palgrave The Economic Performance of the European Union Issues, Trends and Policies macmiuan Edited by Antonin Rusek

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1 The Economic Performance of the European Union Issues, Trends and Policies Edited by Antonin Rusek Susquehanna University, USA Lubor Lacina Mendel University, Czech Republic Jarko Fidrmuc Ludwig-Maximilians-Universitat Munich, Germany palgrave macmiuan

2 Contents List of Figures List of Tables Acknowledgements List of Contributors Introduction x xii xiv xv xvii Part I EU Perspectives: Systemic Performance and Currency Issues 1 The Swedish Economic Model: Lessons to be Learned 3 Karl Aiginger 1.1 Introduction The European socio-economic model Reform strategies in Sweden, The recurrence of some problems Are there lessons to be learned for the new member countries? 17 Appendix 1.1 Towards a new European model 19 The European Central Bank Inflation Target and Economic Growth in the Eurozone 23 Svatopluk Kapounek and Lubor Lacina 2.1 Introduction Theoretical background: monetary policy versus economic growth Methodology Empirical analysis: impact of monetary restriction and expansion on the aggregate economy growth in the Eurozone Conclusions 34

3 vi Contents 3 Real Effective Exchange Rate for the Euro: Equilibrium and Misalignment 42 Antonin Rusek 3.1 Introduction 'Equilibrium' real effective exchange rate: modelling concepts and literature The BEER type of the equilibrium real effective exchange rate model Estimation Results: what do they tell us? Conclusions 62 Appendix 3.1 Variables: definition and sources 62 Appendix 3.2 Unit root tests for variables in BEER models - ADF tests 63 Exchange Rate Policy Strategy in Large Currency Areas 66 Svatopluk Kapounek and Jitka Pomenkova 4.1 Introduction 4.2 Methodological approach 4.3 Empirical analysis results 4.4 Conclusions Euro Area Enlargement and European Central Bank Reform David Howarth 5.1 Introduction 5.2 The difficulties posed by enlargement: size matters but so too does representation 5.3 Alternative reform proposals 5.4 Rotation system 5.5 The official justification 5.6 Debates on the number and composition of rotating groups, voting rights, composite indicator and representativeness 5.7 Compromising representativeness and efficiency 5.8 The economic danger of 'equality' 5.9 Conclusions

4 Contents vii Part II EU Expansion: New Members in the EU Environment 6 Fiscal Convergence in Monetary Union: are the New Member Countries Better Disciplined than Eurozone Members? 107 Evzen Kocenda, AH M. Kutan and Taner M. Yigit 6.1 Introduction Related studies and our contribution Methodology Data and sample period Empirical findings Conclusions Business Cycles Similarity and EMU Enlargement: the Concordance Index for Central and Eastern European Countries 131 Petr Rozmahel 7.1 Introduction Data and methodology The traditional approach: correlation of business cycles The concordance index technique Conclusions 142 Appendix Monetary Policy before Euro Adoption: Challenges for New EU Members 149 Jan Fildcek, Roman Horvdth and Michal Skofepa 8.1 Introduction The exchange rate criterion and the inflation criterion Monetary policy regime options in ERM II Conclusions 168 Appendix 8.1: The experience of selected countries Fiscal Performance and Economic Growth in the Old and New Member States of the EU 179 Istvdn Benczes 9.1 Introduction Fiscal performance and economic growth in old member states 180

5 viii Contents 9.3 Fiscal performance of CEE countries on the road towards the euro Conclusions 196 Appendix Part III Various Aspects of EU Economies: China and the World Economy, FDIs, Company Taxation, the ECB and the 'New' Member States 10 Company Taxation in the European Union: Current Developments and Implications for the Coordination Debate 203 Margit Schmtzenstaller 10.1 Introduction Challenges for European company tax policy The debate about company tax coordination in the N EU: status quo and perspectives The Policy of the ECB and its Impact on the Economic 223 Development of New EU Members Milan Sojka 11.1 Introduction Post-Keynesian monetary theory The European Central Bank, its position and the role of its monetary policy from a post-keynesian view The effects of the role and monetary policy of the ECB for post-socialist and less developed EU member states from the post-keynesian economics point of view Conclusions New Global Players and Disharmonies in the World Orchestra: Cohesion Analysis of Business Cycles of China 241 Jarko Fidrmuc, Iikka Korhonen and Ivana Bdtorovd 12.1 Introduction Determinants of business cycle synchronization Correlation and dynamic correlation analysis 245

6 Contents ix 12.4 Stylized facts of the business cycle in China and selected countries Cohesion analysis and the Chinese effect on world business cycles Conclusions 251 Index 254