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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 16 No. 1 January 2006 CES TURNS 15 The Center for Economic Studies at the University of Munich is celebrating its 15-year milestone with some impressive figures. (page 2) LIMITED-DEPENDENT ECONOMETRIC MODELS What do limited-dependent variable models have to do with the Exxon Valdez oil spill of 1989? Ask Paul A. Ruud, an expert in this type of econometric models. (page 3) IFO NEWS (p. 4-5) CES 15-YEAR ANNIVERSARY MEASURING HAPPINESS Some things become much clearer when the non-measurable becomes measurable. Such as what really makes you happy. And it is not a higher income, by the way. Distinguished CES Fellow 2005 Bruno S. Frey is breaking new ground in this novel field. (page 6) (p. 2) FACULTY NEWS (p. 6) MUNICH SEMINARS IMBALANCES IN THE US’S AND EUROZONE’S “NEAR ABROAD” Why is it that countries stabilising their exchange rates against the euro show substantial current account deficits, while those that stabilise against the dollar do not? Gunther Schnabl has the answer. (page 8) (p. 8) HANS-MÖLLER SEMINARS (p. 3) RESEARCH SEMINARS (p. 6) FEATURED RESEARCHERS Tomer Blumkin (p. 3) Bruno S. Frey (p. 6) Gert Peersman (p. 7) Marcelo Resende (p. 7) Paul A. Ruud (p. 3) Gunther Schnabl (p. 8) Chung-Lei Yang (p. 8) DISSECTING MONETARY POLICY Placing monetary policy under the magnifying glass, as Gert Peersman is wont to do, throws up some surprises: technological change increases the hours worked, raising government spending has a negative effect on private consumption, and so on. (page 7) WORLD ECONOMY OUTLOOK Ifo presented its economic forecast for 2006. Despite persistently high energy prices, the outlook is rosy. Even the European economy will perk up. More in the Ifo News section. (pages 4-5) FOLLOWING THE EVOLUTIONARY PATH Why co-operation shows persistence in a world of one-shot encounters poses somewhat of a puzzle, which Chung-Lei Yang attempts to solve using an evolutionary approach. (page 8) OPTIMISING TAX AND TRANSFER SYSTEMS Tomer Blumkin’s research interest range far and wide, from designing the optimal tax and transfer system to the social desirability of using racial profiling for law enforcement purposes. (page 3) REGULATING UTILITIES How to regulate utilities without hampering their utility, in particular regarding how to deal with asymmetric information, lies at the focus of one of Marcelo Resende’s lines of research. (page 8) Online version of this issue available at www.cesifo.de Vol. 16, No. 1 • January 2006 THE CESIFO BOOK SERIES WITH MIT PRESS During 2005, CESifo published five books within its CESifo Book Series with MIT Press. This series presents the findings of so-called “tandem projects”, in which an Ifo Institute or CES researcher works with one or more internationally renowned external researchers to provide an overview of current issues in a given economic area, thus contributing to the economic policy debate. These five books followed on the footsteps of the inaugural volume in the series, The Political Economy of Education, written by Mark Gradstein, Moshe Justman and Volker Meier and released in December 2004. That book provides the theoretical framework necessary for understanding the complex relationship of education, economic growth, and income distribution. In January 2005 it was followed by The Decline of the Welfare State, by Assaf Razin, Efraim Sadka, and Chang Woon Nam, whose analysis, supported by a unified theoretical framework and empirical findings, demonstrates how the combined forces of demographic change and globalisation will make it impossible for the welfare state to maintain itself on its present scale. The next book, The European Central Bank: Credibility, Transparency, and C e n tralizat i o n , written by Jakob de Haan, Sylvester C. W. Eijffinger and Sandra Waller, came out in May 2005. It examines issues that have arisen in the first years of ECB monetary policy and analyses the effect that current ECB policy strategy and structures may have in the future. This was followed in September 2005 by Alleviating Urban Traffic Congestion, by Richard Arnott, Tilmann Rave and Ronnie Schöb, advocating active consideration of microscopic policies to attack traffic congestion problems. Boom-Bust Cycles and Financial Liberalization, by Aaron Tornell and Frank Westermann, saw the light two months later, analysing boom-bust cycles in the developing world and discussing how these cycles are generated by credit market imperfections. Finally, in December 2005, Social Security and Early Retirement, by Robert Fenge and Pierre Pestieau, rounded up the year. In it, they examine empirical and theoretical evidence that explains why early retirement has become such a burden for social security systems and suggest pension system reforms that will reverse the trend. Several other volumes are in the pipeline, due to be released in the course of 2006. To read more about this series or to order a book, log on to www.cesifo.de > Publication Series > Books > CESifo Book Series. CES CELEBRATES 15-YEAR ANNIVERSARY The Center for Economic Studies of the University of Munich reached its 15-year milestone on January 18th. Brought to life by several visionaries, such as Wulf Steinmann, former rector of the university, Hans Zimmermann, Hans-Werner Sinn, Hans Möller and Edwin von Böventer, among others, it counted Richard Musgrave among its godfathers. Over the years, CES has become a byword for excellence in both theoretical and empirical research in economics, acting as a window to the world for the University of Munich. The latter, together with the Ifo Institute for Economic Research, founded CESifo, an economics research organisation that has placed Munich firmly in the international research arena. Right from the start, CES invited economists from around the globe for research 2 have held 265 lectures series as well and some have written books with Ifo or CES researchers, which are published with MIT Press as part of the successful CESifo Book Series (see above). The visitors usually go on to join the growing CESifo Research Network, which by now numbers 527 members. The first CES Council: (l. to r.) Hans Möller, Franz Gehrels, Karlhans Sauernheimer, Martin Beckmann, Hans-Werner Sinn, Edwin von Böventer, Richard Musgrave, Otto Gandenberger, Agnar Sandmo, Klaus Zimmermann visits in Munich. Until the end of 2005, over 450 such visits had taken place, with an average stay of 23.6 days. A further 34 visits are planned for this year. The guest researchers—from 32 countries so far—do not limit themselves to conducting their own research. They Bulletin This network constitutes the backbone of the renowned CESifo Working Paper series, with more than 1,600 papers published so far and a clear leader in downloads in the SSRN network. Many of these papers are later published in prestigious economics journals. Lastly, CES organises the annual Munich Lectures in Economics, an award to an outstanding economist combined with a lecture series that is subsequently published as a book by MIT Press. Vol. 16, No. 1 • January 2006 LIMITED-DEPENDENT VARIABLE MODELS HANS-MÖLLER SEMINARS Ruud Limited-dependent econometric models are those that arise when variables in a regression are, well, limited in some way: they cannot take on all possible (real) values. The simplest example is a dependent variable that can only assume two values, say 0 or 1, as in the choice between entering the labor force or not. This is the type of variable models that econometrician Paul A. Ruud has focused part of his research on. Despite their name, Ruud’s models’ applications are all but limited. His expertise in these models has led him to participate in a number of empirical studies. One notable example is the study of the economic damages caused by the Exxon Valdez oil spill of 1989. That study was a basis for one of the largest settlements for environmental damage —one billion dollars in natural resource damages and restitution for injuries. A large component of the Exxon Valdez study was the design and implementation of surveys. Ruud has pursued interests in survey design since that project and will be working in this area with Joachim Winter while visiting CES. Along with Daniel Schunk (Mannheim), they will be completing the analysis of experimental data measuring the responses of individuals to uncertainty. Paul Ruud’s visit to CES kicks off a year of sabbatical leave from the University of California, Berkeley, where he is professor of economics. He obtained his PhD from MIT in 1981 and has remained at Berkeley since then, except for previous sabbaticals spent at the University of Rochester, MIT, and Nuffield College, Oxford University. 10 January 2006 Per Pettersson-Lidbom Stockholm University An Empirical Approach for Estimating the Causal Effect of Soft Budget Constraints on Economic Outcomes 17 January 2006 Felix Kübler University of Mannheim Approximate Generalizations and Computational Experiments 24 January 2006 Gregory Clark UC Davis The Interest Rate in the Very Long Run: Institutions, Preferences and Modern Growth 31 January 2006 * Steffen Huck UCLA 7 February 2006* Eckhard Janeba University of Mannheim * The subject for these seminars will be posted at www.vwl.uni-muenchen.de/ls_marin/hmoeller1.html DESIGNING THE OPTIMAL TAX AND TRANSFER SYSTEM Blumkin If you are striving to design an optimal tax and transfer system, a good thing to keep in mind is that you should strike a balance between incentive considerations and redistributive goals. Not exactly a walk in the park, as many would-be tax designers have found. They may soon have the findings of Tomer Blumkin’s research to rely on: he has focused a substantial part of his research efforts on the normative issue of the optimal design of tax and transfer systems. Presently an assistant professor at the department of economics of Ben-Gurion University in Israel, Blumkin has attempted to address highly policy-relevant issues which lie at the core of public discourse. These include, inter alia, the desirability of taxing estates, in light of the empirical debate on the magnitude of the various bequest motives; the redistributive role of intergenerational mobility, and the government’s role in taxing/subsidising education as a means to alleviate earnings inequality. ing for law enforcement purposes (such as the screening system at international airports). Tomer Blumkin and dog He recently re-oriented himself towards the law and economics field, where he has examined the role of equityinformed legal rules, such as minimum wage legislation, antidiscrimination rules, and affirmative action policy, as supplements to the welfare system in promoting enhanced redistribution. He has also addressed a highly controversial policy issue resulting from the need to avert major terror events: the social desirability of using racial profil- Bulletin Another strand in Blumkin's research focuses on various theoretical issues in the field of political economy, addressing such positive issues as the link between transparency and the degree of corruption in the public sector; the possibility of political parties manipulating voters by taking advantage of their policy misperceptions (referred to by Blumkin as political framing), and the provocative prediction that middle-of-the-road voters may benefit from the fact that parties become more ideologically driven. In the past year, Blumkin has started working on an experimental project that aims to examine whether direct and indirect taxation induce different behavioral responses (notably, labor-leisure choices), as well as to what extent these differences may impact the optimal design of the tax system. 3 Vol. 16, No. 1 • January 2006 IFO NEWS IFO ECONOMIC FORECAST 2006 After the record in 2004, the world economy expanded in 2005 at the surprising pace of 4.3%. The Ifo World Economic Climate Index remains above its long- Stabilising at a favourable level term average, even rising slightly in the fourth quarter. Other indices, such as the OECD leading indicators, also point upwards. Next year the world economic output growth rate should be slightly higher than this year’s. The expansion of the world economy will become more broad-based. In the United States GDP will grow at a slightly slower pace, but the economies of Japan and China will continue to experience lively economic growth. In Europe a clear acceleration of economic activity is expected. Real GDP in the euro area should increase in 2006 by 2.0%, after last year’s 1.4%. This forecast is based on the assumption that commodity prices, especially the price of oil, will remain at their present high levels and that this will not be accompanied by wage increases. This will result in a slow drop in the rate of inflation, with less pressure for restrictive monetary policies from central banks, even though interest rates may increase somewhat in the wake of the economic recovery. The German economy is experiencing an economic upswing, as shown by the Ifo Business Climate Index. Industrial output as well as incoming orders have been clearly expansive. In 2005 real GDP will have grown by 0.9% (working-day 4 adjusted: 1.1%), after growth of 1.6% in 2004. IMPROVEMENT IN THE IFO WORLD ECONOMIC CLIMATE The engine of growth is foreign demand, which has received enormous momentum from the dynamic world economic activity and the more favourable euro/dollar exchange rate. Investments are also beginning to perk up. Private consumption, however, is still not back on its feet. The Ifo World Economic Climate Index (WES) rose for the first time since the beginning of 2004, after weakening steadily from the high level in previous surveys. The 3rd quarter results first signalled that the indicator’s downturn was bottoming, but the improvement applied only to the assessments of the current economic situation. The expectations for the coming six months weakened slightly. Overall, the World Economic Survey signals a robust international economy. The slight weakening in the world economy in 2004 was presumably only temporary. WES experts now see this weakening replaced by an acceleration of economic growth. The outlook for the German economy remains good for 2006. With a continuingly favourable international economic environment, exports will remain the most important factor of economic growth. Investments in plant and equipment are likely to expand noticeably, not least due to improved depreciation allowances and to a less steep decline in construction spending. Private consumption will be stimulated somewhat in the second half-year in anticipation of the planned hike in VAT starting in 2007. Annual average growth in real GDP for 2006 will be 1.7%, or 1.9% after calendar adjustments. Since trend growth of economic output is 1%, capacity utilisation in the economy will increase perceptibly. The inflation rate, at 1.7%, is expected to be somewhat lower than 2005 (2.0%). Despite these factors, improvement in the labour market situation will be hesitant. The number of those gainfully employed will increase by 215,000 on average for 2006, but 100,000 of this will be from job creation schemes. The number of unemployed will decline by an annual average of 150,000; in the winter months it will probably exceed the 5 million mark. The public finance situation did not improve much in 2005. With a deficit of 3.6% of GDP, the Maastricht deficit ceiling was exceeded for the fourth time in a row. Taking the measures planned by the Federal Government into consideration, the Stability and Growth Pact will also be violated in 2006, with a ratio of 3.2%. Bulletin Signs of improvement are especially evident in Western Europe, where both the assessments of the current situation and the expectations for the next six months were stronger. In Asia as well, the climate indicator rose, even though the more confident appraisals of the current economic situation were partly offset by more cautious future expectations. Only in North America did the climate indicator decline as a result of clearly worsening expectations as well as less positive appraisals of the current economic situation. In contrast to the survey results of the previous three quarters, now a clear rise in inflation is expected. Whereas the WES experts assumed in the past surveys that the consumer prices would increase worldwide by 2.9%, they now anticipate a rise of 3.3%. The sharp price increases for oil and other raw materials are now expected to have a stronger effect on consumer prices than assumed in the previous surveys. Certainly as a Vol. 16, No. 1 • January 2006 result of the rising inflation expectations, the WES experts anticipate further hikes in interest rates, especially in North America and Asia but also in Western Europe. The US-Dollar is regarded as adequately valued, after having been seen as undervalued for two years. The euro and the British pound were appraised less frequently as overvalued than in the previous surveys. For the first time since the beginning of 2004, the Japanese yen has been appraised as slightly undervalued. form of personal income tax, employee and employer social insurance contributions as well as value-added tax, which is also a tax on the value added of human labour. This is the result of a new study by the Ifo Institute that examines the marginal tax rate for various household types. These findings apply – with slight fluctuations in the individual results – for all the examined types of households with average earnings (single or dualincome married couples with two children; western or eastern Germany). UPSWING GAINS MOMENTUM Even taking into account the coalition agreement of the new German government, the situation does not change much. In 2007 the marginal tax burden of a single person with an average income will be 68.1% (2005: 68.0%), and for a dual-income family (one average salary plus one third) and two children will stand at 63.8% (2005: 64.2%). In eastern Germany a single, employed person will have a marginal tax rate of 64.9% (2005: 65.1%) in comparison to 64.2% (2005: 63.7%) for a family. The Ifo Business Climate Index for German industry and trade rose again clearly in January, after a significant improvement in the previous months. The surveyed firms expressed greater satisfaction with their current business situation than in December, and they again gave more favourable assessments of their business expectations for the next six months. Doubts regarding the durability of the upswing, which has been observable since last summer, should be further dispelled by these results. The upswing has gained both in breadth and momentum. In manufacturing more favourable assessments of the current situation and more optimistic expectations led to a strong improvement of the business climate. Export expectations have also improved. Particularly, the producers of investment and intermediary goods reported a better situation and outlook. In construction and in retailing especially business expectations improved. Only in wholesaling did the business climate cool slightly. Although the surveyed wholesalers gave more confident appraisals of their business prospects, they were more reserved regarding their current situation than they were last month. In eastern Germany the rise in the business climate index was similar to the federal average. TWO THIRDS FOR THE STATE In Germany approximately two thirds of value added that arises from additional earned income goes to the state in the The reforms of the Grand Coalition will have no positive effect on the marginal tax rate. Without the coalition agreement, the marginal tax rate of the sample family would be 63.7%, only minimally lower than the 63.8% as in the coalition agreement. The reason is that the increase in the value-added tax has a somewhat stronger effect than the lowering of the social insurance contributions. This will not help revive the labour market or reduce the incentives to work in the shadow economy. The marginal tax burden is much more favourable for a typical household in the USA (only 38%) and in the United Kingdom (ca. 49%). Even Sweden, the Netherlands and Denmark have lower marginal tax rates. Only in France does the state pocket more of additional value added, ca. 70%, than in Germany. CHILDREN SUPPORT PUBLIC FINANCES A controversial point in the discussion on family-policy measures in Germany is whether parents raise their children at the expense of the general public because of the numerous, publicly financed grants and services that they Bulletin receive? Or whether children bolster public finances via future taxes and social insurance contributions thereby contributing to their sustainability? To clarify this question, the Ifo Institute for Economic Research, Munich, presented detailed calculations of the “fiscal balance” of a child within the framework of the current German tax and social system in a study financed by the Robert Bosch Foundation. The results are part of a report of the commission on families and demographic change chaired by former Saxon minister president, Kurt Biedenkopf. The main result of the study is that the upbringing of a child in Germany leads, on balance, to the transfer of a significant sum of money to the public finances under the present German laws. The Ifo researchers took a child born in 2000 with an average development in terms of education, working life, own children and numerous other aspects and calculated a net contribution in taxes and social insurance contributions to public finances of ca. 77,000 euros. This is a conservative estimate and takes into account that not all children enter the workforce in the course of their life or contribute to the social insurance system. The net burden per child of 77,000 euros determined in the study is an orientation point for reforms of family policies aimed at raising the German birth rate to the European average. A restructuring and consolidation of existing measures is a first step. Introducing the French model of “family splitting” in determining income tax could follow. A grant to parents as practiced in Sweden could also be introduced but especially urgent is a reform of the statutory retirement insurance system. A further reduction of benefits in the pay-as-you-go system for all insured is necessary, followed by a benefit system based on the number of children and an obligation that those with few or no children invest more in fully funded insurance. A portion of the savings in such a system could be withdrawn when a child is born, providing an additional incentive in family planning. 5 Vol. 16, No. 1 • January 2006 MEASURING HAPPINESS FACULTY NEWS Frey The 2005 Munich Lectures in Economics offered a superb chance to learn about the ground-breaking research on the economics of happiness by Distinguished CES Fellow Bruno Frey. The possibility of measuring utility directly enables researchers to better capture the worth attached to public goods, such as the natural environment. Such goods are Distinguished CES Fellow Award: (l. to r.) LMU not traded in the Prorector Reinhard Putz, Lord Richard Layard market, but they (laudation), Bruno Frey (Awardee), Bavarian State Happiness is the can still conLMU provost Minister of Sciences Thomas Goppel, goal everyone Thomas May, and CES Director Hans-Werner Sinn tribute to a higher strives for. Howlevel of life satisever, the conventional position in economfaction. This approach makes is possible ics has been to consider happiness (or utilto assign quantitative values to a public ity) as empirically non-measurable, and good and thus sugggests how much the the assertions of people regarding their state should invest in them. happiness as unreliable. What people do, Second, happiness research makes it posrather than what they say, is what counts. sible to find out which aspects of life are But, asserts Mr Frey, a dramatic change important to the population. Among ecohas taken place in the past few years: hapnomic factors, a satisfying occupation piness is measurable after all. Different has proved to be by far the most impormethods make it possible to find out how tant happiness factor. Those without happy people feel. In particular, a wellemployment, even when they receive the crafted survey can show how satisfied same income as those working, are not people are with their lives. The “subjective satisfied with their life. Higher income, satisfaction” captured in this way provides by contrast, does not bring much addia good approximation to an individual’s tional satisfaction: the comparison with utility. Psychologists have demonstrated your peers is decisive. In other words, it that people who describe themselves as is relative income what counts. This happy laugh more often, have fewer social explains the fact that people in developed problems, suffer less from depression and countries, despite far higher income, are are at lower risk of committing suicide. not much happier than their forefathers. Happiness research, based upon the measurement of life satisfaction, constitutes a minor revolution in economics. Three areas are affected. First, economic theory is expanded and improved. With utility being directly measurable, bad decisions can be examined in a new light. Those who make a bad decision are less satisfied with their life afterwards than if, according to their own perception, they had made the right one. Research has shown that many people do actually choose the wrong option: when confronted with either higher income or more leisure time, for instance, many opt for the money; future leisure time is undervalued. They realise too late that their life satisfaction level rises only briefly as a result of that decision. 6 Happiness, then, does not depend solely on the enjoyment of goods and services; the non-material aspects of life, such as being able to participate actively in politics, are just as important. That’s one reason why people in democratic societies are happier than those in authoritarian ones. Third, happiness research provides important insights for economic and social policies. It especially shows how important it is for the state to provide the conditions for the unemployed to find work again. The state must take the concerns of its citizenry more seriously and, for this, direct democracy and federalism are the most suitable systems: the states and communities can finance themselves with their own taxes and decide best how they want to apply their resources. Bulletin • Andreas Haufler turned down an offer for a professorship at the University of Tübingen. • Klaus M. Schmidt has been elected as a full member of the Berlin-Brandenburg Academy of Sciences. • Bund-Länder Programme (Excellence Initiative). An international commission of the Joint Committee of the Research Council and the German Research Foundation delivered a positive assessment of the Excellence Cluster Innovation: Tracing Patterns of Competence, Competition and Governance submitted by the University of Munich under the leadership of Dietmar Harhoff, Sven Rady and Klaus Schmidt. A comprehensive application for the next round was requested for submission no later than next April. RESEARCH SEMINARS Winter Semester 2006 Monday 3:15 p.m. CES, Schackstr. 4 9 January 2006 Daniel Schunk University of Mannheim, under the auspices of the SFB/TR 15 GESY Sequential Decision Behaviour with Reference Point Preferences: Theory and Experimental Evidence 16 January 2006 Thomas Eife University of Munich Price Setting Behaviour and Price Setting Regulations at the Euro Changeover 16 January 2006 Uwe Böwer University of Munich Determinants of Business Cycle Synchronisation across Euro Area Countries 23 January 2006 Mathias Kifmann University of Konstanz Optimal cost reimbursement of health insurers to reduce risk selection 30 January 2006 Nicolas Vieille HEC Paris Social Learning in One-Arm Bandit Problems 6 February 2006* Thomas Maier University of Munich 6 February 2006* Laura Gariup University of Munich * The topic for this seminars will be posted at www.vwl.uni-muenchen.de/ls_rady/seminar.html Vol. 16, No. 1 • January 2006 CESIFO INTERNATIONAL SPRING CONFERENCE 2006 MONEY MATTERS Peersman Every year in spring, the CESifo Group holds a conference to examine the prospects for the global economy in the coming months, paying in particular attention to European economy developments. A must for decision-makers in industry and the financial community, the CESifo International Spring Conference is well regarded for its macroeconomic forecasts as well as industry analyses. Traditionally divided into two sections held on consecutive days, the conference addresses global issues on the first day and conducts industry-specific analyses on the second day. This year, the overarching theme will be the effect of persistently high energy prices on the global economy, the subject of the keynote speech by Fatih Birol, of the International Energy Agency. Jim O’Neill, of Goldman Sachs, will then examine the issue from the point of view of the effects upon the US economy, followed by Klaus Abberger, of the Ifo Institute, who will analyse the effects on the European economy. Further topics of the first day will be the recycling of petrodollars, the Middle East in an era of high energy prices, and the Asian economies. The second day will be devoted to specific industries, such as petrochemicals, commercial vehicles, microelectronics, mechanical engineering and retail trade. CESifo International Spring Conference March 23-24, 2006 • ARTrium complex, British Embassy Berlin To register: www.cesifo.de/isc EFFICIENT REGULATORY REGIMES FOR UTILITIES Resende Marcelo Resende’s research interests lie in the interface of Industrial Organization and Applied Econometrics and have mostly focused on the econometric analysis of imperfectly competitive markets and assessment of regulatory regimes. During his stay at CES he will continue his research on the efficiency and incentive properties of different regulatory regimes for selected utilities, aiming at devising strategies for incorporating asymmetric information between the regulator and the regulated firm (both in terms of adverse selection and moral hazard) into the analysis. He has also investigated the determinants of aggregate mergers and acquisitionsM&A waves in the UK taking as reference explicitly non-linear models (with Markov switching). Stock market prices, real money supply growth and real GDP growth do seem to have a role in explaining the transition between low and high level regimes for M&A. Marcelo Resende holds a D.Phil. in Economics from the University of Oxford and is currently a visiting fellow at the European University Institute. He is an associate professor at the Instituto de Economia, Universidade Federal do Rio de Janeiro (Brazil) since 1998, where he was previously an assistant professor. He has also held academic appointments at Universidade do Estado do Rio de Janeiro and Pontifícia Universidade Católica do Rio de Janeiro, Brazil. Bulletin Gert Peersman studies what each of us would like to have more of: money. Unfortunately, this is a commodity which is as difficult to study as it is to obtain. Peersman’s early work (with Frank Smets at the European Central Bank) concentrated on the effect of monetary policies in Eurozone countries. He found, among other things, that these policies have a magnified impact during recessions relative to booms – an asymmetry is explained by the fact that firms often face stronger credit constraints during recessions. More recently, in joint research with Roland Straub (IMF), he has taken some testable implications of the popular (and certainly complicated-sounding) New Keynesian dynamic stochastic general equilibrium (NK DSGE) model to the data. Some of their findings have confirmed the model’s more controversial outcomes: increases in government spending are, for instance, found to have a negative effect on private consumption and investment. In other dimensions, the data reject NK DSGE model. For example, and this is something most of us can attest to, technological change is found to increase the hours worked. The newspapers have, in recent months, been filled with grim tales regarding the disastrous economic effects of the current surge in oil prices. As it turns out, things aren’t nearly as bad during this round of oil price shocks as they were during the oil crises of the 1970s. During his stay at CES, Gert Peersman will be exploring to what extent this can be attributed to more judicious monetary policy. Gert Peersman is professor of monetary economics at the department of Financial Economics of Ghent University. He obtained his Masters degree at the University of Louvain (where he is a guest professor) and his PhD at Ghent University in 2001. After his PhD, he worked as an economist for the Bank of England’s International Economic Analysis Division for 2 years, where he continues to consult. 7 Vol. 16, No. 1 • January 2006 IMBALANCES AT THE PERIPHERY Yang Schnabl Since the 1990s the current accounts of the countries at the peripheries of the United States and the euro area have evolved asymmetrically. The countries which stabilise their exchange rates against the US dollar have run increasing current account surpluses. By contrast, the countries stabilising their exchange rate against the euro have experienced substantial current account deficits. While the determinants of the “global imbalances” between the US and its periphery have been controversially discussed, the asymmetric nature of current account developments at the US periphery and Central and Eastern Europe has remained largely untouched. Based on work carried out with Ronald McKinnon, of Stanford University, Gunther Schnabl will investigate, while at CES, the impact of US current account developments and macroeconomic policies on the current account balances of small open economies depending on their exchange rate strategies. Mr. Schnabl has considerable expertise in exchange rate economics and exchange rate systems, European monetary integration and the Japanese economy. He has worked on exchange rate policies in East Asia, Eastern Europe and the Commonwealth of Independent States (CIS) in the context of underdeveloped financial markets. He has conducted research recently on the East Asian and European monetary integration. In several joint research papers with Ronald McKinnon, he has elaborated on the motivation for the informal dollar pegs in East Asia. He has argued in favour of the Chinese dollar peg. In his joint works with Paul De Grauwe he has analyzed the pro-and-cons of exchange rate stability against the euro and has examined EMU entry strategies for the new member states. Gunther Schnabl was, until recently, an associate professor for economic policy at Tuebingen University. He has been an adviser for exchange rate policies at the DG International and European Relations of the European Central Bank. He has done research at the Catholic University Leuven, Bank of Japan, Stanford University, Federal Reserve Bank of New York, Deutsche Bundesbank and Tokyo University. Schnabl has been appointed as a full professor for international economics at the Faculty of Economics and Business Administration of Leipzig University. MUNICH SEMINARS Deutschlands große Tageszeitung Chaired by Hans-Werner Sinn (CESifo) and Nikolaus Piper (Süddeutsche Zeitung) Monday, 6 pm, CESifo Conference Centre, Ludwig-Erhard-Hall, Poschingerstr. 5, Munich 9 January 2006 Roland Berger Chairman, R. Berger Strategy Consultants Die ersten 100 Tage nach der Wahl 6 February 2006 23 January 2006 Johann Eekhoff, University of Cologne Private Krankenversicherung für alle Meeting the Challenge of Globalisation Bulletin YANG’S EVOLUTIONARY APPROACH Martin Wolf Financial Times What explains co-operation in terms of multi-level selection? Finding an answer to this question using evolutionary approaches motivated Chung-Lei Yang, an associate research fellow at RCHSS of Academia Sinica, Taiwan, to focus his research onto co-operation in assortative-matching environments using experimental methods. In one recent experiment, subjects displayed significantly different behavior in a multi-round assortative-matching Prisoners’ Dilemma game, which offers a potential explanation for persistence of co-operation in a world of a “one-shot encounter” nature. A similarly motivated experiment in the Public Good framework, conducted jointly with Gary Charness, is currently underway. Casual examination of the preliminary data suggests that some voluntary group formation devices can indeed lead to the realisation of almost all potential gains from trade regarding both the optimal level of contribution and group size. In another line of research, conducted jointly with Cheng-Zhong Qin, Yang revisited the King Solomon Dilemma and discovered a simple mechanism that robustly implements the desired outcome. Both researchers are working at present on ways to formally characterise the nature of information robustness of mechanisms of this kind. Yang obtained his PhD at the Economics Department, University of Dortmund. He spent two years at Boston University on a DFG postdoctoral grant in 1994-6 and in 2004-5 spent six months visiting the University of California at Santa Barbara. 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 Chief Editor: Raji Jayaraman (RJ), CESifo Editor: Julio C. Saavedra (JS). Ifo News provided by Annette Marquardt (AM). Contributor: Silke Uebelmesser (SÜ).