Labor Selection,Turnover Costs,and Optimal Monetary Policy

We study optimal monetary policy and welfare properties of a dynamic stochastic general equilibrium (DSGE) model with a labor selection process, labor turnover costs, and Nash bargained wages. We show that our model implies inefficiencies that cannot be offset in a standard wage bargaining regime. We also show that the inefficiencies rise with the magnitude of firing costs. As a result, in the optimal Ramsey plan, the optimal inflation volatility deviates from zero and is an increasing function of firing costs.     

The High‐Frequency Response of the EUR‐USD Exchange Rate to ECB Communication

We investigate the impact of the European Central Bank's monetary policy communication during the press conference held after the monthly Governing Council meeting on the EUR‐USD exchange rate in high frequency. Based on the method of Content Analysis, we construct communication indicators for the introductory statement and find that communication with respect to future price developments is most relevant. In response to statements about increasing risks to price stability the EUR appreciates on impact. To the contrary, communication about economic activity and monetary aggregates does not generate significant exchange rate reactions.     

Wage Structures in the Private and Public Sectors in West Germany

In this paper, we investigate pay structures in the private and public sectors for West Germany. We commence by describing some basic features of the public sector. We use micro-data from the German Socio-Economic Panel for the years 1984–93 to analyse developments and differences in public and private sector wage distributions for both males and females. We break wages down into different education groups and age-groups, and use regressions to construct conditional wage differentials. Our results differ in many aspects from findings for the UK. For instance, we find that although mean wages are higher in the public sector for both males and females, conditional wages are higher in the private sector for all education groups for males, but higher in the public sector for females. JEL classification: J3.     

PRICE COMPETITION IN U.S. BREWING*

This study utilizes a brand‐level dataset that captures a unique natural experiment, a 100% increase in the excise tax, to evaluate different pricing models in the U.S. beer industry. To assess the plausibility of different models, the increase in marginal cost resulting from the tax increase is exploited: observed prices in the post‐increase period are compared to the prices that should be observed under various pricing models. Three types of models are analyzed: Bertrand‐Nash, leadership, and collusion. Results indicate that extreme cases of collusion can be confidently ruled out while several models may explain the observed prices equally well.     

Procyclicality of U.S. Bank Leverage

In light of the current debate about the link between accounting and financial stability, we investigate the determinants of procyclical book leverage for U.S. commercial and savings banks. We find that total asset growth and GDP growth are both positively related to book leverage growth. Our evidence is not consistent with the notion that fair value accounting contributes to procyclical leverage or that historical cost accounting reduces procyclicality. Overall, the business model of banks is more important for procyclical leverage than accounting or regulatory risk weights.     

International Differences in the Cost of Equity Capital: Do Legal Institutions and Securities Regulation Matter?

This paper examines international differences in firms' cost of equity capital across 40 countries. We analyze whether the effectiveness of a country's legal institutions and securities regulation is systematically related to cross‐country differences in the cost of equity capital. We employ several models to estimate firms' implied or ex ante cost of capital. Our results support the conclusion that firms from countries with more extensive disclosure requirements, stronger securities regulation, and stricter enforcement mechanisms have a significantly lower cost of capital. We perform extensive sensitivity analyses to assess the potentially confounding influence of countries' long‐run growth differences on our results. We also show that, consistent with theory, the cost of capital effects of strong legal institutions become substantially smaller and, in many cases, statistically insignificant as capital markets become globally more integrated.     

Public Funding of Political Parties

This paper studies the typical European system for public funding of parties, where parties receive public funds depending on their vote share. These funds finance electoral campaigns. It is shown that such a funding system increases policy convergence. The effect is larger, the more funding depends on vote shares. If the parties have access to other means of campaign finance given in a lump‐sum way, the effect is moderated.     

Fiscal Policy and Occupational Employment Dynamics

We document substantial heterogeneity in occupational employment dynamics in response to government spending shocks in the United States. Employment rises most strongly in service, sales, and office (“pink-collar”) occupations. By contrast, employment in blue-collar occupations is hardly affected by fiscal policy. We provide evidence that occupation-specific changes in labor demand are key for understanding these findings. We develop a business-cycle model that explains the heterogeneous occupational employment dynamics as a consequence of composition effects due to heterogeneous employment changes across industries and occupation-specific within-industry employment shifts due to differences in the short-run substitutability between labor and capital services across occupations.