Evaluating the German (New Keynesian) Phillips Curve
Rolf Scheufele
IWH Discussion Papers,
No. 10,
2008
Abstract
This paper evaluates the New Keynesian Phillips Curve (NKPC) and its hybrid
variant within a limited information framework for Germany. The main interest rests on the average frequency of price re-optimization of firms. We use the labor income share as the driving variable and consider a source of real rigidity by allowing for a fixed firm-specific capital stock. A GMM estimation strategy is employed as well as an identification robust method that is based upon the Anderson-Rubin statistic. We find out that the German Phillips Curve is purely forward looking. Moreover, our point estimates are consistent with the view that firms re-optimize prices every two to three quarters. While these estimates seem plausible from an economic point of view, the uncertainties around these estimates are very large and also consistent with perfect nominal price rigidity where firms never re-optimize prices. This analysis also offers some explanations why previous results for the German NKPC based on GMM differ considerably. First, standard GMM results are very sensitive to the way how orthogonality conditions are formulated. Additionally, model misspecifications may be left undetected by conventional J tests. Taken together, this analysis points out
the need for identification robust methods to get reliable estimates for the NKPC.
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Does temporary employment influence the workrelated training of low-skilled employees?
Eva Reinowski, Jan Sauermann
IWH Discussion Papers,
No. 2,
2008
Abstract
Fixed-term contracts are considerd as one of the most popular instruments of labour market flexibility. Although they provide new labour market options for employer and employees, it is argued that they may lead to decreasing investments in human capital. From the theoretical point of view it is not clear wheter a fixed-term contract is a drawback for the participation in work-related training. The paper deals with the influence of fixed-term contracts on work-related training especially for low-skilled workers. Based on the Micro Census data of 2004, we estimate a bivariate probit model for the probability of fixed-term employment and participating in work-related training. This model enables us to control for selection effects that may arise from unobservable factors. From the estimation results we can conclude that holding a fixed-term contract does not mean a systematical disadvantage for the training probability of low-skilled employees.
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Der Einfluß von Führungsfunktionen auf das Regionaleinkommen: eine ökonometrische Analyse deutscher Regionen
Ulrich Blum
Wirtschaft im Wandel,
No. 6,
2007
Abstract
We analyze the income position of German regions based on the concept of input potentials by estimating regional production functions. The concept, developed in the late 1970s, suggests that the regional production frontier depends on input capacities that can be over- or underutilized, once a benchmark, i.e. a national yardstick, is defined.
In this paper, this concept is taken up and applied to united Germany. Including variables that capture headquarter and R&D effects of firms on regional income to account for the entrepreneurial competence in regions extends a recent paper. It is shown that headquarter functions play a decisive role in describing the east-west income divide. In total, 85% of the East’s average income lag is explained by three factors: technology, headquarter functions, and transport accessibility.
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Systematic Mispricing in European Equity Prices?
Marian Berneburg
IWH Discussion Papers,
No. 6,
2007
Abstract
One empirical argument that has been around for some time and that clearly contra- dicts equity market efficiency is that market prices seem too volatile to be optimal estimates of the present value of future discounted cash flows. Based on this, it is deduced that systematic pricing errors occur in equity markets which hence can not be efficient in the Effcient Market Hypothesis sense. The paper tries to show that this so-called excess volatility is to a large extend the result of the underlying assumptions, which are being employed to estimate the present value of cash flows. Using monthly data for three investment style indices from an integrated European Equity market, all usual assumptions are dropped. This is achieved by employing the Gordon Growth Model and using an estimation process for the dividend growth rate that was suggested by Barsky and De Long. In extension to Barsky and De Long, the discount rate is not assumed at some arbitrary level, but it is estimated from the data. In this manner, the empirical results do not rely on the prerequisites of sta- tionary dividends, constant dividend growth rates as well as non-variable discount rates. It is shown that indeed volatility declines considerably, but is not eliminated. Furthermore, it can be seen that the resulting discount factors for the three in- vestment style indices can not be considered equal, which, on a risk-adjusted basis, indicates performance differences in the investment strategies and hence stands in contradiction to an efficient market. Finally, the estimated discount rates under- went a plausibility check, by comparing their general movement to a market based interest rate. Besides the most recent data, the estimated discount rates match the movements of market interest rates fairly well.
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The relationship between unemployment and output in post-communist countries
Hubert Gabrisch, Herbert Buscher
Post-Communist Economies,
2006
Abstract
Unemployment is still disappointingly high in most Central and East European countries, and might be a reflection of the ongoing adjustment to institutional shocks resulting from systemic transition, or it may be caused by high labour market rigidity, or aggregate demand that is too weak. In this paper we have investigated the dynamics of unemployment and output in those eight post-communist countries, which entered the EU in 2004. We used a model related to Okun’s Law; i.e. the first differences in unemployment rates were regressed on GDP growth rates. We estimated country and panel regressions with instrument variables (TSLS) and applied a few tests to the data and regression results. We assume transition of labour markets to be accomplished when a robust relationship exists between unemployment rate changes and GDP growth. Moreover, the estimated coefficients contain information about labour market rigidity and unemployment thresholds of output growth. Our results suggest that the transition of labour markets can be regarded as completed since unemployment responds to output changes and not to a changing institutional environment that destroys jobs in the state sector. The regression coefficients have demonstrated that a high trend rate of productivity and a high unemployment intensity of output growth have been occurring since 1998. Therefore, we conclude that labour market rigidities do not play an important role in explaining high unemployment rates. However, GDP growth is dominated by productivity progress and the employment-relevant component of aggregate demand is too low to reduce the high level of unemployment substantially.
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Cross-border Bank Contagion in Europe
Reint E. Gropp, M. Lo Duca, Jukka M. Vesala
ECB Working Paper, No. 662,
No. 662,
2006
Abstract
This paper analyses cross-border contagion in a sample of European banks from January 1994 to January 2003. We use a multinomial logit model to estimate the number of banks in a given country that experience a large shock on the same day (“coexceedances“) as a function of variables measuring common shocks and lagged coexceedances in other countries. Large shocks are measured by the bottom 95th percentile of the distribution of the daily percentage change in the distance to default of the bank. We find evidence in favour of significant cross-border contagion. We also find some evidence that since the introduction of the euro cross-border contagion may have increased. The results seem to be very robust to changes in the specification.
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Vertical Intra-industry Trade between EU and Accession Countries
Hubert Gabrisch
IWH Discussion Papers,
No. 12,
2006
Abstract
The paper analyses vertical intra-industry trade between EU and Accession countries, and concentrates on two country-specific determinants: Differences in personal income distribution and in technology. Both determinants have a strong link to national policies and to cross-border investment flows. In contrast to most other studies, income distribution is not seen as time-invariant variable, but as changing over time. What is new is also that differences in technology are tested in comparison with cost advantages from capital/labour ratios. The study applies panel estimation techniques with GLS. Results show country-pair fixed effects to be of high relevance for explaining vertical intraindustry trade. In addition, bilateral differences in personal income distribution and their changes are positive related to vertical intra-industry trade in this special regional integration framework; hence, distributional effects of policies matter. Also, technology differences turn out to be positively correlated with vertical intra-industry trade. However, the cost variable (here: relative GDP per capita) shows no clear picture, particularly not in combination with the technology variable.
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Vernetzung und einzelwirtschaftliche Effekte von Unternehmen der Kunststoff- und Biotechnologiebranche in Mitteldeutschland - eine Analyse am Beispiel der Clusterinitiativen „Chemie/Kunststoffe“ und „Biotechnologie/Life Sciences“
Walter Komar
IWH-Sonderhefte,
No. 2,
2006
Abstract
According to theoretical implications the success of enterprises benefits from co-operation in clusters and networks. Studies of cluster and network processes show this for the industries chemistry/plastics and biotechnology/Life Sciences in Central Ger-many. Therefore enterprises which are organized in networks have better economic characteristics. Estimations of the productivity of firms using co-operation-based and non-co-operation-based factors as independent variables reveal a significantly positive influence of the propensity to co-operate as well as networking. In this regard scientific institutions and universities located in the region of firms play an important role. From this analysis it can be generalized and concluded, also concerning other industries, that networks emerge automatically under certain conditions. Nevertheless their creation and development should be encouraged, e.g. by efficiency strengthening of public research and university education as well as the intensification of co-operation and networking between the scientific and the corporate sector. This can promote the technology and human capital transfer.
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Forced to Freedom? Empirical Relations between Aid and Economic Freedom
Tobias Knedlik, Franz Kronthaler
IWH Discussion Papers,
No. 8,
2006
Abstract
The paper explores the relationships between economic freedom on the one side and development aid and IMF credit as approximation for conditional aid on the other side. After a short review of current literature on the issue of economic development, economic freedom, aid, and IMF credit, the paper develops a simple panel regression model to evaluate the relationship between “economic freedom” as dependent variable and “aid” and “IMF credit” as independent variables. The estimation is based upon data taken from the World Bank’s World Development Indicators and the Heritage Index of Economic Freedom. In contrast to previous research, our results allow the rejection of the hypothesis that IMF credit increases economic freedom and that aid is not contributing to economic freedom. The estimation results suggest that, firstly, aid is positively correlated with economic freedom, and secondly, that IMF credit is negatively correlated with economic freedom. Taking IMF credit as proxy for conditional aid, we conclude that for the period of observation it could not be shown that countries can be forced to economic freedom by aid conditions.
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The unemployment-growth relationship in transition countries
Hubert Gabrisch, Herbert Buscher
IWH Discussion Papers,
No. 5,
2005
Abstract
Does the disappointingly high unemployment in Central and East European countries reflect non-completed adjustment to institutional shocks from transition to a market economy, or is it the result of high labour market rigidities, or rather a syndrome of too weak aggregate demand and output? In the case of transitional causes, unemployment is expected to decline over time. Otherwise, it would pose a challenge to the European Union, particular in case of accession countries, for it jeopardizes the ambitious integration plans of, and may trigger excessive migration to the Union. In order to find out which hypothesis holds 15 years after transition has started, we analyze the unemploymentgrowth dynamics in the eight new member countries from Central-Eastern Europe. The study is based on country and panel regressions with instrument variables (TSLS). The results suggest to declare the transition of labour markets as completed; unemployment responds to output and not to a changing institutional environment for job creation. The regression coefficients report a high trend rate of productivity and a high unemployment intensity of output growth since 1998. The conclusion is that labour market rigidities do not to play an important role in explaining high unemployment rates. Rather, GDP growth is dominated by productivity progress, while the employment relevant component of aggregate demand is too low to reduce substantially the high level of unemployment.
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