Bernd Hayo

Subjective Economic Well-Being in Eastern Europe

This paper analyses subjective economic well-being in several Eastern European countries from 1991 to 1995. Economic well-being explains a significant part of the variation in overall life satisfaction of Eastern Europeans. In an ordered logit model, the determinants of subjective economic well-being are analysed. Some results are very similar to typical findings in happiness regressions, such as a negative but u-shaped age effect, positive influences of education and relative income position, as well as a negative effect of unemployment. Differing results were found with regard to gender and marital status. Finally, comparing indicators of objective and subjective well-being on a macro level indicates that using a standard macro variable for cross-country comparisons in well-being, such as real GDP per capita, may provide misleading results during the early stages of transformation.

Reconsidering central bank independence

In this paper, we survey the case for central bank independence (CBI). We conclude that CBI is neither necessary nor sufficient for monetary stability. CBI is just one potentially useful monetary policy design instrument among several, and CBI should not be treated as an exogenous variable. Instead the question that should be addressed is why societies decide to make their central banks independent? The reasons why CBI is chosen are related to legal, political, and economic systems. A number of empirical studies find correlations between CBI and low inflation rates. Endogeneity of CBI suggests, however, that the correlation has no implications for causality.

Explaining de Facto Judicial Independence

Judicial Independence (JI) as factually implemented varies considerably between countries. Since de iure JI is an imperfect predictor of de facto JI, a number of variables that might determine the factual level of judicial independence is theoretically discussed and empirically tested. A distinction between factors that can be influenced in the short run and those that are the result of historical development and are exempt from short-term modification is made. Ascertaining the relative relevance of these two groups of variables promises to be policy-relevant because attempts to make judiciaries more independent within governance programs might be seriously constrained by factors beyond the control of national governments and international organizations.

Determinants of Constitutional Change: Why Do Countries Change Their Form of Government?

A country’s form of government has important economic and political consequences, but the determinants that lead countries to choose either parliamentary or presidential systems are largely unexplored. This paper studies this choice by analyzing the factors that make countries switch from parliamentary to presidential systems (or vice versa). The analysis proceeds in two steps. First, we identify the survival probability of the existing form of government (drawing on a proportional hazard model). In our model, which is based on 169 countries, we find that geographical factors and former colonial status are important determinants of survival probability. Also, presidential systems are, ceteris paribus, more likely to survive than parliamentary ones. Second, given that a change has taken place, we identify the underlying reasons based on panel data logit models. We find that domestic political factors are more important than economic ones. The most important factors relate to intermediate internal armed conflict, sectarian political participation, degree of democratization, and party competition, as well as the extent to which knowledge resources are distributed among the members of society.

The Relevance of Judicial Procedure for Economic Growth

It has been argued that procedural formalism undermines economic efficiency by fostering rent-seeking and corruption. We challenge this view by arguing that a number of judicial procedures foster economic growth by increasing the predict-ability of court decisions, which leads to more transactions and higher investment levels. We investigate the effects on economic growth of 15 judicial procedures. Employing a standard growth model, we find in a cross-section of 67 countries that timeliness, written—as opposed to oral—procedures, and the right to counsel have a positive effect on growth, whereas the number of independent procedural actions as well as the presumption of innocence have negative effects. Our results partially contradict the results of former studies based on the Lex Mundi dataset.

Fiscal equalisation: Principles and an application to the European Union

Abstract.The paper derives a normative model for partial fiscal equalisation based on a number of axioms and makes special allowance for the existence of a specific fiscal need in the jurisdictions. A simple version of this idealised equalisation scheme relates net contributions to the equalisation funds to deviations of a jurisdiction’s gross income from average gross income and a jurisdiction’s specific needs from average specific needs. The theoretical model is then empirically tested for the case of the European Union using data from 1986–97. It is found that most restrictions of the model appear to hold, in particular, relatively richer countries contribute more and those with greater fiscal needs, approximated by the importance of the agricultural sector, pay less. However, in the EU, an adjustment of net payments to changes in the actual importance of the specific fiscal need for a country is lacking.

Asymmetric monetary policy effects in EMU

This paper develops a semi-structural modelling approach to study asymmetric monetary transmission in Europe. A system of dynamic equations containing reaction functions for monetary policy as well as output gap and inflation equations is simultaneously estimated for France, Germany and Italy. We find asymmetries on the demand side in the strength of interest rate transmission and on the supply side in the effects of the output gap on inflation. The responses are similar in Germany and Italy and generally stronger than in France. Out-of-sample tests do not find a structural break in the transmission mechanisms prior to the establishment of the European Monetary Union.

Happiness in Eastern Europe

This paper analyses the determinants of happiness in seven Eastern European transition countries during the early phase of economic transition. The analysis of representative survey data in an ordered logit model shows that those core socio-demographic and economic variables known to be relevant from studies on the US and Western European countries have a similar impact on happiness in Eastern Europe. In addition, rural dwellers and church goers experience greater life-satisfaction. Aggregate unemployment can explain more of the crosscountry variation in happiness than income per capita.

Money-output Granger causality revisited: an empirical analysis of EU countries

In this paper, the evidence collected in the large literature on testing for Granger-causality from money to output is revisited. Using a broad data base of 14 EU countries plus Canada, the US and Japan, and quarterly data from the mid 1960s to mid 1990s, a number of hypotheses from this literature is evaluated. It is found that very few general conclusions can be sustained. For instance, in most countries it is not the case that the use of data in levels creates a bias in favour of finding Granger-causality effects of money on output compared to using differences. Neither does the significance of money lags decline when increasing the number of variables included in the model. What appears to be robust, though, is that allowing for asymmetries clearly increases the likelihood of finding significant causality effects. Based on the Granger-causality test results, a number of country groups are obtained using cluster analysis, which are characterized by a similarly behaviour with respect to the money-output relation.

Knowledge and Attitude Towards European Monetary Union

The European Monetary Union (EMU) has been the subject of fierce controversies both among professional economists and ordinary people. This paper analyses the association between the degree of information of ordinary people and their opinion on EMU. In this context, we are concerned with basic information and not knowledge based on academic research. Usually, questionnaires shy away from including question that test the knowledge of probands on specific issues. However, there exists a European-wide survey, Eurobarometer 39 (1993), that includes some questions which can help to distinguish respondents according to their level of knowledge on European Union. In a first step, a knowledge index is computed from the four knowledge questions given in the survey. Then this indicator is utilised in a cross-country comparison and it is shown to which extent its average varies among the original 12 EU-members. In a further analysis, the bivariate relationship of the knowledge index with attitudes towards EMU is investigated. It is found that better informed respondents are relatively more in favour of EMU. This result is strengthened by the outcome of a bivariate correspondence analysis. To assess the robustness of the positive association between the degree of knowledge and attitude towards EMU, the analysis is repeated in the framework of a multivariate regression model. Again the positive association between information about EU and attitude towards EMU holds. At the end of the paper, a policy conclusion is put forward arguing that by raising the level of EU knowledge peoples opinion towards further monetary integration could be influenced positively.