How Much Did Oil Market Developments Contribute to the 2009 Recession in Germany?

In this paper, we use a structural vector autoregressive model to study the effects of oil market developments on the German economy. We find that higher oil prices are always associated with a decline in private consumption expenditures, but the response of gross domestic product (GDP) crucially depends on the underlying shock. While a disruption in oil supply provokes a recession, positive world demand shocks prompt a temporary increase in exports and investment, which initially outweigh the cutback on consumption. In a counterfactual analysis, we show that the world demand shocks that led to the 2007/2008 oil price rise triggered a delayed 0.8 percent decrease in German GDP in 2009, and therefore notably contributed to the recession of that year.     

Hayek and the Great Depression of 1929: Did he really change his mind?

The aim of this research is to establish whether, and if so in what way, Hayek changed his mind about the Great Depression of 1929.The work is divided into two parts. In the first part, I present the ‘early’ Hayek of the 1930s. Hayek was the great rival of Keynes. Both explained the Great Depression, applying opposing business cycle theories. For Keynes, the crisis was caused by an excess of saving over investment; for Hayek, on the contrary, by an excess of investment over saving. In the early 1930s, Röpke attempted a synthesis, positing that a recession due to overinvestment can degenerate, as in 1929, into a depression caused by oversaving. Hayek examined and rejected Röpke's theory. In the second part, I present the ‘later’ Hayek of the 1970s. After years of silence and solitude, Hayek was unexpectedly awarded the Nobel Memorial Prize in Economics, precisely for the contribution he made in the 1930s to the theory of the business cycle. Hayek returned to his pursuit of the ghost of Keynes, debated with his friend and rival Friedman, re-examined Röpke's special case and, according to Haberler, changed his mind. In my conclusion, I attempt to resolve the dilemma.     

Bank distress and firms’ investment during the Great Recession - evidence from Ireland

This article investigates the impact of bank distress on firms’ performance using unique data during the Great Recession for Ireland. The results show that bank distress, measured as banks’ credit default swap spreads (CDS), has negatively and statistically significantly affected firms’ investment expenditures. Interestingly, firms with access to alternative sources of external finance are not impacted by bank distress. The results are robust to accounting for external finance dependence, demand and trade sensitivities, which affect firm performance and the demand for credit.     

Sluggish US employment recovery after the Great Recession: Cyclical or structural factors?

This paper aims at investigating the causes of the observed departure of employment path from the GDP movements occurred in US in the late of 2008 onwards. Starting from a production function approach, and assuming that the TFP growth is explained by variables linked to the business cycle, we are able to formulate an extended version of Okun’s law based on cyclical factors. Out-of-sample forecasting for the period 2008 onward shows that predicted US employment is on average 1.7% above the observed one, meaning that this gap cannot be attributed to identified cyclical factors.     

Macroeconomic Policies for Slovenia in the “Great Recession”

The paper analyzes the effects of different reactions of fiscal (and to some extent monetary) policies to the Great Recession in Slovenia. We use the model SLOPOL8.1, an econometric model of the Slovenian economy, to simulate the effects of the global crisis under the assumption of no-policy reactions, i.e. assuming that macroeconomic policies are conducted without attempting to deal with the effects of the recession. Moreover, we investigate whether (and if so, how) fiscal policy can reduce or even annihilate the macroeconomic effects of the recession. It turns out that in order to achieve reasonable rates of growth and of unemployment, a highly expansionary design of fiscal policies is required, which is neither realistic nor sustainable. There are strong trade-offs between countercyclical fiscal policies and the requirements of fiscal solvency. Acceptable fiscal policies are mildly countercyclical and are not able to shelter the Slovenian economy from the negative effects of a slump like that occurring during the Great Recession.     

Is households’ risk attitude robust to different experimental payoffs?

We compared risk attitudes among rural people in Tanzania and Kenya using an experimental design where payoffs were defined and quantified in maize and milk production. About 42% of the sample revealed different risk attitude between the two payoff types. The difference was mainly explained by household livelihood strategy, geographical location and ethnicity. Hence, appropriate pay-off metrics differ across contexts and different metrics may provide noncomparable results that does not reflect intrinsic risk attitude.     

How economic crises damage potential output – Evidence from the Great Recession

Economic crises lead to lower potential output (PO) estimates, but little is known about which components of PO are revised. Our paper answers the questions of how much, how fast, and how persistently estimates of the capital stock, of trend labor, and of trend total factor productivity are revised downwards after major economic crises. It shows that revisions to different components of PO contributed equally to the substantial overall decline in estimated PO levels. Revisions of trend labor are predominantly driven by revisions of the NAWRU. The heterogeneity of revisions across EU countries after the Great Recession is large, suggesting that different policies are needed to bring countries back to their previous growth paths.     

Do Plants Decrease Pollution Reduction Efforts During a Recession? Evidence from Upstate New York Chemical Plants During the US Great Recession

US communities often experience economic hardship with plant or business closings contributing to high unemployment rates. In this circumstance, communities and local governments may prioritize economic recovery over environmental improvement, thereby weakening community and government pressure against polluting plants. In an attempt to explore the concern, this study examines the impact of local economic downturn on nearby chemical plants’ toxic release reduction behavior. A total of 351 plants in Upstate New York and their toxic release inventory data were analyzed for 5 years (2006–2010). The results show plants’ toxic release reduction efforts were reduced when unemployment and plant closing rates were high. Therefore, the findings highlight a possible limitation to regulatory approaches that rely on public pressure to motivate better environmental performance.     

It ain’t over till it’s over: A global perspective on the Great Moderation-Great Recession interconnection

A large-scale Factor-Augmented Vector Autoregressive (FAVAR) model of the global economy is used to investigate the determinants of the Great Moderation and the transition to the Great Recession (1986–2010). Beside the global-economy perspective, the model presents the novel feature of a broad range of included financial variables and risk factor measures. The results point to various mechanisms related to the global monetary policy stance (Great Deviation), financial institutions’ risk-taking behaviour (Great Leveraging) and global imbalances (savings glut), determining aggregate fluctuations. Finally, an out-of-sample forecasting exercise provides evidence against the ‘end of the Great Moderation’ view, showing that the timing, though not the dimension of the Great Recession episode (2008–2010), was predictable on the basis of the same macroeconomic mechanisms at work over the two previous decades.     

US household real net worth through the Great Recession and beyond: Have we recovered?

Household data adjusted for inflation show that net worth is still below its pre-Great Recession levels, unlike aggregate Federal Reserve data. Poorer and younger households both lost and recovered more net worth percentage-wise. Financial assets have recovered more than non-financial assets.     

Women’s Employment and Childcare Choices in Spain Through The Great Recession

The Great Recession (2008–13) changed patterns in women’s employment and the use of formal and informal external childcare among mothers of young children in Spain. This paper analyzes these changes using an analytical strategy that takes into account interdependencies across the outcomes under study. The results show that the economic crisis has resulted in interesting changes in the use of external childcare across mothers’ and fathers’ employment status; for example, as men’s unemployment increased, the use of informal non-parental childcare declined, which might be related to (unobserved) changes in fathers’ involvement in childcare during the recession. These results further indicate the need for policies that improve access to formal childcare, as well as policies that provide men and women with employment stability.     

Do retirement planning strategies alter the effect of time preference on retirement wealth?

An individual’s willingness to accumulate retirement wealth is influenced by their preference for intertemporal consumption. People with a strong preference for current consumption (high personal discount rate) may choose to save less and face the risk of decreased retirement preparedness. A negative relation between a high personal discount rate and retirement wealth may be reduced when individuals engage in some form of retirement planning. Using the National Longitudinal Survey of Youth, we provide evidence that respondents with a high personal discount rate accumulated 37% less retirement wealth, on average, between 2004 and 2008, when compared with respondents with a low personal discount rate. However, when retirement planning strategies were included in the model, there was no statistical difference in retirement wealth between people with high and low personal discount rates. The retirement planning strategies included calculating a retirement income need, hiring a financial planner for retirement or engaging in both of these activities.     

Did the pattern of aggregate employment growth change in the euro area in the late 1990s?

This paper examines whether the pattern of growth in euro area employment seen in the period 1997 to 2001 differs from that recorded in the past and what could be the reasons. First, a standard employment equation is estimated for the euro area as a whole. This shows that the lagged impact of both output growth and real labour cost growth, together with a productivity trend and employment ‘inertia’, can account for most of the employment developments between 1970 and the early 1990s. Conversely, these traditional determinants can only explain part of the employment development seen in recent years (1997 to 2001). Second, the paper shows sound evidence of a structural break in the aggregate employment equation in the late 1990s. Third, the paper provides some tentative explanations for this change in aggregate employment developments, using in particular country panels of institutional variables and of active labour market policies but also cross-sectional analyses. Among the relevant factors likely to have contributed to rising aggregate employment in recent years are changes in the sectoral composition of euro area employment, the strong development of part-time jobs, lower labour tax rates and possibly less stringent employment protection legislation and greater subsidies to private employment.     

Is the Allais paradox due to appeal of certainty or aversion to zero?

Experimental Economics - We provide a novel but intuitive explanation for expected utility violations found in the Allais paradox: individuals are commonly averse to receiving nothing. We call this...     

Great moderation or “Will o’ the Wisp”? A time–frequency decomposition of GDP for the US and UK

In this paper the relationship between the growth of real GDP components at different cycle lengths is explored in the frequency domain using discrete wavelet analysis. This analysis is done for both the US and the UK using quarterly data, and the results reveal interesting differences between the two countries. One of the key findings is that the “great moderation” shows up only at certain frequencies, and not in all components of real GDP. A second result is that the great moderation appears to have shifted cyclical power from shorter and business cycles to long cycles, which has important implications for both policy formulation and the probability of less frequent but more severe economic crises. We use these results to explain why the incidence of the great moderation has been so ephemeral across GDP components, countries and time periods. This also explains why it has been so hard to detect periods of moderation (or otherwise) reliably in the aggregate data.     

Who cares about the day after tomorrow? Pension issues when households are myopic or time inconsistent

Pension economics has traditionally guided pension policy with the help of formal models based on individuals who think in a life‐cycle context with perfect foresight, full information, and in a time‐consistent manner. Associated macro models were mostly based on a single country. This paper sheds light on several aspects of pension economics when these assumptions do not hold using—to our knowledge—the first multi‐country model of procrastinating households. Our focus is on the interaction between the share of procrastinators in a country, the speed and extent of population aging, and the size of an existing PAYG‐DB pension system. Starting from the insight that procrastination reduces the volume of savings, we focus on three questions that are particularly relevant for the quickly aging Asian economies: What are the consequences for the balance between pay‐as‐you‐go and fully funded pension systems? Where will retirement savings be invested in a globally linked world with very different pension systems and demographics? How large are global spillover effects of pension reforms in one region for the other regions in the world?