Qual VAR Revisited: Good Forecast, Bad Story
Makram El-Shagi, Gregor von Schweinitz
Abstract
Due to the recent financial crisis, the interest in econometric models that allow to incorporate binary variables (such as the occurrence of a crisis) experienced a huge surge. This paper evaluates the performance of the Qual VAR, i.e. a VAR model including a latent variable that governs the behavior of an observable binary variable. While we find that the Qual VAR performs reasonably well in forecasting (outperforming a probit benchmark), there are substantial identification problems. Therefore, when the economic interpretation of the dynamic behavior of the latent variable and the chain of causality matter, the Qual VAR is inadvisable.
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The Synchronization of Wage Dynamics across EMU Members: A Test of the Endogeneity Hypothesis
Herbert S. Buscher, Hubert Gabrisch
Empirica,
No. 3,
2012
Abstract
We test the hypothesis of an endogenous currency area for the labor market of the Euro area: has the introduction of a common currency caused wage dynamics to become more synchronized and to be able to cushion for asymmetric shocks? Trade intensity, sector specialization and financial integration are tested for being the driving forces for the endogenous synchronization of wage dynamics. We use regression techniques with instrument variables, and find evidence of persistent asymmetries in nominal wage formation, despite a single currency and monetary policy. We explain the result with more specialization following financial integration, and with still existing differences in wage formation and labor market institutions. We conclude that the euro zone is not endogenous with respect to wage formation. Rather, there are incentives for beggar-thy-neighbor policies in the Euro area.
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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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Protect and Survive? Did Capital Controls Help Shield Emerging Markets from the Crisis?
Makram El-Shagi
Economics Bulletin,
No. 1,
2012
Abstract
Using a new dataset on capital market regulation, we analyze whether capital controls helped protect emerging markets from the real economic consequences of the 2009 financial and economic crisis. The impact of the crisis is measured by the 2009 forecast error of a panel state space model, which analyzes the business cycle dynamics of 63 middle-income countries. We find that neither capital controls in general nor controls that were specifically targeted to derivatives (that played a crucial role during the crisis) helped shield economies. However, banking regulation that limits the exposure of banks to global risks has been highly successful.
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Labor Demand During the Crisis: What Happened in Germany?
Claudia M. Buch
IZA. Discussion Paper No. 6074,
2011
Abstract
In Germany, the employment response to the post-2007 crisis has been muted compared to other industrialized countries. Despite a large drop in output, employment has hardly changed. In this paper, we analyze the determinants of German firms’ labor demand during the crisis using a firm-level panel dataset. Our analysis proceeds in two steps. First, we estimate a dynamic labor demand function for the years 2000-2009 accounting for the degree of working time flexibility and the presence of works councils. Second, on the basis of these
estimates, we use the difference between predicted and actual employment as a measure of labor hoarding as the dependent variable in a cross-sectional regression for 2009. Apart from total labor hoarding, we also look at the determinants of subsidized labor hoarding through short-time work. The structural characteristics of firms using these channels of adjustment differ. Product market competition has a negative impact on total labor hoarding but a positive effect on the use of short-time work. Firm covered by collective agreements hoard less labor overall; firms without financial frictions use short-time work less intensively.
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Entrepreneurial Opportunity and the Formation of Photovoltaic Clusters in Eastern Germany
Matthias Brachert, Christoph Hornych
R. Wüstenhagen, R. Wuebker (Hrsg.), Handbook of Research on Energy Entrepreneurship,
2011
Abstract
The aim of this paper is to explain the evolution of the spatial structures of one particular type of renewable energy in Germany – the photovoltaic (PV) industry. We first demonstrate how environmental movements have contributed to institutional change and government action, leading to changes in the legal and regulative structure in Germany. We describe how these changes opened up a window of locational opportunity (WLO), thus combining the WLO concept with the entrepreneurial opportunity concept. As market entries occurred mainly in Eastern Germany, the paper also explores the factors leading to a concentration of economic activity related to the new PV industry in this part of the country. Based on the WLO concept, we combine this framework with the industrial dynamics literature by Klepper (2007) and illustrate the spatial evolution of the PV industry.
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