Econometric Tools for Macroeconomic Forecasting and Simulation
The aim of this research group is to enhance research on, and development, implementation, evaluation, and application of quantitative macroeconometric models for forecasting and analysing aggregate economic fluctuations and developments. Research in this group contributes to the econometric foundation and the methodological improvements of the IWH forecasts. During the last years, the IWH has highly specialised in macroeconomic modelling, both for flash estimates and medium-term projections. Furthermore, this group conducts comprehensive empirical analysis and develops econometric tools that are used for third-party funded projects. In the last years, particular models have been developed for e.g. Volkswagen Financial Services AG and for GIZ. The research group contributed in particular on macroeconomic modelling for ministries in Kyrgyzstan and Tajikistan as well as for the institute of forecasting and macroeconomic research (IFMR) Uzbekistan.
IWH Data Project: IWH Real-time Database
Research Cluster
Macroeconomic Dynamics and StabilityYour contact

Mitglied - Department Macroeconomics
EXTERNAL FUNDING
10.2019 ‐ 01.2023
Climate Resilient Economic Development
Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH
Climate change has a substantial impact on economic growth and a country’s development. This increases the need for reliable and viable approaches to assessing the impact of climate risks and potential adaptation scenarios. Political decision-makers in ministries of planning and economy need sound forecasts in order to design and finance adequate economic policy instruments and actively to take countermeasures. In the pilot countries (Georgia, Kazakhstan and Vietnam), climate risk is included in macroeconomic modelling, enabling the results to be integrated into the policy process so as to facilitate adapted economic planning. The IWH team is responsible for macroeconomic modelling in Vietnam.
05.2020 ‐ 09.2023
ENTRANCES: Energy Transitions from Coal and Carbon: Effects on Societies
European Commission
ENTRANCES aims at examining the effects of the coal phase-out in Europe. How does the phase-out transform society – and what can politics do about it?
This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 883947.
01.2018 ‐ 12.2023
EuropeAid (EU Framework Contract)
European Commission
07.2016 ‐ 12.2018
Climate Protection and Coal Phaseout: Political Strategies and Measures up to 2030 and beyond
Umweltbundesamt (UBA)
01.2017 ‐ 12.2017
Support to Sustainable Economic Development in Selected Regions of Uzbekistan
Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH
01.2017 ‐ 12.2017
Short-term Macroeconomic Forecasting Model in Ministry of Economic Development and Trade of Ukraine
Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH
01.2016 ‐ 12.2017
Development of analytical tools based on Input-Output table
Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH
The aim of the project was the development of an analytical tool to assess the gains and losses of possible state programs supporting the development of the private sector of the Tajik economy.
11.2015 ‐ 12.2016
Employment and Development in the Republic of Uzbekistan
Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH
Support to sustainable economic development in selected regions of Uzbekistan
05.2016 ‐ 05.2016
Framework and Finance for Private Sector Development in Tajikistan
Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH
02.2016 ‐ 04.2016
Macroeconomic Reforms and Green Growth - Assessment of economic modelling capacity in Vietnam
Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH
Refereed Publications

Epidemics in the New Keynesian Model
in: Journal of Economic Dynamics and Control, July 2022
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.

Inequality in Life and Death
in: IMF Economic Review, March 2022
Abstract
We argue that the COVID epidemic disproportionately affected the economic well-being and health of poor people. To disentangle the forces that generated this outcome, we construct a model that is consistent with the heterogeneous impact of the COVID recession on low- and high-income people. According to our model, two-thirds of the inequality in COVID deaths reflect preexisting inequality in comorbidity rates and access to quality health care. The remaining third stems from the fact that low-income people work in occupations where the risk of infection is high. Our model also implies that the rise in income inequality generated by the COVID epidemic reflects the nature of the goods that low-income people produce. Finally, we assess the health-income trade-offs associated with fiscal transfers to the poor and mandatory containment policies.

Power Generation and Structural Change: Quantifying Economic Effects of the Coal Phase-out in Germany
in: Energy Economics, 2021
Abstract
In the fight against global warming, the reduction of greenhouse gas emissions is a major objective. In particular, a decrease in electricity generation by coal could contribute to reducing CO2 emissions. We study potential economic consequences of a coal phase-out in Germany, using a multi-region dynamic general equilibrium model. Four regional phase-out scenarios before the end of 2040 are simulated. We find that the worst case phase-out scenario would lead to an increase in the aggregate unemployment rate by about 0.13 [0.09 minimum; 0.18 maximum] percentage points from 2020 to 2040. The effect on regional unemployment rates varies between 0.18 [0.13; 0.22] and 1.07 [1.00; 1.13] percentage points in the lignite regions. A faster coal phase-out can lead to a faster recovery. The coal phase-out leads to migration from German lignite regions to German non-lignite regions and reduces the labour force in the lignite regions by 10,100 [6300; 12,300] people by 2040. A coal phase-out until 2035 is not worse in terms of welfare, consumption and employment compared to a coal-exit until 2040.

(Since when) are East and West German Business Cycles Synchronised?
in: Jahrbücher für Nationalökonomie und Statistik, No. 1, 2021
Abstract
We analyze whether, and since when, East and West German business cycles are synchronised. We investigate real GDP, unemployment rates and survey data as business cycle indicators and we employ several empirical methods. Overall, we find that the regional business cycles have synchronised over time. GDP-based indicators and survey data show a higher degree of synchronisation than the indicators based on unemployment rates. However, synchronisation among East and West German business cycles seems to have become weaker again recently.

The Effects of Fiscal Policy in an Estimated DSGE Model – The Case of the German Stimulus Packages During the Great Recession
in: Macroeconomic Dynamics, No. 6, 2020
Abstract
In this paper, we analyze the effects of the stimulus packages adopted by the German government during the Great Recession. We employ a standard medium-scale dynamic stochastic general equilibrium (DSGE) model extended by non-optimizing households and a detailed fiscal sector. In particular, the dynamics of spending and revenue variables are modeled as feedback rules with respect to the cyclical components of output, hours worked and private investment. Based on the estimated rules, fiscal shocks are identified. According to the results, fiscal policy, in particular public consumption, investment, and transfers prevented a sharper and prolonged decline of German output at the beginning of the Great Recession, suggesting a timely response of fiscal policy. The overall effects, however, are small when compared to other domestic and international shocks that contributed to the economic downturn. Our overall findings are not sensitive to considering fiscal foresight.
Working Papers

How Forecast Accuracy Depends on Conditioning Assumptions
in: IWH Discussion Papers, No. 18, 2019
Abstract
This paper examines the extent to which errors in economic forecasts are driven by initial assumptions that prove to be incorrect ex post. Therefore, we construct a new data set comprising an unbalanced panel of annual forecasts from different institutions forecasting German GDP and the underlying assumptions. We explicitly control for different forecast horizons to proxy the information available at the release date. Over 75% of squared errors of the GDP forecast comove with the squared errors in their underlying assumptions. The root mean squared forecast error for GDP in our regression sample of 1.52% could be reduced to 1.13% by setting all assumption errors to zero. This implies that the accuracy of the assumptions is of great importance and that forecasters should reveal the framework of their assumptions in order to obtain useful policy recommendations based on economic forecasts.

Progressive Tax-like Effects of Inflation: Fact or Myth? The U.S. Post-war Experience
in: IWH Discussion Papers, No. 33, 2017
Abstract
Inflation and earnings growth can push some tax payers into higher brackets in the absence of inflation-indexed schedules. Moreover, inflation may affect the composition of individuals’ income sources. As a result, depending on the relative tax burden of labour and capital, inflation may decrease or increase the difference between before-tax and after-tax income. However, whether some and if so which percentiles of the income distribution net benefit from inflation via taxation is a widely unexplored question. We make use of a novel dataset on U.S. pre-tax and post-tax income distribution series provided by Pike ty et al. (2018) for the years 1962 to 2014 to answer this question. To this end, we estimate local projections to quantify dynamic effects. We find that inflation shocks increase progressivity of taxation not only contemporaneously but also with some repercussion of several years after the shock. While particularly the bottom two quintiles gain in share, it is not the top but the fourth quintile that lastingly loses.

Outperforming IMF Forecasts by the Use of Leading Indicators
in: IWH Discussion Papers, No. 4, 2014
Abstract
This study analyzes the performance of the IMF World Economic Outlook forecasts for world output and the aggregates of both the advanced economies and the emerging and developing economies. With a focus on the forecast for the current and the next year, we examine whether IMF forecasts can be improved by using leading indicators with monthly updates. Using a real-time dataset for GDP and for the 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 if the publication of the Outlook is only a few months old.

A Federal Long-run Projection Model for Germany
in: IWH Discussion Papers, No. 11, 2012
Abstract
Many economic decisions implicitly or explicitly rely on a projection of the medium- or long-term economic development of a country or region. In this paper, we provide a federal long-run projection model for Germany and the German states. The model fea-tures a top-down approach and, as major contribution, uses error correction models to estimate the regional economic development dependent on the national projection. For the medium- and long-term projection of economic activity, we apply a production function approach. We provide a detailed robustness analysis by systematically varying assumptions of the model. Additionally, we explore the effects of different demographic trends on economic development.

Does Central Bank Staff Beat Private Forecasters?
in: IWH Discussion Papers, No. 5, 2012
Abstract
In the tradition of Romer and Romer (2000), this paper compares staff forecasts of the Federal Reserve (Fed) and the European Central Bank (ECB) for inflation and output with corresponding private forecasts. Standard tests show that the Fed and less so the ECB have a considerable information advantage about inflation and output. Using novel tests for conditional predictive ability and forecast stability for the US, we identify the driving forces of the narrowing of the information advantage of Greenbook forecasts coinciding with the Great Moderation.