Optimal interest rate stabilization in a basic sticky-price model

This paper studies optimal monetary policy with the nominal interest rate as the single policy instrument. Firms set prices in a staggered way without indexation and real money balances contribute separately to households’ utility. The optimal deterministic steady state under commitment is the Friedman rule—even if the importance assigned to the utility of money is small relative to consumption and leisure. We approximate the model around the optimal steady state as the long-run policy target. Optimal monetary policy is characterized by stabilization of the nominal interest rate instead of inflation stabilization as the predominant principle.     

Why ‘Basel II’ may need a leverage ratio restriction

We analyze regulatory capital requirements where the amount of required capital depends on the level of risk reported by the banks. It is shown that if the supervisors have a limited ability to identify or to sanction dishonest banks, an additional, risk-independent leverage ratio restriction may be necessary to induce truthful risk reporting. The leverage ratio helps to offset the banks’ potential capital savings of understating their risks by (i) reducing banks’ put option value of limited liability ex ante, and by (ii) increasing the banks’ net worth, which in turn enhances the supervisors’ ability to sanction banks ex post.     

Mapping potentials for input–output-based innovation flows in industrial clusters – an application to Germany

Our paper pursues two aims: first, it presents an approach based on input–output innovation flow matrices to study intersectoral innovation flows within industrial clusters. Second, we apply this approach to the identification of structural weaknesses in East Germany relative to the western part of the country. The case of East Germany forms an interesting subject because while its convergence process after unification began promisingly in the first half of the 1990s, convergence has since slowed down. The existing gap can now be traced mainly to structural weaknesses in the East German economy, such as the absence of strong industrial cluster structures. With this in mind, we investigate whether East Germany does in fact reveal the abovementioned structural weaknesses. Does East Germany possess fewer industrial clusters? Are they less connected? Does East Germany lack specific clusters that are also important for the non-clustered part of the economy?     

Will the Real A. Smith Please Stand Up!

In both the public and the business world, in academe as well as in practice, the ideas of Adam Smith are regarded as the bedrock of modern economics. When present economic conditions and management practices are criticised, Adam Smith is referred to by defenders and detractors of the current status quo alike. Smith, it is believed, defined the essential terms of reference of these debates, such as the rational pursuit of self-interest on part of the individual and the resultant optimal allocation of goods in free markets thanks to the workings of an “invisible hand.” In this article, we question whether this standard view of Smith, the economist, is tenable. We provide an extensive review of the extant secondary literature from economists, business ethicists, and philosophers, comparing their assessments to crucial elements of Smith’s theoretical system. As a result, we show that Smith, far from being an advocate of a value-free or even value-averse conception of economic transactions, stood for a virtue-based and values-oriented model of business. Accordingly, we argue current management education and the pedagogy of business ethics ought to be changed, and certain strategic conclusions drawn for business practice.     

EXCHANGE RATE BANDS OF INACTION AND PLAY‐HYSTERESIS IN GERMAN EXPORTS—SECTORAL EVIDENCE FOR SOME OECD DESTINATIONS

A non‐linear model is applied, where suddenly strong spurts of exports occur when changes of the exchange rate go beyond a zone of inaction, which we call ‘play’ area—analogous to mechanical play. We implement an algorithm describing path‐dependent play‐hysteresis into a regression framework. The hysteretic impact of real exchange rates on German exports is estimated based on the period from 1995Q1 to 2010Q3. Looking at some of the main export partners of Germany outside the euro area and some of the most important tradeable sectors we find significant hysteretic effects for a part of the German exports.     

An Unconventional Approach to Evaluate the Bank of England’s Asset Purchase Program

Open Economies Review - Empirical papers analysing the transmission of (unconventional) monetary policy typically rely on a vector autoregressive framework. In this paper, I complement these...