Kai Carstensen

Stock Market Downswing and the Stability of European Monetary Union Money Demand

This article analyzes the question whether money demand in the euro area underwent a structural change in the end of 2001 when M3 money growth started to considerably overshoot the reference value set by the European Central Bank. It is found that conventional specifications of money demand have in fact become unstable, whereas specifications that are augmented with equity returns and volatility remain stable. Using such an augmented specification, it turns out that the high M3 growth rates have not led to excess liquidity and thus do not pose a measurable threat to price stability.

How Much Did Oil Market Developments Contribute to the 2009 Recession in Germany

In this paper, we use a structural vector autoregressive model to study the effects of oil market developments on the German economy. We find that higher oil prices are always associated with a decline in private consumption expenditures, but the response of gross domestic product (GDP) crucially depends on the underlying shock. While a disruption in oil supply provokes a recession, positive world demand shocks prompt a temporary increase in exports and investment, which initially outweigh the cutback on consumption. In a counterfactual analysis, we show that the world demand shocks that led to the 2007/2008 oil price rise triggered a delayed 0.8 percent decrease in German GDP in 2009, and therefore notably contributed to the recession of that year.

Bias-adjusted estimation in the ARX(1) model

A new point estimator for the AR(1) coefficient in the linear regression model with arbitrary exogenous regressors and stationary AR(1) disturbances is developed. Its construction parallels that of the median-unbiased estimator, but uses the mode as a measure of central tendency. The mean-adjusted estimator is also considered, and saddlepoint approximations are used to lower the computational burden of all the estimators. Large-scale simulation studies for assessing their small-sample properties are conducted. Their relative performance depends almost exclusively on the value of the autoregressive parameter, with the new estimator dominating over a large part of the parameter space.

The EBC Monetary Policy and its Taylor-type Reaction Function

In this paper we review and estimate Taylor-type reaction functions of the ECB for the first five years of EMU. We find economically plausible specifications indicating that the ECB has attached a large and stabilizing weight to inflation but no significant weight to money growth. This result supports the view that the ECB strives to maintain low inflation, but contradicts the claim made by the ECB that the monetary pillar is of particular importance. In a further step, we analyse the structural stability of the estimated reaction functions. While a recursive analysis indicates some signs of instability in June 2003, which almost coincides with the strategy revision of the ECB announced in May 2003, it is difficult to verify this by means of formal statistical tests. Overall, the estimation and test results indicate that reaction functions with survey indicators as explanatory variables have plausible inflation and output gap weights and show least evidence of instability.

Predictive Ability of Business Cycle Indicators under Test

Summary In this paper we assess the information content of seven widely cited early indicators for the euro area with respect to forecasting area-wide industrial production. To this end, we use various tests that are designed to compare competing forecast models. In addition to the standard Diebold-Mariano test, we employ tests that account for specific problems typically encountered in forecast exercises. Specifically, we pay attention to nested model structures, we alleviate the problem of data snooping arising from multiple pairwise testing, and we analyze the structural stability in the relative forecast performance of one indicator compared to a benchmark model. Moreover, we consider loss functions that overweight forecast errors in booms and recessions to check-whether a specific indicator that appears to be a good choice on average is also preferable in times of economic stress. We find that none of this indicators uniformly dominates all its competitors. The optimal choice rather depends on the specific forecast situation and the loss function of the user. For 1-month forecasts the business climate indicator of the European Commission and the OECD composite leading indicator generally work well, for 6-month forecasts the OECD composite leading indicator performs very good by all criteria, and for 12-month forecasts the FAZ-Euro indicator published by the Frankfurter Allgemeine Zeitung is the only one that can beat the benchmark AR(1) model.

On Median Unbiased Inference for First Order Autoregressive Models

The method of median-unbiased point and interval estimation for autoregressive and unit root models proposed by Andrews (1993) [Econometrica, Vol. 61] is rare among contributions in the enormous unit root literature because it makes use of the exact small-sample distributional properties of the estimator. The applicability of it, however, is somewhat limited, with natural and useful extensions incurring significant computational effort.

How Important are Real Shocks for the Real Exchange Rate

This paper analyzes long-run relations and driving stochastic trends of the real exchange rate between Germany and the United States in a structural cointegrated VAR framework. This allows the identification of common trends with permanent effects.

Stabilisierungsbeitrag der Finanzpolitik

Die gegenwärtige Krise besitzt eine starke Stimmungskomponente. Da ohnehin, wie Ludwig Erhard (1957) betonte, Wirtschaftspolitik zur Hälfte Psychologie ist, muss auf diese beson ders eingegangen werden.1 Die erste Krisenwelle wurde in erheblichem Maße über „Stim mungskanäle“ verbreitet, hat ihre Ursache in den USA und wurde deshalb in Europa zunächst wenig ernst genommen. Ihre ersten Anzeichen waren sich häufende fi nanzielle Schiefl agen von US-amerikanischen Hypothekenbanken ab dem Jahr 2006, die zunächst weitgehend schadensfrei am Ausland vorbeizugehen schienen. Das liegt auch daran, dass die Tiefe und Tragweite der Probleme unbekannt waren. Es wurde zunächst vor allem amerikanisches und nicht internationales bzw. europäisches Vertrauenskapital vernichtet. Daher war die Funkti onsfähigkeit des europäischen, insbesondere des deutschen Bankensystems kaum einge schränkt, das Problem wurde mit einer gehörigen Portion Attentismus angegangen. Das än derte sich erst, als europäische BankenDie durch die Finanzmarktkrise ausgelosten Probleme greifen derzeit rasch auf die realwirtschaftliche Ebene uber. Wie verhalten sich Finanz- und Konjunkturkrise zueinander? Kann und sollte man die drohende Rezession jetzt mit Mitteln der Wirtschaftspolitik bekampfen? Welche Instrumente sind geeignet? In welcher Dimension und in welchem Zeitrahmen sollte die Wirtschaftspolitik handeln? Was ist von dem Konjunkturpaket der Bundesregierung zu halten?

Inflationäre Schocks in Deutschland: Eine Common Trends Analyse / Inflationary Shocks in Germany: A Common Trends Analysis

Zusammenfassung In diesem Beitrag wird die Inflationsrate in Deutschland mit Hilfe eines Common Trends Modells untersucht. Ausgehend von einem IS-LM Modell der offenen Volkswirtschaft wird zunächst eine Kointegrationsanalyse durchgeführt, die der Bestimmung plausibler Langfristbeziehungen dient. Darauf aufbauend werden permanent und transitorisch wirkende Schocks strukturell identifiziert und hinsichtlich ihrer Bedeutung für die Inflationsentwicklung untersucht. Es zeigt sich, daß permanent wirkende Angebotsschocks langfristig zu einer Zunahme, transitorische Angebotsschocks hingegen zu einer vorübergehenden Reduktion der Inflationsrate führen. Negative Inflationserwartungsschocks besitzen dagegen eindeutig eine inflationssenkende Wirkung. Summary This paper analyses the inflation rate in Germany by means of a common trends model. Starting from an IS-LM model of the open economy, we conduct a cointegration analysis from which we obtain plausible long-run relationships. In the next step, we identify structural shocks with permanent and transitory effects and study their impacts on the inflation rate. We find that permanent supply shocks increase long-run inflation while transitory supply shocks temporarily decrease the inflation rate. Negative inflation expectation shocks clearly have a disinflationary effect in the medium and long run