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Mutual insurance companies and stock insurance companies are different forms of organized risk sharing: policyholders and owners are two distinct groups in a stock insurer, while they are one and the same in a mutual. This distinction is relevant to raising capital, selling policies, and sharing risk in the presence of financial distress. Up-front capital is necessary for a stock insurer to offer insurance at a fair premium, but not for a mutual. In the presence of an owner-manager conflict, holding capital is costly. Free-rider and commitment problems limit the degree of capitalization that a stock insurer can obtain. The mutual form, by tying sales of policies to the provision of capital, can overcome these problems at the potential cost of less diversified owners.
This paper documents the methodology underlying the construction of a global database of gross foreign asset and liability positions for 153 countries over the period 1970 to 2004 and illustrates some key data characteristics. The data cover both inflows and outflows of capital and thus allow for an assessment of the degree of international financial integration. In addition to net foreign asset stocks, we also provide details on the composition of the main asset and liability categories, namely the foreign direct investment, equity investment and debt components. Finally, we report on valuation changes as one of the main sources of discrepancy between transaction-based capital flow data and stock values of investment positions. The dataset is available for download at www.ifk-cfs.de/fileadmin/downloads/data/cfs-icfd.zip. or http://publikationen.ub.uni-frankfurt.de/volltexte/2007/4855/original/cfs-icfd.zip JEL Classification: F21; F34; F32
In this paper we revisit medium- to long-run exchange rate determination, focusing on the role of international investment positions. To do so, we develop a new econometric framework accounting for conditional long-run homogeneity in heterogeneous dynamic panel data models. In particular, in our model the long-run relationship between effective exchange rates and domestic as well as weighted foreign prices is a homogeneous function of a country’s international investment position. We find rather strong support for purchasing power parity in environments of limited negative net foreign asset to GDP positions, but not outside such environments. We thus argue that the purchasing power parity hypothesis holds conditionally, but not unconditionally, and that international investment positions are an essential component to characterizing this conditionality. Finally, we adduce evidence that whether deterioration of a country’s net foreign asset to GDP position leads to a depreciation of that country’s effective exchange rate depends on its rate of inflation relative to the rate of inflation abroad as well as its exposure to global shocks. JEL Classification: F31, F37, C23
Much has been written on the success of the Indian software industry, enumerating systemic factors like first-class higher education and research institutions, both public and private; low labour costs, stimulating (state) policies etc. However, although most studies analyzing the 'Indian' software industry cover essentially the South (and West) Indian clusters, this issue has not been tackled explicitly. This paper supplements the economic geography explanations mentioned above with the additional factor social capital, which is not only important within the region, but also in transnational (ethnic) networks linking Indian software clusters with the Silicon Valley. In other words, spatial proximity is complemented with cultural proximity, thereby, extending the system of innovation. The main hypothesis is that some Indian regions are more apt to economic development and innovation due to their higher affinity to education and learning, as well as, their more general openness, which has been a main finding of my interviews. In addition, the transnational networks of Silicon Valley Indians seem to be dominated by South Indians, thus, corroborating the regional clustering of the Indian software industry. JEL Classifications: O30, R12, Z13, L86
The Indian IT industry has received great attention. Although most studies cover South Indian locations, clustering has rarely been a topic. This study focuses on Bangalore addressing questions related to Bangalore’s successful development and lessons thereof for other regions in and outside India. The approach pertains to economic geography and international business; hypotheses have been developed from a multi-disciplinary literature survey and interview fieldwork in Bangalore. I emphasize human and social capital and networks. While the first chapter delineates cultural foundations of human capital formation, the second and third deal with bonding and bridging social capital (or dense and loose networks), respectively; the fourth is an outlook on future opportunities through intersectoral upgrading. The main hypothesis is that a combination of both forms of social networks - contingent upon sub-sectors – has helped Bangalore developing a successful IT industry. Positive attitudes towards education led to relatively more human capital spawning two positive feedbacks: 1) establishment of national research and educational institutes resulting in large inflows of a diversity of people providing the required setting for creativity and innovation; 2) transnational networks linking to Silicon Valley are dominated by people from South India, allowing for additional knowledge spillovers corroborating the regional clustering.
This paper documents the experiences of assurance evaluation during the early stage of a large software development project. This project researches, contracts and integrates privacy-respecting software to business environments. While assurance evaluation with ISO 15408 Common Criteria (CC) within the certification schemes is done after a system has been completed, our approach executes evaluation during the early phases of the software life cycle. The promise is to increase quality and to reduce testing and fault removal costs for later phases of the development process. First results from the still-ongoing project suggests that the Common Criteria can define a framework for assurance evaluation in ongoing development projects.
Using a unique data set on trade credit defaults among French firms, we investigate whether and how trade credit is used to relax financial constraints. We show that firms that face idiosyncratic liquidity shocks are more likely to default on trade credit, especially when the shocks are unexpected, firms have little liquidity, are likely to be credit constrained or are close to their debt capacity. We estimate that credit constrained firms pass more than one fourth of the liquidity shocks they face on to their suppliers down the trade credit chain. The evidence is consistent with the idea that firms provide liquidity insurance to each other and that this mechanism is able to alleviate the consequences of credit constraints. In addition, we show that the chain of defaults stops when it reaches firms that are large, liquid, and have access to financial markets. This suggests that liquidity is allocated from large firms with access to outside finance to small, credit constrained firms through trade credit chains.
Public employee pension systems throughout the developed world have traditionally been of the pay-as-you-go (PAYGO) defined benefit (DB) variety, where pensioner payments are financed by taxes (contributions) levied on the working generation. But as the number of retirees rises relative to the working-age group, such systems have begun to face financial distress. This trend has been exacerbated in many countries, among them Germany, by high unemployment rates producing further deterioration of the contribution base. In the long run, public sector pension benefits will have to be cut or contributions increased, if the systems are to be maintained. An alternative path sometimes offered to ease the crunch of paying for public employee pensions is to move toward funding: here, plan assets are gradually built up, invested, and enhanced returns devoted to partly defray civil servants’ pension costs. In this study, we evaluate the impact of introducing partial prefunding, paired with a strategic investment policy for the German federal state of Hesse. The analysis assesses the impact of introducing a supplementary tax-sponsored pension fund whose contributions are invested in the capital market and used to relieve the state budget from (some) pension payments. Our model determines the expectation and the Conditional Value-at-Risk of economic pension costs using a stochastic simulation process for pension plan assets. This approach simultaneously determines the optimal contribution rate and asset allocation that controls the expected economic costs of providing the promised pensions, while at the same time controlling investment risk. Specifically, we offer answers to the following questions: 1. How can the plan be designed to control cash-flow shortfall risk, so as to mitigate the potential burden borne by future generations of taxpayers? 2. What is the optimal asset allocation for this fund as it is built up, to generate a maximum return while simultaneously restricting capital market and liability risk? 3. What are reasonable combinations of annual contribution rates and asset allocation to a state-managed pension fund, which will limit costs of providing promised public sector pensions? We anticipate that this research will interest several sorts of policymaker groups. First, focusing on the German case, the state and Federal governments should find it relevant, as these entities face considerable public sector pension liabilities. Second, our findings will also be of interest to other European countries, as most have substantial underfunded defined benefit plans for civil servants. In what follows, we first offer a brief description of the structure of civil servant pensions in Germany, focusing on their benefit formulas, their financing, and the resulting current as well as future plan obligations for taxpayers. Next, we turn to an analysis of the actuarial status of the Hesse civil servants’ pension plan and evaluate how much would have to be contributed to fund this plan in a nonstochastic context. Subsequently we evaluate the asset-liability and decision-making process from the viewpoint of the plan sponsor, to determine sensible plan asset allocation behavior. A final section summarizes findings and implications.
We propose a new approach to measuring the effect of unobservable private information or beliefs on volatility. Using high-frequency intraday data, we estimate the volatility effect of a well identified shock on the volatility of the stock returns of large European banks as a function of the quality of available public information about the banks. We hypothesise that, as the publicly available information becomes stale, volatility effects and its persistence should increase, as the private information (beliefs) of investors becomes more important. We find strong support for this idea in the data. We argue that the results have implications for debate surrounding the opacity of banks and the transparency requirements that may be imposed on banks under Pillar III of the New Basel Accord.
This paper traces the location of foreign banks in Germany from 1949 to 2006. As suggested by new economic geography models we find a ‘u’-shaped concentration of foreign banks in Germany. Only after a competition between several cities, Frankfurt has emerged as the pre-eminent financial centre, triggered by the ‘historical event’ of setting up the German central bank in Frankfurt. After a strong increase, Frankfurt’s share in the location of foreign banks in Germany decreases slowly but significantly since the mid 1980’s. We conclude that there will be a lesser role in Europe for secondtier financial centres in the future.
Many tax-codes around the world allow for special taxable treatment of savings in retirement accounts. In particular, profits in retirement accounts are usually tax exempt which allow investors to increase an asset’s return by holding it in such a retirement account. While the existing literature on asset location shows that risk-free bonds are usually the preferred asset to hold in a retirement account, we explain how the tax exemption of profits in retirement accounts affects private investors’ asset allocation. We show that total final wealth can be decomposed into what the investor would have earned in a taxable account and what is due to the tax exemption of profits in the retirement account. The tax exemption of profits can thus be considered a tax-gift which is similar to an implicit bond holding. As this tax-gift’s impact on total final wealth decreases over time, so does the investor’s equity exposure.
This paper analyses cross-border contagion in a sample of European banks from January 1994 to January 2003. We use a multinomial logit model to estimate the number of banks in a given country that experience a large shock on the same day (“coexceedances”) as a function of variables measuring common shocks and coexceedances in other countries. Large shocks are measured by the bottom 95th percentile of the distribution of the first difference in the daily distance to default of the bank. We find evidence in favour of significant cross-border contagion. We also find some evidence that since the introduction of the euro cross-border contagion may have increased. The results seem to be very robust to changes in the specification.
We compute the optimal dynamic asset allocation policy for a retiree with Epstein-Zin utility. The retiree can decide how much he consumes and how much he invests in stocks, bonds, and annuities. Pricing the annuities we account for asymmetric mortality beliefs and administration expenses. We show that the retiree does not purchase annuities only once but rather several times during retirement (gradual annuitization). We analyze the case in which the retiree is restricted to buy annuities only once and has to perform a (complete or partial) switching strategy. This restriction reduces both the utility and the demand for annuities.
The dissertation collects four self-contained essays which contribute to the literature on wage structures, heterogeneous labor demand, and the impact of trade unions. The first paper provides a detailed description of the evolution of wage inequality in East and West Germany in the late years of the twentieth century. In contrast to previous decades, wage inequality has been rising in several dimensions during that period. The second paper identifies cohort effects in the evolution of both wages and employment. Observed structures are consistent with a labor demand framework that incorporates steady skill-biased technical change. Substitutability between skill and age groups in the German labor market is found to be relatively high. Simulations based on estimated elasticities of substitution illustrate that higher wage dispersion between skill groups would have contributed to a reduction in unemployment. The third paper estimates determinants of individual union membership decisions and studies the erosion of union density in East and West Germany. Using corresponding predictions of net union density, the fourth paper analyzes the link between union strength and the structure of wages. A higher union density is associated with lower residual wage dispersion, reduced skill wage differentials, and a lower wage level. This finding is in line with an insurance motive for union action. The thesis comprises the following articles: (1) “Rising Wage Dispersion, After All! The German Wage Structure at the Turn of the Century,” IZA Discussion Paper 2098, April 2006. (2) “Skill Wage Premia, Employment, and Cohort Effects: Are Workers in Germany All of the Same Type?”, IZA Discussion Paper 2185, June 2006, joint with Bernd Fitzenberger. (3) “The Erosion of Union Membership in Germany: Determinants, Densities, Decompositions,” IZA Discussion Paper 2193, July 2006, joint with Bernd Fitzenberger and Qingwei Wang. (4) “Equal Pay for Equal Work? On Union Power and the Structure of Wages in West Germany, 1985–1997,” translation of “Gleicher Lohn für gleiche Arbeit? Zum Zusammenhang zwischen Gewerkschaftsmitgliedschaft und Lohnstruktur in Westdeutschland 1985–1997,” Zeitschrift für Arbeitsmarkt-Forschung, 38 (2/3), 125-146, joint with Bernd Fitzenberger, 2005.
We focus on a quantitative assessment of rigid labor markets in an environment of stable monetary policy. We ask how wages and labor market shocks feed into the inflation process and derive monetary policy implications. Towards that aim, we structurally model matching frictions and rigid wages in line with an optimizing rationale in a New Keynesian closed economy DSGE model. We estimate the model using Bayesian techniques for German data from the late 1970s to present. Given the pre-euro heterogeneity in wage bargaining we take this as the first-best approximation at hand for modelling monetary policy in the presence of labor market frictions in the current European regime. In our framework, we find that labor market structure is of prime importance for the evolution of the business cycle, and for monetary policy in particular. Yet shocks originating in the labor market itself may contain only limited information for the conduct of stabilization policy. JEL - Klassifikation: J64 , E32 , C11 , E52
As of today, estimating interest rate reaction functions for the Euro Area is hampered by the short time span since the conduct of a single monetary policy. In this paper we circumvent the common use of aggregated data before 1999 by estimating interest rate reaction functions based on a panel including actual EMU Member States. We find that exploiting the cross-section dimen- sion of a multi-country panel and accounting for cross-country heterogeneity in advance of the single monetary policy pays off with regard to the estimated reaction functions' ability to describe actual interest rate dynamics. We retrieve a panel reaction function which is demonstrated to be a valuable tool for evaluating episodes of monetary policy since 1999. JEL - Klassifikation: E43 , E58 , C33
This paper investigates various theories explaining banks´ overbidding in the fixed rate tenders of the European Central Bank (ECB). Using auction data from both the Bundesbank and the ECB, we show that none of the theories can on its own explain the observed overbidding. This implies that the proposed new rules by the ECB, aimed at neutralizing interest rate expectations, would not eliminate overbidding if the rationing rule in the fixed rate tenders remains unchanged. JEL - Klassifikation: D44 , E32
Although stable money demand functions are crucial for the monetary model of the exchange rate, empirical research on exchange rates and money demand is more or less disconnected. This paper tries to fill the gap for the Euro/Dollar exchange rate. We investigate whether monetary disequilibria provided by the empirical literature on U.S. and European money demand functions contain useful information about exchange rate movements. Our results suggest that the empirical performance of the monetary exchange rate model improves when insights from the money demand literature are explicitly taken into account. JEL - Klassifikation: F31 , E41
The dynamic relationship between the Euro overnight rate, the ECB´s policy rate and the term spread
(2006)
This paper investigates how the dynamic adjustment of the European overnight rate Eonia to the term spread and the ECB’s policy rate has been affected by rate expectations and the operational framework of the ECB. In line with recent evidence found for the US and Japan, the reaction of the Eonia to the term spread is non-symmetric. Moreover, the response of the Eonia to the policy rate depends on both, the repo auction format and the position of the Eonia in the ECB’s interest rate corridor. JEL - Klassifikation: E43 , E52
Inflation and relative price variability in the Euro area : evidence from a panel threshold model
(2006)
In recent macroeconomic theory, relative price variability (RPV) generates the central distortions of inflation. This paper provides first evidence on the empirical relation between inflation and RPV in the euro area focusing on threshold effects of inflation. We ¯nd that expected inflation significantly increases RPV if inflation is either very low (below -1.38% p.a.) or very high (above 5.94% p.a.). In the intermediate regime, however, expected in°ation has no distorting effects which supports price stability as an outcome of optimal monetary policy. JEL classification: E31, C23
This paper employs individual bidding data to analyze the empirical performance of the longer term refinancing operations (LTROs) of the European Central Bank (ECB). We investigate how banks’ bidding behavior is related to a series of exogenous variables such as collateral costs, interest rate expectations, market volatility and to individual bank characteristics like country of origin, size, and experience. Panel regressions reveal that a bank’s bidding depends on bank characteristics. Yet, different bidding behavior generally does not translate into differences concerning bidder success. In contrast to the ECB’s main refinancing operations, we find evidence for the winner’s curse effect in LTROs. Our results indicate that LTROs do neither lead to market distortions nor to unfair auction outcomes. JEL classification: E52, D44
A distinguishing feature of the ECB’s monetary policy setup is the preannouncement of a minimum bid rate in its weekly repo auctions. However, whenever interest rates are expected to decline, the minimum bid rate is viewed as too high and banks refrain from bidding, severely impeding the ECB’s money market management. To shed more light on banks’ underbidding, we perform a panel analysis of the bidder behavior in the repo auctions of the Bundesbank where no minimum bid rate was set. Our results indicate that neither bank’s participation nor the submitted bid amount is significantly affected by an expected rate cut. This suggests that abandoning the minimum bid rate might increase the efficiency of the ECB’s money market management.
Despite a legal framework being in place for several years, the market share of qualified electronic signatures is disappointingly low. Mobile Signatures provide a new and promising opportunity for the deployment of an infrastructure for qualified electronic signatures. We that SIM-based signatures are the most secure and convenient solution. However, using the SIM-card as a secure signature creation device (SSCD) raises new challenges, because it would contain the user’s private key as well as the subscriber identification. Combining both functions in one card raises the question who will have the control over the keys and certificates. We propose a protocol called Certification on Demand (COD) that separates certification services from subscriber identification information and allows consumers to choose their appropriate certification services and service providers based on their needs. This infrastructure could be used to enable secure mobile brokerage services that can ommit the necessity of TAN lists and therefore allow a better integration of information and transaction services.
The tax codes in many countries allow for special tax advantages for investments in special retirement plans. Probably the most important advantage to these plans is that profits usually remain untaxed. This paper deals with the question, which assets are preferable in a taxdeferred account (TDA). Contrary to the conventional wisdom that one should prefer bonds in the TDA, it is shown that especially in early years, stocks can be the preferred asset to hold in the TDA for an investor maximizing final wealth, given a certain asset allocation. The higher the performance of stocks compared to bonds, the higher the tax burden put on stocks compared to bonds. Simultaneously, the longer the remaining investment horizon, the larger the relative outperformance of the optimal asset location strategy compared to the myopic strategy of locating bonds in the TDA. An algorithm is provided to determine the investment strategy that maximizes (expected) funds at the end of a given investment horizon when there is an analytical solution.
This paper analyzes the relation between demographic structure and real asset returns on treasury bills, bonds and stocks for the G7-countries (United States, Canada, Japan, Italy, France, the United Kingdom and Germany). A macroeconomic multifactor model is used to examine a variety of different demographic factors from 1951 to 2002. There was no robust relationship found between shocks in demographic variables and asset returns in the framework of these models, which suggests that Asset Meltdown is rather fiction than fact.
Both banks and open end real estate funds effectuate liquidity transformation in large amounts and high scales. Because of this similarity the latter should be analyzed using the same methodologies as usually applied for banks. We show that the work in the tradition of Diamond and Dybvig (1983), especially Allen and Gale (1998) and Diamond and Rajan (2001), provides an applicable theoretical framework. We used this as the basis for our model for open end real estate funds. We then examined the usefulness of the modeling structure in analyzing open end real estate funds. First, we could show that withdrawing of capital resulting in a run is not always inefficient. Instead, withdrawing can as well be referred to the situation where the low return of an open end fund unit in comparison to other opportunities makes, (partial) withdrawal viewed from the risk-sharing perspective optimal. Even with costly liquidation, this result will hold, though we will have deadweight losses in such a situation. Second, introducing a secondary market in our model does, not in general, resolve the problem of deadweight losses associated with foreclosure. If assets are sold during a run, we do not only have a transfer of value but it can also create an economic cost. Because funds are forced to liquidate the illiquid asset in order to fulfill their obligations, the price of the real estate asset is forced down making the crisis worse. Rather than providing insurance, such that investors receive a transfer in negative outcomes, the secondary market does the opposite. It provides a negative insurance instead. Third, our model proves that the open end structure provides a monitoring function which serves as an efficient instrument to discipline the funds management. Therefore, we argue that an open end structure can represent a more adequate solution to securitize real estate or other illiquid assets. Instead of transforming open end in closed end structures, fund runs should be accepted as a normal phenomenon to clear the market from funds with mismanagement.
Customer channel migration
(2006)
Customer Channel Migration deals with the active management of a customer's channel usage behavior with the aim to increase her profitability and lifetime. Hence, the dissertation answers two distict questions: on one hand, it investigates the impact of channel use on a customer's profitability and lifetime. On the other hand, it is researched how a customer's channel usage behavior can be influenced and managed. The cumulative dissertation consists of five articles: the first article describes the matching method and its application to marketing problems. The matching method is necessary to estimate the unbiased impact of channel use on a customer's profitability and lifetime. The second article describes the application of the matching method in order to determine the monetary implications of using the internet in the financial services industry. The third article investigates the impact of the internet use on a customer's lifetime. The forth and the fifth article of the dissertation both investigate the management of a customer's channel usage behavior. The forth article designs a scale to measure a customer's perceived channel value. The fifth article builds upon these findings and develops a model which explains a customer's channel usage behavior. Based on these insights this article derives some managerial implications on how to manage customers between different channels.
One of the most acute problems in the world today is provision of a respectable living for the elderly. Today the process of aging population (as a result of a declined birth rate and increased life expectancy) has touched all countries of the world - developed countries as well as countries like Russia. Consequently, reforming traditional pension systems to deal with the changing situation has become an important issue around the world. These reforms typically center on the implementation of some form of funding of future pension benefits. This also holds for Russia, where in 1995 pension reform legislation introduced the so-called “accumulation pension”. In this context, this article will deal with the issues concerning the establishment of mutual funds, legal aspects of their operating and their investing opportunities. There will be carried out a comparative analysis of mutual funds with the other forms of public investments, namely: Common Funds of Bank Management, Voucher Investment Funds and Joint-stock Investment Funds.
Open-end real estate funds are of particular importance in the German bankdominated financial system. However, recently the German open-end fund industry came under severe distress which triggered a broad discussion of required regulatory interventions. This paper gives a detailed description of the institutional structure of these funds and of the events that led to the crisis. Furthermore, it applies recent banking theory to open-end real estate funds in order to understand why the open-end fund structure was so prevalent in Germany. Based on these theoretical insights we evaluate the various policy recommendation that have been raised.
One of the dangers of harmonisation and unification processes taking place within the framework of the EU is that they may result in the codification of the lowest common denominator. This is precisely what is threatening to happen in respect of assignment. Referring the transfer of receivables by way of assignment to the law of the assignor’s residence, as article 13 of the Proposal does, would be opting for the most conservative solution and would for many Member States be a step backward rather than forward. A conflict rule referring assignment to the law of the assignor's residence is too rigid to do justice to the dynamic nature of assignments in cross-border transactions and it is unjustly one-sided. It offers no real advantages when compared to other conflict rules; it even has serious disadvantages which make the conflict rule unsuitable for efficient assignment-based cross-border transactions. It is not unconceivable that this conflict rule would even be contrary to the fundamental freedoms of the ECTreaty. The Community legislators in particular should be careful not to needlessly adopt rules which create insurmountable obstacles for cross-border business where choice-of-law by the parties would perfectly do. Community legislation has a special responsibility to create a smooth legal environment for single market transactions.
This paper investigates whether the stock market reacts to unsolicited ratings for a sample of S&P rated firms from January 1996 to December 2005. We first analyze the stock market reaction associated with the assignment of an initial unsolicited rating. We find evidence that this reaction is negative and particularly accentuated for Japanese firms. A comparison between S&P’s initial unsolicited ratings with previously published ratings of two Japanese rating agencies for a Japanese subsample shows that ratings assigned by S&P are systematically worse. Further, we find that the stock market does not react to the transition from an unsolicited to a solicited rating. Comparison of the upgrades in the sample with a matched-sample of upgrades of solicited ratings reveals that the price reactions are no different. In addition, abnormal returns are worse for firms whose rating remained unchanged after the solicitation compared to those for upgraded firms. Finally, we find that Japanese firms are less likely to receive an upgrade. Our findings suggest that unsolicited ratings are biased downwards, that the capital market therefore expects upgrades of formerly unsolicited ratings and punishes firms whose ratings remain unchanged. All these effects seem to be more pronounced for Japanese firms.
In this paper, we propose a model of credit rating agencies using the global games framework to incorporate information and coordination problems. We introduce a refined utility function of a credit rating agency that, additional to reputation maximization, also embeds aspects of competition and feedback effects of the rating on the rated firms. Apart from hinting at explanations for several hypotheses with regard to agencies' optimal rating assessments, our model suggests that the existence of rating agencies may decrease the incidence of multiple equilibria. If investors have discretionary power over the precision of their private information, we can prove that public rating announcements and private information collection are complements rather than substitutes in order to secure uniqueness of equilibrium. In this respect, rating agencies may spark off a virtuous circle that increases the efficiency of the market outcome.
Using data of US domestic mergers and acquisitions transactions, this paper shows that acquirers have a preference for geographically proximate target companies. We measure the ‘home bias’ against benchmark portfolios of hypothetical deals where the potential targets consist of firms of similar size in the same four-digit SIC code that have been targets in other transactions at about the same time or firms that have been listed at a stock exchange at that time. There is a strong and consistent home bias for M&A transactions in the US, which is significantly declining during the observation period, i.e. between 1990 and 2004. At the same time, the average distances between target and acquirer increase articulately. The home bias is stronger for small and relatively opaque target companies suggesting that local information is the decisive factor in explaining the results. Acquirers that diversify into new business lines also display a stronger preference for more proximate targets. With an event study we show that investors react relatively better to proximate acquisitions than to distant ones. That reaction is more important and becomes significant in times when the average distance between target and acquirer becomes larger, but never becomes economically significant. We interpret this as evidence for the familiarity hypothesis brought forward by Huberman (2001): Acquirers know about the existence of proximate targets and are more likely to merge with them without necessarily being better informed. However, when comparing the best and the worst deals, we are able to show a dramatic difference in distances and home bias: The most successful deals display on average a much stronger home bias and distinctively smaller distance between acquirer and target than the least successful deals. Proximity in M&A transactions therefore is a necessary but not sufficient condition for success. The paper contributes to the growing literature on the role of distance in financial decisions.
The paper examines challenges in effectively implementing the lender-of-last-resort function in the EU single financial market. Briefly highlighted are features of the EU financial landscape that could increase EU systemic financial risk. Briefly described are the complexities of the EU’s financial-stability architecture for preventing and resolving financial problems, including lender-of-last-resort operations. The paper examines how the lender-of-last-resort function might materialize during a systemic financial disturbance affecting more than one EU Member State. The paper identifies challenges and possible ways of enhancing the effectiveness of the existing architecture.
Location-based services (LBS) are services that position your mobile phone to provide some context-based service for you. Some of these services – called ‘location tracking’ applications - need frequent updates of the current position to decide whether a service should be initiated. Thus, internet-based systems will continuously collect and process the location in relationship to a personal context of an identified customer. This paper will present the concept of location as part of a person’s identity. I will conceptualize location in information systems and relate it to concepts like privacy, geographical information systems and surveillance. The talk will present how the knowledge of a person's private life and identity can be enhanced with data mining technologies on location profiles and movement patterns. Finally, some first concepts about protecting location information.
Mobile telephony and mobile internet are driving a new application paradigm: location-based services (LBS). Based on a person’s location and context, personalized applications can be deployed. Thus, internet-based systems will continuously collect and process the location in relationship to a personal context of an identified customer. One of the challenges in designing LBS infrastructures is the concurrent design for economic infrastructures and the preservation of privacy of the subjects whose location is tracked. This presentation will explain typical LBS scenarios, the resulting new privacy challenges and user requirements and raises economic questions about privacy-design. The topics will be connected to “mobile identity” to derive what particular identity management issues can be found in LBS.
In this paper, I examine the potential of mobile alerting services empowering investors to react quickly to critical market events. Therefore, an analysis of short-term (intraday) price effects is performed. I find abnormal returns to company announcements which are completed within a timeframe of minutes. To make use of these findings, these price effects are predicted using pre-defined external metrics and different estimation methodologies. Compared to previous research, the results provide support that artificial neural networks and multiple linear regression are good estimation models for forecasting price effects also on an intraday basis. As most of the price effect magnitude and effect delay can be estimated correctly, it is demonstrated how a suitable mobile alerting service combining a low level of user-intrusiveness and timely information supply can be designed.
Multiplayer games have become very popular in the PC market. Almost none of the current games are shipped without some support for multiplayer gaming. At the same time mobile devices are becoming more powerful and popularity of games on these platforms increases. However, there are almost no games that support multiplayer gaming despite the multiple options of these devices to connect with each other and build mobile ad hoc networks. Reasons for this lack of multiplayer support are the high diversity of mobile devices as well as the different protocols and their properties that these devices support. With “SmartBlaster” we developed a multiplayer game for several different platforms that is using several different channels (Bluetooth, IrDa, 802.11 and other networks supporting TCP/IP) to communicate between them.
Die vorliegende Analyse untersucht die Beschäftigungseffekte von Vermittlungsgutscheinen und Personal-Service-Agenturen mit Hilfe einer makroökonometrischen Evaluation. Neben einer mikroökonometrischen Evaluation, welche die Wirkungen auf individueller Ebene untersucht, kann eine makroökonometrische Analyse Aussagen über die gesamtwirtschaftlichen Effekte der Maßnahmen machen. Die strukturellen Multiplikatorwirkungen im makroökonomischen Kreislaufzusammenhang werden jedoch nicht berücksichtigt. Das ökonometrische Modell zur Analyse der beiden Maßnahmen basiert auf einer Matching-Funktion, die den Suchprozess von Firmen und von Arbeitern nach einem Beschäftigungsverhältnis abbildet. Die empirischen Analysen werden getrennt für Ost- und Westdeutschland sowie für die Strategietypen der Bundesagentur für Arbeit durchgeführt. Sie zeigen, dass die Ausgabe von Vermittlungsgutscheinen nur in „großstädtisch geprägten Bezirken vorwiegend in Westdeutschland mit hoher Arbeitslosigkeit“ (Strategietyp II) einen signifikant positiven Effekt auf den Suchprozess hat. Für die Personal-Service-Agenturen zeigen sich signifikant positive Effekte für Ost- als auch für Westdeutschland. Allerdings fehlt für eine abschließende Bewertung der Ergebnisse für die Personal- Service-Agenturen aufgrund der relativ geringen Teilnehmerzahl noch ein Vergleich mit mikroökonometrischen Analysen.
Serial correlation in dynamic panel data models with weakly exogenous regressor and fixed effects
(2005)
Our paper wants to present and compare two estimation methodologies for dynamic panel data models in the presence of serially correlated errors and weakly exogenous regressors. The ¯rst is the ¯rst di®erence GMM estimator as proposed by Arellano and Bond (1991) and the second is the transformed Maximum Likelihood Estimator as proposed by Hsiao, Pesaran, and Tahmiscioglu (2002). Thereby, we consider the ¯xed e®ects case and weakly exogenous regressors. The ¯nite sample properties of both estimation methodologies are analysed within a simulation experiment. Furthermore, we will present an empirical example to consider the performance of both estimators with real data. JEL Classification: C23, J64
In this paper we evaluate the employment effects of job creation schemes on the participating individuals in Germany. Job creation schemes are a major element of active labour market policy in Germany and are targeted at long-term unemployed and other hard-to-place individuals. Access to very informative administrative data of the Federal Employment Agency justifies the application of a matching estimator and allows to account for individual (group-specific) and regional effect heterogeneity. We extend previous studies in four directions. First, we are able to evaluate the effects on regular (unsubsidised) employment. Second, we observe the outcome of participants and non-participants for nearly three years after programme start and can therefore analyse mid- and long-term effects. Third, we test the sensitivity of the results with respect to various decisions which have to be made during implementation of the matching estimator, e.g. choosing the matching algorithm or estimating the propensity score. Finally, we check if a possible occurrence of 'unobserved heterogeneity' distorts our interpretation. The overall results are rather discouraging, since the employment effects are negative or insignificant for most of the analysed groups. One notable exception are long-term unemployed individuals who benefit from participation. Hence, one policy implication is to address programmes to this problem group more tightly. JEL Classification: J68, H43, C13
Job creation schemes (JCS) have been one important programme of active labour market policy in Germany aiming at the re-integration of hard-to-place unemployed individuals into regular employment. In ontrast to earlier evaluation studies of these programmes based on survey data, we use administrative data containing more than 11,000 participants for our analysis and hence, can take effect heterogeneity explicitly into account. We focus on effect heterogeneity caused by differences in the implementation of programmes (economic sector, types of support and implementing institutions). The results are rather discouraging and show that in general, JCS are unable to improve the re-integration chances of participants into regular employment.
Vocational training programmes have been the most important active labour market policy instrument in Germany in the last years. However, the still unsatisfying situation of the labour market has raised doubt on the efficiency of these programmes. In this paper, we analyse the effects of the participation in vocational training programmes on the duration of unemployment in Eastern Germany. Based on administrative data for the time between the October 1999 and December 2002 of the Federal Employment Administration, we apply a bivariate mixed proportional hazards model. By doing so, we are able to use the information of the timing of treatment as well as observable and unobservable influences to identify the treatment effects. The results show that a participation in vocational training prolongates the unemployment duration in Eastern Germany. Furthermore, the results suggest that locking-in effects are a serious problem of vocational training programmes. JEL Classification: J64, J24, I28, J68
The effects of vocational training programmes on the duration of unemployment in Eastern Germany
(2005)
Vocational training programmes have been the most important active labour market policy instrument in Germany in the last years. However, the still unsatisfying situation of the labour market has raised doubt on the efficiency of these programmes. In this paper, we analyse the effects of the participation in vocational training programmes on the duration of unemployment in Eastern Germany. Based on administrative data for the time between the October 1999 and December 2002 of the Federal Employment Administration, we apply a bivariate mixed proportional hazards model. By doing so, we are able to use the information of the timing of treatment as well as observable and unobservable influences to identify the treatment effects. The results show that a participation in vocational training prolongates the unemployment duration in Eastern Germany. Furthermore, the results suggest that locking-in effects are a serious problem of vocational training programmes. JEL Classification: J64, J24, I28, J68
This paper evaluates the effects of job creation schemes on the participating individuals in Germany. Since previous empirical studies of these measures have been based on relatively small datasets and focussed on East Germany, this is the first study which allows to draw policy-relevant conclusions. The very informative and exhaustive dataset at hand not only justifies the application of a matching estimator but also allows to take account of threefold heterogeneity. The recently developed multiple treatment framework is used to evaluate the effects with respect to regional, individual and programme heterogeneity. The results show considerable differences with respect to these sources of heterogeneity, but the overall finding is very clear. At the end of our observation period, that is two years after the start of the programmes, participants in job creation schemes have a significantly lower success probability on the labour market in comparison to matched non-participants.
This paper evaluates the effects of job creation schemes on the participating individuals in Germany. Since previous empirical studies of these measures have been based on relatively small datasets and focussed on East Germany, this is the first study which allows to draw policy-relevant conclusions. The very informative and exhaustive dataset at hand not only justifies the application of a matching estimator but also allows to take account of threefold heterogeneity. The recently developed multiple treatment framework is used to evaluate the effects with respect to regional, individual and programme heterogeneity. The results show considerable differences with respect to these sources of heterogeneity, but the overall finding is very clear. At the end of our observation period, that is two years after the start of the programmes, participants in job creation schemes have a significantly lower success probability on the labour market in comparison to matched non-participants. JEL Classification: H43, J64, J68, C13, C40
This paper investigates the macroeconomic effects of job creation schemes and vocational training on the matching processes in West Germany. The empirical analysis is based on regional data for local employment office districts for the period from 1999 to 2003. The empirical model relies on a dynamic version of a matching function augmented by ALMP. In order to obtain consistent estimates in the presence of a dynamic panel data model, a first-differences GMM estimator and a transformed maximum likelihood estimator are applied. Furthermore the paper considers the endogeneity problem of the policy measures. The results obtained from our estimates indicate that vocational training does not significantly affect the matching process and that job creation schemes have a negative effect. JEL Classification: C23, E24, H43, J64, J68
Most evaluation studies of active labour market policies (ALMP) focus on the microeconometric evaluation approach using individual data. However, as the microeconometric approach usually ignores impacts on the non-participants, it should be seen as a first step to a complete evaluation which has to be followed by an analysis on the macroeconomic level. As a starting point for our analysis we discuss the effects of ALMP in a theoretical labour market framework augmented by ALMP. We estimate the impacts of ALMP in Germany for the time period 1999-2001 with regional data of 175 labour office districts. Due to the high persistence of German labour market data the application of a dynamic model is crucial. Furthermore our analysis accounts especially for the inherent simultaneity problem of ALMP. For West Germany we find positive effects of vocational training and job creation schemes on the labour market situation, whereas the results for East Germany do not allow profound statements. JEL Classification: C33, E24, H43, J64, J68.