Exchange rate volatility and export performance: a cointegrated VAR approach

During the last decades Norwegian exporters have–despite various forms of exchange rate targeting–faced a rather volatile exchange rate which may have influenced their behaviour. Recently, the shift to inflation targeting and a freely floating exchange rate has brought about an even more volatile exchange rate. We examine the causal link between export performance and exchange rate volatility across different monetary policy regimes within the cointegrated Vector Autoregression (VAR) framework using the implied conditional variance from a Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model as a measure of volatility. Although treating the volatility measure as either a stationary or a nonstationary variable in the VAR, we are not able to find any evidence suggesting that export performance has been significantly affected by exchange rate uncertainty. We find, however, that volatility changes proxied by blip dummies related to the monetary policy change from a fixed to a managed floating exchange rate and the Asian financial crises during the 1990s enter significantly in a dynamic model for export growth–in which the level of relative prices and world market demand together with the level of exports constitute a significant cointegration relationship. A forecasting exercise on the dynamic model rejects the hypothesis that increased exchange rate volatility in the wake of inflation targeting in the monetary policy has had a significant impact on export performance.     

From necessities to imaginary worlds: Structural change,product quality and economic development

In this paper we explore how innovation and structural change affected economic development in the long run, by which we mean a period such as the one between the industrial revolution and the present. We separate the period since the industrial revolution into two sub periods, which we call ‘necessities’ and ‘imaginary worlds’ and focus on three trajectories, increasing productive efficiency, increasing output variety, and increasing output quality and differentiation. In the paper we show how a combination of the three trajectories gave rise to the transition between ‘necessities’ and ‘imaginary worlds’ and propose a mechanism of economic development which could have given rise to the type of economic system which we can observe today. To create growing output quality and differentiation higher competencies were required. These higher competencies required higher levels of education and demanded higher wages, which contributed to raise consumers' purchasing power. These phenomena, combined with the income effect of the creation of new sectors, generated the disposable income with which consumers could purchase the new, higher quality, non necessities, goods and services generated by innovation. In the paper we study the impact of several model parameters on the stability of the virtuous circle previously described.     

Gamified interactions: whether,when, and how games facilitate self–brand connections

Firms increasingly use games to interact with their customers. Yet, surprisingly little is known about whether, when, and how such “gamified” interactions engage consumers with a firm’s brand, thereby facilitating self–brand connections. Building on flow theory, we show that gamified interactions that are highly interactive and optimally challenging facilitate self–brand connections, because such games lead to emotional and cognitive brand engagement. A field study and three experiments across various product domains and game designs support our theory. We also identify conditions under which consumers do not become engaged with a brand, namely when firms restrict their decisional control either to voluntarily participate in the game (i.e., compulsory play) or to spend as much time as desired playing the game (i.e., time pressure). Our findings advance existing knowledge about the use of games in marketing and provide important implications for how marketers can harness their potential to build self–brand connections.     

PERSONALITY TRAITS AND THE PERCEPTION OF MACROECONOMIC INDICATORS: SURVEY EVIDENCE

I examine the determinants of both perceived inflation and unemployment in one single survey and include Big Five traits in the analysis. This is the first survey on this topic in Germany. My sample consists of 1771 students from different fields and levels. Using PhD students’ estimates as a reference, I create categories for underestimation and overestimation of both variables. Multinomial logit regressions show that females overestimate both variables. Education and news consumption reduce misestimation. A higher level of Neuroticism is related with a higher probability to overestimate unemployment. Overstating (understating) one indicator is associated with overstating (understating) the other.     

Carbon Taxes and Joint Implementation. An Applied General Equilibrium Analysis for Germany and India

Germany has committed itself toreducing its carbon emissions by 25 percent in2005 as compared to 1990 emission levels. Toachieve this goal, the government has recentlylaunched an environmental tax reform whichentails a continuous increase in energy taxesin conjunction with a revenue-neutral cut innon-wage labor costs. This policy is supposedto yield a double dividend, reducing both, theproblem of global warming and high unemploymentrates. In addition to domestic actions,international treaties on climate protectionallow for the supplementary use of flexibleinstruments to exploit cheaper emissionreduction possibilities elsewhere. One concreteoption for Germany would be to enter jointimplementation (JI) with developing countriessuch as India where Germany pays emissionreduction abroad rather than meeting itsreduction target solely by domestic action. Inthis paper, we investigate whether anenvironmental tax reform cum JI providesemployment and overall efficiency gains ascompared to an environmental tax reformstand-alone. We address this question in theframework of a large-scale general equilibriummodel for Germany and India where Germany mayundertake JI with the Indian electricitysector. Our main finding is that JI offsetslargely the adverse effects of carbon emissionconstraints on the German economy. JIsignificantly lowers the level of carbon taxesand thus reduces the total costs of abatementas well as negative effects on labor demand. Inaddition, JI triggers direct investment demandfor energy efficient power plants produced inGermany. This provides positive employmenteffects and additional income for Germany. ForIndia, joint implementation equips itselectricity industry with scarce capital goodsleading to a more efficient power productionwith lower electricity prices for the economyand substantial welfare gains.     

A Theory of Menu Federalism: Decentralization by Political Agreement

This paper analyzes agreements between governments that determine the division of policy-making power between central and regional governments. Our analysis demonstrates that initial circumstances and political risks affect the degree of centralization that will be adopted, and that asymmetric forms of federalism are often consequences of ongoing negotiations between regional and central governments over the assignment of policy-making authority. We analyze three settings where gains from constitutional exchange may exist: (i) the under-centralized state, (ii) the over-centralized state, and (iii) the constitutional convention. In each case, an asymmetric form of federalism is the predicted outcome, although the degree of asymmetry differs according to starting point. Modern and historical examples are used to illustrate the relevance of our analysis.     

Interbank Relationships and the Credit Channel in Germany

A crucial condition for the existence of a credit channel through bank loansis that monetary policy should be able to change bank loan supply. This papercontributes to the discussion on this issue by presenting empirical evidence fromdynamic panel estimations based on a dataset that comprises individual balancesheet information on all German banks. It shows that the average bank reduces itslending more sharply in reaction to a restrictive monetary policy measure the lowerits ratio of short-term interbank deposits to total assets. A dependence on its size canonly be found if explicitly controlled for this dominating effect. Overall, the evidenceis compatible with the existence of a credit channel but the results indicate that it is weakened by the network structures that exist in the German banking system.     

Diagnostic Tests of Cross‐section Independence for Limited Dependent Variable Panel Data Models*

This article considers the problem of testing for cross‐section independence in limited dependent variable panel data models. It derives a Lagrangian multiplier (LM) test and shows that in terms of generalized residuals of Gourieroux et al. (1987) it reduces to the LM test of Breusch and Pagan (1980) . Because of the tendency of the LM test to over‐reject in panels with large N (cross‐section dimension), we also consider the application of the cross‐section dependence test (CD) proposed by Pesaran (2004) . In Monte Carlo experiments it emerges that for most combinations of N and T the CD test is correctly sized, whereas the validity of the LM test requires T (time series dimension) to be quite large relative to N. We illustrate the cross‐sectional independence tests with an application to a probit panel data model of roll‐call votes in the US Congress and find that the votes display a significant degree of cross‐section dependence.     

CO2 Speicherung in Deutschland: Eine Brückentechnologie als Klimalösung?

The technology for CO₂ capture, transport and storage (CCTS) in the power plant and industrial sector are considered as an important component in a portfolio of technologies for CO₂ reduction. However, delayed or canceled demonstration projects show that the cost of the capture unit, the necessary pipeline infrastructure and the scarce storage potential in geological formations restrict the CCTS potential. In addition, growing public resistance could lead a further reduction of the CO₂ abatement potential. In this paper the contribution of the CCTS technology for CO₂ reduction in the energy and industrial sectors in Germany is calculated using the model CCTSMOD. It turns out that the application of CCTS is economically interesting for selected industrial sectors under CO₂ certificate prices of 50 €/t and for the power sector under certificate prices of 75 €/t. Because of the limited storage potential, lack of alternative mitigation options and low cost of the deposition, a predominant use of technology in the steel and cement sector is recommended.