China's Changing Competitive Position: Lessons from a Unit-Labor- Cost-Based REER

This paper calculates a unit labor-cost based real effective exchange rate for China for the period 1987-2002. It examines carefully which data sources can be used given the known limitations of Chinese data and constructs to them together with internationally available unit labor cost estimations for a number of industrialized countries, including Korea and Taiwan. It is found that gauged by the ULC measure the increase in manufacturing competitiveness from the late 1980s to the mid 1990s has been even more remarkably than given known industrial-price- based measures for real effective exchange rates suggest. However, since then, Chinese manufacturers have lost more ground than previously thought.China, international competitiveness, real exchange rate

The New Consensus from a Traditional Keynesian and Post-Keynesian Perspective

This paper examines in how far the DSGE model which is often dubbed the New Keynesian Consensus is compatibel with a Post-Keynesian or traditional Keynesian understanding of the economy. It is argued that while at first sight DSGE models seem to include a lot of traditional Keynesian or even Post-Keynesian elements such as endogeneous money or the need for an active central bank, the mechanisms at work are completely incompatible with a traditional or Post-Keynesian understanding of the working of the macroeconomy.DSGE, New Keynesian Consensus, Monetary Policy, Fiscal Policy, endogenous money

CENTRAL BANKING, FINANCIAL INSTITUTIONS AND CREDIT CREATION IN DEVELOPING COUNTRIES

This paper examines how developing countries can embark on a sustained path of strong investment, capital accumulation and economic growth without capital imports. It is argued that the key lies in the Keynesian-Schumpeterian credit-investment nexus: Given certain preconditions, the central bank can allow a credit expansion which finances new investment and creates the savings necessary to balance the national accounts. It is further argued and confirmed in empirical data that one of the biggest impediments to such a process is formal or informal dollarization which limits the policy scope of the central bank. Moreover, a stable banking system with a broad outreach as well as a low degree of pass-through between the exchange rate and domestic prices seem to be a necessary condition for this process to work

Measuring China's Fiscal Policy Stance

This paper argues that the tradtitional way of gauging a country's fiscal policy stance by looking at government budget deficit or cyclically adjusted budget deficits is misleading in the case of China, since a lot of what usually would be considered fiscal policy is conducted via investment by state owned enterprises. The paper therefore proposes a different indicator for the fiscal policy stance, constructed from government consumption, government expenditure, the state-owned- enterprises' investments and tax revenue. Using this indicator, it can be shown that fiscal policy has been strongly counter-cyclical in China over the past two decades.Fiscal Policy, China, State-Owned Enterprises, Statistics

How bad is Divergence in the Euro-Zone? Lessons from the United States of America and Germany

This paper compares relative unit labour cost developments in the countries of the euro-area since the beginning of the European Monetary Union (EMU) both with historical developments and with intra-regional unit labour cost developments in the United States of America and Germany. To this end, unit labour cost indices for the US states and census regions from 1977 to 1997 as well as for the German Länder from 1970 to 2004 have been constructed. Against this benchmark, it is found that unit labour cost increases since 1999 in Portugal and to a lesser extent in Spain and Greece can be judged as excessive, pointing at labour market rigidities which might impair smooth working of EMU in the future.Unit labor costs, divergence, convergence, Euro-zone, inflation

Does the Dispersion of Unit Labor Cost Dynamics in the EMU Imply Long-run Divergence? Results from a Comparison with the United States of America and Germany

Using unit labor cost (ULC) data from Euro area countries as well as US States and German Laender we investigate inflation convergence using different approaches, namely panel unit root tests, cointegration tests and error-correction models. All in all we cannot reject convergence of ULC growth in EMU, however, country-specific deviations from the rest of the currency union are more pronounced in Europe and more persistent. This holds before and after the introduction of the common currency.Unit labor costs, inflation, EMU, convergence, panel unit root tests, convergence clubs

Does the Dispersion of Unit Labor Cost Dynamics in the EMU Imply Long-Run Divergence?: Results from a Comparison with the United States of America and Germany

Using unit labor cost (ULC) data from Euro area countries as well as US States and German Länder we investigate inflation convergence using different approaches, namely panel unit root tests, co-integration tests and error-correction models. All in all we cannot reject convergence of ULC growth in EMU, however, country-specific deviations from the rest of the currency union are more pronounced in Europe and more persistent. This holds before and after the introduction of the common currency.Unit labor costs, inflation, EMU, convergence, panel unit root tests, convergence clubs

Anspruch und Wirklichkeit der Finanzmarktreform: Welche G20-Versprechen wurden umgesetzt? Bewertung der Politikmaßnahmen nach der Finanzkrise 2008/9

Nach dem Ausbruch der globalen Finanz- und Wirtschaftskrise 2008 haben die G20-Staats- und Regierungschefs in verschiedenen Gipfelerklärungen umfassende Re-Regulierungen des Finanzsektors und den Abbau globaler Ungleichgewichte versprochen. Die vorliegende Studie untersucht, inwieweit diese Versprechungen eingehalten worden sind. Dabei wird gezeigt, dass im Gegensatz zu gängigen Vorurteilen die Regierungen in den USA und der EU tatsächlich einiges bei der Regulierung des Finanzsektors auf den Weg gebracht haben und das Gros der Versprechungen aus dem Jahr 2009 eingelöst haben. Trotz der neuen Gesetze ist allerdings fraglich, ob künftig Finanzkrisen ähnlich jener aus dem Jahre 2008/9 verhindert werden können. Denn obwohl die G20-Vorschläge und die nun verabschiedeten Gesetze viele der problematischen Anreize und Praktiken im Finanzsektor künftig stärker regulieren, gehen sie das Grundproblem des Finanzsektors nicht an: Es gibt keinen umfassenden Ansatz, der Intransparenz und Komplexität des Finanzsektors zurückdrängen würde und Anreize setzte, damit der Finanzsektor künftig sich wieder vor allem auf die Finanzierung produktiver Realinvestitionen konzentriert. Auch ein nachhaltiger Abbau der globalen Ungleichgewichte - einer wichtigen Ursache der Krise - ist nicht abzusehen.After the onset of the global financial and economic Crisis of 2008, the G20 leaders have repeatedly promised to re-regulate the financial sector and tackle global imbalances. This study examines in how far these promises have been met by action. In contrast to public perception, it is shown that policy makers both in the US and in the EU have indeed passed a large number of new rules for the financial sector and that they have delivered on a large share of their commitments. However, it is questionable whether this will be enough to prevent future financial crisis such as the one from 2008/9. While the new rules are tightening regulation on a number of practices in the financial sector, they do not contain a comprehensive approach to boldly reduce complexity and increase transparency of the financial sector or to set the right incentives for the financial sector to focus on financing productive investment in real assets again. Moreover, the issue of global imbalances has not been tackled in a consistent and decisive matter by policy makers. As these imbalances have been an important reason for the crisis, this lack of action might prove dangerous in the future

The New Consensus from a Traditional Keynesian and Post-Keynesian Perspective: A worthwhile foundation for research or just a waste of time?

This paper examines in how far the DSGE model which is often dubbed the New Keynesian Consensus is compatibel with a Post-Keynesian or traditional Keynesian understanding of the economy. It is argued that while at first sight DSGE models seem to include a lot of traditional Keynesian or even Post-Keynesian elements such as endogeneous money or the need for an active central bank, the mechanisms at work are completely incompatible with a traditional or Post-Keynesian understanding of the working of the macroeconomy