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This paper studies whether a monetary union can be managed solely by a rule based approach. The Five Presidents’ Report of the European Union rejects this idea. It suggests a centralisation of powers. We analyse the philosophy of policy rules from the vantage point of the German economic school of thought. There is evidence that a monetary union consisting of sovereign states is well organised by rules, together with the principle of subsidiarity. The root cause of the euro crisis is rather the weak enforcement of rules, compounded by structural problems. Therefore, we suggest a genuine rule-based paradigm for a stable future of the Economic and Monetary Union.
This article is a review of the book "Brain computation as hierarchical abstraction" by Dana H. Ballard published by MIT press in 2015. The book series computational neuroscience familiarizes the reader with the computational aspects of brain functions based on neuroscientific evidence. It provides an excellent introduction of the functioning, i.e. the structure, the network and the routines of the brain in our daily life. The final chapters even discuss behavioral elements such as decision-making, emotions and consciousness. These topics are of high relevance in other sciences such as economics and philosophy. Overall, Ballard’s book stimulates a scientifically well-founded debate and, more importantly, reveals the need of an interdisciplinary dialogue towards social sciences.
The purpose of this paper is to study the impact of transparency on the political budget cycle (PBC) over time and across countries. So far, the literature on electoral cycles finds evidence that cycles depend on the stage of an economy. However, the author shows – for the first time – a reliance of the budget cycle on transparency. The author uses a new data set consisting of 99 developing and 34 Organization for Economic Cooperation and Development countries. First, the author develops a model and demonstrates that transparency mitigates the political cycles. Second, the author confirms the proposition through the econometric assessment. The author uses time series data from 1970 to 2014 and discovers smaller cycles in countries with higher transparency, especially G8 countries.
Die Krise des Euro hat gezeigt, dass die Währungsunion ohne gemeinsame Wirtschaftsunion unvollständig ist. Diese ist auch heute unrealistisch. Umso wichtiger ist es, die Solidität des Euro auf eine funktionsfähige Regelbindung zu gründen und aus der Wirtschafts- und Fiskalpolitik der Eurostaaten eine gemeinsame Stabilitätskultur zu entwickeln. Bodo Herzog entwirft dafür einen Weg in der Tradition der deutschen Ordnungspolitik: Eine regelgebundene Währungsunion, die auf einem besseren Regelwerk beruht, dessen Einhaltung gemeinsam, einheitlich und strikt beachtet wird.
This paper is a commentary on the book ‘Probability and stochastic processes’ from Ionut Florescu. The book is an excellent introduction to both probability theory and stochastic processes. It provides a comprehensive discussion of the main statistical concepts including the theorems and proofs. The introduction to probability theory is easy accessible and a perfect starting point for undergraduate students even with majors in other subjects than science, such as business or engineering. The book is also up-to-date because it includes programming code for simulations. However, the book has some weaknesses. It is less convincing in more advanced topics of stochastic theory and it does not include solutions to excises and recent research trends.
This paper analyzes different government debt relief programs in the European Monetary Union. I build a model and study different options ranging from debt relief to the European Stability Mechanism (ESM). The analysis reveals the following: First, patient countries repay debt, while impatient countries more likely consume and default. Second, without ESM loans, indebted countries default anyway. Third, if the probability to be an impatient government is high, then the supply of loans is constrained. In general, sustainable and unsustainable governments should be incentivized differently especially in a supranational monetary union. Finally, I develop policy recommendations for the ongoing debate in the Eurozone.
This article analyses and compares the performance of regulators in the fields of finance and sport, especially cycling. I hypothesize that the courses of crises or scandals is the best time to study the lessons of regulatory response. First, I take into account the differences in both finance and cycling by looking at the nature of the rules and institutions governing the field. Second, I estimate the attention effect on new regulation in response to crises or scandals. The interest of the paper is in the alignment of incentives to prevent regulatory capture and to ensure accountability and enforceability. The paper concludes that the differences hold important lessons that call for the reform of rules and institutions governing finance and cycling alike.
The paper studies liquidity management in the banking sector at the zero lower bound implemented by central banks. The new era of monetary policy with interest rates at zero and quantitative easing programs raise questions about the effectiveness of central banking policy and their impact on the banking sector. I find that the zero lower bound reduces liquidity reserves of banks and thus creates less credit supply. The T-LTRO program, developed by the European Central Bank, has helped to tackle this problem. However, the recently expanded asset purchase program reveals the opposite effect. Hence, the recent liquidity provisions by central banks have put incentives rather on de-leveraging than bank lending.
We investigate public debt sustainability in Europe and leading industrialised countries. The recent debate about the debt ceiling in the US and the sovereign debt crisis in Europe demonstrate the urgency of the topic. We measure debt sustainability of public finance with a standard and alternative methodology and compare both results. We use panel data of 205 OECD countries from 1970 to 2014. The paper finds unsustainable public debt levels for almost all countries in the past decades. Furthermore, given the low economic growth and demographic challenge ahead, debt levels may upsurge even more. There is a huge looming ‘debt meltdown’ on the horizon if countries do not change public policy soon.
This paper examines the determinants of Google search in the banking area. The weekly Google data from 2004 to 2013 used for this study consists of the 30 largest banks, the Federal Reserve, and the European Central Bank. To my knowledge, this is the first study on the determinants of Google data. Firstly the paper shows that Google searches are correlated with several performance variables and market data, such as asset prices and trading volume. Secondly it demonstrates that banks´ internal performance data has a major influence whereas market data is rather insignificant. Moreover it is shown that Google search for central banks is largely determined by the level of interest rates as well as the inflation and output gap. This is evidence that central bank attention is primarily driven by the policy targets. Accordingly Google data can be applied to analyze the timely impact of monetary policy.