Strengthening the euro area. CHALLENGE EUROPE Issue 22. Challenges and new beginnings: Priorities for the EU's new leadership, September 2014

Since 2007, a series of acute crises have threatened the very existence of the euro area. The financial crisis which spilled into the currency union in 2007 was followed by an unexpectedly strong downturn of the real economy. As of 2010, the euro area was confronted with a severe sovereign debt and banking crisis. Despite these troublesome developments, the euro area has proven to have a considerable degree of resilience. In each phase, governance weaknesses were revealed – and national governments together with the EU institutions have designed an impressive series of policy responses in crisis management and institutional innovation. The euro area today is completed by a banking union with a Single Supervisory and a Single Resolution Mechanism. National budgetary and economic policies are more closely overseen and coordinated. With the European Stability Mechanism, the euro area now has a permanent tool in place to manage sovereign liquidity crises and instabilities in the banking sector. Most importantly, the euro area's only true federal institution, the European Central Bank (ECB), has become its most effective crisis manager: with the announcement of its Outright Monetary Transactions (OMT) programme, the ECB finally managed to calm the self fulfilling crisis in 2012. Meanwhile, the announcement of credit easing and quasi-quantitative easing in September 2014 is a move towards reducing financial fragmentation and countering deflation. The euro area in 2014 is hence a lot different from the one in 2007. And yet, further challenges need to be overcome. Prevailing stagnation, fragmentation and problems of legitimacy require a rethink of policies and further governance reform.

What signal from the Fed? Should the ECB ease further? CEPS Commentary, 18 September 2015

The Federal Reserve left rates unchanged at its closely-watched meeting on September 17th, although many had argued that the real economy data, especially on the labour market, would have justified an exit (from the zero interest policy). In this CEPS Commentary, Daniel Gros observes that no similar decision on exit is in sight in the euro area, despite the fact that some have argued that the ECB should consider further easing measures (pushing the deposit rate deeper into negative territory or increasing the size of its asset purchase programme). He asks, in fact, whether further easing measures should be even discussed at this point.

Is there a need for additional monetary stimulus? Insights from the original Taylor Rule. CEPS Policy Brief No. 342, April 2016

Central banks in the developed world are being misled into fighting the perceived dangers of a ‘deflationary spiral’ because they are looking at only one indicator: consumer prices. This Policy Brief finds that while consumer prices are flat, broader price indices do not show any sign of impending deflation: the GDP deflator is increasing in the US, Japan and the euro area by about 1.2-1.5%. Nor is the real economy sending any deflationary signals either: unemployment is at record lows in the US and Japan, and is declining in the euro area while GDP growth is at, or above potential. Thus, the overall macroeconomic situation does not give any indication of an imminent deflationary spiral. In today’s high-debt environment, the authors argue that central banks should be looking at the GDP deflator and the growth of nominal GDP, instead of CPI inflation. Nominal GDP growth, as forecasted by the major official institutions, remains robust and is in excess of nominal interest rates. They conclude that if the ECB were to set the interest rate according to the standard rules of thumb for monetary policy, which take into account both the real economy and price developments of broader price indicators, it would start normalising its policy now, instead of pondering over additional measures to fight deflation, which does not exist. In short, economic conditions are slowly normalising; so should monetary policy.

Capital Markets Union: A Work in Progress: Quick and high impact measures for the Capital Markets Union. European Policy Brief No. 37, September 2015

Capital Markets Union has three objectives. The first objective is to improve access to finance for all businesses but especially SMEs; the second is to increase the share of capital markets in the funding mix of the real economy; and the third is to make capital markets more effective and integrate them more closely across borders. This paper examines the best impact measures for the Capital Markets Union to proceed successfully.

An Approach for a more Objective Evaluation of Practical Projects, Used in the Training Process

Well–prepared, adaptive and sustainably developing specialists are an important competitive advantage, but also one of the main challenges for businesses. One option of the education system for creation and development of staff adequate to the needs is the development of pro jects with topics from real economy ("Practical Projects"). The objective assessment is an essential driver and motivator, and is based on a system of well-chosen, well-defined and specific criteria and indicators. An approach to a more objective evaluation of practical projects is finding more objective weights of the criteria. A natural and reasonable approach is the accumulation of opinions of proven experts and subsequent bringing out the weights from the accumulated data. The preparation and conduction of a survey among recognized experts in the field of project-based learning in mathematics, informatics and information technologies is described. The processing of the data accumulated by applying AHP, allowed us to objectively determine weights of evaluation criteria and hence to achieve the desired objectiveness. ACM Computing Classification System (1998): K.3.2.

International Capital Flows and Monetary Policy Spillovers

This dissertation examines the drivers and implications of international capital flows. The overarching motivation is the observation that countries not at the centre of global financial markets are subject to considerable spillovers from centre countries, notably from their monetary policy. I present new empirical evidence on the determinants of the observed patterns of international capital flows and monetary policy spillovers, and study their effect on both financial markets and the real economy. In Chapter 2 I provide evidence on the determinants of a puzzling negative correlation observed between productivity growth and net capital inflows to developing and emerging market economies (EMEs) since 1980. By disaggregating net capital inflows into their gross components, I show that this negative correlation is explained by capital outflows related to purchases of very liquid assets from the fastest growing countries. My results suggest a desire for international portfolio diversification in liquid assets by fast growing countries is driving much of the original puzzle. In the reminder of my dissertation I pivot to study the foreign characteristics that drive international capital flows and monetary policy spillovers, with a particular focus on the role of unconventional monetary policy in the United States (U.S.). In Chapter 3 I show that a significant portion of the heterogeneity in EMEs' asset price adjustment following the quantitative easing operations by the Federal Reserve (the Fed) during 2008-2014 can be explained by the degree of bilateral capital market frictions between these countries and the U.S. This is true even after accounting for capital controls, exchange rate regimes, and domestic monetary policies. Chapter 4, co-authored with Michal Ksawery Popiel, studies unconventional monetary policy in a small open economy, looking specifically at the case of Canada since the global financial crisis. We quantify the effect Canadian unconventional monetary policy shocks had on the real economy, while carefully controlling for and quantifying spillovers from U.S. unconventional monetary policy. Our results indicate that the Bank of Canada's unconventional monetary policy increased Canadian output significantly from 2009-2010, but that spillovers from the Fed's policy were even more important for increasing Canadian output after 2008.

IDENTIFYING ETHICAL DILEMMAS OF PORTUGUESE CHARTERED ACCOUNTANTS

The way professionals deal with ethical dilemmas and the decisions they make may be guided by a personal and individual ideology, but it is also strongly influenced by their professional group and society. This paper focuses in real situations as they are experienced by individuals in their day-to-day professional life. The data were collected using opened-end interviews. Respondents were asked to identify the ethical dilemmas they had been faced with during their professional life. Qualitative analysis shows that main dilemmas are about how to deal with “informal economy”, “false invoices” and “tax evasion”. This study aims to contribute to the discussion of ethical issues faced by Portuguese Chartered Account (TOC), thus promoting a large debate about the way the TOC can help to create a better society and consequently legitimating their existence as a professional organization of public interest. More than ever, understanding professionals’ behavior in their real context is essential for to build a culture conducive to the ethical development of society, and to ensure, at the same time, the desirable business sustainability. This study gives a broaden description of ethics dilemmas faced by chartered accounts and shows some inefficiency in the ethical control system made by professional bodies.

The Portuguese law on social economy

This study is a reflection on the Portuguese Framework Law on Social Economy, highlighting, from a critical point-of-view, its contribution to the explicit institutional and legal recognition of the social economy sector. It does so by defining the concept of social economy and listing the entities engaged in this sector, by defining its guiding principles and the mechanisms for its promotion and encouragement, and also by describing the creation of a tax and competition regime which will take into account its specificities. The setting up of this foundations of the social economy was based on the constitutional principle of protection of the social and cooperative sector, which substantiates the adoption of differentiating solutions in view of the positive discrimination of this sector.

Real-time Energy Resource Scheduling considering a Real Portuguese Scenario

The development in power systems and the introduction of decentralized generation and Electric Vehicles (EVs), both connected to distribution networks, represents a major challenge in the planning and operation issues. This new paradigm requires a new energy resources management approach which considers not only the generation, but also the management of loads through demand response programs, energy storage units, EVs and other players in a liberalized electricity markets environment. This paper proposes a methodology to be used by Virtual Power Players (VPPs), concerning the energy resource scheduling in smart grids, considering day-ahead, hour-ahead and real-time scheduling. The case study considers a 33-bus distribution network with high penetration of distributed energy resources. The wind generation profile is based on a real Portuguese wind farm. Four scenarios are presented taking into account 0, 1, 2 and 5 periods (hours or minutes) ahead of the scheduling period in the hour-ahead and realtime scheduling.

Research and development expenditure in the business sector as indicator of knowledge economy: the Portuguese experience

The objective of the paper is to help to understand recent changes in the structure of R&D activities, by analyzing data on the expenditure of the business sector in research and development (R&D). The results are framed in an international context, through comparison with indicators from the most developed countries, divided by technological intensity and economic activity. The study reveals that the indicators of Portuguese R&D expenditure in the business sector are closely linked both to fiscal policy and to high foreign direct investment in knowledge-intensive industries. It also links these indicators to phenomena such as the abundance of skilled labor in pharmaceutical industries and the government intervention in some sectors of the economy (namely health and rail transportation).

Oil price shocks and the Portuguese economy since the 1970s

This paper assesses empirically the effect of oil price shocks on Portuguese aggregate economic activity, industrial production and price level. We take the usual multivariate VAR methodology to investigate the magnitude and stability of this relationship. In doing so, we follow the approach presented in the recent literature and adopt different oil price specifications. We conclude that, as for most industrialized countries, the nature of this relationship changed in the mid-1980s. Furthermore, we show that the main Portuguese macroeconomic variables have become progressively less responsive to oil shocks and the adjustment towards equilibrium has become increasingly faster.

Learnings from real cases route-to-market redesign within the Portuguese lubricants sector

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Management from the NOVA – School of Business and Economics

Portuguese stagnation in the 2001-2012 period

The 2001-2012 period has been one of very low growth for Portugal. This work project tries to find reasons for this slowdown. Growth in real GDP will be explained by several variables ranging from education, capital, government and world markets. Compensation of employees, capital per worker and the exports of competitors seem to explain a significant part of the slowdown. The ratio of non-tradables to tradables is also included but not significant, maybe due to a poor sample size. Stagnation then seems to be caused both by low growth in input accumulation and productivity as predicted by Amador and Coimbra in 2007.

Reallocation of resources between the tradable and non-tradable sector in Portugal: Assessing the degree of structural transformation in the Portuguese economy

Portugal implemented a large number of structural reforms in the recent years, which are expected to enhance the allocation of resources in the economy, namely from the non-tradable to tradable sector. We argue that the methodology to identify the tradable sector used by some international institutions is outdated and may hamper an accurate assessment of the progress achieved so far. Based on an enhanced methodology to identify the tradable sector, we are able to provide a more accurate, clearer picture of the recent structural developments of the Portuguese economy.

Current Account imbalances, thriftiness and the real exchange rate in a growing economy

This paper analyses the theoretical relevance of the dynamical aspects of growth on the discussion about the observed positive correlation between per capita real income and real exchange rates. With this purpose, we develop a simple exogenous growth model where the internal, external and intertemporal equilibrium conditions of a typical macroeconomic model are imposed; this last one through the inclusion of a balanced growth path for the foreign assets accumulation. The main result under this consideration is that the relationship defended by the Balassa-Samuelson hypothesis is no more so straightforward. In our particular approach, the mentioned bilateral relationship depends on a parameter measuring thriftiness in the economy. Therefore, the probability of ending up with a positive relationship between growth and real exchange rates -as the classical economic theory predicts- will be higher when the economy is able to maintain a minimum saving ratio. Moreover, given that our model considers a simple Keynesian consumption function, some explosive paths can also be possible.