Thomas A. Knetsch

Trend and Cycle Features in German Residential Investment Before and after Reunification

Real residential investment in Germany is found to be cointegrated with population, real national income per capita and real house prices. This evidence is consistent with a model where the trend in housing demand is determined by demographic factors and economic well-being to which supply adjusts so slowly that real house prices are affected persistently. Reunification seems to have induced two structural changes in the empirical housing market model. First, the speed of equilibrium adjustment via residential investment slowed down substantially and real house prices lost the capacity to contribute to the adjustment process. Second, the degree of persistence in the error correction term increased a lot. The changing features are key to explain significant differences in alternative trend-cycle decompositions of residential investment.

Dealing with Benchmark Revisions in Real-Time Data: The Case of German Production and Orders Statistics

Benchmark revisions in non-stationary real-time data may adversely affect the results of regular revision analysis and the estimates of long-run economic relationships. Cointegration analysis can reveal the nature of vintage heterogeneity and guide the adjustment of real-time data for benchmark revisions. Affine vintage transformation functions estimated by cointegration regressions are a flexible tool, whereas differencing and rebasing work well only under certain circumstances. Inappropriate vintage transformation may cause observed revision statistics to be affected by nuisance parameters. Using real-time data of German industrial production and orders, the econometric techniques are exemplified and the theoretical claims are examined empirically. Copyright (c) Blackwell Publishing Ltd and the Department of Economics, University of Oxford, 2008.

Integration of Stochastic Effects and Data Uncertainties into the Design of Process Equipment

Stochastic effects and data uncertainties are present in any engineering calculation. Their impact may be particularly important if they concern the design of process equipment. A calculation model for the dynamic behavior of a heat exchanger and procedures to deal with the related uncertainties are presented. Their propagation through the calculation by means of a Monte Carlo approach is shown. The temperature at the heat exchanger outlet and the step response of a sudden variation in the heat exchanger inlet temperature are simulated and evaluated by way of example. It is demonstrated that the inclusion of stochastic effects and uncertainties provides a more reliable basis for design decisions and hence reduces the probability of errors.

Short-run and long-run comovement of GDP and some expenditure aggregates in Germany, France and Italy

The paper presents empirical work on short-run and long-run comovement between the German, French and Italian GDP as well as the aggregates of private consumption, business investment, exports, imports, and changes in inventories. In country-specific data sets, cointegration analyses are carried out both to identify long-run economic relationships and to remove the trend components from the nonstationary series. Analytically, this is done by reparametrizing the vector error correction model in its common trends representation. The resulting (Beveridge-Nelson) trend and cycle components as well as the series of changes in inventories are analyzed with a focus on synchronicity. To measure cross-country comovement at different frequencies, “cohesion”, a summary statistic developed by Croux et al. (2001), is applied. Sampling variability and parameter uncertainty are captured by bootstrapped confidence intervals.

Assessing house prices in Germany: evidence from a regional data set

Purpose With a view to the unconventional monetary policy measures implemented in the euro area in recent years, this study aims to investigate whether the recent house price increases in Germany are signals of an incipient overheating of the German housing market. Design/methodology/approach This paper presents a valuation measure for residential property based on a large and exhaustive regional panel data set for Germany. The fitted house prices from a panel regression at the district level, taking into account spatial spillovers, are taken as a measure of the fundamental equilibrium house prices, which can be aggregated for various regional subsets. Findings The estimation results suggest that apartment prices over the past years substantially exceeded the fundamental price suggested by the model, in particular in the big cities. Single-family houses appear to be markedly overvalued mainly in the cities. The low level of interest rates in recent years appears to have contributed to the emergence of misalignments. Originality/value Exploiting the variation across local housing markets, the estimation approach provides value-add for the estimation of house price valuation results in various regional subsets, as conventional time-series approaches to valuing property are subject to severe data limitations in the case of Germany.