Germany’s persistent current account surplus reflects to a large extent low domestic private investment. We argue that two factors—the local fragmentation of Germany’s banking system and the role of local banks in local public finance—can help explain why investment is so low. Local public banks dominate lending to small and medium firms in many regions of Germany. At the...
Abstract: Does distance matter for the volatility of international real and financial transactions? We show that it does, in addition to its well-established relevance for the level of trade. A simple model of trade with endogenous markups shows that demand shocks have a larger impact on trade between more distant countries. We test this implication in two steps, relying on a broad range of real...
Most simulated micro-founded macro models use solely consumer-demand aggregates in order to estimate preference parameters of a representative consumer, for use in policy evaluation. Focusing on dynamic models with time-separable preferences, we show that aggregation holds if, and only if, momentary utility functions fall in the Identical-Shape Harmonic Absolute-Risk Aversion (ISHARA) utility class, ...
Based on highly comparable data from the OECD PIAAC Programme, this note analyzes the relationship between generalized trust and cognitive skills among 30 countries around the world. The results show that the strength and direction of the relationship is not a universal characteristic but varies substantially among countries worldwide. A detailed descriptive analysis of this variation provides evidence ...
