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Gerrit Koester

Economics

Division

Prices & Costs

Current Position

Lead Economist

Fields of interest

Macroeconomics and Monetary Economics,Public Economics,International Economics

Email

gerrit.koester@ecb.europa.eu

12 August 2014
WORKING PAPER SERIES - No. 1712
Details
Abstract
The sovereign debt crisis in the euro area has increased the interest in early warning indicators, with the aim to indicate the build?up of fiscal stress early on and to facilitate crisis prevention by a timely counteraction of fiscal and macroeconomic policies. This paper presents possible improvements to enhance existing early warning indicators for fiscal stress, especially for the euro area. We show that a country?specific approach could strongly increase the signalling power of early warning systems. Finally we draw policy conclusions for the setting?up and application of a system of early warning indicators for fiscal stress.
JEL Code
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
E65 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Studies of Particular Policy Episodes
E66 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→General Outlook and Conditions
H62 : Public Economics→National Budget, Deficit, and Debt→Deficit, Surplus
H63 : Public Economics→National Budget, Deficit, and Debt→Debt, Debt Management, Sovereign Debt
F34 : International Economics→International Finance→International Lending and Debt Problems
13 November 2014
ECONOMIC BULLETIN - ARTICLE
Economic Bulletin Issue 11, 2014
20 January 2017
WORKING PAPER SERIES - No. 1989
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Abstract
Revenue elasticities play a key role in forecasting, monitoring and analysing public finances under the European fiscal framework, which largely builds on cyclically adjusted indicators. This paper investigates whether there is evidence for dynamic – instead of the currently used static – elasticities in euro area countries. Applying country-specific error correction models we reveal important differences across countries. For a majority of euro area Member States we find evidence for dynamic revenue elasticities. We show that the application of such dynamic elasticities could substantially reduce forecast errors in several countries – with the evidence being stronger based on ex-post than based on real-time data.
JEL Code
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
H68 : Public Economics→National Budget, Deficit, and Debt→Forecasts of Budgets, Deficits, and Debt
30 May 2018
WORKING PAPER SERIES - No. 2154
Details
Abstract
Identifying fiscal multipliers is usually constrained by the absence of a counterfactual scenario. Our new data set allows overcoming this problem by making use of the fact that recommendations under the EU’s excessive deficit procedure (EDP) provide both a baseline no-policy-change scenario and a fiscal-adjustment EDP scenario that entails a forecast of the macroeconomic impact of fiscal consolidation over the EDP horizon. For a sample of 24 EU countries to which 48 EDP recommendations were applied between 2009 and 2015, we derive country-specific fiscal multipliers as actually applied by forecasters during the crisis. Our results confirm Blanchard and Leigh’s (2013, 2014) presumption that forecasters learned during the crisis. According to our findings, fiscal multipliers as applied by the European Commission increased over time – from about 1/4 in the early years of the crisis to about 2/3 in the later years. However, different from Blanchard and Leigh (2013, 2014), we do not find evidence for the hypothesis that ex-post fiscal multipliers have been substantially above 1 during the crisis.
JEL Code
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
H20 : Public Economics→Taxation, Subsidies, and Revenue→General
H5 : Public Economics→National Government Expenditures and Related Policies
5 September 2018
RESEARCH BULLETIN - No. 49
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Abstract
Economists often try to forecast whether the economy as a whole will grow or contract. When measuring the effects of fiscal policy measures on economic activity, such forecasts are based on so-called multipliers. Using a new dataset compiled from economic forecasts and recommendations by the European Commission under the excessive deficit procedure of the Stability and Growth Pact, we derive the multipliers that were assumed by forecasters during the European sovereign debt crisis to project the effects of fiscal consolidation on economic growth. Our results confirm that forecasters adapted their assumptions on multipliers as the crisis progressed and accounted for larger effects of consolidation on growth later on in the crisis. Another finding is that the actual fiscal multipliers were not exceptionally large during the crisis.
JEL Code
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
H20 : Public Economics→Taxation, Subsidies, and Revenue→General
H5 : Public Economics→National Government Expenditures and Related Policies
31 October 2018
OCCASIONAL PAPER SERIES - No. 216
Details
Abstract
A macroeconomic stabilisation function for the euro area - as envisaged in the Five Presidents’ Report - plays a central role in the debate on deepening Economic and Monetary Union (EMU). We evaluate a broad range of options, their impact on economic growth, macroeconomic stabilisation and synchronisation of the euro area business cycle, and review how they could be designed so they do not undermine incentives for welfare-enhancing national economic policies. A common macroeconomic stabilisation function, e.g. in the form of a European Unemployment Insurance (EUI), could in theory help stabilise the business cycle in the euro area, especially in some participating Member States. Yet, simulating the effects of such a function for 2002-2014 suggests that its stabilisation properties would have been relatively limited. At the same time, design options with meaningful safeguards and relatively low financing requirements would have been most efficient when comparing the degree of stabilisation with the size of the funds distributed among countries. Finally, we discuss some design elements of a scheme whose aim is to support the transition process towards more resilient economic structures in the euro area as envisaged in the Five Presidents’ Report.
JEL Code
J65 : Labor and Demographic Economics→Mobility, Unemployment, Vacancies, and Immigrant Workers→Unemployment Insurance, Severance Pay, Plant Closings
H53 : Public Economics→National Government Expenditures and Related Policies→Government Expenditures and Welfare Programs
F55 : International Economics→International Relations, National Security, and International Political Economy→International Institutional Arrangements
20 December 2018
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 8, 2018
Details
Abstract
The wage drift measures deviations in developments in actual wages from developments in negotiated wages. It is an important element in the macroeconomic analysis of employee compensation because it should be closely linked to cyclical developments in the labour market. In a tightening labour market, employers might be compelled to offer pay scales that are higher than those under collective agreements, to promote employees to higher bands within collectively agreed pay scales, or simply to pay bonuses on top of agreed wages as a way to reward and retain employees. Given recent protracted declines in unemployment and increasing signs of labour shortages, this box reviews the role of the wage drift in recent developments in employee compensation.
JEL Code
E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
J30 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→General
30 April 2019
OCCASIONAL PAPER SERIES - No. 221
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Abstract
The studies summarised in this paper focus on the economic implications of euro area firms’ participation in global value chains (GVCs). They show how, and to what extent, a large set of economic variables and inter-linkages have been affected by international production sharing. The core conclusion is that GVC participation has major implications for the euro area economy. Consequently, there is a case for making adjustments to standard macroeconomic analysis and forecasting for the euro area, taking due account of data availability and constraints.
JEL Code
F6 : International Economics→Economic Impacts of Globalization
F10 : International Economics→Trade→General
F14 : International Economics→Trade→Empirical Studies of Trade
F16 : International Economics→Trade→Trade and Labor Market Interactions
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
13 June 2019
OCCASIONAL PAPER SERIES - No. 224
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Abstract
Well-functioning economic structures are key for resilient and prospering euro area economies. The global financial and sovereign debt crises exposed the limited resilience of the euro area’s economic structures. Economic growth was masking underlying weaknesses in several euro area countries. With the inception of the crises, significant efforts have been undertaken by Member States individually and collectively to strengthen resilience of economic structures and the smooth functioning of the euro area. National fiscal policies were consolidated to keep the increase in government debt contained and structural reform momentum increased notably in the second decade, particularly in those countries most hit by the crisis. The strengthened national economic structures were supported by a reformed EU crisis and economic governance framework. However, overall economic structures in euro area countries are still not fully commensurate with the requirements of a monetary union. Moreover, remaining challenges, such as population ageing, low productivity and the implications of digitalisation, will need to be addressed to increase economic resilience and long-term growth.
JEL Code
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E60 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→General
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
F10 : International Economics→Trade→General
J11 : Labor and Demographic Economics→Demographic Economics→Demographic Trends, Macroeconomic Effects, and Forecasts
O43 : Economic Development, Technological Change, and Growth→Economic Growth and Aggregate Productivity→Institutions and Growth
3 September 2019
OCCASIONAL PAPER SERIES - No. 232
Details
Abstract
Despite notable improvements in the labour market since 2013, wage growth in the euro area was subdued and substantially overpredicted in 2013-17. This paper summarises the findings of an ESCB expert group on the reasons for low wage growth and provides comparable analyses on wage developments in the euro area as a whole and in individual EU countries. The paper finds that cyclical drivers, as captured by a standard Phillips curve, seem to explain much of the weakness in wage growth during this period, but not all of it. Going beyond the drivers included in standard Phillips curves, other factors are also found to have played a role, such as compositional effects, the possible non-linear reaction of wage growth to cyclical improvements, and structural and institutional factors. In order to increase the robustness of wage forecasts, the paper also proposes ready-to-use tools for cross-checking euro area wage growth forecasts based on wage Phillips curves. These are derived based on a comprehensive real-time forecast evaluation exercise
JEL Code
J30 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→General
E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
27 December 2019
ECONOMIC BULLETIN - ARTICLE
Economic Bulletin Issue 8, 2019
Details
Abstract
Although recent wage growth has increasingly been in line with predictions, there has been a period of low and under-predicted wage growth in the euro area. This period of weak wage growth can be explained to a large extent by the drivers traditionally captured in a Phillips curve analysis, such as economic slack (including broader measures of labour market slack) and inflation expectations. However, these factors do not paint the full picture, as wages were consistently under-predicted during the period 2013-17. As wages differ across sectors and according to employees’ individual characteristics, significant changes in the composition of employment that have taken place in the euro area since the beginning of the crisis could have been an important factor in aggregate wage growth developments. These changes can result from slow-moving trends, cyclical changes or a combination of the two. This article discusses the role of such changes, known as “compositional effects”, in wage growth. It analyses the role of changes in the composition of employment with respect to the individual characteristics of employees (e.g. age, education or gender), employment types (e.g. permanent or temporary contracts) and sectoral shifts. The analysis is mainly based on microdata from the EU survey of income and living conditions, but the article also includes cross-checks and analyses based on the EU Labour Force Survey (EU-LFS) and national accounts data. The analyses indicate that compositional effects pushed up wage growth early in the crisis, but that the effect later decreased and turned negative. This has contributed to a relatively muted response from aggregate wage growth, both to the strong downturn of the labour market early in the crisis and later, from 2014 onwards, to cyclical improvements. Hence compositional effects have been one factor contributing to low wage growth in the euro area. The most important contributions to compositional effects seem to be related to changes in the age and educational structure of the workforce, which can have both a long-term and a cyclical impact. Looking at country-specific evidence, the euro area aggregate results have been influenced by Spain and Italy in particular.
JEL Code
J30 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→General
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
27 December 2019
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 8, 2019
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Abstract
The box assesses recent developments in social security contributions and minimum wages. It finds that social security contributions have led to a moderation of growth in composition of employee growth, while growth in wages and salaries per employee – excluding employers’ social security contributions – has remained quite robust. Over the last decade minimum wages have affected wage growth substantially in some countries, but only marginally in the euro area.
JEL Code
J30 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→General
J38 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→Public Policy
E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
17 June 2020
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 4, 2020
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Abstract
This box reviews recent developments in short-time work and temporary lay-off schemes in the five largest euro area countries. It then calculates wage replacement rates and estimates take-up rates. Combining wage replacement rates with the estimated number of participants makes it possible to calculate the impact of short-time work on household disposable income. The box concludes that short-time work and temporary lay-off measures are significantly buffering the impact of COVID-19 on households’ disposable income.
JEL Code
E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
E65 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Studies of Particular Policy Episodes
24 September 2020
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 6, 2020
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Abstract
This box reviews the impact of changes in indirect taxes on inflation developments in the euro area. In the past, increases in indirect taxes have tended to contribute positively to inflation in the euro area. However, the recent reductions in indirect taxes in response to the coronavirus (COVID-19) pandemic in several euro area countries, in particular in Germany, have not been seen before in the euro area on this scale. The impact they will have on inflation is surrounded by considerable uncertainty, but overall the pass-through is likely to be incomplete and to vary across sectors. In this respect, the September 2020 staff projections expect only a quite limited pass-through. The effects are nevertheless large enough to imply a slight V-shape profile for underlying inflation excluding the effects of changes in indirect taxes concealed in the annual numbers for HICPX, as well as a gradual increase between 2020 and 2022.
JEL Code
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
H22 : Public Economics→Taxation, Subsidies, and Revenue→Incidence
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
6 January 2021
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 8, 2020
Details
Abstract
Can the indicator of negotiated wage rates play an especially important role in assessing and forecasting wage dynamics at the current juncture? While the data on negotiated wages are available on a more timely basis, negotiated wage growth tends to only react with some lag to changes in labour market conditions, owing to the nature of the negotiation process, and the indicator is currently still dominated by wage agreements agreed prior to the pandemic. The main effects of the pandemic on negotiated wage growth are likely to become visible only from 2021 – when a substantial share of wage contracts in euro area countries is due to be renegotiated. Wage drift developments, in conjunction with information on hours worked and unemployment, can provide some indications regarding the environment in which these negotiations will take place. The availability of more granular data, for example on negotiated wage growth in different sectors, would be very helpful in analysing euro area wage developments in more detail.
JEL Code
H24 : Public Economics→Taxation, Subsidies, and Revenue→Personal Income and Other Nonbusiness Taxes and Subsidies
J30 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→General
J31 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→Wage Level and Structure, Wage Differentials
6 May 2021
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 3, 2021
Details
Abstract
This box reviews the factors behind the 11-percentage point swing in energy inflation between December 2020 and March 2021, with a particular focus on oil prices, base effects and the impact of indirect taxation. Base effects linked to the collapse of oil prices at the beginning of 2020 pushed up energy inflation by around 5 percentage points between December 2020 and March 2021, and this contribution can be expected to increase substantially further in April. The impact of the marked increase in oil prices since November 2020 has come on top of this. However, the strengthening of energy inflation in early 2021 has reflected not only oil price developments but also changes in taxes and other surcharges – including environmentally motivated measures such as the introduction of carbon emission certificates. Overall, energy inflation plays a prominent role in the temporary rise in overall HICP inflation projected for 2021 and its reduction in early 2022.
JEL Code
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
Q4 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
H2 : Public Economics→Taxation, Subsidies, and Revenue
H23 : Public Economics→Taxation, Subsidies, and Revenue→Externalities, Redistributive Effects, Environmental Taxes and Subsidies