Nationale Geldsch?pfung zersetzt den Euroraum

The Eurosystem has been operating in crisis mode for more than four years now. Massive quantitative and qualitative easing in its monetary policy stance are the visible marks of its response to the turbulence in the financial sector. This policy aims primarily at maintaining financial stability in the euro area by providing vast liquidity support to commercial banks that are operating in nationally segmented banking systems. The sovereign debt crises in some member countries further exacerbate the segmentation problem along country borders. As a side effect, cross-border capital flows are substituted by money market operations by the national central banks. The latter are engaging more and more often in substantial balance-of-payments financing, and financial risks are shifted from investors to European taxpayers via the Eurosystem. Symptomatically, this shows up in exploding TARGET2 positions in the national central banks’ balance sheets. The longer this process continues, the stronger the centrifugal forces become that ultimately might burst the single currency. A solution requires a euro area-wide regulatory approach for the financial sector. Next to a uniform scheme for banking regulation, supervision and resolution, we recommend the comprehensive introduction of contingent convertible bonds (CoCos) as a major refinancing source for the banking industry. As this proposal cannot be introduced overnight, national and European banking resolution funds are necessary in the short run. The latter do not rescue banks, but they kick in as soon as a bank’s equity is depleted in order to wind down failing banks in a systemically prudent way.     

Global Navigation Satellite System based tolling: state-of-the-art

Road pricing or road user charging may be understood as an economic concept regarding direct charges applied for using roads. Different pricing paradigms may be distinguished mainly refering to pricing of congested, non-expandable urban networks as well as pricing of expandable, uncongested (principally, interurban) road infrastructure. Numerous technologies within Intelligent Transport Systems can provide support in efficiently applying various charging mechanisms. Recently, among others, tolling systems have been deployed that rely on the Global Navigation Satellite System (GNSS). The purpose of this paper is to discuss the state-of-the-art of using GNSS technology in road user charging.     

Consumer policy and consumer empowerment: comparing the historic development in Finland and Germany

This article traces the trajectories of consumer policy in Finland and Germany in the light of a comparative history in order to reflect upon the notion of consumer empowerment in public policy. The principle developments of contemporary consumer policy can be traced back to the post‐war political and economic integrations arising from the initial idea of free markets and individual freedom emphasized in classical liberalism. The article explores this development in Finland and Germany to the point of the establishment of a joint European Union (EU) consumer policy to reveal the notion of consumer empowerment. This approach creates an understanding of the peculiarities of consumer policy in EU member states despite the presence of a joint European policy area. Nowadays, both Finnish and German consumers find EU regulations excessive. It is important to acknowledge the influence of this historic development in order to understand what consumer empowerment meant in the past and thus to further develop policy action on a joint level.     

Empirical evidence on the effects of tax incentives

This paper considers two empirical questions about tax incentives: (i)?are incentives used as tools of tax competition and (ii)?how effective are incentives in attracting investment? To answer these, we prepared a new dataset of tax incentives in over 40 Latin American, Caribbean and African countries for the period 1985–2004. Using spatial econometrics techniques for panel data to answer the first question, we find evidence for strategic interaction in tax holidays, in addition to the well-known competition over the corporate income tax (CIT) rate. We find no robust evidence, however, for competition over investment allowances and tax credits. Using dynamic panel data econometrics to answer the second question, we find evidence that lower CIT rates and longer tax holidays are effective in attracting FDI in Latin America and the Caribbean but not in Africa. None of the tax incentives is effective in boosting gross private fixed capital formation.     

Two heads are less bubbly than one: team decision-making in an experimental asset market

In the world of mutual funds management, responsibility for investment decisions is increasingly entrusted to small teams instead of individuals. Yet the effect of team decision-making in a market environment has never been studied in a controlled experiment. In this paper, we investigate the effect of team decision-making in an asset market experiment that has long been known to reliably generate price bubbles and crashes in markets populated by individuals. We find that this tendency is substantially reduced when each decision-making unit is instead a team of two. This holds across a broad spectrum of measures of the severity of mispricing, both under a continuous double-auction institution and in a call market. The result is not driven by reduced turnover due to time required for deliberation by teams, and continues to hold even when subjects are experienced. Our result also holds not only when our teams treatments are compared to the ‘narrow’ baseline provided by the corresponding individuals treatments, but also when compared more broadly to the results of the large body of previous research on markets of this kind.     

Limited investor attention and the mispricing of American Depositary Receipts

I test whether more investor attention leads to a better exploitation of arbitrage opportunities and, in turn, to less mispricing of American Depositary Receipts (ADRs). Using data on 536 stocks I find that more investor attention significantly reduces ADR mispricing.     

Does the ECB act as a lender of last resort during the subprime lending crisis?: Evidence from monetary policy reaction models

We investigate whether the ECB aligns its monetary policy with financial crisis risk in EMU member countries. We find that since the outbreak of the subprime crisis the ECB has significantly increased net lending and reduced interest rates when banking and sovereign debt crisis risk in vulnerable EMU countries (Greece, Ireland, Italy, Portugal, and Spain) increases, while no significant effect is identified for the pre-crisis period and relatively tranquil EMU countries (Austria, Belgium, France, Germany, and the Netherlands). These findings suggest that the ECB acts as a Lender of Last Resort for vulnerable EMU countries.     

Unemployment and debt dynamics in a highly indebted small open economy

The paper analyzes the dynamic effects of a total factor productivity shock and an interest rate risk premium shock in a highly indebted open economy. In contrast to the standard open economy framework, search unemployment and wage bargaining are introduced. We find that a negative total factor productivity shock primarily has effects on the economy's production side and on welfare, but not on its stock of foreign debt and the country specific risk premium, and large part of the adjustment happens in the short-run. In contrast, a pure increase in the country specific risk premium causes substantial dynamics and a considerable reduction in foreign debt, allowing higher consumption in the long run and creating an intertemporal welfare gain, even though unemployment increases strongly in the short-run. A 50% haircut of foreign debt significantly reduces the initial response of the unemployment rate. In case of a temporary productivity shock, sticky wages imply smaller employment, but generate higher welfare than flexible wages.     

Growth and convergence in South–South integration areas: An empirical analysis

Until recently, it has been argued in economic theory that regional integration and trade agreements among developing countries may achieve negative growth effects. This study tests empirically the effects of such South–South agreements on growth and convergence. All three world regions in question are considered: South America, Southeast Asia, and Sub‐Saharan Africa. A comprehensive panel data analysis is conducted that distinguishes between the problems of testing for stronger growth and accelerated convergence, respectively. The data indicate that the considered South–South agreements promote both.