Growth, Volatility, and Credit Market Imperfections: Evidence from German Firms
Claudia M. Buch, Jörg Döpke
Journal of Economic Studies,
2008
Abstract
Purpose – The purpose of this paper is two-fold. First, it studies whether output volatility and growth are linked at the firm-level, using data for German firms. Second, it explores whether the link between volatility and growth depends on the degree of credit market imperfections.
Design/methodology/approach – The authors use a novel firm-level dataset provided by the Deutsche Bundesbank, the so-called Financial Statements Data Pool. The dataset has time series observations for German firms for the period 1997-2004, and the authors use information on the debt-to-assets or leverage ratio of firms to proxy for credit-constraints at the firm-level. As additional proxies for the importance of credit market imperfections, we use information on the size and on the legal status of firms.
Findings – The authors find that higher volatility has a negative impact on growth for small and a positive impact for larger firms. Higher leverage is associated with higher growth. At the same time, there is heterogeneity in the determinants of growth across firms from different sectors and across firms with a different legal status.
Practical implications – While most traditional macroeconomic models assume that growth and volatility are uncorrelated, a number of microeconomic models suggest that the two may be linked. However, it is unclear whether the link is positive or negative. The paper presents additional evidence regarding this question. Moreover, understanding whether credit market conditions affect the link between volatility and growth is of importance for policy makers since it suggests a channel through which the credit market can have long-run welfare implications. The results stress the importance of firm-level heterogeneity for the effects and effectiveness of economic policy measures.
Originality/value – The paper has two main novel features. First, it uses a novel firm-level dataset to analyze the determinants of firm-level growth. Second, it analyzes the growth-volatility nexus using firm-level data. To the best of the authors' knowledge, this is the first paper, which addresses the link between volatility, growth, and credit market imperfections using firm-level data.
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Exchange Rates and FDI: Goods versus Capital Market Frictions
Claudia M. Buch, J. Kleinert
World Economy,
forthcoming
Abstract
Changes in exchange rates affect countries through their impact on cross-border activities such as trade and foreign direct investment (FDI). With increasing activities of multinational firms, the FDI channel is likely to gain in importance. Economic theory provides two main explanations why changes in exchange rates can affect FDI. According to the first explanation, FDI reacts to exchange rate changes if there are information frictions on capital markets and if investment depends on firms’ net worth (capital market friction hypothesis). According to the second explanation, FDI reacts to exchange rate changes if output and factor markets are segmented, and if firm-specific assets are important (goods market friction hypothesis). We provide a unified theoretical framework of these two explanations. We analyse the implications of the model empirically using a dataset based on detailed German firm-level data. We find greater support for the goods market than for the capital market friction hypothesis.
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Softening Competition by Inducing Switching in Credit Markets: A Correction
Jan Bouckaert, Hans Degryse, Jorge Fernández-Ruiz, Miguel García-Cestona
Journal of Industrial Economics,
No. 3,
2008
Abstract
In a recent article in this journal, Bouckaert and Degryse [2004] (denoted B&D) present a model in which banks strategically commit to disclosing borrower information. In this note, we point out an error in B&D and show that, although banks' information disclosure may indeed arise in equilibrium, it only does so if adverse selection is not too harsh.
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Monetary Policy and Financial (In)stability: An Integrated Micro–Macro Approach
Ferre De Graeve, Thomas Kick, Michael Koetter
Journal of Financial Stability,
No. 3,
2008
Abstract
Evidence on central banks’ twin objective, monetary and financial stability, is scarce. We suggest an integrated micro–macro approach with two core virtues. First, we measure financial stability directly at the bank level as the probability of distress. Second, we integrate a microeconomic hazard model for bank distress and a standard macroeconomic model. The advantage of this approach is to incorporate micro information, to allow for non-linearities and to permit general feedback effects between financial distress and the real economy. We base the analysis on German bank and macro data between 1995 and 2004. Our results confirm the existence of a trade-off between monetary and financial stability. An unexpected tightening of monetary policy increases the probability of distress. This effect disappears when neglecting microeffects and non-linearities, underlining their importance. Distress responses are largest for small cooperative banks, weak distress events, and at times when capitalization is low. An important policy implication is that the separation of financial supervision and monetary policy requires close collaboration among members in the European System of Central Banks and national bank supervisors.
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Evaluating the German (New Keynesian) Phillips Curve
Rolf Scheufele
IWH Discussion Papers,
No. 10,
2008
Abstract
This paper evaluates the New Keynesian Phillips Curve (NKPC) and its hybrid
variant within a limited information framework for Germany. The main interest rests on the average frequency of price re-optimization of firms. We use the labor income share as the driving variable and consider a source of real rigidity by allowing for a fixed firm-specific capital stock. A GMM estimation strategy is employed as well as an identification robust method that is based upon the Anderson-Rubin statistic. We find out that the German Phillips Curve is purely forward looking. Moreover, our point estimates are consistent with the view that firms re-optimize prices every two to three quarters. While these estimates seem plausible from an economic point of view, the uncertainties around these estimates are very large and also consistent with perfect nominal price rigidity where firms never re-optimize prices. This analysis also offers some explanations why previous results for the German NKPC based on GMM differ considerably. First, standard GMM results are very sensitive to the way how orthogonality conditions are formulated. Additionally, model misspecifications may be left undetected by conventional J tests. Taken together, this analysis points out
the need for identification robust methods to get reliable estimates for the NKPC.
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Evaluating communication strategies for public agencies: transparency, opacity, and secrecy
Axel Lindner
IWH Discussion Papers,
No. 8,
2008
Abstract
This paper analyses in a simple global games framework welfare effects stemming
from different communication strategies of public agencies if strategies of agents are complementary to each other: communication can either be fully transparent, or the agency opaquely publishes only its overall assessment of the economy, or it keeps information completely secret. It is shown that private agents put more weight to their private information in the transparent case than in case of opacity. Thus, in many cases, the appropriate measure against overreliance on public information is giving more details to the public instead of denying access to public information.
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Flow of conjunctural information and forecast of euro area economic activity
Katja Drechsel, L. Maurin
ECB Working Paper, no. 925,
2008
Abstract
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Capital Stock Approximation using Firm Level Panel Data: A Modified Perpetual Inventory Approach
Steffen Müller
Jahrbücher für Nationalökonomie und Statistik,
No. 4,
2008
Abstract
Many recent studies exploring conditional factor demand or factor substitution issues use firm level panel data. A considerable number of establishment panels contains no direct information on the capital input, necessary for production or cost function estimation. Incorrect measurement of capital leads to biased estimates and casts doubt on any inference on output elasticities or input substitution properties. The perpetual inventory approach, commonly used for long panels, is a method that attenuates these problems. In this paper a modified perpetual inventory approach is proposed. This method provides more reliable measures for capital input when short firm panels are used and no direct information on capital input is available. The empirical results based on a replication study of Addison et al. (2006) support the conclusion that modified perpetual inventory is superior to previous attempts in particular when fixed effects estimation techniques are used. The method thus makes a considerable number of recently established firm panels accessible to more sophisticated production function or factor demand analyses.
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On the Economics of Ex-Post Transfers in a Federal State: A Mechanism Design Approach
Martin Altemeyer-Bartscher, T. Kuhn
WWDP, 95,
No. 95,
2008
Abstract
As a common feature in many federal states grants-in aid are payed to jurisdictions ex post, i.e. after local policy measures have chosen. We show that the central government cannot offer grants ex ante in a federal states with informational asymmetries as well as inter-temporal commitment problems. Local governments’ incentives to provide public goods are distorted if they rely on federal grants-in-aid offered ex post. Furthermore it becomes obvious that local governments are apt to substitute tax revenue for higher grants-in-aid if relevant local data are unobservable for the central government. To which extend ex post transfers mitigate local governments’ incentives crucially depends on the information structure predominant in the federation.
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Universities as Driver of Regional Innovation?
Michael Fritsch, Viktor Slavtchev, N. Steigenberger
Arbeitspapier / Hans-Böckler-Stiftung, Nr. 158,
2008
Abstract
Innovation ist der wesentliche Motor wirtschaftlicher Entwicklung. Denn vor allem die Andersverwendung von Ressourcen, weniger deren Mehreinsatz führt zu Wachstum und Wohlstand. Aus diesem Grund stellt Innovation auch einen wichtigen Ansatzpunkt für eine auf Wachstum zielende Politik dar. Dies gilt sowohl auf gesamtwirtschaftlicher Ebene als auch für einzelne Branchen und Regionen.
In Innovationsprozessen stellt Wissen die entscheidende Ressource dar. Wissen ist mehr als bloße Information. Es umfasst insbesondere auch die Fähigkeit, Informationen zu interpretieren und anzuwenden bzw. ihre Anwendbarkeit einzuschätzen. Wissen ist an Menschen gebunden und lässt sich vielfach nur in direktem persönlichen Kontakt weitergeben. Aus diesem Grund hat Wissen eine regionale Dimension: Die Verfügbarkeit von Wissen hängt davon ab, wo sich die Menschen aufhalten, die über dieses Wissen verfügen. Dies ist ein wesentlicher Grund dafür, dass die Fähigkeit zur Innovation von Region zu Region wesentliche Unterschiede aufweisen kann.
Für eine Politik, die auf die Stärkung der Innovationsfähigkeit von Regionen gerichtet ist, kommt den öffentlichen Forschungseinrichtungen – Universitäten, Fachhochschulen und außeruniversitären Forschungsinstituten – aus mindestens zwei Gründen zentrale Bedeutung zu:
Erstens verfügen die öffentlichen Forschungseinrichtungen in besonderem Maße über innovationsrelevantes Wissen. Ihre Kernaufgabe ist es, Wissen zu produzieren, zu sammeln und weiterzugeben.
Zweitens ist der Bereich der öffentlichen Forschungseinrichtungen – im Gegensatz zur privaten Wirtschaft – von der Politik direkt gestaltbar.
Aus diesen Gründen stellt die Steuerung des Hochschulsektors ein zentrales Handlungsfeld der Innovationspolitik dar.
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