Volume 230, Issue 3

We investigate price level convergence on the base of regional data for 439 German districts. Prices refer to the overall consumer price index as well as to the index without housing prices. To increase the efficiency of the testing framework, the analysis is based on panel unit root tests. First and second generation tests are applied. They indicate a lack of regional price convergence, as the null hypothesis of a unit root is usually not rejected. The second generation tests reveal that the source of the unit root is likely common for all regions. The results are very similar for the overall regional price level and the measure without housing prices, and for the Western and Eastern part of the German economy. The elimination of housing prices is not sufficient to obtain a price index where tradables dominate. One rationale of our findings is the persistent west-east divide in consumer prices. A second argument is related to the persistence of the price gradient between urban and rural regions.

Our paper presents new estimates of matching functions on partial labor markets. We used extensive data, ranging from 1982 to 2003, which results in new insights, extending the knowledge obtained by former empirical studies. We also used the extended time series data to validate model assumptions, like stationarity, statistically. It is shown that some of these assumptions do not hold if recent data is included. We discuss potential consequences and modifications, resulting from these findings. Subsequently, we use a sophisticated pooled mean group panel model to provide more detailed insights into matching processes in the concerning partial labor markets. This approach allows for a more general perspective and furthermore, parameters can be estimated asymptotically efficient via maximum likelihood. The results obtained suggest movements to stable matching processes, positive elasticities of overall matching and decreasing returns to scale. The economical implications of these findings are discussed and compared with the results of other recent studies.

This paper examines the impact of a change in the German child benefit system in 1996, which led to a large increase in lump sum transfers to families with children.We analyze the impact on the labor force participation of women. Comparing behavioral changes of women with children with behavioral changes of women without children, we find that mothers with a working partner and children above age six considerably reduced the number of working hours (conditional on participation). Participation rates however did not decrease.

We investigate the effects of fiscal policy shocks on the German economy extending the SVAR approach of Blanchard and Perotti (2002). Direct government expenditure shocks are found to increase output and private consumption on impact. The output multiplier is smaller than one and is falling rather quickly reaching zero after 3 years. Government operating expenditure has size able positive effects on output, in the long run in particular due to public capital formation. Compensation of public employees is not effective in stimulating the economy.Government net revenue shocks do not affect output significantly. Indirect taxes have little effects, while direct taxes lower output significantly. Overall, the effects of fiscal policy are short-lived with the exception of public investment increases.