The Econometrics of the EU Fiscal Governance: is the European Commission methodology still adequate?

Munich Personal RePEc Archive

The Econometrics of the EU Fiscal Governance: is the European

Commission methodology still adequate?

Fioramanti, Marco and Waldmann, Robert J.

15 September 2017

Online at https://mpra.ub.uni-muenchen.de/81858/

MPRA Paper No. 81858, posted 10 Oct 2017 12:47 UTC

The Econometrics of the EU Fiscal Governance:

is the European Commission methodology still adequate?

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4.1 Cyclical Unemployment vs variance bounds: which matters more?

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05101520 051015 051015 51015 4681012

23456 0510 051015 2468 246810

1960 1980 2000 2020 1960 1980 2000 2020 1960 1980 2000 2020 1960 1980 2000 2020 1960 1980 2000 2020

AT BE DE DK EL

ES FI FR IE IT

LU NL PT SE UK

EC official estimates PC without cyclical unemployment No bounds in variances

nawru (%)

Source: authors' calculation on EC data

Country RMSE (official - no bounds) RMSE (official - no betas) Corr (official - no bounds) Corr (official - no betas)

AT 0.2546 0.2529 0.6915 0.9597

BE 0.4449 0.6573 0.8692 0.8861

DE 0.0000 0.2890 1.0000 0.9718

DK 1.2316 0.5297 0.8701 0.9180

EL 0.0019 0.1285 1.0000 0.9993

ES 4.6126 0.7410 0.8197 0.9692

FI 1.4627 0.3457 0.8649 0.9791

FR 0.8982 0.4870 0.8951 0.8741

IE 0.0737 2.4816 0.9992 0.6102

IT 0.8660 0.3672 0.8930 0.9726

LU 0.3743 0.3014 0.8619 0.9638

NL 0.6071 0.5425 0.9565 0.9751

PT 1.7636 0.2057 0.7328 0.9805

SE 1.0397 0.1566 0.8018 0.9896

UK 0.1261 0.1531 0.9965 0.9927

4.2 Is the PC still alive and well?

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Model Base Alt. base Accelerationist Forward Base+lp Base+L.lp IV Base+lp (§)

Dependent variable dw dw ddw dw dw dw dw

L.dw 0.8633*** 0.7916*** -0.2084*** 0.2590* 0.7910*** 0.7881*** 0.7901***

(49.4659) (27.3702) (-7.2049) (2.9236) (31.3688) (29.9036) (37.0194)

ur_cyc -0.3389*

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ur -0.2501* -0.2501* -0.2021** -0.2861* -0.2560* -0.3364

(-2.4221) (-2.4221) (-3.8963) (-2.3058) (-2.3078) (-1.7787)

nawru -0.0085 -0.0085 -0.2061 0.0837 0.0345 0.2126

(-0.0613) (-0.0613) (-2.0094) (0.4945) (0.2140) (0.6953)

E_pce 0.3067

(1.9240)

lp 0.1595* 0.3822

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L.lp 0.1123

(1.5943)

_cons 0.9634*** 3.0785*** 3.0785*** 4.5467*** 2.4180*** 2.6316*** 1.4951

(6.0874) (6.2236) (6.2236) (5.3633) (4.2109) (4.3745) (1.1368)

N 810 810 810 270 810 810 810

ll -1927.9712 -1906.2348 -1906.2348 -437.1169 -1898.6504 -1902.3452

F 1635.2684 1593.8694 24.8685 194.7033 1755.5202 1671.9918

r2_o 0.8061 0.7939 0.0759 0.3504 0.8052 0.8011 0.8059

chi2 89.7057

* p<0.05, ** p<0.01, *** p<00.001

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020406080F-value

1970 1980 1990 2000 2010

F-value Prob

Source: authors' calculation on EC data

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1980 1990 2000 2010 2020

end

low/up Cycl. Unempl.

Cyclical unemployment

0.511.5

1980 1990 2000 2010 2020

end

low/up Lag Wage Infl.

Lagged wage inflation

Source: authors' calculation on EC data

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67 ( % N;& Italian Fiscal Policy Review 2015& ' + E)

Press

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Appendix

& % % 2 & &

-8-6-4-202

1980 1990 2 000 2010 202 0

AT

-4-3-2-10

1980 1990 2000 2 010 2020

BE

-4-3-2-101

1980 1990 2000 2 010 2 020

DE

-1.5-1-.50.51

198 0 1990 2000 2010 2 020

DK

-4-2024

198 0 1990 2000 2010 2020

EL

-6-4-20

1980 1990 2 000 2010 202 0

ES

-4-3-2-10

1980 1990 2000 2 010 2020

FI

-6-4-202

1980 1990 2000 2 010 2 020

FR

-6-4-202

198 0 1990 2000 2010 2 020

IE

-15-10-505

198 0 1990 2000 2010 2020

IT

-10-50510

1980 1990 2 000 2010 202 0

LU

-3-2-101

1980 1990 2000 2 010 2020

NL

-6-4-202

1980 1990 2000 2 010 2 020

PT

-6-4-202

198 0 1990 2000 2010 2 020

SE

-8-6-4-20

198 0 1990 2000 2010 2020

UK

Source: authors' calculation on EC data

& ! && & 2 & &

-4-20246

1980 1990 2 000 2010 202 0

AT

-1012

1980 1990 2000 2 010 2020

BE

-2-10123

1980 1990 2000 2 010 2 020

DE

-1-.50.511.5

198 0 1990 2000 2010 2 020

DK

-2024

198 0 1990 2000 2010 2020

EL

-10123

1980 1990 2 000 2010 202 0

ES

-1012

1980 1990 2000 2 010 2020

FI

-4-2024

1980 1990 2000 2 010 2 020

FR

-4-2024

198 0 1990 2000 2010 2 020

IE

-4-20246

198 0 1990 2000 2010 2020

IT

-10-50510

1980 1990 2 000 2010 202 0

LU

-.50.511.52

1980 1990 2000 2 010 2020

NL

-2024

1980 1990 2000 2 010 2 020

PT

-4-2024

198 0 1990 2000 2010 2 020

SE

-4-2024

198 0 1990 2000 2010 2020

UK

Source: authors' calculation on EC data