As a consequence of fi nancial and economic crisis in the EU the macroeconomic imbalances (MI) have been monitored since 2012. Annual Alarm Mechanism Report (AMR) focused on assessment of MI contains the interlinkages between the real economy and the fi nancial sector. From AMR data, we can get picture about the evolution of different MI indicators in the EU, but complete picture about the overall situation of individual countries in the fi eld of MI is missing. Therefore, we focused on design and verifi cation of suitable alternative evaluation tool which AMR lacks, and which could be usable for decision making processes within European Commission. The main aim of the article is to propose aggregated and partial indices of MI using constrained PCA which can: i) provide a complex evaluation of each EU country on its global position in headline indicators; ii) make MI indicators more comprehensible for wider use; iii) design simple alternative assessment tool useful for monitoring whether measures taken by the EU and the member states are directed towards improving the macroeconomic balance. The proposed MI indices are verifi ed from a quantitative as well as qualitative point of view. Results of proposed assessment tools showed that: Luxembourg, Germany, Netherland and Sweden can be considered for the most stable EU countries from MI point of view; Post-Communist countries dealt with economic crisis better than some countries from south of the EU; after fi rst crisis years the best improvement in MI index reached Baltic and Visegrad countries together with Luxembourg and Netherland; other EU countries in 2012 did not reach MI index values from pre-crisis period. This study indicates that positive and stable values of current account balance and net international investment position as % of GDP have high weight on macroeconomic stability of EU countries.
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A clear example of a misconnection between the Scoreboard and the in-depth conclusions was the recent case with Bulgaria. The starting point of the MIP is the Alert Mechanism Report which has to be based on the Scoreboard data. The report identifies countries for which a closer analysis (in-depth review) is deemed necessary. Although the Scoreboard showed diminishing macroeconomic imbalances for Bulgaria, including the fact that financial sector indicator value was within the limits, the country was included in the in-depth analysis and in the corrective arm of the excessive imbalances procedure. In order to strengthen the confidence in the MIP more quantitative and objective approaches are needed particularly in measuring the gravity of the imbalances.
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Abstract: Of all the current macroeconomic imbalances, the inflationary phenomenon is one of the most difficult to combat. In some countries, inflation was the main enemy of economic progress. The effects of this phenomenon are largely dependent on the intensity of expectations as well as on the ability to be kept under control by monetary authorities. Lately there has been a significant decline in inflation in both developed and developing countries, as well as increasing commitment of monetary authorities in obtaining the lowest rates of inflation. This article aims to analyze the pillars of direct inflation targeting strategy, prerequisites and developments of new directions of monetary, pointing to the experience of countries that have adopted inflation targeting strategy from 1990 to present.Capturing the coordinates of inflation targeting strategy in Romania tracked the factors that led to changing the previous strategy and prerequisites for adopting new strategies to combat inflation.
he general point of this paper is straightforward: there is little a common monetary policy (or macro prudential tools) can do to affect directly the correction of existing macroeconomic imbalances. In the euro area, imbalances were built up over the last decade as massive capital flows moved from the North to the South of the Monetary Union. Their legacy is a debt overhang which leads to financial market distress. The details of the debt overhang vary from country to country, but one can distinguish two groups: In Spain and Ireland, foreign capital was used to sustain massive construction booms. In Greece and Portugal, foreign capital was used to finance consumption. Italy seems to be a special case as it did not experience a pronounced credit boom, but its low growth rates has made a pre-existing large stock of public debt appear less and less sustainable in the long run.
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Divergences in competitiveness within the euro area have been central to the policy debate for some years. The former President of the ECB, Jean-Claude Trichet, is said to have shown for several years at each meeting of the European Council a chart with the divergence in unit labour costs (ULC) among euro area member countries. This has apparently struck a chord with policy-makers. The new Macroeconomic Imbalances Procedure (MIP) introduced by the European Commission with the large package of changes to the economic governance of the eurozone in 2010 contains within its scoreboard (see Box 1), as key elements, two competiveness indicators: relative unit labour costs and consumer prices (relative to a large number of industrial countries). One legacy of the euro crisis is thus that competitiveness indicators now play a key role in the economic governance of the eurozone.
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The field of macroeconomics was completely transformed between the late 1960s and the early 1980s. There were three major developments that changed the course of the discipline. The first was the introduction of a natural or equilibrium rate of unemployment by Friedman (1968) and Phelps (1968). This meant that while “there is always a temporary trade-off between inflation and unemployment; there is no permanent trade-off” (Friedman 1968, 11); hence, the Phillips curve is vertical in the long run and government policies aimed at pushing unemployment below equilibrium will simply result in higher inflation. The second development was the widespread adoption of rational expectations in macroeconomic modelling. The concept of rational expectations had been around since the early 1960s (Muth 1961) but was brought into the heart of mainstream macroeconomics in the 1970s by Robert Lucas Jr. (1972, 1973, 1975) and his contemporaries (Barro 1976; Sargent and Wallace 1975). When forming inflation expectations in a rational manner, individuals are forward-looking, take all available information into account and do not make systematic mistakes (Carlin and Soskice 2015). One key consequence of these two developments is that only unanticipated changes in policy (and demand) can affect output (and unemployment) in the short run, and output is fixed at equilibrium output in the medium and long run.
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This paper explains the build-up and reversal of euro area macroeconomic imbalances by considering the interaction between the underlying income distribution in each country and EMU-induced financial liberalization. The argument is that the sharp increase in money supply since the early 1990s had the effect of relaxing collateral constraints for illiquid lower- income groups, whilst having no specific impact on other households. The former started over-borrowing against optimistic expectations about their future income. It follows that unequal countries such as Greece, Ireland, Italy, Portugal and Spain - where the share of lower-income groups is relatively high - had greater private debt burdens and worse external positions than equal countries. Consequently, current account reversal was asymmetric because the crisis forced these indebted households to abruptly reduce consumption not least because they were the first to be pulled out of the labour market and hardly had financial buffers. The hypothesis is tested using a difference-in-difference approach to panel data.
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encompass the newly introduced Macroeconomic Imbalances Procedure (MIP) in 2011. It has thus become the key mechanism for steering member states’ policies with a view to ensuring sound public finances, fostering structural reforms, boosting jobs, growth and investment, and preventing and correcting excessive macroeconomic imbalances. To meet these objectives, every year the European Commission prepares recommendations for each member state on the basis of detailed country-specific analyses. The Council of the EU subsequently modifies – if necessary – and adopts the Commission proposals for these country-specific recommendations (CSRs). National governments are then supposed to implement them. We investigate the effectiveness of the European Semester: do member states actually implement CSRs? And what determines implementation? We focus in particular on recommendations given in the context of macroeconomic imbalances and structural issues.
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The EIP regulation would constitute a significant step towards more effective macroeconomic sur- veillance in the EU. It is a tool for detecting macro- economic imbalances early on, and issuing preventive policy recommendations. In case sig- nificant macroeconomic imbalances exist, it can result in the issuing of corrective policy recom- mendations that can ultimately be followed by fines. It remains to be seen which problems and policy areas the Commission will concentrate efforts on once the regulation is in place. Certainly, areas that would jeopardise the proper function- ing of EMU would need to be looked at. This could include labour, product and financial markets. It appears likely that the ESRB and the topics cov- ered by the EIP regulation will overlap in some important areas. This Policy Contribution dis- cusses this overlap and makes proposals for improving the effectiveness of the framework where there are overlaps. Moreover, we draw attention to the fact that discretionary action to prevent future crises is difficult and that both pil- lars rely mostly on policy discretion. The new framework should therefore rely as much as pos- sible on automatic built-in mechanisms that increase the resilience of the financial system and reduce the pro-cyclicality of credit and asset mar- kets. By doing so, the likelihood and size of macro- economic imbalances and systemic risk will be
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While the current account balance for the euro area as a whole has been in balance, divergences in current account positions among the euro-area members have widened since the introduction of the common currency euro. During the last 13 years Portugal, Greece and Spain have run large and persistent current account deﬁ cits, whereas Luxembourg, the Netherlands, Finland or Germany have displayed during the same period large and persistent surpluses. However, there is no unambiguous agreement among economists, whether this divergence of current account positions of the euro-area countries mirrors growing intra-euro-area imbalances (Gros, 2012) or just reﬂ ects proper functioning of the European integration process (Schmitz and von Hagen, 2009). Therefore, the aim of this paper is to estimate equilibrium current account position for each of the original 12 euro area countries so that it is possible to assess whether the divergence of intra-euro current account balances could be explained on the basis of economic fundamentals or it just reﬂ ects misallocation of resources and thus macroeconomic imbalances. The equilibrium current account balance is estimated using a panel-econometric technique for a sample of 30 industrial countries, which represent euro-area member states and their main business partners, over the period 1993–2011. Economic fundamentals aﬀ ecting the equilibrium current account position are selected on the basis of the saving-investment balance, the trade balance and the net income balance, to ensure that we take into an account all theoretically important explanatory variables. We ﬁ nd that the main determinants of current account norms in our sample are ﬁ scal balance, a country’s net international investment position, oil balance and a country’s stage of economic development. The major part of the euro-area countries exhibits current account positions close to their equilibrium levels with the exception of the Netherlands and Finland which have persistently higher surpluses, while Portugal and Greece run larger current account deﬁ cits than is their norm.
This paper answers a simple question: why there is a need for reforms only on the fiscal side and not on the monetary side? Not to keep the readers in suspense, we will answer this question immediately: because over the course of the last 15 years central bank has undertaken several structural changes, that had substantial influence on medium and long - term economic development. By structural changes, not structural reforms, we mean the changes in the structure of some key elements of the market economy that lead to severe macroeconomic imbalances. In order to keep this paper short and to the point we shall review only three structural changes (basically, macroeconomic imbalances) we perceive as the most significant and those are: (a) structural changes in sector distribution of banks’ loans, (b) in the level and composition of external debt, and (c) the role of the independent central bank in the market economy.
It is only the in-depth reviews that lead to eventual policy guidance to be issued to Member States. The reviews will undertake thorough analysis of the macroeconomic imbalances, in particularly as regards their nature and extent, taking into account the economic and structural specificities of the Member State considered. If, on the basis of this analysis, the Commission considers the situation unproblematic it will conclude that no further steps are needed. If, however, the Commission considers that macroeconomic imbalances exist, it may come forward with proposals for policy recommendations for the Member State(s) concerned. In the preventive arm, these will be part of the integrated package of recommendations under the European Semester. This is particularly important since policy remedies to address imbalances cover to a very large extent policies (e.g. labour market, product market and fiscal policies) that may also be subject to other surveillance processes. If the Commission instead considers that there are severe imbalances, it may recommend that the Council open an excessive imbalance procedure, which constitutes the corrective arm of the new procedure. Graph I.4 sums up the entire process graphically.
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We also assess the policy content of CSRs. Recommendations made under the MIP regu- lation are often irrelevant for macro-financial imbalances and rather relate to the loose policy coordination framework. Moreover, a comparison between the CSRs addressed to countries with macroeconomic imbalances and relevant recommendations given by the International Monetary Fund shows that, while in general the content, number, length, scope and level of detail of recommendations in the two surveillance frameworks are quite similar, CSRs flag prob- lems in the financial sector much less often than the IMF. The EU recommendations therefore appear less pertinent to addressing macroeconomic imbalances than those of the IMF.
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In the US the conventional view of global imbalances is that China is a currency manipulator – by accumulating reserves it artificially undervalues its currency, gains unfair trade advantages, and drives the US into trade deficit and debt accumulation (Goldstein and Lardy, 2009). Even though US current account as a % of GDP decreased somewhat in 2007-09, it remains large and is projected to widen again in 2010-11 (Fig. 1), and the US net international indebtedness approaches 30% of GDP (Fig. 2).
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How did monetary and fiscal policy contribute to the emergence of the global imbalances and how might they be better used in the future? Two points are important. First, current account imbalances are not necessarily bad: this will be discussed further in the next subsection. Second, current account imbalances are a real phenomenon and monetary policy cannot systematically affect real variables. This suggests that before trying to dampen global imbalances, policy makers ought to identify distortions that might be responsible for them. If distortions are found, fiscal measures or institutional changes should be used to correct or offset them.
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The Gamma model makes the simplifying assumption that each country borrows or lends in its own currency, but in practice most countries do not (or cannot) issue all their debt in their own currency. This fact is studied in the vast literature on the ‘original sin’hypothesis (e.g., Eichengreen and Hausmann, 2005, and the references therein). Although GM (2015) do not provide a full analytical extension of their model that allows for currency mismatches between assets and liabilities, in Proposition 12 (point 3) they consider the impact of pre- existing stocks of debt and their currency denomination, illustrating how this generates a valuation channel to the external adjustment of countries whereby the exchange rate moves in a way that facilitates the re-equilibration of external imbalances. GM (2015) highlight how this mechanism is consistent with the valuation channel to external adjustment studied by Gourinchas and Rey (2007), Gourinchas (2008), and Lane and Shambaugh (2010), and gives a role to the currency denomination of external liabilities. We note, however, that short of a full analytical description of the causal structure of foreign currency denominated debt, which is not provided by GM (2015), one cannot dismiss possible endogeneity concerns as to why countries issue debt in foreign currencies. Riskier countries may be forced to issue a higher proportion of foreign currency denominated debt due to, for example, political instability or
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Over the course of the last six years there have been three key macroeconomic developments: (a) EMU and non – EMU economies are in recession, i.e. stagdeflation (stagnation and deflation) or, better to say, “secular stagnation” – the persistent underuse of potential resources. (b) Banking industry is stable, but NPL are increasingly adding to the inherent financial instability (high public and unsustainable external debt, with currency mismatch in all sectors of national economies in non – EMU economies), and (c) recessionary dynamics and capital outflows (banks deleveraging) are contributing to sharp disinflation that is now transformed into deflationary pressures in Europe. Wage deflation was the main policy instrument after the crisis started. Deflation risk in EU and EMU was very high in 2015 & 2016 and beyond, and economic policy decision makers do not fully understand the severe negative effects of persistent and too low inflation rate. Also, since the start of recession, banking sector has been extremely liquid, but accompanied with the credit crunch and deleveraging due to the balance-sheet recession. There are, in addition to balance – sheet recession, also, key elements of paradox-of-thrift recession (aggregate demand and private consumption are contracting, while there is an increase in banks’ savings deposits by the households). High liquidity in financial system was not intermediated by the financial/banking institutions into credit activity to SMEs and corporate sector of economy (transmission mechanism failed). There are complex questions that has to be answered: how can unconventional monetary policy could be implemented in limiting adverse effects of financial instability on the monetary transmission mechanism and how to achieve the effectiveness of (targeted) monetary policy measures, as well the interaction between the non-standard policy measures and new central bank macroprudential strategies, within the framework of EU Banking Union (SSM and SRM)? Absence of credible and efficient macroprudential policies (for instance, dynamic provisioning targeted to curb the growth of particular groups of loans, such as foreign – exchange denominated loans, particularly important issue in non – EMU economies) resulted in a fragile domestic financial systems.
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The strategy followed by the European authorities during the deep and prolonged crisis was a status quo strategy. The proposals contained in the report of the five presidents has been an insufficient response and within the vision of ordoliberalism. Although structural reforms to improve competitiveness are important, major emphasis should be given to innovation, improvement in human capital, innovative and growth-promoting investment. European authorities should pursue a forward-looking economic policy that creates more opportunity for the young, reduces inequalities in income and wealth, and should have a clear and effective plan for the refugees and economic immigrants without forgetting the constraints of security, in order to counter Europe’s secular trend towards stagnation. At present, Brussels is softening austerity constraints with a more flexible Stability and Growth Pact and with the precise aim of contrasting pro-cyclical policies and favouring investment, leaving some individual countries (e.g. Italy, France, Greece, Portugal and Spain) space to boost their economies, while Draghi is extending and expanding the QE programme. But imbalances within the Eurozone are still present, especially with regard to the indicators of the real economy, namely debt and current accounts, unemployment rates, poverty levels. In addition slow economic growth and low inflation are gripping the Eurozone, and the problem of Greece is still on the spotlight. Thus the economic crisis is not really over. Several economists (e.g. Chopra, 2014; Posen, Ubide, 2014), suggested an expansionary aggregate demand and to relax fiscal constraints for investment with the aim of enhancing productivity and growth. However, the ideology of ordoliberalism with its economic policy implications is still
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No significant association was detected in CM group between mean copy number per cell of each DNA target tested and parameters such as age, gender and the life style factors tobacco smoking and alcoholism although the small size of each subset impaired robust conclu- sion. Similarly, no significant differences were observed on mean copy number per cell of each genomic target according the dilation grades of megaesophagus (data not shown). However, the CM cases identified with genomics deletions and gains in the three-dimensional plots were mostly classified as grades III and IV, sug- gesting that chromosomal imbalances are more likely to occur in more advanced grades.
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The aim of this article is to investigate the relationship between personnel re- cruitment and labor market imbalances in the various conditions of develop- ment in a macroeconomic context. This article, therefore, addresses the follow- ing issues: the relationships between economic cycles and labor market imbal- ances; personnel recruitment and research behavior in conditions of imbalance in the labor market; a verification of these relationships in the Italian regional labor markets. Summary of results, contributions to research, managerial impli- cations and limitations of the study conclude the article. Empirical research, stu- dies, textbooks, surveys, reports, national and international data and statistics published on the subject were used. All these sources have been taken from the google scholar database by typing the following keywords: personnel recruit- ment, staffing, economic cycles, labor market imbalances, and selecting the sources that explicitly dealt with the topic of personnel recruitment in condi- tions of imbalance in the labor market.
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