German Economic Growth in 2008: Temporary Slow Down
Wirtschaft im Wandel,
No. 4,
2008
Abstract
World economic growth has slowed in the first months of 2008. The main causes are the crisis in the US housing sector and the turmoil in the financial sector in general, the spreading expectation of a recession in the US, and sharply rising prices for energy and food. The German economy, though, is still expanding healthily, with strong investment and export activities. Private consumption, however, shrank at the end of 2007. In 2008, while favorable labor market conditions will improve job security and thus the propensity to consume, real incomes will not rise by much due to the risen inflation rate; consumption will again expand only modestly this year. A slower expansion of the world economy and the stronger euro will dampen exports and investment. All in all, growth will slow to (working-day adjusted) 1.2% in 2008. Chances are good that in the next year, after the negative shocks have faded out a bit, growth will be accelerating again. The East German Economy was on a lower growth path in 2006 and 2007 than the economy in the West, according to recently revised national accounts data. Industrial production, however, is more dynamic in the East. Unemployment rates will continue to decrease faster in the East: as in the rest of Germany, employment is growing, and, contrary to what happens in the West, the labor force is shrinking.
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Three methods of forecasting currency crises: Which made the run in signaling the South African currency crisis of June 2006?
Tobias Knedlik, Rolf Scheufele
IWH Discussion Papers,
No. 17,
2007
Abstract
In this paper we test the ability of three of the most popular methods to forecast the South African currency crisis of June 2006. In particular we are interested in the out-ofsample performance of these methods. Thus, we choose the latest crisis to conduct an out-of-sample experiment. In sum, the signals approach was not able to forecast the outof- sample crisis of correctly; the probit approach was able to predict the crisis but just with models, that were based on raw data. Employing a Markov-regime-switching approach also allows to predict the out-of-sample crisis. The answer to the question of which method made the run in forecasting the June 2006 currency crisis is: the Markovswitching approach, since it called most of the pre-crisis periods correctly. However, the “victory” is not straightforward. In-sample, the probit models perform remarkably well and it is also able to detect, at least to some extent, out-of-sample currency crises before their occurrence. It can, therefore, not be recommended to focus on one approach only when evaluating the risk for currency crises.
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The German Upswing Takes a Break
Wirtschaft im Wandel,
2. Sonderausgabe
2007
Abstract
The world economy continues to expand healthily, but risks have increased during summer. The crisis of the housing sector in the US has deepened: A revaluation of mortgage backed assets has triggered turbulences on global financial markets. The institutes expect that financial markets will calm down during the coming months, but that the downswing in the US will slow the pace of the world economy. The economy in the euro area will, in addition, be dampened by the appreciation of the euro. The German economy is, in spite of a restrictive fiscal policy, in a robust upswing. Because wage setting and inflation continues to be moderate, there will be no need for a restrictive monetary policy. Thus the German economy will, due to slower demand from the US and higher costs of financing, lose momentum, but chances are good that the upswing will only take a break. In the coming year private consumption is expected to be the main contributor to growth, because wage incomes will expand strongly. Unemployment will continue to shrink, albeit at a smaller rate than during 2007. Fiscal policy will no longer be restrictive. Economic policy has improved the conditions for growth in Germany; there is, however, still much to do. Public finances have to be consolidated further, but at the same time, public investment has to be strengthened. This can be achieved if public consumptive expenditure growth is limited. The institutes suggest to increase public expenditure by 2% per annum over the cycle in nominal terms; this is, by less than by the trend growth rate of nominal GDP.
The institutes advise against a reversal of the recent labour market reforms. Instead, incentives for taking up jobs should be increased further.
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The Role of Credit Ratings in Banking Regulations. Credit Ratings Are Insufficiently Anticipating the Risk for Currency Crises.
Tobias Knedlik, Johannes Ströbel
Wirtschaft im Wandel,
No. 10,
2007
Abstract
This contribution analyses whether the behaviour of rating agencies has changed since their failure to predict the Asian crisis. The paper finds no robust econometric evidence that rating agencies have started to take micro-mismatches into account when assigning sovereign ratings. Thus, given the current approach of credit rating agencies, we have reservations concerning the effectiveness of Basel II to prevent the transmission from currency crises to banking crises for potential future crises.
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Does Post-Crisis Restructuring Decrease the Availability of Banking Services? The Case of Turkey
H. Evren Damar
Journal of Banking and Finance,
No. 9,
2007
Abstract
This study examines the relationship between post-crisis bank consolidation and the number of bank branches in Turkey. Using a unique data set, the analysis addresses several issues related to the impact of market characteristics on branching behavior. The findings suggest that sales of failed institutions by the central authority lead to branch closures in small and uncompetitive markets where the buyer does not have a prior presence. Contrary to popular belief, mergers between healthy institutions do not always cause a decrease in the number of branches; rather, they are shown to increase the availability of banking services in concentrated markets.
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Will new IMF-Instrument prevent currency crises?
Tobias Knedlik, Johannes Ströbel
Wirtschaft im Wandel,
No. 7,
2007
Abstract
The resent experience with currency crises shows that not only economies with weak fundamentals are hit by crises. After long-lasting discussions of appropriate instruments to reduce the risk for currency crises in emerging market economies, the International Monetary Fund (IMF) presented a new proposal of an instrument: the Reserve Augmentation Line (RAL). This new proposal shows that at the current state such an instrument is not available.
This contribution confronts the RAL proposal with theoretically derived requirements on preventive liquidity instruments. It shows that only limited preventive effects can be expected. The limitation of the instrument to 300 percent of the quota and the unsolved problem of sending negative signals to the market if countries apply for the instrument are the main drawbacks. However, the RAL would enable the IMF for the first time to provide liquidity immediately in the case of the crisis after pre-qualification. Thus, the instrument fulfills one important request from the academic discussions.
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The role of banking portfolios in the transmission from the currency crises to banking crises - potential effects of Basel II
Tobias Knedlik, Johannes Ströbel
IWH Discussion Papers,
No. 21,
2006
Abstract
This paper evaluates the potential effects of the Basel II accord on preventing the transmission from currency crises to financial crises. By analyzing the case study of South Korea, it shows how mismatches on banks’ balance sheets were the primary cause for such a transmission, and models how Basel II would have affected those balance sheets. The paper shows that due to South Korea’s positive credit rating in the months leading up to the crisis, the regulatory capital reserves under Basel II would have been even lower than those under Basel I, and that therefore Basel II would have had adverse effects on the development of the crisis. In the second part, the article analyses whether the behavior of rating agencies has changed since their failure to predict the Asian crisis. The paper finds no robust econometric evidence that rating agencies have started to take micromismatches into account when assigning sovereign ratings. Thus, given the current approach of credit rating agencies, we have reservations concerning the effectiveness of Basel II to prevent the transmission from currency crises to banking crises, both for the case of South Korea and for potential future crises.
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Local Public Utilities' Profits and Municipal Expenses in Germany: An Empirical Analysis
Peter Haug, Birger Nerré
Proceedings of the 99th Annual Conference on Taxation (November 16-18), Washington DC,
2006
Abstract
German municipalities are currently struggling with growing budget deficits and other financial hardships. From a public choice point of view it seems tempting for vote-maximizing local governments to raise revenues from sources which create fiscal illusion or allow tax exports. An increasingly important revenue source of this kind are profits of local public utilities. In this paper we try to fill an empirical gap and provide data of the development of the profitability over time for selected German local public utilities. Furthermore, we develop and estimate a municipal expenditure function for a panel data set of large German cities . We found some slightly positive relationship between per capita expenses of the municipality and the disposable per capita profits of the local public utilities. This indicates that probably the German municipalities – according to our theoretical considerations – tend to burden their citizens as well as non-voters outside their boundaries with implicit taxes to satisfy their increasing financial needs.
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Implementing an International Lender of Last Resort
Tobias Knedlik
IWH Discussion Papers,
No. 20,
2006
Abstract
Current research discusses various general frameworks for installing an international lender of last resort (ILOLR). However, it remains unclear how the ILOLR should actually operate. This paper discusses six different options of construction of an ILOLR who supports central banks in the case of currency crises. The paper concludes that the cost efficient version of the ILOLR would be direct interventions by the IMF by the use of IMF resources and the right to dispose additional reserves from central banks. The paper considers measures of cost efficiency, such as cost of borrowing, intervention, and sterilization and moral hazard problems.
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Signaling Currency Crises in South Africa
Tobias Knedlik
IWH Discussion Papers,
No. 19,
2006
Abstract
Currency crises episodes of 1996, 1998, and 2001 are used to identify common country specific causes of currency crises in South Africa. The paper identifies crises by the use of an Exchange Market Pressure (EMP) index as introduced by Eichengreen, Rose and Wyplosz (1996). It extends the Signals Approach introduced by Kaminsky and Reinhart (1996, 1998) by developing a composite indicator in order to measure the evolution of currency crisis risk in South Africa. The analysis considers the standard suspects from international currency crises and country specifics as identified by the Myburgh Commission (2002) and current literature as potentially relevant indicators.
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