13.06.2019 • 12/2019
Weak foreign demand – economic downturn in Germany
In the summer of 2019, uncertainty due to ongoing trade disputes weighs on the global economy. The export-oriented German economy is particularly affected. According to IWH summer economic forecast, gross domestic product is expected to increase by only 0.5% in 2019; the forecast for East Germany is 0.8%. The German labour market remains largely robust despite the economic downturn.
Oliver Holtemöller
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Lock‐in Effects in Relationship Lending: Evidence from DIP Loans
Iftekhar Hasan, Gabriel G. Ramírez, Gaiyan Zhang
Journal of Money, Credit and Banking,
No. 4,
2019
Abstract
Do prior lending relationships result in pass‐through savings (lower interest rates) for borrowers, or do they lock in higher costs for borrowers? Theoretical models suggest that when borrowers experience greater information asymmetry, higher switching costs, and limited access to capital markets, they become locked into higher costs from their existing lenders. Firms in Chapter 11 seeking debtor‐in‐possession (DIP) financing often fit this profile. We investigate the presence of lock‐in effects using a sample of 348 DIP loans. We account for endogeneity using the instrument variable (IV) approach and the Heckman selection model and find consistent evidence that prior lending relationship is associated with higher interest costs and the effect is more severe for stronger existing relationships. Our study provides direct evidence that prior lending relationships do create a lock‐in effect under certain circumstances, such as DIP financing.
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07.03.2019 • 7/2019
German economy will pick up speed only slowly
In winter of 2018/2019, the global economy weakened considerably, mainly due to economic policy risks. In Germany, the economy will pick up speed only slowly. According to IWH spring economic forecast, gross domestic product will increase by 0.5% in 2019. Growth in East Germany will amount to 0.7%.
Oliver Holtemöller
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The Effect of the Single Currency on Exports: Comparative Firm-level Evidence
Tibor Lalinsky, Jaanika Meriküll
IWH-CompNet Discussion Papers,
No. 1,
2019
Abstract
We investigate how adopting the euro affects exports using firm-level data from Slovakia and Estonia. In contrast to previous studies, we focus on countries that adopted the euro individually and had different exchange rate regimes prior to doing so. Following the New Trade Theory we consider three types of adjustment: firm selection, changes in product varieties and changes in the average value of the exports that compose the exports of individual firms. The euro effect is identified by a difference in differences analysis comparing exports by firms to the euro area countries with exports to the EU countries that are not members of the euro area. The results highlight the importance of the transaction costs channel related to exchange rate volatility. We find the euro has a strong pro-trade effect in Slovakia, which switched to the euro from a floating exchange rate, while it has almost no effect in Estonia, which had a fixed exchange rate to the euro prior to the euro changeover. Our findings indicate that the euro effect manifested itself mainly through the intensive margin and that the gains from trade were heterogeneous across firm characteristics.
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Industrial Relations: Worker Codetermination and Collective Wage Bargaining
Steffen Müller, Claus Schnabel
Jahrbücher für Nationalökonomie und Statistik,
No. 1,
2019
Abstract
Trade unions and employers’ associations, collective bargaining, and employee representation at the workplace are the cornerstones of industrial relations systems in many developed countries. Germany stands out as a country with powerful works councils and a high coverage rate of collective bargaining agreements, supported by encompassing interest groups of employees and employers and by the state. The German case and the perceived stability of its industrial relations regime have attracted considerable attention among researchers and politicians, which also has to do with the country’s high productivity, comparably few strikes, and relatively minor employment problems. However, in recent years industrial relations in many countries including Germany have come under pressure and the fact that there is no obvious and clearly superior alternative to the current regime of industrial and labour relations may not be sufficient to guarantee the survival of the present system.
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19.12.2018 • 23/2018
IWH Mid-term Projections: The German Economy and Public Finances 2018 to 2025
In 2018 the general government overall balance is likely to be in surplus by almost 60 billion euros. In the medium term, however, demographic conditions will deteriorate, as will public finances. The financial position of the German state will nevertheless remain stable until 2025, unless major negative shocks occur. “But even if interest rates rose significantly or foreign demand declined markedly, only moderate deficits would arise”, says Oliver Holtemöller, head of the Department of Macroeconomics and vice president at Halle Institute for Economic Research (IWH). However, given the expected reduction of the surplus under existing legislation, there is no room for further increases in spending.
Oliver Holtemöller
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18.12.2018 • 22/2018
IWH leads large scale EU research project on productivity
Is productivity growth slowing in industrialised countries? And if so, why? From the start of 2019, the Halle Institute for Economic Research (IWH) will be addressing these questions as the coordinator of a new EU project. Economists and statistics experts from nine European partners will collaborate on the three-year project, entitled MICROPROD. With a total budget of just under three million euros, it is the IWH’s largest EU project to date.
Steffen Müller
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13.12.2018 • 21/2018
Economic activity in the world and in Germany is losing momentum
In the second half of 2018, the upturn of the German economy has stalled. Production of the automotive industry declined because of delays in switching production to WLTP compliant cars. Irrespectively of this, the German export business has been weakening since the beginning of the year, since the global economy, burdened by the political uncertainties surrounding trade conflicts, the impending Brexit and the conflict over the Italian budget, was unable to keep up with the high momentum of 2017. “It is to be expected that the less benign external environment will not only dampen exports, but will also impact on companies’ investment and hiring decisions”, says Oliver Holtemöller, head of the Department Macroeconomics and vice president at Halle Institute for Economic Research (IWH). Gross domestic product is expected to increase by 1.5% in 2018 and by 1.4% in 2019, which is roughly equal to the growth rate of economic capacity in Germany.
Oliver Holtemöller
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Inference in Structural Vector Autoregressions when the Identifying Assumptions are not Fully Believed: Re-evaluating the Role of Monetary Policy in Economic Fluctuations
Christiane Baumeister, James D. Hamilton
Journal of Monetary Economics,
2018
Abstract
Point estimates and error bands for SVARs that are set identified are only justified if the researcher is persuaded that some parameter values are a priori more plausible than others. When such prior information exists, traditional approaches can be generalized to allow for doubts about the identifying assumptions. We use information about both structural coefficients and impacts of shocks and propose a new asymmetric t-distribution for incorporating information about signs in a nondogmatic way. We apply these methods to a three-variable macroeconomic model and conclude that monetary policy shocks are not the major driver of output, inflation, or interest rates.
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