Econometrics: Public and Private Transfer in Germany and Crowding Out during Britain’s Industrial Revolution

This document discusses the impacts of aging population on the social security system in Germany and the crowding out effect during Britain's Industrial Revolution. The first part examines the relationship between financial transfer of public and private to and from elderly in Germany, arguing about “crowding in” and “crowding out” through empiric analysis and verification of the substitution of financial transfer of private to elderly public transfer. The second part discusses the estimation of best inflation equation and addition of most favourable forecasts as independent variable in the nominally gained equation to make a copy of inflation forecasting of the market and the assumption that the risk premium is not based on the inflation forecast during Britain's Industrial Revolution. It includes empirical analysis and references.

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Econometrics
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1ECONOMETRICS
Table of Contents
Summary of Public and Private Transfer in Germany...............................................................2
Summary of Crowding Out during Britain’s Industrial Revolution..........................................3
Reference....................................................................................................................................4

2ECONOMETRICS
Summary of Public and Private Transfer in Germany
The analysis of impacts of aging population on the social security system has found
an increase in attention towards private intergenerational support. The paper has used the
German data for systematic examination on the relationship between financial transfer of
public and private to and from elderly. The paper argues about “crowding in” and “crowding
out” through empiric analysis and verification of the substitution of financial transfer of
private to elderly public transfer. In Germany, the flow of financial transfer is exceptionally
both way from elderly to young and towards elderly, which crowds out the private help.
However, sociologists identify presence of “Crowding in” process. Rather looking
financially, they recognise it in a broader view as a complementary relation of public and
private transfer (Attias-Donfut and Wolff 2000).
There is a significant robust connection between family and state, found by the
empirical analysis. A circular flow of resources is considered as inefficient, depicted by the
private payment reacting as a backflow of public intergenerational transfers. There is
probable chance of fall in the private financial support from older to young. There is a strong
negative impact of public transfers on the chance of getting private financial help, which
gives an intelligible direct hint of crowding out process (Anette 2004). This paper used only
financial paper, which means it does not contradict the sociologist view of a “crowding in”
process. Therefore, there is a certain probability of existing crowding out and crowding in
together.

3ECONOMETRICS
Summary of Crowding Out during Britain’s Industrial Revolution
The paper uses two approaches. One approach deals with the estimation of best
inflation equation and addition of most favourable forecasts as independent variable in the
nominally gained equation to make a copy of inflation forecasting of the market. The second
one deals with the assumption that the risk premium is not based on the inflation forecast.
The equation used in the analysis can handle three lagged values of all variables.
The capital supply was inelastic during the period of wartime, which increased the
rates. There is a significant impact on interest rate by the borrowings of government given the
assumption and crowding out effect. A relation of British borrowing at the time of war with
interest rate exists and others support this too (Black and Gilmore 1990). During the French
war rate of interest was raised in huge level, which also shows that the competitor for capital
with simple channels of investment is government. When the rate of interest is raised,
productive employment is found in the country.
It is empirically proofed that British interest rates has a lagged relation with the
government borrowings in the initial phase of Industrial Revolution. The estimates obtained
by empirical analysis supports the findings of Ricardo that 6% excess interest was there on
government borrowings (Ricardo 1951). The estimates obtained in the empirical analysis also
supports that the price expectation is the key to grasp the effect of loans on interest rate.
Nominal rates do not provide enough information related to inflation.

4ECONOMETRICS
Reference
Anette, R.H., 2004. Crowding out or crowding in? Public and private transfers in
Germany (No. 04-68). Sonderforschungsbereich 504, Universität Mannheim.
Attias-Donfut, C. and Wolff, F.C., 2000. Complementarity between private and public
transfers. The Myth of Generational Conflict: The Family and State in Ageing Societies.
Routledge, London, pp.47-68.
Black, R.A. and Gilmore, C.G., 1990. Crowding out during Britain's industrial
revolution. The Journal of Economic History, 50(1), pp.109-131.
Ricardo, D., 1951. The Works and Correspondence of David Ricardo: Pamphlets and
Papers, 1809-1811 (Vol. 3). University Press for the Royal Economic Society.