Regional House Price Dynamics and Voting Behavior in the FOMC
Stefan Eichler, Tom Lähner
Economic Inquiry,
No. 2,
2014
Abstract
This paper examines the impact of house price gaps in Federal Reserve districts on the voting behavior in the Federal Open Market Committee (FOMC) from 1978 to 2010. Applying a random effects ordered probit model, we find that a higher regional house price gap significantly increases (decreases) the probability that this district's representative in the FOMC casts interest rate votes in favor of tighter (easier) monetary policy. In addition, our results suggest that Bank presidents react more sensitively to regional house price developments than Board members do.
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Fiscal Equalization, Tax Salience, and Tax Competition
Martin Altemeyer-Bartscher
IWH Discussion Papers,
No. 3,
2014
Abstract
Jurisdictions that engage in inter-regional tax competition usually try to attenuate competitive pressures by substituting salient tax instruments with hidden ones. On this effect, we investigate the efficiency consequences of inter-regional tax competition and fiscal equalization in a federal system when taxpayers fail to optimally react on shrouded attributes of local tax policy. If the statuary tax rate is a relatively salient instrument and taxpayers pay low attention to the quality and the frequency of tax enforcement, the underlying substitution of tax instruments with the aim of reducing the perceived tax price may suppress the under-exploitation of tax bases that is typically triggered by fiscal equalization.
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Actors and Interactions – Identifying the Role of Industrial Clusters for Regional Production and Knowledge Generation Activities
Mirko Titze, Matthias Brachert, Alexander Kubis
Growth and Change,
No. 2,
2014
Abstract
This paper contributes to the empirical literature on systematic methodologies for the identification of industrial clusters. It combines a measure of spatial concentration, qualitative input–output analysis, and a knowledge interaction matrix to identify the production and knowledge generation activities of industrial clusters in the Federal State of Saxony in Germany. It describes the spatial allocation of the industrial clusters, identifies potentials for value chain industry clusters, and relates the production activities to the activities of knowledge generation in Saxony. It finds only a small overlap in the production activities of industrial clusters and general knowledge generation activities in the region, mainly driven by the high-tech industrial cluster in the semiconductor industry. Furthermore, the approach makes clear that a sole focus on production activities for industrial cluster analysis limits the identification of innovative actors.
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Did Consumers Want Less Debt? Consumer Credit Demand versus Supply in the Wake of the 2008-2009 Financial Crisis
Reint E. Gropp, J. Krainer, E. Laderman
Abstract
We explore the sources of household balance sheet adjustment following the collapse of the housing market in 2006. First, we use microdata from the Federal Reserve Board’s Senior Loan Officer Opinion Survey to document that banks cumulatively tightened consumer lending standards more in counties that experienced a house price boom in the mid-2000s than in non-boom counties. We then use the idea that renters, unlike homeowners, did not experience an adverse wealth shock when the housing market collapsed to examine the relative importance of two explanations for the observed deleveraging and the sluggish pickup in consumption after 2008. First, households may have optimally adjusted to lower wealth by reducing their demand for debt and implicitly, their demand for consumption. Alternatively, banks may have been more reluctant to lend in areas with pronounced real estate declines. Our evidence is consistent with the second explanation. Renters with low risk scores, compared to homeowners in the same markets, reduced their levels of nonmortgage debt and credit card debt more in counties where house prices fell more. The contrast suggests that the observed reductions in aggregate borrowing were more driven by cutbacks in the provision of credit than by a demand-based response to lower housing wealth.
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In Search for Yield? Survey-based Evidence on Bank Risk Taking
Claudia M. Buch, S. Eickmeier, Esteban Prieto
Journal of Economic Dynamics and Control,
No. 43,
2014
Abstract
Monetary policy can have an impact on economic and financial stability through the risk taking of banks. Falling interest rates might induce investment into risky activities. This paper provides evidence on the link between monetary policy and bank risk taking. We use a factor-augmented vector autoregressive model (FAVAR) for the US for the period 1997–2008. Besides standard macroeconomic indicators, we include factors summarizing information provided in the Federal Reserve’s Survey of Terms of Business Lending (STBL). These data provide information on banks׳ new loans as well as interest rates for different loan risk categories and different banking groups. We identify a risk-taking channel of monetary policy by distinguishing responses to monetary policy shocks across different types of banks and different loan risk categories. Following an expansionary monetary policy shock, small domestic banks increase their exposure to risk. Large domestic banks do not change their risk exposure. Foreign banks take on more risk only in the mid-2000s, when interest rates were ‘too low for too long’.
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Note on the Hidden Risk of Inflation
Makram El-Shagi, Sebastian Giesen
Journal of Economic Policy Reform,
No. 1,
2014
Abstract
The continued expansionary policy of the Federal Reserve gives rise to speculation whether the Fed will be able to maintain price stability in the coming decades. Most of the scientific work relating money to prices relies on broad monetary aggregates (i.e. M2 for the United States). In our paper, we argue that this view falls short. The historically unique monetary expansion has not yet fully reached M2. Using a cointegration approach, we aim to show the hidden risks for the future development of M2 and correspondingly prices. In a simulation analysis we show that even if the multiplier remains substantially below its pre-crisis level, M2 will exceed its current growth path with a probability of 95%.
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Sovereign Default Risk and Decentralization: Evidence for Emerging Markets
Stefan Eichler, M. Hofmann
European Journal of Political Economy,
No. 32,
2013
Abstract
We study the impact of decentralization on sovereign default risk. Theory predicts that decentralization deteriorates fiscal discipline since subnational governments undertax/overspend, anticipating that, in the case of overindebtedness, the federal government will bail them out. We analyze whether investors account for this common pool problem by attaching higher sovereign yield spreads to more decentralized countries. Using panel data on up to 30 emerging markets in the period 1993–2008 we confirm this hypothesis. Higher levels of fiscal and political decentralization increase sovereign default risk. Moreover, higher levels of intergovernmental transfers and a larger number of veto players aggravate the common pool problem.
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Dezentrale Steuerverwaltung und interregionaler Wettbewerb im deutschen Finanzföderalismus
Martin Altemeyer-Bartscher, Götz Zeddies
Wirtschaft im Wandel,
No. 5,
2013
Abstract
Ein optimal ausgestalteter Steuervollzug sollte die gesamtwirtschaftliche Effizienz des Steuersystems sicherstellen. In einem föderalen Staat stellt sich daher auch die Frage, in welchem Verantwortungsbereich die Finanzverwaltung angesiedelt sein sollte, um dieser Funktion möglichst gerecht zu werden. Es wird verdeutlicht, dass es im deutschen Finanzföderalismus unter Berücksichtigung des gegenwärtig geltenden Finanzausgleichsgesetzes einen eindeutigen komparativen Vorteil weder für eine Finanzverwaltung in Verantwortung des Bundes noch für eine solche in Verantwortung der Länder gibt.
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Transfer Payments without Growth: Evidence for German Regions, 1992–2005
Michael Koetter, Michael Wedow
International Journal of Urban and Regional Research,
No. 4,
2013
Abstract
After German reunification, interregional subsidies accounted for approximately 4% of gross fixed capital investment in the new federal states (i.e. those which were formerly part of the German Democratic Republic). We show that, between 1992 and 2005, infrastructure and corporate investment subsidies had a negative net impact on regional economic growth and convergence. This result is robust to both the specification of spatially weighted control variables and the use of instrumental variable techniques to control for the endogeneity of subsidies. Our results suggest that regional redistribution was ineffective, potentially due to a lack of spatial concentration to create growth poles.
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Macroeconomic Factors and Micro-Level Bank Risk
Claudia M. Buch
Bundesbank Discussion Paper 20/2010,
2010
Abstract
The interplay between banks and the macroeconomy is of key importance for financial and economic stability. We analyze this link using a factor-augmented vector autoregressive model (FAVAR) which extends a standard VAR for the U.S. macroeconomy. The model includes GDP growth, inflation, the Federal Funds rate, house price inflation, and a set of factors summarizing conditions in the banking sector. We use data of more than 1,500 commercial banks from the U.S. call reports to address the following questions. How are macroeconomic shocks transmitted to bank risk and other banking variables? What are the sources of bank heterogeneity, and what explains differences in individual banks’ responses to macroeconomic shocks? Our paper has two main findings: (i) Average bank risk declines, and average bank lending increases following expansionary shocks. (ii) The heterogeneity of banks is characterized by idiosyncratic shocks and the asymmetric transmission of common shocks. Risk of about 1/3 of all banks rises in response to a monetary loosening. The lending response of small, illiquid, and domestic banks is relatively large, and risk of banks with a low degree of capitalization and a high exposure to real estate loans decreases relatively strongly after expansionary monetary policy shocks. Also, lending of larger banks increases less while risk of riskier and domestic banks reacts more in response to house price shocks.
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