Predicting Financial Crises: The (Statistical) Significance of the Signals Approach
Makram El-Shagi, Tobias Knedlik, Gregor von Schweinitz
Journal of International Money and Finance,
No. 35,
2013
Abstract
The signals approach as an early-warning system has been fairly successful in detecting crises, but it has so far failed to gain popularity in the scientific community because it cannot distinguish between randomly achieved in-sample fit and true predictive power. To overcome this obstacle, we test the null hypothesis of no correlation between indicators and crisis probability in three applications of the signals approach to different crisis types. To that end, we propose bootstraps specifically tailored to the characteristics of the respective datasets. We find (1) that previous applications of the signals approach yield economically meaningful results; (2) that composite indicators aggregating information contained in individual indicators add value to the signals approach; and (3) that indicators which are found to be significant in-sample usually perform similarly well out-of-sample.
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Regional Origins of Employment Volatility: Evidence from German States
Claudia M. Buch, M. Schlotter
Empirica,
No. 1,
2013
Abstract
Greater openness for trade can have positive welfare effects in terms of higher growth. But increased openness may also increase uncertainty through a higher volatility of employment. We use regional data from Germany to test whether openness for trade has an impact on volatility. We find a downward trend in the unconditional volatility of employment, paralleling patterns for output volatility. The conditional volatility of employment, measuring idiosyncratic developments across states, in contrast, has remained fairly unchanged. In contrast to evidence for the US, we do not find a significant link between employment volatility and trade openness.
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Monetary Policy in a World Where Money (Also) Matters
Makram El-Shagi, Sebastian Giesen
IWH Discussion Papers,
No. 6,
2012
Abstract
While the long-run relation between money and inflation as predicted by the quantity theory is well established, empirical studies of the short-run adjustment process have been inconclusive at best. The literature regarding the validity of the quantity theory within a given economy is mixed. Previous research has found support for quantity theory within a given economy by combining the P-Star, the structural VAR and the monetary aggregation literature. However, these models lack precise modelling of the short-run dynamics by ignoring interest rates as the main policy instrument. Contrarily, most New Keynesian approaches, while excellently modeling the short-run dynamics transmitted through interest rates, ignore the role of money and thus the potential mid-and long-run effects of monetary policy. We propose a parsimonious and fairly unrestrictive econometric model that allows a detailed look into the dynamics of a monetary policy shock by accounting for changes in economic equilibria, such as potential output and money demand, in a framework that allows for both monetarist and New Keynesian transmission mechanisms, while also considering the Barnett critique. While we confirm most New Keynesian findings concerning the short-run dynamics, we also find strong evidence for a substantial role of the quantity of money for price movements.
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Predicting Financial Crises: The (Statistical) Significance of the Signals Approach
Makram El-Shagi, Tobias Knedlik, Gregor von Schweinitz
Abstract
The signals approach as an early warning system has been fairly successful in detecting crises, but it has so far failed to gain popularity in the scientific community because it does not distinguish between randomly achieved in-sample fit and true predictive power. To overcome this obstacle, we test the null hypothesis of no correlation between indicators and crisis probability in three applications of the signals approach to different crisis types. To that end, we propose bootstraps specifically tailored to the characteristics of the respective datasets. We find (1) that previous applications of the signals approach yield economically meaningful and statistically significant results and (2) that composite
indicators aggregating information contained in individual indicators add value to the signals approach, even where most individual indicators are not statistically significant on their own.
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Size, Productivity, and International Banking
Claudia M. Buch, C. T. Koch, Michael Koetter
Journal of International Economics,
No. 2,
2011
Abstract
Heterogeneity in size and productivity is central to models that explain which manufacturing firms export. This study presents descriptive evidence on similar heterogeneity among international banks as financial services providers. A novel and detailed bank-level data set reveals the volume and mode of international activities for all German banks. Only a few, large banks have a commercial presence abroad, consistent with the size pecking order documented for manufacturing firms. However, the relationship between internationalization and productivity also yields two inconsistencies with recent trade models. First, virtually all banks hold at least some foreign assets, irrespective of size or productivity. Second, some fairly unproductive banks maintain commercial presences abroad.
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Regional Entrepreneurial Opportunities in the Biotech Industry: Exploring the Transition from Award-winning Nascent Entrepreneurs to Real Start-ups
H. Wolf, Claus Michelsen, Michael Schwartz
Abstract
Knowledge of factors that determine the transition from nascent entrepreneurship into real entrepreneurship is of major importance for policies aiming to effectively stimulate start-ups. Whereas scholars concentrated on person-specific factors to explain transition probabilities, environmental characteristics have been fairly neglected. Given that entrepreneurship is a strongly localized phenomenon, this paper argues that regional entrepreneurial opportunities are a driving force behind the transition from nascent entrepreneurship to new venture creation. Based on unique data on 103 nascent entrepreneurs in the German biotechnology industry, we empirically assess the importance of regional entrepreneurial opportunities on transition probabilities. Further, we introduce a new
approach to measure nascent entrepreneurship by capturing individuals that actively participate in start-up competitions and have won at least one competition. Controlling for technology and individual characteristics, we find strong support for our hypotheses relating to the significant impact of general regional opportunities, specific regional opportunities and the entrepreneurial environment for the probability of transition from award-winning nascent entrepreneurs to real start-ups.
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Regulation and Taxation: A Complementarity
Benjamin Schoefer
Journal of Comparative Economics,
No. 4,
2010
Abstract
I show how quantity regulation can lower elasticities and thereby increase optimal tax rates. Such regulation imposes regulatory incentives for particular choice quantities. Their strength varies between zero (laissez faire) and infinite (command economy). In the latter case, regulation effectively eliminates any intensive behavioral responses to taxes; a previously distortionary tax becomes a lump sum. For intermediate regulation (where some deviation is feasible), intensive behavioral responses are still weaker than under zero regulation, and so quantity regulation reduces elasticities, thereby facilitating subsequent taxation. I apply this mechanism to labor supply and present correlational evidence for this complementarity: hours worked in high-regulation countries are compressed, and these countries tax labor at higher rates.
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Improving Hartz IV after the Decision of the Federal Constitutional Court
Joachim Wilde
Wirtschaft im Wandel,
No. 8,
2008
Abstract
Ein wesentliches Ziel der Hartz IV-Reform bestand in der Gewährleistung der Betreuung der Empfänger von Arbeitslosengeld II „aus einer Hand“. Hierzu sah das Gesetz die Bildung von Arbeitsgemeischaften zwischen Arbeitsagenturen und Kommunen vor. Im Dezember 2007 urteilte jedoch das Bundesverfassungsgericht, dass der entsprechende Paragraph nicht verfassungskonform ist. Es ist deshalb eine Neuregelung erforderlich, um zu einer mit der Verfassung übereinstimmenden Zusammenarbeit zu kommen.
Erste Skizzen für eine Reform der Behördenstruktur wurden vorgelegt und werden in diesem Artikel ausgewertet. Dabei zeigt sich jedoch, dass sich diese Vorschläge darauf beschränken, die entstandenen juristischen Probleme zu lösen. Inzwischen zeichnet sich sogar ab, dass bei der Behördenstruktur alles beim Alten bleiben und stattdessen die Verfassung geändert werden soll. Weitergehende Reformansätze werden nicht verfolgt, obwohl die Empfängerzahlen nach wie vor hoch sind und die gesellschaftliche Akzeptanz nur begrenzt gegeben ist.
Im Artikel wird deshalb ein anreizethisches Konzept vorgestellt, bei dem durch die Zuweisung moralischer Güter wie „Fairness“ und „offene Zuwendung zum Gegenüber“ an die ALG II-Empfänger Anreize zur Überwindung der Abhängigkeit von den Transfers geschaffen werden. Wesentlich ist dabei eine verlässliche Zuweisung dieser Güter ohne strategische Abwägung im Einzelfall. Ein erster empirischer Befund deutet die praktische Relevanz des Konzepts an. Es sollten daher Modellversuche durchgeführt werden, die eine systematische Evaluierung erlauben. Als positiver Nebeneffekt des neuen Konzepts ist eine Erhöhung der Akzeptanz des Systems zu erwarten.
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Regional origins of employment volatility: evidence from German states
Claudia M. Buch
CES IFO Working Paper No. 2296,
2008
Abstract
Greater openness for trade can have positive welfare effects in terms of higher growth. But increased openness may also increase uncertainty through a higher volatility of employment. We use regional data from Germany to test whether openness for trade has an impact on volatility. We find a downward trend in the unconditional volatility of employment, paralleling patterns for output volatility. The conditional volatility of employment, measuring idiosyncratic developments across states, in contrast, has remained fairly unchanged. In contrast to evidence for the US, we do not find a significant link between employment volatility and trade openness.
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Systematic Mispricing in European Equity Prices?
Marian Berneburg
IWH Discussion Papers,
No. 6,
2007
Abstract
One empirical argument that has been around for some time and that clearly contra- dicts equity market efficiency is that market prices seem too volatile to be optimal estimates of the present value of future discounted cash flows. Based on this, it is deduced that systematic pricing errors occur in equity markets which hence can not be efficient in the Effcient Market Hypothesis sense. The paper tries to show that this so-called excess volatility is to a large extend the result of the underlying assumptions, which are being employed to estimate the present value of cash flows. Using monthly data for three investment style indices from an integrated European Equity market, all usual assumptions are dropped. This is achieved by employing the Gordon Growth Model and using an estimation process for the dividend growth rate that was suggested by Barsky and De Long. In extension to Barsky and De Long, the discount rate is not assumed at some arbitrary level, but it is estimated from the data. In this manner, the empirical results do not rely on the prerequisites of sta- tionary dividends, constant dividend growth rates as well as non-variable discount rates. It is shown that indeed volatility declines considerably, but is not eliminated. Furthermore, it can be seen that the resulting discount factors for the three in- vestment style indices can not be considered equal, which, on a risk-adjusted basis, indicates performance differences in the investment strategies and hence stands in contradiction to an efficient market. Finally, the estimated discount rates under- went a plausibility check, by comparing their general movement to a market based interest rate. Besides the most recent data, the estimated discount rates match the movements of market interest rates fairly well.
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