14.06.2018 • 14/2018
Current economic outlook: German upswing is slowing down
In summer 2018, the world economy is still rather strong. Dynamics in the euro area, however, have declined markedly, and the cyclical upswing in Germany has almost stalled, due to weaker exports. “Gross domestic product will, according to this forecast, expand by 1.7% in 2018 and by 1.6% in 2019. Growth in East Germany will be about as strong as in Germany as a whole”, says Oliver Holtemöller, head of the Department Macroeconomics and vice president at IWH.
Oliver Holtemöller
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19.03.2018 • 4/2018
Economists – and the others
People with a background in economics react more strongly to financial incentives – both positively and negatively, as Dmitri Bershadskyy of the Halle Institute for Economic Research (IWH) – Member of the Leibniz Association – found out. At the beginning of his laboratory experiment, economists were prepared to spend more money on a public good and keep to this social behaviour for a longer period than non-economists. However, towards the end of the experiment they were also the greatest free-riders.
Dmitri Bershadskyy
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Economic Transition in Unified Germany and Implications for Korea
Hyung-Gon Jeong, Gerhard Heimpold
H.-G. Jeong and G. Heimpold (eds.): Economic Transition in Unified Germany and Implications for Korea. Policy References 17-13. Sejong: Korea Institute for International Economic Policy,
2017
Abstract
The reunification of Germany, which marked the end of the Cold War in the 20th century, is regarded as one of the most exemplary cases of social integration in human history. Nearly three decades after the German reunification, the economic and social shocks that occurred at the beginning of the reunification process have largely been resolved. Moreover, the unified Germany has grown into one of the most advanced economies in the world.
The unification process that Germany underwent may not necessarily be the way that the Republic of Korea would choose. However, the economic and social exchanges between East and West Germany prior to unification, and the cooperation in a myriad of policies based on these exchanges, served as the crucial foundation for unification. The case of Germany will surely help us find a better way for the re-unification of the Korean Peninsula.
In this context, this is the first edition of a joint research which provides diverse insights on social and economic issues during the process of unification. It consists of nine chapters whose main topics include policies on macroeconomic stabilization, the privatization of state-owned enterprises in East Germany, labor policies and the migration of labor, integration of the social safety nets of the North and South, and securing finances for reunification. To start with, the first part covers macroeconomic stabilization measures, which include policies implemented by the federal government of Germany to overcome macroeconomic shocks directly after the reunification. There was a temporary setback in the economy at the initial phase of reunification as the investment per GDP went down and the level of fiscal debt escalated, reverting to its original trend prior to the reunification. While it appears the momentum for growth was compromised by reunification from the perspective of growth rate of real GDP, this state did not last long and benefits have outpaced the costs since 2000.
In the section which examines the privatization of state-owned enterprises in East Germany, an analysis was conducted on the modernization of industrial infrastructure of East German firms. There was a surge in investment in East German area at the beginning stages but this was focused on a specific group of firms. Most of the firms were privatized through unofficial channels, with a third of these conducted in a management buy-out (MBO) process that was highly effective. Further analysis of a firm called Jenoptik, which was successfully bailed out, is incorporated as to draw implications of its accomplishments.
In the section on migration, we examine how the gap between the unemployment rates in the West and East have narrowed as the population flow shifted from the West to East. Consequently, there was no significant deviation in terms of the Gross Regional Domestic Product (GRDP) per capita in each state of East Germany. However, as the labor market stabilized in East Germany and population flows have weakened, the deviation will become larger. Meanwhile, if we make a prediction about the movement of population between the North and the South, which show a remarkable difference in their economic circumstances, a radical reunification process such as Germany’s case would force 7% of the population of the North to move towards the South. Upon reunification, the estimated unemployment rate in North Korea would remain at least 30% for the time being. In order to reduce the initial unemployment rate, it is crucial to design a program that trains the unemployed and to build a system that predicts changes in labor demand.
It seems nearly impossible to apply the social safety nets of the South to the North, as there is a systemic difference in ideologies. Taking steps toward integration would be the most suitable option in the case of the Koreas. We propose to build a sound groundwork for stabilizing the interest rates and exchange rates, maintain stable fiscal policies, raise momentum for economic growth and make sure people understand the means required to financially support the North in order to reduce the gap between the two.
This book was jointly organized and edited by Dr. Hyung-gon Jeong of the Korea Institute for International Economic Policy (KIEP) and Dr. Gerhard Heimpold of the Halle Institute for Economic Research (IWH). We believe that this report, which examines numerous social and economic agendas that emerged during the reunification of Germany, will provide truly important reference for both Koreas. It is also our view that it will serve as a stepping-stone to establish policies in regard to South-North exchanges across numerous sectors prior to discussions of reunification. KIEP will continue to work with IWH and contribute its expertise to the establishment of grounds for unification policies.
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14.12.2017 • 39/2017
Cyclical upswing in Germany and in the world
At the turn of the year, the cyclical upswing in Germany continues. Gross domestic product is expected to increase by 2.2% in 2017, and because this year has seen significantly fewer working days than before, the rate of change amounts, adjusted for calendar effects, to even 2.5%. “The upswing is broad-based”, says Oliver Holtemöller, head of the Department Macroeconomics and IWH vice president. “For quite a long time now, significant increases in employment have been driving private incomes, consumption and housing construction. The latter was, in addition, stimulated by low interest rates.” Currently, German exports are benefiting from the vivid international economy. Not least since monetary policy in the euro area remains expansionary for the time being, we expect the upturn to continue in 2018 and production to increase again by 2.2%. Consumer price inflation is, with 1.7%, still moderate in both 2017 and 2018. Although domestic price pressures are on the rise, the effects of the energy price increase in 2017 expire in 2018, and the appreciation of the euro in the summer of 2017 will dampen price dynamics.
Oliver Holtemöller
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09.08.2017 • 29/2017
Networked and protected
During the financial crisis, billions were spent to rescue banks that were according to their governments too big to be allowed to fail. But a study by Michael Koetter from the Halle Institute for Economic Research (IWH) and co-authors shows that besides the size of the banks, the centrality within the global financial network was also pivotal for financial institutions to receive a bail-out.
Michael Koetter
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24.04.2017 • 22/2017
Higher capital requirements: It’s the firms that end up suffering
61 European banks were scheduled to increase their capital cover by 2012 to provide a sufficient buffer for future crises. As the study by the research group chaired by Reint E. Gropp at the Halle Institute for Economic Research (IWH) – Member of the Leibniz Association shows, the banks did implement these requirements – not by raising their levels of equity, but by reducing their credit supply. This resulted in lower firm, investment, and sales growth for firms which obtained a larger share of their bank credit from these banks.
Reint E. Gropp
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15.03.2017 • 13/2017
The German Economy: Employment Boom in Germany, but no Overheating of the Economy
Employment in Germany continues to increase healthily, and private consumption expands due to rising real incomes. Investment in equipment, however, remains modest. Overall, economic demand is expanding at roughly the growth rate of potential Gross Domestic Product (GDP), and the output gap is nearly closed. “In 2017, GDP will increase by 1.3% and thus at a lower rate than in the previous year, but this is only due to fewer working days and not to sliding demand,” says Oliver Holtemoeller, Head of the Department Macroeconomics and IWH vice president.
Oliver Holtemöller
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How Do Insured Deposits Affect Bank Risk? Evidence from the 2008 Emergency Economic Stabilization Act
Claudia Lambert, Felix Noth, Ulrich Schüwer
Journal of Financial Intermediation,
January
2017
Abstract
This paper tests whether an increase in insured deposits causes banks to become more risky. We use variation introduced by the U.S. Emergency Economic Stabilization Act in October 2008, which increased the deposit insurance coverage from $100,000 to $250,000 per depositor and bank. For some banks, the amount of insured deposits increased significantly; for others, it was a minor change. Our analysis shows that the more affected banks increase their investments in risky commercial real estate loans and become more risky relative to unaffected banks following the change. This effect is most distinct for affected banks that are low capitalized.
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14.12.2016 • 50/2016
The German Economy: Economic Activity Spurred by Private Consumption and Construction
German economic activity remains robust due to strong domestic demand. IWH forecasts gross domestic product (GDP) to increase by 1.3% in 2017. The growth rate is half a percentage point lower than in 2016 due to calendar effects and a negative contribution of external trade. Consumer price inflation also remains modest (1.3%). “Unemployment is expected to increase slightly due to a protracted integration of refugees into the labor market”, says Oliver Holtemöller, Head of the Department Macroeconomics and IWH vice president
Oliver Holtemöller
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