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
Economic Dynamics and Stability

Your contact

Dr Katja Heinisch
Dr Katja Heinisch
Mitglied - Department Macroeconomics
Send Message +49 345 7753-836

EXTERNAL FUNDING

01.2023 ‐ 12.2023

Early determination of stable results for gross domestic product or real economic growth and gross value added at federal state level

Landesbetrieb Information und Technik Nordrhein-Westfalen

The project examines whether the accuracy of the first estimate of gross value added and gross domestic product for the federal states can be increased, thereby reducing the extent of subsequent revisions.

 See project page

Professor Dr Oliver Holtemöller

07.2022 ‐ 12.2026

Evaluation of the InvKG and the federal STARK programme

German Federal Ministry for Economic Affairs and Climate Action

On behalf of the Federal Ministry of Economics and Climate Protection, the IWH and the RWI are evaluating the use of the approximately 40 billion euros the federal government is providing to support the coal phase-out regions..

See project page

Professor Dr Oliver Holtemöller

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.

see project's page on GIZ website

Dr Katja Heinisch

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?

see project's webpage

This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 883947.

Professor Dr Oliver Holtemöller
Dr Katja Heinisch

01.2018 ‐ 12.2023

EuropeAid (EU Framework Contract)

European Commission

Professor Dr Oliver Holtemöller

07.2016 ‐ 12.2018

Climate Protection and Coal Phaseout: Political Strategies and Measures up to 2030 and beyond

Umweltbundesamt (UBA)

Dr Katja Heinisch

01.2017 ‐ 12.2017

Support to Sustainable Economic Development in Selected Regions of Uzbekistan

Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH

Dr Andrej Drygalla

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

Dr Andrej Drygalla

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.

Dr Katja Heinisch

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

Dr Katja Heinisch

05.2016 ‐ 05.2016

Framework and Finance for Private Sector Development in Tajikistan

Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH

Dr Katja Heinisch

02.2016 ‐ 04.2016

Macroeconomic Reforms and Green Growth - Assessment of economic modelling capacity in Vietnam

Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH

Dr Katja Heinisch

Refereed Publications

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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, No. 4, 2019

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

Oliver Holtemöller Christoph Schult

in: Historical Social Research, No. 2, Special Issue: Governing by Numbers 2019

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

Katja Heinisch Axel Lindner

in: Applied Economics Letters, No. 3, 2019

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 We Use Linearized Models To Calculate Fiscal Multipliers?

Jesper Lindé Mathias Trabandt

in: Journal of Applied Econometrics, No. 7, 2018

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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Working Papers

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Outperforming IMF Forecasts by the Use of Leading Indicators

Katja Drechsel Sebastian Giesen Axel Lindner

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.

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A Federal Long-run Projection Model for Germany

Oliver Holtemöller Maike Irrek Birgit Schultz

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.

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Does Central Bank Staff Beat Private Forecasters?

Makram El-Shagi Sebastian Giesen A. Jung

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.

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Is East Germany Catching Up? A Time Series Perspective

Bernd Aumann Rolf Scheufele

in: IWH Discussion Papers, No. 14, 2009

Abstract

This paper assesses whether the economy of East Germany is catching up with the West German region in terms of welfare. While the primary measure for convergence and catching up is per capita output, we also look at other macroeconomic indicators such as unemployment rates, wage rates, and production levels in the manufacturingsector. In contrast to existing studies of convergence between regions of reunified Germany, our approach is purely based upon the time series dimension and is thus directly focused on the catching up process in East Germany as a region. Our testing setup includes standard ADF unit root tests as well as unit root tests that endogenously allow for a break in the deterministic component of the process. In our analysis, we find evidence of catching up for East Germany for most of the indicators. However, convergence speed is slow, and thus it can be expected that the catching up process will take further decades until the regional gap is closed.

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