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 Stability

Your contact

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

EXTERNAL FUNDING

10.2019 ‐ 06.2022

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 ‐ 04.2023

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?

IWH project page

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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Power Generation and Structural Change: Quantifying Economic Effects of the Coal Phase-out in Germany

Katja Heinisch Oliver Holtemöller Christoph Schult

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.

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(Since when) are East and West German Business Cycles Synchronised?

Stefan Gießler Katja Heinisch Oliver Holtemöller

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.

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Involuntary Unemployment and the Business Cycle

Lawrence J. Christiano Mathias Trabandt Karl Walentin

in: Review of Economic Dynamics, January 2021

Abstract

Can a model with limited labor market insurance explain standard macro and labor market data jointly? We construct a monetary model in which: i) the unemployed are worse off than the employed, i.e. unemployment is involuntary and ii) the labor force participation rate varies with the business cycle. To illustrate key features of our model, we start with the simplest possible framework. We then integrate the model into a medium-sized DSGE model and show that the resulting model does as well as existing models at accounting for the response of standard macroeconomic variables to monetary policy shocks and two technology shocks. In addition, the model does well at accounting for the response of the labor force and unemployment rate to these three shocks.

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The Effects of Fiscal Policy in an Estimated DSGE Model – The Case of the German Stimulus Packages During the Great Recession

Andrej Drygalla Oliver Holtemöller Konstantin Kiesel

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.

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Employment Effects of Introducing a Minimum Wage: The Case of Germany

Oliver Holtemöller Felix Pohle

in: Economic Modelling, July 2020

Abstract

Income inequality has been a major concern of economic policy makers for several years. Can minimum wages help to mitigate inequality? In 2015, the German government introduced a nationwide statutory minimum wage to reduce income inequality by improving the labour income of low-wage employees. However, the employment effects of wage increases depend on time and region specific conditions and, hence, they cannot be known in advance. Because negative employment effects may offset the income gains for low-wage employees, it is important to evaluate minimum-wage policies empirically. We estimate the employment effects of the German minimum-wage introduction using panel regressions on the state-industry-level. We find a robust negative effect of the minimum wage on marginal and a robust positive effect on regular employment. In terms of the number of jobs, our results imply a negative overall effect. Hence, low-wage employees who are still employed are better off at the expense of those who have lost their jobs due to the minimum wage.

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Working Papers

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Disentangling Covid-19, Economic Mobility, and Containment Policy Shocks

Annika Camehl Malte Rieth

in: IWH Discussion Papers, No. 2, 2021

Abstract

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.

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Epidemics in the Neoclassical and New Keynesian Models

Martin S. Eichenbaum Sergio Rebelo Mathias Trabandt

in: NBER Working Paper, No. 27430, 2020

Abstract

We analyze the effects of an epidemic in three standard macroeconomic models. We find that the neoclassical model does not rationalize the positive comovement of consumption and investment observed in recessions associated with an epidemic. Introducing monopolistic competition into the neoclassical model remedies this shortcoming even when prices are completely flexible. Finally, sticky prices lead to a larger recession but do not fundamentally alter the predictions of the monopolistic competition model.

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Integrated Assessment of Epidemic and Economic Dynamics

Oliver Holtemöller

in: IWH Discussion Papers, No. 4, 2020

Abstract

In this paper, a simple integrated model for the joint assessment of epidemic and economic dynamics is developed. The model can be used to discuss mitigation policies like shutdown and testing. Since epidemics cause output losses due to a reduced labor force, temporarily reducing economic activity in order to prevent future losses can be welfare enhancing. Mitigation policies help to keep the number of people requiring intensive medical care below the capacity of the health system. The optimal policy is a mixture of temporary partial shutdown and intensive testing and isolation of infectious persons for an extended period of time.

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How Forecast Accuracy Depends on Conditioning Assumptions

Carola Engelke Katja Heinisch Christoph Schult

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.

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(Since When) Are East and West German Business Cycles Synchronised?

Stefan Gießler Katja Heinisch Oliver Holtemöller

in: IWH Discussion Papers, No. 7, 2019

Abstract

This paper analyses 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 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, recently synchronisation among East and West German business cycles seems to become weaker, in line with international evidence.

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