04.01.2017 • 2/2017
Worse ratings by U.S. rating agencies for European sovereigns no argument for European rating agency
A new study by the Halle Institute for Economic Research (IWH) – Member of the Leibniz Association shows that the major U.S. rating agencies rated European sovereigns significantly worse than Fitch, which is more “Europe oriented”. Although the findings in part support the claim of some European politicians during the recent debt crisis that there was an “anti-Europe” bias of the U.S. agencies, the study shows that a new European agency would not address this problem. The reason: Market participants would not listen to the new agency.
Reint E. Gropp
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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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Bracket Creeps: Bane or Boon for the Stability of Numerical Budget Rules?
Martin Altemeyer-Bartscher, Götz Zeddies
IWH Discussion Papers,
No. 29,
2016
Abstract
As taxpayers typically pay low attention to a small inflation-induced bracket creep of the income tax, policy-makers tend to postpone its correction into the future. However, the fiscal illusion fades away and political pressure for a tax relief arises since after some years the cumulative increase of the average tax rate exceeds a critical threshold. Using Germany as an example, this paper shows that bracket creeps can provoke revenue cycles in public budgets hindering governments’ compliance with the numerical budget rules. An indexation of the tax tariff could prevent such fluctuations and thus provides a favourable framework for the debt rule.
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29.09.2016 • 40/2016
Joint Economic Forecast: German Economy on Track – Economic Policy needs to be Realigned
Thanks to a stable job market and solid consumption, the German economy is experiencing a moderate upswing. The GDP is expected to increase by 1.9 percent this year, 1.4 percent in 2017, and 1.6 percent in 2018, according to the Gemeinschaftsdiagnose (GD, joint economic forecast) that was prepared by five of Europe’s leading economic research institutes on behalf of the Federal Government. The most recent GD, which was released in April, predicted a GDP growth rate of 1.6 percent for 2016 and 1.5 percent for 2017.
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02.09.2016 • 35/2016
The German Economy: Still Robust Despite Sliding Sentiment
The prospects for the German economy are still quite favorable. While sentiment indicators suggest that growth will slow at the end of the year, domestic demand will continue on an upward trend. The German GDP should increase by 1.9% in 2016. For 2017 we expect a lower growth rate of 1.2%“Weaker export volumes and higher growth of imports are the relevant factors for the slowdown”, says Prof Oliver Holtemöller, IWH Vice president. Unemployment will rise a bit as more refugees enter the labor market. Consumer price inflation remains moderate. The general government balance (cyclically ad¬justed as well as unadjusted) will be in surplus in both 2016 and 2017.
Oliver Holtemöller
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Monetary-fiscal Policy Interaction and Fiscal Inflation: A Tale of Three Countries
Martin Kliem, Alexander Kriwoluzky, Samad Sarferaz
European Economic Review,
2016
Abstract
We study the impact of the interaction between fiscal and monetary policy on the low-frequency relationship between the fiscal stance and inflation using cross-country data from 1965 to 1999. In a first step, we contrast the monetary–fiscal narrative for Germany, the U.S., and Italy with evidence obtained from simple regression models and a time-varying VAR. We find that the low-frequency relationship between the fiscal stance and inflation is low during periods of an independent central bank and responsible fiscal policy and more pronounced in times of non-responsible fiscal policy and accommodative monetary authorities. In a second step, we use an estimated DSGE model to interpret the low-frequency measure structurally and to illustrate the mechanisms through which fiscal actions affect inflation in the long run. The findings from the DSGE model suggest that switches in the monetary–fiscal policy interaction and accompanying variations in the propagation of structural shocks can well account for changes in the low-frequency relationship between the fiscal stance and inflation.
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09.06.2016 • 22/2016
The German Economy Benefits from Strong Domestic Demand
In 2016, the moderate upswing of the German economy continues. Incomes grow due to the steady expansion in employment, and the fall in energy prices has propped up the purchasing power of private households. As a consequence, private consumption expands healthily; investment in housing is additionally stimulated by very low interest rates. Exports, however, expand only moderately, as the world economy is rather weak. All in all, the IWH forecasts the German GDP to expand by 1.8% in this year and by 1.6% in 2017.
Oliver Holtemöller
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Upturn Remains Moderate — Economic Policy Lacks Growth Orientation
Roland Döhrn, Ferdinand Fichtner, Oliver Holtemöller, Timo Wollmershäuser
Wirtschaftsdienst,
No. 5,
2016
Abstract
The German economy is experiencing a moderate upturn. Gross domestic product is expected to increase by 1.6 per cent this year and by 1.5 per cent in 2017. The upturn will be driven by private consumption, which will benefit from continued employment growth, sizeable increases in wage and transfer income, and also purchasing power gains thanks to lower energy prices. Fiscal policy will also be expansively oriented, partly due to rising costs related to refugee immigration. Public budgets will still post significant surpluses in the forecasting period, however. Failing to use this room for manoeuvre to promote growth, as seen in recent years, is not a sustainable path. In view of the continuous slack in the euro area economy, the monetary policy stance is considered to be appropriate. Should it become obvious in the course of this year that production does not return to normal capacity and that the inflation rate does not move towards two per cent, further measures to stimulate growth might become necessary. The scope for further monetary policy measures has been widely exhausted, though. A further economic stabilization could only be achieved through a combination of expansionary fiscal and monetary policy. This could severely damage the credibility of monetary policy, however.
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On the Low-frequency Relationship Between Public Deficits and Inflation
Martin Kliem, Alexander Kriwoluzky, Samad Sarferaz
Journal of Applied Econometrics,
No. 3,
2016
Abstract
We estimate the low-frequency relationship between fiscal deficits and inflation and pay special attention to its potential time variation by estimating a time-varying vector autoregression model for US data from 1900 to 2011. We find the strongest relationship neither in times of crisis nor in times of high public deficits, but from the mid 1960s up to 1980. Employing a structural decomposition of the low-frequency relationship and further narrative evidence, we interpret our results such that the low-frequency relationship between fiscal deficits and inflation is strongly related to the conduct of monetary policy and its interaction with fiscal policy after World War II.
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