Organisation of Research
Tasks of the IWH Guided by its mission statement , the IWH places the understanding of the determinants of long term growth processes at the centre of the research agenda. Long…
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IWH founds a European centre for microdata research The Halle Institute is once again growing significantly. Its new "Centre for Business and Productivity Dynamics" aims to…
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Gender Equality & Anti-Discrimination
Equal Opportunities at IWH IWH commits to actively promoting equal opportunities for men and women, going beyond already existing guidelines. In 2013, 2016, 2019, and again in…
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Centre for Business and Productivity Dynamics (IWH-CBPD)
Centre for Business and Productivity Dynamics (IWH-CBPD) The Centre for Business and Productivity Dynamics (CBPD) was founded in January 2025 and works with policy and research…
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Transformation tables for administrative borders in Germany
Transformation tables for administrative borders in Germany The state has the ability to change the original spatial structure of its administrative regions. The stated goal of…
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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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Data
Transformation tables for administrative borders in Germany – data In order to demonstrate what kind of information the available tables contain and how they are structured, the…
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OPAC
OPAC In the IWH-OPAC you can find our entire stock of literature listed and made accessible. Due to the membership of the IWH library in the Common Library Network, you have…
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Internationalisation
Internationalisation The Leibniz Institute for Economic Research Halle (IWH) is responsible for economic research and economic policy advice on a scientific basis. The institute…
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Study Programme
Study Programme The course programme is a structured curriculum that provides doctoral students with an outstanding training. The programme comprises mandatory First-Year Courses…
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