DIW Roundup http://www.diw.de/sixcms/detail.php?id=diw_01.c.436072.en DIW Roundup en http://diw.de/sixcms/media.php/37/thumbnails/diw_roundup225.jpg.480210.jpeg DIW Berlin http://diw.de/ Wind power: mitigated and imposed external costs and other indirect economic effects http://www.diw.de/sixcms/detail.php?id=diw_01.c.556794.en Since the 1990s, (onshore) wind power has become an important technology for electricity generation throughout the world. The economic rationale is the mitigation of negative externalities of conventional technologies, in particular emissions from fossil fuel combustion. However, wind power itself is not free of externalities. Wind turbines are alleged visual and noise impacts as well as threats to wildlife. Further indirect economic effects comprise costs for integrating variable wind electricity into the power system. Economic outcomes, such as employment and GDP, can be positively or negatively affected both locally and nationally. This Roundup summarizes evidence from multiple literatures on mitigated and imposed external costs and further indirect economic effects.


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Thu, 27 Apr 2017 11:31:00 +0200 http://www.diw.de/sixcms/detail.php?id=diw_01.c.556794.en
The Natural Rate of Interest and Secular Stagnation http://www.diw.de/sixcms/detail.php?id=diw_01.c.551175.en In many advanced economies, there has been a declining trend in interest rates over the past thirty years. Since the financial crisis, interest rates have remained particularly low. Though a decrease in inflation explains part of the fall in nominal interest rates, there is also a clear downtrend in real interest rates. Against this backdrop, a debate has emerged over the factors that might have contributed to this decline. Potential persistent factors discussed under the heading of “secular stagnation” include a decline in profitable investment opportunities and high global savings rates. It is often argued that, due to these factors, the so-called natural interest rate, which is the level of interest rate consistent with stable, non-inflationary growth, has decreased. However, there are also arguments that the low interest rates are transitory and are due to factors such as post-crisis private debt deleveraging, a temporary “savings glut”, or higher regulatory burdens for firms and households. This report summarizes the discussion on the underlying causes of the low interest rate environment and the potential for a period of secular stagnation.


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Mon, 30 Jan 2017 11:00:00 +0200 http://www.diw.de/sixcms/detail.php?id=diw_01.c.551175.en
The Natural Rate of Interest II: Empirical Overview http://www.diw.de/sixcms/detail.php?id=diw_01.c.551089.en The concept of the natural rate of interest (NRI) dates back to Wicksell (1898) and has since then been highly debated in the economic literature. In practice, estimates of the NRI can be employed as a versatile tool for macroeconomic analysis and are a core element within the popular neo-Wicksellian (or New-Keynesian) framework. The real rate gap, i.e. the difference between the actual interest rate and the NRI, provides valuable information about the state of the economy and can help policy makers to adjust the monetary policy stance. However, the NRI cannot be directly observed and has to be calculated from other economic data. While the empirical literature provides various estimation approaches, all of them are subject to serious measurement problems and yield fairly uncertain estimates. This Roundup reviews the advantages and shortcomings of the most popular measurement methods and presents an estimation of the NRI and the real rate gap based on the Laubach and Williams (2003) model. 


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Mon, 30 Jan 2017 11:00:00 +0200 http://www.diw.de/sixcms/detail.php?id=diw_01.c.551089.en
The Natural Rate of Interest I: Theory http://www.diw.de/sixcms/detail.php?id=diw_01.c.551037.en The term natural (or neutral) real interest rate refers to the equilibrium value of the real interest rate. As this equilibrium is usually conceived as a situation where inflationary or deflationary pressures have abated, the natural real interest rate is a key concept for central banks seeking to stabilize the general price level or targeting the rate of inflation. The present roundup provides a brief historical review of this concept and explains the relevance of the natural real rate for monetary policy analysis. 


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Fri, 27 Jan 2017 11:00:00 +0200 http://www.diw.de/sixcms/detail.php?id=diw_01.c.551037.en
The Inflation Targeting Debate http://www.diw.de/sixcms/detail.php?id=diw_01.c.549678.en Inflation targeting has become one of the most prominent monetary regimes around the globe. Proponents argue that it reduces the dynamic inconsistency problem of monetary policy and thereby stabilises prices, which in turn promotes growth. Opponents, on the other hand, say that by focusing on price stability inflation targeting neglects other important policy objectives, such as financial stability, and thereby contributed to the built up of the global financial crisis. This roundup summarises the arguments made in the debate. It concludes that no consensus has emerged in the empirical literature about whether inflation targeting improves macroeconomic performance.


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Mon, 09 Jan 2017 11:01:00 +0200 http://www.diw.de/sixcms/detail.php?id=diw_01.c.549678.en
Tax evasion and the impact of international regulation: a summary of empirical results http://www.diw.de/sixcms/detail.php?id=diw_01.c.547771.en While combating tax evasion ranks highly on the international policy agenda and journalists are covering leak after leak, the economics profession at large has somewhat neglected the subject until recently. In the last years, however, a combination of better international financial data and ingenious identification strategies in several pioneering studies has made the subject popular in empirical economics. These contributions are summarized below.             


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Tue, 29 Nov 2016 11:00:00 +0200 http://www.diw.de/sixcms/detail.php?id=diw_01.c.547771.en
Parental leave policies and child development: A review of empirical findings http://www.diw.de/sixcms/detail.php?id=diw_01.c.546153.en Parental leave policies are a major policy tool used across OECD countries to support families before and after child birth. There are large differences across countries in the amount and the duration of benefit payments as well as leave entitlement periods. Despite these differences, the shared goal of parental leave policies is to reconcile family life and work, and support child development. While much research attention has been paid to the effects of parental leave policies on maternal labor supply, much less is known about their effects on child development and health. This DIW Roundup summarizes the international literature on parental leave policies and their impact on child outcomes. The literature suggests that the effects are small. However, research in this area is still relatively new and it is too early to draw conclusions about how the design of parental leave policies impacts on child development.


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Tue, 01 Nov 2016 11:00:00 +0200 http://www.diw.de/sixcms/detail.php?id=diw_01.c.546153.en
CGE-Based Methods to Measure the Impact of Trade Liberalization on Poverty http://www.diw.de/sixcms/detail.php?id=diw_01.c.540414.en Normal 0 21 false false false EN-US X-NONE X-NONE

It is heavily discussed whether trade liberalization is good or bad for the poor in a given (developing) country. The answer depends on a wide variety of factors, such as the type of trade barrier removed, the economic and institutional environment in the country, and the characteristics of the poor in that country (Winters 2002; Winters et al. 2004). In addition, the results can also be driven by the specific method used to measure the impact of the trade-policy reform on poverty. For an informed discussion, it is, therefore, important to understand the corresponding empirical methods at hand.

Most generally, empirical studies on trade impacts can be divided into ex-post and ex-ante analyses. Whereas ex-post studies focus on the effects of trade policies that have already been implemented, ex-ante analyses simulate the effects of potential future (and actual) trade policies (Piermartini and Teh 2005). In other words, ex-post studies have both pre- and post-reform data at their disposal, while ex-ante studies rely exclusively on pre-liberalization data. Ex-post analyses have the advantage of being grounded on real-world observations; however, their difficulty lies in applying appropriate statistical methods to separate the impact of a given trade-policy reform from any other shock affecting the economy in the observation period (Hertel and Reimer 2005; Piermartini and Teh 2005). This identification problem is absent in ex-ante studies, conducting counterfactual analyses, as they allow to explicitly and exclusively simulate the trade-policy shock (Hertel and Reimer 2005). However, simulation studies encounter yet other challenges, namely to verify the assumptions concerning the model specification (e.g., parameters and functional forms) and, thus, to ensure the quality of the results (Piermartini and Teh 2005; Winters et al. 2004). Their strength, in turn, is to reveal possible orders of magnitude of a policy impact, to identify relative winners and losers, and to give insights into the quantitative importance of the mechanisms behind the effects of a given trade-policy reform on poverty (Winters 2003; Winters et al. 2004; Bourguignon et al. 1991).

While examples of ex-post methods to analyze the effects of trade liberalization on poverty can be found in Winters et al. (2004), this Roundup gives an overview of some basic ex-ante methods available to quantify and evaluate the impact of a trade-policy reform – or, more generally, a macro-economic shock – on the distribution of household income for poverty (and inequality) analysis, i.e. on the micro-economic level. The methods considered here center all around so-called computable general equilibrium (CGE) models. On the one hand, they include the standard CGE approach with (one or) several representative households; on the other hand, they cover macro-micro simulations, subdivided into the top-down approach, the top-down/bottom-up approach, and the integrated approach. For each method, the Roundup provides a brief description, some applications, and a critical assessment.

 


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Thu, 28 Jul 2016 11:00:00 +0200 http://www.diw.de/sixcms/detail.php?id=diw_01.c.540414.en
What causes the delay in reforms in Europe? http://www.diw.de/sixcms/detail.php?id=diw_01.c.537484.en Normal 0 21 false false false EN-US X-NONE X-NONE

The academic literature provides no clear answer to this question. In principle, the recent slowdown in reform activity and fiscal consolidation in the euro area may derive from several developments. Potential reasons involve the end of the economic recession, the provision of financial assistance to crisis countries, and improved financing conditions for governments as a result of unconventional monetary policy, which all reduced reform pressure. While existing studies analyse several of these causes of reform delays in general, there is only very limited evidence for such a relation in the current environment in the euro area.

 


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Tue, 05 Jul 2016 11:00:00 +0200 http://www.diw.de/sixcms/detail.php?id=diw_01.c.537484.en
Nuclear power and the uranium market: are reserves and resources sufficient? http://www.diw.de/sixcms/detail.php?id=diw_01.c.535933.en The increase of the use of atomic power in some emerging economies, in particular South Korea and China, has revitalized a discussion regarding the availability of uranium resources. Despite the fact that global uranium resources are more than sufficient to supply reactor-related demand for the rest of the century, some voices in the nuclear community expect a supply shortage for the upcoming decades, and the risk of prices tippling in the next 20 years. They argue with delayed construction times, untimely mining expansion and unfavorable market conditions. This Roundup takes a closer look at the arguments of the debate.


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Thu, 09 Jun 2016 02:00:00 +0200 http://www.diw.de/sixcms/detail.php?id=diw_01.c.535933.en
Demand response in Germany: Technical potential, benefits and regulatory challenges http://www.diw.de/sixcms/detail.php?id=diw_01.c.532689.en An increased flexibility of the electricity demand side through demand response (DR) is an opportunity to support the integration of renewable energies. By optimising the use of the generation, transmission and distribution infrastructure, DR reduces the need for costly investments and contributes to system security. There is a significant technical DR potential for load reduction from industrial production processes in Germany, as well as from cross-cutting technologies in industry and the tertiary sector.

The availability of demand response as a system resource depends on the underlying type of demand. Already today energy-intensive industries market significant demand capacity in the German minute reserve. The DR literature reveals that there is a potential of several gigawatts of additional capacity available for at least one hour in Germany. Demand can also cover longer periods, but this often requires investment, for example in storage capacity for intermediate products.

To enable the effective use and full remuneration of demand response, further improvements in power market design are discussed: (i) Enabling third parties (referred to as Demand Side Management Companies) to help business customers realise their flexibility potential; (ii) creating robust intraday and balancing prices in auction platforms as reference prices for longer-term contracts to stabilise revenue streams of flexibility providers; (iii) it needs to be further assessed whether additional catalysing instruments are necessary to initiate investment in new business processes or storage capacity.


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Mon, 02 May 2016 11:00:00 +0200 http://www.diw.de/sixcms/detail.php?id=diw_01.c.532689.en
The Dilemma or Trilemma Debate: Empirical Evidence http://www.diw.de/sixcms/detail.php?id=diw_01.c.532215.en One of the central results in international economics is that an economy cannot have at the same time independent monetary policy, free capital flows, and a fixed exchange rate. Over the last few years, however, this so-called Mundell-Flemming ‘trilemma’ has increasingly been challenged. It is argued that given the rising importance and synchronization of capital and credit flows across countries and their underlying common driving forces, the ‘trilemma’ has morphed into a ‘dilemma’: an economy cannot have at the same time independent monetary policy and an open capital account, independent of the exchange rate regime. This Roundup provides a brief overview of the debate, reviews recent empirical findings on the topic, and outlines possible directions for future research.


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Tue, 26 Apr 2016 11:00:00 +0200 http://www.diw.de/sixcms/detail.php?id=diw_01.c.532215.en
Corporate taxation, leverage, and macroeconomic stability http://www.diw.de/sixcms/detail.php?id=diw_01.c.530311.en A key challenge for economic policy today is to make the financial system more resilient. The literature finds that high indebtedness (or: leverage), both in the financial and in the real sectors, is a danger to macroeconomic stability and growth. Moreover, the design of the corporate tax system is an important determinant of leverage: in many countries interest paid on debt is tax-deductible while the return on equity is not, such that tax systems incentivize debt-type financing and, hence, leveraging. This article summarizes the debate about the implications of corporate taxation for leverage and economic stability. Proposals for addressing the debt bias of taxation are also presented.


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Tue, 12 Apr 2016 11:00:00 +0200 http://www.diw.de/sixcms/detail.php?id=diw_01.c.530311.en
Economic effects of uncertainty http://www.diw.de/sixcms/detail.php?id=diw_01.c.530110.en This Roundup discusses the literature on the effects of uncertainty on economic activity. Uncertainty will be generally referred to as the agents’ inability to form clear expectations about the future path of relevant economic variables. After motivating the analysis from a policy perspective, the Roundup outlines the key channels through which uncertainty exerts an impact on the economy. It then discusses in an intuitive manner the challenges in empirically estimating such effect, and the recent developments in the literature.


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Thu, 07 Apr 2016 11:00:00 +0200 http://www.diw.de/sixcms/detail.php?id=diw_01.c.530110.en
The Paris Climate Agreement: Is It Sufficient to Limit Climate Change? http://www.diw.de/sixcms/detail.php?id=diw_01.c.526796.en “The Paris Agreement is a monumental triumph for people and our planet” (UN News Centre, 2015). Statements, like this one from UN Secretary-General Ban Ki-Moon, represent the global excitement shortly after the acceptance of the Paris Agreement and describe the outcome of the COP21 in December 2015 primarily as ‘historical’. Twenty years after the UN’s first COP (Conference of the Parties), the international community reached “the first universal agreement in the history of climate negotiations” (French Government, 2015).

Euphoria about the diplomatic success gave way to scepticism if the deal will actually have real political power to initiate ambitious climate policy worldwide that can prevent dangerous levels of climate change. It will be the next years and decades that show whether the Paris Agreement can create the so far missing global ambition to limit anthropogenic climate change and its capability to reduce risks and vulnerability to the impacts of an already changed climate.

In this DIW Roundup we discuss the most important achievements of the negotiations in Paris, and show necessary steps, so that the convention will lead to the historic actions it is meant to create. Doing so, we complement a previous DIW Roundup (No. 82; Richter and Brauers, 2015), where we evaluated expectations prior to the Paris climate talks in December 2015.


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Mon, 15 Feb 2016 11:00:00 +0200 http://www.diw.de/sixcms/detail.php?id=diw_01.c.526796.en
Can central banks successfully lean against global headwinds? http://www.diw.de/sixcms/detail.php?id=diw_01.c.523001.en Despite expansionary central bank action, inflation remains low in the euro area. How much can we expect from the additional stimulus in face of anaemic global growth and declining oil prices? More generally, have central banks lost the ability to steer inflation in a globalised world where external factors have powerful effects on domestic inflation? This roundup summarises the evidence in the literature and concludes that central banks retain influence on domestic inflation.

 


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Tue, 22 Dec 2015 11:00:00 +0200 http://www.diw.de/sixcms/detail.php?id=diw_01.c.523001.en
Leaving coal unburned: Options for demand-side and supply-side policies http://www.diw.de/sixcms/detail.php?id=diw_01.c.522192.en Climate policy consistent with the 2°C target needs to install mechanisms that leave most current coal reserves unburned. Demand-side policies have been argued to be prone to adverse carbon leakage and “green paradox” effects. A growing strain of literature argues in favor of supply-side policies in order to curb future coal consumption. Various concepts with analogies in other sectors are currently discussed. Future empirical research on both demand- and supply-side policy is vital to be able to design efficient and effective policy instruments for climate change mitigation.


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Mon, 14 Dec 2015 11:00:00 +0200 http://www.diw.de/sixcms/detail.php?id=diw_01.c.522192.en
Climate Negotiations: What can be expected from the climate summit in Paris? http://www.diw.de/sixcms/detail.php?id=diw_01.c.505466.en Shortly before the upcoming UN climate summit, Angela Merkel wrote in a German newspaper: “With good reason, it is expected from governments and politicians, that they do not longer close their eyes to the pressing scientific results that climate protection requires rapid and vigorous action.” She further calls for a clear negotiation outcome: “The greenhouse gas emissions do not only have to be stabilized, but have to be reduced as quickly as possible.” These words could well have been written today, however, they were actually published on March 26, 1995 (FAS, 1995); at a time, when Mrs. Merkel still was Germany’s Federal Minister of the Environment and designated president of the first climate summit.

After 20 years of UN climate talks, the world’s attention is now firmly on the 21st COP (Conference of the Parties) in Paris that will be held from November 30 until December 11, 2015. These climate negotiations are generally perceived as the last chance to reach a global agreement that can prevent severe climate change. In this DIW Roundup we take a closer look at the upcoming COP21, discuss the negotiation status and highlight the pivotal elements currently discussed. Furthermore, we touch upon the economic theory on International Environmental Agreements and present milestones of past climate summits.


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Thu, 26 Nov 2015 11:00:00 +0200 http://www.diw.de/sixcms/detail.php?id=diw_01.c.505466.en
Productivity Growth, Investment, and Secular Stagnation http://www.diw.de/sixcms/detail.php?id=diw_01.c.519231.en In many advanced economies, the economic recovery from the financial crisis has been sluggish. In light of these developments, it has been argued by various economists that economic growth per capita has already been on a downward trend since the 1980s. Studies suggest that this is largely due to low productivity growth. While factors of production such as labor and capital are being used more productively than ever, growth has been slow in the past years by historical standards. In parallel to this low productivity growth, corporate investment in many countries has been subdued, especially since the financial crisis. In light of recent developments, low growth rates for gross domestic product, investment, and productivity are often predicted for the years ahead. This has prompted some economists to speak of a possible period of secular—i.e., long-lasting—stagnation. A detailed discussion has emerged among scientists and policy advisors about the possible causes of weak economic growth and the appropriate policy measures to prevent secular stagnation from happening. Better incentives for higher private investment, increased public investment, and promoting education are often mentioned as suitable policy measures to stimulate economic growth.


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Mon, 16 Nov 2015 11:00:00 +0200 http://www.diw.de/sixcms/detail.php?id=diw_01.c.519231.en
Increasing Father Involvement in Child Care: What Do We Know about Effects on Child Development? http://www.diw.de/sixcms/detail.php?id=diw_01.c.514614.en The time fathers spend and the activities they perform with children have risen continuously in most Western countries. Increasing father involvement in child care has also been an explicit policy objective with many European countries implementing individual parental leave entitlements for fathers. Whereas these policies mainly aimed at facilitating reconciliation of market work and family care and promoting maternal employment, consequences for child development have received less attention in the policy debate.

This DIW Roundup describes potential mechanisms how increased father involvement in child care may impact children’s development in different domains and provides an overview of the existing empirical evidence. Overall, previous studies generally point to some moderate positive effects of fathers involvement, in particular when father-child-activities and -relationships are stimulating and of high quality and distinct from mother-child activities or maternal parenting styles.


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Tue, 29 Sep 2015 11:00:00 +0200 http://www.diw.de/sixcms/detail.php?id=diw_01.c.514614.en