Euro area, Business cycle measurement, Business cycle synchronisation, Optimum currency area, C22, E32, E66, F42,
Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Abstract While a widespread consensus exists among macroeconomists that the German labour market reforms in [2003][2004][2005] have successfully contributed to the decline of the unemployment rate, critics claim that the reforms led to wage restraint and consequently consumption dampening accompanied by beggar-thy-neighbour effects, harming Germany's trade partners. We check up on the validity of these arguments by means of a two-country DSGE model featuring intra-industry trade and labour market frictions. Our results suggest that the disproportional growth of GDP (labour productivity) in comparison to consumption (wages) are only partially driven by the reforms. However, we do not find that the reforms contribute to Germany's trade surplus and cause negative spillovers to trading partners in terms of output and employment. The German Labour Market Reforms in a EuropeanJEL classification: E24, E61, E65, F42, J38, J63
Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. We deal with this controversy and investigate (i) the extent to which two prominent structural VAR approaches can be useful in recuperating news shock dynamics from artificially generated data in general and (ii) why and to what extent these SVAR approaches differ in the results they deliver in particular. Thereby, we provide several insights for the users of both VAR techniques with small samples in practice. JEL classification: C32, E32Keywords: News Shocks, Structural VAR, Identification * This paper is the result of a project sponsored within the scope of the SEEK research program at ZEW Mannheim. We thank Patrick Fève and Sine Kontbay for helpful comments and suggestions. The work also benefited from participation at the 2nd SEEK Conference in Mannheim. Any errors are our own.
Reproduction permitted only if source is stated. ISBN Non-technical summary Research QuestionBanks with deteriorating earnings are said to be prone to taking risks. One kind of risk that banks can well control is the interest rate risk, which arises from different fixed interest periods on the asset and liability side of a bank's balance sheet. In the present paper, we theoretically and empirically investigate whether banks in a stressed earnings situation behave differently to the other banks concerning their exposure to interest rate risk. This issue is relevant in the context of the low interest rate environment which can lead to a massive reduction in banks' earnings. ContributionNormally, the demand for a risky asset increases if its expected return goes up. In our theoretical model, we show that the opposite outcome is possible as well, meaning that the risky asset becomes the more coveted the lower its expected return. In the paper, we interpret the risky asset as the exposure to interest rate risk. In our empirical study for the banks in Germany, we investigate the relationship between a bank's exposure to interest rate risk, the bank's earning situation and the expected returns from bearing interest rate risk for the period 2005-2014. ResultsWe find a pronounced co-movement between a banks' exposure to interest rate risk and the corresponding expected return, i.e. a bank will increase the difference between the repricing periods on its assets and liabilities if the expected return from bearing interest rate risk increases. This relationship becomes weaker if a bank's earning situation deteriorates. If the earnings fall below a certain threshold, the relationship even changes its sign: We observe, depending on the sample specification and estimation methodology, in about 0.6 to 8.3 per cent of the events in our sample that a bank increases its exposure to interest rate risk even though the expected returns from bearing this risk are falling. Nichttechnische Zusammenfassung AbstractWe investigate German banks' exposure to interest rate risk. In finance, higher demand for a risky asset is typically associated with higher expected return. However, employing a utility function which implies both risk-averse and risk-seeking behavior depending on the level of profits, we show that this relationship may get weaker and even change its sign at low profit levels. For the period 2005-2014, we find not only the common positive relationship of higher expected returns and rising interest rate exposure but also that this relationship does become weaker with falling operative income, its sign eventually changing.Keywords: Banks' risk taking, exposure to interest rate risk, low interest rate environment JEL classification: G11, G21 * The views expressed in this paper are those of the authors and do not necessarily reflect the opinions of the Deutsche Bundesbank. We thank Yalin Gündüz, Benedikt Ruprecht and the participants of Bundesbank's research seminar for their helpful comments.. †
Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Non-Technical SummaryThere is a long-standing debate in economics about whether governments should engage in Keynesian-style countercyclical fiscal policy. During the recent global financial crisis, this debate has gained new momentum as many countries implemented fiscal stimulus packages. A prime reason for this was the fact that conventional monetary policy as an instrument for stabilization was no longer sufficient or feasible in an environment where interest rates had hit historically low levels in many countries. The objective of this paper is to re-visit the effectiveness of such stabilization policies, in particular of a reduction in consumption taxes, using a difference-indifference approach in combination with firm-level data that exploits a temporary consumption tax cut in Turkey during the recent crisis.There is a large body of empirical macroeconomic literature that addresses the question of whether fiscal shocks, in particular a debt-financed increase of public spending or debt-financed tax cuts, can have a positive impact on output over the short run. Contrary to the existing literature and in the absence of detailed and higher frequency household data, we use the change in firm sales using firm-level data as an endogenous variable which, in aggregate, is likely to be closely related to the change in aggregate private demand. While our approach does not allow precisely estimating aggregate fiscal multipliers, it avoids the type of simultaneity problem that arises when using macro-level data. The simultaneity problem arises because fiscal aggregates and GDP are interdependent with causation running in both directions; by contrast, the behavior and the performance of individual firms do not affect macroeconomic policies so that simultaneity does not arise.Turkey has recently implemented a temporary consumption tax cut, namely in the value added tax (VAT) and the special consumption tax (SCT), at the peak of the financial crisis in 2009 as part of its fiscal package in response to the global economic crisis. In combination with the data we use, this policy change is particularly well-suited for the purpose of our empirical research. On the one hand, the tax cuts were temporary and affected mainly durable and luxury goods (rather than necessity and non-durable goods) so that it can be expected that consumers shift consumption forward in time. On the other hand, the consumption tax cuts were not universal and covered some but not all durable goods. Give...
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