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The Diablo 3 Economy: An Agent Based Approach

Makram El-Shagi, Gregor von Schweinitz
Computational Economics, No. 2, 2016
Abstract
Designers of MMOs such as Diablo 3 face economic problems much like policy makers in the real world, e.g. inflation and distributional issues. Solving economic problems through regular updates (patches) became as important to those games as traditional gameplay issues. In this paper we provide an agent framework inspired by the economic features of Diablo 3 and analyze the effect of monetary policy in the game. Our model reproduces a number of features known from the Diablo 3 economy such as a heterogeneous price development, driven almost exclusively by goods of high quality, a highly unequal wealth distribution and strongly decreasing economic mobility. The basic framework presented in this paper is meant as a stepping stone to further research, where our evidence is used to deepen our understanding of the real-world counterparts of such problems. The advantage of our model is that it combines simplicity that is inherent to model economies with a similarly simple observable counterpart (namely the game environment where real agents interact). By matching the dynamics of the game economy we can thus easily verify that our behavioral assumptions are good approximations to reality.
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EFN Report Winter 2015/16: Economic Outlook for the Euro Area in 2016 and 2017

EFN Reports, No. 1, 2016
Abstract
At present, growth in manufacturing and investment activity are weak, particularly in China but, to a lesser extent, in advanced economies as well. World activity in many service sectors, however, proves resilient. Worldwide demand is primarily backed by low interest rates and low prices for energy and commodities. However, the latter also cause serious risks for the stability of economies that are dependent on commodity export revenues. Since the sovereign debt crisis began to recede during 2013, fiscal policies have become ever less restrictive in most member states of the currency union. In 2016, fiscal policy in the euro area will even become a bit expansive. However, we expect only a moderate acceleration of the recovery in the euro area, because foreign demand will not expand by much due to the weakness of emerging market economies, and internal demand will still be dragged down by high debt levels of firms and households in many member countries. In particular, according to our forecasts, the euro area GDP will grow by 1.8% in 2016 and 2017, and this will be accompanied by a decline in the unemployment rate below 10%. Our inflation forecast for 2016 is 1.1%. For 2017, we expect inflation to increase up to 1.5% as during next year the dampening effects of decreasing energy prices will slowly fade off.
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16.12.2015 • 45/2015

German Economy: Strong domestic demand compensates for weak exports

The upturn of the German economy is expected to gain further momentum as a consequence of strong domestic demand. Real gross domestic product is expected to increase by 1.6% in 2016. Consumer prices are expected to rise by 0.9%. Unemployment is expected to rise slightly because it will take time to integrate refugees into the labour market.

Oliver Holtemöller
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24.09.2015 • 38/2015

German Households Benefit from Low Interest Environment

Calculations of the Halle Institute for Economic Research (IWH) – Member of the Leibniz Association show that the average household in Germany has benefited from the low policy rate environment. The average return on their portfolio was higher than in the pre-crisis period while at the same time, they benefited from lower interest on new loans. Households in Germany had a total Euro benefit of more than 364 billion Euro over a five-year period relative to 2003 to 2007. Increases in stock prices and real estate prices over-compensate lower interest rates on savings accounts, despite their relatively low share in households’ portfolios. There are benefits across the income distribution. Households that do not own real estate lost though, but their losses are very small at on average about 100 Euro per year.

Reint E. Gropp
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Global Food Prices and Business Cycle Dynamics in an Emerging Market Economy

Oliver Holtemöller, Sushanta Mallick
IWH Discussion Papers, No. 15, 2015
published in: Journal of Asian Economics
Abstract
This paper investigates a perception in the political debates as to what extent poor countries are affected by price movements in the global commodity markets. To test this perception, we use the case of India to establish in a standard SVAR model that global food prices influence aggregate prices and food prices in India. To further analyze these empirical results, we specify a small open economy New-Keynesian model including oil and food prices and estimate it using observed data over the period from 1996Q2 to 2013Q2 by applying Bayesian estimation techniques. The results suggest that big part of the variation in inflation in India is due to cost-push shocks and, mainly during the years 2008 and 2010, also to global food price shocks, after having controlled for exogenous rainfall shocks. We conclude that the inflationary supply shocks (cost-push, oil price, domestic food price and global food price shocks) are important contributors to inflation in India. Since the monetary authority responds to these supply shocks with a higher interest rate which tends to slow growth, this raises concerns about how such output losses can be prevented by reducing exposure to commodity price shocks and thereby achieve higher growth.
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Monetary Policy under the Microscope: Intra-bank Transmission of Asset Purchase Programs of the ECB

L. Cycon, Michael Koetter
IWH Discussion Papers, No. 9, 2015
Abstract
With a unique loan portfolio maintained by a top-20 universal bank in Germany, this study tests whether unconventional monetary policy by the European Central Bank (ECB) reduced corporate borrowing costs. We decompose corporate lending rates into refinancing costs, as determined by money markets, and markups that the bank is able to charge its customers in regional markets. This decomposition reveals how banks transmit monetary policy within their organizations. To identify policy effects on loan rate components, we exploit the co-existence of eurozone-wide security purchase programs and regional fiscal policies at the district level. ECB purchase programs reduced refinancing costs significantly, even in an economy not specifically targeted for sovereign debt stress relief, but not loan rates themselves. However, asset purchases mitigated those loan price hikes due to additional credit demand stimulated by regional tax policy and enabled the bank to realize larger economic margins.
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EFN Report Summer 2015: Economic Outlook for the Euro Area in 2015 and 2016

EFN Reports, No. 3, 2015
Abstract
External conditions for the euro area economy are still favourable, albeit somewhat less so than at the beginning of the year. Oil prices are by more than a third lower than they were on average in 2014, but about 10 USD higher than in January. Long term interest rates are still very low, but by half a percentage point higher than in January. Worldwide growth in production and trade has disappointed in the first quarter of 2015, and recent leading indicators point to no more than a slightly faster expansion of world production for the rest of the year. The risks of contagion from the Greek crisis to the partner countries appear limited, because financial exposure to the Greek banking sector has been very much reduced. The EU nowadays has instruments with considerable power to fight losses of confidence, and the other countries that received financial assistance in the euro crisis appear politically much more stable, and their economies (including that of Cyprus in the first quarter of this year) have started growing at quite satisfactory rates. According to our forecasts, the euro area GDP will grow by 1.6% in 2015 and by 2.1% in 2016, as negative factors slowly become less important. Both private consumption and investment will expand at a good pace, and the unemployment rate will diminish, but still remain above 10% by the end of 2016. The main risk is that the Greek crisis has a more negative effect on confidence than initially expected. Our inflation forecast for 2015 is 0.2%, with the possibility of a mild deflation not excluded. During the first quarter of 2015 rising oil prices were the main contributors to the ascending inflation expectations, while during the second quarter upward surprises over expected inflation have come from manufactured goods and services. For 2016, we expect that inflation will increase up to 1.2%, still below the 2% ECB’s target.
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EFN Report Spring 2015: Economic Outlook for the Euro Area in 2015 and 2016

EFN Reports, No. 2, 2015
Abstract
Recent movements on world markets for commodities, currencies and capital stimulate the world economy, but they entail also considerable risks: income losses of energy exporting countries might trigger financial crises with worldwide repercussions; crises might also emerge from financial distress of emerging market debtors with liabilities denominated in US dollars. Extremely low interest rates might not only trigger stock and bond price booms, but also more volatility if investors become fearful of financial bubbles. Quite a few conditions are highly beneficial for a recovery of the euro area economy: governments and large corporations benefit from ultra-low bond yields, banks’ composite costs of debt financing have been converging during the past two years to very low levels, and borrowing costs for non-financial corporations have come down markedly. Prices for stocks, bonds and (on average) houses have gone up. Real disposable incomes of private households have risen due to oil prices. The real effective exchange rate is about 10% lower in March 2015 than it was a year ago, strengthening the price competitiveness of firms in the euro area. According to our forecasts, the euro area GDP will grow by 1.6% in 2015 and by 2.1% in 2016. Structural impediments, however, still limit the ability of the euro area economy to grow strongly: firms and, in particular, private households are only slowly reducing their heavy debt burdens, and confidence will not fully come back in France and Italy, as long as reform processes are inconclusive in both countries and as long as unemployment is not coming down markedly. Our inflation forecast for 2015 is 0.1%, with the possibility of a mild deflation not excluded. In 2016 inflation will increase up to 1.3%, still clearly below the 2% ECB’s target. This calls for continued monetary expansion, though its effects could be limited in the absence of a complementary fiscal stimulus, in particular in those countries where the implementation of structural reforms brings long term gains but short term losses.
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Assessing European Competitiveness: The New CompNet Microbased Database

Paloma Lopez-Garcia, Filippo di Mauro
ECB Working Paper, No. 1764, 2015
Abstract
Drawing from confidential firm-level balance sheets for 17 European countries (13 Euro-Area), the paper documents the newly expanded database of cross-country comparable competitiveness-related indicators built by the Competitiveness Research Network (CompNet). The new database provides information on the distribution of labour productivity, TFP, ULC or size of firms in detailed 2-digit industries but also within broad macrosectors or considering the full economy. Most importantly, the expanded database includes detailed information on critical determinants of competitiveness such as the financial position of the firm, its exporting intensity, employment creation or price-cost margins. Both the distribution of all those variables, within each industry, but also their joint analysis with the productivity of the firm provides critical insights to both policy-makers and researchers regarding aggregate trends dynamics. The current database comprises 17 EU countries, with information for 56 industries, including both manufacturing and services, over the period 1995-2012. The paper aims at analysing the structure and characteristics of this novel database, pointing out a number of results that are relevant to study productivity developments and its drivers. For instance, by using covariances between productivity and employment the paper shows that the drop in employment which occurred during the recent crisis appears to have had “cleansing effects” on EU economies, as it seems to have accelerated resource reallocation towards the most productive firms, particularly in economies under stress. Lastly, this paper will be complemented by four forthcoming papers, each providing an in-depth description and methodological overview of each of the main groups of CompNet indicators (financial, trade-related, product and labour market).
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Financial Integration, Housing, and Economic Volatility

Elena Loutskina, Philip E. Strahan
Journal of Financial Economics, No. 1, 2015
Abstract
The Great Recession illustrates the sensitivity of the economy to housing. This paper shows that financial integration, fostered by securitization and nationwide branching, amplified the positive effect of housing price shocks on the economy during the 1994–2006 period. We exploit variation in credit supply subsidies across local markets from government-sponsored enterprises to measure housing price changes unrelated to fundamentals. Using this instrument, we find that house price shocks spur economic growth. The effect is larger in localities more financially integrated, through both secondary loan market and bank branch networks. Financial integration thus raised the effect of collateral shocks on local economies, increasing economic volatility.
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