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IWH in Halle gründet europäisches Zentrum für MikrodatenforschungReint GroppDeutschlandfunk, 9. Januar 2025
We show an equivalence result in the standard representative agent New Keynesian model after demand, wage markup and correlated price markup and TFP shocks: assuming sticky prices and flexible wages yields identical allocations for GDP, consumption, labor, inflation and interest rates to the opposite case- flexible prices and sticky wages. This equivalence result arises if the price and wage Phillips curves' slopes are identical and generalizes to any pair of price and wage Phillips curve slopes such that their sum and product are identical. Nevertheless, the cyclical implications for profits and wages are substantially different. We discuss how the equivalence breaks when these factor-distributional implications matter for aggregate allocations, e.g. in New Keynesian models with heterogeneous agents, endogenous firm entry, and non-constant returns to scale in production. Lastly, we point to an econometric identification problem raised by our equivalence result and discuss possible solutions thereof.
The European Commission’s growth forecasts play a crucial role in shaping policies and provide a benchmark for many (national) forecasters. The annual forecasts are built on quarterly estimates, which do not receive much attention and are hardly known. Therefore, this paper provides a comprehensive analysis of multi-period ahead quarterly GDP growth forecasts for the European Union (EU), euro area, and several EU member states with respect to first-release and current-release data. Forecast revisions and forecast errors are analyzed, and the results show that the forecasts are not systematically biased. However, GDP forecasts for several member states tend to be overestimated at short-time horizons. Furthermore, the final forecast revision in the current quarter is generally downward biased for almost all countries. Overall, the differences in mean forecast errors are minor when using real-time data or pseudo-real-time data and these differences do not significantly impact the overall assessment of the forecasts’ quality. Additionally, the forecast performance varies across countries, with smaller countries and Central and Eastern European countries (CEECs) experiencing larger forecast errors. The paper provides evidence that there is still potential for improvement in forecasting techniques both for nowcasts but also forecasts up to eight quarters ahead. In the latter case, the performance of the mean forecast tends to be superior for many countries.
Why are children with lower socioeconomic status (SES) substantially less likely to be enrolled in child care? We study whether barriers in the application process work against lower-SES children — the group known to benefit strongest from child care enrollment. In an RCT in Germany with highly subsidized child care (N = 607), we offer treated families information and personal assistance for applications. We find substantial, equity-enhancing effects of the treatment, closing half of the large SES gap in child care enrollment. Increased enrollment for lower-SES families is likely driven by altered application knowledge and behavior. We discuss scalability of our intervention and derive policy implications for the design of universal child care programs.
This study employs synthetic control methods to estimate the effect of the Iberian exception mechanism on wholesale electricity prices and consumer inflation, for both Spain and Portugal. We find that the intervention led to an average reduction of approximately 40% in the spot price of electricity between July 2022 and June 2023 in both Spain and Portugal. Regarding overall inflation, we observe notable differences between the two countries. In Spain, the intervention has an immediate effect, and results in an average decrease of 3.5 percentage points over the twelve months under consideration. In Portugal, however, the impact is small and generally close to zero. Different electricity market structures in each country are a plausible explanation.
The Roy-Borjas model predicts that international migrants are less educated than nonmigrants because the returns to education are generally higher in developing (migrant-sending) than in developed (migrant-receiving) countries. However, empirical evidence often shows the opposite. Using the case of Mexico-U.S. migration, we show that this inconsistency between predictions and empirical evidence can be resolved when the human capital of migrants is assessed using a two-dimensional measure of occupational skills rather than by educational attainment. Thus, focusing on a single skill dimension when investigating migrant selection can lead to misleading conclusions about the underlying economic incentives and behavioral models of migration.
We study how deposit competition affects a bank's decision to securitize mortgages. Exploiting the state-specific removal of deposit market caps across the U.S. as a source of competition, we find a 7.1 percentage point increase in the probability that banks securitize mortgage loans. This result is driven by an 11 basis point increase in deposit costs and corresponding reductions in banks' deposit holdings. Our results are strongest among banks that rely more on deposit funding. These findings highlight a hitherto undocumented and unintended regulatory cause that motivates banks to adopt the originate-to-distribute model.
Wage mobility reduces the persistence of wage inequality. We develop a framework to quantify the contribution of employer-to-employer movers to aggregate wage mobility. Using three decades of German social security data, we find that inequality increased while aggregate wage mobility decreased. Employer-to-employer movers exhibit higher wage mobility, mainly due to changes in employer wage premia at job change. The massive structural changes following German unification temporarily led to a high number of movers, which in turn boosted aggregate wage mobility. Wage mobility is much lower at the bottom of the wage distribution, and the decline in aggregate wage mobility since the 1980s is concentrated there. The overall decline can be mostly attributed to a reduction in wage mobility per mover, which is due to a compositional shift toward lower-wage movers.
This study investigates the impact of inaccurate assumptions on economic forecast precision. We construct a new dataset comprising an unbalanced panel of annual German GDP forecasts from various institutions, taking into account their underlying assumptions. We explicitly control for different forecast horizons to reflect the information available at the time of release. Our analysis reveals that approximately 75% of the variation in squared forecast errors can be attributed to the variation in squared errors of the initial assumptions. This finding emphasizes the importance of accurate assumptions in economic forecasting and suggests that forecasters should transparently disclose their assumptions to enhance the usefulness of their forecasts in shaping effective policy recommendations.
Does information leakage in a target's social networks increase its stock price prior to a merger announcement? Evidence reveals that a target with more social connections indeed experiences a higher pre-announcement price run-up. This effect does not exist during or after the merger announcement, or in windows ending two months before the announcement. It is more pronounced among targets with severe asymmetric information, and weaker when the information about the upcoming merger is publicly available prior to the announcement. It is also weaker in expedited deals such as tender offers.
This paper investigates the relationship between heterogeneity in sectoral price stickiness and the response of the economy to aggregate real shocks. We show that sectoral heterogeneity reduces inflation persistence for a constant average duration of price spells, and that inflation persistence can fall despite duration increases associated with increases in heterogeneity. We also find that sectoral heterogeneity reduces the persistence and volatility of interest rate and output gap for a constant price spells duration, while the qualitative impact on inflation volatility tends to be positive. A relevant policy implication is that neglecting price stickiness heterogeneity can impair the economic dynamics assessment.
