09.03.2017 • 12/2017
Comment: Keep cool and be prepared – IWH president Gropp on the ECB’s interest rates decision
”The European Central Bank (ECB) decided to keep interest rates unchanged today. No surprise here. But Mario Draghi unfortunately did not provide a signal to markets that the ECB may be moving on interest rates in the foreseeable future. “This is a reasonable decision, but also a missed opportunity”, Reint E. Gropp, president of the Halle Institute for Economic Research (IWH) – Member of the Leibniz Association, says. “An ECB increase interest rate move must be well prepared, and today’s press conference would have been an opportunity to prepare markets for the fact that interest rates cannot stay where they are forever.”
Reint E. Gropp
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The Risk‐Taking Channel of Monetary Policy in the U.S.: Evidence from Corporate Loan Data
Manthos D. Delis, Iftekhar Hasan, Nikolaos Mylonidis
Journal of Money, Credit and Banking,
No. 1,
2017
Abstract
To study the presence of a risk-taking channel in the U.S., we build a comprehensive data set from the syndicated corporate loan market and measure monetary policy using different measures, most notably Taylor (1993) and Romer and Romer (2004) residuals. We identify a negative relation between monetary policy rates and bank risk-taking, especially in the run up to the 2007 financial crisis. However, this effect is purely supply-side driven only when using Taylor residuals and an ex ante measure of bank risk-taking. Our results highlight the sensitivity of the potency of the risk-taking channel to the measures of monetary policy innovations.
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Taking the Leap: The Determinants of Entrepreneurs Hiring Their First Employee
Robert W. Fairlie, Javier Miranda
Journal of Economics and Management Strategy,
No. 1,
2017
Abstract
Job creation is one of the most important aspects of entrepreneurship, but we know relatively little about the hiring patterns and decisions of start‐ups. Longitudinal data from the Integrated Longitudinal Business Database (iLBD), Kauffman Firm Survey (KFS), and the Growing America through Entrepreneurship (GATE) experiment are used to provide some of the first evidence in the literature on the determinants of taking the leap from a nonemployer to employer firm among start‐ups. Several interesting patterns emerge regarding the dynamics of nonemployer start‐ups hiring their first employee. Hiring rates among the universe of nonemployer start‐ups are very low, but increase when the population of nonemployers is focused on more growth‐oriented businesses such as incorporated and employer identification number businesses. If nonemployer start‐ups hire, the bulk of hiring occurs in the first few years of existence. After this point in time, relatively few nonemployer start‐ups hire an employee. Focusing on more growth‐ and employment‐oriented start‐ups in the KFS, we find that Asian‐owned and Hispanic‐owned start‐ups have higher rates of hiring their first employee than white‐owned start‐ups. Female‐owned start‐ups are roughly 10 percentage points less likely to hire their first employee by the first, second, and seventh years after start‐up. The education level of the owner, however, is not found to be associated with the probability of hiring an employee. Among business characteristics, we find evidence that business assets and intellectual property are associated with hiring the first employee. Using data from the largest random experiment providing entrepreneurship training in the United States ever conducted, we do not find evidence that entrepreneurship training increases the likelihood that nonemployers hire their first employee.
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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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German Economy on Track — Economic Policy Needs to Be Realigned
Roland Döhrn, Ferdinand Fichtner, Oliver Holtemöller, Stefan Kooths, Timo Wollmershäuser
Wirtschaftsdienst,
No. 10,
2016
Abstract
The German economy is experiencing a moderate recovery: GDP is expected to grow by 1.9 percent this year, 1.4 percent next year, and 1.6 percent in 2018. Over the course of the forecast period, capacity utilisation will be somewhat higher than in the longterm average. Nevertheless, the contribution of corporate investment to the current upswing is minimal. The global economy is generating only minor stimulating effects, which means that exports are increasing only moderately. The extremely low long-term interest rates are likely to reflect not only the current monetary policy, but also low growth expectations. All of these factors are inhibiting investment into equipment, and thus, consumption continues to be the main growth driver. Private consumption is benefiting from the sustained increase in employment; the high expenditures for accommodating and integrating the refugees is still having a strong impact on public spending. Residential construction is getting a boost from the low interest rates.
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Global Food Prices and Monetary Policy in an Emerging Market Economy: The Case of India
Oliver Holtemöller, Sushanta Mallick
Journal of Asian Economics,
2016
Abstract
This paper investigates a perception in the political debates as to what extent poor countries are affected by price movements in the global commodity markets. To test this perception, we use the case of India to establish in a standard SVAR model that global food prices influence aggregate prices and food prices in India. To further analyze these empirical results, we specify a small open economy New-Keynesian model including oil and food prices and estimate it using observed data over the period 1996Q2 to 2013Q2 by applying Bayesian estimation techniques. The results suggest that a big part of the variation in inflation in India is due to cost-push shocks and, mainly during the years 2008 and 2010, also to global food price shocks, after having controlled for exogenous rainfall shocks. We conclude that the inflationary supply shocks (cost-push, oil price, domestic food price and global food price shocks) are important contributors to inflation in India. Since the monetary authority responds to these supply shocks with a higher interest rate which tends to slow growth, this raises concerns about how such output losses can be prevented by reducing exposure to commodity price shocks.
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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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09.09.2016 • 37/2016
Comment: IWH President Reint E. Gropp: ECB resists its critics and maintains its asset purchase programme. Leaving the option for a further extension is completely reasonable.
Some observers, including recently a number of major banks, are criticising the European Central Bank (ECB) for maintaining its asset purchase program, currently scheduled to run until March of 2017 and leaving the option open to extend it further.
Reint E. Gropp
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11.08.2016 • 34/2016
2016 stress tests: Italian banks don’t look worse than German large commercial banks
The European Banking Authority today presented the results of the 2016 stress tests. They show that most European banks appear more or less stable. “What worries me is, however, that the Italian banks do not look worse than the large German commercial banks,” says Reint E. Gropp, president of the Halle Institute for Economic Research (IWH). “It appears that both Deutsche Bank and Commerzbank would benefit significantly from an increase in equity. The stress test was also missing two crucial points: One, the effect of a long lasting low interest rate environment on banks was not simulated. And second, the test did not take into consideration that many small institutions could fail at the same time. This is not an unlikely scenario, given how small banks in particular struggle with shrinking interest margins,“ says Gropp. Finally, the stress test should not distract from the urgency to solve the problems in the Italian banking system.
Reint E. Gropp
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