Exploring macroeconomic imbalances through EU Alert Mechanism Reports

Abstract

The present paper examines the European Commission's decisions to issue warrants for in-depth reviews of countries after they have manifested signs of macroeconomic imbalances. The analysis carried out can be differentiated from its predecessors by its focus on past decisions to perform in-depth reviews and the associated weakly behavioral, political, and institutional factors, which, even though lying outside the scope of the Macroeconomic Imbalance Procedure (MIP) Scoreboard, may, nevertheless, affect warrant considerations. Thus, this analysis endeavors to identify potential additional determinants of the decision-making process underlying Alert Mechanism Reports (AMRs). To achieve this goal, binary choice models have been used to analyze panel data on EU member states constructed from the initial ten rounds of the MIP. Apart from the expected impact of indicators obtained from the AMRs, the analysis has not provided a sufficient amount of robust and conclusive evidence which would confirm the effect of any specific additional determinant from those that were examined. Factors that showed notable indications of an effect were concurrent reports implying a country-specific economic crisis, positive political preferences within the country toward the EU, and the perceived level of regulatory quality.