Fiscal Spending Multiplier Calculations based on Input-Output Tables – with an Application to EU Members
Toralf Pusch, A. Rannberg
Abstract
Fiscal spending multiplier calculations have been revived in the aftermath of the
global financial crisis. Much of the current literature is based on VAR estimation
methods and DSGE models. The aim of this paper is not a further deepening of
this literature but rather to implement a calculation method of multipliers which is
suitable for open economies like EU member states. To this end, Input-Output tables are used as by this means the import intake of domestic demand components can be isolated in order to get an appropriate base for the calculation of the relevant import quotas. The difference of this method is substantial – on average the calculated multipliers are 15% higher than the conventional GDP fiscal spending multiplier for EU members. Multipliers for specific spending categories are comparably high, ranging between 1.4 and 1.8 for many members of the EU. GDP drops due to budget consolidation might therefore be substantial if monetary policy is not able to react in an expansionary manner.
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Macroeconomic Challenges in the Euro Area and the Acceding Countries
Katja Drechsel
Dissertation, Online-Publikation,
2010
Abstract
The conduct of effective economic policy faces a multiplicity of macroeconomic challenges, which requires a wide scope of theoretical and empirical analyses. With a focus on the European Union, this doctoral dissertation consists of two parts which make empirical and methodological contributions to the literature on forecasting real economic activity and on the analysis of business cycles in a boom-bust framework in the light of the EMU enlargement. In the first part, we tackle the problem of publication lags and analyse the role of the information flow in computing short-term forecasts up to one quarter ahead for the euro area GDP and its main components. A huge dataset of monthly indicators is used to estimate simple bridge equations. The individual forecasts are then pooled, using different weighting schemes. To take into consideration the release calendar of each indicator, six forecasts are compiled successively during the quarter. We find that the sequencing of information determines the weight allocated to each block of indicators, especially when the first month of hard data becomes available. This conclusion extends the findings of the recent literature. Moreover, when combining forecasts, two weighting schemes are found to outperform the equal weighting scheme in almost all cases. In the second part, we focus on the potential accession of the new EU Member States in Central and Eastern Europe to the euro area. In contrast to the discussion of Optimum Currency Areas, we follow a non-standard approach for the discussion on abandonment of national currencies the boom-bust theory. We analyse whether evidence for boom-bust cycles is given and draw conclusions whether these countries should join the EMU in the near future. Using a broad range of data sets and empirical methods we document credit market imperfections, comprising asymmetric financing opportunities across sectors, excess foreign currency liabilities and contract enforceability problems both at macro and micro level. Furthermore, we depart from the standard analysis of comovements of business cycles among countries and rather consider long-run and short-run comovements across sectors. While the results differ across countries, we find evidence for credit market imperfections in Central and Eastern Europe and different sectoral reactions to shocks. This gives favour for the assessment of the potential euro accession using this supplementary, non-standard approach.
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Finance and Growth in a Bank-Based Economy: Is It Quantity or Quality that Matters?
Michael Koetter, Michael Wedow
Journal of International Money and Finance,
No. 8,
2010
Abstract
Most finance–growth studies approximate the size of financial systems rather than the quality of intermediation to explain economic growth differentials. Furthermore, the neglect of systematic differences in cross-country studies could drive the result that finance matters. We suggest a measure of bank’s intermediation quality using bank-specific efficiency estimates and focus on the regions of one economy only: Germany. This quality measure has a significantly positive effect on growth. This result is robust to the exclusion of banks operating in multiple regions, controlling for the proximity of financial markets, when distinguishing different banking sectors active in Germany, and when excluding the structurally weaker East from the sample.
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Economic Effects of Investment Grants for Water and Sewerage Infrastructure – The Case of Saxony
Peter Haug
Wirtschaft im Wandel,
No. 11,
2010
Abstract
The article deals with the regional economic growth effects of the German “Joint Scheme” for the improvement of regional economic structures (“GA-Infra”). It focuses on water and sewerage projects located in the federal state of Saxony (Germany) during the funding period 2000-2007. Evaluating these projects is important for scientific as well as for economic policy reasons.
First of all, according to general economic theory, the potential direct and indirect supply-side effects of the water and sewerage infrastructure as well as the price effects caused by this infrastructure are relevant for location decisions only to certain branches of the manufacturing industry.
Subsidies for the development of the sewerage infrastructure have been granted mostly according to the growth target of regional policy, i.e. primarily to municipalities with above-average volumes of industry sewage. This finding could not be confirmed for water provision.
A regression analysis (estimating the labour demand of the local manufacturing industry) showed no empirical evidence for any relationship between the changes in labour demand and the amount of GA-Infra funded water and sewerage infrastructure investments. This might be a consequence of the already satisfactory development condition of the infrastructure in question at the beginning of the funding period (“ubiquitous infrastructure”).
According to a survey of local governments conducted by the IWH, these results might be explained by the fact that business customers did not benefit from price reductions despite the GA-Infra funding granted to their local water and sewage disposal providers. Even though there might be some intuitively plausible reasons (decreasing population, no connection fees) for these findings, no effect on firm location decisions can be expected under these circumstances.
All in all, we do not consider the further extension of these funding priorities to be necessary. Especially, the GA-Infra water/sewerage grants should neither be used to mitigate the cost effects of demographic changes or regulation nor to compensate for losses caused by the buyer power of large firms.
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On the Look-out for a White Knight: Options-based Calculation of Probability and Expected Value of Increased Bids in Hostile Takeover Battles
Stefan Eichler, Dominik Maltritz
Applied Economics Letters,
No. 11,
2010
Abstract
Takeover bids provide an option right to the target's shareholders; they guarantee the offered price but maintain the chance of higher offers. Using Option Pricing Theory (OPT) we estimate the probability and expected value of higher bids from target stock prices.
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Seniorität, spezifisches Kapital und Beschäftigungsmobilität - Warum Ältere seltener wechseln
Lutz Schneider
T. Salzmann, V. Skirbekk, M. Weiberg (Hrsg.), Wirtschaftspolitische Herausforderungen des demografischen Wandels,
2010
Abstract
The analysis focuses on the relationship of ageing and labour mobility. We answer the questions if i) mobility is wage driven, if ii) older workers are still able to generate wage increases by job switching and if iii) lacking wage incentives can explain the existing mobility gap of older workers. The empirical analysis is limited to labour mobility in terms of changing job or occupation. We estimate a multi equation model known as switching regression model with endogenous switching. The data stem from the IAB employment sample. We firstly show that expected wage increases encourage job switching. Secondly, we find evidence for lower expected wage increases due to job changes for older workers. Thirdly we find that the mobility gap of older workers is only partly attributable to reduced wage incentives of a job switch.
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Currency Crisis Prediction Using ADR Market Data: An Options-based Approach
Stefan Eichler, Dominik Maltritz
International Journal of Forecasting,
No. 4,
2010
Abstract
During capital control episodes, large price deviations between American Depositary Receipts (ADR) and their underlying stocks signal that a currency crisis is about to occur. We interpret this price spread as the price of a call option. Using option pricing theory we derive detailed information about both the probability of a currency crisis and the expected magnitude of devaluation. Analyzing daily ADR market data preceding the Venezuelan crisis (1996), our approach predicts crisis probabilities of almost 100% and forecasts the exchange rate after floating quite accurately. During the Argentine crisis (2002), the estimated exchange rates are similar to the actual ones.
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Do Banks Benefit from Internationalization? Revisiting the Market Power-Risk Nexus
Claudia M. Buch, C. T. Koch, Michael Koetter
Abstract
Recent developments on international financial markets have called the benefits of
bank globalization into question. Large, internationally active banks have
acquired substantial market power, and international activities have not
necessarily made banks less risky. Yet, surprisingly little is known about the
actual link between bank internationalization, bank risk, and market power.
Analyzing this link is the purpose of this paper. We jointly estimate the
determinants of risk and market power of banks, and we analyze the effects of
changes in terms of the number of foreign countries (the extensive margin) and
the volume of foreign assets (the intensive margin). Our paper has four main
findings. First, there is a strong negative feedback effect between risk and market
power. Second, banks with higher shares of foreign assets, in particular those held
through foreign branches, have higher market power at home. Third, holding
assets in a large number of foreign countries tends to increase bank risk. Fourth,
the impact of internationalization differs across banks from different banking
groups and of different size.
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