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This paper analyzes governance mechanisms for different group sizes. The European sovereign debt crisis has demonstrated the need of efficient governance for different group sizes. I find that self-governance only works for sufficiently homogenous and small neighbourhoods. Second, as long as the union expands, the effect of credible self-governance decreases. Third, spill-over effects amplify the size effect. Fourth, I show that sufficiently large monetary unions, are better off with costly but external governance or a free market mechanism. Finally, intermediate-size unions are most difficult to govern efficiently.
This paper develops a linear and tractable model of financial bubbles. I demonstrate the application of the linear model and study the root causes of financial bubbles. Moreover, I derive leading properties of bubbles. This model enables investors and regulators to react to market dynamics in a timely manner. In conclusion, the linear model is helpful for the empirical verification and detection of financial bubbles.
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.
This paper is a review about the book "Stress Test: Reflections on Financial Crises" by Timothy Geithner. The book mainly discusses the policy decisions and implications of T. Geithner during his job as New York FED president and US-Treasury secretary under president Obama. The book reveals some hidden information about the decision-making process in both institutions. But it lacks a scientific foundation in order to explain the financial crisis in more detail. Hence, I think the book is less convincing than recognized in public. No doubt, Geithner crisis response deserves appreciation especially the "Stress Test". However, the overall book does not demonstrate that the response is sustainable in the long run and scientifically sound. Consequently, it is more a book on public policy and governance than economics.
This paper establishes a unique linkage between economic and sociological theories. I study the root causes of the euro crisis from both perspectives. I find that resolving the euro crisis requires economic and sociological insights, particularly in respect to the design of European institutions, rules, and regulations. I develop a new paradigm in attempt to tackle the euro crisis. This paper demonstrates the importance of an interdisciplinary dialogue and how this may safeguard the future of the Economic and Monetary Union.
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.
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.
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.
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 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.
Die weiterhin hohen Schulden in einigen Staaten der Europäischen Wirtschafts- und Währungsunion lassen nach wie vor staatliche Insolvenzen befürchten. Um die entstandenen Probleme zu bewältigen, aber auch damit eine solche Situation erst gar nicht eintritt, hält der Autor eine staatliche Insovenzordnung – mit Bail-out durch die anderen Mitgliedstaaten nur in Notfällen – für erforderlich. Er schlägt einen staatlichen Abwicklungsmechanismus für überschuldete Euro-Länder vor, der auf einem Konzept des Sachverständigenrates für Wirtschaft von 2016 beruht.
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.
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.
Die Lage der öffentlichen Haushalte ist aufgrund der Finanz- und Wirtschaftskrise seit geraumer Zeit angespannt. Bereits während des Bundestagswahlkampfs sowie nach dem Wahlsieg der christlich-liberalen Koalition im Jahr 2009 gab es eine hitzige Debatte über die Vereinbarkeit von Steuersenkungen und nachhaltigen öffentlichen Finanzen. Im vorliegenden Beitrag wird die Frage der Finanzierbarkeit von Steuererleichterungen durch zukünftiges Wirtschaftswachstum diskutiert. Auf Basis aktueller Daten und modelltheoretischer Simulationsberechnungen wird ein wirtschaftspolitisch gangbarer Weg zur Umsetzung des Koalitionsvertrages aufgezeigt.
This article studies the hidden blemishes of two benchmark rulings of the European Court of Justice (ECJ). In 2015 and 2018, the ECJ approved two unconventional monetary instruments, among others ‘Outright Monetary Transactions’ and the ‘Public Sector Purchase Program’. Yet, there is a vigorous debate about both monetary operations in law and economics. In this interdisciplinary article, we address law and economic arguments in order to elucidate insights to the legal community. In particular, we elaborate on the legal implications of a variety of concerning issues such as public policy interference, effect on wealth redistribution, erosion of democratic legitimacy and lack of effectiveness of monetary policy. These topics remain disregarded in the ECJ rulings. Consequently, the verdicts do not identify the economic boundaries of the European Central Bank’s mandate appropriately.
Das Weltwirtschaftswachstum der vergangenen Jahrzehnte war durch die Dynamik der Digitalisierung und Globalisierung in den Lieferketten geprägt. Die Corona-Pandemie hat die Abhängigkeit und Verletzlichkeit der Lieferketten offengelegt. Trotz einer Vielzahl verbindlicher Standards haben Unternehmen die Digitalisierung und Arbeitsteilung auch für regulatorische Arbitrage genutzt. Einerseits erhöht das die Effizienz der Wirtschaft - was mithin ökologische Ressourcen schont - andererseits werden damit internationale Standards konterkariert. Globalisierung und Digitalisierung sind Segen und Fluch zugleich.
In this paper, we examine the political gridlock in reforming the Economic and Monetary Union. We utilize a two–stage game with imperfect information in order to study the optimal sequencing. The main results are: first, optimal sequencing requires for incompliant Member States a default option in stage–two, which in principle is related to the today's fiscal architecture (EMU-I). Second, we show that compliant countries prefer a reform equilibrium today if and only if they have a free choice about the preferred fiscal architecture at the end — either EMU-II with binding European coordination or EMU-I related to Maastricht. Noteworthy, our sequencing approach works for any design of the EMU-II architecture.
The article studies a novel approach of inflation modeling in economics. We utilize a stochastic differential equation (SDE) of the form dXt=aXtdt+bXtdBtH, where dBtH is a fractional Brownian motion in order to model inflationary dynamics. Standard economic models do not capture the stochastic nature of inflation in the Eurozone. Thus, we develop a new stochastic approach and take into consideration fractional Brownian motions as well as Lévy processes. The benefits of those stochastic processes are the modeling of interdependence and jumps, which is equally confirmed by empirical inflation data. The article defines and introduces the rules for stochastic and fractional processes and elucidates the stochastic simulation output.
Resilienz und Stabilität? Weichenstellungen im Banken- und Finanzsystem in der Corona-Pandemie
(2020)
Seit der globalen Finanzkrise 2008/2009 hat es keine vergleichbare Herausforderung wie die Corona-Krise für das Finanz- und Bankensystem mehr gegeben.
Schwache Profitabilität, ungelöste Regulierungs-herausforderungen und steigende Konkurrenz im Digitalbereich stellen die Banken vor weitere Heraus-forderungen.
Die Stabilität des Finanzsystems und der Zugang zu den Finanzmärkten war während der Pandemie nicht gefährdet. Durch gemeinsame Bemühungen und bes-sere Bankenkapitalisierung ist das Finanzsystem heute widerstandsfähiger als zu Zeiten der Finanzkrise.
Sofern die Zuschüsse und Kredite im „Next Genera-tion EU“-Fund zielgerichtet für Strukturreformen und Zukunftsinvestitionen eingesetzt werden, dürfte dies einen Vertrauens- und Wachstumsimpuls darstellen.
Weitere Verbesserungen der Finanzstabilität, wie erhöhte Eigenkapitalunterlegungen, Regulierung von Schattenbanken oder Reformen im Bereich der Finanzaufsicht, sind jedoch von Nöten.
Since the global financial crisis of 2008/2009, there has been no challenge to the financial and banking system comparable to that during the Corona crisis.
Weak profitability, unresolved regulatory challenges and increasing competition in the digital sector pose further challenges for banks.
The stability of the financial system and access to financial markets was not at risk during the pandemic. Through joint efforts and better bank capitalisation, the financial system is now more resilient than during the financial crisis.
Provided that grants and loans in the “next generation EU” fund are well targeted for structural reforms and investments in the future, this should boost confi-dence and growth.
However, further improvements in financial stability, such as increased capital requirements, regulation of shadow banks or reforms in financial supervision, are needed.