PhD Defence: Pierre Lesuisse

From economic transition to the monetary union: Empirical elements regarding the CEECs, in the context of the European Union

Jury

BOUBTANE Ekrame, Associate Professor, Université Clermont Auvergne
COMBES Jean-Louis, Professor, Université Clermont Auvergne
BARBIER-GAUCHARD Amélie, Associate Professor, Université de Strasbourg
PARENT Antoine, Professor, Université de Paris VIII
LEVIEUGE Grégory, Professor, Université d’Orléans
MINEA Alexandru, Professor, Université Clermont Auvergne

Abstract

The subject matter of international economics, then, consists of issues raised by the special problems of economic interaction between sovereign states.” (Krugman et al., 2011).

Institutional innovation fosters the development of these interactions. Thus, European states, on a social background, try to benefit from the cooperation leverage effect, to turn centuries of conflicts, into an economic asset. Such a construction and its pantagruelian twists and turns, as a fusion of history and empires, not far from Victor Hugo’s utopia “the United-State of Europe”, demonstrates the incredible ingenuity, national heterogeneities develop to refine the paradigm “Europe”.

In this thesis, we propose to shed some light on some of these challenges, with regard to the countries which, not half a century ago, marked the fracture of the continent, CEECs. These economies, from transition to developed economy, are an unprecedented case study, to understand international economic challenges. After explaining the general framework, in which this work takes place (Chapter 1), we investigate the impact of the ECB’s monetary policy, on the peripheral countries of the euro zone, i.e., EU non-Euro members. In chapter 2, we construct two groups of countries, depending on their exchangerate regime (fixed or flexible). Drawn upon this construction, using monetary, price and output data, we measure the impact of a monetary shock, impulsed by the ECB, on the CEECs. We find that economic integration induces spillover effects, that influencedomestic monetary decisions. As expected, pegged economies are more strongly affected, by the monetary policy of the ECB. However, in both groups of countries, we find that spillovers tend to have less impact, on the volatility of our variables (GDP and prices), over the last decade. We explain this, via a more efficient exchange rate channel, to absorb shocks (in flexible exchange) and an increased credibility of domestic monetary institutions.

We highlighted that spillovers effects significantly influence the CEECs, with direct impact upon domestic monetary challenges. The first phase of the transition, during the 90’s, has been hit by high level of both inflation and unemployment. Over the last years, inflation seems to be under control, and we observe relatively low unemployment rate, closed to its natural level. This could suggest that monetary credibility has been restored. However, in the process of accession to the Euro zone, monetary leeway is becoming increasingly restricted.

Throughout Chapter 3, we use the well-known Phillips curve, to understand the relationship between the unemployment rate and price developments, as a proxy for the effectiveness of monetary policy. The Baltic States, Slovenia and Slovakia are perfect candidates to measure the impact of changes in exchange rate regimes, during accession to the EA. During the ERM-II, the relationship is negative and significant. However, the EA entry is prima facie evidence of a flattened Phillips curve. We explain this result by the fact that in a monetary union, "small" economies do not have sufficient power, to significantly influence monetary policy decisions.

To be fully effective, the single policy of the ECB must confront, relatively homogeneous economies. This homogeneity transcends the monetary dimension and directly affects the real economy (evidenced by the Phillips curve). The impacts of asymmetric shocks are smoothed through the adjustment mechanisms in an optimal union. Among these mechanisms, we highlight the role of the labour market, which requires flexibility (of wages) and increased factor mobility. Chapter 4 analyses regional adjustment mechanisms, after an exogenous employment shock. Using regional NUTS-II data, we build a VAR panel, to understand these mechanisms. We introduce different heterogeneities and find that the labour participation rate is relatively more sensitive, in the CEECs than in the EU-15 and that women are, all the more, in a vulnerable situation. We also find that poor regions, within the EU-28, adjust less quickly after a shock, leading to persistence, in negative effects, such as unemployment.

To provide an institutional response to the labour market impairments, of the labour market, we must offer a comprehensive understanding of labour supply, as an effective adjustment mechanism. This flexibility is defined in the sense of inter-regional mobility but also in intersectoral mobility. Increasing intersectoral mobility is possible through training, education. As part of the EU-2020 strategy, increasing the levelof education, of population, is a pillar of European policies, while significant disparities persist between countries. We build an econometric model derived from a growth equation. Chapter 5 provides some answers, to the question of financing education. To do this, we go beyond the pure European framework and use panel data, on a set of middle-and high-income countries. We focus on public spending on education, as a proxy for human capital flows. While the relationship is significant in high-income countries, it does not hold in the lower group. We then use an efficiency index and find that the impact of public spending on education, on growth, is significant in countries, whose spending is relatively efficient in generating human capital. We observe thatincreasing the budgetary effort, per se., is not an adequate response, if not associated by a joint increase in human capital.

Keywords

Monetary policy, international spillovers, Monetary union, European Union, Labour market, Unemployment and participation rate, Panel, VAR, Education; Endogenous growth, Fiscal policy and Taxation; Phillips curve.

theses.fr/en/s181460