Abstract
The current transitional paths of the Euro Area countries can be seen as a turning point between two alternative scenarios: (i) a low decline path (although no secular stagnation), where markets saturation features and trends dynamically interact with a growing share of finance disentangled from the real economy; (ii) an evolution towards self -sustained growth trajectories bundles, where feasible economic and institutional improvements are set in place. In order to capture such a turning point, we adopt a new approach to understand the Saving-Investment Feldstein–Horioka puzzle, developing a model based on the investigation on the time-growth varying surfaces of the Average Propensity to Save (APS) and the Average Propensity to Invest (API). The related specification econometrics, a sort of Colander “Craftsmen’s approach” that includes à la MIMIC estimates of the real rate of depreciation of social overhead capital stock, requires only the hypotheses of adaptive behaviour and stock-flow feedback loops. The results are consistent with the current instability of the Euro Area and show (and measure) to what extent small institutional changes and a limited set of operators can shift the overall trajectories of the EU system.
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Notes
- 1.
As considered in physics, biology and other sciences even also mathematics (Arthur 2013).
- 2.
Subatomic in physic, single agent in economy.
- 3.
Newtonian mechanics in physics and “meso economic” or macroeconomic aggregates. In this sense see Kenichi Ohamae (2005), “The next global stage: challenges and opportunities in our borderless word”, Pearson Education, Inc. Upper Saddle River, New Jersey 07458.
- 4.
Data refers to France, Germany, Italy and Spain as a whole (Euro Core) and for individual countries.
- 5.
See Table 1 in Loc-Ali.15.
- 6.
Up to 2005 clustering European Regions by structural characterized of economy, eastern länders (out of Berlin) were not clearly distinguishable from South Italy, Greece and Portugal regions (Lo Cascio et al. 2012).
- 7.
The details of the system estimates, together with structural characteristics of capita/output expected ratios, depreciation share on real saving and investment and or net financial position, are available upon request.
- 8.
The baseline OECD scenario assumptions, synthetically, are:
-
Reduction gap between potential and actual output
-
Increase in real oil prices by about 5 % per annum is assumed from 2013 to 2020, 2 % per annum from 2020 to 2030 and 1 % per annum thereafter
-
Unchanged, in real terms, of bilateral exchange rates between OECD countries
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Private credit to GDP ratio about 200 %
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Inflation 2 % and neutral interest rate in short term gradual increase in the underlying fiscal primary balance of ½ percentage point of GDP per year from 2013 onwards
The share of active life in life expectancy is assumed to remain constant.
Based on the baseline scenario, the assumption in “deep reforms” scenario are:
-
rapid liberalization in product markets
-
deeper labour market reform scenario (differences in active life expectancy are progressively eliminated)
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Improve fiscal balance by up to 1 % point of GDP each year
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reductions in the tax wedge
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welfare and financial reforms in non-OECD countries are assumed to occur more quickly than in the baseline: whereas public spending on social protection increases by 4 percentage points of GDP by 2040 in the baseline, the increase is assumed to take place by 2025; similarly, the availability of credit (expressed as a share of GDP) is assumed to reach the same level in as was previously achieved in the baseline by 2060.
-
- 9.
See also Holt et al. (2010).
- 10.
Especially under the hypothesis of rise in U.S. interest rate.
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Lo Cascio, M., Aliano, M. (2016). Long Term Patterns of European Accumulation and Growth: Europe at a Turning Point. In: Paganetto, L. (eds) Stagnation Versus Growth in Europe. Springer, Cham. https://doi.org/10.1007/978-3-319-26952-8_4
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