central bank constitutions for federal monetary unions abstract in a monetary union the central bank constitution must distribute the power over monetary policy between the members and the administrative center of the union we compare alternative distributions and evaluate their performance dominance of regional interests always leads to inefficient monetary stabilization policies whether or not dominance of regional interests leads to a higher long run rate of inflation depends on the union s political constitution

public trust the law and financial investment abstract how does trust evolve in markets what is the optimal level of regulation and how does this affect trust formation and economic growth in a theoretical model we analyze these questions given the value of social capital and the potential for growth in the market when social capital is valuable regulation and trustfulness are substitutes in this case regulation may cause lower aggregate investment and decreased economic growth when the social capital is less valuable regulation and trustfulness may be complements in the paper we analyze the optimal level of regulation and highlight the novel predictions of the model

do better schools matter parental valuation of elementary education the evaluation of numerous school reforms requires an understanding of the value of better schools given the difficulty of calculating the relationship between school quality and student outcomes i turn to another method and use house prices to infer the value parents place on school quality i look within school districts at houses located on attendance district boundaries houses then differ only by the elementary school the child attends i thereby effectively remove the variation in neighborhoods taxes and school spending i find that parents are willing to pay 2 5 percent more for a 5 percent increase in test scores this finding is robust to a number of sensitivity checks

capital flows in the euro area and target2 balances abstract this paper explores how the uneven recourse by national banking systems in the euro area to the ecb s unconventional refinancing operations that led to the accumulation of large target2 balances at the ncbs has contributed to the evolution of aggregate economic activity in important member states of the euro area for the period between 2008 and 2014 we estimate a panel var model and identify the structural shocks by means of sign restrictions our results suggest that the build up of target2 balances was driven mainly by capital flow shocks while being barely responsive to other aggregate shocks furthermore on the basis of counterfactual experiments we find that the ability to build up sizeable target2 liabilities has contributed substantially to avoiding deeper recessions in the distressed euro area member countries like spain italy ireland and portugal while to a smaller extent depressing aggregate economic activity in core member states such as germany the netherlands and finland

alfred marshall lecture social capital as good culture to explain the extremely long term persistence more than 500 years of positive historical experiences of cooperation putnam 1993 we model the intergenerational transmission of priors about the trustworthiness of others we show that this transmission tends to be biased toward excessively conservative priors as a result societies can be trapped in a low trust equilibrium in this context a temporary shock to the return to trusting can have a permanent effect on the level of trust we validate the model by testing its predictions on the world values survey data and the german socio economic panel we also present some anecdotal evidence that these priors are reflected in novels that originate in different parts of the country jel 04 016 043 p16

using maimonides rule to estimate the effect of class size on scholastic achievement the twelfth century rabbinic scholar maimonides proposed a maximum class size of 40 this same maximum induces a nonlinear and nonmonotonic relationship between grade enrollment and class size in israeli public schools today maimonides rule of 40 is used here to construct instrumental variables estimates of effects of class size on test scores the resulting identiecation strategy can be viewed as an application of donald campbell s regression discontinuity design to the class size question the estimates show that reducing class size induces a signiecant and substantial increase in test scores for fourth and efth graders although not for third graders when asked about their views on class size in surveys parents and teachers generally report that they prefer smaller classes this may be because those involved with teaching believe that smaller classes promote student learning or simply because smaller classes offer a more pleasant environment for the pupils and teachers who are in them mueller chase and walden 1988 social scientists and school administrators also have a longstanding interest in the class size question class size is often thought to be easier to manipulate than other school inputs and it is a variable at the heart of policy debates on school quality and the allocation of school resources in many countries see e g robinson 1990 for the united states ofsted 1995 for the united kingdom and moshel ravid 1995 for israel this broad interest in the consequences of changing class size

is inflation always and everywhere a monetary phenomenon using a sample of about 160 countries over the last 30 years we test for the quantity theory relationship between money and inflation when analysing the full sample of countries we find a strong positive relation between long run inflation and the money growth rate the relation is not proportional however the strong link between inflation and money growth is almost wholly due to the presence of high or hyper inflation countries in the sample the relationship between inflation and money growth for low inflation countries on average less than 10 per annum over the last 30 years is weak

on representative social capital abstract this paper analyzes the behavior of subjects randomly drawn from the dutch population who reveal their capacity to provide and sustain social capital by their propensity to invest and reward investments in an economic experiment we find that heterogeneity in behavior is characterized by several asymmetries men the young and elderly and low educated individuals invest relatively less but reward significantly more investments the age effects are found to corroborate existing findings whereas those of gender and education do not higher expected levels of investments by others are found to have a positive and significant effect on own investments finally a laboratory experiment with student subjects is found to provide a lower bound of the population level of social capital

an exploration in the theory of exchange rate regimes three exchange rate regimes a float a one sided peg and a cooperative peg are evaluated and compared in terms of efficiency and welfare levels the framework of analysis embodies country specific monies with the money of each country being used to transact in its commodity markets and its currency denominated bonds welfare levels depend only on consumption levels in the presence of perfect foresight all equilibrium allocations are pareto efficient in a floating exchange rate regime the perfect foresight equilibrium allocation coincides with an equilibrium of a costless barter economy the same result holds in a one sided peg if the pegging country s exchange rate stabilizing authority breaks even over time in a cooperative peg regime there is a different equilibrium allocation for each combination of exchange rate levels and monetary policies problems of policy coordination and conflicts in desired monetary policies are discussed

estimating wage discrimination in the labor market if labor supply curves are not perfectly inelastic wage discrimination induces some minority workers to leave the labor force studies of discrimination that focus only on wage differentials overlook these disincentive effects on minority employment

a tale of an unwanted outcome transfers and local endowments of trust and cooperation abstract transfers can do good however they can also result in massive failures this paper presents a model that highlights the ambiguous nature of the impact of transfers on local endowments of social capital it then describes an empirical investigation that illustrates that the receipt of eu structural funds causes a deterioration of the endowments of trust and cooperation in the subsidized regions

going nuts the effect of eu structural funds on regional performance the european union eu provides grants to disadvantaged regions of member states to allow them to catch up with the eu average under the objective 1 scheme nuts2 regions with a per capita gdp level below 75 of the eu average qualify for structural funds transfers from the central eu budget this rule gives rise to a regression discontinuity design that exploits the discrete jump in the probability of eu transfer receipt at the 75 threshold for identification of causal effects of objective 1 treatment on outcome such as economic growth of eu regions we find positive per capita gdp growth effects of objective 1 transfers but no employment growth effects

monetary policy committees and interest rate setting abstract this paper shows that it is preferable for monetary policy to be conducted by a committee instead of a single policy maker if there is uncertainty about potential output we examine three decision procedures an optimal procedure averaging and voting and find that the latter is the appropriate way to reach decisions if policy makers are not equally skilled finally we demonstrate that efficient decision procedures reduce the persistence of shocks

a two tiered earnings frontier estimation of employer and employee information in the labor market this pap er develops a two tiered frontier estimation procedure to decompose the residual of an earnings function into three components the first component can be interpreted as being purely random search theory is used to show that the other two components represent employee and employer ignorance of offer and reservation wages respectively relative employee and employer ignorance estimates are presented for various population strata copyright 1987 by mit press

one monetary policy and 18 central bankers the european monetary policy as a game of strategic delegation abstract this paper employs a multi country delegation monetary policy model and argues that a decision making mechanism based on the median voter theorem where intensity of preferences cannot play a role does not capture important aspects of policy setting in the european monetary union replacing the median voter mechanism with a less restrictive weighted mean mechanism it is shown that strategic delegation can lead to a surprising degree of central bank inflation aversion this finding supports the the twin sister hypothesis and the perception of the european central bank implementing the policy of the bundesbank rather than a more inflationary monetary policy

games of monetary and fiscal interactions in the emu abstract this paper constructs various models of the emu and ecb when member countries have different objectives voting in pursuit of national interest can yield moderate and stable inflation the metaphor of walsh type contracts implements a monetary policy rule that averages the member countries most preferred rules in a repeated relationship where a country suffering a large adverse shock can use political bargaining to subvert the ecb s commitment the optimal rule should incorporate some flexibility to forestall that finally freedom of national fiscal policies undermines the ecb s monetary commitment this may justify fiscal constraints like the stability and growth pact

a frontier approach to measuring the effect of market discrimination a housing illustration one area of particular interest to analysts and policymakers concerned with poverty and discrimination has been the housing market since world war ii housing has been a focus for antipoverty policies and therefore an area in which discrimination could not be tolerated however even though the civil rights act of 1968 expressly prohibits the offering of housing to nonwhites at terms that are different than those afforded whites it has been clearly demonstrated that discrimination continues to be a real problem in both the rental and owner occupied segments of the housing market 17 as james heilbrun points out in his summary of the 1977 survey of housing market practices conducted by the department of housing and urban development

monetary policy in a heterogeneous monetary union the australian experience australia is a monetary union with strong regional specialization manufacturing and service industries are located in the population centres on the south eastern seaboard and mining and pastoral activities take place in the interior and north of the continent monetary policy affects the interior and north more strongly than the south eastern seaboard because australian primary goods are mostly exported and the exchange rate provides the main transmission channel for monetary policy the reserve bank of australia must consider the economic interests of the interior and north and the south eastern seaboard since monetary policy cannot differentiate between regions there is a need for interregional macroeconomic risk sharing

social capital innovation and growth evidence from europe this paper investigates the interplay between social capital innovation and economic growth in the european union we identify innovation as an important mechanism that transforms social capital into economic growth in an empirical investigation of 102 european regions in the period 1990 2002 we show that higher innovation performance is conducive to economic growth and that social capital affects growth indirectly by fostering innovation our estimates suggest that there is only a limited role for a direct effect of social capital on economic growth

local economic development agglomeration economies and the big push 100 years of evidence from the tennessee valley authority we study the long run eects of one of the most ambitious place based economic development policies in u s history the tennessee valley authority using a rich panel dataset of counties we conduct an evaluation of the dynamic eects of the tva on local economies in the seventy years following the program s inception we nd that the tva led to short run gains in agricultural employment that were eventually reversed while impacts on manufacturing employment continued to intensify well after the program s subsidies had lapsed a pattern consistent with the presence of strong agglomeration economies in the manufacturing sector economists have long cautioned that the local gains created by place based policies may be oset by losses elsewhere yielding ambiguous eects on the u s as a whole building on the framework in glaeser and gottlieb 2008 we develop a novel approach to assessing the aggregate consequences of shifting the spatial distribution of manufacturing employment our ndings suggest the aggregate productivity gains associated with relocating manufacturing activity to the tva region were probably minimal

paying politicians theory and evidence this paper looks at the theory behind the idea that paying politicians better will improve their performance the paper lays out a political agency model with adverse selection and moral hazard where politicians are subject to two period term limits this model provides a number of predictions about how the pay of politicians affects agency problems we also consider what happens when the pool of politicians is endogenous the main ideas in the model are confronted with data on u s governors jel d72 j33

measuring direct discrimination in labor markets using a frontier approach evidence from cps female earnings data numerous studies of earnings differentials have attempted to measure discrimination against females or minorities by decomposing the total differential between males and females or whites and non whites into an explained and unexplained portion typically these studies follow the work of oaxaca 8 however a number of criticisms can be raised with these techniques 9 5 4 of which two are particularly important that the reduced form wage equations for the two groups will not be identical in every case and that there may be large and unobservable differences between the characteristics of the two groups for which the wage equations cannot account either of these problems are sufficient to make it impossible to use residual analysis to measure discrimination attempts to address these problems and obtain reliable and consistent estimates of the extent of discrimination are important for policy purposes low and villegas 7 address the first of these problems by suggesting the use of hedonic wage equations which contain only human capital characteristics or proxies and characteristics which directly affect the hedonic parameters in this framework perfect substitution between the workers is assumed their work however leaves the second problem unresolved in this paper a stochastic earnings frontier with a discrimination discount is used to estimate discrimination against women an earnings frontier for females that depends upon marginal productivity as measured by human capital and labor market characteristics of females is estimated discrimination is assumed to be the amount female earnings are removed from the frontier less any labor market inefficiency since these estimates will depend solely on female data they do not depend upon an assumption of similarity between males and females this procedure allows

inequality and convergence in europe s regions reconsidering european regional policies europe s regions income disparities and regional policies in this paper we take a critical look at current european regional policies first we document the motivation for such policies that is the large income disparities across the regions of the eu15 large disparities are certainly present second we illustrate the various instruments adopted and discuss their underpinnings in established economic theories next we look at available data searching for three kinds of evidence 1 if disparities are either growing or decreasing we conclude they are neither 2 which are the major factors explaining such disparities and in particular if they are the factors predicted by the economic models adopted by the commission to justify current policies we conclude this is most certainly not the case 3 if there are clear signs that eu policies as opposed to other social and economic factors are actually reducing such disparities we cannot find any clear sign of such desired impact our conclusion is that regional and structural policies serve mostly a redistributional purpose motivated by the nature of the political equilibria upon which the european union is built they have little relationship with fostering economic growth this casts a serious doubt on their social value and furthermore strongly questions extending such policies to future members of the european union a successful eu enlargement in our view calls for an immediate and drastic revision of regional economic policies michele boldrin and fabio canova

aid policies and growth the authors of this paper use a new database on foreign aid to examine the relationships among foreign aid economic policies and growth of per capita gdp in panel growth regressions for 56 developing countries and 6 four year periods 1970 93 they find that the policies that have a great effect on growth are those related to fiscal surplus inflation and trade openness they construct an index for those three policies and have that index interact with foreign aid they have instruments for both aid and aid interacting with policies they find that aid has a positive impact on growth in developing countries with good fiscal monetary and trade policies in the presence of poor policies aid has no positive effect on growth this result is robust in a variety of specifications which include or exclude middle income countries include or exclude outliers and treat policies as exogenous or endogenous they examine the determinants of policy and find no evidence that aid has systematically affected policies either for good or for ill they estimate an aid allocation equation and show that any tendency for aid to reward good policies has been overwhelmed by donors pursuit of their own strategic interests in a counterfactual they reallocate aid reduce the role of donor interests and increasing the importance of policy such a reallocation would have a large positive effect on developing countries growth rates

conditional relative price variance and its determinants open economy evidence from germany the authors present empirical tests of two hypothesis derived from an open economy version of the multimarket equilibrium model the first hypothesis holds that the conditional relative price variance is positively related to the variance of domestic monetary and foreign nominal and real shocks the second hypothesis claims a negative impact of an increase in conditional relative price variance on normal output in contrast to earlier studies the authors use direct measures of conditional relative price variance based on arch estimates the authors results show that both hypotheses are consistent with german data copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

uk wage underpayment implications for the minimum wage dynamic monopsony suggests that due to labour market frictions workers will be paid below their productivity this paper uses the stochastic frontier technique to estimate the degree of this underpayment for uk employees it finds evidence of significant underpayment the estimates are used to examine whether the predictions of dynamic monopsony are empirically accurate no conclusive evidence against this theoretical framework is found the paper also investigates whether payment according to productivity is a sufficient condition for the elimination of the working poor problem due to the existence of an unemployment barrier it finds that the minimum wage is not an effective anti poverty policy

measuring wage discrimination in italy a random coefficient approach using data from a representative 1989 household survey for italy we estimate random coefficient earnings frontiers by gender marital status and location these estimates are used to calculate discrimination indices our results show that fixed coefficients can be rejected in all cases a wide range on the estimated coefficients indicates a high degree of variation in the quality of the observed human capital variables as well as different degrees of ability as perceived by the employer we find reverse discrimination for single females in the south and the north for married females there is evidence of discrimination particularly in the south we isolate the effects of tenure and education on discrimination and find that these reduce discrimination for southern married females

the mystique surrounding the central bank s balance sheet applied to the european crisis abstract a central bank s resource constraint bounds the dividends it can distribute by the present value of seignorage which is a modest share of gdp this is in spite of the mystique behind a central bank s balance sheet moreover the statutes of the federal reserve or the ecb make it difficult for it to redistribute resources across regions in a simple model of sovereign default where multiple equilibria arise if debt repudiation lowers fiscal surpluses the central bank may help to select one equilibrium the central bank s main lever over fundamentals is to raise inflation but otherwise the balance sheet gives it little leeway

regulation and distrust in a cross section of countries government regulation is strongly negatively correlated with social capital we document this correlation and present a model explaining it in the model distrust creates public demand for regulation while regulation in turn discourages social capital accumulation leading to multiple equilibria a key implication of the model is that individuals in low trust countries want more government intervention even though the government is corrupt we test this and other implications of the model using country and individual level data on social capital and beliefs about government s role as well as on changes in beliefs and in trust during the transition from socialism

law enforcement and political participation italy 1861 65 abstract does tougher law enforcement positively affect political participation this paper addresses this question which hinges upon the causal impact of formal institutions on informal ones by using a historical event from 19th century italy this event was the pica law which was introduced in 1863 to fight a surge of criminal violence in southern italy and to ensure a safer environment for wealthy people the only ones allowed to vote at that time our main finding obtained using a spatial regression discontinuity technique in a diff in diffs framework is that voter turnout greatly increased in those areas where the pica law was applied compared with bordering and otherwise similar areas this result is confirmed by a number of robustness checks and placebo exercises and turns out to be persistent over time

behind closed doors revealing the ecb s decision rule abstract this paper aims at discovering the decision rule the governing council of the ecb uses to set interest rates we construct a taylor rule for each member of the council and for the euro area as a whole and aggregate the interest rates they produce using several classes of decision making mechanisms chairman dominance bargaining consensus voting and voting with a chairman we test alternative scenarios in which individual members of the council pursue either a national or a federal objective we then compare the interest rate path predicted by each scenario with the observed euro area s interest rate we find that scenarios in which all members of the governing council are assumed to pursue euro area wide objectives are dominated by scenarios in which decisions are made collectively by a council consisting of members pursuing national objectives the best performing scenario is the one in which individual members of the governing council follow national objectives bargain over the interest rate and their weights are based on their country s share of the zone s gdp

the political economy of inflation labour market distortions and central bank independence using the citizen candidate model we study the government s choice of institutions for the labour market and the central bank and derive the implications for inflation and employment we derive conditions for the existence of equilibria in which the labour market is distorted and the central bank is dependent or independent under a range of conditions affecting central bank dependence the post election cycle in inflation and employment and inflation bias our results imply that average inflation and inflation variability are lower under an independent central bank whereas employment variability can be lower or higher consistent with evidence for oecd countries many democratic societies delegate key tasks to non elected and independent institutions a prominent example being independent central banks the belief in the advantage of central bank independence is nursed by the cross country evi

target2 and central bank balance sheets the euro area s target2 payments system has featured heavily in academic and popular discussions of the euro crisis some of this commentary has described the system as being responsible for a secret bailout of europe s periphery another common theme has been that the system has built up large credit risks for germany should the euro break up this paper discusses the target2 system focusing in particular on how it impacts the balance sheets of the central banks that participate in the system it discusses the factors driving target2 balances considers some counterfactual cases in which euro area monetary policy operated differently examines the risks to germany and considers proposals for settlement of these balances

analysing wage differentials when workers maximize the return to human capital investment abstractthe analysis of the determinants of differences in wages across workers has traditionally relied on the estimation of average earnings functions in this article we propose a new theoretical model where it is the workers who decide the amount they wish to invest in human capital taking into account the costs of acquiring those skills for the purpose of maximizing earnings in this model both human capital and marginal productivity are likely to be influenced by the individual s unobserved characteristics such as ability or motivation potentially giving rise to endogeneity problems in this context the empirical implementation of our theoretical model allows us under certain assumptions to obtain consistent estimates even under the assumption of endogeneity we present an empirical application to the education sector using data from the spanish structure of earnings survey 2010 our results show that females and workers in the private education sector face more difficulties in achieving t

one money for europe lessons from the us currency union currency union barry eichengreen the creation of a monetary union in europe is often justified by the desire to reap the full benefits of economic integration the complete removal of capital controls raises a large number of issues the case for free capital mobility is strong but not overwhelming it hinges on issues of technology transport costs market structure and labour mobility and in the end is an empirical matter for which us experience may provide useful information policy making institutions differ in important respects however the us tradition of fiscal federalism for example has no ec wide counterpart yet its functions seem a desirable feature of a monetary union in particular it is shown to play an important role in absorbing regional disturbances mostly via the tax system us experience also suggests that a currency union creates pressure for fiscal policy harmonization affecting both taxes and spending although a currency union fundamentally alters the balance of payments adjustment process the potential problem of depressed regions remains a serious one given the increased tightness of the external constraint the limited extent of labour mobility and other features of european labour markets solutions based on us experience include extensive swap facilities and a european version of fiscal federalism

why is the euro punching below its weight on the twentieth anniversary of its inception the euro has yet to expand its role as an international currency we document this fact with a wide range of indicators including its role as an anchor or reference in exchange rate arrangements which we argue is a portmanteau measure and as a currency for the denomination of trade and assets on all these dimensions the euro comprises a far smaller share than that of the us dollar furthermore that share has been roughly constant since 1999 by some measures the euro plays no larger a role than the deutschemark and french franc that it replaced we explore the reasons for this underperformance while the leading anchor currency may have a natural monopoly a number of additional factors have limited the euro s reach including lack of financial center limited geopolitical reach and us and chinese dominance in technology research most important in our view is the comparatively scarce supply of safe euro denominated assets which we document the european central bank lack of policy clarity may have also played a role we show that the euro era can be divided into a bundesbank plus period and a whatever it takes period the first shows a smooth transition from the european exchange rate mechanism and continued to stabilize german inflation the second period is characterised by an expanding ecb arsenal of credit facilities to european banks and sovereigns

participation in a currency union in any voluntary cooperative agreement the potential gain from deviation should determine the minimum influence required over common decision making this paper begins by observing that a highly asymmetric distribution of power between two partners is not sustainable if the choice variables are strategic substitutes it then studies a simple general equilibrium model of a monetary union and shows that a small economy will not take part in the agreement unless it can secure influence that is more than proportional to its size and a transfer of seigniorage revenues in its favor copyright 1992 by american economic association

econometric efficiency analysis a policy oriented review abstract the econometric approach to the construction of production cost and other frontiers and the measurement of efficiency relative to these frontiers historically has had a strong policy orientation this distinguishes the approach from the mathematical programming approach which has had a managerial decision making orientation geared to solving allocation problems within the public or private organization in this paper i review the development of the econometric approach to efficiency analysis i then discuss a small number of empirical studies chosen to illustrate the application of the econometric approach to a collection of public policy issues for which the notion of efficiency measurement is of prime importance examples are drawn from the areas of 1 agricultural productivity 2 labor market efficiency and equity 3 the measurement of the standard of living 4 the establishment of quality of service standards and 5 the valuation of environmental disamenities

an alternative approach to the analysis of wage differentials a key question in many studies of male female or black white wage differentials is how much of the differential can be explained by economic factors and how much remains unexplained the unexplained portion is then ascribed to discrimination since oaxaca 17 first formalized this decomposition the residual difference methodology has been the dominant methodology utilized in empirical studies of wage differentials 4 7 8 10 15 18 but recently the validity of the assumptions underlying the residual difference methodology have been called into question by butler 5 6 in this paper the theoretical underpinnings of the residual difference methodology are reexamined and an alternative theoretical framework for this methodology is suggested the new framework overcomes the shortcomings inherent in oaxaca s specification of the model and therefore provides a sound theoretical foundation for the residual difference decomposition

trust regulation and market failures abstract government regulation of firms is associated with more negative externalities and unofficial activity across countries i argue that this correlation mainly reflects causality going from concerns about market failures to demand for government intervention using trust in others as a proxy for such concerns i show that differences in trust explain a great deal of variation in entry regulations then controlling for trust in the regression of market failures on regulation the latter is no longer associated with worse economic outcomes the same result is confirmed when i exploit country population as an alternative source of variation in regulation

estimating the effect of financial aid offers on college enrollment a regression discontinuity approach an important problem faced by colleges and universities that of evaluating the effect of their financial aid offers on student enrollment decisions is complicated by the likely endogeneity of the aid offer variable in a student enrollment equation this article shows how discontinuities in an east coast college s aid assignment rule can be exploited to obtain credible estimates of the aid effect without having to rely on arbitrary exclusion restrictions and functional form assumptions semiparametric estimates based on a regression discontinuity rd approach affirm the importance of financial aid as an effective instrument in competing with other colleges for students

the political resource curse this paper studies the effect of additional government revenues on political corruption and on the quality of politicians both with theory and data the theory is based on a political agency model with career concerns and endogenous entry of candidates the data refer to brazil where federal transfers to municipal governments change exogenously at given population thresholds allowing us to implement a regression discontinuity design the empirical evidence shows that larger transfers increase observed corruption and reduce the average education of candidates for mayor these and other more specific empirical results are in line with the predictions of the theory jel d72 d73 h77 o17 o18

capital flight to germany two alternative measures abstract we use two measures to study two capital flight channels for germany one measure is based on the concept of trade misinvoicing and one on net claims and liabilities in the eurosystem of central banks for both measures we propose refinements to enhance the assessment of capital flight we find that capital flight towards germany via these two channels has been quite sizable in the recent decade and can tally to about 2 of gdp annually regarding their determinants we show that the two capital flight measures are driven by both common and measure specific factors traditional determinants such as covered interest differentials only play a limited role while crisis specific factors such as economic policy uncertainty the ecb collateral policy as well as currency misalignment are driving factors of the investors apparent flight to safety behavior

who borrows from the lender of last resort understanding why banks borrow from the lender of last resort lolr during a nancial crisis is crucial to understanding the macroeconomic impact of such largescale interventions we document a strong divergence among banks take up of lolr assistance during the nancial crisis in the euro area as banks which borrowed heavily also used increasingly risky collateral we propose four explanations for this divergence