Focus on European Economic Integration Q3/14

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• Focus on European Economic Integration Q3/14 (PDF, 2 MB) September 2014.

Studies and Analyses

• Call for Entries: Olga Radzyner Award 2014 for Scientific Work on European Economic Integration (PDF, 937 kB) Focus on European Economic Integration Q3/14 en Sep 30, 2014, 12:00:00 AM

• Call for Applications: Visiting Research Program (PDF, 337 kB) Focus on European Economic Integration Q3/14 en Sep 30, 2014, 12:00:00 AM

• Using a Threshold Approach to Flag Vulnerabilities in CESEE Economies (PDF, 886 kB) Feldkircher, Gruber, Moder. In this paper we examine macroeconomic, external and financial vulnerabilities of 22 Central, Eastern and Southeastern European (CESEE) economies. Our assessment is based on a nonparametric signaling or threshold approach, which involves monitoring selected indicators that show unusual behavior in the periods leading to a crisis. For that purpose, we have collected annual data on more than 90 emerging economies spanning the period from 1995 to 2012.
  Our dataset covers a broad range of potential early warning indicators related to the banking sector, the external side, and the macroeconomic and fiscal situation of the economy. Our in-sample test shows that the threshold approach identifies 73% of crisis events correctly while issuing false alarms only for 31% of the non-crisis observations. For the purpose of this paper, crisis events comprise banking crises, currency crises and sovereign debt crises. Applying a composite vulnerability indicator to CESEE economies using the latest available data (2012), we identify Turkey, Belarus and Moldova as the countries that appear especially vulnerable to an unexpected adverse event based on our threshold approach. en Vulnerabilities,threshold approach,CESEE F31, F47 Sep 30, 2014, 12:00:00 AM

• Assessing the Full Extent of Trade Integration between the EU and Russia – A Global Value Chain Perspective (PDF, 783 kB) Benkovskis, Pastušenko, Wörz. Beņkovskis, Pastušenko, Wörz – Focus on European Economic Integration Q3/14 We analyze trade linkages between EU Member States and Russia, taking into account indirect trade links in global value chains. Our analysis is based on data for 2011 from the World Input-Output Database combined with gross trade flows between Russia and individual EU economies.
  We derive our conclusions from three indicators: gross exports in final use, value added in final use and value added in output. The latter two novel indicators are able to capture direct and indirect links jointly by allocating the full amount of value added from Russia in EU final domestic use and output, and inversely, the full amount of EU value added in Russia’s final domestic use and output. Russia represents the EU’s fourth-largest trade partner in terms of direct export shares, while the EU is Russia’s largest trade partner. In the same vein, Russia’s economy is considerably more dependent on European value added for both final use and output production than vice versa. However, the degree of integration varies greatly among EU Member States.
  For example, the Baltic states are notably more dependent on value added from Russia than vice versa, and certain economic sectors in the EU, such as the energy sector, utilities and air transport, are strongly dependent on inputs from Russia. en Trade integration,global value chains,Russia,European Union F12, F15, F51 Sep 30, 2014, 12:00:00 AM

• Macrofinancial Developments and Systemic Change in CIS Central Asia from 2009 to 2014 (PDF, 731 kB) Barisitz. Barisitz – Focus on European Economic Integration Q3/14 CIS Central Asia’s structural heterogeneity may have deepened since the global crisis of 2008–09. Kazakhstan and Turkmenistan are relatively rich oil and gas exporters, the Kyrgyz Republic and Tajikistan are poor energy importers, and Uzbekistan is a more diversified but still rather poor economy. The rich hydrocarbon exporters typically achieve “twin surpluses” (current account and budget), while the hydrocarbon importers are often saddled with “twin deficits,” but benefit from remittance inflows. In contrast to the poorer countries, the energy exporters tend to attract large amounts of FDI and have carried out generous infrastructure modernization programs. Per capita income growth of the rich and the poor countries has diverged in recent years. No recession had occurred in Central Asia in 2009 and mostly robust GDP growth has ensued since. Growth drivers have been: recovering energy and other resource prices and/or export volumes, generous private and public investment expenditures, and substantial remittances. Fixed exchange rates (to the U.S. dollar) tend to be opted for by the oil and gas countries, floating currencies are preferred by the others. While price stability policies vary and inflation rates have on average come down to below double digits, price levels remain strongly exposed to volatile international food and staples markets. Banking sectors are fragile across
  the region; they are either recovering from a legacy of collapsed credit booms or suffering from high nonperforming loans as a result of connected lending or they require periodic subsidies for performing quasi-fiscal activities. en State-led economy, structural reforms, heterogeneity, monetary policy, convertibility, exchange rate regime, banking, quasi-fiscal functions, Central Asia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan E52, E63, G21, G28, P34 Sep 30, 2014, 12:00:00 AM

• To What Extent Can Czech Exporters Cushion Exchange Rate Shocks through Imported Inputs? (PDF, 2.4 MB) Tóth. Toth – Focus on European Economic Integration Q3/14 This paper examines the role of imported inputs in cushioning exchange rate shocks by using a partial equilibrium model of heterogeneous firms. Producers in the model can serve the domestic market, export final goods, import inputs or engage in both exporting and importing. In the model, an exogenous exchange rate shock simultaneously affects the variable costs and revenues associated with exports and imports. The impact of a hypothetical 1% appreciation of the domestic currency on sales is estimated using a panel of 7,356 Czech manufacturing firms observed from 2003 to 2006. We focus on the above period to exploit the rich within-firm variation in trade strategies. This variation is likely to be associated with the lifting of trade barriers following the Czech Republic’s EU accession in 2004. For firms that both export and import, the model predicts a drop in export sales of 0.8% as opposed to a 1% drop for price-taker exporters who do not use imported inputs. en Exchange rate pass-through, international trade, heterogeneous firms, monopolistic competition, total factor productivity, production function C23, C26, D22, D24, F12 Sep 30, 2014, 12:00:00 AM

• CESEE-Related Abstracts from Other OeNB Publications (PDF, 380 kB) Focus on European Economic Integration Q3/14 en Sep 30, 2014, 12:00:00 AM

• Notes (PDF, 282 kB) en Sep 30, 2014, 12:00:00 AM