Gesamtwirtschaftliche Effekte fiskalischer Unsicherheit

Fiscal uncertainty has potentially far-reaching effects on investment activity and the business cycle. This paper constructs an indicator for fiscal uncertainty in Germany based on (a) the dispersion of professional forecasts for Germany’s budget balance and (b) newspaper coverage frequency of fiscal uncertainty. We find that an exogenous increase in fiscal uncertainty affects the business cycle by significantly lowering investment activity in machinery and equipment. Fiscal rules that increase the degree of fiscal steadiness may contribute to a reduction in fiscal uncertainty and thereby stimulate investment.     

Quantifying the importance of different contagion channels as sources of systemic risk

Journal of Economic Interaction and Coordination - A framework that allows computing contagion effects from both direct exposure contagion and overlapping portfolios is presented. The effects of...     

Environmental Taxation and Induced Structural Change in an Open Economy: The Role of Market Structure

Abstract. Studies of structural change induced by environmental taxation usually proceed in a perfect-competition framework and typically find structural change to be quite moderate under realistic emission reduction scenarios. By observing that some of the industries affected are likely to operate under imperfect rather than perfect competition, additional mechanisms emerge which may amplify structural change beyond the extent identified as yet. Especially, changes in economies of scale may arise which weaken or strengthen the competitive position of industries over and above the initial cost effect. Using a computable general equilibrium model for Germany to examine the effects of a unilaterally introduced carbon tax, we find that induced structural change is more pronounced under imperfect competition than under perfect competition. At the macroeconomic level, we find that aggregate losses in economies of scale are larger than aggregate gains, implying that the total costs of environmental regulation are higher under imperfect competition than under perfect competition.     

Aktienanlage für Lebensversicherer unter Solvency II

Life insurance companies are among the largest institutional investors. As part of their investment policy they are subject to special legal requirements. In particular the calculation of the solvency capital that has to be deposited for the market risk has changed under Solvency II. A widely spread thesis on this topic is that investments in equity have become unprofitable for life insurers due to solvency capital requirements – compared to previous periods of high equity ratios of temporally over 25%. Therefore insurers might have dropped their average stock quotas to below 5%.The intention of the present study is to analyze whether the capital requirements for the equity investments under Solvency II are a hurdle to achieve a reasonable profitability or – opposite to that – whether the equity investments are a suitable investment to provide an acceptable return on assets. For this purpose the solvency capital requirements of the equity investment under Solvency I considering the BaFin stress test are compared with the new solvency capital requirements under Solvency II including the symmetric adjustment factor (SA). Furthermore the diversification effects are taken into account; they are analyzed on the basis of the SFCR reports of the life insurance companies first published in 2017. As a result the risk capital requirements for equity investments under Solvency II have been reduced to more than 50% compared to prior solvency requirements and depending on the observed scenarios. Whilst Solvency I required an underlying risk capital of 31% at the end of 2017, Solvency II requires only 13.56% following the standard model and after aggregating the risk-mitigating effects in the group scenario. This effect results in a surplus of 7.2%, considering industry-standard capital costs for the underlying solvency capital and an average stock market return of 8% per annum. Consequently the equity investment is suitable to increase the profitability of the investments of German life insurance companies especially in the environment of low interest rates in the capital market for fixed income titles.     

A multivariate stochastic volatility model with applications in the foreign exchange market

The main objective of this paper is to study the behavior of a daily calibration of a multivariate stochastic volatility model, namely the principal component stochastic volatility (PCSV) model, to market data of plain vanilla options on foreign exchange rates. To this end, a general setting describing a foreign exchange market is introduced. Two adequate models—PCSV and a simpler multivariate Heston model—are adjusted to suit the foreign exchange setting. For both models, characteristic functions are found which allow for an almost instantaneous calculation of option prices using Fourier techniques. After presenting the general calibration procedure, both the multivariate Heston and the PCSV models are calibrated to a time series of option data on three exchange rates—USD-SEK, EUR-SEK, and EUR-USD—spanning more than 11 years. Finally, the benefits of the PCSV model which we find to be superior to the multivariate extension of the Heston model in replicating the dynamics of these options are highlighted.     

Comparative precautionary saving under higher-order risk and recursive utility

Measuring and comparing the precautionary saving motive rest almost exclusively on the expected utility framework, and only focus on income risk or coefficients of the Arrow–Pratt type. We generalize the standard approach by characterizing comparative precautionary saving under recursive utility for increases in income risk and increases in risk on the saving return, including higher-order risk effects. We express the comparisons in terms of precautionary premia. In addition, we define a new class of preference coefficients, and derive the associated conditions to predict a stronger precautionary motive. The coefficients provide a detailed picture of the preferences sustaining precautionary saving and could be useful in applications.     

Disentangling Treatment Effects of Active Labor Market Policies: The Role of Labor Force Status Sequences

This paper estimates treatment effects of two active labor market policies – a training program and a wage subsidy scheme – on participants' employment probabilities. The analysis is based on unique data from the 18th wave of the Polish Labor Force Survey containing detailed and extensive individual labor force status histories. We discuss two variants of an exact covariate matching procedure adapted to the specific nature of the data. Our study confirms and reinforces a point raised in recent research [Heckman, J.J., Smith, J.A. The Pre-programme Earnings Dip and the Determinants of Participation in a Social Programme: Implications for Simple Programme Evaluation Strategies. The Economic Journal 1999; 109; 313-348., Heckman, J.J., Smith, J.A. The Determinants of Participation in a Social Program: Evidence from a Prototypical Job Training Program. Journal of Labor Economics 2004; 22; 243-298.], that pre-treatment labor force status dynamics play a decisive role in determining program participation. We implement a conditional difference-in-differences estimator of treatment effects based on these individual trinomial sequences of pre-treatment labor market status. The estimator employs a “moving window” technique that nicely controls for changes in the macroeconomic environment over time. Our findings suggest that training raises individual employment probability, while wage subsidies display negative treatment effects for participants in the Polish case.     

How Preussag Became TUI: A Clinical Study of Institutional Blockholders and Restructuring in Europe

Between 1997 and 2004, Preussag, a diversified German conglomerate of "old economy" businesses, transformed itself into TUI, a company focused almost entirely on tourism and logistics. We analyze how Preussag executed this change, and how the change contributed to Preussag's underperformance in the stock market. We find that only the divestitures created value, that the strategy to invest in tourism destroyed value, and that the acquisition premiums Preussag paid were mostly unjustified. The case shows how divestiture programs increase the liquid resources available to management and casts doubt on the positive governance role of institutional blockholders.