Johann Scharler

The Transmission of Business Cycles Implications for EMU Enlargement

We show that countries characterized by large bilateral trade and financial flows tend to have more correlated business cycles. However, we also find that countries with divergent fiscal policies and highly regulated labour markets are subject to idiosyncratic cycles. Applying these results to the new member states of the EU weakens the optimistic view towards the monetary integration of these countries into the euro area, which is frequently found in the literature. Although our results suggest that extensive trade and financial linkages are likely to result in further increases in business cycle correlation, an increase in labour market regulation and the pursuit of national fiscal policies may result in a counteracting effect.

Labor Market Institutions and Macroeconomic Volatility in a Panel of OECD Countries

In this paper we analyze empirically how labor market institutions influence business cycle volatility in a sample of 20 OECD countries. Our results suggest that countries characterized by high union density tend to experience more volatile movements in output, whereas the degree of coordination of the wage bargaining system and the strictness of employment protection legislation appear to be only of limited importance. We also find some evidence suggesting that highly coordinated wage bargaining systems have a dampening impact on inflation volatility.

Do Banks Lend Less in Uncertain Times

We study the development of bank lending in the U.S. after four large jumps in uncertainty using an event study approach. We find that more liquid banks reduce lending less than banks with smaller liquidity ratios after a surge in uncertainty. Lending by smaller banks is also less responsive to increases in uncertainty. Banks with a higher capitalization ratio keep up lending to a greater extent, but the effect is only significant for banks which are not part of a multi-bank holding company. This heterogeneity across banks suggests that declines in bank lending following increases in uncertainty are partly the result of a reduced supply of bank loans.

Forecasting Austrian Inflation

In this paper we apply factor models proposed by Stock and Watson [18] and VAR and ARIMA models to generate 12-month out of sample forecasts of Austrian HICP inflation and its subindices processed food, unprocessed food, energy, industrial goods and services price inflation. A sequential forecast model selection procedure tailored to this specific task is applied. It turns out that factor models possess the highest predictive accuracy for several subindices and that predictive accuracy can be further improved by combining the information contained in factor and VAR models for some indices. With respect to forecasting HICP inflation, our analysis suggests to favor the aggregation of subindices forecasts. Furthermore, the subindices forecasts are used as a tool to give a more detailed picture of the determinants of HICP inflation from both an ex-ante and ex-post perspective.

How Important is Employment Protection Legislation for Foreign Direct Investment Flows in Central and Eastern European Countries

In this article we investigate empirically the importance of labour market conditions and in particular the role of employment protection legislation as determinants of bilateral Foreign Direct Investment (FDI). We find that FDI flows are significantly higher in countries with relatively low unit labour costs. We also find that employment protection legislation does not exert a statistically significant impact on FDI flows. Our results are consistent with the interpretation that transition economies attract FDI via low production costs whereas indirect costs related to the rigidity of the labour market are less relevant.

Inflation Dynamics in the New EU Member States: How Relevant Are External Factors?

In this paper we evaluate the relative influence of external versus domestic inflation drivers in the 12 new European Union (EU) member countries. Our empirical analysis is based on the New Keynesian Phillips Curve (NKPC) derived in Gali and Monacelli (2005) for small open economies (SOE). Employing the Generalized Method of Moments (GMM), we find that the SOE NKPC is well supported in the new EU member states. We also find that the inflation process is dominated by domestic variables in the larger countries of our sample, whereas external variables are mostly relevant in the smaller countries.

The synchronization of GDP growth in the G7 during US recessions

Using the Dynamic Conditional Correlation (DCC) model due to Engle (2002), we estimate time-varying correlations of quarterly real GDP growth among the G7 countries. In general, we find that rather heterogeneous patterns of international synchronization exist during US recessions. During the 2007–2009 recession, however, international co-movement increased substantially.

Does the Welfare State Destroy the Family? Evidence from OECD Member Countries

We study the effect of the size of the welfare state on family outcomes in OECD member countries. Exploiting exogenous variation in public social spending, due to varying degrees of political fractionalization (i.e. the number of relevant parties involved in the legislative process), we show that an expansion in the welfare state increases the fertility, marriage, and divorce rates with a quantitatively stronger effect on the marriage rate. We conclude that the welfare state supports family formation. Nevertheless, we also find that the welfare state decouples marriage and fertility, and therefore, alters the organization of the family.

Marriage, Divorce and Interstate Risk Sharing

In this paper we study the importance of marriage for interstate risk sharing. We find that US states in which married couples account for a higher share of the population are less exposed to state-specific output shocks. Thus, marriages do not just improve the allocation of risk at the individual level, but also have implications for the allocation of risk at the more aggregated state-level. Quantitatively, the impact of marriage on interstate risk sharing varies over divorce regimes.

Banks, Financial Markets and International Consumption Risk Sharing

In this paper we empirically explore how characteristics of the domestic financial system influence the international allocation of consumption risk using a sample of OECD countries. Our results show that the extent of risk sharing achieved does not depend on the overall development of the domestic financial system per se. Rather, it depends on how the financial system is organized. Specifically, we find that countries characterized by developed financial markets are less exposed to idiosyncratic risk, whereas the development of the banking sector contributes little to the international diversification of consumption risk.