The Working Papers of the Priority Programme 1859 "Experience and Expectation" are published in co-operation with the documentation and publication servers of Humboldt University (https://edoc.hu-berlin.de).
ISSN: 2510-053X
No 46:
In his article, Sebastian Knake challenges the general assumption that traditional savings accounts in the US disappeared naturally as a result of the combination of interest rate regulation and extraordinarily high market interest rates during the stagflation period. By comparing the US experience with simultaneous developments in West Germany, he finds that the opportunity costs of owning a regular passbook were comparable in both countries. In contrast to the US case, however, the passbook remained a cornerstone of household saving in Germany. Drawing upon research in several bank archives in the US and Germany, Knake explains these divergent developments in terms of fundamental differences in how banks and their customers communicated over prices. In the US, a peculiar combination of regulative rules forced banks, and especially savings institutions, to aggressively promote new types of bank accounts that were introduced by federal regulation authorities, thereby increasing nominal interest rate expectations. In Germany, by contrast, banks confined information about advantageous investment opportunities to the smallest possible share of the customer base. These divergent communication strategies reflect a difference in the balance of power in the bank–customer relationship. Ger man customers depended on their primary—and in most cases only—bank relationship to acquire information on alternative investments, while US customers could draw on several relationships with banks and savings institutions to obtain the relevant information. Thus, the fate of the passbook was sealed by the ability or inability of banks to keep their customers in the dark about the real opportunity costs of passbook saving.
No 45:
I contribute to previous research on the efficient integration of forecasters’ narratives into business cycle forecasts. Using a Bidirectional Encoder Representations from Transformers (BERT) model, I quantify 19,300 paragraphs from German business cycle reports (1998-2021) and classify the signs of institutes’ consumption forecast errors. The correlation is strong for 12.8% of paragraphs with a predicted class probability of 85% or higher. Reviewing 150 of such high-probability paragraphs reveals recurring narratives. Underestimations of consumption growth often mention rising employment, increasing wages and transfer payments, low inflation, decreasing taxes, crisis-related fiscal support, and reduced relevance of marginal employment. Conversely, overestimated consumption forecasts present opposing narratives. Forecasters appear to particularly underestimate these factors when they disproportionately affect low-income households.
No 44:
I propose a novel approach to uncover business cycle reports’ priorities and relate them to economic fuctuations. To this end, I leverage quantitative business-cycle forecasts published by leading German economic research institutes since 1970 to estimate the proportions of latent topics in associated business cycle reports. I then employ a supervised approach to aggregate topics with similar themes, thus revealing the proportions of broader macroeconomic subjects. I obtain measures of forecasters’ subject priorities by extracting the subject proportions’ cyclic components. Correlating these priorities with key macroeconomic variables reveals consistent priority patterns throughout economic peaks and troughs. The forecasters prioritize infation-related matters over recession-related considerations around peaks. This finding suggests that forecasters underestimate growth and overestimate infation risks during contractive monetary policies, which might explain their failure to predict recessions. Around troughs, forecasters prioritize investment matters, potentially suggesting a better understanding of macroeconomic developments during those periods compared to peaks.
No 43:
Using firm-level data, we study how firm expectations adjust to news while accounting for a) the heterogeneity of news and b) the heterogeneity of firms. We classify news as either micro or macro, that is, information about firm-specific developments or information about the aggregate economy. Survey data for German and Italian firms allows us to reject rational expectations: Both types of news predict forecast errors at the firm level. Yet while firm expectations overreact to micro news, they underreact to macro news. We propose a general-equilibrium model where firms suffer from ‘island illusion’ to explain these patterns in the data.
No 42:
The full-information rational expectations (FIRE) assumption is at the core of modern macroeconomics. We revisit recent evidence which rejects FIRE based on survey data. It relates forecast errors to news at different levels of aggregation. The evidence based on consensus forecasts testifies against the full-information assumption, the evidence based on data for individual forecasters against rational expectations. In contrast to earlier survey evidence that was largely dismissed as irrelevant, the recent evidence is likely to have a lasting impact for two reasons. First, the global financial crisis of 2007/08 has led to a certain uneasiness with the state of macro and a readiness to embrace new ideas. Second, the recent literature has put forward a number of promising alternative models of the expectation-formation process. We review these at the end of the paper.
No 41:
Since the late 1960s, the rising volatility of financial markets in the US has troubled econometricians and bank managers alike. Both professions have found it increasingly difficult to forecast savings deposit flows. This article explores these challenges by focusing on two developments. First, it explores the internal adjustment process among econometric models of the savings deposit market. To achieve this aim, I use the so-called FMP (MPS) macro model used by the Federal Reserve Board since 1970 and the deposit forecast model of the Philadelphia Saving Fund Society (PSFS), the oldest and largest savings bank in the US. I find that economists failed to find timeless determinants for the market for savings deposits, partly because the determinants of expectation formation of households kept changing. Instead, economists relied on a large number of time-dependent dummy variables. Second, the article shows how the conditions of the market for savings deposits shaped the demand for macroeconomic forecast models. Here, I again use PSFS as a case study. I show that the demand for econometric models in the banking industry skyrocketed in the 1970s but abated somewhat in the 1980s. While the rising volatility led bank managers to seek sophisticated tools to predict deposit flows, the deregulation of the banking industry and the accompanying change in customer behavior devalued macro models as a reliable forecast technique for individual banks. Instead, it became crucial for banks to predict the future behavior of competing institutions.
No 40:
The notion of a nation-specific inflation trauma among the German population is ubiquitous in the public debate in Germany and beyond. Because of its experience with hyperinflation in 1923, the German population fears rising prices and favors stability-oriented monetary as well as fiscal policy. It is less clear, however, whether this contemporary understanding of the German inflation trauma is as old as its historical point of reference. The majority of the literature presumes that such a traumatic disposition has persisted since 1923 and has been transposed intergenerationally (persistence thesis). Others, however, point to an ex-ante reconstruction of past experiences (reconstruction thesis). By employing an interdisciplinary approach of methodological triangulation drawing on both methods of history and political sciences, we provide new insights on the question of origin. Specifically, we examine the remembrance of hyperinflation in personal memoirs and the German Bundestag in regard to the monetary and fiscal policy lessons connected to memories of 1923. Doing so, we find support for the logic of reconstruction. We show that the hyperinflation was not remembered unambiguously, and that memories were not immediately linked to specific policy lessons. Only from the 1980s onwards, a process of discursive alignment occurred that mirrors the contemporary understanding of the inflation trauma. By providing this insight, our paper allows to better understand the historical origins of today’s popular memory and its political uses.
No 39:
We propose to treat survey-based density expectations as compositional data when testing either for heterogeneity in density forecasts across different groups of agents or for changes over time. Monte Carlo simulations show that the proposed test has more power relative to both a bootstrap approach based on the KLIC and an approach which involves multiple testing for differences of individual parts of the density. In addition, the test is computaionally much faster than the KLIC-based one, which relies on simulations, and allows for comparisons across multiple groups. Using density expectations from the ECB Survey of Professional Forecasters and the U.S. Survey of Consumer Expectations, we show the usefulness of the test in detecting possible changes in density expectations over time and across different types of forecasters.
No 38:
Recently, much attention has been devoted to the measurement of macroeconomic (expectation) uncertainty and its impact on aggregate economic fluctuations. This paper presents a new qualitative measure of macroeconomic expectation uncertainty based on data from a German online survey of consumer expectations. I document that the survey design works well. Elicited expectation uncertainty is related to data volatility and conventional measures of uncertainty as expected. Its dependency on socioeconomic factors is in line with previous evidence based on quantitative uncertainty measures. The new measure offers a very efficient way of eliciting expectation uncertainty and can be used to obtain uncertainty measures on many different expectations at low cost.
No 37:
No 36:
What impact do past experiences have on the expectation formation of banks? This article analyses the risk management of Germany’s largest bank during the 1970 and 1980s. In this period, financial deregulation and globalization increased the likelihood of credit defaults and forced banks to implement new strategies of risk assessment. The Herstatt failure of 1974 triggered a series of new regulations, partly based on initiatives of the banks themselves. After the sovereign debt crisis of the 1980s, banks introduced a comprehensive strategy of country-risk assessment. They systematically professionalized their information resources and integrated risk and liability management. Economic forecasting was often based on historical data used for the classification and diversification of risks. However, learning from past experiences had limitations, as recent events were often overrated. This had the effect that the banks’ country risk assessment focused mainly on developing countries while the industrial world was not included in the schemes. This might explain why many banks have continually underestimated the financial risks present in developed countries since the 1990s.
No 35:
Huning, Thilo R./ Wahl, Fabian (2022): Identity, Instability, and Investors
An Empirical Investigation of the Home Bias. Working Papers of the Priority Programme 1859 “Experience
and Expectation. Historical Foundations of Economic Behaviour” No 35 (October), Berlin
In this paper, we present novel data from the German-speaking area on 13,422 venture capital investments between 1999 and 2019, and document a novel and yet unexplained contributor to investors’ home bias. We propose a new measure of regional identity based on a recent vehicle license plate liberalization in Germany, and leverage on a unique dataset of historical borders to show how regional identity is formed. We use an instrumental strategy to establish a causal link between historical political instability, regional identity, and the home bias. Our results indicate that a common regional identity is highly relevant for investment decisions.
No 34:
The importance of mass media is reflected, among other things, in the fact that their coverage on certain topics – contrary to findings from communication research – is often seen as a reflection of the topics that are discussed by society. In Germany, this can be observed especially for the news magazine Der Spiegel, whose self-declared claim is to “hold up a mirror to the world“. Accordingly, scholars from different disciplines frequently use its reporting, especially its cover stories, to support their own narratives, especially regarding general accounts on ‘the zeitgeist’. Based on this observation, I propose the following thought experiment: suppose we were to look not only at individual cover stories with their individual topics, but at all cover stories – which picture of German contemporary history would then emerge? To answer this question, I use methods from the digital humanities / digital history to retrieve the topics and tonality of all cover stories published between January 1947 and December 2017. This way, I identify the topics that have dominated the Spiegel’s front pages, which might be regarded as a trace or abbild of the narratives that shaped public discourse since the early days of the Federal Republic or even the zeitgeist itself.
No 33:
Using microeconomic data on 2,500 savers of the savings bank Ludwigsburg, we study individual savings behavior in 19th century-Germany. We show that wealthy savers responded to an increase in the expected inflation rate (and falling real interest rate) by increasing their savings, suggesting that they pursued a real saving target that could only be defended by saving more when investment conditions became adverse. Workers’ savings behavior changed over time. For a long time, poorer, often female, working-class savers were forced to reduce their savings in times of high prices because they had to spend most of their income on essential consumer goods. This changed in the 1880s, when the living conditions of the working class improved significantly due to rising real wages and greater social security. We therefore observe a structural break in the savings regime: the originally negative relationship between inflation expectations and savings was reversed into a positive one. Looking only at the aggregate may obscure the true motives and changes in behavior of heterogeneous savers.
No 32:
Do memories of highly emotional stock market crashes permanently affect the investment decisions of households? The Initial Public Offerings of Deutsche Telekom during 1996- 2000 provide an optimal base to address this question, as it is known for its emotional character and is reputedly “the last time Germans invested in stocks.” Using Socio-Economic Panel (SOEP) household survey data, I show that having experienced this event leads to persistently lower stock market participation in the future. In addition, this effect is greater for households that had directly invested in Telekom shares, those being more likely to have high emotional experiences. Finally, I also show that such traumatic experiences on investment decisions have intergenerational consequences, significantly affecting how the next generation invests in the financial market.
No 31:
The increasing availability of digital text collections and the corresponding establishment of methods for computer-assisted analysis open up completely new perspectives on historical textual sources. In this paper, we use the possibilities of text mining to investigate the history of German historiography. The aim of the paper is to use topic models, i.e. methods of automated content analysis, to explore publication trends within German historiography since the end of World War II and, thus, to gain data-based insights into the history of the discipline. For this purpose, we evaluate a text corpus consisting of more than 9,000 articles from eleven leading historiographical journals. The following questions are addressed: (1) Which research subjects mattered, and in how far did this change over time? (2) In how far does this change reflect historiographical paradigm shifts, or 'turns'? (3) Do the data allow to map the emergence of these turns, i.e., can we periodize/historicize them? (4) Which of the proclaimed turns mattered in the sense that it is actually reflected in the research themes we find, and which turn does not?
No 30:
One way for economists to influence economic policy and society as a whole is to shape what Robert Shiller has called “economic narratives”. This, in turn, puts the media in their role as professional storytellers in a central position. In this paper, I investigate how economists have been covered by the media in a long-term perspective. Particularly, I address two questions: How has the quantitative visibility of economists in the media developed over time? And how can news stories covering economists be characterized in terms of their content? I answer these questions in two steps. First, I provide a comparison of economists’ quantitative media visibility in international newspapers. Second, building on a corpus of more than 12,000 newspaper articles, I conduct a case study on the German Council of Economic Experts. Using various text mining approaches, I survey four features of newspaper coverage: topics, tonality, temporal perspective, and the role of individuals. Finally, based on extensive close reading, I briefly discuss two key turning points in the media history of economists, namely the 1980s and the late 1990s/early 2000s. The main finding is that economists have indeed become silent compared to their heyday of economic expertise in the 1960s, but that they have not been as silent as is often claimed.
No 29:
Releases of key macroeconomic indicators are closely watched by financial markets. We investigate the role of expectation dispersion and economic uncertainty for the stock-market reaction to indicator releases. We find that the strength of the financial market response to news decreases with the preceding dispersion in expectations about the indicator value. Uncertainty, in contrast, increases the response. We rationalize our findings in a model of imperfect information. In the model, dispersion results from a perceived weak link between macroeconomic indicators and fundamentals that reduces the informational content of indicators, while higher fundamental uncertainty makes this informational content more valuable.
No 28:
Nicht nur Politik und Gesetzgebung, sondern auch Gerichte greifen in die Spielregeln der Wirtschaft ein und definieren damit die Rahmenbedingungen der Marktakteure mit. Durch ihre Entscheidungen können sie die Erwartungen und damit das Handeln der Akteure signifikant beeinflussen und einerseits Handlungsräume eröffnen, andererseits aber auch gewohnte institutionelle settings in Frage stellen oder aufgeben. Diese Prozesse laufen auch unabhängig von Veränderungen des gesetzlichen Regelungsrahmens ab und sie sind keineswegs auf bestimmte Rechtsordnungen beschränkt. Gerichte können bestehendes Recht von tradierten Deutungen lösen und an sich ändernde ökonomische Rahmenbedingungen anpassen. Anhand dreier Fallstudien der deutschen und europäischen Zivilgerichtsbarkeit geht der Beitrag der Frage nach, wie Gerichte wirtschaftliche Erwartungs(un)sicherheit generiert und welche Methoden sie dafür genutzt haben.
No 27:
Auf Anregung einer (nicht-repräsentativen) Twitter-Umfrage unter Historikerinnen und Historikern möchten wir in diesem Beitrag ein von uns zusammengetragenes Korpus an Aufsätzen aus elf geschichtswissenschaftlichen Fachjournalen vorstellen und anhand einiger Beispiele illustrieren, wie sich der Gebrauch verschiedener prägnanter geschichtswissenschaftlicher (Leit-) Begriffe seit 1950 verändert hat. Das Ziel ist nicht, eine „digitale Begriffsgeschichte“ verschiedener Begriffe vorzulegen oder gar Rückschlüsse auf die Entwicklung des Fachs zu ziehen. Vielmehr geht es uns darum, die vorgeschlagenen und um eigene Kandidaten ergänzten Begriffe und deren Konjunkturen zu präsentieren, um so eine Grundlage für eine weitergehende Diskussion digitalhistorischer Methoden und des Nutzens eines „Clio Viewers“ zu legen. Besonderes Augenmerk richten wir auf die Erörterung der mit dem Einsatz einfacher Stichwortsuchen verbundenen methodischen Fallstricke.
No 26:
I evaluate German export growth and import growth forecasts published by eight professional forecasters for the years 1971 to 2019. The focus of the evaluation is on the weak and strong efficiency as well as the unbiasedness of the forecasts. To this end, I use a novel panel-data set and estimate fixed-effects models taking into account panel-corrected standard errors. For the full time period, I find that both export and import growth forecasts are weakly but not strongly efficient. Unbiasedness depends on the forecast horizon being analyzed, with longer-term four-quarter-ahead forecasts being biased. I, furthermore, check for a possible change in forecasting behavior after incisive economic events in recent German history. I find that the strong efficiency of the forecasts did not change substantially over time. However, there is a change in forecasting behavior regarding the weak form of efficiency after the financial crisis 2008/2009.
No 25:
We show how elite capture affects optimal debt repatriations and management of official reserves under capital controls, bridging literature on debt buybacks and secondary markets. The model we provide guides our study of one of history’s largest debt repatriations -in 1930s Germany. Authorities kept private repatriations under strict control -avoiding detrimental macroeconomic effects- while allowing discretionary repatriations so to reap internal political benefits. German assets exhibited large spreads between their domestic and foreign prices, granting arbitrage profits to those who had forex access. New data reveals that spread dynamics were affected by the impact of capital controls on secondary markets.
No 24:
Using corpora of business cycle report sections dealing with monetary and fiscal policy issues from 1999 to 2017 and using methods of unsupervised text scaling (Slapin and Proksch, 2008; Lauderdale and Herzog, 2016), namely Wordfish and Wordshoal we scale the institutions’ theoretical/ideological position over debates. The results are in line with the findings from descriptive textual analysis. For monetary policy, we observe a strong but short-lived consensus in debate–specific positions at the height of the financial crisis in 2008 and a larger polarization after 2008 compared to the sample period before. For the fiscal policy textual corpus, the polarization was similarly high before and after the crisis. For both policy areas, the institutions DIW Berlin and IfW Kiel define the outer bounds of the observed spectrum of latent ideological positions.
No 23:
Based on German business cycle forecast reports covering 10 German institutions for the period 1993–2017, the paper analyses the information content of German forecasters’ narratives for German business cycle forecasts. The paper applies textual analysis to convert qualitative text data into quantitative sentiment indices. First, a sentiment analysis utilizes dictionary methods and text regression methods, using recursive estimation. Next, the paper analyses the different characteristics of sentiments. In a third step, sentiment indices are used to test the efficiency of numerical forecasts. Using 12-month-ahead fixed horizon forecasts, fixed-effects panel regression results suggest some informational content of sentiment indices for growth and inflation forecasts. Finally, a forecasting exercise analyses the predictive power of sentiment indices for GDP growth and inflation. The results suggest weak evidence, at best, for in-sample and out-of-sample predictive power of the sentiment indices.
No 22:
We study the efficiency of growth and inflation forecasts published by three leading German economic research institutes during a period of time ranging from 1970 to 2017. To this end, we examine whether the information used by the research institutes when they formed their forecasts helps to explain the ex-post realized forecast errors. We identify the information that the research institutes used to set up their quantitative forecasts by applying computational-linguistics techniques to decompose the business-cycle reports published by the research institutes into various topics. Our results show that several topics have predictive value for the forecast errors.
No 21:
We use quantile random forests (QRF) to study the efficiency of the growth forecasts published by three leading German economic research institutes for the sample period from 1970 to 2017. To this end, we use a large array of predictors, including topics extracted by means of computational-linguistics tools from the business-cycle reports of the institutes, to model the information set of the institutes. We use this array of predictors to estimate the quantiles of the conditional distribution of the forecast errors made by the institutes, and then fit a skewed t-distribution to the estimated quantiles. We use the resulting density forecasts to compute the log probability score of the predicted forecast errors. Based on an extensive insample and out-of-sample analysis, we find evidence, particularly in the case of longer-term forecasts, against the null hypothesis of strongly efficient forecasts. We cannot reject weak efficiency of forecasts.
No 20:
Based on a new survey of German households, we investigate the role of information channels and lifetime experience for households’ inflation expectations. We show that the types of information channels that households use to inform themselves about monetary policy are closely related to their socio-economic characteristics. These information channels, in turn, have an important influence on the level of perceived past and expected future inflation, as well as uncertainty thereof. The expected future change of inflation and the unemployment rate, however, is strongly influenced by individual experience of these variables. Similarly, the expected response of inflation to a change in the interest rate is also shaped by experience. We propose the interpretation that households obtain inflation numbers from the media, but their ‘economic model’ is shaped by experience.
No 19:
I use textual data to model German professional macroeconomic forecasters’ information sets and use machine-learning techniques to analyze the efficiency of forecasts. To this end, I extract information from forecast reports using a combination of topic models and word embeddings. I then use this information and traditional macroeconomic predictors to study the efficiency of investment forecasts.
No 18:
Official (government-to-government) lending is much larger than commonly known, often surpassing total private cross-border capital flows, especially during disasters such as wars, financial crises and natural catastrophes. We assemble the first comprehensive long-run dataset of official international lending, covering 230,000 loans, grants and guarantees extended by governments, central banks, and multilateral institutions in the period 1790-2015. Historically, wars have been the main catalyst of government-to-government transfers. The scale of official credits granted in and around WW1 and WW2 was particularly large, easily surpassing the scale of total international bailout lending after the 2008 crash. During peacetime, development finance and financial crises are the main drivers of official crossborder finance, with official flows often stepping in when private flows retrench. In line with the predictions of recent theoretical contributions, we find that official lending increases with the degree of economic integration. In crises and disasters, governments help those countries to which they have greater trade and banking exposure, hoping to reduce the collateral damage to their own economies. Since the 2000s, official finance has made a sharp comeback, largely due to the rise of China as an international creditor and the return of central bank cross-border lending in times of stress, this time in the form of swap lines.
No 17:
We reexamine whether pre-Volcker U.S. fiscal policy was active or passive. To do so we estimate a DSGE model with monetary and fiscal policy interactions employing a sequential Monte Carlo algorithm (SMC) for posterior evaluation. Unlike existing studies, we do not have to treat each policy regime as distinct, separately estimated, models. Rather, SMC enables us to estimate the DSGE model over its entire parameter space. A differentiated perspective results: pre-Volcker macroeconomic dynamics were similarly driven by a passive monetary/passive fiscal policy regime and fiscal dominance. Fiscal policy actions, especially government spending, were critical in the pre-Volcker inflation build-up.
No 16:
This paper discusses whether John Maynard Keynes’ "How to Pay for the War" provided prescriptions for the policies of "financial repression" that were implemented in England, and other countries, following World War II. It focuses on contemporary understandings of inflation which has been identified as a key factor for driving down public debt levels. Keynes has been widely acknowledged as influential in the management of public debt, and "How to Pay for the War" has been cited as proof for a widely held belief in "money illusion", suggesting the possibility of using inflation for driving down real interest rates of public bonds. It seems reasonable to suppose that Keynes’ writings were instrumental in translating English monetary experiences of the 1920s and 1930s into expectations of policy makers during and after the Second World War, and thus provide an important explanation for the why and when of "financial repression". The paper argues that Keynes provided only partly ammunition for a policy of "financial repression", and none for using inflation as a "tax gatherer" to the detriment of domestic savers in general. Crediting him as a source for widespread "money illusion" is also out of line with the historical record.*Financial History Review has just accepted a revised version of the paper for publication.
No 15:
Expectations are highly relevant for macroeconomic dynamics. Yet, the empirical evidence about properties of corporate macroeconomic expectations is scarce. Using new survey data on quantitative growth expectations of firms in Germany, we show that expectations are highly dispersed. The degree of dispersion depends on firm size and on how important the general economy is for the business of firms, supporting theories of rational inattention. Firms seem to extrapolate from local economic conditions and business experiences to aggregate growth expectations. Differences in growth expectations are associated with differences in firms’ investment and labor demand.
No 14:
Several recent surveys ask for a person’s subjective probabilities that the inflation rate falls into various outcome ranges. We provide a new measure of the uncertainty implicit in such probabilities. The measure has several advantages over existing methods: It is robust, trivial to implement, requires no functional form assumptions, and is well-defined for all logically possible probabilities. These advantages are particularly relevant when analyzing large scale consumer surveys. We illustrate the new measure using data from the Survey of Consumer Expectations.
No 13:
Economists have long argued that introducing social insurance will reduce fertility. The hypothesis relies on standard models: if children are desirable in part because they provide security in case of disability or old age, then state programs that provide insurance against these events should induce couples to substitute away from children in the allocation of wealth. We test this claim using the introduction of social insurance in Germany in the 1880s and 1890s. Bismarck’s social-insurance system provided health insurance, workplace-accident insurance, and old age pensions to a majority of the working population. The German case appeals because the social insurance program started on a large scale and was compulsory for covered classes of workers, and because fertility in Germany in this period was still relatively high. Focusing on the state of Prussia, we estimate differences-in-differences models that ask whether marriage and marital fertility reacted to the introduction or extension of the main social insurance programs. For Prussia as a whole we find little impact.
No 12:
This paper studies external sovereign bonds as an asset class. We compile a new database of 220,000 monthly prices of foreign-currency government bonds traded in London and New York between 1815 (the Battle of Waterloo) and 2016, covering 91 countries. Our main insight is that, as in equity markets, the returns on external sovereign bonds have been sufficiently high to compensate for risk. Real ex-post returns averaged 7% annually across two centuries, including default episodes, major wars, and global crises. This represents an excess return of around 4% above US or UK government bonds, which is comparable to stocks and outperforms corporate bonds. The observed returns are hard to reconcile with canonical theoretical models and with the degree of credit risk in this market, as measured by historical default and recovery rates. Based on our archive of more than 300 sovereign debt restructurings since 1815, we show that full repudiation is rare; the median haircut is below 50%.
No. 11:
Compared with China’s dominance in world trade, its expanding role in global finance is poorly documented and understood. Over the past decades, China has exported record amounts of capital to the rest of the world. Many of these financial flows are not reported to the IMF, the BIS or the World Bank. “Hidden debts” to China are especially significant for about three dozen developing countries, and distort the risk assessment in both policy surveillance and the market pricing of sovereign debt. We establish the size, destination, and characteristics of China’s overseas lending. We identify three key distinguishing features. First, almost all of China’s lending and investment abroad is official. As a result, the standard “push” and “pull” drivers of private cross-border flows do not play the same role in this case. Second, the documentation of China’s capital exports is (at best) opaque. China does not report on its official lending and there is no comprehensive standardized data on Chinese overseas debt stocks and flows. Third, the type of flows is tailored by recipient. Advanced and higher middle-income countries tend to receive portfolio debt flows, via sovereign bond purchases of the People’s Bank of China. Lower income developing economies mostly receive direct loans from China’s state-owned banks, often at market rates and backed by collateral such as oil. Our new dataset covers a total of 1,974 Chinese loans and 2,947 Chinese grants to 152 countries from 1949 to 2017. We find that about one half of China’s overseas loans to the developing world are “hidden”.
No 10:
We assess empirically whether monetary policy announcements impact firm expectations. Two features of our data set are key. First, we rely on a Survey of production and price expectations of German firms, that is, expectations of actual price setters. Second, we observe the day on which firms submit their answers to the survey. We compare the responses of firms before and after monetary policy surprises and obtain two results. First, firm expectations respond to policy surprises. Second, the response becomes weaker as the surprise becomes bigger. A contractionary surprise of moderate size reduces firm expectations, while a moderate expansionary surprise raises them. Large surprises, both negative and positive, fail to alter expectations. Consistent with this result, we find that many of the ECB’s announcements of non-conventional policies did not affect expectations significantly. Overall, our results are consistent with the notion that monetary policy surprises generate an information effect which is endogenous to the size of the policy surprise.
No 9:
I analyze the joint efficiency of export and import forecasts by leading economic research institutes for the years 1970 to 2017 for Germany in a multivariate setting. To this end, I compute, in a first step, multivariate random forests in order to model links between forecast errors and a forecaster’s information set, consisting of several trade and other macroeconomic predictor variables. I use the Mahalanobis distance as performance criterion and, in a second step, permutation tests to check whether the Mahalanobis distance between the predicted forecast errors for the trade forecasts and actual forecast errors is significantly smaller than under the null hypothesis of forecast efficiency. I find evidence for joint forecast inefficiency for two forecasters, however, for one forecaster I cannot reject joint forecast efficiency. For the other forecasters, joint forecast efficiency depends on the examined forecast horizon. I find evidence that real macroeconomic variables as opposed to trade variables are inefficiently included in the analyzed trade forecasts. Finally, I compile a joint efficiency ranking of the forecasters.
The revised article was published as:
No 8:
We study the ownership structure of joint-stock firms for the period of 1869 to 1945 based on a unique hand-collected data set. The data covers a selection of 785 general meetings of 276 firms, including details of more than 10,000 investors. We show that after the hyperinflation of 1923, when shares became cheaper, the ownership share among lower social classes rose significantly. Moreover, with the rise of women rights after 1919, the number of shares owned by women also increased significantly. However, despite these shifts, the majority of shares remained in the hands of institutional investors and investors from the upper class, who mainly constituted and controlled the general meetings. Thus, despite the increased participation of women and the lower social classes, a stark inequality of opportunities persisted.
No 7:
Economists stress the leading role that inclusive institutions play among the various factors that foster a country’s economic growth. In this article, we show that it might be misleading to mistake the codification of a formal rule for its effective administrative implementation. As the case of the German state Wuerttemberg demonstrates, a government’s lip service to the principle of equal treatment does not guarantee that the local patent authority refrains from discriminating against foreign patentees by charging comparatively high patent fees. We conclude that the introduction of a stringent and formally fair patent law alone does not guarantee that foreign inventors’ intellectual property rights are protected as well as those of the domestic patentees.
No 6:
(Revise and Resubmit at Explorations in Economic History)
A regime shift towards increased inflation expectations is credited with jumpstarting the recovery from the Great Depression in the United States. Germany experienced a recovery as fast and strong in the 1930s. What role did inflation expectations play at the start of this remarkable economic upturn? To answer this question, we study inflation expectations in Germany across two different methods: we conduct a narrative study of media sources and estimate inflation expectations from a FAVAR model. Consistently across these approaches, we do not find a shift to increased expected inflation. This recovery was different, and its causes lie elsewhere.
No 5:
Über die Zukunft wissen wir nichts. Keynes’ Diktum gilt weiterhin, obschon wir vielfältigst prognostizieren. Dabei aber rekurrieren wir systematisch und statistisch auf alte Datenmuster und Erinnerungen. Erfahrungen bilden die Basis der Projektionen auf die Zukunft. Die Qualität der Erfahrungen ist prüfen, um über Erwartungen einigermaßen valide Aussagen zu machen. Beide - Erfahrungen wie Erwartungen – bilden ein Komplementärtheorem. So wie die Erwartungen als Fiktionen decodiert werden, so dann auch die Erfahrungen als je gegenwärtige Zurechtlegungen. In volatileren Welten entwerten die Erfahrungen und die Erwartungen müssen sich Narrative zulegen, die nicht mehr notwendig erfahrungsgekoppelt sind.
No 4:
We study the role of global media during the Greek debt crisis and relate it to the transmission of events on financial actors' expectations. To identify news coverage about the Greek debt crisis, we apply topic modeling to a newly compiled dataset of over 430,000 articles from The International New York Times and Financial Times from 2009 to 2015. We identify a Greek debt crisis topic and relate it to events concerning Greece during this time period. Our finding is that events are only relevant for financial markets when they are covered in the media, whereas events without media coverage have no effect. News coverage without immediate events is equally irrelevant for financial markets.
No 3:
The recognition of the key importance of economic stability after World War I sparked interest in business forecasting on both sides of the Atlantic. This article explores the creation and the rapid international and domestic dissemination of the Harvard Index of General Business Conditions in the early 1920s, which contemporaries celebrated as the first “scientific” approach to business forecasting. Drawing on multi-site archival research, the paper analyses the extension of the index by an information-exchange-based method in the 1920s and traces its influence on the survey-based forecasting approach employed by American companies in the 1930s. Engaging with the current debate on the temporal order of capitalism, the article argues that business forecasting was not only a means of stabilizing capitalism, but a factor and an indicator of a change in the dynamics of capitalism in the interwar period.
No 2:
The paper reports results of a survey among active forecasters of the German business cycle. Relying on 82 respondents from 37 different institutions, we investigate what models and theories forecasters subscribe to and find that they are pronounced conservative in the sense, that they overwhelmingly rely on methods and theories that have been well-established for a long time, while more recent approaches are relatively unimportant for the practice of business cycle forecasting. DSGE models are mostly used in public institutions. In line with findings in the literature there are tendencies of “leaning towards consensus” (especially for public institutions) and “sticky adjustment of forecasts” with regard to new information. We find little evidence that the behaviour of forecasters has changed fundamentally since the Great Recession but there are signs that forecast errors are evaluated more carefully. Also, a stable relationship between preferred theories and methods and forecast accuracy cannot be established.
No 1:
Imperial chancellor Bismarck’s system of social insurance (with its three pillars health, accident and pension insurance) was an important role model for social security systems across Europe and in the US. How the introduction of the German system changed economic expectations and decisions of the German workforce has not been researched, though. This article tries to close this gap by analyzing the development of Prussian savings banks’ deposits in the late 19th century. The introduction of social security can affect private savings in at least two different ways: on the one hand, it might induce households to reduce their precautionary savings; one the other hand, it might give people a reason to reflect on their financial needs at old age or when sick, thereby increasing their motivation to accumulate private savings. To identify the causal effect of social insurance on private savings in Prussia, we employ a difference-in-difference-like approach. We show that, in our example, social security crowded out private savings considerably.