Resolving the Missing Deflation Puzzle
Martín Harding, Jesper Lindé, Mathias Trabandt
Journal of Monetary Economics,
forthcoming
Abstract
A resolution of the missing deflation puzzle is proposed. Our resolution stresses the importance of nonlinearities in price- and wage-setting when the economy is exposed to large shocks. We show that a nonlinear macroeconomic model with real rigidities resolves the missing deflation puzzle, while a linearized version of the same underlying nonlinear model fails to do so. In addition, our nonlinear model reproduces the skewness of inflation and other macroeconomic variables observed in post-war U.S. data. All told, our results caution against the common practice of using linearized models to study inflation and output dynamics.
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Energy Markets and Global Economic Conditions
Christiane Baumeister, Dimitris Korobilis, Thomas K. Lee
Review of Economics and Statistics,
forthcoming
Abstract
We evaluate alternative indicators of global economic activity and other market funda-mentals in terms of their usefulness for forecasting real oil prices and global petroleum consumption. World industrial production is one of the most useful indicators. However, by combining measures from several different sources we can do even better. Our analysis results in a new index of global economic conditions and measures for assessing future energy demand and oil price pressures. We illustrate their usefulness for quantifying the main factors behind the severe contraction of the global economy and the price risks faced by shale oil producers in early 2020.
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Economic Sentiment: Disentangling Private Information from Public Knowledge
Katja Heinisch, Axel Lindner
IWH Discussion Papers,
No. 15,
2021
Abstract
This paper addresses a general problem with the use of surveys as source of information about the state of an economy: Answers to surveys are highly dependent on information that is publicly available, while only additional information that is not already publicly known has the potential to improve a professional forecast. We propose a simple procedure to disentangle the private information of agents from knowledge that is already publicly known for surveys that ask for general as well as for private prospects. Our results reveal the potential of our proposed technique for the usage of European Commissions‘ consumer surveys for economic forecasting for Germany.
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Monetary Policy through Exchange Rate Pegs: The Removal of the Swiss Franc‐Euro Floor and Stock Price Reactions
Gregor von Schweinitz, Lena Tonzer, Manuel Buchholz
International Review of Finance,
No. 4,
2021
Abstract
The Swiss National Bank abolished the exchange rate floor versus the Euro in January 2015. Using a synthetic matching framework, we analyze the impact of this unexpected (and therefore exogenous) policy change on the stock market. The results reveal a significant level shift (decline) in asset prices following the discontinuation of the minimum exchange rate. As a novel finding in the literature, we document that the exchange‐rate elasticity of Swiss asset prices is around −0.75. Differentiating between sectors of the Swiss economy, we find that the industrial, financial and consumer goods sectors are most strongly affected by the abolition of the minimum exchange rate.
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14.12.2021 • 29/2021
German economy not yet immune to COVID 19 ‒ outlook clouded again
The current pandemic wave and supply bottlenecks cause the German economy to stagnate in winter. When infection rates go down in spring, private consumption will increase significantly. In addition, supply restrictions will be gradually reduced. As a result, the economy will regain momentum. The Halle Institute for Economic Research (IWH) forecasts that German gross domestic product will increase by 3.5% (East Germany: 2.7%) in 2022, after 2.7% (East Germany: 2.1%) in the current year. Inflation is expected to decline only slowly.
Oliver Holtemöller
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Konjunktur aktuell: Deutsche Wirtschaft noch nicht immun gegen COVID 19 – Ausblick erneut eingetrübt
Konjunktur aktuell,
No. 4,
2021
Abstract
Ende 2021 belastet eine neue Infektionswelle die wirtschaftliche Aktivität in Europa. Die Stimmung im Dienstleistungsbereich ist im Herbst weltweit gestiegen, doch das Verarbeitende Gewerbe leidet weiter überall unter Knappheiten. Im Sommerhalbjahr 2022 gewinnt die Weltkonjunktur wieder etwas an Schwung, aber der ungewisse Fortgang der Pandemie bleibt ein Risiko. Pandemiewelle und Lieferengpässe lassen auch die deutsche Wirtschaft im Winter stagnieren. Der private Konsum wird ab Frühjahr deutlich zulegen, und die Konjunktur wird wieder kräftig in Schwung kommen. Das BIP wird 2022 um 3,5% zunehmen, nach 2,7% im Jahr 2021. Die Inflation dürfte nur langsam zurückgehen.
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14.10.2021 • 26/2021
East German economy less affected by supply bottlenecks than German economy as a whole, but lower vaccination rates pose risks – Implications of the Joint Economic Forecast Autumn 2021 and of Länder data from recent publications of the Federal Statisti
Supply bottlenecks affect production in the manufacturing sector in East Germany somewhat less than in Germany as a whole. With 1.8%, the increase in Gross Domestic Product in eastern Germany in 2021 therefore is likely to be lower than in Germany as a whole (2.4%); this gap is likely to enlarge in 2022, when supply bottlenecks hamper less (East Germany: 3.6%, Germany 4.8%).
Oliver Holtemöller
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14.10.2021 • 25/2021
Crisis is gradually being overcome – align actions to lower growth
The Corona pandemic still shapes the economic situation in Germany. A complete normalisation of contact-intensive activities is not to be expected in the short term. In addition, supply bottlenecks are hampering manufacturing for the time being. The German economy will reach normal capacity utilisation in the course of 2022. In their autumn report, the leading economic research institutes forecast that Gross Domestic Product (GDP) will rise by 2.4% in 2021 and by 4.8% in 2022.
Oliver Holtemöller
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Trade Shocks, Labour Markets and Elections in the First Globalisation
Richard Bräuer, Wolf-Fabian Hungerland, Felix Kersting
IWH-CompNet Discussion Papers,
No. 4,
2021
Abstract
This paper studies the economic and political effects of a large trade shock in agriculture – the grain invasion from the Americas – in Prussia during the first globalisation (1871-1913). We show that this shock accelerated the structural change in the Prussian economy through migration of workers to booming cities. In contrast to studies using today’s data, we do not observe declining per capita income and political polarisation in counties affected by foreign competition. Our results suggest that the negative and persistent effects of trade shocks we see today are not a universal feature of globalisation, but depend on labour mobility. For our analysis, we digitise data from Prussian industrial and agricultural censuses on the county level and combine it with national trade data at the product level. We exploit the cross-regional variation in cultivated crops within Prussia and instrument with Italian trade data to isolate exogenous variation.
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14.09.2021 • 23/2021
Production bottlenecks delay recovery
The German recovery made good progress over the summer 2021. However, bottlenecks in sea transport and the production of intermediate goods are weighing on world trade. The rise in raw material prices has prompted inflation rates to spike, and an increase in new infections is clouding the outlook again. A weak final quarter is therefore to be expected. The Halle Institute for Economic Research (IWH) forecasts that German gross domestic product (GDP) will increase by 2.2% in 2021 and 3.6% in 2022 (East Germany: 1.8% and 2.8%).
Oliver Holtemöller
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