Franz Seitz

Interest rate spreads as predictors of German inflation and business cycles

Improved polymeric orthopaedic compositions are disclosed wherein sized, functional fibers are incorporated into a physiologically acceptable matrix. The compositions of the invention can be fabricated in the form of particulate powders adapted for reinforcment of bone cements, continuous media for such cements, and orthopaedic implant coatings. A complete implant attachment system is also provided, made up of a fiber reinforced implant coating, and a compatible fiber-reinforced cement. In preferred forms, the fibers have a layer of sizing thereover which is chemically joined both to the surface of the fibers and to the surrounding matrix, and the fibers are present at a level of at least about 6 volume percent. If desired, sized radiopaque particles may be incorporated into the compositions of the invention. The fibers are advantageously polymeric in nature and of intermediate stiffness, whereas the matrix fraction is preferably polymethylmethacrylate.

Explaining the US Bond Yield Conundrum

We analyse if and to what extent fundamental macroeconomic factors, temporary influences or more structural factors have contributed to the low levels of US bond yields over the last few years. For that purpose, we start with a general model of interest rate determination. The empirical part consists of a cointegration analysis with an error-correction mechanism. We are able to establish a stable long-run relationship and find that the behaviour of bond yields, even during the last years, can be well explained by macroeconomic and structural factors. Alongside the more traditional determinants like core inflation, monetary policy and the business cycle, we also include foreign holdings of US Treasuries. The latter should capture the frequently mentioned structural effects on long-term interest rates. Finally, our bond yield equation outperforms a random walk model in different forecasting exercises.

Currency Substitution: A Theoretical and Empirical Analysis for Germany and Europe

The deutschmark is the anchor currency within the asymmetrical functioning of the European Monetary System (EMS). Thus the proper functioning of the monetary targeting strategy of the Bundesbank is a necessary prerequisite of the success of the system. This strategy relies heavily on stable monetary relations. Because of the big weight of the German monetary aggregate in a European aggregate this stability also has very important repercussions for monetary policy of the future European System of Central Banks. Currency substitution (CS) relative to other European currencies may cause instability in the German money demand equation. Theoretically there are arguments in favour of and against CS in the EMS. Empirically this phenomenon is analysed for a German money demand equation for M3. CS effects are investigated by testing the significance of CS variables in the short‐run dynamics of an error correction mechanism. In most cases there are no significant CS effects. Exceptions are Italy and the European Union as a whole, where the weight of currencies which have frequently depreciated against the deutschmark is high.

Are Bond Markets Really Overpriced: The Case of the US

In the present paper we analyse whether fundamental macroeconomic factors, temporary influences or more structural factors have contributed to the recent decline in bond yields in the US. For that purpose, we start with a very general model of interest rate determination in which risk premia are captured via the macroeconomic (policy) environment. The empirical part consists of a cointegration analysis with an error correction mechanism from the mid 80s until 2005. We are able to establish a stable long-run relationship and find that the behaviour of bond rates in the last few years may well be explained by macroeconomic factors. These are driven by core price developments, monetary policy reflected in short-term interest rates and the business cycle. A changed structural demand for bonds does not seem to be at work. The existing overestimation of bond yields is not unusual historically. Finally, our bond yield equation outperforms a random walk model in different out-of-sample exercises.

Cash holdings in Germany and the demand for "German" banknotes: What role for cashless payments?

Generally speaking, all euro-area national central banks issue euro banknotes. Following the introduction of euro cash at the start of 2002, the cumulated net issuance of euro notes by the Deutsche Bundesbank (“German” euro notes) increased from an initial €73 billion to €508 billion at the end of 2014. Figure 4.1 shows that the volume of these German euro banknotes outstanding has grown very much faster than could have been expected on the basis of earlier growth rates of D-Mark currency. For the first two years after the launch of euro cash, this strong growth could be explained by the need to replenish stocks of hoarded banknotes both inside and outside the euro area after the currency changeover. However, this should have ceased to have an effect at the end of 2003 when the volume of German banknotes outstanding returned to the hypothetical level that would have been reached had euro cash not been introduced. Nevertheless, the pace of growth in the volume of banknotes outstanding continued to be much more dynamic than in the D-Mark era in the 1990s. As shown in Bartzsch et al. (2011a), this huge surge is due to foreign demand for euro banknotes. They find that, at the end of 2009, around 70% of the cumulated net issuance was held outside Germany.

Money In Modern Macro Models: A Review of the Arguments

This paper provides an overview of the role of money in modern macro models. In particular, we are focussing on New Keynesian and New Monetarist models to investigate their main findings and most significant shortcomings in considering money properly. As a further step, we ask about the role of financial intermediaries in this respect. In dealing with these issues, we distinguish between narrow and broad monetary aggregates. We conclude that for theoretical as well as practical reasons a periodic review of the definition of monetary aggregates is advisable. Despite the criticism brought forward by the recent New Keynesian literature, we argue that keeping an eye on money is important to monetary policy decision-makers in order to safeguard price stability as well as, as a side-benefit, ensure financial market stability. In a nutshell: money still matters.

Household Money Demand: The Euro Area Case

SummaryIn this paper we analyse household holdings of the broad monetary aggregate M3 in the euro area from 1991 until 2010. We develop a nominal model with satisfactory economic and statistical properties. The main determinants are a transactions variable, wealth considerations, opportunity costs and uncertainty. The model is robust to different samples considered and a multitude of mis-specification tests. The exercise also provides insights that go beyond the portfolio allocation decision of households. According to our analysis, it is quite apparent that in equilibrium, households jointly determine consumption and broad money holdings both influenced by wealth as well as interest rates.

A simple way to capture currency abroad

In this article, we analyse the volume of euro banknotes issued by Germany that circulate abroad. Inferences are drawn from a coin model. Our approach suggests that foreign demand has increased since 2002. At the end of 2009 nearly 50%, the equivalent of €170 billion, is held outside the euro area.

Changing the Institutional Design of Central Banks

The paper analyzes the institutional changes that have taken place during the 1990s at the central banks of major OECD countries. They have generally resulted in an increased degree of independence, transparency and accountability as well as in mandates more narrowly focused on the achieving and maintaining of price stability. It is argued that recent theoretical and empirical research on the institutional aspects of monetary policy are useful in interpreting these changes. The implications for the design of the European Central Bank are discussed against the background of this research and the experiences with the recent changes at national central banks.

How Many Deutschmarks are Held Abroad

The German currency is held and used abroad because of its liquidity and stability relative to most of the world’s currencies. DM banknotes are used as a transactions medium and as a store of value. The number of these which are held abroad is of interest to policy-makers for various reasons, but is rather difficult to estimate. Professor Seitz outlines the results of several estimation methods and discusses the monetary policy consequences.