13.04.2022 • 8/2022
From Pandemic to Energy Crisis: Economy and Politics under Permanent Stress
The German economy is steering through difficult waters and faces the highest inflation rates in decades. In their spring report, the leading German economic research institutes revise their outlook for this year significantly downward. The recovery from the COVID-19 crisis is slowing down as a result of the war in Ukraine, but remains on track. The institutes expect GDP to increase by 2.7% and 3.1% in 2022 and 2023 respectively. In the event of an immediate interruption to Russian gas supplies, a total of 220 billion euros in German economic output would be at risk in both years.
Oliver Holtemöller
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On Modeling IPO Failure Risk
Gonul Colak, Mengchuan Fu, Iftekhar Hasan
Economic Modelling,
April
2022
Abstract
This paper offers a novel framework, combining firm operational risk, IPO pricing risk, and market risk, to model IPO failure risk. By analyzing nearly a thousand variables, we observe that prior IPO failure risk models have suffered from a major missing-variable problem. Evidence reveals several key new firm-level determinants, e.g., the volatility operating performance, the size of its accounts payable, pretax income to common equity, total short-term debt, and a few macroeconomic variables such as treasury bill rate, and book-to-market of the DJIA index. These findings have major economic implications. The total value loss from not predicting the imminent failure of an IPO is significantly lower with this proposed model compared to other established models. The IPO investors could have saved around $18billion over the period between 1994 and 2016 by using this model.
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Resolving the Missing Deflation Puzzle
Martín Harding, Jesper Lindé, Mathias Trabandt
Journal of Monetary Economics,
March
2022
Abstract
A resolution of the missing deflation puzzle is proposed. Our resolution stresses the importance of nonlinearities in price- and wage-setting when the economy is exposed to large shocks. We show that a nonlinear macroeconomic model with real rigidities resolves the missing deflation puzzle, while a linearized version of the same underlying nonlinear model fails to do so. In addition, our nonlinear model reproduces the skewness of inflation and other macroeconomic variables observed in post-war U.S. data. All told, our results caution against the common practice of using linearized models to study inflation and output dynamics.
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14.10.2021 • 25/2021
Crisis is gradually being overcome – align actions to lower growth
The Corona pandemic still shapes the economic situation in Germany. A complete normalisation of contact-intensive activities is not to be expected in the short term. In addition, supply bottlenecks are hampering manufacturing for the time being. The German economy will reach normal capacity utilisation in the course of 2022. In their autumn report, the leading economic research institutes forecast that Gross Domestic Product (GDP) will rise by 2.4% in 2021 and by 4.8% in 2022.
Oliver Holtemöller
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15.04.2021 • 11/2021
Pandemic delays upswing – Demography slows growth
In their spring report, the leading economic research institutes forecast an increase in gross domestic product of 3.7% in the current year and 3.9% in 2022. The renewed shutdown is delaying the economic recovery, but as soon as the risks of infection, particularly from vaccination, have been averted, a strong recovery will begin. The economy is likely to return to normal output levels around the start of the coming year.
Oliver Holtemöller
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Real Estate Transaction Taxes and Credit Supply
Michael Koetter, Philipp Marek, Antonios Mavropoulos
Deutsche Bundesbank Discussion Paper,
No. 4,
2021
Abstract
We exploit staggered real estate transaction tax (RETT) hikes across German states to identify the effect of house price changes on mortgage credit supply. Based on approximately 33 million real estate online listings, we construct a quarterly hedonic house price index (HPI) between 2008:q1 and 2017:q4, which we instrument with state-speci c RETT changes to isolate the effect on mortgage credit supply by all local German banks. First, a RETT hike by one percentage point reduces HPI by 1.2%. This effect is driven by listings in rural regions. Second, a 1% contraction of HPI induced by an increase in the RETT leads to a 1.4% decline in mortgage lending. This transmission of fiscal policy to mortgage credit supply is effective across almost the entire bank capitalization distribution.
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26.01.2021 • 3/2021
Krisensicherheit des europäischen Finanzsystems: Leopoldina und IWH organisieren Dialogveranstaltung
Steigende Arbeitslosigkeit und drohende Staatsinsolvenzen: Die Finanzkrise vor mehr als zehn Jahren hat ganz Europa getroffen. Die Folgen sind bis heute spürbar, zum Beispiel in Form niedriger Zinsen. Welche Lehren aus der Finanzkrise bisher gezogen wurden, ist Thema einer gemeinsamen Dialogveranstaltung der Nationalen Akademie der Wissenschaften Leopoldina und des Leibniz-Instituts für Wirtschaftsforschung Halle (IWH). Zu dieser Veranstaltung laden wir Sie herzlich ein und freuen uns über eine redaktionelle Erwähnung in Ihrem Medium.
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Involuntary Unemployment and the Business Cycle
Lawrence J. Christiano, Mathias Trabandt, Karl Walentin
Review of Economic Dynamics,
January
2021
Abstract
Can a model with limited labor market insurance explain standard macro and labor market data jointly? We construct a monetary model in which: i) the unemployed are worse off than the employed, i.e. unemployment is involuntary and ii) the labor force participation rate varies with the business cycle. To illustrate key features of our model, we start with the simplest possible framework. We then integrate the model into a medium-sized DSGE model and show that the resulting model does as well as existing models at accounting for the response of standard macroeconomic variables to monetary policy shocks and two technology shocks. In addition, the model does well at accounting for the response of the labor force and unemployment rate to these three shocks.
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Decentralisation of Collective Bargaining: A Path to Productivity?
Daniele Aglio, Filippo di Mauro
IWH-CompNet Discussion Papers,
No. 3,
2020
Abstract
Productivity developments have been rather divergent across EU countries and particularly between Central Eastern Europe (CEE) and elsewhere in the continent (non-CEE). How is such phenomenon related to wage bargaining institutions? Starting from the Great Financial Crisis (GFC) shock, we analyse whether the specific set-up of wage bargaining prevailing in non-CEE may have helped their respective firms to sustain productivity in the aftermath of the crisis. To tackle the issue, we merge the CompNet dataset – of firm-level based productivity indicators – with the Wage Dynamics Network (WDN) survey on wage bargaining institutions. We show that there is a substantial difference in the institutional set-up between the two above groups of countries. First, in CEE countries the bulk of the wage bargaining (some 60%) takes place outside collective bargaining schemes. Second, when a collective bargaining system is adopted in CEE countries, it is prevalently in the form of firm-level bargaining (i. e. the strongest form of decentralisation), while in non-CEE countries is mostly subject to multi-level bargaining (i. e. an intermediate regime, only moderately decentralised). On productivity impacts, we show that firms’ TFP in the non-CEE region appears to have benefitted from the chosen form of decentralisation, while no such effects are detectable in CEE countries. On the channels of transmission, we show that decentralisation in non-CEE countries is also negatively correlated with dismissals and with unit labour costs, suggesting that such collective bargaining structure may have helped to better match workers with firms’ needs.
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Wages and the Value of Nonemployment
Simon Jäger, Benjamin Schoefer, Samuel Young, Josef Zweimüller
Quarterly Journal of Economics,
No. 4,
2020
Abstract
Nonemployment is often posited as a worker’s outside option in wage-setting models such as bargaining and wage posting. The value of nonemployment is therefore a key determinant of wages. We measure the wage effect of changes in the value of nonemployment among initially employed workers. Our quasi-experimental variation in the value of nonemployment arises from four large reforms of unemployment insurance (UI) benefit levels in Austria. We document that wages are insensitive to UI benefit changes: point estimates imply a wage response of less than $0.01 per $1.00 UI benefit increase, and we can reject sensitivities larger than $0.03. The insensitivity holds even among workers with low wages and high predicted unemployment duration, and among job switchers hired out of unemployment. The insensitivity of wages to the nonemployment value presents a puzzle to the widely used Nash bargaining model, which predicts a sensitivity of $0.24–$0.48. Our evidence supports wage-setting models that insulate wages from the value of nonemployment.
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