Asymmetric Investment Responses to Firm-specific Forecast Errors
Julian Berner, Manuel Buchholz, Lena Tonzer
Abstract
This paper analyses how firm-specific forecast errors derived from survey data of German manufacturing firms over 2007–2011 affect firms’ investment propensity. Understanding how forecast errors affect firm investment behaviour is key to mitigate economic downturns during and after crisis periods in which forecast errors tend to increase. Our findings reveal a negative impact of absolute forecast errors on investment. Strikingly, asymmetries arise depending on the size and direction of the forecast error. The investment propensity declines if the realised situation is worse than expected. However, firms do not adjust investment if the realised situation is better than expected suggesting that the uncertainty component of the forecast error counteracts positive effects of unexpectedly favorable business conditions. Given that the fraction of firms making positive forecast errors is higher after the peak of the recent financial crisis, this mechanism can be one explanation behind staggered economic growth and slow recovery following crises.
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Integrated Assessment of Epidemic and Economic Dynamics
Oliver Holtemöller
IWH Discussion Papers,
No. 4,
2020
Abstract
In this paper, a simple integrated model for the joint assessment of epidemic and economic dynamics is developed. The model can be used to discuss mitigation policies like shutdown and testing. Since epidemics cause output losses due to a reduced labor force, temporarily reducing economic activity in order to prevent future losses can be welfare enhancing. Mitigation policies help to keep the number of people requiring intensive medical care below the capacity of the health system. The optimal policy is a mixture of temporary partial shutdown and intensive testing and isolation of infectious persons for an extended period of time.
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08.04.2020 • 5/2020
Economy in Shock – Fiscal Policy to Counteract
The coronavirus pandemic is triggering a severe recession in Germany. Economic output will shrink by 4.2% this year. This is what the leading economics research institutes expect in their spring report. For next year, they are forecasting a recovery and growth of 5.8%.
Oliver Holtemöller
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The Value of Firm Networks: A Natural Experiment on Board Connections
Ester Faia, Maximilian Mayer, Vincenzo Pezone
CEPR Discussion Papers,
No. 14591,
2020
Abstract
This paper presents causal evidence of the effects of boardroom networks on firm value and compensation policies. We exploit exogenous variation in network centrality arising from a ban on interlocking directorates of Italian financial and insurance companies. We leverage this shock to show that firms whose centrality in the network rises after the reform experience positive abnormal returns around the announcement date and are better hedged against shocks. Information dissemination plays a central role: results are driven by firms that have higher idiosyncratic volatility, low analyst coverage, and more uncertainty surrounding their earnings forecasts. Firms benefit more from boardroom centrality when they are more central in the input-output network, hence more susceptible to upstream shocks, when they are less central in the cross-ownership network, or when they have low profitability or low growth opportunities. Network centrality also results in higher directors' compensation, due to rent sharing and improved executives' outside option, and more similar compensation policies between connected firms.
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Coal Phase-out in Germany – Implications and Policies for Affected Regions
Pao-Yu Oei, Hauke Hermann, Philipp Herpich, Oliver Holtemöller, Benjamin Lünenbürger, Christoph Schult
Energy,
April
2020
Abstract
The present study examines the consequences of the planned coal phase-out in Germany according to various phase-out pathways that differ in the ordering of power plant closures. Soft-linking an energy system model with an input-output model and a regional macroeconomic model simulates the socio-economic effects of the phase-out in the lignite regions, as well as in the rest of Germany. The combination of two economic models offers the advantage of considering the phase-out from different perspectives and thus assessing the robustness of the results. The model results show that the lignite coal regions will exhibit losses in output, income and population, but a faster phase-out would lead to a quicker recovery. Migration to other areas in Germany and demographic changes will partially compensate for increasing unemployment, but support from federal policy is also necessary to support structural change in these regions.
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Nowcasting East German GDP Growth: a MIDAS Approach
João Carlos Claudio, Katja Heinisch, Oliver Holtemöller
Empirical Economics,
No. 1,
2020
Abstract
Economic forecasts are an important element of rational economic policy both on the federal and on the local or regional level. Solid budgetary plans for government expenditures and revenues rely on efficient macroeconomic projections. However, official data on quarterly regional GDP in Germany are not available, and hence, regional GDP forecasts do not play an important role in public budget planning. We provide a new quarterly time series for East German GDP and develop a forecasting approach for East German GDP that takes data availability in real time and regional economic indicators into account. Overall, we find that mixed-data sampling model forecasts for East German GDP in combination with model averaging outperform regional forecast models that only rely on aggregate national information.
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Nowcasting East German GDP Growth: a MIDAS Approach
João Carlos Claudio, Katja Heinisch, Oliver Holtemöller
Abstract
Economic forecasts are an important element of rational economic policy both on the federal and on the local or regional level. Solid budgetary plans for government expenditures and revenues rely on efficient macroeconomic projections. However, official data on quarterly regional GDP in Germany are not available, and hence, regional GDP forecasts do not play an important role in public budget planning. We provide a new quarterly time series for East German GDP and develop a forecasting approach for East German GDP that takes data availability in real time and regional economic indicators into account. Overall, we find that mixed-data sampling model forecasts for East German GDP in combination with model averaging outperform regional forecast models that only rely on aggregate national information.
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Sinkendes Potenzialwachstum in Deutschland, beschleunigter Braunkohleausstieg und Klimapaket: Finanzpolitische Konsequenzen für die Jahre bis 2024
Andrej Drygalla, Katja Heinisch, Oliver Holtemöller, Axel Lindner, Christoph Schult, Matthias Wieschemeyer, Götz Zeddies
Konjunktur aktuell,
No. 4,
2019
Abstract
Nach der Mittelfristprojektion des IWH wird das Bruttoinlandsprodukt in Deutschland in den Jahren bis 2024 preisbereinigt um durchschnittlich 1% wachsen; das nominale Bruttoinlandsprodukt wird um durchschnittlich 2¾% zunehmen. Die Durchschnittswerte verschleiern die Tatsache, dass das Wachstum gegen Ende des Projektionszeitraums aufgrund der dann rückläufigen Erwerbsbevölkerung spürbar zurückgehen wird. Dies wird sich auch bei den Staatseinnahmen niederschlagen. Allerdings wird die Bevölkerung nicht regional gleichverteilt zurückgehen. Strukturschwache Regionen dürften stärker betroffen sein. Die regionalen Effekte auf die Staatseinnahmen werden zwar durch Umverteilungsmechanismen abgefedert, aber nicht völlig ausgeglichen. Regionen mit schrumpfender Erwerbsbevölkerung müssen sich auf einen sinkenden finanziellen Spielraum einstellen. Der beschleunigte Braunkohleausstieg wird diesen Prozess verstärken, das Klimapaket der Bundesregierung hat hingegen vergleichsweise geringe Auswirkungen auf die öffentlichen Finanzen.
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What Drives the Commodity-Sovereign-Risk-Dependence in Emerging Market Economies?
Hannes Böhm, Stefan Eichler, Stefan Gießler
Abstract
Using daily data for 34 emerging markets in the period 1994-2016, we find robust evidence that higher export commodity prices are associated with higher sovereign bond returns (indicating lower sovereign risk). The economic effect is especially pronounced for heavy commodity exporters. Examining the drivers, we find, first, that commodity-dependence is higher for countries that export large volumes of volatile commodities and that the effect increases in times of recessions, high inflation, and expansionary U.S. monetary policy. Second, the importance of raw material prices for sovereign financing can likely be mitigated if a country improves institutions and tax systems, attracts FDI inflows, invests in manufacturing, machinery and infrastructure, builds up reserve assets and opens capital and trade accounts. Third, the concentration of commodities within a country’s portfolio, its government indebtedness or amount of received development assistance appear to be only of secondary importance for commodity-dependence.
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Structural Stability of the Research & Development Sector in European Economies Despite the Economic Crisis
Jutta Günther, Maria Kristalova, Udo Ludwig
Journal of Evolutionary Economics,
No. 5,
2019
Abstract
When an external shock such as the economic crisis in 2008/2009 occurs, the interconnectedness of sectors can be affected. This paper investigates whether the R&D sector experienced changes in its sectoral integration through the recession. Based on an input-output analysis, it can be shown that the linkages of the R&D sector with other sectors remain stable. In some countries, the inter-sectoral integration becomes even stronger. Policy makers can be encouraged to use public R&D spending as a means of fiscal policy against an economic crisis.
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