inflation, transition economies
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No. wp2010-03
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- Rasmus Kattai
- Potential output and the output gap in Estonia - a macro model based evalutaion
There have been several data revisions to the output statistics in Estonia during the past six years as methodologies have been harmonised. These changes are significant enough to require corrections to the earlier understanding of Estonia's potential economic growth rate. In this paper the latest data vintage from 2009 is used to estimate Estonia's potential output growth and output gap. The production function approach that has been used shows that the gap varies quite extensively, ranging from -8% in 1999 to +8% in 2007, while the average potential growth rate in 1997-2009 was around 6%. The macro model simulations expect the potential growth rate to fall in the future. The fall in the marginal productivity of production inputs makes growth slow to about 4-5% in the next five years, if there are no additional shocks to the economy
- JEL-Codes: E32, F43
- Keywords: potential output, potential growth, output gap
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No. wp2010-02
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- Karsten Staehr
- The global financial crisis and public finances in the New EU Countries from Central and Eastern Europe
This paper discusses the public finances of the 10 new EU Countries from Central and Eastern Europe, with particular emphasis on the effects of the global financial crisis that started in 2008. The budget outcomes have differed markedly across the new EU countries, both before and during the crisis. The direct impact of the crisis on public finances was limited, but the severe downturns have strained public finances and increased debt ratios considerably. Estimations of budget reaction functions reveal that the budget balance has, in general, been moderately counter-cyclical, but also that the counter-cyclicality derives entirely from the revenue side. The medium-term fiscal outlook rests, to a large extent, on growth prospects. The uncertainties regarding future economic
- JEL-Codes: H6, E62, P27
- Keywords: global financial crisis, fiscal policy, budget reaction functions, Central and Eastern Europe
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No. wp2010-01
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- Rasmus Kattai
- Credit risk model for the Estonian banking sector
This paper gives an overview of the credit risk model that has been developed for the Estonian banking system. The non-performing loans and loan loss provisions of the four largest banks and the rest of the banking sector have been modelled conditional on the underlying economic conditions: economic growth, unemployment, interest rates, in- flation, indebtedness and credit growth. The model highlights the importance of economic growth as the most influential factor behind the soundness of the banking sector in the latest downturn. The expected fall in output volatility will probably decrease the relative importance of output growth and increase the role of interest rates in the future.
- JEL-Codes: E32, E37, G17, G21
- Keywords: credit risk, stress testing, financial soundness indicators, Estonian banking sector
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