Bernhard Herz

Experiential learning and the effectiveness of economic simulation games

Kolbs theory of experiential learning provides a natural setting to evaluate simulation games. In this article, an experimental design is developed to test whether economic simulation games support the learning process corresponding to Kolbs experiential learning cycle. The empirical results indicate that simulation games support the four learning stages more efficiently than traditional teaching methods.

Is there a causal link between currency and debt crises

Though currency and debt crises quite often occur simultaneously, the links between these two types of crises are not well understood. We review how currency and debt crises could be related due to common causes, contagion effects from one crisis to the other, and complementary budget financing aspects. In an empirical analysis based on a panel of 80 countries over the period 1975-2000, we first investigate the determinants of each crisis separately. Then we estimate links between both crises employing instrumental variables techniques. We find that, while there is a negative lagged influence of currency crises on debt crises, currency crises significantly increase the risk of contemporaneous debt crises and vice versa. Copyright

Debt and Currency Crises - Complements or Substitutes?

Debt and currency crises are closely interlinked through the governments intertemporal budget constraint. The default tax and the inflation/devaluation tax can be considered as alternative means of financing. Our empirical analysis finds that high-debt countries choose default rather than inflation/devaluation for financing, while a high money stock reduces the probability of debt crises. Further, we find strong evidence that debt and currency crises share common fundamental causes. Finally, there is a Granger causality running from debt crises to currency crises, but only weakly in the other direction.

Economic growth and convergence in Germany

ConclusionsThe empirical analysis gives clear evidence of regional convergence in West Germany: poorer regions tend to grow faster than richer ones. In the period 1957–88, the speed of convergence was around 4 percent per year, implying a halving of the difference between actual and steady-state income every 16 years. While our empirical findings on convergence are of a similar magnitude as found by studies for the US and Europe by Barro and Sala-i-Martin (1991) and Mankiw et al. (1990), they indicate however a somewhat faster speed of adjustment for Germany. Also the pattern of a deceleration of the speed of convergence in recent years is similar to the developments found in these two regions (Barro and Sala-i-Martin 1991).

Regional Convergence in Central and Eastern Europe: Evidence from a Decade of Transition

The paper analyses regional growth and convergence in a sample of 31 Central and Eastern European regions over the period 1990-2002. We find that the regional disparity has decreased in the first half of the 1990s. Thereafter it has remained stable. Almost all of the reduced disparity seems to be attributable to income convergence between countries. At the country level, on the other hand, we find no evidence for sigma-convergence. Our econometric analysis finds evidence for conditional beta convergence. The estimates indicate that structural variables like the labour participation rate and the economys sectoral structure matter for regional growth. Additionally, they point to the role of national specific differences in the growth performance. The sources of regional disparities do not seem to differ much between the accession countries and the current EU members. From this, we conclude that the present priorities and instruments of EU regional policy equally apply to an enlarged European Union.

How Credible Are the Exchange Rate Regimes of the New EU Countries? : Empirical Evidence from Market Sentiment

European Union (EU) accession countries have strong incentives to stabilize their exchange rates with respect to the euro as the nominal anchor. We present a microstructure model of the foreign exchange market based on technical trading that allows us to categorize the de facto exchange rate regimes and derive a market-based measure of the credibility of these exchange rate regimes. Our empirical results indicate that in the run-up to EU accession, most Central and Eastern European countries enjoyed high credibility in their exchange rate management. However, some of these future Economic and Monetary Union participants will have to strengthen their efforts and further focus their exchange rate policy on stabilizing the euro exchange rate.

Do the World Trade Organization and the Generalized System of Preferences Foster Bilateral Trade

World trade has grown exponentially during the last 60 years. Admittedly, it is not clear if this development can be assigned to international trade agreements like the World Trade Organization or the Generalized System of Preferences as previous empirical studies found contradicting results. In this paper we generalize the different approaches used in the lit- erature to estimate the role of GATT/WTO and the Generalized System of Preferences for trade. We use a gravity model and apply FE estimation on a disaggregated bilateral data set of the trade flows between 145 countries across 1962-99. In our analysis we find a significant positive effect of WTO membership on bilateral trade. Referring to other multi- lateral institutions, we find robust evidence that membership in regional trade agreements or currency unions substantially increase bilateral trade flows as well. By contrast, we fi nd that the Generalized System of Preferences does not foster trade in general, rather the opposite. This might be due to the opportunistic behavior of industrial countries that grant GSP schemes as long as the concerned products are relatively unimportant, but restrict them as soon as they become relevant.

The ‘Real’ Impact of GATT/WTO – a Generalised Approach

Rose’s result in 2004 that GATT/WTO has no significant impact on bilateral trade triggered off a series of empirical studies. Each of those studies augments Rose’s paper in one specific methodological aspect with the general finding that GATT/WTO significantly fosters members’ trade, although the estimated impact varies between 2 per cent and 195 per cent of trade creation. We combine the methodological contributions of previous studies to overcome these isolated approaches, to account for possible interactions and to develop a more general view on the impact of GATT/WTO. In particular, we find that GATT/WTO promotes members’ trade by around 86 per cent.

Technical Trading and the Volatility of Exchange Rates

The microeconomic structure of foreign exchange markets can cause excessive volatility in flexible exchange rate regimes. The market entry of chartists changes the composition of the foreign exchange market and leads to excessive volatility. Our chartist model predicts a continuum of equilibria and a U-shaped relation between exchange rate volatility and the measured trend, which is supported by the empirical evidence. The data show a positive nonlinear relation between trend and volatility as predicted by the model. In such a situation monetary policy may be able to smooth the exchange rate without changing macroeconomic fundamentals.

The Interactions between Debt and Currency Crises : Common Causes or Contagion?

In contrast to the well-known twin currency and banking crises the literature has so far neglected a second type of twin crises, the simultaneous occurrence of currency and debt crises. The decision of a government to devalue and/or to default is closely interlinked through the governments intertemporal budget constraint. In our empirical analysis we find some evidence that one-year lagged debt crisis strongly Granger causes currency crisis and two-year lagged currency crisis weakly Granger causes debt crisis. We find strong evidence that debt and currency crises have common fundamental causes. Low reserve over imports ratio, low domestic GDP growth rate, and low FDI over external debt ratio all increase the likelihood of debt and currency crises.