27.03.2024 • 10/2024
Joint Economic Forecast 1/2024: Headwinds from Germany and abroad: institutes revise forecast significantly downwards
According to Germany’s five leading economic research institutes, the country’s economy shows cyclical and structural weaknesses. In their spring report, they revised their GDP forecast for the current year significantly downward to 0.1%. In the recent fall report, the figure was still 1.3%. Expectations for the coming year are almost unchanged at 1.4% (previously 1.5%). However, the level of economic activity will then be over 30 billion euros lower due to the current weak phase.
Oliver Holtemöller
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Inflation Concerns and Green Product Consumption: Evidence from a Nationwide Survey and a Framed Field Experiment
Sabrina Jeworrek, Lena Tonzer
IWH Discussion Papers,
No. 10,
2024
Abstract
Promoting green product consumption is one important element in building a sustainable society. Yet green products are usually more costly. In times of high inflation, not only budget constraints but also the fear that prices will continue to rise might dampen green product consumption and, hence, limit the effectiveness of exerted efforts to promote sustainable behaviors. To test this suggestion, we conducted a Germany-wide survey with almost 1,200 respondents, followed by a framed field experiment (N=500) to confirm causality. In the survey, respondents’ stated “green” purchasing behavior is, as to be expected, positively correlated with concerns about climate change. It is also negatively correlated with concerns about future inflation and energy costs, but after controlling for observable characteristics such as income and educational level only the correlation with concerns about future prices remains significant. This result is driven by individuals with below-median environmental attitude. In the framed field experiment, we use the priming method to manipulate the saliency of inflation concerns. Whereas sizably relaxing the budget constraint (i.e., by 50 percent) has no impact on the share of organic products in participants’ baskets, the priming significantly decreases the share of organic products for individuals with below-median environmental attitude, similar to the survey data.
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Macroeconomic Effects from Sovereign Risk vs. Knightian Uncertainty
Ruben Staffa
IWH Discussion Papers,
No. 27,
2023
Abstract
This paper compares macroeconomic effects of Knightian uncertainty and risk using policy shocks for the case of Italy. Drawing on the ambiguity literature, I use changes in the bid-ask spread and mid-price of government bonds as distinct measures for uncertainty and risk. The identification exploits the quasi-pessimistic behavior under ambiguity-aversion and the dealer market structure of government bond markets, where dealers must quote both sides of the market. If uncertainty increases, ambiguity-averse dealers will quasi-pessimistically quote higher ask and lower bid prices – increasing the bid-ask spread. In contrast, a pure change in risk shifts the risk-compensating discount factor which is well approximated by the change in bond mid-prices. I evaluate economic effects of the two measures within an instrumental variable local projection framework. The main findings are threefold. First, the resulting shock time series for uncertainty and risk are uncorrelated with each other at the intraday level, however, upon aggregation to monthly level the measures become correlated. Second, uncertainty is an important driver of economic aggregates. Third, macroeconomic effects of risk and uncertainty are similar, except for the response of prices. While sovereign risk raises inflation, uncertainty suppresses price growth – a result which is in line with increased price rigidity under ambiguity.
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The Importance of Credit Demand for Business Cycle Dynamics
Gregor von Schweinitz
IWH Discussion Papers,
No. 21,
2023
Abstract
This paper contributes to a better understanding of the important role that credit demand plays for credit markets and aggregate macroeconomic developments as both a source and transmitter of economic shocks. I am the first to identify a structural credit demand equation together with credit supply, aggregate supply, demand and monetary policy in a Bayesian structural VAR. The model combines informative priors on structural coefficients and multiple external instruments to achieve identification. In order to improve identification of the credit demand shocks, I construct a new granular instrument from regional mortgage origination.
I find that credit demand is quite elastic with respect to contemporaneous macroeconomic conditions, while credit supply is relatively inelastic. I show that credit supply and demand shocks matter for aggregate fluctuations, albeit at different times: credit demand shocks mostly drove the boom prior to the financial crisis, while credit supply shocks were responsible during and after the crisis itself. In an out-of-sample exercise, I find that the Covid pandemic induced a large expansion of credit demand in 2020Q2, which pushed the US economy towards a sustained recovery and helped to avoid a stagflationary scenario in 2022.
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14.12.2023 • 30/2023
Exports and private consumption weak ‒ Germany is waiting for an economic upturn
In the winter of 2023/2024, the German economy is still in a downturn. Parts of industry have lost competitiveness, real incomes have fallen in 2023 due to inflation, and there is uncertainty about the course of fiscal policy. However, rising real incomes and a slight increase in exports should cause a pickup from spring onwards. The Halle Institute for Economic Research (IWH) expects gross domestic product (GDP) to fall by 0.3% in 2023 and to expand by 0.5% in 2024 (East Germany: +0.5% and +0.7%). In September, the IWH forecast had assumed a decline of 0.5% for Germany in 2023 and expected growth of 0.9% for the coming year.
Oliver Holtemöller
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28.09.2023 • 24/2023
Joint Economic Forecast 2/2023: Purchasing power returns ‒ political uncertainty high
According to the Joint Economic Forecast, Germany's gross domestic product declines by 0.6% in 2023. This is a strong downward revision of 0.9 percentage points from the forecast made in spring 2023. "The most important reason for this revision is that industry and private consumption are recovering more slowly than we expected in spring," says Oliver Holtemöller, Vice President and Head of the Macroeconomics Department at the Halle Institute for Economic Research (IWH).
Oliver Holtemöller
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07.09.2023 • 23/2023
The German economy continues its downturn
High inflation, increased interest rates, weak foreign demand and uncertainty among private households and firms are currently weighing on the German economy. In its autumn forecast, the Halle Institute for Economic Research (IWH) expects gross domestic product (GDP) to decline by 0.5% in 2023 and to increase by 0.9% in 2024.
Oliver Holtemöller
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Import Competition and Firm Productivity: Evidence from German Manufacturing
Richard Bräuer, Matthias Mertens, Viktor Slavtchev
World Economy,
No. 8,
2023
Abstract
Abstract We study how different types of import competition affect firm productivity using firm-product data from German manufacturing (2000-2014). Competition from high-income countries causes affected domestic firms to increase their productivity and lower their prices. Oppositely, import competition from low-wage countries does not lead to firm productivity gains. Instead, domestic firms' sales and input usage decline. Our findings confirm the intuition of ladder models that the effect of competition depends on the "closeness" of competitors. They are in line with widespread X-inefficiencies throughout the economy, which firms reduce in response to competition from high-income countries.
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22.06.2023 • 16/2023
Revival in service sectors, but industrial activity remains weak for the time being
After the recession during winter, the German economy will expand at a moderate pace in the coming quarters and despite higher interest rates, as private consumption will pick up again with slowly declining inflation and increased wage momentum. In its summer forecast, the Halle Institute for Economic Research (IWH) expects gross domestic product to decline by 0.3% in 2023, while growth of 1.7% is forecast for the coming year.
Oliver Holtemöller
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05.04.2023 • 9/2023
East German economy has come through energy crisis well so far – Implications of the Joint Economic Forecast Spring 2023 and new data for the East German economy
In 2022, the East German economy expanded by 3.0%, significantly stronger than the economy in West Germany (1.5%). The background is a more robust development of labour and retirement incomes. For 2023, the Halle Institute for Economic Research (IWH) forecasts a higher GDP growth rate of 1% in East Germany than in Germany as a whole (0.3%). The unemployment rate is expected to stagnate, with 6.8% in 2023 and 6.7% in the following year.
Oliver Holtemöller
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