Banks' regulatory buffers, liquidity networks and monetary policy transmission

Based on a quarterly regulatory dataset for German banks from 1999 to 2004, this paper analyzes the effects of banks’ regulatory capital on the transmission of monetary policy in a system of liquidity networks. The dynamic panel regression results provide evidence in favor of the bank capital channel theory. Banks holding less regulatory capital and less interbank liquidity react more restrictively to a monetary tightening than their peers. --Monetary policy transmission,Bank lending channel,Bank capital channel,Liquidity networks

Macroeconomic Volatilities and the Labor Market: First Results from the Euro Experiment

This paper analyzes the effects of different labor market institutions on inflation and output volatility. The eurozone offers an unprecedented experiment for this exercise: since 1999, no national monetary policies have been implemented that could account for volatility differences across member states, but labor market characteristics have remained very diverse. We use a New Keynesian model with unemployment to predict the effects of different labor market institutions on macroeconomic volatilities. In our subsequent empirical estimations, we find that higher labor turnover costs have a statistically significant negative effect on output volatility, while replacement rates have a positive effect, both of which are in line with theory. While labor market institutions have a large effect on output volatility, they do not seem to have much of an effect on inflation volatility, which can also be rationalized by our theoretical model.eurozone, unemployment, labor market institutions, output and inflation volatility, labor turnover costs, unemployment benefits

Extensive vs. Intensive Margin in Germany and the United States: Any Differences?

This paper analyzes the role of the extensive vis-à-vis the intensive margin of labor adjustment in Germany and in the United States. The contribution is twofold. First, we provide an update of older U.S. studies and confirm the view that the extensive margin (i.e., the adjustment in the number of workers) explains the largest part in the overall variability in aggregate hours. Second, although the German labor market structure is very different from its U.S. counterpart, the quantitative importance of the extensive margin is of similar magnitude.variance decomposition, extensive and intensive margin, business cycle

Selective hiring and welfare analysis in labor market models

Firms select not only how many, but also which workers to hire. Yet, in standard search models of the labor market, all workers have the same probability of being hired. We argue that selective hiring crucially affects welfare analysis. Our model is isomorphic to a search model under random hiring but allows for selective hiring. With selective hiring, the positive predictions of the model change very little, but the welfare costs of unemployment are much larger because unemployment risk is distributed unequally across workers. As a result, optimal unemployment insurance may be higher and welfare is lower if hiring is selective.labor market models, welfare, optimal unemployment insurance

Monetary Persistence and the Labor Market: A New Perspective

In this paper we propose a novel way to model the labor market in the context of a New-Keynesian general equilibrium model, incorporating labor market frictions in the form of hiring and firing costs. We show that such a model is able to replicate many important stylized facts of the business cycle. The reactions to monetary and real shocks become much more sluggish. Job creation and job destruction are negatively correlated. And the volatility of unemployment is much larger than in the standard search and matching model.monetary persistence, labor market, hiring and firing costs

They are even larger! More (on) puzzling labor market volatilities

"This paper shows that the German labor market is more volatile than the US labor market at the business cycle frequency. Specifically, the volatility of the cyclical component of several labor market variables (e.g., the job-finding rate, the labor market tightness and vacancies) divided by the volatility of labor productivity is roughly twice as large as in the United States. We derive and simulate a simple model to explain this seemingly puzzling result. This new model provides explanations for this phenomenon, in particular the longer job tenure in Germany." (Author's abstract, IAB-Doku) ((en))Arbeitsmarktindikatoren - internationaler Vergleich, Beschäftigungsschwankung, offene Stellen, Arbeitsproduktivität, Konjunkturabhängigkeit, Betriebszugehörigkeit, Beschäftigungsdauer, Arbeitslosenquote, labour turnover, Kündigung - Quote, Lohnhöhe, institutionelle Faktoren, Lohnfindung, matching - Quote, Produktivitätsentwicklung, USA, Bundesrepublik Deutschland

Fiscal Multipliers and the Labour Market in the Open Economy

Several contributions have recently assessed the size of fiscal multipliers both in RBC models and New Keynesian models. None of the studies considers a model with frictional labour markets which is a crucial element, particularly at times in which much of the fiscal stimulus has been directed toward labour market measures. We use an open economy model (more specifically, a currency area calibrated to the European Monetary Union) with labour market frictions in the form of labour turnover costs and workers’ heterogeneity to measure fiscal multipliers. We compute short and long run multipliers and open economy spillovers for five types of fiscal packages: pure demand stimuli and consumption tax cuts return very small multipliers; income tax cuts and hiring subsidies deliver larger multipliers, as they reduce distortions in sclerotic labour markets; short-time work (German "Kurzarbeit") returns negative short-run multipliers, but stabilises employment. Our model highlights a novel dimension through which multipliers operate, namely the labour demand stimulus which occurs in a model with non-walrasian labour markets.fiscal multipliers, fiscal packages, labour market frictions

Labor Turnover Costs, Workers' Heterogeneity, and Optimal Monetary Policy

We study the design of optimal monetary policy in a New Keynesian model with labor turnover costs in which wages are set according to a right to manage bargaining where the firms' counterpart is given by currently employed workers. Our model captures well the salient features of European labor market, as it leads to sclerotic dynamics of worker flows. The coexistence of those types of labor market frictions alongside with sticky prices gives rise to a non-trivial trade-off for the monetary authority. In this framework, firms and current employees extract rents and the policy maker finds it optimal to use state contingent inflation taxes/subsidies to smooth those rents. Hence, in the optimal Ramsey plan, inflation deviates from zero and the optimal volatility of inflation is an increasing function of firing costs. The optimal rule should react to employment alongside inflation.optimal monetary policy, hiring and firing costs, labor market frictions, policy trade-off

Monetary and labor policies under market frictions.

The thesis analyzes monetary and labor policies under different market frictions. In the first part several versions of a microfounded dynamic general equilibrium model with monopolistic competitors in the product and/or labor market are derived and simulated. First of all, the monetary persistence of a pure price staggering economy is compared to a pure wage staggering economy under different labor market structures (by means of a newly proposed persistence measure) and interactions are explored. Secondly, the thesis simulates the effects of real wage rigidities in a disinflation experiment non-linearly. Thereby, caveats of the conventionally used log-linearization are shown. The second part of the thesis develops a dynamic microfounded labor market framework with insider wage bargaining, labor turnovers costs and tax distortions. The calibrated model is used in order to analyze different labor market policies. The addressed questions include the labor market development in East Germany after unification, the existence of unemployment traps, their influence on labor market persistence and policy effectiveness, and the optimal targeting of employment subsidies in terms of their employment, equity and welfare implications.Arbeitsmarkttheorie; Preisrigidität; Lohnrigidität; Unvollkommener Wettbewerb; Ungleichgewichtstheorie; Inflationsbekämpfung; Arbeitslosigkeit; Hysteresis; Lohnbildung; Lohnsubvention; Arbeitsmarktpolitik; Wirtschaftspolitische Wirkungsanalyse; Theorie; Neue Bundesländer;

Firing costs and the business cycle: Policy implications in light of the financial crisis.

This lecture is a tour dhorizon of the financial crisis aimed at extracting lessons for future financial regulation. It combines normative recommendations based on conventional welfare economics with positive assessments of the kind of measures likely to be adopted based on political economy considerations.Konjunktur; Kündigung; Arbeitsmobilität; Kosten; Währungsunion; Arbeitnehmerschutz;