Who Buffers Income Losses after Job Displacement? The Role of Alternative Income Sources, the Family, and the State
Daniel Fackler, Eva Weigt
LABOUR: Review of Labour Economics and Industrial Relations,
No. 3,
2020
Abstract
Using survey data from the German Socio‐Economic Panel (SOEP), this paper analyses the extent to which alternative income sources, reactions within the household context, and redistribution by the state attenuate earnings losses after job displacement. Applying propensity score matching and fixed effects estimations, we find that income from self‐employment reduces the earnings gap only slightly and severance payments buffer losses in the short run. On the household level, we find little evidence for an added worker effect whereas redistribution by the state within the tax and transfer system mitigates income losses substantially.
Read article
Banks’ Funding Stress, Lending Supply, and Consumption Expenditure
H. Evren Damar, Reint E. Gropp, Adi Mordel
Journal of Money, Credit and Banking,
No. 4,
2020
Abstract
We employ a unique identification strategy linking survey data on household consumption expenditure to bank‐level data to estimate the effects of bank funding stress on consumer credit and consumption expenditures. We show that households whose banks were more exposed to funding shocks report lower levels of nonmortgage liabilities. This, however, only translates into lower levels of consumption for low‐income households. Hence, adverse credit supply shocks are associated with significant heterogeneous effects.
Read article
08.04.2020 • 5/2020
Economy in Shock – Fiscal Policy to Counteract
The coronavirus pandemic is triggering a severe recession in Germany. Economic output will shrink by 4.2% this year. This is what the leading economics research institutes expect in their spring report. For next year, they are forecasting a recovery and growth of 5.8%.
Oliver Holtemöller
Read press release
12.03.2020 • 4/2020
Global economy under the spell of the coronavirus epidemic
The epidemic is obstructing the economic recovery in Germany. Foreign demand is falling, private households forgo domestic consumption if it comes with infection risk, and investments are postponed. Assuming that the spread of the disease can be contained in short time, GDP growth in 2020 is expected to be 0.6% according to IWH spring economic forecast. Growth in East Germany is expected to be 0.9% and thus higher than in West Germany. If the number of new infections cannot be decreased in short time, we expect a recession in Germany.
Oliver Holtemöller
Read press release
Short-term Economic Effects of a "Brexit" on the German Economy
Hans-Ulrich Brautzsch, Geraldine Dany-Knedlik, Andrej Drygalla, Stefan Gebauer, Oliver Holtemöller, Martina Kämpfe, Axel Lindner, Claus Michelsen, Malte Rieth, Thore Schlaak
IWH Online,
No. 3,
2019
Abstract
Many questions about Brexit remain open. It is still possible that the UK and the European Union will not be able to agree on a withdrawal agreement. In this case a so-called hard Brexit (No-Deal Brexit) would happen. We have examined the short-term effects of a hard Brexit for the German economy. In a first step, effects via the trading channel are estimated based on an input-output analysis of international and sectoral links. The result is a loss of 0.3% relative to gross domestic product. This magnitude also results from the international Halle Economic Projection Model, which takes into account macroeconomic repercussions. A hard Brexit would, in addition to the trade barriers, mean significant uncertainty for firms and households. On the demand side, this has a negative impact on investment activity and private consumption. Taken alone, these effects amount to 0.1% of gross domestic product. Overall, German gross domestic product could be dampened by several tenths of a percentage point in the one to two years following a hard Brexit. The automotive industry would probably suffer most. However, recommendations for discretionary economic policy measures aimed at dampening short-term macroeconomic effects or at individual economic sectors cannot be derived from this. The automatic stabilizers are sufficient given the expected magnitude of the effects.
Read article
02.10.2019 • 20/2019
Joint Economic Forecast Autumn 2019: Economy Cools Further – Industry in Recession
Berlin, October 2, 2019 – Germany’s leading economics research institutes have revised their economic forecast for Germany significantly downward. Whereas in the spring they still expected gross domestic product (GDP) to grow by 0.8% in 2019, they now expect GDP growth to be only 0.5%. Reasons for the poor performance are the falling worldwide demand for capital goods – in the exporting of which the Germany economy is specialised – as well as political uncertainty and structural changes in the automotive industry. By contrast, monetary policy is shoring up macroeconomic expansion. For the coming year, the economic researchers have also reduced their forecast of GDP growth to 1.1%, having predicted 1.8% in the spring.
Oliver Holtemöller
Read press release
Deleveraging and Consumer Credit Supply in the Wake of the 2008–09 Financial Crisis
Reint E. Gropp, J. Krainer, E. Laderman
International Journal of Central Banking,
No. 3,
2019
Abstract
We explore the sources of the decline in household nonmortgage debt following the collapse of the housing market in 2006. First, we use data from the Federal Reserve Board's Senior Loan Officer Opinion Survey to document that, post-2006, banks tightened consumer lending standards more in counties that experienced a more pronounced house price decline (the pre-2006 "boom" counties). We then use the idea that renters did not experience an adverse wealth or collateral shock when the housing market collapsed to identify a general consumer credit supply shock. Our evidence suggests that a tightening of the supply of non-mortgage credit that was independent of the direct effects of lower housing collateral values played an important role in households' non-mortgage debt reduction. Renters decreased their non-mortgage debt more in boom counties than in non-boom counties, but homeowners did not. We argue that this wedge between renters and homeowners can only have arisen from a general tightening of banks' consumer lending stance. Using an IV approach, we trace this effect back to a reduction in bank capital of banks in boom counties.
Read article
Flight from Safety: How a Change to the Deposit Insurance Limit Affects Households‘ Portfolio Allocation
H. Evren Damar, Reint E. Gropp, Adi Mordel
IWH Discussion Papers,
No. 19,
2019
Abstract
We study how an increase to the deposit insurance limit affects households‘ portfolio allocation by exogenously reducing uninsured deposit balances. Using unique data that identifies insured versus uninsured deposits, along with detailed information on Canadian households‘ portfolio holdings, we show that households respond by drawing down deposits and shifting towards mutual funds and stocks. These outflows amount to 2.8% of outstanding bank deposits. The empirical evidence, consistent with a standard portfolio choice model that is modified to accommodate uninsured deposits, indicates that more generous deposit insurance coverage results in nontrivial adjustments to household portfolios.
Read article
Banks' Funding Stress, Lending Supply and Consumption Expenditure
H. Evren Damar, Reint E. Gropp, Adi Mordel
Abstract
We employ a unique identification strategy linking survey data on household consumption expenditure to bank-level data to estimate the effects of bank funding stress on consumer credit and consumption expenditures. We show that households whose banks were more exposed to funding shocks report lower levels of nonmortgage liabilities. This, however, only translates into lower levels of consumption for low income households. Hence, adverse credit supply shocks are associated with significant heterogeneous effects.
Read article
‘And Forgive Us Our Debts’: Do Christian Moralities Influence Over-indebtedness of Individuals?
Iftekhar Hasan, Konstantin Kiesel, Felix Noth
IWH Discussion Papers,
No. 8,
2019
Abstract
This paper analyses whether Christian moralities and rules formed differently by Catholics and Protestants impact the likelihood of households to become overindebted. We find that over-indebtedness is lower in regions in which Catholics outweigh Protestants, indicating that Catholics‘ forgiveness culture and a stricter enforcement of rules by Protestants serve as explanations for our results. Our results provide evidence that religion affects the financial situations of individuals and show that even 500 years after the split between Catholics and Protestants, the differences in the mind-sets of both denominations play an important role for situations of severe financial conditions.
Read article