Michael Berlemann

Demographic Change and Bank Profitability - Empirical Evidence from German Savings Banks

Most European economies will experience significant demographic changes in the decades ahead. Due to low birth rates, populations are shrinking and ageing at the same time. This article explores the impact of demographic change on the banking industry. A unique data set, which contains detailed information on almost 2.5 million accounts in 11 German savings banks, allows us estimating the socio-demographic determinants of retail profitability. Using a simulation model, we predict the development of bank profitability resulting from demographic shifts through 2025. Our central finding is that the effects of population ageing will partially offset the impact of shrinking customer bases. While the decline in the size of the population reduces the customer base, ageing increases profitability per se, as older customers typically generate higher profits for their banks.

Assessing Market Expectations on Exchange Rates and Inflation: A Pilot Forecasting System for Bulgaria

Econometric forecasting models typically perform bad in volatile environments as they are often present in economies in transition. Since forecasts of key macroeconomic variable are inevitable as guidelines for economic policy, one might alternatively make attempts at measuring market participants??? expectations or conduct surveys. However, often financial markets are underdeveloped and regular surveys are unavailable in transition countries. In this paper we propose to conduct experimental stock markets to reveal market participants??? expectations. W? present the results fr?m a series of pilot markets conducted in Bulgaria throughout 2002 indicating that the method could be useful especially for transition countries.

Lending of Last Resort, Moral Hazard and Twin Crises: Lessons from the Bulgarian Financial Crisis 1996/1997

In 1996/1997 Bulgaria was hit by a severe financial crisis, spreading from a banking crisis to a currency crisis. While being widely neglected by the financial crisis literature and the international discussion we argue that the Bulgarian Financial Crisis might serve as an illustrative example of a twin crisis primarily (but not only) due to systematic moral hazard behaviour of the banking sector. Thus, the Bulgarian Financial Crisis might be closer to the story of third generation moral hazard models of currency crises than the Asian Crisis. We also show how Bulgaria managed to overcome the crisis by introducing a second generation currency board allowing the central bank to act as a strictly limited lender of last resort thereby (hopefully) making the country less prone to a financial crisis in the future.

Regional importance of Mittelstand firms and innovation performance

Berlemann M. and Jahn V. Regional importance of Mittelstand firms and innovation performance, Regional Studies. Despite the deeply rooted belief of politicians all over the world about the important role of Mittelstand firms, there has yet been surprisingly little empirical research on this issue. This article contributes to the literature by studying whether the relative regional importance of Mittelstand firms has an effect on regional innovation performance. Using a cross-section of German NUTS-3 regions, a significantly positive relation between the relative importance of owner-managed small and medium-sized enterprises and patent applications is identified. This finding is highly robust when controlling for spatial correlations as they often occur in highly disaggregated regional analyses.

Partisan Cycles and Pre-Electoral Uncertainty

Rational partisan theory of political business cycles suggests differences in inflation under left-wing and right-wing governments. It also suggests temporary post-electoral booms after election of left-wing governments and temporary recessions after election of right-wing ones. However, the core hypothesis that post-electoral booms and recessions depend upon the degree of pre-electoral uncertainty has rarely been tested. Using pre-electoral polling data, we provide empirical evidence in favor of the hypothesis of the existence of rational partisan cycles. We also show that - in line with most previous empirical studies - there is little evidence for partisan cycles under adaptive expectations.

Effective Monetary Policy Conservatism: A Comparison of 13 OECD Countries

Empirical studies of the influence of central bank independence and inflation have yet delivered quite inconclusive results. We argue this to be due to the failure to focus an actual central bank independence and to take the degree of conservatism of the government and the central bank into account. In this paper, we propose a new methodology of measuring the joint degree of central bank independence and conservatism from observed central bank behaviour. After applying the method to 13 OECD countries, we find our indicator to be negatively correlated with a legal index of central bank independence, but positively correlated with the turnover rate. As the latter exclusively focuses on factual central bank independence, the remaining difference might be attributed to conservatism.

Trust in the European Central Bank Throughout the Worldwide Financial Crisis and the European Debt Crisis

In this paper we use three cross-sections of the Eurobarometer Survey to study how European citizens’ trust in the European Central Bank evolved throughout the Worldwide Financial Crisis and the European Debt Crisis. Employing the results of a logit-estimation-approach we show that both crises contributed to a significant decline in trust in the European Central Bank even after controlling for the inferior macroeconomic circumstances in consequence of the crises. We also show that the effects of the two crises on trust in the European Central Bank differ considerably in the member countries of the European (Monetary) Union.

Do Judges React to the Probability of Appellate Review? Empirical Evidence from Trial Court Procedures

ABSTRACT The appellate review system is intended to serve as an efficient remedy for imperfect judicial decision making. However, it can fulfil this task only when appeals are ex ante unpredictable to the judge, and thus can be expected to occur primarily in case of a bad verdict. Using data from case records of a German trial court, we show that the probability of appeal can be predicted based on easily observable exogenous factors. Controlling for the complexity of a legal case, we find that judges also tend to decrease their effort when the ex ante probability of appeal is low. Thus, our empirical evidence indicates an inefficiency in the appellate review system because trial judges allocate their effort to cases not exclusively according to case complexity, but particularly according to the ex ante probability of being reviewed.

The distance bias in natural disaster reporting – empirical evidence for the United States

ABSTRACT Whenever governments or international organizations provide aid in the aftermath of natural disasters, they typically justify this support by humanitarian motives. Previous empirical research found that media reports on natural disasters have a systematic impact on the amount of provided disaster aid. While this is unproblematic as long as media reports are unbiased and thus deliver an undistorted picture of the occurrence and severity of worldwide occurring disasters, systematic reporting biases would lead to distorted aid flows and perhaps other distortions like an insufficient perception of a region in international organizations. Based on data on three US news shows we show that disaster reporting is subject to a distance bias, e.g., the likelihood that a disaster is covered by the media depends on the distance between the country where the media are located and the country where the disasters occur. We also find evidence that besides the distance bias the state of economic development of a country and importance as export markets have a positive effect on the probability that US news shows are reporting on a natural disaster. As a result, international aid flows might be systematically biased and not distributed in line with the needs of the victims.

Trade unionists in parliament and macroeconomic performance: Evidence from Germany

This article focuses on the role of unionised members of parliament. While unions have a direct effect on the labour market via wage negotiations, they often also take part in political debates. In many countries, significant shares of the members of parliament are also members of a trade union. However, up to now little empirical evidence is available on the extent to which unionised members of parliament try to achieve union-specific goals and thereby influence the macroeconomic conditions of an economy. A recent study for Germany comes to the conclusion that union members in the Bundestag cannot be seen as the parliamentary arm of the trade unions. However, we present contradicting empirical results by showing that, in Germany at least, the degree of unionisation of parliamentary members has a negative impact on economic growth and increases inflation, while unemployment remains unaffected.