Contributions in Merlin

This study documents experimental evidence that naïve beliefs about the behavior of others contribute to excessive trading. The mechanism is based on the idea that when people process new information they naïvely neglect other market participants’ reaction to the information and consequently trade too much. In a series of laboratory experiments, I find that people actively trade on information that they should expect to be already incorporated into the price by other players. In line with naïve news trading, people underestimate the response of others to new information and consequently trade too much compared to the rational benchmark. A simple model with naïve investors who partially neglect that other investors respond to new information provides a good fit of the observed trading behavior.

We study the impact of economic policy uncertainty on the term structure of nominal interest rates. We develop a general equilibrium model, in which both the government and the central bank policy decisions are driven by uncertainty shocks. Our affine yield curve model captures both the shape of the interest rate term structure as well as the hump-shape of bond yield volatilities. Our theoretical predictions are strongly supported by the data. Higher economic policy uncertainty leads to a significant decline in yield levels, induces a hump-shaped increase in bond yield volatility, and increases bond risk premia, especially for longer maturities.

We present a novel method in analyzing microstructure noise of high-frequency data as a measurement error problem within an endogenous Markov-switching regression model. In this model, the regression disturbance and the latent state variable controlling the regime are correlated. We show that under endogeneity the popular realized variance estimator is biased and no longer converges to the integrated regime dependent volatility. Exploring intraday return data on foreign exchange rates, we find significant endogeneity at high frequencies. Similar to the popular volatility signature plot suggested by Andersen, Bollerslev, Diebold, and Labys (2000b), we propose an endogeneity plot, which indicates as to which sampling frequency the assumption of exogeneity of the state variable controlling the regime remains valid.

Researchers debate for more than 3 decades on the effect of vocational training on innovations. While some studies show a negative effect of vocational education that firms organize on its own, other studies show a positive effect for vocational education that is organized on a sectoral or national level such as in Germany or Switzerland. A characteristic of these vocational education and training (VET) systems is a high level of standardization and regulation. In fact many elements of VET are regulated in national law, training ordinances and curricula, but firms nevertheless less still have a high flexibility when it comes to the organization of workplace training. In this paper we analyze how firms organize their workplace training, which training methods they use and which training methods they apply jointly. As each training method e.g. training during work or external courses, transfers a specific set of skills and knowledge to apprentices, we analyze how firms use training methods to promote their innovation activity. Our results show that there is a large variety in the organization of workplace training. In sum firms make use of the flexibility to design workplace training that fits their needs best. We conclude with implications for the design of VET systems and firms.

We analyze the effect of negative monetary policy rates on banks, using detailed supervisory information from Switzerland. For identification, we compare changes in the behavior of banks that had different fractions of their central bank reserves exempt from negative rates. More affected banks reduce costly reserves and bond financing while maintaining non-negative deposit rates and larger deposit ratios. Higher fee and interest income successfully compensates for squeezed liability margins, but credit and interest rate risk increase. Portfolio rebalancing implies relatively more lending, also compared to an earlier rate cut within positive territory, and risk-taking reduces regulatory capital cushions and liquidity.

In many studies involving complex representation of the Earth's climate, the number of runs for the particular model is highly restricted and the designed set of input scenarios has to be reduced correspondingly. Furthermore, many integrated assessment models, in particular those focusing on intrinsic uncertainty in social decision-making, suffer from poor representations of the climate system ue to computational constraints.In this study, using emission scenarios as input and the temperature anomaly as a predicted response variable, we construct low-dimensional approximations of high-dimensional climate models, as represented by MAGICC. In order to extract as much explanatory power as possible from the high-dimensional climate models, we construct orthogonal emissions scenarios that carry minimum repetitive information. Our method is especially useful when there is pressure to keep the number of scenarios as low as possible. We demonstrate that temperature levels can be inferred immediately from the CO2 emissions data within a one-line model that performs very well on conventional scenarios. Furthermore, we provide a system of equations that is ready to be deployed in macroeconomic optimization models. Thus, our study enhances the methodology applied in the emulation of complex climate models and facilitates the use of more realistic climate representations in economic integrated assessment models.

Because the extent to which multinational companies (MNCs) benefit from foreign subsidiaries depends on how effectively MNCs manage their foreign subsidiaries' workforce, the international management literature has long focused on how MNCs transfer Human Resource Management (HRM) practices. However, the literature has only vaguely dealt with institutional differences between host and home countries, often simplifying these differences under the umbrella of institutional or cultural distance. This article investigates how MNCs use expatriates to adjust subsidiaries' employment modes to different market economies. We define employment modes as bundles of HRM and industrial relations (IR) practices implemented at the firm level and examine the employment modes of 76 subsidiaries of U.S. MNCs in a coordinated market economy (Germany), a hybrid market economy (Switzerland), and a liberal market economy (United Kingdom). Our results reveal substantial differences in the expatriation strategies of MNCs that depend not only on the international focus of the MNC but also on the differences in IR between the parent and subsidiary's environment. Our findings qualify the role of expatriates in adjusting subsidiaries' employment modes to different market economies and highlight the boundary conditions of integrating HRM with IR practices in the management of foreign subsidiaries.

Central banks are under increased scrutiny because of the rapid growth in, and composition of, their balance sheets. Therefore, understanding the processes that shape these balance sheets and their consequences is crucial. We contribute by studying an extensive dataset of banks’ liquidity uptake and pledged collateral in central bank repos. We document systemic arbitrage whereby banks funnel credit risk and low-quality collateral to the central bank. Weaker banks use lower quality collateral to demand disproportionately larger amounts of central bank money (liquidity). This holds both before and after the financial crisis and may contribute to financial fragility and fragmentation.

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