Business Cycle Characteristics of Mediterranean Economies: a Secular Trend and Cycle Dynamics Perspective
Anna Solms, Bernd Süssmuth
International Economics and Economic Policy,
October
2022
Abstract
This study analyzes business cycle characteristics for all 20 major contemporaneous economies bordering the Mediterranean Sea based on annual real gross domestic product series for the period from 1960 to 2019. The region we investigate corresponds to the Mare Internum region of the Imperial Roman Empire during the Nerva-Antonine and early Severan dynasty, i.e., at the time of the maximum extent of the Roman Empire around 100 to 200 CE. The covered area encircles the Mediterranean, including economies now belonging to the European Union as well as acceding countries, Turkey, and the Middle East and North African economies. Using a components-deviation-cycle approach, we assess level trends and relative volatility of output. We also quantify the contribution of various factors to the business cycle variability within a region. We find cyclic commonalities and idiosyncrasies are related to ancient and colonial history and to contemporaneous trade relationships. Caliphate and Ottoman Empire membership as well as colonial rule in the twentieth century and contemporary Muslim share of population are the most promising predictors of business cycle commonalities in the region.
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Gemeinschaftsdiagnose: Energiekrise, Inflation, Rezession und Wohlstandsverlust
Oliver Holtemöller, Stefan Kooths, Torsten Schmidt, Timo Wollmershäuser
Wirtschaftsdienst,
Nr. 10,
2022
Abstract
Die deutsche Wirtschaft wird von der krisenhaften Zuspitzung auf den Gasmärkten schwer belastet. Die hochgeschnellten Gaspreise erhöhen die Energiekosten drastisch und gehen mit einem massiven gesamtwirtschaftlichen Kaufkraftentzug einher. Dies dämpft nicht nur die noch unvollständige Erholung von der Coronakrise, sondern drückt die deutsche Wirtschaft in die Rezession. Dabei kommen die Institute für den kommenden Winter zu dem Ergebnis, dass bei normalen Witterungsbedingungen keine Gasmangellage eintritt. Dennoch bleibt die Versorgungslage äußerst angespannt. Vor diesem Hintergrund dürfte die Wirtschaftsleistung im dritten Quartal bereits leicht gesunken sein. Im Winterhalbjahr ist aufgrund der steigenden Kosten für Energie, der nachlassenden Konsumnachfrage und der schwächelnden Weltwirtschaft mit einem deutlichen Rückgang zu rechnen.
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Understanding Post-Covid Inflation Dynamics
Martín Harding, Jesper Lindé, Mathias Trabandt
Abstract
We propose a macroeconomic model with a nonlinear Phillips curve that has a flat slope when inflationary pressures are subdued and steepens when inflationary pressures are elevated. The nonlinear Phillips curve in our model arises due to a quasi-kinked demand schedule for goods produced by firms. Our model can jointly account for the modest decline in inflation during the Great Recession and the surge in inflation during the Post-Covid period. Because our model implies a stronger transmission of shocks when inflation is high, it generates conditional heteroscedasticity in inflation and inflation risk. Hence, our model can generate more sizeable inflation surges due to cost-push and demand shocks than a standard linearized model. Finally, our model implies that the central bank faces a more severe trade-off between inflation and output stabilization when inflation is high.
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On Modeling IPO Failure Risk
Gonul Colak, Mengchuan Fu, Iftekhar Hasan
Economic Modelling,
April
2022
Abstract
This paper offers a novel framework, combining firm operational risk, IPO pricing risk, and market risk, to model IPO failure risk. By analyzing nearly a thousand variables, we observe that prior IPO failure risk models have suffered from a major missing-variable problem. Evidence reveals several key new firm-level determinants, e.g., the volatility operating performance, the size of its accounts payable, pretax income to common equity, total short-term debt, and a few macroeconomic variables such as treasury bill rate, and book-to-market of the DJIA index. These findings have major economic implications. The total value loss from not predicting the imminent failure of an IPO is significantly lower with this proposed model compared to other established models. The IPO investors could have saved around $18billion over the period between 1994 and 2016 by using this model.
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Resolving the Missing Deflation Puzzle
Martín Harding, Jesper Lindé, Mathias Trabandt
Journal of Monetary Economics,
March
2022
Abstract
A resolution of the missing deflation puzzle is proposed. Our resolution stresses the importance of nonlinearities in price- and wage-setting when the economy is exposed to large shocks. We show that a nonlinear macroeconomic model with real rigidities resolves the missing deflation puzzle, while a linearized version of the same underlying nonlinear model fails to do so. In addition, our nonlinear model reproduces the skewness of inflation and other macroeconomic variables observed in post-war U.S. data. All told, our results caution against the common practice of using linearized models to study inflation and output dynamics.
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The Effect of Foreign Institutional Ownership on Corporate Tax Avoidance: International Evidence
Iftekhar Hasan, Incheol Kim, Haimeng Teng, Qiang Wu
Journal of International Accounting, Auditing and Taxation,
March
2022
Abstract
We find that foreign institutional investors (FIIs) reduce their investee firms’ tax avoidance. We provide evidence that the effect is driven by the institutional distance between FIIs’ home countries/regions and host countries/regions. Specifically, we find that the effect is driven by the influence of FIIs from countries/regions with high-quality institutions (i.e., common law, high government effectiveness, and high regulatory quality) on investee firms located in countries/regions with low-quality institutions. Furthermore, we show that the effect is concentrated on FIIs with little experience in the investee countries/regions or FIIs with stronger monitoring incentives. Finally, we find that FIIs are more likely to vote against management if the firm has a higher level of tax avoidance.
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Gemeinschaftsdiagnose: Ohne russisches Gas droht eine scharfe Rezession in Deutschland
Martin Gornig, Oliver Holtemöller, Stefan Kooths, Torsten Schmidt, Timo Wollmershäuser
Wirtschaftsdienst,
Nr. 5,
2022
Abstract
Die deutsche Wirtschaft steuert durch schwieriges Fahrwasser. Die Auftriebskräfte durch den Wegfall der Pandemiebeschränkungen, die Nachwehen der Coronakrise und die Schockwellen durch den Krieg in der Ukraine sorgen für gegenläufige konjunkturelle Strömungen. Allen Einflüssen gemeinsam ist ihre preistreibende Wirkung.
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Inflation Puzzles, the Phillips Curve and Output Expectations: New Perspectives from the Euro Zone
Alessandro Sardone, Roberto Tamborini, Giuliana Passamani
Empirica,
February
2022
Abstract
Confidence in the Phillips Curve (PC) as predictor of inflation developments along the business cycle has been shaken by recent “inflation puzzles” in advanced countries, such as the “missing disinflation” in the aftermath of the Great Recession and the “missing inflation” in the years of recovery, to which the Euro-Zone “excess deflation” during the post-crisis depression may be added. This paper proposes a newly specified Phillips Curve model, in which expected inflation, instead of being treated as an exogenous explanatory variable of actual inflation, is endogenized. The idea is simply that if the PC is used to foresee inflation, then its expectational component should in some way be the result of agents using the PC itself. As a consequence, the truly independent explanatory variables of inflation turn out to be the output gaps and the related forecast errors by agents, with notable empirical consequences. The model is tested with the Euro-Zone data 1999–2019 showing that it may provide a consistent explanation of the “inflation puzzles” by disentangling the structural component from the expectational effects of the PC.
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Dilemma and Global Financial Cycle: Evidence from Capital Account Liberalisation Episodes
Xiang Li
IWH Discussion Papers,
Nr. 13,
2021
Abstract
By focusing on the episodes of substantial capital account liberalisation and adopting a new methodology, this paper provides new evidence on the dilemma and global financial cycle theory. I first identify the capital account liberalisation episodes for 95 countries from 1970 to 2016, and then employ an augmented inverse propensity score weighted (AIPW) estimator to calculate the average treatment effect (ATE) of opening capital account on the interest rate comovements with the core country. Results show that opening capital account causes a country to lose its monetary policy independence, and a floating exchange rate regime cannot shield this effect. Moreover, the impact is stronger when liberalising outward and banking flows.
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U.S. Monetary and Fiscal Policy Regime Changes and Their Interactions
Yoosoon Chang, Boreum Kwak, Shi Qiu
IWH Discussion Papers,
Nr. 12,
2021
Abstract
We investigate U.S. monetary and fiscal policy interactions in a regime-switching model of monetary and fiscal policy rules where policy mixes are determined by a latent bivariate autoregressive process consisting of monetary and fiscal policy regime factors, each determining a respective policy regime. Both policy regime factors receive feedback from past policy disturbances, and interact contemporaneously and dynamically to determine policy regimes. We find strong feedback and dynamic interaction between monetary and fiscal authorities. The most salient features of these interactions are that past monetary policy disturbance strongly influences both monetary and fiscal policy regimes, and that monetary authority responds to past fiscal policy regime. We also find substantial evidence that the U.S. monetary and fiscal authorities have been interacting: central bank responds less aggressively to inflation when fiscal authority puts less attention on debt stabilisation, and vice versa.
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