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Is wider access to stockholding opportunities related to reduced wealth inequality, given that it creates challenges for small and less sophisticated investors? Counterfactual analysis is used to study the influence of changes in the US stockholder pool and economic environment, on the distribution of stock and net household wealth during a period of dramatic increase in stock market participation. We uncover substantial shifts in stockholder pool composition, favoring smaller holdings during the 1990s upswing but larger holdings around the burst of the Internet bubble. We find no evidence that widening access to stocks was associated with reduced net wealth inequality.
Following Foucault's analysis of German Neoliberalism (Ordoliberalism) and his thesis of ambiguity, this paper introduces a two-level distinction between individual and regulatory ethics. In particular, its aim is to reassess the importance of individual ethics in the conceptual framework of Ordoliberalism. The individual ethics of Ordoliberalism is based on the heritage of Judeo-Christian values and the Kantian individual liberty and responsibility. The regulatory or formal-institutional ethics of Ordoliberalism which has so far received most attention on the contrary refers to the institutional and legal framework of a socio-economic order. By distinguishing these two dimensions of ethics incorporated in German Neoliberalism, it is feasible to distinguish different varieties of neoliberalism and to link Ordoliberalism to modern economic ethics.
Variations and disparities between von Hayek and Ordoliberalism can be detected on diverse levels: 1. philosophy of science; 2. setting dissimilar priorities; 3. social philosophy; 4. genesis of norms; and, 5. notion of freedom. Therefore, it is possible to make an important distinction within neoliberalism itself, which contains at least two factions: von Hayek’s evolutionary liberalism, and German Ordoliberalism. The following essay not only takes the neoliberal separation of different varieties as granted; it proceeds further. It focuses on the topic of justice and elaborates the (slightly) differing conceptions of justice within neoliberalism. Thus, the specific contribution of the paper is that it adds a sixth dimension of differences (which is highly interconnected with the differing conceptions of genesis of norms). In this paper, I emphasize the (often neglected) subtle differences between von Hayek, Eucken, Röpke, and Rüstow, with special emphasis on their theories of justice. In this regard, I focus not only on Eucken and von Hayek; in addition, I include the concepts of justice developed by Rüstow and Röpke, as well, and, in consequence, broaden the perspective incorporating Eucken as a member of the Freiburg School of Law and Economics, and Rüstow and Röpke as representatives of Ordoliberalism in the wider sense. The paper tackles these topics in three steps. After briefly examining and discussing the existing literature and providing a literature overview on the decade-long debate on von Hayek and Ordoliberalism, I then describe von Hayek’s conception of commutative justice; particularly, justice of rules and procedures (rather than end-state justice). Then, I examine Eucken’s, Rüstow’s, and Röpke’s theories of justice, which consist of a mixture of commutative and distributive justice. Then, I draw a comparison between the ideas of justice developed by Eucken, Röpke, Rüstow, and von Hayek. The essay ends with a summary of my main findings.
4 June 2013 marked the formal launch of the third generation of the Equator Principles (EP III) and the tenth anniversary of the EPs – enough reasons for evaluating the EPs initiative from an economic ethics and business ethics perspective. This chapter deals with the following questions: What has been achieved so far by the EPs? Which reform steps need to be adopted to further strengthen the EPs framework? Can the EPs be regarded as a role model in the field of sustainable finance and CSR? The first part explains the term EPs and introduces the keywords related to the EPs framework. The second part summarises the main characteristics of the newly-released third generation of the EPs. The third part critically evaluates EP III from an economic ethical and business ethics perspective. The chapter concludes with a summary of the main findings.
Dem Druck standhalten
(2013)
We develop a dynamic network model with heterogenous banks which undertake optimizing portfolio decisions subject to liquidity and capital constraints and trade in the interbank market whose equilibrium is governed by a tatonnement process. Due to the micro-funded structure of the decisional process as well as the iterative dynamic adjustment taking place in the market, the links in the network structures are endogenous and evolve dynamically. We use the model to assess the diffusion of systemic risk (measured as default probability), the contribution of each bank to it as well as the evolution of the network in response to financial shocks and across different prudential policy regimes.
We introduce a new measure of systemic risk, the change in the conditional joint probability of default, which assesses the effects of the interdependence in the financial system on the general default risk of sovereign debtors. We apply our measure to examine the fragility of the European financial system during the ongoing sovereign debt crisis. Our analysis documents an increase in systemic risk contributions in the euro area during the post-Lehman global recession and especially after the beginning of the euro area sovereign debt crisis. We also find a considerable potential for cascade effects from small to large euro area sovereigns. When we investigate the effect of sovereign default on the European Union banking system, we find that bigger banks, banks with riskier activities, with poor asset quality, and funding and liquidity constraints tend to be more vulnerable to a sovereign default. Surprisingly, an increase in leverage does not seem to influence systemic vulnerability.
We outline a procedure for consistent estimation of marginal and joint default risk in the euro area financial system. We interpret the latter risk as the intrinsic financial system fragility and derive several systemic fragility indicators for euro area banks and sovereigns, based on CDS prices. Our analysis documents that although the fragility of the euro area banking system had started to deteriorate before Lehman Brothers' file for bankruptcy, investors did not expect the crisis to affect euro area sovereigns' solvency until September 2008. Since then, and especially after November 2009, joint sovereign default risk has outpaced the rise of systemic risk within the banking system.
We develop a dynamic network model with heterogenous banks which undertake optimizing portfolio decisions subject to liquidity and capital constraints and trade in the interbank market whose equilibrium is governed by a tatonnement process. Due to the micro-funded structure of the decisional process as well as the iterative dynamic adjustment taking place in the market, the links in the network structures are endogenous and evolve dynamically. We use the model to assess the diffusion of systemic risk, the contribution of each bank to it as well as the evolution of the network in response to financial shocks and across different prudential policy regimes.
This paper presents a theory that explains why it is beneficial for banks to engage in circular lending activities on the interbank market. Using a simple network structure, it shows that if there is a non-zero bailout probability, banks can significantly increase the expected repayment of uninsured creditors by entering into cyclical liabilities on the interbank market before investing in loan portfolios. Therefore, banks are better able to attract funds from uninsured creditors. Our results show that implicit government guarantees incentivize banks to have large interbank exposures, to be highly interconnected, and to invest in highly correlated, risky portfolios. This can serve as an explanation for the observed high interconnectedness between banks and their investment behavior in the run-up to the subprime mortgage crisis.
This paper investigates the accuracy of point and density forecasts of four DSGE models for inflation, output growth and the federal funds rate. Model parameters are estimated and forecasts are derived successively from historical U.S. data vintages synchronized with the Fed’s Greenbook projections. Point forecasts of some models are of similar accuracy as the forecasts of nonstructural large dataset methods. Despite their common underlying New Keynesian modeling philosophy, forecasts of different DSGE models turn out to be quite distinct. Weighted forecasts are more precise than forecasts from individual models. The accuracy of a simple average of DSGE model forecasts is comparable to Greenbook projections for medium term horizons. Comparing density forecasts of DSGE models with the actual distribution of observations shows that the models overestimate uncertainty around point forecasts.
After initial temporary measures in support of Greece prooved insufficient to end the sovereign debt crisis, extensive countermeasures have ensued. The heads of state of the euro group have agreed to permanent support mechanims over the course of the past two years. In addition, the European Central Bank (ECB) has become involved in the assistance program. The article provides an overview of the various support mechanisms installed and cautions against the connected legal problems.
In its decision of December 13, 2011, the Constitutional Court of the state of North Rhine-Westphalia ruled that a State Court of Auditors is granted by the constitution a broad scope of powers not only to control the immediate state administration but also entities outside the direct state administration, as far as they exercise financial responsibility for the state. This ruling may have serious implications for the capital guarantees extended by EU Member States to the newly established institutions on the European level, as for instance the European Stability Mechanism (ESM).
The latest appointment to the ECB's Executive Board initiated a political dispute between the European Parliament and the Euro Group on the question of representation of females on the Executive Board and the Governing Council of the ECB. The dispute has raised awareness to the fact that a culture of equality and equal opportunity should be built from the ground up. A long term plan helping talented women to emerge and be prepared to take increasing responsibilities is necessary to make sure that there is a growing pool of qualified female candidates.
Financing asset growth
(2012)
We document the existence of a debt anomaly that is in addition to the asset growth anomaly: for a given asset growth rate, firms that issue more debt, as well as firms that retire more debt, have lower stock returns in the 12 months starting 6 months after the calendar year of asset growth. Exploring the reasons for debt issuance, we find that managers of firms for which analyst expectations are more over-optimistic, which suffer from declining investment profitability, and whose earnings-price ratios are relatively high are inclined to rely more heavily on debt financing. On the other hand, firms that retire more debt for a given asset growth rate tend to have improving profitability but to be over-priced. We also find that the financing decision is influenced by the prior debt ratio, the asset growth rate, profitability, and CEO pay sensitivity. We interpret our results in terms of managerial incentives, signaling, and market timing.
The idea of appointing a non-national as Central Bank Governor remains surprisingly controversial. Nevertheless, given the skills required by the Governor in order to manage what no doubt are increasingly complex institutions, considering non-nationals makes good sense for at least two reasons. First, increasing the pool of candidates to include those with broader skills and backgrounds makes it easier to find a suitable person for the job. Second, non-nationals are less likely to be beholden to domestic pressure groups and could help better insulate the central bank from political pressures.
Großer Beifall
(2012)
Wie kann das Projekt gemeinsame Währung seine Glaubwürdigkeit wiederherstellen? Otmar Issing argumentiert, dass eine gemeinsame Währung ohne politische Union nur mit dem No-bail-out Prinzip funktionieren kann. Er warnt gleichzeitig davor, die politische Union nur als Mittel zur Krisenbewältigung voranzutreiben.