INTEREST RATE PASS‐THROUGH: A META‐ANALYSIS OF THE LITERATURE

The interest rate pass‐through describes how changes in a reference rate (the monetary policy, money market or T‐bill rate) transmit to bank lending rates. We review the empirical literature on the interest rate pass‐through and systematize it by means of meta‐analysis and meta‐regressions. Using the pass‐through to corporate lending rates as the baseline, we find systematically lower estimated pass‐through coefficients in studies that focus on the pass‐through to consumer lending rates and rates on long‐term loans. Also studies estimating the pass‐through by averaging all lending rates into one category report a lower pass‐through. Importantly, the interest rate pass‐through is significantly influenced by the country's macro‐financial environment. In economies with deepening stock markets, the estimated pass‐through strengthens significantly. Interestingly, after the global financial crisis, the pass‐through weakened across the board, including because of growing trade openness and supply chain financing, rising volatility and stock market turnovers, as well as declining central bank independence. Inflation targeting frameworks, if in place, helped diminish this pass‐through weakening.     

Investment Incentives and Electricity Spot Market Competition

In this paper we analyze investment decisions of strategic firms that anticipate competition on many consecutive spot markets with fluctuating (and possibly uncertain) demand. We study how the degree of spot market competition affects investment incentives and welfare and provide an application of the model to electricity market data. We show that more competitive spot market prices strictly decrease investment incentives of strategic firms. The effect can be severe enough to even offset the beneficial impact of more competitive spot markets on social welfare. Our results obtain with and without free entry. The analysis demonstrates that investment incentives necessarily have to be taken into account for a serious assessment of electricity spot market design.     

Subject pool effects in price competition games: students versus professionals

Questioning the external validity of experiments that rely on student participants is an evergreen theme in experimental economics. Yet, there is ambiguous evidence of potential subject-pool bias. We add to the subject-pool debate by enlarging the set of experiments for which subject-pool differences have been studied. In a duopolistic Bertrand market setup designed to test for collusive behaviour, we test two treatments. The first is a baseline treatment, where participants cannot communicate with each other, while the second is a communication treatment in which participants are allowed to communicate. Each treatment is first conducted with students and then replicated with professionals. Our results show that student subjects and professionals differ significantly. However, these differences manifest themselves in quantitative rather than qualitative terms. Professionals do collude more, but their behavioural difference between treatments is similar. Students are thus a valid surrogate, if the research question is qualitative, but results generated by student samples should be handled with caution, if quantitative differences matter.     

Job autonomy and education-skill matches of immigrant workers in Germany

This letter examines the determinants of occupational autonomy and education-skill matches of immigrant workers in Germany. Their jobs are characterized by much lower autonomy than those of comparable natives and the immigrant penalty decreases only minimally over time. In contrast to wages, the difference between immigrants from advanced and non-advanced countries is small. But immigrants from advanced countries are much more likely to have a job matching their qualification. The probability of a match does not increase over time for highly educated immigrants, but does for others. Highly educated immigrant women have an additional disadvantage. In some industries low autonomy and skill downgrading of immigrant workers are particularly common.     

Real exchange rates, preferences, and incomplete markets: evidence, 1961–2001

Abstract.  Many international macroeconomic models link the real exchange rate to a ratio of marginal utilities. We examine this link empirically, allowing the marginal utility of consumption to depend on government expenditure, real money balances, or external habit. We also consider two environments with incomplete asset markets; one with exogenously missing markets but an endogenous discount rate that anchors the distribution of wealth and one with endogenous market segmentation. Although none of these satisfies theoretical and over‐identifying restrictions for every country, utility with external habit persistence provides the best match with real exchange rates for OECD countries between 1961 and 2001. JEL classification: F41     

Should I stay or should I go? A latent threshold approach to large‐scale mixture innovation models

We propose a straightforward algorithm to estimate large Bayesian time‐varying parameter vector autoregressions with mixture innovation components for each coefficient in the system. The computational burden becomes manageable by approximating the mixture indicators driving the time‐variation in the coefficients with a latent threshold process that depends on the absolute size of the shocks. Two applications illustrate the merits of our approach. First, we forecast the US term structure of interest rates and demonstrate forecast gains relative to benchmark models. Second, we apply our approach to US macroeconomic data and find significant evidence for time‐varying effects of a monetary policy tightening.     

Trade union cross‐border alliances within MNCs: disentangling union dynamics at the local,national and international levels

This study identifies three types of workplace union strategy in the development of cross‐border relations within North American and European multinational companies: defensive isolation, risk reduction and proactive solidarity. Qualitative case studies of MNCs with operations in Canada and Mexico indicate that the nature and intensity of participation in cross‐border trade union alliances are shaped by the union dynamic at the local, national and international levels. A combination of greater workplace union power resources, notably discursive capacity, and of strong supportive approach of the national union, notably dedicated resources and space for bottom‐up initiatives, contributes to proactive solidarity strategies towards international union networks. The absence of these factors is associated with risk reduction and defensive isolation strategies.     

On optimal scarcity prices

This article contributes to the debate of missing money (compare Joskow(2007a)). This debate has seriously questioned the desirability of limiting scarcity prices in markets with fluctuating demand by emphasizing their potentially negative impact on firms' investment decisions in the long run. A prominent example are recently liberalized electricity markets, where competition authorities have imposed price caps³ or adopted other measures to mitigate high scarcity prices.The impact of reduced scarcity prices in the long run still is only incompletely explored. We thus analyze investment of firms in base load and peak load technologies in a market with fluctuating demand under imperfect competition. We show that an appropriately chosen limitation of scarcity prices is not only beneficial in the short run but also in the long run. It leads to a strict increase of investment in peak load technologies, leaving investment in base load technologies unchanged. Furthermore, we characterize the optimal limit on scarcity prices.