Forward-looking behavior on the part of the monetary authority makes it difficult to estimate the effect of monetary policy interventions on output. We present instrumental variables estimates of the impact of interest rates on quarterly real output for several European countries, using German interest rates as the instrument. These estimates confirm a strong forward-looking bias in least squares estimates that persists even conditional on standard controls for the history of the system. Due to the potential for correlation of output shocks across countries, we interpret our estimates as lower bounds for the effect of monetary policy on real output.

We estimate the impact of compulsory schooling on earnings using changes in compulsory schooling laws in West Germany after World War II. Most estimates in the literature indicate returns in the range of 10 to 15. While our research design is very similar to studies for various other countries, we find a zero return. We find no evidence that this is due to labor market institutions or the apprenticeship training system in Germany. The result might be due to the fact that the basic skills most relevant for the labor market are learned earlier in Germany than in other countries.