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.

Employing 20 experts, the department is able to cover 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.

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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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For How Long Do IMF Forecasts of World Economic Growth Stay Up-to-date?

Katja Heinisch Axel Lindner

in: Applied Economics Letters, forthcoming

Abstract

This study analyses the performance of the International Monetary Fund (IMF) World Economic Outlook output forecasts for the world and for both the advanced economies and the emerging and developing economies. With a focus on the forecast for the current year and the next year, we examine the durability of IMF forecasts, looking at how much time has to pass so that IMF forecasts can be improved by using leading indicators with monthly updates. Using a real-time data set for GDP and for indicators, we find that some simple single-indicator forecasts on the basis of data that are available at higher frequency can significantly outperform the IMF forecasts as soon as the publication of the IMF’s Outlook is only a few months old. In particular, there is an obvious gain using leading indicators from January to March for the forecast of the current year.

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Should Forecasters Use Real-time Data to Evaluate Leading Indicator Models for GDP Prediction? German Evidence

Katja Heinisch Rolf Scheufele

in: German Economic Review, forthcoming

Abstract

In this paper, we investigate whether differences exist among forecasts using real‐time or latest‐available data to predict gross domestic product (GDP). We employ mixed‐frequency models and real‐time data to reassess the role of surveys and financial data relative to industrial production and orders in Germany. Although we find evidence that forecast characteristics based on real‐time and final data releases differ, we also observe minimal impacts on the relative forecasting performance of indicator models. However, when obtaining the optimal combination of soft and hard data, the use of final release data may understate the role of survey information.

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Should We Use Linearized Models To Calculate Fiscal Multipliers?

Jesper Lindé Mathias Trabandt

in: Journal of Applied Econometrics, forthcoming

Abstract

We calculate the magnitude of the government consumption multiplier in linearized and nonlinear solutions of a New Keynesian model at the zero lower bound. Importantly, the model is amended with real rigidities to simultaneously account for the macroeconomic evidence of a low Phillips curve slope and the microeconomic evidence of frequent price changes. We show that the nonlinear solution is associated with a much smaller multiplier than the linearized solution in long-lived liquidity traps, and pin down the key features in the model which account for the di¤erence. Our results caution against the common practice of using linearized models to calculate scal multipliers in long-lived liquidity traps.

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On DSGE Models

Lawrence J. Christiano Martin S. Eichenbaum Mathias Trabandt

in: Journal of Economic Perspectives, No. 3, 2018

Abstract

The outcome of any important macroeconomic policy change is the net effect of forces operating on different parts of the economy. A central challenge facing policymakers is how to assess the relative strength of those forces. Economists have a range of tools that can be used to make such assessments. Dynamic stochastic general equilibrium (DSGE) models are the leading tool for making such assessments in an open and transparent manner. We review the state of mainstream DSGE models before the financial crisis and the Great Recession. We then describe how DSGE models are estimated and evaluated. We address the question of why DSGE modelers—like most other economists and policymakers—failed to predict the financial crisis and the Great Recession, and how DSGE modelers responded to the financial crisis and its aftermath. We discuss how current DSGE models are actually used by policymakers. We then provide a brief response to some criticisms of DSGE models, with special emphasis on criticism by Joseph Stiglitz, and offer some concluding remarks.

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Bottom-up or Direct? Forecasting German GDP in a Data-rich Environment

Katja Heinisch Rolf Scheufele

in: Empirical Economics, No. 2, 2018

Abstract

In this paper, we investigate whether there are benefits in disaggregating GDP into its components when nowcasting GDP. To answer this question, we conduct a realistic out-of-sample experiment that deals with the most prominent problems in short-term forecasting: mixed frequencies, ragged-edge data, asynchronous data releases and a large set of potential information. We compare a direct leading indicator-based GDP forecast with two bottom-up procedures—that is, forecasting GDP components from the production side or from the demand side. Generally, we find that the direct forecast performs relatively well. Among the disaggregated procedures, the production side seems to be better suited than the demand side to form a disaggregated GDP nowcast.

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Working Papers

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Expectation Formation, Financial Frictions, and Forecasting Performance of Dynamic Stochastic General Equilibrium Models

Oliver Holtemöller Christoph Schult

in: IWH Discussion Papers, No. 15, 2018

Abstract

In this paper, we document the forecasting performance of estimated basic dynamic stochastic general equilibrium (DSGE) models and compare this to extended versions which consider alternative expectation formation assumptions and financial frictions. We also show how standard model features, such as price and wage rigidities, contribute to forecasting performance. It turns out that neither alternative expectation formation behaviour nor financial frictions can systematically increase the forecasting performance of basic DSGE models. Financial frictions improve forecasts only during periods of financial crises. However, traditional price and wage rigidities systematically help to increase the forecasting performance.

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Did the Swiss Exchange Rate Shock Shock the Market?

Manuel Buchholz Gregor von Schweinitz Lena Tonzer

in: IWH Discussion Papers, No. 9, 2018

Abstract

The Swiss National Bank abolished the exchange rate floor versus the Euro in January 2015. Based on a synthetic matching framework, we analyse the impact of this unexpected (and therefore exogenous) shock on the stock market. The results reveal a significant level shift (decline) in asset prices in Switzerland following the discontinuation of the minimum exchange rate. While adjustments in stock market returns were most pronounced directly after the news announcement, the variance was elevated for some weeks, indicating signs of increased uncertainty and potentially negative consequences for the real economy.

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On the Empirics of Reserve Requirements and Economic Growth

Jesús Crespo Cuaresma Gregor von Schweinitz Katharina Wendt

in: IWH Discussion Papers, No. 8, 2018

Abstract

Reserve requirements, as a tool of macroprudential policy, have been increasingly employed since the outbreak of the great financial crisis. We conduct an analysis of the effect of reserve requirements in tranquil and crisis times on credit and GDP growth making use of Bayesian model averaging methods. In terms of credit growth, we can show that initial negative effects of higher reserve requirements (which are often reported in the literature) tend to be short-lived and turn positive in the longer run. In terms of GDP per capita growth, we find on average a negative but not robust effect of regulation in tranquil times, which is only partly offset by a positive but also not robust effect in crisis times.

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The Economic Development of Saxony-Anhalt since 1990

Oliver Holtemöller Axel Lindner

in: IWH Discussion Papers, No. 6, 2018

Abstract

This article describes the economic development of Saxony-Anhalt since 1990 in the context of the East German transition from a centrally planned economy to a market economy. In the early 1990s the economy of Saxony-Anhalt caught up quickly with West Germany, mainly because the capital stock was modernized and expanded. Convergence, however, has almost come to a halt for some time now and gross domestic product per employed person is still about 20% below the West German level. The challenge for economic policy is to further the catching-up process by fostering research and innovation and improving the skills of the workforce.

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Zu den rentenpolitischen Plänen im Koalitionsvertrag 2018 von CDU, CSU und SPD: Konsequenzen, Finanzierungsoptionen und Reformbedarf

Oliver Holtemöller Christoph Schult Götz Zeddies

in: IWH Discussion Papers, No. 5, 2018

Abstract

In the coalition agreement from February 7, 2018, the new German federal government drafts its public pension policy, which has to be evaluated against the background of demographic dynamics in Germany. From the year 2020 onwards, the age structure of the German population will change significantly. In this paper, the consequences of public pensions related policy measures from the coalition agreement for the German public pension insurance are illustrated using a simulation model. In the long run, the intended extensions of benefits would lead to an increase in the contribution rate to the German public pension insurance of about two and a half percentage points. Referring to pension systems of other countries, we discuss measures in order to limit this increase in the contribution rate.

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