Markups in the Euro area and the US over the period 1981–2004: a comparison of 50 sectors

Christopoulou, Rebekka; Vermeulen, Philip

doi:10.1007/s00181-010-0430-3

Cited by 158 publications

(164 citation statements)

References 9 publications

(11 reference statements)

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“…This value corresponds to the estimates provided by Christopoulou and Vermeulen (2012) for the euro area. In the labor market, we follow Smets and Wouters (2002) and set φ equal to 5, which delivers a mark-up of 20%.…”

Section: Calibrated Parameters and Prior Assumptionssupporting

confidence: 79%

Unexpected loan losses and bank capital in an estimated DSGE model of the euro area

Hristov

Hülsewig

2017

Journal of Macroeconomics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We develop a stylized DSGE model in which banks face capital regulation and their loan portfolios are subject to non-diversifiable losses due to aggregate shocks. The framework is used to explore the importance of the interaction between macroeconomic conditions, credit default and bank capitalization for the transmission of macroeconomic shocks. We fit the model to euro area data. Impulse response analysis shows that the aforementioned interaction substantially magnifies the responsiveness of the economy to real and nominal demand side disturbances. The amplification is especially strong with respect to government spending shocks. The model is further capable of replicating two financial market characteristics that are documented in the empirical literature, i.e. the pro-cyclicality of bank profitability and the counter-cyclical response of firm default rates and credit spreads to monetary policy shocks. Terms of use: Documents inJEL-Codes: E440, E510, G210, G330.

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Section: Calibrated Parameters and Prior Assumptionssupporting

confidence: 79%

Unexpected loan losses and bank capital in an estimated DSGE model of the euro area

Hristov

Hülsewig

2017

Journal of Macroeconomics

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“…6 In EAGLE the world economy is composed of four blocs. Two out of four are members of the euro area, which is formalized as a monetary union.…”

Section: General Featuresmentioning

confidence: 99%

Fiscal devaluation in the euro area: A model-based analysis

2016

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In 2014 all ECB publications feature a motif taken from the €20 banknote.NOTE: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily refl ect those of the ECB. Sandra GomesBank of Portugal; e-mail: sandra.cristina.gomes@bportugal.pt Pascal JacquinotEuropean Central Bank; e-mail: pascal.jacquinot@ecb.int Massimiliano PisaniBank of Italy; e-mail: massimiliano.pisani@bancaditalia.it AbstractWe assess the effects on trade balance of a temporary fiscal devaluation enacted by Spain or Portugal by simulating EAGLE, a large-scale multi-country dynamic general equilibrium model of the euro area. Social contributions paid by firms are reduced by 1 percent of GDP for four years and are financed by increasing consumption tax. Our main results are the following. First, the Spanish trade balance improves by 0.5 percent of GDP, the (before-consumption tax) real exchange rate depreciates by 0.7 percent and the terms of trade deteriorate by 1 percent. Second, similar results are obtained in the case of Portugal. Third, the trade balance improves when the fiscal devaluation is enacted also in the rest of the euro area, albeit to a lower extent than in the case of unilateral (country-specific) implementation. Fourth, quantitative results crucially depend on the degree of substitutability between domestic and imported tradables. JEL Classification Numbers: F32; F47; H20.Keywords: fiscal devaluation; trade deficit; dynamic general equilibrium modeling. ECB Working Paper 1725, August 2014 1Non-technical Summary A country belonging to a monetary union cannot rely on nominal exchange rate devaluation to increase, in presence of nominal price rigidities, its international relative price competitiveness and, hence, improve in the short run its trade balance. An alternative way to increase the short-run international price competitiveness is through a temporary "fiscal devaluation", defined as the combination of two fiscal measures: the decrease in social contributions paid by employers and the increase in consumption tax.The reduction in employers' social contributions reduces the unit labor costs. As long as the latter are passed-through into final prices, the improvement in price competitiveness favors exports and reduces imports. The reduction in contributions is financed by increasing the consumption tax, which is also a destination-based tax. As such, it raises the after-tax price of domestic and imported goods uniformly, but not the price of exported goods. Overall, the combination of lower unit labor costs and higher consumption tax decreases the price of exported goods and increases the after-tax relative price of the imported good.In this paper we assess the trade balance improvement in correspondence of a tem- lower than in the case on unilateral devaluation, as tradable goods produced in the rest of the euro area are now more competitive than in the case of unilateral devaluation. Ex-

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“…The elasticity of substitution between different goods ǫ is set to 3.7, implying a steady-state mark-up equal to 37%. This is the average mark-up on the Euro Area for the period 1981-2004(Christopoulou and Vermeulen, 2012. θ is set to 0.909, implying an average price duration of ten quarters.…”

Section: Calibrationmentioning

confidence: 99%

Fiscal Compact and Debt Consolidation Dynamics

Brugnolini¹,

Corrado

2018

SSRN Journal

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We analyse the macroeconomic effects of a debt consolidation policy in the Euro Area mimicking the Fiscal Compact Rule (FCR). The rule requires the signatory states to target a debt-to-GDP ratio below 60%. Within the context of Dynamic Stochastic General Equilibrium models (DSGE), we augment a fully micro-founded New-Keynesian model with a parametric linear debt consolidation rule, and we analyse the effects on the main macroeconomic aggregates. To fully understand its implications on the economy, we study different debt consolidation scenarios, allowing the excess debt to be re-absorbed with different timings. We show that including a debt consolidation rule can exacerbate the effects of the shocks in the economy by imposing a constraint on the public debt process. Secondly, we note that the effect of loosening or tightening the rule in response to a shock is heterogeneous. Shocks hitting nominal variables (monetary policy shock) are not particularly sensitive. On the contrary, we prove that the same change has a more pronounced effect in case of shock hitting real variables (productivity and public spending shocks). Finally, we show that the macroeconomic framework worsens as a function of the rigidity of the debt consolidation rule. As a limiting case, we show that the effects on output, employment, real wages, inflation, and interest rates are sizable.JEL Classification: E10; E30; E62.

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Markups in the Euro area and the US over the period 1981–2004: a comparison of 50 sectors

Cited by 158 publications

References 9 publications

Unexpected loan losses and bank capital in an estimated DSGE model of the euro area

Unexpected loan losses and bank capital in an estimated DSGE model of the euro area

Fiscal devaluation in the euro area: A model-based analysis

Fiscal Compact and Debt Consolidation Dynamics

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