Patterns of Convergence (Divergence) in the Euro Area: Profitability Versus Cost and Price Indicators

Amici, Monica; Bobbio, Emmanuele; Torrini, Roberto

doi:10.2139/ssrn.3121135

SSRN Journal

2017

DOI: 10.2139/ssrn.3121135

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Patterns of Convergence (Divergence) in the Euro Area: Profitability Versus Cost and Price Indicators

Monica Amici

Emmanuele Bobbio

Roberto Torrini

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Cited by 7 publications

(7 citation statements)

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“…16 These two explanations have been advanced and emphasized in their empirical analysis by Lebrun and Pérez (2011). Moreover, both that work and Amici et al (2017) suggest that the competitive disadvantage due to the specificities of export market destinations and export sector concentrations may be temporary as initially more disadvantaged member countries upgrade their specialization patterns and increase their degree of openness. The theoretical argument emphasizing a negative externality between capital mobility and imperfectly integrated and rigid labor markets in a currency area has been developed by Schmitt-Grohe and Uribe (2016).…”

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confidence: 94%

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Relative Price Dynamics in the Euro Area: Where Do We Stand?

Cova

Rodano

2019

SSRN Journal

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We propose a new metric to evaluate price developments within the euro area (EA), which involves decomposing the overall variability of inflation rates across countries into common and idiosyncratic labour cost and markup components. The analysis yields several interesting results. First, over the period 1978-2015, inflation variability in the EA reflects above all idiosyncratic (country-specific) developments in unit labour costs (ULC). This contrasts sharply with what we find for the United States (US), where price dynamics at the state level reflect common developments in costs and profits to a much greater extent, consistent with the role played by the greater mobility of capital and labour. Second, when we apply our approach to the data for two subgroups of countries, namely Core and Non-Core countries, we find that they both display higher intra-group homogeneity, given that the role of the subgroup-specific common components in explaining inflation variability becomes more important, while idiosyncratic developments in ULC become correspondingly less significant. Third, in more recent years (1999-2015) the idiosyncratic component due to price markups has become the dominant driver of the variability of inflation in the Core countries, a pattern similar to the one we detect for the US. Our analysis also sheds light on the adjustment mechanisms to asymmetric, or country specific, shocks. Using a panel VAR approach we find that price changes driven by diverging changes in ULC are reflected into trade balance adjustments that are costly from the point of view of the smooth functioning of the currency area.

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confidence: 94%

“…Amici, Bobbio, and Torrini (2017) highlight the importance of profit margins or markups for a correct assessment of competitiveness developments across euro area countries.…”

mentioning

confidence: 98%

Relative Price Dynamics in the Euro Area: Where Do We Stand?

Cova

Rodano

2019

SSRN Journal

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“…Following Amici et al (2018), we have computed the difference between the regional rate of change of the export-price index and of the ULC index as a proxy for the margin policy of the two regions. As can be seen from Figure 7, the evolution of margins, setting 1999 = 100, is quite similar in both regions (they display a positive correlation of 0.75), with some evidence of the buffer role of margins with respect to changes in ULC.…”

mentioning

confidence: 99%

“…After the collapse in 2008-09, margins were recovered at a sustained pace in both regions, now faster in the deficit region replicating the earlier margin policy in the surplus region. Amici et al (2018) provide detailed evidence of these phenomena, concluding that changes in profitability are correlated with changes in relative export performance whereas the relationship is unclear between export and prices, and export and ULC.…”

mentioning

confidence: 99%

Current Account Imbalances and the Euro Area. Alternative Views

Mazzocchi

Tamborini

2019

SSRN Journal

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The crucial role of current account imbalances (CAI) is widely acknowledged in the consensus narratives of the European crisis that followed the Great Recession. On the basis of this interpretation, new EU initiatives arose, in particular the so-called "Six Pack" in 2011 and the establishment of the European Semester procedure to improve policy coordination in the EU beyond fiscal matters. This package includes the Macroeconomic Imbalances Procedure (MIP), which broadens the EU economic governance framework to include the surveillance of unsustainable macroeconomic trends. Although the widening of the CAI in the Euro Area is a matter of fact, and the consensus narrative contains elements of truth, alternative views have been put forward on three main issues: i) their relevance, ii) their causes and connection with the crisis, and iii) their policy implications. The aim of this paper is to examine these controversial points about the causes, meaning and consequences of CAI, and discuss the alternative policy prescriptions that emerge.

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“…This implies that prices may rise as a result of the increase in market power, for example due to improved product quality, without jeopardizing firms' competitiveness and export performance; vice-versa, price declines that drive profit margins to unsustainably low levels may endanger firm survival and not be linked to improvements in price competitiveness. A recent study by Amici, Bobbio and Torrini (2017), focused on ten early joiners of the euro area over the period 2000-2014, provides evidence of profit margins indeed significantly and positively driving a country's export performance, even when traditional PPIor ULC-deflated REERs (and potential demand) are controlled for. This study too therefore suggests that "standard" determinants are not sufficient to fully explain export developments.…”

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confidence: 99%

Back on Track? A Macro–Micro Narrative of Italian Exports

et al. 2018

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We provide an in-depth analysis of Italy's export performance relative to the other main euro-area countries over the last two decades, using both macro and micro data. We argue that the relatively unsatisfactory performance of Italian goods exports until the eve of the 2008-09 crisis is the result of the interplay between the appreciation of the real effective exchange rate, the initial specialization in types of production that were particularly exposed to increasing competition from low-wage countries, and the size distribution of exporters, skewed towards small firms. Since 2010 signs of structural improvement have emerged, alongside cyclical factors, in connection with a shift in the specialization of exports towards sectors that are less exposed to competitive pressures and particularly effective in activating domestic value added. Moreover, the selection process triggered by the exceptional difficulties encountered by micro and small firms both before and during the global financial crisis might have structurally strengthened the population of Italian exporters, making it more resilient to negative shocks and more capable of keeping pace with external demand.

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Patterns of Convergence (Divergence) in the Euro Area: Profitability Versus Cost and Price Indicators

Cited by 7 publications

References 17 publications

Relative Price Dynamics in the Euro Area: Where Do We Stand?

Relative Price Dynamics in the Euro Area: Where Do We Stand?

Current Account Imbalances and the Euro Area. Alternative Views

Back on Track? A Macro–Micro Narrative of Italian Exports

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