Macroeconomics

The department of macroeconomics analyses economic fluctuations of important economic indicators as GDP, employment, and interest rates in the short and medium horizon, the impact of economic policy on these, and the institutional framework that determines long term growth and the business cycle. Founded on this research, the department offers policy advice.

The department covers a wide range of macroeconomic issues. The research is focused on development, implementation and application of quantitative macroeconomic models and the analysis of the interaction between the financial markets and the real economy.

Your contact

Professor Dr Oliver Holtemöller
Professor Dr Oliver Holtemöller
Leiter - Department Macroeconomics
Send Message +49 345 7753-800 Personal page

Refereed Publications

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Energy Markets and Global Economic Conditions

Christiane Baumeister Dimitris Korobilis Thomas K. Lee

in: Review of Economics and Statistics, forthcoming

Abstract

We evaluate alternative indicators of global economic activity and other market funda-mentals in terms of their usefulness for forecasting real oil prices and global petroleum consumption. World industrial production is one of the most useful indicators. However, by combining measures from several different sources we can do even better. Our analysis results in a new index of global economic conditions and measures for assessing future energy demand and oil price pressures. We illustrate their usefulness for quantifying the main factors behind the severe contraction of the global economy and the price risks faced by shale oil producers in early 2020.

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Tracking Weekly State-Level Economic Conditions

Christiane Baumeister Danilo Leiva-León Eric Sims

in: Review of Economics and Statistics, forthcoming

Abstract

This paper develops a novel dataset of weekly economic conditions indices for the 50 U.S. states going back to 1987 based on mixed-frequency dynamic factor models with weekly, monthly, and quarterly variables that cover multiple dimensions of state economies. We find considerable cross-state heterogeneity in the length, depth, and timing of business cycles. We illustrate the usefulness of these state-level indices for quantifying the main contributors to the economic collapse caused by the COVID-19 pandemic and for evaluating the effectiveness of the Paycheck Protection Program. We also propose an aggregate indicator that gauges the overall weakness of the U.S. economy.

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Epidemics in the New Keynesian Model

Martin S. Eichenbaum Sergio Rebelo Mathias Trabandt

in: Journal of Economic Dynamics and Control, forthcoming

Abstract

This paper documents the behavior of key macro aggregates in the wake of the Covid epidemic. We show that a unique feature of the Covid recession is that the peak-to-trough decline is roughly the same for consumption, investment, and output. In contrast to the 2008 recession, there was only a short-lived rise in financial stress that quickly subsided. Finally, there was mild deflation between the peak and the trough of the Covid recession. We argue that a New Keynesian model that explicitly incorporates epidemic dynamics captures these qualitative features of the Covid recession. A key feature of the model is that Covid acts like a negative shock to the demand for consumption and the supply of labor.

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Why They Keep Missing: An Empirical Investigation of Sovereign Bond Ratings and Their Timing

Gregor von Schweinitz Makram El-Shagi

in: Scottish Journal of Political Economy, No. 2, 2022

Abstract

Two contradictory strands of the rating literature criticize that rating agencies merely follow the market on the one hand, and emphasizing that rating changes affect capital movements on the other hand. Both focus on explaining rating levels rather than the timing of rating announcements. Contrarily, we explicitly differentiate between a decision to assess a country and the actual rating decision. We show that this differentiation significantly improves the estimation of the rating function. The three major rating agencies treat economic fundamentals similarly, while differing in their response to other factors such as strategic considerations. This reconciles the conflicting literature.

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The Macroeconomics of Testing and Quarantining

Martin S. Eichenbaum Sergio Rebelo Mathias Trabandt

in: Journal of Economic Dynamics and Control, May 2022

Abstract

We develop a SIR-based macroeconomic model to study the impact of testing/ quarantining and social distancing/mask use on health and economic outcomes. These policies can dramatically reduce the costs of an epidemic. Absent testing/quarantining, the main effect of social distancing and mask use on health outcomes is to delay, rather than reduce, epidemic-related deaths. Social distancing and mask use reduce the severity of the epidemic-related recession but prolong its duration. There is an important synergy between social distancing and mask use and testing/quarantining. Social distancing and mask use buy time for testing and quarantining to come to the rescue. The benefits of testing/quarantining are even larger when people can get reinfected, either because the virus mutates or immunity is temporary.

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Working Papers

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The Impact of Active Aggregate Demand on Utilisation-adjusted TFP

Konstantin Gantert

in: IWH Discussion Papers, No. 9, 2022

Abstract

Non-clearing goods markets are an important driver of capacity utilisation and total factor productivity (TFP). The trade-off between goods prices and household search effort is central to goods market matching and therefore drives TFP over the business cycle. In this paper, I develop a New-Keynesian DSGE model with capital utilisation, worker effort, and expand it with<i> goods market search-and-matching (SaM)</i> to model non-clearing goods markets. I conduct a horse-race between the different capacity utilisation channels using Bayesian estimation and capacity utilisation survey data. Models that include goods market SaM improve the data fit, while the capital utilisation and worker effort channels are rendered less important compared to the literature. It follows that TFP fluctuations increase for demand and goods market mismatch shocks, while they decrease for technology shocks. This pattern increases as goods market frictions increase and as prices become stickier. The paper shows the importance of non-clearing goods markets in explaining the difference between technology and TFP over the business cycle.

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The Effects of Sovereign Risk: A High Frequency Identification Based on News Ticker Data

Ruben Staffa

in: IWH Discussion Papers, No. 8, 2022

Abstract

This paper uses novel news ticker data to evaluate the effect of sovereign risk on economic and financial outcomes. The use of intraday news enables me to derive policy events and respective timestamps that potentially alter investors’ beliefs about a sovereign’s willingness to service its debt and thereby sovereign risk. Following the high frequency identification literature, in the tradition of Kuttner (2001) and Guerkaynak et al. (2005), associated variation in sovereign risk is then obtained by capturing bond price movements within narrowly defined time windows around the event time. I conduct the outlined identification for Italy since its large bond market and its frequent coverage in the news render it a suitable candidate country. Using the identified shocks in an instrumental variable local projection setting yields a strong instrument and robust results in line with theoretical predictions. I document a dampening effect of sovereign risk on output. Also, borrowing costs for the private sector increase and inflation rises in response to higher sovereign risk.

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Globalisation, Productivity Growth, and Labour Compensation

Christian Dreger Marius Fourné Oliver Holtemöller

in: IWH Discussion Papers, No. 7, 2022

Abstract

Since the onset of globalisation, production activities have become increasingly fragmented and organised in global value chains (GVC). These networks facilitate trade in intermediaries across industrial sectors and countries and change the conditions for policies to respond to shocks. In this paper, we contribute to the understanding of the effects of GVC on productivity and labour shares in advanced and emerging economies. As indicators for globalisation we use the foreign share in intermediate inputs and the foreign share in value added, extracted from international input output tables. Estimates based on local projections reveal a positive relationship between globalisation and productivity. Moreover, we are able to reject the hypothesis that a higher degree of international integration in country-industry pairs is negatively associated with the change in the labour share for advanced countries.

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The Role of State-owned Banks in Crises: Evidence from German Banks During COVID-19

Xiang Li

in: IWH Discussion Papers, No. 6, 2022

Abstract

By adopting a difference-in-differences specification combined with propensity score matching, we provide evidence using the microdata of German banks that stateowned savings banks have lent less than credit cooperatives during the COVID-19 crisis. In particular, the weaker lending effects of state-owned banks are pronounced for long-term and nonrevolving loans but insignificant for short-term and revolving loans. Moreover, the negative impact of government ownership is larger for borrowers who are more exposed to the COVID-19 shock and in regions where the ruling parties are longer in office and more positioned on the right side of the political spectrum.

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How Does Economic Policy Uncertainty Affect Corporate Debt Maturity?

Xiang Li

in: IWH Discussion Papers, No. 5, 2022

Abstract

This paper investigates whether and how economic policy uncertainty affects corporate debt maturity. Using a large firm-level dataset for four European countries, we find that an increase in economic policy uncertainty is significantly associated with a shortened debt maturity. Moreover, the impacts are stronger for innovation-intensive firms. We use firms’ flexibility in changing debt maturity and the deviation to leverage target to gauge the causal relationship, and identify the reduced investment and steepened term structure as the transmission mechanisms.

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