Three Research Clusters
Research Cluster "Economic Dynamics and Stability"
This cluster focuses on empirical analyses of macroeconomic dynamics and stability. The focus is on the development, implementation and application of quantitative macroeconomic forecasting and simulation models. Furthermore, methods to identify important unobserved economic variables, such as potential output and the structural deficit are evaluated, developed and applied. Forecasting and simulation models are important tools for rational economic policy and effective macroeconomic monitoring, especially in relation to macroeconomic stability.
A special focus is put on the interaction of macroeconomic stabilization policies (monetary policy, fiscal policy) and the natural environment. Economic activity is accompanied by the extraction of natural resources (raw materials) from the environment and the emission of waste and pollutants. Both natural resource extraction and emissions have significant impacts on the quality of the natural environment, productivity, and long-term welfare. For example, economic activity contributes to climate change and changes in biodiversity. Because of the multiple externalities associated with the consumption of natural resources and the emission of pollutants, pure market outcomes are not efficient. Environmental policies are designed to counteract these externalities and thereby increase societal welfare. Macroeconomic policies do not affect all agents equally. The research in this cluster aims to take the distributional effects into account. Ultimately, we aim to integrate these refinements into the economic forecasting process.
The central research questions of this cluster are: What are the causes and consequences of macroeconomic fluctuations and instabilities, how can these be empirically identified, and what measures can be taken to ensure macroeconomic stability during long-run adjustment processes? What are the distributional effects of environmental policy, fiscal policy and monetary policy, and how does heterogeneity of agents or regions affect aggregate outcomes? How can we integrate structural change and environmental aspects into macroeconomic models and macroeconomic forecasting?
Macroeconomic Analyses and Forecasts (Dr Axel Lindner, Department of Macroeconomics): Macroeconomic analyses and forecasts are necessary for informed decisions of policy makers and firms. This research group provides such forecasts for public and private clients in cooperation with the research group "Econometric Tools for Macroeconomic Forecasting and Simulation".
Econometric Tools for Macroeconomic Forecasting and Simulation (Dr Katja Heinisch, Department of Macroeconomics): The aim of this group is to enhance research on quantitative macroeconomic models. We focus on forecasting, business cycles and environmental applications. Research in this group contributes to the econometric foundation of IWH macroeconomic analyses and forecasts.
Evaluation of Subsidy Programmes (PD Dr Mirko Titze, Centre for Evidence-based Policy Advice): Key to this is evaluating government subsidy programmes for research and development as well as place-based policies regarding its impact on the performance of firms and regions.
Regulation of International Financial Markets and International Banking (Professor Dr Lena Tonzer, Department of Financial Markets): This research group explores how the regulation of international financial markets impacts integration and functioning of these markets. A particular focus is placed on the international activities of banks and the repercussions of the banking union in Europe.
The Economic Gap between East and West Germany (Professor Ufuk Akcigit, PhD, IWH Research Professor, Department of Structural Change and Productivity): This group aims to use innovative methods to investigate why the economy in eastern Germany is still lagging behind that in western Germany – and what role the privatisation process 30 years ago played in this.
Startup Creation (Professor Merih Sevilir, PhD, Department of Laws, Regulations and Factor Markets): This research group studies the creation of startups with a particular focus on established firms´ role as providers of capital and skilled labour for startup creation and growth.
Research Cluster "Productivity and Institutions"
The productivity and innovativeness of firms are key to economic growth and convergence. Productivity growth has slowed in most industrialized countries during the past several decades and has been significantly lower in Europe than in the U.S. or in some Asian countries. Inhibitions to productivity growth directly translate into lower per capital income. Rigidities in capital and labour markets hinder economies to adjust to structural changes and prevent less developed economies from catching up. Ultimately, aggregate growth processes are rooted at the firm level. Therefore, the thematic focus is on innovative activity, resource allocation and firm dynamics at the microeconomic level as ingredients for long-term growth.
The reallocation of resources from low productive to high productive firms or through entry or exit increases productivity. Beyond efficiency aspects, it is important to better understand the distributional effects of structural change. The adjustment costs that arise due to human capital depreciations or the loss of firm-specific rents in the course of market exit are of prime importance to discuss policies facilitating structural change.
Government institutions establish a framework that may either be favourable to innovation or create rigidities that prevent innovation. While innovation policy programmes or specific public demand on the product market may stimulate innovation and growth, the design and effective-ness of such measures needs thorough evaluation and improvement. The interplay between the financial and real economy plays an important role. Innovation in the financial sector can enable better resource allocation. However, such innovation can also have negative implications on the real economy if it causes increased instability in the financial sector.
The empirical work of this cluster is devoted to understanding the impact of firm dynamics and innovation on the productivity of firms and regions. The research on innovations is largely based on the use of firm, patent and publication data and on linking this. Firm dynamics and labour market adjustments are analysed using linked employer-employee data.
The central research questions in this cluster are: How do different institutional settings and their changes influence resource (re)allocation, in particular of human and real capital? How do values and social norms influence economic outcomes and the choices of individuals? How can we link these individual choices to macroeconomic aggregates? What is the relationship between firm productivity, innovation and new technology? What is the relationship between entrepreneurship, business dynamism, and aggregate growth? What is the relationship between innovation in the financial sector and the real economy? Are specific innovation policies needed and, if so, how can they be designed to be incentive-compatible? How do energy price changes impact on wages, firm performance and factor allocation? What are the determinants and consequences of resource misallocation at the firm level?
Firm Dynamics and Employment Outcomes (Dr André Diegmann, Department of Structural Change and Productivity): This group analyses the foundation, evolution, and failure of firms, and subsequent consequences for individuals and regions. Research is centred on firm behaviour to explain recent phenomena such as the slowdown in business dynamism, wage inequality, and the rise of populist parties in Europe.
Market Power, Input Costs, and Technology (Dr Matthias Mertens, Department of Structural Change and Productivity): This research group studies the drivers of firm-level and aggregate productivity growth and in particular the determinants and consequences of firm market power in product and factor markets. It puts a focus on input cost shocks and, in particular, asks how energy price changes impact on wages, firm performance, factor allocation, and ultimately the carbon footprint of the German economy.
Organisational Behaviour and Corporate Success (Professor Dr Sabrina Jeworrek, Department of Structural Change and Productivity): Relying primarily on controlled (field) experiments, this research group analyses how workplace characteristics (e. g. employee involvement) and managerial decisions (e. g. on displacements) affect employee motiva-tion and productivity.
Globalisation, Technological Progress, and Labour Market Adjustments (Professor Liuchun Deng, PhD, IWH Research Affiliate, Structural Change and Productivity): Globalisation and technological change spur structural change and generate inequality and painful restructuring processes. This research group focusses on how labour markets and production structures adapt to technological change, in particular robotics.
Financial Integration, Economic Growth and Financial Stability (Professor Xiang Li, PhD, Department of Macroeconomics): Financial integration is a strong and growing force shaping the international economic landscape. This research group analyses the role of financial integration for economic growth, income inequality, and financial stability.
Financial Intermediaries and the Real Economy (Professor Dr Daniel Streitz, Department of Financial Markets and Department of Laws, Regulations and Factor Markets): This research group aims at understanding the link between financial intermediation and real activity by exploring several potential channels, focussing both on direct effects on firms using rich microdata as well as on understanding the link between credit markets and economic activity in the aggregate.
Entrepreneurship, Innovation, and Productivity Growth (Professor Javier Miranda, PhD, Department of Structural Change and Productivity): This group tackles research topics that are of relevance for our understanding of patterns of innovation and productivity growth and explores implications for workers and firms. Areas of particular focus include the decline in business dynamism, the growth in automation, entrepreneurship and innovation, and supply chains.
Research Cluster "Financial Resilience and Regulation"
It is well known that financial instability and crises result in large output losses. However, the precise transmission mechanisms are much less clear. Understanding these mechanisms is crucial for devising the appropriate regulatory response. Inappropriate regulation may itself hamper the ability of the financial sector to fulfil its role and may have significant adverse consequences for the real economy. At the same time, historically it has been exceedingly difficult to construct appropriate predictors of financial instability, which in turn makes it difficult to act in a forward-looking manner and attempt to prevent the emergence of financial stability ex ante.
Since the financial crisis of 2008/2009, there have been numerous initiatives to re-regulate the financial system (Basel III, liquidity regulation, separation of commercial and investment banking, management compensation etc.). While well intentioned, these initiatives are faced with severe obstacles. For example, financial systems are internationally interlinked, financial institutions operate globally, the interaction between different regulatory changes is poorly understood and policy makers tend to disagree on the ultimate objective of the re-regulation, because they place themselves on different points on the trade-off between tighter financial regulation and growth.
Methodologically, empirical research on the causal effects of financial instability and of financial regulation on economic outcomes, such as investment, consumption, and pro-ductivity growth is difficult. The challenge is to empirically identify and isolate the effects of regulation and financial instability from other factors and disentangle supply from demand effects. For example, households may reduce consumption because due to uncertainty about future economic developments they demand less finance or they reduce consumption because they are cut off from credit. To distinguish the two is of outmost important when trying to devise the appropriate policy response.
The central research questions in this cluster are: What are the effects of financial crises on the real economy? How does the structure and regulation of the financial system affect the allocation of resources within economies and internationally? How do the international linkages of the financial system affect the ability to regulate the financial sector? What is the role of different governance mechanisms in financial markets and the real economy and how do they affect financial stability and the allocation of resources? What are the implications of the transition to a green economy for economic and financial stability?
Financial System Adaptability and Resilience (Professor Dr Felix Noth, Department of Financial Markets): This research group investigates critical aspects of financial system adaptability and resilience. First, it analyses the impact of natural disasters on financial systems. Second, the group aims to investigate the effects of political preferences for the green transition. Third, the group's research analyses the role of culture in economies.
Volatility, Growth and Financial Crises (Professor Dr Gregor von Schweinitz, Department of Macroeconomics): This research group analyses the build-up of financial vulnerabilities and real consequences of financial crises. We identify the causal reaction of macroeconomic aggregates to different macroeconomic shocks, taking the specific nature of crises into account.
Governance and Finance (Professor Shuo Xia, PhD, Department of Financial Markets): This research group studies traditional and modern views of corporate governance in financial markets. It contributes to understanding the effectiveness of different governance mechanisms' roles in talent selection, incentive, and retention. The group also investigates how various stakeholders impact corporate governance.
Risk Shifting in Financial Markets and Sustainable Finance (Professor Huyen Nguyen, PhD, Department of Financial Markets): Do financial institutions facilitate sustainable finance? This research group studies lenders' risk shifting incentives, their choices in supporting sustainable business, and how sustainable finance and legal innovations affect firms and households.
Banking, Regulation and Incentive Structures (Professor Dr Melina Ludolph, Department of Laws, Regulations and Factor Markets): This research group aims at advancing our understanding of how banking activities, regulations, and bank employees' incentives interact.
Data Science in Financial Economics (Professor Dr Fabian Wöbbeking, Department of Financial Markets): This group focuses on developing and applying novel data science tools in the area of financial economics. One particular focus is on applying data science methods to generate economic indicators from unstructured data, such as textual and imagery data or web scraping.