Moos, Suleman A.
The Double Whammy of Stagflation and Uncertainty
Einige Ãberlegungen zum Wachstumspfad der Bundesrepublik Deutschland
Konjunkturtheoretische Implikationen der Hypothese rationaler Erwartungen
The Role of Savings and Investment in Current Account Determination: The Case of the Federal Republic of Germany (1973-1979)
KunÃ©, Jan B.
Studies on the Relationship between Social Security and Personal Saving. A Tabular Survey
Timberlake, Richard H.
Methodological Considerations in Demand-for-Money Construction
The "Vicious Circle" Hypothesis: The Greek Case
Die KapitalkostensÃ¤tze einlagenfinanzierter Kredite bei unterschiedlichem Marktzinsniveau
Technische Aktienanalyse. Die Methoden der technischen Analyse mit Chart-Ãbungen
Understanding Keynes â A Analysis of the âGeneral Theoryâ
Volkswirtschaftslehre I. Volkswirtschaftliches Rechnungswesen
Lohnpolitische Konzeptionen und VermÃ¶gensbildung â Ein Weg aus der stabilitÃ¤ts- und verteilungspolitischen Sackgasse
Moos, Suleman A.
âThe Double Whammy of Stagflation and Uncertaintyâ
Empirical studies have been unable to provide support for the neo-classical proposition that the relative variability of inflation is invariant to changes in the general rate of inflation. Inflation is non-neutral. They have uncovered relationships between the relative variability of inflation and the mean rate of inflation, general price instability or variability, and the rate of unanticipated inflation and real economic growth. However, we find that all these right-hand-side explanatory variables are highly correlated, in that inflation was associated with a lower rate of economic growth (stagflation) on the one hand and increased variabilities of inflation and economic growth on the other. These associations appear to be due to stop-go monetary policies operating in a world characterized by some wage-price stickiness, which produced relatively greater declines in economic growth over inflation during the typically temporary monetary contractions. These stagflation-related increases in the variabilities of inflation and economic growth predictably made accurate forecasting of the inflation rate increasingly difficult with increases in the inflation rate; this is reflected in the estimated positive relation between inflation surprises and unbiased inflation forecasts. This short and longer run positive relation between inflation expectations and inflation surprises raises a question about the invariance conclusions of flex-price macro- economic rational expectation models, since the anticipated inflation level-related increase in the variance of even unbiased forecasts errors will adversely affect the behavior of risk averse economic agents. Consequently, real variables such as investment and unemployment will also be adversely affected in the short run. Furthermore, because the increased variability makes it more difficult to accurately anticipate inflation, the ability of real wages to adjust fully is impeded, causing the unemployment rate to increase also in the longer run. Moreover, if labor and capital are complements then even the equilibrium unemployment rate will increase with increases in the anticipated rate of inflation.
âSome Reflections on the Path of Real Growth in the Federal Republic of Germanyâ
1. The current weakness of real growth and the moderate tendency to recovery increasingly lead to the question which rate of growth realistically can be expected to take place in the medium run. If real growth rates are considered, a systematic decline in growth has to be recognized though there may be some overlap of different kinds of adverse business waves. However, this is only true with respect to the development of the "rate" of growth, not the "level" of growth; the level of growth, expressed in absolute terms (billions of DM at constant prices), indicates the ability of an economy to produce an "increase" in national product from the year to the next.
2. An analysis of the development of this growth level over the post-war period shows that the economy's growth path moved within a relatively narrow and stable band, except during the eighties. This is especially noteworthy as the basic conditions underwent considerable change over time. Nevertheless, it has to be noted that the growth path exhibits a tendency to decline since the mid-sixties. It is only due to an expansionary countermovement of economic policy that the growth band was not permanently undercut. When this policy was abandoned at the beginning of the eighties, it caused (or at least contributed to) the first more serious undercutting of the band.
3. Given these observations one cannot dismiss the possibility that the German economy moves along the descending segment of a Kondratieff. This could be explained from both, the supply side (decreasing rates of technological progress) as well as the demand side (a weakening ability and readiness to absorbe by society). If this is the case, then there is not much reason to expect an increase in the steepness of the growth band in the near future. Even to reenter the band the actual growth rate would have to jump during the coming years by more realistically can be expected. At best can be expected a return of the growth path to the previous slope in the medium run. However, the resulting average rates of growth (of 2 to 2,5 per cent) will not be sufficiently large to solve the pressing problems of the labor market.
âImplications of the "Rational Expectations" Hypothesis with Respect to Business Cycle Theoryâ
The development of the theory of temporary equilibrium has taken a special direction during the recent decade. Nowadays, expectations are interpreted in the same way as decisions to result from rational economic evaluation of information. In the extreme case the market participants have all the relevant information. Then global macroeconomic policy has no significant systematic impact on employment given certain patterns of behaviour. This demonstration by Lucas, Sargent, et al. has attracted great attention. There are, however, alternative and equally plausible patterns of behaviour. They imply that macroeconomic policy is relevant to the explanation and, therefore, to the control of economic development. The renaissance of business cycle theory is an important by-product of this discussion about a well-informed rational formation of expectations. The reason is this: if the market participants were well-informed they would make decisions such as to avoid losses during recessions; in other words, their dispositions would eliminate the business cycle. Given the fact that pronounced business cycles have not disappeared, we either have to abolish the hypothesis of well-informed rational expectations or to accept the supplementary hypothesis that the cycles result from externally caused and, therefore, unpredictable shocks to the system. The first case excludes the "new classical" argument about economic policy mentioned above and consequently is not maintained by the dominating modem neoclassical theory. The second case, however, leads to a conceptional problem too: the more pronounced the cycles are the larger would have to be the causing shocks as well as the market participants' distrust in their capabilities of forecasting due to bad experience. In sum, the shock-hypothesis also leads to scepticism with respect to the assertion that the theory and policy of business cycles has to be based on the assumption of well-informed rational expectations.
âThe Role of Savings and Investment in Current Account Determination: The Case of the Federal Republic of Germany (1973 - 1979)â
The paper contains a small disequilibrium macroeconomic model for Germany, which is intended to study the mechanism of adjustment of the German current account under flexible exchange rates. The model is also estimated on quarterly data from the first quarter of 1973 to the third quarter of 1979 using Wymer's programs. The main hypothesis underlying the model is that German current account developments cannot be properly understood without reference to the behaviour of savings and investment, the ex post difference in which must be equal to the current account, if the government budget deficit is equal to zero. Thus the model departs from previous empirical work on the current account in that its focus is on the savings and investment functions rather than import and export demand functions. The main channels through which a depreciation of the exchange rate affects the current account that are considered in the model are (i) the real wealth effect on savings. The depreciation is assumed to increase the price level and this reduces the real value of wealth and hence savings. If the depreciation occurs at a time when the current account is in deficit, as has been the case in recent years, this effect tends to retard the adjustment of the current account. (ii) The real interest rate effect on savings. This effect is equilibrating if under the circumstances outlined above (depreciation occurring at a time of current account deficit) the real interest rate tends to increase as a result of balance of payments deficits and outflows of money from the country. (iii) The real interest rate effect on investment, which is also equilibrating under the above assumptions. (iv) The terms of trade effect on investment, which is assumed to affect investment positively. Hence, when the exchange rate depreciates, if import prices increase more rapidly than export prices in domestic currency investment tends to fall and to contribute towards reabsorption of the current account deficit. All these four channels are shown to have been empirically significant for Germany during the flexible exchange rate period. The model also contains demand functions for financial assets held by Germans abroad and by foreigners in Germany. They are relevant in order to endogenize the balance of payments and reserve flows, which are an important factor in interest rate determination.
KunÃ©, Jan B.
âStudies on the Relationship between Social Security and Personal Savingâ
This paper gives a survey of the most important time-series studies on the relationship between social security and personal saving carried out for the United States, Canada and six European countries. The tabular survey lists the social security variable and the evidence of the impact on personal saving.
Timberlake, Richard H.
âMethodological Considerations in Demand-for-Money Construction â
This paper challenges the logic, the utility, and the theoretical consistency of constructing a demand for money that uses interest rates as the independent variable. The classical economists from Mill to Pigou saw money in a framework where the independent variable was the inversion of an index of money prices. Their demand for money thus had the same methodological constraints - tastes and real incomes as the demand for any conventional good or service. The Keynesian construction in the General Theory buried the price level in the spending aggregates (income, consumption and investment), and posited a speculative demand-for-money that assumed one or another of various interest rates as the independent variable. It thereby obscured and de-emphasized the effect of money on prices. Current textbook treatment of the demand for money is almost entirely along Keynesian lines; that is, it is couched in terms of interest rates while the classical construction using an inversion of money prices is ignored. The reason the Keynesian concept prevails is because it offers the simplification of putting money into a market so that a price (interest rate) may be seen. In fact, as Leland Yeager has observed, money to be money must be in all markets. And the only way to obtain a price for an item that enters all markets in which money prices are determined is by use of an aggregated abstraction, i.e., an index number. The conclusion is that the utility of monetary analysis to the economist is maximized when the constraints surrounding the demand-for-money function are compatible with those assumed for the demands of ordinary goods and services.
âThe "Vicious Circle" Hypothesis: The Greek Caseâ
It is evident from the results of the empirical estimation that the exchange rates after 1973 do not passively reflect changes of the domestic price level. On the contrary, the exchange rate is an independent factor in feeding domestic price inflation, through the influence it exerts on the relative prices of importable and exportable goods and services. The statistical investigation has shown, as well, that changes in the money supply do affect the exchange rate. This fact reinforces the above findings, i.e. the exchange rate changes lead to domestic price inflation. After 1973 Greece has "got" to a vicious circle. The depreciation/price inflation spiral, which is in operation since then, has to be broken down. However, it has to be admitted that such a task is not an easy operation. Strong policies have to be implemented that, besides actions which are focusing on the adjustment of the economy itself, will attempt to establish confidence and to reverse the expectations of the public. The adjustment proceeds the country has to undertake, prolonged and problematic itself, is further complicated since the country is operating under the system of flexible exchange rates.
âOn Capital Cost Rates of Deposit-financed Loans at Different Interest Levelsâ
The pricing policies of banks with respect to loans take account of the demand supply relations. But they also have to aim at securing appropriate margins of profit in excess of the costs of the loan business. In addition to the operating costs of loans and costs of loan risk the costs of capital are the most important factor. During years of rapid and large changes in the general interest level, and therefore in interest rates on loans, deposits, and other liabilities, it is especially difficult to properly take into account the costs of capital in setting the prices of loans. This led to the question what the capital cost rates have been which banks hat to calculate during the last four years when drawing on different types of deposits in financing loans. The first step of the investigation was to determine the cost rates per unit of selected types of deposits, taking account of the costs of operation and of interest payment. In a second step the costs of capital were recalculated as costs per unit of the capital usable for lending. The principles II and III of the German Kreditwesengesetz were applied to determine the percentage of deposits that cannot be lend but is to be held in liquid form. With regard to the structure of the liquid reserves it was assumed that the share of non-interest bearing liquid funds equaled the required reserves while the interest bearing share was determined by an investment strategy of the banks which primarily required to choose between investment in time deposits and investment in bonds. Depending on the structure and the actual interest rates on liquid reserves average yields varied. Some of them were below, others above the capital cost rates, per unit of deposits. Accordingly, the resulting differences had to be counted in the computation of the capital cost rates for deposit-financed loans either as an additional charge for liquidity costs or as a cost deduction. As a result it was found that the capital cost rates varied very much with the general interest level and also that the ranking of the various types of deposits with respect to the rates of cost changed over time. Depending on the structure of their deposits some banks received cost advantages which permitted them either to document larger profits or to increase their growth by offering more favorable loan conditions. The considerable differences in capital cost rates should induce the banks to reexamine their business policies, especially the pricing of the various types of deposits, once serious changes in the general market level of interest rates will come up again.