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A joint initiative of Ludwig-Maximilians University’s Center for Economic Studies and the Ifo Institute for Economic Research Bulletin Volume 19 No. 4 October 2009 Smarter Regulation As soon as the financial crisis reared its head, voices started calling with increasing stridency for tightening and expanding financial regulation. But, as David Mayes says, smarter regulation would be the better bet if what we want is financial stability without stifling economic growth. (page 3) Liquid Asset Ifo News Abundant yet scarce, coveted yet badly managed. Water is an increasingly precious resource that sorely needs to be used more effectively. Alberto Asquer focused his stay at CESifo on how European reforms in this area are being implemented. (page 6) (p. 4-5) CESifo Turns 10 (p. 8) New Climate Lecture Series Climate Policy Paradoxes Many policies have been implemented in the EU, in particular in Germany, to curb fossil fuel consumption as a way to fight global warming. Unfortunately, it appears that many of those measures are not only ineffective, but downright counterproductive. A new Ifo Lecture Series with Hans-Werner Sinn will explain why. (page 2) (p. 2) Exporter Premium Featured Researchers Alberto Asquer (p. 6) Exporters tend to perform better than non-exporters. Karen Helene Ulltveit-Moe is examining the potential sources for such superior performance. (page 3) Lars-Erik Borge (p. 2) Dirk Engelmann (p. 8) Christian Leuz (p. 6) Jim Malley (p. 7) David Mayes (p. 3) Eastern Germany’s Economy Still Not Up to Par Twenty years after the fall of the Berlin Wall, a divide still exists between eastern and western Germany. Prosperity in the former Eastern Germany has undeniably improved beyond the wildest dreams of many easterners, but the many billions in subsidies and investment have not yet managed to bring per capita GDP to western levels. (page 5) Joachim Ragnitz (p. 5) Daniel Schunk (p. 6) Konstantinos Tatsiramos (p. 7) Karen H. Ulltveit-Moe (p. 3) CESifo Turns Ten CESifo is not a toddler any longer. In a mere ten years, it has achieved an enviable place amongst the world’s largest and most influential economics research organisations. Reason enough to celebrate. (page 8) Behold My Reputation Not only sellers’ reputations are important in online auctions, such as those through eBay. As Dirk Engelmann shows, buyers’ reputation also plays a crucial role. (page 8) Poverty Risk in Germany Declines Wage supplements introduced as part of a labour market reform in Germany have reduced poverty risk, as a new Ifo study shows. (page 5) You can also download this bulletin from www.cesifo.de Vol. 19, No. 4 | October 2009 New Lecture Series: Climate Policy Paradoxes year peak. As a result, in only a few decades the earth’s temperature is headed to a new 800-millennia record. demning nuclear energy should not overlook the disadvantages of the other energy sources. Wind and solar electricity have very low reliability. Electricity from coal ranks amongst the largest climate offenders. Scrubbing carbon dioxide from coalfired plants is technically feasible, but storing the resulting liquefied CO2 is problematic: it is by no means risk-free and the earth does not offer enough storage volume. The upshot? Storing carbon dioxide is much more difficult than storing nuclear waste. His second thesis is that while Germany spends lots of money on green electricity, it still achieves little in terms of climate protection, because Europe already has an emissions market that has set a cap on the amount of carbon dioxide that may be emitted. In the end, the energy tax, the feed-in rates for wind and solar electricity, support for combined-heat-and-power generation and the many other measures only serve to subsidise the non-green electricity generated by the other EU countries. Thesis No. 5 is that European climate policies ironically have accelerated climate change instead of curbing it. Curbing demand for fossil fuels does not reduce consumption if resource owners do not reduce their supply as a result. If suppliers fear that green policies will become increasingly greener over time, exerting downward pressure on fossil fuel prices, they will feel compelled to speed up fossil carbon extraction, doing climate a great disservice. The third thesis is that giving the fuel tank priority over the food plate creates poverty and unrest in the world. Gigantic expanses of farmland have been turned over to the production of biodiesel and bioethanol, making food prices rise in tandem with oil prices. The effect has been hunger and strife in several countries. The final thesis is that only a worldwide emissions trading system, coupled with a source tax on the capital gains of the resource owners, would manage to persuade fossil fuel suppliers to postpone resource extraction, thereby slowing down climate change. If deforestation is halted and afforestation efforts stepped up, mankind would have a fair chance of winning the battle against carbon dioxide that threatens to make our planet unlivable. As part of its educational outreach, the Ifo Institute, in association with Bavarian Radio and BR-Alpha, will hold a lecture series at its conference centre in November and December to examine the theses on climate change contained in HansWerner Sinn’s best-selling book The Green Paradox. The lecturer will be HansWerner Sinn himself. Once realisation set in that mankind does face a climate problem that could have dire consequences in the coming decades, many governments and organisations started to devise ways and mechanisms to cope with the challenge. Unfortunately, good intentions do not suffice. Many of the measures implemented have proved to be too expensive and ineffectual in terms of tackling global warming. Mr Sinn does not question the goals of climate policies, but shows that the instruments they use are ineffective and to a large extent counterproductive because they disregard important economic mechanisms. In a series of six lectures, Mr Sinn will present his book and show what must be done to ensure that climate policies are successful. His first thesis is that human action is behind global warming. While carbon dioxide itself is non-poisonous, its accumulation in too great concentrations in the atmosphere triggers the so-called greenhouse effect, increasing average temperatures around the world. Since the beginning of the industrial age, the amount of carbon dioxide released has brought its atmospheric concentration to an 800,000- His fourth thesis is that Germany is on the wrong track in terms of nuclear energy. It is the only country worldwide to turn its back on nuclear power, after others pursuing such policies rescinded them. Those con- For further information, visit www.cesifogroup.de Accounting for Sound Corporate Governance Lars-Erik Borge’s research focuses on fiscal federalism and political economy, and is to a large extent empirically oriented. During his stay one-month stay at CESifo, until late November, he will continue his work in these fields, with particular emphasis on capitalisation and local government responses to temporary grant programmes and demographic shocks. In a recent paper (co-authored with Jørn Rattsø) he studies the capitalisation of property taxation and local public services 2 in Norway. The main idea is to investigate whether good services and a low property tax rate are capitalised into higher housing prices. The analysis shed light on the role of residential mobility as an efficiencyenhancing mechanism for local government resource use. Lars-Erik Borge is a professor at the Department of Economics of the Norwegian University of Science and Technology in Trondheim. He has been affiliated with the department since 1990, interrupted by Bulletin longer stays at the Massachusetts Institute of Technology (1991-1992) and the University of Maryland (20062007). In the period 2000-2002 he was editor of the Norwegian Journal of Economics (Norsk Ø k o n o m i s k Tidsskrift). Vol. 19, No. 4 | October 2009 Smarter Regulation Exporter Premium Mayes Ulltveit-Moe Economists tackling the regulatory aftermath of the financial near-meltdown have their work cut out. There is hardly a corner of the world where new, better, or smarter banking regulations are not needed. It is then good to have a safe pair of hands, such as David Mayes’s, working on the matter. Mr Mayes, who is Director of the Europe Institute at the University of Auckland, is currently completing work on the implications of the present crisis for closer monetary and financial integration in Asia. This work, with the Asian Development Bank Institute, follows up earlier work on the problems of integration in Europe, particularly on handling the regulation and supervision of cross-border banks. His research culminated in a couple of books earlier this year, the first with Robert Pringle and Michael Taylor, on Towards a New Framework for Financial Stability, and the second with Geoffrey Wood on Designing Central Banks. The theme of the first book can be described as ‘smarter rather than tougher regulation’. It argues that in trying to get institutions to manage their risk better the key is to align the incentives of the intermediaries with those of the investors. This is illustrated in the latest statement of the Joint Shadow Financial Regulatory Committees, who met in Chile in August, on how to reopen securitisation. Mr Mayes represents the Australian and New Zealand Committee. The present crisis has led to a rapid reappraisal of crisis avoidance and crisis man- agement mechanisms. Mr Mayes has been exploring these in the Nordic region. One might have expected that with the experience of crises within the last twenty years, these countries might have been best prepared in the present circumstances, but Iceland experienced the worst crisis of all. Although he comes from New Zealand, which does not have explicit deposit insurance, one aspect on which Mr Mayes has focused is trying to make deposit insurance more realistic and ensure that retail runs can be avoided. David Mayes obtained his PhD from Bristol University. Until last year he was Advisor to the Board at the Bank of Finland, as well as Professor of Economics at South Bank University in London. Before that he was chief economist and Chief Manager at the Reserve Bank of New Zealand. His many positions in academic and public institutions have included Group Head at the National Economic Development Office in London, Director (CEO) of the New Zealand Institute of Economic Research in Wellington, Editor (responsible for the forecasting of the UK and world economies) and then Senior Research Fellow at the National Institute of Economic and Social Research in London, after beginning his professional career at the University of Exeter. Although his current focus is on the future development of monetary and financial integration in Europe he has published widely in economics and related areas. David Mayes has been an editor of the Economic Journal since the late 1970s. Macro in Intensive Care Modern macroeconomics is said to be in trouble. If you want to sort it out, you need large-calibre guns. Like Nobel laureate Robert Solow, for instance. Together with Hans-Werner Sinn and Financial Times Chief Economics Commentator Martin Wolf, he will analyse the strengths and weaknesses of modern macro in view of the recent seizing-up of the financial system, in a panel of the forthcoming CESifo Conference called, well, “What’s Wrong with Modern Macroeconomics?” Selected papers will be included in a special issue of CESifo Economic Studies. Bulletin Karen Helene Ulltveit-Moe currently focuses her research on trade and heterogeneous firms. She has recently examined the impact of a real exchange shock on productivity, employment and offshoring using microdata for Norwegian manufacturing firms. The real exchange rate shock (a real appreciation) is found to be associated with substantial within-firm productivity gains for net exporters, gains that seem to have come about partly through technological improvements. The productivity gains also appear to have been associated with employment cuts. Somewhat surprisingly, firm exits did not contribute significantly to aggregate productivity gains. While visiting CESifo, Ms Ulltveit-Moe will work on a new study analysing potential sources of the so-called exporter premium, which refers to the superior performance of exporters versus non-exporters. This will be done using a matched employer-employee data set for the Norwegian manufacturing sector. Karen Helene Ulltveit-Moe is professor of international economics at the University of Oslo. She holds a PhD from the Norwegian School of Economics and Business Administration (NHH) and a Master of Science in economics and business administration from Universität Mannheim. From 1996 to 2004 she held various positions at NHH, and was the research director of the Centre for International Economics and Shipping at the Norwegian School of Economics and Business Administration from 1999 to 2003. She has worked as a consultant for the European Commission, the Norwegian Ministry of Finance, the Norwegian Ministry for Trade and Industry, the Norwegian Ministry for Foreign Affairs and the Swedish Globalisation Council. She has served at a set of government-appointed expert commissions and also on the board of directors of a number of listed multinational companies. 3 Vol. 19, No. 4 | October 2009 News Ifo Business Climate Perking Up The Ifo Business Climate for industry and trade in Germany brightened further in September. Appraisals of the business situation and outlook have improved. However, by far the greater number of firms still assesses the business situation as poor. Only with regard to the six-month business outlook is there now nearly a balance between pessimists and optimists. In light of the catastrophic developments over the past twelve months, this is good news. In manufacturing the indicator has recovered somewhat, with firms no longer regarding their present business conditions quite so negatively as in the previous month. They also anticipate a somewhat more favourable course of business in the coming half year. With regard to exports, their scepticism has subsided. However, more firms are now planning to reduce their payrolls. In wholesaling and in retailing the index rose. In both sectors, the survey participants are less critical regarding business developments in the coming half year. However, wholesalers are nearly just as dissatisfied with their current business situation as in the previous month. In contrast, retailers have given slightly more favourable appraisals of their present business situation than in August, assessing it now as nearly satisfactory. In construction the business climate has clouded over somewhat. Although the survey participants assessed their present business similarly to that in August, with regard to business in the coming half year they are more sceptical than in the previous survey. 4 Joint Economic Forecast Autumn 2009: Hesitant Recovery, Growing Government Indebtedness In autumn 2009 the low point of the worst economic recession since the Second World War seems to be behind us. There are many indicators for a recovery. The situation on the world financial markets has improved considerably, confidence indicators are ticking upwards, new orders received have increased and rises in production are widespread. World trade, which had declined into the early months of the year, increased clearly in the summer. In a number of emerging economies, especially in Asia, aggregate economic output was clearly expanding already in the second quarter. A major contributor to the turnaround was the stabilisation on the financial markets in the early months of the year as a result of massive intervention of central banks, as well as the announcement of state support programmes and guarantees for the financial sector. In the meantime, investors’ risk propensity has grown strongly, as indicated by the increase in prices on the international stock markets but also by the decrease in risk premiums on corporate bonds and on the government bonds of the emerging economies. The positive effects of government stimulus programmes are also being felt in the real economy. However, experience with past economic slumps shows that recovery is usually slow when recessions are accompanied by bank and real-estate crises. For this reason the institutes making this forecast expect economic growth to be moderate worldwide in the coming year, since the problems in the international financial system have not yet been overcome. Moreover, the favourable effects of energy price developments on consumption and corporate profits in the industrial countries are reversing with an oil price of 75 dollars a Bulletin barrel, which is assumed in this forecast. In addition, the effects of fiscal-policy stimulus will weaken in the course of the coming year. Finally, in many countries employment has not yet adjusted to the clear declines in production. Here, even with a noticeable expansion in production, unemployment will rise for some time, exerting a dampening effect on disposable income and domestic demand. Total economic output in the industrial countries will expand, on average for 2010, at barely more than 1%, after a decline of around 3.5% this year. Although this will also dampen the recovery in the emerging economies, these countries should initially prove to be the engines of world economic activity, as their conditions on the international capital markets are again quite favourable. On the whole we expect this year’s 2.5% decline in world output to be followed by an increase of 2% next year. World trade will drastically decline for 2009, at a rate of 10.5%, to be followed by a 5.5% increase in 2010. Consumer prices will barely rise worldwide due to the low economic capacity utilisation rates, and the core rate is likely to fall even further. However, the clearly higher price of oil as well as increasing prices for other industrial raw materials will result in a higher overall inflation rate for 2010 compared to this year. In Germany, economic activity also stabilised in the summer of 2009, albeit at a clearly reduced level of output. The worldwide financial crisis hit the economy with full force last winter. The spreading crisis of confidence led to a collapse in foreign orders and to an unprecedented plunge in industrial production. The subsequent stabilisation is primarily attributable to the massive economic-policy intervention since autumn 2008. Worldwide, central banks lowered their lending rates and supplied the banks with virtually unlimited liquidity in order to replace the seized-up interbank markets. Parallel to this, governments supported stressed banks with guarantees and capital injections, and increased the Vol. 19, No. 4 | October 2009 guarantees for private bank deposits. In Germany, this also averted a looming collapse of the banking system. Moreover, the government implemented numerous measures to stabilise the economy. As a result, confidence grew again and also the nonfinancial firms saw their future with increasingly less pessimism. In the second quarter of 2009, GDP increased again somewhat, with considerable support from private consumer demand. Falling energy prices, higher wage agreements, tax cuts, higher transfers and the car scrappage scheme all led to a noticeable expansion in household spending. The shortened-hour work scheme was behind the relative stability of the labour market. The leading indicators point to a quite robust recovery in the third quarter. However, that momentary recovery is not likely to be sustainable. The institutes expect the German economy to emerge only slowly from the crisis. For 2009 as a whole, GDP will decline by 5.0%, with only a hesitant recovery next year. Because of the weak expansion of the world economy, German exports will only increase at a moderate pace. Domestic demand is expected to grow only very slowly. Firms’ readiness to invest will remain weak because of the tepid turnover outlook and because of more unfavourable financing conditions. Private consumption will be burdened by the worsening labour market situation. Endogenous growth forces will only gradually make themselves felt, so that the economy will remain dependent on economic-policy support during the forecast period. All in all, the institutes anticipate a 1.2% GDP growth for 2010. The number of unemployed will rise, on average for the year, to 4.1 million. Consumer prices, on the other hand, are expected to increase minimally, although more expensive crude oil will continue to impact energy costs. However, because of poor demand, core inflation will continue to weaken. On average for 2010, a price increase of 0.6% is expected. Eastern German Economy Not Yet Self-Sustaining Twenty years after the fall of the Berlin Wall, the interim balance on the economic unification of Germany is mixed. The prosperity of the population in the new federal states has clearly increased over what it was in the GDR. Disposable household income has risen, on average, from just 60 percent of the western German level in 1991 to 78.6 percent in 2007. The housing situation and the spread of consumer durable goods have also clearly improved. Expanded infrastructure as well as progress in environmental protection are further successes of reunification. However, the economic balance drawn up by the Dresden Branch of the Ifo Institute also reveals clear deficits. Per capita GDP in the east is only 71% of that in the west. Here, the gap to the old federal states has narrowed very slightly since 1997. Considerable structural differences also exist between both areas. Businesses in the east are smaller, on average, than those in the west. Also, corporate headquarters tend not to be located in the east. As a result, certain areas with high value added, such as research and development, are weakly represented in the east. The exportincome ratio is also comparably low. That disposable household income in the new federal states has developed better than GDP is because of the redistribution through the tax and transfer system, from which the east still benefits. The social services received per inhabitant are 20 percent higher than in the west; income tax paid, on the other hand, is almost 50 percent lower. “About one fifth of domestic demand in the new federal states is financed by transfers of the federal government, the western federal states and the social insurance systems. In this respect the economy in the new federal states is not yet self-sustaining”, points out Joachim Ragnitz, acting manager of the Dresden branch of the Ifo Institute. The Ifo Institute criticises that the promotion of investment in the new federal states depends primarily on the amount of the investment sum. This principle led already in the past to an excessive capital intensity of production and to a favouring of the establishment of capital-intensive industries. “It would be more sensible to gear government promotion not to the investment sum but to the number of jobs created. That would help to combat the still high level of unemployment in the new federal states”, Mr Ragnitz explains. While the 1.12 million jobless (15%) in eastern Germany in 2008 are a clear Bulletin improvement on the 2003 peak (1.62 million, 20 percent), unemployment there is still twice as high as in western Germany. Poverty Risk Declines The number of people at risk of poverty in Germany stood at ca. 14 million in 2006, one million lower than in 2005. The poverty risk ratio, i.e. the share of people earning less than 60 percent of average German incomes, fell correspondingly from 18 to 17 percent. This is the result of a study by the Ifo Institute that examined the newly available Socio-Economic Panel data for 2006. Since from 2000 to 2005 the poverty risk rose continuously by a total of five percentage points, the Ifo results point to a welcome turnaround. “Our study confirms that the reduction of the poverty risk ran parallel to the decline in unemployment that, because of Agenda 2010, was one million more in western Germany in the past boom than would have been expected from a continuation of previous patterns. In 2005 we had the highest unemployment in the history of the Federal Republic. Starting in 2006, we saw an upswing on the labour market and also a dramatic decline in the poverty risk,” explains Hans-Werner Sinn, President of the Ifo Institute. “This contradicts the claims of those who maintain that the decline in unemployment was at the cost of reducing social protection. The opposite is the case: work is the most important factor in combating poverty.” The study shows that even very low-paid work is sufficient for earning an income above the poverty line, since the state gives wage subsidies to those affected. With the wage subsidy system introduced with Agenda 2010, those who qualify receive supplemental payments under the Hartz-IV social welfare system, so that the total of workers’ own wages and the wage supplements amounts to an income above the poverty risk threshold. In this context, Mr Sinn is critical of the ongoing debate on minimum wages in Germany. “Minimum wages would lead to a decrease in employment, because in some jobs value added is not high enough to justify the higher wages. A minimum wage of, say, €7.50 could increase the number of jobless by more than one million. In the long run these people would fall back below the poverty risk threshold.” 5 Vol. 19, No. 4 | October 2009 Liquid Asset Developing Human Capital Asquer Schunk Water is somewhat of a paradox: the commonest substance on earth, and yet scarce. Barely one percent of it is available for human consumption; the rest is salty or locked up in ice sheets or polar snow. And it is unevenly distributed: some regions have more than they need, some are desperately short. Some get too much in certain months, and nothing at all the rest of the year. This makes water one of the most coveted commodities, and yet one of the least well managed. It is usually wastefully misused, due to lack of regulation and being priced well below its worth. And, as California, Ethiopia and Australia show, lack of sufficient water can have dire economic consequences. This is where Alberto Asquer’s research comes in handy. During his stay at CESifo, he examined more deeply the implementation of water reforms across countries. His main interest is to understand the challenges posed by the implementation of the EU Water Framework Directive (WFD) in terms of governance, regulation, and effectiveness. In particular, he aims to collect data of the ways in which the EU WFD is being implemented in Germany with respect to the analogous experience in Italy. This research interest is an extension of previous work Mr Asquer has done on water reform implementation in Italy. In a recent paper (“The Regulatory Reform of Water Infrastructure in Italy: Overall Design and Local Variations”, to be published in a special issue of Water Policy), he analyses the reasons for the difficulties experienced in implementing the 1994 water reform in Italy, and for the wide variation in the resulting governance and organisational structures for managing water service provision across the country. The paper showed, in particular, that governance and organisational structures for managing water service provision originated from the particular historical occurrences which took place during the implementation process rather than any original design. Mr Asquer graduated in Economics from the University of Cagliari, Italy, and later got a MSc Management at the London School of Economics and a doctorate at the University of Salerno, Italy. After some years’ research and teaching assistantship at the London School of Economics, he became a lecturer of planning and control at the Faculty of Economics at the University of Cagliari. Public policy proposals that promote both social justice and productivity, in the economy and in society at large, are rare. Recent research suggests that investments in disadvantaged young children represent such a policy, acknowledging the dynamic nature of the skills acquisition process. What is the role of both cognitive and non-cognitive skills in the process of human capital development? How should these policies be designed, and to what extent should they specifically address disparities in child health? Daniel Schunk will further pursue the answers to these questions while at CESifo, using administrative, survey, and experimental data. He will also collaborate with researchers from Ifo and the economics department at LMU University of Munich on ongoing projects concerning the behavioral foundations of survey response biases and concerning the genetic basis of human economic behaviour. Daniel Schunk holds a PhD from the University of Mannheim and now works at the Institute for Empirical Research in Economics at the University of Zurich. He teaches experimental and behavioural economics as well as applied econometrics and has published his work in journals such as the American Economic Review and the Journal of Economic Dynamics and Control. Accounting for Sound Corporate Governance Christian Leuz is Joseph Sondheimer Professor of International Economics, Finance and Accounting, and a Neubauer Family Faculty Fellow at the University of Chicago’s Booth School of Business. He is also an Executive Board Member of the Initiative on Global Markets, a Research Associate at the European Corporate Governance Institute, and a Fellow at Wharton’s Financial Institution Center. His research examines the role of corporate disclosures, accounting transparency and 6 disclosure regulation in capital markets, corporate governance and corporate financing. His most recent publications have appeared in the Journal of Accounting Research, Journal of Financial Economics, and the Review of Financial Studies. He received a JFE All Star Paper Award and the Geewax Terker Prize. Mr Leuz is an associate editor for the Journal of Accounting and Economics and sits on the editorial board of several international accounting journals. Bulletin He earned both his doctoral and post-doctoral degrees at the Goethe University Frankfurt in Germany. Before this, he was the Harold Stott Term Assistant Professor in Accounting at the Wharton School of the University of Pennsylvania and a visiting doctoral fellow at the Simon School of Business, University of Rochester. Vol. 19, No. 4 | October 2009 Improving Real Business Cycle Models A Mushrooming Problem Malley Tatsiramos Welfare costs associated with model uncertainty can be significant. That is one of the findings of research conducted by Jim Malley, jointly with Konstantinos Angelopoulos of Glasgow University, employing a standard stochastic two-sector real business cycle (RBC) model and robust control theory. Based on these findings, they also allow for the possibility that the robust decision-maker can attempt to reduce these costs by optimally diverting part of her time allocation to learn more about the economy/model through the accumulation of ‘information’ human capital. She would then be able to quantitatively establish the conditions which must exist to eliminate model uncertainty. A second strand of Mr. Malley’s recent research, joint with Ulrich Woitek of Zurich University, concentrates on estimating the structural parameters of both RBC and two-sector endogenous growth models using Bayesian methods. This work also attempts to account for the movements and co-movements of the model’s data not explained by the theory by allowing for alternative descriptions of the processes driving the models’ measurement errors. They find that while neither of the work- horse growth models uniformly dominates the other across all variables and forecast horizons, the twosector endogenous growth model provides a far better fit to the data. Some other key results are first, that Hicks-neutral shocks explain a greater share of output and consumption variation at shorter-forecast horizons, whereas human capital productivity innovations dominate at longer ones. Second, the combined explanatory power of the two technology shocks in the human capital model is greater than the Hicks-neutral shock in the RBC model in the medium- and long-term for output and consumption. Finally, the RBC model outperforms the two-sector model with respect to explaining the observed variation in investment and hours. An extension to the estimation research which will be pursued during his visit to CES involves incorporating time-varying parameters into the processes driving the measurement errors in an attempt to capture structural change. Jim Malley is Professor of Economics at the University of Glasgow. He previously held full-time posts at Stirling University and the US Federal Government. sponsored by Deutschlands große Tageszeitung MUNICH SEMINARS BMW Niederlassung München Wegweisend und voller Wertschätzung für Sie. Chaired by Hans-Werner Sinn (CESifo) and Marc Beise (Süddeutsche Zeitung) Sponsored by BMW Niederlassung München Monday, 6 pm, CESifo Conference Centre, Ludwig-Erhard-Hall, Poschingerstr. 5, Munich 16 Nov 2009 Christian Kirchner Professor of Economic Law and Institutional Economics, Humboldt Univesity Berlin Basel II und IFRS: Reformbedarf zur Lösung der internationalen Finanzmarktkrise 7 Dec 2009 Torsten Hinrichs Head for Northern Europe, Standard & Poor’s Finanzkrise und Rating-Agenturen 14 Dec 2009* René Obermann Chairman of the Board, Deutsche Telekom AG 18 Jan 2010* Justus Haucap Chairman of the Monopoly Commission *Topic to be announced For details, visit www.cesifo-group.org > Conferences > Seminars Bulletin In most industrialised countries, the demographic pyramid is taking on a decidedly mushroomy shape: A thin stem of younger, working people supporting a large, and growing, cap of older, retired folk. Given that this shape, if anything, will become more accentuated in the foreseeable future, it pays to study what is happening at its upper end. Konstantinos Tatsiramos is one of the researchers exploring this region. Together with Guido Schwerdt, he is working on a new project on the employment dynamics of older workers and in particular on understanding early retirement decisions. One of his recent papers, “Benefit Duration, Unemployment Duration and Employment Stability: A Regression Discontinuity Approach”, written jointly with Marco Caliendo and Arne Uhlendorff, uses a sharp discontinuity in the maximum duration of benefits in Germany, which increases from 12 to 18 months at the age of 45, to identify the effect of extended benefit generosity on unemployment duration and on subsequent employment stability as a measure of job match quality. Mr Tatsiramos, a Senior Research Associate at the Institute for the Study of Labor (IZA) in Bonn, received his PhD in Economics from the European University Institute in Florence. He obtained his MSc in Economics at the University College London in 1999, and his first degree in Economics at the Athens University of Economics and Business in 1997. His main research interests lie in applied micro-econometrics and labour economics, with particular emphasis on employment and unemployment dynamics, labour, geographic and residential mobility, economics of aging, and entrepreneurship. He has published in such journals as the Journal of the European Economic Association, European Economic Review, Journal of Applied Econometrics, Labour Economics, and Journal of Population Economics. 7 Vol. 19, No. 4 | October 2009 CESifo Turns Ten Banking on Reputation Engelmann Ten years ago, a series of ideas floating in the halls of the University of Munich’s Center for Economic Studies (CES) and the Ifo Institute started to coalesce. How to bind more closely the more than 230 guest researchers who had stayed at CES by then. How to stimulate academic research at the Ifo Institute. How to give a home to a nascent, high-quality working paper series. How to foster synergies between the Ludwig-Maximilian University of Munich and Ifo. How to turn Munich into a European hotbed of economic research. The result was CESifo. A decade later, CESifo has attained a solid position alongside the other great international economics networks. Its well-regarded working paper series, economic policy publications, refereed journals, survey results and other specialised periodicals have become an essential source of information for a wide range of users. As EU Commissioner for Economic and Monetary Affairs Joaquín Almunia puts it, they provide an “excellent contribution to the European construction”. Created as a joint initiative of the LudwigMaximilian University of Munich (LMU) and the Ifo Institute for Economic Research, CESifo has evolved into the CESifo Group, which encompasses the Center for Economic Studies, Ifo and CESifo GmbH, the latter the unit that administers the publications, runs the network and organises the conferences. The CESifo Group benefits from its uniquely close relationship with the LMU, one of Germany’s elite universities, a relationship that underpins its steady output of highquality academic research. Ifo’s empirical research is also legendary, of which its monthly Business Climate Index is but one of the more influential results. Not for nothing has the Ifo Institute been ranked top in Germany in terms of research output and quality. CESifo’s 750-strong network of top academic scholars from some 30 countries, including six Nobel laureates, gives it an enviable global depth. Throughout the year, many of the network members spend a few weeks at the group’s premises as guest researchers and working on joint projects with Ifo or CES economists. The recently established Richard Musgrave Visiting Professorship, awarded jointly with the International Institute of Public Finance, brings a world-class scholar to spend a month at CESifo doing research and giving lectures at the LMU. CES, in turn, awards the yearly Distinguished CES Fellow prize to another top-notch academic, who gives the Munich Lectures in Economics. CESifo holds numerous conferences every year, ranging from the highly coveted CESifo Venice Summer Institute to the prestigious Munich Economic Summit. The latter is a top-level event that every year attracts renowned scholars, business people, academics and chief media editors to discuss key European economic issues. Ifo and CES also run a very active graduate programme, with a score of doctoral candidates working on their degrees and gaining hands-on experience with real-life projects. CESifo’s tight focus on promoting economic research and the wide range and quality of its services, products and activities have gained it widespread recognition. James Poterba, NBER President and CEO, summarised it neatly by saying that CESifo has “become a global leader not only in the analysis of current economic conditions, but also in the broader realm of economic research.” God bless e-bay. That odd item gracing the shelf or the couch in the den wouldn’t be there otherwise. But, careful, you are dealing with strangers, transferring your cash to an unknown entity before you see the goods. So, some indication regarding the other party’s trustworthiness would be helpful. Well, there is such a thing: the “reputation ratings” appearing next to the seller’s nickname. But what about buyers’ reputations? How big a role does his/her reputation actually play in auctions and other such transactions? For a scientific assessment of this, turn to Dirk Engelmann, of the University of London, who has devoted part of his research to the issue. The literature on reputation building mechanisms emphasises that sellers have incentives not to cheat buyers. While reputation-building mechanisms are often in place for buyers as well, these have rarely been studied and their economic impact is less clear. In his project, Mr Engelmann is analysing theoretically why a buyer might actually have a bad reputation, testing in laboratory experiments the main predictions. He will present the results obtained so far at a research seminar at the University of Munich in November. Dirk Engelmann has a Mathematics degree from the University of Göttingen and a PhD in Economics from the Humboldt University Berlin, where he obtained his post-doctoral degree (habilitation) as well. He is a professor of economics and Director of the Experimental Economics Laboratory, Royal Holloway, University of London. He is also an Associate Editor for the Journal of Economic Behavior and Organization. Bulletin Munich Society for the Promotion of Economic Research (Münchener Gesellschaft zur Förderung der Wirtschaftswissenschaft, CESifo GmbH) is the international platform of Ludwig-Maximilians University and the Ifo Institute for Economic Research. President and CEO: Hans-Werner Sinn Address: CESifo, Poschingerstr. 5, 81679 Munich (Germany) Telephone +49 (0) 89/9224-1410, Fax: +49 (0) 89/9224-1409 Editor: Julio C. Saavedra. Ifo News provided by Annette Marquardt.