Franke, G. und Hax, H.
By "choosing" between alternative exchange rate systems one cannot escape fundamental problems. In flexible-exchange-rate systems especially leading currencies at times are exposed to distortions of relative competitiveness which stem from nominal exchange rates being governed by capital movements. Attempts to maintain substantial current account imbalances by inducing appropriate capital flows add to the instability in foreign-exchange markets. In systems with fixed nominal exchange rates requirements of maintaining external equilibrium will dominate internal economic policy decisions. The concepts of monetary harmonization in Europe seem to aim at lowering these external constraints; some countries may hope that German monetary policy can be neutralized. However, temporary balance-of-payments problems in the EMS do not stem from the so-called "hardline" course of the Bundesbank, but rather from spells of preferences in favour of the D-Mark in connection with chronic German export surpluses. The latter should be lowered by means of a substantial revaluation of the D-Mark and not by expansive economic policy. For this proposal to be realized the FRG would be forced to abandon its welfare-by-export strategy, to rely on terms-of-trade gains instead, to pursue a hard-currency policy and to adopt the position of a mature creditor country.
The paper analyzes the reasons why West Germany's economic forecasts for the year 1988 turned out to be wrong. It examines a prognosis drawn up on the basis of the RWI (Rheinisch-Westfälisches Institut für Wirtschaftsforschung) cyclical forecasting model, i.e. a medium-size econometric model for the Federal Republic of Germany, that has been used for current forecasting and simulation purposes for more than ten years. The methodical basis mainly consists of a number of simulation runs which show that the most serious error source is to be found in the assumptions used in forecasting public building investment and, more particularly, world trade on the basis of that model, and this evaluation is likely to be valid also for the non-econometric prognoses. Besides inventory estimates, the most important endogenous error source must be deemed to be the apparently changed profit withdrawal propensity. The latter had noteworthy consequences for the accuracy of consumption analyses. The findings presented reject indirectly the hypothesis that the unexpectedly positive 1988 development of the West German economy overall indicated that the supply-side improvements of previous years had begun to make themselves felt. The positive result is rather to be explained by the continued strong export orientation of the economy of the Federal Republic of Germany.
A positive relationship is detected, (Greece 1961 - 1985), between the volume of broad monetary Aggregates and the real deposit rate. Thus, an important link can be traced in the Greek macroeconomy: Deflation and/or increases in administered interest rates augment the resources of banks, hence enable an expansion of credit constrained investment expenditures.
Money is still a concept which is not unequivocally defined. Broad definitions are based upon the liquidity properties of the underlying assets. However, these definitions do not make a distinction between micro- and macro-liquidity. An asset displaying macro-liquidity forms Potential money. This note investigates the conditions for the existence of Potential money and offers two explanations for its occurrence.
There has been much theoretical and empirical interest in the Fisher Effect, di / d ? = 1. It is usually portrayed as the result of rational behavior in the credit market resulting from borrowers and lenders exhausting all arbitrage opportunities. Empirical studies of it generally indicate that the nominal interest rate does not rise by the increase in inflationary expectations. Does this mean that the Fisher Effect does not hold, or is it that other variables affected by inflationary expectations feed back into the credit market pushing the nominal rate down, even though the Fisher Effect holds? This paper studies the behavior of the real interest rate in general equilibrium models when the Fisher Effect is constrained to hold in the credit market. A modified Patinkin model with its carefully structured credit market is first studied to determine the behavior of the real rate. The (exogenous) increase in inflationary expectations increases the real rate, the reason being the excess supply (in the bond market) resulting from the inflation induced economization of real balances. When the bond market is generalized to a growth framework to include real income and capital intensity, either real income must fall dramatically or the model is unstable if the real rate is to decline when inflationary expectations increase. Whether the Fisher Effect need hold as a matter of rational behavior is then considered. Life-cycle considerations and general equilibrium adjustments among markets are two important reasons why it need not, and the effect of each is to reduce the real rate.
The analysis focuses on the influence of an asymmetrical distribution of information between corporate managers and capital market investors about financial management decisions. It distinguishes between two variants of asymmetrical information: hidden action refers to the impossibility of observing corporate management actions, whereas hidden information describes a situation in which corporate managers possess better information about the corporations's earnings position than external capital donors do. Where the distribution of information is asymmetrical in respect of the variance of future financial surpluses, it is possible to signal in a credible manner and free of charge the true value of the variance by combining loan issues with options. The same capital structure is apt to solve hidden action problems completely and free of charge insofar as they bear upon the variance of financial surpluses. Where the problem is one of hidden action combined with hidden information, however, it is possible to remedy the asymmetrical distribution of information by an appropriate financing method, but this approach does not mean choosing the capital structure that would maximize the corporation's total value.
The paper takes stock of Gerhard Stoltenberg's term of office as Federal Minister of Finance, which lasted for six and a half years. The paper shows that the consolidation of public finances - defined as the net rise of public-sector borrowings expressed as a percentage of the production potential - made progress; in 1988, this percentage was down to about just one half of what it had been in 1981. Contrary to the widely held opinion, this result is not to be explained by the use of Bundesbank profits for financing public expenditures or by the overall economic situation which was good to a limited extent only. A distinct decline of the public share in GNP was, incidentally, to be recorded only in 1982 and 1983. The consolidation policy did not cut back on the level of social benefits overall, but entailed shifts that were made primarily at the expense of sectors such as the health sector where the mentality to take as much as possible and considerable abusive practices had been assumed to exist and to the benefit of families with children and of the long-term unemployed. It ought to be criticized, however, that in the period under review the government's propensity to invest went down further, whilst no progress was made in the cutting of subsidies. On the other hand, the resumption of the policy of privatizing publicly owned assets after a standstill of 18 years must be regarded as a positive element. The three-stage tax reform carried out between 1986 and 1990 has generated growth impulses, even though these impulses have, in corporate taxation, fallen back behind what would have been feasible and desirable. On the other hand, there are not any solid arguments that would speak in favour of a redistribution of wealth from the bottom to the top. Any such conclusion would be based on evaluation yardsticks that have nothing to do with the ability-to-pay principle of taxation.