Halle Institute for Economic Research

Abstract We show an equivalence result in the representative-agent New-Keynesian model after demand, wage-markup and correlated price-markup and TFP shocks: assuming sticky prices and flexible wages yields identical allocations for GDP, consumption, labor, inflation and interest rates to the opposite case—flexible prices and sticky wages. This equivalence arises with identical price and wage Phillips-curve slopes and generalizes to any slopes' pair whose sum and product are identical. Equilibrium profits and wages are, however, substantially different; equivalence breaks when these factor-distributional implications matter for aggregate allocations, e.g. in New-Keynesian models with heterogeneous agents, endogenous firm entry, and non-constant returns to scale.

ABSTRACTThe European Commission's growth forecasts play a crucial role in shaping policies and provide a benchmark for many (national) forecasters. The annual forecasts are built on quarterly estimates, which do not receive much attention and are hardly known. Therefore, this paper provides a comprehensive analysis of multiperiod ahead quarterly GDP growth forecasts for the European Union (EU), euro area, and several EU member states with respect to first‐release and current‐release data. Forecast revisions and forecast errors are analyzed, and the results show that the forecasts are not systematically biased. However, GDP forecasts for several member states tend to be overestimated at short‐time horizons. Furthermore, the final forecast revision in the current quarter is generally downward biased for almost all countries. Overall, the differences in mean forecast errors are minor when using real‐time data or pseudo–real‐time data and these differences do not significantly impact the overall assessment of the forecasts' quality. Additionally, the forecast performance varies across countries, with smaller countries and Central and Eastern European countries (CEECs) experiencing larger forecast errors. The paper provides evidence that there is still potential for improvement in forecasting techniques both for nowcasts but also forecasts up to eight quarters ahead. In the latter case, the performance of the mean forecast tends to be superior for many countries.

Abstract We investigate the predictive power of loan spreads for forecasting business cycles, specifically focusing on more constrained, intermediary-reliant firms. We introduce a novel loan-market-based credit spread constructed using secondary corporate loan-market prices over the 1999 to 2023 period. Loan spreads significantly enhance the prediction of macroeconomic outcomes, outperforming other credit-spread indicators. We also explore the underlying mechanisms and differentiate between borrower fundamentals and financial frictions. Evidence suggests that supply-side frictions are a decisive factor in the forecasting ability of loan spreads. (JEL E23, E44, G20)

AbstractThe Roy–Borjas model predicts that international migrants are less educated than nonmigrants because the returns to education are generally higher in developing (migrant‐sending) countries than in developed (migrant‐receiving) countries. However, empirical evidence often contradicts this prediction, even when comparing migrants from different regions of the same country. Specifically, whilst Mexicans migrating to the United States from urban areas are negatively selected based on education, those from rural areas are positively selected – despite similar returns in both regions. Leveraging this setting, we demonstrate that the inconsistency between theory and evidence can be resolved by assessing migrants' human capital using a two‐dimensional measure of occupational skills rather than educational attainment. Our findings caution against using positive migrant selection on education as evidence to reject the Roy–Borjas framework for explaining international migration.

Climate change and inequality are critical and interrelated issues. Despite growing empirical evidence on the distributional implications of climate policies and climate risks, mainstream model-based assessments are often silent on the interplay between climate change and economic inequality. Here we fill this gap through an ensemble of eight large-scale integrated assessment models that belong to different economic paradigms and feature income heterogeneity. We quantify the distributional implications of climate impacts and of the varying compensation schemes of climate policies compatible with the goals of the Paris Agreement. By 2100, climate impacts will increase inequality by 1.4 points of the Gini index on average. Maintaining global mean temperature below 1.5 °C reduces long-term inequality increase by two-thirds but increases it slightly in the short term. However, equal per-capita redistribution can offset the short-term effect, lowering the Gini index by almost two points. We quantify model uncertainty and find robust evidence that well-designed policies can help stabilize climate and promote economic inclusion. Climate change and economic inequality are critical issues, and we still lack understanding of the interaction between them. Multi-model analysis shows how climate policies compatible with the goals of the Paris Agreement, including revenue-redistribution schemes, can reduce inequality—particularly in the short and medium terms.

This study aimed to estimate the association between single dietary risk factors and cardiovascular mortality in the WHO European Region, its four subregions and 46 individual countries. For this purpose, data from the Global Burden of Diseases Study (GBD) 2019 iteration were employed and analysed according to age (≥ 25 years) and sex. The comparative risk assessment framework of the GBD was utilized in order to estimate the number of cardiovascular deaths that could be attributed to 13 dietary risks. The study period spanned from 1990 to 2019. Between 1990 and 2019 the absolute number of diet-related cardiovascular deaths (DRCDs) in the WHO ER decreased from 1.69 to 1.55 million deaths. Moreover, a decline in the absolute number of deaths was observed in two subregions and 27 countries. In 2019, the number of deaths was almost equally distributed between women and men. This distribution has undergone only slight temporal changes. The number of cases for men were found to be higher in three subregions and in 30 countries. The majority of DRCDs in the WHO ER were attributable to 'a diet low in whole grains', which was also the primary risk factor in three subregions und 29 countries. The next most-common risk factor was 'a diet low in legumes', followed by 'a diet high in sodium'. In particular, the risk factor 'a diet high in sodium' was a significant contributing factor in Central Europe. In addition, the risk factor 'a diet high in red meat' was more pronounced in Western Europe than in the other regions and slightly more influential in the group of women across all regions. For men 'a diet high in sodium' was more prominent than for women. In essence, slight changes in the influence of individual risk factors were observed across the different age groups. The datasheets enable the observation of changes within the dietary risks over time, their distribution by age and sex, and differences between regions and individual countries in detail. This allows for an individual assessment of the problem situation for each country, the subregions and the European Region as a whole, with the aim of developing solution strategies based on this assessment. Dietary interventions can focus on the relevant food and target groups in order to support a health-promoting diet.

Abstract Wage mobility reduces the persistence of wage inequality. We develop a framework to quantify the contribution of employer-to-employer movers to aggregate wage mobility. Using three decades of German social security data, we find that inequality increased while aggregate wage mobility decreased. Employer-to-employer movers exhibit higher wage mobility, mainly due to changes in employer wage premia at job change. The massive structural changes following German unification temporarily led to a high number of movers, which in turn boosted aggregate wage mobility. Wage mobility is much lower at the bottom of the wage distribution, and the decline in aggregate wage mobility since the 1980s is concentrated there. The overall decline can be mostly attributed to a reduction in wage mobility per mover, which is due to a compositional shift toward lower-wage movers.

AbstractThis paper analyzes whether Christian moralities and rules formed differently by Catholics and Protestants impact the likelihood of households becoming over‐indebted. We find that over‐indebtedness is lower in regions in which Catholics outweigh Protestants, indicating that Catholics' forgiveness culture and stricter enforcement of rules by Protestants serve as explanations for our results. Our results provide evidence that religion affects the financial situations of individuals and show that even 500 years after the split between Catholics and Protestants, the differences in the mindsets of both denominations play an important role in situations of severe financial conditions.

We study the impact of US presidential election TV debates on the cross section of intraday exchange rate returns of 96 currencies from 1996 to 2016. The performance of the candidates in the debate is an exogenous shock to the election probability. We find that currencies of countries with high levels of bilateral foreign trade with the US depreciate if the election probability of the protectionist candidate increases during the debate, while no significant impact is detected for countries with bilateral US exports to GDP below 2 percent. Expectations about protectionist measures are the main transmission channel of debate outcomes, while the candidates' stance towards military and immigration play a minor role.

Using a novel data set comprising bid–ask quotes for foreign exchange swaps from individual dealers, we examine the consequences of the Swiss National Bank’s sudden termination of the Swiss franc/euro minimum exchange rate in 2015 on other pegged currencies. Our findings indicate a spillover effect as dealer banks began to reassess the risk associated with unexpected peg terminations, subsequently leading to wider bid–ask spreads for pegged currencies. This highlights that, even in strong economies, the credibility of a currency peg is influenced not only by the actions of the respective central bank but also by the stability of other pegged currencies. This paper was accepted by Lukas Schmid, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.01117 .

Abstract We estimate potential regional industrial effects in case of a threatening gas deficit. For Germany, the reduction leads to a potential decrease in industrial value added by 1.6 %. The heterogeneity across German states is remarkable, ranging from 2.2 % for Rhineland-Palatinate to 0.7 % for Hamburg. We emphasize the need for regional input-output tables to conduct economic analysis on a sub-national level, particularly when regional industrial structures are heterogeneous. The approximation with national figures can lead to results that differ both in magnitude and relative regional exposure. Our findings highlight that more accurate policy guidance can be achieved by improving the regional database.