Causal relations between inflation and inflation uncertainty—Cross sectional evidence in favour of the Friedman-Ball hypothesis

We test for causality between inflation and its associated uncertainty by means of both in-sample and out-of-sample modelling. Our findings indicate that the impact of inflation on inflation uncertainty is more pronounced than the reverse causal effect.     

Increasing the credibility of the twin birth instrument

Twin births are an important instrument for the endogenous fertility decision. However, twin births are not exogenous either as dizygotic twinning is correlated with maternal characteristics. Following the medical literature, we assume that monozygotic twins are exogenous, and construct a new instrument, which corrects for the selection although monozygotic twinning is usually unobserved in survey and administrative datasets. Using administrative data from Sweden, we show that the usual twin instrument is related to observed and unobserved determinants of economic outcomes, while our new instrument is not. In our applications we find that the classical twin instrument underestimates the negative effect of fertility on labor income. This finding is in line with the observation that high earners are more likely to delay childbearing and hence have a higher risk to get dizygotic twins.     

Do Rising Top Incomes Spur Economic Growth? Evidence From OECD Countries Based on a Novel Identification Strategy

We investigate the causal relationship between the growth rate of top income shares and economic growth in 12 OECD economies for the period 1950–2010. To analyze patterns of short- and long-run causality, we build upon recent advances in structural-vector autoregressive modeling of non-Gaussian systems. This framework allows us to discriminate between rival transmission channels by means of dependence tests, since independent shocks are unique for a particular causation pattern. We consider the share of income accruing to the top 1 percent (1), to the next 9 percent (9), and to the top decile (10). While structural models display considerable heterogeneity across countries, mean group and pooled results strongly favor a specific transmission pattern. In particular, 1 has a long-run positive impact on economic development. This result, which is also confirmed by identified impulse-response functions, is particularly evident for the post-1980 period.     

Risk forecasting in (T)GARCH models with uncorrelated dependent innovations

(G)ARCH-type models are frequently used for the dynamic modelling and forecasting of risk attached to speculative asset returns. While the symmetric and conditionally Gaussian GARCH model has been generalized in a manifold of directions, model innovations are mostly presumed to stem from an underlying IID distribution. For a cross section of 18 stock market indices, we notice that (threshold) (T)GARCH-implied model innovations are likely at odds with the commonly held IID assumption. Two complementary strategies are pursued to evaluate the conditional distributions of consecutive TGARCH innovations, a non-parametric approach and a class of standardized copula distributions. Modelling higher order dependence patterns is found to improve standard TGARCH-implied conditional value-at-risk and expected shortfall out-of-sample forecasts that rely on the notion of IID innovations.     

Der US-Dollar als Leitwährung – alternativlos?

The importance of the industrialized countries – including the USA – for world production has been declining for a long time. By contrast, China’s share in particular has increased significantly. Nevertheless, the US dollar has largely fulfilled the criteria for a leading currency function so far, even if this is increasingly criticised due to the protectionist rhetoric of the US. Accordingly, central banks worldwide hold their reserves primarily in US dollars and transactions are largely conducted in US currency. This position brings great advantages–such as making it easier for the US to monitor and enforce sanctions, among other things–and therefore great incentives for the US to maintain its position as the leading currency. Whether other currencies, especially the renminbi, will be able to fulfil the lead currency function is questionable. Similarly, it does not seem realistic that market participants will be able to engage in a global currency.     

The gender wage gap in Austria: eppur si muove!

We examine the change of the gender wage gap in Austria between 2002 and 2007 using Juhn et al. (Workers and their wages, AEI Press, Washington DC, pp 107–143, 1991) decomposition. We analyze data from Austrian tax records which we merge with social security records and Austrian micro-censuses of the years 2002 and 2007. We find that the gender wage gap declined from 21 % in 2002 to 18 % in 2007. The main determinant of this decline is the relative improvement of women’s unobserved characteristics. The decline of the gender wage gap is also due to women having attained more formal education and to a convergence of men’s and women’s returns to education. Women’s improved educational attainments were partly offset by a shift in the demand for skilled workers that disadvantaged unskilled workers, most of whom are women, resulting in a moderate decrease of the gender pay gap over these years. Robustness checks confirm our results.     

To converge or not converge: unit labor cost inflation in the Euro area

In this article, convergence of unit labor cost (ULC) inflation within the Euro area is tested by means of panel unit root tests. To account for the small cross-sectional dimension, cross-sectional dependence of model innovations and time varying volatility, wild bootstrap critical values are employed for inference. Convergence is tested separately for pre- and post-Euro introduction subperiods. Moreover, we identify particular economies that are characterized by diverging ULC inflation after the introduction of the Euro. While the German economy is characterized by ULC inflation which is persistently below the sample average, Spain and Italy have suffered sustained losses of price competitiveness against their trading partners within the Euro area. ULC inflation in Finland, France, and Ireland can be classified as neutral with respect to relative competitive positions.     

Why do people save in cash? Distrust,memories of banking crises,weak institutions and dollarization

The paper analyzes why households hold sizeable shares of their assets in cash at home rather than at banks – a phenomenon that is widespread in many economies but for which information is scarce. Using survey data from ten Central, Eastern and Southeastern European countries, I document the relevance of this behavior and show that cash preferences cannot be fully explained by whether people are banked or unbanked. The analysis reveals that a lack of trust in banks, memories of past banking crises and weak tax enforcement are important factors. Moreover, cash preferences are stronger in dollarized economies where a “safe” foreign currency serves as a store of value.     

Wage bargaining,productivity growth and long-run industry structure

This paper studies the innovation dynamics of an oligopolistic industry. The firms compete not only in the output market but also by engaging in productivity enhancing innovations to reduce labor costs. Rent sharing may generate productivity dependent wage differentials. Productivity growth creates intertemporal spillover effects, which affect the incentives for innovation at subsequent dates. Over time the industry equilibrium approaches a steady state. The paper characterizes the evolution of the industry's innovation behavior and its market structure on the adjustment path.