Transmission of Nominal Exchange Rate Changes to Export Prices and Trade Flows and Implications for Exchange Rate Policy
Mathias Hoffmann, Oliver Holtemöller
Scandinavian Journal of Economics,
2010
Abstract
We discuss how the welfare ranking of fixed and flexible exchange rate regimes in a New Open Economy Macroeconomics model depends on the interplay between the degree of exchange rate pass-through and the elasticity of substitution between home and foreign goods. We identify combinations of these two parameters for which flexible and fixed exchange rates are superior with respect to welfare as measured by a representative household's utility level. We estimate the two parameters for six non-EMU European countries (Czech Republic, Hungary, Poland, Slovakia, Sweden, and the UK) using a heterogeneous dynamic panel approach.
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A First Look on the New Halle Economic Projection Model
Sebastian Giesen, Oliver Holtemöller, Juliane Scharff, Rolf Scheufele
Abstract
In this paper we develop a small open economy model explaining the joint determination of output, inflation, interest rates, unemployment and the exchange rate in a multi-country framework. Our model – the Halle Economic Projection Model (HEPM) – is closely related to studies recently published by the International
Monetary Fund (global projection model). Our main contribution is that we model the Euro area countries separately. In this version we consider Germany and France, which represent together about 50 percent of Euro area GDP. The model allows for country specific heterogeneity in the sense that we capture different adjustment patterns to economic shocks. The model is estimated using Bayesian techniques. Out-of-sample and pseudo out-of-sample forecasts are presented.
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Openness and Income Disparities: Does Trade Explain The 'Mezzogiorno' Effect?
Claudia M. Buch, P. Monti
Review of World Economics,
No. 4,
2010
Abstract
We use Italian regional data to answer the question whether trade affects within-country income differentials. In Italy, the more affluent Northern regions trade more with the rest of the world than the poorer ones in the Southern “Mezzogiorno” regions. Prima facie, there is a positive correlation between external trade and per capita income. Studying this relationship empirically requires taking into account the endogenous component of trade. We argue that panel cointegration models can complement instrumental variables techniques to account for the endogeneity of trade in a panel context. Both methods show a positive link between trade openness and the level of income per capita.
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Germany’s Production of Export Goods: Human Capital Content Slightly Exceeds that of Imports
Hans-Ulrich Brautzsch, Udo Ludwig
Wirtschaft im Wandel,
No. 11,
2009
Abstract
In the decade before the present, world financial crisis exports out of Germany expanded enormously. This was caused by the growing world demand as well as the internationalization of the national production processes and favoured by the improving price competitiveness. At the same time, against the background of the tertiarisation of the economy, the qualification of employees has increased considerably. In our study, we investigate the changes of labour quality in the production of export goods using the standard open input-output model. Hereby, labour input is measured in terms of different formal qualification levels of the employees. The results are compared with the labour input for imported goods. We find out that the input of high qualified labour per unit of produced export goods exceeds only marginally the comparable input value of the imports. It should be mentioned that the comparison is strongly influenced by the assumption of identical production functions for both Germany and its trading partners.
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East German Exports: Remarkable Catch-up, but Still Lagging Behind
Götz Zeddies
Wirtschaft im Wandel,
20 Jahre Deutsche Einheit - Teil 1 -
2009
Abstract
German reunification entailed severe adjustment processes in East German export industries. With political and economic transition in Eastern Europe, at that time the main export market for East German producers, export demand initially collapsed in the early 1990s. Additionally, the introduction of the Deutschmark in Eastern Germany amounted to a massive revaluation, and international competitiveness of East German producers deteriorated. However, manufacturers in the New Federal States opened up new markets, especially in Western Europe and the Americas. As a consequence, after the downturn of construction activity and investment in the mid-1990s, international trade became the driving force of GDP-growth in Eastern Germany. Although since then, goods exports of the New Federal States grew twice as much as those of Western Germany, export ratio (goods exports as a percentage of GDP) only amounts to 22 per cent in Eastern Germany, compared to 42 per cent in the western part of the country. Even in comparison to Eastern European countries in transition, openness to trade of the New Federal States is still comparatively low. As an empirical analysis shows, this must be largely traced back to smaller firm sizes in the New Federal States as well as to the lower importance of manufacturing industries, which are traditionally more export-oriented. Moreover, East German manufacturers largely specialized on intermediate inputs, which are supplied to final assembly lines in Western Germany, but are not recorded as exports. Thereby, East German export performance is considerably underestimated.
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Openness and Growth: The Long Shadow of the Berlin Wall
Claudia M. Buch, Farid Toubal
Journal of Macroeconomics,
No. 3,
2009
Abstract
The question whether international openness causes higher domestic growth has been subject to intense discussions in the empirical growth literature. This paper addresses the issue in the context of the fall of the Berlin Wall in 1989. We analyze whether the slow convergence in per capita incomes between East and West Germany and the lower international openness of East Germany are linked. We address the endogeneity of openness by adapting the methodology proposed by Frankel and Romer (1999) to a panel framework. We instrument openness with time-invariant exogenous geographic variables and time-varying exogenous policy variables. We also distinguish the impact of different channels of integration. Our paper has three main findings. First, geographic variables have a significant impact on regional openness. Second, controlling for geography, East German states are less integrated into international markets along all dimensions of integration considered. Third, the degree of openness for trade has a positive impact on regional income per capita.
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Currency Appreciation and Exports: Empirical Evidence for Germany
Götz Zeddies
Wirtschaft im Wandel,
No. 6,
2009
Abstract
In the first decade after its introduction, the Euro didn’t just hold up well, but compared to important currencies even appreciated considerably. Of course, exchange rate risks were noticeably lowered by introducing the single currency, since the bulk of EMU Member States’ exports are conducted within the currency union. Nevertheless, a strong Euro is unfavourable especially for open economies like Germany.
The article investigates the effects of exchange rate movements on German exports over time. The analyses reveal a downward impact of nominal effective exchange rates, not only for total, but also for exports to countries outside the currency union. Although an increasing pass-through of exchange rate changes to export prices is apparently at hand, further reasons for the dwindling effect of nominal exchange rates on exports are likely to exist.
In this context, it is shown that exports are less sensitive not only with respect to nominal, but also with respect to real effective exchange rate changes, suggesting a declining price elasticity of demand. Instead, exports are increasingly determined by economic activity in trading partner countries. In consequence of its geographic proximity, Germany did particularly benefit from the economic upswing in Eastern Europe, overlaying the appreciation of the Euro. Additionally, the latter could hardly impair German export industries due to their specialization on capital and high-quality consumer goods less vulnerable to exchange rate fluctuations.
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Ende der 'Gemischtwarenläden': Spezialisierung von Technologie- und Gründerzentren als Option kommunaler Wirtschaftsförderung
Michael Schwartz, Christoph Hornych
List Forum für Wirtschafts- und Finanzpolitik,
2009
Abstract
In the context of policy measures that focus on the promotion of entrepreneurship and innovative start-ups on the level of cities and municipalities, since the beginning of the 21st century, there is an explicit tendency to establish a new type of business incubators and technology centers. These support facilities focus their support infrastructure and processes on firms from one specific sector and its particular needs. In Germany, since 1999, nearly one-third of all new business incubators opened with a sector-specific focus. Despite the continuously increasing importance of such specialized business incubators in local and regional development strategies, there is no analysis of these support facilities. On the basis of the key principles of business incubation functionality, supplemented by recent findings of incubator/ incubation research, this article investigates the evolution of this incubator concept in Germany, its regional distribution and describes the benefits to firms of being part of a specialized incubator. Moreover, this article details what are the general conditions and requirements for the long-term success of specialized business incubation initiatives.
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Changing patterns of employment
Cornelia Lang
Wirtschaft im Wandel,
No. 4,
2009
Abstract
In Germany, the typical pattern of employment is still an employee with open-ended full time contract (standard employment relationship). Nearly three out of four employed persons work in that type of employment. However, during the last years, a number of other employment models expanded in the labour market: part-time, temporary, short-term and marginal workers. Main reasons for that development are the effects of globalization, the structural change in modern economies (the increasing importance of the services sector), and changing preferences on the part of employees to achieve a better work-life-balance. The article deals with the rise of atypical employment relationships. We find that atypical work is a domain of female and young people. During the last years, atypical employment relationship in West and East Germany increased similarly due to globalization. Differences in employment patterns between East and West could be linked to employment behaviour and structural determinants.
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Does Export Openness Increase Firm-level Output Volatility?
Claudia M. Buch, Jörg Döpke, H. Strotmann
World Economy,
No. 4,
2009
Abstract
There is a widespread concern that increased trade may lead to increased instability and thus risk at the firm level. Greater export openness can indeed affect firm-level volatility by changing the exposure and the reaction of firms to macroeconomic developments. The net effect is ambiguous from a theoretical point of view. This paper provides firm-level evidence on the link between openness and volatility. Using comprehensive data on more than 21,000 German manufacturing firms for the period 1980–2001, we analyse the evolution of firm-level output volatility and the link between volatility and export openness. Our paper has three main findings. First, firm-level output volatility is significantly higher than the level of aggregate volatility, but it displays similar patterns. Second, increased export openness lowers firm-level output volatility. This effect is primarily driven by variations along the extensive margin, i.e. by the distinction between exporters and non-exporters. Variations along the intensive margin, i.e. the volume of exports, tend to have a dampening impact on volatility as well. Third, small firms are more volatile than large firms.
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