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.
A Comparison of Monthly Global Indicators for Forecasting Growth
in: International Journal of Forecasting, forthcoming
This paper evaluates the predictive content of a set of alternative monthly indicators of global economic activity for nowcasting and forecasting quarterly world GDP using mixed-frequency models. We find that a recently proposed indicator that covers multiple dimensions of the global economy consistently produces substantial improvements in forecast accuracy, while other monthly measures have more mixed success. This global economic conditions indicator contains valuable information also for assessing the current and future state of the economy for a set of individual countries and groups of countries. We use this indicator to track the evolution of the nowcasts for the US, the OECD area, and the world economy during the coronavirus pandemic and quantify the main factors driving the nowcasts.
Energy Markets and Global Economic Conditions
in: Review of Economics and Statistics, forthcoming
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.
Fiscal Policy and Fiscal Fragility: Empirical Evidence from the OECD
in: Journal of International Money and Finance, forthcoming
In this paper, we use local projections to investigate the impact of consolidation shocks on GDP growth, conditional on the fragility of government finances. Based on a database of fiscal plans in OECD countries, we show that spending shocks are less detrimental than tax-based consolidation. In times of fiscal fragility, our results indicate strongly that governments should consolidate through surprise policy changes rather than announcements of consolidation at a later horizon.
Monetary Policy through Exchange Rate Pegs: The Removal of the Swiss Franc‐Euro Floor and Stock Price Reactions
in: International Review of Finance, forthcoming
The Swiss National Bank abolished the exchange rate floor versus the Euro in January 2015. Using a synthetic matching framework, we analyze the impact of this unexpected (and therefore exogenous) policy change on the stock market. The results reveal a significant level shift (decline) in asset prices following the discontinuation of the minimum exchange rate. As a novel finding in the literature, we document that the exchange‐rate elasticity of Swiss asset prices is around −0.75. Differentiating between sectors of the Swiss economy, we find that the industrial, financial and consumer goods sectors are most strongly affected by the abolition of the minimum exchange rate.
Does Capital Account Liberalization Affect Income Inequality?
in: Oxford Bulletin of Economics and Statistics, No. 2, 2021
By adopting an identification strategy of difference‐in‐difference estimation combined with propensity score matching between liberalized and closed countries, this paper provides robust evidence that opening the capital account is associated with an increase in income inequality in developing countries. Specifically, capital account liberalization, in the long run, is associated with a reduction in the income share of the poorest half by 2.66–3.79% points and an increase in that of the richest 10% by 5.19–8.76% points. Moreover, directions and categories of capital account liberalization matter. The relationship is more pronounced when liberalizing inward and equity capital flows.
Disentangling Covid-19, Economic Mobility, and Containment Policy Shocks
in: IWH Discussion Papers, No. 2, 2021
We study the dynamic impact of Covid-19, economic mobility, and containment policy shocks. We use Bayesian panel structural vector autoregressions with daily data for 44 countries, identified through sign and zero restrictions. Incidence and mobility shocks raise cases and deaths significantly for two months. Restrictive policy shocks lower mobility immediately, cases after one week, and deaths after three weeks. Non-pharmaceutical interventions explain half of the variation in mobility, cases, and deaths worldwide. These flattened the pandemic curve, while deepening the global mobility recession. The policy tradeoff is 1 p.p. less mobility per day for 9% fewer deaths after two months.
Financial Technologies and the Effectiveness of Monetary Policy Transmission
in: IWH Discussion Papers, No. 26, 2020
This study investigates whether and how financial technologies (FinTech) influence the effectiveness of monetary policy transmission. We examine regional-level FinTech adoption and use an interacted panel vector autoregression model to explore how the effects of monetary policy shocks change with FinTech adoption. The results indicate that FinTech adoption generally enhances monetary policy transmission to real GDP, bank loans, and housing prices, while the evidence of transmission to consumer prices is mixed. A subcategorical analysis shows that the enhanced effectiveness is the most pronounced in the adoption of FinTech payment, compared to that of insurance and credit.
On the International Dissemination of Technology News Shocks
in: IWH Discussion Papers, No. 25, 2020
This paper investigates the propagation of technology news shocks within and across industrialised economies. We construct quarterly utilisation-adjusted total factor productivity (TFP) for thirteen OECD countries. Based on country-specific structural vector autoregressions (VARs), we document that (i) the identified technology news shocks induce a quite homogeneous response pattern of key macroeconomic variables in each country; and (ii) the identified technology news shock processes display a significant degree of correlation across several countries. Contrary to conventional wisdom, we find that the US are only one of many different sources of technological innovations diffusing across advanced economies. Technology news propagate through the endogenous reaction of monetary policy and via trade-related variables. That is, our results imply that financial markets and trade are key channels for the dissemination of technology.
Surges and Instability: The Maturity Shortening Channel
in: IWH Discussion Papers, No. 23, 2020
Capital inflow surges destabilise the economy through a maturity shortening mechanism. The underlying reason is that firms tend to make their debt redeemable on demand in order to accommodate the potential liquidity needs of global investors, which makes international borrowing endogenously fragile. Based on a theoretical model and empirical evidence at both firm level and macro level, our main findings are threefold. First, corporate debt maturity shortens substantially during surges, especially for firms with foreign bank relationships. Second, surges change the shape of the interest rate term structure and lead to a more flattened yield curve. Third, the probability of a crisis following surges with a flattened yield curve is significantly larger than following surges without one. Our work suggests that debt maturity is key to understanding the consequences of capital inflow bonanzas.
Sovereign Default Risk, Macroeconomic Fluctuations and Monetary-Fiscal Stabilisation
in: IWH Discussion Papers, No. 22, 2020
This paper examines the role of sovereign default beliefs for macroeconomic fluctuations and stabilisation policy in a small open economy where fiscal solvency is a critical problem. We set up and estimate a DSGE model on Turkish data and show that accounting for sovereign risk significantly improves the fit of the model through an endogenous amplication between default beliefs, exchange rate and inflation movements. We then use the estimated model to study the implications of sovereign risk for stability, fiscal and monetary policy, and their interaction. We find that a relatively strong fiscal feedback from deficits to taxes, some exchange rate targeting, or a monetary response to default premia are more effective and efficient stabilisation tools than hawkish inflation targeting.