2018. Working papers
Wolf Heinrich Reuter, Oļegs Tkačevs, Kārlis Vilerts
ABSTRACT
Utilising data of the EU28 Member States for the period 1996–2015, this paper confirms the findings of previous studies that the stipulation of fiscal rules reduces fiscal volatility and consequently contributes to macroeconomic stability. Yet, we document that this result only holds for rules which are designed to be unaffected by the current state of the business cycle, i.e. which are "a-cyclical". Those can, e.g. be budget balance rules that set ceilings in cyclically adjusted terms or expenditure rules that set a limit relative to potential instead of current output. Furthermore, the stringency of fiscal rules amplifies their stabilising effect. Actual year-to-year compliance with fiscal rules seems to play no systematic role, such that effects of the rules can be observed even if they are not complied with year-to-year. Overall, our paper suggests that strong, properly designed numerical rules act as an anchor for fiscal policy makers and contribute to more stable discretionary fiscal policy.
Keywords: fiscal rules, fiscal policy volatility, panel data, compliance
JEL codes: C23, E62, E32, H60
Soňa Benecká, Ludmila Fadejeva, Martin Feldkircher
ABSTRACT
This paper investigates the international effects of a euro area monetary policy shock, focusing on countries from Central, Eastern, and Southeastern Europe (CESEE). To that end, we use a global vector autoregressive (GVAR) model and employ shadow rates as a proxy for the monetary policy stance during normal and zero-lower-bound periods. We propose a new way of modelling euro area countries in a multi-country framework, accounting for joint monetary policy, and a novel approach to simultaneously identifying shocks. Our results show that in most euro area and CESEE countries prices adjust and output falls in response to a euro area monetary tightening, but with a substantial degree of heterogeneity.
Keywords: euro area monetary policy, global vector autoregression, spillovers
JEL codes: C32, F44, E32, O54
2018/3 Exports and productivity in global value chains: comparative evidence from Latvia and Estonia
Konstantīns Beņkovskis, Jaan Masso, Oļegs Tkačevs, Priit Vahter, Naomitsu Yashiro
ABSTRACT
This paper investigates the effect of export entry on productivity, employment and wages of Latvian and Estonian firms in the context of global value chains (GVCs). Like in many countries, exporting firms in Latvia and Estonia are more productive, larger, pay higher wages and are more capital-intensive than non-exporting firms. While this is partly because firms that are originally more productive and have better performances are more likely to enter exports, Latvian and Estonian firms also realise more than 23% and 14% higher labour productivity level respectively as the result of export entry. Export entry also increases employment and average wages. Gains in productivity and employment are particularly large when firms enter exports that are related to participation in knowledge-intensive activities found in the upstream of GVCs. For instance, Latvian firms that start exporting intermediate goods or non-transport services (which include knowledge-intensive services) enjoy significantly higher productivity gains than those starting to export final goods or transport services. These findings underscore the importance of innovation policies that strengthen firms' capabilities to supply highly differentiated knowledge-intensive goods and services to GVCs.
Keywords: productivity, global value chain, exports, Latvia, Estonia
JEL codes: F12, F14, O19, O57
Viktors Ajevskis
ABSTRACT
The study proposes an estimation method of the natural rate of interest based on the shadow rate term structure of interest rates model and using information from nominal yields data. For the purpose of comparison and robustness check, different samples for the estimation of the natural rate of interest – three for the euro area and two for the US – are considered. The estimates based on all considered samples show a downturn trend in the estimated natural rates of interest for the euro area. However, since the beginning of 2013, this downward trend has levelled off. Compared to the results obtained by affine models, the shadow rate model produces lower estimates of natural rates of interest. From the beginning of 2013, the dynamics of estimated series of the US natural rate of interest closely follows the series produced by Laubach–Williams. However, before that the series are more divergent. In order to demonstrate the use of the natural rate of interest, we employ the estimated series of the natural rate of interest in the balance-approach version of the Taylor rule. The results imply that, at the end of the sample in July 2017, Taylor rule-suggested policy rates were in line with the actual ECB policy rates.
Keywords: natural rate of interest, term structure of interest rates, lower bound, non-linear Kalman filter
JEL codes: C24, C32, E43, E58, G12
Konstantīns Beņkovskis, Oļegs Tkačevs, Naomitsu Yashiro
ABSTRACT
This paper investigates the effects of EU regional support on firms' productivity, the number of employees and other firm performance indicators. For this purpose, a rich firm-level dataset for Latvia, a country where investment activities are affected by the availability of EU funding, is used. The paper finds that participation in activities co-funded by the ERDF raises firms' input and output soon after they embark on them, while the effect on labour productivity and TFP appears only with a time lag of three years. However, this positive productivity premium is not homogenous across firms and is more likely to materialise in the case of initially less productive and medium-sized/large firms. Furthermore, statistical significance of positive productivity gains is not particularly robust across different estimation procedures. The study also shows that after controlling for investment expenditures, EU sponsored projects are as efficient as the privately financed ones, irrespective of where private financing comes from.
Keywords: EU funds, productivity, firm-level data, propensity score matching
JEL codes: C14, D22, R11