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Throughout history, bursting asset price bubbles have frequently challenged not only the stability of the financial system, but have also caused severe economic contractions. Most recently, the global financial crisis (GFC) resulting from the burst of the U.S. housing bubble has provided a forceful reminder about the risks inherent in financial markets and has challenged the understanding of macro- and financial economists about the linkages between the financial system and the real economy. As a result, the crisis has also sparked intense debates about pre-crisis economic and financial policies, in particular with regard to financial market regulation and the role of monetary policy in amplifying or dampening asset price cycles. This dissertation consists of four chapters that empirically address some of these challenges and debates. Thereby, this thesis contributes to the literature on risk modeling of serially dependent asset returns; the real-time detection of asset price bubbles; forecasting of real economic activity using real-time indicators for asset price bubbles; and the role of monetary policy in asset mispricing. The first chapter, based on a paper with Helmut Herwartz and Moritz Seidel, explores whether model residuals from the class of (threshold) generalized autoregressive conditional heteroskedasticity ((T)GARCH) models are characterized by serial dependence, which could potentially be used to enhance conventional risk forecasts. We find that these residuals are hardly independent and identically distributed but instead show forms of higher order serial dependence. This suggests that TGARCH models commonly employed for predicting market risk of speculative asset returns do not use all available information for their forecast. We propose two strategies to quantify the serial dependence structures between model innovations, a nonparametric estimation approach and a flexible modeling approach based on standardized copula distributions. We show that these strategies more accurately describe the ...

AbstractInflation expectations are typically considered a pivotal and causal driver of inflation dynamics over which central banks have a strong influence. Given this influence, it is important for central banks to understand how expectations are formed and how their operations influence these expectations. We describe the various ways inflation expectations are measured and used by the Reserve Bank of Australia (RBA), and then review the evidence on how Australians form their expectations. In contrast to what is assumed in standard macroeconomic models, expectations are generally not formed rationally or with full information. We close by highlighting what these findings imply for the conduct of monetary policy.

Bislang wurden Verteilungswirkungen in der Debatte über geldpolitische Entscheidungen wenig Beachtung geschenkt. Vom Mandat der Europäischen Zentralbank (EZB) werden sie auch nicht umfasst. Angesichts der lang anhaltenden äußerst lockeren Geldpolitik und des im Januar 2015 gestarteten umfangreichen Ankaufprogramms für Staats- und Unternehmensanleihen stellt sich jedoch zunehmend die Frage, ob diese Verteilungswirkungen länger ignoriert werden sollten. Der vorliegende Bericht stellt potenziell verteilungsrelevante Wirkungskanäle der Geldpolitik dar und nimmt eine erste Einschätzung ihrer Relevanz hinsichtlich der Anleihekäufe im Euroraum vor. Das Anleihekaufprogramm führt mutmaßlich zu steigenden Vermögenspreisen, von denen vor allem wohlhabende Haushalte profitieren. Dies dürfte unmittelbar zu einer Zunahme der Vermögensungleichheit führen. Ob dieser Anstieg in der langen Frist zumindest teilweise ausgeglichen werden kann ist unsicher. Verschuldete und/oder geringverdienende Haushalte könnten profitieren, wenn es gelingt, mit dem Programm zu einer wirtschaftlichen Erholung und damit besseren Beschäftigungschancen sowie höherer Inflation beizutragen. Die Gesamtwirkung ist somit bislang unklar und bedarf weitergehender Untersuchungen. ; In the debate on monetary policy decisions, to date, little attention has been paid to distributional effects. One reason for this is that they are not included in the mandate of the European Central Bank (ECB). Given the loose monetary policy stance in the euro area and the large-scale program to purchase government and corporate bonds launched in January 2015, the question increasingly being asked is whether any distributional effects can be ignored any longer. The present report looks at the channels of monetary policy that are potentially relevant to distribution and conducts an initial assessment of their relevance to bond purchases in the euro area. The bond purchase program has probably led to rising asset prices, thereby mainly benefitting households at the upper end of the wealth distribution. This is likely to lead to a direct increase in wealth inequality. Whether or not this increase can be at least partially offset in the long term is uncertain. Indebted and/or low-income households could benefit if the program is able to contribute to economic recovery and higher inflation, and therefore helps to improve employment opportunities. The overall distributional effect is therefore so far unclear. A more in-depth analysis is required in the future.

In the debate on monetary policy decisions, to date, little attention has been paid to distributional effects. One reason for this is that they are not included in the mandate of the European Central Bank (ECB). Given the loose monetary policy stance in the euro area and the large-scale program to purchase government and corporate bonds launched in January 2015, the question increasingly being asked is whether any distributional effects can be ignored any longer. The present report looks at the channels of monetary policy that are potentially relevant to distribution and conducts an initial assessment of their relevance to asset purchases in the euro area. The asset purchase program has probably led to rising asset prices, thereby mainly benefitting households at the upper end of the wealth distribution. This is likely to lead to a direct increase in wealth inequality. Whether or not this increase can be at least partially offset in the long term is uncertain. Indebted and/or low-income households could benefit if the program contributes successfully to economic recovery and higher inflation, and therefore helps to improve employment opportunities. So far, the overall distributional effect is therefore unclear. A more in-depth analysis is required in the future.

"Using survey and administrative micro data, the authors describe the wealth distribution in Germany between 1978 and 2003, focusing on the birth cohort 1939 to 1953 resident in West Germany. Estimates are provided for three types of wealth, financial wealth, real wealth and social security wealth, i.e. the number of accumulated earning points in Germany's public pension insurance. While financial and real wealth are rather unequally distributed, inequality in accumulated earning points is substantially lower, indicating that Germany's pay-as-you-go pension system plays a prominent role in mitigating the inequality in overall wealth after retirement." (author's abstract)

IP/A/ECON/2015-01 - This policy contribution was prepared for the European Parliament Committee on Economic and Monetary Affairs ahead of the European Parliament's Monetary Dialogue with the President of the European Central Bank on 15 June 2015.