Thomas Paul Gehrig


June SUMMER SCHOOL ON "GEOECONOMICS - THE END OF GLOBALIZATION?": The Studienstiftung des Deutschen Volkes organizes a Summer School on "Geoeconomics" in St. Johann/Ahrntal, Southern Tirole, directed by Thomas Gehrig and Oliver Landmann (Freiburg University) in August. The central topic are the implications of political and technological uncertainty for international trade (policy), emphasizing the role of strategic hedging in product markets needed to take precautions against autocratic policy risk and supply chain risk. An example of strategic hedging is presented in recent work on multi-sourcing by Thomas Gehrig and Rune Stenbacka (HECER, Helsinki). (June 15th).
June DISCOVERING THE (UN)SUSTAINABLE: At June 13th the Department of Economic Sociology organizes an interdisciplinary Workshop on sustainable finance that discusses climate-related opportunities and challenges of financial markets. (June 13th).
June HANDBOOK OF FINANCIAL INTEGRATION PUBLISHED: The Edgar Elgar handbook contains an article (chapter 17) by department members Thomas Gehrig, Maria Chiara Iannino and Stephan Unger about a transatlantic comparison of the resiliency of the banking system in US versus Europe. The article builds on empirical research on systemic risk in the banking sector performed at the Department. (June 2nd).
May CFP GEOPOLITICAL RISKS: The Call for Papers of the Quarterly Journal of Labour and Economic Research invites contributions to topical themes related to geopolitical risk. Interested authors should submit a short concept paper until June 15th to one of the editors Lukas Menkhoff, Doris Neuberger, Dorothea Schäfer or Thomas Gehrig, and submit the final draft until November 1st. Publication is expected in May 2025. (May 25th).
May FREE-RIDE ON FREE TRADE BRINGS GLOBAL ECONOMIC ORDER APART: By re-focusing its trade policy the US reacts primarily on free-riding behaviour of autocratic nations that undermine basic conditions for fair trade. Sources of "competitive advantage" of those nations include violations of social standards, labour standards, intellectual property, and basic human rights such as free speech - persevered even after 35 years. Predatory autocratic strategies inhibit the basic pre-conditions of fair trade. Has Europe enough vision and judgement to refocus trade-policy and enforcement power for fair trade in light of the new global challenges? Becoming an active player in shaping future global relations and defending the pillars of mutually beneficial trade will not come for free. (May 12th).
May VIESSMANN HEDGES WEAKNESS OF EUROPEAN BUSINESS IN HEAT PUMPS BY BOOMING US BUSINESS: According to Viessmann CEO Thomas Hein the sale of the German company to the US mother Carrier was a successful strategy to diversify the risks of European energy policy. Their experience showcases the loss of competitiveness induced by political risk in Europe. (May 4th). UPDATE: Comprehensive lack of economic competitiveness in Germany (May 22nd). See also blogs of April 12th and earlier.
April BEST PAPER AWARD OF THE INTERNATIONAL ATLANTIC ECONOMIC SOCIETY: The International Atlantic Economic Society has conferred the 2024 Atlantic Economic Journal (AEJ) Best Article Award to Thomas Gehrig and Rune Stenbacka for their paper “Dual Sourcing and Resilient Supply Chains: The Case of Essential Resources“. According to their analysis dual sourcing can serve as a resiliency-enhancing strategy to hedge geopolitical risks. (April 25th).
April "NON-STANDARD ERRORS" PUBLISHED ONLINE: The #fincap experiment described on this website resulted in a publication in the Journal of Finance ("Non-Standard Errors"). #fincap is a pioneering crowd-sourced empirical paper in Economics/Finance. #fincap has from the very beginning been run in the spirit of Open Science. The Journal of Finance further encourages the sharing of data for all articles it publishes. The raw data, however, cannot be shared, because of privacy protection that had been guaranteed to all participants ex-ante. It is for this reason that two files of anonymized data are made available for download. (April 23rd).
April VON HAYEK'S "ROAD TO SERFDOM" (1944) AS RELEVANT AS EVER: Liberal societies are not only under threat by war-mongering autocratic and contemptuous repressive regimes but also by central planning, such as social policies or climate change. Some of the current challenges will be discussed at the Hayek Symposium at WKÖ. Friedrich-August von Hayek (1899-1992) was a Professor of Economics at the University of Freiburg until retirement, from 1962-1968, before he received the Nobel Price in 1974 together with Gunnar Myrdal 50 years ago. (April 21th).
April THE UNITED STATES OF AMERICA REMAIN COMMITTED TO DEFEND THE LIBERAL WORLD AGAINST AGGRESSIVE DICTATORS, while Europe remains struggling for unified positions. Hopefully European partners will learn the lesson that free-riding on a single partner is hardly a sustainable strategy. Europe needs to take action to rebuild resilience for their liberal democratic societies. Resilience does not come for free and the so-called "peace dividend" is the price of giving up on it. (April 20th).
April FIRST ISSUE OF SBUR 2024 IS ONLINE: The articles discuss the impact of mass media, IT, climate risk and pandemic shocks on firm business models. (April 12th).
April POLITICAL UNCERTAINTY, SHORT-TERMISM AND ABSENCE OF CREDIBLE LONG-TERM VISIONS BURDEN GERMAN INDUSTRY: The lack of coherent long-term policies increasingly burden the competitiveness of German industry. Declining trust in long-term stability tends to reduce planing horizons and to increase the attraction of short-term gains (and cost-cutting activities) for the private sector, which increases the attractiveness of cheaper, less taxed and regulated production sites outside Europe. The exodus of companies reduces the shortage of skilled workers as the jobs are leaving the country. Herrenknecht is just another "Mittelständler" following Viessmann, the largest European producer of heat pumps. But clearly, the ensuing loss of expertise will hardly contribute to speed-up climate change. (April 12th). UPDATE: Ifo Ökonomenpanel chastises economic policy and bureaucracy in Germany (May 3rd). See also earlier blogs of Feb. 23rd, Sep. 12th, 2023, and April 8th, 2023.
March THINKING - FAST AND SLOW: Nobel laureate Daniel Kahnemann (1934-2024) has passed away today at the age of 90. He developed a theory of human decision making that is related to the structure of the brain. His heuristic explains systematic differences in "quick and dirty" heuristics and so-called "explanations" on one side, and deeper analytical thinking on the other. While the former, fast thinking, is less demanding in data requirements and mental energy resources, it is easily subject to framing and biases. In contrast, the latter, slow thinking, is deeper rooted in analytical considerations and attempts to deeper understanding cognitive signals. Slow and fast systems spark in different sections of the human brain. The combination of the two systems of cognition and decision making offers evolutionary advantages. In a sense, the "division of labor" within the human brain is even reflected in modern scientific writing: the "abstract" - or the "executive summary" - of a paper serves the demands of quick orientation for the fast system, while the paper proper satisfies the analytical demands for a deeper understanding of the underlying arguments. (March 27th).
March COOPERATION WITH CHARLES UNIVERSITY (PRAHA) ON 'RESILIENCE' RESEARCH: Thomas Gehrig is cooperating with Rene Levinsky, director of research work package 5 of the Czech elite research program on "Beyond security: The role of conflict in building resilience", on short-term challenges to long-term resilience. The project is co-funded by the EU. (March 25th).
March RESEARCH ASSESSMENT - SHOULD ANALYTICS DOMINATE CONTENT? For the evaluation of research the principles of the San Francisco Declaration of Open Research Assessment - DORA provide clear guidance for assessing research quality. They provide a stern warning against well-known deficits of analytics and mindless herding on impact factors and journal hit-lists as well as the mechanical use of algo-based analytics. Ultimately, the mechanical application of analytics undermine the freedom of scientific research, as the Nobel laureate Jim Heckman warns emphatically in his Tyranny of the Top Five. In his words "Reliance on the T5 to screen talent incentivizes careerism over creativity." (J.Ec.Lit., 2020) Here is a list of signatory institutions. As of date only 3 Austrian institutions did sign up. (March 23rd).
March REAL EFFECTS OF INFLATION ARE GRADUALLY CREEPING IN - GERMANY IN CHAOS! Intensive industrial action in Germany creates havoc across the board - flights, trains, hospitals, ... - as Unions attempt to compensate workers for inflationary losses caused by exceedingly permissive monetary policy during crisis years. As in earlier inflationary periods wages react with significant delay to inflationary shocks. The delay is caused since typically labor contracts are re-negotiated only at an annual or bi-annual frequency. This spring contracts will be re-negotiated among others in the printing, chemistry, metal and electronics industries. Wage increases will feed back into inflation and foreseeably prevent the ECB from reaching the target of close to 2% soon. (March 19th). See also earlier blogs of June 15, 2023, March 30th, 2023, and Nov. 4, 2022. FOLLOW-UP: Also the burst of the real estate bubble is a real consequence of permissive monetary policy in the run up to 2023. (March 23rd).
March SUCCESSFUL STUDENT PLACEMENT. The teaching assistant and graduate student from our Banking & Finance Master Program - Science Track, Stefan Gabriel, also a former member of the Class of Excellence in 2018/9 has received a doctoral scholarship at the Leibnizinstitute SAFE (Goethe Universität Frankfurt). Congratulations and good luck for the doctoral venture! (March 18th).
March SCOPE AND LIMITS OF BANK LIQUIDITY CREATION: In joint work with Diemo Dietrich (U. Greifswald) Thomas Gehrig analyses the robustness of the standard Bryant-Diamond-Dybvig model in a setting with diverse liquidity motives. In particular, an investment objective as a source of liquidity demand is added to the standard motive of liquidity insurance championed by the nobel laureates. Such a motive did contribute to the failure of Silicon Valley Bank and other Californian banks in March 2023. The authors demonstrate that in line with the real world, in their framework not only standard savings contracts may emerge in equilibrium together with standard deposit contracts but also further challenges for regulatory authorities may arise, particularly under low-interest rate macroeconomic conditions. (March 10th) See also the earlier blog of March 11th, 2023. UPDATE: The paper has also been invited for presentation at the 2024 RCEA International Conference hosted by Brunel University London in May. (March 28th)
February DISPUTE ON IDEOLOGY DOMINATES WELL NEEDED ADVICE: While German policy is in urgent need for advice to regain lost competitiveness the Council of Economic Experts triggers a debate in social media about a potential conflict of interest topic that has seemed unproblematic in the past so far. To the extent that lately the Council has been on a trajectory of transforming from a scientific think tank to a policy marketing department of the government, the prerogative of interpretation moves center place. While the timing of the current dispute is telling, the dispute in itself is definitely a disservice to society. (February 21st). UPDATE: BASF cuts jobs in Germany again in order to boost international competitiveness of the company. FURTHER UPDATE: The German Council of "Wise (Wo-)Men in Economics" in dire need of wisdom.(Feb 23rd)
February HIGHLY PAID FORMER CIVIL SERVANTS FAILED TO PROTECT TAX PAYERS FROM EXPROPRIATION BY BENKO'S SIGNA GROUP: According to a report of the German ARD, charismatic politicians in Austria (among others ex-chancellor Alfred Gusenbauer, ex-chancellor Sebastian Kurz) and Germany (among others Chancellor Scholz, ex-foreign minister Joschka Fischer) significantly contributed with actions and/or privately remunerated advice to tax-payer ex-propriation of channelling hundreds of millions Euros of stabilization funds to the Signa group (at last 680 million €). Public guarantees and tax payer support are critically relevant for banks' lending decisions such as Julius Bär's, to name just the most prominent one. The now insolvent Signa group is the center of Rene Benko's failing network leaving landmark ruins all over the Continent such as the Elbtower in Hamburg, KaDeWe in Berlin and the Lamarr Kaufhaus in Wien. Likely, in a new attempt to save jobs and inner cities, the clean-up will demand tax-payer support again!? (February 10th, updated March 3rd) See also Blogs of Nov. 24th and Jan. 29th.
February CAPITAL SHORTFALL OF AUSTRIAN BANKS AMOUNTS TO 10.5 BILLION EURO, WHILE FRENCH BANKS TOLERATE SYSTEMIC RISK OF ALMOST 300 BILLION: With 5.4 and 5.1 billion Euro the capital shortfall measure of Raiffeisen International and Erste Bank, respectively, are moderate in comparison to their peers. The mother of Bank Austria, the Italian UniCredito clocks a capital shortfall at 6.9 billion Euro. The aggregate leverage ratio for Austrian banks stands at 14. These figures compare with aggregate capital shortfall of 297 billion Euro for France (increasing since 2008!), 273 billion for UK (increasing since 2008!) and 72 billion for Germany (declining since 2008). (February 6th)
February TOP EUROPEAN BANKS - HIGHER PROFITABILITY WHILE TOLERATING HIGHER SYSTEMIC RISK EXPOSURE! The systemic risk exposure of the largest European banks, BNP Paribas (F), Barclays (UK), Credit Agricole (F), Societe Generale (F) and Deutsche Bank (D), measured by SRISK stands at 87, 79, 78, 71, 51 billion €, respectively, as calculated by the Center for Systemic Risk Management at HEC Lausanne in collaboration with NYU Stern Volatility Institute. Despite all regulatory reforms, with the exception of Deutsche Bank the capital short-fall figures of these Top-5 banks have been rising relative to the Great Financial Crisis in 2008 in nominal terms at the same time when profitability is increasing again. The respective leverage ratios are high, i.e. 40, 67, 33, 84 and 50. These are likely reasons for markets remaining sceptical as reflected by market-to-book values well below 1 suggesting that the market pays significantly less than 1 Euro for 1 Euro of book value, .56 € for BNP Paribas and .36 € for Deutsche Bank. By comparison, UBS (Switzerland) that failed in the GFC and had to be recapitalized by the Swiss tax payer in 2008, now stands at 18 billion € shortfall with a leverage ratio of 17. In their case the price-to-book ratio now stands at 1.15, well above 1 reflecting trust market trust in UBS by paying 1.15 € for 1 € book capital. (February 5th) EXPLANATION: The systemic risk measure SRISK provides an estimate of the hypothetical cost of immediate recapitalization of a bank that fails in a crisis comparable in size to the GFC in 2007/8. For comparison, the rescue of UBS required to cover a capital shortfall of 60 billion CHF in 2008.
February SEMINAR ON "INTERMEDIARY ASSET PRICING" POSTPONED TO WINTER TERM Because of the extensive teaching obligations in the summer term the master seminar on "Intermediary Asset Pricing" will be moved to the winter term. Potentially interested students are advised to take the elective course on Asset Pricing II in the summer term as a preparation for the seminar. The seminar provides a convenient (and efficient) introduction into possible topics for a master thesis. (February 1st)
January SAVING THE TAX PAYER! Thomas Gehrig argues that by eliminating the subsidy on risky leverage and replacing it by a subsidy on risk bearing equity a well planned reform of corporate taxation of banks can achieve both simultaneously, enhancing the resiliency of the banking system as well as its competitiveness at zero cost to the tax payer. Moreover, a well capitalized banking system is a source of stable funding for innovative industries as can be witnessed by the post-crises experiences of UBS and the re-capitalized US banking system. (January 29th)
January VOLKER WIELAND APPOINTED AS NEXT WKÖ-VISITING PROFESSOR ON MONETARY ECONOMICS: Volker Wieland (Goethe Universität, Frankfurt) will offer a course on Monetary Policy: Theory and Evidence in the summer term. He has been a member of the Panel of Economic Experts (Sachverständigenrat) from 2013-2022 that consults the German government. Since 1990 he has been organizing the high-profile public event The ECB and its Watchers. (January 5th) UPDATE: This course has to be postponed to the winter term. Details will follow. (Feb. 2nd)


December FAREWELL TO EGBERT DIERKER (1941-2023): A pioneer of research on incomplete markets has left us at the very end of 2023. Egbert Dierker has been Professor Emeritus of our Faculty at the University of Vienna. He has worked on welfare and the foundations of market systems. Lately he has published prominently on firms' objective functions in incomplete markets together with Birgit Grodal and his wife Hildegard Dierker. RIP (Jan. 1st, 2024)
December"DEBT BIAS INVITES BANKS TO TAKE EXCESSIVE RISKS ON THEIR BALANCE SHEETS": The favorable tax treatment of deductability of interest payments effectively causes a subsidy on debt and induces banks to leverage their balance sheets and hold more risky debt and less capital for financing their lending activities. This implicit subsidy causes the widespread view that bank equity is costly - in fact: debt is subsidized! - and necessitates the process of regulating bank capital. More importantly, and more costly to the tax payer, in addition to paying the subsidy, the tax payer also needs to provide the bail-out funds in case the excessive risks materialize, such as in the Great Financial Crisis or in March 2023 (Silicon Valley Bank, Credit Suisse and others). Reverting the tax subsidy on equity from debt could be a straightforward measure to recapitalize European banks and regain international competitiveness with market valuations exceeding book values at zero cost to the tax payer. (December 22nd)
DecemberAI AND USER GENERATED DATA: In its Special Issue on The Value of User Generated Data for Managerial Decision Making the Schmalenbach Journal of Business Research invites cutting-edge research on exploiting synergies between user generated data and artificial intelligence (DL: Aug. 31st, 2024). The working group on "Data Analysis and Classification in Marketing" within the Data Science Society will host a workshop at Kühne Logistics University in Hamburg from May 10-11th, 2024 to discuss the pioneering papers. (December 19th)
DecemberBUSINESS MODELS OF THE FUTURE: In its Special Issue on Navigating Entrepreneurship, Digitalization and Sustainability in Contemporary Business Research the Schmalenbach Journal of Business Research invites innovative scholarly contributions on pioneering business models for the future (DL: Sep. 30th, 2024). The Annual VHB Conference in Lüneburg from March 5-8, 2014 provides an opportunity to discuss ideas and concepts with fellow researchers and interested peers. (December 16th)
DecemberGERMAN DEBATE ON DEBT LIMITS HIGHLIGHTS POLITICAL INABILITY TO DIFFERENTIATE BETWEEN LONG-TERM AND SHORT-TERM GOALS: While long-term plans (investments) almost automatically interfere with short-term plans (consumption) in political budgetary planning short term desires and benefits regularly crowd out long-term promises and rationality, such as infrastructure replacements or improvements. Short-term re-election considerations dominate long-term necessities in political rhetoric and regularly invite procrastination on long-term promises and undermining long-term obligations. One potential solution is the creation of a second instrument designed exclusively for a second (long-term) goal such as the construction of "Sondervermögen" earmarked for special (long-term) use only, as pioneered with the Corona funds and then repeated for the Bundeswehr (100 bill. €) and the Klima- und Transformationsfonds (200 bill. €) in Germany, which have been hardened by the recent decision of the Bundesverfassungsgericht and protected against alternative uses and "flexible" budget management. The debt-limit on a single one-size-fits-all instrument (the budget) is over-burdened to achieve several objectives simultaneously, short- and long-term. The Tinbergen principle, named after the first Nobel laureate in Economics in 1969, suggests employing as many instruments as intended goals. (December 8th)
DecemberVGSF HAS PULLED IT OFF AGAIN: The Vienna Graduate School of Finance (VGSF) repeated its successes in securing funding by the Austrian Science Foundation FWF for another 4 years (2024-2028) under their doc.funds scheme. Founded in 2005 in cooperation between University of Vienna, Vienna University of Business and Economics (WU) and Institute of Advanced Studies, VGSF is the pioneering doctoral school in social sciences in Austria. (December 6th)
DecemberGLOBAL CARBON EMISSION REACH RECORD LEVELS AGAIN IN 2023: While carbon emissions have been reduced impressively by 7,4% in Europe and 3% in USA the mass polluters China, accounting for 31% of global emissions, and India increased emissions by 4% and 8%, respectively. Global emissions increased by 1% in 2023. The competitive edge of these two countries in world markets, and particularly in generators for renewable energy, relates to significantly lower production costs due to significantly lower climate ambitions and lax standards. (December 5th) FOLLOW-UP: New record on global fossile emissions thwart all attempts of climate conservation. (Dec. 15th)
November"MULTISOURCING IS A HEDGE AGAINST GEOPOLITICAL RISK:" This joint research with Rune Stenbacka (Helsinki) on dual sourcing and resilient supply chains is accepted for publication in the Atlantic Economic Journal. It is motivated by trade in supply chains where essential resources are subject to political risk in autocratic countries like Russia, China, Saudi Arabia and Turkey to name just a few. Markets are inherently incomplete in hedging political (autocratic) supply chain risk. Accordingly, the free trade paradigm needs to be corrected and adjusted to fundamental market incompleteness. (November 20th) UPDATED: (Dec. 12th)
NovemberRESEARCH ON "SOCIAL RESPONSIBILITY AND BANK RESILIENCY" PUBLISHED: The paper reports how ESG ratings affect banks' systemic risk exposures, both for European as well as US banks. ESG ratings reflect planing horizon. Banks with longer planing horizon invest relatively more in ESG activities and reduce their systemic risk exposures. Banks with a shorter time horizon more frequently buy back shares and tolerate high systemic risk exposures. (November 16th)
NovemberFATAL ATTRACTION OF "OVERCONFIDENT" CHARLATANS? Short-sided greed prepares a fruitful ground for impertinent charlatans that again and again successfully re-direct long-term investments and government funds into their own pockets. The recent cases of Bankman-Fried but also of Rene Benko (see also blog of July 10) demonstrate how impertinence helps to attract private and/or public funds despite lack of a sustainable business model, simply by exploiting greed and hope on short-term results by investors and/or politicians. Why are such frivolous business models regularly repeating themselves despite the ubiquity of scandals such as Wirecard or Bernie Madoff just to mention the tip of the iceberg? (November 4th) FOLLOW-UP: Even professional banks are getting horrified about repayments of loans generously granted to the Sigma group. (Nov. 11th) UPDATE: Benko's Signa Group faces break-up and insolvencies . (Nov. 24th) FOLLOW-UP: Signa Group insolvent (Nov. 29th) FOLLOW-UP: The group of deceived investors includes Roland Berger, Klaus-Michael Kühne and, most disturbingly, even the renowned Swiss private bank Julius Bär, and the local Erste Bank, as well as the European systemically important BNP and ABN Amro. (Dec. 8th) UPDATE: Signa insolvency may cost Julius Bär 400 million Euro. (Dec. 18th) UPDATE: Why are even professional bankers/investors seemingly subject to FOMO (fear of missing out)? (Dec. 26th) ONGOING STORY: Galeria Kaufhof faces third insolvency within three years! What did happen to the re-structuring plan - if there was any well-intentioned? (Jan. 9th, 2024)
NovemberETHICAL AND SUSTAINABLE FINANCE AND BANKING AT UNIVERSITY OF ST. ANDREWS: The program of the conference on Ethics and Sustainability in Banking and Finance from Nov. 23-24th at the Centre for Responsible Banking & Finance has been finalized. (November 3rd) FOLLOW-UP: a major focus of discussion at the Conference centered on the conflict of interests between short-term profitability (in banking and politics) and long-term stability and resilience (ESG).(Nov. 25th)
OctoberECB TOLERATES MISSING TARGET BY A 100 PERCENT: Like a reckless driver speeding at 100 km/h through town with a mandated 50 km/h ECB is exceedingly slow in reducing speed appropriately in the price dimension. (Having reduced speed already from the analogue of 150 km/h is a weak excuse.) According to its president, Ms. Lagarde, ECB tolerates reaching the inflation target of 2% only in the medium term (without specifying a target date), while accepting an average inflation rate of above 4% for a prolonged period of time - "sufficiently long"? Apparently, non-mandated concerns dominate the immediate pursuit of the mandated mission. Has monetary policy become negotiable? Such sensitivity to non-mandated concerns itself has become a primary reason of why inflation did get out of control in the first place, despite all the apparently convenient excuses of the unforeseeability of shocks. The reason for a strict mandate is precisely to protect the economy from such influence activities and from unforeseen shocks, rather than amplifying them by means of seemingly permissive but ultimately redistributive policies. (See also earlier blogs especially of Feb. 23, June 22, Feb. 22, Oct. 21.) (October 26th, updated October 31st)
OctoberCHINESE AGGRESSIONS CONTRIBUTE TO RISING RISK PREMIA FOR CHINESE STOCKS: China's expansion in the South China Sea ignores the Ruling of the UNCLOS in The Hague. By threatening and actually causing collisions China increasingly aggressively advances its imperialistic policies against neighboring countries and against Taiwan. The increasing geopolitical China risk contributes significantly to an erosion of investors' trust and to a declining Shanghai Composite stock index. (October 26th) FOLLOW-UP: China continues its practice of unsafe provocations in international territory, - not the best way to build up trust with global "trading partners". (Nov. 5th)
OctoberFED REACTS ON CONCEPTIONAL WEAKNESSES OF BANK STRESS TESTS: The FED recognizes bank window dressing in order to excel in stress tests orchestrated by their supervisors in attempts to build-up trust in markets. As a consequence they introduce novel - and hopefully unexpected - stress scenarios that are more difficult to forecast. This conceptional problem highlights the need of reliable and less manipulable information such as systemic risk measures like SRISK. See also the blogs of Sep. 18th, July 10th, June 4th and March 19th. (October 20th)
OctoberOSKAR MORGENSTERN MEDAL AWARDED TO THOMAS PIKETTY: The recipient of the Oskar Morgenstern Medal in 2023 is Thomas Piketty in recognition of his research on inequality and income distribution. The Faculty started awarding bi-annually the medal after having moved into the new location of Oskar Morgenstern Platz 1 in 2013. The discussions around the recipient Robert Engle's work in 2015 stimulated a series of research on systemic risk such as an evidence-based evaluation of the Basel process of capital regulation. (October 18th)
OctoberWELCOME RUNE STENBACKA! Rune Stenbacka (Hanken School of Economics and Helsinki Center of Economic Research) will be visiting the Department of Finance in calendar week 42 in October to conduct joint research with Thomas Gehrig. (October 13th)
OctoberTHE OSKAR MORGENSTERN DOCTORAL SCHOOL IS OPENING ITS DOORS: The opening ceremony of the OMDS will take place at October 9th in the Skylounge of Oskar-Morgenstern-Platz. It marks the official start of the newly founded doctoral school that consists of the tracks Economics, Finance, Statistics and Data Science, Management and Business Analytics, Logistics and Operations Research representing most of the research activities of our faculty. (October 1st)
SeptemberWHY DO LIBERAL SOCIETIES REGULARLY FAIL IN THEIR LONG-TERM PLANING? In their final presentation of the Gesellschaftswissenschaft-liche Kolleg of the Studienstiftung des Deutschen Volkes the working group on "long-term challenges in a fleeting world", mentored by Thomas Gehrig and Monika Merz, identified short-term incentives as the vices that prevent the implementation of long-term plans and visions. Participants suggest to implement novel political institutions under long-term incentives that do care for long-term planning to the benefit of future generations. Short-term(istic) policies should be scrutinized regularly by experts on their long-term consequences. Myopic cost-cutting should be evaluated against potential long-run costs in order to make public any inter-temporal transfers of burdens and benefits. (September 26th)
SeptemberTESTING BANKING STRESS TESTS: In recent research Maria Chiara Iannino and Thomas Gehrig compare the EBA banking stress tests of July 2023 with market based systemic risk measures. While overall all banks "survived" the stress test, the measure based analysis reveals that some European large banks, especially in France and Spain, exhibit a higher level of systemic risk exposure than in the Great Financial Crisis. The same applies for Raiffeisen Bank International whose systemic risk exposure increased particularly after February 2022. (September 18th)
SeptemberPRE-MATURE DOUBLE EXIT OF GERMAN ENERGY POLICY PROVIDES BOOST FOR GLOBAL INDUSTRIAL COMPETITORS: The untimely twin exit of German energy policy from nuclear AND from fossile energy, while still lacking enough renewable energy, places German industry at a huge competitive disadvantage, effectively subsidizing competitors in global markets as recently witnessed at the IAA in Munich. Similarly, the energy intensive production of solar cells, batteries and wind generators is made more economical in countries that explicitly profit from subsidized nuclear and fossile energy such as China. By substituting domestically produced energy intensive equipment by brown imports from countries relying on traditional nuclear and fossile energy the German climate policy weakens both, domestic production as well as the ultimate goal of green production. The discussion on subsidies on industrial energy really is about reducing the damage from competitive disadvantage induced by overhasty climate change policies. (September 12th) FOLLOW UP: This self-inflicted competitive disadvantage adds to potential but heavily contested Chinese protectionism in the E-car industry. (Sep. 15th) FOLLOW UP: The French response lies in expanding nuclear energy to increase supply and thus lower industrial energy prices rather than subsidizing (i.e. "throwing money at") scarce energy. (Sep. 16th) FOLLOW-UP: Chemical industry laments on high energy prices destroying their competitive global positions. (Sep. 27th) FOLLOW-UP: German States increase pressure on subsidizing industrial energy. Among others they are worried about regional jobs and tax revenues to finance the social system and infrastructure. (Sep. 29th) Future of Ford production site with 4000 jobs uncertain after investor withdraws. (Oct. 5th) FOLLOW-UP: German industry is cutting jobs or transferring them abroad (Oct. 8th) FOLLOW-UP: After all French-German deal: nuclear energy to limit loss of competitiveness, and jobs, for German industry? (Oct. 10th) FOLLOW-UP: President of German employers disappointed about sustained losses in competitiveness of Germany as a production site. (Oct. 19th) FOLLOW-UP: By supporting subsidies on the most energy intensive users the German government backs away from providing incentives to substitute to less energy intensive production and delegates the cost of its own climate change policies to households and less energy intensive firms. (Oct. 22nd) See also blogs of July 27th and May 30th.
SeptemberWELCOME DIEMO DIETRICH! Diemo Dietrich (University of Greifswald) will be visiting the Department of Finance in September to conduct joint research with Thomas Gehrig on banking theory and financial regulation. Their work builds on earlier joint research "On the Instability of Private Inter-Temporal Liquidity Provision" and on "Speculative and Precautionary Demand for Liquidity in Competitive Banking Economies". (September 1st)
AugustETHICS IN BANKING AND FINANCE CONFERENCE: The Centre for Responsible Banking & Finance at the University of St. Andrews is hosting a Conference on Ethics and Sustainability in Banking and Finance from Nov. 23-24th. Submissions are invited until September 15th and should be sent to Maria Chiara Iannino . (August 23rd)
AugustLARGE SHAREHOLDERS: The master seminar in Winter 2023/24 discusses the role of large shareholders on investments and asset pricing. In particular, what is the role of institutional investors and ETFs in providing low cost diversification? How do hedge funds and short sellers affect information aggregation and run risk? What is the role of activist investors or pension funds in internalizing externalities (e.g. climate externalities)? To what extent is the increasing concentration in the fund industry a blessing, or a curse? These first order questions are discussed on the basis of cutting edge research. The seminar provides an introduction into a field full of research options for developing a master thesis (and more). (August 20th)
AugustINDUSTRIAL POLICY - REGAINING COMPETITIVENESS IN A WORLD OF MANAGED TRADE? The recent multiple crises have revealed the vulnerability of free trade agreements in a world when not all participants play by the implicit and explicit rules of the agreements. While financial subsidies for innovative industries may generate the basis for generating agglomerations economies in high tech clusters complementary factors should not be forgotten such as affordable energy, skilled and adequately trained workforce, and supportive general infrastructure to turn the subsidies into economic growth and employment, if not technological leadership. (August 9th)
August"NORDSTREAM PAPER" INVITED FOR PRESENTATION AT EARIE 2023 IN ROME: The joint paper with Rune Stenbacka on dual sourcing has been invited for presentation at the Annual EARIE Conference (European Association for Research in Industrial Economics) in Rome. It discusses the role of multi-sourcing as a resiliency enhancing strategy to hedge against hold-up risk, which includes hold-up by autocratic countries. It argues that the explicit denial of a multi-sourcing strategy by the German government in the gas market for more than a decade was outright speculation if not an invitation to be exploited by political adversaries. (August 8th)
JulyOSKAR MORGENSTERN DOCTORAL SCHOOL FOUNDED: The newly founded doctoral school provides the new home of doctoral students in our five tracks: (i) economics, (ii) finance, (iii) statistics and data analytics, (iv) management, (v) business analytics and operations research. Kick-off is October 9th, 6pm in the Skylounge, Oskar Morgenstern Platz 1. (July 28th)
JulyHIGH ENERGY PRICES ARE UNLIKELY TO ATTRACT THE DIGITAL INDUSTRIES OF THE FUTURE: While Germany battles to prevent the exit of industry by subsidizing industrial energy or slashing energy taxes, lasting high energy prices are likely to discourage equally energy intensive digital industries of the future. The option of a two-pronged low-price strategy - parallel investment into renewable energy while at the same time maintaining established sources of energy provision - has been given up in favor of a sequential high-price bottleneck strategy by closing down nukes prematurely before reaching a sustainable degree of renewable supply. Now the German government painfully tries to insure the country against the self-inflicted risk. At the end of the day, energy prices are high because supply is short relative to demand. Subsidies will not increase supply, but exit of firms will reduce demand, and, hence, price pressure. (July 27th) FOLLOW UP: Panic debate on subsidizing industrial energy reflects lack of a long-term strategy on energy in Germany. (August 30th)
JulyANALYSING ASSET DEMAND: The paper on Extending the Demand System Approach to Asset Pricing has been accepted for presentation at the Annual Meeting of the German Finance Association in Hohenheim. It provides an extension of the original approach pioneered by Koijen and Yogo in JPE (2019) that allows implementation by machine learning algorithms. (July 20th)
JulyCOOPERATION WITH CHINA ON CLIMATE? The German Council of Economic Advisors seems more concerned about competition in subsidies with the United States rather than developing strategies for cooperation with China on climate issues. While it is true that China pays lip service on decarbonization goals as they did previously on human rights and on respecting intellectual property, a more effective way of cooperation might build on mutually desirable economic commitments. While a high-level strategy is laid out in the China Strategy of the German Government specific initiatives and actions are missing. This is precisely where German economic advisors could add value. Additionally, cooperating with China on persuading Russia to stop this catastrophical war in Ukraine would be a first-order improvement on human as well as climate conditions. But is China committed to cooperate on human rights and climate goals? (July 16th) FOLLOW-UP: The US Government is starting an initiative under Secretary of Trade Gina Raimondo to cooperate with China on AI and on climate. (August 29th)
JulyETHICS AND SUSTAINABILITY IN BANKING AND FINANCE - CONFERENCE ANNOUNCEMENT: The Department of Finance at the University of St. Andrews Business School, the Centre for Ethics in Society of Saint Anselm College and the Department of Finance of the University of Vienna are organizing their 6th Transatlantic Conference at St. Andrews University from Nov.23rd-24th, 2023. Against the backdrop of multiple crises and war the Conference welcomes papers addressing ethical issues in banking and finance as well as long-term considerations for sustainability and resilience. Deadline for submission is Aug. 31st. (July 15th)
JulyAFTER THE PANDEMIC IS BEFORE THE NEXT ONE: Germany has succeeded to agree to a significant reduction of the health care budget. One of the major reasons for the cost-cutting reform is the lack of qualified personnel. While this may by the obvious short-term solution it is a bet on the next pandemic events not materializing too soon. Short sighted optimization may turn out quite costly in the long-run as has been experienced by Covid-19 and the resulting lock-downs, and the lack of suitably diversified infrastructure in pharmaceutical, technological as well as energy markets. Maybe one of the learnings of the Covid-19 pandemic could have been to place a larger weight on long-term investments and increase the attractiveness of qualified health-care jobs, which could save on costly lock-downs in future pandemics? How about making competitive offers to German trained qualified medical staff (doctors and nurses) that take up positions in Scandinavia or Switzerland, two countries also complaining about a lack of qualified personnel, rather then taking short-sighted bets? (July 10th)
JulyARE EUROPEAN BANKS PREPARED FOR THE END OF CRISIS GUARANTEES? The ECB in its function of banking supervisor has started a special investigation of the Austrian Signa Group of Rene Benko. Apparently accounting corrections of roughly 2 billion € had to be announced publicly. Galeria-Karstadt-Kaufhof had received 460 million € in 2020 from the German Pandemic Safety Net and an additional 250 million € in January 2022. In Oct 2022 it was asking for another 200 million € government support before declaring insolvency in February 2023. Apparently, Signa's business model has not been sustainable on its own without generous German taxpayer support. Currently Signa is also closing down the Austrian furniture chain kika/Leiner. Both are high profile cases illustrating the necessity of sufficient bank reserves and bank capital as the consequences of the pandemic support programs are coming to an end. While hedge fonds seem prepared, hopefully banks are as well. (July 10th)
JulyINTERESTS OF AUTOCRATIC OWNERS NOT IN LINE WITH SPIRIT OF FREE TRADE: Allgaier Group had to declare insolvency just one year after the former owner Dieter Hundt (former president of the BDA - German Association of Employers) sold off the company to the Chinese held investor group Westron. It appears that Westron did not invest sufficiently in order to reorganize the troubled company and in order to deliver up to earlier promises. This leaves questions about the original primary intentions of the purchase in July 2022: technology transfer and elimination of (European) competitors? Long-term oriented autocratic investors hold a strategic advantage over short-termistic decentralized investors. (July 1st)
JuneTHE SPIRITS THAT ECB HAS CALLED PREVENT A SPEEDY RETURN TO ITS MANDATE OF PRICE STABILITY: Gradually ECB acknowledges that it will be difficult to push inflation rates below the rate of wage increases that currently stand well above 5% in the first quarter of 2023. It is semantic of whether ECB has effectively "invited" the price-wage spiral (see comment of March 30), or not, but it is evident that the current round of wage negotiations reduces the ECB's ability to reach its mandated goal soon. Unions will continue to feel obliged to fight deprivation of the working society via inflation tax; the implications of excessive monetary policy is not their miss. (June 15th) Inflation follows standard course and is NOT changing character: price increases trigger wage reactions that cause prices to rise again etc. - and the price-wage spiral is on course. (June 28)
JuneCONGRATULATIONS TO ÖZLEM DURSUN-DE NEEF FOR NEW POSITION AT MONASH UNIVERSITY! Our VGSF-graduate Özlem Dursun-de Neef has accepted a position of senior lecturer in the Banking and Finance Department at Monash University (Melbourne). Özlem has published in the Review of Finance, the Journal of Banking and Finance (several papers), and the Journal of Empirical Finance. After graduation in 2013 she accepted an offer for Assistant Professor at Aarhus University and was later appointed Junior Professor of Sustainable Banking at Goethe-Universität in Frankfurt. She has also been appointed as a research affiliate of CEPR. All the best down-under! (June 12th)
JuneSYSTEMIC RISK EXPOSURE OF FRENCH SYSTEMICALLY RELEVANT BANKS AT ALL TIME HIGH: The systemic risk exposure of the French globally systemically important banks (GSIBs) stands at a new high after the multiple crises started in February 2020. Their current levels of SRISK exceed the high marks of the Great Financial Crisis in 2008-9. Moreover, Societe Generale (81.1) and Credit Agricole (65.4) exhibit the highest levels of leverage. This stands in marked contrast to other European GSIBS like Deutsche Bank or Unicredito, whose systemic risk exposure has dropped significantly relatively to their highs in the GFC but still did not reach yet the levels of stability of 2004. Therefore, the dispute about lowering the ratings of French government bonds between Fitch and Standard & Poors does not come as a surprise. (June 4th)
JuneDEBT IS KEY DRIVER OF INSTABILITY: Again and again the US budgetary cliff demonstrates vividly the destabilizing nature of (excessive) debt. While sovereigns can negotiate extensions of debt ceilings they also provide tax incentives to subsidize indebtedness for the private sector. With its debt-equity bias reduction allowance the EU, at least, tries to achieve financing neutrality in order to enhance more sustainable capital structures, and, hence, stability in the private sector. (June 1st)
MayLOSS OF COMPETITIVENESS CAUSES LOSS OF ABILITY TO INNOVATE: The regular neglect of long-term infrastructure investments over several government periods causes loss of competitiveness and in consequence loss of ideas and knowledge, and ultimately the loss of leadership in innovation in increasingly many markets. This is bad news for the sustainability of a generous social system. (May 30th)
MayHAS INFLATION BEEN PRODUCED BY MONETARY GROWTH AFTER ALL? The fact-based debate about the sources of inflation increasingly focuses on the excessively permissive monetary policy of the central banks in recent years as the main culprit. At the 50th OeNB Conference with the theme "towards robustness and resilience" the critical view of researchers of the Bank of International Settlements based on first principles of any monetary economics course has taken prominence over alternative shock based narratives (and excuses). Especially during the 2021 lockdowns, inflation has been exclusively driven by demand fueled by fiscal stimulus plus monetary policy. Obviously, it is still a long haul towards a robust and resilient monetary policy! (May 23th)
May FAREWELL TO ROBERT LUCAS (1937-2023): An economic giant has departed this month. With his unlimited optimism in the power of human entrepreneurial spirit he revolutionized the field of economics. His so-called Lucas critique amounts to nothing less than Heisenberg's indeterminacy principle applied to economics: political interference excites human reactions that may annihilate even well-intended policy interference in the first place. In his later years Robert Lucas was very concerned about the extent that social media distract attention from meaningful communication, personal interaction and education. RIP (May 20th)
May SUBSIDIES DO NOT PRODUCE ENERGY: The plan of the Federal Ministry of Economic Affairs and Climate Action to subsidize industrial electrical energy transfers the costs of policy induced reductions in electricity supply to consumers and tax payers, who will pay double, via elevated prices for electricity and via taxes. The subsidy does not produce any extra kilowatt-hour of badly needed electricity but shields industry (temporarily) from higher prices. This is hardly a sustainable policy; you cannot maintain global competitiveness and cap energy supply at the same time for whatever reason. The loss of competitiveness is the cost of climate action independently of who ultimately has to pay the bill. (May 6th)
May TRANSATLANTIC DIFFERENCES IN BANK RESILIENCE: While comparable in terms of tier-1 capital ratios the banking systems across the Atlantic experience the stress caused by rising interest rates quite differently. While Silicon Valley Bank has fallen victim to maturity transformation, Credit Suisse as well as Signature Bank and First Republic are victims of excessive leverage (or insufficient bank capital). While on both sides of the Atlantic governments like to subsidize (government) debt in order to reduce deficit funding costs, excessive indebtedness tends to overburden monetary authorities, who at the same time need to curb inflation (by rising interest rates) and care for stability of (excessively) leveraged banking systems (effectively by moderating interest rates). Accordingly, the (societal) tax savings at the funding stage in the run-up to monetary tightening may easily be overcompensated by the (societal) tax losses at the stage of stabilizing defaulting (mega) banks. The problem of mega banks, however, is more acute in Europe, where banks play a significantly larger part in funding of government deficits, exposing them to vicious doom loops. (May 2nd)
April TAX REFORM FOR A STABLE BANKING SYSTEM: European large banks have lost their pre-crisis competitiveness of 2006 in international markets dramatically to US and Chinese banks. While undoubtedly there have been post-crisis reforms and improvements in Europe, the post-crisis management in the US had been a lot more effective. The main reason: Europe has always allowed for significantly more leverage in the banking sector and banks prefer debt financing because it is taxed preferentially. But it is debt and leverage which are at the root of the multiple problems of European banks. After all banks fail because they cannot repay their debt. Given that since about 15 years neither banks themselves nor their supervisors exert an internationally sufficient effort in reducing leverage a tax reform for the banking sector seems the way to go in order to solve the problems. Reduce the tax-advantage of destabilizing debt and (possibly) introduce an allowance for stabilizing bank equity! Such a reform will automatically change bankers' taste for debt and increase their preference for equity. This is exactly, what has been observed in real world experiments with allowances for corporate equity in Belgium, Italy and even Austria. Because of the reduction, or even outright abolition of banks' tax deductions this reform could be designed in way that does not require extra tax money for the banks but rather reduces the necessity for future bail out large banks. With this reform, costly experiences (for the tax payer) like the restructuring of Credit Suisse may be avoided. (April 24th)
April CEPR-DP 18108 ON THE RELATION BETWEEN ESG AND COVID 19 PUBLISHED: This research documents a negative impact of Covid-19 on banks with high ESG scores. This result corrects some prejudice in current wisdom. (April 23rd)
April CAN SABRE-RATTLING CHINA TURN INTO A TRUSTWORTHY PEACE BROKER, OR TRADING PARTNER? Europe's industry is highly dependent on microchips produced in Taiwan. Therefore, Chinese destabilizing efforts in the Pazific region, particularly in the Chinese Sea, are of first-order relevance also for European high-tech industries. Moreover, by simulating war games around Taiwan imperialistic China disqualifies itself as a honest peace-broker between belligerent Russia and Ukraine. (April 12th)
April QUO VADIS - HOW TO REBUILD GLOBAL COMPETITIVENESS OF EUROPEAN INDUSTRIES? In light of multiple crises the focus of policy in Europe is dominated by short-term fixes and budget allocation. Thus strategic long-term considerations are in accute danger of becoming crowded out by day-to-day business and, more importantly, of being underfunded. Several elephants have assembled in the arena: i) insufficient long-run supply of affordable energy, ii) scarcity of trained personal (especially in digitalization), iii) outsourced production abilities of intermediate goods within global supply chains, iv) debt-overhang in vastly expanding public budgets just to name the most pressing ones. In short, investments in long-run production capabilities, even into innovative (green) production processes, require serious investments. While herding with public sentiment neither the Council of Economic Experts, nor expert councils for various ministries in Germany dare to provide long-term advice of any substance, despite the fact that global competitiveness is the backbone of funding extensive social systems in Continental Europe. (April 8th)
April HOW DID ESG CONDUCT AFFECT BANK PERFORMANCE AND LENDING DURING THE COVID-19 CRISIS? Recent research by Özlem Durssun-de Neef (Goethe U. Frankfurt), Joaquin Forchieri, Thomas Gehrig and Alexander Schandlbauer (U. Southern Denkmark, Odense) documents a negative impact of Covid-19 on the performance of banks with high ESG ratings and reduction in their lending. This relationship holds particularly for banks with high environmental and social scores. (April 1st)
March IF YOU CAN'T CONVINCE, CONFUSE THEM: While the price-wage spiral is a well documented phenomenon to explain persistence of high inflation, the concept of profit-price spirals tries to distract attention in order to blame industry for producing inflation by exploiting market power and raising mark-ups on their products. While price-spirals are real dynamic phenomena with rising prices necessitating wage increases, which again imply cost increases for production and, hence, necessitate further price increases, a profit-price spiral in fact is simply a static one time effect, if at all. Even if it were true that industry was pushing prices by increasing margins it is basically untrue that high prices always and automatically imply higher profits, because they tend to reduce demand, and, therefore economic activity and ultimately profits. Is the ECB starting to buying into this erroneous heuristic? While wages are increasing by hefty double digit annual percentage rates in important industries across continental Europe the ECB chief economist still prefers to dream of a sudden return of price stability. Even after the current decline of the German inflation rate to 7.4% it still stands at 350% of the target rate - hardly a consolation. (March 30th)
March BANKEN IN DER KRISE - WAS TUN?: In a virtual press panel the Co-Director of the FMA, Dr. Eduard Müller, Honorary Professor Dr. Andreas Grünbichler and Univ.-Prof. Dr. Thomas Gehrig discuss the turbulences in banking markets in the US and the EU. Despite all the learning and improvements in regulatory policy after the GFC, the improvements have been insufficient on the level of (large) regional banks in the US and on the level of globally systemically important banks (GSIB's) in Europe. Can Banking Union effectively handle a similar problem as CS among their own GSIB's? Where would be a sufficiently re-capitalised bank to save an ailing GSIB as in the case of UBS? (March 24th)
March RESCUE OF CREDIT SUISSE CREATES HAVOC IN THE MARKET FOR "SECONDARY BANK CAPITAL": By overturning bankruptcy procedures Swiss authorities have damaged the 275 bn $ bond market for secondary bank capital, i.e. additional tier 1 capital typically convertible bonds that convert into equity after some price trigger has been reached in order to recapitalize ailing banks. Such bail-in bonds carry high interest rates (around 10% for European GSIBs) to reflect their riskiness. In orderly proceedings they have seniority over equity but this seniority was overturned by Swiss authorities implying higher political risk premia on convertible bonds, which in consequence lost value of about 10% in yesterday trading with presumably long-term repercussions for issuing bail-in instruments for distressed European banks. In essence these bail-in instruments developed as post-crisis trickery to avoid proper recapitalization (and "benefit" from tax advantages) contributed to ripple spill-overs from the CS rescue through the whole European banking system. This incident illustrates one major reason why market trust in Europe has not recovered to pre-GFC levels for the largest European GSIBs. There simply is no alternative to recapitalize ailing banks, especially thinly covered GSIBs, unless the taxpayer is always forced to cover bad management of the very largest banks. (March 21st)
March LIGHT-HANDED TOUCH TO BANKING REGULATION STRIKES BACK - IN US AND IN EUROPE: While US regulators took a strong-handed approach towards GSIB's and a more light-handed approach towards less systemic, but still large, regional banks, European regulatory policy just did the opposite, taking a more light-handed approach towards GSIB's with a token recognition of systemic importance but allowing capital reductions of up to 27,5% relative to the standard approach in Basel III by employing sophisticated - if not tricky - internal credit risk models. At the same time smaller and regional banks did experience a more hard-handed approach as documented by the systemic risk quintiles for European banks in the study of Gehrig and Iannino, JFS, 2021. Current problems are virulent among US regionals and European GSIB's, precisely the relative sectors "benefitting" from a light-handed touch. (March 20th)
March RECAPITALIZATION PAYS: RESCUE OF CREDIT SUISSE BY USB DEMONSTRATES BENEFITS OF PROPER RE-CAPITALIZATION: While Credit Suisse (CS) survived relatively well the turmoils of the GFC in 2008, UBS had to be rescued with a 60 bill CHF package that included mandatory recapitalisation by the taxpayer. CS like many other European GSIB's such as Deutsche Bank (DB) decided not to recapitalize in the aftermath of the GFC, and willfully accept higher insolvency risks. And despite being regulatorily compliant, with current leverage ratios of 66% and 68% they widely outpace UBS with a leverage ratio of 17% (see V-Lab). This lack of resilience is mirrored in elevated capital shortfall as measured by SRISK, a systemic risk measure developed by the Nobel laureate and recipient of the Oskar-Morgenstern Medal Robert Engle. A comparison of the recapitalization effect on the systemic risk exposure of UBS and the lack of it for DB had been published and discussed with European regulators in the Bank of Finland Discussion Paper of Thomas Gehrig and Maria Chiara Iannino on Resiliency of European Banks in 2018, but had to be taken out on request of the editors in the published version in Journal of Financial Stability. Both CS and DB, among others, illustrate the well-known "leverage ratchet effect", i.e. the aversion of incumbent shareholders to recapitalize thinly capitalized banks because of fear of dilution of their speculative options. This problem is shared with most European GSIB's. On the positive side, to the extent that the deal hurts incumbent shareholders it contributes to weaken the ratchet effect and enhance the (future) willingness of shareholders to timely recapitalize ailing GSIB's. See also News of Mar. 11th, Feb. 7th and Jan. 13th. (March 19th)
March CLEAR ECB DECISION REDUCES MARKET UNCERTAINTY: By sticking to its commitment to fight inflation the ECB succeeded in temporarily calming frentic stock markets. The signal to prioritize price stability over bank stability seems to mark a turn around from political multi-tasking to focussing back on its one and only mandate. However, ECB has shied away from committing to its medium-term trajectory. (March 17th)
March REDISCOVERY OF INTEREST RATE RISK: Rising interest rates are a mixed blessing for banks loaded with government bonds on their balance sheet as becomes transparent with the shock waves originating from California based Silicon Valley Bank (SVP). While due to swift regulatory action the deposit run on SVP is unlikely to spread over to the well capitalized US banking system, the incident bodes ill for European systemically significant banks (SIFIs), which are highly levered and significantly more loaded on sovereign bonds than US banks. While those bonds carry zero-risk weights for default, rising rates imply valuation risk (interest rate risk) even for high quality exposures, as the example of SVP documents. For highly levered banks rising interest rate margins can easily be dominated by valuation losses on the fixed income portfolio. This (partially) explains why stock price reactions on European SIFIs are more drastic than for large US banks. See also the news of Feb. 7th below. (March 11th)
March FREE TRADE, FREE SPEECH AND FREE TRAVEL ARE COMPLEMENTS: Restrictive developments in autocratic China, travel warnings for free people, punishing Tiananmen memorials and acceleration of military expenses to 7.2% of GDP combined with the switch to life-time oligarchy are incompatible with the idea of free trade. Security concerns with respect to military high-tech capabilities are growing fast for the free world in addition to concerns for supply chain security especially in the area of (solar) energy and pharmaceuticals. The EU is well-advised to move away from naive free-trade ideologies towards a strategic partnership with the USA. With the state of current security infrastructure investments Europe exerts little authority to move forward as an independent - possibly mediating - geopolitical player. It is high time for a common European investment and security strategy. (March 10th)
March ARE DEMOCRACIES SHORT-TERMISTIC BY DESIGN? In their third meeting in Mannheim participants of the Gesellschaftswissenschaftliches Kolleg of the Studienstiftung des Deutschen Volkes discuss determinants of the short-term nature of policy making and the inability of politics to pursue long-term goals. Even in enlightened societies narratives dominate knowledge and wisdom. A particular focus of the Mannheim meeting lies on pension systems, climate policy, and corporate governance in firms. A typical issue: why are banks repurchasing stocks when interest rates are expected to rise and turmoil is looming, and why are they so reluctant to voluntarily recapitalize after shocks have striken? And, finally, why are (European) supervisors so permissive given past experience with rising interest rates in the GFC? Our guest-speaker is Reimut Zolnhöfer of the University of Heidelberg illustrating the multiple streams approach for modelling the market for political ideas. (March 6th)
February RESEARCH PAPER "NON-STANDARD ERRORS" ACCEPTED FOR PUBLICATION AT JOURNAL OF FINANCE: The paper reports the results of 164 independent research teams that were given the same elementary research tasks and data. The data are compiled from one of the most liquid securities (EuroStoxx 50 index futures over 17 years, provided by Deutsche Börse) and were available at high frequency such that the overall design culminates in a huge big data exercise. The paper documents substantial variation of results across research teams - non standard variation! The findings suggest that a large amount of data per se is not necessarily reducing standard errors as is known from classical statistical designs. The paper also analyses the sources of heterogeneity across the various research designs. (February 16th)
February TOO LITTLE TOO LATE! ECB monetary policy is passively moderating inflation ex-post, when anticipatory policy was needed in order to keep inflation at bay early on. While excessively permissive ECB policy has allowed inflation rates to reach record highs in the Euro area, effective restrictive monetary policy to reduce inflation (always) faces the risk of destabilizing the financial system, as it did in the run-up to the GFC in 2007/8. After all, the avoidance of crises is a major reason why the ECB has the only mandate to keep inflation under control. The fact that market values of leading European banks are well below (administrative) book values suggests that publicly displayed optimism by European supervisors is not backed up by investment decisions of market professionals. On the other hand, ECB board member Isabel Schnabel critizes markets for being over-optimistic about the ECB's ability to keep inflation at bay, and, hence, about the real inflationary situation, while her colleagues and ECB board members Philip Lane and Fabio Panetta take the opposite position and argue in favor of less drastic anti-inflationary measures.(February 9th, updated February 17th)
February ARE EUROPEAN SIGNIFICANT BANKS REPEATING THEIR MISTAKES OF 2005/6 IN THE RUN-UP TO THE GFC? While the shareholders of BNP Paribas rejoice about an annual 2022 net profit of 10 bill. €, half of the gains are already earmarked for a stock repurchase program worth 5 bill. €. According to figures reported by V-Lab at NYU Stern, founded by the Nobel laureate Robert Engle, the capital shortfall of BNP Paribas in a similar crisis as 2007/8 currently stands at 115 bill. $. BNP Paribus is significantly more highly levered (Lvg=36) than the leading US bank J.P.Morgan (Lvg=9) that tops European banks with an annual net profit for 2022 of 35 bill. € and a capital shortfall of 60 bill.$. The comparable capital short-fall of Deutsche Bank stands at 65 bill. $, while their net profits read 5 bill. € and Lvg=55. (See also the blog of Jan. 13th.) Given multiple ongoing crises in Europe, stock repurchase programs are detrimental to restore bank resiliency and prepare for crisis resolution now! (February 7th)
February FREE TRADE IS NOT THE BEST RESPONSE TO AUTOCRATIC SYSTEMS WITH MANAGED TRADE: The US Inflation Reduction Act aims at implementing a climate friendly policy that protects economic and climate goals from supply chain risks and renders them non-negotiable to autocratic systems and, especially, China. While rare earths are available around the world, the (often) hazardous technologies of processing those are largely outsourced to China in order to avoid complying with high and costly national labour and environmental standards in US and Europe. (February 7th)
February CHINA HAS TRANSFORMED INTO AN INDPENDENT RISK FACTOR Unnecessarily hostile actions against the US (and other Latin American countries) combined with manipulative communication about a singular failure (on two accounts?) is mainly intended to distract public attention away from the ongoing peak of the Corona pandemic in China. Even the officially released numbers of 83k fatalities within the past 28 days reported by the Johns-Hopkins-Corona Ressource Center, are only a lower bound well beyond the true numbers (as suggested by numerous social media reports on the hospital situation in China) of the rampant infections and fatalities after lifting all Covid restrictions combined with surging numbers for holiday travel. The high number of victims and relatively low numbers of (effective) vaccinations are a slap into the face of the Healthy China 2030 strategy developed as early as 2016 by President Xi Jinping. Opaque and misleading communication is hardly a productive way to rebuild trust. (February 6th)
January 60 YEARS ELYSEE TREATY: DOPPELWUMMS FOR EUROPE? Finally, the German chancellor has found something like a German response to president Macron's "Initiative pour l'Europe" of 26th September 2017 at Sorbonne. Will the rhetoric trigger action? Will Europe finally grow (and learn) in the face of the gigantic challenges? Why can Europe only grow in the face of crises - if at all - as predicted early on by Jean Monnet? Where are foresight and preparedness? Where are investments to improve the future of Europe? (January 23th)
January SYSTEMIC RISK OF LARGEST EUROPEAN SYSTEMICALLY IMPORTANT BANKS REMAINS ELEVATED SINCE CORONA SHOCK: According to the figures released by V-Lab at NYU Stern capital short fall of the largest European GSIBs remains elevated since the outbreak of the Covid-19 pandemic. The Russian war on Ukraine so far did not add significantly to capital shortfall as measured by SRISK, a methodology developed by the Nobel laureate and recipient of the Oskar-Morgenstern medal Robert Engle. The largest capital shortfalls in Europe obtain for BNP, Credit Agricole, Barclays, Societe Generale, HSBC Holdings and Deutsche Bank. With relative shortfalls of 4.3, 3.9, 2.7, 2.2, 2.1 and 1.5 % of national GDP, respectively, the measured resiliency for these banks has decreased relative to the outbreak of the GFC in 2007. Only Deutsche Bank has reduced the elevated capital shortfall of 2008 significantly, while the three French GSIBs show even increasing capital shortfall since the height of the GFC. In comparison to top US GSIB's all European banks are significantly more highly levered with leverage ratios ranging from 39 to 69 relative to 11 to 25 for US GSIBS's. The higher resiliency of US banks is reflected in relative higher market capitalizations. (January 13th)
January MASTER SEMINAR IN BANKING & FINANCE The master seminar in summer 2023 will focus on "Resiliency in Society". Resilience has become a buzz-word in our current multiple-crises world. But what does resiliency actually imply in terms of far-sighted long-term investments? What is the empirical evidence? Why is it so difficult to actually implement resilient policies in politics as well as in the business world? The seminar builds on current research presented in the Special Issue - Resilience of the Schmalenbach Journal of Business Research. Participants will discuss the elements of resilient planning both, for firm business models, and for public policy. Participation in this seminar is particularly recommended for students planning on working on a master thesis with a sustainability/resiliency focus. (January 9th)
JanuaryA ROLE FOR SUBSIDIZING R&D WHEN RESEARCH SUCCESS IS UNCERTAIN: In their current publication on "R&D and Subsidy Policy with Imperfect Project Classification" Thomas Gehrig and Rune Stenbacka characterize the properties of an optimal subsidy for uncertain research (such as the development of vaccines). Most importantly, in such situations there is a public policy role for subsidizing research and development (as was done in the case of Operation Warp Speed or the subsidies of the German government in case of BioNTech under the program CO-Bio and CureVac with support of KfW). More critically, the optimal policy is a function of the knowledge base, and, therefore, requires industry expertise at the stage of policy design within the relevant ministry. (January 3rd)
JanuaryEINAUDI VISITING FELLOWSHIP FOR THOMAS GEHRIG: Thomas Gehrig has received a visiting fellowship of the Einaudi Institute of Economics and Finance in Rome for 2023 to conduct research on common ownership and systemic risk in banking. (January 2nd)


December "RESILIENCE - A CRITICAL APPRAISAL OF THE STATE OF RESEARCH FOR BUSINESS AND SOCIETY": In its December issue the Schmalenbach Journal of Business Research has dedicated a Special Issue to 'Resilience'. While this Special Issue has been largely motivated by the Great Financial Crisis and The Covid-19 pandemic, the Russian war that has started in 2022 even exploits the lack of resiliency opportunistically in order to serve autocratic interests. Resilience is addressed from the business perspectives of finance, health, management, supply chains and production as well as from a societal public policy perspective. The favored concept of resilience exceeds (but includes) the short-term notion of risk-management and adaptation in the middle-term by including the long-term notion of learning, foreseeing and avoidance (of crises). Resiliency essentially requires being prepared for whatever challenges and uncertainties that lie ahead. (December 20th)
December RESILIENCE OF THE HEALTH SYSTEM? When will the lesson of the Covid-19 pandemic finally be learned? While the pandemic is ongoing since 2020, pharma supply chains experience drastic stock-outs of essential antibiotics and it remains unclear, how Western societies are going to address the problems. Second hand markets for expired pharmaceuticals are hardly contributing to confidence. After two years pandemic experience it seems high time to finally learning the lessons and enter into long-term (public) planning in the health sector and investing into supply security of medical services. And, yes, resilience does not come at zero cost. As we are painfully witnessing now, the popular short-term multi-billion emergency packages are not enough to solve the deeper underlying structural deficiencies. Rewarding hospitals for maintaining emergency capacities is a key take-away from the Covid-experience of the past years but still has not left its imprint in policy packages, while hospitals face a wave of insolvencies in 2023.(December 19th)
December ENERGY SECURITY ON THE BASIS OF NUCLEAR FUSION? Scientists of the Lawrence Livermore National Laboratoy in California report the long-awaited breakthrough innovation in nuclear fusion, which generates significantly more energy than is needed to get the fusion process triggered. Congratulations to the U.S.! Such processes take place within our sun but so far could not be replicated as sustainable processes outside. Nuclear fusion is the perfect basis of clean energy since it does neither generate radiant nuclear waste nor does it produce emission gases that contribute to global warming. (December 12th)
December ENERGY SECURITY: MULTI-SOURCING AS PRECONDITION FOR RESILIENT SUPPLY In a recent CEPR Discussion Paper Thomas Gehrig and Rune Stenbacka investigate the sources of resiliency in supply chains of critical materials or resources. Multisourcing is an essential hedge against strategic risk (e.g. blackmail), because it offers alternative supplies in case a single preferred supplier intends to misuse bargaining power. Along this analysis the fact that Ruhrgas, and its later owner Eon, never exercised its license to construct LNG-terminals at a time, when it was economical between 1976-2009 to do so (est. .5 bill. € in 2002), showcases how long-run costs can override short-term savings. While the short-term focus of German decision makers reflected private interests (Schröder government) more than the public interest, the long-run costs (about 7 bill. € within the "double Wumms") are borne (by society )2 decades later. Moreover, one might even argue that precisely the lack of resiliency has invited exercising the blackmail option in the gas market to the Russian warmongers. (December 8th)
NovemberSHORTAGE OF IT-SPECIALISTS AN INCREASING IMPEDIMENT TO ECONOMIC GROWTH IN GERMANY According to the Statistisches Bundesamt Germany is suffering from an increasing shortage of IT specialists. In 2022 more than 75% of employers experienced difficulties in filling open positions, up from 55% in 2016 and 66% in 2019. Any political reactions? How about conferring basic IT knowledge in school? What does industry do about the shortage of an essential resource? To repeat the blog of two weeks ago for Austria, complacency is unlikely to stop the trend. And recruiting IT experts from abroad is an opportunistic short-term fix at best by free-riding on the education of others, but hardly a sustainable long-term policy. (November 28th)
November TRANSATLANTIC DIFFERENCES IN BANK RESILIENCY: Stephan Unger presents joint research with Maria Chiara Iannino and Thomas Gehrig on Transatlantic differences in bank resiliency at the 5th Conference on Ethics, Trade and Global Governance in Wentworth-by-the-Sea, NW. While US banks have been sufficiently recapitalized post GFC, their European counterparts face declining competitiveness globally due to relatively larger capital shortfall and lower recapitalization. While regulatory Basle III capital ratios are roughly comparable for the GSIBs across the Atlantic, economically more meaningful leverage ratios of European GSIBs are significantly larger, because European banks are significantly more involved in financing national sovereigns. With rising interest rates capital shortfall intensifies for European GSIBs and competitiveness declines. (November 28th)
November NON-STANDARD ERRORS REVISITED: The crowd-sourced multi-authored research project on Non-standard errors has been revised. By use of quantile regressions no (arbitrary) outlier selection is required any more. More importantly, an analysis of the sources of heterogeneity has been added. Two drivers stand out, (i) model selection (not surprisingly) and (ii) data frequency, but others also play a role to a smaller extent. (Nov. 16th)
NovemberCOMPLACENCY IS NOT THE ANSWER TO LACK OF IT EXPERTISE Austria currently is facing a serious shortage of 24.000 IT specialists, which is more than 10% of vacancies that cannot be filled. While policy debates routinely focus on short-term measures, there is no serious debate about long-term improvements such as bringing the school system up to date to make the young generation fit for the requirements of the future. The large tech companies prefer global recruiting from areas with better training infrastructures rather than investing in in-house training themselves. The price tag of lack of expertise has been estimated at 60 billion € by the Austrian Infrastructure Report of the Initiative Future Business Austria. Why not invest a portion of those expected benefits into modernizing the school system and conferring basic IT knowledge already at the school level? This is a long-run investment that will payoff only later, but starting now dominates further procrastination. The current problem would not have arisen, had school curricula been reformed in a forward looking way already 20 years ago - btw this applies to all Continental Europe! (November 12th)
NovemberGERMAN COUNCIL OF ECONOMIC ADVISERS PRIMARILY CONCERNED WITH SHORT-TERM CRISIS MODERATION The German Sachverständigenrat is primarily focussed on short-term advice on moderating the consequences of multiple crises. The council is shying away from providing long-run recommendations for avoiding future crises, and enhancing resiliency against (multiple) future crises. For example, and notably, the Council is missing any suggestions for maintaining long-run climate goals under the current geopolitical challenges imposed by Russia (and others). Only chapter 7 provides a half-baked potpourri of common wisdom on maintaining competitiveness and resiliency in a changing geopolitical context in the long-run. While obviously China is a long-term player, the Covid pandemic should have taught that challenges to resilient policies exceed bilateral trade relations with autocratic regimes. While politicians regularly emphasize the need to manage crisis work-out in periods of crises, they are surprisingly passive in long-run crises prevention measures. The Council does not risk suggesting potentially unpopular long-run measures itself. Rather it accomplices with policy on short-term moderation. (November 11th)
NovemberRIGOROUS FED POLICY INCREASINGLY SUCCESSFUL IN MODERATING INFLATION Based on the latest CPI figures rigorous monetary policy has succeeded to reduce the US inflation rate to 7.7%. Stock markets are buyoant, since this is rate is well below market expectations despite still overshooting the target for price stability massively. Hopefully, the ECB is able to learn despite repeatedly insisting on managing European inflation its own way. Dual mandates tend to be recipes for disaster, and the ECB, unlike the Fed, de jure has the only one of price stability. (November 10th)
NovemberECB TOO SLOW TO AFFECT INFLATIONARY EXPECTATIONS: While the ECB insists on its own (slow) pace market expectations on inflation react faster and are jumping well beyond ECB's target rate for price stability of 2%. In their new wage settlement metall workers secured an average wage rise of 7.44% in Austria. Sluggish reactions of monetary policy mainly serve countries with disorderly public finances at the cost of working people in society. These are consequences in the real sector of a monetary policy that denies adherence to its mandate of price stability. (November 4th)
November FREE TRADE REQUIRES SHARED VALUES: Mutual benefits derived from free trade require reciprocity in terms of underlying values. This requires openness in communication, free speech, free movement, as well as reciprocity of market access and industrial ownership. China openly warns of interferences with internal affairs, and defines restrictions to free speech, free travel, access to the Chinese market, reciprocity to industrial ownership (especially critical infrastructure) as national interest outside debate. It refrains from reciprocal concessions of rights and cooperative investments in order to match the benefits, while it is demanding forcefully openness and law adherence from its trading partners to secure its own unbalanced interests. "Pragmatism" is not the same as win-win, but high-level nudging to keep the (illusory)"large market" option in the money. (November 3rd)
NovemberBRYANT-DIAMOND-DYBVIG GENERALIZED: The paper Scope and Limits to Bank Liquidity Creation analyses the robustness of the pioneering work of the John Bryant and this year's Nobel-laureates Doug Diamond and Phil Dybvig. The results are presented and discussed at seminars this month at University of San Diego (Rady School) and UC Davis. The analysis finds for applications in banking regulation that the focus on bank runs as a source of systemic risk only may be too narrow. (November 1st)
OctoberBIASED CONTEST: The Times Higher Education Contest reveals that the top-performing universities in the field of Business and Economics enjoy excellent working conditions, both for faculty and students. The student-to-staff ratio for the leading US universities are single digit, 8.2 for MIT (1), 7.1 for Stanford (2) and even 6.0 for Chicago (4). The leading European universities are already at double-digit relations, 10.6 for Oxford (3), 11.3 for Cambridge (6) and 11.9 for LSE (10) and 14.8 for ETH Zürich (16). In this comparison the highest ranking Austrian university Vienna is doing relatively well at position 100-125 despite significantly less excellent working conditions with a 42.9 student-to-staff ratio only. Second placed Austrian university JKU Linz stands at 200-250 with a ratio of 22.5. (October 29th)
October (FREE) TRADE WITH AUTOCRATIC SYSTEMS? While China requests openness from Germany in a bid on co-ownership of Hamburg commercial port by Cosco, president Xi Jinping silences dissenting views and in his own country even if they are voiced by his predecessor former president Hu Jintao in order to win a third term of presidency. Reciprocally, China denies foreign (co-)ownership of Chinese infrastructure. Additionally, as the Russian example sadly exemplifies, and similarly the Hong Kong experience of opposing free speech, or the tragic death of Li Wenliang in Feb. 2020, who had warned about the Covid-10 virus when the regime was still attempting to deny the virus outbreak, and opposing free travel of free people, any trade arrangements and long-term contracts with autocratic systems need to be properly hedged against substantial risks of short-term opportunism and "renegotiation" (if not breach) of contracts, essentially by investing in outside options and multi-sourcing. Beware of logistic bottlenecks (Cosco already owns significant ownership in Antwerp, Duisburg, Zeebrugge, Rotterdam and Piräus commercial ports) and technology transfer, where autocratic systems seem particularly interested in "partnering". But most importantly, beware of short term financial temptations against autocratic long-term players. (October 23rd)
October LACK OF SOCIAL RESILIENCE MAY TRIGGER SOCIAL UNREST: According to a recently published study of the Allensbach-Institute the continued crisis management in an increasing number of crises destroys trust in the political system, fosters polarization, and ultimately social unrest. These findings highlight the priority of crises prevention over crisis management, even though politicians seem eager to brag with their qualities as crisis managers. Just throwing tax payers' money at tax payers in challenging times is not enough. Being prepared, or even better avoiding crises, is what societies really need. (October 20th)
OctoberINFLATIONARY WAGE-PRICE SPIRAL FULLY TRIGGERED IN GERMANY: The recent wage settlement in the chemical industry in Germany implements wage increases of 3.25% annually for 2023 and 2024 plus an annual lump-sum of € 3000. This wage increase lies significantly above the ECB's long-run target rate (more than 50%). Austrian Airlines has concluded a salary rise of 10.4% on average. What is the ECB's plan to return to the target rate for price inflation in the medium run, when factor costs start substantially exceeding the target rate across a broad range of industries? It is high time for the ECB to acknowledge that its sluggish acceptance of economic realities is nurturing inflation in the Eurozone, currently at 10%, rather than stabilizing the monetary system as required by their mandate. Evidently, ECB models are not up to standard in foreseeing changing market expectations. (October 19th)
OctoberIS ECB COMMUNICATION SIMPLY CHEAP TALK? After months of repeating their mantra that inflation medium-term inflation is much lower than short-term figures would suggest, in a remarkable shift of communication the ECB is warning markets about underestimating real inflation now. (See also the remarks of Klaas Knot earlier this week.) So if markets were following the mantra before, they are now warned that mantra-based beliefs have actually become over-optimistic by now. If former ECB communication is based on the results of false (self-constructed) models, why not publicly admitting errors, correcting their monetary strategy and stopping the blame game? (October 14th)
OctoberNOBEL PRICE OF ECONOMICS 2022 AWARDED TO BEN BERNANKE, DOUG DIAMOND AND PHIL DYBVIG: The Nobel Committee has awarded the Noble Price 2022 for Economics to Ben Bernanke (Princeton), Doug Diamond (Chicago) and Phil Dybvig (U. Washington) for their foundational work on financial crises. Congratulations to the recipients! Unfortunately, this price misses the deceased original pioneer of the liquidity insurance motive as a basis for bank runs and systemic risk, John Bryant (1947-2020) from Rice University, whose work (1980) predated the work by Diamond and Dybvig (1983) by a couple of years. In their work on "Speculative and Precautionary Demand for Liquidity in Competitive Banking Markets", Diemo Dietrich (U. Greifswald) and Thomas Gehrig explore the robustness of the original Diamond-Dybvig arguments in an economically richer setting with diverse liquidity needs. See news of Oct. 1st. (October 10th)
OctoberWORKSHOP ON BANKS AND FINANCIAL MARKETS: The 11th Workshop on Banks and Financial Markets, organized jointly by the Deutsche Bundesbank, the University of Augsburg, IWH-Halle and the University of Vienna, will take place the the Halle Institute of Economics on May 11th and 12th. A special focus is on green regulation and climate finance. Deadline for submission is March 16th. (October 7th)
OctoberCONGRATULATIONS ANTON ZEILINGER FOR WINNING THE NOBEL PRICE OF PHYSICS: The Nobel Committee has awarded the Noble Price 2022 for Physics to Anton Zeilinger for foundational research in quantum physics. As the laureate insists in his first meeting with press today, when he did his experiments he was not sure about any practical benefits of his research. Well done and congratulations! (October 4th)
OctoberBANK LIQUIDITY CREATION WITH MULTIPLE LIQUIDITY NEEDS: The paper Scope and Limits to Bank Liquidity Creation, jointly written with Diemo Dietrich, has been invited to seminar presentations at Birbeck College, University of San Diego (Rady School) and UC Davis, as well as for presentation at the 35. Australasian Banking and Finance Conference at UNSW in Sydney. It shows that the standard Bryant-Diamond-Dybvig paradigm is not robust with respect to heterogeneous motives for liquidity demand. The focus on bank runs as a source of systemic risk may be too narrow for banking regulation. (October 1st)
September PRICE TAG FOR FORMERLY ECONOMIZED ENERGY INFRASTRUCTURE NOW STANDS AT € 200 BILL. FOR GERMANY: With a new Sondervermögen of € 200 Bill. for the next three years Germany plans to rebuild infrastructure and repair economic damages caused by the closure and sabotage of the Nord Stream pipelines, in the dependence of which Germany steered despite strong warnings of allies. The Wilhelmshaven LNG-terminal would have cost about €.5 Bill. in 2005, and far-sighted diversifying investments into a couple of LNG-terminals (as suggested by the Monopoly Commission already in 2022) could have completely avoided the current bottleneck situation. The short-term gains in competitiveness from 2011-2022 need to be contrasted with the Sondervermögen plus the costs of loss of future competitiveness (details are available in "Dual Sourcing and Resilient Supply Chains in Energy Markets" by Thomas Gehrig and Rune Stenbacka presented shortly at Royal Holloway (University of London). As already pointed out at Sep. 21st, the long-run strikes back. Unfortunately, the value of long-run planning only seems to become transparent in period of crisis, when nobody wants to be reminded of earlier mistakes. But when is the right time for societies to start caring for the long-run? (Sept. 30th)
September CONGRATULATIONS ALESSANDRO MELONE! Today Alessandro has defended his thesis with summa cum laude at VGSF. We wish him all the best for his start into the academic career as an Assistant Professor at Fisher College of Ohio State University. (September 26th)
September WHY IS THE EUROPEAN COMMISSION SHYING AWAY FROM COORDINATING ENERGY SUPPLY? While the Commission is herding on national fiscal moderation policies in order to curb energy demand it misses the first order priorities of coordinating supply. Especially in periods of crisis the European energy mix with different national specializations - bio, fossil (coal and gas), geo, hydro, nuclear, solar, wind,... - the overall portfolio could serve as a source of resiliency. It could be used more effectively to reduce price volatility and moderate price spikes rather than market interventions and support packages. But such moderation requires coordination and giving up myopic national and ideological perspectives in place of the higher good of a consensus-based European emergency policy to ensure adequate energy supply. (September 25th)
September LONG RUN STRIKES BACK - GASUMLAGE AND NATIONALIZATION OF UNIPER: Both the Gasumlage and the nationalization of Uniper mark the end of the period of short-term savings by delegating the task of energy security to the private sector. These perfectly foreseeable costs have to be paid as a consequence of the myopic savings of the past, when long-term provisions have been simply neglected (or deliberately deferred to later periods resp. governments). The German government finally has to acknowledge responsibility for services that are intrinsically public responsibilities and buy back infrastructure with tax payers' money in period of crisis. It becomes evident that the market cannot serve well the standard market failures as known from foundational courses in economic policy as outlined by the Austrian economist Egon Sohmen (1930-1977) in Allokationstheorie und Wirtschaftspolitik, 1976. He was born in Linz and taught in Yale, Saarbrücken and Heidelberg. (September 21st)
September DEMAND STIMULUS IN PERIODS OF SERIOUS SUPPLY SHOCKS IS ADDING OIL TO THE FIRE OF INFLATION: While European countries, notably Austria and Germany, attempt to reduce financial hardship caused by rampant inflation and energy prices, their focus on demand stimulus unfortunately will exacerbate the problems caused by serious supply shortages, especially in energy markets but also IT. Accordingly inflation will be heated up by those measures and, for that very reason, generate the need of further future stimulus packages - Germany is already at number 3. What really seems of key importance is a complementary dual strategy of affecting demand AND of securing ample supply. In an ideal world governments might even want to provide the scarce resources in kind rather than in money. This holds for energy as well as IT and any other supply chain bottlenecks. It may also imply delaying the outphasing of the remaining German nukes at least until inflation has returned to acceptable levels. To address inflation a general equilibrium perspective of the economy is needed, not partial concerns for vocal voter clienteles. Also coordination of monetary and fiscal policy may help in order to contain inflation. Energy prices are a main driver of producer prices, which are currently ramping up inflation. (September 10th)
September CLIENTELISM PREVENTS ENERGY SECURITY IN GERMANY: Populism and short-term motives dominate the discussion on long-term challenges such as energy security, independence from autocratic strangleholds, and, ultimately, also the competitiveness of the German economy. Energy prices can be moderated more effectively by increasing supply rather than policing price caps that can only be applied nationally anyway. After all the German digitalization strategy as well as investments in e-mobility will increase demand, and, hence provide upward pressure on prices for prolonged periods. The first reputable firms, like Hakle, have been pushed to insolvency by excessive energy prices already. Delegating nukes into reserve is a symbolic policy that is very costly with no benefit of price moderation.(September 6th)
September DEADLINE EXTENDED - CONFERENCE ON ETHICS OF BUSINESS, TRADE AND GOVERNANCE: The deadline for the Fourth Conference on Ethics of Business, Trade and Global Governance has been extended to September 15th. The interdisciplinary conference brings together scholars across many fields to discuss the challenges posed by current geo-political developments. A key question is of liberal democratic societies should react on the hostile actions of autocratic systems. Has he philosophy of trading to mutual advantage still have a justification in the long run? The Conference is a joint initiative of the Centre for Ethics in Society of St. Anselm College (NH) , the Department of Finance, University Vienna and the Center for Responsible Banking & Finance of University of St. Andrews (UK). (September 4th)
September GAS PRICE CAPS TO REDUCE RUSSIAN FLARING? While the G7 is considering a price cap on crude oil in order to limit Russian oil revenues a similar price cap on gas would force Russia to sell rather than flare the gas that they deny for productive use, in order to maintain extraordinary revenues for financing its cruel war against Ukraine. Also such a cap would contribute to fight inflation in G7-countries. After all gas is the marginal source of electricity production, and, hence, crucially determines sky-rocketing electricity prices. Moreover, selling rather than flaring gas contributes to reducing malicious emissions and preserving the climate. (September 2nd)
AugustJACKSON HOLE: WILL ECB WAKE UP TO REALITY AFTER POWELL'S SPEECH? It seems that ECB has started gradually turning to its prime mandate of fighting inflation. Meanwhile the inflation rate in the Eurozone has passed 9.1% with no signs of slowing down. Derivative concerns such as saving climate and European sovereigns have distracted attention from its one and only mandate for too long. While naturally these derivative concerns are important they are not the business of the European Central Bank. (August 30th)
AugustEARIE 2022 TAKES PLACE IN VIENNA FROM AUG 25-27: The Faculty of Economics, Business and Statistics host the 49th EARIE Annual Conference at the University of Vienna. The big topics are "Digitalization", "Energy Markets" and "Supply Chain Disruptions". (August 24th)
AugustDECLINING COMPETITIVENESS PUSHES EURO BELOW 1 US$: The US-Dollar has passed parity with the Euro today. This reflects the declining competitiveness of the European economy due to multiple causes: lack of resilience of supply chains, failed energy policy (see also comment on German energy policy) and inflationary monetary policy, to name the most obvious ones. (August 22nd)
AugustFISCAL POLICY CORRECTS MISTAKES OF EUROPEAN MONETARY POLICY The German Government tries to counteract the undesired distributional implications of the failed European monetary policy by a tax reform. While inflation is expected to persist for longer in the Euro Area, it has been created itself by the concerns of the ECB about defective public policies of some key European states. Expansive monetary policy reduces the need of highly indebted states to solidify their budgets at the cost of tolerating accelerating inflation causing general redistribution even in states with more solid public finances. Thus monetary policy that exceeds the mandate of monetary stability directly intervenes in the real political process itself without legitimization. Council member Grimm sidetracks from the real issues, i.e. failed monetary policy, and criticizes the timing of the distributional debate (thus explicitly siding with one political position within the coalition). (August 10th)
AugustGLOBALISATION REQUIRES COMPETITION: In the long-run the advantages of globalisation can only be reaped under competitive conditions as has recently been observed by a simulation study of the Ifo Institute in Munich. While this basic insight could have be taken from any elementary Econ 101 course, in the past decades supply chains of European producers increasingly focused on monopolistic bottlenecks in order to reap - increasingly and irresponsibly - short-term profits from scale economies, lower labour and environmental standards, and state aid/subsidies especially in autocratic countries. Economic policy has largely cast a blind eye on the tendency of concentration of economic and political power contributing to the build-up of systemic risk. Learning this lesson implies for European enterprises, and policy makers, backward integration within the EU and to the US and investing in competing suppliers, ideally with a focus on long-term performance and profits. (August 9th)
AugustUS TAKES LEAD IN FIGHTING GLOBAL WARMING: With an unprecedented bn 400 US$ climate bill the US commands a leading role in the transition to climate neutrality. The bill includes sizable economic incentives and subsidies to innovate and switch away from fossile fuels. This is in stark contrast to the autocratic regimes of Russia and China. (August 8th)
AugustCHINA INTERFERES WITH FREE MOVEMENT AND FREE SPEECH OF FREE PEOPLE: Autocratic China attempts to deny liberal rights and free movement to the Republic of China (Taiwan) as they did with Hong Kong - and as they do with their own people. Even military has been activated for intimidation purposes. As such any "privileged" trade relation in (highly) specialized supply chains with China becomes systemically risky. The same applies for Taiwan in consequence, which is a major (micro-)chips producer. Resilient international trade relations require significant investments in alternative suppliers in order to hedge geo-political risks. (August 2nd)
AugustDIEMO DIETRICH APPOINTED CHAIRED PROFESSOR OF MONETARY ECONOMICS AT THE UNIVERSITY OF GREIFSWALD: Diemo Dietrich will take over the Chair of Monetary Economics at the University of Greifswald at Oct. 1st. Congratulations! Diemo is a regular visitor to the Finance Department to conduct joint research on banking, insurance and game theory. (August 1st)
July FED DETERMINED TO FIGHT INFLATION: By raising interest rates and announcing balance sheet reductions the Fed has succeeded (temporarily) in calming down market expectations on accelerating inflation. Stock markets reacted positively in the U.S. and Western economies as uncertainty about monetary policy has been reduced. Can ECB follow suit given that, unlike the Fed, it is subject to only a single mandate of price stability? Inflation stands at 7.5% in Germany after 7.6% in June and 7.9% in May. It reaches even higher in other states of the Euro-area like 8.7% in Austria in June. Eurozone inflation stands at a record 8.9% in June.(July 28th)
July CRASH OF CRYPTOCURRENCIES NO THREAT TO FINANCIAL STABILITY: According to a CFS-Survey the crash of Bitcoin, Ethereum etc. is widely not seen as a source of concern among financial experts. Bitcoin has lost about 70% in value relative to its high of 68.000 US$ in Nov. 2021. A clear (new) allocative role for cryptocurrencies does still not seem to emerge according to experts and practitioners. (July 27th)
July WHATEVER IT TAKES - FOR INDEPENDENCE FROM RUSSIAN GAS: In order to regain the ability to control and secure energy provision for European industry and households, the full set of alternative energy supplies needs to be reactivated in the short run. The stranglehold of the Russian dictates needs to be eliminated as soon as possible as well as the grim necessity to effectively become complicit in financing Russia's atrocious war against Ukraine. Savings in demand, maximal use of alternative fuels (bio, coal, geothermal, nuclear,...), that may include temporary re-activation of phased-out nukes, seem first-order priorities, even when those alternatives come at short-term costs for climate goals. The faster independence is regained in the medium term, the faster climate goals can be achieved in the long run. Electrifying gas - according to the CEO of Verbund, Michael Strugl, 15% of Austrian electricity generation is based on gas - does certainly not help to regain sovereignity over energy policy and national climate priorities. (July 11th)
July FADING TRUST IN THE EURO: The Euro has marked historical lows against the US-Dollar (close to parity) and the Swiss Franc (below paritiy) over the past two decades, while it remains roughly level to the Pound Sterling since the Great Financial Crisis. This decline in value reflects a serious decline in trust of international investors in the European currency, induced among others by fading trust in European monetary policy, competitiveness of European industry and sustainability of fiscal policies. (July 8th)
July ECB IN SEARCH OF NEW MANDATES? By increasingly manipulating relative prices the ECB is explicitly interfering with fiscal policy. In this sense Bundesbank President Nagel raises significant concerns about ECB's new fragmentation instrument. While the details still are opaque to the general public, interfering with country risk premia implies a manipulation of relative (risk) prices. In a similar vein, but different arena, the former Chairman of the ECB's Advisory Scientific Council to the ESRB, Martin Hellwig, argues that Madame Lagarde's green monetary policy is violating ECB's mandate. Again the ECB's intention is to conduct climate policy by easily see-through micro-management in adjusting relative prices for their collateral policies. However, the official ECB mandate only covers the price level (fight against inflation), but NOT relative prices (fiscal micro-management). (July 5th)
July IS THERE A NEED FOR INDEPENDENT SCIENTIFIC ADVICE IN ECONOMICALLY CHALLENGING TIMES? In difficult times when independent advice seems especially urgent and needed, the German government affords the luxury of NOT completing their Economic Council. At the same time at their regular Sintra retreat central bank governors concede defeat of being overwhelmed by (new?) economic complexities. ECB president Lagarde even reveals her preference for Arts over Economics in dealing with monetary policy. In short, central bankers have continuously missed their targets, which at the same time are the central performance measures of their policies (and mandates). Clearly, partisan political activism by (loud-speaking and media-chosen) economic experts providing advice on scientifically shallow basis has contributed to the (socially) costly reduction of communication between politicians and scientists. All the more societies can benefit from serious INDEPENDENT advice, especially in troubled times! But this requires that the media, and the general public, also listen to the more quiet, reason-based and for that very reason less spectacular debates. But essentially, policy as well as the general public cannot reasonably expect from science to provide scientific proof of the validity of their own (non-scientific!) prejudices. (July 2nd)
June TRADE WITH AUTOCRATIC SYSTEMS A MAJOR SOURCE OF SYSTEMIC RISK: As witnessed in the current gas market, autocratically ruled nations like Russia (and China) do not shy away of creating and then opportunistically exploiting bottlenecks, whenever it suits their economic and geo-political interests. Similar sizeable stranglehold positions (vis a vis China) have been etablished in other sectors, and especially in the pharmaceutical industry (e.g. critical antibiotics) and in high-tech markets (e.g. micro/nano chips). Resilient trading relationships exploiting mutual comparative advantage in the long-run necessitate economic precautions against short-term monopolistic exploitation such as dual sourcing and the provision of alternative supplies, even if such precautions are only available at economic costs. In this sense penicillin production in Kundl or chip production in Villach, rather than migrating them to India or China (resp. Taiwan), contribute importantly to European resilience in those industries. (June 30th)
June RUSSIA CASHING IN ON ITS POACHING ACTIVITIES IN THE GAS MARKET (II): The Russian reduction in gas supply dramatically increases their revenues that stand ready for financing the war against Ukraine AND for subsidizing new poaching activities with new clients in China and notably India with the remaining capacity diverted from Europe, which Russia dumps well below world-market prices. (Ultra)-low poaching prices render provisioning for alternatives costly for new clients, who risk falling into the same trap as the former European clients. Benefitting from short-term poaching offers may seem advisable only as long as economic and political independance can be assured in the long-run by relying on a sufficiently rich mix of suppliers as well as of energy sources, a lesson that European nations currently seem to learn the hard way. (June 28th)
June EUROPE HAS NO (COMMON) STRATEGY TO PREVENT FRAGMENTATION OF ENERGY MARKETS: Given the geopolitical challenges in energy markets, European solutions are focused largely on national solutions at a time, when the diversity of the European mix of energy sources should be used as a core asset. Substituting away from Russian gas can be eased by widening the set of alternative energy supplies including temporary extensions for nuclear energy in countries like Germany. This all the more since due to deficient infrastructure investments French generators are working well below capacity, which normally generate 70% of French electricity leaving temporarily sufficient under-utilized nuclear fuel for the close to being terminated German nukes. The fragmented access to national solutions generates bottlenecks that in principles could be eased in an overall European energy mix. However, such a solution requires cross-border cooperation and a common European vision as well as strategy. (June 22nd)
June CONFERENCE ON ETHICS OF BUSINESS, TRADE AND GOVERNANCE: Geopolitical developments propel the theme of the Fourth Conference on Ethics of Business, Trade and Global Governance to centre stage. The conference is scheduled to take place at Wentworth-by-the-Sea from Dec. 2-3. Deadline for submissions is August 31st. This conference is organized by the Center for Ethics in Society in cooperation with Department of Finance, University Vienna and the Center for Responsible Banking & Finance of University of St. Andrews (UK). The earlier conferences had been organized in Wentworth-by-the-Sea (2018), Klosterneuburg (2019), and Saint Anselm-virtual (2020). The Fifth Conference is scheduled to take place in Dec. 2023 in St. Andrews. (June 20th)
June ECB MORE CONCERNED ABOUT FRAGMENTATION THAN PRICE STABILITY: In its concerns for fighting fragmentation ECB looses control over its only mandated task, namely to secure price stability. While the Fed takes determined action and increases the interest rates by a historical .75%, the ECB continues playing its zero-rate waiting game and effectively loosing control over market rates and market expectations. Expectations on pending ECB rate increases have already been driving a significant wedge (of temporarily more than 200 basis points), or technically a risk premium, between German and Italian bond yields even before the ECB starts acting to curb inflation as announced for July. Rather than fighting rampant inflation, currently in excess of 8%, the ECB is still debating and developing new instruments to contain fragmentation risk in the European bond market, which is a fiscal theme about state financing well beyond their mandate. (June 15th)
June RUSSIA CASHING IN ON ITS POACHING ACTIVITIES IN THE GAS MARKET: By reducing the supply of gas by 40% to European nations, and notably Germany, Russia is exploiting its stranglehold position in the gas market at a time when it needs gas revenues most in order to finance war against its brothers and sisters in Ukraine. And Europe is not willing to sanction Russian atrocities by stopping gas imports. For decades Russia was luring European nations into a "privileged" trading relationship at ultra low prices that made it opportune for those to cut (or neglect) relations to alternative gas suppliers. These developments illustrate how long-term strategies of autocratic systems can be used to build up strategic advantage over short-term oriented liberal societies, as long as those do not care adequately for long-term alternatives. Short-term opportunism is punished now at a time when building up alternatives is particularly costly (and time consuming). Will liberal societies at lest learn a lesson from current developments? Even if ("unexpected") actions and their timing are inherently difficult to predict, incentives for such (mal)actions are not. (June 14th)
June CORONA VIRUS STILL ACTIVE AND DEADLY: Infection rates are increasing again despite lower testing intensity. According to Johns-Hopkins University) the rise in Covid-infections can be clearly observed in the US, Israel and Portugal. The Robert-Koch Institute also observes the rise of new mutants BA.4 and especially BA.5 in Germany. The recommendations of the RKI concerning vaccinations remain in place; they serve the purpose of protecting individual health as well as the common good of slowing down the speed of virus mutations. (June 3rd)
JuneWELCOME BACK Maria Chiara Iannino (University of St. Andrews, UK)- Maria-Chiara is visiting the Finance Department in the month of June where she will be conducting joint research with Thomas Gehrig on "Common Ownership and Systemic Risk", a research project funded by the Leverhulme Trust and the OeNB. This project follows up on earlier research on systemic risk and resiliency of banks and systemic risk and resiliency in the insurance sector. (June 1st)
May LACK OF ECB LEADERSHIP IS INVITING WAGE HIKES: By avoiding proactive timely monetary policy the ECB has effectively invited labor partners to trigger the price-wage spiral, just to find itself forced to the need of passively reacting to rising wages now. After quarterly wage increases of 2,8% in the first quarter, well above the inflation target, unions are now asking for wage increases of 6-7.5%, just short of the current Eurozone inflation rate of 8.1%. Monetary policy in the Euro-area is reacting to market needs rather than providing leadership and guidance. On the other hand, ECB passivity produces welcome windfall gains to national treasuries. Honni soit qui mal y pense. (May 28th)
May THERE IS NO FRONTIER RESEARCH WITHOUT BASIC RESEARCH: The dictum of the pioneer researcher "Dem Anwenden muss das Erkennen vorangehen" (Max Planck) defines clear priority of basic research over applied research (see link to the Conference Volume of the Max-Planck Gesellschaft in honor of its 100 year jubilee). In light of societal evolution, the German Wissenschaftsrat provides recommendations in its position paper of 2020 on Anwendungsorientierung in der Forschung. Applied research in the social sciences without sound theoretical foundations easily lends itself to political and/or economic lobbyism and manipulation. These are the central arguments for funding independent basic research in enlightened societies. (May 22th)
May SAN FRANCISCO PRINCIPLES OF RESEARCH ASSESSMENT: The Declaration on Research Assessment (DORA) recognizes the need to improve the ways in which the outputs of scholarly research are evaluated. The declaration was developed in 2012 during the Annual Meeting of the American Society for Cell Biology in San Francisco. It has become a worldwide initiative covering all scholarly disciplines and all key stakeholders including funders, publishers, professional societies, institutions, and researchers. According to DORA assessing research solely on the basis of journal lists and other bibliometric analytics is considered unethical. Rather a holistic approach is recommended that includes reading (and understanding) the assessed work. Leading research sponsors have signed-up including the Austrian FWF or the Boltzman Institute. For Germany more than 50 leading research (sponsoring) organizations have signed up such as German Science Foundation - DFG, various Leibniz Institutes, Volkswagenstiftung and Wissenschaftsrat. (May 18th)
May BUNDESBANK-PROFESSORSHIP FOR MONIKA MERZ: Monika Merz (Econ Department) has been awarded a Bundesbank Professorship at the Freie Universität in Berlin. She teaches a course on Frictional Labor Markets and the Macroeconomy. Monika Merz, a labor market expert, has pioneered the nascent field of labor-finance with an article on Labor and the Market Value of the Firm, published in the American Economic Review, 2007. This article analyses the capitalization of labor market frictions in stock prices. (May 14th)
May CONFERENCE ON ETHICS OF BUSINESS, TRADE AND GOVERNANCE: Geopolitical developments propel the theme of the Fourth Conference on Ethics of Business, Trade and Global Governance to centre stage. The conference is scheduled to take place at Wentworth-by-the-Sea from Dec. 2-3. Deadline for submissions is August 31st. This conference is organized by the Center for Ethics in Society in cooperation with Department of Finance, University Vienna and the Center for Responsible Banking & Finance of University of St. Andrews (UK). The earlier conferences had been organized in Wentworth-by-the-Sea (2018), Klosterneuburg (2019), and Saint Anselm-virtual (2020). (May 10th)
May FLASH-CRASH? LARGE SELL-ORDER SENDS EUROPEAN STOCK MARKETS LOWER: A large sell-order submitted in thin markets by Citi caused plunge in European Stock Marktes. OMX 30 fell by 8% at 12:29 GMT, while the other European exchanges temporarily shed up to 2%. The nature of this incident is under investigation while NASDAQ denies any (technical) irregularities. (May 2nd)
April NATIONAL FISCAL POLICIES CORRECT EXCESSES OF MONETARY POLICY IN THE EURO-AREA: In order to correct the well-known negative consequences of high inflation on low-income earners, Austrian relief packages attempt to correct the burden on low-income earners as well as commuters. Similar attempts to correct the costs of monetary policy are also implemented in Germany and other European nations. (April 27th)
April RUSSIAN ARMY ATTACKS DONATED RED-CROSS RESCUE VEHICLES: According to the medical director of the Universitätsklinik Bonn, Professor Dr. Dr.h.c.mult. Wolfgang Holzgreve, Russian forces attack and destroy rescue vehicles clearly labelled with a Red-Cross. The attacked vehicles had been donated by the Clinics of the University of Bonn and Caritas. Two of the six donated vehicles have been attacked and one has been completely destroyed. (April 21st)
April GERMAN PRODUCER PRICES UP BY 30.9% IN MARCH: Producer prices in the Euro Area are increasing steadily since January 2021. In March German Producer Prices for Industrial Products have increased by 30,9% over March 2021. To the extent that these products constitute costs to retailers, these numbers imply significant upward pressure for future consumer prices. Supply chain bottlenecks, lack of resilient production together with steeply rising energy prices, and the Russian war on top have been major contributors to these inflationary developments. (April 20th)
April PEACE DIVIDEND TURNS DEEPLY RED: Ukraine, an EU accession candidate, is suffering brutally from the inability of Western European nations to provide effective protection as well as deterrence with adequate heavy armour and intelligent weapons against a despotic aggressor. The unwillingness to cut imports of fossile fuels from Russia contributes to lengthening misery and the agonistic battle. (April 20th)
April CHINESE COVID CASUALITY NUMBERS TOP THOSE OF AUSTRIA According to the latest figures of the Coronavirus Resource Center of Johns-Hopkins University) Covid-related infection and death rates for China for the past 28 days (600.315/3.050) surpass those of Austria (561.369/999) but still fall short of those of the US (901.172/15.622), the UK (1.446.610/7.748), France (3.632.957/3.128), and Germany (4.469.593/6.027). (April 20th)
April ECB CONTINUES FUELING INFLATION IN THE EURO-AREA DESPITE RUSSIAN WAR: Despite massive overrun of the inflation target, the ECB continues its asset purchasing program until July, albeit with the prospect of phasing out PEPP in 2022 and APP until March 2024. The goal of maintaining cheap financing conditions for governments and concerns for economic growth and jobs clearly dominates its one and only mandate of maintaining price stability. In marked contrast to the U.S. Federal Reserve System the ECB is NOT subject to a dual mandate, but still sidesteps its prime responsibility. The keen interest of the ECB in improving funding conditions for European governments becomes evident in decisions like that of the Governing Council on March 24th: "The Governing Council has decided to continue to allow NCBs to accept as eligible collateral Greek government bonds (GGBs) that do not satisfy the Eurosystem’s minimum credit quality requirements". European stock markets recover while the Euro looses ground. (April 14th)
April US-INFLATION RATE REACHES NEW HIGH OF 8.5%: In March the Consumer Price Index for all Urban Consumers (CPI-U) reached a new high (after Dec. 1981) with 8.5%. Energy prices increased by 32%, Food by 8.8% and All Items less Food and Energy rose by 6.5%. Stock and bond markets react modestly at large. (April 12th)
April NEW IMF-STUDY FINDS LONG-LASTING INFLATIONARY EFFECTS OF GLOBAL SUPPLY CHAIN DISRUPTIONS In their study on Shipping Costs and Inflation a team of researchers of IMF, LSE and Georgetown University establish that shipping disruption exert lasting effects on the PPI and core-inflation of import sensitive countries. The authors find that "the impact (of supply chain disruptions) is similar in magnitude but more persistent than for shocks to global oil and food prices". (April 11th)
April GERMAN BUNDESTAGS IGNORES RISK OF FURTHER DANGEROUS COVID-MUTATIONS: The majority of the German Bundestag votes against various proposals for mandatory vaccinations. The need to curb socially transmitted infections in order to avoid mutations has been largely denied, externalities are down-played. Hopefully another debate in fall about mandatory vaccination - in light of another mutation wave - can be avoided. This hope constitutes a speculation on a positive outcome for a gamble society is purposefully taking. (April 8th)
AprilWELCOME DIEMO DIETRICH! Dr. Dietrich (Newcastle University) will be visiting the Department of Finance in April to conduct joint research with Thomas Gehrig and Alexander Mürmann (WU) on how the nature of liquidity demand affects inter-temporal transfers (i.e. savings and investments) and insurance. This work builds on earlier joint research "On the Instability of Private Inter-Temporal Liquidity Provision" and on "Speculative and Precautionary Demand for Liquidity in Competitive Banking Economies". (April 2nd)
April COSTLESS TESTING REDUCED WHILE INFECTION RATES IN AUSTRIA AND GERMANY AMONG THE HIGHEST WORLDWIDE: According to the latest figures of the Coronavirus Resource Center of Johns-Hopkins University) With 5.863 mill. Germany is second in infection rates over the past four weeks, well ahead of France (2,724 mill.), UK (2.097 mill.), Italy (1.732 mill.) and Austria (1.055 mill.). In absolute numbers these European states all lead the US (0.903 mill.) at a time when non-vaccinated war refugees are fleeing to Europe in large numbers and hospitals are running short of capacity. Covid-related deaths amount to 5.907 in Germany and 941 in Austria over the past four weeks. (April 1st)
March RESILIENT MANUFACTURING REQUIRES THE PROVISION OF ALTERNATIVE SUPPLIES: According to a recent CESifo survey among German managers awareness is rising that the high degree of customer and country specialization and the excessive fascination with myopic (short-term) cost minimization is creating extensive long-term risks such as geopolitical risks and the susceptibility to political blackmail as exercised by Russia in energy markets currently. Other autocratic regimes might follow suite whenever opportune. Therefore, it is a wise strategy to diversify away from China even if it imposes economic costs in the short-run. (March 31th)
March EUROPEAN MONETARY POLICY COMPLETELY WRONG-FOOTED BY RUSSIA'S WAR: With its accommodating stand on inflation ECB has been completely wrong-footed by the war in Ukraine that likely turns into a massive driver of prices, and, hence, inflation at a time, when monetary policy was already tolerating realized inflation rates well above the target rate. The latest inflation rate for Germany has reached 7,3% (after 5,8% last month) with energy prices doubling and food prices moving higher in double digits. At EU-level inflation even reaches 7,5%. Does the helm of the ECB know what is needed now to keep inflation at bay? See comment of March 17th on ECB-talk! (March 30th)
March TIME READY AGAIN FOR VISIONARY POLITICS? Hopefully, the catastrophic events caused by the war against Ukraine may help Western democracies to appreciate that long-term planning has social and economic value, even when it may imply short-term costs, such as extra reserves, alternative sourcing, etc. Short-term cost minimization has become a recipe for disaster for the Western world, as can be witnessed for the financial sector in the Great Financial Crisis of 2007/8 (insufficient bank capital), for the health sector in the ongoing Corona pandemic (insufficient reserves and relocation to "low cost" countries) that started to spread widely in March 2020, and for energy (infrastructure AND local reserves under control of the Russian monopolist) and defense after the Russian war against Ukraine since February 24th to name the most obvious and costly. Also industry suffers quite broadly from lack of resiliency in their over-specialized but highly vulnerable supply chains as a consequence. Resilient planing requires foresight, and costly long-run investments in place, in order to be prepared, when unpredictable events strike. The standard excuse of politicians and industry leaders that some shock event has not been predicted just reflects their lack of long-term planning and denial of responsibility, since by its very nature the future is not predictable. A better response should be to invest responsibly ex-ante and emphasize ex-post the nature of investments that had been put into place previously to absorp the impact of whatever ("unforeseeable") shock. (March 26th)
March RUSSIAN FOSSILE FUEL STOCKS JUBILANT AS MOSCOW STOCK EXCHANGE REOPENS TRADING: With double-digit gains Gazprom, Lukoil, Rusal and Rosneft are the big winners of the first trading hours of the re-opening of the Moscow Stock Exchange after trading had been suspended since February 28th. Apparently markets are euphoric about the prospects of fossile fuels while foreigners are excluded from trading. These developments imply grim prospects for an imminent halt of aggressions against Ukraine. Russia exploits its stranglehold on "unfriendly countries" for financing their atrocities against their brothers and sisters in Ukraine. (March 25th)
March RUBLE CONVERSION ORDER REFLECTS THE EFFECTIVENESS OF ECONOMIC SANCTIONS: Energy sales to "unfriendly countries" currently are Russia's dominant source of financing war. Each liter fossil fuel sold to "unfriendly countries" pays dozens liters of Russian tank fuel at current market prices. Contractual payments for fossil energy deliveries are payable in US-$ (about 60%) and € (about 40%). Due to the sanctions of these "unfriendly countries" their currencies have become of little value to Russia. Therefore Russia is re-negotiating, if not out-rightly breaching existing contracts. If Western allies accept this imposition, they contribute to strengthening the Ruble, weakening their own sanctions, and most importantly, they become complicit in prolonging the war by filling up the "war-chest" at the rate of about €500 million per day. However, this imposition is not a take-it-or-leave-it offer, since the very fact of Putin's conversion order reflects the dire needs of the Kremlin for external finances to continue war. The best response of the "unfriendly countries" is bargaining down the offer up to the point that minimizes the remaining time of war-related hostilities. (Skript of Interview with Radio Arabella, March 24th)
March VACCINATION GAPS AND OPENING-UP, A RECIPE FOR RECORD INFECTIONS? According to the latest figures of the Coronavirus Resource Center of Johns-Hopkins University) infection rates are particularly high for countries with a wide vaccination gap such as Germany (5.1 mill infection within the past 28 days) or Austria (962.000)). This compares to France (1.8 mill), UK (1.6 mill), Italy (1.3 mill), and US (1.4 mill) with far lower vaccination gaps. Apparently, closing the vaccination gap prior to opening up would have been a prudent strategy. It could have avoided the capacity squeeze in Continental European hospitals and human misery after all. (March 19th)
March VACCINATION GAPS AND OPENING-UP, A RECIPE FOR RECORD INFECTIONS? According to the latest figures of the Coronavirus Resource Center of Johns-Hopkins University) infection rates are particularly high for countries with a wide vaccination gap such as Germany (5.1 mill infection within the past 28 days) or Austria (962.000)). This compares to France (1.8 mill), UK (1.6 mill), Italy (1.3 mill), and US (1.4 mill) with far lower vaccination gaps. Apparently, closing the vaccination gap prior to opening up would have been a prudent strategy. It could have avoided the capacity squeeze in Continental European hospitals and human misery after all. (March 19th)
March CLIMAFLATION, FOSSILFLATION AND GREENFLATION AS EXCUSES FOR INFLATION? While the FED is reacting to changing realities the ECB stubbornly maintains its practice of whitewashing the violation of the mandated price stability. Inflationary use of inflationary vocabulary simply ridicules any serious debate about why the ECB resists in respecting its mandate as measured by independently measured price indices rather than words or self-made illusionary index expectations. ECB-communication appears to follow Harry Truman's recommendation: "If you can't convince them, confuse them". (March 17th)
March FED INITIATES REGIME CHANGE IN MONETARY POLICY: The FED has started to fight record inflation in the US. In the wake of several supportive geopolitical developments stock markets have generally reacted positively towards the widely expected, but still moderate, increase of interest rates from .25% to .5%. Interest rates are intended to reach 1.9% by end of this year and 2.8% in 2023. In combination with the current ECB policies this implies a stronger Dollar and a weaker Euro. (March 17th)
March UKRAINE TEACHES WESTERN DEMOCRACIES HOW TO PRESERVE THEIR VALUES: The courageous defense of the Ukrainian people showcases dramatically of what is needed to defend liberal values: commitment, courage, determined action and defensive capabilities (with intelligent weapons). (March 11th)
March LACK OF RESILIENCY FORCES EU27 TO BECOME COMPLICIT TO FINANCING PUTINS WAR: The lack of alternatives and its dependence on Russian fossile energy ressources of gas, oil and coal forces EU27 to become complicit to despotic use of power in its aggressions against a nascent democracy in neighboring Ukraine. Highly specialized supply chains in high-tech markets render EU27 vulnerable also with respect to China, just another totalitarian regime trying to intermediate largely in order to preserve its own economic and geo-political interests. (March 10th)
March RECORD INFECTION LEVELS WHILE EUROPE IS OPENING UP: Pandemic fatigue raises infection rates to new highs in Continental Europe with Germany leading the monthly infection rates with more than 4 mill. ahead of South Korea and Russia and Austria recording a new high in daily infections at more than 49.432 after yesterday's (for details see Coronavirus Resource Center of Johns-Hopkins University). Premature opening likely speeds up virus mutations and, thus, delays return to a more "normal life". (March 10th)
March LONG TERM CHALLENGES TO LIBERAL SOCIETIES: Due to the high Omicron infection rate the kick-off meeting of working group 1 of the Gesellschaftswissenschaftliches Kolleg of the Studienstiftung des Deutschen Volkes on this topic will be online. Further meetings of the Kolleg are scheduled to take place in person in Vienna/Munich (2022), Wittenberg (2022), Baden Baden (2023) and Karlsruhe (2023). Recent political developments re-emphasize the relevance of the need and challenges to long-term planning arising from short-term political opportunism. Contrasting the values and pitfalls of flexibility with the ability to commit to rules is a fundamental challenge to economic and political design highlighted in the path-breaking work of the Nobel laureates (2004) Finn Kydland and Edward Prescott. Manifestations of the costs of the (seeming) inability of liberal societies to commit abound and currently manifest themselves in the scrupulous attack by autocratic systems. (March 3rd)
March INFLATION IN THE EURO AREA REACHES 5.8%: The harmonized consumer price index for the Eurozone reached a disconcerting 5.8%. This inflation rate does not yet include the economic consequences of the Russian invasion into Ukraine. Against the mantra of ECB directors and their in-house projections the inflation rate is increasing rather than decreasing. War-related shortages in supply will greatly amplify price pressures. Factoring in the war-related costs the Bundesbank already predicts an annualized inflation rate of 5% for 2022, which is more than twice the self-defined target rate to be compatible with the ECB's mandate. (March 2nd)
MarchHIGH FREQUENCY TRADING CAUSES EXCESS PRICE VOLATILITY: The manuscript "Intermediation and Price Volatility" by Thomas Gehrig and Klaus Ritzberger (Royal Holloway, UK) has been accepted for publication at the Journal of Economic Theory. It explains why ultra-fast trading is a major driver of price volatility, and why trading firms invest enormous amounts into high-speed technology. (March 1st)
February LACK OF FORESIGHT AND EVERYMAN'S OPPORTUNISM PREVENTS WESTERN ALLIES TO SUPPORT NASCENT DEMOCRACIES EFFECTIVELY: Max Frisch's allegory "Biedermann und die Brandstifter" (The Arsonist and the Everymen) unfortunately seems to characterize the timid behaviour of Western nations in supporting nascent democracies in their fight for liberty and self-determination against oppressive autocratic systems. Resilient democracies require defensive abilities in order to protect their values and assets. So-called "peace dividends" may easily turn negative as is verified drastically now by the current invasion of the oppressive regime in Moscow against its brothers and sisters in Ukraine. Defensive weapons (Milan anti-tank guided missiles) have been made available to the Curds in their fight against IS (in 2015) but are denied to Ukraine by the German government because of their own rules. Words are no substitutes for substance (i.e. defensive capabilities and actions as well as effective sanctions such as exclusion Russia's from SWIFT and CHIPS.). At least, today the Netherlands announced sending 200 Stinger anti-aircraft missiles. Ukraine cannot turn into another anti-democratic Belarus under the leadership of governors appointed by Kremlin despots! (February 25th) The turnaround of German policy presented in the Bundestag at Feb. 27th ("Zeitenwende") marks a significant correction of strategy. (February 28th)
February CORONA VIRUS STILL KILLING TEN-THOUSANDS PER DAY: While the Omicron variant is less potent than the former Delta mutation, because of the sheer numbers of infections Corona regrettably still causes significant loss of live, more than 10.000 daily worldwide among which 2.000 daily within the US and far more than 1.000 daily within the EU-27 (for details see Coronavirus Resource Center of Johns-Hopkins University). Significant vaccination gaps still cause considerable but avoidable harm. (February 16th)
February US INFLATION REACHES A DISCONCERTING 40-YEARS HIGH OF 7.5%: Inflation is well under way in the U.S. with no signs of slowing down. Even food prices are increasing at the rate of 7%. Not surprisingly, markets are reacting swiftly, even when Central Banks don't. Ten years U.S. treasuries at 2.042% crossed the 2% threshold for the first time after August 2019 again in expectation of higher policy rates. (February 10th)
February ECB IS REDEFINING ITS MANDATE: The ECB accepts an average inflation rate of more than 5 percent in the Eurozone as compatible with its mandate of maintaining price stability, which has been widely communicated as being 2 percent of inflation. Despite the sizeable divergence between real price development and the self-defined target rate the ECB does not see any reasons to adjust its monetary policy currently. Apparently, five percent of inflation are acceptable as long as wages do not react. Importantly, however, wages are not constituting elements of the official inflation rate. Moreover, inflation redistributes wealth and welfare away from the needy members of society and low-income groups. Fiscal policy is already starting locally to "correct" excesses in the inflation dynamics, i.e. failures of monetary policy, by providing inflation subsidies (Teuerungsausgleich) to the needy/low income earners. Is the ECB not currently inviting unions to demand wage settlements well above the seemingly currently acceptable rate of 5 percent? (February 4th)
January TOP PLACEMENT: Alessandro Melone (VGSF) has accepted the position of an Assistant Professor at the Fisher College of Business at Ohio State University, a leading Finance Department in the US. Congratulations! (January 26th)
January "LONG TERM CHALLENGES IN A FAST MOVING WORLD" is the theme of the Gesellschaftswissenschaftliches Kolleg of the Studienstiftung des Deutschen Volkes that is organized by Monika Merz and Thomas Gehrig from 2022-2023. The central question is to what extent long-run objectives can be achieved in a fast moving world plagued by short-term opportunism. How can rules and institutions be designed that are both, flexible and resilient in the long run? In the words of the Nobel laureates (2004) Finn Kydland and Edward Prescott, how can policies be made time-consistent, if at all? These questions apply to virtually any dynamic policies, be it monetary, fiscal, health, environmental, supervision, or you name it. (January 19th)
January WHITEWASHING REALIZED INFLATION RATES RISKS A HARD LANDING: While the Fed Chairman Jerome Powell is grilled about the Fed plans to contain inflation, the ECB continues its mantra of commitment to (long run) price stability despite persistent overshooting inflation rates in excess of the 2% target in 2021 and 2022 (according to their own revised forecast of 3.2%). By interpreting realized numbers relative to self-defined expectations about likely future price level trajectories, the ECB embarks on a strategy of actively avoiding public accountability. The incoming new Bundesbank Chairman Joachim Nagel considers it likely that inflation in the Euro area remains significantly above target for a prolonged period. Such developments are in conflict with the ECB mandate if (foreseeably) higher inflation rates well above the target materialize. Expectations are soft information while realized inflation rates are hard information that directly affect citizens' real lifes. (January 12th)
January GRADUATE SEMINAR "BIG DATA AND FAST SECURITIES MARKETS". The seminar in summer term 2022 is a paper reading seminar for PhD-students and advanced master students. It discusses questions of how big data and social media affect securities prices and price discovery. Topical issues are the effect of Reddit on short-squeezes, value of sentiment data as well as the influence of big data on price volatility. Why does rain affect price volatility in securities markets? Which are (long-term) asset pricing implications and which are (short-term) effects on price discovery? (January 3rd)


December RESEARCH PROJECT "COMMON OWNERSHIP AND SYSTEMIC RISK IN THE BANKING SECTOR" FUNDED BY THE JUBILÄUMSFONDS OF THE AUSTRIAN NATIONAL BANK: The project analyses the impact of increasing ownership in systematically significant banks by the leading global asset managers on banks' risk choices. A particular focus lies on the question whether common ownership enhances exposure to systemic risk, or whether it tends to mitigate such concerns. As a truly European research cooperation this project is conducted jointly by Thomas Gehrig and Maria Chiara Iannino (University of St. Andrews). Co-funding is provided by the Leverhulme Trust of The British Academy. (December 21st)
December ECB CORRECTS THEIR OWN INFLATION FORECAST FOR 2022 MASSIVELY UPWARDS FROM 1.7% TO 3.2% but continues to insist that the forecasts for 2023 and 2024 (ECB claims 1.8%) stand well below the target rate of 2%. Will wage negotiators in 2022 anchor their price expectations on the lower ECB's forecasts, or rather on to be expected upward corrections? The ECB is putting at stake nothing less than its biggest asset, i.e. its credibility. Its political mission (outside its mandate) is becoming evident. The Bank of England has already started the fight against inflation by rasing interest rates by 15 basis points, while the US Fed has announced interest rate increases in 2022. (December 16th)
December INTERMEDIATION AND PRICE VOLATILITY The paper on Intermediation and Price Volatility will be presented in the Research Colloquium of the Institute of Applied Mathematics at METU in Ankara on December 14th. (December 11th)
December VIRUS OUTPACES RESPONSE ABILITIES OF WESTERN SOCIETIES: Omicron on the rise in UK - one third of new infections in London are already caused by Omicron. The speed of virus mutations exceeds the ability of Western societies to adapt and protect human lives. Adaption ist hindered both by political, and even ideological debate culminating in outright ignorance of facts, but also by institutional and bureaucratic barriers to fast implementation of effective measures, such as waiting for sufficiently large evidence for approval of vaccines and recommendations as well as slow production decisions. Such (societal) waiting unnecessarily concedes human lives and provides breeding time for the virus to mutate and reduce, if not eliminate, effectiveness of (slowly) established defences. Reaction time is not a function of expert knowledge - this is available with sufficient foresight - but of societies' ability to transfer that knowledge into combatting the virus effectively. In addition to inadvertently subsidizing the virus, slow reaction times unnecessarily sacrifice human lives and tolerate misery for many. (December 10)
December US INFLATION STANDS AT 40 YEAR RECORD OF 6.8 PERCENT While Energy increases by 33.3% and Food by 6,1%, All items less food and energy stands at 4.9%. Higher inflation rates were last reached in the Second Oil Crisis in 1979. (December 10th)
December CONFERENCE POSTPONED BECAUSE OF COVID-MUTANTS: Due to the recent pandemic developments the Fourth Conference on Ethics of Business, Trade and Global Governance scheduled for Dec. 3-4th in Wentworth-by-the-Sea had to be postponed. This would have been the fourth conference in a series organized by the Center for Ethics in Society jointly with Department of Finance, University Vienna and the Center for Responsible Banking & Finance of University of St. Andrews (UK). The earlier conferences had been organized in Wentworth-by-the-Sea (2018), Klosterneuburg (2019), and Saint Anselm-virtual (2020). (December 3)
December FED SPOTS (CONTINUED) MUTATIONS AS A MAJOR DRIVER OF INFLATION: Chairman Jerome Powell concedes that the slow-moving successes in fighting Corona poses increasing and so far largely unforeseen risks to monetary policy and the normalization of inflation rates. Therefore, the US will increase interest rates already as early as 2022. When will the ECB become attentative to the real drivers of the current momentum of price increases? At least, they acknowledge that their forecasts seem wrong. (December 1st)
November OMICRON: Lack of decisive action, complacency, bureaucratic delay, mismanagement in vaccine provision and denial of reality provide the ideal breeding ground for virus mutations. The Academy Leopoldina warns intensively "Es ist zu befürchten, dass Teile der Politik und Öffentlichkeit die Dramatik der Situation nicht in ihrem vollen Ausmaß erfassen" and calls urgently for mandatory vaccination. Omicron increases re-infection risk and undermines any current successes in the fight against the pandemic. The emergence of Omicron amplifies the need for immediate and determined action! (November 28th)
November NON-STANDARD ERRORS: In a Big-Data exercise 164 research teams from 34 countries contributed to the an analysis of non-standard errors. The manuscript on Non-Standard Errors is co-authored with 342 authors from 209 research institutions from 34 countries in total, including Albert Menkveld, Anna Dreber, Michael Kirchler, Jürgen Huber, Felix Holzmeister, Magnus Johanneson, Sebastian Neusüss, Michael Razen, Utz Weitzel, Hans Degryse, Thierry Foucault, Lawrence Glosten, Nikolaus Hautsch, Terrence Hendershott, Robert Korajczyk, Jan Pieter Krahnen, Lubos Pastor, Loriana Pellizon, Erik Theissen, Christian Westheide, Ingrid Werner and many many more. The 164 research teams were given identical tasks on analysing new original high frequency data provided by the Deutsche Börse. Non-standard errors reflect the heterogeneity in modelling approaches and in data selection choices of these expert teams in performing the tasks. In our large-scale analysis, non-standard errors turn out to be of the same order as the variation of the underlying variables, i.e. the standard errors. Research team consistently underestimate non-standard variation but at the same time are less confident in the validity of their own research relative to a hypothetical team taking into account non-standard variation. (November 23rd)
November INFLATION IS BACK TO STAY In its Monthly Report the Deutsche Bundebank expects German inflation rates to stay above 3% in the medium term. For November, the inflation rate in Germany may reach an all time high of 6% since Germany joined the Eurozone. At the same time the ECB starts to retreat from their own untenable and self-serving inflation forecasts. When will they react to the facts? (November 22nd)
November LEARNING THE HARD WAY Regrettably Western democracies need to witness catastrophic conditions in their hospitals first in order to build up sufficient support for necessary pandemic policy measures. Politics apparently denies leadership in the absence of widespread support and the media fail to challenge inactivity; they thrive on pandemic entertainment via talk-shows rather than following-up on overwhelming expert advise on urgent necessities. Seemingly, it is the countries with the worst pandemic experiences that are now in relatively better conditions to withstand Delta variants of Covid-19, such as Italy (disastrous hospital conditions in March/April 2020) and Portugal (disastrous hospital conditions in February/March 2020). Those countries with better initial experiences need Delta as a booster to learn about pandemics the hard way. One can only hope that the learning experience speeds up in order to limit the loss of life and Covid-related miseries. Currently, the Covid-related casualities in Europe outnumber the hypothetical mortalities of a crash of a Jumbo-Jet per day by a large margin. Nevertheless, these daily recurring catastrophic news don't seem worthy of media headlines any more!? (November 18th)
November WELCOME RUNE STENBACKA! Professor Rune Stenbacka (Hanken School of Economics, Helsinki) is visiting the Finance Department in calendar week 46 to conduct research on information acquisition in organizations. Rune has published extensively in the field of industrial organization including the industrial organization of banking. He is a co-editor of the Journal of Economics & Management Strategy and an Associate Editor of the International Journal of Industrial Organization. (November 13th)
November US INFLATION STANDS AT 6.2 PERCENT The main drivers are Energy (up 30% with components Gasoline and Fuel Oil up by 49,6% and 59,1% respectively) and Commodities (up 8.4%). Only Food stands at 5.3%. (November 11th)
November HETEROGENEITY IN EMPIRICAL INFERENCE: The first crowd-sourced empirical paper in Economics/Finance will be released at the Microstructure Exchange) at November 23rd. This project - #fincap- scrutinizes the research results generated by 164 independent research teams from around the world - including the Finance Department of the University of Vienna - that were given identical tasks to test the same set of hypotheses on the same data. At the hand of big data provided by Deutsche Börse AG and available at high frequency(milli-seconds), the pioneering experiment allows to study and quantify the impact of modelling choices on research outcomes. The results emphasize the fact that insights about data generating process cannot be separated from the model-generating process. Popular policy recommendations based on a "quick and dirty" reading of scientific evidence - alternatively: "in a nutshell" - as widely championed by the media (and the public) may seem overly naive and can even be seriously misleading. It always helps to understand the empirical project design. (November 11th)
November COOPERATION DOES NOT ARISE NATURALLY: Record numbers in Corona infection rates unearth the widespread lack of willingness to cooperate and protect others from the risk of a deadly infection. Moreover, hospital staff is taken hostage by deliberate risk taking of the unduly large proportion of non-cooperators. Evidence from high vaccination countries like Portugal and Italy reconfirm this evidence. (See Johns-Hopkins University). But even those countries had to learn socially valuable behaviour the hard way. In other word, altruistic behaviour is not engrained in human genes. (November 9th)
November WESTERN CENTRAL BANKS GRADUALLY - AND CLANDESTINELY - REDUCE THEIR ACCOUNTABILITY: The recent debate launched by Governor Holzmann about inclusion of housing rents in the harmonized CPI diverts attention from the bigger topic of clandestine reduction in accountability of monetary policy. The substitution of measured inflation by expected inflation reduces accountability from a pretty concise statistical measure towards a much more fuzzy future-related concept. While market expectations are manifested in current market prices to some extent the current debates about potential bubbles in asset markets or in real estate prices reflect this inherent fuzziness in the concept of expected inflation. The discussion on forward guidance even pushes inflationary expectations about the short term into even more fuzzy long-term expectations. This increase in fuzziness of communication greatly enhances political discretion of monetary policy and reduces public accountability to price stability. This is a text-book like real world manifestation of the dominance of short-term opportunism and the impossibility of rule-based policy as predicted by the Nobel-laureates of 2004, Ed Prescott and Finn Kydland. This manifestation goes hand in hand with the extending mandates of Western CBs to incorporate climate goals into monetary policy, especially when buying long-term climate bonds, while violating the Tinbergen principle, according to which each policy goal should be achieved by an independent (and proper) instrument - Jan Tinbergen received the first Nobel Prize in Economics ever in 1969. Most importantly, Western CBs are currently putting at risk their greatest capital, public trust and reputation. (November 7th)
October GERMAN FINANCIAL SECTOR PREDOMINANTLY EXPECTS PERIOD OF STAGFLATION: The recent CFS-survey - Center for Financial Studies at the JWG University of Frankfurt - reveals that 58.7% of the respondents from the German financial sector expect a protracted period of inflation accompanied by low economic growth, commonly known as stagflation. Unless extremely expansive monetary policy adjusts, inflation rates are not expected to recede to the policy target of 2% in the short term, nor the long term. Todays inflation figures were announced for Germany at 4,6% (harmonised CPI). So even if the temporary effect of 2% due to the revocation of the reduction in value-added tax is deducted, the remaining 2,6% are well above the ECB target. (October 28th)
OctoberDYNAMIC INSTABILITY IN THE BANKING SECTOR: The paper "On the Instability of Private Intertemporal Liquidity Provision" co-authored with Diemo Dietrich (Newcastle University) has been published in Economics Letters. This paper establishes that maturity transformation - transforming "cheap" short-term deposits into long-term assets - is an inherently risky business model in competitive banking markets even under normal market conditions (i.e. even when yield curves are positively sloped). The provision of liquidity is a natural function for central banks, and not for the private sector. (October 22nd)
October CORONA VIRUS STILL ACTIVE AND DEADLY: Infection rates are rising again. This is a widespread phenomenon is not only observed in headline stories on Melk, UK, Russia and Israel. Even if mortalities are increasing at a slower pace, i) they are increasing and ii) they provide the opportunity for the virus to mutate (see e.g. the more infectious sub-variant AY.4.2 of the Delta mutation that is spreading across Europe currently). Insufficient vaccination efforts even in high vaccination countries are a major driver of these developments as can be inferred from the Coronavirus Resource Center of Johns-Hopkins University. The deliberate decision against vaccinations, especially if not mandated by other health-related concerns, imposes a negative externality on society, both for unprotected and high risk persons as well as for protected persons, whose protection is compromised by mutations. (October 22nd)
October BANK OF ENGLAND SET TO RAISE INTEREST RATES ALREADY IN 2021: The Governor of the Bank of England Andrew Bailey suggests that the Bank may have to act in order to contain medium-term inflationary expectations given strong wage pressure in various labor market segments. (October 21st)
October ECB CONCEDES THAT INFLATION MAY BE MORE PERSISTENT THAN PREDICTED: The ECB starts recognizing that their internal statistical models underlying inflation forecasts may not be suitable to predict the full impact of structural changes induced by digitalization. This reaction was to be expected (see comment of Sep. 10th); hence the news lies in the timing, not in the fact per se. The minutes of the Monetary Council reveal increasing internal disagreement in the assessment of the monetary situation in the Eurozone within the Council. (October 8th)
OctoberDYNAMIC LIQUIDITY PROVISION BY BANKS IS FUNDAMENTALLY PLAGUED BY INSTABILITY: The paper "On the Instability of Private Intertemporal Liquidity Provision" by Diemo Dietrich (Newcastle University) and Thomas Gehrig has been accepted for publication in Economics Letters (IF=2.097). This paper establishes that maturity transformation - transforming "cheap" short-term deposits into long-term assets - is an inherently risky business model in competitive banking markets even under normal market conditions (i.e. even when yield curves are positively sloped). The provision of liquidity is a natural function for central banks, and not for the private sector. (October 4th)
SeptemberASYMMETRIC REACTION TO INCREASED COMPETITION IN REGIONAL US BANKING MARKETS: The reaction to increased competition in regional banking markets is asymmetric: banks with large market shares reduce their capitalization and increase the riskiness of their portfolios, while banks with small market shares increase capitalization and reduce portfolio risk. This result is rather robust as Özlem Dursun-de Neef (Goethe University Frankfurt) and Thomas Gehrig document in their CEPR Discussion Paper on "Credit Market Competition and Bank Capitalization" (CEPR-DP. 16566 ). The findings have far-reaching implications for the competition-stability/fragility debate as well as for bank regulation. This evidence based on granular US data strongly suggests that regulatory policy needs to take into account far more seriously the underlying sources of bank asymmetry. (September 23rd)
September EUROPE'S INABLILTY TO ACT FAST IS COMPROMISING COMPETITIVENESS IN GLOBAL MARKETS: The transatlantic dispute about France's submarine deal with Australia is a reflection of the apparent difficulties of European firms and institutions to deliver on time. In a similar vein, "the full, timely and consistent implementation of all Basel III standards" as urgently reminded by a Joint Letter of September 7th to the European Commissioner for Financial Services Mairead McGuinness and Director General John Berrigan by 25 Governors and Heads of Supervision is missing the signatures of key players such as the German BaFin and the French representatives. Basel III has been signed in 2017, and the Joint Letter is asking for timely implementation only 4 years later, while Eurozone banks are evidently struggling to make it into the Top-20 in global league tables (by market cap) with 3 in the Top-50. The leading US banks (8 banks among the Top 20) are now benefitting from strong and determined post-crisis reaction which includes forced recapitalization (similar to the successful rescue of UBS in Switzerland, now #36); in 2006 the Top-10 were dominated by Eurozone banks. (September 19th)
September NOBEL LAUREATE PAUL ROMER (NYU) criticizes academic culture at the helm of the World Bank under the leadership of CEO Kristalina Georgiewa in 2018 that led to his resignation as Chief Economist. Also his successor Penelopi Goldberg (Yale) the current President of the Econometric Society, resigned after only fifteen months in office in 2020 because of disputes about academic standards. (September 18th)
September Call for Papers "15th Swiss Winter Conference on Financial Intermediation", Lenzerheide, from Apr. 3rd-6th, 2022. Submission deadline: October 20th, 2021. (September 17th)
September MARTIN HELLWIG (MPI BONN) will offer a graduate course on "Systemic Risk, Financial Stability, and Monetary Policy" starting Oct. 4th. He is the first WKÖ-Visiting Professor at our Faculty. Martin is a leading economic theorist with a strong sense of duty for improving societal institutions and policy. Among many others he has consulted the ECB as Chairman of their Advisory Scientific Council and the German Monopoly Commission that he presided from 2000-2004. He holds honorary doctorates of the Universities of Tübingen, HU Berlin and the University of Basel. He has been Bogen Visiting Professor at Hebrew University in Jerusalem and holder of the Taussig Chair at Harvard, and is recipient of the Max-Planck Forschungspreis 2012. (September 14th)
September ECB CORRECTS ITS OWN INFLATION FORECASTS UPWARD BY ABOUT 10%: The ECB has updated its growth and inflation forecasts for the Eurozone for 2021. The ECB measure is downward biased relative to the measures used by national statistical agencies in the Euro area. For example, the ECB's estimate of price changes in Germany for August 2021 read 3%, while the harmonized index of consumer prices calculated by the Statistisches Bundesamt delivers an inflation rate of 3.8%. Moreover, the ECB maintains the view that price increases well above its 2% target are of a temporary nature reflecting temporary shortages of materials. Predicting long-run price changes induced by industrial change of digitalization and automation would imply that increases in energy prices and materials exert long-term effects that cannot be easily detected by backward looking statistical models. Accordingly, future upward adjustments of currently disseminated views on long-term inflation rates are to be expected. (September 10th)
SeptemberTHE PROVISION OF LIQUIDITY IN PRIVATE MARKETS OR BY (PRIVATE) BANKS IS FUNDAMENTALLY PRONE TO INSTABILITY: In their discussion paper on "On the Instability of Private Intertemporal Liquidity Provision" (CEPR-DP. 16528 ) Diemo Dietrich (Newcastle University) and Thomas Gehrig revisit the question of the superiority of banks or markets in the provision of liquidity within a dynamic context. While banks are prone to coordination failure causing bank runs, markets provide inter-temporal liquidity in a stable manner only, when liquidity insurance becomes unattractive to investors (e.g. in a low-interest environment). Moreover, multiple equilibria will occur, with cyclical equilibria offering higher average intertemporal consumption. Due to the positive externalities involved in the provision of liquidity it is best provided by institutions like central banks, and not by the private sector. (September 9th)
September DUE TO MUTATION WAVE SCIENTIFIC CONFERENCES TURN DIGITAL AGAIN: The Allied Social Sciences Association Conference (ASSA) in January 2022 in Boston has been turned fully digital due to the surge of the fourth Corona wave. Likewise the Deutsche Bundesbank has closed its premises in Eltville for onsite conferences until end October. Therefore, also the 10th Conference in Banking&Finance had to be moved to a fully digital format. (September 6th )
August FULL VACCINATION REDUCES INFECTION RISK OF COVID-19 TO LESS THAN 9% OF OVERALL INFECTION RISK: According to a report of ORF the risk of attracting Covid-19 in Vienna is currently (calendar week 32) 12-fold for incompletely vaccinated people (included non vaccinated). According to AGES - Österreichische Agentur für Gesundheit und Ernährungssicherheit the risk of a breakthrough infection (infection despite full vaccination) amounts to about 2.81%, which corresponds to the efficiency of the mRNA-vaccines of more than 94%. Hospitalizations soar in the South of the US and according to CNN reserves of oxygen get depleted as increasing numbers of unvaccinated people require treatment. (August 30th)
August SPECIAL ISSUE: RESILIENCE - The Schmalenbach Journal of Business Research invites research contributions for a Special Issue Resilience. The ongoing COVID-19 pandemic as well as the summer floods and fires 2021, present stress tests of unpredecented dimensions challenging the resilience of business models, societal institutions, and entire economies. While the pandemic is still in full swing, plenty of empirical evidence has emerged already. Simultaneously, the extent of climate and bio-diversity crises are becoming increasingly clear, fundamentally questioning the way business has been conducted up to now. The examples vividly demonstrate that “going back to normal” may not be aligned with resilient business and societies. Now is a perfect time to take stock and analyze the shortcomings, and lack of resilience, of current business models and societal institutions in order to learn from this pandemic and support businesses, institutions, societies, and economies to enhance resilience. Paradigmatic, theoretical, empirical and methodological contributions are most welcome that address the multi-facetted aspects of resilience. Deadline for submissions is February 26, 2022. The SI is edited by Tine Buyl (Tilburg), Jonas Schreyögg (U. Hamburg), Andreas Wieland (CBS, Copenhagen) and Thomas Gehrig (U. Wien). (Aug. 7th)
August MASTER SEMINAR IN BANKING & FINANCE: The master seminar in fall 2021 will focus on "Ownership and Asset Prices". The seminar will address cutting edge research on the borderline between economics and finance. Does the nature of ownership matter for asset pricing? Recent trends in the evolution of ownership structures seems to suggest a decidedly positive answer. Investor activism, the increasing role of (large) institutional investors as well as increasing trend towards common ownership of securities across actively as well as passively managed funds and ETFs suggest that standard assumptions of competitive pricing in asset markets could be jeopardized. Will increasing ownership, and, hence, improved coordination of business models, enhance investment returns, or will it also jeopardize the benefits of diversification at the same time? Will large common owners contribute to internalizing externalities, such as climate externalities or systemic risk, or will they contribute and amplify such risks? The seminar is organized jointly with Professor Andreas Grünbichler and will start at Oct. 11th. (Aug. 5th)
July INFLATION IS BACK IN EUROPE AS WELL: The inflation rate for Germany as measured by the harmonized index of consumer prices has increased at an annual 3,8% over the last year according to the Statistisches Bundesamt. This is the third consecutive month that the German inflation rate exceeds the former ECB target of 2% (2,5% in May and 2.3% in June). The subindex for goods only (i.e. excluding services) increased from 3.1% to a provisional 5.4% from May to July. The ECB conjectures that the excess over 2% will be of a temporary nature only, due to temporary hikes in energy prices (up by about 10%) and the re-imposition of value-added taxes. Price effects due to scarcity of critical bottleneck products such as computer chips are not emphasized by the ECB, although their implications will be longer term due to the digital transformation speeded up by the Corona pandemic. Alarmingly, also the Housing Price Index has been rising at accelerating annual growth rates of about 9% for the last three quarters. Nevertheless, the ECB continues flooding markets with liquidity. Its review of monetary policy approved on July 8th by the Governing Council has eliminated the need to react to inflation rates above 2%, at least in the short term. (July 28th)
July "17th European Winter Finance Summit 2022", Zermatt, from Mar. 20th - Mar 23rd, 2022. Submission deadline: Oct. 24th, 2021 midnight.
JulySYSTEMIC RISK CENTER AT LSE: The paper on "Speculative and Precautionary Demand for Liquidity in Competitive Banking Markets" (joint with Diemo Dietrich, Newcastle, UK) is available as SRC Discussion Paper 110. (July 5th)
July JOURNAL OF FINANCIAL STABILITY REACHES IMPACT FACTOR 3.7: The impact factor calculated by Clarivate Analytics has reached the level of 3,727 for the Journal of Financial Stability. According to this statistics JFS leads Review of Finance with an IF of 2.885 and Journal of Financial Intermediation with IF 2.820. Therefore, JFS belongs to Q1 within the ISI-ranking in Economics and in Finance and Top-5 in Finance. In comparison the IF of the leading economics journal Econometrica stands at 3.992.(July 4th)
June DELTA MUTATIONS REVEAL FUNDAMENTAL FLAWS OF PRIORITISATION POLICIES: The proportion of Delta mutations has already reached the level of 25% in Austria - similar developments can be observed across all of Continental Europe - and is spreading rapidly among the (internationally) mobile community. Regrettably it is especially the most mobile community that has been prioritized last, and, therefore, provides an ideal platform for the virus to spread and mutate further - putting at risk even those who did receive complete vaccination in consequence. As a bitter further consequence, and clearly unintentionally, the European Soccer Championship has already turned into a virus spreading event (see the Petersburg match and others). The tormentingly slow process of vaccination in Continental Europe starts revealing its true costs. (June 25th)
June LACK OF RESILIENCY IMPAIRS COMPETITIVENESS OF EUROPEAN SYSTEMATICALLY SIGNIFICANT BANKS: The paper "Did the Basel Process of Banking Regulation Enhance the Resiliency of European Banks?" (with Maria Chiara Iannino) has been accepted for publication at the Journal of Financial Stability. The study evaluates the whole Basel process up to now with respect to reaching the goals of "maintaining the safety and soundness" of the financial sector since its inception in 1988. Our findings are mixed; while most of the European joint stock banks have not increased the riskiness of their operations, both on an individual as well as on a systemic level, the most systemically significant banks have built-up significant capital short-fall prior and especially during the Great Financial Crisis, which despite Basel III and Banking Union has not been reduced to pre-crisis levels until 2019. The consistently low market-to-book valuations of these institutions, relative to earlier episodes, reflect lack of international competitiveness. (June 10th)
June INFLATION IS BACK IN THE U.S.: The U.S. consumer price index has increased at an annual 5% over the last year according to the U.S. Bureau of Labor Statistics. This is the second consecutive month that the U.S. inflation rate exceeds the official target of 2-3%. Western Central Banks are eager to downplay the facts by referring to temporary phenomena. Alarmingly, the S&P/Case-Shiller U.S. National Housing Price Index has been rising at accelerating annual growth rates of more than 10% since December 2020 (in fact 13% in March 2021). Housing inflation and real estate prices are not included in the price indices used by the ECB so far. Accordingly, and given similar developments in Europe, their statistics are likely downward biased in the Euro Area. Strategic review, and correction, of monetary policy is urgently called for. (June 10th)
JuneCORONA DEATH TOLL STILL GROWING RAPIDLY. Despite the recent successes in vaccinations the pandemic remains by far more virulent than a year ago. The largest toll applies to the EU27 with more than 720.000 casualties (19,5%), followed by the US with 597.000 (16,1%), Brasil 470.000 (12,7%), India 340.000 (9,1%), Mexico 228.000 (6,7%), Peru 185.000 (5%) and UK 128.000 (3,5%) as reported by Johns-Hopkins University (precise up-to-date numbers available at "Global Map"). Increasing infections in UK due to the Indian mutation of the virus. These numbers tend to be lower bounds to the true (unobservable) numbers, which include unreported casualties in various countries as well. (June 5th)
May WKÖ VISITING PROFESSORSHIP ON THEMES OF THE AUSTRIAN SCHOOL: Martin Hellwig (MPI Bonn) is the first WKÖ Visiting Professor. In October he will teach an advanced course on Systemic Risk, Financial Stability, and Monetary Policy". He is the author of the book on The Bankers' New Clothes: What's wrong about banking and what to do about it? (jointly with Anat Admati, Stanford). Besides many other prestigious functions he has been the president of the Scientific Advisory Council of the European Stability and Risk Board (ESRB).
May VOX-EU: "Are socially responsible banks more resilient?" Thomas Gehrig in interview with Tim Phillips from CEPR (London) about current research on bank resiliency conducted jointly with Maria Chiara Iannino (St. Andrews, UK) and Stephan Unger (Saint Anselm, US). (May 21st)
May VIRTUAL MEETINGS UNDERMINE DEMOCRACY: In her recent ECGI Discussion Paper 748/2021 on "How Shifting from In-Person to Virtual-Only Shareholder Meetings Affects Shareholders’ Voice" Miriam Schwartz-Ziv (Hebrew University) reports disconcerting evidence on an increasing temptation towards exercising autocratic leadership style and suppressing shareholder democracy in U.S. corporations. As a (partial) solution she recommends a higher degree of transparency, including public availability of the recording of the full meeting, provision of participant lists as well as the content of all questions submitted. (May 18th)
May IN-PERSON WORKSHOP AT BUNDESBANK: The 10th Workshop "Banks and Financial Markets", organized by Thomas Gehrig, Michael Koetter (IWH and U. Magdeburg), Thilo Pausch (Dt. Bundesbank) and Peter Welzel (U. Augsburg) will take place at the Conference Center of the Deutsche Bundesbank in Eltville from October 21-22, 2021, circumstances permitting. Application deadline is August 15th, 2021. (May 17th)
May US INFLATION EXCEEDS 4%: Constantly accelerating inflation rates in the US - see U.S. Bureau of Labor Statistics - are driving inflationary expectations and long-term interest rates, echoing rate increases in 2006/7. These are early stress tests for global stock markets, challenging monetary policy and banking supervision to remain vigilant and prepared. (May 14th)
May SECOND SUSTAINABLE FINANCE FORUM, SHANGHAI: The paper on "Social Responsibility and Bank Resiliency" (joint with Maria Chiara Iannino, St. Andrews, UK, and Stephan Unger, Saint Anselm, US) has been invited for presentation at the Second Sustainable Finance Forum in Shanghai. (May 8th)
May INTRODUCING SCHMALENBACH JOURNAL OF BUSINESS RESEARCH: The first issue of SBUR has appeared in print. As a golden open access journal SBUR combines the open access commitment towards an open science world, i.e. unrestricted and free access to results of scientific research, and the long tradition of the predecessor journals Business Research and the Schmalenbach Business Review. (May 5th)
MayESEM 2021: The paper on "Speculative and Precautionary Demand for Liquidity in Competitive Banking Markets" (joint with Diemo Dietrich, Newcastle, UK) has been invited for presentation at ESEM 2021 (virtual) in Copenhagen. (May 1st)
April IN THE ABSENCE OF PRO-ACTIVE INTERVENTION RIGHTS FINANCIAL SUPERVISORS RISK OF EFFECTIVELY BECOMING ACCOMPLICES OF CRIMINAL ACTIVITIES: The cases of Wirecard and Commerzialbank Mattersburg reveal one common basic flaw in regulation for not having acted in a timely fashion, even when indications of criminal activities have already been voiced in public. In both cases in retrospect supervisors defend their own inaction by lack of mandate for investigating criminal activities that are not covered explicitly by law. BaFin fulfilled its official mandate only with respect to Wirecard Bank but not with respect to all the other dozens of Wirecard subsidiaries, which did not officially belong to their jurisdiction. Such rigid regulatory mandates without pro-active intervention rights, can easily be outplayed by criminals in their fraudulent schemes, and if done properly, act to protect the fraudulent schemes. This has become visible in the Wirecard case causing an investigation by the German Parliament. Pro-active intervention rights are particularly useful supervisory instruments in situations with long-term relations between auditors and the audited corporations, and, therefore, should constitute an essential element of the regulatory design. Similarly to special audits they create a risk of discovery for sub-standard auditing practices. This, in particular, relates to "friendly" business relationships when over time active auditing is increasingly replaced by cosy personal relationships as in the Mattersburg case. Of course, pro-active intervention rights also increase the responsibility of supervisors as well as the risk of false judgement and action. However, as the cases of Wirecard and Commerzialbank Mattersburg illustrate, the price of inaction may be a lot higher. (April 23)
April CONFERENCES OPENING UP AGAIN IN THE US: This year's conference on Ethics of Business, Trade and Global Governance will take place Dec. 3-4th in Wentworth-by-the-Sea (near Portsmouth, NH). Due to widespread vaccination success in the US a hybrid conference is feasible again; foreign participants from risk areas, or those who desire so, can participate online. This is the fourth conference in a series organized jointly with Department of Finance, University Vienna and the Center for Responsible Banking & Finance of University of St. Andrews (UK). The earlier conferences had been organized in Portsmouth/NH (2018), Klosterneuburg (2019), and Saint Anselm-virtual (2020). Deadline for submission of paper proposals is August 31st. (April 22)
AprilCORONA DEATH TOLL REACHES 3 MILLION WORLDWIDE. The largest toll applies to the EU27 with more than 655.000 casualties (22%), followed by the US with 566.000 (19%), Brasil 368.000 (12%), Mexico 211.000 (7%), India 176.000 (6%) and UK 127.000 (4%) as reported to Johns-Hopkins University (precise numbers available at "Global Map"). These numbers tend to be lower bounds to the true (unobservable) numbers, which include unreported casualties in various countries as well. (April 17th)
AprilMYOPIC PANDEMIC MANAGEMENT MISSES CRUCIAL LONG-TERM INVESTMENTS AND IS PUNISHED HEAVILY BY INCREASING LOCKDOWN REQUIREMENTS. Focus on short-term management in Europe in summer/fall 2020 is punished heavily now by scarcity of vaccines. While the US has invested early and decisively in vaccine production capacities in form of private public partnerships - e.g. Astra Zeneca (1 billion USD, May 21,2020), Johnson & Johnson (1,2 billion USD, Aug. 5, 2020), Moderna (1,1 billion USD, 11. Aug 2020), Novavax (1,6 billion USD, Jul. 7, 2020), Sanofi & GlaxoSmithCline (2,1 billion USD, Jul 31st, 2020) - the EU has followed suit in fall on a far smaller scale with BioNTech (375 million EUR plus repayable EIB credit of 100 million) and Curevac (250 million EUR plus an 23% equity stake of 70 million EUR, now valued at about 350 million EUR at current market prices). Each extra week of lockdown costs Europe billions of income and wealth and, crucially, each week of delayed vaccinations costs hundreds of lives. Distributional debates about priority rules, disputes about vaccine allocation, and unethical front-running are the most visible manifestations of scarcity management. The earlier corrective action is implemented the better for Europe. (April 3rd)
AprilINVITED FOR PRESENTATION IN RESEARCH SEMINARS: The paper on "Speculative and Precautionary Demand for Liquidity in Competitive Banking Economies" (joint with Diemo Dietrich, Newcastle, UK) has been invited for presentation at Research Seminars of the Vienna Graduate School of Finance (April 7th), the Systemic Risk Centre of the London School of Economics (May 24th) and the Symposium of the European Research Group on Money, Banking and Finance at the Banque de France in June 11-13th, for presentation and discussion. (April 3rd)
AprilJUBILANT STOCK MARKETS IN SHARP CONTRAST TO DETERIORATING PANDEMIC SITUATION IN EUROPE. With the tail winds of US stock markets European stock markets reach all time highs despite more than lacklustre pandemic management. Meanwhile WHO warns that slow vaccine roll-out not only prolongs the pandemic but enhances the risk of further mutations and, hence, growing ineffectiveness of currently available vaccines. “Vaccines present our best way out of this pandemic. Not only do they work, they are also highly effective in preventing infection. However, the roll-out of these vaccines is unacceptably slow. And as long as coverage remains low, we need to apply the same public health and social measures as we have in the past, to compensate for delayed schedules. Let me be clear: we must speed up the process by ramping up manufacturing, reducing barriers to administering vaccines, and using every single vial we have in stock, now,” said Dr Hans Henri P. Kluge, WHO Regional Director for Europe. After all, unacceptable delays cost lives that could have been saved with determined action! (April 1st)
MarchEconometric Society: The paper on "Intermediation and Price Volatility" (joint with Klaus Ritzberger, Royal Holloway, UK) has been accepted for presentation at the North American Summer Meeting (Montreal) as well as the Australian Summer Meeting (Melbourne)of the Econometric Society. Moreover, the paper on "Social Responsibility and Bank Resiliency" (joint with Maria Chiara Iannino, St. Andrews, UK and Stephan Unger, Saint Anselm, US) has been accepted for presentation at the Annual Conference of the European Financial Management Association in Leeds, the Annual Conference of the Austrian Economic Association (NOeG) in Innsbruck and the Second Sustainable Finance Forum in Shanghai. (March 26th)
MarchWITH ONE YEAR IN THE PANDEMIC AND HUNDREDS OF BILLIONS INVESTED IN SUPPORT MEASURES CONTINENTAL EUROPE IS STILL - PASSIVELY - WAITING FOR SUFFICIENT SUPPLY OF VACCINES. Johns-Hopkins University (check "Global Map") regrettably reported that mortalities in the 27 states of the EU have exceeded 580.000, while the 50 states of the U.S.A passed the 530.000 mark. The former EU-28 member UK has passed the 125.000 mark. A silver lining exists in the US, since the President of the USA announced being able to offer a vaccination to all US citizens by May 2021. In contrast, European solidarity is facing a real stress test that it seems to be loosing on (too) many levels in consequence of increasingly disappointing pandemic management performance, both in the public as well as in the private sector. (Mar. 14th)
MarchWILL CZECHIA HAVE SEEN THE WORST BY MAY? Former member of the Freiburg research team and co-author Rene Levinsky (CERGE, Prag) comments on the Corona experience in Czechia and Germany. (March 9th)
MarchPAPER ON JOURNAL COMPETITION AND THE QUALITY OF PUBLISHED RESEARCH IS ONLINE: The paper "Journal Competition and the Quality of Published Research: Simultaneous versus Sequential Screening" (International Journal of Industrial Organization 76 (2021)) by Thomas Gehrig and Rune Stenbacka (HECER, Helsinki, Finland) is online. The paper answers the questions of i) how to explain the huge and ever more decreasing delay in publishing in top-journals in the social sciences, ii) how to explain the strikingly higher rejection rates in the social sciences relative to the sciences, and, finally iii) why scholarly articles typically are submitted to several law journals simultaneously, while strong exclusivity requirements are enforced in the sciences and social sciences. The article provides explanations based on information production and societal costs of false positives and false negatives during the evaluation process. (March 6th)
MarchSPEED MATTERS IN VIRUS RESPONSE: US PRESIDENT JOE BIDEN PROMISES VACCINATION TO ALL AMERICANS UNTIL MAY 2021. When will Europe live up to the challenge? The virus is with us since more than a year and Europe still struggles to survive on the basis of passive, and increasingly ineffective lock-down strategies while the virus is multiplying into many more effective mutations. While the US is well ahead of its original plan as of Jan. 21, 2021, Europe appears still complacent. The tiring debates about priority rules and opening strategies dominating public sphere in the media reflect the inability to produce and distribute vaccines in sufficient numbers (The vaccine is actually applied in large numbers in UK, USA, Israel, Chile, Russia, China, India, Turkey, ...). Rapid vaccination is top priority and renders many such debates lower order priority, if not dismissible. (March. 3rd)
FebruaryHOW TO EXPLAIN INCREASING PRICE VOLATILITY IN FAST MARKETS? In principle, high-frequency trading allows to arbitrage price differentials across trading platforms ever faster. Nevertheless, empirically short-term price volatility is increasing in faster markets. In their discussion paper on "Intermediation and Price Volatility" (CEPR-DP. 15848 ) Thomas Gehrig and Klaus Ritzberger (Royal Holloway, UK) provide answers based on strategic price setting behaviour and equilibrium investments in fast trading technology.
FebruaryVIRUS AHEAD OF PASSIVE EUROPEAN PANDEMIC MANAGEMENT. Despite harsh lock-down measures in Continental Europe incidence numbers are on the rise again due to rapid virus mutations. Nevertheless, Continental Europe still is wasting time in producing and applying vaccines. In Germany alone 1 million of Astra Zeneca doses are waiting for being applied because of lack of interest and ineffective priority planning. Meanwhile a new even more infectious mutation has been detected and analysed in California. The Pandemic is real, people are dying, companies are exiting the market. When will Europe wake up to the challenge and start acting forcefully? (Feb. 24th, 2021)
FebruaryWHILE THE USA MOURNS HALF A MILLION OF COVID-RELATED MORTALITIES THE EU IS SILENT ABOUT AN EVEN LARGER NUMBER OF VICTIMS FOR ITS 27 CONSTITUENT COUNTRIES COMBINED. According to Johns-Hopkins University regrettably reported mortalities in the 27 states of the EU have exceeded 505.000, while the 50 states of the U.S.A passed the 500.000 mark. The former EU-28 member UK has passed the 120.000 mark.(Feb. 23rd, 2021)
FebruaryDOES THE NATURE OF LIQUIDITY DEMAND MATTER FOR BANK BUSINESS MODELS AND THE NATURE OF PRUDENTIAL BANK REGULATION? Liquidity may be demanded for different reasons such as unforeseen consumption needs, but also because of surprise options for investment. In such a more general model the answer unsurprisingly is a distinct YES. In their discussion paper on "Speculative and Precautionary Demand for Liquidity in Competitive Banking Economies" (CEPR-DP.15827, London, UK) Diemo Dietrich (Newcastle U., UK) and Thomas Gehrig analyse the implications of the heterogeneity of the sources of liquidity demand. Based on their analysis, the implications for the prudential regulation of banks differ significantly across business models. In particular, prudential regulation of banks may need to differentiate substantially across commercial banks and investment banks.
FebruaryDOES SOCIAL RESPONSIBILITY INCREASE BANK RESILIENCY? In their empirical study on "Social Responsibility and Bank Resiliency" (CEPR-DP. 15816, London, UK) Thomas Gehrig, Maria Chiara Iannino (University of St. Andrews, UK) and Stephan Unger (Saint Anselm College, NH/US) provide ample evidence that various components of so-called ESG-factors (E-environment and economy, S-social, G-governance) do affect both, systemic as well as idiosyncratic risk of banks. While factors related to long-term orientation tend to moderate risk exposure, and, hence, enhance resiliency, short term factors such as short-term profitability tend to reduce resiliency. Moreover, significant transatlantic difference can be observed. Those are particularly striking for the organization of labor as well as the governance structure. The results hold qualitatively both for the former Thomson Reuter Asset 4-classification as well as the modern TR ESG Refinitiv rating system.
FebruaryHOW TO EXPLAIN THE HUGE HETEROGENEITY IN PUBLICATION CULTURES OF SCHOLARLY RESEARCH ACROSS ACADEMIC DISCIPLINES? How to explain the huge and ever more decreasing delay in publishing in top-journals in the social sciences? How to explain the strikingly higher rejection rates in the social sciences relative to the sciences? Why are scholarly articles typically submitted to several law journals simultaneously, while strong exclusivity requirements are enforced in the sciences and social sciences? In their article on "Journal Competition and the Quality of Published Research: Simultaneous versus Sequential Screening" (forthcoming International Journal of Industrial Organization) Thomas Gehrig and Rune Stenbacka (HECER, Helsinki, Finland) provide some explanations based on information production and societal costs of type-I and type-II errors.
FebruaryMASTER IN BANKING & FINANCE: Three excellent empirically oriented master theses have been submitted in January 2021. Their topics are: (1)"The Impact of Short Sale Bans on Stocks: European Evidence", (2) "The Effects of Green Bond Issuances on Stock Prices" and (3) "Explaining hedge fund returns through factor models". Congratulations to the authors!
FebruaryLACK OF RESILIENCY IN THE HEALTH SECTOR: Germany, the former "pharmacy of the world" is lacking production capacities to protect its citizens as well as those of its EU-partners in a timely fashion against Covid-19 despite the imminent threat of rapid virus mutations. The debacle of the German vaccination strategy - as well as the largely passive strategies of the European partners - showcases the lack of resiliency of modern global pharmaceutical supply chains against pandemic events: minimizing production costs in global supply chains compromises national resilience such that pandemic outbreaks impose huge costs of life as well as on society. Incidentally, the pandemic only highlights the lack of resiliency that was already apparent well before the outbreak of Covid-19, since a wide range of medical supply suffers severe bottleneck-problems due to the outsourcing of essential production along the production chains. (Feb. 2nd, 2021)
JanuaryACTIVE ANTI-COVID STRATEGY IN THE US CONTRASTS SHARPLY WITH PASSIVE EUROPEAN LOCK-DOWN STRATEGY. At a death toll of more than 410.000 people the US engages in an active COVID-19 Response Strategy, while at a death toll of more than 440.000 people - and the UK experience with a death toll of more than 95.000 - the EU continues to extending its predominantly passive lock-down strategy just short of closing borders again. Passive lock-down and active vaccination can be strategic complements only in the very short-term, when vaccination is performed swiftly enough to prevent virus mutations. An active vaccination strategy may also require emergency production (see goal 4 of the US response strategy) in case the private sector cannot handle demand effectively. Otherwise, passive lock-down and active vaccination turn into strategic substitutes in the long run. Then the question arises about which strategy imposes the higher death toll (plus economic costs) in the long run. (Jan. 23rd, 2021)
JanuaryTHE NEW US GOVERNMENT'S ECONOMIC RESCUE PACKAGE INVESTS HEAVILY IN VACCINE PRODUCTION AND RAPID TESTING CAPACITIES. The US Stimulus Plan of the newly elected president Joe Biden includes spending of USD 70 billion specifically for vaccine development and production (20) and improved testing (50). The COVID-19 Relief Package already dedicated USD 68 billion for testing and vaccine development in March 2020, which contributed to developing the BioNTech-Pfizer and Moderna vaccines. The second Stimulus Package of December 2020 included another USD 40 billion for vaccine production and testing. The EU Recovery Package remains less specific on the contributions towards vaccine production and testing. Europe urgently needs to increase its ability to act swiftly and decisively in order to suppress the virus and to frontrun further mutations of this malign and treacherous virus. (Jan. 15th, 2021)
JanuaryDESPITE HIGHEST REPORTED DEATH COUNTS AND PIONEERING VACCINE DEVELOPMENT EU IS SLOW IN GETTING STARTED ON VACCINATIONS. According to Johns-Hopkins University reported mortalities in the 27 states of the EU have exceeded 370.000, while the 50 states of the U.S.A stand at 350.000 (as of Jan. 3rd.2021). Still a sense of urgency seems missing within the EU administration, while the CDC has administered 4.2 million of vaccinations already by Jan. 2nd in the U.S. In addition to the regrettable expected excess loss of lives the hesitant start into the vaccination campaign implies huge budgetary burdens. According to Professor Kocher, the president of the IHS, each week of lock down will cost an additional 1-1.5 billion EUR for Austria alone (see ORF-statement of Nov. 16, 2020), which is just one of the 27 (remaining) member states. This provides for strong economic incentives to invest in Covid-19 vaccine production capabilities at the European level. Solidarity does not require delay but swift common action. Outside the EU vaccinations are under way at high speed with expensive vaccines from BioNTech, Moderna and meanwhile also with the lower priced Astra Zeneca vaccine, based on a more traditional technology. (Jan. 3rd, 2021)
January Master in Banking & Finance: The master seminar in summer 2021 will focus on "Economic and Financial Resiliency". Resiliency is the ability of organizations and economies to regain strength after an economic or financial crisis. With hindsight we can witness that U.S. banks did regain competitiveness after the Great Financial Crisis of 2007/8, while European banks at large are still battling with its long-run consequences at the onset of the next and even more serious pandemic crisis of 2020. Which are the sources of resiliency? What is the role of the ability to recapitalize? Which are the economic costs of resiliency, both at the level of corporations (banks, hospitals, producers, ...) as well as on the level of the state(s) (supervision, health policy, security of supplies, ...)? How does resiliency relate to (cost) efficiency? How does "globalization" affect resiliency?


December The Special Issue "Digital Transformation" has appeared in Business Research Vol. 13(3), December 2020. It consists of an Editorial and 10 authoritative research articles contributing to the core theme of the Annual Conference of the German Association for Business Research in Frankfurt in March 2020. Due to the pandemic events this conference had to be transformed within a few weeks from a large on-site conference into a complete online format. This turned into a pioneering event right at the start of the Corona pandemic. The Special Issue also marks the transition of the pioneering open access journal Business Research to Schmalenbach Journal of Business Research - SBUR, the joint academic journal of the German Association for Business Research and the Schmalenbach Association.
DecemberEUROPE IN THE CENTER OF THE PANDEMIC: According to Johns-Hopkins University reported daily reported mortalities have reached more than 4.000 for the EU-region (without UK) in December outnumbering the mortalities in the US (of more than 3.000 daily) by a large margin (as of Dec. 16). The total death count regrettably has almost reached 14.000 worldwide per day. By comparison the 9/11 terror attack resulted in close to 3.000 direct mortalities. Nevertheless, a real sense of urgency seems to be missing in this long lasting pandemic situation. European fragmentation certainly contributes to reducing awareness by breaking down aggregate European death tolls and directing public attention to much smaller and possibly more "acceptable" numbers at the national level. At the height of the pandemic Europe is still longing for the emergence of a truly common and effective European response. At least, the vaccine that has been developed in Europe and is currently already being applied under emergency conditions in the UK and the US has been promised to become available for high risk groups in Europe in 10 days (from Dec. 27th according to President Von der Leyen).
December Due to the PANDEMIC DEVELOPMENTS this year the conference on Ethics of Business, Trade and Global Governance: Online Conference will take place virtually at Dec. 4th by Saint Anselm College. It is the third conference in a series organized jointly with Department of Finance, University Vienna and the Center for Responsible Banking & Finance (UK) of University of St. Andrews. The earlier conferences had been organized in Portsmouth/NH (2018) and Klosterneuburg (2019).
November The Deutsche Forschungsgemeinschaft (DFG) supports joint research with Özlem Dursun-de Neef (Johann Wolfgang Goethe-Universität, Frankfurt) on "Market Competition and Bank Capital" from 2021 to 2024.
NovemberSECOND WAVE IS ACCELERATING: Meanwhile in Austria the Covid-19 related death count significantly exceeds the high of April 8th of 30 persons on a constant daily basis (Regrettably the count stands at 65 in Austria and 1381 in the USA at Nov.11th 2020). According to Johns-Hopkins University reported infections worldwide reach new highs, 644.673 at November 11th, 2020, while daily reported mortalities have (substantially) increased to 10.415 worldwide. (Revised numbers as of 20 Nov 2020).
November Paper on "Performance of Characteristics-Based Portfolio Choice" will be the opening presentation at the Annual Conference 2020 of the Austrian Working Group in Banking and Finance (AWG 2020) in Graz (online).
OctoberREPORTED NEW INFECTIONS EXCEED HALF A MILLION PER DAY GLOABLLY: According to Johns-Hopkins University reported infections reach new highs, 506.570 at October 24th, 2020, while daily reported mortalities have (slightly) increased to 6.956 worldwide.
OctoberThe Nobel Memorial Prize in Economic Sciences has been awarded to Robert Wilson and Paul Milgrom for their pioneering and foundational work on common-value auctions (Wilson) and private-value auctions (Milgrom). Auctions have taken public prominence since the first radio frequency allotment auctions of the FCC in 1994, but auction mechanisms are more broadly used in economics. Further prominent examples are procurement auctions, arts auctions or money tender auctions. Auctions are also (widely) used in the health system and in non-monetary contexts more generally. In Finance auctions are important at the IPO stage or in merger and takeover contests for corporate control, as well as in the trading context in form of batch auctions or continuous (trading) auctions. (Research on double-auctions, a related market design, had already been awarded in 2002 with the Nobel Memorial Prize to Vernon Smith.) Congratulations for the long-deserved award!
October CANCELLED DUE TO THE PANDEMIC SITUATION "European Winter Finance Summit 2021". The next "Scinance"- meeting is planned for Spring 2022.
SeptemberGLOBAL PANDEMIC SITUATION IS DETERIORATING: Except for China, where it all began, the crisis is still not under control. According to Johns-Hopkins University reported infections reach new highs, 361.000 at September 24, and daily reported mortalities remain roughly constant at more than 5000 worldwide on a weakly average, despite improving medical treatment options.
SeptemberWKÖ-Professorship in Money and Capital Markets: Professor Dres. h.c. mult. Martin Hellwig, PhD (MPI Bonn) will offer a doctoral course on "Geld und Banken - Systemrisiken und Makroökonomie" in March 2021. This is the inaugural course into a series of courses on topics pioneered by economists of the Austrian School at the University of Vienna (esp. Eugen Böhm von Bawerk, 1851-1914, Ludwig von Mises, 1881-1973 and Friedrich August von Hayek, 1899-1992) and discussed in the light of the current state of research. This series is generously funded by the Wirtschaftskammer Wien - WKO .
September Master in Banking & Finance: The master seminar in winter 2020/21 will focus on "Climate Risk". The seminar provides an overview of the implications of climate risk on financial markets as well as the overall economy. Market reactions as well as market failures are addressed including policy options of financial markets (and monetary policy) to stimulate substitution to sustainable economic models of production and consumption. Students are given the opportunity for their own data-based explorations.
September We welcome Stefanie Schräder as an assistant professor in our Department. Stefanie joins us from the University of New South Wales (UNSW), Sydney. She holds a PhD of the University of Lausanne and has broad expertise in the field of behavioural finance.
AugustGLOBAL PANDEMIC SITUATION STILL NOT UNDER CONTROL: Daily reported infections worldwide (as of August 15th, 2020), presented by Johns-Hopkins University (Baltimore). Global reported death rates (as of August 15th, 2020) remain on a constantly high level - slightly higher than in May and June - of more than 5000 deaths per day globally.
July Call for Papers "2021 Swiss Winter Conference on Financial Intermediation", Lenzerheide, from Mar. 28th - 31st, 2021. Submission deadline: Oct. 30th, 2020.
JulyPOSTPONED DUE TO THE UNSTABLE SITUATION CAUSED BY THE CORONA VIRUS: The 10th Workshop "Banks and Financial Markets", organized by Thomas Gehrig, Michael Koetter, Thilo Pausch and Peter Welzel at Leibniz-Institut für Wirtschaftsforschung Halle (IWH), will be deferred to 2021. New details will be communicated later this year.
JulyGLOBAL PANDEMIC SITUATION IS DETERIORATING: Daily infections worldwide (as of July 1st, 2020), reported by Johns-Hopkins University (Baltimore). Also - according to the same data base of JHU - reported daily infections in Austria are up to three-digit levels again, and first time after mid-April. Due to the limitations of cross-border travel, the virus can only spread locally (or on national levels) currently. Therefore, local containment strategies continue to remain first-order priorities everywhere!
July DEFERRED DUE TO CORONA VIRUS: European Summer Symposium in Economic Theory (ESSET 2020), Gerzensee deferred to Juy 2021. Originally scheduled session: "Value and Cost of Information Gathering and Processing": Substantially revised (dynamic) version of "Journal Competition and the Quality of Published Research: Simultaneous versus Sequential Screening".
JuneCORONA UPDATE: While the pandemic situation on average is improving in Europe it is continuously deteriorating on a global level. The number of reported infections world wide are still increasing at an alarming level (well above 100k per day) despite the widely imposed limitations on cross-country mobility. For continuous updates and reports see the websites of Robert Koch Institut (Berlin), Johns-Hopkins University (Baltimore), and the World Health Organization - WHO (Geneva).
June ADOPTED DUE TO CORONA VIRUS: Master in Banking & Finance - The general discussion including the final presentation of the seminar Basel Regulation and Bank Resiliency (jointly with Mag. Victoria Pagowski, Österreichischer Genossenschaftsverband - ÖGV) will take place at the premises of ÖVG at Löwelstrasse 14 at June 23rd, from 8 a.m.-2 p.m. Participants subject to travel or health restrictions can participate remotely via online tools.
JuneCall for Papers for 3nd Transatlantic Conference on "Ethics of Business, Trade and Governance" at Saint Anselm College (Manchester, NH) will be held online on December 4th, 2020. This is the third conference of a series of conferences organized on ethical topics jointly in cooperation by St. Anselm College, Center for Ethics in Business and Governance (USA) , the Center for Responsible Banking & Finance (UK) of University of St. Andrews and the Department of Finance of the University of Vienna. (The last conference in this series on "Data & Ethics" took place in Klosterneuburg in November 2019.) Submission deadline: September 15th, 2020.
June The discussion paper "Are banks capital requirements optimally set?" summarizes the findings of the Bank of Finland Survey on Capital Requirements .
JuneREMINDER: Interesting webinar series "The economic implications of COVID-19" offered by the Bendheim Center for Finance at Princeton University.
May The Faculty of Business, Economics and Statistics has started to concentrate its internationally successful activities in structured doctoral education under the umbrella of the Oskar Morgenstern Doctoral School - OMDS. Subject to approval by the University, the School will start operations in September with five tracks: Economics (VGSE), Finance (VGSF), Management (PhD-M), Statistics (Abraham Wald) and Business Analytics, Logistics and Operations Research (BALOR).
May POSTPONED DUE TO CORONA VIRUS: Jean Pierre Danthine (Paris School of Economics) ÖNB Visiting Professor at the Faculty. Professor Danthine is teaching a Seminar on "Central banking: lessons from the crisis and its aftermath". Jean Pierre Danthine has been a Professor of Macroeconomics and Finance at HEC Lausanne from 1980-2009. He was the founding president of the Swiss Finance Institute from 2006-2009, a board member of the Swiss National Bank (2010-2015), as well as Vice-President from 2012-2015. Since 2015 he is directing the PSE in Paris.
MayADOPTED DUE TO CORONA VIRUS: Professor Diemo Dietrich (Newcastle University) will be visiting the Department of Finance in May. He will conduct research with Thomas Gehrig on bank capital. Research will be conducted online.
MayEUROPEAN ECONOMIC ASSOCIATION: Due to the pandemic EEA 2020 (Rotterdam) is going virtual and will be transformed into the digital space.
AprilECONOMETRIC SOCIETY: Due to the pandemic the WORLD CONGRESS 2020 (Bocconi) will be transformed completely into the digital space.
AprilEUROPEAN FINANCE ASSOCIATION: Due to the pandemic EFA 2020 (Helsinki) is going virtual and will be transformed into the digital space.
AprilCANCELLED DUE TO CORONA VIRUS: Professor Cars Hommes (University of Amsterdam) will give the second Dockner Lecture on "Complex Economic Dynamics" on April 28th at 4pm in the Skylounge at Oskar-Morgenstern-Platz 1. This is the second of a series of lectures scheduled to alternate annually between TU, University of Vienna and WU. Engelbert Dockner (1958-2017) has been a highly esteemed member of the faculty from 1993-2008 and a founding father of the Vienna Graduate School of Finance - VGSF. He has been an exceptional friend and colleague.
AprilFINANCE RESEARCH SEMINAR MOVES ONLINE: Thierry Foucault (HEC) will start the online version of the Finance Research Seminar on April 24th.
AprilPOSTPONED DUE TO CORONA VIRUS: Distinguished Lecture Series: Evidence from the Field - The SEC-Experiment on Short-Sale Bans, Law Faculty, University of Vienna.
AprilCEPR LAUNCHES WEBSITE FOR COVID-19 RESEARCH: The Center for Economic Policy Research (London) collects research and videos on Covid-Economics.
MarchCOVID-19 WEBINARS: Interesting webinar series "The economic implications of COVID-19" offered by the Bendheim Center for Finance at Princeton University.
MarchPOSTPONED DUE TO CORONA VIRUS: EU-supported project with Walter Beckert (Birbeck College, University of London) on Vulnerable Consumers and Price Discrimination has been delayed to the second half of 2020. The project will fund a conference supported by Erasmus+.
March NEW ACADEMIC OPEN ACCESS JOURNAL for research in business studies: The Schmalenbach Journal of Business Research. This journal will constitute the joint top research outlet of the largest association of business economists (with more than 2600 members), the "German Academic Association for Business Research - VHB" and the traditional "Schmalenbach Gesellschaft für Betriebswirtschaft - SG" (with more than 600 members). For further details see VHB statement and Springer press release. The former journals of both societies, "Business Research - BUR" and "Schmalenbach Business Review - SBR" resp., will be merged into SBUR, edited jointly by Thomas Gehrig (U. Wien) and Alfred Wagenhofer (U. Graz). Informations about submissions for SBUR will follow shortly.
MarchCONTINUOUS UPDATES ON THE CORONA VIRUS by the Robert Koch Institut (Berlin), Johns-Hopkins University (Baltimore), and the World Health Organization - WHO (Geneva).
March COMPLETE UNIVERSITY SHUT-DOWN: "University of Vienna", measures effective from March 16th:
- Doctoral Studies: All examinations are cancelled. No scheduling of further examinations until the situation is back to normal.
- All lectures and seminars are moved to home-study. Students are informed about the literature to be read and prepared in home study.
- All meetings are transferred into digital space. No physical access possible to buildings and libraries.
March CANCELLED DUE TO CORONA PANDEMIC SITUATION: "Swiss Winter Conference on Financial Intermediation 2020", Lenzerheide, from Mar. 29th - Apr. 1st, 2020. Papers (and presentation slides) are made available online.
March CANCELLED DUE TO CORONA PANDEMIC SITUATION: Annual meeting of the "Committee for Industrial Economics", DICE-Düsseldorf at March 19/20th, 2020.
MarchVHB2020 FULLY DIGITALIZED: VHB-Annual Conference: "Digital Transformation", Frankfurt, 17.-20. March 2020 (about 800 registered participants). Due to the pandemic situation the conference will be fully digitalized (see the program here). Also ALL VHB committee and board meetings will take place in digital space. In the true sense of the word, digital transformation has become a necessary and timely response to current pandemic challenges.
Big Data, Cloud Computing, KI – Immer neue Entwicklungen in der digitalen Technologie ziehen erhebliche Veränderungen für den Alltag in Gesellschaft, Wirtschaft und Wissenschaft nach sich und stellen uns vor neue Herausforderungen. Wie kann die Betriebswirtschaftslehre als wissenschaftliche Disziplin auf diese Entwicklungen reagieren? Wie transformieren diese Erneuerungen die Betriebswirtschaftslehre in den Bereichen von Lehre und Forschung? Und welche Auswirkungen hat die Digitalisierung auf Unternehmen und Märkte? Mit dem Generalthema sollen auf der Jahrestagung des VHB 2020 eine breite Diskussion und kritische Auseinandersetzung dieser und weiterer Fragen angestoßen werden.
March CANCELLED DUE TO CORONA PANDEMIC SITUATION: "VGSF research seminars" with outside speakers cancelled for this month. Further cancellations are pending - keep posted!
MarchCORONA INDUCED ADAPTATION OF TEACHING PROGRAM: Master in Banking & Finance: Lecture on "Market Microstructure" transferred to home-learning until April 3 (provisionally). All required information, reading and exercises are available on Moodle. Course participants have been informed. Due to the dynamic situation also the scheduled April/May in-person group meetings may have to be moved to virtual alternatives. Keep posted!
MarchCORONA INDUCED ADAPTATION OF TEACHING PROGRAM: Master in Banking & Finance: Due to the current pandemic situation the in-person group meetings of the seminar "Basel Regulation and Bank Resiliency" at March 23rd (at the ÖGV, Löwelstrasse 14) and 30th (OMP 1) have been cancelled and are replaced by online resources in virtual space (home-learning). The topic allocation has been finalized for all 25 participants and is available on Moodle as well as supporting reading text and the seminar presentation slides of Mag. Victoria Pagowski (ÖGV) and Prof. Thomas Gehrig. Course participants have been informed. Due to the dynamic situation also the scheduled in-person group meetings for April and May may have to be moved to virtual alternatives. Keep posted!
February Professor Diemo Dietrich (Newcastle University) will be visiting in May. He will conduct research with Thomas Gehrig on bank capital.
FebruaryAssistant Professor Stephan Unger (St. Anselm College), a former assistant professor of the Finance Department, has been awarded tenure at St. Anselm College in Manchester (NH) and will be promoted to Associate Professor. Congratulations!
February Job Market Placement: Stefan Voigt (VGSF) will join the Economics Department at the University of Copenhagen as Assistant Professor. Congratulations!
FebruaryLike her predecessor in the function of chief economist, the Nobel laureate Paul Romer, former graduate of Freiburg University, Penny Goldberg (Yale University) leaves the World Bank after only 15 months in office.
February Call for Papers, 10th Workshop "Banks and Financial Markets", organized by Thomas Gehrig, Michael Koetter, Thilo Pausch and Peter Welzel at Leibniz-Institut für Wirtschaftsforschung Halle (IWH), October 1-2nd, 2020. Submission deadline: June 30th, 2020.
February Master in Banking & Finance: The program and list of topics are available for the master seminar in summer 2020 on "Basel Regulation and Bank Resiliency".
February BIS-Publication "Green Swan - Central Banking and Financial Stability in the Age of Climate Change" (P. Bolton, M. Despres, L. Pereira da Silva, F. Samama, R. Svartzman) places climate related risks in the focus of banking regulation. The book argues that central bank mandates should be extended to internalize climate related externalities because of (financial) stability concerns. Evidently it is easier to coordinate monetary policy than fiscal policy in the global economy.
January New Leibniz Institute: The Institute for Sustainable Finance for Europe - SAFE at the University of Frankfurt has started operations as an independent Institute of the Leibniz Association in January. Congratulations!
January Project Deal - Springer Nature Contract on Open Access Publishing: On 8 January 2020 Projekt DEAL entered into an agreement with Springer Nature for open access publishing. The second such agreement negotiated by Projekt DEAL is regarded as the world’s largest transformative Open Access agreement at the time of signing. With more than 13,000 scholarly articles by authors affiliated with German institutions accepted for publication each year in Springer Nature journals, the publisher disseminates a significant portion of Germany‘s research output. The DEAL-Springer Nature agreement enables Open Access publishing of articles in approximately 2,500 Springer Nature journals and offers participating institutions extensive access to the publisher’s journal portfolio.
January Professor Jean Pierre Danthine (Paris School of Economics) will be the ÖNB Visiting Professor in 2020. He will teach an advanced seminar on "Central banking: lessons from the crisis and its aftermath" in May.
January Master in Banking & Finance: The master seminar in summer 2020 will focus on "Basel Regulation and Bank Resiliency". It is organized in cooperation with Mag. Victoria Pagowski (Österreichischer Genossenschaftsverband // Schulze-Delitzsch). The seminar provides an introduction into a fact-based overview of the achievements of the Basel Process of Capital Regulation up to the Great Financial Crisis and discusses the Basel III reforms, preliminary evidence of their implications and the potential need for further reform. Students are given the opportunity for their own data-based explorations.
January Happy New Year!


December "Darf die Fiskalpolitik Geldgeschenke annehmen?", Blog: Der ökonomische Blick, Die Presse, 23.12.2019.
December "Aus der Krise nichts gelernt?", ÖFG Magazin 2019, Interview with Dieter Hönig, Dezember 2019.
December Presentation of "Journal Competition and the Quality of Published Research" at Helsinki Center for Economic Research, Helsinki, Finland.
December ESRB/ATC Workshop Wind of Change: Climate Risk and Dynamic Stress Testing hosted by OeNB, Vienna.
December Presentation of "Common Ownership and Portfolio Performance of Firms with Market Power" at Finance Seminar of Johann-Wolfgang-Goethe Universität, Frankfurt.
NovemberPanel: "Neuausrichtung der Forschungsförderung durch den Jubiläumsfonds der OeNB", Skylounge, OMP 1, November 2019.
November 2. Transatlantic Conference on "Data & Ethics" will take place at Stift Klosterneuburg, from Nov. 22nd - 23rd, 2019. Keynote speakers are Alessandro Acquisti (Carnegie Mellon), Henner Gimpel (Augsburg), Sarah Spiekermann (WU) and Andreas Suchanek (HHL Leipzig). It is organized by the Department of Finance, University Vienna in cooperation with St. Anselm College, Center for Ethics in Business and Governance (USA) and the Center for Responsible Banking & Finance (UK) of University of St. Andrews.
November The 9th Workshop "Banks and Financial Markets" will take place at the University of Vienna from November 14-15. Organizers: Thomas Gehrig and David Pothier (Wien), together with Thilo Pausch (Dt. Bundesbank), Peter Welzel (Augsburg) and Michael Kötter (IWH Halle).
October Research seminar on "Common Ownership and Portfolio Performance of Firms with Market Power" at University of St. Andrews, Scotland.
October Professor Christoph Engel (MPI Bonn) will give a lecture on "Property is Dummy Proof" at Oct. 15, 6pm in the Skylounge, OMP 1.
October Gerhard Gehrig, Professor Emeritus of Johann-Wolfgang-Goethe Universität Frankfurt turns 90. He is a pioneer of applied input-output analysis and constructed the first large scale computer-based input-output tables for Germany fifty years ago (G. Gehrig: Konstruktion von Input-Output Tabellen und - Modellen mit Hilfe elektronischer Datenverarbeitung, Ifo-Institut, München 1969). IO-tables are centre pieces of social accounting matrices and crucial elements for computable general equilibrium models as well as for determining indirect production effects in the calculation of ecological footprints. Theoretical foundations have been established by nobel-laureate (1973) Wassily Leontieff in 1936. G. Gehrig has supported various countries (esp. Portugal and Southern Africa but also others) in generating national input-output accounts. He has also developed interregional IO-tables and - among many others - was a contributor to an international conference at IIASA in 1979. Also in the field of Finance IO-tables have lately been applied, e.g. in the area of production asset pricing (e.g. Herskovic: "Networks in Production: Implications for Asset Pricing", Journal of Finance, 2018).
October The VGSF-Paper Reading course will be on Market Design . It focusses on opportunities and challenges that technological developments impart on trading places for financial securities such as fast trading, dark trading, blockchain etc. How will these technological opportunities transform trading processes? Who is likely to benefit and will society benefit at large from those innovations? Which are the associated risks? Is there a role for regulation? The course covers both theoretical mechanisms as well as empirical evidence. The topic of the OMP-lecture on search and matching will play a key role for understanding the relative contributions of organized (automated) auction markets and brokerage OTC-markets building on Rubinstein, Wolinsky, QJE 1987, Gehrig, JEMS 1993, Spulber, ReStud, 1996, Rust, Hall, JPE 2003, etc.
October Professor Christopher Pissarides (LSE) is the recipient of this year's Oskar Morgenstern Medal. Professor Pissarides is the School Professor of Economics and Political Science at the London School of Economics. He has been awarded the Sveriges Riks Bank Price in Economic Sciences in Memory of Alfred Nobel in 2010 together with Dale Mortensen (Northwestern University) (delivering a lecture on "Search and Matching Models of the Labor Market" at the University of Vienna in 2012) and Peter Diamond (MIT) for introducing search in the theory of labour (Mortensen, Pissarides) and product markets (Diamond).
September VGSF Conference, Vienna, September 13th, 2018.
September Professor Günter Strobl welcome back to Vienna! Günter has been a student at our faculty prior to working for his PhD at Wharton (U. Pennsylvania). He has been assistant professor at the University of North Carolina at Chapel Hill (US) before joining the Frankfurt School of Finance. Welcome back!
September VGSF welcomes new Ph.D. students Josef Pschorn und Dominik Walter from Copenhagen Business School and University of Mannheim, respectively.
AugustInvited lecture: Econometric Society - ESEM 2019 : "Did the Basel Process of Capital Regulation Enhance the Resiliency of European Banks?", Manchester (UK).
July Joint research grant with Walter Beckert (Birbeck College, University of London) on (Anti-)Competitive Effects of Behavioural Price Discrimination approved by Erasmus+.
July European Summer Symposium in Financial Markets (ESSFM), Gerzensee, Session Asset Pricing: "Making Parametric Portfolio Policies Work".
JulyCall for Papers for 2nd Transatlantic Conference on "Data & Ethics" at Stift Klosterneuburg, from Nov. 22nd - 23rd, 2019, organized by Department of Finance, University Vienna in cooperation with St. Anselm College, Center for Ethics in Business and Governance (USA) and the Center for Responsible Banking & Finance (UK) of University of St. Andrews. Submission deadline: Oct. 1st, 2019.
July Call for Papers, 9th Workshop "Banks and Financial Markets", Vienna, November 14-15th, 2019. Submission deadline: September 30th, 2019.
June Call for Papers "European Winter Finance Summit 2020", Zermatt, from Mar. 22nd - Mar 27th, 2020. Submission deadline: Oct. 20th, 2019.
June Call for Papers "Swiss Winter Conference on Financial Intermediation 2020", Lenzerheide, from Mar. 29th - Apr. 1st, 2020. Submission deadline: Oct. 15th, 2019.
JuneInvited lecture: International Risk Management Conference - IRMC 2019: "Did the Basel Process of Capital Regulation Enhance the Resiliency of European Banks?", Universita Bocconi, Milano.
June Panel: "Publikationsstrategien in der BWL", VHB-Tagung, Rostock, 13. Juni 2019.
June VHB-Annual Conference: "Services in Transition - Implications for Business Research", Rostock, 12-14. Juni 2019.
Nach Industrie 4.0 nun Service 4.0: Die technologische Entwicklung, insbesondere die Digitalisierung, stellt – neben den gesellschaftlichen Veränderungen – die Dienstleistungsbranche zunehmend vor Herausforderungen. Stichworte wie Big Data, Internet der Dinge, Personalisierung oder Kooperation in Netzwerken charakterisieren diese neue Welt. Dienstleister mit innovativen Ideen treten vermehrt in den Markt ein; etablierte Dienstleister müssen sich umorientieren. Geschäftsmodelle, die lange als erfolgsversprechend galten, erweisen sich als nicht mehr tragfähig. Viele Geschäftsprozesse müssen neu gestaltet werden. Selbst klassische Produktionsunternehmen werden zunehmend von einem Netzwerk von Dienstleistern ersetzt oder aus der Kombination von Dienstleistungen mit Sachleistungen entstehen neue, sogenannte hybride Leistungsbündel. Insoweit ist der skizzierte Wandel sogar branchenübergreifend. In den Vorträgen und Plenumsdiskussionen zum Generalthema wird der zentralen Frage nachgegangen, was diese Entwicklung für die betriebswirtschaftliche Forschung bedeutet. Inwieweit hat die Betriebswirtschaftslehre bereits Antworten?
May Public lecture on "Equilibrium Bitcoin pricing" by OeNB Visiting Professor Bruno Biais (HEC Paris) at Thursday May 23rd, 13:15-14.45 o'clock in Lecture Hall 6 (1 floor) of Oskar-Morgenstern-Platz 1, 1090 Wien.
May Kamingespräch on "Bitcoin and Cryptocurrencies - fad or game changer" between the OeNB Visiting Professor Bruno Biais (HEC Paris) and the Governor of the Austria National Bank, Professor Ewald Nowotny at Tuesday May 21st, 18 o'clock in the Skylounge of Oskar-Morgenstern-Platz 1, 1090 Wien.
May New Leibniz Institute in Frankfurt: SAFE - Sustainable Architecture for Finance in Europe: The LOEWE-Centre SAFE at the University of Frankfurt has been accepted to the Association of Leibniz Institutes, the Leibniz Gemeinschaft. The Leibniz Gemeinschaft funds 91 Institutes overall in Germany with 6 Institutes in Economics and Finance: CESifo (München), DIW (Berlin), IfW (Kiel), IWH (Halle), RWI (Essen), ZEW (Mannheim) and starting Jan. 1st 2020 with SAFE (Frankfurt) as the 7th member.
May The Special Issue "(Ir)Rationality of Decisions in Business Research and Decisions" has appeared in Business Research Vol. 12(1), April 2019. It consists of an Editorial and 12 authoritative research articles contributing to the core theme of the Annual Conference of the German Association for Business Research in Magdeburg in May 2018. The Special Issue editors are Alexander Dilger (WWU Münster), Thomas Gehrig (U Wien) and Marko Sarstedt (OvGU Magdeburg). Contributors include John Christensen (USD Odense), James Cox (Georgia State), Gerd Gigerenzer (MPI Berlin), Elena Katok (UT Dallas), Erich Kirchler (U. Wien), Joseph Hair (S. Alabama) and many more.
April The results of the Bank of Finland Survey on Capital Requirements are available now. The original motivation for this survey is presented in a VoxEU -blog.
AprilInvited lecture on "Common Ownership and Bank Business Models" at the "Ausschuss für Unternehmenstheorie" at the ZEW, Mannheim.
AprilWe are delighted to announce that Professor Günter Strobl will join our Department by September 1st! Günter, welcome back!
April Concluding Conference: "After the Crisis is Before the Crisis" of the Working Group "Finanzkrisen" of the Österreichische Forschungsgemeinschaft (ÖFG), Vienna from April 11-12th 2019. Keynote speakers are Professors Steven Ryan (NYU) and Hans-Werner Sinn (LMU). The policy panel includes MEP Prof. Othmar Karas, Director Mag. Helmut Ettl (FMA), Mag. Philip Reading (OeNB), Director Mag. Andreas Fleischmann (Raiffeisen NÖ-Wien) and Professor Josef Zechner (WU). Speakers include Professors Ernst Eberlein (Freiburg), Harald Hau (Geneva), Rainer Haselmann (SAFE-Frankfurt), Reinhard Neck (Klagenfurt), and Erik Theissen (Mannheim).
April Professor Ngo van Long (Mc Gill) will give the first Dockner Lecture on "International oligopoly with public investments in trade-facilitating infrastructures: a differential game approach" on April 10m at 4pm in the Böcklsaal of TU Wien. This is the first of a series of lectures that are scheduled to alternate annually between TU, University of Vienna and WU. Engelbert Dockner (1958-2017) has been a highly valued member of the faculty from 1993-2008 and a founding father of the Vienna Graduate School of Finance - VGSF. He has been an exceptional friend and colleague.
March 12th Swiss Winter Conference on Financial Intermediation, Lenzerheide.
MarchCall for Papers for 2. Transatlantic Conference on "Data & Ethics" at Stift Klosterneuburg, from Nov. 22nd - 23rd, 2019, organized by Department of Finance, University Vienna in cooperation with St. Anselm College, Center for Ethics in Business and Governance (USA) and the Center for Responsible Banking & Finance (UK) of University of St. Andrews.
March Kathy Yuan (LSE) Visiting Professor at the Finance Department. She teaches a graduate course on Money, Liquidity, Blockchain, and Cryptocurrency.
The research of Prof. Yuan focuses on developing new asset pricing theories with heterogeneous information and market frictions and testing their empirical implications. In the past few years, she has examined how crises spread through international financial markets and how introducing benchmark securities such as treasury bonds or stock indices improves the overall market liquidity. She is currently working on modeling systematic risk using network theory, studying higher order beliefs and strategic complementarities in the financial market, building dynamic and multi-asset REE models of asset prices with short-sale and borrowing constraints, constructing new metrics for performance evaluations, and developing new asset pricing tests based on revealed beliefs in investor portfolio holdings.
March International VGSF-Placements: Giorgio Ottonello has accepted an offer of the Universidade Nova in Lissabon and Asad Rauf has accepted an offer of a position of assistant professor at the Rijksuniversiteit Groningen. Maximilian Bredendieck will join Cornerstone Research in London. Congratulations!
March "Die Motivation von Zeitschriften an Open Access am Beispiel der Zeitschrift Business Research", Symposium zu 100 Jahre ZBW: Wirtschaftswissenschaften Digital - Chancen und Herausforderungen, Berlin.
March VHB-Arbeitstagung: Blockchain - Anwendungspotentiale und Forschungsherausforderungen, TU München.
MarchPresentation of "Overbanking in Europe at the Top" at the "Turmgespräch" of the Faculty of Business, Economics and Statistics, University Vienna.
February The Bank of Finland Survey on Capital Requirements is online. The motivation for this survey is presented in a VoxEU -blog.
February Master in Banking & Finance: The Advanced Seminar Special Topics in Asset Pricing will deal with topical issues such as implications of digitalization, network linkages, labor market reform, environmental sustainability and social security on asset prices. It will also address the role and drivers of asset bubbles as well as investor attitudes. Final presentations: June. 24th, 2019, 8-13 at Skylounge of OMP 1.
February Former department member Daniel Ruf (St. Gallen) has been appointed to a House of Finance Professorship (W1) in Real Estate Finance at the Johann-Wolfgang Goethe Universität in Frankfurt, sponsored by Helaba. Congratulations!
January Master in Banking & Finance Final Presentations of the seminar Financial Crises and Macroprudential Regulation (jointly with Dr. Stefan Kerbl, Österreichische Nationalbank, Financial Stability and Macroprudential Supervision). Jan. 28th, 2019, 8-13 at Skylounge of OMP 1.
January Bruno Biais (HEC Paris) ÖNB Visiting Professor at the Faculty. He is a specialist in market microstructure and corporate finance. Bruno was editor of the Review of Economic Studies and of the Journal of Finance. He is a fellow of the Econometric Society and the Finance Theory Group and has been scientific adviser to the NYSE, Euronext, European Central Bank and Bank of England.
January Happy New Year! Excellent sciing conditions at Turracher Höhe!


December Call for Papers for the Concluding Conference "After the Crisis is Before the Crisis" of the Working Group "Finanzkrisen" of the Österreichische Forschungsgemeinschaft (ÖFG), Vienna from April 11-12th 2019.
Has the resiliency of the financial system been adequately rebuilt ten years after the Great Financial Crisis so that a normalisation of monetary policy can be awaited with confidence? We invite submissions of current research papers on the financial crises, the resiliency of the financial system and/or on monetary policy and macroprudential regulation. Both theoretical and empirical work are welcome. Fact-based empirical evaluations of regulatory or monetary policy are particularly welcome. Professors Hans-Werner Sinn (LMU Munich) and Stephen Ryan (NYU) will deliver keynote speeches. Furthermore, an exciting high level policy panel with representatives of Finance, Politics, Supervision and Society will guarantee lively debates. We are looking forward to interesting contributions and lively discussions!
December The master thesis of Klaus Winhofer on "ECB-Cycles" has been nominated as a Top-10 Contender of the Erste Asset Management Challenge 2018. Congratulations! It has also been invited for presentation at the final competition.
DecemberPresentation of "Trust and Banks - Are Ethical Banks more Resilient?" at the Joint Interdisciplinary Conference in Portsmouth, New Hampshire, USA: on "The Ethics of Business, Trade & Global Governance" from Nov.30th - Dec.1st 2018 of Department of Finance, University Vienna in cooperation with St. Anselm College, Center for Ethics in Business and Governance (USA) and University of St. Andrews, Center for Responsible Banking & Finance (UK).
November The 2018 EBA stress tests widely reconfirm critical capital shortfall estimates of Gehrig and Iannino for European systemically important banks in the Bank of Finland Discussion Paper 2018-016 on Did the Basel Process of Capital Regulation Enhance the Resiliency of European Banks? . According to the EBA stress scenarios the largest capital shortfalls are observed for Barclays, Deutsche Bank, Societe Generale and other SIFIs that - with supervisory consent - are allowed IRB models to reduce their capital requirements. These are deposit taking institutions with large investment banking operations. Smaller banks (of the large banks), which includes Erste and Raiffeisen, are more resilient according to the EBA stress scenarios as well as according to the capital shortfall measures of Gehrig and Iannino (2018).
November New version of discussion paper Making Parametric Portfolio Policies Work, jointly written with Leopold Sögner (IHS) and Arne Westerkamp (Spängler IQAM Research).
November New discussion paper on Trust and Banks - Are Ethical Banks more Resilient?, jointly written with Maria Chiara Iannino (St. Andrews, UK) and Stephan Unger (St. Anselm, NH).
October New version of discussion paper on Journal Competition and the Quality of Published Research, jointly written with Rune Stenbacka (HECER, Helsinki).
October Keynote address: "Asset Pricing Implications of Industry 4.0" , CASiM-Workshop "Industry 4.0" at HHL Leipzig.
October The Handelshochschule Leipzig (HHL) celebrates its "120's Anniversary" at October 29th and 30th. Following the model of the civic university of the LSE, founded in 1895, together with Aachen and St. Gallen the HHL constitutes the first "Handelshochschulen" in the German speaking area that were funded in 1898 with private money. Unlike the Handelshochschulen in Aachen, Cologne (1901), Frankfurt (1901), Berlin (1906), Mannheim (1908), München (1910), Königsberg (1915) und Nürnberg (1919), which mostly became integrated with the public universities shortly after their foundation, the Handelshochschule Leipzig remained independent until 1946, when it became integrated into the University of Leipzig. In 1992 it was re-founded as an independent university. (Interestingly, or coincidentally, in the very same year 1898 the Wirtschaftsuniversität-WU was also founded as the k.k Exportakademie and started operations in the Palais Festetics (Bergstrasse) before it was renamed to Hochschule für Welthandel in 1916 and to Wirtschaftsuniversität in 1975.)
October 8th Workshop "Banks and Financial Markets" at the University of Augsburg. Organizers: Thomas Gehrig (Wien), Thilo Pausch (Dt. Bundesbank) and Peter Welzel (Augsburg).
October Master in Banking & Finance Seminar: Financial Crises and Macroprudential Regulation (jointly with Dr. Stefan Kerbl, Österreichische Nationalbank, Financial Stability and Macroprudential Supervision). Kickoff meeting: Oct 1st, 3-4.30pm, SR 4 OMP 1. Final presentations with discussion, Jan. 28th, 2019, 8-13 at Skylounge of OMP 1.
Ten years after the Great Financial Crisis (GFC) economic conditions seem to repeat themselves; monetary policy tightening starts in the US and Europe seems to follow with some lag, interest rates are on the rise, stock market valuations are high but volatile, real estate markets are in bubble conditions, securitization activity reaches historically high levels, etc. etc. Are the Western economies better prepared this time to deal with rising interest rates? Have the lessons of the GFC been learned and has the financial systems been amended sufficiently in order to be able to deal with the challenges of stricter monetary policy ahead?
September Revised discussion paper on Did the Basel Process of capital regulation enhance the resiliency of European Banks?, jointly written with Maria Chiara Iannino (St. Andrews), has been published as Bank of Finland Research Discussion Paper 16-2018.
September VGSF Conference, Vienna, September 25th, 2018.
September We welcome Borys Koval and Saman Adhami as new VGSF-doctoral student at our Department!
September We welcome Christian Westheide as new assistant professor in our Department! Christian joins us from a joint position at the University of Mannheim and SAFE-Frankfurt. He holds a PhD from the University of Bonn.
September 19. GEABA-Symposium zur ökonomischen Analyse der Unternehmung, Discussion of Sabine Böckem and Ulf Schiller: "Bank Runs and Accounting for Illiquid Bank Assets", Frankfurt, September 20-21st, 2018.
September Call for Papers "12th Swiss Winter Conference on Financial Intermediation", Lenzerheide, from Mar. 31st - Apr. 4th, 2019. Submission deadline: Oct. 15th, 2018.
SeptemberSergey Zhuk is moving on and will leave us to start employment at the Russian Presidential Academy of National Economy and Public Administration. We wish him good luck! At the Department he taught courses on "Behavioral Finance", "Fixed Income" and "Market Microstructure". Recently he published his joint work with Martin Schmalz on "Revealing Downturns" in The Review of Financial Studies.
August The paper on Capital Regulation and Systemic Risk in the Insurance Sector, jointly written with Maria Chiara Iannino (St. Andrews), has been published in the Journal of Financial and Economic Policy.
August Research Summer Workshop 2018, Bank of Finland, Kallvik, "Political Favoritism and Industrial Structure in Banking".
AugustBank of Finland, Helsinki, Visiting Scholar. Research project on "Industrial Structure and Systemic Risk in the European Financial Sector."
August Call for Papers, 8th Workshop Banks and Financial Markets, Augsburg, October 25-26th, 2018.
July European Summer Symposium in Financial Markets (ESSFM), Gerzensee, Session Asset Pricing: "Crossing Networks, Proprietary Trading and Price Discovery".
July IFABS: Ten Years after the 2008 Financial Crisis - Where Are We Heading Now?, Porto: "Did the Basel Process of Capital Regulation Enhance the Resiliency of European Banks?" (presented by Maria Chiara Iannino).
June Special Issue of Business Research on "Services in Transition - Implications for Business Research" (Guest Editors: Wolfgang Burr and Susanne Homölle). This call relates to the general theme of the 81st Annual Conference of the Verband der Hochschullehrer in Betriebswirtschaft (VHB) in Rostock, June 12-14th, 2019.
June Studienstiftung des Deutschen Volkes, Stipendiaten machen Programm: "Reform der Eurozone: 10 Jahre Finanzkrise - europäische Lehren für Finanzmarktstabilität und Geldpolitik" mit Präsentationen bei BaFin, Deutscher Bundesbank und EZB, Frankfurt. (Gemeinsam mit Oliver Landmann, Universität Freiburg, sowie Katja Bertelsmann, SAFE Frankfurt und Eva Neumann, Bucerius Law School, Hamburg.)
June EFMA, Milano: "Did the Basel Process of Capital Regulation Enhance the Resiliency of European Banks?" (presented by Maria Chiara Iannino).
June 6th CEPR Symposium in Economic History, Banca d'Italia, Roma: "Rumors and Runs in Opaque Markets: The Panic of 1907".
June Business Research: Call for Special Issue on "The Ethics of Business, Trade & Global Governance" (special issue editors Leonidas Barbopoulos, Adam Smith Business School, Glasgow, Dina Frutos-Bencze, St. Anselm College, and Thomas Gehrig, U. Vienna) in connection with the Conference from Nov.30th - Dec.1st 2018 in Portsmouth, New Hampshire (see CfP in February).
June Stefania Albanesi (University of Pittsburgh) ÖNB Visiting Professor at the Faculty.
March-May Visiting LSE, Department of Finance, London
May Bank of England-CEPR-Imperial: "Competition and Regulation in Financial Markets", Imperial College, London: "Political Favoritism and Industrial Structure in the Banking Sector".
My contribution argues that the competition-stability tradeoff cannot be addressed by means of symmetric models of banking competition, as is the current standard of the academic literature and policy debate. Any model that wants to speak to the understanding of the differential role of systemically important versus less systemically important banks needs to address the role of asymmetry and its endogenous emergence. The paper argues that (implicit) political support of SIFIs confers an unfair competitive advantage to precisely those banks that are deemed to be the most professional and profitable ones in normal times. Political support in troubled times essentially subsidizes funding costs of SIFIs with respect to their disadvantaged competitors with taxpayer money, effectively enhancing their competitive advantage. Media preference for sensation seeking and coverage of large problems at large banks over normality additionally biases public perception and political action. In consequence, TBTF guarantees and political favoritism invite excessive competition for TBTF status and the associated media attention. Furthermore, to the extent that political favoritism serves national interests, TBTF - alongside with local geographical information (Gehrig, 1998) - is a main obstacle to the integration of banking markets. Such a model provides a new explanation of the empirical European phenomenon of "overbanking" as a direct consequence of political favoritism.
May Appointment as Editor-in-Chief of Business Research for the period 2019-2022 by the German Academic Association for Business Research (VHB).
May VHB-Annual Conference: "(Ir)Rationality of Economic Decisions and Practice", Magdeburg. Business Research Panel: "The Curse of Rankings - Challenges for Academic Publishing" (with panelists Hans-Ulrich Buhl, Günter Fandel, Margit Osterloh and Peter Walgenbach), Session FI3 on "Bankenregulierung".
May X. Förderkongress: "Junge Wissenschaft und Wirtschaft", Hanns-Martin-Schleyer Stiftung, Berlin. Nominierte Teilnehmer: Timo Haber (Cambridge), Philipp Heuermann (LSE und Peking), Clemens Krauss (LMU München).
May DFG-SAFE: "3rd International Conference on Financial Markets and Macroeconomic Performance", SAFE Frankfurt: "Did the Basel Process of Capital Regulation Enhance the Resiliency of European Banks?".
May Wards Finance Seminar, Adam Smith Business School, Glasgow: "Did the Basel Process of Capital Regulation Enhance the Resiliency of European Banks?".
April "3rd Annual CEPR Spring Symposium", Imperial College, London: "Crossing Networks, Proprietary Trading and Price Discovery".
April Another great VGSF-Placement: Thomas Rautter has accepted an offer of the Booth School, University of Chicago. Congratulations!
March Royal Holloway, Egham: "Political Favoritism and Industrial Structure in the Banking Sector".
March Bank of England, London: "Did the Basel Process of Capital Regulation Enhance the Resiliency of European Banks?".
March European Winter Finance Summit, St. Moritz: "Did the Basel Process of Capital Regulation Enhance the Resiliency of European Banks?"
February VGSF-Graduate Özlem Dursun-de Neef has succeeded in publishing her job market paper "The Transmission of Bank Liquidity Shocks: Evidence from House Prices" in the Review of Finance. Moreover, she has been appointed as Junior-Professor for Sustainable Banking at the Johann-Wolfgang Goethe Universität in Frankfurt. Congratulations!
February International VGSF-Placements: Akos Horvath has accepted an offer of the Board of Governors of the U.S. Federal Reserve System in Washington D.C., Roman Goncharenko has accepted an offer of a position of assistant professor at the Katholieke Universiteit de Leuven (Belgium) and Roberto Pinto has accepted a lecturer appointment at the University of Lancaster Management School (UK). Congratulations!
February Portsmouth, New Hampshire, USA: Call for Papers for joint Interdisciplinary Conference on "The Ethics of Business, Trade & Global Governance" from Nov.30th - Dec.1st 2018 of Department of Finance, University Vienna in cooperation with St. Anselm College, Center for Ethics in Business and Governance (USA) and University of St. Andrews, Center for Responsible Banking & Finance (UK).
JanuaryOtto-von-Guericke Universität, Magdeburg: Anmeldung zur 80. Jahrestagung des VHB unter dem Motto. (Ir)Rationality of Decisions in Business Research and Practice vom 23.-25. Mai ab sofort möglich. Die Verbandzeitschrift Business Research gibt zum Schwerpunktthema einen Spezialband heraus.
JanuaryHumboldt-University, Berlin: Political Favoritism and Industrial Structure in the Banking Sector, Accounting and Finance Research Seminar.
January Abschlußveranstaltung Demokratie: Immer schwer, aber immer Zukunft mit den Altpräsidenten Heinz Fischer und Joachim Gauck zur Semesterfrage 2017/18: Was ist uns Demokratie Wert?


December Semesterfrage 2017/18: Was ist uns Demokratie Wert?: "Platzhirsche und National Champions gefährden die Demokratie", Interview with Marion Wittfeld, Medienportal der Universität Wien.
December Santiago Finance Workshop: "Did the Basel Process of Capital Regulation Enhance the Resiliency of European Banks?", Santiago de Chile.
One year after the transatlantic impasse between U.S. and European supervisors at the 19. International Conference of the Basel Committee on Banking Supervision in Santiago de Chile (at Nov.30/Dec.1, 2016) chaired by Stefan Ingves (Governor, Sveriges Riksbank) and supervised by the Group of Governors and Heads of Supervision (chaired by Mario Draghi, President of the ECB), our work presents empirical evidence that on average European (systemic) banks employed internal risk based models mainly to increase short term payout (dividends, stock repurchases, ...) rather than to increase long-term prudential risk absorption abilities. These business models are reflected in relatively low market valuations of European bank stocks.
November Excellent news for VGSF: doc.funds application has been approved by FWF. After 4 successful funding periods as a Doktoratskolleg of the FWF (since 2005), VGSF receives future funding support for the years 2018-2022 under the new pioneering doc.funds scheme.
VGSF has been among the first graduate schools in the social sciences in Austria that have applied a structured program to doctoral education. VGSF is based on collaborative education, co-teaching and co-supervision. It includes the University of Economics and Business, the Institute of Advanced Studies (IHS) and the University of Vienna as its institutional pillars. Its "founding fathers" are Engelbert Dockner (1958-2017), Klaus Ritzberger (now Royal Holloway, London, formerly IHS) and Josef Zechner.
October 7th Workshop "Banken und Finanzmärkte" at Schulungszentrum der Deutschen Bundesbank, Eltville. Organizers: Thomas Gehrig (Wien), Thilo Pausch (Dt. Bundesbank), Peter Welzel (Augsburg).
October Charles Calomiris (Columbia Business School) ÖNB Visiting Professor at the Faculty.
October We welcome Anton van Boxtel and David Pothier as new assistant professors in our Department! Anton joins from IHS and holds a Tilburg PhD. David joins from HU/DIW Berlin and holds a PhD of EUI Florence.
September Start of the Master of Banking & Finance: We welcome our first cohort of students!
September ESE 2017: Contribution "Industrial Structure and Systemic Risk in the Financial Sector" to the European Supervisor Education Initiative Conference at ÖNB on "Financial Supervision - Ready for future challenges?".
September ÖFG-Panel "Unintended Consequences of Financial Regulation" on the occasion of the Jahrestagung of German Economic Association at the University of Vienna with Claudia Buch (Deutsche Bundesbank), Martin Hellwig (MPI Bonn), Albrecht Ritschl (LSE). Organiser and moderator: Thomas Gehrig (Wien).
August Summer Academy of the Studienstiftung des Deutschen Volkes in St. Johann (Ahrntal), Working Group "Finanzmarktarchitektur, Öffentliche Finanzen und Geld: Welcher Reparaturen bedarf die Eurozone?" directed by Thomas Gehrig (Wien) and Oliver Landmann (Freiburg).
August European Finance Association, Mannheim: "Did the Basel Process of Capital Regulation Enhance the Resiliency of European Banks?" (joint with Maria Chiara Iannino, St. Andrews).