The Refined Best Reply Correspondence and Backward Induction

Fixed points of the (most) refined best reply correspondence, introduced in Balkenborg et al. (2013), in the agent normal form of extensive form games with perfect recall have a remarkable property. They induce fixed points of the same correspondence in the agent normal form of every subgame. Furthermore, in a well‐defined sense, fixed points of this correspondence refine even trembling hand perfect equilibria, while, on the other hand, reasonable equilibria that are not weak perfect Bayesian equilibria are fixed points of this correspondence.     

Another Approach to Data Envelopment Analysis in Noisy Environments: DEA+

In this paper a DEA+ labeled approach for efficiency measurement in the stochastic case is presented along with a consistency proof and some preliminary evidence illustrating the small sample performance. DEA+ can basically handle multi-output technologies like standard DEA but allows to filter noise, that might have disturbed production and unlike a related approach does not require panel data. Consistency of DEA+ relies on the assumption of i.i.d. distributed and bounded noise and requires radial efficiency measurement. First Monte Carlo experiments show that a DEA+ based average inefficiency estimator performs well for samples of size n=100 in one-output, two-input settings compared to the corresponding Stochastic Frontier Estimator. Sensitivity of DEA+ performance with respect to parametrization of noise is weak, but higher noise contribution requires much larger sample size for satisfactory results.     

The response of long-term interest rates to news about monetary policy actions: Empirical evidence for the U.S. and Germany

The Response of Long-Term Interest Rates to News about Monetary Policy Actions. Empirical Evidence for the U.S. and Germany. — The authors reestimate the expectations theory of the term structure focusing on the question of how monetary policy actions indicated by changes in the very short rate affect long-term interest rates. Their main point is that the expectations hypothesis implies that very long rates should only react to unanticipated changes of the very short rate. In contrast to cointegration tests of expectations theory, this implication only requires rational expectations but not stationary risk premia. Therefore, its empirical test sheds new light on the importance of expectations theory for the determinants of the term structure of interest rates.     

Model risk and capital reserves

We propose a procedure to take model risk into account in the computation of capital reserves. This addresses the need to make the allocation of capital reserves to positions in given markets dependent on the extent to which reliable models are available. The proposed procedure can be used in combination with any of the standard risk measures, such as Value-at-Risk and expected shortfall.     

Die Erwartungen der Wirtschaft für 2018

The German economy experiences a boom period. The leading economic research institutes upgrade their economic balance for 2017 to a growth rate exceeding two per cent and their forecasts for 2018 are equally positive. This optimism is widespread despite the UK’s exit from the EU, the protectionist tendencies and the difficult coalition-building in Germany. Technological innovations look ahead: manufacturing industry and trade sector have to react to digital transformation — i.e. electro-mobility, autonomous driving, the use of artificial intelligence and the spread of online trading.     

Does Economics and Business Education Wash Away Moral Judgment Competence?

In view of the numerous accounting and corporate scandals associated with various forms of moral misconduct and the recent financial crisis, economics and business programs are often accused of actively contributing to the amoral decision making of their graduates. It is argued that theories and ideas taught at universities engender moral misbehavior among some managers, as these theories mainly focus on the primacy of profit-maximization and typically neglect the ethical and moral dimensions of decision making. To investigate this criticism, two overlapping effects must be disentangled: the self-selection effect and the treatment effect. Drawing on the concept of moral judgment competence, we empirically examine this question with a sample of 1773 bachelor’s and 501 master’s students. Our results reveal that there is neither a self-selection nor a treatment effect for economics and business studies. Moreover, our results indicate that—regardless of the course of studies—university education in general does not seem to foster students’ moral development.     

Institutional wage-setting,labour demand and labour supply: Causal estimates from a South African pseudo-panel

Unemployment in South Africa has multiple causes. This article uses a district pseudo-panel to estimate the elasticity of labour demand, labour supply and unemployment with respect to wages. We assess whether hiring decisions are more sensitive to increases in wages of low-paid workers than high-paid workers, and whether wage growth prompts entry into the labour market. These channels combine to result in the positive causal effect of wage growth on unemployment. The research investigates whether these effects are dominated by districts in which unionisation rates are high and employment is concentrated in large firms. Wage growth of middle-paid to highly paid workers – as opposed to low-paid workers – reduces local labour demand and raises local unemployment. Bargaining arrangements correspond closely to the spatial wage distribution; in turn, a large part of the impact that wage growth has on labour market outcomes is determined by these wage-setting institutions.     

Monetary disequilibria and the euro/dollar exchange rate

Although stable money demand functions are crucial for the monetary model of the exchange rate, empirical research on exchange rates and money demand is more or less disconnected. This paper tries to fill the gap for the euro/dollar exchange rate. We investigate whether monetary disequilibria provided by the empirical literature on US and European money demand functions contain useful information about exchange rate movements. Our results suggest that the empirical performance of the monetary exchange rate model improves when insights from the money demand literature are explicitly taken into account.     

Measures of risk associated to regulations compliance: a laboratory experiment on the use of common-pool resources

The present research examined the influence of different risk perspectives by the use of four different target persons (who could be affected: abstract person, self, specific person, and specific others) and of four different questionnaire answer formats (rating, open percentage, open, and closed frequency) on risk assessments. It was assumed that subjects use two different systems in terms of probabilistic reasoning: a distributional approach for abstract targets leading to higher risk estimates and a singular approach for specific targets leading to lower risk assessments. According to unrealistic optimism (UO) research (showing higher risk assessments for an abstract person than for self), the assumption was that risk assessments for a specific (named) target lead to lower risk assessments compared to an abstract target. Further, common quantitative answer formats for assessing risk were compared to explore differences in risk estimates. The hypotheses were tested using data of a sample of 512 students from a Bavarian university. The frequently confirmed finding of UO could be replicated with both rating scale and open frequency scale, which appeared to be more sensitive compared to the other used scales. However, UO disappeared when the comparison target was specific. Further, risk assessments for an abstract target were highest within every answer format and lowest for specific targets. Furthermore, results revealed that the type of answer format has a moderating effect on the extent of the influence of risk perspective on risk assessments. Overall, this study gives evidence that both the chosen scale and the risk perspective strongly influence risk assessments. Results aim to contribute to the research fields of quantitative assessment of perceived risk. They suggest that probabilistic reasoning in regard to risk not only underlies motivational or cognitive ego-defensive mechanisms but is rather presumably caused by the use of different systems of inferential strategies.     

Inflation and growth: new evidence from a dynamic panel threshold analysis

We introduce a dynamic panel threshold model to estimate inflation thresholds for long-term economic growth. Advancing on Hansen (J Econom 93:345–368, 1999) and Caner and Hansen (Econom Theory 20:813–843, 2004), our model allows the estimation of threshold effects with panel data even in case of endogenous regressors. The empirical analysis is based on a large panel-dataset including 124 countries. For industrialized countries, our results confirm the inflation targets of about 2% set by many central banks. For non-industrialized countries, we estimate that inflation rates exceeding 17% are associated with lower economic growth. Below this threshold, however, the correlation remains insignificant.