Asset Prices, Inflation and Monetary Control - Re-inventing Money as a Policy Tool

Low inflation on goods markets provides no reliable precondition for asset-market stability; it might even promote the emergence of bubbles because interest rates and risk premia appear to be low. A further factor driving asset demand is easy availability of credit, which in turn roots in the banking system operating in a regime of endogenous central-bank money. A comparison of Bundesbank and ECB policies suggests that credit growth can be controlled more efficiently if rising interest rates are accompanied by some liquidity squeeze that supports the spillover of a monetary restriction to capital markets. The announcement effect of a central bank Charter including the goal of financial-market stability helps to deter private agents from excessive asset trading.open-market policy; asset-price bubble; euro money market; ECB strategy

Two-Pillar Monetary Policy and Bootstrap Expectations

The paper integrates the two-pillar Phillips curve, which explains expected inflation by the money growth trend, within a simple macro model. A Taylor-like interest rule contains also a money growth target. The model takes into account serially correlated supply and money demand shocks; the latter induce goods demand shocks, thereby establishing a feedback mechanism from money to markets which is missing in the modern New Keynesian approach. Two groups of market agents are distinguished from which one derives inflation expectations from money growth trend figures whereas the other builds rational expectations by way of learning. The inspection of output and inflation variances show that a policy of reacting to excess money growth requires precise information on shock characteristics whereas inflationgap and output-gap oriented interest policies provide more robust stabilization services.

China's reform of intergovernmental fiscal relations in the light of European experiences

The paper looks a China's institutional reforms in public finances against the background of European experiences. Particular attention is given to Switzerland and Germany where there is a high degree of consensus forming mechanisms. These federations are also characterized by concepts of regional fairness and are hence more appropriate as potential models than competitive federalism models such as that of the United States. The basic characteristics of the two European federations are described and analyzed.Federalism; German federation; Swiss federation; Germany; Switzerland; fiscal capacity; equalization; public borrowing; public administration; intergovernmental grants; German unification; tax assignment; shared taxes

The New Keynesian Microfoundations of Macroeconomics

New Keynesian Macroeconomics (NKM) obeys to the new dogma that macroeconomics should be firmly grounded in First Principles of micro theory. Households are assumed to run an intertemporal optimization calculus with respect to leisure and consumption by making use of perfect financial markets. The supply side is organized so that full employment prevails. Macroeconomic coordination problems between saving and investment are absent. In order to make model predictions more compatible with empirical facts, NKM chooses "ad hoc" microfoundations: utility functions and market structures are designed arbitrarily to allow for persistence of macro variables. NKM's reduced hybrid macro model, with lags and expectational leads, is a useful "work horse", compatible with various micro reasoning. However, NKM's insistence on the representative agent obstructs an understanding of heterogeneous beliefs and learning.Representative Agent, Ramsey Saving, Calvo Pricing, Sticky Information, Rational Expectations, Heterogeneous Beliefs

Institutional Arrangements for Coordination Among Governments in Germany

The theory of fiscal federalism makes a strong case for decentralizing government functions in order to enhance the efficiency of allocating public goods where preferences differ among regions. Decentralized collective decision making fosters social and political cohesion at the level of the nation state by protecting minorities, by strengthening the accountability of politicians, and by mobilizing citizens through greater participation at the local level. Federalism respects different cultural and individual traditions among regions, and it emphasizes local diversity. Federalism thus reflects the regional dimension of democracy. However, decentralized government raises severe coordination problems. Coordination of public agencies within government—among the Executive, the Legislative, the Judicature, and the Administration—is difficult enough, yet it is further complicated in a multi-layer government framework where different authorities interact—governments and parliaments that are more or less autonomous and accountable to their respective constituencies. This may call for specific institutional provisions and rules for policy coordination and for dealing with conflicts between the levels of government. The focus of this paper is on the mechanisms of coordination as established in the Federal Republic of Germany (FRG) with its specific tradition of “cooperative federalism”.government; coordination; federalism; cooperative federalism; budget coordination

Local Taxation: Principles and Scope

The paper discusses principles of local taxation such as accountability, benefit-tax link, non-distortion, regional equity, long-term efficiency, reliability and stability of tax bases, tax sharing as implicit insurance, and administrative simplicity. Not all of the criteria for local taxation are consistent with each other and could be realized at the same time.local taxation; principles of taxation; accountability; regional equity; benefit-tax link; long-term efficiency; non-distortion

The Marshall Plan: Searching for Creative Peace, Then and Now

The article reviews the elements of the Marshall Plan after World War II, and relates its positive features to economic challenges of the end of the 20th century.Marshall Plan; economic development; Europe; transition countries; foreign policy; institution building; infrastructure

The Pass Through From Market Interest Rates to Retail Bank Rates in Germany

In this paper, we address the pass-through from money and capital market interest rates to bank retail rates in Germany for the period January 2003 to December 2006 using a panel of almost 200 banks. In addition, banks' heterogeneous price setting behaviour is analysed by investigating the kind of attributes of a credit institution in terms of its balance sheet characteristics and its institutional arrangements that alter its adjustment process. The main conclusions are the incompleteness of pass-through in both the short and the long run and the existence of considerable heterogeneity across retail products and banks. Both maturity and loan size matter in determining the degree of pass-through as well as whether products are targeted at firms or households. Banks' balance sheet structure has a sizeable impact on the speed and magnitude of their adjustment. Large, illiquid, less diversified credit institutes and those heavily involved in interbank lending change their rates more rapidly and incorporate more of a change in market conditions in their rates in the long run. Even the different banking groups that are peculiar to Germany adjust their rates not in a uniform manner, but savings banks and credit cooperatives adjust their rates more slowly than the remaining banks.

Vertical structures induced by embedded moonlets in Saturn's rings: the gap region

We study the vertical extent of propeller structures in Saturn's rings. Our focus lies on the gap region of the propeller and on non-inclined propeller moonlets. In order to describe the vertical structure of propellers we extend the model of Spahn and Sremcevic (2000) to include the vertical direction. We find that the gravitational interaction of ring particles with the non-inclined moonlet does not induce considerable vertical excursions of ring particles, but causes a considerable thermal motion in the ring plane. We expect ring particle collisions to partly convert the lateral induced thermal motion into vertical excursions of ring particles. For the gap region of the propeller, we calculate gap averaged propeller heights on the order of 0.7 Hill radii, which is of the order of the moonlet radius. In our model the propeller height decreases exponentially until viscous heating and collisional cooling balance. We estimate Hill radii of 370m and 615m for the propellers Earhart and Bleriot. Our model predicts about 120km for the azimuthal extent of the Earhart propeller at Saturn's 2009 equinox, being consistent with values determined from Cassini images