Is there an equilibrating relationship between house prices and replacement cost? Empirical evidence from Berlin

It is a feature of competitive markets with forward-looking participants that a good’s benefit and its production cost are equalized in equilibrium and that no resources are wasted during the adjustment process. For housing markets, there is mixed evidence whether they meet this standard of allocative efficiency. Based on a unique data set with rich information on prices and cost, we examine the market for single-family houses in Germany’s capital Berlin. At the aggregate market level, we find that prices and cost tend to equalize in the long run. Short-run adjustment appears to be sufficiently fast and properly anticipated to prevent systematic excess profit opportunities. At the cross sectional level of individual houses, we find support that resources are allocated efficiently between different market segments. Taken together, our results provide sufficient evidence that the market in Berlin is efficient.     

Local inference for locally stationary time series based on the empirical spectral measure

The time varying empirical spectral measure plays a major role in the treatment of inference problems for locally stationary processes. The properties of the empirical spectral measure and related statistics are studied — both when its index function is fixed or when dependent on the sample size. In particular we prove a general central limit theorem. Several applications and examples are given including semiparametric Whittle estimation, local least squares estimation and spectral density estimation.     

CES Production Functions and Economic Growth

We examine inconsistencies and controversies related to the use of CES production functions in growth models. First, we show that not all variants of CES functions commonly used are consistently specified. Second, using a simple growth model, we find that a higher elasticity of substitution leads to a higher steady state and makes the emergence of permanent growth more probable. It is also pointed out that the effect of a higher elasticity of substitution on the speed of convergence depends on the relative scarcity of the factors of production. Finally, we discuss possible explanations of variations in the elasticity of substitution.
JEL classification: O 41; O 11     

How to manage tropical forests more sustainably: The case of Indonesia

Although there is a rationale for a more conservative management of the remaining tropical forests, policy-makers in the tropical countries tend to be reluctant to implement appropriate policy measures, because they fear the short-run economic costs of environmental protection. Taking Indonesia as an example, the following article outlines how it is possible to protect tropical forests more effectively without necessarily foregoing economic gains. This study is part of the Kiel Institute's research project “International and National Economic Policy Measures to Reduce the Emission of Greenhouse Gases by Protection of Tropical Forests” financed under grant II/67 310 by Volkswagen-Stiftung. The author wishes to acknowledge helpful comments received from Rainer Schweickert und Manfred Wiebelt.     

Investor Rationality and House Price Bubbles: Berlin and the German Reunification

Abstract. We analyze the behavior of investors in the Berlin rental apartment house market over the years 1980–2004. Using constant‐quality multipliers (price–rent ratios), we reject the hypothesis that multipliers in the market were set in a rational manner. Supported by narrative evidence, we conjecture that investors misjudged the economic effects of the German reunification. To examine this, we employ a stylized structural economic model and analyze the effects of shocks on rational multipliers. It seems that investors confused the reunification with a permanent supply side shock to the economy. By basing their investment decisions on this misjudgement, investors behaved irrationally, but in a very uncertain and unprecedented environment.     

Application of Best Practice Tips in manual dishwashing in Germany and Spain

Investigations on the consumer behaviour of manual dishwashing have shown that there is a large variety of ways of how to wash up by hand, and the corresponding resource consumption is affected accordingly. In order to reduce resource consumption in manual dishwashing while achieving an acceptably good cleaning result, Best Practice Tips have been established (published in Fuss et al.) on the basis of laboratory experiments and the knowledge of everyday behaviour. This study is aimed at verifying the potential to save resources in real life when consumers are applying Best Practice Tips for manual dishwashing. A 4‐week in‐house study was run in two European countries, and data of the manual dishwashing behaviour were acquired before and after training on the Best Practice Tips. The results of both periods were compared with each other and between the countries. The test participants in Germany needed approximately 30% less water and 40% less energy, on average, in the period in which they applied the Best Practice Tips; in Spain, nearly 50% less water and 60% less energy for dishwashing in the period after the training. It has to be taken into consideration, however, that individual savings are very different due to specific living conditions, household sizes, practices in dishwashing and more or less prejudice against the Best Practice Tips.     

Can austerity be self-defeating?

With European governments cutting back on spending, many are asking whether this could make matters worse. In the UK for instance, recent OECD estimates suggest that “austerity” will lead to another recession, which in turn may lead to a higher debt-to-GDP ratio than before. As the debate heats up, the following two articles attempt to provide some cool economic logic.