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 StabilityYour contact
EXTERNAL FUNDING
07.2022 ‐ 12.2026
Evaluation of the InvKG and the federal STARK programme
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..
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
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.
01.2018 ‐ 12.2023
EuropeAid (EU Framework Contract)
05.2020 ‐ 09.2023
ENTRANCES: Energy Transitions from Coal and Carbon: Effects on Societies
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.
10.2019 ‐ 01.2023
Climate Resilient Economic Development
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.
07.2016 ‐ 12.2018
Climate Protection and Coal Phaseout: Political Strategies and Measures up to 2030 and beyond
01.2017 ‐ 12.2017
Support to Sustainable Economic Development in Selected Regions of Uzbekistan
01.2017 ‐ 12.2017
Short-term Macroeconomic Forecasting Model in Ministry of Economic Development and Trade of Ukraine
01.2016 ‐ 12.2017
Development of analytical tools based on Input-Output table
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
Support to sustainable economic development in selected regions of Uzbekistan
05.2016 ‐ 05.2016
Framework and Finance for Private Sector Development in Tajikistan
02.2016 ‐ 04.2016
Macroeconomic Reforms and Green Growth - Assessment of economic modelling capacity in Vietnam
Refereed Publications
Fiscal Spending Multiplier Calculations Based on Input-Output Tables? An Application to EU Member States
in: Intervention. European Journal of Economics and Economic Policies, No. 1, 2012
Abstract
Fiscal spending multiplier calculations have attracted considerable attention in the aftermath of the global financial crisis. Much of the current literature is based on VAR estimation methods and DSGE models. In line with the Keynesian literature we argue that many of these models probably underestimate the fiscal spending multiplier in recessions. The income-expenditure model of the fiscal spending multiplier can be seen as a good approximation under these circumstances. In its conventional form this model suffers from an underestimation of the multiplier due to an overestimation of the import intake of domestic absorption. In this article we apply input-output calculus to solve this problem. Multipliers thus derived are comparably high, ranging between 1.4 and 1.8 for many member states of the European Union. GDP drops due to budget consolidation might therefore be substantial in times of crisis.
The Halle Economic Projection Model
in: Economic Modelling, No. 4, 2012
Abstract
In this paper we develop an open economy model explaining the joint determination of output, inflation, interest rates, unemployment and the exchange rate in a multi-country framework. Our model -- the Halle Economic Projection Model (HEPM) -- is closely related to studies published by Carabenciov et al. Our main contribution is that we model the Euro area countries separately. In doing so, we consider Germany, France, and Italy which represent together about 70 percent of Euro area GDP. The model combines core equations of the New-Keynesian standard DSGE model with empirically useful ad-hoc equations. We estimate this model using Bayesian techniques and evaluate the forecasting properties. Additionally, we provide an impulse response analysis and a historical shock decomposition.
The Performance of Short-term Forecasts of the German Economy before and during the 2008/2009 Recession
in: International Journal of Forecasting, No. 2, 2012
Abstract
The paper analyzes the forecasting performance of leading indicators for industrial production in Germany. We focus on single and pooled leading indicator models both before and during the financial crisis. Pairwise and joint significant tests are used to evaluate single indicator models as well as forecast combination methods. In addition, we investigate the stability of forecasting models during the most recent financial crisis.
The Financial Crisis from a Forecaster's Perspective
in: Kredit und Kapital, No. 1, 2012
Abstract
This paper analyses the recession in 2008/2009 in Germany. This recession is very different from previous recessions in particular regarding their causes and magnitude. We show to what extent forecasters and forecasts based on leading indicators fail to detect the timing and the magnitude of the recession. This study shows that large forecast errors for both expert forecasts and forecasts based on leading indicators resulted during this recession which implies that the recession was very difficult to forecast. However, some leading indicators (survey data, risk spreads, stock prices) have indicated an economic downturn and hence, beat univariate time series models. Although the combination of individual forecasts provides an improvement compared to the benchmark model, the combined forecasts are worse than several individual models. A comparison of expert forecasts withthe best forecasts based on leading indicators shows only minor deviations. Overall, the range for an improvement of expert forecasts in the crisis compared to indicator forecasts is small.
An Evolutionary Algorithm for the Estimation of Threshold Vector Error Correction Models
in: International Economics and Economic Policy, No. 4, 2011
Abstract
We develop an evolutionary algorithm to estimate Threshold Vector Error Correction models (TVECM) with more than two cointegrated variables. Since disregarding a threshold in cointegration models renders standard approaches to the estimation of the cointegration vectors inefficient, TVECM necessitate a simultaneous estimation of the cointegration vector(s) and the threshold. As far as two cointegrated variables are considered, this is commonly achieved by a grid search. However, grid search quickly becomes computationally unfeasible if more than two variables are cointegrated. Therefore, the likelihood function has to be maximized using heuristic approaches. Depending on the precise problem structure the evolutionary approach developed in the present paper for this purpose saves 90 to 99 per cent of the computation time of a grid search.
Working Papers
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.
Is East Germany Catching Up? A Time Series Perspective
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.
Workplace Equipment and Workplace Gap by Gender in East and West Germany
in: IWH Discussion Papers, No. 9, 2006
Abstract
In dem vorliegenden Aufsatz werden (a) Umfang und Struktur der vorhandenen Arbeitsplätze nach Geschlechtern in Ost- und Westdeutschland, (b) das geschlechtsspezifische Ausmaß der „Arbeitplatzlücke“ in beiden Großregionen sowie (c) die Ursachen für die – gemessen an Westdeutschland – höhere „Arbeitsplatzlücke“ in Ostdeutschland auf der Grundlage von Daten der Regionalen Volkswirtschaftlichen Gesamtrechnungen und der Bundesgentur für Arbeit untersucht. Die Analyse zeigt, dass im Jahr 2003 die „Arbeitsplatzausstattung“ je 1000 Erwerbsfähigen in Ostdeutschland fast genau so hoch war wie in Westdeutschland. Bei den Frauen lag sie sogar über dem westdeutschen Vergleichswert. Dennoch ist die Diskrepanz zwischen dem Arbeitsangebot und der Nachfrage bei den ostdeutschen Frauen und Männern erheblich größer. Dies ist zum einen auf strukturelle Ursachen und zum anderen auf die höhere Erwerbsneigung der ostdeutschen Frauen zurückzuführen, die insbesonde durch das tradierte Verhaltensmuster nach Erwerbsarbeit sowie die geringeren Haushalteinkommen in Ostdeutschland bedingt ist.