What’s at stake: The event study approach – a methodology in finance and economics used to detect the presence of event-induced returns within a period – has become ubiquitous in recent debates about the impact of unconventional monetary operations. But its identifying assumptions are generally not very well understood. In this review, we explain the different steps followed by researchers to perform event-study analyzes; we point out some of their pitfalls, based on recent discussions following the latest Jackson Hole meeting; and we illustrate its growing popularity in a variety of fields. The econometric skeleton of an event study The underlying idea of an event study is to use the high frequency trading values of financial securities to assess the… Read more
Bruegel blog
-
Blogs review: The Events Study methodology
8th October 2012
-
The Spanish minefield and the Gretomic bomb have not yet been inactivated
8th October 2012
The Eurogroup, the gathering of finance ministers of euro-area member states, is to meet on Monday 8 October 2012. It has grown into a habit that major euro-area decisions are not made unless there is a strong market pressure, so no major decisions are expected now. Market pressure has been abated somewhat by the European Central Bank’s (ECB) recent announcement of a new bond purchasing programme, the entering into force of the European Stability Mechanism (ESM), and Europe-friendly outcome of the Dutch elections. But below the surface, two major issues are pending: the Spanish rescue and the Greek fate. Spain’s hesitation in deciding upon the application for a full macroeconomic adjustment programme resembles to what happened in Greece, Ireland and… Read more
-
The Liikanen report - is size the elephant in the room?
4th October 2012
Yesterday, the High-level Expert Group on reforming the structure of the EU banking sector chaired by the governor of Finland's central bank Erkki Liikanen, in short the Liikanen report issued its report. Apart from endorsing other currently discussed points such as common bank supervision and the resolution schemes, one of its main findings is that ‘it is necessary to require legal separation of certain particularly risky financial activities from deposit-taking banks within a banking group’, which fits nicely with the Volcker rule in the US and the Vickers proposal in the UK. The main goals of legal separation are to limit a banking group’s incentives and ability to take excessive risks with insured deposits, to prevent the coverage of losses… Read more
-
The European Semester Timeline
4th October 2012
EU economic policy coordination is now supported by a process known as European Semester, which provides a common timetable for EU policy guidance and the monitoring of national actions. This blog entry summarizes the main steps in the European Semester and the role each EU Institution plays in the process. For an extensive analysis of the European Semester and its operation, see An Assessment of the European Semester. The European Commission launches the European Semester with the publication of the so-called Annual Growth Survey (AGS), a list of general policy priorities for the EU. The AGS is based on the progress report on EU2020 strategy, the Macroeconomic Report and the Joint Employment Report. In the first Semester cycle, the European… Read more
-
Blogs review: the UK’s output, employment and productivity puzzle
1st October 2012
What’s at stake:While the decline in output in the UK over the last few years has been the longest and nearly deepest since the Great Depression, employment has remained surprisingly stable, even recently increasing at an impressive fast pace despite the double-dip recession. Contrary to the US, which has experienced recent increases in productivity, many European countries have seen persistently weak productivity. But the UK’s loss of labour productivity stands out, as it is now 10% below its pre-crisis trend. Whether the nature of this decline is temporary or permanent has become a central issue for policymakers in the UK. Read more
-
Chart of the week: Wage stickiness and painful adjustment
1st October 2012
This blog entry studies labour cost adjustment in the euro area. We find that wages are sticky and nominal wages rarely fall except in the most severe crisis circumstances. Second, unit labour cost (ULC) reductions are often associated with significant increases in unemployment. Third, the relative adjustment is forecast to continue and accelerate during 2012/13 despite a drop in the average euro area labour compensation. The fall in the average calls for a comprehensive response at the euro area level. Read more
-
Are new ICT sectors a platform for European growth?
1st October 2012
Compared to the United States, Europe has a less efficient ICT growth model: the EU’s economy specialises less in ICT sectors, ICT contributes less to growth in the EU, and the EU is lagging in terms of private expenditures for research and development into ICT goods and services. The EU fails to focus on the new ICT sub-sectors and firms which have the greatest potential for ICT-based growth, most notably internet and software. In particular, Europe lacks young leading innovators in these areas that could compete with corporations like Google, Apple, Amazon and Qualcomm in the US. Europe’s failure to redirect towards new ICT firms and new ICT sectors is likely to matter for Europe’s post-crisis recovery dynamics. In the… Read more
-
The ECB’s Magic Wand
28th September 2012
This column was written as the editorial of the September/October 2012 issue of Intereconomics We know there is no magic. But after a clever trick by the magician and a wave of the magic wand, the audience still applauds for quite some time. The new magic wand of the European Central Bank (ECB), Outright Monetary Transactions (OMT), has so far resulted in the 2-year Spanish government bond yield falling from a 15-year record high of 6.9% in late July 2012 to below 3% in early September 2012. Longer maturity yields have also fallen somewhat. Was the OMT move a wise decision? Are the criticisms that are being voiced justified? What is the OMT action good for and what are its… Read more
-
Eine schwierige Beziehung
25th September 2012
Bruegel-Forscher Georg Zachmann zu politischen und ökonomischen Hintergründe des Streits zwischen EU und Gazprom Die europäisch-russischen Beziehungen im Energiesektor haben mit der Eröffnung eines formellen EU-Wettbewerbsverfahrens gegen den russischen Gasversorger Gazprom im September 2012 eine neue Wendung erfahren. Die Reaktionen auf diese Entscheidung, die mit Gazproms Preispolitik in Europa begründet wurde, sind ein Beispiel für die zwiespältige Natur von Energiebeziehungen. Während die Generaldirektion Wettbewerb der EU-Kommission betont, dass das Verfahren rein ökonomische Gründe habe, unterstellt Präsident Putin politische Motive. In Wahrheit liegt keiner der beiden Protagonisten falsch. Der Handel von Gas zwischen Russland und Europa hat immer eine politische Dimension. Da Erdgas relativ günstig im Osten produziert und relativ teuer im Westen verkauft werden kann, ist die entscheidende Frage, wie… Read more
-
Wir brauchen Licht am Ende des Tunnels
25th September 2012
Interview mit Bruegel-Forscher André Sapir über das neue Anleihen-Programm der EZB Die EZB hat ein neues Anleihenkaufprogramm, das so genannte OMT, angekündigt. Wofür brauchen wir ein solches Programm im Euroraum? Funktionieren die Anleihemärkte nicht richtig? Ja, wir haben ein Problem mit den Märkten für Staatsanleihen im Euroraum. Die Ursache dafür liegt darin, dass Investoren das Risiko eines Auseinanderbrechens der Währungsunion einpreisen. Die Märkte verharren in einem schlechten Gleichgewicht, das von selbsterfüllenden Erwartungen und Prophezeiungen geprägt wird. Deshalb verlangen die Märkte eine Risikoprämie für die Anleihen mehrerer Euroländer. So ist der Spread zwischen Italien und Deutschland wesentlich höher, als dies durch objektive Daten über die Tatkraft ihrer Regierungen erklärt werden könnte. Nach Angaben des IWF und mehrerer privater Bankhäuser liegt die… Read more