Showing papers in "German Economic Review in 2009"

Did the Hartz Reforms Speed-Up the Matching Process? A Macro-Evaluation Using Empirical Matching Functions

Abstract: Starting in January 2003, Germany implemented the first two so-calledHartz reforms, followed by the third and fourth packages of Hartzreforms in January 2004 and January 2005, respectively. The aim of thesereforms was to accelerate labor market flows and reduce unemploymentduration. Without attempting to evaluate the specific components ofthese Hartz reforms, this paper provides a first attempt to evaluate theoverall effectiveness of the first two reform waves, Hartz I/II and III,in speeding up the matching process between unemployed and vacant jobs.The analysis is conceptually rooted in the flow-based view underlyingthe reforms, estimating the structural features of the matching process.The results indicate that the reforms indeed had an impact in making thelabor market more dynamic and accelerating the matching process.

Does German Development Aid Promote German Exports

Abstract: . This paper uses a static and dynamic gravity model of trade to investigate the link between German development aid and exports from Germany to the recipient countries. The findings indicate that, in the long run, German aid is associated with an increase in exports of goods that is larger than the aid flow, with a point estimate of 140% of the aid given. In addition, the evolution of the estimated coefficients over time shows an effect that is consistently positive but that oscillates over time. Interestingly, after a decrease in the 1990s, the estimated coefficients of the effect of aid on trade show a steady increase in the period between 2001 and 2005. The paper distinguishes among recipient countries and finds that the return on aid measured by German exports is higher for aid to countries considered ‘strategic aid recipients’ by the German government. We also find some evidence that aid given by other EU members reduces German exports.

Which News Moves the Euro Area Bond Market

Abstract: . This paper explores a long dataset (1999–2005) of intraday prices on German long-term bond futures and examines market responses to major macroeconomic announcements and ECB monetary policy releases. German bond markets tend to react more strongly to the surprise component in US macro releases compared with aggregated and national euro area and UK releases, and the strength of those reactions to US releases has increased over the period considered. We also document that the numbers of German unemployed workers consistently have been known to investors before official releases.

Strategic Tax Competition in Switzerland: Evidence from a Panel of the Swiss Cantons

Abstract: . Tax competition is discussed as a source of inefficiency in international taxation and in fiscal federalism. Two preconditions for the existence of such effects of tax competition are that mobile factors locate or reside in jurisdictions with –ceteris paribus– lower tax rates, and that taxes are actually set strategically in order to attract mobile production factors. It is well known from studies about Swiss cantonal and local income tax competition that Swiss taxpayers reside where income taxes are low. In this paper, empirical results on strategic tax setting by cantonal governments are presented for a panel of the Swiss cantons from 1984 to 1999. Completing the evidence on Swiss tax competition, income tax rates in cantons are the lower, the lower the tax rates of their neighbors.

Benford's Law as an Indicator of Fraud in Economics

Abstract: . Contrary to intuition, first digits of randomly selected data are not uniformly distributed but follow a logarithmically declining pattern, known as Benford's law. This law is increasingly used as a ‘doping check’ for detecting fraudulent data in business and administration. Benford's law also applies to regression coefficients and standard errors in empirical economics. This article reviews Benford's law and examines its potential as an indicator of fraud in economic research. Evidence from a sample of recently published articles shows that a surprisingly large proportion of first digits, but not of second digits, contradicts Benford's law.

Foreign Direct Investment and Environmental Taxes

Abstract: . This paper studies the effect of foreign direct investment (FDI) on environmental policy stringency in a two-country model with trade costs, where FDI could be unilateral and bilateral and both governments address local pollution through environmental taxes. We show that FDI does not give rise to ecological dumping because the host country has an incentive to shift rents away from the source country toward the host country. Environmental policy strategies and welfare effects are studied under the assumption that parameter values support FDI to be profitable.

Non-Linear Oil Price Dynamics: A Tale of Heterogeneous Speculators?

Abstract: . While some of the recent surges in oil prices can be attributed to a robust global demand at a time of tight production capacities, commentators occasionally also blame the impact of speculators for part of the price pressure. We propose an empirical oil market model with heterogeneous speculators. Whereas trend-extrapolating chartists may tend to destabilize the market, fundamentalists exercise a stabilizing effect on the price dynamics. Using monthly data for West Texas Intermediate oil prices, our STR-GARCH estimates indicate that oil price cycles may indeed emerge due to the non-linear interplay between different trader types.

Competition Tests with a Non‐Structural Model: the Panzar–Rosse Method Applied to Germany's Savings Banks

Abstract: . In this paper we adopt the Panzar–Rosse approach to assess the competitive conditions in the German banking market for the period from 1993 to 2002. We suggest several improvements to the empirical application of the approach and show that frequently used empirical models that apply price rather than revenue functions lead to biased results. Using disaggregated annual data from more than 400 savings banks (Sparkassen) the empirical findings indicate monopolistic competition, the cases of monopoly and perfect competition are strongly rejected. Furthermore, small banks seem to enjoy even more market power than larger institutions.

Misleading Rankings of Research in Business

Abstract: . The attempts by Schulze and colleagues and Ritzberger to develop a joint ranking of journals for economics and business research are critically evaluated. Their lists suggest that the quality of top business journals is substantially lower than that of many economics journals. If, however, the authors of these lists do not want to claim a general superiority of one discipline (economics) over another one (business), they should give a clear indication that these lists are only applicable for economists. This warning appears to be necessary because Fabel and colleagues derive a ranking of universities and departments with respect to research productivity in business from the business research discriminating list RbR_IMP by Schulze and colleagues. While Diamantopoulos and Wagner already show a lack of face validity of these results, this article explains that the reason for this lies not only in the downgrading and also biased weighting of the business journals across subfields, but even more importantly, in a remarkable incompleteness of the database.

Factor Substitution, Income Distribution and Growth in a Generalized Neoclassical Model

Abstract: . We analyze a generalized neoclassical growth model that combines a normalized CES production function and possible asymmetries of savings out of factor incomes. This generalized model helps to shed new light on a recent debate concerning the impact of factor substitution and income distribution on economic growth. We show that this impact relies on both an efficiency and a distribution effect, where the latter is caused by the distributional consequences of an increase in the elasticity of substitution. While the efficiency effect is always positive, the sign of the distribution effect depends on the particular savings hypothesis. If the savings rate out of capital income is substantial so that a certain threshold value is surpassed, the efficiency effect dominates and higher factor substitution accelerates the accumulation of capital and works as a major engine of growth.

Macroeconomic Fluctuations and Bank Lending: Evidence for Germany and the Euro Area

Abstract: . This paper analyzes the dynamic response of loans to the private sector and of economic activity to aggregate supply, demand and monetary policy shocks in Germany and the euro area based on a standard macroeconomic VAR using sign restrictions to identify the structural shocks. The main results of this analysis are that (i) with the exception of the response to the supply shock in Germany, the response of loans to the three macroeconomic shocks is rather weak and in most cases insignificant; (ii) the 2000–05 credit slowdown and weak economic performance in Germany were primarily driven by adverse supply shocks; and (iii) the marked slowdown in credit creation in Germany over this period actually represents a realignment of the outstanding stock of loans with its deterministic level. In order to assess the role of bank lending in the transmission of macroeconomic shocks, we further perform counterfactual simulations and analyze the dynamic responses of German loan subaggregates in order to test the distributional implications of potential credit market frictions. These exercises do not indicate that credit market frictions play an amplifying role in the transmission of macroeconomic fluctuations.

Fiscal Effects of Minimum Wages: An Analysis for Germany

Abstract: Against the background of the current discussion on the introduction of statutory minimum wages in Germany, this paper analyzes the potential employment and fiscal effects of such a policy. Based on estimated labor demand elasticities obtained from a structural labor demand model, the empirical results imply that the introduction of minimum wages in Germany will be associated with significant employment losses that are concentrated among marginal and low- and semi-skilled full-time workers. Even though minimum wages will lead to increased public revenues from income taxes and social security benefits, they will result in a significant fiscal burden, due to increased expenditures for unemployment benefits and decreased revenues from corporate taxes.

The Augmented Solow Model with Mincerian Schooling and Externalities

Abstract: We combine the augmented Solow model with the Mincer equation to derive a specification that identifies an education externality within a production function framework. The previous empirical literature has not reached a consensus about the size of the education externality, which is given by the difference between the microeconomic and the macroeconomic return to education. Relative to our benchmark value that is based on a parameterization of the derived specification, we find that the estimated education externality is too large when the empirical model is not properly restricted, and appears to be absent when all control variables of the empirical model are properly accounted for. We note that the absence of an education externality would be inconsistent with observed levels education subsidies.

Are Good Industrial Relations Good for the Economy

Abstract: . Recent US microeconomic analysis indicates that good industrial relations might improve firm performance. Of late, it has also been claimed that the benefits of industrial relations quality – proxied inversely by a strikes variable – could also extend to the macroeconomy. Using cross-country data, we find that, independent of other labor market institutions, a lower strike volume is associated with lower unemployment. Although there is a separate line of causation running from unemployment to strikes, our analysis suggests that this is not dominant. That said, support for the notion that macro performance owes something to good industrial relations is, however, weakened once we formally control for strike endogeneity.

Money market uncertainty and retail interest rate fluctuations: A cross-country comparison

Abstract: . This paper analyzes empirically the relationship between money market uncertainty and unexpected deviations in retail interest rates in a sample of ten OECD countries. We find that, with the exception of the United States, money market uncertainty has only a modest impact on the conditional volatility of retail interest rates. Even for the United States, we find that the effects of money market uncertainty are spread out over time. Our results also indicate that money market uncertainty tends to be passed on to retail rates to a lesser extent in countries where banking relationships play a substantial role.

A Soft Budget Constraint Explanation for the Venture Capital Cycle

Abstract: We explore why venture capital funds limit the amount of capital they raise and do not reinvest the proceeds. This structure is puzzling because it leads to a succession of several funds financing each new venture which multiplies the well known agency problems. We argue that an inside investor cannot provide a hard budget constraint while a less well informed outsider can. Therefore, the venture capitalist delegates the continuation decision to the outsider by ex ante restricting the amount of capital he has under management. The soft budget constraint problem becomes the more important the higher the entrepreneur’s private benefits are and the higher the probability of failure of a project is.

On the Dynamics of Basic Growth Models: Ratio Stability vs. Convergence and Divergence in State Space

Abstract: . We show for a class of basic growth models that convergence in ratios does not imply the pathwise convergence to the corresponding balanced growth path in the state space. We derive conditions on parameters and on the elasticity of the savings function for convergence or divergence and apply our results to the Solow model, an augmented Solow model as well as to an optimal growth model. An implication for the convergence debate is that two economies that differ only in the initial capital stock and converge in per capita terms might diverge to infinity in absolute terms.

Transparency of Central Bank Preferences

Abstract: . In this paper, we examine whether the transparency of the central bank's preferences is desirable. We make two major points. First, in the literature on preference transparency variance-reduction frameworks are often adopted. As a consequence a change in the degree of transparency affects the magnitude of information asymmetries, but at the same time it implies a rather arbitrary effect on the distribution of preferences. We present a clean framework without this problem. Second, using a very general specification of shocks to the central bank's preferences, we show that society prefers transparency if it sufficiently values the employment target, whereas it prefers opacity if it estimates inflation as sufficiently important.

Extracting Resource Deposits of Unknown Size: Optimal Order

Abstract: . The optimal order of extracting resource deposits of unknown size depends on the informational characteristics of the extraction process. This paper fills the gap between two strands of literature. The first strand is about the optimal extraction of single reserve under stock-size uncertainty. The second strand is about the optimal order of extraction of deposits of known sizes. Our emphasis on the premium for resolution of uncertainty complements Solow and Wan's shadow surcharge when extraction moves from a low-cost deposit to a high-cost one.

Stochastic Growth and Factor Income Risk

Abstract: . This paper examines the effects of aggregate factor income risk in a tractable version of the stochastic Romer endogenous growth model. Labor supply is endogenous. The presence of labor income risk unambiguously increases savings and growth due to precautionary motives. Households not only underaccumulate but also work less along the balanced growth path of the competitive economy when compared with the Pareto-efficient allocation. The paper also discusses distributive disturbances for the case of inelastic labor supply. Here, growth effects are negative for empirically plausible correlations of the underlying shocks.

An Alternative Core Inflation Measure

Abstract: . We combine the ideas of the trimmed mean and the Edgeworth index to construct an alternative measure of core inflation named ‘Trim of Most Volatile Components (TMVC)’. At each point of time, this measure trims away the components of the price index that have been most volatile in the recent past. Statistical tests indicate that neither the trimmed mean nor the Edgeworth index dominates the TMVC in terms of tracking trend inflation.

Research Productivity in Business Economics: The Case of Marketing

Abstract: . The German Economic Review (GER) recently published a paper by Fabel, Hein and Hofmeister about research productivity in Austrian, German and Swiss universities. The authors derive the rankings of institutions and subject areas by analyzing an impressive and comprehensive dataset, which captures the research output of business administration departments. While these rankings might hold at an aggregate level, they lack face validity at a subject-specific level. This lack of validity is demonstrated in the case of marketing by analyzing the research output of the top-ranked institutions in top-ranked journals. A number of proposals to overcome these kinds of problems are provided.

The Success of Currency Reforms to End Great Inflations: An Empirical Analysis of 34 High Inflations

Abstract: The estimation of an ordered Probit model for currency reforms attempting to end 31 hyperinflations and three hughe inflations of the twentieth century shows that the introduction of an independent central bank and the adoption of a credibly fixed exchange rate are crucial for the success of a currency reform. In addition, currency reforms are demonstrated to be more difficult in centrally planned economies than in market economies.

Research Productivity in Business Economics: A Second Reply

Abstract: On the robustness of our earlier research rankings in business economics: Despite the robustness checks in Fabel et al. (2009), Albers (2009) still claims that our results lack ‘face validity’. First, he notes that journals have different page layouts and suggests that weighting by the number of pages counteracts the weighting by journal quality. However, Fabel et al. (2009) already show that the effect of page-weighting is negligible. Second, Albers’ (2009) complaint that ‘85% of the total score comes from the worst category’ simply mirrors that most of the current research efforts are directed at publishing in such journals. In fact, we attach positive weights to such publications for the sole reason of acknowledging that these outlets are characteristic for the current state of business research in the German-speaking area. Again, Fabel et al. (2009) already agree with Diamantopoulos and Wagner (2009) that applying a convex journal-weighting scheme could improve incentives for researchers. Third, Albers (2009) laments about the ‘remarkably incomplete data’. Incomplete data would indeed constitute a significant shortcoming if we attempted to construct rankings of individual researchers. That, however, was explicitly never our objective. Further, it is well known that such data problems ‘wash out’ if comparing larger groups. For exactly this reason, Fabel et al. (2008) only include units comprising at least four full professorships when constructing faculty rankings. Admittedly, journal tracking by the institutions compiling electronic publication datasets and contents reporting by journal publishers may be somewhat biased. Nevertheless, data accuracy does not vary unduly across subdisciplines. Thus, incomplete data are unlikely to distort within-field rankings at all. Moreover, we are now able to verify this last assertion. Since our original 2008 publication, the ‘Committee for Research Monitoring’ (CRM) of the German Economic Association has established an Internet gateway that

Research Productivity in Business Economics: A Reply

Abstract: . We reply to a comment by Diamantopoulos and Wagner questioning the face validity of our research productivity ranking for the field ‘Marketing and Sales’.

Dynamic Extensions of the Solow Growth Model (1956): Editorial

Abstract: The origin of the wealth of nations and the determinants of the long-term prospects of economic evolution were central topics in the classical economics of A. Smith, D. Ricardo, T. R. Malthus and J. S. Mill. Their discussions of the propagation of population, laws of returns (production), capital accumulation and income distributions were concerned with understanding processes for economic progress (development, growth). Although theories of economic growth thus go far back to the beginning of our discipline, growth models as quantitative dynamics appeared late, in the middle of the last century. Since systems of nonlinear differential equations are the dynamic fundamentals of economic growth models with continuous factor (labor and capital) accumulation, it is in retrospect not surprising that the solutions (evolutions) for labor, capital stock, wage and profit rates, and income distributions, were for many years controversial without clear, definite conclusions being established. This state of affairs for growth models and economic dynamics was changed with the breakthrough by Solow (1956): ‘A Contribution to the Theory of Economic Growth’. The effects in economic science were dramatic. The crucial innovation was the introduction of smooth production functions (linking factor inputs and output) that together with various saving functions provided the differential equations of capital accumulation. Explicit benchmark solutions of the basic dynamic model were rigorously established for CES technology parameter values of the factor substitution elasticity: s5 0, 1, 2 – allowing for steady-state growth or persistent (endogenous) growth per capita. To underline the character of the seminal Solow (1956) article for general readers of economic literature, it may be helpful on this matter here to quote Lucas (1988, p. 5): ‘I prefer to use the term ‘‘theory’’ in a very narrow sense, to refer to an explicit dynamic system, something that can be put on a computer and run. This is what I mean by the ‘‘mechanics’’ of economic development’. Indeed, Solow (1956) presented the ‘mechanics’ (explicit dynamic system) of

Misleading Rankings of Research in Business: A Reply

Abstract: In two recent papers I have attempted to come up with replicable, data-based and methodologically sound information about the impact of scientific journals in economics and related fields (Ritzberger, 2008a, 2008b). This has caused Sönke Albers (2009) to write a rebuttal, in which he claims that the results are ‘misleading’, at least for the field of business research. In what follows, I will discuss those of his arguments that appear to have substance. Business journals ranked too low: If there is a value to rankings, then it is to confront received views and prejudice with the data. Thus, readers of the German Economic Review (GER) may now have second thoughts about the relative standing of the Journal of Marketing or Management Science vs., for example, the Academy Management Review or Administrative Science Quarterly. Perhaps these two groups should not be regarded as on an equal footing. That in the overall ranking the top business journals are ‘only considered to be good journals’, though, says nothing about whether or not business researchers treat them as top journals. I myself, as an economic theorist, would certainly not view all journals in my Aþ category as top-theory journals. The reason is simple: the Aþ category is dominated by general interest journals that are quoted by all fields. Specialized journals, even (or maybe, precisely) when they are excellent in their field, usually cannot make good for that. This is documented in the GER paper (Ritzberger, 2008b, p. 410). The invariant method is robust to selecting subsamples, though. That is, if, in the overall ranking, one deletes all journals that are not, say, business journals, one still obtains a fairly accurate ranking of business journals, as far as they are in the sample. (The cardinal values will not be accurate any more, but the ordinal ranking will.) Again, this is documented in the GER paper (Appendix B for pure economics). Therefore, that business journal X shows up in category A and business journal Y in category B says something about the standing of X relative to Y in terms of citation flows. But whether business journal Z shows up in category A or B in the overall ranking says nothing about Z’s standing within the field of business research.

Misleading Rankings of Research in Business: A Reply

Abstract: Sönke Albers (2009) states in his abstract that he wants to critically evaluate our ranking of journals for economics and business; yet, that is not what he does. First and foremost, we do not develop a single ranking; instead, on the basis of four existing rankings, we construct four different meta-rankings through a methodologically sound imputation procedure, which is described in great detail in Schulze et al. (2008a, pp. 293–300). This imputation extends each base ranking to more than 2,800 journals while preserving the underlying logic of the list. It thus allows evaluating publications in journals that the original base ranking does not cover – and thus minimizes a problem that all journal lists had: they were too short! Frequently, research output could not be evaluated appropriately because a number of research outlets were not rated. Instead of imposing one list as the relevant one, we offer four different meta rankings based on two very different approaches – impact assessment and expert opinion approach – and we are very explicit about the relative advantages of both approaches, rather than criticizing just one. The user should choose the rankings knowing their relative strengths and weaknesses. Because we do not create new rankings, but impute on the basis of existing rankings, each of our imputed rankings will have the flaws and strengths of the underlying base ranking and the rankings used for imputation. Albers now claims that one of the existing rankings, i.e. the Ritzberger list and the imputed list based on Ritzberger, lacks ‘face validity’. His criterion is essentially that any list should coincide very highly with the lists that he thinks are relevant (see his Table 4). He does not make any attempt to reflect critically on the weaknesses of these lists, and thus while he is very critical towards one list he is very uncritical towards others. In the light of different weaknesses of all rankings a balanced view would take the relative strengths and weaknesses into account rather than just postulating a group of lists as