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Most of the material on this page and then some more is also on my Repec page.)
(Latest update: February 2014)
Research interests: Quite broad (as you can see on this page), but mostly related to time series econometrics and macroeconomics. Other keywords are labor/unemployment issues, pensions, inflation.
Entries are (mostly) listed in reverse chronological order. Note that contact information given in older papers may be obsolete, but comments are still and always welcome!
Keywords: transitory components, VECM, delta method, bootstrap
Download: revised version February 2014 , now with analytical derivatives.
Abstract: The topic of this paper is the estimation uncertainty of the Stock-Watson and Gonzalo-Granger permanent-transitory decompositions in the framework of the cointegrated vector-autoregression. Specifically, we suggest an approach to construct the confidence interval of the transitory component in a given period (e.g. the latest observation) by conditioning on the observed data in that period. To calculate asymptotically valid confidence intervals we use the delta method and two bootstrap variants. As an illustration we analyze the uncertainty of (US) output gap estimates in a system of output, consumption, and investment.
Keywords: money growth, Granger causality, quantity theory, unemployment
Download: Version February 2014,
to be presented at the Eastern Economic Association meeting 2014 in Boston.
A slightly earlier version is available as Free University Berlin discussion paper 10/2013.
Short answer: It helps a lot when other important variables are
excluded from the information set.
Longer answer: We revisit claims in the literature that money growth is Granger-causal for inflation at low frequencies. Applying frequency-specific tests to euro-area data in a system with various potentially important variables, money growth is not a significant low-frequency predictor of inflation. A general-to-specific testing strategy reveals a recursive structure where only the unemployment rate and long-term interest rates are directly Granger-causal for low-frequency inflation movements, and all variables affect money growth. We therefore interpret opposite results from bivariate inflation/money growth systems as spurious due to omitted-variable biases. We also analyze the resulting four-dimensional system in a cointegration framework and find structural changes in the long-run adjustment behavior, which do not affect the main conclusions, however.
Keywords: density forecasts, business-cycle turning points, real-time data, nowcasting, great recession, Germany
Version January 2014, generalized to non-normal errors and with an additional application
(to the U.S.)
An alternative download source is as Free University Berlin discussion paper 2/2014.
Abstract: For the timely detection of business-cycle turning points we suggest to use medium-sized linear systems (subset VARs with automated zero restrictions) to forecast the relevant underlying variables, and to derive the probability of the turning point from the forecast density as the probability mass below (or above) a given threshold value. We show how this approach can be used in real time in the presence of data publication lags and how it can capture the part of the data revision process that is systematic. Then we apply the method to US and German monthly data. In an out-of-sample exercise (for 2007-2012/13) the turning points can be signalled before the official data publication confirms them (but not before they happened in reality).
Keywords: consumption smoothing, retirement-consumption puzzle, SOEP
Download: paper version November 2010 . This paper is currently waiting for more data from recent SOEP waves... A slightly older version is published as IMK Working Paper 14/2010. Older versions had the title "Housing consumption after retirement: Is there a puzzle?", for example that's the title which appears in the programme of the Econometric Society World Congress 2010 where this was presented.
Abstract: According to the life-cycle theory of consumption and saving, foreseeable retirement events should not reduce consumption. Whereas some consumption expenditures may fall when goods are self-produced (given higher leisure after retirement), this argument applies especially to housing consumption which can hardly be substituted by home production. We test this hypothesis using micro data for Germany (SOEP) and find that income reductions when entering retirement have a negative effect on housing expenditures for tenants. For some econometric specifications, this effect is significantly stronger than the one of income changes at other times. While this result suggests that the strict consumption-smoothing hypothesis is violated for the subgroup of non- home owners (60 per cent in Germany), the effect is quantitatively small, which explains the ambiguity of previous findings.
Please note that the contact information given in the finished papers below may be out of date!
Keywords: gretl, TestU01, RNG, random numbers
Download: free at the journal website. Published in Journal of Statistical Software, 2012, vol. 50.
Abstract: The increasing popularity and complexity of random number intensive methods such as simulation and bootstrapping in econometrics requires researchers to have a good grasp of random number generation in general, and the specific generators that they employ in particular. Here, we discuss the random number generation options, their specifications, and their implementations in gretl. We also assess the performance and the reliability of gretl in this department by conducting extensive empirical testing using the TestU01 library. Our results show that the available alternatives are soundly implemented and should be sufficient for most econometric applications.
Keywords: relative price variability, trend inflation, endogeneity bias
Download: Version February 2010 Now published in Empirical Economics, 2012, vol. 43, no. 1, pp. 291-311.
Abstract: Distortionary effects of inflation on relative prices are the main argument for inflation stabilization in macro models with sticky prices. Under indexation of non- optimized prices those models imply a nonlinear and dynamic impact of inflation on the cross-sectional price dispersion (relative price or inflation variability, RPV). Using US sectoral price data we estimate such a relationship between inflation and RPV. We confirm the impact of inflation fluctuations but find hitherto neglected en- dogeneity biases, and our IV and GMM estimates indicate that average ("trend") inflation is significant for indexation. Lagged inflation is less important.
Keywords: euro-area unemployment, VECM, permanent-transitory decomposition
Download: Version June 2010. Published in Applied Economics 2012, vol. 44, no. 10, pp. 1315-1335 (DOI: 10.1080/ 00036846.2010.539548).
Abstract: Given that for France, Germany, Italy, and the Netherlands the unemployment rates are best classified as I(1), we apply permanent-transitory decompositions based on cointegrated VARs with relevant variables (labor productivity, wages, tax wedges, foreign relative prices) to estimate the time-varying natural unemployment rates. In general all variables seem to matter, and the results are quite different from published OECD Nairus. Our implied unemployment gaps are better than the OECD gaps in predicting unemployment changes and inflation gaps, but they are (except for Italy) as bad as the OECD gaps for forecasting inflation changes.
Keywords: productivity slowdown, growth, NAIRU level, common shifts
Download published version at www.bepress.com/bejm/vol9/iss1/art39. Published in The B.E. Journal of Macroeconomics, 2009, Vol. 9 : Iss. 1 (Topics), Article 39. DOI: 10.2202/1935-1690.1818.
Update: The Python/Numpy code for the co-breaking analysis is in the file cobreakprototype_web.py, which has a docstring at the top with explanations. To use it you also need the auxiliary file helpers.py and put it next to the other one, meaning in the same directory/folder.
Abstract: We investigate the controversial issue whether unemployment is related to productivity growth in the long run, using U.S. data in a framework of infrequent mean shifts. Univariate tests find (endogenously dated) shifts in 1974, 1986, and 1996. System co-breaking techniques indicate that the shifts are common features, and the implied long-run link between the two variables is negative. Therefore the secular decline of unemployment since the mid 1990's indeed seems related to higher average productivity growth. The initial and final regimes are essentially equal, which would be compatible with explanations of the productivity slowdown that point to historical learning costs of information technology adoption.
Keywords: Hausman test, negative chi^2 statistic, nuisance parameter
Download: last working paper version August 2008. Published in the Journal of Economics and Statistics (Jahrbücher für Nationalökonomie und Statistik), 2008, vol. 228 no. 4, pp. 394-405.
Abstract: We show that under H1 the Hausman chi-square test
statistic can be negative not only in small samples but even
asymptotically. Therefore in large samples a negative test
statistic is only compatible with H1 and should be interpreted
accordingly. Applying a known insight from finite samples, this
can only occur if the different estimation precisions (often the
residual variance estimates) under H0 and under H1 both enter the
test statistic. In finite samples, using the absolute value of
the test statistic is a remedy that does not alter the test under
the null hypothesis and is thus admissible.
[add the following paragraph for long summary:]
Even for positive test statistics the relevant covariance matrix difference should be routinely checked for positive semi-definiteness, because we also show that otherwise test results may be misleading. Of course the preferable solution still is to impose the same nuisance parameter (i.e., residual variance) estimate under the null and alternative hypotheses, if the model context permits that with relative ease. We complement the likelihood-based exposition by a formal proof in an omitted-variable context, we present simulation evidence for the test of panel random effects, and we illustrate the problems with a panel homogeneity test.
Keywords: worksharing, structural vector error correction model, employment
Download: Almost final version (August 2007), but still as eye-opening (or mind-boggling?) as the first one; this is a follow-up paper on Logeay&Schreiber (2005, "Testing the effectiveness...", see below), now in the European Journal of Political Economy, vol 24, no 2, pp. 478-490.
Abstract: Abstract French employment increased significantly after a labor-market reform in 2000. This paper analyzes whether that development was driven by worksharing (the mandated reduction of the workweek length) as claimed by the government. We use a structural VAR model in error correction form (SVECM) to assess the impact of shocks to the workweek length. It turns out that downward workweek shocks actually had adverse employment effects. We conclude that other reform components were responsible for the employment success in France, namely reduced non-wage labor costs and possibly higher firm-level flexibility of temporarily adjusting the workweek.
Keywords: NAIRU, Phillips curve, cointegration, VECM impulse response analysis
Download: This paper grew out of Free University Berlin discussion paper 2002/08 (with a different title) which was presented at the 2002 Econometric Society European Meeting (ESEM). A newer version is in the Journal of Macroeconomics, 2007, vol. 29, pp. 355-367. Slightly outdated version February 2005
Abstract: For the estimation of constant as well as time-varying NAIRUs it is customary to assume -sometimes implicitly- that the long-run Phillips curve is vertical. We point out that the observed data often do not possess the stochastic properties that are needed to impose this restriction, especially when unemployment is non-stationary. Using Germany as a prototypical example, we apply a VAR cointegration analysis and find a negative long-run Phillips curve relation between inflation and unemployment which is robust with respect to variations of the specification. The dynamic interactions indicate that real forces drive the system in the long run, such that the results are compatible with standard economic models.
Keywords: unemployment, work-sharing, France, VECM, forecasting
Download: More or less the version that was presented at EEA 2004 and which is now in Applied Economics, 2006, vol. 38, no. 17 (September), pp. 2053-2068: Final version . Es gibt auch eine deutsche Version des Papiers (Juni 2005) (830KB!). Earlier version presented at the European Association of Labour Economists (EALE) 2003 meeting, and an even earlier version in German appeared as DIW Berlin discussion paper no. 362.
Abstract: We analyze the macroeconomic impact of the French work-sharing reform of 2000 (a reduction of standard working hours in combination with wage subsidies). Using a vector error correction model (VECM) for several labor market variables as well as inflation and output we produce out-of-sample forecasts for 2000/2001. A comparison of these forecasts -which serve as a benchmark simulation without structural shifts- to the realized values (with shifts) suggests significant beneficial employment effects of the policy mix. Other shifts were absent and thus cannot explain the outcome. Output, productivity, hourly labor costs, and inflation are only transitorily affected or not at all.
Keywords: insider-outsider unemployment, learning by doing, pay-as-you-go pension system
Download: Drastically improved revision (with slightly changed title) of Free University Berlin economics discussion paper 2001/06 which was presented at the 2001 European Economic Association (EEA) meeting and at the 2001 Institute for the Study of Labor (IZA) conference "Pension Reform and Labor Markets". (An older version was posted as research report 2001/3 at the Centre for Pensions and Social Insurance, dead link now.) Published in JITE (Journal of Institutional and Theoretical Economics), 2005, vol. 161, no. 4 (December), pp. 708-728: Final version May 2005
Abstract: If workers gain an insider position through past activity, young workers will bear the resulting outsider unemployment burden. In a world where productivity of employed workers rises because of learning-by-doing, and where labor demand is sufficiently elastic, preventing this unemployment (by lowering wages) leads to a higher income tax base in the future. Thus the institution of certain intergenerational transfer schemes provides an incentive for insiders to lower wages. In a stylized overlapping generations model I show that this effect partially or fully abolishes unemployment in the steady state equilibria.
An earlier version was presented at the 2001 International Institute of Public Finance meeting. A still older version was presented in 1999 at the Fiscal Affairs Department of the International Monetary Fund (IMF), where it all started as my summer internship project.
Abstract: This paper estimates the cost of the minimum pension
guarantee in Chile’s individually funded pension system. It
uses a stochastic simulation to assess the fiscal impact of the
dynamics of the relevant variables, namely wages and asset
This is the first aggregate study with wage stochastics, and it also accounts for so-called “recognition bonds” reflecting workers’ contributions to the previous defined benefit system. It is found that the beneficiaries of the guarantee are mainly the currently non-contributing affiliates of the system, provided they will not permanently drop out of the labor force. Women as a group also tend to receive more transfers than men.
The ex-ante cost distribution for the baseline case lies in the range of 0 to 20% of Chile’s 1998 GDP with a median of about 4%. The impact of various institutional settings and parameter values is assessed.
Abstract: In the mid 1980s, the German Council of Economic Experts suggested a "productivity-oriented wage policy" rule. Some time series analytical considerations show that such a policy will fail to stabilize the labor share in the long run, except in the special case of a Cobb-Douglas production function. In general, the necessary cointegrating relationships cannot be established because the policy rule is formulated in terms of growth rates instead of levels. This finding holds for forward-looking rational as well as for backward-looking expectations. Some evidence is presented showing that the problem applies to the West German economy in the period 1980-1994.