One Two
The Bonn Journal of Economics

Postal Address

The Bonn Journal of Economics
University of Bonn
Adenauerallee 24 - 42
53113 Bonn
Germany

 

Further Contact Details

bje@uni-bonn.de
http://bje.uni-bonn.de

 
You are here: Home Issues Volume IV(2) - December 2015

Volume IV(2) - December 2015

In this issue, results of Bachelor and Master theses are presented by S. Dobkowitz, , J. Knöpfle, F. Lukowski and K. Russ. J. Hruzik, a Master student at Bonn's faculty of history, discusses the causes of the Chilean financial crisis.

Volume IV(2) - December 2015

How to obtain the issue? A free digital copy of The Bonn Journal of Economics is accessible online. In addition, all theses and contributions are available separately. Please refer to the list of articles below for the corresponding links.

Read More…

Recovering under a Fixed Exchange Rate - the Case of Estonia

Sonja Dobkowitz. Full Text. The Bonn Journal of Economics. Volume IV, No. 2 (December 2015), pp. 6-32. Estonia recovered outstandingly fast in the aftermath of the 2008 crisis although the authorities did not leave the currency peg to the euro. Instead, they pursued fiscal consolidation. To examine the effects of a reduction in government expenditures on recovery this paper applies a New Keynesian open economy model to the country. The paper focuses on the effect of a reduction in government spending as part of aggregate demand. Since the country experienced a credit crunch when fiscal consolidation was conducted, its expansionary effects were dampened. In this surrounding the role of Estonia’s flexible prices and its high degree of openness are scrutinised. The paper finds that those features again diminished the devastating effect of limited asset-market participation bringing the multiplier closer to one. Yet, simultaneously, the recovery process was prolonged. Consequently, fiscal consolidation did not contribute to Estonia’s fast recovery regarding its impact via aggregate demand solely.

Read More…

Causes of the Chilean Financial Crisis in the 1980’s

Joshua Hruzik. Full Text. The Bonn Journal of Economics. Volume IV, No. 2 (December 2015), pp. 33-48. After suffering from a severe economic downturn under the Allende government, the Pinochet regime introduced far-reaching market reforms in Chile during the 1970's. In the early 1980's, Chile experienced a dramatic financial crisis that left the Chilean financial system in ruins. This famous episode of Chilean history often serves as a prime example for the defects of the market order. Did free market reforms really fail to bring about lasting prosperity into Chile? According to most academics, fast-paced liberalization weakened the fundamentals of the Chilean financial system and left it vulnerable to exogenous shocks. The Pinochet regime did induce market reforms that moved Chile on a track towards capitalism. This is true but only half of the truth, since it also rescued failing banks and established government guarantees for the banking sector as a whole. By using a contra-factual Auto-Regressive-Integrated-Moving-Average (ARIMA) model and the Austrian business cycle theory, it will be shown that these government guarantees introduced a moral hazard. As soon as the Chilean financial system was liberalized, banks engaged in moral hazard lending financed by foreign capital. Due to the poorly planned privatization of the former state banks, the Chilean banks used government guarantees to finance their own businesses. The expansion of moral hazard lending led to a credit boom that inflated an economic bubble inside the Chilean commercial, construction, and financial sector. Exogenous shocks uncovered the massive volume of toxic credits that were accumulated during the credit boom. The banking and currency crisis, that struck Chile in the early 1980's, corrected the distorted pricing structure inside the Chilean economy. Quite to the contrary, the Chilean financial crisis of the 1980's was not a failure of free market reforms but a failure of government intervention. It was a process of market cleansing. A distorted pricing structure, fueled by an artificially low market rate of interest, was finally corrected by the exogenous shocks that happened in the 1980's.

Read More…

The Bologna Reform in the Job Market Signaling Model

Jan Knöpfle. Full Text. The Bonn Journal of Economics. Volume IV, No. 2 (December 2015), pp. 49-61. Adapting the Job Market Signaling Model by Spence (1973), it is shown that introducing a further degree on the market for higher education leads to more Separation among workers and a higher wage for those choosing the new degree. However, it decreases their utility through the higher effort necessary to obtain the signal. This framework is applied to the Bologna reform towards Bachelor and Master degrees, suggesting that the trade-off between effort for education and the resulting wages that present students face, is inferior to the situation of former generations.

Read More…

The Relationship between Time Preferences and Schooling Choices: An Empirical Analysis

Felix Lukowski. Full Text. The Bonn Journal of Economics. Volume IV, No. 2 (December 2015), pp. 62-86. Using data from the German Socio-Economic Panel (SOEP), this article analyzes the role of time preferences in secondary school graduates' schooling decision. The idea is that more patient individuals choose longer educational tracks. This relationship is tested by applying a multinomial logit model with two different measures for time preferences as explanatory variables, a SOEP survey item and a self-created, indirect measure. The survey item predicts that a lower rate of time preferences makes the decision to enter tertiary education more likely compared to pursuing vocational training. The indirect measure fails to deliver the same result. Conclusively, both measures are critically discussed with regards to their relevance for research.

Read More…

Model-Independent Bounds for Option Prices

Kilian Russ. Full Text. The Bonn Journal of Economics. Volume IV, No. 2 (December 2015), pp. 87-111. This work provides a concise introduction to the Skorokhod embedding technique and how it can be employed in the context of derivative pricing to obtain model-independent price bounds. For illustrative purposes we focus on one exemplary type of exotic option, namely digital double no-touch barrier options. The construction of suitable sub- and superhedging portfolios together with particular solutions to the Skorokhod embedding problem form the basis of the new approach. We translate the results to more realistic setups and briefly analyse the performance of the obtained hedging strategies compared to traditional hedging methods such as delta/vega hedging.

Read More…

Document Actions
Personal tools