Volume 7, Issue 2

Government policies are frequently known to be temporary and thus their termination is perfectly anticipated. These foreseen policy changes must be consistent with equilibrium in both the goods market and asset markets. Potential problems arise because prices often play dual roles, both as final goods prices, and as asset prices, as components of rates of return. We show how the economy accommodates an anticipated policy change depends upon its production flexibility and its structure. With flexible investment, an anticipated reduction in government expenditure is fully accommodated by capital accumulation. When investment involves adjustment costs, the marginal utility of wealth and the price of capital both jump so as to maintain equality among rates of return. Goods market clearance is maintained by a combination of increases in consumption and investment. Extensions of the model to include inventories and to a small open economy are also considered and contrasted.

This paper investigates to what extent the expectations hypothesis of the term structure (EHTS) of interest rates receives some support since the launch of the European single currency. Empirical evidence shows that in general this theory applies to most European countries, and to Germany in particular. The objective of this paper thus is twofold. First, the EHTS for the German money market and for a larger sample including the German mark period and the euro money market is tested in order to check whether the results for the former are affected by the new financial environment since January 1999. Second, the implications of the results for the monetary policy assessment are discussed. We estimate cointegrating vector autoregressive models in order to quantify the level of the liquidity premium. The results suggest that financial markets do not consider the monetary policy of the European Central Bank simply as the one prevailing during the German period.

Using daily data for the January 1997 to June 2002 period, we analyze similarities and differences in the impact of macroeconomic news on stock returns in the United States and Germany. We consider 27 different types of news for the United States and 12 different types of news for Germany. For the United States, we present evidence for asymmetric reactions of stock prices to news. In a boom (recession) period, bad (good) news on GDP growth and unemployment or lower (higher) than expected interest rates may be good news for stock prices. In the period under consideration there is little evidence for asymmetric effects in Germany. However, in the case of Germany, international news appears at least as important as domestic news. There is no evidence that US stock prices are influenced by German news. The analysis of bi-hourly data for Germany confirms these results.

This study analyses the qualitative aspects of emigration from Germany, taking account of economic and non-economic reasons. The reported willingness to emigrate from Germany in the German Socio-Economic Panel (GSOEP) is explained for men and women by three groups of variables: individual characteristics, household characteristics and regional characteristics. It transpires that the educational background and West German residency positively affect the willingness to emigrate, whereas German nationality, age and the family situation are mostly negatively correlated with it.

We analyse the relationship between managerial ownership and company performance, testing the incentive and entrenchment hypothesis. Differently from previous literature, we focus on small and medium-sized private enterprises which constitute an important part of the German economy. We use a panel of 356 companies in the German business-related service sector for the years 1997-2000. Our findings are that performance, measured by survey-based profit information, is increasing in managerial ownership by up to around 40 per cent. We do not find a significant entrenchment effect, possibly because, at levels at which managers could become entrenched, they already bear a large proportion of the costs and have therefore an incentive to maximize company value.