The Working Papers of the Priority Programme 1859 "Experience and Expectation" are published in co-operation with the documentation and publication servers of Humboldt University (https://edoc.hu-berlin.de).
Nützenadel, Alexander (2022): Risk Management, Expectations and Global Finance The Case of Deutsche Bank 1970-1990. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 36 (November), Berlin
What impact do past experiences have on the expectation formation of banks? This article analyses the risk management of Germany’s largest bank during the 1970 and 1980s. In this period, financial deregulation and globalization increased the likelihood of credit defaults and forced banks to implement new strategies of risk assessment. The Herstatt failure of 1974 triggered a series of new regulations, partly based on initiatives of the banks themselves. After the sovereign debt crisis of the 1980s, banks introduced a comprehensive strategy of country-risk assessment. They systematically professionalized their information resources and integrated risk and liability management. Economic forecasting was often based on historical data used for the classification and diversification of risks. However, learning from past experiences had limitations, as recent events were often overrated. This had the effect that the banks’ country risk assessment focused mainly on developing countries while the industrial world was not included in the schemes. This might explain why many banks have continually underestimated the financial risks present in developed countries since the 1990s.
Huning, Thilo R./ Wahl, Fabian (2022): Identity, Instability, and Investors
An Empirical Investigation of the Home Bias. Working Papers of the Priority Programme 1859 “Experience
and Expectation. Historical Foundations of Economic Behaviour” No 35 (October), Berlin
In this paper, we present novel data from the German-speaking area on 13,422 venture capital investments between 1999 and 2019, and document a novel and yet unexplained contributor to investors’ home bias. We propose a new measure of regional identity based on a recent vehicle license plate liberalization in Germany, and leverage on a unique dataset of historical borders to show how regional identity is formed. We use an instrumental strategy to establish a causal link between historical political instability, regional identity, and the home bias. Our results indicate that a common regional identity is highly relevant for investment decisions.
Wehrheim, Lino (2022): A mirror to the world. Taking the German News Magazine Der Spiegel into a Topic Modeling/Sentiment Perspective. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 34 (June), Berlin
The importance of mass media is reflected, among other things, in the fact that their coverage on certain topics – contrary to findings from communication research – is often seen as a reflection of the topics that are discussed by society. In Germany, this can be observed especially for the news magazine Der Spiegel, whose self-declared claim is to “hold up a mirror to the world“. Accordingly, scholars from different disciplines frequently use its reporting, especially its cover stories, to support their own narratives, especially regarding general accounts on ‘the zeitgeist’. Based on this observation, I propose the following thought experiment: suppose we were to look not only at individual cover stories with their individual topics, but at all cover stories – which picture of German contemporary history would then emerge? To answer this question, I use methods from the digital humanities / digital history to retrieve the topics and tonality of all cover stories published between January 1947 and December 2017. This way, I identify the topics that have dominated the Spiegel’s front pages, which might be regarded as a trace or abbild of the narratives that shaped public discourse since the early days of the Federal Republic or even the zeitgeist itself.
Lehmann-Hasemeyer, Sibylle / Neumayer, Andreas / Streb, Jochen (2022): Heterogeneous Savers and their Inflation Expectation during German Industrialization: Social class, Wealth, and Gender. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 33 (March), Berlin
Using microeconomic data on 2,500 savers of the savings bank Ludwigsburg, we study individual savings behavior in 19th century-Germany. We show that wealthy savers responded to an increase in the expected inflation rate (and falling real interest rate) by increasing their savings, suggesting that they pursued a real saving target that could only be defended by saving more when investment conditions became adverse. Workers’ savings behavior changed over time. For a long time, poorer, often female, working-class savers were forced to reduce their savings in times of high prices because they had to spend most of their income on essential consumer goods. This changed in the 1880s, when the living conditions of the working class improved significantly due to rising real wages and greater social security. We therefore observe a structural break in the savings regime: the originally negative relationship between inflation expectations and savings was reversed into a positive one. Looking only at the aggregate may obscure the true motives and changes in behavior of heterogeneous savers.
Kim, Chi Hyun (2021): Optimism gone bad? The persistent effects of traumatic experiences on investment decisions. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 32 (August), Berlin
Do memories of highly emotional stock market crashes permanently affect the investment decisions of households? The Initial Public Offerings of Deutsche Telekom during 1996- 2000 provide an optimal base to address this question, as it is known for its emotional character and is reputedly “the last time Germans invested in stocks.” Using Socio-Economic Panel (SOEP) household survey data, I show that having experienced this event leads to persistently lower stock market participation in the future. In addition, this effect is greater for households that had directly invested in Telekom shares, those being more likely to have high emotional experiences. Finally, I also show that such traumatic experiences on investment decisions have intergenerational consequences, significantly affecting how the next generation invests in the financial market.
Wehrheim, Lino / Jopp, Tobias A. / Spoerer, Mark (2021): Turn, Turn, Turn. A Digital History of German Historiography, 1950-2019. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 31 (April), Berlin
The increasing availability of digital text collections and the corresponding establishment of methods for computer-assisted analysis open up completely new perspectives on historical textual sources. In this paper, we use the possibilities of text mining to investigate the history of German historiography. The aim of the paper is to use topic models, i.e. methods of automated content analysis, to explore publication trends within German historiography since the end of World War II and, thus, to gain data-based insights into the history of the discipline. For this purpose, we evaluate a text corpus consisting of more than 9,000 articles from eleven leading historiographical journals. The following questions are addressed: (1) Which research subjects mattered, and in how far did this change over time? (2) In how far does this change reflect historiographical paradigm shifts, or 'turns'? (3) Do the data allow to map the emergence of these turns, i.e., can we periodize/historicize them? (4) Which of the proclaimed turns mattered in the sense that it is actually reflected in the research themes we find, and which turn does not?
Wehrheim, Lino (2021): The Sound of Silence On the (In)visibility of Economists in the Media. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 30 (April), Berlin
One way for economists to influence economic policy and society as a whole is to shape what Robert Shiller has called “economic narratives”. This, in turn, puts the media in their role as professional storytellers in a central position. In this paper, I investigate how economists have been covered by the media in a long-term perspective. Particularly, I address two questions: How has the quantitative visibility of economists in the media developed over time? And how can news stories covering economists be characterized in terms of their content? I answer these questions in two steps. First, I provide a comparison of economists’ quantitative media visibility in international newspapers. Second, building on a corpus of more than 12,000 newspaper articles, I conduct a case study on the German Council of Economic Experts. Using various text mining approaches, I survey four features of newspaper coverage: topics, tonality, temporal perspective, and the role of individuals. Finally, based on extensive close reading, I briefly discuss two key turning points in the media history of economists, namely the 1980s and the late 1990s/early 2000s. The main finding is that economists have indeed become silent compared to their heyday of economic expertise in the 1960s, but that they have not been as silent as is often claimed.
Born, Benjamin / Dovern, Jonas / Enders, Zeno (2020): Expectation dispersion, uncertainty, and the reaction to news. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 29 (December), Berlin
Releases of key macroeconomic indicators are closely watched by financial markets. We investigate the role of expectation dispersion and economic uncertainty for the stock-market reaction to indicator releases. We find that the strength of the financial market response to news decreases with the preceding dispersion in expectations about the indicator value. Uncertainty, in contrast, increases the response. We rationalize our findings in a model of imperfect information. In the model, dispersion results from a perceived weak link between macroeconomic indicators and fundamentals that reduces the informational content of indicators, while higher fundamental uncertainty makes this informational content more valuable.
Herget, Lukas / Pahlow, Louis (2020): Erwartungs(un)sicherheit durch Gerichte. Methoden und Chiffren der Justiz. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 28 (December), Berlin
Nicht nur Politik und Gesetzgebung, sondern auch Gerichte greifen in die Spielregeln der Wirtschaft ein und definieren damit die Rahmenbedingungen der Marktakteure mit. Durch ihre Entscheidungen können sie die Erwartungen und damit das Handeln der Akteure signifikant beeinflussen und einerseits Handlungsräume eröffnen, andererseits aber auch gewohnte institutionelle settings in Frage stellen oder aufgeben. Diese Prozesse laufen auch unabhängig von Veränderungen des gesetzlichen Regelungsrahmens ab und sie sind keineswegs auf bestimmte Rechtsordnungen beschränkt. Gerichte können bestehendes Recht von tradierten Deutungen lösen und an sich ändernde ökonomische Rahmenbedingungen anpassen. Anhand dreier Fallstudien der deutschen und europäischen Zivilgerichtsbarkeit geht der Beitrag der Frage nach, wie Gerichte wirtschaftliche Erwartungs(un)sicherheit generiert und welche Methoden sie dafür genutzt haben.
Wehrheim, Lino / Jopp, Tobias A. / Spoerer, Mark (2020): Diskurs, Narrativ, Sonderweg, Hitler, Turn Konjunkturen geschichtswissenschaftlicher Begriffe im „Clio Viewer“. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 27 (October), Berlin
Auf Anregung einer (nicht-repräsentativen) Twitter-Umfrage unter Historikerinnen und Historikern möchten wir in diesem Beitrag ein von uns zusammengetragenes Korpus an Aufsätzen aus elf geschichtswissenschaftlichen Fachjournalen vorstellen und anhand einiger Beispiele illustrieren, wie sich der Gebrauch verschiedener prägnanter geschichtswissenschaftlicher (Leit-) Begriffe seit 1950 verändert hat. Das Ziel ist nicht, eine „digitale Begriffsgeschichte“ verschiedener Begriffe vorzulegen oder gar Rückschlüsse auf die Entwicklung des Fachs zu ziehen. Vielmehr geht es uns darum, die vorgeschlagenen und um eigene Kandidaten ergänzten Begriffe und deren Konjunkturen zu präsentieren, um so eine Grundlage für eine weitergehende Diskussion digitalhistorischer Methoden und des Nutzens eines „Clio Viewers“ zu legen. Besonderes Augenmerk richten wir auf die Erörterung der mit dem Einsatz einfacher Stichwortsuchen verbundenen methodischen Fallstricke.
Behrens, Christoph (2020): German Trade Forecasts since 1970 - An Evaluation Using the Panel Dimension. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 26 (October), Berlin
I evaluate German export growth and import growth forecasts published by eight professional forecasters for the years 1971 to 2019. The focus of the evaluation is on the weak and strong efficiency as well as the unbiasedness of the forecasts. To this end, I use a novel panel-data set and estimate fixed-effects models taking into account panel-corrected standard errors. For the full time period, I find that both export and import growth forecasts are weakly but not strongly efficient. Unbiasedness depends on the forecast horizon being analyzed, with longer-term four-quarter-ahead forecasts being biased. I, furthermore, check for a possible change in forecasting behavior after incisive economic events in recent German history. I find that the strong efficiency of the forecasts did not change substantially over time. However, there is a change in forecasting behavior regarding the weak form of efficiency after the financial crisis 2008/2009.
Papadia, Andrea / Schioppa, Claudio A. (2020): Foreign Debt, Capital Controls, and Secondary Markets: Theory and Evidence from Nazi Germany. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 25 (October), Berlin
We show how elite capture affects optimal debt repatriations and management of official reserves under capital controls, bridging literature on debt buybacks and secondary markets. The model we provide guides our study of one of history’s largest debt repatriations -in 1930s Germany. Authorities kept private repatriations under strict control -avoiding detrimental macroeconomic effects- while allowing discretionary repatriations so to reap internal political benefits. German assets exhibited large spreads between their domestic and foreign prices, granting arbitrage profits to those who had forex access. New data reveals that spread dynamics were affected by the impact of capital controls on secondary markets.
Diaf, Sami / Döpke, Jörg / Fritsche, Ulrich / Rockenbach, Ida (2020): Sharks and minnows in a shoal of words: Measuring latent ideological positions of German economic research institutes based on text mining techniques. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 24 (October), Berlin
Using corpora of business cycle report sections dealing with monetary and fiscal policy issues from 1999 to 2017 and using methods of unsupervised text scaling (Slapin and Proksch, 2008; Lauderdale and Herzog, 2016), namely Wordfish and Wordshoal we scale the institutions’ theoretical/ideological position over debates. The results are in line with the findings from descriptive textual analysis. For monetary policy, we observe a strong but short-lived consensus in debate–specific positions at the height of the financial crisis in 2008 and a larger polarization after 2008 compared to the sample period before. For the fiscal policy textual corpus, the polarization was similarly high before and after the crisis. For both policy areas, the institutions DIW Berlin and IfW Kiel define the outer bounds of the observed spectrum of latent ideological positions.
Müller, Karsten (2020): German Forecasters’ Narratives – How Informative are German Business Cycle Forecast Reports? Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 23 (October), Berlin
Based on German business cycle forecast reports covering 10 German institutions for the period 1993–2017, the paper analyses the information content of German forecasters’ narratives for German business cycle forecasts. The paper applies textual analysis to convert qualitative text data into quantitative sentiment indices. First, a sentiment analysis utilizes dictionary methods and text regression methods, using recursive estimation. Next, the paper analyses the different characteristics of sentiments. In a third step, sentiment indices are used to test the efficiency of numerical forecasts. Using 12-month-ahead fixed horizon forecasts, fixed-effects panel regression results suggest some informational content of sentiment indices for growth and inflation forecasts. Finally, a forecasting exercise analyses the predictive power of sentiment indices for GDP growth and inflation. The results suggest weak evidence, at best, for in-sample and out-of-sample predictive power of the sentiment indices.
Foltas, Alexander / Pierdzioch, Christian (2020): Business-Cycle Reports and the Efficiency of Macroeconomic Forecasts for Germany. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 22 (September), Berlin
We study the efficiency of growth and inflation forecasts published by three leading German economic research institutes during a period of time ranging from 1970 to 2017. To this end, we examine whether the information used by the research institutes when they formed their forecasts helps to explain the ex-post realized forecast errors. We identify the information that the research institutes used to set up their quantitative forecasts by applying computational-linguistics techniques to decompose the business-cycle reports published by the research institutes into various topics. Our results show that several topics have predictive value for the forecast errors.
Foltas, Alexander / Pierdzioch, Christian (2020): On the Efficiency of German Growth Forecasts: An Empirical Analysis Using Quantile Random Forests. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 21 (September), Berlin
We use quantile random forests (QRF) to study the efficiency of the growth forecasts published by three leading German economic research institutes for the sample period from 1970 to 2017. To this end, we use a large array of predictors, including topics extracted by means of computational-linguistics tools from the business-cycle reports of the institutes, to model the information set of the institutes. We use this array of predictors to estimate the quantiles of the conditional distribution of the forecast errors made by the institutes, and then fit a skewed t-distribution to the estimated quantiles. We use the resulting density forecasts to compute the log probability score of the predicted forecast errors. Based on an extensive insample and out-of-sample analysis, we find evidence, particularly in the case of longer-term forecasts, against the null hypothesis of strongly efficient forecasts. We cannot reject weak efficiency of forecasts.
Conrad, Christian / Enders, Zeno / Glas, Alexander (2020): The role of information and experience for households’ inflation expectations. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 20 (August), Berlin
Based on a new survey of German households, we investigate the role of information channels and lifetime experience for households’ inflation expectations. We show that the types of information channels that households use to inform themselves about monetary policy are closely related to their socio-economic characteristics. These information channels, in turn, have an important influence on the level of perceived past and expected future inflation, as well as uncertainty thereof. The expected future change of inflation and the unemployment rate, however, is strongly influenced by individual experience of these variables. Similarly, the expected response of inflation to a change in the interest rate is also shaped by experience. We propose the interpretation that households obtain inflation numbers from the media, but their ‘economic model’ is shaped by experience.
Foltas, Alexander (2020): Testing Investment Forecast Efficiency with Textual Data. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 19 (July), Berlin
I use textual data to model German professional macroeconomic forecasters’ information sets and use machine-learning techniques to analyze the efficiency of forecasts. To this end, I extract information from forecast reports using a combination of topic models and word embeddings. I then use this information and traditional macroeconomic predictors to study the efficiency of investment forecasts.
Horn, Sebastian / Reinhart, Carmen M. / Trebesch, Christoph (2020): Coping with Disasters: Two Centuries of International Official Lending. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 18 (June), Berlin
Official (government-to-government) lending is much larger than commonly known, often surpassing total private cross-border capital flows, especially during disasters such as wars, financial crises and natural catastrophes. We assemble the first comprehensive long-run dataset of official international lending, covering 230,000 loans, grants and guarantees extended by governments, central banks, and multilateral institutions in the period 1790-2015. Historically, wars have been the main catalyst of government-to-government transfers. The scale of official credits granted in and around WW1 and WW2 was particularly large, easily surpassing the scale of total international bailout lending after the 2008 crash. During peacetime, development finance and financial crises are the main drivers of official crossborder finance, with official flows often stepping in when private flows retrench. In line with the predictions of recent theoretical contributions, we find that official lending increases with the degree of economic integration. In crises and disasters, governments help those countries to which they have greater trade and banking exposure, hoping to reduce the collateral damage to their own economies. Since the 2000s, official finance has made a sharp comeback, largely due to the rise of China as an international creditor and the return of central bank cross-border lending in times of stress, this time in the form of swap lines.
Ettmeier, Stephanie / Kriwoluzky, Alexander (2020): Active, or passive? Revisiting the role of fiscal policy in the Great Inflation. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 17 (May), Berlin
We reexamine whether pre-Volcker U.S. ﬁscal policy was active or passive. To do so we estimate a DSGE model with monetary and ﬁscal policy interactions employing a sequential Monte Carlo algorithm (SMC) for posterior evaluation. Unlike existing studies, we do not have to treat each policy regime as distinct, separately estimated, models. Rather, SMC enables us to estimate the DSGE model over its entire parameter space. A diﬀerentiated perspective results: pre-Volcker macroeconomic dynamics were similarly driven by a passive monetary/passive ﬁscal policy regime and ﬁscal dominance. Fiscal policy actions, especially government spending, were critical in the pre-Volcker inﬂation build-up.
Teupe, Sebastian (2020): Keynes, Inflation, and the Public Debt: "How to Pay for the War" as a Policy Prescription for Financial Repression? Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 16 (April), Berlin
This paper discusses whether John Maynard Keynes’ "How to Pay for the War" provided prescriptions for the policies of "financial repression" that were implemented in England, and other countries, following World War II. It focuses on contemporary understandings of inflation which has been identified as a key factor for driving down public debt levels. Keynes has been widely acknowledged as influential in the management of public debt, and "How to Pay for the War" has been cited as proof for a widely held belief in "money illusion", suggesting the possibility of using inflation for driving down real interest rates of public bonds. It seems reasonable to suppose that Keynes’ writings were instrumental in translating English monetary experiences of the 1920s and 1930s into expectations of policy makers during and after the Second World War, and thus provide an important explanation for the why and when of "financial repression". The paper argues that Keynes provided only partly ammunition for a policy of "financial repression", and none for using inflation as a "tax gatherer" to the detriment of domestic savers in general. Crediting him as a source for widespread "money illusion" is also out of line with the historical record.*Financial History Review has just accepted a revised version of the paper for publication.
Dovern, Jonas / Müller, Lena Sophia / Wohlrabe, Klaus (2020): How Do Firms Form Expectations of Aggregate Growth? New Evidence from a Large-scale Business Survey. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 15 (March), Berlin
Expectations are highly relevant for macroeconomic dynamics. Yet, the empirical evidence about properties of corporate macroeconomic expectations is scarce. Using new survey data on quantitative growth expectations of ﬁrms in Germany, we show that expectations are highly dispersed. The degree of dispersion depends on ﬁrm size and on how important the general economy is for the business of ﬁrms, supporting theories of rational inattention. Firms seem to extrapolate from local economic conditions and business experiences to aggregate growth expectations. Diﬀerences in growth expectations are associated with diﬀerences in ﬁrms’ investment and labor demand.
Krüger, Fabian / Pavlova, Lora (2020): Quantifying Subjective Uncertainty in Survey Expectations. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 14 (March), Berlin
Several recent surveys ask for a person’s subjective probabilities that the inﬂation rate falls into various outcome ranges. We provide a new measure of the uncertainty implicit in such probabilities. The measure has several advantages over existing methods: It is robust, trivial to implement, requires no functional form assumptions, and is well-deﬁned for all logically possible probabilities. These advantages are particularly relevant when analyzing large scale consumer surveys. We illustrate the new measure using data from the Survey of Consumer Expectations.
Guinnane, Timothy W. / Streb, Jochen (2019): Bismarck to no Effect: Fertility Decline and the Introduction of Social Insurance in Prussia. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 13 (December), Berlin
Economists have long argued that introducing social insurance will reduce fertility. The hypothesis relies on standard models: if children are desirable in part because they provide security in case of disability or old age, then state programs that provide insurance against these events should induce couples to substitute away from children in the allocation of wealth. We test this claim using the introduction of social insurance in Germany in the 1880s and 1890s. Bismarck’s social-insurance system provided health insurance, workplace-accident insurance, and old age pensions to a majority of the working population. The German case appeals because the social insurance program started on a large scale and was compulsory for covered classes of workers, and because fertility in Germany in this period was still relatively high. Focusing on the state of Prussia, we estimate differences-in-differences models that ask whether marriage and marital fertility reacted to the introduction or extension of the main social insurance programs. For Prussia as a whole we find little impact.
Meyer, Josefin / Reinhart, Carmen / Trebesch, Christoph (2019): Sovereign Bonds since Waterloo. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 12 (October), Berlin
This paper studies external sovereign bonds as an asset class. We compile a new database of 220,000 monthly prices of foreign-currency government bonds traded in London and New York between 1815 (the Battle of Waterloo) and 2016, covering 91 countries. Our main insight is that, as in equity markets, the returns on external sovereign bonds have been sufficiently high to compensate for risk. Real ex-post returns averaged 7% annually across two centuries, including default episodes, major wars, and global crises. This represents an excess return of around 4% above US or UK government bonds, which is comparable to stocks and outperforms corporate bonds. The observed returns are hard to reconcile with canonical theoretical models and with the degree of credit risk in this market, as measured by historical default and recovery rates. Based on our archive of more than 300 sovereign debt restructurings since 1815, we show that full repudiation is rare; the median haircut is below 50%.
Horn, Sebastian / Reinhart, Carmen / Trebesch, Christoph (2019): China’s Overseas Lending. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 11 (September), Berlin, updated April, 2020
Compared with China’s dominance in world trade, its expanding role in global finance is poorly documented and understood. Over the past decades, China has exported record amounts of capital to the rest of the world. Many of these financial flows are not reported to the IMF, the BIS or the World Bank. “Hidden debts” to China are especially significant for about three dozen developing countries, and distort the risk assessment in both policy surveillance and the market pricing of sovereign debt. We establish the size, destination, and characteristics of China’s overseas lending. We identify three key distinguishing features. First, almost all of China’s lending and investment abroad is official. As a result, the standard “push” and “pull” drivers of private cross-border flows do not play the same role in this case. Second, the documentation of China’s capital exports is (at best) opaque. China does not report on its official lending and there is no comprehensive standardized data on Chinese overseas debt stocks and flows. Third, the type of flows is tailored by recipient. Advanced and higher middle-income countries tend to receive portfolio debt flows, via sovereign bond purchases of the People’s Bank of China. Lower income developing economies mostly receive direct loans from China’s state-owned banks, often at market rates and backed by collateral such as oil. Our new dataset covers a total of 1,974 Chinese loans and 2,947 Chinese grants to 152 countries from 1949 to 2017. We find that about one half of China’s overseas loans to the developing world are “hidden”.
Enders, Zeno / Hünnekes, Franziska / Müller, Gernot J. (2019): Monetary Policy Announcements and Expectations: Evidence from German Firms. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 10 (September), Berlin
We assess empirically whether monetary policy announcements impact firm expectations. Two features of our data set are key. First, we rely on a Survey of production and price expectations of German firms, that is, expectations of actual price setters. Second, we observe the day on which firms submit their answers to the survey. We compare the responses of firms before and after monetary policy surprises and obtain two results. First, firm expectations respond to policy surprises. Second, the response becomes weaker as the surprise becomes bigger. A contractionary surprise of moderate size reduces firm expectations, while a moderate expansionary surprise raises them. Large surprises, both negative and positive, fail to alter expectations. Consistent with this result, we find that many of the ECB’s announcements of non-conventional policies did not affect expectations significantly. Overall, our results are consistent with the notion that monetary policy surprises generate an information effect which is endogenous to the size of the policy surprise.
Behrens, Christoph (2019): Evaluating the Joint Efficiency of German Trade Forecasts. A nonparametric multivariate approach. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 9 (March), Berlin
I analyze the joint efficiency of export and import forecasts by leading economic research institutes for the years 1970 to 2017 for Germany in a multivariate setting. To this end, I compute, in a first step, multivariate random forests in order to model links between forecast errors and a forecaster’s information set, consisting of several trade and other macroeconomic predictor variables. I use the Mahalanobis distance as performance criterion and, in a second step, permutation tests to check whether the Mahalanobis distance between the predicted forecast errors for the trade forecasts and actual forecast errors is significantly smaller than under the null hypothesis of forecast efficiency. I find evidence for joint forecast inefficiency for two forecasters, however, for one forecaster I cannot reject joint forecast efficiency. For the other forecasters, joint forecast efficiency depends on the examined forecast horizon. I find evidence that real macroeconomic variables as opposed to trade variables are inefficiently included in the analyzed trade forecasts. Finally, I compile a joint efficiency ranking of the forecasters.
The revised article was published as:
Lehmann-Hasemeyer, Sibylle/Neumayer, Andreas (2018): The persistence of ownership inequality. Investors on the German stock exchanges, 1869 – 1945. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 8 (October), Berlin
We study the ownership structure of joint-stock firms for the period of 1869 to 1945 based on a unique hand-collected data set. The data covers a selection of 785 general meetings of 276 firms, including details of more than 10,000 investors. We show that after the hyperinflation of 1923, when shares became cheaper, the ownership share among lower social classes rose significantly. Moreover, with the rise of women rights after 1919, the number of shares owned by women also increased significantly. However, despite these shifts, the majority of shares remained in the hands of institutional investors and investors from the upper class, who mainly constituted and controlled the general meetings. Thus, despite the increased participation of women and the lower social classes, a stark inequality of opportunities persisted.
Lehmann-Hasemeyer, Sibylle/Streb, Jochen (2018): Discrimination against Foreigners. The Wuerttemberg Patent Law in Administrative Practice. Working Papers of the Priority Programme 1859 "Experience and Expectation. Historical Foundations of Economic Behaviour" No 7 (September), Berlin
Economists stress the leading role that inclusive institutions play among the various factors that foster a country’s economic growth. In this article, we show that it might be misleading to mistake the codification of a formal rule for its effective administrative implementation. As the case of the German state Wuerttemberg demonstrates, a government’s lip service to the principle of equal treatment does not guarantee that the local patent authority refrains from discriminating against foreign patentees by charging comparatively high patent fees. We conclude that the introduction of a stringent and formally fair patent law alone does not guarantee that foreign inventors’ intellectual property rights are protected as well as those of the domestic patentees.
Daniel, Volker/ter Steege, Lucas (2018): Inflation Expectations and the Recovery from the Great Depression in Germany. Working Papers of the Priority Programme 1859 "Experience and Expectation. Historical Foundations of Economic Behaviour" No 6 (March), Berlin
(Revise and Resubmit at Explorations in Economic History)
A regime shift towards increased inflation expectations is credited with jumpstarting the recovery from the Great Depression in the United States. Germany experienced a recovery as fast and strong in the 1930s. What role did inflation expectations play at the start of this remarkable economic upturn? To answer this question, we study inflation expectations in Germany across two different methods: we conduct a narrative study of media sources and estimate inflation expectations from a FAVAR model. Consistently across these approaches, we do not find a shift to increased expected inflation. This recovery was different, and its causes lie elsewhere.
Priddat, Birger P. (2018): Erfahrung und Erwartung als Konstituenten von Erwartungen im ökonomischen Kontext. Working Papers of the Priority Programme 1859 "Experience and Expectation. Historical Foundations of Economic Behaviour" No 5 (March), Berlin
Über die Zukunft wissen wir nichts. Keynes’ Diktum gilt weiterhin, obschon wir vielfältigst prognostizieren. Dabei aber rekurrieren wir systematisch und statistisch auf alte Datenmuster und Erinnerungen. Erfahrungen bilden die Basis der Projektionen auf die Zukunft. Die Qualität der Erfahrungen ist prüfen, um über Erwartungen einigermaßen valide Aussagen zu machen. Beide - Erfahrungen wie Erwartungen – bilden ein Komplementärtheorem. So wie die Erwartungen als Fiktionen decodiert werden, so dann auch die Erfahrungen als je gegenwärtige Zurechtlegungen. In volatileren Welten entwerten die Erfahrungen und die Erwartungen müssen sich Narrative zulegen, die nicht mehr notwendig erfahrungsgekoppelt sind.
Daniel, Volker/Neubert, Magnus/Orban, Agnes (2018): Fictional expectations and the global media in the Greek debt crisis: A topic modeling approach. Working Papers of the Priority Programme 1859 "Experience and Expectation. Historical Foundations of Economic Behaviour" No 4 (March), Berlin
We study the role of global media during the Greek debt crisis and relate it to the transmission of events on financial actors' expectations. To identify news coverage about the Greek debt crisis, we apply topic modeling to a newly compiled dataset of over 430,000 articles from The International New York Times and Financial Times from 2009 to 2015. We identify a Greek debt crisis topic and relate it to events concerning Greece during this time period. Our finding is that events are only relevant for financial markets when they are covered in the media, whereas events without media coverage have no effect. News coverage without immediate events is equally irrelevant for financial markets.
Lenel, Laetitia (2018): Futurama. Business Forecasting and the Dynamics of Capitalism in the Interwar Period. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 3 (January), Berlin
The recognition of the key importance of economic stability after World War I sparked interest in business forecasting on both sides of the Atlantic. This article explores the creation and the rapid international and domestic dissemination of the Harvard Index of General Business Conditions in the early 1920s, which contemporaries celebrated as the first “scientific” approach to business forecasting. Drawing on multi-site archival research, the paper analyses the extension of the index by an information-exchange-based method in the 1920s and traces its influence on the survey-based forecasting approach employed by American companies in the 1930s. Engaging with the current debate on the temporal order of capitalism, the article argues that business forecasting was not only a means of stabilizing capitalism, but a factor and an indicator of a change in the dynamics of capitalism in the interwar period.
Döpke, Jörg/Fritsche, Ulrich/Waldhof, Gabi (2017): Theories, techniques and the formation of German business cycle forecasts. Evidence from a survey among professional forecasters. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 2 (July), Berlin
The paper reports results of a survey among active forecasters of the German business cycle. Relying on 82 respondents from 37 different institutions, we investigate what models and theories forecasters subscribe to and find that they are pronounced conservative in the sense, that they overwhelmingly rely on methods and theories that have been well-established for a long time, while more recent approaches are relatively unimportant for the practice of business cycle forecasting. DSGE models are mostly used in public institutions. In line with findings in the literature there are tendencies of “leaning towards consensus” (especially for public institutions) and “sticky adjustment of forecasts” with regard to new information. We find little evidence that the behaviour of forecasters has changed fundamentally since the Great Recession but there are signs that forecast errors are evaluated more carefully. Also, a stable relationship between preferred theories and methods and forecast accuracy cannot be established.
Lehmann-Hasemeyer, Sibylle/Streb, Jochen (2016): Does Social Security Crowd Out Private Savings? The Case of Bismarck’s System of Social Insurance. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 1 (September), Berlin
Imperial chancellor Bismarck’s system of social insurance (with its three pillars health, accident and pension insurance) was an important role model for social security systems across Europe and in the US. How the introduction of the German system changed economic expectations and decisions of the German workforce has not been researched, though. This article tries to close this gap by analyzing the development of Prussian savings banks’ deposits in the late 19th century. The introduction of social security can affect private savings in at least two different ways: on the one hand, it might induce households to reduce their precautionary savings; one the other hand, it might give people a reason to reflect on their financial needs at old age or when sick, thereby increasing their motivation to accumulate private savings. To identify the causal effect of social insurance on private savings in Prussia, we employ a difference-in-difference-like approach. We show that, in our example, social security crowded out private savings considerably.