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In this paper, we examine the predictive ability of automatic and expert-rated media sentiment indicators for German inflation. We find that sentiment indicators are competitive in providing inflation forecasts against a large set of common macroeconomic and financial predictors. Sophisticated linguistic sentiment algorithms and business cycle news rated by experts perform best and are superior to simple word-count indicators and autoregressive forecasts.

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

This paper investigates whether conventional interest rate policy of central banks is a suitable instrument to attenuate excessive mispricing in stocks as suggested by the proponents of a "leaning against the wind" (LATW) monetary policy. For this, we decompose the stock price into a fundamental, a risk premium and a mispricing component. We argue that mispricing can arise for two reasons: (i) from false subjective expectations of investors about future fundamentals and equity premia, and (ii) from the inherent indeterminacy in asset pricing in line with rational bubbles. Employing a partial equilibrium asset pricing model, we show that the response of the excessive stock price component to a monetary policy shock is ambiguous in both the short- and long-run, and depends on the nature of the mispricing. Subsequently, we evaluate the scope for a LATW policy empirically by employing a time-varying parameter VAR with a flexible identification scheme based on impact and long-run restrictions using data for the S&P500 index from 1962Q1 to 2014Q4. We find that a contractionary monetary policy shock in fact lowers stock prices beyond what is implied by the response of their underlying fundamentals.

This paper investigates whether central banks can attenuate excessive mispricing in stocks as suggested by the proponents of a "leaning against the wind" (LATW) monetary policy. For this, we decompose stock prices into a fundamental component, a risk premium, and a mispricing component. We argue that mispricing can arise for two reasons: (i) from false subjective expectations of investors about future fundamentals and equity premia; and (ii) from the inherent indeterminacy in asset pricing in line with rational bubbles. We show that the response of the excessive stock price component to a monetary policy shock is ambiguous in both the short- and long-run, and depends on the nature of the mispricing. Subsequently, we evaluate the scope for a LATW policy empirically by employing a time-varying coefficient VAR with a flexible identification scheme based on impact and long-run restrictions using data for the S&P500 index from 1962Q1 to 2014Q4. We find that a contractionary monetary policy shock in fact lowers stock prices beyond what is implied by the response of their underlying fundamentals.

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

The GARCH(1,1) model and its extensions have become a standard econometric tool for modeling volatility dynamics of financial returns and port-folio risk. In this paper, we propose an adjustment of GARCH implied conditional value-at-risk and expected shortfall forecasts that exploits the predictive content of uncorrelated, yet dependent model innovations. The adjustment is motivated by non-Gaussian characteristics of model residuals, and is implemented in a semiparametric fashion by means of conditional moments of simulated bivariate standardized copula distributions. We conduct in-sample forecasting comparisons for a set of 18 stock market indices. In total, four competing copula-GARCH models are contrasted against each other on the basis of their one-step ahead forecasting performance. With regard to forecast unbiasedness and precision, especially the Frank-GARCH models provide most conservative risk forecasts and out-perform all rival models.

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