Returns to Skills around the World: Evidence from PIAAC
Eric A. Hanushek, Guido Schwerdt, Simon Wiederhold, Ludger Woessmann
European Economic Review,
January
2015
Abstract
Existing estimates of the labor-market returns to human capital give a distorted picture of the role of skills across different economies. International comparisons of earnings analyses rely almost exclusively on school attainment measures of human capital, and evidence incorporating direct measures of cognitive skills is mostly restricted to early-career workers in the United States. Analysis of the new PIAAC survey of adult skills over the full lifecycle in 23 countries shows that the focus on early-career earnings leads to underestimating the lifetime returns to skills by about one quarter. On average, a one-standard-deviation increase in numeracy skills is associated with an 18 percent wage increase among prime-age workers. But this masks considerable heterogeneity across countries. Eight countries, including all Nordic countries, have returns between 12 and 15 percent, while six are above 21 percent with the largest return being 28 percent in the United States. Estimates are remarkably robust to different earnings and skill measures, additional controls, and various subgroups. Instrumental-variable models that use skill variation stemming from school attainment, parental education, or compulsory-schooling laws provide even higher estimates. Intriguingly, returns to skills are systematically lower in countries with higher union density, stricter employment protection, and larger public-sector shares.
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Do We Need New Modelling Approaches in Macroeconomics?
Claudia M. Buch, Oliver Holtemöller
Financial Cycles and the Real Economy: Lessons for CESEE Countries,
2014
Abstract
The economic and financial crisis that emerged in 2008 also initiated an intense discussion on macroeconomic research and the role of economists in society. The debate focuses on three main issues. Firstly, it is argued that economists failed to predict the crisis and to design early warning systems. Secondly, it is claimed that economists use models of the macroeconomy which fail to integrate financial markets and which are inadequate to model large economic crises. Thirdly, the issue has been raised that economists invoke unrealistic assumptions concerning human behaviour by assuming that all agents are self-centred, rationally optimizing individuals. In this paper, we focus on the first two issues. Overall, our thrust is that the above statements are a caricature of modern economic theory and empirics. A rich field of research developed already before the crisis and picked up shortcomings of previous models.
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Linking Distress of Financial Institutions to Macrofinancial Shocks
Alexander Al-Haschimi, Stéphane Dées, Filippo di Mauro, Martina Jančoková
ECB Working Paper,
No. 1749,
2014
Abstract
This paper links granular data of financial institutions to global macroeconomic variables using an infinite-dimensional vector autoregressive (IVAR) model framework. The approach taken allows for an assessment of the two-way links between the financial system and the macroeconomy, while accounting for heterogeneity among financial institutions and the role of international linkages in the transmission of shocks. The model is estimated using macroeconomic data for 21 countries and default probability estimates for 35 euro area financial institutions. This framework is used to assess the impact of foreign macroeconomic shocks on default risks of euro area financial firms. In addition, spillover effects of firm-specific shocks are investigated. The model captures the important role of international linkages, showing that economic shocks in the US can generate a rise in the default probabilities of euro area firms that are of a significant magnitude compared to recent historical episodes such as the financial crisis. Moreover, the potential heterogeneity across financial firms.
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Financial Stability and Central Bank Governance
Michael Koetter, Kasper Roszbach, G. Spagnolo
International Journal of Central Banking,
No. 4,
2014
Abstract
The financial crisis has ignited a debate about the appropriate objectives and the governance structure of Central Banks. We use novel survey data to investigate the relation between these traits and banking system stability focusing in particular on their role in micro-prudential supervision. We find that the separation of powers between single and multiple bank supervisors cannot explain credit risk prior or during the financial crisis. Similarly, a large number of Central Bank governance traits do not correlate with system fragility. Only the objective of currency stability exhibits a significant relation with non-performing loan levels in the run-up to the crisis. This effect is amplified for those countries with most frequent exposure to IMF missions in the past. Our results suggest that the current policy discussion whether to centralize prudential supervision under the Central Bank and the ensuing institutional changes some countries are enacting may not produce the improvements authorities are aiming at. Whether other potential improvements in prudential supervision due to, for example, external disciplinary devices, such as IMF conditional lending schemes, are better suited to increase financial stability requires further research.
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The Dynamics of Bank Spreads and Financial Structure
Reint E. Gropp, Christoffer Kok, J.-D. Lichtenberger
Quarterly Journal of Finance,
No. 4,
2014
Abstract
This paper investigates the effect of within banking sector competition and competition from financial markets on the dynamics of the transmission from monetary policy rates to retail bank interest rates in the euro area. We use a new dataset that permits analysis for disaggregated bank products. Using a difference-in-difference approach, we test whether development of financial markets and financial innovation speed up the pass through. We find that more developed markets for equity and corporate bonds result in a faster pass-through for those retail bank products directly competing with these markets. More developed markets for securitized assets and for interest rate derivatives also speed up the transmission. Further, we find relatively strong effects of competition within the banking sector across two different measures of competition. Overall, the evidence supports the idea that developed financial markets and competitive banking systems increase the effectiveness of monetary policy.
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Should I Stay or Should I Go? Bank Productivity and Internationalization Decisions
Claudia M. Buch, C. T. Koch, Michael Koetter
Journal of Banking and Finance,
No. 42,
2014
Abstract
Differences in firm-level productivity explain international activities of non-financial firms quite well. We test whether differences in bank productivity determine international activities of banks. Based on a dataset that allows tracking banks across countries and across different modes of foreign entry, we model the ordered probability of maintaining a commercial presence abroad and the volume of banks’ international assets empirically. Our research has three main findings. First, more productive banks are more likely to enter foreign markets in increasingly complex modes. Second, more productive banks also hold larger volumes of foreign assets. Third, higher risk aversion renders entry less likely, but it increases the volume of foreign activities conditional upon entry.
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Konjunktur aktuell: Deutsche Konjunktur hat Schwung verloren
Konjunktur aktuell,
No. 4,
2014
Abstract
Die deutsche Wirtschaft expandiert im Jahr 2014 in mäßigem Tempo. Der hohe Produktionszuwachs vom Jahresanfang hat sich nicht fortgesetzt, und die Unternehmen schätzen ihre Aussichten nicht mehr ganz so günstig ein, denn eine kräftige Erholung des Euroraums lässt weiter auf sich warten. Zudem verunsichert der Konflikt zwischen Russland und dem Westen. Die binnenwirtschaftlichen Bedingungen sind aber weiter günstig. Das reale Bruttoinlandsprodukt dürfte im Jahr 2014 um 1,5% und im Jahr 2015 um 1,6% zunehmen.
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Forecast Dispersion, Dissenting Votes, and Monetary Policy Preferences of FOMC Members: The Role of Individual Career Characteristics and Political Aspects
Stefan Eichler, Tom Lähner
Public Choice,
No. 3,
2014
Abstract
Using data from 1992 to 2001, we study the impact of members’ economic forecasts on the probability of casting dissenting votes in the Federal Open Market Committee (FOMC). Employing standard ordered probit techniques, we find that higher individual inflation and real GDP growth forecasts (relative to the committee’s median) significantly increase the probability of dissenting in favor of tighter monetary policy, whereas higher individual unemployment rate forecasts significantly decrease it. Using interaction models, we find that FOMC members with longer careers in government, industry, academia, non-governmental organizations (NGOs), or on the staff of the Board of Governors are more focused on output stabilization, while FOMC members with longer careers in the financial sector or on the staffs of regional Federal Reserve Banks are more focused on inflation stabilization. We also find evidence that politics matters, with Republican appointees being much more focused on inflation stabilization than Democratic appointees. Moreover, during the entire Clinton administration ‘natural’ monetary policy preferences of Bank presidents and Board members for inflation and output stabilization were more pronounced than under periods covering the administrations of both George H.W. Bush and George W. Bush, respectively.
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Konjunktur aktuell: Binnennachfrage treibt Aufschwung in Deutschland
Konjunktur aktuell,
No. 3,
2014
Abstract
Deutschland befindet sich in einem binnenwirtschaftlich getragenen Aufschwung, der auch durch verstärkte Investitionstätigkeit Schub erhält. Die Absatzperspektiven der Unternehmen sind gut, und die privaten Haushalte dürften ihre Konsumausgaben aufgrund der guten Beschäftigungslage ausweiten. Aus dem Ausland kommen dagegen nur geringe Impulse. Das Bruttoinlandsprodukt dürfte im Jahr 2014 um 2,0% steigen
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The Political Determinants of Sovereign Bond Yield Spreads
Stefan Eichler
Journal of International Money and Finance,
No. 46,
2014
Abstract
This paper analyzes the political determinants of sovereign bond yield spreads using data for 27 emerging markets in the period 1996 to 2009. I find strong evidence that countries with parliamentary systems (as opposed to presidential regimes) and a low quality of governance face higher sovereign yield spreads, while the degree of democracy and elections play no significant role. A higher degree of political stability and the power to implement austerity measures significantly reduce sovereign yield spreads particularly in autocratic regimes, while no significant effect is detected for democratic countries. Overall, political determinants have a more pronounced impact on sovereign bond yield spreads in autocratic and closed regimes than in democratic and open countries.
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