The Quantity Theory Revisited: A New Structural Approach
Makram El-Shagi, Sebastian Giesen
Abstract
While the long run relation between money and inflation is well established, empirical evidence on the adjustment to the long run equilibrium is very heterogeneous. In this paper we show, that the development of US consumer price inflation between 1960Q1 and 2005Q4 is strongly driven by money overhang. To this end, we use a multivariate state space framework that substantially expands the traditional vector error correction approach. This approach allows us to estimate the persistent components of velocity and GDP. A sign restriction approach is subsequently used to identify the structural shocks to the signal equations of the state space model, that explain money growth, inflation and GDP growth. We also account for the possibility that measurement error exhibited by simple-sum monetary aggregates causes the consequences of monetary shocks to be improperly identified by using a Divisia monetary aggregate. Our findings suggest that when the money is measured using a reputable index number, the quantity theory holds for the United States.
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On the Economic Architecture of the Workplace: Repercussions of Social Comparisons among Heterogeneous Workers
Oded Stark, Walter Hyll
Journal of Labor Economics,
No. 2,
2011
Abstract
We analyze the impact on a firm’s profits and optimal wage rates, and on the distribution of workers’ earnings, when workers compare their earnings with those of co-workers. We consider a low-productivity worker who receives lower wage earnings than a high-productivity worker. When the low-productivity worker derives (dis)utility not only from his own effort but also from comparing his earnings with those of the high-productivity worker, his response to the sensing of relative deprivation is to increase the optimal level of effort. Consequently, the firm’s profits are higher, its wage rates remain unchanged, and the distribution of earnings is compressed.
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Real Estate Prices and Bank Stability
Michael Koetter, Tigran Poghosyan
Journal of Banking and Finance,
No. 34,
2010
Abstract
Real estate prices can deviate from their fundamental value due to rigid supply, heterogeneity in quality, and various market imperfections, which have two contrasting effects on bank stability. Higher prices increase the value of collateral and net wealth of borrowers and thus reduce the likelihood of credit defaults. In contrast, persistent deviations from fundamentals may foster the adverse selection of increasingly risky creditors by banks seeking to expand their loan portfolios, which increases bank distress probabilities. We test these hypotheses using unique data on real estate markets and banks in Germany. House price deviations contribute to bank instability, but nominal house price developments do not. This finding corroborates the importance of deviations from the fundamental value of real estate, rather than just price levels or changes alone, when assessing bank stability.
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International Bank Portfolios: Short- and Long-Run Responses to Macroeconomic Conditions
S. Blank, Claudia M. Buch
Review of International Economics,
No. 2,
2010
Abstract
International bank portfolios constitute a large component of international country portfolios. Yet, banks’ response to international macroeconomic conditions remains largely unexplored.We use a novel dataset on banks’ international portfolios to answer three questions. First, what are the long-run determinants of banks’ international portfolios? Second, how do banks’ international portfolios adjust to short-run macroeconomic developments? Third, does the speed of adjustment change with the degree of financial integration?We find that, in the long-run, market size has a positive impact on foreign assets and liabilities. An increase in the interest differential between the home and the foreign economy lowers foreign assets and increases foreign liabilities. Foreign trade has a positive impact on international bank portfolios, which is independent from the effect of other macroeconomic variables. Short-run dynamics show heterogeneity across countries, but these dynamics can partly be explained with gravity-type variables.
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Transmission of Nominal Exchange Rate Changes to Export Prices and Trade Flows and Implications for Exchange Rate Policy
Mathias Hoffmann, Oliver Holtemöller
Scandinavian Journal of Economics,
2010
Abstract
We discuss how the welfare ranking of fixed and flexible exchange rate regimes in a New Open Economy Macroeconomics model depends on the interplay between the degree of exchange rate pass-through and the elasticity of substitution between home and foreign goods. We identify combinations of these two parameters for which flexible and fixed exchange rates are superior with respect to welfare as measured by a representative household's utility level. We estimate the two parameters for six non-EMU European countries (Czech Republic, Hungary, Poland, Slovakia, Sweden, and the UK) using a heterogeneous dynamic panel approach.
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A First Look on the New Halle Economic Projection Model
Sebastian Giesen, Oliver Holtemöller, Juliane Scharff, Rolf Scheufele
Abstract
In this paper we develop a small open economy model explaining the joint determination of output, inflation, interest rates, unemployment and the exchange rate in a multi-country framework. Our model – the Halle Economic Projection Model (HEPM) – is closely related to studies recently published by the International
Monetary Fund (global projection model). Our main contribution is that we model the Euro area countries separately. In this version we consider Germany and France, which represent together about 50 percent of Euro area GDP. The model allows for country specific heterogeneity in the sense that we capture different adjustment patterns to economic shocks. The model is estimated using Bayesian techniques. Out-of-sample and pseudo out-of-sample forecasts are presented.
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Exports Versus FDI Revisited: Does Finance Matter?
Claudia M. Buch
Bundesbank Discussion Paper 03/2010,
2010
Abstract
This paper explores the impact of financial constraints on the internationalization
strategies of firms. It contributes to the literature by focusing on three aspects: First, the paper studies the impact of financial constraints on exporting relative to FDI. Consistent with theory, the empirical results confirm that the impact of financial constraints is stronger for FDI than for exporting. Second, the paper analyzes the extensive and the intensive margins and finds that financial frictions matter for both. Third, the paper explores the impact on manufacturing as compared to service industries and shows that firms in service industries are affected more than firms in manufacturing. The paper also identifies a threshold effect: Financial constraints do not matter for small firms whose productivity seems to be too low to consider international expansions.
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Money and Inflation: The Role of Persistent Velocity Movements
Makram El-Shagi, Sebastian Giesen
Abstract
While the long run relation between money and inflation is well established, empirical evidence on the adjustment to the long run equilibrium is very heterogeneous. In the present paper we use a multivariate state space framework, that substantially expands the traditional vector error correction approach, to analyze the short run impact of money on prices. We contribute to the literature in three ways: First, we distinguish changes in velocity of money that are due to institutional developments and thus do not induce inflationary pressure, and changes that reflect transitory movements in money demand. This is achieved with a newly developed multivariate unobserved components decomposition. Second, we analyze whether the high volatility of the transmission from monetary pressure to inflation follows some structure, i.e., if the parameter regime can assumed to be constant. Finally, we use our model to illustrate the consequences of the monetary policy of the Fed that has been employed to mitigate the impact of the financial crisis, simulating different exit strategy scenarios.
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Regionale Entwicklungsmuster und ihre Konsequenzen für die Raumordnungspolitik
Alexander Kubis, Mirko Titze, Matthias Brachert, U. Bergner, Harald Lehmann
IWH-Sonderhefte,
No. 3,
2009
Abstract
Seit Mitte der 1990er Jahre haben sich die deutschen Arbeitsmarktregionen sehr heterogen entwickelt. So existieren Regionen, die neben einer Steigerung ihrer Wettbewerbsfähigkeit zusätzlich einen Erwerbstätigenzuwachs verzeichnen konnten. Daneben sind Regionen zu finden, deren wirtschaftliches Wachstum und deren Arbeitsplatzentwicklung ungünstiger verliefen. Diese Beobachtung führt mit Blick auf regionalpolitische Förderziele und Strategien zu weitreichenden Konsequenzen.
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