The cyclically-adjusted budget balance (CAB) plays a key role in the fiscal surveillance framework of the Economic and Monetary Union. It started off in a supporting role in the shadow of the headline deficit and, before long, turned into the linchpin of the rules and requirements of the Stability and Growth Pact. The steep ascent was driven by high hopes and expectations which, with the passing of time were only partly met. The everyday practice of the EU fiscal surveillance rapidly revealed a number of caveats of the instrument which, at times, hampered the effectiveness of fiscal surveillance. This paper provides a comprehensive review of the changing fortunes of the CAB in the EU fiscal surveillance framework. It portrays its main shortcomings and the way they can be dealt with in practice. As an overall conclusion the paper argues that, although the CAB is not devoid of problems and imperfections, it is superior to the headline deficit in most respects."--Document home p.
The paper sheds light on developments in labour market matching in the EU after the crisis. First, it analyses the main features of the Beveridge curve and frictional unemployment in EU countries, with a view to isolate temporary changes in the vacancy-unemployment relationship from structural shifts affecting the efficiency of labour market matching. Second, it explores the main drivers of job matching efficiency, notably with a view to gauge whether mismatches became more serious across skills, economic sectors, or geographical locations and to explore the role of the policy setting. It emerges that labour market matching deteriorated after the crisis, but with a great deal of heterogeneity across EU countries. Divergence across countries increased. Matching deteriorated most in countries most affected by current account reversals and the debt crisis. The lengthening of unemployment spells appears to be a significant driver of matching efficiency especially after the crisis, while skill and sectoral mismatches also played a role. Active labour market policies are associated with a higher matching efficiency and some support is found to the hypothesis that more generous unemployment benefits reduce matching efficiency."--Document home page.
This paper compares alternative methodologies for estimating real exchange rate misalignment for EU countries. It is shown that current account-based approaches (based on NFA stabilisation and current account norms) and relative-price based approaches (BEER and PPP-based) deliver broadly consistent assessments, however sometimes differences are non-negligible. Current account-based misalignment appears to be driven to a larger extent by shocks affecting domestic absorption and national savings and quite often becomes manifest before price-based misalignment. All misalignment measures, and especially the BEER, are related with medium-term developments in real exchange rates, while only current-account based misalignment is a significant predictor of forthcoming current account developments."--Publication information p.
In the past decade, a series of EU countries have witnessed absorption booms and growing current account deficits as a result of falling risk premia and rapid financial integration. At the same time, fiscal policy in those same countries has not been leaning against the wind effectively so as to contain boom-bust dynamics. This paper addresses the question whether buoyant temporary revenues during absorption booms contributed to excessive complacency by policy-makers and an insufficiently counter-cyclical response of fiscal policy. The paper shows that standard approaches for adjusting budget balances for the cycle could miss part of the temporary revenues accruing during absorption booms and that, in some instances, this could have mattered substantially for a proper assessment of structural fiscal positions. The paper also shows by means of DSGE model simulations that targeting a proper indicator of the underlying (structural) fiscal balance could have contributed substantially to the containment of macroeconomic imbalances and to avoiding boom-bust dynamics. The findings have implications for the conduct of discretionary fiscal policy and the design of fiscal rules and multi-annual fiscal frameworks."--Publication information page.
This paper estimates the impact of fiscal consolidation on unemployment and job market flows across EU countries using a recent database of consolidation episodes built on the basis of a 'narrative' approach (Devries et al., 2011). Results show that the impact of fiscal consolidation on cyclical unemployment, is temporary and significant mostly for expenditure measures. As expected, the impact of fiscal policy shocks on job separation rates is much stronger in low-EPL countries, while high-EPL countries suffer from a stronger reduction in the rate at which new jobs are created. Since a reduced job-finding rate corresponds to a longer average duration of unemployment spells, fiscal policy shocks also tend to raise the share of long-term unemployment if EPL is stricter. Results are broadly confirmed when using 'top-down' fiscal consolidation measures based on adjusting budgetary data for the cycle."--Document home page.
This paper assesses the role of labour mobility in the EU as an adjustment mechanism. It presents stylised facts on mobility and migration at national and sub-national level, analyses the determinants of mobility flows by means of gravity equations, and studies the dynamic response of mobility to asymmetric demand shocks by means of vector auto regression (VAR) analysis in the vein of Blanchard and Katz (1992). It is found that EU membership increases mobility significantly. Membership in the euro area, while not raising the magnitude of mobility flows per se, is associated with a stronger reaction of labour mobility to unemployment differences across countries. The dynamics of labour mobility in response to asymmetric demand shocks is analysed on country-level data on a panel of EU countries. Results indicate that mobility absorbs about a quarter of the shock within 1 year and about 60 per cent after 10 years. The analysis also shows that the response of migration to shocks has been growing over time, becoming almost twice as important after EMU completion. A version of the VAR model allowing for the analysis of the response of wages indicates that the response of real wages to asymmetric demand shocks has also increased after EMU."--Document home page.
This paper analyses the determinants and impact of labour market reforms in the European Union over the period of 2000-2011. The source of information on reforms is the LABREF database developed in DG ECFIN of the European Commission in cooperation with the Economic Policy Committee of the ECOFIN Council. The database collects information on measures adopted by EU Member States. Despite limitations of count data on reform events, the evidence permits a number of interesting insights. The 2008 crisis triggered increased policy activity in most policy domains in a large number of EU countries, in particular in domains with macro-structural relevance (employment protection legislation, unemployment benefits, wage setting). Reforms tend to be more frequently carried out in countries characterised by disappointing labour market outcomes and a high initial level of regulation or fiscal burden on labour. Econometric evidence on the effects of selected reforms on aggregate labour market outcomes is broadly supportive of common priors: tax and benefit reforms tend to be followed, after a time lag, by improved activity rates and lower unemployment."--Document home page.
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