Germany in crisis: the unification challenge,macroeconomic policy shocks and traditions,and EMU

Conventional wisdom blames Germany's ongoing economic and fiscal crisis on the unification shock of the early 1990s and structural problems in labour markets. Challenging this view, this paper offers a fresh assessment that focuses on macroeconomic demand management. It is shown that Germany's fiscal crisis cannot be attributed to unification per se; it arose as a consequence of ill‐guided macroeconomic policies pursued in response to that event. Many structural problems that popped up along the way were mere symptoms of persistent macroeconomic mismanagement and protracted domestic demand stagnation. Arguably, systematically ill‐guided macroeconomic policies of this type are potent enough to wreck any real world economy, no matter how flexible it may be. Because Germany provided the blueprint for Europe's stability‐oriented macroeconomic policy regime, it comes as no surprise that a peculiar repeat of certain symptoms that started to arise in Germany a decade ago may now be observed across the euro area—protracted domestic demand weakness and inflation stickiness because of ‘tax‐push inflation’ in particular.     

Survivorship bias in performance studies

Recent evidence suggests that past mutual fund performance predictsfuture performance. We analyze the relationship between volatilityand returns in a sample that is truncated by survivorship andshow that this relationship gives rise to the appearance ofpredictability. We present some numerical examples to show thatthis effect can be strong enough to account for the strengthof the evidence favoring return predictability.     

A new dividend forecasting procedure that rejects bubbles in asset prices: the case of 1929's stock crash

We develop a new procedure to forecast future cash flows froma financial asset and then use the present value of our cashflow forecasts to calculate the asset's fundamental price. Asan example, we construct a nonlinear ARMA-ARCH-Artificial NeuralNetwork model to obtain out-of-sample dividend forecasts for1920 and beyond, using only in-sample dividend data. The presentvalue of our forecasted dividends yield fundamental prices thatreproduce the magnitude, timing, and time-series behavior ofthe boom and crash in 1929 stock prices. We therefore rejectthe popular claim that the 1920s stock market contained a bubble.     

Technological and geographical knowledge spillover in the German empire 1877–1918

We use a newly developed data set of 39,343 high‐value patents granted between 1877 and 1918 to demonstrate that technological progress during German industrialization occurred in at least four different technological waves. We distinguish the railway wave (1877–86), the dye wave (1887–96), the chemical wave (1897–1902), and the wave of electrical engineering (1903–18). Evidence is presented that inter‐industry knowledge spillovers between technologically, economically, and geographically related industries were a major source for innovative activities during German industrialization. We also show that technological change affected the geographical distribution of innovative regions. Using an index of technologically revealed comparative advantage we find that regions that increased their innovativeness during the waves of technological progress revealed special strength in technological clusters like electrical engineering, mechanical engineering, or chemicals.