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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.