Volatilität, Wachstum und Finanzkrisen
Die Forschungsgruppe gehört zum IWH-Forschungscluster Finanzstabilität und Regulierung. Diese Gruppe erforscht – auch vor dem Hintergrund der jüngsten Krisen – den Zusammenhang zwischen finanziellen und monetären Größen, realwirtschaftlichen Schwankungen und langfristigem Wirtschaftswachstum.
IWH-Datenprojekt: Financial Stability Indicators in Europe
ForschungsclusterFinanzstabilität und Regulierung
Real Effective Exchange Rate Misalignment in the Euro Area: A Counterfactual Analysis
in: Review of International Economics , Nr. 1, 2016
The European debt crisis has revealed severe imbalances within the Euro area, sparking a debate about the magnitude of those imbalances, in particular concerning real effective exchange rate misalignments. We use synthetic matching to construct a counterfactual economy for each member state in order to identify the degree of these misalignments. We find that crisis countries are best described as a combination of advanced and emerging economies. Comparing the actual real effective exchange rate with those of the counterfactuals gives evidence of misalignments before the outbreak of the crisis: all peripheral countries appear strongly and significantly overvalued.
Financial Constraints on Growth: Comparing the Balkans to Other Transition Economies
in: Eastern European Economics , Nr. 4, 2015
This article applies an adjusted growth diagnostic approach to identify the currently most binding constraint on financing growth in the West Balkan countries. Since this group of economies faces both structural and systemic transformation problems, the original supply-side approach might not be sufficient to detect the most binding constraint. The results of the analysis indicate that the binding constraint on credit and investment growth in the region is the high and increasing share of nonperforming loans, primarily in the household sector, due to policy failures. This article compares the Balkan countries to a group of advanced transition economies. Single-country and panel regressions indicate that demand-side factors do not play a constraining role on growth in the West Balkan countries, but they do in the advanced transition economies.
Risk and Return - Is there an Unholy Cycle of Ratings and Yields?
in: Economics Letters , 2015
After every major financial crisis, the question about the responsibility of the rating agencies resurfaces. Regarding government bonds, the most frequently voiced concern targeted “unreasonably” bad ratings that might trigger capital flights and increasing risk premia which sanction further rating downgrades. In this paper we develop a multivariate, nonparametric version of the Pesaran type cointegration model that allows for nonlinearities, to show that a unique equilibrium between ratings and sovereign yields exists. Therefore, we have to reject the concern that there is an unholy cycle leading to certain default in the long run.
The Impact of Preferences on Early Warning Systems - The Case of the European Commission's Scoreboard
in: European Journal of Political Economy , 2014
The European Commission’s Scoreboard of Macroeconomic Imbalances is a rare case of a publicly released early warning system. It allows the preferences of the politicians involved to be analysed with regard to the two potential errors of an early warning system – missing a crisis and issuing a false alarm. These preferences might differ with the institutional setting. Such an analysis is done for the first time in this article for early warning systems in general by using a standard signals approach, including a preference-based optimisation approach, to set thresholds. It is shown that, in general, the thresholds of the Commission’s Scoreboard are set low (resulting in more alarm signals), as compared to a neutral stand. Based on political economy considerations the result could have been expected.
Exchange Rate Regime, Real Misalignment and Currency Crises
in: Economic Modelling , Nr. 34, 2013
Based on 69 sample countries, this paper examines the effect of macroeconomic fundamentals on real effective exchange rates (REER) in these sample countries. Using the misalignment of actual REER from its equilibrium level, we have estimated the factors explaining the extent of currency over- or under-valuation. Overall, we find that the higher the flexibility of the currency regime, the lower is the misalignment. The estimates are robust to different sub-samples of countries. We then explore the impact of such misalignment on the probability of a currency crisis in the next period, indicating the extent to which misalignment could be used as a leading indicator of a potential crisis. This paper thus makes a new contribution to the debate on the choice of exchange rate regime by bringing together real exchange rate misalignment and currency crisis literature.
Sovereign Stress, Banking Stress, and the Monetary Transmission Mechanism in the Euro Area
in: IWH-Diskussionspapiere , Nr. 3, 2018
In this paper, we investigate to what extend sovereign stress and banking stress have contributed to this increase in the level and in the heterogeneity of nonfinancial firms’ refinancing costs in the Euro area during the European debt crisis and how they did affect the monetary transmission mechanism. Employing a large firm-level data set containing two million observations, we are able to identify the increasing effect of government bond yield spreads (sovereign stress) and the share of non-performing loans (banking stress) on firms’ financing costs in a panel model by assuming that idiosyncratic shocks to individual firms are uncorrelated with country-specific variables. Moreover, we estimate both sources of stress to have significantly impaired the monetary transmission mechanism between 2005 and 2013. This finding suggests that the ECB’s asset purchase programmes during that period have helped to improve firms’ financing conditions in stressed countries but that monetary policy transmission was still impaired due to the elevated level of banking stress in these countries.
Inflation Dynamics During the Financial Crisis in Europe: Cross-sectional Identification of Long-run Inflation Expectations
in: IWH-Diskussionspapiere , Nr. 10, 2017
We investigate drivers of Euro area inflation dynamics using a panel of regional Phillips curves and identify long-run inflation expectations by exploiting the crosssectional dimension of the data. Our approach simultaneously allows for the inclusion of country-specific inflation and unemployment-gaps, as well as time-varying parameters. Our preferred panel specification outperforms various aggregate, uni- and multivariate unobserved component models in terms of forecast accuracy. We find that declining long-run trend inflation expectations and rising inflation persistence indicate an altered risk of inflation expectations de-anchoring. Lower trend inflation, and persistently negative unemployment-gaps, a slightly increasing Phillips curve slope and the downward pressure of low oil prices mainly explain the low inflation rate during the recent years.
Optimizing Policymakers' Loss Functions in Crisis Prediction: Before, Within or After?
in: ECB Working Paper Series , Nr. 2025, 2017
Early-warning models most commonly optimize signaling thresholds on crisis probabilities. The expost threshold optimization is based upon a loss function accounting for preferences between forecast errors, but comes with two crucial drawbacks: unstable thresholds in recursive estimations and an in-sample overfit at the expense of out-of-sample performance. We propose two alternatives for threshold setting: (i) including preferences in the estimation itself and (ii) setting thresholds ex-ante according to preferences only. Given probabilistic model output, it is intuitive that a decision rule is independent of the data or model specification, as thresholds on probabilities represent a willingness to issue a false alarm vis-à-vis missing a crisis. We provide simulated and real-world evidence that this simplification results in stable thresholds and improves out-of-sample performance. Our solution is not restricted to binary-choice models, but directly transferable to the signaling approach and all probabilistic early-warning models.
Why They Keep Missing: An Empirical Investigation of Rational Inattention of Rating Agencies
in: IWH-Diskussionspapiere , Nr. 1, 2017
Sovereign ratings have frequently failed to predict crises. However, the literature has focused on explaining rating levels rather than the timing of rating announcements. We fill this gap by explicitly differentiating between a decision to assess a country and the actual rating decision. Thereby, we account for rational inattention of rating agencies that exists due to costs of reassessment. Exploiting information of rating announcements, we show that (i) the proposed differentiation significantly improves estimation; (ii) rating agencies consider many nonfundamental factors in their reassessment decision; (iii) markets only react to ratings providing new information; (iv) developed countries get preferential treatment.
Macroeconomic Trade Effects of Vehicle Currencies: Evidence from 19th Century China
in: IWH-Diskussionspapiere , Nr. 23, 2016
We use the Chinese experience between 1867 and 1910 to illustrate how the volatility of vehicle currencies affects trade. Today’s widespread vehicle currency is the dollar. However, the macroeconomic effects of this use of the dollar have rarely been addressed. This is partly due to identification problems caused by its international importance. China had adopted a system, where silver was used almost exclusively for trade, similar to a vehicle currency. While being important for China, the global role of silver was marginal, alleviating said identification problems. We develop a bias corrected structural VAR showing that silver price fluctuations significantly affected trade.