IWH Subsidy Database
IWH Subsidy Databse The microdatabase currently comprises nine data sets on direct business subsidy programmes in Germany. The programme statistics kept by the project sponsors…
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IWH European Real Estate Index
IWH European Real Estate Index (EREI) The IWH European Real Estate Index is a new dataset that illustrates developments in the European real estate market. Besides quoted…
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Centre for Evidence-based Policy Advice
Centre for Evidence-based Policy Advice (IWH-CEP) The Centre for Evidence-based Policy Advice (IWH-CEP) of the IWH was founded in 2014. It is a platform that bundles and…
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Research Groups
Our Research Groups Banking, Regulation, and Incentive Structures Data Science in Financial Economics Econometric Tools for Macroeconomic Forecasting and Simulation Education,…
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Research Clusters
Three Research Clusters Research Cluster "Economic Dynamics and Stability" Research Questions This cluster focuses on empirical analyses of macroeconomic dynamics and stability.…
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IWH EXplore
IWH EXplore Competitive Funding for Research Projects with External Involvement at IWH IWH EXplore gives scientists the opportunity to acquire supplemental funding, in addition to…
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Trade Shocks, Labour Markets and Migration in the First Globalisation
Richard Bräuer, Felix Kersting
Economic Journal,
No. 657,
2024
Abstract
This paper studies the economic and political effects of a large trade shock in agriculture—the grain invasion from the Americas—in Prussia during the first globalisation (1870–913). We show that this shock led to a decline in the employment rate and overall income. However, we do not observe declining per capita income and political polarisation, which we explain by a strong migration response. Our results suggest that the negative and persistent effects of trade shocks we see today are not a universal feature of globalisation, but depend on labour mobility. For our analysis, we digitise data from Prussian industrial and agricultural censuses on the county level and combine them with national trade data at the product level. We exploit the cross-regional variation in cultivated crops within Prussia and instrument with Italian and United States trade data to isolate exogenous variation.
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Macroeconomic Effects from Sovereign Risk vs. Knightian Uncertainty
Ruben Staffa
IWH Discussion Papers,
No. 27,
2023
Abstract
This paper compares macroeconomic effects of Knightian uncertainty and risk using policy shocks for the case of Italy. Drawing on the ambiguity literature, I use changes in the bid-ask spread and mid-price of government bonds as distinct measures for uncertainty and risk. The identification exploits the quasi-pessimistic behavior under ambiguity-aversion and the dealer market structure of government bond markets, where dealers must quote both sides of the market. If uncertainty increases, ambiguity-averse dealers will quasi-pessimistically quote higher ask and lower bid prices – increasing the bid-ask spread. In contrast, a pure change in risk shifts the risk-compensating discount factor which is well approximated by the change in bond mid-prices. I evaluate economic effects of the two measures within an instrumental variable local projection framework. The main findings are threefold. First, the resulting shock time series for uncertainty and risk are uncorrelated with each other at the intraday level, however, upon aggregation to monthly level the measures become correlated. Second, uncertainty is an important driver of economic aggregates. Third, macroeconomic effects of risk and uncertainty are similar, except for the response of prices. While sovereign risk raises inflation, uncertainty suppresses price growth – a result which is in line with increased price rigidity under ambiguity.
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Fiscal Policy under the Eyes of Wary Bondholders
Ruben Staffa, Gregor von Schweinitz
IWH Discussion Papers,
No. 26,
2023
Abstract
This paper studies the interaction between fiscal policy and bondholders against the backdrop of high sovereign debt levels. For our analysis, we investigate the case of Italy, a country that has dealt with high public debt levels for a long time, using a Bayesian structural VAR model. We extend a canonical three variable macro mode to include a bond market, consisting of a fiscal rule and a bond demand schedule for long-term government bonds. To identify the model in the presence of political uncertainty and forward-looking investors, we derive an external instrument for bond demand shocks from a novel news ticker data set. Our main results are threefold. First, the interaction between fiscal policy and bondholders’ expectations is critical for the evolution of prices. Fiscal policy reinforces contractionary monetary policy through sustained increases in primary surpluses and investors provide incentives for “passive” fiscal policy. Second, investors’ expectations matter for inflation, and we document a Fisherian response of inflation across all maturities in response to a bond demand shock. Third, domestic politics is critical in the determination of bondholders’ expectations and an increase in the perceived riskiness of sovereign debt increases inflation and thus complicates the task of controlling price growth.
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Distributional Income Effects of Banking Regulation in Europe
Lars Brausewetter, Melina Ludolph, Lena Tonzer
IWH Discussion Papers,
No. 24,
2023
Abstract
We study the impact of stricter and more harmonized banking regulation along the income distribution using household survey data for 25 EU countries. Exploiting country-level heterogeneity in the implementation of European Banking Union directives allows us to control for confounders and identify effects. Our results show that these regulatory reforms aimed at increasing financial system resilience affected households heterogeneously. More stringent regulation reduces income growth for low-income households due to employment exits. Yet it tends to increase growth rates at the top of the distribution both for employee and self-employed income.
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